Police and Fire Retirement System of the City of Detroit et al v. Indymac MBS, Inc. et al
Filing
367
MEMORANDUM OPINION re: (276 in 1:09-cv-04583-LAK) MOTION to Certify Class AND APPOINTMENT OF CLASS REPRESENTATIVES AND CLASS COUNSEL filed by Wyoming Retirement System, Wyoming State Treasurer. Wyoming's motion to certify the class, and for appointment as class representative and of class counsel [DI 276] is hereby granted, except that class certification is denied with respect to offering INDX 2006-AR11. Moreover, the claims as to offering of the INDX 2006-AR11 Certificates are dismissed. (Signed by Judge Lewis A. Kaplan on 8/17/2012) Filed In Associated Cases: 1:09-cv-04583-LAK, 1:09-cv-05933-LAK(lmb)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------x
IN RE: INDYMAC MORTGAGE-BACKED
SECURITIES LITIGATION
This document relates to:
Master Docket
No. 09 Civ. 4583 (LAK)
All Actions
-------------------------------------x
MEMORANDUM OPINION
Appearances:
Denis F. Sheils
Joseph C. Kohn
William E. Hoese
KOHN, SWIFT & GRAF., P.C.
Lawrence P. Kolker
Gregory M. Nespole
Rachel S. Poplock
WOLF HALDENSTEIN ADLER FREEMAN &
HERZ LLP
Steven J. Toll
COHEN MILSTEIN SELLERS & TOLL PLLC
Attorneys for Plaintiff Police and Fire
Retirement System of the City of Detroit
Ira N. Richards
TRUJILLO RODRIGUEZ & RICHARDS, LLC
Timothy J. MacFall
RIGRODSKY & LONG, P.A.
Attorneys for Plaintiff City of Philadelphia
Board of Pensions and Retirement
Daniel E. Barenbaum
Nicole C. Lavallee
Joseph J. Tabacco, Jr.
Patrick T. Egan
Anthony D. Phillips
Julie Goldsmith Reiser
BERMAN DEVALERIO
Attorneys for Lead Plaintiffs Wyoming State
Treasurer and Wyoming Retirement System
Eric R. Levine
Eric Aschkenasy
EISEMAN LEVINE LEHRHAUPT &
KAKOYIANNIS, P.C.
Michael W. Fitzgerald
Robert L. Corbin
Joel M. Athey
CORBIN, FITZGERALD & ATHEY LLP
Robert H. Fairbank
Kimberly M. West
Richard D. Gluck
Michael B. Norman
FAIRBANK & VINCENT
Attorneys for Individual Defendants
2
Dean J. Kitchens
Robert F. Serio
Jonathan C. Dickey
Aric H. Wu
Eric M. Creizman
GIBSON, DUNN & CRUTCHER LLP
Attorneys for Underwriter Defendants
William R. Stein
Scott H. Christensen
Kenneth M. Katz
HUGHES HUBBARD & REED LLP
Attorneys for Defendant IndyMac MBS, Inc.
LEWIS A. KAPLAN, District Judge.
This putative class action concerns mortgage pass-through certificates (the
“Certificates”) issued by IndyMac MBS, Inc. (“IndyMac MBS”) in ten offerings pursuant to two
registration statements and related prospectuses and prospectus supplements (the “Offering
Documents”).1 Lead Plaintiffs Wyoming State Treasurer and Wyoming Retirement System allege
that the Certificates were issued pursuant to materially misleading Offering Documents in violation
of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”).2 The matter is
before the Court on Lead Plaintiffs’ motion for class certification, appointment as class
representatives, and appointment of class counsel.3
1
Relevant excerpts of the Offering Documents can be found at Egan Decl. [DI 277], Exs.
C, D. The Offering Documents include a February 24, 2006 registration statement (the
“2006 Registration Statement”), a February 14, 2007 registration statement (the “2007
Registration Statement”, collectively the “Registration Statements”), and the prospectuses
and prospectus supplements incorporated therein. See Second Amended Consolidated
Complaint (“SACC”) [DI 337], ¶¶ 1, 6.
2
15 U.S.C. §§ 77k(a)(5), 77l(a)(2), 77o.
3
DI 276.
3
Background
I.
The Parties
A.
Lead Plaintiffs
Lead Plaintiffs were appointed on July 29, 2009.4 Wyoming State Treasurer manages
more than $10 billion in non-pension fund assets.5 Wyoming Retirement System administers
retirement programs.6 Lead Plaintiffs allegedly purchased or acquired Certificates in the ten
offerings pursuant and/or traceable to the Registration Statements.7
B.
Defendants
The three groups of defendants still party to this case include IndyMac MBS, the
Individual Defendants, and the Underwriter Defendants.
IndyMac MBS was a wholly-owned subsidiary of IndyMac Bank, F.S.B. (“IndyMac
Bank”), which was closed by the FDIC on July 11, 2008, and is not a party to this case.8 IndyMac
MBS was the registrant of the securities covered by the Offering Documents.9
4
DI 58.
5
SACC ¶ 20.
6
Id. ¶ 21. The two Lead Plaintiffs are referred to collectively as “Lead Plaintiffs” or
“Wyoming.”
7
Id. ¶¶ 20-21, Exs. A & B.
8
Id. ¶¶ 24, 26.
9
Id. ¶ 26.
4
The Individual Defendants are IndyMac MBS’s former officers and directors.10 Each
signed at least one of the Registration Statements.11
The Underwriter Defendants are six financial institutions, all of whom were
underwriters in the offerings and all of whom are alleged to have participated in drafting and
disseminating the Offering Documents.12
II.
The Certificates
A Certificate is a type of mortgage backed security that entitles its owner to a portion
of the revenue stream generated by an underlying pool of mortgage loans,13 all of which were
originated or acquired by IndyMac Bank.14 These loans then were transferred to IndyMac MBS,
which bundled them into mortgage pools and transferred them to trusts.15 The trusts issued the
10
The Individual Defendants include John Olinski, S. Blair Abernathy, Lynette Antosh,
Raphael Bostic, Samir Grover, Simon Heyrick, and Victor H. Woodworth. SACC ¶¶ 28-34.
The Court is aware that a motion currently is pending for preliminary approval of a partial
settlement between plaintiffs and the Individual Defendants. This motion seeks approval
also of a settlement class. See DI 363.
11
Id.
12
Id. ¶¶ 38-48. The Underwriter Defendants still party to this case are Credit Suisse Securities
(USA) LLC, Deutsche Bank Securities Inc., J.P. Morgan Securities Inc., Morgan Stanley
& Co., Inc., RBS Securities Inc. (f/k/a Greenwich Capital Markets, Inc.), and UBS
Securities LLC. See also DI 294, at 9 n.1.
13
Id. ¶ 63.
14
Id. ¶ 64.
15
Id. ¶ 66.
5
Certificates to IndyMac MBS,16 which sold them to the Underwriter Defendant(s), which in turn
offered them to investors.17
The Certificates’ ratings have declined since their initial offerings, and the percentage
of loans in the pools underlying each Certificate that has defaulted is alleged to have increased as
well.18
III.
The Second Amended Consolidated Complaint
The SACC 19 alleges violations of Sections 11, 12(a)(2,) and 15 of the Securities Act,
based on Wyoming’s claims that the Offering Documents misled purchasers of the Certificates by
stating that IndyMac Bank evaluated information about borrowers’ income, assets, and
employment.20 Relying heavily on two independent reports,21 Wyoming alleges that these statements
were false and misleading because IndyMac Bank actually had abandoned its underwriting standards
16
Id. ¶ 76.
17
Id. ¶ 77.
18
Id. ¶ 191, Exs. E-G.
