New Mexico Federal Judge Largely Denies Motion to Dismiss in Thornburg Mortgage RMBS Case

On November 12, 2011, Judge James O. Browning of the United States District Court for the District of New Mexico issued a 273-page order granting in part and denying in part motions to dismiss brought in a putative class action against certain Thornburg Mortgage RMBS trusts, underwriters, individual defendants, and rating agencies. The plaintiff brought common law claims as well as state and federal securities claims. The Court rejected the defendants’ argument that a plaintiff class had standing to sue only with respect to those tranches of an RMBS offering in which a named plaintiff purchased certificates. The Court also concluded that credit ratings are statements of opinion, but rejected the rating agencies’ argument that those are protected by the First Amendment. Order.

Maryland District Court Partially Dismisses Claims by Thornburg Mortgage that Barclays Made Improper Margin Calls and RMBS Seizures

On September 7, 2011, District Court of Maryland Judge Ellen Lipton Hollander granted in part and denied in part Barclays Capital, Inc.’s motion to dismiss Thornburg Mortgage, Inc.’s Chapter 11 trustee’s claims for breach of contract and the covenants of good faith and fair dealing. The Trustee alleged that in August 2007 Barclays made improper margin calls and seizures of MBS that Thornburg financed through a repurchase agreement with Barclays. According to the Trustee, Barclays based its margin calls on inappropriately low valuations and liquidated Thornburg’s MBS at low prices, thereby causing Thornburg economic losses. While Judge Hollander upheld the Trustee’s allegations on the breach of contract claim as sufficient, she granted Barclays’ motion to dismiss the bad faith claim, finding it was redundant with the breach of contract claim. Decision.