On February 7, 2012, Judge Jed Rakoff of the Southern District of New York dismissed claims against Deutsche Bank that had been brought by Dexia SA and Teachers Insurance & Annuity Association arising out of the purchase of $1.3 billion in RMBS. Judge Rakoff issued a preliminary order finding that plaintiffs’ complaint did not meet the pleading requirement that claims of fraud must be pled with particularity. In its order, the Court distinguished between claims in connection with loans sponsored Deutsche Bank, which were dismissed without prejudice, and claims in connection with loans not sponsored by Deutsche Bank, which the Court dismissed with prejudice. Judge Rakoff stated that a more formal written opinion will be forthcoming. Order.
Litigation
Class of Goldman Sachs RMBS Purchasers Certified
On February 3, 2012, Judge Baer of the Southern District of New York certified a class of over 150 RMBS investors in a lawsuit against Goldman Sachs, and designated the Public Employees’ Retirement System of Mississippi class representative. The class action complaint alleges material misstatements and omissions in the offering documents for a single March 2006 offering of $698 million of RMBS certificates. In opposing class certification, Goldman Sachs argued that the claims were too individualized to be susceptible to class treatment – the securities at issue were sold through individually negotiated deals and the plaintiffs had differing information about the underlying loans. Judge Baer rejected this argument, holding that common issues predominated for reasons including that the common claims depend on the same allegedly misleading offering documents, and that all other requirements for class certification were also met. Complaint.
Bank of America Wins Dismissal of Allstate Lawsuit
On February 3, 2012, Judge Mariana Pfaelzer of the Central District of California dismissed Bank of America from litigation brought by Allstate Insurance Company and its affiliates arising out of Allstate’s purchases of RMBS issued by Countrywide Financial Corporation. Allstate argued that Bank of America could face liability arising out of its acquisition of Countrywide because that acquisition amounted to an actual or constructive fraudulent transfer. Alternatively, Allstate asserted that Bank of America was liable under successor and vicarious liability theories. Judge Pfaelzer determined that Allstate failed to plead that Bank of America’s acquisition lacked reasonably equivalent consideration or was made with fraudulent intent. Judge Pfaelzer also found that Bank of America had not agreed to assume Countrywide’s liabilities, and that the acquisition of Countrywide was not a de facto merger such that Bank of America could face successor liability. Order.
Assured Guaranty Files Suit Against UBS AG for RMBS Insurance Losses
On February 2, 2012, Assured Guaranty Municipal Corp. filed a complaint in New York state court against UBS AG related to RMBS issued in 2006 and 2007. Assured claims that it would not have insured 2,400 allegedly defective loans had their quality been adequately described. The complaint alleges breach of contract claims for which Assured seeks an unspecified amount of damages. Complaint.
Sealink Brings RMBS Suit Against RBS
On February 2, 2012, Sealink Funding Ltd. filed a summons with notice against The Royal Bank of Scotland Group (“RBS”). Sealink’s allegations arise from the alleged sale by RBS of $90 million in RMBS to certain Sealink. Sealink alleges that the offering materials issued in connection with the RMBS contained material misrepresentations and omissions regarding the underwriting standards used to issue the underlying mortgage loans, the validity of the assignments of the mortgage loans into certain trusts, the legal validity of the trusts themselves, and statistical characteristics of the mortgage loans underlying the RMBS, including the loan-to-value ratios and combined loan-to-value ratios, as well as the percentage of owner-occupied properties. Summons.
Asset Management Fund Sues Banks For $500 Million
On February 1, 2012, Asset Management Fund filed a summons with notice against JPMorgan Chase, EMC Mortgage, Bear Stearns, Washington Mutual, Credit Suisse, Bank of America Securities, and related entities, in New York state court seeking $515.5 million in damages. AMF alleges that the RMBS offering materials issued by the banks contained material misrepresentations and omissions regarding the underwriting standards used to issue the loans and key statistical characteristics of the mortgage loans underlying the securities. The notice includes claims for common-law fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, declaratory judgment, breach of contract, rescission, and restitution. Summons.
DZ Bank AG Sues HSBC Over $122 Million In RMBS
On January 31, 2012, German bank DZ Bank AG filed a complaint in New York state court against HSBC North America Holdings, Inc. and others relating to the purchase of $122 million in RMBS certificates. DZ Bank alleges that HSBC misrepresented and omitted critical information in its offering documents regarding underwriting standards, the characteristics of the loans underlying the securities, and the securities’ credit ratings. The complaint brings claims for common-law fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, breach of contract, and rescission. Complaint.
BayernLB Sues Morgan Stanley Over RMBS
On January 25, 2012, Bayerische Landesbank filed a complaint in New York state court against several Morgan Stanley entities seeking to recover for losses allegedly incurred in connection with certificates in 22 RMBS offerings that BayernLB allegedly purchased in 2006 and 2007 for approximately $486 million. BayernLB alleges that Morgan Stanley made misrepresentations in the offering documents for those RMBS concerning the underwriting standards of the originators of the mortgage loans underlying the certificates, the appraisals of the mortgaged properties, and other facts regarding the quality of the mortgage loans. BayernLB asserts claims for common law fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation, and seeks rescission and damages. Complaint.
Loreley Financing Sues Citigroup Over CDO Investments
On January 24, 2012, several Loreley Financing Ltd. entities filed a complaint in New York state court against several Citigroup affiliates over nearly $1 billion in CDO investments backed by subprime mortgages, purchased in 2006 and 2007. Loreley alleges that Citigroup knowingly misrepresented the quality of the mortgage loans in order to transfer risk from its balance sheet. Loreley further accuses Citigroup of concealing the role of Magnetar in designing certain CDOs. Loreley asserts claims for common law fraud, rescission of contract, fraudulent conveyance, and unjust enrichment, and seeks rescission, disgorgement, injunctive relief, and damages. Complaint.
Sealink Funding Sues Morgan Stanley for RMBS Losses
On January 20, 2012, Sealink Funding Ltd. filed a complaint in New York state court against several Morgan Stanley entities in connection with certificates in 11 RMBS offerings allegedly purchased by Sealink during 2006 and 2007 for approximately $556 million. Sealink alleges that Morgan Stanley made misrepresentations about its due diligence regarding the mortgage loans underlying the certificates and the underwriting guidelines used by the originators of those loans. Sealink asserts claims for common law fraud, fraudulent inducement, and negligent misrepresentation, and seeks rescission and damages. Complaint.