19
The SACC is substantially identical to the Amended Consolidated Complaint filed on
October 29, 2009. See DI 131. It varies only insofar as it adds Philadelphia and Detroit as
plaintiffs-intervenors. See DI 341 (clarifying why SACC was filed after a motion to amend
the complaint was denied).
20
Id. ¶¶ 112-122, 221-50.
21
The reports were written by the Treasury Department Office of Inspector General (“OIG”)
and an entity referred to as “CRL.” See OIG, Audit Report (OIG-09-032), Safety and
Soundness: Material Loss Review of IndyMac Bank, FSB, February 26, 2009, at 2, 7,
available at http://treasury.gov/inspector-general/audit-reports/2009/oig09032.pdf (the
“OIG Report”).
6
and instead had “rapidly approved” mortgage loans “to people with poor credit or those who did not
have the ability to repay the loans.”22
This allegedly made the Certificates “far riskier than
represented . . . [and] not equivalent to other investments with the same credit rating.”23 Wyoming
alleges that borrowers defaulted on the mortgage loans underlying the Certificates and that the value
of the Certificates decreased.24 Credit ratings agencies subsequently downgraded the Certificates’
ratings to “junk.”25
IV.
Procedural History
On May 14, 2009 and June 29, 2009, respectively, Plaintiff Police and Fire
Retirement System of the City of Detroit (“Detroit”) and Wyoming filed similar class action
complaints.26 Various parties moved to be appointed lead plaintiff and to consolidate the two
actions.27 The Court named Wyoming as lead plaintiff, granted the motion to consolidate, and
ordered the filing of a consolidated class complaint.28 Wyoming then filed the Amended
22
SACC ¶ 8.
23
Id. ¶ 16.
24
Id. ¶¶ 213-17 .
25
Id.¶¶ 16, 214.
26
Police and Fire Ret. Sys. of the City of Detroit v. IndyMac MBS, Inc., et al., 09 Civ. 4583
(LAK); Wyo. State Treasurer v. Olinski, 09 Civ. 5933 (LAK).
27
See, e.g., DI 10; DI 14; DI 17.
28
DI 58.
7
Consolidated Complaint (“ACC”) on October 29, 2009.29
The Court later ruled on defendants’ motions to dismiss the ACC, significantly
narrowing the scope of this litigation.30 It dismissed claims as to all but the ten offerings in which
Wyoming allegedly had purchased Certificates, holding that those were the only offerings with
respect to which Wyoming had standing to sue. The only substantive claims set forth in the SACC
that were allowed to proceed were the Section 11, 12(a)(2), and 15 claims based on IndyMac Bank’s
alleged abandonment of its underwriting standards.31
Plaintiffs City of Philadelphia Board of Pensions and Retirement (“Philadelphia”) and
Detroit moved to intervene as to certain offerings which Wyoming had not purchased and as to
which Wyoming’s claims therefore had been dismissed.32 The Court granted these motions in part
and denied them in part, and Philadelphia and Detroit intervened as to three additional offerings.33
Lead Plaintiffs then filed the SACC on August 15, 2011, adding Philadelphia and Detroit as
29
DI 131.
30
In re IndyMac Mortg.-Backed Sec. Litig., 718 F. Supp. 2d 495 (S.D.N.Y. 2010) (“IndyMac
I”) .
31
IndyMac I, 718 F. Supp. 2d at 500-02, 508. The motion to dismiss was granted with respect
to claims based on appraisals practices, loan-to-value-ratios, and ratings methodology.
Claims against certain individuals, alleged underwriters, and ratings agencies were
dismissed in part in IndyMac I, and in part in an earlier order. See DI 195.
32
DI 202. Several other parties filed motions to intervene as well. See DI 202; DI 219; DI
237.
33
See In re IndyMac Mortg.-Backed Sec. Litig, 793 F. Supp. 2d 637 (S.D.N.Y. 2011)
(“IndyMac II”) .
8
plaintiffs-intervenors, but otherwise leaving the substance of the allegations unchanged.34
V.
The Present Motion
Wyoming moves for an order certifying the following proposed class:
“All persons or entities who purchased or otherwise acquired beneficial interests in
Certificates offered to the public in 10 Offerings (‘Offerings’) . . . pursuant or
traceable to IndyMac MBS Registrations Statements dated February 24, 2006, as
amended and/or February 14, 2007, as amended (“Registration Statements”) . . . and
the Prospectuses and Prospectus Supplements issued thereunder for the Offerings and
incorporated by reference (collectively, with the Registration Statements, the
‘Offering Documents’) and who were damaged thereby (the ‘Class’).”35
Wyoming moves also to be appointed class representatives and, pursuant to Rule 23(g), for approval
of its counsel, Berman DeValerio, as class counsel.36 Defendants oppose the motion, principally by
asserting that Wyoming has failed to satisfy Rule 23(b)(3)’s requirements of predominance and
superiority.
Discussion
I.
Legal Standards
Before certifying a class, a district court is obliged to conduct a “rigorous analysis”
34
See DI 337; DI 341.
Lead Plaintiffs’ motion for class certification was filed before the Court decided the motions
to intervene. Accordingly, the briefing on the class certification motion does not address
the three offerings purchased by plaintiffs-intervenors Philadelphia and Detroit. The Court
therefore does not consider those offerings in deciding this motion.
35
DI 276, at 2.
36
Id. The lengthy pendency of this motion is a result of the Court having awaited the outcome
of an appeal raising similar issues in another case.
9
to determine whether the plaintiffs have satisfied all of the Rule 23(a) and Rule 23(b)(3)
requirements.37 It “may certify a class only after [it] . . . resolves factual disputes relevant to each
Rule 23 requirement and finds that whatever underlying facts are relevant to a particular Rule 23
requirement have been established and is persuaded to rule, based on the relevant facts and the
applicable legal standard, that the requirement is met.”38 The burden of demonstrating by a
preponderance of the evidence that these requirements have been met, moreover, rests with the
moving party.39 Nevertheless, courts in this and other districts have held that suits alleging violations
of Sections 11, 12(a)(2), and 15 of the Securities Act are “especially amenable” to class action
certification and resolution.40
II.
Rule 23(a) Requirements
The prerequisites to any class certification are that:
“(1) the class is so numerous that joinder of all members is impracticable, (2) there
are questions of law or fact common to the class, (3) the claims or defenses of the
representative parties are typical of the claims or defenses of the class, and (4) the
37
In re Initial Pub. Offerings Sec. Litig., 471 F.3d 24, 41 (2d Cir. 2006) (“In re IPO I”); In re
Parmalat Sec. Litig., No. 04 MD 1653 (LAK), 2008 WL 3895539, at *2 (S.D.N.Y. Aug.
21, 2008).
38
In re IPO I, 471 F.3d at 41.
39
See Teamsters Local 445 Freight Div. Pension Fund v. Bombardier, Inc., 546 F.3d 196,
201-03 (2d Cir. 2008).
40
E.g., Pub. Emps.’ Ret. Sys. of Miss. v. Merrill Lynch & Co., Inc., 277 F.R.D. 97, 101
(S.D.N.Y. 2011) (“Pub. Emps. v. Merrill”) (citing Achem Prods., Inc. v. Windsor, 521 U.S.
591, 625 (1997); In re WorldCom, Inc. Sec. Litig., 219 F.R.D. 267 (S.D.N.Y. 2003)).
10
representative parties will fairly and adequately protect the interests of the class.”41
A.
