U.S. District Court for the Central District of California

Court Grants, in Large Part, Motions to Dismiss in Allstate’s Lawsuit Against Countrywide

On October 21, 2011, Judge Pfaelzer of the U.S. District Court for the Central District of California issued an order largely granting motions by Countrywide, various of its officers and directors, and Bank of America to dismiss various federal securities and state law claims asserted by Allstate arising out of Allstate’s investments in 25 Countrywide RMBS. Judge Pfaelzer found the federal claims time-barred, holding that Allstate brought its action more than three years after it was put on notice of its claims, and that the three-year period was not tolled by an earlier-filed action in which the plaintiff had standing to sue only as to different Countrywide RMBS. Certain of the state law claims, involving certificates purchased prior to December 27, 2005, also were held to be time-barred. As to later-purchased certificates, the court found that Allstate adequately alleged claims under New York and Illinois law for common law fraud arising out of alleged misrepresentations in the offering documents of those certificates concerning Countrywide’s origination and underwriting practices and the characteristics of the loans in the collateral pools. The court dismissed, without prejudice, additional claims for aiding and abetting fraud and for negligent misrepresentation, finding as to the former that Allstate had not alleged scienter on the part of the alleged aiders and abettors, and as to the latter that Allstate had not alleged sufficient privity between it and the Defendants. The court also dismissed, without prejudice, Allstate’s claim for successor liability against Bank of America. Decision.

New York Federal Court Transfers Countrywide RMBS Case to California to Prevent “Judge-Shopping”

On June 14, 2011, District Judge Alvin Hellerstein of the S.D.N.Y. granted defendant Countrywide’s motion to transfer this case to the U.S. District Court for the Central District of California. Allstate’s complaint alleges that Countrywide, several associated entities, and certain high-ranking employees committed fraud in connection with statements regarding underwriting standards in the sale of over $700 million in RMBS. Judge Hellerstein noted that this case is closely related to another case in the Central District of California involving the same parties and the same issues, and that Allstate filed its New York case only after the California judge narrowed the case to exclude some of the securities upon which Allstate bases its claims. Judge Hellerstein further found that the New York suit “gives the appearance of judge-shopping” and granted the motion to “promote the efficient use of judicial resources” and “prevent the possibility of inconsistent results.” Decision.

FDIC Files Lawsuit Alleging Mortgage Broker Misconduct

On June 3, 2011, the FDIC, as receiver for Downey Savings and Loan Association, F.A. (“Downey”), filed a complaint in the U.S. District Court for the Central District of California against Amerifund Financial, Inc. (“Amerifund”), its principal shareholder, and its loan officers, alleging negligence, fraud, and breach of contract. The complaint alleges that Amerifund submitted mortgage loan applications and supporting documents, including appraisals, that were altered and/or inflated borrowers’ stated incomes and information; this allegedly led to the collapse of Downey. This suit follows two similar actions recently brought by the FDIC as receiver for Washington Mutual Bank. FDIC Complaint.

FDIC Files Two Lawsuits Alleging Appraisal Fraud

On May 29, 2011, the FDIC, as receiver for Washington Mutual Bank (“WaMu”), filed complaints in the U.S. District Court for the Central District of California against two appraisal firms alleging negligence, breach of representations and warranties, and breach of contract. The complaints, filed against CoreLogic Valuation Services (formerly eAppraiseIT, LLC) and LSI Appraisal, LLC, allege that these firms provided WaMu with substantially inflated appraisal values, which induced WaMu to make mortgage loans it would not otherwise have made. The FDIC seeks at least $129 million from CoreLogic and $154 million from LSI. CoreLogic Complaint. LSI Complaint.

Citigroup Files New RMBS Action Against Impac

On May 25, 2011, Citigroup Global Markets, Inc. (“Citigroup”) filed a complaint against Impac Funding Corp (“Impac”) in the U.S. District Court for the Central District of California alleging violations of Sections 18 and 20 of the ’34 Act and negligent misrepresentation related to Impac’s filing of a revised Pooling and Servicing Agreement (“PSA”) with the Securities and Exchange Commission (“SEC”). Citibank alleges that three weeks after it purchased approximately $7 million worth of mortgage-backed securities, Impac notified the Securities and Exchange Commission that the Pooling and Servicing Agreement (“PSA”) filed three years earlier in connection with the issuance of those securities was submitted in error. Citibank alleges that Impac filed a new PSA with the SEC including different terms that adversely impacted on the value of the certificates purchased by Citigroup. Citigroup seeks to recover the money damages that it claims to have suffered as a result. Complaint.