“Under Section 11,” Cole wrote, “if the defendant discloses information that includes a material misstatement, that is sufficient and a complaint may survive a motion to dismiss without pleading knowledge of falsity.” The panel explicitly noted that its reasoning is at odds with the 9th Circuit’s ruling in the 2009 case Rubke v. Capitol Bancorp and the 2nd Circuit’s oft-cited 2011 decision in Fait v. Regions Financial.

But the court said it is bound only by the U.S. Supreme Court and insisted that high court precedent in the 1991 case Virginia Bankshares v. Sandberg is consistent with its Omnicare holding. “In the instant case, the plaintiffs have pleaded objective falsity,” Cole wrote. “The Virginia Bankshares court was not faced with and did not address whether a plaintiff must additionally plead knowledge of falsity in order to state a claim. It therefore does not impact our decision today.”

The Omnicare class action has quite a convoluted history. The case began in federal court in Kentucky as a securities fraud class action claiming that the pharmaceutical distributor deceived investors when it concealed its supposedly illegal kickback and false billing deals with pharma manufacturers. Shareholders later amended the complaint to include Section 11 claims based on disclosures in a 2005 public offering. The entire case was dismissed in 2007, but in 2009 the 6th Circuit revived and remanded the Section 11 claims, instructing the district court to determine whether they “sound in fraud” and must meet a heightened pleading standard.

Plaintiffs’ lawyers at Robbins Geller Rudman & Dowd considered asking the U.S. Supreme Court to review the issue of scienter for Section 11 claims that sound in fraud, but instead amended their Omnicare complaint in an attempt to strip out hints of fraud, focusing only on the falsity of so-called “soft statements” about Omnicare’s legal compliance in the offering documents. The district court nevertheless said shareholders failed to meet the requisite standard of establishing that defendants knew the statements were false.

In Thursday’s ruling, the appeals court said such a showing is not necessary for Section 11 claims, which entail strict liability for offering documents that contain material misstatements. “No matter the framing, once a false statement has been made, a defendant’s knowledge is not relevant to a strict liability claim,” the panel said.

Omnicare counsel Richard Reinthaler of Winston & Strawn told me he believes the 6th Circuit is flat wrong. The Supreme Court’s precedent in Virginia Bankshares, he said, holds that shareholders must establish “objective falsity and subjective falsity…. The knowledge requirement is imbedded in the materiality element for soft statements.” According to Reinthaler, “If every statement of opinion or belief is actionable without knowledge of falsity, it will open the floodgates” for Section 11 securities class actions.

He said that Omnicare hasn’t made a final decision about its next step but is leaning toward asking the entire 6th Circuit to review the panel’s ruling en banc. Ultimately, of course, the Supreme Court may have to take up the issue to resolve the circuit split.

I left a message for Eric Isaacson of Robbins Geller, who argued for shareholders at the 6th Circuit, but didn’t immediately hear back.

(Reporting by Alison Frankel)

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So why, in the ResCap global plan disclosed Thursday, are the MBS trusts projected to recover just $672.3 million of the $2.53 billion that’s expected to be paid out of the estate? Their 28.4 percent recovery is less than the 33.6 percent of the estate (or $796.3 million) that’s projected to go just to the bond insurer MBIA and far less than the total 43 percent ($1.099 billion) of ResCap’s remains that are slated to be paid to monoline insurers.

There’s been tremendous controversy in the bankruptcy about the original $8.7 billion MBS allowed claim deal. Other ResCap unsecured creditors, including junior and senior unsecured noteholders, have asserted that the MBS investors made a backroom deal with Ally, garnering its support for their allowed claim in return for a pledge of support for Ally’s $750 million settlement with its former subsidiary. Creditors subsequently torpedoed that $750 million Ally deal, forcing the multiparty negotiations that produced the global resolution revealed Thursday, which includes a $2.1 billion payout from Ally, almost triple its original settlement. In the new plan, the allowed put-back claim for MBS investors is $7.3 billion, which means that their projected recovery of $672.3 million gives them about nine cents on the dollar.

Those numbers don’t look great, but there are a couple of critical points to keep in mind. First of all, the original $8.7 billion allowed claim deal included trusts that were backed by bond insurers and trusts that were not guaranteed (in MBS parlance, unwrapped trusts). But put-back claims in wrapped trusts really belong to the insurers, not to investors who’ve already been compensated by insurers for their losses. And indeed, monolines had brought their own billion-dollar claims against ResCap. So the global deal outlined Thursday distinguishes compensation to wrapped and unwrapped trusts. Monolines get secured claims based on what they’ve paid out to investors in wrapped trusts; investors in unwrapped trusts get allocations from the $672.3 million projected recovery on their revised $7.3 billion allowed claim. (Unfortunately, I couldn’t get hold of the total number of unwrapped trusts covered by the deal.)

