Federal Deposit Insurance Corporation v. Countrywide Financial Corporation et al

Filing 87

Order Re Motions to Dismiss the First Amended Complaints by Judge Mariana R. Pfaelzer: The federal law claims are all time-barred, except for the Section 11 claim based on CWALT 2006-21CB B-2. No tolling doctrine saves those claims. The FDICs Nevada Securities Act claims are timely, and can proceed, but not against Barclays, because Nevada would not have personal jurisdiction over the bank. All dismissals are with prejudice. #79 (pj)

1
2

O

3

LINKS: 97; 79

4
5
6
7
8
9

UNITED STATES DISTRICT COURT

10

CENTRAL DISTRICT OF CALIFORNIA

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

In re COUNTRYWIDE FINANCIAL
CORPORATION MORTGAGEBACKED SECURITIES LITIGATION

Case No. 2:11-ML-02265-MRP
(MANx)

FEDERAL DEPOSIT INSURANCE
CORPORATION AS RECEIVER FOR
SECURITY SAVINGS BANK

Case No. 2:12-CV-6690 MRP
(MANx)

v.

Plaintiff,

BANC OF AMERICA SECURITIES
LLC, et al.,
Defendants.
FEDERAL DEPOSIT INSURANCE
CORPORATION AS RECEIVER FOR
SECURITY SAVINGS BANK
v.

Plaintiff,

COUNTRYWIDE FINANCIAL
CORPORATION, et al.,
Defendants.

Case No. 2:12-CV-6692 MRP
(MANx)
Order Re Motions to Dismiss the
First Amended Complaints

I.

1

Background

Security Savings Bank (“SSB,”) a federally insured depository institution,

2
3

failed on February 27, 2009. Plaintiff Federal Deposit Insurance Corporation

4

(“FDIC”) was appointed receiver for Security Savings Bank. The FDIC has the

5

authority to pursue any claims held by SSB. 12 U.S.C. § 1821(d)(2)(A). The

6

FDIC files these lawsuits asserting securities law claims arising from SSB’s

7

purchase of six residential mortgage-backed securities (“RMBS” or “certificates”).

8

The certificates that SSB purchased were created through a process known

9

as “securitization.” See, e.g., Bank Hapoalim B.M. v. Bank of Am. Corp., 12-CV-

10

4316, 2012 WL 6814194, at *1 (Dec. 21, 2012). In both cases, non-defendant

11

Countrywide Home Loans, Inc. extended home loans to borrowers. The loans

12

were pooled, sold to trusts, and backed certificates issued by trusts. Those

13

certificates entitled the holders to receive cash flows from the pool of mortgage

14

loans. The certificates were sold to underwriters, who sold them to SSB.

15

According to the FDIC, the documents used to create and market the securities

16

(called the “Offering Documents,”) included materially untrue or misleading

17

statements.

18

On February 24, 2012, the FDIC filed two separate lawsuits against the

19

Defendants in Nevada state court alleging those misrepresentations. The Amended

20

Complaint in the 12-CV-6690 matter (“6690 Complaint”) is brought against

21

defendants Banc of America Securities LLC (“Banc of America Securities”),

22

Barclays Capital Inc. (“Barclays,”) and Morgan Stanley & Company LLC f/k/a

23

Morgan Stanley & Company, Inc. (collectively, the “6690 Defendants”) for their

24

role in selling or underwriting five certificates1 sold to SSB. In a second suit, the

25

FDIC sues Countrywide Securities Corporation, CWALT, Inc., Countrywide

26
27
28

1

CWALT 2006-29T1 B-1, CWALT 2006-26CB B-2, CWALT 2006-21CB B-2, CWALT
2005-74T1 B-2 and CWALT 2005-19CB B-2.

2

1

Financial Corporation and Bank of America Corporation (“6692 Defendants”) for

2

selling, underwriting and issuing one certificate2 to SSB, and controlling and

3

succeeding to the liabilities of the primary actors (the Amended Complaint in the

4

12-CV-6692 action is called the “6692 Complaint”).

5

After the Defendants removed these cases and they were transferred to this

6

Court, the FDIC filed these Amended Complaints. The complaints allege that the

7

Offering Documents included false representations of the ratio of the value of the

8

loans to the underlying value of the homes, the appraisal value of the homes, the

9

rate of occupancy by the owners of the properties, the underwriting standards used

10

to originate the home loans and the credit ratings of the certificates. Despite the

11

fact that the FDIC filed different lawsuits, the factual allegations and claims of

12

misrepresentation are identical in each suit. The FDIC argues that the 6690

13

Defendants are liable for those false statements under Section 11 of the federal

14

Securities Act of 1933, and that Banc of America Securities LLC and Barclays are

15

liable under the Nevada Securities Act and Sections 12(a)(2) of the Securities Act

16

for two of the certificates.3 The FDIC claims that Countrywide Securities

17

Corporation and CWALT, Inc. are liable for false statements for the certificate in

18

the 6692 Complaint under Section 11, that Countrywide Financial Corporation is

19

liable as a controlling person under Section 15, and that Bank of America

20

Corporation is liable as successor of these entities.
Both the 6690 and 6692 Defendants move to dismiss on the grounds that the

21
22

Complaints are time-barred.4 According to the Defendants, the statute of

23

limitations on the federal claims had already run as of February 27, 2009, when the

24
25

2

CWALT 2005-83CB B-2.
CWALT 2006-29T1 B-1 and CWALT 2006-26CB B-2.
4
Because the Complaints are identical, and the legal issues in the motions to dismiss are
nearly identical, the Court will resolve the two motions in this single Order. The Court is
puzzled as to why the FDIC has initiated two separate suits, instead of filing one complaint
against the sellers, underwriters, and issuers of the certificates.
3

26
27
28

3

1

FDIC became receiver of SSB. They urge that there is no reason to extend the

2

statute of limitations. Even if any federal claims were live on February 27, 2009,

3

Defendants argue that the statute of repose now bars the FDIC’s claim. The 6690

4

Defendants also argue that the statute of limitations for the Nevada Securities Act

5

expired by February 27, 2009, and that Nevada, the transferor court, does not have

6

personal jurisdiction over Barclays.

7

II.

All but One of the Federal Securities Claims were Untimely on February
27, 2009

8
9

The statute of limitations for federal claims under the Securities Act of 1933

10

is “one year after the discovery of the untrue statement or the omission, or after

11

such discovery should have been made by the exercise of reasonable diligence,”

12

and “[i]n no event shall any such action be brought to enforce a liability created

13

under section [11] . . . more than three years after the security was bona fide

14

offered to the public, or under section [12(a)(2)] more than three years after the

15

sale.” 15 U.S.C. § 77m (“Section 13”). The one-year statute of limitations on any

16

live claims on February 27, 2009 was extended by at least three years. 12 U.S.C. §

17

1821(d)(14) (“Section 1821”) (“the applicable statute of limitations with regard to

18

any action brought by the Corporation as conservator or receiver shall be . . . the

19

longer of the 3-year period beginning on the date the claims accrues,” which in this

20

case is “the date of the appointment of the Corporation as conservator or

21

receiver”).

22

The Defendants argue, though, that the three-year statute of repose is not

23

extended by Section 1821, which would mean that the Securities Act claims are

24

untimely for any security purchased before February 24, 2009. The relevant

25

question under Ninth Circuit precedent is whether the term “statute of limitations”

26

in Section 1821 was understood to include the “statute of repose” when the

27

extender statute was passed. McDonald v. Sun Oil Co., 548 F.3d 774, 781 (9th Cir.

28

2008). The extender statute was enacted in 1989. See Financial Institutions

4

1

Reform, Recovery, and Enforcement Act of 1989, Pub. L. 101-73, § 212, 103 Stat.

