W. & S. Life Ins. Co. v. JPMorgan Chase Bank, N.A.

Decision Date16 October 2014
Docket NumberCase No. 1:11–cv–495.
Citation54 F.Supp.3d 888
PartiesThe WESTERN AND SOUTHERN LIFE INSURANCE COMPANY, et al., Plaintiffs, v. JPMORGAN CHASE BANK, N.A., et al., Defendants.
CourtU.S. District Court — Southern District of Ohio

David Paul Kamp, Jean Geoppinger McCoy, White, Getgey & Meyer Co., L.P.A., Cincinnati, OH, David H. Wollmuth, Steven S. Fitzgerald, Vincent T. Chang, Wollmuth Maher & Deutsch LLP, New York, NY, for Plaintiffs.

Gregory Alan Harrison, Cincinnati, OH, Sharon L. Nelles, Darrell S. Cafasso, Sullivan & Cromwell LLP, New York, NY, Michael Murtagh, Sullivan & Cromwell LLP, Los Angeles, CA, Sverker Kristoffer Hogberg, Sullivan & Cromwell LLP, Palo Alto, CA, for Defendants.

Order Granting in Part and Denying in Part Motion to Dismiss

SUSAN J. DLOTT, Chief Judge.

This matter is before the Court on Defendants' Motion to Dismiss the Second Amended Complaint (Doc. 57). This suit is one of a myriad of similar suits across the country arising from the sale of residential mortgage-backed securities (“RMBS”) and the housing market collapse in the first decade of this century. The claims asserted are complex both legally and factually. Defendants move to dismiss the claims as barred by limitations periods and for failure to state claims upon which relief can be granted. For the reasons that follow, the Court finds that the majority of claims asserted have been sufficiently pleaded to continue to discovery. The Court will GRANT IN PART AND DENY IN PART the Motion to Dismiss.

I. BACKGROUND
A. Factual Allegations

Plaintiffs' Second Amended Complaint (“SAC”) is ninety-six pages long with three hundred sixty-seven paragraphs of allegations, exclusive of the appendix. (Doc. 52–1 at PageID 4929–5024.) The allegations are briefly summarized below and discussed in more detail as necessary in the Analysis section.

1. Parties and Security Offerings

Plaintiffs The Western and Southern Life Insurance Company, Western–Southern Life Assurance Company, Columbus Life Insurance Company, Integrity Life Insurance Company, National Integrity Life Insurance Company, and Fort Washington Investment Advisors, Inc. on behalf of Fort Washington Active Fixed Income LLC (collectively, “W & S Plaintiffs) bring this civil action against Defendants JPMorgan Chase Bank, N.A., J.P. Morgan Mortgage Acquisition Corporation, J.P. Morgan Securities LLC, and J.P. Morgan Acceptance Corporation I (collectively, JPM Defendants), along with Defendants Washington Mutual Mortgage Securities Corporation, WaMu Asset Acceptance Corporation, and WaMu Capital Corporation (collectively, “WaMu Defendants).

W & S Plaintiffs allege generally that the Defendants “engaged in a pattern of corrupt activity whereby they sought illegally to profit from the origination, securitization, and servicing of mortgage loans, and the sale of [RMBS].” (Id. at PageID 4933.) W & S Plaintiffs purchased $202 million of RMBS certificates from JPM Defendants and WaMu Defendants between October 5, 2005 and October 10, 2007 in the following ten securitization transactions:

(i.) J.P. Morgan Alternative Loan Trust, Series 2005–S1 (“JPMALT 2005–S1”);
(ii.) J.P. Morgan Mortgage Trust, Series 2005–S3 (“JPMMT 2005–S3”);
(iii.) J.P. Morgan Acquisition Trust, Series 2006–WF 1 (“JPMAC 2006–WF 1”);
(iv.) J.P. Morgan Acquisition Trust, Series 2007–CH1 (“JPMAC 2007–CH1);
(v.) Washington Mutual Mortgage Pass–Through Certificates, WMALT Series 2005–7 Trust (“WMALT 2005–7”);
(vi.) Washington Mutual Mortgage Pass–Through Certificates, WMALT Series 2005–9 Trust (“WMALT 2005–9”);
(vii.) Washington Mutual Mortgage Pass–Through Certificates, WMALT Series 2006–4 Trust (“WMALT 2006–4”);
(viii.) Washington Mutual Mortgage Pass–Through Certificates, WMALT Series 2006–5 Trust (“WMALT 2006–5”);
(ix.) Washington Mutual Mortgage Pass–Through Certificates, WMALT Series 2006–9 Trust (“WMALT 2006–9”); and
(x.) Washington Mutual Mortgage Pass–Through Certificates, WMALT Series 2007–OA3 Trust (“WMALT 2007–OA3”).

(Id. at PageID 4933–34.) The first four securitized transactions—JPMALT 2005–S1, JPMMT 2005–S3, and JPMAC 2006–WF1, and JPMAC 2007–CH1—are referred to as the JPM Offerings or JPM Certificates. The latter six securitized transactions—WMALT 2005–7, WMALT 2005–9, WMALT 2006–4, WMALT 2006–5, WMALT 2006–9, and WMALT 2007–OA3—are referred to as the WaMu Offerings or WaMu Certificates. (Id. ) The JPM Offerings were issued and sold pursuant to “JPM Offering Materials” which included Shelf Registration Statements dated August 25, 2005, April 24, 2006, and February 26, 2007, a Prospectus and Prospectus Supplement for each Offering, other materials filed with the Securities and Exchange Commission (“SEC”), and certain data compilations and loan tapes. (Id. at PageID 4934.) The WaMu Offerings were issued and sold pursuant to “WaMu Offering Materials” which included Shelf Registration Statements dated August 23, 2005, January 6, 2006, and March 22, 2007, a Prospectus and Prospectus Supplement for each Offering, other materials filed with the SEC, and certain data compilations and loan tapes. (Id. at PageID 4934–35.)

