22 May
2012

FDIC Files Three MBS Lawsuits

by Jessica Holloway Link to post

As widely reported, the FDIC – acting as receiver for Citizens National Bank and Strategic Capital Bank - has filed three federal lawsuits against a group of banks.  Two actions were commenced in the SDNY, and the third in the Central District of California.  The complaint in FDIC v. Bear Stearns Asset Backed Securities I LLC et al, which was filed on Friday and has been assigned to Judge Swain, is here.  That action alleges Securities Act violations in connection with CNB and SCB’s purchases of residential mortgage backed securities issued and underwritten by the defendant banks, which include Bear Stearns, Citi, CSFB, Merrill Lynch, Royal Bank of Scotland, HSBC and UBS.  The FDIC alleges that the defendants made numerous material misrepresentations regarding mortgage loans in the collateral pool underlying the securities purchased by CNB and SCB, and seeks $66 million in damages. 

We will post the other two complaints when they become available.

Tags: · ·
22 May
2012

Judge Nathan Holds that State Law Unfair Competition Claim Is Preempted by the Copyright Act

by Matthew Popowsky Link to post

Deciding a question of first impression, Judge Nathan on Friday found that the Copyright Act preempts a state law unfair competition claim founded on the private performance of copyrighted works.  In WNET, et al v. Aereo, Inc., the plaintiffs alleged that Aereo’s retransmittal of broadcast television signals over the internet violated the Copyright Act and, in the alternative, constituted unfair competition under New York common law.  The court held that, because the unfair competition claim fell into the “general scope” of the exclusive rights created by the Copyright Act, it was preempted, and dismissed the plaintiff’s unfair competition claim on defendant’s motion for judgment on the pleadings under Rule 12(c).  Aereo is an online television start-up that launched in March, backed by media mogul Barry Diller’s IAC/InterActive Corp.

Tags: · · ·
21 May
2012

Goldman Counterclaims Breach of Contract, Fraud, Against Plaintiff in MBS Suit

by Matthew Popowsky Link to post

In March, Judge Marrero permitted a putative securities fraud class action to proceed against Goldman Sachs, alleging that Goldman had defrauded investors in two of its allegedly “rigged-to-fail” morgage-shorting CDOs.  Now, Goldman is suing back, claiming that the filing of the lawsuit itself constitutes a breach of contract and fraudulent inducement by the plaintiffs. 

Goldman alleges that the lead plaintiff, a hedge fund manager who “epitomizes the sophisticated investor,” signed agreements disclaiming any reliance on any statements made by Goldman, and also represented that Goldman would have no liability for losses resulting from the investment.  The claims in the lawsuit, Goldman contends, are “premised on theories of liability, reliance and damages” that contradict those reprsentations, and thus constitute a breach of contract.  Moreover, because the plaintiff represented in the agreements that it was not relying on Goldman and had done its own independent analysis of the risks associated with the investment, Goldman claims that the plaintiff’s allegations in the lawsuit that it relied on Goldman and was unaware of those risks reveal that the plaintiff did not believe those representations when they were made, and thus constitute fraudulent inducement.

Goldman is represented by Sullivan & Cromwell.

Tags: · · · ·
21 May
2012

Judge Baer Upholds Magistrate’s Denial of Spoliation Sanction for Failure to Issue Litigation Hold

by Jessica Holloway Link to post

Today, Judge Baer adopted and upheld Magistrate Judge Maas’ decision not to assess a spoliation sanction in a declaratory judgment action relating to a construction contract. In an opinion issued on April 20, Judge Maas found that plaintiffs GenOn Mid-Atlantic, LLC and GenOn Chalk Point, LLC had acted at least negligently in failing to instruct FTI Consulting Inc. – a third-party that had assisted them in performing audits related to the relevant contract – to preserve relevant electronic documents. He concluded that the GenOn plaintiffs were “responsible for spoliation” but that no sanction was warranted because defendant “was not prejudiced by the spoliation.” (Our previous post on that decision is here)

Read On
21 May
2012

Judge Sweet Dismisses Sheldon Solow’s Securities Fraud Action Against Citigroup

by Charles Michael Link to post

In an opinion Friday, Judge Sweet dismissed a securities fraud action brought by real estate mogul Sheldon Solow against Citigroup and its CEO Vikram Pandit.  Solow alleged that Citi and Pandit falsely portrayed the company as “well-capitalized,” when it was, in fact, struggling because of its toxic mortgage-related investments.

Judge Sweet first “noted that the [complaint] is devoid of allegations that Citigroup’s Tier 1 capital ratio was anything other than what Citigroup represented it to be. Banks are considered ‘well capitalized” if, among other factors, they have a Tier 1 risk-based capital ratio of 6.0 or greater. See 12 C.F.R. § 325.103. The [complaint] fails to allege that Citigroup ever fell beneath this regulatory threshold  . . . .”  While Solow also complained that Citi failed to disclose that it was facing a substantial risk of no longer being “well capitalized,” Judge Sweet found that “Citigroup was not obligated to characterize its performance or future outlook in negative terms, speculate on future negative results or paint themselves in the most unflattering light possible.”

Judge Sweet separately found that Solow had not sufficiently pled “loss causation” – i.e., he had not alleged facts to show that a drop in Citi’s stock price was the materialization of a risk that Citi concealed.