2

183 (“CONSERVATORSHIP AND RECEIVERSHIP POWERS OF THE

3

CORPORATION.”) The Ninth Circuit determined that “[t]he term ‘statute of

4

limitations’ was ambiguous regarding whether it included statutes of repose . . . in

5

1986.” McDonald, 548 F.3d at 781. This Court has concluded that because

6

Congress and numerous federal judges used the word “limitation” interchangeably

7

to refer to both statutes of limitations and repose between 1986 and 2008, the term

8

“statute of limitations” did not exclude periods of repose in 2008. Fed. Hous. Fin.

9

Agency v. Countrywide Fin. Corp., No. 12-CV-1059, 2012 WL 5275327, at *8

10

(C.D. Cal. Oct. 18, 2012). That means the term did not exclude periods of repose

11

in 1989. Ambiguous statutes of limitations must be interpreted in “a light most

12

favorable to the government.” F.D.I.C. v. Former Officers and Dirs. of Metro.

13

Bank, 884 F.2d 1304, 1309 (9th Cir. 1989). Therefore, the extender statute of

14

Section 1821 extends both statutes of limitations and repose by at least three years

15

from the date of appointment of the FDIC as receiver. Any claims still viable on

16

February 27, 2009 could be brought by the FDIC until February 27, 2012.

17

Three of the FDIC’s claims, though, were clearly not live on February 27,

18

2009. Those claims were brought for violations of Section 11 and are based on

19

three securities issued pursuant to shelf registration statements filed before

20

December 1, 2005. See 6692 Complaint ¶ 27, Schedule Item 27(g) (CWALT

21

2005-83CB B-2 was “issued pursuant or traceable to a registration statement filed

22

by CWALT, Inc. with the SEC on form S-3 on July 25, 2005.”); 6690 Complaint ¶

23

25, Schedule 4 Item 27(h) (CWALT 2005-74T1 B-2 was “issued pursuant or

24

traceable to a registration statement filed by CWALT, Inc. with the SEC on form

25

S-3 on July 25, 2005.”); 6690 Complaint ¶ 25, Schedule 5 Item 27(h) (CWALT

26

2005-19CB B-2 was “issued pursuant or traceable to a registration statement filed

27

by CWALT, Inc. with the SEC on form S-3 on April 21, 2005.”). A mortgage-

28

backed security was bona fide offered to the public, for purposes of the statute of

5

1

repose, on the effective date of the registration statement for registration statements

2

filed before December 1, 2005. Me. State Ret. Sys. v. Countrywide Fin. Corp.

3

(“Me. State I,”) 722 F. Supp. 2d 1157, 1165 n.8 (C.D. Cal. 2010). The three-year

4

repose period for these securities ended by July 25, 2008 at the latest. Section 11

5

claims based on CWALT 2005-83CB B-2, CWALT 2005-74T1 B-2 and CWALT

6

2005-19CB B-2 were not live on February 27, 2009 when the FDIC became

7

receiver. Because Section 1821 does not revive time-barred claims, the FDIC

8

could not bring those claims unless the statute of limitations was tolled on another

9

ground.

10

The 6690 Defendants argue that the legal claims on the remaining securities,

11

CWALT 2006-29T1 B-1, CWALT 2006-26CB B-2 and CWALT 2006-21CB B-2,

12

are also time-barred, because the one-year statute of limitation ended before

13

February 27, 2009. The statute of limitations in Section 13 commences “when the

14

plaintiff did or should have actually discovered that the defendant made an ‘untrue

15

statement or omission.’” Fed. Deposit Ins. Corp. as Receiver for Strategic Capital

16

Bank v. Countrywide Fin. Corp., 12-CV-4354, 2012 WL 5900973, at *3 (C.D. Cal.

17

Nov. 21, 2012) (citing Merck & Co., Inc. v. Reynolds, 130 S.Ct. 1784 (2010)). A

18

plaintiff did or should have actually discovered misstatements when a “‘reasonably

19

diligent plaintiff would have sufficient information about that fact to adequately

20

plead it in a complaint . . . with sufficient detail and particularity to survive a

21

12(b)(6) motion to dismiss.’” Id. (citing City of Pontiac Gen. Emps.’ Ret. Sys. v.

22

MBIA, Inc., 637 F.3d 169, 175 (2d Cir. 2011)).
The Section 11, 12(a)(2) and 15 claims were only live on February 27, 2009

23
24

if SSB would not have been able, by February 27, 2008, to plead in a complaint

25

that the Offering Documents included misstatements.5 The court “can take judicial

26
27
28

5

As explained in Strategic Capital, Sections 11, 12(a)(2) and 15 are strict liability
statutes, so the one-year period commences once the plaintiff knows the Offering Documents

6

1

notice of publications introduced to indicate what was in the public realm at the

2

time that would . . . show public information that could have enabled [plaintiff] to

3

state a claim under the Securities Act.” Strategic Capital Bank, 2012 WL

4

5900973, at *3 (citations omitted). This Court has focused on news and opinion

5

articles and court filings and decisions that showed that the originators of the

6

securities had abandoned their underwriting standards and inflated appraisal

7

values, and that such information was sufficient to offer a well-pled complaint on

8

the relevant date. Id. at **3–6. The Defendants cite legal complaints and news

9

articles they argue were sufficient for a reasonable investor to have discovered the

10
11

misstatements the FDIC now complains of by February 27, 2008.
The Court has previously ruled that reasonable investors had sufficient

12

information to plead violations of federal securities laws by May 22, 2008. Id.

13

The Court has also found that the “inquiry notice” standard, which accrues when

14

“a reasonable investor would have noticed something was amiss,” was triggered by

15

February 14, 2008. Mass. Mut. Life Ins. Co. v. Countrywide Fin. Corp., No. 11-

16

CV-10414, 2012 WL 1322884, at *3 (C.D. Cal. Apr. 16, 2012) (citations omitted).

17

The Court has never explicitly ruled as a matter of law that the statute of

18

limitations accrues under the Merck discovery standard by February 27, 2008.

19

The Court refuses to do so. This Court has recognized that “a reasonable

20

investor would have been aware of problems with underwriting at Countrywide by

21

early 2008,” from the derivative and numerous securities lawsuits filed by

22

investors, as well as the state court mortgage-backed securities complaint in Luther

23

v. Countrywide Home Loans Servicing LP, No. BC380698 (Cal. Super. Ct. Nov.

24

14, 2007) (“Luther Complaint”) (attached here as Exhibit 2 to the Request for

25

Judicial Notice in Supp. of Defs.’ Mot. to Dismiss Am. Compl. (“6690 RJN,”) 12-

26
27
28

contained misstatements, regardless of whether the plaintiff knew any other facts. Strategic
Capital Bank, 2012 WL 5900973, at *3 n.6.

7

1

CV-6690, ECF No. 98). Stichting Pensioenfonds ABP v. Countrywide Fin. Corp.,

2

802 F. Supp. 2d 1125, 1136–1137 (C.D. Cal. 2011). However, critical information

3

was revealed to investors between February 27 and May 22 in 2008.
As a general rule, “paragraphs in a complaint that are either based on, or rely

4
5

on, complaints in other actions that have been dismissed, settled, or otherwise not

6

resolved, are, as a matter of law, immaterial within the meaning of FED. R. CIV. P.

