Employees' Retirement System of Government v. J.P. Morgan Chase & Co.
804 F. Supp. 2d 141
S.D.N.Y.2011Background
- This securities action is on behalf of a proposed class of purchasers of mortgage pass-through certificates issued by JPM Acceptance.
- The Retirement System alleges Section 11/12/15 violations by JPM Acceptance, JPMC, JPM Acquisition, JPM Securities, and six JPM Acceptance directors/officers.
- Offering documents for 2007-S3 tied loans to originators (AHM and Chase) and stated underwriting/appraisal standards, including USPAP-compliant appraisals.
- Plaintiff purchased only the 2007-S3 Certificates and not the other ten series; the Complaint seeks claims across all eleven series.
- The SAC alleges widespread misrepresentations in underwriting, appraisal, LTV ratios, and ratings, with specific factual claims about deviations from guidelines and inflated appraisals.
- Court granted in part and denied in part the motion to dismiss, with several claims narrowed or dismissed and some claims allowed to proceed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to sue for non-purchased series | SAC alleges misrepresentations affected all series. | Plaintiff lacks standing for ten offerings not purchased. | Dismissed for ten offerings; only 2007-S3 survives. |
| Section 12(a)(2) standing/a bout aftermarket purchases | Plaintiff acquired post-offering; claims viable. | Section 12(a)(2) requires initial purchaser or proper circumstances. | Dismissed. |
| Material misrepresentations under Section 11 | Misrepresentations in underwriting/appraisal/LTV/ratings render registration statements false. | Statements were permissible opinions or adequately disclosed. | A substantial portion survives; some categories rejected (ratings) while others survive. |
| Materiality of alleged misstatements | Widespread underwriting/appraisal deviations are material to investors. | Some misstatements immaterial given small subset and remedies. | Materiality not defeated; not obviously immaterial as a matter of law. |
| Underwriter and control liability under Section 11/15 | JPMC/JPM Acquisition are underwriters and control persons. | Defendants lack status as underwriters/insufficient control allegations. | Dismissed for JPMC/JPM Acquisition; control liability upheld against Individual Defendants. |
Key Cases Cited
- In re Morgan Stanley Sec. Litig., 592 F.3d 347 (2d Cir.2010) (Section 11 pleading standards and liability framework; no heightened fraud pleading required.)
- Litwin v. Blackstone Group, L.P., 634 F.3d 706 (2d Cir.2011) (Materiality and short-and-plain pleading standard for Section 11.)
- Tsereteli v. Residential Asset Securitization Trust 2006-A8, 692 F. Supp. 2d 387 (S.D.N.Y.2010) (Underwriting/appraisal misrepresentations actionable when deviations from standards are alleged.)
- In re IndyMac Mortg.-Backed Sec. Litig., 718 F. Supp. 2d 495 (S.D.N.Y.2010) (Appraisal standards and LTV ratios materiality under Section 11.)
- In re Lehman Bros. Sec. & Erisa Litig., 684 F. Supp. 2d 485 (S.D.N.Y.2010) (Underwriting/appraisal misrepresentations in mortgage-backed securities context.)
- City of Ann Arbor Emps.' Ret. Sys. v. Citigroup Mortg. Loan Trust Inc., 703 F. Supp. 2d 253 (E.D.N.Y.2010) (Issues of materiality and sole remedy clauses under securities laws.)
- PERS of Miss. v. DLJ Mortg. Cap., Inc., 714 F. Supp. 2d 475 (S.D.N.Y.2010) (Standing and Section 11 liability principles for mortgage-backed securities.)
- Suez Equity Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d 87 (2d Cir.2001) (Control/agency considerations for implied control liability.)