Federal Deposit Insurance Corporation As Receiver For Colonial Bank v. Chase Mortgage Finance Corp. et al

Filing 409

OPINION & ORDER denying 357 Motion for Partial Summary Judgment; granting 369 Motion for Partial Summary Judgment: Plaintiff's motion for partial summary judgement is granted, and defendants' cross motion for partial summaryjudgement is denied. (Signed by Judge Louis L. Stanton on 2/3/2023) (ml)

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DOCU!\IE:\T

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. ELECTROYIC. \L LY FILED

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
FEDERAL DEPOSIT INSURANCE
CORPORATION AS RECEIVER FOR COLONIAL
BANK,
Plaintiff ,

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12 Civ . 6166 (LLS)
OPINION AND ORDER

- against FIRST HORIZON ASSET SECURITIES INC .
FIRST HORIZON HOME LOAN CORPORATION ,
CREDIT SUISSE SECURITIES (USA) LLC,
DEUTSCHE BANK SECURITIES INC ., FTN
FINANCIAL SECURITIES CORP. , HSBC
SECURITIES (USA) INC . , RBS
SECURITIES INC. , UBS SECURITIES LLC ,
and WELLS FARGO ASSET SECURITIES
CORPORATION ,
Defendants.
Plaintiff Federal Deposit Insurance Corporation, as
Receiver for Colonial Bank , brought this action in connection
with the purchase of securities that were issued or underwritten
by defendants . Plaintiff filed this motion for partial summary
judgement in support of its standing to sue defendants for
violations of state and federal securities laws. Defendants
NatWest Markets Securities Inc. , formally known as RBS
Securities Inc ., and Credit Suisse Securities , LLC 1 (together
"defendants " ) brought a cross motion for partial summary
judgement challenging plaintiff ' s standing to sue defendants .

On July 14 , 2022 , plaintiff and defendant Credit Suisse
Securities , LLC entered into a stipulation whereby all claims
brought against Credit Suisse were dismissed with prejudice.
(Dkt. No . 406) . This court so ordered the dismissal the
following day . ( Dkt. No . 4 07) .
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For the following reasons, plaintiff's motion is granted, and
defendants' cross motion is denied.
Facts
The court presumes the parties' familiarity with the case's
facts and procedural history and will only recount the facts
related to this decision. This case arises from CBG Investments,
Inc.'s ("CBGI") purchase of residential mortgage-backed
securities ("RMBS"), which was allegedly premised on false and
misleading statements in the offering documents, underwritten or
issued by the defendants in this case.
In 1999, Colonial Bank, an Alabama corporation, formed CBGI
as a wholly owned subsidiary. Defendants' Response to
plaintiff's 56.1 Statement (Dkt. No. 394) at~ 2. CBGI, a Nevada
corporation, was created to purchase, trade, manage, and hold
securities for Colonial Bank in its own name, in order to confer
tax benefits provided in Nevada. Plaintiff's Response to
defendants' 56.1 Statement (Dkt. No. 404) at~~ 2-3. In carrying
out these duties, CBGI bought the RBMS at issue from defendants
in 2007. Id. at~ 13.
On March 23, 2009, CBGI dissolved and transferred all of
its assets to Colonial Bank through a unanimous written consent.
Id. at ~27; Ex. 66 to Park Dec.

(Dkt. No. 376-66 ) . The unanimous

written consent states,

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The board of directors and the sole shareholder find
it is in the best interest of the Company to adopt a
plan of complete liquidation and thereby distribute
all of the assets of the company in [sic] the sole
shareholder , Colonial Bank. In accordance with this
finding, the Board of Directors and the sole
shareholder do hereby declare a complete plan of
liquidation by which all assets of the Company shall
be distributed to the sole shareholder , Colonial Bank .
Mark Daigle , Brent Hicks , David Reimer , Kamal Hosein
and any other officer of the Company are hereby each
individually authorized and directed to execute such
documents, instruments , and contracts as said officer
deems necessary to consummate the liquidation and
distribution of the assets to the sole shareholder ,
Colonial Bank .
Ex . 66 to Park Dec .

(Dkt . No . 376 - 66) . The next day, Kamal

Hosein executed a certificate of dissolution for CBGI,
which was filed with the Nevada Secretary of State on April
9 , 2009 . Plaintiff ' s Response to defendants'

56 . 1 Statement

at ~~30, 33 .
In August 2009 , the Alabama State Banking Department
closed Colonial Bank , and plaintiff Federal Deposit Insurance
Corporation ("FDIC" or "plaintiff") was appointed Colonial
Bank ' s Receiver. Defendants ' Response to plaintiff ' s 56.1
Statement (Dkt . No . 394) at~ 1 . As Colonial Bank ' s Receiver ,
FDIC succeeds to all rights of Colonial Bank against third
parties . Id.
Standing in the shoes of Colonial Bank , FDIC filed a second
amended complaint (Dkt . No. 178) alleging violations of Section

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8 - 6 - 19(a) of the Alabama Securities Act (the " ASA " ) and Section
11 of the Securities Act of 1933 (" Section 11 " ). Id .
Plaintiff and defendants filed cross motions for partial
summary judgment (Dkt Nos . 373 and 390) on FDIC ' s standing to
sue for violations of the ASA and Section 11 .
Legal Standards
Summary judgment is warranted if , based upon admissible
evidence , " 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 Celotex Corp . v .
Catrett , 477 U. S . 317 , 322

(1986). In deciding a motion for

summary judgment , a court must "construe all evidence in the
light most favorable to the nonmoving party , drawing all
inferences and re~olving all ambiguities in its favor ."
Dickerson v. Napolitano , 604 F.3d 732 , 740 (2d Cir. 2010)
" Nevertheless , the non[ - ]moving party must come forward
with specific facts showing that there is a genuine issue of
material fact for trial. Conclusory allegations, conjecture , and
speculation . .. are insufficient to create a genuine issue of
fact ." Joseph v . N. Shore Univ . Hosp ., 473 F . App ' x 34 , 36 (2d
Cir. 2012)

