Remember the ruling last September in which the 2nd Circuit Court of Appeals remade the rules for standing in class actions over mortgage-backed securities? In a case called NECA-IBEW Health & Welfare Fund v. Goldman Sachs, a three-judge appellate panel expanded the operative judicial thinking, which had restricted MBS class actions to trusts (or even tranches) the name plaintiff had invested in. The 2nd Circuit said that the key question wasn't whether all the investors in the proposed class bought into the same trust, but whether they had "the same set of concerns" as the name plaintiff. In the specific context of MBS litigation, the court said, those concerns involved underwriting failures by loan originators. So the 2nd Circuit ruled that name plaintiffs in MBS class actions have standing to assert claims on behalf of all investors in trusts backed by loans originated by the same lenders that supplied the mortgages underlying their notes.

At the time, I wondered how consequential the ruling would turn out to be, since MBS class action litigation has already been under way for years and most cases have long since moved beyond standing considerations. Nevertheless, the ruling has had reverberations, beginning with a sua sponte decision by U.S. Senior District Judge Edward Korman of Brooklyn that drastically expanded a class action against JPMorgan. Earlier this month, U.S. District Judge Laura Swain of Manhattan granted a motion by the Public Employees' Retirement System of Mississippi to file an amended complaint in an MBS class action against Morgan Stanley in order to establish standing under NECA-IBEW in a widened number of trusts backed by loans originated by the same lenders as those already implicated in the case, in one of a handful of recent decisions favoring MBS plaintiffs.

On Wednesday, U.S. District Judge Paul Crotty of Manhattan issued the latest ruling to grapple with the 2nd Circuit's holding. On a motion to reconsider by plaintiffs in an MBS class action against Credit Suisse, Crotty found that the New Jersey Carpenters Health Fund has standing to assert claims on behalf of investors in trusts backed by mortgages originated by New Century, which was the only mortgage lender disclosed in offering materials for the trust it invested in. But he rejected an attempt by the union fund's lawyers at Cohen Milstein Sellers & Toll to expand the class even wider, finding that allegations about the mortgage arranger or about originators whose involvement was not disclosed in offering documents do not establish "the same set of concerns" invoked by the 2nd Circuit.

Other judges, meanwhile, have disagreed with the 2nd Circuit entirely or have interpreted the ruling to have a minimal effect on class standing. In November, U.S. District Judge Mariana Pfaelzer of Los Angeles went out of her way to discount the NECA-IBEW decision, in a ruling dismissing as time-barred the Federal Deposit Insurance Corporation's MBS claims against Countrywide. "The decision in NECA-IBEW has thrown the jurisprudence in this area into disarray," she wrote. Pfaelzer, who is, of course, not bound by 2nd Circuit precedent, is the only federal judge who has flat-out rejected the reasoning of NECA-IBEW, according to Westlaw. But in December, U.S. District Judge Katherine Forrest of Manhattan took an extremely narrow view of what the 2nd Circuit meant by "the same set of concerns." She held that the Policemen's Annuity Fund of Chicago only had standing to assert claims on behalf of investors in the same Bank of America MBS trusts it bought into -- exactly the same result judges in the 2nd Circuit were reaching before the NECA-IBEW ruling.

The impact of the 2nd Circuit decision is at issue right now at the U.S. Supreme Court. Goldman Sachs, represented by Gibson, Dunn & Crutcher and Sullivan & Cromwell, filed a petition for certiorari last October, arguing that the appellate ruling is of nationwide importance, with the potential to affect billions of dollars in MBS claims. (Goldman also asserted that the 2nd Circuit's decision is at odds with the 1st Circuit's 2011 holding in Plumbers Union Local 12 v. Nomura.) Goldman's request for Supreme Court review has been bolstered by amicus briefs by a defense lawyers' group and by the Chamber of Commerce and the Securities Industry and Financial Markets Association, both of which claim that huge sums of money hang on the 2nd Circuit's ruling.

NECA-IBEW's lawyers at Robbins Geller Rudman & Dowd waived the right to respond to Goldman's cert petition, but after the case was distributed for conference in December, the court requested a response. The filing is due on Feb. 4. And ironically, the best tack for plaintiffs may be to minimize the significance of the 2nd Circuit's ruling, casting it as a narrow holding that affects a limited number of class actions already under way. That strategy would contradict plaintiffs' initial reactions to the NECA-IBEW opinion, but it could dissuade the justices from wading into the ebb tide of MBS litigation. I called counsel of record for the union, Joseph Daley of Robbins Geller, but through a representative, he declined to comment.

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