It’s also important to remember that MBS investors would have recovered more cents on the dollar if the ResCap estate had been bigger. In the newly disclosed global deal, Ally will kick in $1.35 billion more than it originally pledged. The sale of ResCap’s servicing rights also brought in about $1 billion more than had been originally projected. But the estate also had to pay hundreds of millions to federal regulators in connection with the sale of the servicing business. The bankruptcy proceedings, meanwhile, were eating away at ResCap’s remains. As my Reuters colleague Tom Hals has reported, just the examiner’s report – which was supposed to be finished in 90 days and ended up taking 11 months – is expected to cost $82 million. If there had been no global deal, ResCap, the creditors’ committee and the MBS investors were looking at a five-day trial next week to figure out the size and priority of investors’ put-back claims. It’s not outside the realm of possibility that by the time U.S. Bankruptcy Judge Martin Glenn resolved all of the tough questions that arise in every MBS litigation – not to mention the novel Chapter 11 issues – there would have been nothing left of ResCap.

MBS investor counsel Kathy Patrick of Gibbs & Bruns told me Thursday that the deal is better than she expected six months ago. “It’s a significant achievement in an extremely complex case,” she said. (The term sheet specifies that counsel for MBS investors are entitled to 5.7 percent of their clients’ recovery, or about $38 million.)

I should also note that the global deal settles securities claims as well as put-back claims, including securities claims against Ally. A long-running MBS class action in federal court in Manhattan will be settled for $100 million. Suits by another 21 individual MBS investors – including AIG, Allstate, MassMutual, and several Federal Home Loan Banks and foreign banks – will be resolved for a total of $225.7 million. The deal does not resolve the Federal Housing Finance Agency’s suit against Ally.

(This post has been corrected. An earlier version incorrectly referred to Ally Financial as Ally Bank.)

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The issue for the 3rd Circuit was removal to federal court of a mass action under the Class Action Fairness Act. As you probably recall, Congress passed CAFA in 2005 with the express intention of steering most class actions out of state court and into the federal system. CAFA also mandated that mass actions involving parallel claims by 100 or more individual plaintiffs be litigated in federal court, with a couple of exceptions. One of the exceptions holds that strictly local controversies may remain in state court, even if more than 100 plaintiffs have sued. To meet CAFA’s criteria for that exception, cases must assert claims that all “arise from an event or occurrence in the state in which the action was filed, and that allegedly resulted in injuries in that state or in states contiguous to that state.”

There’s not much ambiguity in defining state borders, but what about in delineating the time frame of an event? Was, say, the Civil War a single event or a collection of battles and political actions that each represent a unique event? In the case before the 3rd Circuit, more than 400 current and former residents of St. Croix in the U.S. Virgin Islands claimed to have been injured by St. Croix Renaissance Group’s supposed failure to clean up toxic waste piles at a former alumina refinery SCRG purchased in 2002. St. Croix, which is in the business of redeveloping contaminated properties, never operated the refinery and has spent years in cleanup-cost litigation with a former owner of the site and others. But the plaintiffs said in filings in territorial court (the Virgin Islands equivalent of state court) that asbestos and other hazardous chemicals from the abandoned refinery were meanwhile swirling around St. Croix and damaging their health.

SCRG removed their suits to federal court as a mass action under CAFA. The plaintiffs moved for remand to the territorial court under the local controversy exception; SCRG’s lawyer, Carl Hartmann countered that the plaintiffs’ suits didn’t involve “an event or occurrence.” In December, U.S. District Judge Harvey Bartle of Philadelphia sided with the plaintiffs, finding that 10 years of supposedly continuous contamination can be construed as “an event” for CAFA jurisdictional purposes. “We think that an event, as used in CAFA, encompasses a continuing tort which results in a regular or continuous release of toxic or hazardous chemicals, as allegedly is occurring here, and where there is no superseding occurrence or significant interruption that breaks the chain of causation,” Bartle wrote. “A very narrow interpretation of the word ‘event’ as advocated by SCRG would undermine the intent of Congress to allow the state or territorial courts to adjudicate claims involving truly localized environmental torts with localized injuries.”

SCRG asked the 3rd Circuit for an expedited review, which was granted. In its appellate brief, the company argued (among other things) that Bartle’s definition of an event was at odds with that of the 9th Circuit inNevada v. Bank of America, which is the only federal appellate ruling on this question. In a brief in response, the plaintiffs’ appellate counsel at Public Justice said several district courts have held that ongoing contamination is a single event, and that the legislative history of CAFA shows that Congress included the local controversy exception specifically to permit environmental tort claims to be litigated in state court.

The 3rd Circuit panel of Judges Thomas Ambro, Brooks Smith and Michael Chagares said that SCRG’s argument wasn’t “completely devoid of merit” because Congress chose to use singular forms of “event” and “occurrence” in CAFA’s local exception provision. But the panel said that under the ordinary meaning of the words (and without any time limits specified in the statute), an event or occurrence can be a collective set of circumstances, such as continuing contamination. The 3rd Circuit said it didn’t even have to consider the legislative history of CAFA to reach that determination.

