Fed. Deposit Ins. Corp. v. RBS Acceptance Inc.
| Decision Date | 30 January 2020 |
| Docket Number | Civil Action No. 14-cv-00418-PAB-NRN |
| Citation | 611 F.Supp.3d 1089 |
| Parties | FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for United Western Bank, Plaintiff, v. RBS ACCEPTANCE INC., RBS Securities, Inc., and; RBS Holdings USA Inc., Defendants. |
| Court | U.S. District Court — District of Colorado |
Andrew Ryan Shoemaker, Paul Howard Schwartz, Shoemaker Ghiselli & Schwartz, LLC, Boulder, CO, David Jonathan Grais, Vickie Reznik, Kristina M. Mentone, Megan Anne Burns, Grais & Ellsworth LLP, New York, NY, Silvia Ostrower, Hunton Andrews Kurth LLP, New York, NY, for Plaintiff.
Christian Heath Hendrickson, Peter G. Koclanes, Sherman & Howard, L.L.C., Denver, CO, Abigail Whitney Williams, Shipman & Goodwin LLP, Washington, DC, Alexandra C. Pitney, Andrew Tyler Frankel, Linton Mann, III, Magdey Abdallah, Meredith Christine Duffy, Thomas Charles Rice, Simpson Thacher & Bartlett LLP, New York, NY, for Defendants.
PHILIP A. BRIMMER, Chief United States District Judge This matter is before the Court on Defendants' Omnibus Motion for Summary Judgment [Docket No. 248]. The Court has subject matter jurisdiction under 28 U.S.C. § 1331 and 12 U.S.C § 1819(b)(2)(A) ().
The dispute in this case is based on defendants' sale of residential mortgage-backed securities to United Western Bank ("UWB"). In 2006, UWB purchased the HVMLT-2006-7 B-2 Certificate (the "Certificate"), which was backed by approximately 5,119 residential mortgage loans originated and underwritten by American Home Mortgage ("American Home") in 2005 and 2006. Docket No. 248 at 4-5, 8, ¶¶ 1-2, 22; Docket No. 257 at 7, ¶ 65. The Certificate was issued and underwritten by defendants. Docket No. 248 at 4, ¶ 1.2
Before the sale, defendants sent UWB preliminary marketing materials regarding the Certificate. Id. at 5, ¶ 4. These materials warned that the information provided therein was "preliminary and...subject to completion or change." Id. , ¶ 5. At some point prior to August 15, 2006, UWB employees Ben Hirsch and Pat Howard approved UWB's purchase of the Certificate. Id. at 6, ¶ 9. UWB completed the purchase on August 15, 2006. Id. , ¶ 8. The same day, defendants filed the HVMLT 2006-7 Prospectus Supplement ("prospectus supplement") with the Securities and Exchange Commission ("SEC"). Id. Neither Mr. Hirsch nor Mr. Howard recalled reviewing the prospectus supplement before purchase. Id. , ¶¶ 10, 11.3
The preliminary marketing materials and prospectus supplement made various representations regarding the Certificate and the underlying mortgage loans. For example, both the preliminary marketing materials and the prospectus supplement stated that the weighted average loan-to-value ratio ("LTV") of the underlying loans was between 75.26% and 75.27% and that the weighted average effective LTV for the loans was 64.86%. Docket No. 257 at 7-8, ¶¶ 67, 70; see also Docket No. 249-4 at 28 (preliminary marketing materials); Docket No. 250 at 5 (prospectus supplement). The prospectus supplement also stated that the "mortgage loans were originated in accordance with the underwriting guidelines described under ‘Mortgage Loan Origination – Underwriting Standards' herein." Docket No. 257 at 10, ¶ 82; Docket No. 250 at 12.4 Under those standards, "exceptions to American Home's underwriting guidelines [were] allowed if sufficient compensating factors exist[ed] to offset any additional risk due to the exception." Docket No. 250 at 19; see also id. at 17; Docket No. 257 at 10, ¶ 82. Finally, the prospectus supplement stated that "[e]very mortgage loan [was] secured by a property that ha[d] been appraised by a licensed appraiser in accordance with the Uniform Standards of Professional Appraisal Practice [("USPAP")] of the Appraisal Foundation." Docket No. 257 at 11, ¶ 88; Docket No. 250 at 18.
Before selling the Certificate, defendants hired Hansen Quality to assess the reasonableness of the appraised values for a sample set of loans included in the Certificate. Docket No. 257 at 12, ¶ 91. Defendants also hired The Clayton Group ("Clayton") to determine whether the loans complied with underwriting guidelines and applicable law. Id. , ¶ 96.
