On August 3, Judge John G. Heyburn II of the Judicial Panel on Multi-District Litigation denied plaintiff Federal Deposit Insurance Corporation’s motion to vacate the court’s order transferring the FDIC’s action to the Countrywide RMBS MDL in the Central District of California. The FDIC’s claims relate to RMBS purchased by Security Savings Bank and are brought under Sections 11 and 12(a)(2) of the Securities Act and Section 90.570 of the Nevada Securities Act. The court found that the transfer to one judge provided consistency, prevented conflicting rulings, and reduced duplicative expenditure of judicial and party resources. Decision.
Central District of California
Court Dismisses in Part AIG’s Claims Against Bank of America and Countrywide
On May 23, 2012, Judge Mariana R. Pfaelzer of the Central District of California dismissed with prejudice the majority of claims brought by AIG in a suit against Bank of America and Countrywide over the sale of RMBS certificates. Judge Pfaelzer held that because AIG purchased the securities at issue more than three years before filing suit, its federal securities claims were time-barred under the three-year statute of repose for claims under the Securities Act of 1933. Judge Pfaelzer determined that a majority of AIG’s common law claims, including negligent misrepresentation and fraud, were also time-barred under the relevant states’ statutes of limitation. The court found that certain additional common law claims were part of a tolling agreement that tolled claims between January 13, 2011 and August 5, 2011, and were thus timely. Order.
California District Court Grants Partial Summary Judgment in Citigroup’s Suit Against Impac
On May 4, Judge Pfaelzer of the Central District of California granted partial summary judgment to Citigroup establishing that Impac Funding Corp. was liable to Citigroup on two of Citigroup’s three claims against Impac. Citigroup’s suit alleges that Impac Funding misled investors by filing a Pooling and Servicing Agreement (“PSA”) that incorrectly described the payment waterfall for the relevant securitization trust, and which Impaq waited six weeks to correct. Citigroup brought claims pursuant to Sections 18 (material false statement in an Exchange Act filing) and 20(a) (control person liability) of the Securities Exchange Act of 1934, as well as a common law claim for negligent misrepresentation. The court rejected Impac’s argument that the discrepancies between the PSA and the Prospectus Supplement should have raised a red flag for the trader who purchased the securities on Citigroup’s behalf. The court also held that Impac was not entitled to a good faith “safe harbor” defense because Impac knew in 2007 that the PSA was incorrect and, as a general matter, a corporate entity is deemed to have knowledge of its own public statements. Judge Pfaelzer denied Citigroup’s motion for summary judgment on its negligent misrepresentation claim, concluding that Impac did not make the false statements itself but caused its subsidiaries to make them, and that California law does not extend negligent misrepresentation liability where one merely “causes” a misstatement to be made. Decision.
California Federal Court Partially Dismisses RMBS Claims In Countrywide MDL Action
On April 16, 2012, Judge Mariana R. Pfaelzer of the Central District of California dismissed in part an RMBS action brought by Massachusetts Mutual Life Insurance Co. (“MassMutual”) against Countrywide, JPMorgan, Deutsche Bank, UBS, and various individual defendants. This case, which asserts claims under the Massachusetts Uniform Securities Act (“MUSA”), was transferred to the Countrywide MDL for pre-trial proceedings. In addressing defendants’ initial motions to dismiss on the issues of timeliness, standing and jurisdiction, Judge Pfaelzer found that the court lacked personal jurisdiction over the individual defendants who moved on this ground and dismissed all claims against them with prejudice. Judge Pfaelzer also found that only the Underwriter Defendants could be held liable as a seller under the MUSA, and dismissed the MUSA claims against the other defendants with prejudice. Judge Pfaelzer declined to dismiss the remaining claims based on the statute of limitations. Decision.
Court Grants Unopposed Motion for Class Certification in $2.5 Billion Countrywide RMBS Lawsuit
On November 29, 2011, Judge Mariana R. Pfaelzer of the Central District of California issued an order certifying a class of Countrywide Financial Corp. investors in an action alleging that Countrywide made misrepresentations in connection with the sale of certain RMBS. On September 30, 2011, the plaintiffs and defendants stipulated to a proposed class that was consistent with the Court’s rulings on various motions to dismiss, which had significantly narrowed the scope of the potential class plaintiffs originally sought to represent. The Iowa Public Employees’ Retirement System was named lead plaintiff on behalf of a class of purchasers of eight different tranches of Countrywide RMBS. Order.
Countrywide RMBS Suits Consolidated
On August 15, 2011, the United States Judicial Panel on Multidistrict Litigation consolidated in the Central District of California eight actions pending against Countrywide Financial Corp. alleging that Countrywide misrepresented origination practices for, and the credit quality of, mortgage loans that it originated from 2004–2007 in connection with the sale of RMBS. Decision.
SEC Files Complaint for Securities Fraud Against Former IndyMac Bank CFO
On February 11, 2011, the SEC filed a complaint in the Central District of California against IndyMac’s former Chief Financial Officer, S. Blair Abernathy, alleging violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act in connection with six IndyMac RMBS offerings in 2007 and several other public securities filings in 2008 on behalf of IndyMac Bancorp, Inc. The complaint alleges that, in 2007, Abernathy received monthly reports indicating that 12%-18% of IndyMac Bank’s loans contained misrepresentations, but that he failed to take reasonable steps to ensure that IndyMac’s RMBS offering documents included adequate disclosures in light of that information. It also alleges that Abernathy was negligent in failing to adequately disclose to investors the deteriorating financial condition of IndyMac Bancorp once he became its CFO in 2008. Complaint.