On September 29, 2011 two German banks, Landesbank Sachsen AG and Landesbank Baden-Wurttemberg, and the banks’ Irish asset manager, Sealink, filed three suits in New York state court. Plaintiffs name Bank of America Corp., JP Morgan, Countrywide Financial Corp., Bear Stearns, Washington Mutual, and certain Countrywide executives in claims for fraudulent and negligent misrepresentation, aiding and abetting, and vicarious and successor liability. Plaintiffs allege that the defendants concealed the risks of the underlying mortgages through alleged misstatements as to originator underwriting practices and allegedly overstated appraisals. Plaintiffs seek compensatory, rescissory, and punitive damages. Index No. 652680/2011. Index No. 652681/2011. Index No. 652679/2011.
Bear Stearns
Syncora Guarantee Inc. Sues J.P. Morgan Securities LLC as Successor to Bear Stearns & Co.
On June 6, 2011, Syncora Guarantee Inc. filed a complaint in New York state court against J.P. Morgan Securities LLC as successor to Bear Stearns & Co. Syncora’s complaint alleges that Bear, as underwriter of the GreenPoint Mortgage Funding Trust 2007-HE1, made false and misleading statements about the loan pool that fraudulently induced Syncora to issue a financial insurance gauranty policy for the trust. Further, Syncora alleges that J.P. Morgan has since interfered with the originator’s contractual obligation to repurchase loans that breached the originators representations and warranties. Syncora alleges it has paid more than $320.2 million in unreimbursed insurance claims owing to $404 million in losses for the GreenPoint Trust. Notably, Syncora alleges that it uncovered the evidence it cites to support its claim through ongoing federal litigation against the originator, EMC Mortgage Corp. Syncora Decision.
Massachusetts Mutual Life Insurance Co. Files Two New RMBS Actions
On May 6, 2011, Massachusetts Mutual Life Insurance Co. filed two complaints in the U.S. District Court for the District of Massachusetts, both alleging violations of the Massachusetts Uniform Securities Act in connection with MassMutual’s purchases of RMBS. The first action concerns RMBS sponsored by Impac Funding Corporation, and asserts claims against Impac, one of its affiliates, two of its officers who signed the relevant registration statements, and J.P. Morgan Securities as successor-in-interest to two of the RMBS underwriters. The second action concerns RMBS originated by non-party American Home Mortgage Investment Corp. (“AHM”), and asserts claims against one of the RMBS sponsors, several depositors and underwriters, and several of AHM’s and Bear Stearns’s officers who signed the relevant registration statements. MassMutual alleges that in marketing the sale of the RMBS, defendants misrepresented that the underlying loans were prudently underwritten and had certain characteristics, including specific loan-to-value ratios and owner-occupancy statistics. MassMutual v. Impac Complaint. MassMutual v. Goldman Complaint.
S.D.N.Y. Holds Monoline Insurer Can Pursue Pool-Wide Remedy Based on Sampling of Loans
On March 25, 2011, Judge Paul A. Crotty of the Southern District of New York granted partial summary judgment to Syncora Guarantee, Inc., a monoline insurer, in a suit against Bear Stearns affiliate EMC Mortgage Corp. In that decision, Judge Crotty rejected EMC’s argument that the exclusive remedy available to Syncora for breaches of representations and warranties on Home Equity Line of Credit (“HELOC”) residential mortgage loans underlying the insured securitization was the repurchase of the individually identified, non-complying loans. Instead, the court, citing the broad rights and remedies for which Syncora bargained, accepted Syncora’s position that it “could seek a pool-wide remedy based on sampling and extrapolation.” Syncora Decision.
Allstate Sues Merrill Lynch and Credit Suisse for Fraud
On February 28, 2011, Allstate Insurance, represented by Quinn Emanuel, filed complaints against Merrill Lynch and Credit Suisse affiliated entities in New York state court in connection with Allstate’s purchase of RMBS from those entities. The complaints follow similar complaints by Allstate against JP Morgan, Washington Mutual, Bear Stearns, Citigroup, and Deutsche Bank entities. The complaints allege that defendants fraudulently misrepresented the quality of the loans underlying the RMBS they underwrote and sold to plaintiff. Both complaints allege causes of action for common law fraud, fraudulent inducement, and negligent misrepresentation. The complaint against Merrill Lynch also adds claims for violations of Sections 11, 12(a)(2), and 15 of the ’33 Act. Allstate purchased over $167 million in RMBS from Merrill Lynch and over $231 million from Credit Suisse. CS Complaint. Merrill Complaint.
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.
Borrower Files Class Action Against EMC Mortgage Over Loan Modification Practices
On January 10, 2011, a putative class action was filed in the U.S. District Court for the Eastern District of Washington against loan servicer EMC Mortgage Corp. and its parent, Bear Stearns. The action is asserted on behalf of all EMC-serviced mortgagors in the State of Washington who have made payments pursuant to a temporary loan modification plan or repayment agreement while attempting to obtain a permanent loan modification (alleged to number in the “hundreds if not thousands”). It alleges that EMC has acted in bad faith, and engaged in improper accounting, bad recordkeeping, and misrepresentations during loan modification negotiations with mortgagors in the State of Washington. Specifically, the putative class representative alleges that, despite EMC’s repeated promises to modify her and other mortgagors’ loans and their compliance with the modification terms, EMC is improperly delaying permanent modification of the loans while at the same time charging excessive fees, inflating arrearages and continuing to threaten foreclosure. The Complaint alleges violations of the Washington Consumer Protection Act and EMC’s settlement with the Federal Trade Commission, along with claims for breach of contract, breach of the duty of good faith and fair dealing, promissory estoppel, and unjust enrichment. Complaint.