United Western Bank v. Banc of America Funding Corporation et al

Filing 281

ORDER by Chief Judge Philip A. Brimmer on 1/30/2020, re: 253 (248) Defendants' Omnibus Motion for Summary Judgment is DENIED.(sphil, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Chief Judge Philip A. Brimmer
Civil Action No. 14-cv-00418-PAB-NRN
FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for UNITED
WESTERN BANK,
Plaintiff,
v.
RBS ACCEPTANCE INC,
RBS SECURITIES, INC., and;
RBS HOLDINGS USA INC.,
Defendants.

ORDER

This matter is before the Court on Defendants’ Omnibus Motion for Summary
Judgment [Docket No. 248]. The Court has subject matter jurisdiction under 28 U.S.C.
§ 1331 and 12 U.S.C § 1819(b)(2)(A) (“Except as provided in subparagraph (D), all
suits of a civil nature at common law or in equity to which the [FDIC], in any capacity, is
a party shall be deemed to arise under the laws of the United States.”).
I. BACKGROUND1
The dispute in this case is based on defendants’ sale of residential mortgagebacked securities to United Western Bank (“UWB”). In 2006, UWB purchased the
HVMLT-2006-7 B-2 Certificate (the “Certificate”), which was backed by approximately
5,119 residential mortgage loans originated and underwritten by American Home

1

The following facts are undisputed unless noted otherwise.

Mortgage (“American Home”) in 2005 and 2006. Docket No. 248 at 4-5, 8, ¶¶ 1-2, 22;
Docket No. 257 at 7, ¶ 65. The Certificate was issued and underwritten by defendants.
Docket No. 248 at 4, ¶ 1. 2
Before the sale, defendants sent UWB preliminary marketing materials regarding
the Certificate. Id. at 5, ¶ 4. These materials warned that the information provided
therein was “preliminary and . . . subject to completion or change.” Id., ¶ 5. At some
point prior to August 15, 2006, UWB employees Ben Hirsch and Pat Howard approved
UWB’s purchase of the Certificate. Id. at 6, ¶ 9. UWB completed the purchase on
August 15, 2006. Id., ¶ 8. The same day, defendants filed the HVMLT 2006-7
Prospectus Supplement (“prospectus supplement”) with the Securities and Exchange
Commission (“SEC”). Id. Neither Mr. Hirsch nor Mr. Howard recalled reviewing the
prospectus supplement before purchase. Id., ¶¶ 10, 11. 3
The preliminary marketing materials and prospectus supplement made various
representations regarding the Certificate and the underlying mortgage loans. For
example, both the preliminary marketing materials and the prospectus supplement
stated that the weighted average loan-to-value ratio (“LTV”) of the underlying loans was

2

The Certificate was an investment vehicle providing “two forms of monthly
distributions: (1) repayment of principal, derived from principal payments homeowners
made on the underlying mortgage loans collateralizing the certificate and (2) interest
income based on the outstanding principal balance of the certificate at the end of each
payment cycle.” Docket No. 248 at 13, ¶ 62; see also Docket No. 250 at 9-10. The
interest payments were calculated based on the “Coupon Rate” specif ied in the
Certificate. See Docket No. 248 at 13, ¶ 63; Docket No. 250 at 3, 9.
3

The parties dispute whether James Sherrill, the trader who purchased the
Certificate for UWB, reviewed the prospectus supplement prior to completing the
purchase. See Docket No. 248 at 6, ¶ 12; Docket No. 257 at 3, ¶ 12.
2

between 75.26% and 75.27% and that the weighted average effective LTV for the loans
was 64.86%. Docket No. 257 at 7-8, ¶¶ 67, 70; see also Docket No. 249-4 at 28
(preliminary marketing materials); Docket No. 250 at 5 (prospectus supplement). The
prospectus supplement also stated that the “mortgage loans were originated in
accordance with the underwriting guidelines described under ‘Mortgage Loan
Origination – Underwriting Standards’ herein.” Docket No. 257 at 10, ¶ 82; Docket No.
250 at 12. 4 Under those standards, “exceptions to American Home’s underwriting
guidelines [were] allowed if sufficient compensating factors exist[ed] to offset any
additional risk due to the exception.” Docket No. 250 at 19; see also id. at 17; Docket
No. 257 at 10, ¶ 82. Finally, the prospectus supplement stated that “[e]very mortgage
loan [was] secured by a property that ha[d] been appraised by a licensed appraiser in
accordance with the Uniform Standards of Professional Appraisal Practice [(“USPAP”)]
of the Appraisal Foundation.” Docket No. 257 at 11, ¶ 88; Docket No. 250 at 18.
Before selling the Certificate, defendants hired Hansen Quality to assess the
reasonableness of the appraised values for a sample set of loans included in the
Certificate. Docket No. 257 at 12, ¶ 91. Defendants also hired The Clayton Group
(“Clayton”) to determine whether the loans complied with underwriting guidelines and
applicable law. Id., ¶ 96.
In October 2006, UWB enlisted J.P. Morgan to analyze the credit quality of its
securities portfolio, which included the Certificate. Docket No. 248 at 11, ¶ 45. J.P.
4

“Mortgage loan underwriting is the process by which lenders evaluate the risk of
making a loan to a prospective borrower” and involves an assessment of whether a
prospective borrower meets certain criteria established by the applicable underwriting
guidelines. Docket No. 248 at 7, ¶¶ 17-18.
3

Morgan and UWB “both agreed that the portfolio was of high quality and that there were
no signs of any credit deterioration or any problematic securities.” Docket No. 257 at
14, ¶ 106. Between 2006 and 2008, UW B tracked the performance of the mortgage
loans backing the Certificate. Docket No. 248 at 11, ¶ 46. By January 2008, 11.31% of
the loans backing the Certificate had experienced delinquencies or foreclosures. Id.,
¶ 48.5 However, the Certificate maintained an investment grade rating. Docket No. 257
at 14, ¶ 107.
On January 21, 2011, UWB failed and was placed in receivership by the Federal
Deposit Insurance Corporation (“FDIC”). Docket No. 248 at 5, ¶ 3. On January 15,
2014, the FDIC, acting in its capacity as receiver for UWB, filed this lawsuit in the
District Court for the City and County of Denver, Colorado, asserting state and federal
securities law claims against various defendants based on allegedly false and
misleading statements made in connection with ten mortgage-backed certificates,
including the Certificate, purchased by UWB. See Docket No. 4 at 3, ¶ 1. On February
14, 2014, the defendants removed the case to federal court. See Docket No. 1.
On November 14, 2014, plaintiff voluntarily dismissed its claims against
defendants Banc of America Funding Corporation, Bank of America Corporation, Banc
of America Mortgage Securities, Inc., Bank of America, N.A., and Merrill Lynch, Pierce,
Fenner & Smith, Inc. Docket No. 95. Through orders entered on February 24, 2015
and March 24, 2015, the Court remanded plaintiff’s federal securities act claims against

5

While plaintiff appears to dispute this fact, see Docket No. 257 at 5, ¶ 48,
plaintiff’s explanation, which bears no relationship to delinquency and foreclosure rates,
suggests that the paragraphs of plaintiff’s response are misnumbered.
4

the remaining defendants to state court, see Docket No. 100 at 9 (remanding plaintiff’s
third, fourth, and fifth claims for relief to state court), and dismissed plaintiff’s first and
second claims for relief to the extent they sought recovery for defendants’ failure to
disclose the existence of additional liens on properties in certificates 2, 3, and 4.
Docket No. 103 at 22. On February 26, 2016, plaintiff voluntarily dismissed its claims
against the Morgan Stanley defendants. Docket No. 141.
On January 5, 2018, the sole remaining defendants in the case, RBS
Acceptance Inc., RBS Securities Inc., and RBS Holdings USA Inc. (hereinafter
“defendants”), moved for summary judgment. Docket No. 248. The claims at issue in
the summary judgment motion arise under §§ 11-51-501(1)(b) and 11-51-604(4) of the
Colorado Securities Act, which create liability for any person who, in connection with the
sale of a security, “make[s] any untrue statement of a material fact or . . . omit[s] to
state a material fact necessary in order to make the statements made, in the light of the
circumstances under which they are made, not misleading.” Colo. Rev. Stat. §§ 11-51501(1)(b), 11-51-604(4). As a basis for its claims, plaintiff alleges that defendants
made materially false and/or misleading statements in connection with the sale of the
Certificate to UWB in 2006. See generally Docket No. 4.6
On February 21, 2018, plaintiff filed a response to defendants’ motion, Docket
No. 257, to which defendants replied on March 21, 2018. Docket No. 263. On June
13, 2018, plaintiff filed a notice of supplemental authority, Docket No. 268, which the

6

Plaintiff also asserts a claim for controlling person liability under Colo. Rev. Stat.
§ 11-51-604(5). Docket No. 4 at 30. Defendants do not separately challenge that claim
in their summary judgment motion.
5

Court has considered in resolving defendants’ summary judgment motion below.
II. LEGAL STANDARD
Summary judgment is warranted under Federal Rule of Civil Procedure 56 when
the “movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986). A disputed f act is “material” if
under the relevant substantive law it is essential to proper disposition of the claim.
Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001). Only disputes
over material facts can create a genuine issue for trial and preclude summary
judgment. Faustin v. City & Cty. of Denver, 423 F.3d 1192, 1198 (10th Cir. 2005). An
issue is “genuine” if the evidence is such that it might lead a reasonable jury to return a
verdict for the nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir.
1997).
Where “the moving party does not bear the ultimate burden of persuasion at trial,
it may satisfy its burden at the summary judgment stage by identifying a lack of
evidence for the nonmovant on an essential element of the nonmovant’s claim.”
Bausman v. Interstate Brands Corp., 252 F.3d 1111, 1115 (10th Cir. 2001) (internal
quotation marks omitted) (quoting Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 671
(10th Cir. 1998)). “Once the moving party meets this burden, the burden shifts to the
nonmoving party to demonstrate a genuine issue for trial on a material matter.”
Concrete Works of Colo., Inc. v. City & Cty. of Denver, 36 F.3d 1513, 1518 (10th Cir.
1994). The nonmoving party may not rest solely on the allegations in the pleadings, but

