NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co.
2012 U.S. App. LEXIS 18814
| 2d Cir. | 2012Background
- NECA-IBEW Health & Welfare Fund sued under §§ 11, 12(a)(2), and 15 on behalf of a putative class of purchasers of mortgage-backed certificates issued via a single Shelf Registration Statement but sold in 17 separate Offerings with 17 unique Prospectus Supplements.
- The 17 Offerings were registered under the Shelf Registration Statement with accompanying separate registration statements and supplements; the Offering Documents allegedly contained materially misleading underwriting, appraisal, and origination information.
- NECA purchased certificates from two offerings (2007-10 and 2007-5) and asserted class claims on behalf of all purchasers across the offerings and tranches; the district court limited NECA to the certificates it purchased.
- Defendants argued NECA lacked standing to assert claims for certificates from other offerings/tranches because those purchases were not NECA’s, and that common misrepresentations did not confer class standing.
- The district court dismissed for lack of standing and for failure to plead cognizable §11 injury; on appeal, the Second Circuit held that NECA has class standing to represent certificates backed by the same originators and that injury can be pleaded as diminution in value for illiquid securities.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether NECA has class standing to sue on behalf of purchasers from other Offerings | NECA’s claims arise from the same Shelf Statement and incorporated Prospectus Supplements | Registration statements differ by Offering; standing extends only to purchased certificates | Yes, NECA has class standing to represent certain non-purchased offerings |
| Whether NECA may plead cognizable injury under §11 without an out-of-pocket loss | diminution in value suffices for §11 injury | injury requires actual missed payments or market price loss | Yes, diminution in value suffices where value declines due to misrepresentations |
| Whether the district court erred in requiring out-of-pocket loss to allege §11 injury when illiquid securities are involved | value can decline even without liquid market price; illiquidity does not negate injury | illiquidity precludes identifying injury without actual payments or price drop | Yes, price/value injury is cognizable under §11 even in illiquid securities |
Key Cases Cited
- Gratz v. Bollinger, 539 U.S. 244 (U.S. 2003) (same set of concerns standard for class standing)
- Blum v. Yaretsky, 457 U.S. 991 (U.S. 1982) (standing depends on personal injury and adequacy to represent class)
- Lewis v. Casey, 518 U.S. 343 (U.S. 1996) (standing vs. class certification distinctions in procedural context)
- Cent. States, Se. & Sw. Areas Health & Welfare Fund v. Merck-Medco Managed Care, L.L.C., 504 F.3d 229 (2d Cir. 2007) (class standing principles in complex class actions)
- In re Morgan Stanley Info. Fund, 592 F.3d 347 (2d Cir. 2010) (§§ 11 and 12(a)(2) pleading standards and standing)