Genesee Cnty. Employees' Ret. Sys. v. Thornburg Mortg. Sec. Trust 2006-3

• Decision Date: 12 November 2011
• Docket Number: No. CIV 09-0300 JB/KBM,CIV 09-0300 JB/KBM
• Court: United States District Courts. 10th Circuit. District of New Mexico
• Parties: GENESEE COUNTY EMPLOYEES' RETIREMENT SYSTEM; MARYLAND-NATIONAL CAPITAL PARK & PLANNING COMMISSION EMPLOYEES' RETIREMENT SYSTEM; MIDWEST OPERATING ENGINEERS PENSION TRUST FUND, Individually and On Behalf of All Others Similarly Situated, Plaintiffs, v. THORNBURG MORTGAGE SECURITIES TRUST 2006-3; THORNBURG MORTGAGE SECURITIES TRUST 2006-5; THORNBURG MORTGAGE SECURITIES TRUST 2007-4; GREENWICH CAPITAL ACCEPTANCE, INC.; STRUCTURED ASSET MORTGAGE INVESTMENTS II, INC.; CREDIT SUISSE SECURITIES LLC d/b/a CREDIT SUISSE SECURITIES (USA) LLC; RBS SECURITIES INC.; BANC OF AMERICA SECURITIES LLC; ROBERT J. MCGINNIS; CAROL P. MATHIS; JOSEPH N. WALSH, III; JOHN C. ANDERSON; JAMES M. ESPOSITO; JEFFREY L. VERSCHLEISER; MICHAEL B. NIERENBERG; JEFFREY MAYER; THOMAS F. MARANO; MOODY'S CORP.; MOODY'S INVESTORS SERVICES, INC.; MCGRAW-HILL COMPANIES, INC.; STANDARD & POOR'S RATING SERVICES; FITCH, INC.; and FITCH RATINGS, Defendants.

GENESEE COUNTY EMPLOYEES' RETIREMENT SYSTEM;
MARYLAND-NATIONAL CAPITAL PARK & PLANNING COMMISSION EMPLOYEES' RETIREMENT SYSTEM;
MIDWEST OPERATING ENGINEERS PENSION TRUST FUND, Individually
and On Behalf of All Others Similarly Situated, Plaintiffs,
v.
THORNBURG MORTGAGE SECURITIES TRUST 2006-3;
THORNBURG MORTGAGE SECURITIES TRUST 2006-5;
THORNBURG MORTGAGE SECURITIES TRUST 2007-4;
GREENWICH CAPITAL ACCEPTANCE, INC.;
STRUCTURED ASSET MORTGAGE INVESTMENTS II,
INC.; CREDIT SUISSE SECURITIES LLC d/b/a CREDIT SUISSE SECURITIES (USA) LLC;
RBS SECURITIES INC.; BANC OF AMERICA SECURITIES LLC; ROBERT J. MCGINNIS;
CAROL P. MATHIS; JOSEPH N. WALSH, III; JOHN C. ANDERSON;
JAMES M. ESPOSITO; JEFFREY L. VERSCHLEISER; MICHAEL B. NIERENBERG;
JEFFREY MAYER; THOMAS F. MARANO; MOODY'S CORP.;
MOODY'S INVESTORS SERVICES, INC.; MCGRAW-HILL COMPANIES, INC.;
STANDARD & POOR'S RATING SERVICES; FITCH, INC.; and FITCH RATINGS, Defendants.