Numerosity
Rule 23(a)’s first requirement, numerosity, generally is presumed “at a level of 40
members,”42 and may be found where “the number of class members is sufficiently large so that
joinder . . . would make litigation needlessly complicated and inefficient.”43 Numerosity is
appropriately found where “the joinder of all [class] members is impracticable.”44 Moreover,
decisions in this district have concluded that a class may be certified even where certain sub-groups
of that class do not meet the presumptive 40-member requirement.45
Here, Wyoming has demonstrated that there are “at least 714 unique investors who
purchased or otherwise acquired Certificates in the 10 Offerings.”46 Defendants’ own expert has
indicated that there were at least 40 investors in all but two of the offerings,47 39 potential members
41
FED. R. CIV. P. 23(a).
42
Consol. Rail Corp. v. Hyde Park, 47 F.3d 473, 483 (2d Cir. 1995).
43
Banyai v. Mazur, 205 F.R.D. 160, 163 (S.D.N.Y. 2002).
44
Fed. R. Civ. P. 23(a)(1).
45
See Pub. Emps v. Merrill, 277 F.R.D. at 105 (certifying class where one offering at issue
had only 36 investors); see also New Castle v. Yonkers Contracting Co., 131 F.R.D. 38, 41
(S.D.N.Y. 1990) (certifying class with a total of 36 potential members).
46
DI 279, at 15-16; Egan Decl., Ex. E, Report of Steven P. Feinstein, Ph.D (“Feinstein Rep.”)
¶¶ 21, 74-79.
47
Levallee Decl. [DI 301], Ex. 4, Rebuttal Report of Steven P. Feinstein, Ph.D. (“Feinstein
Reb.”) ¶¶ 108, 117 (noting that defendants’ expert Dr. Torous stated that one offering,
INDX 2006 AR-15 had “39 distinct investors” but that this estimate did “not include 18
11
in another, and 22 in the final.48
In this case, it would be impractical to deny certification on the basis that two of the
offerings in question did not meet the 40-member presumption level – especially given that one of
them is short, if at all, by just one member. There are more than 700 members in the class. Denying
class certification for lack of numerosity in all the circumstances would present a considerable strain
with no commensurate benefit. The numerosity requirement is satisfied.
B.
Commonality, Typicality, and Adequacy of Representation
The requirements of commonality, typicality, and adequacy of representation are
closely related.49
transactions” that might identify other investors); Levallee Decl., Ex. 11 (identifying 22
class members who purchased INDX 2006-AR 11); DI 300, at 20 n.45 (elaborating
arguments why INDX 2006-AR11 may have 40 members). In any event, Wyoming does
not have standing to assert claims as to INDX 2006 AR-11 for reasons discussed in Part
II.B, and so claims as to that offering are dismissed.
48
Feinstein Reb. ¶ 117.
This and other courts have rejected the argument that numerosity must be established on a
tranche-by-tranche basis. See Tsereteli v. Residential Asset Securitization Trust 2008-A8,
No. 08 Civ. 10637 (LAK), DI 100, at 9 & n.40; Pub. Emps.’ Ret. Sys. of Miss. v. Goldman
Sachs Grp., Inc., No. 09 Civ. 1110 (HB), 2012 WL 336146, at *2 (S.D.N.Y. Feb 3, 2012)
(“Pub. Emps. v. Goldman Sachs”) (“The invocation of tranches as a means to defeat class
certification has failed in similar cases and fails here.” (citing Pub. Emps. v. Merrill, 277
F.R.D. at 109; In re Dynex Capital, Inc. Sec. Litig., No. 05 Civ. 1897 (HB), 2011 WL
781215, at *2 (S.D.N.Y. Mar. 7, 2011))); N.J. Carpenters Health Fund v. Residential
Capital, LLC, 272 F.R.D. 160, 163, 165-66 (S.D.N.Y. 2011) (“NJ Carpenters”), aff’d 2012
WL 1481519 (2d Cir. Apr. 30, 2012) (noting that defendants could not “provide[] authority”
for a tranche-by-tranche numerosity requirement so plaintiffs were entitled to presumption
of numerosity, and rejecting similar arguments for typicality as well); see also Fort Worth
Emps.’ Ret. Fund v. J.P. Morgan Chase & Co., No. 09 Civ. 3701 (JPO), 2012 WL 1788142,
at *7 (S.D.N.Y. May 15, 2012) (outlining recent decisions in this court rejecting tranche-bytranche requirement for class certification).
49
Courts have noted that all three requirements “serve as guideposts for determining whether
under the particular circumstances maintenance of a class action is economical and whether
12
Commonality is satisfied where a single issue of law or fact is common to the class.50
It is “plainly satisfied” in a securities case where “the alleged misrepresentations in the prospectus
relate to all the investors, [because the] existence and materiality of such misrepresentations
obviously present important common issues.”51 Typicality is satisfied where “each class member’s
claim arises from the same course of events and each class member makes similar legal arguments
to prove the defendant’s liability.”52 So long as the “plaintiffs assert . . . that defendants committed
the same wrongful acts in the same manner, against all members of the class, they establish the
necessary typicality.”53
The adequacy of representation requirement is met where “(1) plaintiff’s interests are
[not] antagonistic to the interest of other members of the class and (2) plaintiff’s attorneys are
the named plaintiff’s claim and the class claims are so interrelated that the interests of the
class members will be fairly and adequately protected in their absence.” General Tel. Co.
of Southwest v. Falcon, 457 U.S. 147, 158 n.13 (1982); see also Wal-Mart Stores, Inc. v.
Dukes, 131 S. Ct. 2541, 2553 (2011) (“The commonality and typicality requirements of
Rule 23(a) tend to merge.” (internal citations omitted)); Dura-Bilt v. Chase Manhattan
Corp., 89 F.R.D. 87, 99 (S.D.N.Y. 1981) (“The typicality prerequisite overlaps with the
common question requirement of Rule 23(a)(2) and the adequate representation requirement
of Rule 23(a)(4).”).
50
Wal-Mart, 131 S. Ct. at 2556 (“We quite agree that for purposes of Rule 23(a)(2) even a
single common question will do.” (internal quotations omitted)).
51
Korn v. Franchard Corp., 456 F.2d 1206, 1210 (2d Cir. 1972); In re Prestige Brands
Holdings, Inc. Sec. Litig., No. 05 Civ. 6924 (CLB), 2007 WL 2585088, at *2 (S.D.N.Y.
Sept. 5, 2007).
52
In re Flag Telecom Holdings Ltd. Sec. Litig., 574 F.3d 29, 35 (2d Cir. 2009); see also In re
NASDAQ Market-Makers Antitrust Litig., 172 F.R.D. 119, 126 (S.D.N.Y. 1997) (finding
typicality is met where plaintiffs “have the incentive to prove all of the elements of the
causes of action which would be presented by the individual members of the class were they
initiating individual actions” (citations omitted)).
53
In re NYSE Specialists Sec. Litig., 260 F.R.D. 55, 72-73 (S.D.N.Y. 2009).
13
qualified, experienced and able to conduct the litigation.”54 It generally requires “strong evidence”
that the class representative’s “interests are not antagonistic to those of the class.”55
As with many other securities class actions, this case turns on the central issue of
whether certain statements and non-disclosures common to the Offering Documents rose to the level
of material misrepresentations or omissions.56 Plaintiffs here allege that (1) “IndyMac Bank
originated and/or acquired the risky mortgage loans that IndyMac MBS then bundled together into
mortgage pools,” (2) “[p]ursuant to the Offering Documents, the IndyMac Entities [and] the
Underwriter Defendants . . . solicited, sold and distributed” the offerings, and (3) “[t]he Offering
Documents contain untrue statements of material fact, omit to state material facts required to be
stated therein, or omit to state material facts necessary to make the statements therein not
misleading.”57 Previous instances of similar claims readily have been found to meet the requirements
of commonality, typicality, and adequacy of representation.58
Defendants’ arguments that these requirements have not been met here focus on three
assertions: (1) no named plaintiff has standing to assert claims with respect to one offering and the
54
Baffa v. Donaldson, Luffkin & Jenrette Sec. Corp., 222 F.3d 52, 60 (2d Cir. 2000).