7

12(f).” RSM Prod. Corp. v. Fridman, 643 F. Supp. 2d 382, 403 (S.D.N.Y. 2009);

8

Me. State Ret. Sys. v. Countrywide Fin. Corp., (“Me. State III”), 10-CV-00302,

9

2011 WL 4389689, at *20 (C.D. Cal. May 5, 2011) (striking paragraphs copied

10

from other complaints when plaintiffs “have not reasonably investigated the

11

allegations”).6 On February 27, 2008, none of the filed complaints had been tested

12

or resolved by any court. This Court ruled that the derivative complaint met the

13

Rule 12(b)(6) standard on May 14, 2008. In re Countrywide Fin. Corp. Derivative

14

Litig., 554 F. Supp. 2d 1044 (C.D. Cal. 2008). Before May 14, the Court cannot

15

rule as a matter of law that SSB should have discovered that the information in the

16

other complaints was true, which is necessary before filing a complaint. Me. State

17

III, 2011 WL 4389689, at *20.
The Court realizes that it has held that before February 27, 2008, reasonable

18
19

investors were on notice or aware that something was amiss at Countrywide.

20

Mass. Mut., 2012 WL 1322884. That notice may have led to an investigation

21

which would have revealed the underwriting problems at Countrywide and

22

supported a well-pled complaint that the Offering Documents contained

23

misstatements. This Court later did hold that both the derivative and securities

24

complaints met the Rule 12(b)(6) standard, and properly alleged that Countrywide

25

had abandoned its underwriting standards and inflated appraisals, the essence of

26
27
28

6

In fact, this is an argument that some of the same Defendants, and their counsel, have
offered numerous times before this Court in the MDL. See, e.g., Notice of Mot. and Mot. to
Strike, Am. Int’l Grp., Inc. v. Bank of Am. Corp., 11-CV-10549, ECF No. 151.

8

1

this claim. In re Countrywide Fin. Corp. Derivative Litig., 554 F. Supp. 2d at

2

1058, 1060; In re Countrywide Fin. Corp. Sec. Litig., 588 F. Supp. 2d 1132, 1145

3

(C.D. Cal. 2008). However, that is not the legal standard for “discovery” in this

4

case. That standard is only met when a “plaintiff has uncovered – or a reasonably

5

diligent plaintiff would have uncovered – enough information about the

6

defendant’s” conduct to satisfy the Rule 12(b)(6) pleading standard. City of

7

Pontiac Gen. Emps.’ Ret. Sys, 637 F.3d at 175.7 The Court cannot hold, given the

8

judicially noticeable materials, that a reasonably diligent investor in mortgage-

9

backed securities could have pled a sufficient complaint as of February 27, 2008.
The Court cannot rule as a matter of law that the statute of limitations had

10
11

commenced for a reasonable investor on February 27, 2008, but the FDIC includes

12

factual information that distinguishes some of the securities SSB purchased from

13

those of an average reasonable investor. The Court must interpret the complaint in

14

favor of the plaintiff, but “a plaintiff can . . . plead himself out of a claim by

15

including unnecessary details contrary to his claim.” Sprewell v. Golden State

16

Warriors, 266 F.3d 979, 988 (9th Cir. 2001). The 6690 Complaint states that two

17

of the securities SSB purchased8 were downgraded below investment grade by the

18
19
20
21
22
23
24
25
26
27
28

7

The Court recognizes that this ruling is in tension with dicta from Stichting. 802 F. Supp.
2d at 1136 (“Other complaints and public press reports make clear that a reasonable investor
would have been aware of problems with underwriting at Countrywide by early 2008.”); id. at
n.9 (“Without disputing the premise that plaintiff’s firms sometimes file premature and poorly
researched complaints, this is not such an edge case. First, reports of problems with
underwriting at Countrywide were widely disseminated in the press, corroborated in government
hearings and by the announcement of investigations, and bolstered further when several state
Attorneys General filed suit. Second, the 2007 and 2008 complaints were voluminous
documents which provided impressive detail and were further supported by confidential witness
reports.”). The mere fact that some plaintiffs were able to offer complaints that this Court later
recognized as sufficient under Rule 12(b)(6) does not mean that a reasonable investor should
have, as a matter of law.
8
All of the securities SSB purchased were particularly risky. As mentioned by
Defendants, the FDIC repeatedly advised, warned, criticized and ultimately restricted many of
SSB’s investments. 6690 RJN Ex. 1 9–12 (Office of the Inspector General, FDIC, Material Loss
Review of Security Savings Bank, Henderson, Nevada, Sept. 2009). That fact is not legally

9

1

credit rating agency Fitch on December 13, 2007, more than one year before the

2

FDIC became receiver of SSB. 6690 Complaint ¶ 25, Schedule 1 Item 25(f),

3

Schedule 2 Item 25(f). This Court has rejected the proposition that it is appropriate

4

to delay the commencement of the limitations period until after the certificates

5

were downgraded by the rating agencies below investment levels. Strategic

6

Capital Bank, 2012 WL 5900973, at *7. The Court has never ruled on the opposite

7

question, whether the statute of limitations begins to run once the certificates were

8

downgraded by the credit rating agencies.

9

In this case, the date the federal claims accrued for CWALT 2006-29T1 B-1

10

and CWALT 2006-26CB B-2 occurred before February 27, 2008, because those

11

certificates were downgraded below investment level on December 13, 2007.

12

Plaintiffs like SSB had sufficient information from the filings of the Luther,

13

securities and derivative complaints, the media sources about the problems in the

14

mortgage origination market and Countrywide and the decline in the credit ratings

15

to offer a well-pled complaint that the Offering Documents for those securities

16

contained misstatements. Woori Bank v. Merrill Lynch, No. 12 Civ. 3993(VM),

17

2013 WL 449912, at *4 (S.D.N.Y. Feb. 6, 2013) (a decline in credit ratings, along

18

with media and other information, “began to expose the allegedly ‘corrupt

19

system’” of defendants for purposes of the statute of limitation, quoting the

20

plaintiff’s complaint); In re Morgan Stanley Mortg. Pass-Through Certificates

21

Litig., Master File No. 09 Civ. 2137(LTS)(MHD), 2010 WL 3239430 (S.D.N.Y.

22

Aug. 17, 2010) (applying inquiry notice to hold that a “body of information”

23

including ratings downgrades and the filing of similar lawsuits “makes it plain that

24

inquiry notice arose well before May 2008.”); cf. In re Bear Stearns Mortg. Pass-

25
26
27
28

relevant in assessing the commencement of the statute of limitations on a motion to dismiss, but
may be critical for another motion to dismiss in this case or at summary judgment. Investors like
SSB, who invest in particularly risky securities, may face more responsibilities to ensure their
investments are appropriate and reliable.

10

1

Through Certificates Litig., 851 F. Supp. 2d 746, 764–65 (“absent a decline in the

2

Certificates’ ratings . . . it is difficult to see how a plaintiff could have plausibly

3

pled that the epidemic of indiscretions in the MBS industry had infected his or her

4

Certificates); Fed. Hous. Fin. Agency v. UBS Ams., 858 F. Supp. 2d 306, 321

5

(S.D.N.Y. 2012) (“The downgrade of the securities’ credit ratings . . . are crucial to

6

[plaintiff’s claim], since they are the only facts that connect the originators’ general

7

practices to particular securities that [the plaintiff] bought from defendants.”);

8

Plumbers’ Union Local No. 12 Pension Fund v. Nomura Asset Acceptance Corp.,

9

632 F.3d 762, 773–74 (1st Cir. 2011) (supporting allegations behind a well-pled

10

complaint include a “sharp drop in the credit ratings”). In another matter in this

11

MDL, the FDIC specifically argued “that it is at least a question of fact whether the

12

statute of limitations can begin to run on claims about a mortgage-backed security

13

that still holds an investment grade rating.” Mem. in Opp. to Defs.’ Mot. to

14

Dismiss Am. Compl. 19, Fed. Deposit Ins. Corp. as Receiver for Strategic Capital

15

Bank v. Countrywide Fin. Corp., 12-CV-4354, ECF No. 49 (Sept. 21, 2012).