6

instead must designate “specific facts showing that there is a genuine issue for trial.”
Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986) (internal quotation marks omitted).
“To avoid summary judgment, the nonmovant must establish, at a minimum, an
inference of the presence of each element essential to the case.” Bausman, 252 F.3d
at 1115. When considering a motion for summary judgment, a court must view the
evidence in the light most favorable to the non-moving party. Id.
III. ANALYSIS
Defendants move for summary judgment on three grounds: (1) plaintiff has not
shown that UWB relied on any alleged misstatements in the prospectus supplement,
Docket No. 248 at 14-19; (2) there is no evidence that defendants made materially false
statements regarding American Home’s compliance with underwriting guidelines and
any underwriting claims are untimely, id. at 19-24; and (3) plaintiff has not asserted an
actionable claim that the opinions of value offered by the original appraisers were
falsified or intentionally inflated. Id. at 25-28. Defendants also seek a determination
that prejudgment interest on any damages award should be calculated at the “Coupon
Rate” set forth in the Certificate. Id. at 28-30.
A. Reliance
Defendants argue they are entitled to summary judgment on all claims because
plaintiff cannot demonstrate that UWB relied on any misstatements in the prospectus
supplement. Docket No. 248 at 18. Plaintiff responds that § 11-51-604(4) of the
Colorado Securities Act does not require reliance as an element of a cause of action
and that, even if it did, the evidence creates a genuine issue of fact regarding whether

7

UWB relied on the alleged misstatements. Docket No. 257 at 15-22.
The Court begins by addressing whether plaintiff is required to prove reliance as
an element of its cause of action under Colo. Rev. Stat. § 11-51-604(4). Because the
parties’ dispute on this issue presents a question of statutory interpretation, the Court
looks first “to the plain language of the controlling statutes under [Colorado] law,” before
turning to case law interpreting similar federal statutes and regulations. Cagle v.
Mathers Family Trust, 295 P.3d 460, 465 (Colo. 2013) (internal quotation marks
omitted); Black Diamond Fund, LLLP v. Joseph, 211 P.3d 727, 736 (Colo. App. 2009).
In construing the language of Colorado statutes, the Court applies “fundamental
principles of statutory construction.” Black Diamond Fund, LLLP, 211 P.3d at 736.
Thus, the Court gives statutory terms “their plain and ordinary meaning” and “consider
statutes as a whole, construing each provision in harmony with the overall statutory
scheme, structure, and purpose” with the goal of “ascertain[ing] and giv[ing] effect to
the intent of the General Assembly.” Id.
Section 11-51-604(4) states, in relevant part:
Any person who sells a security in violation of section 11-51-501(1)(b) (the
buyer not knowing of the untruth or omission) and who does not sustain
the burden of proof that such person did not know, and in the exercise of
reasonable care could not have known, of the untruth or omission is liable
to the person buying the security from such person, who may sue to
recover the consideration paid for the security, together with interest at the
statutory rate from the date of payment, costs, and reasonable attorney
fees, less the amount of any income received on the security, upon the
tender of the security, or is liable for damages if the buyer no longer owns
the security.
Colo. Rev. Stat. § 11-51-604(4). The provision therefore creates an express cause of
action for sales of securities in violation of § 11-51-501(1)(b). Section 11-51-501(1)(b)
8

makes it
unlawful for any person, in connection with the offer, sale, or purchase of
any security, directly or indirectly . . . [t]o make any untrue statement of a
material fact or to omit to state a material fact necessary in order to make
the statements made, in the light of the circumstances under which they
are made, not misleading. . . .
Colo. Rev. Stat. § 11-51-501(1)(b).
Nothing in the plain language of these sections requires proof of reliance. The
statutory language requires only that (1) the defendant made an untrue statement or
omission of a material fact in connection with the sale of a security; (2) the plaintiff did
not know of the untruth or of the omission; and (3) the defendant knew, or in the
exercise of reasonable care could have known, of the untruth or omission. See F.D.I.C.
v. Countrywide Fin. Corp., 2013 WL 49727, at *3 (C.D. Cal. Jan. 3, 2013) (holding that
neither reliance nor causation is an element of Colo. Rev. Stat. § 11-51-501(1)(b));
Gohler v. Wood, 919 P.2d 561, 563 (Utah 1996) (holding that similar statute under Utah
law does not require reliance).7 As the Utah Supreme Court reasoned in Gohler, the
fact that the legislature “plainly articulated a plaintiff’s required statement of mind” – lack
of knowledge – “but was silent as to whether the plaintiff must have relied on the
untruth or omission to recover clearly indicates that the legislature did not intend to
adopt a reliance requirement.” 919 P.2d at 563.
The Court’s analysis does not end here, however. While defendants do not
dispute that there is no express reliance requirement in §§ 11-51-501(1)(b) and 11-517

Under the plain terms of the statute, the last of these elements is an affirmative
defense. Thus, a defendant has the burden of proving that it did not know, or in the
exercise of reasonable care could not have known, of the untruth or omission in order
to avoid liability.
9

604(4), they argue that the Court should look beyond the plain language of the statute
and construe § 11-51-501(1)(b) in accordance with its federal analogs, § 10(b) of the
Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and SEC Rule 10b-5, which have
long been interpreted to require proof of reliance. See Docket No. 248 at 15; Amgen
Inc. v. Conn. Retirement Plans & Trust Funds, 568 U.S. 455, 461 (2013) (“Reliance . . .
is an essential element of the § 10(b) private cause of action because proof of reliance
ensures that there is a proper connection between a defendant’s misrepresentation and
a plaintiff’s injury.” (internal quotation marks omitted)); Basic Inc. v. Levinson, 485 U.S.
224, 243 (1988) (“We agree that reliance is an element of a Rule 10b-5 cause of
action.”).8 In support of their argument, defendants cite § 11-51-101(3) of the Colorado
Securities Act, which provides that the
provisions of this article and rules made under this article shall be
coordinated with the federal acts and statutes to which references are
made in this article and rules and regulations promulgated under those
federal acts and statutes, to the extent coordination is consistent with both
the purposes and provisions of this article.
Colo. Rev. Stat. § 11-51-101(3). Although this section does not require courts to defer
to interpretations of the federal securities laws where doing so would conflict with the
plain language of the Colorado Securities Act, Cagle, 295 P.3d at 465 (stating that,
notwithstanding § 11-51-101(3), courts should look first to the plain language of the
Colorado statutes), the Colorado Supreme Court has recognized that, “insofar as the
provisions and purposes of [the Colorado Securities Act] parallel those of the federal
enactments, . . . federal authorities are highly persuasive.” Id. (internal quotation marks
8

The SEC promulgated Rule 10b-5 pursuant to its authority under § 10(b). Basic
Inc., 485 U.S. at 230.
10

omitted); see, e.g., Rosenthal v. Dean Witter Reynolds, Inc., 908 P.2d 1095, 1100-01
(Colo. 1995) (looking to federal law to construe the pleading requirements of §§ 11-51123 and 11-51-125(2) of a previous version of the Colorado Securities Act). 9
Defendants’ attempt to analogize § 11-51-501(1)(b) to SEC Rule 10b-5 for
purposes of inferring a reliance requirement is not without support. See Rosenthal, 908
P.2d at 1101 (citing case law interpreting SEC Rule 10b-5 in holding that predecessor
versions of Colo. Rev. Stat. §§ 11-51-501(1) and 11-51-604(3), Colo. Rev. Stat. §§ 1151-123(1) and 11-51-125(2), required proof of reliance or causation); People v. Riley,
708 P.2d 1359, 1363 (Colo. 1985) (noting that Colo. Rev. Stat. § 11-51-123(1) was
“identical to section 101 of the Uniform Securities Act, 7B U.L.A. 516 (1985),” which, in
turn, was “substantially identical to Rule 10b-5 of the Securities and Exchange
Commission”), abrogated in part on other grounds as recognized in F.D.I.C. v. First
Interstate Bank of Denver, N.A., 937 F. Supp. 1461, 1473 (D. Colo. 1996).
Nevertheless, the Court finds defendants’ approach to be flawed.
First, Colo. Rev. Stat. §§ 11-51-501(1)(b) and 11-51-604(4) are f undamentally
distinct from § 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 in that
the Colorado provisions create an express cause of action for untrue statements or
9

Although §§ 11-51-501(1) and 11-51-604(4) are substantially similar to SEC
Rule 10b-5 and § 12(a)(2) of the Securities Act of 1933, the predecessor versions of the
Colorado provisions were modeled directly on the Uniform Securities Act. See People
v. Blair, 579 P.2d 1133, 1138 (Colo. 1978) (“Section 11-51-123 and 124, C.R.S. 1973
came from the Uniform Securities Act, sections 101 and 409. Section 101 of the
Uniform Securities Act is substantially the same as the well-known Rule 10b-5 of the
Securities and Exchange Commission.” (internal citation omitted)); Lowery v. Ford Hill
Inv. Co., 556 P.2d 1201, 1209 (Colo. 1976) (“The provisions of section 11-51-125,
C.R.S. 1973, were adopted intact from the text of the Uniform Securities Act and are
almost identical to 15 U.S.C. § 77l(2) (1970).”).
11

omissions made in connection with the sale of securities. See Colo. Rev. Stat. § 11-51604(4). In contrast, the federal cause of action is implied. See Stoneridge Inv.
Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 164 (2008) (“The § 10(b) private
cause of action is a judicial construct that Congress did not enact in the text of the
relevant statutes.”); see also Green v. Green, 293 S.W.3d 493, 506 n.28 (Tenn. 2009)
(discussing implied federal cause of action). As the Utah Supreme Court explained in
Gohler, “because the federal cause of action is implied, federal courts have had to
define its elements and have derived these elements,” one of which is reliance, “at least
in part, from the common law of fraud.” 919 P.2d at 565; see also Basic Inc., 485 U.S.
at 243 (agreeing that, just as reliance is an element of both common-law fraud and a
right of action under § 18(a) of the Securities Exchange Act of 1934, it is also an
element of a Rule 10b-5 cause of action); Green, 293 S.W.3d at 506 n.28 (noting that
the federal “implied right of action resembles, but is not identical to, common-law tort
actions for deceit and misrepresentation”). Here, however, there is no need to define
the elements of a cause of action under the Colorado Securities Act because those
elements, none of which include reliance, are expressly identified in § 11-51-604(4).
See Green, 293 S.W.3d at 508 (noting that, by focusing on the textual similarities and
differences between the Tennessee Securities Act and the federal securities law, the
Courts of Appeals “lost sight of the fact that the Tennessee General Assembly had
already included the elements of the statutory claims in Tenn. Code Ann. § 48-2-122
and, thus, that they did not need to look to federal law or the common law for
guidance”); Cuene v. Hilliard, 754 N.W.2d 509, 517 (Wis. Ct. App. 2008) (holding that

