Residential Capital, an Ally Financial subsidiary, cannot be sued in a class action law suit where the proposed class comprises "large, institutional and sophisticated investors" that have the financial resources as well as incentive to pursue their own claims, Judge Harold Baer ruled in the case called New Jersey Carpenters Health Fund v. Residential Capital LLC.
The buyers in this case alleged that the offering documents for securities they bought were "materially misleading." Specifically, they contended that the offering documents were misleading as to whether the residential loans backing the securities conformed with the proper underwriting guidelines.
Baer wrote that the Harborview and RALI securities forming the bases for the claims asserted in the consolidated amended complaint were sold in various offerings made in 2006 and 2007. Plaintiffs had not bought securities in every single offering and the court only sustained the claims based on offerings where named plaintiffs had actually bought securities.
The judge stated that by him addressing all claims as part of the same suit, this would present obstacles to the litigation's management. Additionally, if he were to certify each of the proposed classes, the court would have to hear considerable individualized evidence on each purchaser's knowledge and damages. The necessity of hearing all this individualized evidence defeats the purpose of the class treatment, he said.
"The putative class members are not sufficiently cohesive to warrant adjudication by representation," Baer wrote. He gave as an example the fact that the putative RALI class would include Alliance Bernstein, which is the New Jersey Carptenters Funds' investment advisor that was let go because of performance reasons. It also included WAMCO, which Boilermaker, one of the plaintiffs in the case, considered suing for breach of fiduciary duty.
The ruling by Baer also denied class certification in an MBS action involving defendants that are affiliates of the Royal Bank of Scotland. The case is called New Jersey Carpenters Vacation Fund, et al. v. The Royal Bank of Scotland Group, Plc, et al.
The lawsuit asserted claims under sections 11, 12 and 15 of the Securities Act of 1933, for alleged misstatements and omissions about residential mortgage loan origination practices in the offering documents for the MBS backing these loans.
Plaintiffs sought certification of a class of investors who bought $3.4 billion worth of securities in two deals. The court denied class certification on two grounds. For the full report from StructuredFinanceNews.com, please click on this link.
In another mortgage-related suit, Wells Fargo is suing JPMorgan Chase subsidiary EMC Mortgage for 2000 loan files related to the transaction called Bear Steams Mortgage Funding Trust 2007-AR2. This is to investigate breaches of representations and warranties in the said deal.
With little success, Wells Fargo has been working with EMC to obtain the files for more than a year on behalf of buyers (including Federal Home Loan Bank of San Francisco, Federal Home Loan Bank of Seattle and Charles Schwab) who own 42% of the deal.