Neca-Ibew Health & Welfare Fund et al v. Goldman Sachs & Co. et al

Filing 192

OPINION re: 180 MOTION To Amend the Court's July 10, 2014 Order to Recommend Interlocutory Review re: 176 Order on Motion to Dismiss, filed by Neca-Ibew Health & Welfare Fund. Because of the lack of substantial ground for difference of opinion as to whether NECA may replead claims based on the Dismissed Offerings, NECA's motion for interlocutory appeal is denied. SO ORDERED. (See Order.) (Signed by Judge Miriam Goldman Cedarbaum on 1/6/2015) (ajs)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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NECA-IBEW HEALTH & WELFARE FUND,
Individually and On Behalf of All
Others Similarly Situated,
Plaintiff,
-against-

OPINION
08 CIV 10783 (MGC)

GOLDMAN, SACHS & CO., et al.,
Defendants.
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APPEARANCES:
ROBINS GELLER RUDMAN & DOWD LLP
Attorneys for Plaintiff
By:

Arthur C. Leahy, Susan G. Taylor, Lucas F. Olts,
Susannah R. Conn, Angel P. Lau, Jennifer N. Caringal,
Samuel H. Rudman, David A. Rosenfeld

CAVANAGH & O’HARA
Attorneys for Plaintiff
By:

Patrick J. O’Hara

SULLIVAN & CROMWELL LLP
Attorneys for Defendants
By:

Richard H. Klapper, Theodore Edelman,
Michael T. Tomaino, Jr.

Cedarbaum, J.
Plaintiff NECA-IBEW Health & Welfare Fund (“NECA”) requests
certification of interlocutory appeal, pursuant to 28 U.S.C.

§ 1292(b), of the July 10, 2014 order granting in part and
denying in part defendants’ motion to dismiss the Fourth Amended
Complaint.

Specifically, NECA seeks interlocutory review of the

decision not to allow reinstatement of claims under the 1933
Securities Act relating to seven securities offerings: GSAA Home
Equity Trust 2007-8; GSAMP Trust 2007-HE1, 2007-HE2; and GSR
Mortgage Loan Trust 2007-OA1, 2007-OA2, 2007-4F, and 2007-5F.
The request is denied.
BACKGROUND
In this action, NECA seeks to assert claims on behalf of a
class of purchasers of mortgage-backed certificates that
defendants sold in seventeen separate offerings through
seventeen separate trusts pursuant to the same shelf
registration statement but using separate prospectus
supplements.

NECA itself purchased certificates from two of

those offerings backed by trusts GSAA Home Equity Trust 2007-10
and GSAA Home Equity Trust 2007-5.
In September 2009, defendants’ motion to dismiss the First
Amended Complaint was granted with leave to amend.

In January

2010, defendants’ motion to dismiss the Second Amended Complaint
was also granted because, among other things, NECA lacked
standing to bring securities fraud claims on behalf of
purchasers of certificates from offerings other than the two
offerings from which NECA bought certificates.

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NECA was given

leave to amend, but only with respect to the offerings from
which NECA purchased certificates.

In October 2010, defendants’

motion to dismiss the Third Amended Complaint was granted, and,
in June 2011, final judgment was entered.
NECA appealed.

The Second Circuit affirmed in part and

vacated in part, stating that NECA had standing to bring claims
on behalf of purchasers of offerings backed by loans made by the
same originators that contributed loans to the two offerings
NECA purchased:
to the extent certain [o]fferings were backed by loans
originated by originators common to those backing the
2007–5 and 2007–10 [o]fferings, NECA’s claims raise a
sufficiently similar set of concerns to permit it to
purport to represent [c]ertificate-holders from those
[o]fferings. Therefore, under the Second Amended
Complaint, plaintiff has class standing to assert the
claims of purchasers of [c]ertificates from the 5
additional [t]rusts containing loans originated by
GreenPoint, Wells Fargo, or both. . . . However,
plaintiff lacks standing to assert claims on behalf of
purchasers of [c]ertificates from the other 10 Trusts.
NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d
145, 164 (2d Cir. 2012).
The “other 10 Trusts” were the GSAA Home Equity Trust 20078; GSAMP Trust 2007-FM2, 2007-HEI, 2007-HE2, and 2007-HSBC1; GSR
Mortgage Loan Trust 2007-OA1, 2007-OA2, 2007-4F, and 2007-5F;
and the STARM Mortgage Loan Trust 2007-4 (“Dismissed
Offerings”).

