718 F.Supp.2d 495 (S.D.N.Y. 2010), 09 Civ. 4583(LAK), In re IndyMac Mortgage-Backed Securities Litigation

Docket Nº:Master Docket 09 Civ. 4583(LAK).
Citation:718 F.Supp.2d 495
Opinion Judge:LEWIS A. KAPLAN, District Judge.
Party Name:In re INDYMAC MORTGAGE-BACKED SECURITIES LITIGATION. This document relates to: All Actions.
Attorney:Joseph J. Tabacco, Jr., Nicole Lavallee, Patrick T. Egan, Kristen D. Tremble, Jason M. Leviton and Berman Devalerio, for Lead Plaintiffs. Jonathan C. Dickey, Robert F. Serio, Aric H. Wu, Eric M. Creizman, Dean J. Kitchens, Gibson, Dunn & Crutcher LLP, for defendants Bank of America Corporation, C...
Case Date:June 21, 2010
Court:United States District Courts, 2nd Circuit, Southern District of New York
 
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718 F.Supp.2d 495 (S.D.N.Y. 2010)

In re INDYMAC MORTGAGE-BACKED SECURITIES LITIGATION.

This document relates to: All Actions.

Master Docket No. 09 Civ. 4583(LAK).

United States District Court, S.D. New York.

June 21, 2010

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[Copyrighted Material Omitted]

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Joseph J. Tabacco, Jr., Nicole Lavallee, Patrick T. Egan, Kristen D. Tremble, Jason M. Leviton and Berman Devalerio, for Lead Plaintiffs.

Jonathan C. Dickey, Robert F. Serio, Aric H. Wu, Eric M. Creizman, Dean J. Kitchens, Gibson, Dunn & Crutcher LLP, for defendants Bank of America Corporation, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman Sachs & Co., HSBC Securities (USA) Inc., J.P. Morgan Securities Inc., Morgan Stanley &

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Co., Incorporated, RBS Securities, Inc., and UBS Securities LLC.

Eric R. Levine, Eric Aschkenasy, Eiseman Levine Lehrhaupt & Kakoyiannis, for defendants Lynnette Antosh, Raphael Bostic, S. Blair Abernathy, John Olinski, Samir Grover, Simon Heyrick, and Victor Woodworth.

John W. Spiegel, Kathleen M. McDowell, James C. Rutten, Munger, Tolles & Olson LLP, for defendants Lynnette Antosh and Raphael Bostic.

Robert L. Corbin, Joel M. Athey, Corbin, Fitzgerald & Athey LLP, for defendants John Olinski, Samir Grover, Simon Heyrick and Victor Woodworth.

Robert H. Fairbank, Richard D. Gluck, Michael B. Norman, Fairbank & Vincent, for defendant S. Blair Abernathy.

William R. Stein, Scott H. Christensen, Kenneth M. Katz, Hughes Hubbard & Reed LLP, for defendants IndyMac MBS, Inc. and IndyMac Securities Corporation.

Benjamin J. Razi, D. Jean Veta, Pamela A. Carter, Covington & Burling LLP, for defendant Michael W. Perry.

MEMORANDUM OPINION

LEWIS A. KAPLAN, District Judge.

This case arises from the collapse of the United States residential mortgage market and its alleged effect on a type of mortgage-backed security. The securities, known as mortgage-pass through certificates (" Certificates" ), were issued by IndyMac MBS, Inc. (" IndyMac MBS" ) in 106 different offerings pursuant to three registration statements and the related prospectuses and prospectus supplements (the " Offering Documents" ). Lead Plaintiffs, the Wyoming State Treasurer and the Wyoming Retirement System, purchased Certificates in fifteen of the approximately 106 offerings. They bring claims on behalf of a purported class of Certificate holders for violations of Sections 11, 12, and 15 of the Securities Act of 1933 1 (" Securities Act" ) and allege that the Certificates' offering documents contained false and misleading statements regarding IndyMac Bank's (1) underwriting standards, (2) real estate appraisal practices, and (3) the process by which the ratings agencies determined the Certificates' ratings. The matter is before the Court on the motions of the remaining defendants 2 to dismiss the amended consolidated class action complaint (" ACC" ) for failure to state a claim upon which relief may be granted.

Facts

Plaintiffs

The Wyoming State Treasurer manages over $10 billion in non-pension fund assets, and allegedly purchased or acquired Certificates in thirteen offerings pursuant and/or traceable to the 2005, 2006, and 2007 IndyMac registration statements.3 The Wyoming Retirement System administers eight retirement programs, and purchased or acquired Certificates in three offerings pursuant and/or traceable to the 2005, 2006, and 2007 IndyMac registration statements.4

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Defendants

There are four broad categories of defendants remaining in this lawsuit-the IndyMac Defendants, the Individual Defendants, the Underwriter Defendants, and Defendant Michael W. Perry.

