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Defendants can face liability for distributing statements they allegedly knew to be false, even if the statements were originally made by third parties, such as originators or rating agencies.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.
Allstate
Allstate RMBS Lawsuit to Stay in Federal Court
On March 27, 2012, Judge Deborah A. Batts of the Southern District of New York denied Allstate Insurance Co.’s motion to remand its lawsuit against JPMorgan Chase Bank NA to state court. The lawsuit arises out of alleged misrepresentations and omissions by JPMorgan regarding the riskiness and credit quality of over $700 million in RMBS sold to Allstate. Judge Batts found federal subject matter jurisdiction based on the FDIC’s presence as a third-party defendant. Order.
Allstate Suit Against Citigroup Remanded to State Court
On March 13, 2012, Judge Richard J. Sullivan of the Southern District of New York remanded a $200 million RMBS suit against Citigroup to state court. Citigroup asserted federal jurisdiction under the Edge Act, and under the doctrine of “related to” bankruptcy. Judge Sullivan rejected both arguments. With respect to the Edge Act, Judge Sullivan concluded that no jurisdiction existed because the one federally-chartered entity defendant was not a party to the one securitization that contained mortgage loans secured by overseas properties. With respect to the issue of related to bankruptcy jurisdiction, the Court found that defendants could not establish any impact that the outcome of this case could have on the bankruptcy proceedings concerning American Home Mortgage Holdings, Inc. (“AHM”), which had originated some of the loans backing the RMBS, particularly because AHM’s reorganization plan already had been approved and defendants failed to establish that their claim in the AHM bankruptcy is not already fully liquidated. Order.
Allstate RMBS Suit Against Credit Suisse Remanded to New York State Court
Judge Buchwald of the U.S. District Court for the Southern District of New York issued an order on October 19, 2011, remanding a suit brought by Allstate against Credit Suisse and related entities arising out of alleged misrepresentations made in connection with over $200 million of RMBS allegedly purchased by Allstate. Defendants had removed the action on “related to bankruptcy” grounds on the basis that three of the originators of loans underlying Allstate’s certificates, against whom Defendants had potential claims for indemnification, had declared bankruptcy. The court found that because Defendants had not asserted any of the indemnification claims against the bankrupt originators, and because the time to do so in the relevant bankruptcy proceedings had passed, that Defendants had not shown a sufficient relation to those bankruptcy proceedings to justify the exercise of federal jurisdiction. The court further found that even if Defendants had shown that related to bankruptcy grounds existed, the court still would be required to remand the action on mandatory abstention grounds. Decision.
Court Grants, in Large Part, Motions to Dismiss in Allstate’s Lawsuit Against Countrywide
On October 21, 2011, Judge Pfaelzer of the U.S. District Court for the Central District of California issued an order largely granting motions by Countrywide, various of its officers and directors, and Bank of America to dismiss various federal securities and state law claims asserted by Allstate arising out of Allstate’s investments in 25 Countrywide RMBS. Judge Pfaelzer found the federal claims time-barred, holding that Allstate brought its action more than three years after it was put on notice of its claims, and that the three-year period was not tolled by an earlier-filed action in which the plaintiff had standing to sue only as to different Countrywide RMBS. Certain of the state law claims, involving certificates purchased prior to December 27, 2005, also were held to be time-barred. As to later-purchased certificates, the court found that Allstate adequately alleged claims under New York and Illinois law for common law fraud arising out of alleged misrepresentations in the offering documents of those certificates concerning Countrywide’s origination and underwriting practices and the characteristics of the loans in the collateral pools. The court dismissed, without prejudice, additional claims for aiding and abetting fraud and for negligent misrepresentation, finding as to the former that Allstate had not alleged scienter on the part of the alleged aiders and abettors, and as to the latter that Allstate had not alleged sufficient privity between it and the Defendants. The court also dismissed, without prejudice, Allstate’s claim for successor liability against Bank of America. Decision.
Allstate Sues Goldman Sachs in New York State Court
On August 15, 2011, Allstate Insurance Co. filed suit against Goldman Sachs in the Supreme Court of New York, alleging that Goldman committed common law fraud, fraudulent inducement, and negligent misrepresentation in connection with the sale of $123 million in RMBS purchased by Allstate and underwritten by Goldman over the course of five securitizations. Allstate’s complaint relies on the results of several government investigations into the financial crisis, including the U.S. Senate Permanent Subcommittee on Investigation’s April 2011 report entitled “Wall Street and the Financial Crisis” and the Financial Crisis Inquiry Commission’s January 2011 report. Complaint.
Allstate Sues Morgan Stanley in New York State Court for Concealing and Misrepresenting Loan Quality in RMBS Pools
On July 5, 2011, Allstate Insurance Co. filed suit against Morgan Stanley in the Supreme Court of New York, alleging that Morgan Stanley committed common law fraud and negligent misrepresentation in connection with the sale of $104 million in RMBS purchased by Allstate. Complaint.
New York Federal Court Transfers Countrywide RMBS Case to California to Prevent “Judge-Shopping”
On June 14, 2011, District Judge Alvin Hellerstein of the S.D.N.Y. granted defendant Countrywide’s motion to transfer this case to the U.S. District Court for the Central District of California. Allstate’s complaint alleges that Countrywide, several associated entities, and certain high-ranking employees committed fraud in connection with statements regarding underwriting standards in the sale of over $700 million in RMBS. Judge Hellerstein noted that this case is closely related to another case in the Central District of California involving the same parties and the same issues, and that Allstate filed its New York case only after the California judge narrowed the case to exclude some of the securities upon which Allstate bases its claims. Judge Hellerstein further found that the New York suit “gives the appearance of judge-shopping” and granted the motion to “promote the efficient use of judicial resources” and “prevent the possibility of inconsistent results.” Decision.
Allstate Sues JP Morgan, Washington Mutual, Bear Stearns, Citigroup, and Deutsche Bank for Fraud
On February 18, 2011, Allstate Insurance filed complaints against Citigroup- and Deutsche Bank-affiliated entities in New York state court. Two days earlier, Allstate filed a similar complaint in the same court against a number of JP Morgan, Washington Mutual, and Bear Stearns entities. The three complaints each allege that defendants fraudulently misrepresented the quality of the loans underlying the RMBS they underwrote and sold to plaintiff. Allstate brings causes of action for negligent misrepresentation and common law fraud in all three actions and for violations of Sections 11 and 12(a)(2) of the ’33 Act against JP Morgan and Citigroup but not Deutsche Bank. Allstate purchased over $200 million in RMBS from Citigroup, over $185 million from Deutsche Bank, and over $750 million from JP Morgan. Complaint Against Citigroup. Complaint Against Deutsche Bank.
Allstate Sues JP Morgan, WaMu and Bear Stearns Over Sale of RMBS
On February 16, 2011, several Allstate Insurance entities filed a complaint against a number of JP Morgan, Washington Mutual and Bear Stearns entities and certain Washington Mutual directors and officers in the Southern District of New York. Plaintiffs allege that defendants misrepresented the quality of the loans underlying over $757 million in RMBS they sold to Allstate. Allstate is represented by the Quinn Emanuel firm. Complaint.