16

In Strategic Capital Bank, this Court warned of a parade of horribles that

17

would result if courts entirely delegated the determination of accrual dates to the

18

credit rating agencies. 2012 WL 5900973, at *7. Those concerns are not relevant

19

here. The Court rules that when combined with the type of information available

20

here about an investment, a claim accrues soon after the downgrade of a security

21

below investment levels. Before that date, investors must act reasonably to

22

determine whether the offering documents related to their certificates contained

23

misstatements. As numerous courts have recognized, credit rating downgrades

24

give specific information about the documents behind a security. Reasonable

25

investors, armed with information about downgrades, media sources of problems

26

in underwriting, and other lawsuits, could craft a particularly well-pled complaint

27

that states the offering documents contained misrepresentations, because they have

28

11

1

both general information about problems with the originator of their loans and

2

specific information about the securities they purchased.

3

The Section 13 statute of limitations had expired before February 27, 2009,

4

when the FDIC became receiver. The Section 11 and 12(a)(2) claims on those

5

securities are time-barred unless the statute of limitations was tolled on another

6

ground.

7

The Section 11 claims based on each security, except CWALT 2006-21CB

8

B-2, are time-barred, as are both 12(a)(2) claims, because of the statutes of repose

9

and limitations of Section 13. On February 27, 2009, Section 11 claims for

10

CWALT 2006-21CB B-2 were still timely. The registration statement for that

11

certificate was filed with the SEC on March 6, 2006. 6690 Complaint ¶ 25,

12

Schedule 3 Item 27(h). The Court cannot hold as a matter of law that a reasonable

13

investor had enough information to file an adequate complaint under Rule 12(b)(6)

14

alleging misstatements in that certificate’s Offering Documents before February

15

27, 2008. The three-year statute of repose for that certificate commenced, at the

16

earliest, on March 6, 2006, and the one-year statute of limitations began after

17

February 27, 2008. Section 11 claims based on CWALT 2006-21CB B-2 were

18

therefore timely on February 27, 2009. The FDIC had at least three years from that

19

date to bring its claims. 12 U.S.C. § 1821(d)(14). Therefore, the Section 11 claim

20

was timely when filed on February 24, 2012.

21

Claims based on the other certificates in this case, CWALT 2006-29T1 B-1,

22

CWALT 2006-26CB B-2, CWALT 2005-74T1 B-2, CWALT 2005-19CB B-2 and

23

CWALT 2005-83CB B-2, were time-barred on February 27, 2009, and are time-

24

barred now unless the statutes of limitations and repose were extended for some

25

other reason.

26
27
28

12

1
2
3

III.

There is no Basis to Toll the Statute of Limitations for the Federal
Securities Claims

Both Complaints assert that the claims are timely for another reason, based

4

upon a class action complaint filed in California state court on November 14, 2007.

5

6690 Complaint ¶¶ 108-109; 6692 Complaint ¶¶ 149-150 (both citing to the filing

6

of the Luther Complaint). The FDIC argues that the statute of limitations and

7

repose were “tolled” by the filing of Luther. See Am. Pipe & Constr. Co. v. Utah,

8

414 U.S. 538, 544 (1974) (“The commencement of a class action suspends the

9

applicable statute of limitations as to all asserted members of the class who would

10

have been parties had the suit been permitted to continue as a class action.”). The

11

Luther Complaint was brought on behalf of “all persons or entities” that purchased

12

CWALT certificates “pursuant and/or traceable to false and misleading registration

13

statements issued by CWALT between January 2005 and June 2007.” Luther

14

Complaint ¶ 1. Therefore, as an asserted member of the class, the filing of Luther

15

suspends the Section 13 statute of limitations as to their claims.

16

The Court rejects this argument. SSB did not purchase certificates in the

17

same tranche or even the same offering as David H. Luther, the named plaintiff in

18

the earlier class action. 6690 RJN Ex. 8 (Certification of Named Plaintiff Pursuant

19

to Federal Securities Laws filed in Maine State Ret. Sys. v. Countrywide Fin.

20

Corp., 10-CV-00302 (C.D. Cal.)); 6690 RJN Ex. 9 (Second Am. Class Action

21

Compl. in Maine State). “American Pipe tolling applies only to Countrywide MBS

22

for which the named plaintiffs in the prior putative class actions had standing to

23

sue, i.e., those tranches that the Luther named plaintiffs had actually purchased.”

24

Strategic Capital Bank, 2012 WL 5900973, at *8. Therefore, American Pipe is

25

inapplicable, and the claims remain time-barred.

26

The Court will not reconsider its prior orders on the relation of tolling to

27

standing or the definition of class standing. When a class action plaintiff lacks

28

standing with respect to certain claims, jurisdiction does not attach for those

13

1

claims, meaning that federal courts have no power to extend the statutorily defined

2

limitation periods. Strategic Capital Bank, 2012 WL 5900973, at *9; Palmer v.

3

Stassinos, 236 F.R.D. 460, 465 n.6 (N.D. Cal. 2006).

4

The Court again rejects the reasoning of the Second Circuit’s recent decision

5

on class standing. NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co.,

6

693 F.3d 145 (2d Cir. 2012). That decision is inconsistent with Supreme Court

7

precedent. DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 352–53 (2006) (“[A]

8

plaintiff must demonstrate standing for each claim he seeks to press.”). NECA-

9

IBEW is inconsistent with Ninth Circuit precedent. LaDuke v. Nelson, 762 F.2d

10

1318, 1325 (9th Cir. 1985) (“certification is not sufficient in itself to bestow

11

standing on individuals or a class who lacked the requisite personal stake at the

12

outset.”); see also Lierboe v. State Farm Mut. Auto. Ins. Co., 350 F.3d 1018, 1022

13

(9th Cir. 2003) (“if [named plaintiff] has no ... claim, she cannot represent others

14

who may have such a claim”). The decision is inconsistent with the prior rulings9

15

of every federal court to consider similar questions in the RMBS context, including

16

the First Circuit Court of Appeal and numerous district courts, both in and outside

17

the Second Circuit. Those courts extend standing only to the offerings or tranches

18

purchased by the named plaintiff. Nomura, 632 F.3d at 770 (“Although Nomura

19

Asset is a common defendant with respect to all eight of the trusts, claims against it

20

as well fail so far as they are based on the six trusts whose certificates were

21

purchased by no named plaintiff; In re Wash. Mut. Mortg.-Backed Sec. Litig., 276

22

F.R.D. 658, 663 (W.D. Wash. 2011); Emps.’ Ret. Sys. of the Gov’t. of the Virgin

23

Islands v. J.P. Morgan Chase & Co., 804 F. Supp. 2d 141, 150 (S.D.N.Y. 2011)

24

(“courts have almost unanimously found that claims under Section 11 or Section

25

12 require plaintiff to have purchased in each of the challenged offerings.”); In

26
27
28

9

Recently, another court outside the Second Circuit rejected NECA-IBEW. Nat’l Credit
Union Admin. Bd., as Liquidating Agent of U.S. Cent. Fed. Credit Union & of W. Corp. Fed.
Credit Union v. Goldman Sachs & Co., at *6, 11-CV-6521-GW (C.D. Cal. Mar. 14, 2013).

14

1

Wells Fargo Mortg.-Backed Certificates Litig., 712 F. Supp. 2d 958, 963–65 (N.D.

