RMBS Suit to Proceed Against Morgan Stanley

On June 16, 2016, Justice Marcy S. Friedman of the Supreme Court of the State of New York largely denied Morgan Stanley’s motion to dismiss a breach of contract action brought by RMBS trustee Wilmington Trust Company. The court dismissed the trustee’s claim for indemnification of attorney’s fees, finding that the contracts did not unmistakably contemplate such indemnification. The court denied without prejudice defendant’s motion to dismiss the trustee’s claim as to non-Morgan Stanley loans in the offering at issue, as the parties did not have the opportunity to address the import of recent RMBS precedent or whether the repurchase demand in this case included any such loans. The court will receive further briefing on the import of a 2015 intermediate appellate court decision, previously covered here, on plaintiff’s claim that the bank improperly failed to notify the trustee of breaches Morgan Stanley discovered. The court denied the remainder of Morgan Stanley’s motion to dismiss. Following her prior decisions (such as her decision in ACE on remand from the Court of Appeals, covered here), Justice Friedman held that the trustee’s claims for breach of contract were timely filed within the statute of limitations, and that its claim for damages was not precluded by the repurchase protocol. Order.

SDNY Grants Class Certification to Investors in RMBS Suit Against Credit Suisse

Judge Paul A. Crotty in the U.S. District Court for the Southern District of New York certified a class of investors in a $2.4 billion suit against Credit Suisse for alleged misrepresentations in connection with the sale of RMBS. Credit Suisse argued that no class should be certified because several investors were sophisticated, had large claims against Credit Suisse, and could therefore bring individual claims. The court found, however, that “sophistication and size of certain class members are not bars . . . .” The court also rejected Credit Suisse’s argument that the proposed class was in conflict given its members’ investments in different tranches of RMBS, and that the wide availability of sufficient information about the RMBS collateral meant that the investors’ degree of knowledge regarding the falsity of the alleged misrepresentations should be determined on an individualized basis. The investors are suing under Sections 11, 12, and 15 of the Securities Act. Decision.

Federal Court In California Finds Countrywide RMBS Suit Time-Barred

Judge Mariana Pfaelzer of the Central District of California ruled on August 10, 2011 that claims asserted by Stichting Pensioenfonds ABP on August 18, 2010 and in an amended complaint on February 14, 2011 were barred by the applicable statutes of limitations and repose. ABP had argued its claims under Sections 11, 12(a)(2) and 15 of the ’33 Act were tolled by a class action in California state court against Countrywide on the same securitizations. Judge Pfaelzer held American Pipe class action tolling only applies where an earlier class plaintiff had standing as to the specific tranche. ABP was given leave to amend its complaint to allege tranche-specific tolling for its Section 11, 12(a)(2), and 15 claims. Judge Pfaelzer further held that plaintiff was on inquiry notice as of early 2008 about the allegations of fraud at Countrywide. She therefore dismissed ABP’s remaining claims, under Sections 10(b) and 20(a) of the ’34 Act, Sections 25400 and 25500 of the California Corporations Code, and state law fraud and aiding and abetting, based on the relevant statutes of limitations and repose, without leave to amend. Order.