Allstate Ins. Co. v. Countrywide Fin. Corp.

• Decision Date: 21 October 2011
• Docket Number: Case No. 2:11–CV–05236–MRP (MANx).
• Citation: 824 F.Supp.2d 1164
• Parties: ALLSTATE INSURANCE COMPANY, et al., Plaintiffs, v. COUNTRYWIDE FINANCIAL CORPORATION, et al., Defendants.
• Court: U.S. District Court — Central District of California

824 F.Supp.2d 1164

ALLSTATE INSURANCE COMPANY, et al., Plaintiffs,

v.COUNTRYWIDE FINANCIAL CORPORATION, et al., Defendants.

Case No. 2:11–CV–05236–MRP (MANx).

United States District Court, C.D. California.

Oct. 21, 2011.

Daniel L. Brockett, Jeremy Andersen, Quinn Emanuel Urquhart Oliver and Hedges, Los Angeles, CA, David Dyer Burnett, Marc L. Greenwald, Quinn Emanuel Urquhart Oliver and Hedges, New York, NY, for Plaintiffs.

Brian Charles Devine, Brian E. Pastuszenski, Caroline H. Bullerjahn, Inez H. Friedman–Boyce, Goodwin Procter LLP, Boston, MA, Lloyd Winawer, Goodwin Procter LLP, Matthew W. Close, O'Melveny and Myers, David Siegel, Holly L. Gershow, Irell & Manella LLP, Los Angeles, CA, Mark Holland, Goodwin Procter LLP, Asher Louis Rivner, Bradley J. Butwin, Jonathan Rosenberg, William J. Sushon, O'Melveny & Myers LLP, Keara M. Gordon, DLA Piper U.S. LLP, Ronald P. Fischetti, New York, NY, Julie Michelle Davis, A. Matthew Ashley, Allison Lauren Libeu, Irell and Manella LLP, Newport Beach, CA, Frank M. Scaduto, Michael D. Torpey, Orrick Herrington & Sutcliffe

LLP, San Francisco, CA, Michael C. Tu, Orrick Herrington & Sutcliffe LLP, Matthew D. Caplan, Nicolas Morgan, DLA Piper LLP, Jenifer Q. Doan, Joshua G. Hamilton, Peter Young Hoon Cho, William F. Sullivan, Paul Hastings LLP, Jeanne A. Fugate, Andrew A. Esbenshade, Christopher G. Caldwell, David C. Codell, Caldwell Leslie & Proctor, Jennifer M. Sepic, Bingham McCutchen LLP, Los Angeles, CA, David A. Priebe, Rajiv S. Dharnidharka, DLA Piper LLP, East Palo Alto, CA, Shirli Fabbri Weiss, DLA Piper LLP, San Diego, CA, Leiv H. Blad, Jr., Zarema V. Arutyunova, Bingham McCutchen LLP, Washington, DC, for Defendants.

ORDER RE MOTIONS TO DISMISS THE COMPLAINT

MARIANA R. PFAELZER, District Judge.

I. INTRODUCTION & BACKGROUND

This securities action concerns residential mortgage-backed securities (“RMBS”) purchased by Allstate Insurance Company, Allstate Life Insurance Company, Allstate Life Insurance Company of New York, and American Heritage Life Insurance Company (collectively “Allstate” or “Plaintiffs”) in multiple offerings structured and sold by several of the defendants. Allstate Insurance Company and Allstate Life Insurance Company are referred to as the “Illinois Plaintiffs.” The complaint alleges federal and state causes of action against Countrywide Financial Corporation (“CFC” or “Countrywide”), three Countrywide subsidiaries, the SPVs that issued the RMBS Certificates,¹ Bank of America, its subsidiary NB Holdings Corp., and several of Countrywide's former officers and directors. The various defendants are referred to as the Countrywide Defendants,² the Depositor Defendants,³ the Individual Defendants,⁴ and the Bank of America Defendants.⁵

This case only recently came before the Court, but it has a complicated and relevant procedural history. Various plaintiffs have been attempting to recover alleged losses on Countrywide RMBS since the end of 2007. In November 2007, David Luther filed a putative class action on behalf of himself and purchasers of several hundred Countrywide-issued RMBS in the California state court.⁶ In June of 2008, the Washington State Plumbing and Pipefitting Pension Fund Trust filed a similar action in state court seeking to represent purchasers of several hundred Offerings.⁷ Those cases were later consolidated into one case (referred to hereafter as Luther) and amended to assert claims on behalf of yet more Offerings. This despite the fact that the Luther named plaintiffs had purchased Certificates in only a small fraction of the Offerings that they purported to represent. The Luther case was removed to federal court. The Court remanded to state court under the Class Action Fairness Act (“CAFA”), and was affirmed by the Ninth Circuit. The state court then dismissed the case under the Securities Litigation Uniform Standards Act (“SLUSA”). That decision was reversed and remanded on appeal. The suit is presently pending in California state court.