(quoting Shannon v . N. Y. City Transit Auth ., 332 F . 3d

95 , 99 (2d Cir.2003))

(internal citations omitted)

(alterations

in the original) .
In relevant part , Section 8-6 - 19(a) (2) of the ASA provides ,
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Any person who sells or offers to sell 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 statements made , in the light of the
circumstances under which they are made , not
misleading , the buyer not knowing of the untruth or
omission , and who does not sustain the burden of proof
that he 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 him
who may bring an action to recover the consideration
paid for the security , together with interest at six
percent per year from the date of payment , court costs
and reasonable attorneys ' fees , less the amount of any
income received on the security , upon the tender of
the security , or for damages if he no longer owns the
security.

Section 8 - 6- 19 of the ASA is a strict liability statute,
and a plaintiff need not show that a defendant had a " ' reckless
disregard '

for the truth of a representation or that such

representations were 'knowingly ' made ." Banton v . Hackney , 557
So . 2d 807 , 826 (Ala . 1989) .
In relevant part , Section 11 of the Securities Act of 1933
provides ,
any person acquiring such security (unless it is
proved that at the time of such acquisition he knew of
such untruth or omission) may , either at law or in
equity , in any court of competent jurisdiction , sue
[the persons liable . If after the issuer has meanwhile
produced a 12 - month earnings statement , the plaintiff
must prove reliance on the registration statement . ]

15 U. S . C.A . § 77k (West) .

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Discussion
FDIC argues that there are three bases on which it has
standing to sue on behalf of Colonial Bank:

(1) CBGI 2 transferred

its legal claims to Colonial Bank when it executed the unanimous
written consent,

(2) CBGI de facto merged with Colonial Bank,

its only shareholder when it dissolved, and (3) Colonial Bank is
a statutory purchaser under the law.
FDIC has standing because CBGI transferred its legal claims
against defendants to Colonial Bank through its unanimous
written consent. We need not weigh the other arguments.
As a preliminary defense, defendants contend that under
Nevada common law personal claims, such as tort claims, are
unassignable. Defs. Mot. at 8. That is true with respect to some
claims, but not these.
The Supreme Court of Nevada addressed which type of legal
claims are assignable in Reynolds v . Tufenkjian. 136 Nev . 145,
153-54

(2020). Reynolds held that "purely personal claims," such

as claims for emotional suffering, are unassignable.

Id. But

claims for pecuniary relief, such as claims for negligent
representation, are assignable.

Id.

As that court held, "a

determination of whether a cause of action is assignable should

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The parties agree that CBGI would have standing to bring the
claims. Defendants Mot. for Summary Judgment ("Defs. Mot ." ) at
23.
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be based upon an analysis of the nature of the claim to be
assigned and on an examination of the public policy
consideration that would be implicated if assignment were
permitted ." Id at 151 - 52.
CBGI ' s claims for violations of the ASA and Section 11 are
assignable. The underlying allegations of the claims resulted in
pecuniary loss and arise from a loss of property , namely what
was paid for the RMBS based on the misleading statements. The
nature of the claim does not arise from personal injury, such as
physica l or emotional harm . The assignment therefore does not
implicate the public policy concerns limiting the assignability
of purely personal claims .
The claims here resemble claims for negligent
misrepresentation , which are assignable under Reynolds . The
claims are premised on alleged misrepresentations, and the
underlying principles support much common law respecting the
tort of misrepresentation . See Omnicare, Inc. v . Laborers Dist .
Council Construction Indus . Pension Fund , 575 U. S . 175 , 191
(" These principles are not unique to§ 11: They inhere, too, in
much common law respecting the tort of misrepresentation . ") .
Defendants argue that the unanimous written consent did not
effectuate a transfer of legal claims because the term "assets , "
as used in the unanimous written consent , was not defined to
include legal claims and the individuals it named did not take
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further steps to effectuate the transfer . Defs. Mot . at 11 - 16.
Those imaginative arguments are unsustainable .
The language of the unanimous written consent signed by
CBGI board members is unambiguous: " the Board of Directors and
the so l e shareholder do hereby declare a complete plan of
liquidation by which all assets of the Company shall be
distributed to the sole shareholder , Colonial Bank ." Ex . 66 to
Park Dec .

(Dkt . No . 376-66) . As stated by the Circuit Court in

Alabama , " the language ' all assets '

is sufficiently broad to

include any legal claims belonging to CBGI ."

FDIC as Receiver

for Colonial Bank v . Credit Suisse Firt Boston Mortgage Secs.
Corp ., e t al. 03 - cv - 2012-901035.00 at 3 (Circuit Court of
Montgomery Cty. , Ala . July 20 , 2016) .
Kamal Hosein executed a Certificate of Dissolution of CBGI
the following day , Ex . 71 to Park Dec .

(Dkt . No . 376-71) , and

Brent Hicks testified that he believed no further action was
necessary to effectuate the transfer . Ex . 16 to Park Dec .

(Dkt .

No. 376-16) .
The unanimous written consent transferred CBGI ' s legal
claims to Colonial Bank , providing to the FDIC ample standing ,
as Colonial Bank ' s Receiver , to bring claims for violations of
the ASA and Section 11 against defendants .

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Conclusion
Plaintiff ' s motion for partial summary judgement is
granted , and defendants ' cross mot i on for partial summary
judgement is denied .

So ordered .
Dated:

New York , New York
February 3 , 2023

LOUIS L . STANTON
U. S . D. J.

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