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.
Judge Pfaelzer
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.