Id. at 164 n.12.

Thus the Second Circuit

concluded, “we affirm in part and vacate in part the judgment of

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the district court dismissing plaintiff’s claims and remand with
instructions to reinstate plaintiff’s §§ 11, 12(a)(2), and 15
claims in respect of the GSAA Home Equity Trust 2007-3, 2007-4,
2007-5, 2007-6, 2007-7, and 2007-10 Offerings, and the GSR
Mortgage Loan Trust 2007-3F Offering” (“Reinstated Offerings”).
Id. at 168.
On remand, NECA was allowed to file a Fourth Amended
Complaint (“FAC”), and, in addition to the claims based on the
Reinstated Offerings, it attempted to restore claims based on
seven of the ten Dismissed Offerings.

In July 2014, defendants’

motion to dismiss the Dismissed Offerings was granted.

NECA’s

motion for interlocutory appeal on that issue is now pending.
DISCUSSION
“‘[I]nterlocutory appeals are strongly disfavored in
federal practice.’”

In re Facebook, Inc., IPO Sec. & Derivative

Litig., 986 F. Supp. 2d 524, 530 (S.D.N.Y. 2014) (quoting In re
Adelphia Commc’ns Corp., 2008 WL 361082, at *1 (S.D.N.Y. Feb. 7,
2008)).

A district court judge may recommend interlocutory

review of an order otherwise not appealable when she is of the
“opinion that such order involves a controlling question of law
as to which there is substantial ground for difference of
opinion and that an immediate appeal from the order may
materially advance the ultimate termination of the litigation.”
28 U.S.C. § 1292(b).

Use of § 1292(b) is “‘strictly limited’

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because ‘only exceptional circumstances [will] justify a
departure from the basic policy of postponing appellate review
until after the entry of a final judgment.’”

Facebook, 986 F.

Supp. 2d at 529-30 (quoting McNeil v. Aguilos, 820 F. Supp. 77,
79 (S.D.N.Y. 1993) (Sotomayor, J.)).

Even if the requirements

of § 1292(b) are met, “district courts retain unfettered
discretion to deny certification” for “any reason.”

Facebook,

986 F. Supp. 2d at 530 (internal quotation marks omitted).
“Substantial ground for difference of opinion” exists when
“(1) there is conflicting authority on the issue, or (2) the
issue is particularly difficult and of first impression for the
Second Circuit.”

Id. at 539 (internal quotation marks omitted).

The question at issue here is whether NECA should be afforded
the opportunity to restore claims based on the Dismissed
Offerings.

There is no conflicting authority as to that

inquiry, nor is it an issue of first impression, because the
Second Circuit’s opinion in this case itself dismissed those
claims: “plaintiff lacks standing to assert claims on behalf of
purchasers of [c]ertificates from the other 10 [t]rusts.”

NECA-

IBEW, 693 F.3d at 164.
NECA argues that references to the Second Amended Complaint
earlier in that paragraph of the opinion qualify the dismissal
to the context of that complaint.

Yet, the Second Circuit went

on in its conclusion to make clear again that “we affirm in part

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and vacate in part the judgment of the district court dismissing
plaintiff’s claims and remand with instructions to reinstate”
NECA’s claims with respect to the seven Reinstated Offerings.
Id. at 168.

This Court is obligated on remand to follow the

court of appeals on issues it “explicitly or implicitly decided
on appeal.”

Day v. Moscow, 955 F.2d 807, 812 (2d Cir. 1992)

(internal quotation marks omitted).

The Second Circuit gave no

instruction regarding an opportunity to restore the Dismissed
Offerings, but it did specifically identify seven other
offerings for reinstatement on remand.

The court thus affirmed

dismissal of the Dismissed Offerings, and, by implication,
decided that the Dismissed Offerings should not be repled.

See

id. (“[S]ince in vacating the dismissal of the arrest/search
claims we stated that Day should be allowed to ‘file an amended
complaint amplifying those claims,’ we implicitly, if not
explicitly, ruled that any amended complaint was to be limited
to those claims.” (quoting Day v. Morgenthau, 909 F.2d 75, 78
(2d Cir. 1990))).
Even if NECA-IBEW had not mandated dismissal of the
Dismissed Offerings, the decision to allow repleading would be
left to this Court’s discretion.

Although Fed. R. Civ. P.

15(a)(2) states that judges “should freely give leave [to amend]
when justice so requires,” courts nonetheless retain “broad”
discretion in determining whether to allow amendments to a

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complaint.