The IndyMac Defendants include IndyMac MBS, Inc. (" IndyMac MBS" ), and IndyMac Securities Corporation (" IndyMac Securities" ).5 The IndyMac Defendants were the wholly-owned subsidiaries of IndyMac Bank, F.S.B. (" IndyMac Bank" ), which was closed by the Federal Deposit Insurance Corporation on July 11, 2008, and is not a party to this lawsuit.6

The Individual Defendants 7 are the former officers and directors of IndyMac MBS. Each signed at least one of the registration statements at issue in this case.8

The Underwriter Defendants include thirteen financial institutions who were named as underwriters in the Offering Documents and allegedly participated in their drafting and dissemination.9

Michael W. Perry at all relevant times allegedly was chairman of IndyMac Bank's board of directors and its chief executive officer.10

The Certificates

A Certificate is a type of mortgage-backed security that entitles its owner to a portion of the revenue stream generated by an underlying pool of residential mortgage loans.11 IndyMac Bank originated or acquired the individual mortgage loans that underlie the Certificates.12 The loans then were transferred to IndyMac MBS, which bundled them into mortgage pools.13 The pools were transferred to issuing trusts, which created the Certificates. 14 The issuing trusts then transferred the Certificates back to IndyMac MBS 15 which, in turn, sold the Certificates to the specific Underwriter Defendant(s) for each offering.16 The Underwriter Defendants offered the Certificates to investors,17 after they were rated by rating agencies.

The Complaint

Before its collapse, IndyMac Bank and its subsidiaries were major participants in the mortgage-backed security market.

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The ACC alleges that IndyMac MBS issued mortgage pass-through certificates in over 106 offerings pursuant to an August 15, 2005 registration statement (" 2005 Registration Statement" ), a February 24, 2006 registration statement (" 2006 Registration Statement" ), and a February 14, 2007 registration statement (" 2007 Registration Statement" ) and the prospectuses and prospectus supplements that they incorporated.18

Plaintiffs allege that the Offering Documents violated Sections 11, 12, and 15 of the Securities Act 19 because they contained four categories of misstatements or omissions. First, plaintiffs allege that the Offering Documents' description of IndyMac Bank's underwriting standards was misleading because IndyMac Bank originated or acquired loans for the mortgage pools without regard to those requirements. Second, they allege that the appraisal practices used to evaluate the loans' real estate collateral did not comply with the Uniform Standards of Professional Appraisal Practice (" USPAP" ) as stated in the Offering Documents, resulting in misstated loan-to-value rations. Third, they assert that the Offering Documents failed to disclose that the ratings process was " highly compromised," as the agencies used " outdated" models to evaluate the Certificates, suffered from conflicts of interest, and did not verify independently the loan data provided to them. 20

The defendants all have moved to dismiss the ACC for failure to state a claim upon which relief may be granted, as barred by the statutes of limitations, and for lack of standing.

Discussion

A. Legal Standard and Applicable Law

In deciding a motion to dismiss, a court ordinarily accepts as true all well pleaded factual allegations and draws all reasonable inferences in the plaintiff's favor.21 In order to survive such a motion, however, " the plaintiff must provide the grounds upon which [its] claim rests through factual allegations sufficient ‘ to raise a right to relief above the speculative level,’ " 22 and to " ‘ state a claim to relief that is plausible on its face.’ " 23 Although such motions are addressed to the face of the pleadings, the court may consider also documents attached to or incorporated by reference in the amended complaint as well as legally required public disclosure documents and documents possessed by or known to the plaintiff upon which it relied in bringing the suit.24

Sections 11 and 12(a)(2) are " Securities Act siblings with roughly parallel elements" and may impose liability if a relevant communication contains a material misstatement or omission.25 Section 11 applies to registration statements while Section 12 applies to prospectuses or oral

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communications connected with a sale.26 An appropriate defendant may be liable if the relevant communication contains (1) a misrepresentation, (2) an omission in breach of an affirmative legal disclosure obligation, or (3) an omission necessary to prevent existing disclosures from being misleading.27

A misrepresentation or omission is actionable only if material. A statement or omission is material if " taken together and in context, [it] would have misled a reasonable investor." 28 As materiality is a mixed question of law and fact, " a complaint may not properly be dismissed ... on the ground that the alleged misstatements or omissions are not material unless they are so obviously unimportant to a reasonable investor that reasonable minds could not differ on the question of their importance.' " 29

B. Standing

Defendants first argument for dismissal is that the plaintiffs lack constitutional and statutory standing for many of their claims.

1. Constitutional standing

Named plaintiffs allegedly have purchased securities in fifteen of the approximately 106 offerings listed in Exhibits C, D, and E attached to the ACC. For the reasons stated in In re Lehman Brothers Mortgage-Backed Securities Litigation, 30 named plaintiffs have standing only with respect to the offerings in which they purchased securities.31 In consequence, the claims based on the offerings in which named plaintiffs have not purchased are dismissed. This includes all claims against UBS Securities LLC, HSBC Securities (USA) Inc., Goldman Sachs...

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