Earlier this month, when the 2nd Circuit Court of Appeals issued
a ruling in a Goldman Sachs case that redefined standing inclass actions involving mortgage-backed securities, I questioned
how much impact the opinion would have, given that we're four
years into MBS class litigation. Sure, the 2nd Circuit opened
the door to much broader MBS classes when it held that name
plaintiffs can pursue claims on behalf of all the trusts backed
by mortgages originated by the same lenders as those they
invested in. But I wondered, as a practical matter, whether the
ruling was too late to help most MBS class claimants, since most
of their cases have long since crossed the threshold of
standing.
Now we know that for at least one defendant -- JPMorgan
Chase -- the newly widened definition of standing came all too
soon. On Friday, U.S. Senior District Judge Edward Korman of
Brooklyn issued an order drastically expanding the claims for
which the name plaintiff in an MBS case against JPMorgan, the
Mississippi Public Employees' Retirement System (MissPERS), has
standing to sue.
In his previous decision on JPMorgan's motion to dismiss,
Korman had taken a hard line on MissPERS's standing. He ruled in February that the Mississippi fund, represented by Bernstein
Litowitz Berger & Grossmann and Wolf Popper, had only purchased
certificates in eight of the 33 MBS trusts (with a face value of
$36.8 billion) at issue in the class action. Korman said that
MissPERS could only assert claims on behalf of certificate
holders in five of those trusts -- and, even more restrictively,
that it could only represent investors in the same tranches it
bought into. For JPMorgan's lawyers at Sidley Austin, that
February ruling was about as resounding a victory as the bank
could have hoped for.
The judge stayed MissPERS's request for leave to file an
interlocutory appeal because the 2nd Circuit was already
considering standing in the Goldman Sachs MBS case that led to
the ruling earlier this month. As soon as that decision came
down, Korman took another look at his February dismissal ruling
and, without even waiting for filings from the parties, issued
his expansive new order. MissPERS's certificates were backed by
mortgages originated by Chase, Countrywide, Wells Fargo, M&T and
four other lenders. Thirty of the 33 trusts originally in the
case were also backed by mortgages from these lenders. So under
the 2nd Circuit's reasoning in the Goldman case, Korman said the
class can assert claims for losses in all tranches of those 30
trusts. He excluded claims only on behalf of three trusts that
contained no mortgages originated by lenders who provided
underlying loans in the trusts MissPERS invested in.
Korman did ask the parties to confirm that MissPERS's
specific certificates included mortgages originated by all of
the eight lenders in the eight trusts it invested in. And, of
course, the class will still have to move for certification,
subject to the typicality and other defenses JPMorgan will
raise. Nevertheless, Friday's ruling expands JPMorgan's exposure
in the class action by more than 6,000 percent, adding to
JPMorgan's continuing MBS woes.
I called class counsel Jerry Silk at Bernstein Litowitz and
JPMorgan counsel Robert Pietrzak at Sidley but didn't hear back.
(Reporting by Alison Frankel)
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