SCRG has already filed a notice of its intention to seek review from the U.S. Supreme Court, which demonstrated its interest in CAFA jurisdictional tussles earlier this year in Standard Fire v. Knowles. SCRG counsel Hartmann told me in an interview that the company was surprised by the 3rd Circuit’s decision because the issue seems to be much more complicated than the appellate opinion suggests, given the 9th Circuit’s holding in the Nevada case. Moreover, he said, the ruling could have broad implications in environmental mass actions. “This is going to take all those cases and move them to state court,” he said. “It’s clear this court wants to push cases out of federal court and into state court. We don’t think that’s what Congress intended.”

Public interest groups, however, are cheering the opinion. Leah Nicholls of Public Justice, who argued at the 3rd Circuit for the St. Croix plaintiffs and called the decision “groundbreaking” in a blog post, told me that the 3rd Circuit “quite reasonably said it’s not inconsistent to say in this case that continuous and ongoing conduct is a single event or occurrence.” According to Nicholls, the facts here – which involved the impact of supposedly ongoing contamination at one site – were quite different from those before the 9th Circuit in the Nevada case, in which a state attorney general brought a wide-ranging parens patriae action involving BofA’s alleged deception about mortgage modification and foreclosure practices. “This is local residents suing over a local facility,” Nicholls said.

(Reporting by Alison Frankel)

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On Tuesday, one of them surfaced. Brockett filed a 106-page complaint in New York State Supreme Court for Salix Capital, which owns claims belonging to several shuttered hedge funds that once operated under the FrontPoint umbrella. Salix alleges that in 2007 and 2008, the FrontPoint funds engaged in Libor-pegged interest rate swaps with Libor panel banks as part of complex, multi-security deals known as corporate bond basis packages. The swaps were supposed to be a hedge against a global banking crisis, since Libor should have increased as it became more expensive for banks to borrow from one another. Instead, the complaint alleges, the panel banks artificially suppressed Libor, undermining the trading strategy of the FrontPoint funds.

The funds “relied on the integrity of how Libor was set and the truthfulness of defendants’ representations about how Libor was set in entering into these transactions,” the complaint said. “By suppressing Libor, defendants artificially lowered the amount they were contractually obligated to pay to the funds under the interest rate swaps, while still demanding that the funds make the contracted-for (comparatively high) fixed-rate payments. In marketing the basis packages, defendants misrepresented Libor and omitted to disclose their manipulation of Libor.”

The suit blames Libor manipulation for the FrontPoint funds’ big losses in 2008 and eventual demise in 2009, after an avalanche of redemption requests that the complaint attributes to Libor-related losses. (Others havelinked the redemption demands to insider trading by FrontPoint principal Chip Skowron.) The funds are asserting common-law fraud and breach of contract against the Libor banks, claiming $250 million in damages from inflated payments to the defendants, reduced payments from the banks and losses that the funds experienced in a liquidation process that they claim was triggered by the banks’ bad-faith collateral demands. That seems to be a more focused theory of liability than what we saw in the first Libor securities fraud suit to be filed after the Buchwald antitrust ruling: Charles Schwab’s suit in San Francisco Superior Court, claiming unspecified damages for losses on Libor-pegged instruments.

“These are tight, targeted fraud claims,” Brockett told me in an interview Tuesday. Because the FrontPoint funds dealt directly with Libor panel banks, he said, Salix (as the owner of their claims) can show a relationship of privity with the defendants. The complaint also takes care to offer evidence establishing New York state jurisdiction over the claims, which gives Salix the benefit of New York’s six-year statute of limitations for fraud and breach of contract.

Brockett wouldn’t tell me if Salix was already a client back in March, when Buchwald dismissed Libor antitrust claims, nor would he say whether Quinn Emanuel has other clients poised to file similar Libor suits. He certainly hasn’t stopped fishing for would-be plaintiffs. “There are lots and lots of investors who dealt directly with the panel banks. These are the people we always said have claims,” Brockett told me. “This is where the future of Libor litigation exists, if it exists.”

(Reporting by Alison Frankel. Additional reporting by Karen Freifeld.)

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I’m resurrecting Justice’s report on those fees because last week, S&P’s lawyers at Cahill Gordon & Reindel informed U.S. District Judge Denise Cote of Manhattan that it should not have to bear the entire $180,000 cost of producing in electronic form about 400 MBS files to the Federal Housing Finance Agency, which has served third-party subpoenas on S&P, Moody’s and Fitch in 15 securities suits against MBS issuers and underwriters. Satterlee Stephens Burke & Burke filed a similar letter to Cote on behalf of Moody’s, which claims vendor costs of $46,000 to produce files on 470 MBS deals it rated. Fitch’s lawyers at Paul, Weiss, Rifkind, Wharton & Garrison  protested over the agency’s $50,000 in vendor costs on 150 securitizations.

