Fed. Deposit Ins. Corp. v. Morgan Stanley Capital I Inc., Civil Action No. 14-cv-00418-PAB-MJW
| Decision Date | 24 March 2015 |
| Docket Number | Civil Action No. 14-cv-00418-PAB-MJW |
| Parties | FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for UNITED WESTERN BANK, Plaintiff, v. MORGAN STANLEY CAPITAL I INC.; MORGAN STANLEY & CO, LLC; MORGAN STANLEY; RBS ACCEPTANCE INC; RBS SECURITIES, INC.; and RBS HOLDINGS USA INC., Defendants. |
| Court | U.S. District Court — District of Colorado |
ORDER
This matter is before the Court on Defendants' Joint Motion to Dismiss the Complaint [Docket No. 77].1 This case arises out of defendants' sale of mortgage-backed securities to United Western Bank ("United Western"). On February 24, 2015, the Court granted in part plaintiff's Motion for Remand (Docket No. 45) and remanded plaintiff's third, fourth, and fifth claims to the District Court for the City and County of Denver. Docket No. 100. Defendants' motion is therefore moot with respect to those claims, and the Court considers only plaintiff's first and second claims for violation ofthe Colorado Securities Act ("CSA"), Colo. Rev. Stat. §§ 11-51-604(4)-(5). Defendants move to dismiss plaintiff's first two claims for relief on the grounds that they are barred by the CSA's five-year statute of repose and that the FDIC fails to identify any actionable misrepresentations. See Docket No. 77 at 2-4.
Plaintiff Federal Deposit Insurance Corporation ("FDIC") was appointed as receiver for United Western on January 21, 2011 and brings this action as successor to claims held by United Western. Docket No. 1-1 at 5, ¶ 5.2 The FDIC alleges that defendants made untrue or misleading statements about a significant number of the mortgage loans that they bundled into securities (known as "certificates") and sold to United Western in the first half of 2006. Docket No. 1-1 at 3, ¶1.
United Western purchased the certificates at issue in eight groups: (1) the first group was issued by Wells Fargo Asset Securities Corp. and underwritten and sold by defendant Morgan Stanley & Co. LLC ("Morgan Stanley & Co.") to United Western on February 28, 2006, Docket No. 1-1 at 37; (2) the second group was issued by defendant Morgan Stanley Capital I Inc. ("Morgan Stanley Capital") and underwritten and sold to United Western by defendant Morgan Stanley & Co. on January 31, 2006, Docket No. 1-1 at 44; (3) the third group was issued by Morgan Stanley Capital and underwritten and sold by Morgan Stanley Co. to United Western on February 28, 2006, Docket No. 1-1 at 50; (4) the fourth group was issued by Morgan Stanley Capital andunderwritten and sold by Morgan Stanley & Co. to United Western on April 28, 2006, Docket No. 1-1 at 57; (5) the fifth group was issued by defendant Banc of America Funding Corporation and underwritten and sold by defendant Merrill Lynch, Pierce, Fenner & Smith Inc. ("Merrill Lynch") to United Western on April 3, 2006, Docket No. 1-2 at 1; (6) the sixth group was issued by Banc of America Funding Corporation and underwritten and sold to United Western by Merrill Lynch on May 31, 2006, Docket No. 1-2 at 7; (7) the seventh group was issued by defendant Banc of America Mortgage Securities Inc. and underwritten and sold to United Western by Merrill Lynch on February 28, 2006, Docket No. 1-2 at 13; and (8) the eighth group was issued by defendant RBS Acceptance Inc. ("RBS Acceptance") and underwritten and sold to United Western by defendant RBS Securities, Inc. on August 15, 2006. Docket No. 1-2 at 21.3
The FDIC alleges that defendants made false or misleading statements regarding the credit quality of the mortgages backing the securities they sold to United Western, including loan-to-value ("LTV") ratios, the number of properties that were subject to additional, unreported liens, the extent to which the originators of those loans adhered to their underwriting standards, the extent to which the appraisals securing the loans were compliant with professional standards, the number of loans secured by non-owner-occupied properties, and the extent to which defendants' inaccurate reports to rating agencies affected the credit ratings of the certificates. Docket No. 1-1 at 3, ¶ 1. The FDIC's allegations are based on an investigation in which the FDIC reviewed theoffering materials and performance, rating, and pricing data for the certificates and then conducted a forensic analysis of a random sample of loans to determine whether the statements in the offering documents were accurate. Id. at 3, ¶¶ 2-3. The forensic analysis used an automated valuation model ("AVM") that is designed to provide a "true market value" of a certain property as of a specified date. Id. at 11, ¶ 46. According to the FDIC, the AVM is "based on objective criteria like the condition of the property and the actual sale prices of comparable properties in the same locale shortly before the specified date, and is more consistent, independent, and objective than other methods of appraisal," and "[i]ndependent testing services have determined that this AVM is the most accurate of all such models," with a mean error rate at or below 2.5%. Id. at 11-12, ¶ 46.