12

the causal element of a Wisconsin securities law claim was defined by statute rather
than an inferred reliance requirement and distinguishing federal securities law on the
ground that the federal cause of action is implied); Gohler, 919 P.2d at 565 (declining to
establish a reliance requirement under the Utah Securities Act because, unlike with the
federal cause of action, the elements of a cause of action under the Utah Act had
already been defined by the legislature); 12A Joseph C. Long et al., Blue Sky Law
§ 9:41 (updated June 2019) (arguing that, when anti-fraud language and an express
right of action are included in a state securities statute, “the lang uage of the statute[],
not a comparable common-law tort, should provide the elements necessary for
recovery”); David O. Blood, There Should be No Reliance in the “Blue Sky,” 1998
B.Y.U. L. Rev. 177, 184-85 (1998) (stating that “justification for imposing [a reliance]
requirement” under the Uniform Securities Act “can only be based on an implied cause
of action, as in the federal arena,” but noting that the drafters “precluded inclusion of a
reliance element” by “explicitly prohibiting implication of any new cause of action based
on the Act”); cf. Kittilson v. Ford, 608 P.2d 264, 265 (W ash. 1980) (declining to read
scienter requirement into Washington State Securities Act and distinguishing cases
interpreting § 10(b) of the Securities Exchange Act and SEC Rule 10b-5 on the ground
that, unlike under federal law, the language used in the Washington Securities Act “is
not derivative but is the statute”). 10
Defendants argue that the Colorado General Assembly must have intended
claims for violations of § 11-51-501(1)(b) to include a reliance element because, “by the
10

The Colorado Securities Act also prohibits the creation of any cause of action
not specified in §§ 11-51-606 or 11-51-602. See Colo. Rev. Stat. § 11-51-604(12).
13

time the Colorado Legislature enacted the CSA (as well as the 1990 amendments
thereto), federal courts – including the Supreme Court – had already determined that
Rule 10b-5, including subpart (b) addressing material misstatements and omissions,
required proof of reliance.” Docket No. 248 at 16. Defendants invoke the interpretive
principle that a legislature “is presumed to be aware of and accept case law
interpretations of statutes, particularly in circumstances in which an amendment follows
publication of the case.” In re A.M.D., 78 P.3d 741, 750 (Colo. 2003); see Docket No.
263 at 7. However, application of this principle highlights the second flaw in
defendants’ argument: the Colorado provision that creates the private right of action for
untrue statements or omissions, § 11-51-604(4), is “virtually identical” to § 12(a)(2) of
the Securities Act of 1933, 15 U.S.C. § 77l(a)(2), Goss v. Clutch Exchange, Inc., 701
P.2d 33 (Colo. 1985) (interpreting predecessor versions of Colo. Rev. Stat. § 11-51604(4) and § 12(a)(2) of the Securities Act of 1933), which has long been interpreted by
federal courts as not requiring reliance. See, e.g., Gustafson v. Alloyd Co., Inc., 513
U.S. 561, 578 (1995) (noting that the previous version of § 12(a)(2), § 12(2) of the
Securities Act of 1933, gave buyers of securities “a right to rescind, without proof of
fraud or reliance”); United Food & Commercial Workers Union Local 880 Pension Fund
v. Chesapeake Energy Corp., 774 F.3d 1229, 1233 (10th Cir. 2014) (stating that
§ 12(a)(2) of the Securities Act of 1933 does not require a plaintiff to “allege scienter,
reliance, or loss causation” (internal quotation marks omitted); MidAmerica Fed. Sav. &
Loan Ass’n v. Shearson/American Express Inc., 886 F.2d 1249, 1256 (10th Cir. 1989)
(noting that § 12(2) “ha[d] no requirement of justifiable reliance on the part of a

14

purchaser”).11 The question then becomes – if the Colorado Supreme Court were to
look to federal law to interpret §§ 11-51-501(1)(b) and 11-51-604(4), which line of
precedent would that court consider persuasive?
Courts that have interpreted similar state securities laws are divided on this
issue. Some courts, have held that their state securities laws require proof of reliance
because the remedial provisions, which borrow language from § 12(2) or § 12(a)(2) of
the Securities Act of 1933, define liability according to different statutory sections
modeled after SEC Rule 10b-5. See Long et al., supra (noting that Georgia and Iowa
“incorporate any violation of Section 101 [of the Uniform Securities Act] into their civilliability provisions” and, “as a result, . . . construe the scope of civil liability in line with
Rule 10b-5”). Other courts faced with a similar conflict between a remedial provision
modeled after SEC Rule 10b-5 and a liability provision resembling § 12(a)(2) have
11

Section 12(a)(2) of the Securities Act of 1933 states:

Any person who . . . offers or sells a security . . . by the use of any means
or instruments of transportation or communication in interstate commerce
or of the mails, by means of a prospectus or oral communication, which
includes an untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading (the
purchaser not knowing of such untruth or omission), and who shall not
sustain the burden of proof that he did not know, and in the exercise of
reasonable care could not have known, of such untruth or omission, shall
be liable . . . to the person purchasing such security from him, who may
sue either at law or in equity in any court of competent jurisdiction, to
recover the consideration paid for such security with interest thereon, less
the amount of any income received thereon, upon the tender of such
security, or for damages if he no longer owns the security.
15 U.S.C. § 77l(a)(2). This provision is substantively similar to its predecessor, § 12(2)
of the Securities Act of 1933, 15 U.S.C. § 77l(2). See Gustafson, 513 U.S. at 567
(quoting language of § 12(2)).
15

declined to establish a reliance requirement in the absence of express statutory
language doing so. See, e.g., Fed. Home Loan Bank of Seattle v. Credit Suisse, 449
P.3d 1019 (Wash. 2019) (construing the Washington Security Act); Countrywide Fin.
Corp., 2013 WL 49727, at *2-3 (interpreting the Colorado Securities Act); Green, 293
S.W.3d at 508 (interpreting the Tennessee Securities Act); Gohler, 919 P.2d at 565
(interpreting the Utah Securities Act).
The Court finds the latter approach more persuasive. Defendants have identified
no principled reason why the Court should look to federal interpretations of SEC Rule
10b-5, rather than cases construing § 12(a)(2), in determining whether reliance is
required under Colo. Rev. Stat. §§ 11-51-501(1)(b) and 11-51-604(4). But it is not clear
to the Court why the elements of a Colorado Securities Act claim would necessarily be
defined by Colo. Rev. Stat. § 11-51-501(1)(b) when § 11-51-604(4) sets forth the civil
cause of action. Section 11-51-604(4) already defines other elements of a Colorado
Securities Act claim, including the requirement that the buyer of the security “not know[]
of the untruth or omission” by the seller.” Colo. Rev. Stat. § 11-51-604(4).
Defendants stress that the Colorado General Assembly amended the remedial
provision in 1990 to “explicitly predicate[] liability on a violation of Section 501(1)(b).”
Docket No. 248 at 16. According to defendants, this amendment made “clear that while
Section 604(4) now provides a private right of action, it refers back to Section 501(1)(b)
for the substantive elements required to prove a claim.” Id. at 17. It seems equally
plausible, however, that, rather than work a substantive change to the statute, the
Colorado General Assembly merely intended to clarify the already-existing relationship
between §§ 11-51-123(1)(b) and 11-51-124(3). Compare Colo. Rev. Stat. § 11-5116

123(1)(b) (1981) (making it unlawful to “make any untrue statement of a material fact or
to omit to state a material fact necessary in order to make the statements made, in the
light of the circumstances under which they are made, not misleading” (emphasis
added)), with Colo. Rev. Stat. § 11-51-125(3) (1981) (conferring liability on “[a]ny
person who offers or sells a security by means of any untrue statement of a material
fact or any omission to state a material fact necessary in order to make the statement,
in the light of the circumstances under which it is made, not misleading”) (emphasis
added)).12
Given the ambiguity regarding which provision, § 11-51-501(1)(b) or § 11-51604(4), was meant to define the elements of a Colorado Securities Act claim, the Court
will not presume that the “Colorado Legislature, in adopting the substantive equivalent
of Rule 10b-5, intended that claims for violations of Section 501(1)(b) likewise require
proof of reliance.” Docket No. 248 at 16. Instead, the Court will give effect to the plain
language of the Colorado Securities Act, which does not require proof of reliance for a
civil action under § 11-51-604(4). See Fed Home Loan Bank, 449 P.3d at 1021-1023
(holding that “[n]o reliance - neither term nor concept - appears” in the W ashington
Security Act); MidAmerica Fed. Savings & Loan Ass’n v. Shearson/American Express
Inc., 886 F.2d 1249, 1254 (10th Cir. 1989) (holding that the plain language of
Oklahoma’s similarly-worded securities law was “clear in requiring that plaintiff show
only lack of knowledge of a misleading statement or omission in order to prevail”); cf.