55
Damassia v. Duane Reade, Inc., 250 F.R.D. 152, 158 (S.D.N.Y. 2008).
56
See, e.g., SACC ¶¶ 7-9.
57
Id. ¶¶ 4-7. Plaintiffs allege also that these omissions and misrepresentations in the Offering
Documents were substantially similar. See Egan Decl., Exs. C, D.
58
See Pub. Emps. v. Goldman Sachs, 2012 WL 336146; Pub. Emps. v. Merrill, 277 F.R.D.
97; N.J. Carpenters Health Fund v. DLJ Mortg. Capital, Inc., No. 08 Civ. 5653 (PAC),
2011 WL 3874821 (S.D.N.Y. Mar. 29, 2010) (“NJ v. DLJ”); NJ Carpenters, 272 F.R.D.
160 (finding Rule 23(a) requirements were met, but not Rule 23(b)(3) requirements).
14
claims as to that offering must be dismissed, (2) Wyoming delegated investment decisions to parties
who had direct meetings with IndyMac, subjecting it to unique defenses, and (3) Wyoming is subject
to unique issues regarding materiality and damages.59 Defendants assert that these considerations
are sufficient to defeat a finding of typicality, commonality, or adequacy.
Defendants’ first argument regards Wyoming’s standing to pursue claims as to
offering INDX 2006-AR11 (“AR11"). A party does not have standing to bring a Section 12(a)(2)
claim where it purchased the security in a private or secondary market.60 Here, Wyoming purchased
AR11 Certificates ten months after the initial offering and admits that it did so “in the secondary
market.”61 It therefore lacks standing to bring a Section 12(a)(2) claim as to AR11. The Court
previously determined that Wyoming is time-barred from pursuing a Section 11 claim as to this same
offering.62 Accordingly, Wyoming does not have a valid claim with respect to this offering under
either Section 11 or Section 12(a)(2).63 While it is true generally, as Wyoming notes, that a lead
plaintiff “can represent class members with section 12(a)(2) claims despite the fact that it only has
59
DI 294, at 30-33.
60
Pub. Emps. v. Merrill, 714 F. Supp. 2d 475, 484 (S.D.N.Y. 2010) (stating Section 12(a)(2)
standing is limited to “persons who have directly purchased the securities from underwriting
defendants in the subject public offering(s), and not in the secondary market”); In re
Sterling Foster & Co., Inc., Sec. Litig., 222 F. Supp. 2d 216, 244 (E.D.N.Y. 2002)
(“[P]urchasers in private or secondary market offerings are precluded from bringing actions
under Section 12(a)(2).”).
61
DI 294, at 30; DI 300, at 17.
62
See IndyMac I, 718 F. Supp. 2d at 513 (holding Wyoming only had standing to pursue
Section 12(a)(2) claims as to INDX 2006-AR11).
63
This of course means that it does not have a claim under Section 15, which requires that a
party have a viable Section 11 or Section 12 claim. See 15 U.S.C. § 77o.
15
section 11 claims,”64 or vice versa, that rule, if it may be so characterized, does not apply to this case.
Wyoming cannot represent class members who purchased AR11because it does not have any viable
Securities Act claim as to that offering. Because no named plaintiff has a claim regarding AR11, all
claims based on that offering are dismissed from this action. This of course does not affect the
propriety of class certification as to the other nine offerings.
Defendants’ second argument is that Wyoming’s delegation of many or all of its
investment decisions to investment advisors subject it to unique defenses. Questions as to what Lead
Plaintiffs or their investment advisors knew as a result of meetings with IndyMac, however, “are
insufficient to defeat” a finding that commonality, typicality, or adequacy have been met “because
the nature of the claims that Plaintiffs must prove remains unchanged.”65 The commonality,
typicality, and adequacy requirements may be met in a securities class action based on something
as simple as a commonly alleged “disregard of underwriting guidelines.”66 Whether or not investors’
knowledge levels varied does not change the fundamental nature of the claims in the SACC that the
Offering Documents were materially misleading.67
Finally, defendants argue that the issues Wyoming faces in demonstrating materiality
and damages are unique and defeat a finding of commonality, typicality, or adequacy. The argument
64
NJ Carpenters, 272 F.R.D. at 165.
65
Id. at 167.
66
Id.
67
Defendants’ reliance on knowledge to defeat class certification is discussed further below
in Part III.A.2.i.
16
ignores that materiality for Securities Act claims is an issue subject to generalized proof.68 Similarly,
damages in Securities Act claims are calculated based on a statutory formula,69 so any differences
in damages awards do not defeat class certification, particularly where, as here, they are “merely
speculative.”70 “[A] common course of conduct and a unitary legal theory for the entire class period”
is alleged, namely that the Offering Documents contain materially misleading statements or
omissions, and commonality, typicality, and adequacy of representation are satisfied.71
68
See Rombach v. Chang, 355 F.3d 164, 172 n.7 (2d Cir. 2004) (materiality gauged by the
objective standard of whether “any reasonable investor could consider the [misstatement]
important in light of adequate cautionary language set out in the same offering” and thus
is determined on a common basis for all class members (citing Halperin v. eBanker
USA.com, Inc., 295 F.3d 352, 257 (2d Cir. 2002))); NJ Carpenters, 272 F.R.D. at 168
(“[T]he very basic rule [is] that the materiality of a misstatement or omission under the
Securities Act provisions alleged here is judged against an objective standard . . . . and [ ]
Plaintiffs allege the same exact misstatements and omissions are misleading as they pertain
to each tranche of the offering.” (internal citations omitted)).
69
See 15 U.S.C. § 77k(e) (“The suit authorized under subsection (a) of this section may be to
recover such damages as shall represent the difference between the amount paid for the
security (not exceeding the price at which the security was offered to the public) and (1) the
value thereof as of the time such suit was brought, or (2) the price at which such security
shall have been disposed of in the market before suit, or (3) the price at which such security
shall have been disposed of after suit but before judgment if such damages shall be less than
the damages representing the difference between the amount paid for the security (not
exceeding the price at which the security was offered to the public) and the value thereof
as of the time such suit was brought.”).
70
See Seijas v. Republic of Arg., 606 F.3d 53, 58 (2d Cir. 2010); Pub. Emps. v. Goldman
Sachs, 2012 WL 336146, at *4.
71
Hicks v. Morgan Stanley & Co., No. 01 Civ. 10071 (HB), 2003 WL 21672085, at *3
(S.D.N.Y. July 16, 2003). The Court notes that while the commonality, typicality, and
adequacy of representation requirements under Rule 23(a) address overlapping concerns,
the adequacy of representation requirement differs in that it “also raises concerns about the
competency of class counsel and conflicts of interest.” Falcon, 457 U.S. at 157-58 n.13.
In the present case, the Court is unconvinced by defendants’ additional arguments that
Wyoming is an inadequate representative. See NJ Carpenters, 272 F.R.D. at 164-65
(finding claims as to possible differences between class members on legal approach and
settlement strategies to be “largely conjectural,” and therefore not a basis for denying class
17
III.
Rule 23(b)(3) Requirements
A.
