Court Denies Morgan Stanley’s Motion to Dismiss RMBS Class Action

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.