Local 802, Associated Musicians of Greater New York

v. Parker Meridien Hotel, 145 F.3d 85, 89 (2d Cir. 1998).
Here, it is evident from the allegations in the FAC that
NECA’s request to replead the Dismissed Offerings is futile.
See, e.g., id. (one reason courts deny amendments is futility).
The Second Circuit held that NECA has class standing to assert
the claims of other members of the putative class if the
defendants’ conduct as to others implicates “the same set of
concerns” as the conduct injuring NECA itself.
F.3d at 162.

NECA-IBEW, 693

In the context of claims “alleging misstatements

about origination guidelines . . . differences in the identity
of the originators backing the [c]ertificates matters for the
purposes of assessing whether those claims raise the same set of
concerns.”

Id. at 163.

Driving the Second Circuit’s decision

was the recognition that the proof required to show the falsity
of the alleged representations “would center on whether the
particular originators of the loans backing the particular
[o]ffering from which a [c]ertificate-holder purchased a
security had in fact abandoned its underwriting guidelines.”
Id.

In the absence of a common loan originator, the injuries

arising from the purchase of a given offering would have “the
potential to be very different -- and could turn on very
different proof” from the injuries arising from the purchase of
a different offering.

Id.

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NECA claims that the loan originator common to the
Dismissed Offerings is the Goldman Sachs Mortgage Company’s
(“GSMC”) Conduit Program.

Yet, the FAC itself contradicts that

labelling by consistently describing GSMC as a purchaser of
loans.

E.g., FAC ¶ 30 (“Under the Conduit Program, GSMC

acquired loans from a variety of banks, savings and loans
associations, mortgage bankers and other mortgage loan
originators and purchasers of loans in the secondary market.”).
The FAC cannot merely label GSMC an “originator” -- in conflict
with its factual allegations -- in order to satisfy class
standing.

See, e.g., In re Livent, Inc. Noteholders Sec.

Litig., 151 F. Supp. 2d 371, 405 (S.D.N.Y. 2001) (courts need
not accept as true allegations “that are contradicted . . . by
statements in the complaint”).
Citing In re Morgan Stanley Mortgage Pass-Through
Certificates Litig., 2013 WL 139556 (S.D.N.Y. Jan. 11, 2013),
NECA alternatively suggests that misrepresentations concerning
GSMC’s purchasing (as opposed to origination) guidelines provide
the common set of concerns necessary for class standing.

See

id. at *3 (“because [Morgan Stanley Mortgage Capital], in its
capacity as a loan purchaser, misrepresented its compliance with
its stated purchasing guidelines” a common set of concerns were
implicated across offerings for which that entity purchased
underlying loans).

Yet, the FAC’s allegations that GSMC’s

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Conduit Program violated its own purchasing guidelines are
unavoidably tied to the lenders’ conduct in underwriting the
loans at issue.

The misrepresentations NECA points to in the

registration statement are that, for example, “all of the
mortgage loans acquired by GSMC . . . were acquired generally in
accordance with the underwriting criteria described in this
section,” and that such criteria included that “the originating
lender makes a determination about whether the borrower’s
monthly income (if required to be stated) will be sufficient to
enable the borrower to meet its monthly obligations on the
mortgage loan and other expenses related to the property.”
These statements are misleading only if GSMC bought loans
from lenders who violated that criteria.

As such, the

determination as to whether GSMC purchased loans that were not
underwritten pursuant to the stated criteria once again depends
on the conduct of the originating lenders.

To allow class

standing solely on the basis that GSMC was the purchaser of a
variety of loans underwritten by different lenders would be to
ignore the Second Circuit’s test.

Whether defendants

misrepresented that the loans GSMC purchased met identified
standards “could turn on very different proof” due to the
variety of originators underwriting the loans.
F.3d at 163.

NECA-IBEW, 693

Thus, NECA’s assertion of misrepresented

purchasing guidelines, as pled in the FAC, raises such a

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“‘fundamentally different set of concerns’” from offering to
offering as to defeat class standing.

Id. at 164 (quoting Gratz

v. Bollinger, 539 U.S. 244, 264 (2003)).
CONCLUSION
Because of the lack of substantial ground for difference of
opinion as to whether NECA may replead claims based on the
Dismissed Offerings, NECA’s motion for interlocutory appeal is
denied.
SO ORDERED.
Dated:

New York, New York
January 6, 2015

S/______________________________
MIRIAM GOLDMAN CEDARBAUM
United States District Judge

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