Predominance
Class-wide issues predominate “if resolution of some of the legal or factual questions
that qualify each class member’s case as a genuine controversy can be achieved through generalized
proof, and if these particular issues are more substantial than the issues subject only to individualized
proof.”72
While predominance requires a more rigorous showing than does commonality or
typicality, it “does not require a plaintiff to show that there are no individual issues.”73 Rather, “[i]n
determining whether common questions of fact predominate, a court’s inquiry is directed primarily
toward whether the issue of liability is common to members of the class.”74 Where issues of liability
are “common to the class, common questions are held to predominate over individual questions.”75
In determining whether the predominance requirement has been met, courts must consider both
certification); Cromer Fin. Ltd. v. Berger, 205 F.R.D. 113 , 126-27 (S.D.N.Y. 2001) (“[T]he
fact that conflicts among class members may arise at the settlement or damage stage of the
litigation does not require the denial of class certification.”).
72
UFCW Local 1776 v. Eli Lilly & Co., 620 F.3d 121, 131 (2d Cir. 2010); see also Moore v.
PaineWebber, Inc., 306 F.3d 1247, 1252 (2d Cir. 2002).
73
NYSE Specialists, 260 F.R.D. at 75; see also Dura-Bilt, 89 F.R.D. at 99 (“[I]ndividual issues
will likely arise in this case as in all class action cases,” so to permit “various secondary
issues of plaintiffs’ claim[s] to preclude certification of a class would render the rule an
impotent tool for private enforcement of the securities laws”).
74
In Re Blech Sec. Litig., 187 F.R.D. 97, 107 (S.D.N.Y. 1999).
75
Dura-Bilt, 89 F.R.D. at 93.
18
affirmative claims and potential defenses.76
1.
Relevant Legal Standards
To bring a successful claim under Section 11 of the Securities Act, a plaintiff must
prove that:
“(1) she purchased a registered security, either directly from the issuer or in the
aftermarket following the offering; (2) the defendant participated in the offering in
a manner sufficient to give rise to liability under section 11; and (3) the registration
statement ‘contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements therein
not misleading.’”77
The elements of a Section 12 claim are that:
“(1) the defendant is a ‘statutory seller’; (2) the sale was effectuated ‘by means of a
prospectus or oral communication’; and (3) the prospectus or oral communication
‘include[s] an untrue statement of a material fact or omit[s] 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.’”78
Section 12 therefore offers parties a means of recovery against any “statutory seller” whereas Section
11 is available against “offering participants.”79 Liability under both provisions is limited in scope,
76
See, e.g., Myers v. Hertz Corp., 624 F.3d 537, 549 (2d Cir. 2010) (“It is . . . well established
that courts must consider potential defenses in assessing the predominance requirement.”).
77
In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 358-59 (2d Cir. 2010) (quoting
15 U.S.C. § 77k(a)).
78
Id. at 358-59 (quoting 15 U.S.C. § 771(a)(2)).
79
Id. at 359.
19
but strict where applicable.80
Section 15 liability is derivative of liability under Section 11 and/or Section
12(a)(2).81 Where a plaintiff does not have a viable Section 11 or Section 12 claim, a Section 15
claim must fail as well.
Defendants facing Securities Act claims have several available defenses:
•
A Section 11 or 12(a)(2) claim will not succeed where a defendant shows that
“the plaintiff knew of the untruth or omission at the time or his or her
acquisition of the security.”82 Defendants similarly may avoid liability where
they prove that a plaintiff had actual or inquiry notice of the materially
misleading statements or omissions more than a year before its claims were
filed.83
•
Defendants may show also that a Section 11 claim against an underwriter was
80
See Herman & MacLean v. Huddleson, 459 U.S. 375, 381-82 (1983); In re Morgan Stanley,
592 F.3d at 359-60 (“[P]laintiffs bringing claims under sections 11 and 12(a)(2) need not
allege scienter, reliance, or loss causation.” (citing Rombach, 355 F.3d at 169 n.4)).
81
Section 15 states: “Every person who, by or through stock ownership, agency, or otherwise,
or who, pursuant to or in connection with an agreement or understanding with one or more
other persons by or through stock ownership, agency, or otherwise, controls any person
liable under Sections 77k [Section 11] or 771 [Section 12] of this title, shall also be liable
jointly and severally with and to the same extent as such controlled person . . . .” 15 U.S.C.
§ 77o(a). Accordingly, the Court does not address Section 15's requirements beyond its
discussion of the Section 11 and Section 12(a)(2) claims.
82
See In re Initial Pub. Offering Sec. Litig., 483 F.3d 70, 73 n.1 (2d Cir. 2007) (“In re IPO
II”) (explaining that generally Section 11 liability “is absolute” but if a defendant can show
that “the plaintiff knew of the untruth or omission at the time of his or her acquisition of the
security” it may avoid liability) (internal citations omitted).
83
See Dodds v. Cigna Sec., Inc., 12 F.3d 346, 349-50 (2d Cir. 1993).
20
brought by a plaintiff who “acquired the security after the issuer ha[d] made
generally available to its security holders an earning statement covering a
period of at least 12 months beginning after the effective date of the
registration statement.”84 Such a showing then requires the plaintiff to
demonstrate reliance on the material misstatement or omission alleged, which
otherwise would be unnecessary.85
•
Underwriter defendants may avoid Section 11 and Section 12(a)(2) liability
as well by demonstrating that they conducted due diligence on the offerings
that they underwrote and believed based on reasonable grounds that the
statements alleged to be false were not misleading and that there were no
material omissions.86
•
Finally, a Securities Act defendant may avoid liability by showing that the
loss of a security’s value was due to something other than the alleged
misrepresentation or omission.87
84
15 U.S.C. § 77k(a)(5).
85
See In re WorldCom, 219 F.R.D. at 288-89 (noting that where such an earning statement
exists, “the right of recovery under this subsection shall be conditioned on proof that such
person acquired the securities relying on such untrue statement in the registration statement
or relying upon the registration statement and not knowing of such omission, but such
reliance may be established without proof of the reading of the registration statement by
such person” (quoting 15 U.S.C. § 77k(a)(5))).
86
See 15 U.S.C. §§ 77k(b); 77l(a)(2).
87
See 15 U.S.C. § 77k(e) (“[I]f the defendant proves that any portion or all of such damages
represents other than the depreciation in value of such security resulting from such part of
the registration statement, with respect to which his liability is asserted, not being true or
omitting to state a material fact required to be stated therein or necessary to make the
21
2.
The Present Case
Wyoming asserts that predominance may be found here because the SACC alleges
“violations of Section 11 and Section 12(a)(2) of the Securities Act” and that “to prove [these]
claims, Lead Plaintiffs and the Class must prove that [d]efendants made untrue statements or
omissions that were material. These issues predominate in this case and can be demonstrated on a
class-wide basis.”88
Defendants’ primary arguments that predominance has not been met here are that
there are individual issues regarding (1) investor knowledge, (2) inquiry or actual notice by certain
plaintiffs that would implicate the statute of limitations, and (3) investor reliance stemming from the
issuance of certain trustee reports. They argue also that individual issues regarding liability and
damages for prospective class members who purchased the offerings at different times predominate.89
Defendants here, as in Tsereteli v. Residential Asset Securitization Trust 2008-A8,90
focus their arguments on the reasoning of New Jersey Carpenters Health Fund v. Residential
statements therein not misleading, such portion of or all such damages shall not be
recoverable.”). The burden of demonstrating this is on the defendant, as the “risk of
uncertainty” in such instances is placed on the defendant, not on the plaintiff. See Akerman
v. Oryx Comm’cns Inc., 810 F.2d 336, 341 (2d Cir. 1987). Under Section 12(a)(2), a
defendant may assert a similar affirmative defense when “the person who offered or sold
such security proves that any portion or all of the amount recoverable under subsection
(a)(2) represents other than the depreciation in value of the subject security resulting from
such part of the prospectus or oral communications, with respect to which liability of that
person is asserted.” 15 U.S.C. § 77l(b).
88
DI 279, at 25-26.