12

Defendants do not cite – and Court has been unable to f ind – any legislative
history directly addressing the purpose of the 1990 amendment to Colo. Rev. Stat.
§ 11-51-604(4)’s predecessor statute, § 11-51-125(3).
17

Black Diamond Fund, LLLP, 211 P.3d at 736 (declining to “extrapolat[e] from federal
law” in construing § 11-51-501(1)(b) because the plain language of the statute
supported a conclusion that proof of scienter is not required).
The Court’s conclusion that a § 11-51-604(4) claim does not require proof of
reliance further accords with the overall structure and purpose of the Colorado
Securities Act. The Act’s remedial provisions create two distinct causes of action: a
fraud-based claim against “any person who recklessly, knowingly, or with an intent to
defraud sells or buys a security in violation of section 11-51-501(1),” and a quasi-strict
liability claim solely for the sale of a security in violation of § 11-51-501(1)(b). Black
Diamond Fund, LLLP, 211 P.3d at 736 (internal quotation marks omitted) (discussing
remedial provisions of § 11-51-604); see also Docket No. 257 at 17. 13 As with their
federal counterparts, §§ 10(b) and 12(a)(2), these causes of action differ in that the
latter applies in a narrower set of circumstances – the sale of a security – but “give[s]
rise to liability more readily.” In re Morgan Stanley Info. Fund Secs. Litig., 592 F.3d
347, 360 (2d Cir. 2010). 14 Declining to read a reliance requirement into Colo. Rev. Stat.
§ 11-51-604(4) is consistent with this general structure.

13

Section 11-51-604(4) does not create a pure strict liability cause of action
because it allows a defendant to avoid liability by showing that he or she “did not know,
and in the exercise of reasonable care could not have known, of the untruth or
omission.” Colo. Rev. Stat. § 11-51-604(4). At least one court has c haracterized this
language as an “inverse negligence standard.” See In re Access Cardiosystems, Inc.,
776 F.3d 30, 33 (1st Cir. 2015).
14

Section 11-51-604(4) also limits relief to “the consideration paid for the security,
together with interest . . . , costs, and reasonable attorney fees,” whereas § 11-51604(3) allows “such legal or equitable relief that the court deems appropriate, including
rescission [and] actual damages . . . .” Colo. Rev. Stat. §§ 11-51-604(3) and (4).
18

Finally, the Court’s holding is in line with other courts’ interpretations of state
statutes, which, like Colo. Rev. Stat. §§ 11-51-501(1) and 11-51-604(4), are m odeled
on the Uniform Securities Act. See Fed. Home Loan Bank, 449 P.3d at 1026-1028
(distinguishing Washington appellate and federal precedent); Gohler, 919 P.2d at 566
(collecting cases holding that various state securities laws modeled after the Uniform
Securities Act do not require proof of reliance); Green, 293 S.W.3d at 506, 509 (noting
that the “overwhelming weight of authority in states with statutes similar to”
Tennessee’s, which borrows language from the Uniform Securities Act, “is that reliance
is not an element of a right of action for false and misleading statements in a securities
transaction”); Joel Seligman, The New Uniform Securities Act, 81 Wash. U. L. Q. 243,
288 (Summer 2003) (noting that “neither causation nor reliance has been held to be an
element of a private cause of action” under the previous version of the Uniform
Securities Act).
Because the Court finds that reliance is not a required element of a cause of
action under § 11-51-604(4), defendants have failed to demonstrate they are entitled to
summary judgment based on plaintiff’s purported failure to prove that UWB actually
relied on representations in the August 15, 2006 prospectus supplement.
B. Underwriting Guidelines
Defendants argue that plaintiff cannot prevail on its claim that defendants
misrepresented loan originators’ compliance with underwriting guidelines because (1)
there is insufficient evidence that defendants’ disclosures were false, and (2) any
alleged deviations from the underwriting guidelines were immaterial. Docket No. 248 at
19-23; see also Colo. Rev. Stat. § 11-51-501(1)(b) (making it unlawful for a person to
19

“make any untrue statement of a material fact or to omit to state a material fact”).
Defendants also contend that plaintiff’s underwriting claim is untimely because “monthly
Distribution Reports, and other data in UW B’s possession” provided UWB and the FDIC
with sufficient information “to file that claim well before January 21, 2008.” Docket No.
248 at 24-25.
1. Timeliness
The Court begins by addressing defendants’ argument that plaintiff’s
underwriting claim is time-barred.
Section 1821(d)(14) of Title 12 (the “FDIC extender statute”), which extends the
applicable statute for limitations for claims brought by the FDIC as conservator or
receiver, requires the FDIC to bring any tort claim within three years from either the date
that it places a failed bank into conservatorship or receivership or the date on which the
cause of action accrues. See 12 U.S.C. § 1812(d)(14)(A)(ii)-(B); Docket No. 103 at 6-7
(order on motion to dismiss). The FDIC extender statute does not apply, however, if the
applicable statute of limitations has run by the time the FDIC is appointed conservator
or receiver. See F.D.I.C. v. Regier Carr & Monroe, 996 F.2d 222, 225 (10th Cir. 1993)
(joining other courts in holding that “the limitation period of [the FDIC extender statute]
may not apply retroactively to revive a claim that is already barred by a state statute of
limitations”); see also Docket No. 86 at 3 (arguing that the FDIC extender statute “gives
the Federal Deposit Insurance Corporation as receiver for a failed bank at least three
years after it is appointed as receiver to file any claims (state or federal) held by the
failed bank that had not expired by the time of failure”). In other words, the extender
statute cannot revive a claim that is already time-barred under state law.
20

Colorado law provides that the limitations period for a claim brought under
§ 11-51-604(4) of the Colorado Securities Act is three years “after the discovery of the
facts giving rise to a cause of action” or “after such discovery should have been made
by the exercise of reasonable diligence.” Colo. Rev. Stat. § 11-51-604(8). Defendants
argue that this period expired prior to January 21, 2011, the date the FDIC was
appointed receiver for UWB, because UWB had sufficient information before January
21, 2008 to file its underwriting guidelines claim. Docket No. 248 at 24-25. Defendants
rely on plaintiff’s allegations that the mortgage loans backing the Certificate
experienced high rates of delinquency soon after they were made. See Docket No. 248
at 24 (citing complaint, Docket No. 4 at 21, 23-24, ¶¶ 89, 92). In addition, def endants
cite monthly distribution reports and “other data” in UW B’s possession showing “a
steady increase in delinquencies and defaults from 0% to 11.31% by January 2008.”
Docket No. 248 at 24-25 & n. 10-11. W hile not disputing that UWB had access to the
information cited by defendants prior to January 21, 2008, see Docket No. 257; see
also Docket No. 248 at 11, ¶¶ 45-47, plaintiff contends that defendants cannot show the
underwriting guidelines claim is untimely as a matter of law because the Certificate
“maintained an investment grade credit rating” as of January 21, 2008 and UWB’s
monitoring “showed that the Certificate was of high quality with no sign of credit
deterioration.” Docket No. 257 at 25.
The Court agrees with plaintiff that there is a genuine issue of fact as to whether
UWB discovered, or through the exercise of reasonable diligence should have
discovered, the alleged underwriting guideline compliance issues before January 21,

21

2008.15 In arguing that plaintiff’s claim is time-barred, defendants rely primarily on the
mortgage loans’ delinquency rates, which were known to UWB before January 21,
2008. As other courts have recognized, however,
[I]t is one thing to know that the securities were not making their expected
returns, or had even lost long term value in the eyes of investors, and
quite another entirely to have cause to suspect that [the seller of the
security] had materially misrepresented the characteristics of the
collateralized loans and its own due diligence. A period of poor
performance by itself may reflect any number of unrelated economic or
market factors, and is not necessarily sufficient to put investors on notice
of systematic disregard of underwriting procedures, inflation of
underwriting data or the seller’s material misrepresentations.
CMFG Life Ins. Co. v. RBS Secs. Inc., 2013 WL 4483068, at *4 (W.D. Wis. Aug. 19,
2013); F.D.I.C. v. Chase Mortg. Fin. Corp., 2013 WL 5434633, at *5 (S.D.N.Y. Sept. 27,
2013) (relying on same reasoning from CMFG Life Ins. Co. to reject statute of
limitations argument). This, combined with the undisputed facts that (1) JP Morgan and
UWB “both agreed [in March 2007] that [UW B’s securities] portfolio was of high quality

