Section 11

Class Certified, but at Reduced Size, in Washington Mutual RMBS Litigation

Judge Pechman of the U.S. District Court for the Western District of Washington issued an order on October 21, 2011 granting Plaintiffs’ motion to certify a class of investors in certain Washington Mutual RMBS on a substantially narrower basis than Plaintiffs had requested. The lawsuit, which brings claims under Section 11 of the Securities Act of 1933, involves 6 offerings that collectively contained 123 separate tranches of certificates. Plaintiffs, who purchased in only 13 of the tranches, sought to certify a class of all investors in any tranche of any of the 6 offerings. The court found that each tranche represents a different security and that Plaintiffs lacked standing to sue as to any tranche in which they had not purchased. Judge Pechman thus both denied class certification and granted judgment on the pleadings in favor of Defendants as to those tranches. As to the remaining 13 tranches in which Plaintiffs had purchased, the court found that class certification was appropriate. Decision.

S.D.N.Y. Judge Preserves Plaintiffs’ Section 11 Claims Against Residential Capital

On April 28, 2011, Judge Harold Baer, District Judge in the Southern District of New York, granted in part and denied in part the defendants’ motion to dismiss in New Jersey Carpenters Health Fund, et al. v. Residential Capital, LLC et al. Plaintiffs are institutional investors who purchased mortgage-backed securities from Residential Capital LLC and its underwriters in 2006 and 2007. The complaint alleges that defendants violated Sections 11, 12(a)(2), and 15 of the ’33 Act by making misstatements about the value of the securities in the offering documents. The Court denied defendants’ motion to dismiss the section 11 claims, finding that the loss in value when the securities dropped from investment grade to junk status was a cognizable loss, even if the purchaser continues to hold the securities. The Court, however, granted defendants’ motion to dismiss the section 12(a)(2) claims because it found that, while the plaintiffs alleged the securities purchased and the date of purchase, they failed to allege that they directly purchased the securities from the defendants. The Court also granted defendants’ motion to dismiss the section 15 claims against the underwriters, holding that the complaint’s allegations that the underwriter defendants were “controlling persons” were conclusory. The Court further found that the claims were timely, and that the defendants had not shown that a reasonably diligent purchaser would have discovered the high delinquency rates when purchasing the securities. Decision.