In Re Morgan Stanley Mortgage Pass-Through Certificates Litigation
810 F. Supp. 2d 650
S.D.N.Y.2011Background
- MSCs Trusts issued mortgage-backed pass-through certificates; Offering Documents allegedly misstated/omitted underwriting, appraisal, and rating practices across multiple 2006- trusts; MissPERS and several New Plaintiffs sued under the Securities Act in SDNY for claims tied to the Registration Statement and Prospectus Supplements; SAC broadens to New Plaintiffs (Members, NECA, Western, Pompano, WV) after MS I dismissal; Court granted leave to amend to address MissPERS’ standing and clarify pleaded claims; issues include timeliness, statutory standing, and misrepresentation/omission theories; American Pipe tolling is invoked for the New Plaintiffs and relation back considerations arise; Court evaluates inquiry notice, discovery, and repose in relation to Section 11/12(a)(2) claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Timeliness of MissPERS claims under Section 13 | MissPERS discovered in late 2008; discovery delays are pleaded with specificity. | Discovery specifics are too vague; MS I already found failure to plead timing. | Seasoned opportunity to replead time specifics granted; timing remains at issue for remedy. |
| Inquiry notice and statute of limitations for MissPERS | Downgrades and public disclosures around 2007-2008 should not bar timely filing. | Inquiry notice prior to Dec 2007-2008 supports dismissal. | Inquiry-notice issues denied for MissPERS; timely claims survive. |
| American Pipe tolling and statute of repose for New Plaintiffs | American Pipe tolling should extend the period for New Plaintiffs under the class-action framework. | American Pipe tolling does not apply to statutes of repose or to standing issues. | American Pipe tolling applies to New Plaintiffs and tolls repose; relation back moot. |
| Section 12(a)(2) statutory standing of New Plaintiffs | Allegations show purchase from offeror/seller traceable to the Registration Statement. | General claims of being traced to offerings insufficient for Section 12(a)(2) standing. | SAC suffices to plead Section 12(a)(2) statutory standing for New Plaintiffs. |
| Actionable misrepresentation/omission under Sections 11/12(a)(2) for underwriting/appraisals/ratings | Disclosures did not reveal systematic disregard of underwriting/appraisal practices or flawed ratings. | Disclosures and boilerplate disclaimers render claims non-actionable or inadequately pleaded. | Underwriting and appraisal misstatements/omissions survived; ratings-based claims dismissed. |
Key Cases Cited
- In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347 (2d Cir.2010) (three bases for liability under Sections 11 and 12(a)(2) analyzed; standing and timeliness considerations)
- Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161 (2d Cir.2005) (inquiry notice framework for statute of limitations)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility standard for pleading claims)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (pleading standard to state a claim plausible on its face)
- American Pipe & Construction Co. v. Utah, 414 U.S. 538 (U.S. 1974) (tolling of limitations for class-action members)
- Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (U.S. 1983) (extension of American Pipe tolling after denial of class status)
- In re WorldCom Sec. Litig., 496 F.3d 245 (2d Cir.2007) (American Pipe tolling applied to putative class members)
- Footbridge Ltd. Trust v. Countrywide Financial Corp., 770 F. Supp. 2d 618 (S.D.N.Y.2011) (debated whether American Pipe tolling is applicable to statutes of repose)