2

Cal. 2010); Strategic Capital Bank, 2012 WL 5900973, at *12 (citing a prior filing

3

collecting more cases). A district court in the Second Circuit recently limited class

4

standing, in a related legal claim, to “the five Trusts in which [Plaintiff] purchased

5

certificates,” because “each Trust has a unique loan composition (and is

6

administered under a unique [even if similar] PSA.)” Policemen’s Annuity and

7

Benefit Fund of City of Chicago v. Bank of Am., N.A., No. 12 Civ. 2865(KBF),

8

2012 WL 6062544, at *7 (S.D.N.Y. Dec. 7, 2012). Finally, the policy implications

9

of the Second Circuit’s rule remain worrisome. It would enable plaintiffs to

10

expand a small securities purchase into an enormous and unwieldy class action that

11

under American Pipe, would toll the statute of limitations as to all securities with

12

any common mortgage originator, even if the originator created only a small

13

portion of the loans at issue. For these reasons, the Court again rejects the

14

reasoning of NECA-IBEW.10
The Court also takes this opportunity to offer additional thoughts about its

15
16

alternative ruling in Strategic Capital Bank. The Court there held that a class

17

action filed in state court does not toll the statute of limitations for subsequent

18

individual federal actions even when both are based on the same federal

19

substantive law. 2012 WL 5900973, at *12. First, another important precedent

20

supports that conclusion. Second, the rule is particularly appropriate with respect

21

to class actions based on the Securities Act, and conforms closely with the

22

purposes of the Private Securities Litigation Reform Act of 1995 (“PSLRA”).

23

Third, court decisions rejecting “cross-jurisdictional tolling” do so regardless of

24

whether the initial class action was based upon the same substantive law as the

25
26
27
28

10

The Court mentioned in Strategic Capital Bank that the defendants in NECA-IBEW had
sought Supreme Court review of the decision. After the submission of briefing in this case, the
Supreme Court denied certiorari. See
http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/12-528.htm.

15

1

subsequent individual action. These three grounds provide further support for the

2

proposition that American Pipe tolling only extends statutes of limitation when the

3

class action was filed in federal court.
The alternative holding of Strategic Capital Bank follows directly from a

4
5

decision by the Seventh Circuit. See Walters v. Edgar, 163 F.3d 430, 432 (7th Cir.

6

1998). In that case, Judge Posner held that when “plaintiffs never had standing to

7

bring this suit . . . federal jurisdiction never attached.” Id. District courts,

8

including this one, have cited Walters for the proposition that a class action only

9

tolls the statute of limitation for a claim when the named plaintiff had Article III

10

standing with respect to that claim. Strategic Capital Bank, 2012 WL 5900973, at

11

*9; Stassinos, 236 F.R.D. at 465. Judge Posner’s reasoning, though, should not be

12

limited to cases where plaintiffs did not have standing, because Article III standing

13

is just one part of the jurisdictional inquiry. FED. R. CIV. P. 12(b)(1); In re Century

14

Aluminum Co. Secs. Litig., 704 F.3d 1119, 1123 (9th Cir. 2013) (“Dismissal for

15

lack of subject matter jurisdiction would have been appropriate if plaintiffs had not

16

adequately alleged Article III standing.”). Walters applies whenever federal

17

jurisdiction does not attach to the class action, including the situation where the

18

case was filed and remains in state court pending resolution of a jurisdictional

19

dispute.11
The Luther Complaint remained in state court until June 12, 2012, almost

20
21

five years after filing. There was no basis to remove the case until May 14, 2012.

22

Amended Order Re: Plaintiffs’ Motion to Remand, Luther v. Countrywide Fin.

23

Corp., 12-CV-5125, ECF No. 74 (C.D. Cal. Sept. 4, 2012).12 Before that date,

24

federal jurisdiction did not attach to the class action. Without federal jurisdiction,

25
11

26
27
28

The Seventh Circuit has applied American Pipe to state court class actions, but the court
did not discuss Walters. Sawyer v. Atlas Heating, 642 F.3d 560 (7th Cir. 2011).
12
The class action was improperly removed and remanded to the state court by this Court
in 2008, in a decision affirmed by the Ninth Circuit. See Luther v. Countrywide Home Loans
Serv. LP, 533 F.3d 1031 (9th Cir. 2008).

16

1

“it would be beyond the constitutional power of a federal court to toll a period of

2

limitations based on a claim” because the case was not before the federal court.

3

Stassinos, 236 F.R.D. at 465 n.6.

4

Second, the fact that Luther was filed under the Securities Act strengthens

5

this conclusion. The PSLRA creates additional requirements for class actions filed

6

in federal court, including the provision of certain information by plaintiffs. Those

7

requirements do not apply in state court. As a result, defendants in a state court

8

class action lack some of the “essential information” necessary to give them proper

9

notice, and American Pipe cannot apply. 414 U.S. at 555. Extending American

10

Pipe tolling to state court class actions is also inconsistent with Congress’ stated

11

purposes in passing the PSLRA.

12

The PSLRA was passed in 1995 to eliminate “abusive practices in securities

13

litigation.” Senate Report No. 104–98, 104th Congress, reprinted in 1995

14

U.S.C.C.A.N. 679, 689 (abusive practices included “the use of professional

15

plaintiffs and the race to the courthouse to be the first to file the complaint,” and

16

noting that many of the reforms in the PSLRA were designed to “deter professional

17

plaintiffs”). One subsection of the PSLRA required any plaintiff “seeking to serve

18

as a representative party on behalf of a class” to provide a “sworn certification”

19

that, in part, “sets forth all of the transactions of the plaintiff in the security that is

20

the subject of the complaint during the class period specified in the complaint.” 15

21

U.S.C. § 77z–1(a)(2)(A)(iv). Congress required this certification “to further deter

22

professional plaintiffs” from filing abusive litigation. Senate Report No. 104–98,

23

1995 U.S.C.C.A.N. at 689; Greebel v. FTP Software, Inc., 939 F. Supp. 57, 58 (D.

24

Mass. 1996) (Congress attempted to reduce “frivolous suits on behalf of only

25

nominally interested plaintiffs in the hope of obtaining a quick settlement.”).

26

The certification is a critical part of securities class actions in federal court.

27

“The failure of a named plaintiff to file a certification with the complaint . . . [is]

28

fatal to the maintenance of the putative class action.” In re USEC Secs. Litig., 168

17

1

F. Supp. 2d 560, 566 (S.D.N.Y. 2001).13 Further, “a plaintiff lacks standing under

2

both Article III of the U.S. Constitution and under Sections 11 and 12(a)(2) of the

3

1933 Act to represent the interests of investors in MBS offerings in which the

4

plaintiffs did not themselves buy.” Me. State Ret. Sys. v. Countrywide Fin. Corp.,

5

722 F. Supp. 2d 1157, 1163 (C.D. Cal. 2010). In most cases, the only way to

6

determine which securities the named plaintiff purchased is through the filing of

7

the certification with the plaintiff’s complaint. See, e.g., 6690 RJN Ex. 8

8

(Certification of Named Plaintiff Pursuant to Federal Securities Laws filed in

9

Maine State Ret. Sys. v. Countrywide Fin. Corp., 10-CV-00302 (C.D. Cal.)); Decl.

10

of David A. Rosenfeld in Support of Mot. to Appoint Counsel, Ex. A, ECF No. 5,

11

NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 1:08-CV-10783-

12

MGC (S.D.N.Y. Feb. 9, 2009) (“Certification of Named Plaintiff Pursuant to

13

Federal Securities Laws”).14 Finally, statements in a certification are a “judicial

14

admission.” Grimes v. Navigant, 185 F. Supp. 2d 906, 914 (N.D. Ill. 2002).