FHFA, let’s remember, is basically bringing its MBS claims on behalf of taxpayers, since it’s the conservator of Fannie Mae and Freddie Mac, the government-sponsored mortgage funders that were the biggest MBS investors in the securitization market. So to reduce the dispute over who should bear the cost of the rating agencies’ compliance with FHFA’s subpoenas to its most basic terms, companies that earned hundreds of millions of dollars by conferring unwarranted blessings on suspect deals are balking at thousands of dollars in costs to help taxpayers determine if they were duped.

Anyone else think the credit rating agencies might want to reconsider the optics of their protest?

Of course, the cost dispute isn’t quite as simple as it might seem. (In litigation, what is?) FHFA’s lawyers atQuinn Emanuel Urquhart & Sullivan and Kasowitz, Benson, Torres & Friedman served third-party subpoenas on the rating agencies in August 2012. FHFA has 15 cases under way in Cote’s court (and one in Connecticut federal court), so it demanded rating agency files on nearly a thousand MBS deals in total, spread across the three agencies and 15 cases. Though FHFA assured the rating agencies that in its theory of liability, S&P, Moody’s and Fitch were also deceived by MBS sponsors and should produce files to vindicate the ratings they conferred, the agencies balked at the housing agency’s demand. It would cost millions of dollars in attorney and paralegal time to review the millions of pages of documents FHFA had demanded, the agencies said. Perhaps forgetting that the government contends S&P committees spent only 15 minutes deciding whether to approve MBS ratings, the agencies told FHFA that it would take about three hours to go over each deal file before it could be imaged for production.

The agencies proposed producing sample files or turning over files they’ve already produced in other cases. FHFA rejected those alternatives to its subpoenaed demands. As a last-ditch compromise, the credit rating agencies proposed that FHFA share only the vendor cost of turning MBS files into electronic form.

Instead, FHFA sent a letter to Cote on May 6, asking her for an order compelling the rating agencies to produce the documents at their own expense. Under the rules of civil procedure, FHFA said, three factors determine how to allocate the cost of third-party subpoena compliance: whether the third party has an interest in the litigation; which side can more readily bear the cost; and whether the litigation is of public importance. All of the factors, FHFA argued, weigh in favor of the rating agencies paying their own costs.

The S&P, Moody’s and Fitch letters last week came in response to FHFA’s. The rating agencies didn’t dispute FHFA’s description of the procedural rule that applied to their dispute, but said that the housing group had neglected to mention that in none of the reported cases in the Southern District of New York, including the leading case, Prescient Acquisition Group v. MJ Publishing, were third parties ordered to pay all of their costs. Here, the agencies argued, they had asked only that FHFA pay their vendors, whose fees represent a small percentage of the agencies’ total outlay for subpoena compliance. Even that eminently reasonable request, they said, was rejected by FHFA. “Neither the law nor principles of fairness support the outcome demanded by FHFA: payment of 100 percent of the extraordinary expense for subpoena compliance by a non-party, with no contribution whatsoever by the requesting party,” Moody’s wrote.

The rating agencies asked Cote to force FHFA to share all of their costs, including attorney time and the cost of litigating the dispute. Fitch asked, in the alternative, that costs be shifted to defendants in the FHFA cases.

I have a feeling that Judge Cote, who has consistently sided with FHFA in this litigation, isn’t going to have much sympathy for the rating agencies. But we’ll find out.

FHFA counsel Philippe Selendy of Quinn declined comment, as did a representative of S&P. A Moody’s representative and a lawyer for Fitch did not respond to my requests for comment.

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In May of 2012, shareholder lawyer Stuart Grant of Grant & Eisenhofer opened a thick packet he’d received in the mail. On behalf of clients, Grant had recently sent a demand for information to Wal-Mart, following up on The New York Times’ stunning revelations about the company’s attempt to shut down an internal investigation of alleged bribery of Mexican officials. Wal-Mart lawyers had said they would respond to Grant’s books-and-records demand, and Grant told me in an interview that he at first thought the envelope contained that response. Grant quickly realized that the mailing was not, in fact, official corporate correspondence: He had been sent a 190-page trove of confidential Wal-Mart documents.

“Immediately our reaction was, ‘What are our obligations?’ We did research, we did everything we needed to do,” Grant said. After determining that the return address on the packet was a fake, Grant notified Wal-Mart that he’d received the documents on June 1, 2012.