No. CIV 09-0300 JB/KBM

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO

Dated: November 12, 2011

MEMORANDUM OPINION AND AMENDED ORDER

THIS MATTER comes before the Court on: (i) the Opposed Motion to Dismiss of Defendants Greenwich Capital Acceptance, Inc. (n/k/a RBS Acceptance Inc.), Structured Asset Mortgage Investments II, Inc., Credit Suisse Securities (USA) LLC, RBS Securities Inc. (f/k/a Greenwich Capital Markets, Inc.), Robert J. McGinnis, Carol P. Mathis, Joseph N. Walsh III, John C. Anderson, James M. Esposito, Jeffrey L. Verschleiser, Michael B. Nierenberg, Jeffrey Mayer,

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Thomas F. Marano, filed July 11, 2011 (Doc. 125)("Joint Motion"); (ii) Banc of America Securities LLC's Joinder in the Motion to Dismiss of the Depositor Defendants, the Individual Defendants, Credit Suisse Securities (USA) LLC, and RBS Securities, Inc., filed February 11, 2011 (Doc. 130)("Joinder in Motion"); and (iii) the Rating Agencies' Motion to Dismiss with Prejudice the Amended Class Action Complaint, filed February 11, 2011 (Doc. 128)("Rating Agency Defendants' Motion"). The Court held a hearing on September 19, 2011. The primary issues are: (i) whether the Plaintiffs Maryland-National Capital Park & Planning Commission Employees' Retirement System and Midwest Operating Engineers Pension Trust Fund have constitutional standing to pursue their claims; (ii) whether the Plaintiffs' claims are time-barred by the applicable statutes of limitation or repose; (iii) whether the Plaintiffs have stated sufficient materiality allegations against the Defendants other than the Rating Agency Defendants;¹ (iv) whether the Plaintiffs have alleged a section 12(a)(2) claim under the Securities Act of 1933, 15 U.S.C. §§ 77a-77aa against the Defendants; (v) whether the Plaintiffs must plead reliance on the alleged misrepresentations in the offering documents for the 2006-5 offering; (vi) whether the Plaintiffs have stated a control-person claim against the Individual Defendants² or Defendant RBS Securities, Inc.; (vii) whether lack of causation undercuts the Plaintiffs' claims related to the 2006-5 offering; (viii) whether the Plaintiffs have stated claims under the New Mexico Securities Act, N.M.S.A. 1978, §§ 58-13B-1 through 58-

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13B-57, repealed by L. 2009, Ch. 82, § 703, effective Jan. 1, 2010, against any of the Defendants;³ (ix) whether the Plaintiffs have stated sufficient materiality allegations against the Rating Agency Defendants; (x) whether the First Amendment of the United States Constitution bars the Plaintiffs' claims against the Rating Agency Defendants; and (xi) whether the Credit Rating Agency Reform Act of 2006 ("CRARA"), Pub. L. No. 109-291, 120 Stat. 1327, preempts any of the Plaintiffs' New Mexico Securities Act claims against the Rating Agency Defendants. The Court will grant in part and deny in part both the Joint Motion and the Rating Agency Defendants' Motion. The Court will allow the Plaintiffs leave to file a motion to amend their pleadings consistent with its discussion in the Memorandum Opinion and Amended Order. With respect to the issue of pleading their compliance with the applicable statute of limitations and statute of repose, the Court will grant the Plaintiffs leave to amend to cure this defect without requiring them to file a motion seeking leave to amend.

The Plaintiffs have constitutional standing to pursue their claims against the Defendants. The Plaintiffs' claims are not time-barred under federal securities law or under the New Mexico Securities Act. The Plaintiffs have sufficiently pled allegations about material misrepresentations or omissions against the Defendants other than the Rating Agency Defendants with respect to: (i) their abandonment of their loan underwriting guidelines; (ii) their improper appraisal practices regarding the 2006-5 offering; (iii) the inflated loan-to-value ("LTV") ratios regarding the 2006-5 offering; and (iv) to the credit ratings regarding the 2006-5 and 2007-4 offerings. The Plaintiffs

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have adequately alleged their section 12(a)(2) claims. The Plaintiffs have no obligation to plead reliance on the alleged misrepresentations related to the 2006-5 offering. The Plaintiffs have adequately stated a control-person claim. Lack of causation does not undercut the Plaintiffs' claims related to the 2006-5 offering. While the Plaintiffs have not sufficiently alleged that their claims satisfy the jurisdictional provisions of the New Mexico Securities Act, they have sufficiently alleged that the Rating Agency Defendants can be liable under the New Mexico Securities Act. Against the Rating Agency Defendants, the Plaintiffs have sufficiently pled allegations about material misrepresentations or omissions with respect to Defendants McGraw-Hill Companies, Inc. and Standard & Poor's Rating Services, but not against Defendants Fitch, Inc., Fitch Ratings, Moody's Corp., or Moody's Investors Services, Inc. The First Amendment does not bar the Plaintiffs' claims against the Rating Agency Defendants. Lastly, CRARA preempts some of the theories on which the Plaintiffs base their claims under the New Mexico Securities Act against the Rating Agency Defendants.