15

The parties have not cited – and the Court has not identif ied – any Colorado
authority interpreting the accrual standard under Colo. Rev. Stat. § 11-51-604(8). See
In re Countrywide Fin. Corp. Mortg.-Backed Secs. Litig., 84 F. Supp. 3d 1036, 1039
(C.D. Cal. 2014) (noting absence of authority addressing whether Colo. Rev. Stat. § 1151-604(8) provides for an inquiry notice or discovery trigger). It seems likely that the
Colorado Supreme Court would follow the Supreme Court’s reasoning in Merck & Co.,
Inc. v. Reynolds, 559 U.S. 633 (2010), and hold that “terms such as ‘inquiry notice’ and
‘storm warnings’ may be useful to the extent that they identify a time when the facts
would have prompted a reasonably diligent plaintiff to begin investigating,” but that “the
limitations period does not begin to run until the plaintiff thereafter discovers or a
reasonably diligent plaintiff would have discovered the facts constituting the violation.”
Id. at 653 (internal quotation marks omitted); see also In re Countrywide Fin. Corp.
Mortg.-Backed Secs. Litig., 84 F. Supp. 3d at 1039 (holding that a “discovery trigger”
accorded with a “natural reading” of Colo. Rev. Stat. § 11-51-604(8)). Even under a
more defense-friendly inquiry notice standard, however, the Court finds the delinquency
rates insufficient, standing alone, to trigger the running of the limitations period.
22

and that there were no signs of any credit deterioration or any problematic securities,”
Docket No. 257 at 14, ¶ 106; see also Docket No. 258-14 at 3, and (2) the Certificate
continued to have an investment grade credit rating as of January 21, 2008, Docket No.
257 at 14, ¶ 107, precludes summary judgment that UWB should have, through the
exercise of reasonable diligence, discovered the facts underlying its underwriting
guidelines claim prior to January 21, 2008. See Nat’l Credit Union Admin. Bd. v. RBS
Secs. Inc., 2016 WL 4565689, at *4-*5 (D. Kan. Sept. 1, 2016) (deny ing summary
judgment on statute of limitations issue where, despite the availability of “sufficient facts
. . . to indicate the possibility of claims against defendants” based on non-compliance
with underwriting guidelines, the fact that the credit ratings of the securities “had not
been downgraded provide[d] the reasonable inference that things [were] not so dire with
th[ose] investments as to indicate the possibility that underwriting guidelines had been
systematically abandoned”); In re Countrywide Fin. Corp. Mortg.-Backed Secs. Litig., 84
F. Supp. 3d at 1040 (rejecting statute of limitations argument on summary judgment
despite defendant’s assertion that the bank was “tracking information about the
performance and credit characteristics of the loan pools” and “knew in 2007 that certain
. . . securities had collateral performance issues” (internal quotation marks omitted)); W.
& S. Life Ins. Co. v. JPMorgan Chase Bank, N.A., 54 F. Supp. 3d 888, 902 (S.D. Ohio
2014) (holding that delinquency rates of 10% to 50% and downgrading of securities’
credit rating “were not necessarily sufficient to put plaintiffs on notice of their claims for
fraudulent abandonment of underwriting standards”); Capital Ventures Int’l v. J.P.
Morgan Mortg. Acquisition Corp., 2013 WL 535320, at *7 & n.8 (D. Mass. Feb. 13,
2013) (holding that the “poor performance of the underlying loans” was insufficient to
23

trigger the applicable limitations period even under the “more defendant-friendly inquiry
notice standard”); see also Stichting Pensioenfonds ABP v. Countryw ide Fin. Corp.,
802 F. Supp. 2d 1125, 1136 (C.D. Cal. 2011) (noting that “the question of what a
reasonably prudent investor should have known is particularly suited to a jury
determination” and thus “the defendant bears a considerable burden in demonstrating,
at the summary judgment stage, that the plaintiff’s claim is time barred” (internal
quotation marks and bracket omitted)).
2. Falsity
Defendants assert that plaintiff cannot show any false statements by defendants
regarding American Home’s compliance with underwriting guidelines. Docket No. 248
at 19. Specifically, they contend that the finding of plaintiff’s underwriting expert, Mr.
James Johnson, that 12 of the 5,119 securitized loans failed to comply with the
applicable guidelines “is woefully inadequate to establish that American Home was
making wholesale, rather than case-by-case, exceptions to their underwriting
standards.” Id. at 20 (internal quotation marks omitted).
As an initial matter, the Court finds that defendants are taking an unduly narrow
view of plaintiff’s claim. The complaint alleges that defendants’ statements about the
underwriting guidelines were untrue or misleading both because they failed to disclose
that the “originators were making wholesale, rather than case-by-case, exceptions to
those underwriting standards” and because “the originators were making extensive
exceptions to those underwriting standards when no compensating factors were
present.” Docket No. 4 at 21, ¶ 86. Although the Court relied on the former allegation
in denying defendants’ motion to dismiss, nothing in the Court’s order purported to limit
24

plaintiff’s claim to that allegation alone. See Docket No. 103 at 17-18; see also In re
Washington Mutual Mortg. Backed Secs. Litig., 2012 WL 2995046, at *9 (W.D. Wash.
July 23, 2012) (declining to narrow the scope of the plaintiffs’ securities claim where the
court’s earlier focus on particular allegations “was merely the Court’s summary of the
allegations, not a bright line rule as to what Plaintiffs ha[d] to show to prove their
claim”). Accordingly, plaintiff may also prevail by showing that American Home made
exceptions to its underwriting guidelines in the absence of sufficient compensating
factors, thereby rendering defendants’ statement that the loans “were originated . . . in
accordance with the underwriting guidelines,” Docket No. 250 at 12, false and/or
misleading.16
Applying this standard to the present motion, the Court finds a genuine issue of
fact as to whether the prospectus supplement contained false and misleading
statements regarding American Home’s compliance with underwriting guidelines.
Plaintiff has provided a report from Mr. Johnson, a professional underwriter and quality
control manager, Docket No. 249-10 at 4, who conducted a re-underwriting of a
“statistically valid random sample” of mortgage loans backing the Certificate purchased
by UWB. Docket No. 258-12 at 3. Based on his review, Mr. Johnson concluded that, of
the 96 loans in the sample, 12 loans, or approximately 13%, “deviated from American
Home’s underwriting guidelines and did not have compensating factors that justified

16

The relevant provision of American Home’s underwriting guidelines provides
that “each case is weighed individually on its own merits and exceptions to [the]
underwriting guidelines are allowed if sufficient compensating factors exist to offset any
additional risk due to the exception. Id. at 19; see also id. at 17 (“Exceptions to the
underwriting standards may be permitted where compensating factors are present.”).
25

approval of those loans.” Docket No. 249-10 at 10. Plaintif f’s statistical expert relied on
this data to conclude that 12.5% of the total loans in the HVMLT 2006-7 certificate did
not comply with American Home’s underwriting guidelines. Docket No. 257 at 13,
¶ 103; Docket No. 258-12 at 5. 17
Plaintiff also cites evidence that defendants’ own due diligence review revealed
guidelines-compliance issues. See Docket No. 257 at 23. After reviewing defendants’
due diligence documents, plaintiff’s expert Leonard Blum opined that, of the 501 loans
sampled by the due diligence vendor, Clayton, approximately 24% were given a Credit
Event Grade of 3. Docket No. 258-3 at 17 (stating that “preliminary due diligence
reports indicated that a total of 118 of the 501 loans reviewed from the sample were
graded EV3 for either credit and/or compliance issues”). Clayton defined a Credit Event
Grade of 3 as meaning that “[s]ubstantial deviations from the guidelines exist, with no
apparent compensating factors to offset the overall risk.” Docket No. 257 at 13, ¶ 98;
see also Docket No. 258-11 at 3. 18 It is undisputed that 85% of the loans given a Credit
Event Grade of 3 were included in the HVMLT 2006-7 Certificate. Docket No. 257 at
13, ¶ 100; Docket No. 263 at 6, ¶ 100.
Defendants make several arguments as to why plaintiff’s evidence is insufficient
to create a genuine issue of fact. First, defendants assert that, “[e]ven assuming that
12.5% of loans violated guidelines, that is insufficient to render the prospectus
supplement materially false given the disclosures that exceptions were permitted.”

17

Defendants admit that this fact is disputed. Docket No. 263 at 6, ¶ 103.

18

Defendants dispute this fact but do not provide an alternate definition. Docket
No. 263 at 6, ¶ 98.
26

Docket No. 263 at 10. As another court has explained, however, “disclosures that
describe lenient, but nonetheless existing guidelines about risky loan collateral, would
not lead a reasonable investor to conclude that the mortgage originators could entirely
disregard or ignore those loan guidelines.” Genesee Cty. Emps. Retirement Sys. v.
Thornburg Mortg. Sec. Trust 2006-3, 825 F. Supp. 2d 1082, 1176-77 (D.N.M. 2011)
(internal quotation marks and brackets omitted); see also Docket No. 103 at 18
(rejecting argument that “general warnings” regarding the use of exceptions to the
underwriting guidelines based on the existence of compensating factors were sufficient
to warn investors that the “underwriting standards were systematically abandoned”
(internal quotation marks and ellipsis omitted)). Here, the offering documents stated
that “exceptions to American Home’s underwriting guidelines [were] allowed if sufficient
compensating factors exist[ed] to offset any additional risk.” Docket No. 250 at 19.
Because plaintiff’s evidence shows that exceptions were made even in the absence of
compensating factors, there is a genuine issue of fact as to whether defendants’
disclosures were false or misleading. Cf. Nat’l Credit Union Admin. Bd. v. RBS Secs.,
Inc., 900 F. Supp. 2d 1222, 1260 (D. Kan. 2012) (plaintif f’s claim that “defendants
represented that underwriting standards would generally be followed and that
exceptions would be made when compensating factors were present, but that this was
untrue,” was sufficient to survive motion to dismiss), aff’d sub nom. Nat’l Credit Union
Admin. Bd. v. Nomura Home Equity Loan, Inc., 764 F.3d 1199 (10th Cir. 2014), vacated
on other grounds by Nomura Home Equity Loan, Inc. v. Nat’l Credit Union Admin. Bd.,

27

134 S. Ct. 2818 (2014). 19
Defendants challenge plaintiff’s reliance on the findings of their due diligence
review, asserting that, contrary to plaintiff’s characterizations, defendants “did not
categorically waive the initial findings, but worked with its vendor to scrutinize each
loan.” Docket No. 263 at 10-11 n.9; see also id. at 6, ¶ 100 (admitting that “RBS
included in HVMLT 2006-7 nearly 85% of the loans that [the due diligence vendor]
initially graded 3,” but contending that “it is undisputed that RBS did not categorically
waive initial findings”). In support of this argument, defendants rely on an expert report
by Myron Glucksman in which he states that “RBS, [American Home Mortgage], and
Clayton worked together to address as many exceptions as possible with regard to the
loans with credit and compliance exceptions” before the closing of the Certificate on
August 15, 2006. Docket No. 264-10 at 9, ¶ 122. By way of illustration, Mr. Glucksman
discusses three loans whose credit/compliance issues were resolved during the tie-out
process. See id. at 9-10, ¶ 122 & n. 164. However, Mr. Glucksman also states in his
report that “30 of the 45 loans that received a credit and/or compliance grade of ‘2W’ or
‘3’ in the last available due diligence report were securitized in HVMLT 2006-7.” Id. at
10 n.166. Defendants therefore have not established the absence of any factual
dispute as to whether loans reflecting “substantial deviations from the guidelines” with
“no apparent compensating factors” were included in the Certificate.20