For Wal-Mart, Grant’s letter must have produced a familiar sinking feeling. Since early 2007, the company has been trying to stopper leaks of information. Wal-Mart believes the leaks have all come from Bruce Gabbard, a former computer security tech who was fired for monitoring phone conversations between Wal-Mart employees and The New York Times. The company asserts that Gabbard took terabytes of documents with him when he departed and has disseminated that confidential information despite court orders in Arkansas and Oklahoma that forbid him from doing so. (As the Times reported in 2011, Gabbard has not been prosecuted for his supposed theft, though an Arkansas judge has ordered him to be arrested for questioning in Wal-Mart’s civil suit if he ever returns to the company’s home state.)

Nothing has ever tied Gabbard specifically to the anonymous mailing Stuart Grant received. Nevertheless, the company insisted that he hand over the documents. Grant, who refers to his anonymous benefactor as a whistle-blower, sent copies but retained the originals. “They said, ‘We have an order restraining the guy who sent the documents to you,’” Grant told me. “We said, ‘Show us where these documents are related.’”

Grant believed he had a right to use the whistle-blower documents in his pretrial brief and exhibits in the books-and-records case. Many of the materials, after all, had already been made public via The New York Times and a Congressional investigation prompted by the Times story on the Mexican bribes. Besides, Wal-Mart had indirectly disclosed some of the purportedly confidential information in court filings in Arkansas, where it attached Delaware shareholder complaints in a motion seeking to stay parallel litigation.

Wal-Mart and its lawyers at Gibson, Dunn & Crutcher and Potter, Anderson & Corroon did not see things the same way as Grant. In March, the company moved to strike portions of the shareholders’  brief. More broadly, Wal-Mart argued that Grant should not be permitted to cite privileged documents even if the material has already become public. The company had no means of stopping either The New York Times or Congress from posting privileged documents, even if they were originally stolen from the company. But Wal-Mart believed Grant should not benefit from what it considered laundering of privileged material through Congress and the media.

Grant’s response brief argued that the documents had already lost whatever privilege they might have enjoyed (and, according to Grant, Wal-Mart’s privilege log actually identified only five of the disputed documents as privileged). Wal-Mart waived privilege when it failed to take formal action to recover the material sent to Grant, the shareholder brief said, and when the company refiled plaintiffs’ complaints in federal court in Arkansas. (Grant also surmised that Wal-Mart had also turned over the documents to Justice Department and Securities and Exchange Commission lawyers investigating the bribery allegations.) The documents themselves were available to anyone with an Internet connection, the brief said, which distinguishes this case from precedent in which courts have upheld privilege when news accounts referenced but did not link directly to documents. And finally, shareholders argued that the crime-fraud exception to privilege applies even if the material is confidential.

In a discursive opinion from the bench, Strine said that any documents that are available through the Times or congressional websites are fair game for shareholders. The chancellor said he didn’t want to undermine the concept of privilege because he believes that it encourages corporations to seek advice from counsel, but that it would be “ridiculous” to hold that privilege still extends to “actual documents … on two public websites,” especially since Wal-Mart had essentially republished the documents in an Arkansas filing.

“I don’t believe I’m making any kind of new shocking rule of law to suggest that when documents are on Congressional websites and on The New York Times and when those documents have been referred to by the party seeking them to be stricken from the public record and to be kept out of evidence, that this court will not blind itself to that,” Strine said.

The chancellor also said, however, that Grant must return to Wal-Mart documents that are not already available publicly – a holding that Wal-Mart must be happy about. Strine referred specifically to four documents cited in Grant’s pretrial briefing that haven’t previously been made public, but Wal-Mart contends that a lot of additional material Grant received is privileged and non-public. Strine’s ruling would appear to restrict Grant’s use of that material, at least temporarily. (Wal-Mart counsel at Gibson Dunn declined to comment.)

On Monday, Grant and Wal-Mart will be back before Strine for the actual books-and-records trial, which will determine exactly what Wal-Mart must produce to Grant & Eisenhofer. (Strine has previously limited the scope of discovery to documents related to the current board’s ability to make independent judgments about the alleged Mexican bribery.) After Grant & Eisenhofer obtains that information, it and two other plaintiffs’ firms in the consolidated derivative litigation in Delaware are expected to file an amended complaint accusing the Wal-Mart board of breaching its duty to shareholders. (The parallel Arkansas derivative case has been stayed.)

Grant told me his trial presentation in the books-and-records case won’t suffer at all from the loss of the four documents that haven’t already been disclosed publicly. He also said that he expects Strine ultimately to find that Wal-Mart’s privilege over all of the material he received is gone. “This was a very good outcome for us,” he said. “It’s a prelude to Monday. Strine understands what’s going on here.”

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The big question in the post-Iqbal era has always been whether the discretion the Supreme Court gave to trial judges would affect not just dismissal rates but also the kinds of cases that are dismissed. Civil rights advocates, in particular, worried that judges who were politically inclined toward skepticism about their claims would use Iqbal to justify dismissing their suits. The overall impact of the new pleading standard continues to be debated in legal academia, but a soon-to-be-published study in the Akron Law Review suggests that Iqbal’s impact on civil rights cases has, in fact, skewed politically.