The defendants were represented by Hughes Hubbard.  (H/T Reuters)

Tags: · ·
18 May
2012

SEC Defendant Seeks Certification of Judge Sweet Ruling that Investment Advisers Act Can Be Applied Extraterritorially

by Laurie Edelstein Link to post

Yesterday, defendant Perry Gruss moved to certify for immediate appeal Judge Sweet’s recent ruling in SEC v. Gruss concerning the extraterritorial application of the Investment Advisers Act. In a case of first impression, Judge Sweet held that that the Supreme Court’s decision in Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010), did not bar SEC enforcement of Section 206 of the IAA even where the alleged fraud involved a foreign investor subject to a foreign securities regulatory regime. Judge Sweet concluded: “To bar the SEC, the government agency tasked with the job of regulating investment advisers from initiating an action against a domestic adviser because his actions defrauded a foreign investor would defeat the purposes of the IAA.”

Judge Sweet’s ruling was the first to consider the implications of Morrison for IAA Section 206 enforcement actions. In Morrison, the Supreme Court held that Section 10(b) of the Securities Exchange Act of 1934 did not apply extraterritorially. In seeking certification, Gruss stated that whether Section 206 has extraterritorial reach is “an issue of first impression of national importance” because Section 206 is “one of the key antifraud provisions in the federal securities laws” and is “routinely relied on by the SEC to protect investment funds.” The Second Circuit’s early resolution of the issue therefore could affect “numerous on-going non-public SEC investigations as well as cases pending in district courts across the country.”

Read On
18 May
2012

UPDATE: Judge Rakoff Grants Westlaw and Lexis’ Motions to Dismiss in Copyright Action

by Jessica Holloway Link to post

 As we reported in April, a class action against Westlaw and Lexis is pending before Judge Rakoff, claiming that both online database providers infringe the copyrights of lawyers whose legal briefs are made available online.  The WSJ Law Blog reports that on Wednesday, from the bench,  Judge Rakoff dismissed from the case the subclass of lawyer-plaintiffs who had not registered their briefs with the copyright office: 

Judge Rakoff: Well, I mean the place obviously to start is with 17 U.S.C. Section 411(a); “No civil action for infringement of the copyright in any United States work shall be instituted until preregistration or registration of the copyright claim has been made in accordance with this title.” By definition, the sub class that’s at issue here today have not complied with that. So how can they bring a civil action?

Mr. Blue:  Your Honor, obviously in our papers the position we’ve taken is that Mr. Elan, who is not registered, as well as the class that he represents, are entitled to two forms of relief even without registration.  And that would be an injunction and the declaratory judgment.

Judge Rakoff: Yes.  Now these, of course, are remedies. They are not, themselves, a form of action. But even assuming they were, the statute is unequivocal; that compliance with registration or preregistration is a precondition of filing a claim.

Judge Rakoff’s ruling was only a partial dismissal.  The claims of the subclass of lawyers who have registered a copyright in their briefs will proceed.

Tags: · · · ·
17 May
2012

Judge Pauley Denies FOIA Request for Report on Government’s Use of Patriot Act Surveillance

by Charles Michael Link to post

In an opinion issued earlier today, Judge Pauley denied a FOIA request by the New York Times and ACLU for a classified report to Congress about how the government has used a provision of the Patriot Act authorizing the government, by applying the Foreign Intelligence Surveillance Court, to obtain “any tangible things”  relevant to terrorism investigations.  Judge Pauley’s ruling was largely based on evidence reviewed in camera, which led Judge Pauley to conclude:  ”[T]his Court credits the Government’s assertion that disclosing this information could enable America’s adversaries to develop means to degrade and evade the nation’s foreign intelligence collection capabilities.”

The lawsuit was supported by Senators Wyden and Udall, who have access to the classified information and who wrote the Justice Department to urge its release. The Senators’ letter states that there is a “significant gap between what most Americans think the law allows and what the government secretly claims the law allows.”

Tags: · ·
17 May
2012

Judge Scheindlin Certifies Class Action Accusing NYPD of Unlawful Stop-And-Frisk Practices

by Charles Michael Link to post

In an opinion dated yesterday, Judge Scheindlin certified a class of plaintiffs who have, since 2005, allegedly been unlawfully detained under the NYPD’s stop-and-frisk practices. Class treatment of the claims was appropriate, Judge Scheindlin reasoned, because “the overwhelming and indisputable evidence shows that the NYPD has a department-wide stop and frisk program; the program has been designed and revised at the highest levels of the department; the implementation of the program is conducted according to uniform and centralized rules; and monitoring of compliance with the program is hierarchical.”

Judge Scheindlin ended the opinion with a harsh critique of the “cavalier attitude” the NYPD displayed in its briefing:

Read On
16 May
2012

Judge Forrest Enjoins Enforcement of Federal Law Authorizing Indefinite Detention of U.S. Citizens Who Provide “Substantial Support” to Terrorist Groups

by Charles Michael Link to post

In an opinion issued this afternoon, Judge Forrest preliminarily enjoined enforcement of a portion of the National Defense Authorization Act, a federal law President Obama signed on December 31, 2011, authorizing the government to detain persons, including U.S. citizens, who “substantial[ly] support” Al-Qaeda, the Taliban or their “associated forces.” The plaintiffs are a group of journalists who claim their activities have been chilled by the broad and vague scope of the detention authority contained in § 1021 of the law.

Judge Forrest first rejected the government’s argument that the plaintiffs lacked standing:

Read On
12345