Defendant J.P. Morgan Acceptance Corp. (“JPMAC”) served as the depositor, Defendant J.P. Morgan Securities LLC served as underwriter, Defendant J.P. Morgan Mortgage Acquisition Corp. served as sponsor and seller, and Defendant JPMorgan Chase Bank, N.A. (JPMC Bank) originated or acquired the mortgage loans and acted as the loan servicer with respect to the JPM Offerings. (Id. at PageID 4939–40, 4986.)

Defendant WaMu Asset Acceptance Corporation (“WMAAC”) served as depositor, Defendant WaMu Capital Corporation served as underwriter, and non-defendant Washington Mutual Bank (“WaMu Bank”) served as co-sponsor with Defendant WaMu Mortgage Securities Corporation and also originated or acquired mortgage loans and acted as the loan servicer with respect to the WaMu Offerings. (Id. at PageID 4941–42, 4986.)

WaMu Bank was a federal savings association that provided financial services to consumer and commercial clients. WaMu Bank served as the co-sponsor for one of the six WaMu Offerings at issue in this action. On September 25, 2008, JPMC Bank entered into a Purchase and Assumption Agreement with the FDIC, under which JPMC Bank agreed to assume substantially all of WaMu Bank's liabilities and purchase substantially all of WaMu Bank's assets, including its ownership of the three WaMu Defendants. JPMC Bank is the successor-in-interest to WaMu Bank with respect to the claims asserted in this action. (Id. at 4941.)

2. Securitization Process

W & S Plaintiffs set forth in the Second Amended Complaint the process by which RMBS certificates are created and sold, a process known as mortgage securitization. A sponsor or seller pools together a large number of mortgage loans and sells or transfers the pool of loans to a depositor. The depositor is typically an affiliate of the sponsor. The depositor then transfers the pool of loans via a “pooling and servicing agreement” to a trustee. The pooling and servicing agreement establishes various classes or “tranches” of interests in payments made by the borrowers of a loan. Each tranch has a different level of risk and reward. The pooling and servicing agreements also appoint a “servicer” to manage the mortgage loans in exchange for a monthly fee. Senior tranches have higher ratings and are entitled to payment in full ahead of junior tranches, but junior tranches offer higher potential returns. The trust issues certificates representing each tranch and sells the certificates to an underwriter. The underwriter then resells the certificates at a profit to the investors. W & S Plaintiffs allege that Defendants acted as sponsor, depositors, and underwriters of the JPM Offerings and the WaMu Offerings and profited at each stage of the securitization process. (Id. at PageID 4944–45.)

3. Allegations of Fraud

W & S Plaintiffs allege in the Second Amended Complaint that the JPM Offering Materials and the WaMu Offering Materials contained actionable misrepresentations and omissions regarding the following matters:

• loan underwriting standards and guidelines, (id. at PageID 4947–72);
• the appraisal process to value the properties securing the loans underlying the RMBS certificates, (id. at PageID 4972–76);
• the percentage of owner-occupied properties securing the loans underlying the RMBS certificates, (id. at PageID 4976–78);
• the credit ratings assigned to the certificates because the credit ratings were based on materially misleading or inaccurate information, (id. at PageID 4978–79); and
• the transfer of title requirements, foreclosure practices, and Mortgage Electronic Registration System (“MERS”), (id. at PageID 4980–96).
B. Procedural History

W & S Plaintiffs initiated this lawsuit on June 22, 2011 in the Court of Common Pleas, Hamilton County, Ohio as Case No. A1104817. (Doc. 1–1 at PageID 28.) Defendants removed the action to the United States District Court for the Southern District of Ohio on July 22, 1011. (Doc. 1 at PageID 1.) On July 25, 2011, JPMC Bank filed a Third–Party Complaint (Doc. 12) against the Federal Deposit Insurance Corporation (“FDIC”) for the potential liabilities arising from the actions or omissions of its predecessor, non-defendant WaMu Bank.

W & S Plaintiffs filed the Second Amended Complaint on March 23, 2012. They asserted fourteen causes of action:

1. Violation of Ohio Securities Act, Ohio Revised Code (“O.R.C.”) § 1707.41, (Doc. 52–1 at PageID 5007);
2. Violation of Ohio Securities Act, O.R.C. § 1707.44(B)(4), (id. at PageID 5008);
3. Violation of Ohio Securities Act, O.R.C. § 1707.44(J), (id. ) ;
4. Violation of Ohio Securities Act, O.R.C. § 1707.44(G), (id. ) ;
5. Repayment pursuant to the Ohio Securities Act, O.R.C. § 1707.43, (id. at PageID 5009);
6. Tortious interference with contract, (id. );
7. Common law fraud, (id. at PageID 5010);
8. Common law conspiracy against WaMu Defendants, (id. at PageID 5011);
9. Common law conspiracy against JPM Defendants, (id. at PageID 5012);
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