19

To the extent defendants’ argument is directed at the degree or magnitude of
the alleged falsity, it is more properly addressed as part of the Court’s materiality
analysis below.
20

In any event, plaintiff is correct that “disagreements between experts are not
appropriate for resolution on summary judgment.” Docket No. 257 at 23.
28

Defendants’ final argument is that the Court should not credit Mr. Johnson’s
opinions because they “would fail Daubert scrutiny.” Docket No. 263 at 10. However,
defendants have not moved to exclude Mr. Johnson’s testimony under Fed. R. Evid.
702, and the Court declines to ignore his opinions based on the suggestion that they
are unreliable. See Docket No. 263 at 10.
For the reasons discussed above, plaintiff has demonstrated a genuine issue of
fact as to whether defendants made false or misleading statements regarding American
Home’s compliance with underwriting guidelines.
3. Materiality
Defendants contend that any alleged deviations from the underwriting guidelines
“would not have been material to a reasonable investor in 2006” because (1) Mr.
Johnson did not consider whether the “alleged guideline deviations materially increased
the credit risk of any of the loans,” Docket No. 248 at 21; (2) his “defect findings for 9 of
the 12 loans rests on the incredible assumption that the loan files he reviewed . . . were
identical to the loan files as they existed for the original underwriters,” id. at 22; and (3)
any remaining deviations are insufficient, as a matter of law, to “significantly alter the
total mix of information made available to a reasonable investor in 2006.” Id. at 23.
As to the first argument, it is undisputed that Mr. Johnson did not evaluate
whether the underwriting defects he identified materially impacted the credit risk of the
loans. Docket No. 248 at 10, ¶ 44. However, defendants do not cite any authority for
the proposition that a guidelines deviation must “materially increase” credit risk to
qualify as material. In fact, plaintiff’s expert, Mr. Blum, testified that guidelines
deviations – and specifically, missing document issues – raise a number of concerns,
29

not all of which relate to credit risk. For example, he stated that missing documents
might indicate fraud, make the loans impossible to underwrite, or make it “difficult or
impossible to enforce rights and remedies in the event of foreclosure.” Docket No. 2644 at 11, 363:2-14; see also Docket No. 258-3 at 10 (noting that missing loan
documentation can be an “indicia of fraud,” can “diminish the value or enforceability of a
mortgage loan,” and can prevent certain re-underwriting tests from being performed).
Moreover, defendants ignore that non-compliance with underwriting guidelines, by its
very nature, can make it impossible to accurately assess the credit risk of a particular
loan. See Fed. Housing Fin. Agency v. Nomura Holding Am., Inc., 104 F. Supp. 3d
441, 571 (S.D.N.Y. 2015) (noting that “[c]ompliance with underwriting guidelines gave
assurance about the credit risk associated with the loans and the reliability of the
statistics reported in the Collateral Tables”), aff’d sub nom. Fed. Housing Agency for
Fed. Nat’l Mortg. Ass’n v. Nomura Holding Am., Inc., 873 F.3d 85 (2d Cir. 2017); see
also Docket No. 264-4 at 4, 303:9-13 (stating that “compliance with underwriting
guidelines is not just numbers like DTI ratios; it’s also the process of how the loan is
originated, for example, verifying ratios”), 7, 317:11-21 (“[I]f [the loans] complied with
underwriting guidelines, things like DTI ratios would have been checked for
reasonableness, owner occupancy would have been checked for reasonableness, the
employment status of stated income borrowers probably would have been checked. It’s
a whole different ballgame.”).21

21

Defendants’ challenge to Mr. Johnson’s findings regarding one particular loan,
see Docket No. 248 at 21, n. 8, may call into question the reliability of that opinion, but
is insufficient to demonstrate the absence of any genuine factual dispute as to
materiality.
30

Defendants’ second argument – that Mr. Johnson’s opinions are insufficient to
show materiality because they rest on a counterfactual assumption regarding the
completeness of the loan files at the time of origination – is also unavailing. Defendants
cite evidence indicating that since, 2006, data in the loan f iles may have been lost,
corrupted, or rendered unavailable for production. See Docket No. 248 at 9-10, ¶¶ 3336, 42-43; Docket No. 250-5 at 2; Docket No. 250-6 at 2-3. How ever, none of this
evidence conclusively establishes that the missing loan documents existed at the time
of origination. See, e.g., Docket No. 250-5 at 2 (“The Trust does not know if this data
corruption issue affected any of the data being produced to you.”); Docket No. 250-6 at
2 (stating that “the PaperVision loan file may contain identical information as to that
which is contained in the [more comprehensive] UniFi system”). Accordingly, whether
the loan files were complete at the time of origination constitutes an issue of fact not
appropriate for resolution at the summary judgment stage. See MASTR Adjustable
Rate Mortgs. Trust 2006-OA2 v. UBS Real Estate Secs. Inc., 2015 WL 764665, at *16
(S.D.N.Y. Jan. 9, 2015) (declining to resolve, at summary judgment stage, “whether the
loan files were incomplete at the time of origination, whether loan approvals existed for
certain loans and were subsequently misplaced, or the extent to which the composition
of loan files changed as they were transferred over time”).
Finally, a reasonable jury could find that the guidelines deviations identified by
Mr. Johnson would have been material to a reasonable investor in 2006. Assessing
materiality under § 11-51-501(1) of the Colorado Securities Act requires a fact-specific
inquiry. See Thorne v. Bauder, 981 P.2d 662, 664 (Colo. App. 1998) (“Generally, the
question whether an undisclosed fact is ‘material’ [for purposes of the Colorado
31

Securities Act] is a question for the factfinder.”); see also Turner Ins. Agency, Inc. v.
Farmland Partners Inc., No. 18-cv-02104-DME-NYW, 2019 WL 2521834, at *4 (D.
Colo. June 18, 2019) (“In order to determine whether a misleading statement or
omission is material [under the federal securities law], courts must engage in a factspecific inquiry.”). “A misrepresented or omitted fact is considered material . . . if there
is a substantial likelihood that a reasonable investor would consider the matter
important in making an investment decision.” Goss v. Clutch Exchange, Inc., 701 P.2d
33, 36 (Colo. 1985) (construing earlier version of statute). A reasonable investor would
consider a matter important if he or she “would regard it as significantly altering the
‘total mix’ of information made available.” Id.
Courts applying the same standard under federal law,22 have considered “both
quantitative and qualitative factors . . . in assessing a statement’s materiality.” ECA,
Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., 553 F.3d
187, 197 (2d Cir. 2009) (“ECA”) (citing SEC Staff Accounting Bulletin No. 99, 64 Fed.
Reg. 45150, 45150-52 (1999)); see also Turner Ins. Agency, Inc., 2019 WL 2521834, at
*4. The quantitative factor relates to the “financial magnitude of the misstatement.”
ECA, 553 F.3d at 197; see also Nacchio, 519 F.3d at 1162. In analyzing this factor, the
Securities Exchange Commission has suggested a five percent “threshold below which

22

See Thorne, 981 P.2d at 664 (citing cases indicating that the materiality
standard is the same under Colorado and federal law); see also United States v.
Nacchio, 519 F.3d 1140, 1158 (10th Cir. 2008) (stating that the “basic test” for
materiality under the federal securities laws is “whether there is a substantial likelihood
that the disclosure of the omitted fact would have been viewed by the reasonable
investor as having significantly altered the total mix of information made available”
(internal quotation marks omitted), vacated in part on other grounds on reh’g en banc,
555 F.3d 1234 (10th Cir. 2009).
32

[a misstatement] is presumptively immaterial.” ECA, 553 F.3d at 197; see also SEC
Staff Accounting Bulletin No. 99, 64 Fed. Reg. at 45151 (“The use of a percentage as a
numerical threshold, such as 5%, may provide the basis for a preliminary assumption
that – without considering all relevant circumstances – a deviation of less than the
specified percentage with respect to a particular item on the registrant’s financial
statements is unlikely to be material.”). The Tenth Circuit has endorsed this numerical
threshold “as a sensible starting place” for assessing materiality, see Nacchio, 519 F.3d
at 1162, and at least one court has applied it to hold that a g reater-than-five-percent
deviation from full compliance with underwriting criteria supported a finding that the
disclosures contained in a prospectus supplement were materially misleading. See
Nomura Holding Am., Inc., 873 F.3d at 147-48 (approving of district court’s use of “5%
falsity as a threshold for materiality”); see also Asset-Backed Securities, SEC Release
No. 8518, 2004 WL 2964659, at 235 (Dec. 22, 2004) (requiring supplemental
disclosure “if any material pool characteristic of the actual asset pool at the time of
issuance of the asset-backed securities differs by 5% or more . . . from the description
of the asset pool in the prospectus filed for the offering”). Here, the reports of plaintiff’s
experts James Johnson and Dr. Charles Cowan indicate that at least 12.5% of the
loans backing the Certificate were originated in violation of American Home’s
underwriting standards. See Docket No. 257 at 13, ¶ 103; Docket No. 249-10 at 11;
Docket No. 258-12 at 5. 23 Accordingly, the quantitative factor supports a finding of