89
DI 294, at 12-26. This last argument is broken up into several components, including
asserted differences demonstrating the requisite falsity, materiality, due diligence, causation,
and damages. Each is addressed in turn below.
90
See Tsereteli v. Residential Asset Securitization Trust 2008-A8, No. 08 Civ. 10637 (LAK),
DI 100 (granting class certification in related MBS Securities Act class action).
22
Capital, LLC,91 which denied certification of two classes in related MBS Securities Act cases based
in large part on the plaintiffs’ failure to demonstrate that the predominance requirement had been
met. The court there held that inferences of disparities in knowledge within the two proposed classes
sufficed to defeat predominance.92 Defendants’ reliance on New Jersey Carpenters, however, is not
persuasive.
i.
Knowledge and Notice
Defendants’ first arguments center on assertions that (1) certain class members had
individual knowledge of the defendants’ alleged misstatements and omissions at the time they
purchased their Certificates, and (2) there likely are individualized statute of limitations issues arising
from actual or inquiry notice available at some time after class members purchased their respective
Certificates.93 They state that “[p]laintiffs and their expert are conspicuously silent on the issue of
investor knowledge.”94
Defendants ignore the fact that knowledge is an affirmative defense, not a required
element of a Securities Act claim. In order to defeat predominance on this basis, defendants must
provide evidence that certain class members had differing levels of knowledge regarding the
91
272 F.R.D. 160 (S.D.N.Y. 2011), aff’d, 2012 WL 1481519 (2d Cir. Apr. 30, 2012).
92
Id. at 168-71.
93
DI 294, at 13-19. Both Sections 11 and 12(a)(2) of the Securities Act are subject to a oneyear statute of limitations, beginning when the plaintiff discovers “the untrue statement or
the omission, or after such discovery should have been made by the exercise of reasonable
diligence.” 15 U.S.C. § 77m.
94
DI 294, at 13, 18.
23
misleading nature of the statements or omissions when they invested sufficient to outweigh common
issues.95
Defendants argue that Wyoming and other prospective class members likely had
knowledge or notice of the alleged materially misleading nature of the Offering Documents. They
rely first on Wyoming’s categorization of the class as consisting of many “sophisticated and/or
institutional investors.”96 They contend also that some prospective class members had the benefit
of or themselves were investment advisors,97 that some investigated the general “degradation of
underwriting standards,”98 and that certain of them even predicted as early as 2005 that the housing
market bubble would burst.99 They claim as well that certain prospective class members –
particularly Western Asset Management Company (“WAMCO”) and Pacific Investment
95
See Tsereteli, No. 08 Civ. 10637 (LAK), DI 100, at 25 (indicating allegations of knowledge
or notice appropriately defeat predominance where a district court finds “specific statements
by certain class members . . . demonstrating specific individual knowledge of the underlying
loans and underwriting guidelines set forth in the relevant offering documents”); Pub.
Emps.v. Goldman Sachs, 280 F.R.D. at 139 (“[I]n those cases where common issues failed
to predominate because of individual investor knowledge, certain putative class members
either participated in or had knowledge of the alleged conduct . . . . I am not persuaded that
the potential varying degrees of investor knowledge here will create issues subject to
individual proof sufficient to overwhelm common issues.”); Pub Emps. v. Merrill, 277
F.R.D. at 117-18 (finding predominance is satisfied where, inter alia, defendants had failed
to identify any evidence that plaintiffs or their money managers “knew of false statements
in the Offering documents”); NJ Carpenters, 272 F.R.D. at 168-69 (finding predominance
is not satisfied where, among other considerations, “[d]efendants have mustered a good deal
of documentary evidence imputing knowledge to [Plaintiff’s investment advisors]”).
96
DI 279, at 5; DI 294, at 13, 15; Serio Decl. [DI 289], Ex. B (identifying 28 of 714
prospective class members as “sophisticated”).
97
DI 294, at 14.
98
Serio Decl., Ex. DD, at 249-50.
99
Id., Ex. B36.
24
Management Company, LLC (“PIMCO”) – obtained information from IndyMac Bank about such
issues as its loan underwriting guidelines.100
Investor sophistication does not alone defeat a finding of predominance in a class
action.101 Further, while demonstrating that certain class members are sophisticated investors may
indicate that these class members were familiar with the MBS market and even understood that there
were varying standards for and exceptions to underwriting guidelines used in the industry generally
and by IndyMac Bank in particular, it does not establish that any prospective class member likely
knew or had notice that the Offering Documents contained misstatements or omissions about
IndyMac Bank’s adherence to underwriting standards for the Certificates at issue in this case.
Rather, the record indicates only that certain parties may have understood that there were problems
with the declining quality of investments and with underwriting guidelines in the MBS sector as a
whole.
Defendants point also to news stories and complaints filed in other courts, some of
which discussed MBS and the housing market generally and some IndyMac Bank specifically.102
They allege that these documents likely gave class members knowledge or notice of the allegedly
misleading statements and omissions in the Offering Documents. But this does not defeat a finding
100
See Id., Ex. W, ¶ 3; Id., Ex. Y, at 40:11-13, 41:4-10; Olinski Decl. [DI 293], Ex. A, ¶ 3.
101
See Amchem Prods. Inc. v. Windsor, 521 U.S. 591, 617 (1997) (Rule 23(b)(3) “does not
exclude from certification cases in which individual damages run high” (quotations
omitted)); Weiss v. Blech, 95 Civ. 6422, 1997 WL 458678, at *4 (S.D.N.Y. Aug. 11, 1997)
(“[S]ophistication in general says nothing about [plaintiff’s] actual knowledge.”).
102
See Serio Decl., Exs. FF-II (articles); Id., Exs. KK, LL, PP, QQ (cases).
25
of predominance either.103 The only news articles cited that mention IndyMac Bank do not discuss
the Certificates, the Offering Documents, or any of the facts that are the bases of the SACC. The
same is true of the lawsuits cited, which are of two varieties. The first group was brought against
certain prospective class members in this case.104 Those lawsuits indicate, at best, that a few
prospective class members previously were alleged to have disregarded their own underwriting
guidelines. The second variety is a lawsuit filed in March 2007 against IndyMac Bancorp, Inc.105
that alleged, among other things, that IndyMac Bank had “loosened its underwriting guidelines.”106
But that complaint made claims under the Securities Exchange Act of 1934, and did not claim that
IndyMac Bank had made material misstatements about its adherence to its underwriting guidelines.
Nor did it refer to the Certificates or Offering Documents at issue in this case. In any event, these
lawsuits all were publically available and therefore raise issues – if any – principally of knowledge,
actual or constructive, subject to generalized proof.
The record before this Court therefore differs from that in New Jersey Carpenters,
where the district court identified what it felt were specific statements by certain class members
demonstrating individual knowledge of the structure of the underlying loans and certain underwriting
103
See In re NovaGold Res. Inc. Sec. Litig., 629 F. Supp. 2d 272, 285 (S.D.N.Y. 2009) (“To
trigger the duty of inquiry, the . . . warnings must ‘relate directly’ to the misrepresentations
and omissions on which the plaintiffs base their claims . . . .”).
104
Serio Decl., Exs. PP, QQ.
105
IndyMac Bancorp, Inc. was the holding company for IndyMac Bank.
106
Serio Decl., Ex. LL, ¶ 39 (Amended complaint in Tripp v. IndyMac, No. 07 Civ. 1635 (C.D.
Cal.)).
26
guidelines set forth in relevant offering documents.107 Moreover, as this Court already has noted,
while the Second Circuit affirmed the denial of class certification in New Jersey Carpenters, it
pointed out that “another inference could have been drawn” in that case but that the Circuit was not
“allowed to second-guess the trial court’s choice between permissible competing inferences.”108
The Court finds in this case that the record before it does not contain enough evidence
that any prospective class member or members likely knew or had notice of the alleged
misstatements or omissions in the Offering Documents.109
ii.