15

Judicial admissions can determine the “scope of a plaintiff’s asserted class for

16

tolling purposes.” Smith v. Pennington, 352 F.3d 884, 893 (4th Cir. 2003) (“We

17

are not, however, confined to examine only the complaint in determining the scope

18

of the class [plaintiff] sought to certify. The scope of a plaintiff’s asserted class for

19

tolling purposes is that class for which there was fair notice as to . . . the number

20

and generic identities of the potential plaintiffs that might participate in the

21
22
23
24
25
26
27
28

13

Federal courts have generally been lenient in granting leave to amend the complaint to
include this certification, but there is no question that the filing of the certifications is “important
in its own right.” In re Direxion Shares ETF Trust, No. 09 Civ. 8011(KBF), 2012 WL 717967,
at *6 (S.D.N.Y. Mar. 6, 2012).
14
The Court would note that even under NECA-IBEW, class standing is dependent on the
securities that the named plaintiff purchased, because that plaintiff can only represent certificateholders from the offerings backed by loans with common originators. NECA-IBEW, 693 F.3d at
164.

18

1

judgment if the plaintiff’s desired class was, in fact, certified.”) (citations

2

omitted).15
Because failure to provide the certification is fatal to a plaintiff’s claim, the

3
4

certification informs the defendants of the named plaintiff’s standing, and

5

statements in the certification are judicial admissions which may determine the

6

scope of plaintiff’s class definition, the Court considers the certification “essential

7

information.” If the initial class action fails to notify the defendants of “essential

8

information necessary to determine both the subject matter and size of the

9

prospective litigation” then American Pipe tolling does not apply. In re Direxion

10

Shares ETF Trust, 279 F.R.D. 221, 237 (S.D.N.Y. 2012) (discussing “American

11

Pipe’s requirement that defendants be apprised ‘of the essential information’”

12

before the prior class action has the power to toll the statute of limitations for later

13

individual claims); Crown, Cork & Seal Co., Inc. v. Parker, 462 U.S. 345, 354–55

14

(1983) (Powell, J., concurring) (“When thus notified [of the essential information],

15

the defendant normally is not prejudiced by tolling of the statute of limitations.”).

16

There is no obligation for the named plaintiff in a state court class action to

17

certify the securities transactions that are the subject of the litigation.16 15 U.S.C. §

18

77z-1(a)(1) (“The provisions of this subsection shall apply to each private action

19

arising under this subchapter that is brought as a plaintiff class action pursuant to

20

the Federal Rules of Civil Procedure.”). A class action in state court, filed without

21

the certification,17 does not give defendants the “essential information to determine

22
23
24
25
26
27
28

15

Smith is factually distinct, since the Fourth Circuit interpreted plaintiff’s filings as
limiting the asserted class. Nonetheless, Smith makes clear that courts can rely on judicial
admissions, which include the certification from the named plaintiff, for purposes of determining
the scope of the class under Rule 23.
16
The Court is not aware of any California statute requiring that such information be filed
in a class action.
17
Indeed, the plaintiffs in the Luther action never filed such a certification in state court.
The certification was only filed when those plaintiffs brought the Maine State case, 10-CV00302 (C.D. Cal.) in federal court.

19

1

both the subject matter and size of the prospective litigation,” and therefore cannot

2

trigger American Pipe tolling. 414 U.S. at 555–56.

3

The Congressional purposes as expressed in the PSLRA and the Federal

4

Rules, are best served by refusing to extend American Pipe tolling to state court

5

actions. The PSLRA was designed to reduce abusive filings. Senate Report No.

6

104–98, 104th Congress, reprinted in 1995 U.S.C.C.A.N. at 689. Filings in state

7

court are not subject to any of the reforms in that legislation, and so are more likely

8

to permit such abuse. These class actions also do not need to meet the basic

9

requirements of Rule 23 of the Federal Rules. Strategic Capital Bank, 2012 WL

10

5900973, at *13. Extending American Pipe tolling only to federal claims would

11

incentivize the filing of securities class actions in the federal courts, which can

12

then use the PSLRA and Rule 23 to deal fairly and efficiently with tese claims.

13

Reducing such filings was Congress’ purpose in passing the PSLRA. See also

14

Merrill Lynch v. Dabit, 547 U.S. 71, 82 (2006) (describing the Securities Litigation

15

Uniform Standards Act, a federal law designed to force securities claims to be filed

16

in federal courts, seeking to “stem this shift from Federal to State courts” and

17

“prevent certain State private securities class action lawsuits alleging fraud from

18

being used to frustrate the objectives of the Reform Act.”).

19

The FDIC criticizes this discussion as hypothetical. Mem. of P. & A. of

20

FDIC’s Opp. to Defs.’ Motion to Dismiss 21 (“6690 Opp.,”) 12-CV-6690, ECF

21

No. 99. Hypothesizing is unnecessary – the class action complaint in Luther was

22

“precisely [a] type of abusive placeholder lawsuit.” Putnam Bank v. Countrywide

23

Fin. Corp., 860 F. Supp. 2d 1062, 1070 (C.D. Cal. 2012). This abusive class

24

action remained in state court for years, whereas the Federal Rules and PSLRA

25

requirements might have led to a swifter resolution, and an end to the tolling

26

period. Cf. Walters, 163 F.3d at 433 (urging “scrupulous adherence to the

27

requirement that the determination whether to certify a suit as a class action be

28

20

1

made ‘as soon as practicable after the commencement of the action.’ FED. R. CIV.

2

P. 23(C)(1).”).
Finally, state court decisions discussing “cross-jurisdictional tolling” are

3
4

instructive about the nature of such tolling. State courts have considered when a

5

class action filed in another jurisdiction extends the state statute of limitations for a

6

subsequent individual claim. In some of the cases rejecting cross-jurisdictional

7

tolling, the original class action was based upon the same substantive law as the

8

subsequent individual action. Maestas v. Sofamor Danek Grp., Inc., 33 S.W.3d

9

805 (Tenn. 2000) (both the class action, which was filed in federal court, and the

10

individual action, filed in state court, were brought for products liability claims).

11

In Maestas, the Tennessee Supreme Court rejected tolling because it believed that

12

cross-jurisdictional tolling ran the risk of turning Tennessee state courts into a

13

clearinghouse for filings that should have been brought in another jurisdiction. Id.

14

at 808. Maestas is clear that when interpreting the tolling effect of a foreign class

15

action based on the forum state’s substantive law, forum courts should look to

16

whether the class action was filed in consonance with the forum state’s procedural

17

rules.18 See also Vaccariello v. Smith & Nephew Richards, Inc., 763 N.E.2d 160,

18

162–63 (Ohio 2002) (accepting cross-jurisdictional tolling because of procedural

19

concerns, namely that “the bulk of Ohio’s class action rule . . . is identical to the

20

bulk of the federal class action rule. This congruity convinces us that a class action

21

filed in federal court serves the same purpose as a class action filed in Ohio . . . it is

22

more important to ensure efficiency and economy of litigation than to rigidly

23

adhere to” a prior decision);19 contra Sawyer, 642 F.3d 560, 562–63 (7th Cir.

