- NY bankruptcy judge dismissed suit against DLA Piper for misappropriation of over $36 million in payments to cover mortgage-backed securities. The judge cited NY law that “prevents wrongdoers and their successors from pursuing claims that arise out of their own misconduct.”
- NY federal judge denied “Act of God” defense made by National Electronic Transit Corporation for damage caused to machines stored in warehouse during Hurricane Sandy, instead finding that the company was under-prepared for the storm.
- RBS Securities has settled to pay $129.6 million for claims made by the National Credit Union Administration for the sale of mortgage-backed securities, which may have led to the failure of two credit unions.
- NY federal court denied Citibank’s bid to relate FDIC’s suit over failure as trustee for mortgage-backed securities to a suit accusing the bank of mishandling mortgage-backed securities in pooled loans.
- Quicken Loans Inc. filed a complaint against the Justice Department and the U.S. Department of Housing and Urban Development claiming that they tried to get Quicken to make false admissions during a settlement. The Government in turn sued Quicken under the False Claims Act for improper underwriting of mortgages and benefitting under the Federal Housing Administration insurance payouts.
- The United States Supreme Court denied cert to the U.S. Department of Housing and Urban Development, which argued that using contracts rather than grants to fund Section 8 public housing projects would impair the program.
- The Second Circuit Court of Appeals revived suit against Citigroup. The claims, which alleged that Citigroup tricked a Korean bank into taking $25 million in toxic collateralized debt obligations, were dismissed in the New York District Court in March 2013.
- Federal court requires RBS Securities to hand over which specific loans it is going to re-underwrite to National Credit Union Administration after allegedly causing the failure of at least two credit unions by misleading investors over hundreds of millions of dollars in mortgage-backed securities.
- Bank of America asks Second Circuit to vacate a $1.3 billion fine after jury found BofA had defrauded Fannie Mae and Freddie Mac using its “High-Speed Swim Lane” program.
- New Jersey Condominium Association files a complaint alleging that the U.S. Federal Emergency Management Agency (FEMA) breached its contracts by failing to pay flood insurance benefits for damage from Hurricane Sandy.
- The US Supreme Court justices are reviewing an Eleventh Circuit decision that allows second-mortgage liens to disappear for Chapter 7 debtors when the first mortgage is undersecured. The justices expressed concern in letting this happen.
- Federal Deposit Insurance Corp. suit against RBS Securities Inc. for $140 million over residential mortgage-backed securities is dismissed as time-barred under recent US Supreme Court ruling in CTS Corp. v. Waldburger.
- UBS Americas Inc. has settled confidentially with Capital Ventures International over alleged $109 million of risky mortgage-backed securities.
Federal Judge Lungstrum (D. Kan.) issued a Memorandum and Order in National Credit Union Administrative Board v. RBS Securities, Inc. et al., No. 11-2340 (Sept. 12, 2013). The Board, as conservator and liquidating agent of the U.S. Central Federal Credit Union, alleged that the defendants made “untrue statements or omissions of material facts relating to” a number of RMBS. The main allegation is that “the originators for the loans underlying the [RMBS] certificates systematically abandoned underwriting guidelines, and that the certificates’ offering documents failed to disclose that fact or misrepresented that guidelines were followed.” (3) The court found that
plaintiff’s forensic analysis, based on the particular loans underlying the six dismissed offerings, support a plausible claim of misrepresentations involving the LTV and owner-occupancy ratios. Not only are those alleged misrepresentations independently actionable, they provide a connection to the particular certificates at issue and thus support a plausible claim based on the abandonment of underwriting guidelines. That is true for claims based on these six offerings, even without originator-specific allegations. Accordingly, the Court denies the motion by RBS and Wachovia to dismiss certain claims on this basis. (7)
Courts have been increasingly willing to draw a distinction between run of the mill misrepresentation and systemic misrepresentation (see here and here for instance). This will have a big impact on how reps and warranties are drafted going forward as well as, obviously, the scope of theories of liability for breach of contract in the context of securities offerings.