In 2007, the U.S. Supreme Court redefined the pleading standard for antitrust suits in Bell Atlantic v. Twombly. In 2009, it extended the new standard to all civil cases in Ashcroft v. Iqbal. Since then, according to Westlaw,Twombly has been cited as a reference 191,394 times and Iqbal, 123,714. A lot of those citations in judicial opinions are boilerplate, but that very fact tells you how important Twombly and Iqbal have become. Judges now reflexively apply the Iqbal standard – which directs them to use their judicial experience and common sense to decide whether a plaintiff’s allegations are plausible, not merely conceivable – in deciding whether to dismiss complaints.
It is no exaggeration to say that billions of dollars hang on the question of whether New York Supreme Court Justice Shirley Kornreich or her colleague Justice Peter Sherwood is correct about how long mortgage-backed securities trustees have to assert claims that MBS sponsors breached representations and warranties. There’s no disagreement that under New York law, which applies to most MBS deals, the statute of limitations for breach of contract suits is six years. But in dueling opinions issued Tuesday, Kornreich and Sherwood came to different conclusions about when the statute begins to run. Sherwood sided with the securitizer Nomura and its lawyers at Orrick, Herrington & Sutcliffe, ruling that the clock starts ticking on the securitization’s closing date. Kornreich explicitly rejected that theory in a trustee case filed by Kasowitz, Benson, Torres & Friedman against DB Structured Products, finding instead that DB’s refusal to repurchase supposedly defective underlying loans triggered the statute.
For defense lawyers, it’s always a calculated risk to intimate that the judge presiding over your client’s case may not be entirely impartial. Whether you make that suggestion in a recusal motion or, in very extreme circumstances, in a mandamus petition, you’re implicitly acknowledging that your client has little or nothing to lose by challenging the trial court’s judgment (and inevitably irritating the judge).
On Monday, former New York governors Mario Cuomo and George Pataki wrote an unusual joint opinion piecein The Wall Street Journal, calling on New York Attorney General Eric Schneiderman to drop threats that he will continue to seek injunctive relief against former AIG chief Hank Greenberg, even though the AG has already had to abandon damages claims because Greenberg reached a private settlement with investors in a securities class action. As my Reuters colleague Karen Freifeld explained in a really smart analysis last Friday, Schneiderman is constrained by a 2008 ruling that limits the AG’s right to recovery in the name of investors who have already settled a federal-court class action. Freifeld said that the same holding, Spitzer v. Applied Card, may ultimately force the AG to drop claims for money damages against Bank of America in connection with its merger with Merrill Lynch and against Ernst & Young for its audit of Lehman Brothers, even though both suits were brought under New York’s powerful Martin Act, which permits the state to bring securities claims on behalf of supposedly defrauded investors.
One of the key anti-troll elements of the America Invents Act of 2011 was the patent reform law’s restrictions on joinder. After September 2011, patent owners could not file complaints that named multiple, otherwise unrelated defendants who happened to make use of the same IP. The idea was to make it more expensive for plaintiffs to bring and litigate patent suits, to prevent forum shopping and to limit trolls’ leverage. Conventional wisdom was that the new law’s joinder restrictions were going to lead to an uptick in requests for the Judicial Panel on Multidistrict Litigation to consolidate cases for pretrial proceedings. If plaintiffs could persuade the JPMDL to consolidate cases for pretrial proceedings – especially if they could direct consolidated litigation to sympathetic judges – they could take some of the sting out of joinder restrictions.
On Wednesday, the Public Citizen Litigation Group filed an appeal for the online review site Yelp, asking the Virginia Court of Appeals to review a trial-court order compelling Yelp to reveal the identity of seven anonymous reviewers who complained about a Washington carpet-cleaning service that subsequently sued them for libel and defamation. Yelp and Public Citizen contend that Alexandria City Circuit Court Judge James Clark got it wrong when he ruled that despite First Amendment protection for anonymous online critics, a Virginia statute requires the disclosure of their names when their identity is central to claims against them.
I’m ready to make a bold declaration: We’ve reached the beginning of the end of private litigation over deficient mortgage-backed securities. Think about it. The bond insurers that pioneered MBS cases are reaching settlements right and left with the banks that sponsored notes. MBIA’s $1.7 billion deal with Bank of America is the most dramatic, but Assured Guaranty reached a $358 million settlement with UBS on the same day. MBS class actions are in their end stages, now that the U.S. Supreme Court has signaled disinterest in MBS class standing. New securities fraud complaints by individual MBS investors have tailed off, and though I continue to see new breach-of-contract filings by trustees suing at the direction of noteholders with the requisite voting rights, time is running out on those suits even under New York’s generous statute of limitations. I don’t think it’s a coincidence that Kathy Patrick of Gibbs & Bruns, who has spent the last few years deep in talks with big banks over the put-back claims of her enormous institutional investor clients, told my Reuters colleague Karen Freifeld that she’s looking ahead to Libor securities litigation. Or that Quinn Emanuel Urquhart & Sullivan, which began preparing to represent plaintiffs in MBS cases all the way back in early 2008, is now investing heavily in products liability litigation.
On Monday, after word leaked that Bank of America and MBIA had resolved their epic five-year, multidimensional litigation against one another, investors in both companies judged the deal. Shares in MBIA, whose structured finance arm had been widely considered to be on the brink of a regulatory takeover, closed 45 percent higher at $14.29, adding about a billion dollars to the market capitalization of the insurer’s holding company. Bank of America’s shares went up as well. They didn’t rise as dramatically as MBIA’s, closing up 5 percent at $12.88. But that added $6.9 billion to BofA’s market cap – three times as much as the $1.6 billion in cash that the bank agreed to pay to MBIA as part of the settlement.
With the gigantic news Monday that Bank of America has reached a global settlement with the bond insurer MBIA – agreeing to pay MBIA $1.7 billion and acquiring five-year warrants on about 10 million shares of the insurer’s holding company – the bank’s most pressing piece of litigation has become its proposed $8.5 billion settlement with investors in Countrywide mortgage-backed securities. Friday was the deadline for noteholders who have previously intervened in the special proceeding to evaluate the deal to announce where they stand.
Last April, when the Turkish cellular services company Turkcell filed an Alien Tort Statute suit against South Africa’s MTN Group in federal district court in Washington, I was skeptical. Sure, Turkcell raised salacious allegations about how MTN wrested away its contract to provide cell services in Iran, including supposedly illegal arms deals and vote-peddling at the United Nations. But I said at the time that allegations of corporate corruption aren’t usually the stuff of ATS suits, and, moreover, that the U.S. Supreme Court had already agreed to take up the issue of the statute’s reach beyond U.S. borders in Kiobel v. Royal Dutch Petroleum. I predicted that Turkcell’s case – which was so explosive that MTN’s stock fell 6 percent when it was disclosed – would not survive in American courts.