John Hancock Life Ins. Co. v. JP Morgan Chase & Co.

• Decision Date: 29 March 2013
• Docket Number: No. 12 Civ. 3184(RJS).,12 Civ. 3184(RJS).
• Citation: 938 F.Supp.2d 440
• Court: U.S. District Court — Southern District of New York
• Parties: JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.), et al., Plaintiffs, v. JP MORGAN CHASE & CO., et al., Defendants.

938 F.Supp.2d 440

JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.), et al., Plaintiffs,

v.JP MORGAN CHASE & CO., et al., Defendants.

No. 12 Civ. 3184(RJS).

United States District Court, S.D. New York.

March 29, 2013.

Geoffrey Coyle Jarvis, and Deborah A. Elman of Grant & Eisenhofer P.A., New York, NY, for Plaintiffs.

Penny Shane, Allison Joan Cambria, David Allen Castleman, and Robert Andrew Sacks of Sullivan and Cromwell, LLP, New York, NY, for JPM Defendants (unless otherwise noted) and Third–Party Plaintiff JP Morgan Chase Bank, N.A.

Meredith Eve Kotler of Cleary Gottlieb Steen & Hamilton, LLP, New York, NY, for Defendants Banc of America Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Inc., and Merrill Lynch & Co.

John E. Zummo and Michelle Dianne Velasquez of Vedder Price P.C., Chicago, IL, for Defendant CSE Mortgage, LLC.

Robert F. Serio, Aric Hugo Wu, Jonathan Brian Austin, and Lawrence Jay Zweifach of Gibson, Dunn & Crutcher, LLP, New York, NY, for Defendants Deutsche Bank Securities Inc. and UBS Securities LLC.

Joel Charles Haims and Lashann Moutique DeArcy of Morrison & Foerster LLP, New York, NY, for Defendants Sara Bonesteel, Thomas F. Marano and Michael B. Nierenberg.

Joel Charles Haims and Lashann Moutique DeArcy of Morrison & Foerster LLP, and Robert Andrew Sacks of Sullivan and Cromwell, LLP, New York, NY, for Defendant Marc R. Kittner.

Richard Aframe Edlin, Candace Marie Camarata, and Ronald Daniel of Lefton of Greenberg Traurig, LLP, New York, NY, for Defendant Jeffrey Mayer.

Pamela Rogers Chepiga and Josephine Alice Cheatham of Allen & Overy, New York, NY, for Defendant Samuel L. Molinaro, Jr.

Dani R. James and Jade Anne Burns of Kramer Levin Naftalis & Frankel, LLP, New York, NY, for Defendant Jeffrey L. Verschleiser.

Scott Hu Christensen and William Robert Stein of Hughes Hubbard & Reed LLP, Washington, DC, and

Andrew J. Dober and Thomas M. Clark of the Federal Deposit Insurance Corporation, Arlington, VA, for Third Party Defendant Federal Deposit Insurance Corporation.

Memorandum and Order

RICHARD J. SULLIVAN, District Judge:

Plaintiffs ¹ bring this suit against a collection of corporate and individual Defendants, alleging violations of §§ 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”), 15 U.S.C. §§ 77k, 77 l(a)(2) & 77 o, and New York common law in connection with the sale of a number of residential mortgage-backed securities. Before the Court are four separate motions to dismiss, pursuant to Federal Rule of Civil Procedure 12(b)(6), submitted by: (1) the JPMorgan Defendants (“JPM Defendants”); ² (2) Defendant CSE Mortgage, LLC (“CSE”); (3) Banc of America Securities LLC (“BAS”) and Merrill Lynch, Pierce, Fenner & Smith Inc. (“Merrill”); and (4) Deutsche Bank Securities Inc. (“DB”), Greenwich Capital Markets, Inc. (n/k/a/ RBS Securities Inc.) (“GCM”), and UBS Securities LLC (“UBS”) (collectively, with BAS and Merrill, the “Outside Underwriters”). For the reasons that follow, the Court grants each Defendants' motion to dismiss in its entirety.

I. Background

A. Facts

Plaintiffs are nine affiliated insurance companies and investment trusts that, between January 20, 2006 and July 23, 2008, purchased 107 certificates (the “Certificates”) as part of eighty-three separate residential mortgage-backed securities transactions (“RMBS” or “Transactions”), representing a face value of $1 billion.³(Am. Compl. ¶¶ 121, 640–746.) Each RMBS was supported by a different pool of mortgage loans and was issued pursuant to certain registration statements and various prospectuses, which described the RMBS. ( Id. ¶ 5.) The Certificates were created in a multistep process, in which: (1) mortgage loan originators, such as a mortgage lender or a bank, would originate the underlying residential mortgage loans pursuant to underwriter guidelines; (2) a “sponsor” would acquire and aggregate the loans from the loan originators and then sell the loans to a “depositor”; (3) the depositor would then pool the loans and transfer them to a trust for the benefit of investors in exchange for Certificates representing specified interests in the principal and interest streams generated by the pool of loans held by the trust; and (4) the depositor would sell the Certificates to an underwriter for eventual resale to investors in public or private offerings. ( Id. ¶ 110.) Plaintiffs allege that Defendants served as originators, issuers, sponsors, sellers, depositors, and/or underwriters for the Transactions. ( Id. ¶¶ 114–21.)