The study, “The Politics of Procedure: An Empirical Analysisof Motion Practice in Civil Rights Litigation Under the New Plausibility Standard,” looked at 548 employment and housing discrimination suits filed between 2004 (before Twombly) and 2010 (after Iqbal) – all such cases in which there was a reported dismissal decision. Albany Law School professor Raymond Brescia, one of the co-authors, had previously analyzed Iqbal’s impact on dismissal rates in those 548 cases, reaching the somewhat surprising conclusion that dismissals with prejudice increased at only a slight rate after Iqbal. That previous paper, by its own admission, called for refined analysis, so Brescia and student Edward Ohanian re-examined dismissal rates, taking into account such factors as the judge’s race, gender and, as a proxy for political views, appointment by Democratic or Republican presidents.

The study’s most significant finding, Brescia told me in an interview, was in the political category. Overall, between 2004 and the Twombly decision, judges dismissed 62 percent of all employment and housing discrimination cases in which the specificity of the pleadings was challenged. Between Twombly and Iqbal, the overall dismissal rate was 56 percent. After Iqbal it rose to 71 percent. (Weirdly, Brescia said, several studies have found across-the-board dips in dismissal rates in the two years between Twombly and Iqbal.)

But when the study broke down the numbers by parties, Brescia and Ohanian found that the change in dismissal rates was only significant for Republican appointees, not for judges appointed by Democrats. Democratic appointees, who issued rulings in 246 cases, dismissed 64 percent of discrimination suits they reviewed from 2004 until Twombly, 58 percent between Twombly and Iqbal, and 67 percent after Iqbal. The differences in those rates, according to the study, was not statistically significant. Republican appointees, on the other hand, dismissed 61 percent of the cases in the years leading up to Twombly, 54 percent between Twombly and Iqbal, and 74 percent after Iqbal.

That 21 percent jump in dismissal rates in cases decided by Republican appointees between the pre-Twombly and post-Iqbal eras was statistically significant, according to the study. “The outcomes in Twombly and Iqbal would appear to have had a statistically significant impact on the decisions on motions challenging the specificity of the pleadings on judges nominated by Republican presidents,” the paper said.

Brescia took care not to overstate the results. He said in the paper’s concluding discussion that the differences between Democratic and Republican appointees were “not stark,” and that judges “seem to be ignoring” the Supreme Court’s directive that they assess plausibility based on their experience. The paper also conceded that more research is needed on possible political discrepancies in dismissal rates for other kinds of cases, and for cases filed after 2010.

Nevertheless, “the fact that all judges – regardless of the party affiliation of the president who nominated them – appear to be dismissing more civil rights cases under Twombly and Iqbal then they did before their issuance, and that judges nominated by Republican presidents seem to be dismissing such cases at a higher rate,” the paper said, “suggests that trial courts see these precedents as license to dismiss civil rights cases more frequently.”

Brescia concluded the paper (and our discussion of it) by hearkening back to the nomination hearing of Chief Justice John Roberts, in which Roberts compared the role of a Supreme Court justice to that of a baseball umpire calling balls and strikes. Procedural rules, whether they govern the strike zone or pleading standards, are supposed to be applied neutrally and universally. When there’s reason to doubt that they are, that’s reason to worry.

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The statute of limitations for MBS trustee breach of contract suits, otherwise known as put-back claims, is an issue of first impression in New York state court, and given that these two judges have now reached opposite conclusions about the same federal-court precedent (Structured Mortgage Trust v. Daiwa Finance and Lehman Brothers v. Evergreen), we’ll have to wait to see what the state appeals court thinks. The question for the appeals court is stark: Is an MBS pooling and servicing agreement breached when underlying loans fall short of promises the sponsor makes on the day the deal is signed or does the breach occur only when the sponsor fails to meet a continuing obligation to repurchase deficient loans?

To get a sense of the magnitude of that question, consider Sherwood’s footnote that 14 MBS cases in his court alone will be affected by his interpretation of the statute of limitations. Joseph Frank of Orrick told me that four of those cases are against Nomura, asserting aggregate damages of $500 million. And that’s just a few cases before one judge. The statute issue is so momentous that the Association for Mortgage Investors, a trade group, submitted an amicus brief in the Nomura case Sherwood decided, asserting that MBS sponsors have a continuing obligation to repurchase defective mortgages.

If you’re wondering, as an initial matter, why trustees waited so long to assert claims based on mortgage pools whose dubious quality hasn’t exactly been a secret, it’s because the MBS investors that originally bought into trusts in 2005 and 2006 haven’t generally been the ones forcing trustees to sue. Instead, opportunistic hedge funds have been buying up mortgage-backed certificates expressly to bring put-back suits. (To do that, as you know, the hedge funds have had to amass the requisite voting rights in the trusts they bought into, an obstacle that has blocked many ordinary investors from directing trustees to make put-back demands.) The directing certificate holders in the cases before both Kornreich and Sherwood were hedge funds that acquired their interests just before asserting their claims of a breach.