While the Luther appeal was pending in state court, the Luther plaintiffs filed an identical suit before this Court, captioned Maine State Retirement System v. Countrywide Financial Corp., No. 2:10–CV–0302 MRP (MANx) ( “ Maine State ”). In Maine State, this Court found the claims as to most of the 427 Offerings to be time-barred under Section 11's three-year statute of repose. Specifically, the Court held that the doctrine of American Pipe tolled the statute of limitations only for those Certificates that the named plaintiffs in the prior putative class actions had standing to sue, i.e., those tranches that the Luther named plaintiffs had actually purchased. Maine State Ret. Sys. v. Countrywide Fin. Corp., 722 F.Supp.2d 1157, 1166–67 (C.D.Cal.2010) (“ Maine State I ”); Maine State Ret. Sys. v. Countrywide Fin. Corp., No. 2:10–CV–0302 MRP (MANx), 2011 WL 4389689, at *6 (C.D.Cal. May 5, 2011) (“ Maine State III ”). The Court also dismissed Bank of America Corp. and NB Holdings Corp. from the Maine State case, holding that the plaintiffs had failed to allege a de facto merger claim under Delaware law. Maine State Ret. Sys. v. Countrywide Fin. Corp., No. 2:10–CV0302 MRP (MANx), 2011 WL 1765509, at *8–9 (C.D.Cal. Apr. 20, 2011) (“ Maine State II ”).

After the Maine State I ruling, which barred the claims of Allstate from that action, Allstate filed the Complaint in the Southern District of New York. ECF No. 1. In addition to the Securities Act claims asserted in Maine State, Allstate asserted several Exchange Act claims, as well as state law fraud, aiding and abetting, negligent misrepresentation, and successor liability. Id. Defendants moved to transfer the case to this Court. Citing apparent “judge-shopping,” Judge Hellerstein granted the transfer motion, but not before the parties had fully briefed the Defendants' various motions to dismiss under New York and Second Circuit law. Order Granting Motion to Transfer, ECF No. 116. This Court ordered additional briefing to clarify the choice of law and state law issues, and then permitted a second round of supplemental briefing on choice of law. The issues now have been fully briefed, and the Court heard extensive oral argument on September 21, 2011.

II. CHOICE OF LAW

Before embarking on a substantive analysis, the Court must determine which law to apply to each of Plaintiffs' claims.

Allstate's federal claims are governed by federal law. “When reviewing federal claims, a transferee court in [the Ninth Circuit] is bound only by [the Ninth Circuit's] precedent.” Newton v. Thomason, 22 F.3d 1455, 1460 (9th Cir.1994). Accord In re Korean Air Lines Disaster, 829 F.2d 1171, 1176 (D.C.Cir.1987), aff'd on other grounds sub nom. Chan v. Korean Air Lines, Ltd., 490 U.S. 122, 109 S.Ct. 1676, 104 L.Ed.2d 113 (1989) (holding that “the law of a transferor forum on a federal question ... does not have stare decisis effect in a transferee forum situated in another circuit”). The Court will therefore apply Ninth Circuit precedent to Allstate's federal claims.

The case was transferred from the Southern District of New York pursuant to 28 U.S.C. § 1404(a). ECF No. 116. The Court will therefore apply the substantive law, including choice-of-law rules, of New York to Allstate's state law claims. Van Dusen v. Barrack, 376 U.S. 612, 639, 84 S.Ct. 805, 11 L.Ed.2d 945 (1964) (“A change of venue under § 1404(a) generally should be, with respect to state law, but a change of courtrooms.”); Newton, 22 F.3d at 1459 (9th Cir.1994) (“Because the case was transferred under 28 U.S.C. § 1404(a) ... we apply the choice-of-law rules of [the transferor forum]”). The parties are in general agreement that New York choice-of-law rules apply to the state law claims, but they disagree on the import of those rules. The disagreements fall into three broad categories: (i) whether New York's choice-of-law rules require the application of California or New York law to the aiding and abetting claims, (ii) whether Delaware or New York law applies to the claims against the Bank of America Defendants, and (iii) whether New York's borrowing statute requires consideration of Illinois' statute of limitations. The Court will address each in turn. The parties are in apparent agreement that New York law applies to the merits of Allstate's fraud and negligent misrepresentation claims.⁸

A. Aiding And Abetting

In their supplemental briefs, Mozilo and Sambol argue that California law, not New York law, applies to the aiding and abetting claims against him. Mozilo Supp. Brief at 4, ECF No. 163; Sambol Supp. Brief at 5, ECF No. 166. When faced with a choice of law question, New York first analyzes whether a true conflict exists. Cromer Finance Ltd. v. Berger, 137 F.Supp.2d 452, 492 (S.D.N.Y.2001). A true conflict of laws does exist in this case. California law makes clear that “[a]n employee cannot aid and abet his or her corporate employer.” Fiol v. Doellstedt, 50 Cal.App.4th 1318, 1326, 58 Cal.Rptr.2d 308 (2d Dist.1996). See also, Janken v. GM Hughes Electronics, 46 Cal.App.4th 55, 77–79, 53 Cal.Rptr.2d 741 (2d Dist.1996). Mozilo appears to concede that no such bar exists under New York law. Mozilo Supp. Brief at 4. Because the aiding and abetting claim would clearly be barred under California law, the Court finds that a true conflict of law exists.

When a true conflict does exist, New York employs an “interest analysis” to apply the law of the jurisdiction “having the greatest interest in the litigation.” Cromer Finance, 137 F.Supp.2d at 492 (citing Curley v. AMR Corp., 153 F.3d 5, 12 (2d Cir.1998)). “[F]or claims based on fraud, a court's ‘paramount’ concern is the locus of the fraud, that is, the place where the injury was inflicted, as opposed to the place where the fraudulent act originated. The place in which the injury is deemed to have occurred is usually where the plaintiff is located.” Id. (citations omitted). See also, Cooney v. Osgood Mach., Inc., 81 N.Y.2d 66, 72, 595...