24
25
26
27
28

18

Otherwise, the federal courts would grant to state courts “the power to decide when [the
federal] statute of limitations begins to run. Such an outcome is contrary to [Congress’] power to
adopt statutes of limitation and the exceptions to those statutes.” Maestas, 33 S.W.3d at 808.
19
This Court rejects, as it did in Strategic Capital Bank, the assertion that a class action
filed in state court serves the same purpose as a federal court class action. Separately,
Vaccariello provides further support for the prior discussion of the PSLRA. “Whether a class

21

1

2011) (“Federal law determines the tolling effect of a suit governed by a federal

2

statute of limitations. American Pipe establishes that federal rule.”); City Select

3

Auto Sales, Inc. v. David Randall Associates, Inc., No. 11–2658 (JBS/KMW), 2012

4

WL 426267, at *3 n.2 (D.N.J. Feb. 7, 2012) (“Defendant does not contend, and it

5

does not appear to the Court that the fact that the prior class action suit was filed in

6

state court is relevant to the application of American Pipe. No rule or policy

7

prohibits cross-jurisdictional tolling,” citing Sawyer). In the posture of this case, a

8

federal court must look to its own procedural rules, the Federal Rules of Civil

9

Procedure, to determine the scope of tolling. Because the state court action was

10

not filed in conformance with the Federal Rules of Civil Procedure, which is the

11

basis for American Pipe tolling, the class action cannot toll the statute of

12

limitations for individual federal actions. Strategic Capital Bank, 2012 WL

13

5900973, at *13.

14

This Court’s alternative ruling in Strategic Capital Bank was carefully

15

considered. Federal case law supports the ruling. The rule is particularly resonant

16

with respect to class actions based on the Securities Act. Finally, state court

17

rulings on cross-jurisdictional tolling demonstrate that such tolling is based on

18

procedural rules, not the identity of the substantive law between the two actions.

19

In summary, only a class action filed in federal court tolls the federal statute of

20

limitations for later complaints. American Pipe tolling does not save the FDIC’s

21

claims.

22

IV.

23

The Statute of Limitations in the Nevada Securities Act had not Expired
on February 27, 2009

24
25
26
27
28

action is filed in Ohio or the federal court system, the defendant is put on notice of the substance
and nature of the claims against it.” 763 N.E.2d at 163. As mentioned, a state court securities
class action does not give proper notice to defendants of the substance or nature of the claims of
the class.

22

The FDIC brings claims under the Nevada Securities Act, Section 90.570,

1
2

against Banc of America Securities and Barclays for their roles in selling and

3

underwriting CWALT 2006-29T1 B-1 and CWALT 2006-26CB B-2. Those

4

claims must be “brought within the earlier of 2 years after discovery of the

5

violation, 2 years after discovery should have been made by the exercise of

6

reasonable care, or 5 years after the act, omission or transaction constituting the

7

violation.” Nevada Revised Statutes § 90.670.
SSB could not have discovered the misstatements before February 27, 2007.

8
9

“[R]easonable investors cannot, as a matter of law, be held to have discovered

10

misstatements until after August 31, 2007.” Fed. Deposit Ins. Corp. as Receiver

11

for United W. Bank v. Countrywide Fin. Corp., 11-CV-10400, 2013 WL 49727, at

12

*1 (C.D. Cal. Jan. 3, 2013) (citing cases from this Court). Even in situations where

13

the filed complaints rely heavily on automated valuation models that certainly

14

could have been used as early as February 2007 to discover the misstatements, the

15

Court cannot hold as a matter of law that a reasonable investor would have realized

16

the need for such analysis, and that the “data would have led a reasonable investor

17

both to recognize the misstatements and to link those to the possibility that the

18

securities purchased by [plaintiff] would suffer losses.” Id.20 SSB also purchased

19
20
21
22
23
24
25
26
27
28

20

The 6690 Defendants focus their briefing on whether Nevada has a stringent discovery
rule that commences the limitation period when the plaintiff has “access to facts” necessary to
bring their claim. Momot v. Mastro, No. 2:09–cv–00975–RLH–LRL, 2011 WL 1362096 (D.
Nev. Apr. 11, 2011); Baroi v. Platinum Condo. Dev. LLC, No. 2:09–CV–00671–PMP, 2012 WL
2847819 (D. Nev. July 11, 2012). This version of the rule seems at odds with the very cases
Defendants cite. Mastro, 2011 WL 1362096, at *3 (holding that the statute of limitations
commences once the plaintiff had “the only fact that [he] needed in order to bring suit for failure
to register”; in other words, that rule is very similar to the Merck discovery rule). The Court
interprets Nevada’s discovery rule as identical to the federal discovery rule, commencing when
plaintiff has facts to plead a complaint sufficient to survive a motion to dismiss. The Nevada
Securities Act “is based upon federal securities acts,” so when the two have similar language,
Nevada courts will look to federal case law interpreting the parallel provision. State v. Friend,
40 P.3d 436, 439–40 (Nev. 2002). When the language in a Nevada statute differs from federal
law, though, courts must assume “the difference was deliberate.” Baroi, 2012 WL 4606720, at

23

1

CWALT 2006-29T1 B-1 and CWALT 2006-26CB B-2 within five years of

2

February 27, 2009. The statute of repose in the Nevada Securities Act Section

3

90.670 is extended by Section 1821, see supra. Because the Nevada Securities Act

4

claims based on those securities were live on February 27, 2009, they were timely

5

filed when the FDIC sued Barclays and Banc of America Securities on February

6

24, 2012.

7
8
9

V.

The Nevada Securities Act Claim Against Barclays is Dismissed for Lack
of Personal Jurisdiction
Once a federal claim is dismissed, the law “no longer provide[s] a basis for

10

asserting . . . personal jurisdiction over [a defendant] for the state law claims.”

11

Malone v. Clark Nuber, P.S., No. C07–2046RSL, 2008 WL 4279502, at *2 (W.D.

12

Wash. Sept. 12, 2008). The Court dismissed the Securities Act claim against

13

Barclays. Therefore, the Court must consider whether personal jurisdiction is

14

appropriate for the Nevada Securities Act claim against Barclays.

15

The Court applies the personal jurisdiction law of Nevada “[b]ecause the

16

case was transferred from [that state],” so “the Court may exercise jurisdiction only

17

to the same extent that the [Nevada] district could have done so.” Mass. Mut.,

18

2012 WL 1322884, at *7. Nevada’s long-arm statute “permits personal

19

jurisdiction over a nonresident defendant unless the exercise of jurisdiction would

20

violate due process.” Consipio Holding, BV v. Carlberg, 282 P.3d 751, 754 (Nev.

21

2012). Barclays is subject to Nevada courts, then, if Nevada has specific

22

jurisdiction, meaning this claim is related to Barclays’ contacts with Nevada, or

23

general jurisdiction, if Barclays has “continuous and systematic general business

24
25
26
27
28

*4 (citing Lane v. Allstate Ins. Co., 969 P.2d 938, 940 (Nev. 1998)). The relevant term,
“discovery,” is found in the Nevada Securities Act, Section 13 and the Supreme Court’s decision
in Merck. Therefore, the Court will interpret the Nevada statute of limitations in conformance
with its interpretation of federal law. The Court cannot rule as a matter of law that SSB could
have filed a well-pled complaint before February 27, 2007, or even, as mentioned earlier,
February 27, 2008.

24

1

contacts” with the state. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466

2

U.S. 108, 414, 416 (1984).

3

The Ninth Circuit employs a “three-part test to determine if a defendant has

4

sufficient minimum contacts to be subject to specific personal jurisdiction: (1) The

5

non-resident defendant must purposefully direct his activities or consummate some

6

transaction with the forum or resident thereof; or perform some act by which he

7

purposefully avails himself of the privilege of conducting activities in the forum,

8

thereby invoking the benefits and protections of its laws; (2) the claim must be one

9

which arises out of or relates to the defendant’s forum-related activities; and (3) the

10

exercise of jurisdiction must comport with fair play and substantial justice, i.e. it

11

must be reasonable.” Washington Shoe Co. v. A-Z Sporting Goods Inc., 704 F.3d

12

668, 672 (9th Cir. 2012). The FDIC “must satisfy the first two prongs. If it does

13

so, then [Barclays] must come forward with a compelling case that the exercise of

14

jurisdiction would not be reasonable.” Id. (citations omitted). The first prong is

15

met if the FDIC shows that Barclays purposefully directed its activities to Nevada,

16

under the Ninth Circuit’s “effects” test, or that Barclays purposefully availed itself

17

of the privilege of conducting activities or consummated a transaction in Nevada.

