Federal Housing Finance Agency v. JPMorgan Chase & Co.
902 F. Supp. 2d 476
S.D.N.Y.2012Background
- FHFA, in its role as conservator for Fannie Mae and Freddie Mac, sues JPMorgan and related entities over 127 GSE certificates issued in 2005–2007; claims arise under Securities Act sections 11, 12(a)(2), 15, plus Virginia and DC Blue Sky claims and New York fraud in six “Fraud Claim Cases.”
- The Amended Complaint asserts that Offering Documents contained false statements and omissions about underwriting guidelines, owner-occupancy rates, and loan-to-value ratios, causing billions in damages when loans defaulted.
- FHFA relies on a multi-faceted evidentiary record including investigations, a forensic loan-file review, and downgrades of related certificates to show systemic misrepresentation, not just misrepresentations on a few certificates.
- Defendants move to dismiss arguing inadequacy of challenged falsity and scienter allegations, timeliness, and FIRREA-related exhaustion; the court finds partial merit to several challenges but denies others.
- This Opinion governs the motion to dismiss in this case (one of sixteen coordinated actions); it largely follows UBS I/II reasoning and sets the stage for trial deadlines and further proceedings.
- The court grants dismissal of certain Virginia Blue Sky and owner-occupancy/LTV claims in specific securitizations, but denies dismissal on other fraud and securities-law issues, including some scienter, reliance, and loss causation theories.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Falsity of underwriting-standard representations | FHFA alleges 103 securitizations misrepresented underwriting standards | JPMorgan/Underwriter Defendants argue pleading lacks specific ties to issue loans | Pleading sufficient under Rule 8/9(b) for group-level misrepresentation |
| Adequacy of remaining fraud allegations (scienter, reliance, loss causation) | FHFA provides detailed circumstantial evidence of fraud and intent | Defendants argue lack of individual-level evidence and reliance not justifiable | Fraud claims survive as to several defendants; scienter shown for Bear Stearns, JPMorgan, WaMu/Long Beach; loss causation issues reserved for trial |
| Statute of limitations under Section 13 | Downgrades and discovery timeline open timely claims | Downgrades pre-dates conservatorship; discovery rule applies | Claims timely under UBS I framework; extender provision applies; certain assertions preserved |
| FIRREA exhaustion (WaMu successor-in-interest) | FHFA claims could be pursued despite WaMu's FDIC receiver status | Exhaustion required for claims against failed banks | FIRREA exhaustion not applicable; WaMu-related claims properly brought against JPMorgan as successor |
| Scope of Blue Sky claims against non-JPMorgan underwriters | FHFA contends misrepresentations across many securitizations | Claims time-barred or inadequately pleaded against non-JPMorgan underwriters | Virginia Blue Sky claims dismissed for the non-JPMorgan defendants; other claims proceed |
Key Cases Cited
- In re Scholastic Corp. Securities Litig., 252 F.3d 63 (2d Cir.2001) (Rule 9(b) does not require detailed evidentiary matter at pleading)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility standard for pleading; context-specific)
- NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145 (2d Cir.2012) (pleading standards; Rule 8(a) and Rule 9(b) guidance)
- UBS Americas, Inc. v. Federal Housing Finance Agency (UBS I), 858 F.Supp.2d 306 (S.D.N.Y.2012) (court's prior dismissal/denial on common issues guiding present case)
- NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145 (2d Cir. 2012) (pleading standards and class action considerations)
- Halperin v. eBanker USA.com, Inc., 295 F.3d 352 (2d Cir.2002) (bespeaks caution doctrine as to forward-looking statements)
- Emergent Capital Inv. Mgmt., LLC v. Stonepath Group, Inc., 343 F.3d 189 (2d Cir.2003) (fraud elements; reliance considerations for sophisticated plaintiffs)
- Stutman v. Chemical Bank, N.Y.2d 24, 709 N.Y.S.2d 892, 781 N.E.2d 608 (2000) (New York fraud elements and pleading requirements)
- ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JPMorgan Chase Co., 553 F.3d 187 (2d Cir.2009) (strong inference of scienter under Rule 9(b))
- Taylor v. Vermont Dept. of Educ., 313 F.3d 768 (2d Cir.2002) (motion to dismiss standard; limited scope in Rule 12(b)(6))
- Landesbank Baden-Wurttemberg v. Goldman Sachs & Co., 478 F.App’x 679 (2d Cir.2012) (summary order; consideration of knowledge at time of issuance)