First big victim of 2nd Circuit’s MBS standing opinion: JPMorgan

September 18, 2012

Earlier this month, when the 2nd Circuit Court of Appeals issued a ruling in a Goldman Sachs case that redefined standing in class actions involving mortgage-backed securities, I questioned how much impact the opinion would have, given that we’re four years into MBS class litigation. Sure, the 2nd Circuit opened the door to much broader MBS classes when it held that name plaintiffs can pursue claims on behalf of all the trusts backed by mortgages originated by the same lenders as those they invested in. But I wondered, as a practical matter, whether the ruling was too late to help most MBS class claimants, since most of their cases have long since crossed the threshold of standing.

Now we know that for at least one defendant — JPMorgan Chase — the newly widened definition of standing came all too soon. On Friday, U.S. Senior District Judge Edward Korman of Brooklyn issued an order drastically expanding the claims for which the name plaintiff in an MBS case against JPMorgan, the Mississippi Public Employees’ Retirement System (MissPERS), has standing to sue.

In his previous decision on JPMorgan’s motion to dismiss, Korman had taken a hard line on MissPERS’s standing. He ruled in February that the Mississippi fund, represented by Bernstein Litowitz Berger & Grossmann and Wolf Popper, had only purchased certificates in eight of the 33 MBS trusts (with a face value of $36.8 billion) at issue in the class action. Korman said that MissPERS could only assert claims on behalf of certificate holders in five of those trusts — and, even more restrictively, that it could only represent investors in the same tranches it bought into. For JPMorgan’s lawyers at Sidley Austin, that February ruling was about as resounding a victory as the bank could have hoped for.

The judge stayed MissPERS’s request for leave to file an interlocutory appeal because the 2nd Circuit was already considering standing in the Goldman Sachs MBS case that led to the ruling earlier this month. As soon as that decision came down, Korman took another look at his February dismissal ruling and, without even waiting for filings from the parties, issued his expansive new order. MissPERS’s certificates were backed by mortgages originated by Chase, Countrywide, Wells Fargo, M&T and four other lenders. Thirty of the 33 trusts originally in the case were also backed by mortgages from these lenders. So under the 2nd Circuit’s reasoning in the Goldman case, Korman said the class can assert claims for losses in all tranches of those 30 trusts. He excluded claims only on behalf of three trusts that contained no mortgages originated by lenders who provided underlying loans in the trusts MissPERS invested in.

Korman did ask the parties to confirm that MissPERS’s specific certificates included mortgages originated by all of the eight lenders in the eight trusts it invested in. And, of course, the class will still have to move for certification, subject to the typicality and other defenses JPMorgan will raise. Nevertheless, Friday’s ruling expands JPMorgan’s exposure in the class action by more than 6,000 percent, adding to JPMorgan’s continuing MBS woes.

I called class counsel Jerry Silk at Bernstein Litowitz and JPMorgan counsel Robert Pietrzak at Sidley but didn’t hear back.

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