On January 20, 2012, John Hancock Life Insurance Co. filed a complaint in New York state court against JPMorgan Chase & Co. and several related entities and individuals seeking to recover for losses allegedly incurred on certificates John Hancock purchased in 21 separate RMBS offerings from JPMorgan, Bear Stearns, and Washington Mutual Inc. John Hancock alleges that the defendants made misrepresentations concerning the quality of the mortgage loans underlying the certificates and failed to perform adequate due diligence. The complaint alleges violations of the Securities Act of 1933, common law fraud, negligent misrepresentation, aiding and abetting fraud, and fraudulent inducement, and seeks rescission and damages. Complaint.
Litigation
Dexia Sues JPMorgan for RMBS Losses
On January 19, 2012, Dexia SA/NV and related entities filed a complaint in New York state court against JPMorgan Chase & Co. and several related entities in connection with certificates in 53 RMBS offerings that Dexia allegedly purchased from JPMorgan, Bear Stearns, and Washington Mutual for approximately $1.7 billion. Dexia alleges that the defendants created, issued, and sold RMBS based on loans that the defendants knew to be of poor quality, made false and misleading representations about those loans to investors, and exerted undue pressure on credit rating agencies. Dexia asserts claims for negligent misrepresentation, aiding and abetting fraud, and fraudulent inducement, and seeks rescission and damages. Complaint.
M&T Bank Corp Settles CDO Suit Against Deutsche Bank for $55 Million
In a January 17, 2012 press release and 8-K reporting its financial results for the fourth quarter, M&T Bank Corp announced the settlement of a 2008 lawsuit against Deutsche Bank Securities and other entities. The suit, filed in the Supreme Court for the State of New York, alleged that Deutsche Bank made misrepresentations when marketing an $82 million investment of the Gemstone CDO VII, underpinned by subprime home loans. M&T Bank Corp reports that it received $55 million from the settlement. Current Report.
CUNA Mutual Group Sues RBS Over RMBS
On January 17, 2012, RBS Securities removed to the Western District of Wisconsin an action brought by credit union insurance companies against RBS involving the sale of RMBS. The bases for RBS’s removal petition include diversity jurisdiction and related to bankruptcy jurisdiction. The case originally was filed on December 14, 2011, in the State of Wisconsin Circuit Court by Credit Union National Association Mutual Insurance Society, CUMIS Insurance Society, and Member Life Insurance Company. The insurance companies seek rescission of $72 million in RMBS securities, alleging that RBS inflated the value of the mortgages and knowingly made material misrepresentations about underwriting standards and the collateral backing the loans. Notice of Removal. Complaint.
New York State Court Holds MBS Insurers Need Not Prove Causal Link Between Misstatements and Losses
On January 3, 2012, Justice Eileen Bransten of the Supreme Court of the State of New York granted partial summary judgment to two insurers suing Countrywide Financial Corporation concerning the insurance of securitizations of mortgages underwritten by Countrywide. In the two cases, the insurers, MBIA and Syncora Guarantee, have brought claims for fraud and breach of the insurance agreements at issue. The Court found that to establish a claim of fraud the insurers must show that representations by Countrywide induced the insurers to issue insurance policies on terms to which they otherwise would not have agreed and that they are not required to establish a direct causal link between Countrywide’s misrepresentations and the insurers’ claims payments made pursuant to the insurers’ policies at issue. The Court further held that the insurers may seek rescissory damages upon proving all elements of its claims for fraud and breach of representation and/or warranty. MBIA Decision. Syncora Decision.
Federal District Court Remands Morgan Stanley MBS Suit to Ohio State Court
On December 20, 2011, Judge S. Arthur Spiegel of the Southern District of Ohio granted the plaintiffs’ motion to remand and denied Morgan Stanley’s motion to transfer to the Southern District of New York an RMBS suit based on the alleged failure to disclose claimed departures from underwriting guidelines. The court found that related-to bankruptcy jurisdiction did not exist given that Defendants had not filed indemnification claims in the bankruptcy of the sole bankrupt originator prior to the bar date. Plaintiffs, which include the Western and Southern Life Insurance Company, bring claims under Section 11 of the Securities Act and Ohio securities blue sky laws. Decision.
Federal District Court Signals Intention to Dismiss National Credit Union Authority Suit
On December 19, 2011, Judge George H. Wu of the Central District of California issued a tentative ruling that the National Credit Union Authority has failed to sufficiently allege that defendants, which include RBS, Wachovia and Nomura, systematically disregarded underwriting standards in connection with the offering and sale of RMBS. The complaint includes claims for violations of Sections 11 and 12(1)(2) of the Securities Act of 1933 and Sections 25401 and 25501 of the California Corporations Code. The court explained that the NCUA’s reliance on post-purchase statistics and other public information is “conclusory” and, without additional information, would fail to satisfy the pleading standards. Judge Wu requested additional supplemental briefing and stated that he will review the additional information before making a final decision. Decision.
German Bank Sues Ally Financial, Bank of America, RBS Securities, and Financial Guaranty Insurance Co. for RMBS losses
On December 13, 2011, DZ Bank AG, a German lender, filed a summons with notice in the Supreme Court of the State of New York against Ally Financial, Bank of America, RBS Securities, and Financial Guaranty Insurance Company, and related entities. DZ Bank seeks to recover losses incurred on 11 RMBS certificates sold between 2005-2007, purchased for approximately $289.8 million. DZ Bank alleges that the defendants made misrepresentations and omissions in the offering materials regarding underwriting standards, key statistical characteristics of the mortgage loans underlying the certificates, and credit ratings. DZ Bank is pursuing claims based on common-law fraud, fraudulent inducement, negligent misrepresentation, and aiding and abetting fraud. Summons.