Based on these factual allegations, the FDIC alleges that Morgan Stanley & Co., Morgan Stanley Capital, RBS Securities Inc., and RBS Acceptance violated the CSA's prohibition on making misleading statements or omissions in connection with the sale of securities, Colo. Rev. Stat. §§ 11-51-604(4), 11-51-501(1)(b). Docket No. 1-1 at 27-30, ¶¶ 110-34. The FDIC also alleges that Morgan Stanley and RBS Holdings USA Inc. are liable under the CSA as controlling persons, Colo. Rev. Stat. § 11-51-604(5). Docket No. 1-1 at 30-31, ¶¶ 135-47.
The Court's function on a Rule 12(b)(6) motion for failure to state a claim upon which relief can be granted is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is sufficient toplausibly state a claim. Fed. R. Civ. P. 12(b)(6); Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th Cir. 2003) (citations omitted). In doing so, the Court "must accept all the well-pleaded allegations of the complaint as true and must construe them in the light most favorable to the plaintiff." Alvarado v. KOB-TV, L.L.C., 493 F.3d 1210, 1215 (10th Cir. 2007) (quotation marks and citation omitted). At the same time, however, a court need not accept conclusory allegations. Moffett v. Halliburton Energy Servs., Inc., 291 F.3d 1227, 1232 (10th Cir. 2002).
Generally, "[s]pecific facts are not necessary; the statement need only 'give the defendant fair notice of what the claim is and the grounds upon which it rests.'" Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per curiam) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)) (omission marks, internal quotation marks, and citation omitted). The "plausibility" standard requires that relief must plausibly follow from the facts alleged, not that the facts themselves be plausible. Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008). However, "where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not shown—that the pleader is entitled to relief." Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (internal quotation marks and alteration marks omitted). Thus, even though modern rules of pleading are somewhat forgiving, "a complaint still must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory." Bryson, 534 F.3d at 1286 (quotation marks and citation omitted).
Defendants argue that the FDIC's claims are barred by the CSA's five-year statute of repose. Docket No. 77 at 9. Plaintiff responds that its CSA claims are timely under Section 1821(d)(14) of Title 12 (the "FDIC extender statute"), which extends the applicable statute of limitations with regard to tort claims brought by the FDIC as conservator or receiver.
Section 1821(d)(14) provides:
12 U.S.C. § 1821(d)(14). In other words, for any tort claim (such as the FDIC's CSAclaims here), the FDIC must sue within three years from either the date that it places a failed bank into conservatorship or receivership or the date on which the cause of action accrues. See id.
At issue here is whether the FDIC extender statute, which names only statutes of limitations, also operates to preempt state statutes of repose.4 "A statute of repose . . . puts an outer limit on the right to bring a civil action." CTS Corp. v. Waldburger, 134 S.Ct. 2175, 2182 (2014). Unlike a statute of limitations, the time limit that a statute of repose imposes "is measured not from the date on which the claim accrues but instead from the date of the last culpable act or omission of the defendant." Id. A statute of repose is "therefore equivalent to a cutoff, in essence an absolute bar on a defendant's temporal liability[.]" Id. at 2183 (). Defendants argue that, because the FDIC extender stat...
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