That shouldn’t make a difference in how courts interpret the law, of course, and neither Kornreich nor Sherwood suggested that it did. Sherwood simply said that because MBS sponsors make representations and warranties about the underlying loan pools as of the deal’s execution date, that’s when any supposed breach occurs. The sponsor’s subsequent refusal to buy back a defective loan, in Sherwood’s reading, is a failure to cure the original breach but is not itself a breach of the pooling and servicing agreement.

Kornreich, on the other hand, added common-sense reasoning to her interpretation of the law. MBS pooling and servicing agreements spell out elaborate protocols for repurchase demands on underlying mortgages and home-equity loans that often have 30-year terms. If the contracts intended to cut off claims within six years of their execution, Kornreich said, they could have said so rather than including specific deadlines for demand and cure periods. “To contend … that the trustee’s claims accrued in 2006 because the trustee could have made a demand at that time utterly belies the parties’ relationship and turns the PSA on its head,” she wrote. Kornreich likened pooling and servicing agreements to reinsurance deals, in which a breach occurs when the reinsurer rejects a coverage demand by the primary insurer. Here, she said, “the breach is the failure to comply with the (put-back) demand.”

Both Sherwood and Kornreich rushed out their rulings within weeks of oral argument on the defendants’ dismissal motions. The date on Sherwood’s decision is May 10, though he didn’t actually issue the opinion until four days later. Kornreich issued hers soon thereafter. The dueling decisions, meanwhile, create all kinds of procedural complications. Will the Appellate Division, First Department, take the unusual step of consolidating appeals on the statute issue? (That might make sense since Kasowitz Benson represents the directing certificate holders in both cases.) Justice Sherwood has stayed discovery in 14 other trustee cases before him, but will DB’s lawyers at Simpson Thacher & Bartlett ask Kornreich to do the same? (Simpson partner David Woll declined to comment.) And how will other judges in state Supreme Court in Manhattan treat the split between their colleagues? (“If trial courts make a reasoned decision based on the law, they will deny dismissal motions,” said Marc Kasowitz.)

I said in a post last week that we’ve reached the beginning of the end of MBS litigation. But the Sherwood and Kornreich decisions prove that we’ve still got a long way to go.

(Reporting by Alison Frankel)

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Michael Steinberg of SAC Capital is facing a Nov. 18 trial on federal fraud and conspiracy charges stemming from his supposed insider trading in Dell and Nvidia shares. That trial will take place before U.S. District JudgeRichard Sullivan of Manhattan, despite the best efforts of Steinberg’s lawyers at Kramer Levin Naftalis & Frankel.

Lead defense counsel Barry Berke of Kramer Levin hedged the risk of offending Sullivan by framing his letter request for reassignment to a new judge as an accusation of prosecutorial judge-shopping. In a nine-page letter to Sullivan and Chief Judge Loretta Preska, Berke asserted that the government improperly brought its case against Steinberg as a superseding indictment even though the previously indicted insider trading defendants in the case had already pleaded guilty or been convicted at trial. Prosecutors’ motive, according to the letter, was to proceed before Sullivan, who has sided with the government’s argument that it need not prove a tippee was aware the tipper stood to benefit from passing inside information. Two other judges in the Southern District of New York have instructed juries otherwise on this issue, which Kramer Levin said is central to the Steinberg case because the hedge fund manager “is at least four steps removed from the alleged tippers in the two stocks specifically charged in the indictment.”

The defense letter, written on April 2 but entered in the docket on May 3, claimed that the government’s supposed indictment gamesmanship “violates the letter and spirit of the district’s rules, due process and basic fairness, and creates the appearance of impropriety.”

Assistant U.S. Attorneys Antonia Apps and John Zach replied in their own seven-page letter, asserting that Steinberg doesn’t have standing to challenge judicial assignments, which are a matter of local court rules, and that the government’s use of a superseding indictment was routine and proper. Prosecutors also said that the entire premise of Kramer Levin’s theory – that the government angled to receive the benefit of Sullivan’s ruling on tippee liability – is unfounded because that issue is for the 2nd Circuit Court of Appeals to decide.

The New York Council of Defense Lawyers took Kramer Levin’s argument seriously enough that it sent a letter in support to Judges Sullivan and Preska. The government’s unilateral power to decide unilaterally whether to proceed via a superseding indictment, which entitles them to assignment before a particular judge, or via a new case that’s randomly assigned “creates at least an appearance of impropriety,” the letter said. “At its worst, the practice can smack of judge shopping.”