Reliance
While Section 11 plaintiffs generally are presumed to have relied on allegedly false
107
NJ Carpenters, 272 F.R.D. at 169-70 (finding that certain class members “were extensively
involved in the structuring of the [offerings at issue], including in the review and selection
of the loans that backed the certificates”).
108
N.J. Carpenters Health Fund v. RALI Series 2006-Q01 Trust, Nos. 11 Civ. 1683 & 11 Civ.
1684, 2012 WL 1481519, at *3 (2d Cir. Apr. 30, 2012) (quoting Arch Ins. Co. v. Precision
Stone, Inc., 584 F.3d 33, 39 (2d Cir. 2009)).
109
The defendants in Pub. Emps. v. Goldman Sachs, No. 09 Civ. 1110 (HB) have appealed the
decision to certify the class in that case on what those defendants contend was a record
similar to that in NJ Carpenters. See Pub. Emps.’ Ret. Sys. v. Goldman Sachs Group, Inc.,
No. 12-0614, DI 71 (2d Cir. filed June 13, 2012) (granting leave to appeal). While that case
appears to be heading towards settlement, see Pub. Emps v. Goldman Sachs, No. 09 Civ.
1110 (HB), DI 139, the Court is mindful that there is some ambiguity in the law regarding
the standard for determining whether the predominance requirement has been met in a
Securities Act class action due to individualized knowledge defenses. The defendants in
Goldman Sachs argue that a finding of predominance can be defeated where defendants
show that it is “likely” that certain class members had knowledge. They argue that the
district court has erred in requiring them to demonstrate that there in fact were certain
plaintiffs who had knowledge. This Court declines to reach this issue, as it is immaterial
to the outcome of this motion. Under either standard, the Court is convinced that defendants
in this case have not demonstrated adequately that any asserted knowledge or notice defense
is sufficient to defeat a finding of predominance.
27
and misleading statements in offering documents, this presumption does not exist where the plaintiff
“acquired the security after the issuer has made generally available to its security holders an earning
statement covering a period of at least 12 months beginning after the effective date of the registration
statement.”110 Defendants argue that the class “includes investors who purchased certificates in 2008
and 2009, well after the initial offerings of the certificates."111 Thus, they contend, “investors who
purchased more than a year after the initial offerings” each will be required to show that they relied
on certain trustee reports that were issued to accompany the offerings.
As several courts already have held, the “factual premise of Defendant’s argument
is flawed.”112 Only reports on Forms 10-K, 10-Q, 8-K, 20-F, 40-F, and 6-K, and annual reports made
pursuant to Rule 14a-3 of the Exchange Act, are earning statements under the statute.113
Accordingly, defendants have not shown that any class member is not entitled to the presumption
of reliance.
iii.
Damages and Liability
Defendants argue also that individual issues predominate because the various
Certificates were issued pursuant to different Offering Documents and underwriting guidelines,
resulting in individualized issues of damages and liability for different class members. These
110
15 U.S.C. § 77k(a).
111
DI 294, at 19.
112
Pub. Emps. v. Merrill, 277 F.R.D. at 114-15; see also In Re WorldCom, 219 F.R.D. at 293.
113
See 17 C.F.R. § 230.258(a).
28
arguments are addressed in turn.
a.
Falsity
Defendants first argue that the various offerings were backed by different loan groups
and that “deviations from underwriting standards may have occurred with respect to loans in some
loan groups, but not others.”114 Further, they assert that the Certificates each were originated under
“different loan documentation programs,” have performed differently, were subject to differing
underwriting guidelines, and that each Certificate therefore will require individual consideration to
determine if the pertinent offering documents contained materially misleading statements and
omissions.115 The SACC, however, alleges that the disclosures at issue for the offerings are
“uniform,” and have impacted all of the offerings similarly.116 Defendants have pointed to no
substantial differences among the underwriting guidelines that applied to each group of loans,
alleging only that the question of whether IndyMac Bank deviated from those guidelines “may” have
a different answer for some loan groups than for others.117 Defendants’ own expert, moreover, stated
that he “presumed” that the underwriting guidelines would be the same across different loans and
114
DI 294, at 20. The parties agree that each of the offerings in question was backed by a
single loan pool. See DI 300, at 2; Serio Decl., Ex. A, Report of Walter N. Torous, Ph.D.
(“Torous Rep.”) ¶ 31.
115
DI 294, at 20-22.
116
DI 300, at 3; SACC ¶¶ 213-17.
117
DI 294, at 20. See also Torous Rep. ¶¶ 87, 88 (noting generally that “[t]he underwriting
guidelines [for different kinds of mortgage loans] are likely to be different” but not
discussing the substantive differences in underwriting standards for the Certificates in this
case).
29
offerings.118 Wyoming, on the other hand, has provided evidence that the allegedly misleading
statements in the Offering Documents about the underwriting standards were substantially similar.119
It asserts also that the underwriting standards themselves were the similar across offerings.120 Thus,
to the extent plaintiffs are able to show that the statements or omissions regarding IndyMac Bank’s
adherence it its underwriting standards were false, the record indicates that this issue will be one
subject to generalized proof.121
Courts in this and other districts have found that such substantial similarity of the
allegedly misleading statements in Offering Documents is sufficient for class certification, even
where class members purchased different offerings at different times.122 Issues related to falsity
118
Levallee Decl., Ex. 1, Transcript of deposition of Walter A Torous, Ph.D., at 102:16-17 (“I
presume that [the underwriting guidelines for loans at issue in this case] stayed the same,
but I’m not sure.”).
119
See DI 300, at 1-2 (spelling out similarities as to alleged misstatements and omissions in
Offering Documents for each offering); Egan Decl., Exs. C, D (chart indicating similarity
of alleged misstatements in different Offering Documents); see also SACC ¶¶ 112-120
(alleging the same).
120
DI 300, at 2 (“[T]he guidelines for how [the] loans would be underwritten was the same.”);
SACC ¶ 120 (stating that all allegedly “untrue statements” in the SACC were false because
IndyMac Bank was “not following its stated underwriting guidelines with respect to its
origination and acquisition of mortgage loans”).
121
See Feinstein Rep. ¶¶ 45, 50, 52 (finding that “the quality of the underwriting process
impacts expected cash flow and in turn the value of [all] the securities”); Feinstein Reb. ¶
41 (indicating that certain of the offerings at issue in this case were cross-collateralized, so
that “the performance or impairment of a particular loan may affect the performance or
value of the MBS certificates associated with different [loan] groups”); Egan Decl., Exs. C,
D (quoting alleged misstatements in all offering documents, and indicating their similarity);
DI 300, at 4 (identifying several sources, such as internal IndyMac reports and statistical
compilations, that Wyoming asserts will allow it generally to demonstrate falsity at trial).
122
See, e.g., Pub. Emps. v. Goldman Sachs, 2011 WL 135821, at * 11 (certifying class of
purchasers of three offerings); Pub. Emps. v. Merrill, 277 F.R.D. at 113-14 (certifying class
30
therefore do not defeat a finding of predominance in this case.
b.
Materiality
Defendants next argue that there are individualized issues of materiality sufficient to
defeat predominance. These arguments overlook the fact that materiality in a case like this is
determined on an objective rather than a subjective basis. It is established where “the defendants’
representations, taken together and in context, would have misled a reasonable investor.”123 “[W]hat
a ‘reasonable person’ would have known, and when, can be proven on a class-wide basis.”124
Whether a misstatement or omission was material therefore presents a common rather than an
individual issue.125
c.