23

For the reasons discussed above, the Court declines to exclude certain of Mr.
Johnson’s findings on the basis that “they rely on a counterfactual assumption about
missing documents.” Docket No. 263 at 11.
33

materiality.24
Turning to qualitative factors, plaintiff has presented evidence that deviations
from the underwriting guidelines would have been viewed by a reasonable investor as
“significantly altering the ‘total mix’ of information made available.” Goss, 701 P.2d at
36. Mr. Blum stated in his expert report that “[u]nderwriting guidelines provide
transparency and consistency to the mortgages of a given originator. Compliance with
applicable guidelines is indicative of strong controls, policies, and procedures.”
Docket No. 258-3 at 7. He further opined that “it would be important to investors if
underwriting guidelines were not being followed.” Id. at 8. Similarly, Ben Hirsch and
Pat Howard, the UWB employees who approved purchase of the certificate, Docket No.
248 at 6, ¶ 9, testified that knowledge of American Home’s noncompliance with
underwriting guidelines would likely have affected UWB’s decision to purchase the
Certificate. See Docket No. 258-6 at 6-7, 348:21-349:17; Docket No. 258-7 at 7-8,
304:17-305:3. Mr. Howard explained that evidence of noncompliance would have
“indicated a different level of risk than what [their] perception of that rating indicated at

24

Defendants argue that “guideline compliance is not a material characteristic of
the asset pool.” Docket No. 263 at 11 (internal quotation marks omitted). However, the
regulation defendants cite sets forth a non-exhaustive list of material pool
characteristics with the caveat that “the material characteristics will vary depending on
the nature of the pool assets.” 17 C.F.R. § 229.1111(b). Elsewhere, the regulation
instructs that, “[i]f any assets in the pool deviate from the disclosed underwriting criteria
. . . [,] [the seller should] disclose how those assets deviate from the disclosed
underwriting criteria or other criteria or benchmark used to evaluate the assets and
include data on the amount and characteristics of those assets that did not meet the
disclosed standards.” Id., § 229.1111(a)(8). Courts have considered disclosure
requirements to constitute evidence of materiality. See, e.g., Nomura Holding Am., Inc.,
104 F. Supp. 3d at 559 (finding Regulation AB’s requirement that “deviations from
underwriting guidelines” be disclosed to constitute “evidence of materiality”).
34

the time.” Docket No. 258-7 at 8, 305:4-11. The Court finds these statements,
combined with the evidence showing that American Home’s deviations from the
underwriting guidelines exceeded the five percent threshold, sufficient to create a
genuine issue of fact as to whether defendants’ disclosures were materially false or
misleading. See Nomura Holding Am., Inc., 873 F.3d at 148 (approving of district
court’s analysis of materiality on summary judgment that considered the 5% falsity
threshold in combination with evidence that the false underwriting guidelines statements
in the prospectus supplements “would [have been] viewed by the reasonable PLS
investor as significantly altering the total mix of information available”); Nomura Holding
Am., Inc., 104 F. Supp. 3d at 570-71 (citing, with respect to qualitative factors, evidence
that “[c]ompliance with underwriting guidelines gave assurance about the credit risk
associated with the loans and the reliability of the statistics reported in the Collateral
Tables”). Defendants are therefore not entitled to summary judgment on plaintiff’s
underwriting guidelines claim.
C. Opinions Regarding Value
Defendants move for summary judgment on plaintiff’s appraisal inflation and LTV
claims, asserting that plaintiff cannot show the “original appraisers’ opinions of value
were not honestly-held.” Docket No. 248 at 27. 25 Plaintiff responds that it is not
required to prove subjective falsity and that, even if it were, there is sufficient evidence

25

Plaintiff appears to base its claims on the allegedly false and misleading
statements that “the weighted average LTV of the underlying loans was 75.27%,” that
“the weighted average effective LTV of the underlying loans was 64.86%,” and that
“[e]very mortgage loan [was] secured by a property that has been appraised by a
licensed appraiser in accordance with the Uniform Standards of Professional Appraisal
Practice.” See Docket No. 257 at 8, 11, ¶¶ 70, 88.
35

for a reasonable jury to conclude that both defendants and the original appraisers
subjectively knew the appraisals to be inaccurate. Docket No. 257 at 26-28.
Section 11-51-501(1)(b) of the Colorado Securities Act makes it unlawful “for any
person, in connection with the offer, sale, or purchase of any security, directly or
indirectly . . . [t]o make any untrue statement of a material fact or to omit to state a
material fact necessary in order to make the statements made, in the light of the
circumstances under which they are made, not misleading.” In construing a similar
provision, § 11 of the Securities Act of 1933, the Supreme Court has distinguished
between statements of fact and statements of opinion and held that the latter can give
rise to liability under § 11 only if the belief professed was not honestly held. See
Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund , 135 S. Ct. 1318,
1327 (2015). 26 The Supreme Court has also explained, however, that “a reasonable
investor may, depending on the circumstances, understand an opinion statement to
convey facts about how the speaker has formed the opinion – or, otherwise put, about
the speaker’s basis for holding that view.” Id. at 1328. Thus, the omission of “material
facts about the issuer’s inquiry into or knowledge concerning a statement of opinion”
may give rise to liability “if those facts conflict with what a reasonable investor would
take from the statement itself.” Id. at 1329.
Relying on this holding, plaintiff argues that it has presented sufficient evidence
to show that defendants’ statements about the LTVs were misleading because

26

The Court also stated that a statement of opinion could give rise to liability
under § 11 if an embedded statement of fact were found to be untrue. See id. at 1327.
However, that aspect of Omnicare’s holding is not at issue in this case.
36

defendants failed to disclose that a significant number of the appraisals used to
calculate the LTVs did not conform to USPAP. Docket No. 257 at 26-27. 27 The Court
agrees. Plaintiff has submitted a report by Dawn Molitor-Gennrich, an appraisal expert,
who reviewed the appraisals for 96 of the securitized mortgage loans to determine
whether they complied with USPAP. See Docket No. 257 at 14, ¶ 104; Docket No. 25813 at 3-4.28 Based on her review, Ms. Molitor-Gennrich concluded that 69% of the
appraisals for the sampled mortgage loans did not comply with USPAP to such an
extent that they were rendered non-credible. Docket No. 257 at 14, ¶ 104; Docket No.
258-13 at 5. 29 Dr. Cowan extrapolated this finding to determine that 68.8% of the loans
backing the HVMLT 2006-7 Certificate had appraisals that were not credible. See
Docket No. 257 at 14, ¶ 105; Docket No. 258-12 at 6. T his evidence raises a genuine
issue of fact as to whether the appraisals complied with USPAP and supports a finding
that defendants’ statements regarding the LTVs were materially misleading. See FDIC
v. RBS Secs., Inc., No. 14-cv-00126-XR, Docket No. 154, at *13 (W.D. Tex. May 9,
2018) (finding that the “FDIC ha[d] raised a genuine factual dispute as to whether the

27

In fact, the prospectus supplement affirmatively stated that “[e]very mortgage
loan is secured by a property that has been appraised by a licensed appraiser in
accordance with the Uniform Standards of Professional Appraisal Practice.” Docket
No. 257 at 11, ¶ 88; see also Docket No. 250 at 18.
28

These loans were selected by Dr. Cowan to reflect a statistically valid random
sample of the loan pool backing the Certificate. See Docket No. 257 at 13,
¶ 101; Docket No. 258-12 at 3, ¶¶ 1-2, 4.
29

According to plaintiff’s expert, Mr. Blum “USPAP defines credibility as ‘worthy of
belief’ and specifies that ‘credible assignment results require support, by relevant
evidence and logic, to the degree necessary for the intended use.’” Docket No. 258-3
at 5 (internal bracket omitted).
37

appraisals complied with USPAP, which itself could prove actionable even without
evidence of subjective falsity”); Nomura Holding Am., Inc., 104 F. Supp. 3d at 566-67
(holding that the “record support[ed] a finding of falsity based on the omission doctrine
described in Omnicare” where the plaintiff had presented evidence that the appraisals
failed to conform to USPAP).30
The Court also finds that plaintiff has presented sufficient evidence to show that
defendants and the original appraisers did not honestly believe the opinions of value
and that the values derived from the appraisals were objectively false. See Omnicare,
135 S. Ct. at 1326 n.2 (explaining that an objectively accurate statement would not be
actionable under § 11 even if the speaker believed the statement to be false at the time
it was made); Homeward Residential, Inc. v. Sand Canyon Corp., 298 F.R.D. 116, 130
(S.D.N.Y. Feb. 14, 2014) (explaining that a statement of opinion is actionable if it is “(1)
objectively untrue and (2) not believed by the speaker”). First, Ms. Molitor-Gennrich’s
finding that a significant proportion of the appraisals was not credible constitutes “strong
circumstantial evidence that at the time the appraiser[s] prepared the appraisal[s] [they]
did not believe in the value reflected therein.” Nomura Holding Am., Inc., 104 F. Supp.
3d at 498. Additionally, plaintiff has presented evidence showing that the appraisal
values for certain loans were inflated by more than twenty percent and that defendants
knew of that inflation at the time the loans were included in the Certificate. See Docket
No. 257 at 12, ¶ 93; Docket No. 258-3 at 26 (ref lecting that 7 loans with a negative 20%
variance in appraisal value after reconciliation were included in the securitization);

30

Defendants do not challenge the materiality of the alleged
misstatements/omissions.
38

Docket No. 264-10 at 14-15, ¶¶ 132-33 (same); Docket No. 249-23 at 17 (concluding,
based on the use of a retroactive automated valuation model (“AVM”), that the weighted
average LTV of the securitized loans was 85.52%, more than 10% higher than the
original average LTV reported in the prospectus supplement); see also Docket No. 257
at 8, ¶ 70 (“RBS’s prospectus supplement for the Certificate stated that the weighted
average LTV of the underlying loans was 75.27% . . . .”). 31 Defendants contend that
plaintiff’s AVM analysis, which indicates that the actual weighted average LTV of the
securitization was ten percent higher than the weighted average LTV disclosed in the
prospectus supplement, Docket No. 249-23 at 17, cannot “conclusively prove that the
original appraisals were intentionally inflated.” Docket No. 263 at 13 (internal quotation
marks omitted). Defendants may be correct that such evidence is not “conclusive.”
However, it is sufficient to create a genuine issue of fact as to whether the LTVs
disclosed in the prospectus supplement were objectively false. See Nomura Holding
Am., Inc., 104 F. Supp. 3d at 498-500 (finding “strong evidence that a significant
percentage of the original appraisals for the Sample properties did not reflect the actual
values of the properties” based on a retroactive AVM analysis conducted by the