18

Yahoo! Inc. v. La Ligue Contre Le Racisme Et L’Antisemitisme, 433 F.3d 1199,

19

1206 (9th Cir. 2006).
The only fact the FDIC cites to in support of this prong in its briefing or

20
21

complaint is that Barclays participated in creating the Offering Documents,

22

including the prospectus supplement at issue,21 with the intention that it be read

23

and relied upon by Nevada investors who would purchase some of the certificates

24
25
26
27
28

21

Barclays argues, convincingly, that this allegation is contradicted by the Offering
Documents upon which the FDIC relies, because those documents make clear that Barclays
underwrote the Class A certificates, not the riskier securities SSB bought. 6690 RJN Ex. 64
(prospectus supplement for CWALT 2006-29T1 B-1) (“Barclays Capital Inc. will offer the Class
A Certificates”). The FDIC’s claim would be dismissed even if Barclays had underwritten the
certificates SSB purchased.

25

1

underwritten by Barclays. 6690 Complaint ¶¶ 4, 7, 113, 130. The Complaint

2

specifies that Barclays was “an underwriter of the certificate that Banc of America

3

Securities sold to SSB in Securitization 1. The sale of this certificate occurred in

4

Nevada because employees or agents of Banc of America Securities directed

5

communications about the certificates and solicitations to purchase the certificates

6

to SSB there, and because SSB received those communications and solicitations

7

there.” Id. ¶ 113. “Barclays . . . offer[ed] or s[old] securities in Nevada by means

8

of written communications that included untrue statements of material facts

9

necessary in order to make the statements made, in light of the circumstances

10

under which they were made, not misleading.” Id. ¶ 114.

11

This fact is insufficient under either the “purposeful availment” or

12

“purposeful direction” tests.22 The 6690 Complaint includes no facts suggesting

13

that Barclays acted in Nevada in creating the prospectus supplement, that Barclays

14

targeted SSB there or that Barclays consummated any contract with SSB in

15

Nevada. Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 802 (9th Cir.

16

2004) (“A showing that a defendant purposefully availed himself of the privilege

17

of doing business in a forum state typically consists of evidence of the defendant’s

18

actions in the forum, such as executing or performing a contract there.”). When

19

plaintiffs complain of actions of defendants that occurred outside the forum state,

20

but led to injury in the state, the Ninth Circuit looks to the “effects” test, which

21

allows jurisdiction when “the defendant allegedly [has] (1) committed an

22

intentional act, (2) expressly aimed at the forum state, (3) causing harm that the

23
24
25
26
27
28

22

The Ninth Circuit applies the tests based on whether the legal pleading is based on tort or
contract principles. Yahoo! Inc., 433 F.3d at 1206. The Nevada Securities Act is not easily
characterized as one or the other. FHFA, 2012 WL 5275327, at *9 (discussing the
characterization problem for Section 11). The 6690 Defendants spend nearly three pages of
briefing discussing the related question of whether these claims are based on fraud. Because the
FDIC’s complaint fails to meet either test, the Court need not resolve whether the claim is for
tort or contract.

26

1

defendant knows is likely to be suffered in the forum state.” Id. at 803 (citations

2

omitted). The FDIC offers no facts, nor any allegations, to support its proposition

3

that Barclays aimed its activities at Nevada,23 or that Barclays knew the securities

4

would be sold in Nevada. Instead, all the 6690 Complaint alleges is that Barclays

5

underwrote one certificate that Banc of America Securities sold to SSB. This

6

Court has held in a related factual situation that signing a registration statement, by

7

itself, does not constitute purposeful direction, especially because the certificates

8

“were registered with the SEC and disseminated nationally (and internationally).”

9

W. & S. Life Ins. Co. v. Countrywide Fin. Corp., No. 11-CV-7166, 2012 WL

10

1097244, at **13–14 (C.D. Cal. Mar. 9, 2012).24 The Complaint fails to allege that

11

Barclays intended its representations to affect parties in Nevada, which means that

12

Nevada does not have specific jurisdiction over this claim.25

13

The FDIC argues that there is a “sufficiently strong” “possibility” that

14

Barclays may be subject to general personal jurisdiction in Nevada. 6690 Opp. 24.

15

Plaintiff asks for limited jurisdictional discovery on this point. The Court refuses

16
17
18
19
20
21
22
23
24
25
26
27
28

23

The first time the FDIC claims Barclays acted “with the intention that [the prospectus
supplement] be circulated into Nevada and read and relied upon by Nevada investors so they
would then purchase certificates underwritten by Barclays,” 6690 Opp. 23, was in the FDIC’s
Opposition. The Court will not consider that allegation for purposes of this motion. Schneider v.
Cal. Dep’t of Corrections, 151 F.3d 1194, 1197 n.1 (9th Cir. 1998) (“The ‘new’ allegations
contained in the [plaintiff’s] opposition motion, however, are irrelevant for Rule 12(b)(6)
purposes. In determining the propriety of a Rule 12(b)(6) dismissal, a court may not look beyond
the complaint to a plaintiff’s moving papers, such as a memorandum in opposition to a
defendant’s motion to dismiss.”).
24
See also United Heritage Life Ins. Co. v. First Matrix Invs. Servs. Corp., No. CV 060496-S-MHW, 2007 WL 1792333 at *7 (D. Idaho June 20, 2007) (“underwriter status alone is
not enough to allow for the assertion of personal jurisdiction.”).
25
The FDIC misrepresents the holding of the only case it cites to the contrary.
Schwarzenegger, 374 F.3d at 803. There, the Ninth Circuit rejected the claim for jurisdiction,
making clear that personal jurisdiction is only appropriate when the defendant “published” and
“circulated,” “distributed,” “delivers” or “shipped” products or goods into the forum state. 374
F.3d at 803 (citing and discussing previous Supreme Court and Ninth Circuit decisions). The
FDIC does not allege that Barclays performed any such act in or at Nevada, and therefore
Nevada cannot exercise personal jurisdiction over Barclays.

27

1

to grant that discovery, because it is based on “little more than a hunch that it

2

might yield jurisdictionally relevant facts.” Boschetto v. Hansing, 539 F.3d 1011,

3

1020 (9th Cir. 2008); Butcher’s Union Local No. 498 v. SDC Inv., Inc., 788 F.2d

4

535, 540–41 (9th Cir. 1986) (rejecting jurisdictional discovery, because plaintiffs

5

“state only that they ‘believe’ that discovery will enable them to demonstrate

6

sufficient” contacts, and “speculation does not satisfy” the required showing).

7

Therefore, because the 6690 Complaint pleads no facts that Barclays

8

purposefully directed SSB in Nevada, purposefully availed itself of the privilege of

9

conducting activities in Nevada or had continuous and systematic business contacts

10

in the state, the Nevada state law claims against Barclays are dismissed for lack of

11

personal jurisdiction.
VI.

12

Conclusion

13

The federal law claims are all time-barred, except for the Section 11 claim

14

based on CWALT 2006-21CB B-2. No tolling doctrine saves those claims. The

15

FDIC’s Nevada Securities Act claims are timely, and can proceed, but not against

16

Barclays, because Nevada would not have personal jurisdiction over the bank. All

17

dismissals are with prejudice.

18
19

IT IS SO ORDERED.

20
21

DATED: March 21, 2013

____________________________

22

Hon. Mariana R. Pfaelzer

23

United States District Judge

24
25
26
27
28

28