On February 13, 2015, the plaintiffs in New Jersey Carpenters Health Fund, et al., v. Residential Capital, LLC, et al., No. 08-cv-8781 (S.D.N.Y.) filed an unopposed motion for certification of the class and to approve a preliminary settlement. The complaint, originally filed in 2008, included claims for materially false and misleading statements in securities offering documents under the Securities Act of 1933 against Citigroup, Goldman Sachs, and UBS as underwriters for 16 mortgage-backed securities transactions in 2006 and 2007. The class consists of investors who purchased the certificates, with the majority of the settlement funds set aside for investors who purchased their certificates within ten days after the relevant initial offering. The proposed $235 million settlement does not include a $100 million settlement with Residential Capital, LLC that had previously been reached in the case. Motion.
Residential Capital
ResCap Seeks Automatic Bankruptcy Stay of 27 MBS Suits
On May 25, 2012, Residential Capital LLC (“ResCap”) filed a complaint in United States Bankruptcy Court for the Southern District of New York seeking declaratory and injunctive relief to extend the automatic stay over 27 MBS lawsuits against it, its affiliates, and its executives while it undergoes bankruptcy restructuring. ResCap alleges that all of the lawsuits against its non-debtor affiliates are inextricably connected to the debtor affiliates, and that such lawsuits will drain the debtors’ estates by forcing those entities to undergo extensive discovery and face significant indemnification claims by their directors and officers. ResCap also alleges that by allowing the lawsuits to proceed, ResCap will face significant risk of collateral estoppels and evidentiary prejudice. Complaint.
S.D.N.Y. Judge Preserves Plaintiffs’ Section 11 Claims Against Residential Capital
On April 28, 2011, Judge Harold Baer, District Judge in the Southern District of New York, granted in part and denied in part the defendants’ motion to dismiss in New Jersey Carpenters Health Fund, et al. v. Residential Capital, LLC et al. Plaintiffs are institutional investors who purchased mortgage-backed securities from Residential Capital LLC and its underwriters in 2006 and 2007. The complaint alleges that defendants violated Sections 11, 12(a)(2), and 15 of the ’33 Act by making misstatements about the value of the securities in the offering documents. The Court denied defendants’ motion to dismiss the section 11 claims, finding that the loss in value when the securities dropped from investment grade to junk status was a cognizable loss, even if the purchaser continues to hold the securities. The Court, however, granted defendants’ motion to dismiss the section 12(a)(2) claims because it found that, while the plaintiffs alleged the securities purchased and the date of purchase, they failed to allege that they directly purchased the securities from the defendants. The Court also granted defendants’ motion to dismiss the section 15 claims against the underwriters, holding that the complaint’s allegations that the underwriter defendants were “controlling persons” were conclusory. The Court further found that the claims were timely, and that the defendants had not shown that a reasonably diligent purchaser would have discovered the high delinquency rates when purchasing the securities. Decision.