B. Procedural History

Plaintiffs initiated this action by filing a summons and complaint on January 20, 2012 in New York State Supreme Court, New York County. Before any Defendant was served with the initial complaint, Plaintiffs filed an Amended Complaint on March 2, 2012, alleging violations of the federal securities law and New York common law based on false and misleading statements made concerning the riskiness and creditworthiness of the eighty-three RMBS.

On April 23, 2012, Defendants filed a Notice of Removal to this Court pursuant to 28 U.S.C. § 1446. (Doc. No. 1.) On the same date, JPMorgan Chase Bank, N.A. filed a Third–Party Complaint against the Federal Deposit Insurance Corporation (“FDIC”) for indemnification of any losses or costs incurred relating to the pre-closing activities of Washington Mutual Bank.⁴ (Doc. No. 17.)

On June 29, 2012, each of the four groups of Defendants filed their respective motions to dismiss. (Doc. Nos. 38, 42, 45, 48.) Plaintiffs filed two memoranda of law in opposition to Defendants' four motions on August 24, 2012. (Doc. Nos. 55, 56.) Each of the motions was fully submitted as of September 28, 2012, the date on which Defendants submitted their respective reply briefs. (Doc. Nos. 61, 62, 63, 64.) Thereafter, various parties also provided the Court with supplemental authority to support their positions. (Doc. Nos. 60, 66, 71, 72.)

Each group of Defendants moves to dismiss each of the counts of the Amended Complaint that pertains to it on a variety of grounds, including that Plaintiffs' federal claims are time-barred. (JPM Mem. 11–12; CSE Mem. 11; BAS Mem. 5–6; DB Mem. 8.) Since these federal claims provide the basis for this Court's jurisdiction over this matter, and since the timelinessobjection is a threshold issue for those causes of action, the Court considers this question first.

II. Discussion

A. Timeliness of Plaintiffs' Securities Act Claims

Section 13 of the Securities Act sets forth the time period within which actions pursuant to § 11 or § 12(a)(2) must be commenced:

No action shall be maintained to enforce any liability created under section 11 or section 12(a)(2) unless brought within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence, or, if the action is to enforce a liability created under section 12(a)(1), unless brought within one year after the violation upon which it is based. In no event shall any such action be brought to enforce a liability created under section 11 or section 12(a)(1) more than three years after the security was bona fide offered to the public, or under section 12(a)(2) more than three years after the sale.

15 U.S.C. § 77m. The first sentence in this section is the statute of limitations; because Defendants have not argued that Plaintiffs' claims run afoul of this provision, and there is no dispute that certain tolling doctrines apply with respect to the statute of limitations, the Court does not consider this issue. Defendants do, however, argue that the three-year limit established by the second sentence—the statute of repose—bars all of Plaintiffs' claims under the Securities Act.

According to § 13, the statute of repose begins to run on the effective date of the prospectus supplement for § 11 claims and the date of the sale for § 12(a)(2) claims. See Footbridge Ltd. Trust v. Countrywide Fin. Corp., 770 F.Supp.2d 618, 623 (S.D.N.Y.2011) (Castel, J.). Here, the effective dates of the Prospectus Supplements for the various Transactions range from 2002 to 2007 (Am. Compl. ¶ 121), and the purchase dates for those transactions range from 2006 to 2008 ( id. ¶¶ 640–746). Therefore, as this lawsuit was not filed until 2012, absent tolling, Plaintiffs' claims would be barred by the three-year statute of repose. Indeed, Plaintiffs make no argument to the contrary. ( See Opp'n to JPM/CSE 7–9.)

Plaintiffs argue, however, that their Securities Act claims are timely under the tolling doctrine articulated in American Pipe & Constr. Co. v. Utah, 414 U.S. 538, 94 S.Ct. 756, 38 L.Ed.2d 713 (1974). (Opp'n to JPM/CSE 7–9.) The American Pipe tolling doctrine “has been used to permit a plaintiff to file an action even after the statute of limitations has run, if the plaintiff had relied on a putative class action that was timely filed but ultimately dismissed.” Plumbers, Pipefitters & MES Local Union No. 392 Pension Fund v. Fairfax Fin. Holdings Ltd., 886 F.Supp.2d 328, 334 (S.D.N.Y.2012) (Keenan, J.).⁵ The parties dispute, however, whether American Pipe tolling applies equally to statutes of repose.

Courts within this district are split as to whether American Pipe tolling applies to the Securities Act's statute of repose. Compare Int'l Fund Mgmt. S.A. v. Citigroup Inc., 822 F.Supp.2d 368, 380–82 (S.D.N.Y.2011) (Stein, J.) (applying American Pipe tolling), and In re Morgan Stanley Mortg. Pass–Through Certificates Litig., 810 F.Supp.2d 650, 666–68 (S.D.N.Y.2011) (Swain, J.) (same), with Plumbers, Pipefitters & MES Local Union No. 392 Pension Fund, 886 F.Supp.2d at 333–35 (American Pipe tolling does not apply), Footbridge Ltd. Trust, 770 F.Supp.2d at 624–27 (same), and In re Lehman Bros. Sec. & Erisa Litig., 800 F.Supp.2d 477, 481–83 (S.D.N.Y.2011) (Kaplan, J.) (same).⁶ This question is currently pending before the Second Circuit. See Int'l Fund Mgmt. S.A. v. Citigroup Inc., No. 12–1903 (2d. Cir. filed May 9,...