31

Defendants deny that loans with values that varied more than ten percent from
their appraised values were included in the Certificate, stating that “RBS . . . removed
from the securitization loans it was not convinced had a supported appraised value.”
Docket No. 263 at 5, ¶ 93; see also id. at 13; Docket No. 264-10 at 15, ¶ 133 (opining
that “RBS’s decision to purchase and securitize these seven loans appears reasonable
based on the documentation available in the record”). However, whether RBS
reasonably determined that particular loans “had a supported appraised v alue” is an
issue of fact not appropriate for resolution on summary judgment. See Docket No. 24923 at 4 (stating “opinion that the appraisal values on which the original weighted
average LTVs were based are biased in favor of overvaluation”); Docket No. 258-3 at
18-21 (criticizing reasonableness of RBS’s due diligence review of appraisal and LTV
values).
39

plaintiff’s expert).
For the foregoing reasons, defendants are not entitled to summary judgment on
plaintiff’s LTV and appraisal claims.
D. Damages
Section 11-51-604(4) of the Colorado Securities Act provides, in relevant part,
that a buyer of a security “may sue to recover the consideration paid for the security,
together with interest at the statutory rate from the date of payment, costs, and
reasonable attorney fees, less the amount of any income received on the security, upon
the tender of the security.” Colo. Rev. Stat. § 11-51-604(4). The parties dispute the
rate of interest that applies under this section. Defendants contend that interest should
be calculated at the Coupon Rate set by the Certificate. See Docket No. 248 at 28
(citing interest rates set forth in Certificate, Docket No. 250 at 3, 9). They rely on § 512-102 of the Colorado Consumer Credit Code, which governs the prejudgment interest
rate in cases not involving personal injury. See Goodyear Tire & Rubber Co. v. Holmes,
193 P.3d 821, 824-25 (Colo. 2008). Under that section,
(1) Except as provided in section 13-21-101, C.R.S., when there is no
agreement as to the rate thereof, creditors shall receive interest as
follows:
(a) When money or property has been wrongfully withheld, interest shall
be an amount which fully recognizes the gain or benefit realized by the
person withholding such money or property from the date of wrongful
withholding to the date of payment or to the date judgment is entered,
whichever first occurs; or, at the election of the claimant,
(b) Interest shall be at the rate of eight percent per annum compounded
annually for all moneys or the value of all property after they are
wrongfully withheld or after they become due to the date of payment or to
the date judgment is entered, whichever first occurs.

40

(2) When there is no agreement as to the rate thereof, creditors shall be
allowed to receive interest at the rate of eight percent per annum
compounded annually for all moneys after they become due on any bill,
bond, promissory note, or other instrument of writing, or money due on
mutual settlement of accounts from the date of such settlement and on
money due on account from the date when the same became due.
Colo. Rev. Stat. § 5-12-102. Defendants argue that, “[b]ecause the Certificate provides
for simple interest at the Coupon Rate, there is ‘agreement as to the rate thereof,’ and
the default statutory rate of 8% per year compounded annually is rendered inapplicable
by the plain terms” of § 5-12-102(2). Docket No. 248 at 29. Plaintif f responds that the
Coupon Rate would only apply under § 5-12-102(2) if “this were an action for failure to
make payments when due pursuant to the terms of the Certificate,” Docket No. 257 at
30; however, because this is a case of wrongful withholding, and there is no agreedupon rate for the prejudgment interest on that withholding, “the FDIC may elect an 8%
statutory rate” pursuant to § 5-12-102(1). Id. at 29-30.
The Court agrees with plaintiff that § 5-12-102(1) governs the award of
prejudgment interest in this case. Defendants contend that the provision is inapplicable
because defendants were not responsible for issuing or withholding payments under
the Certificate. Docket No. 263 at 14. However, “[t]he phrase ‘wrongfully withheld’ is
read broadly to cover all types of cases, even where the withholding is merely a refusal
to pay over damages which are theoretically due at the time the claim arises.” In re
Weaver, 579 B.R. 865, 910 (Bankr. D. Colo. 2018) (quoting Mesa Sand & Gravel Co. v.
Landfill, Inc., 776 P.2d 362, 365 (Colo. 1989)); see also Goodyear Tire & Rubber Co. v.
Holmes, 193 P.3d 821, 827 (Colo. 2008) (stating that “wrongful withholding occurs
when plaintiff’s injury is measured because the damages, if then paid, would make the

41

plaintiff whole” (internal quotation marks omitted)). Here, plaintiff is not seeking
investment income “due on” the Certificate, Colo. Rev. Stat. § 5-12-102(2), but rather
“damages equal to the price paid for the certificate” minus income received “and the
value of the certificate on the date of disposition.” Docket No. 4 at 30, ¶ 134.
Accordingly, § 5-12-102(1)(b) applies.
The Court also agrees that the Coupon Rate set forth in the Certificate does not
constitute an agreement as to the applicable prejudgment interest rate. The purpose of
prejudgment interest under Colo. Rev. Stat. § 5-12-102 is to compensate a plaintiff for
the lost “time value of money” and “discourage a person responsible for payment of a
claim to stall and delay payment until judgment or settlement.” Mesa Sand & Gravel
Co., 776 P.2d at 364; Goodyear Tire & Rubber Co., 193 P.3d at 826 (“[T]he purpose of
prejudgment interest is to reimburse the plaintiff for inflation and lost return.”). There is
no indication that the Coupon Rate, which reflects the interest UWB was entitled to
receive as income from its investment, see Docket No. 250 at 9 (“On each distribution
date, to the extent funds are available from the mortgage loans in the related mortgage
loan group or groups, each class of offered certificates will be entitled to receive
accrued and unpaid interest determined on the basis of the related outstanding class
principal balance immediately prior to that distribution date . . . .”); see also Docket No.
248 at 13, ¶¶ 60, 62, was intended to serve this function. As stated above, plaintiff is
not seeking to recover income owed under the Certificate, but to restore UWB to the
position it would have been in had the security never been purchased. See Colo. Rev.
Stat. § 11-51-604(4); Docket No. 4 at 30, ¶ 134; Docket No. 249-24 at 3, ¶ 20; cf.
Austin v. Loftsgaarden, 675 F.2d 168, 180-181 (8th Cir. 1982) (explaining that, for
42

federal securities fraud claims, “a rescissional remedy or some other measure of
damages in the nature of restitution may be applied” to reflect “the extent to which false
and misleading information actually harmed the complaining party” (internal quotation
marks omitted)).32 Any award of prejudgment interest should therefore be calculated to
compensate for the lost time value of money necessary to restore UWB to its prepurchase position. The Coupon Rate in the Certificate bears no relationship to that
calculation. XY, LLC v. Trans Ova Genetics, LC, No. 13-cv-0876-WJM-NYW, 2016 WL
1391615, at *13-14 (D. Colo. Apr. 8, 2016) (holding contractual interest rate
inapplicable to issue of prejudgment interest where the rate applied to the “interest on
underpayments revealed during an audit, not prejudgment interest after a jury verdict”),
vacated in part on other grounds, 890 F.3d 1282 (Fed. Cir. 2018).
The authorities defendants cite do not compel a different conclusion. Each of
the cases arises in a different legal or factual context and supports the unremarkable
proposition that a court should calculate prejudgment interest according to the parties’
agreed-upon rate when a plaintiff is suing to recover money owed under a contract that
specifies the rate at which interest should accrue in the event of default. See, e.g.,
Four Strong Winds, Inc. v. Lyngholm, 826 P.2d 414, 415, 420 (Colo. App. 1992)
(awarding interest at agreed-upon rate in action to collect money due on promissory

32

Defendants’ assertion that plaintiff is seeking to recover “‘all moneys’ that UWB
would have received while it held the Certificate had the Certificate not incurred any
losses,” Docket No. 263 at 14, is belied by their earlier acknowledgment that the
“remedy provided by CSA Section 604(4) is . . . designed to restore a plaintiff to the
position that it was in before the purchase.” Docket No. 248 at 30, n. 16; see also
Docket No. 294-24 at 4 (calculating plaintiff’s damages as the “total consideration paid.
. . , less the net proceeds received . . . , less the amount of principal and interest
distributions”).
43

note); Ebrahimi v. E.F. Hutton, 794 P.2d 1015, 1019 (Colo. App. 1989) (considering
argument that the trial court “improperly refused to award prejudgment interest on the
amount due under the promissory note”); Sherwood v. BRT Corp., No. 12-cv-02782RM-KMT, 2014 WL 5763191, at *7 (D. Colo. July 8, 2014) (finding a genuine issue of
fact as to whether the agreement creating the debt between the plaintiff and the
defendant “included an interest rate other than eight percent”), report and
recommendation adopted by 2015 WL 232148 (D. Colo. Jan. 15, 2015). 33 Under such
circumstances, the contract rate reflects the parties’ agreement as to the interest
necessary to compensate the non-breaching party for the lost time value of the money
owed on the contract. Here, however, plaintiff is not suing for money owed under the
Certificate, and the Coupon Rate reflects an element of UWB’s investment income, not
an agreement as to the lost time value of money. Accordingly, the default statutory rate
of eight percent, and not the Coupon Rate, will govern the Court’s calculation of
prejudgment interest.
IV. CONCLUSION
For the foregoing reasons, it is
ORDERED that Defendants’ Omnibus Motion for Summary Judgment [Docket
No. 248] is DENIED.

33

To the extent that National Credit Union Administration Board v. UBS Securities
LLC, 2016 WL 1179203 (S.D.N.Y. Mar. 24, 2016), could arguably support defendants’
position, see Docket No. 248 at 30, the Court finds it unpersuasive.
44

DATED January 30, 2020.
BY THE COURT:

S/Philip A. Brimmer
PHILIP A. BRIMMER
Chief United States District Judge

45