In re Bear Stearns Mortgage Pass-Through Certificates Litigation, 851 F. Supp. 2d 746

Background

Plaintiffs bring a putative securities class action alleging 33 Act claims (Sections 11, 12(a)(2), 15) against Bear Stearns entities, SAMI Depositor and several originators regarding MBS certificates offered between 2006-2007.
TAC asserts misrepresentations and omissions in Offering Documents about underwriting standards, appraisals, and credit ratings, along with alleged due-diligence failures and rating agency reliance.
Plaintiffs allege systemic industry-wide incentives degraded underwriting/appraisal practices and that rating agencies relied on faulty data, all contributing to inflated ratings and losses.
Procedural posture: case has been consolidated with related complaints; Defendants move to dismiss under Rule 12(b)(6) for various grounds; the court partially grants and partially denies relief.
The court tolls the statute of repose via American Pipe for claims, finds timeliness for the original and subsequent complaints, and reserves ratings-based claims for amendment; overall, the complaint is dismissable only to the extent it rests on ratings.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Timeliness of claims under Section 11/12(a)(2)?	Merck/City of Pontiac apply to extend pleading window.	Statute of limitations and repose bar claims.	Timeliness issues resolved in favor of plaintiffs; some ratings-based claims reserved.
Sufficiency of misrepresentation/omission pleadings (underwriting, appraisals, ratings)?	TAC pleads systemic disregard of underwriting/appraisal standards and reliance on flawed data.	Pleading insufficient under Twombly/Iqbal.	Underwriting and appraisals claims pleadable; ratings claim partially dismissed with leave to amend.
Sole remedy provision bars damages under Sections 11/12(a)(2)?	Sole remedy clause does not bar, given systemic misrepresentations.	Remedies limited to repurchase/substitute.	Sole remedy provision does not bar claims; provision ineffective to preclude damages.
Section 15 claim against Individual Defendants?	Control pleaded via officers signing Registration Statements.	Control insufficient.	Section 15 claim adequately pled.
Standing to sue on non-purchased tranches?	Named plaintiffs purchased every offering; tranches share identical misrepresentations.	Tranches are different securities; standing limited.	Constitutional standing found; statutory standing addressed on amendment/at certification.

Key Cases Cited

In re Morgan Stanley Mortg. Pass-Through Certificates Litig., 810 F.Supp.2d 650 (S.D.N.Y. 2011) (11/12(a)(2) claims; pleading and damages standards; reliance on ratings)
In re Wachovia Equity Sec. Litig., 753 F.Supp.2d 326 (S.D.N.Y. 2011) (Merck applied to 33 Act; inquiry notice considerations limited)
City of Pontiac Gen. Emps. Ret. Sys. v. MBIA, Inc., 637 F.3d 169 (2d Cir. 2011) (Merck applied to 34 Act; standards for discovery and pleading)
Dodds v. Cigna Sec., Inc., 12 F.3d 346 (2d Cir. 1993) (Equivalence of 33 Act and 34 Act limitations)
Merck & Co. v. Reynolds, — (—) (Merck holds discovery of facts for 34 Act claims; later applied to 33 Act per district decisions)
In re IndyMac Mortgage-Backed Sec. Litig., 718 F.Supp.2d 495 (S.D.N.Y. 2010) ( Merck scope; application to 33 Act claims in some districts)
In re Countrywide Financial Corp. Securities Litigation, 588 F.Supp.2d 1132 (C.D. Cal. 2008) (standards for standing and misrepresentation claims; 11/12(a)(2) scope)
Plumbers’ & Pipefitters’ Local No. 562 Supplemental Plan & Trust v. J.P. Morgan Acceptance Corp. I, 632 F.3d 762 (1st Cir. 2011) (liability for misrepresentations; ratings disclosures)
American Int’l Group, Inc., 741 F.Supp.2d 511 (S.D.N.Y. 2010) (standing to sue across offerings issued under same registration)
Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383 (5th Cir. 2010) (sole remedy analysis under repurchase clauses; distinctions)
McMahan & Co. v. Wherehouse Entm’t, Inc., 65 F.3d 1044 (2d Cir. 1995) (causes of action and remedies under securities law)