In a novel case against two PennyMac entities, Berman Tabacco and its co-counsel successfully defeated defendants’ motions to dismiss the complaint. Plaintiffs seek injunctive relief and restitution under California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200 et seq., from defendants PennyMac Mortgage Investment Trust and PNMAC Capital Management, LLC (“PennyMac”) on behalf of a proposed nationwide class consisting of all persons and entities who own or owned two series of PennyMac’s fixed-to-floating rate preferred shares (“Preferred Shares”) at any time between August 25, 2023 and the conclusion of the action.
The “fixed to floating rate” Preferred Shares were structured to initially provide a set fixed-rate dividend, converting at a later date certain to a floating rate dividend tied to the three-month London Interbank Offered Rate (“LIBOR”). LIBOR was a key benchmark interest rate between major global banks, where the value of financial products referencing USD LIBOR is alleged to have been $223 trillion as of the end of 2020.
In late 2017—after the Preferred Shares were issued—the LIBOR panel banks had announced that, because of accusations of manipulation, they would stop publishing LIBOR at the end of 2021 (later extended to June 2023 for USD LIBOR only). Thereafter, the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) and the Federal-Reserve-promulgated Regulation ZZ (the “LIBOR Rule”) were created to provide an orderly and sure process for substituting a fair replacement for LIBOR—a replacement called the Secured Overnight Financing Rate (“SOFR”)—into contracts that referenced the LIBOR benchmark without providing any alternative in the event of its cessation.
Plaintiffs allege that PennyMac unlawfully and unfairly replaced the LIBOR-based benchmark with a fixed rate instead of transitioning to SOFR as required by the LIBOR Act and the LIBOR Rule.
On February 26, 2025, the Honorable Michael W. Fitzgerald of the United States District Court for the Central District of California issued an order denying defendants’ motions to dismiss in its entirety. The Court found, among other findings, that Plaintiffs’ class action complaint sufficiently pled claims under the UCL
The case is Verthelyi v. PennyMac Mortgage Investment Trust and PNMAC Capital Management, LLC, Case No. 2:24-cv-05028 (C.D. Cal.). The litigation team includes partners Nicole Lavallee and Daniel E. Barenbaum of Berman Tabacco’s San Franciso Office.