December 27, 2013

On December 27, 2013, Judge Baer of the Southern District of New York issued a combined order in the Harborview and RALI cases granting Plaintiffs’ motion to expand the class definitions in both cases to include numerous additional mortgage-backed securities offerings restored to the cases as a result of the Second Circuit’s decision in NECA-IBEW Health and Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145 (2d Cir. 2012) (“Goldman”)1.   As a result of Judge Baer’s decision, the Harborview class expanded from two offerings to twelve2 and the RALI class expanded from four offerings to seventeen3.   In both cases, this means that the class now encompasses the purchasers of billions of dollars of additional securities.  In addition to the highly significant impact on these two individual cases, Judge Baer’s ruling is also significant in that it represents the first decision applying the Second Circuit’s ruling in Goldman on Article III standing for purchasers of mortgage-backed securities to class certification.

In Goldman, the Second Circuit established the parameters for class standing under Article III of the Constitution, holding that a plaintiff can bring a claim on behalf of others if the alleged “conduct implicates ‘the same set of concerns’ as the conduct alleged to have caused injury to other members of the putative class by the same defendants.”  Goldman at 162.  The Second Circuit did not, however, make a determination as to whether a plaintiff could successfully meet the requirements of Rule 23(b)(3) and lead a certified class of purchasers from different offerings.  Instead, it stated that the “district court, after reviewing all of the Rule 23 factors, retains broad discretion to make that determination.”  Id.  at 165.  In this combined decision, Judge Baer answered that question firmly in the affirmative.

Judge Baer held that requirements for Rule 23(b)(3), which he held the smaller class fulfilled, remained satisfied for the additional Offerings added by Goldman.  In doing so, Judge Baer explicitly held that the Lead Plaintiff, New Jersey Carpenters, could represent purchasers of mortgage-backed securities offerings where it did not purchases because “the fact that the New Jersey Carpenters Funds did not purchase certificates in all of the offerings at issue does not destroy adequacy because no conflict or antagonism has been shown.”  In this same decision, Judge Baer also held that two recent Supreme Court decisions, Comcast Corporation v. Behrend, 133 S. Ct. 1426 (2013) (“Comcast”) and Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) (“Wal-Mart”) did not impede certification.  He held that Comcast, which requires that “any model supporting a plaintiff’s damages case must be consistent with its liability case,” is inapposite for Securities Act cases where damages reflect liability by statutory formula.  Judge Baer determined that the commonality requirement described in Wal-Mart is satisfied by the common questions and answers presented in this case and that the addition of new offerings does not alter that analysis.

Plaintiffs’ and their counsel will continue to vigorously prosecute these actions which are currently in the discovery phase of litigation.

1 In this opinion, Judge Baer also decided not to grant a separate motion by Plaintiffs in the RALI case to temporally expand the class, holding that such an expansion is not warranted “at this time.”
2 Adding initial purchasers of the HVMLT 2006-7, HVLMT 2006-9, HVLMT 2006-10, HVLMT 2006-11, HVLMT 2006-12, HVLMT 2006-14, HVLMT 2006-5, HVLMT 2006-6, HVLMT 2006-8, HVLMT 2007-1, HVLMT 2007-2 and HVLMT 2007-5 mortgage backed securities to the class.  
3 Adding initial purchasers of the RALI 2007-QO2, RALI 2006-QS8, RALI 2006-QS18, RALI 2006-QO10, RALI 2007-QS5, RALI 2006-QS7, RALI 2006-QS11, RALI 2007-QS4, RALI 2006-QS9, RALI 2007-QS7, RALI 2007-QH2, RALI 2007-QH5, RALI 2007-QH6, RALI 2006-QO3, RALI 2007-QH3, RALI 2007-QS2, RALI 2006-QO5, RALI 2006-QO6 and RALI 2006-QS15 to the class.