On September 3, Judge John W. Lungstrum of the United States District Court for the District of Kansas granted in part and denied in part motions to dismiss by UBS Securities LLC and JP Morgan Securities LLC in four separate actions brought by the National Credit Union Administration (NCUA), as liquidator of certain failed credit unions. In each action, NCUA alleged that the defendants made misrepresentations and omissions in RMBS offering documents concerning, among other things, the loan-to-value ratios of the underlying loans and the underwriting guidelines used to originate those loans. In the action against UBS, the Court dismissed claims as to 10 of the 22 certificates at issue as time barred, ruling that the federal Extender Statute may not be extended by a tolling agreement. Order. In the action against JP Morgan, the Court granted the motion to dismiss with leave to amend as to two certificates backed by loans originated by entities as to which NCUA had failed to make any allegations. Order. In the action against JP Morgan as successor to Washington Mutual, the Court dismissed claims as to 31 of the 49 certificates at issue as time barred, also due to the inability of the Extender Statute to be extended by tolling agreement. The court rejected, however, JP Morgan’s argument that NCUA was required to exhaust its claims administratively through the FDIC, as receiver for WaMu, prior to filing suit, holding that the claims could not have been brought administratively against the FDIC because JP Morgan had assumed WaMu’s liabilities. Order. Finally, in the action against JP Morgan as successor to Bear Stearns, the Court dismissed claims as to 37 of the 83 certificates at issue as time barred, also due to the inability of the Extender Statute to be extended by tolling agreement. The Court rejected, however, JP Morgan’s statute of limitations-based arguments concerning the remaining certificates. Order.
Washington Mutual
Pension Fund Class Action to Proceed Against Bank of America and U.S. Bancorp
On December 6, Judge Katherine B. Forrest of the United States District Court for the Southern District of New York denied Bank of America and U.S. Bancorp’s motions to dismiss a suit by the Policemen’s Annuity and Benefit Fund of the City of Chicago. Plaintiff brought claims against Bank of America and U.S. Bancorp for breach of contract, breach of the implied covenant of good faith and fair dealing, and the Trust Indenture of 1939, alleging that defendants failed to protect investors in their role as trustees for RMBS issued by Washington Mutual. Plaintiff alleges that Bank of America and Bancorp failed to take certain actions required by the pooling and servicing agreements, including taking possession of loan files, reviewing those files to ensure they were complete, or requiring Washington Mutual to repurchase or fix defective loans. The court limited plaintiff’s ability to pursue claims only to trusts in which it had purchased certificates or on behalf of purchasers of certificates whose certificates are backed by the loan group that back plaintiff’s certificates or whose certificates are cross-collateralized by loan groups that back plaintiff’s certificates. Decision.
Judge Denies Washington Mutual’s Motion for Summary Judgment
On July 23, Judge Marsha Pechman of the United States District Court for the Western District of Washington denied Washington Mutual’s motion for summary judgment. Plaintiffs allege that Washington Mutual misrepresented the extent to which its underwriting guidelines were lowered and unevenly applied in connection with the sale of RMBS, including that the underwriters at Washington Mutual had substantial discretion to deviate from the already lowered guidelines. Judge Pechman held that the plaintiff class raised a genuine dispute as to whether the statements in the offering documents were false and misleading based on alleged systematic deviation from underwriting guidelines. Decision.
German Bank Sues JP Morgan Over $2.1 Billion in RMBS
On November 21, 2011, German bank Bayerische Landesbank (“BayernLB”) filed a complaint in New York state court against JPMorgan Chase & Co. and several related entities, including several former Washington Mutual and Bear Stearns entities, seeking approximately $2.1 billion in damages in connection with its purchase of certificates in 57 RMBS offerings. BayernLB asserts causes of action for common law fraud, fraudulent inducement, aiding and abetting fraud, negligent misrepresentation, and successor and vicarious liability, based on allegations that JPMorgan concealed the poor quality of loans underlying those securities and provided misinformation to credit rating agencies. Complaint.
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.
German Banks Sue Bank of America, JP Morgan and Others for Over $4.5 Billion
On September 29, 2011 two German banks, Landesbank Sachsen AG and Landesbank Baden-Wurttemberg, and the banks’ Irish asset manager, Sealink, filed three suits in New York state court. Plaintiffs name Bank of America Corp., JP Morgan, Countrywide Financial Corp., Bear Stearns, Washington Mutual, and certain Countrywide executives in claims for fraudulent and negligent misrepresentation, aiding and abetting, and vicarious and successor liability. Plaintiffs allege that the defendants concealed the risks of the underlying mortgages through alleged misstatements as to originator underwriting practices and allegedly overstated appraisals. Plaintiffs seek compensatory, rescissory, and punitive damages. Index No. 652680/2011. Index No. 652681/2011. Index No. 652679/2011.
JPMorgan Sues FDIC in Third-Party Suit
On July 25, 2011, JPMorgan Bank filed a third-party complaint against the FDIC in the Southern District of Ohio, claiming the FDIC indemnified JPMorgan when it agreed to buy assets from Washington Mutual, which went bankrupt in 2008. JPMorgan alleges that it only accepted certain narrow WaMu liabilities in its agreement with the FDIC, specifically excluding liabilities relating to WaMu’s pre-closing activities. Western and Southern Life Insurance Company has since sued JPMorgan for fraudulent misrepresentation in connection with the sale of $650 million in mortgage-backed securities. JPMorgan’s suit against the FDIC seeks all costs, fees and judgments incurred by it as a result of WaMu’s actions. Complaint.
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.
Plaintiffs Firm Announces “Investigation” Into Various Banks Regarding FHA Mortgage Insurance
On May 4, 2011, the law firm Keller Rohrback, which currently represents the Federal Home Loan Banks of Seattle and Chicago in various RMBS cases, announced an investigation into a number of banks and mortgage lenders for violations stemming for those banks’ status as Direct Endorsement Lenders for the Federal Housing Administration (“FHA”). According to the announcement, each of the banks, including JPMorgan Chase, Bank of America, Bear Stearns Residential Mortgage, Washington Mutual, Citigroup, Countrywide, and HSBC, received insurance from FHA for the mortgages it originated. The investigation focuses on the banks’ mortgage lending practices, which Keller Rohrback asserts were lax and riskier than FHA’s standards allowed. Specifically, the law firm intends to review the banks’ due diligence standards, evaluations of borrower income, and property appraisals. The U.S. Department of Justice earlier this week commenced an action in the Southern District of New York against Deutsche Bank alleging similar practices. Release.