In October 2006, UWB enlisted J.P. Morgan to analyze the credit quality of its securities portfolio, which included the Certificate. Docket No. 248 at 11, ¶ 45. J.P. Morgan and UWB "both agreed that the portfolio was of high quality and that there were no signs of any credit deterioration or any problematic securities." Docket No. 257 at 14, ¶ 106. Between 2006 and 2008, UWB tracked the performance of the mortgage loans backing the Certificate. Docket No. 248 at 11, ¶ 46. By January 2008, 11.31% of the loans backing the Certificate had experienced delinquencies or foreclosures. Id. , ¶ 48.5 However, the Certificate maintained an investment grade rating. Docket No. 257 at 14, ¶ 107.
On January 21, 2011, UWB failed and was placed in receivership by the Federal Deposit Insurance Corporation ("FDIC"). Docket No. 248 at 5, ¶ 3. On January 15, 2014, the FDIC, acting in its capacity as receiver for UWB, filed this lawsuit in the District Court for the City and County of Denver, Colorado, asserting state and federal securities law claims against various defendants based on allegedly false and misleading statements made in connection with ten mortgage-backed certificates, including the Certificate, purchased by UWB. See Docket No. 4 at 3, ¶ 1. On February 14, 2014, the defendants removed the case to federal court. See Docket No. 1.
On November 14, 2014, plaintiff voluntarily dismissed its claims against defendants Banc of America Funding Corporation, Bank of America Corporation, Banc of America Mortgage Securities, Inc., Bank of America, N.A., and Merrill Lynch, Pierce, Fenner & Smith, Inc. Docket No. 95. Through orders entered on February 24, 2015 and March 24, 2015, the Court remanded plaintiff's federal securities act claims against the remaining defendants to state court, see Docket No. 100 at 9 (), and dismissed plaintiff's first and second claims for relief to the extent they sought recovery for defendants' failure to disclose the existence of additional liens on properties in certificates 2, 3, and 4. Docket No. 103 at 22. On February 26, 2016, plaintiff voluntarily dismissed its claims against the Morgan Stanley defendants. Docket No. 141.
On January 5, 2018, the sole remaining defendants in the case, RBS Acceptance Inc., RBS Securities Inc., and RBS Holdings USA Inc. (hereinafter "defendants"), moved for summary judgment. Docket No. 248. The claims at issue in the summary judgment motion arise under §§ 11-51-501(1)(b) and 11-51-604(4) of the Colorado Securities Act, which create liability for any person who, in connection with the sale of a security, "make[s] any untrue statement of a material fact or...omit[s] to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading." Colo. Rev. Stat. §§ 11-51-501(1)(b), 11-51-604(4). As a basis for its claims, plaintiff alleges that defendants made materially false and/or misleading statements in connection with the sale of the Certificate to UWB in 2006. See generally Docket No. 4.6
On February 21, 2018, plaintiff filed a response to defendants' motion, Docket No. 257, to which defendants replied on March 21, 2018. Docket No. 263. On June 13, 2018, plaintiff filed a notice of supplemental authority, Docket No. 268, which the Court has considered in resolving defendants' summary judgment motion below.
Summary judgment is warranted under Federal Rule of Civil Procedure 56 when the "movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; See Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A disputed fact is "material" if under the relevant substantive law it is essential to proper disposition of the claim. Wright v. Abbott Labs., Inc. , 259 F.3d 1226, 1231-32 (10th Cir. 2001). Only disputes over material facts can create a genuine issue for trial and preclude summary judgment. Faustin v. City & Cty. of Denver , 423 F.3d 1192, 1198 (10th Cir. 2005). An issue is "genuine" if the evidence is such that it might lead a reasonable jury to return a verdict for the nonmoving party. Allen v. Muskogee , 119 F.3d 837, 839 (10th Cir. 1997).
Where "the moving party does not bear the ultimate burden of persuasion at trial, it may satisfy its burden at the summary judgment stage by identifying a lack of evidence for the nonmovant on an essential element of the nonmovant's claim." Bausman v. Interstate Brands Corp. , 252 F.3d 1111, 1115 (10th Cir. 2001) (internal quotation marks omitted) (quoting Adler v. Wal-Mart Stores, Inc. , 144 F.3d 664, 671 (10th Cir. 1998) ). "Once the moving party meets this burden, the burden shifts to the nonmoving party to demonstrate a genuine issue for trial on a material matter." Concrete Works of Colo., Inc. v. City & Cty. of Denver , 36 F.3d 1513, 1518 (10th Cir. 1994). The nonmoving party may not rest solely on the allegations in the pleadings, but instead must designate "specific facts showing that there is a genuine issue for trial." Celotex Corp. v. Catrett , 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (internal quotation marks omitted). "To avoid summary judgment, the nonmovant must establish, at a minimum, an inference of the presence of each element essential to the case." Bausman , 252 F.3d at 1115. When considering a motion for summary judgment, a court must view the evidence in the light most favorable to the non-moving party. Id.
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