On March 15, Judge Eileen Bransten of the Supreme Court of the State of New York granted in part and denied in part motions to dismiss brought by Merrill Lynch, Deutsche Bank and Morgan Stanley entities (together Defendants) in respective lawsuits brought against them by certain Allstate entities related to Allstate’s purchases of RMBS. The court dismissed Allstate’s negligent misrepresentation claim against all Defendants, concluding that Allstate had not alleged either that Defendants had the required specialized knowledge or that Defendants had a special or privity-like relationship with Allstate. The court also dismissed all claims as to two of the Deutsche Bank certificates and federal securities claims against Merrill Lynch as untimely, but rejected Defendants’ arguments that other claims were untimely. The court denied Defendants’ motions to dismiss as to Allstate’s fraud claims. The court also concluded that Defendants can face liability for distributing statements they allegedly knew to be false, even if the statements were originally made by third parties, such as originators or rating agencies. Deutsche Bank Order; Merrill Order; Morgan Stanley Order.
On November 21, Deutsche Zentral-Genossenschaftsbank AG (DZ Bank) filed a summons with notice in Supreme Court for the State of New York against Morgan Stanley in connection with the German bank’s alleged purchase of $694 million in RMBS. DZ Bank alleges that the offering materials for the RMBS contained material misrepresentations and omissions regarding the characteristics of the mortgage loans underlying the securities and the underwriting standards used to issue the mortgage loans. DZ Bank raises common-law fraud, aiding and abetting fraud, negligent misrepresentation, breach of contract, and declaratory judgment claims. It seeks over $694 million in damages or rescission. Summons with Notice.
On November 16, German lender IKB Deutsche Industriebank AG sued Morgan Stanley and related entities in the Supreme Court for the State of New York for $147 million in connection with the sale of RMBS. IKB alleges Morgan Stanley issued offering documents that contained material misrepresentations and omissions regarding the underwriting standards and credit characteristics of the loans underlying the securities, the legal validity of the trusts and the transfer of loans to the trust, and the credit ratings of the securities. IKB brings causes of action against Morgan Stanley for common-law fraud, fraudulent inducement, fraudulent concealment, negligent misrepresentations, aiding and abetting fraud, declaratory judgment, and contract claims, including rescission, restitution and mutual mistake. Summons with Notice.
On August 29, 2012, Bank Hapoalim B.M. filed a summons with notice for a case against Morgan Stanley and related entities in the Supreme Court of New York for allegedly making knowing misrepresentations and omissions in offering materials concerning the loans pooled into $140 million worth of RMBS issued between September 2006 and June 2007 in eight RMBS securitizations. The causes of action are for fraud, fraudulent inducement, aiding and abetting fraud, negligent misrepresentation, declaratory judgment, breach of contract, rescissory damages, and violations of the Securities Act of 1933. Summons with Notice.
On August 29, Bank Hapoalim B.M. filed a summons with notice in New York state court against four Morgan Stanley entities. Bank Hapoalim alleges that offering materials accompanying the sale of eight RMBS purchased for a total of $140,507,000 between September 2006 and July 2007 contained fraudulent misrepresentations that induced the purchases. Bank Hapoalim brings claims for violation of the Securities Act, common law fraud, aiding and abetting fraud, negligent misrepresentation, and breach of contract. In particular, Bank Hapoalim alleges that the defendants made material misrepresentations and omissions concerning the underlying guidelines used to originate the loans, the statistical characteristics of the loans, including loan-to-value ratios, combined loan-to-value ratios, and owner-occupancy status, the legal validity of the trusts and their entitlement to receive payments on the loans, and the credit ratings assigned to the RMBS. Summons.
Several HSH Nordbank AG affiliates filed two summonses with notice in New York state court on August 24, seeking damages, rescission and/or a declaratory judgment arising out of their purchase of roughly $524 million and $110 million in RMBS certificates from Morgan Stanley and Goldman Sachs, respectively. Other than the details relating to the particular defendants, the two summonses with notice are identical. In particular, in both cases HSH Nordbank alleges that offering materials provided by the Defendants contained material misrepresentations concerning the underwriting standards for the loans underlying the RMBS, the legal validity of the trusts and their entitlement to receive payments on the loans, the loans’ loan-to-value ratios, the percentage of owner-occupied properties, and the credit ratings assigned to the RMBS. Goldman Sachs Summons. Morgan Stanley Summons.
On July 16, Judge Laura Swain of U.S. District Court for the Southern District of New York denied Morgan Stanley’s motion to dismiss a class action suit that alleges misrepresentations and omissions in the offering documents for numerous mortgage-backed securities. In its motion, Morgan Stanley argued that the claims were time-barred under the one-year statute of limitations for violations of Section 11 and Section 12(a)(2) of the 1933 Securities Act because, among other reasons, numerous news reports had been published more than one year before the complaint was filed that put Plaintiffs on inquiry notice of their claims. Judge Swain held that the statute of limitations begins running only when a plaintiff could have pled claims with sufficient particularity to state a facially plausible claim. In this context, she held that the earliest that could have occurred was when the securities at issue were downgraded to below investment-grade. She further held that while the news reports cited by Morgan Stanley painted a vivid picture of a distressed MBS industry, none of the reports referred to the entities involved in the origination or securitization of the loans backing Plaintiffs’ investments and therefore they did not provide Plaintiffs with sufficient information to state a facially plausible claim. Order.
On May 2, 2012, mutual fund Asset Management Fund and related affiliates filed a summons with notice to commence an action against Morgan Stanley in the Supreme Court of the State of New York seeking $122 million in compensatory and $122 million in punitive damages arising from alleged fraudulent misstatements and omissions made in connection with RMBS. The fund makes claims for fraud, negligent misrepresentation, aiding and abetting fraud, declaratory judgment, breach of contract, and rescission. Summons.
On April 25, 2012, Metropolitan Life Insurance Co. (“MetLife”) filed suit in New York State Court against Morgan Stanley. MetLife alleges that Morgan Stanley misrepresented the quality of the mortgage loans underlying RMBS certificates that MetLife bought in nine offerings. Specifically MetLife alleges that Morgan Stanley misrepresented that the loans were originated according to underwriting standards described in the offering documents and that the appraisals of the properties underlying the loans had been overstated. MetLife further alleges that Morgan Stanley knew of these misstatements as a result of due diligence it conducted in connection with the offerings. MetLife asserts claims for fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation. Complaint.
On April 3, the Fed announced a Consent Order against Morgan Stanley regarding an alleged pattern of misconduct and negligence in residential mortgage loan servicing and foreclosure processing at its subsidiary, Saxon Mortgage Services, Inc. The Consent Order requires Morgan Stanley to retain an independent consultant to review foreclosure proceedings by Saxon in 2009 and 2010. If Morgan Stanley re-enters the mortgage servicing business while the Consent Order is in effect, it will be required to implement servicing and foreclosure practices comparable to what the mortgage servicers subject to the 2011 enforcement actions were required to implement. Fed Release.