class action

Judge Mostly Denies Deutsche Bank National Trust Co.’s Motion to Dismiss in RMBS Class Action

On February 3, Judge Alison Nathan of the United States District Court for the Southern District of New York largely denied Deutsche Bank National Trust Co.’s (the “Trustee’s”) motion to dismiss in a proposed class action brought by Royal Park Investments SA/NV over $3.1 billion in losses in residential mortgage-backed securities.  Royal Park alleged that the Trustee failed to require the loan sellers to repurchase or substitute loans when it became aware that the underlying mortgages were defaulting.  Judge Nathan rejected the Trustee’s argument that Royal Park failed to make a written demand to initiate a repurchase action as required in the trusts’ pooling and service agreements, holding that the Trustee had an obligation to provide notice to the other parties when it independently discovered breaches of representations and warranties.  Judge Nathan did, however, dismiss Royal Park’s derivative claims on behalf of 10 trusts that held the loans because the suit was direct rather than derivative in nature.  Order.

SDNY Rules Rating Agencies Are Not Underwriters

On January 12, 2011, Federal District Judge Harold Baer, Jr. of the Southern District of New York (“SDNY”) dismissed all claims against several rating agencies (Moody’s, Fitch, S&P) in an RMBS securities class action. The putative class consists of all purchasers or acquirers of RMBS registered or traceable to a particular registration statement filed in either 2004 or 2005. Plaintiffs alleged that the rating agencies provided ratings based on insufficient information and faulty assumptions concerning the underlying mortgages and are liable as “underwriters” under Section 11 of the Securities Act. The court rejected this argument, finding that precedent clearly defined an underwriter as a party that serves as a conduit between the issuer and the public, and that the Rating Agencies’ significant role in the ability of Goldman Sachs to market the certificates at issue did not bring them within that definition. The Court also dismissed some, but not all, claims against Goldman Sachs. Decision.