Sullivan was not persuaded. Though he said at a hearing on May 3 that he had discussed the matter with Preska, he denied Kramer Levin’s request to reassign the case to a randomly selected judge. “So you’re stuck with me, Mr. Steinberg,” the judge said. Was the gambit worth the risk to Steinberg? Neither defense lawyer Berke nor a representative of the U.S. Attorney’s office would comment, but Steinberg gained one small concession: Judge Sullivan promised he’d get a fair trial.

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I’ve written a lot about the tension between class action lawyers and state regulators with parallel claims. The battle to recover damages on behalf of misled investors (and the right to claim credit for the recovery) is part of that interplay: In New York, whoever makes a deal first wins.

A 44-page decision Friday by U.S. District Judge Colleen McMahon of Manhattan provides a vivid illustration of the burgeoning competition between the New York AG and securities class action lawyers. McMahon ruled that plaintiffs’ lawyers are entitled to about 18 percent of a $220 million settlement on behalf of investors in the Bernard Madoff feeder fund Ivy Asset Management (and related defendants). As Daniel Fisher of Forbes reported Friday, she ordered a 25 percent haircut on the hours and rates that five plaintiffs’ firms billed for reviewing documents previously produced to regulators, finding that the firms (whom she otherwise praised to the skies) should not have jacked up billing rates for the contract lawyers who conducted the review.

What was more interesting to me, however, was McMahon’s evaluation of the role of the New York AG – the primary objector to the plaintiffs’ fee request – in obtaining the settlement. In the Ivy case, as in Greenberg’s, the AG brought a case alongside class action plaintiffs and uncovered some of the key evidence in the case. But in the final analysis, McMahon said, results are what matter.

The Ivy class actions, including an ERISA case and derivative suits, were filed within months of Madoff’s exposure in December 2008. But while the securities class actions were stayed pending the feeder fund’s motion to dismiss, former New York AG Andrew Cuomo began an investigation. Ivy was concerned enough about the AG that it entered settlement negotiations, offering in 2010 to pay $140 million in a global deal on behalf of investors in all of its affiliated Madoff feeder funds. Talks fell apart when the AG couldn’t assure a global deal. Ivy withdrew its offer and in May 2010 Cuomo’s office filed a detailed complaint against the funds, based on more than 10 million documents and 37 depositions.

That was much more discovery than class action lawyers had been permitted because of the automatic stay required by the securities litigation statute. So plaintiffs’ lawyers adopted evidence from the AG’s complaint to help them withstand Ivy’s dismissal motion. Once their case got past that obstacle, they obtained the underlying documents that had been turned over to the AG and other regulators as well as depositions conducted by the AG’s office.

The AG’s office, meanwhile, didn’t do much litigating after filing its complaint. Ivy entered mediation with the private plaintiffs, who knew nothing of the tentative settlement the fund had reached with the AG but then abandoned. After nine months of negotiation and motion practice, the class action lawyers reached a $220 million deal ($217 million in cash and $3 million fees forgone by an Ivy fund) that was accepted by 464 of 470 eligible investors. (McMahon said she had never seen anything like the “astonishing” claims rate of 98.7 percent that this case achieved.) The settlement designated $5 million to go to the New York AG.

The AG objected to the $40.7 million fee request by plaintiffs’ lawyers, arguing that the fee award should be based not on the entire $220 million settlement but only on the $76 million Ivy agreed to cough up in addition to the $140 million deal it had offered to the AG. Private lawyers, the AG said, had piggybacked on its investigation and shouldn’t be rewarded for regulators’ work.

McMahon disagreed. “The NYAG cannot take credit for bringing about this happy result because he did not herd all the cats that needed to be rounded up in order to bring it to fruition,” she wrote. “Ivy may well have offered $140 million to settle with the NYAG sometime prior to the filing of the NYAG’s complaint, but it did so on a condition the NYAG was either unwilling or unable to fulfill. . . . As a result, Ivy took its offer off the table and began litigating – not with the NYAG but with the private plaintiffs.”

You can see why, as a policy matter, this kind of scenario is of concern: It permits a defendant to pick whom it wants to settle with. (Of course, that’s been a long-running argument by private plaintiffs’ lawyers when their class actions are co-opted by regulators.) “This ruling dramatizes all of the things that can happen when there are overlapping claims,” said Adam Zimmerman, a professor at the law school at St. John’s and a specialist on relations between AGs and class action lawyers.

McMahon, however, seemed determined to rein in the New York attorney general, even throwing in a footnote citing “serious questions” about the AG’s standing to assert damages claims in a parens patriae action. That’s a red herring since the AG unquestionably has the right to bring claims for money damages under the Martin Act, which was the basis of four of the counts it asserted against Ivy. “The footnote only seems to muddy the waters by confusing the statutory-based settlement powers of AGs with their common law authority,” Zimmerman told me in an email. “(It) strikes me as an attempt to send a shot a across the bow to the AG’s office to warn against overreaching in a global settlement deal.”

A representative of the attorney general’s office declined to comment on McMahon’s ruling.

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