843 F. Supp. 2d 191
D. Mass.2012Background
- Plaintiff Massachusetts Mutual Life Insurance Co. purchased billions in RMBS certificates between 2005–2007 and now sues nine nearly identical actions against numerous Corporate and Individual Defendants for alleged MUSA 410(a)/(b) violations.
- Plaintiff alleges misstatements/omissions in offering documents about underwriting guidelines, appraisals/LTV ratios, and owner-occupancy rates.
- Defendants move to dismiss on grounds including failure to plead misstatements/omissions, non-seller status of non-underwriters, lack of control-person liability, statute of limitations, and lack of personal jurisdiction over non-Massachusetts residents.
- Court applies coordination with federal Securities Act standards; analyzes global issues before addressing individual complaints.
- Court allows dismissal of certain claims (owner-occupancy rates generally; non-underwriter 410(a); some 410(b) where based on primary violations by non-underwriters) and denies in part elsewhere, notably allowing the HSBC complaint to proceed on owner-occupancy misrepresentation.
- HSBC Bank USA, National Association case (11-30141-MAP) is treated separately due to differing disclosures regarding owner-occupancy methodology.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| What pleading standard applies to MUSA claims? | Rule 8(a) suffices; no scienter required by MUSA. | Rule 9(b) applies to fraud-like aspects (knowledge of appraisals) in some claims. | Court uses Rule 8(a) pleading standard; neither side's heightened standard adopted. |
| Have plaintiffs pleaded actionable misstatements/omissions about underwriting guidelines? | There was wholesale abandonment of underwriting standards by specific Defendants. | Disclosures in offering documents adequately warned of deviations and exceptions. | Plaintiff plausibly alleged wholesale abandonment; claims survive dismissal. |
| Are appraisals and LTV ratio statements actionable? | Appraisals violated disclosed standards; LTV ratios understated; Defendants knew or should have known. | Appraisals are opinions; disclosures/AVM evidence insufficient to plead knowledge. | Actionable misstatements of fact and actionable opinions survive; knowledge inference supported. |
| Do owner-occupancy rate misrepresentations survive? | Disclosures based on borrowers' representations may be inaccurate; data not verified by Defendants. | Disclosures explicitly stated occupancy was borrower-provided and not verified; no misstatement. | Most cases dismissed on owner-occupancy claims; HSBC case (11-30141-MAP) allowed to proceed; other cases dismissed. |
| Are non-underwriter Defendants liable under MUSA 410(a) as sellers? | Non-underwriters solicited or facilitated sales and should be liable. | Under Pinter, non-sellers cannot be liable; SEC Rule 159A not controlling here. | Non-underwriters are not liable as sellers under 410(a); claims dismissed. |
Key Cases Cited
- Nomura Asset Acceptance Corp. v. Plumbers’ Union Local No. 12 Pension Fund, 632 F.3d 762 (1st Cir. 2011) (disclosures cannot shield wholesale underwriting abandonments; standards for pleading under 410(a))
- Pinter v. Dahl, 486 U.S. 622 (U.S. 1988) (seller liability requires direct solicitation; broad involvement insufficient)
- Shaw v. Digital Equipment Corp., 82 F.3d 1194 (1st Cir. 1996) (Rule 9(b) applies when claims sound in fraud; pleading must show scienter/reliance)
- Marram v. Kobrick Offshore Fund, Ltd., 442 Mass. 43, 809 N.E.2d 1017 (Mass. 2004) (interpreting MUSA 410(a) in coordination with federal Securities Act section 12(2))
- Boit v. Gar-Tec Products, Inc., 967 F.2d 671 (1st Cir. 1992) (pre-discovery jurisdictional showing requires prima facie facts)