FACTUAL BACKGROUND

The Court recites the factual background in this case in the light most favorable to the Plaintiffs. This dispute arises out of several investment offerings⁴ of mortgage-backed securities ("MBS"). The asserted class invested in these MBS and ultimately suffered significant losses on their investments. The Plaintiffs contend that the Defendants made a variety of misrepresentations relating to these investments that misled the asserted class as to the true risk of these investments.

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1. Non-Parties

Thornburg Mortgage Securities Trust 2006-3, Thornburg Mortgage Securities Trust 2006-5, and Thornburg Mortgage Securities Trust 2007-4 are statutory trusts formed under Delaware law. See Amended Complaint for Violations of §§ 11, 12(a)(2) and 15 of the Securities Act of 1933 and §§ 58-13B-30(B) and 58-13B-40(A) of the New Mexico Securities Act of 1986 ¶ 21, at 13, filed December 10, 2010 (Doc. 103)("Amended Complaint").⁵ On March 22, 2011, the Plaintiffs voluntarily dismissed these statutory trusts from this action. See Plaintiffs' Notice of Voluntary Dismissal Without Prejudice of Defendants Thornburg Mortgage Securities Trust 2006-3, Thornburg Mortgage Securities Trust 2006-5, and Thornburg Mortgage Securities Trust 2007-4 (Doc. 138). These statutory trusts are referred to collectively as the "Thornburg Trusts." The Plaintiffs did not name Thornburg Mortgage Home Loans, Inc. ("Thornburg Mortgage Home Loans") as a Defendant, but Thornburg Mortgage Home Loans originated many of the mortgage loans involved in this dispute. See Amended Complaint ¶ 3, at 7.

2. The Parties

This action is brought by Lead Plaintiffs: (i) Maryland-National Capital Park & Planning Commission Employees' Retirement System ("Maryland-National Capital"); and (ii) Midwest Operating Engineers Pension Trust Fund ("Midwest Operating"). See Amended Complaint ¶¶ 19-20, at 13. Maryland-National Capital is a single-employer, defined-benefit-pension plan established in 1972 that a board of trustees administers. See Amended Complaint ¶ 19, at 13. It purchased

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certificates in the 2006-3 and 2007-4 offerings. See Amended Complaint ¶ 19, at 13. Midwest Operating provides benefits to members of the Local 150 of the International Union of Operating Engineers. See Amended Complaint ¶ 20, at 13. Midwest Operating purchased certificates in the 2006-3, 2006-5, and 2007-4 offerings. See Amended Complaint ¶ 20, at 13.

Defendant Greenwich Capital Acceptance, Inc. ("GC Acceptance") is a finance subsidiary of Greenwich Capital Holdings, Inc. and an affiliate of RBS Securities, Inc. ("RBS Securities"),⁶ organized for the limited purpose of acquiring, owning, and transferring mortgage assets and selling interests in those assets or bonds secured by those assets. See Amended Complaint ¶ 22, at 14. Defendant Structured Asset Mortgage Investments II, Inc. ("SAMI II") is a wholly owned subsidiary of The Bear Stearns Companies Inc. ("Bear Stearns"), which JP Morgan Chase & Co. acquired, and was organized for the sole purpose of serving as a private secondary mortgage market conduit. See Amended Complaint ¶ 23, at 14. The Plaintiffs state in their Amended Complaint that RBS Securities served as a "depositor" for the Series 2006-3 and Series 2007-4 certificates and was the "issuer" of the...