Mortgage-backed securities owners looking to recover money under federal securities laws could be covered by class action lawsuits run by lead plaintiffs who bought related but not identical MBS issued by the same bank, under a U.S. Supreme Court decision announced March 18, 2013.
The Supreme Court decided not to review a decision by the Second U.S. Circuit Court of Appeals in the case, Goldman Sachs & Co. v. NECA-IBEW Health & Welfare Fund, curtailing defendants’ efforts to significantly reduce the number of offerings considered part of the lawsuit.
The ruling is expected to broaden the scope of numerous lawsuits around the country in which some owners of mortgage-backed securities, known as MBSs, were potentially frozen out of class action cases despite having nearly identical securities issued by the same banks, and identical claims, to those of the lead plaintiffs.
“Goldman underscores the need for effective class action enforcement to protect investors and uphold our securities laws. We are pleased that the Supreme Court has decided to leave the Second Circuit’s decision undisturbed,” said Nicole Lavallee, managing partner of Berman DeValerio’s San Francisco office and lead counsel in one such case, In re IndyMac MBS Securities Litigation.
In the wake of the financial crisis, investors brought numerous securities lawsuits alleging that banks each sold MBS through dozens of separate but virtually identical offerings pursuant to offering materials that included untrue statements regarding the loan quality and underwriting procedures of the underlying mortgages.
District Courts around the United States, including the Judge in the IndyMac case, limited the scope of these MBS class actions by holding that a lead plaintiff could only pursue class claims on behalf of investors who purchased in the very same MBS offerings as the lead plaintiff. In doing so, District Courts conflated the issue of constitutional standing with class standing.
The Second Circuit’s opinion in Goldman reversed dismissal of plaintiffs’ standing to pursue claims on behalf of investors in related MBS in which it had not itself invested. The Second Circuit explained that a lead plaintiff need only establish constitutional standing with respect to its own individual claims. Once the lead plaintiff has done so, the question becomes one of class standing — whether the other potential class members have suffered a similar injury addressable in the lawsuit.
When the Second Circuit’s Goldman decision came out, Berman DeValerio moved for reconsideration of the standing ruling in IndyMac and sought to expand the class to include investors in 42 additional IndyMac MBS offerings. But the judge denied the motion without prejudice because the Goldman defendants had petitioned the U.S. Supreme Court to review Goldman, arguing that the decision conflicted with a First Circuit opinion and that, if left to stand, would ruinously expand liability for securities’ issuers. Today’s denial of defendants’ petition indicates the high court does not share those concerns.
*In August 2017, our firm name changed to Berman Tabacco. Case references and content published before that date may refer to the firm under our prior name, Berman DeValerio.