Moody’s Corp.

Federal Appellate Court Reinstates RMBS Action Against Moody’s

On May 2, 2016, the First Circuit Court of Appeals reinstated a $5.9B suit brought by the Federal Home Loan Bank of Boston (“FHLBB”), alleging that Moody’s Corp and Moody’s Investor’s Service, Inc. (together, “Moody’s”) knowingly provided false ratings on certain Residential Mortgage-Backed Securities purchased by FHLBB. The case had been dismissed for lack of personal jurisdiction by Judge George A. O’Toole Jr. of the District of Massachusetts, who also held that the court could not transfer the case to another federal court where jurisdiction would be proper because 28 U.S.C. §1631 only permitted the transfer of cases dismissed for lack of subject matter jurisdiction, rather than personal jurisdiction.

The First Circuit vacated that decision, concluding that the plain language of 28 U.S.C. §1631, the statute’s legislative history, and case law from other Circuits all weighed in favor of a ruling that the statute also permits transfer where the claims at issue were dismissed on either personal or subject matter jurisdiction grounds. Accordingly, the First Circuit remanded the case to the district court to determine whether transfer was “in the interests of justice,” in accord with the statutory requirement for transfer under 28 U.S.C. §1631.  Decision.

Rating Agency Developments

On October 15, 2015, DBRS released a report entitled Operational Risk Assessment for European Structured Finance Originators.  Report.

On October 15, 2015, Fitch published its updated U.S. Auto Loan ABS Rating Criteria.  Release.

On October 16, 2015, Moody’s released its rating methodology for Gas Prepayment Bonds.  Report.

On October 16, 2015, Fitch published its second U.S. RMBS Mortgage Servicer Handbook.    Release.

On October 19, 2015, DBRS released its General Corporate Methodology.  Report.

On October 19, 2015, Moody’s released Moody’s Approach to Rating Derivative Product Companies.  Report.

On October 19, 2015, Fitch published its updated RMBS Compare.  Release.

On October 20, 2015, Moody’s released Moody’s Approach to Rating Structured Finance Interest-Only Securities.  Report.

On October 20, 2015, Kroll released its U.S. Equity REITs & REOC Rating Methodology.  Report.

On October 20, 2015, Fitch published its updated Rating Criteria for Ports.  Release.


Class Action Brought Against S&P and Moody’s in Illinois State Court

On July 3, First National Bank and Trust Company of Rochelle, Illinois (FNBR) filed a putative class action lawsuit against McGraw-Hill Companies Inc., Standard and Poor’s Rating Services (S&P) and Moody’s Corp. in Illinois state court.  FNBR alleges that the rating agencies knowingly or recklessly issued inflated RMBS ratings and failed to amend those ratings when the mortgages underlying the securities began to fail.  Plaintiff seeks to represent a class of all Illinois banks that purchased highly rated RMBS certificates between December 2007 and February 2008.  Plaintiff’s claims are for fraud, negligent misrepresentation and violations of the Illinois Consumer Fraud and Deception Business Practices Act and the Illinois Uniform Deceptive Trade Practices Act.  Complaint.