Due Diligence
Defendants argue that there “were different underwriters for each of the 10 offerings,”
of purchasers of eighteen offerings even where there were “some statements that [we]re
unique to [a] particular offering” in its offering documents, because “it is the substantially
similar statements common to each” set of offering documents “that are the clear focus of
the Amended Complaint”); In re Countrywide Fin. Corp. Sec. Litig., No. 07 Civ. 5295
(MRP), 2009 WL 7322254, at *6 (C.D. Cal. Dec. 9, 2009) (certifying a class of multiple
debt securities even where offerings “differed in size and timing”).
123
Rombach, 355 F.3d at 172 n.7; see also Litwin v. Blackstone Group, L.P., 634 F.3d 706, 717
(2d Cir. 2011) (finding materiality requires 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” (citing Ganino v. Citizens Utils. Co.,
228 F.3d 154, 162 (2d Cir. 2000)).
124
McLaughlin v. Am. Tobacco Co., 522 F.3d 215, 233 n.10 (2d Cir. 2008).
125
See Dura-Bilt, 89 F.R.D. at 94 (“The question of materiality, rather than being an individual
issue, is in fact a common issue.”).
31
a fact giving rise to individualized questions regarding whether each “underwriter adequately
performed due diligence on a given offering.”126 Granted. But these individualized questions are
not as to matters that must be proved by each class member. They are defenses that could prove
unique to each underwriter. Thus, as alleged, this defense would not require individual plaintiffs to
make separate showings. In any case, “questions of law or fact common to class members
predominate”127 regardless of any individualized proof with respect to underwriter due diligence
defenses.
d.
Loss Causation and Damages
Finally, defendants assert that both the affirmative defense of loss causation128 and
damages calculations for each class member further undermine plaintiffs’ arguments that common
questions predominate.129 Issues regarding individualized damages calculations generally, however,
are “not sufficient to defeat class certification.”130 Furthermore, at least one court has rejected the
126
DI 294, at 24.
127
FED. R. CIV. P. 23(b)(3).
128
Loss causation provides an affirmative defense to Section 11 and 12(a)(2) claims. It
requires a defendant to show that there is no causal link between the alleged misstatements
and plaintiffs’ loss. See, e.g., In re Merrill Lynch, 289 F. Supp. 2d at 437; Akerman v. Oryx
Commc’n, Inc., 609 F. Supp. 363, 368 (S.D.N.Y. 1984).
129
DI 294, at 24-26.
130
Seijas, 606 F.3d at 58.
32
argument that loss causation issues defeat predominance for class certification purposes.131
The Court is convinced that issues subject to generalized proof significantly
predominate over any individualized considerations that are likely to arise in this case.
B.
Superiority
Finally, Wyoming must show that resolving this dispute as a class action would be
superior to other means.
This consideration focuses on “(A) the class members’ interests in individually
controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation
concerning the controversy already begun by or against class members; (C) the desirability or
undesirability of concentrating the litigation of the claims in the particular forum; and (D) the likely
difficulties in managing a class action.”132 “In general, securities suits . . . easily satisfy the
superiority requirement of Rule 23.”133
Requiring the prospective class members to bring individual actions, seek joinder, or
else sit on their claims, would be inefficient. Smaller investors who were not allowed to partake in
131
In re Metropolitan Sec. Litig., No. CV-04-25-FVS, 2008 WL 5102303, at *2 (E.D. Wa.
Nov. 25, 2008) (“[D]efendants have not cited, and independent research has failed to
uncover, a Section 11 case in which a court has ruled that the existence of a loss causation
defense precludes certification under Rule 23(b)(3).”); see also Akerman, 810 F.2d at 341
(finding that loss causation presents a “heavy burden” for defendants).
132
FED. R. CIV. P. 23(b)(3).
133
Lapin v. Goldman Sachs & Co., 254 F.R.D. 168, 187 (S.D.N.Y. 2008); see also In re Blech
Sec. Litig., 187 F.R.D. 97, 107-08 (S.D.N.Y. 1999).
33
a class action would be unlikely to have the resources or the incentive to bring individual suits.134
Further, the parties are aware of no investors pursuing individual claims regarding these same
offerings.135 Rather, of the investors that have come forward since the Court’s June 21, 2010 opinion
on the motions to dismiss, all of them have sought to intervene, rather than file separate individual
actions.136
Defendants argue that a class action would not be superior to individual suits because
certain of the prospective class members are “sophisticated and/or institutional investors.”137 This
alone does not suffice to undermine a finding of superiority.138
Defendants argue also that the superiority requirement has not been met because
“[p]laintiffs’ proposed class includes foreign entities.”139 While certain prospective class members
here are foreign, a factor which can “counsel[] against a finding that the class action is superior to
134
See In re NASDAQ, 172 F.R.D. at 130 (“although institutional investors, when compared
to individual investors, may appear perfectly capable of seeking redress individually,
smaller institutional investors may not be willing and able to hire counsel to battle against
the collective resources of the nation’s largest financial industry firms.”)
135
See, e.g., DI 279 at 28.
136
See DI 202; DI 219; DI 237.
137
DI 294, at 27 (citing DI 276, at 5); see also Serio Decl., Ex. B (identifying 28 of 714
prospective class members as “sophisticated”).
138
See Bd. of Tr. of AFTRA Ret. Fund v. JPMorgan Chase Bank, N.A., 269 F.R.D. 340, 355
(S.D.N.Y. 2010) (finding that the existence of certain large claims “sufficient for individual
suits is no bar to a class when the advantages of unitary adjudication exist to determine the
defendant’s liability”).
139
DI 294, at 28.
34
other forms of litigation,” this is “not dispositive.”140 Where, as here, defendants do not identify
which foreign entities’ home countries would not give preclusive effects to this action, this argument
carries little weight.141
The Court is persuaded that concentrating this dispute in a class action in a single
forum has clear benefits that outweigh any issues raised by defendants. Allowing this matter to
proceed as a class action would avoid the “risk of inconsistent adjudication” and encourage “the fair
and efficient use of the judicial system.”142 The Court can find no difficulties “likely to be
encountered in the management of this action as a class action apart from those inherent in any hard
fought battle where substantial sums are at issue and all active parties are represented by able
counsel.”143
*
*
*
The Court has considered defendants’ additional arguments and finds them to be
without merit.
140
Ansari v. N.Y. Univ., 179 F.R.D. 112, 116-17 (S.D.N.Y. 1998).
141
See In re Vivendi Universal, S.A. Sec. Litig., 242 F.R.D. 76, 93-94 (S.D.N.Y. 2007)
(excluding foreign class members because their home countries would not give preclusive
effects to a class action).
142
In re Marsh & McLennan Cos. Inc. Sec. Litig., No. 04 Civ 8144, 2009 WL 5178546, at *12
(S.D.N.Y. Dec. 23, 2009) (internal citations omitted).
143
Cromer Fin. Ltd. v. Berger, 205 F.R.D. 113, 134 (S.D.N.Y. 2001). Rule 23 provides
management tools that a court may utilize as a class action proceeds. See generally
Robidoux v. Celani, 987 F.2d 931 (2d Cir. 1993); see also FED. R. CIV. P. 23(c)(1)(C),
23(c)(5), 23(d) (setting forth case management tools that allow the court to alter or amend
the class certification, to certify subclasses, and to issue orders to help manage the case); In
re Flag, 574 F.3d at 37 (identifying same management tools).
35
Conclusion
Wyoming’s motion to certify the class, and for appointment as class representative
and of class counsel [DI 276] is hereby granted, except that class certification is denied with respect
to offering INDX 2006-AR11. Moreover, the claims as to offering of the INDX 2006-AR11
Certificates are dismissed.
SO ORDERED.
Date:
August 17, 2012
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