MEMORANDUM AND ORDER REGARDING DEFENDANTS’ MOTIONS TO DISMISS 11-30035-MAP (Dkt. Nos. 22 and 28); 11-30039-MAP (Dkt. No. 17); 11-30044-MAP (Dkt. No. 17); 11-30047-MAP (Dkt. No. 16); 11-30048-MAP (Dkt. Nos. 23 and 27); 11-30094-MAP (Dkt. No. 24); 11-30126-MAP (Dkt. No. 26); 11-30127-MAP (Dkt. No. 10); 11-30141-MAP (Dkt. No. 11).
I. INTRODUCTION
Plaintiff Massachusetts Mutual Life Insurance Co. purchased billions of dollars of residential mortgage-backed securities (“RMBS”) certificates between 2005 and 2007. Plaintiff has now brought nine nearly identical actions against dozens of Defendants, including financial institutions (“Corporate Defendants”) and their current and former directors and officers (“Individual Defendants”), seeking to rescind those purchases and/or recover damages. The complaints allege that Defendants violated sections 410(a) and (b) of the Massachusetts Uniform Securities Act (“MUSA”) by misstating or omitting material facts in the offering documents issued to potential investors.
Defendants have filed motions to dismiss each complaint, which Plaintiff opposes.
For the reasons stated below, the court will allow Defendants’ motions to dismiss to a modest degree. More specifically, the court will dismiss Plaintiffs claims of misstatements or omissions regarding owner-occupancy rates in all of the complaints, except the complaint against HSBC Bank USA, National Association, et al. (11-30141-MAP). The court will also dismiss Plaintiffs section 410(a) claims against the non-underwriter Defendants and section 410(b) claims against Defendants whose control person liability stems from primary
II. BACKGROUND
These actions arise out of the sale of RMBS certificates to Plaintiff between 2005 and 2007. All of the certificates at issue were created in a largely identical multi-step securitization process. Loan originators originated mortgage loans to borrowers who wеre buying or refinancing homes. A sponsor bought loans from the originators and aggregated them into a loan pool, which usually contained thousands of loans. The sponsor then sold the pool to a depositor, who transferred the loans to a trust. The trust issued certificates to the depositor, who sold the certificates to underwriting financial institutions for resale to investors, such as Plaintiff. Defendants in these actions include institutions that served as sponsors, depositors, and underwriters of the loans.
When sold, certificates were accompanied by offering documents that included a prospectus and prospectus supplement. The offering documents provided descriptions of the certificates, summary loan information on the underlying loans, and summary descriptions of the third-party originators’ loan underwriting guidelines. Plaintiff alleges that the offering documents at issue in these cases misstated or omitted certain material facts, specifically:
(1) Defendants represented that the loans were underwritten using prudent underwriting standards, but, in fact, loan originators systematically disregarded their stated loan underwriting guidelines;
(2) Defendants represented that the valuations of the underlying properties were conducted in accordance with well-established appraisal procedure guidelines and that the resulting loan-to-value (“LTV”) ratios were reliable, but, in fact, appraisers routinely failed to follow these procedures and Defendants knowingly reported false appraisals and LTV ratios; and
(3) Defendants represented specific owner-occupancy rates for the underlying properties that turned out to be inaccurate.
Plaintiff further alleges that the misrepresentations materially affected the risk profile of the certificates and caused Plaintiff to purchase securities that were far riskier than disclosed. The certificates that Plaintiff purchased now qualify as “junk.”
Based on the alleged misrepresentations, Plaintiff filed these nine actions against Defendants between February and May 2011. As noted, Defendants have filed motions to dismiss each complaint. Because of the significant similarities in the offering documents at issue and the complaints, the court will first consider global issues raised by all of the motions to dismiss as they pertain to all of the complaints. The court will then discuss any remaining issues that are particular to individual complaints.
III. DISCUSSION
All of Plaintiffs claims in the complaints arise under MUSA, which imposes civil liability on any рerson who
offers or sells a security by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading.
Mass. Gen. Laws ch. 110A, § 410(a)(2). MUSA also imposes joint and several liability on any person who
directly or indirectly controls a seller liable under subsection (a), every part*199 ner, officer, or director of such a seller, [and] every person occupying a similar
status or performing similar functions. Mass. Gen. Laws ch. 110A, § 410(b). Plaintiff argues that all Defendants are liable either under section 410(a) or as control persons under section 410(b).
The Massachusetts Legislature has directed courts to interpret MUSA in coordination with the federal Securities Act of 1933. See Marram v. Kobrick Offshore Fund, Ltd.,
With that background in mind, the court will now turn to the global issues that pertain to all nine complaints.
A. Global Issues.
Defendants raise several common issues in their motions to dismiss, arguing that: (1) Plaintiff has failed to plead any actionable misstatements or omissions in the offering documents, including with regard to the underwriting guidelines, appraisals and LTV ratios, and owner-occupancy rates; (2) the non-underwriter Defendants are not offerors or sellers under MUSA section 410(a); (3) Plaintiffs control person claims under section 410(b) must be dismissed; (4) some of Plaintiffs claims are barred by the statute of limitations; and (5) the court lacks personal jurisdiction over the Individual Defendants.
1. Pleading Standard.
Before analyzing the global grounds for dismissal, the court must determine what pleading standard to apply to this case. It is undisputed that MUSA does not require a plaintiff to plead that a defendant acted with scienter. Marram,
Defendants contend, however, that to the extent Plaintiff alleges that Defendants knew that the appraisals of the underlying properties were not reasonably supported by the actual data, Plaintiff is in essence alleging fraud, and the heightened pleading standard of Rule 9(b) applies at least to those claims. See Shaw v. Digital Equip. Corp.,
The mere allegation that Defendants knew of the appraisals’ inaccuracy, however, is not enough to constitute an allegation of fraud. As the First Circuit in Shaw noted under similar circumstances,
Although the complaint does assert that defendants actually possessed the information that they failed to disclose, those allegations cannot be thought to constitute ‘averments of fraud,’ absent any*200 claim of scienter and reliance. Otherwise, any allegation of nondisclosure of material information would be transformed into a claim of fraud for purposes of Rule 9(b).
Id.
Plaintiff also argues that the liberal notice pleading standard under Rule 8(a) must be further relaxed because most of the evidence in this case is in Defendants’ possession. However, thе cases Plaintiff cites in support of this proposition are all in the context of a heightened Rule 9(a) pleading standard and do not support a relaxed pleading standard for pre-discovery motions under Rule 8(a). See, e.g., In re Cabletron Systems, Inc.,
2. Failure to Plead Misstatements or Omissions.
To state a claim under MUSA section 410(a), Plaintiff must show that (1) Defendants offered or sold securities in Massachusetts; (2) by making an untrue statement of, or omitting, any material fact; (3) Plaintiff did not know of the untruth or omission; and (4) Defendants knew or should have known of the untruth or omission. Marram,
Defendants argue that Plaintiff has failed to plead any untrue statement or omission of material fact and, thus, has failed to state a claim under section 410(a).
a. Underwriting Guidelines.
The first group of misstatements or omissions alleged by Plaintiff concerns statements regarding the underwriting guidelines used to generate loans. Plaintiff alleges that all of the Defendants made certain representations about the underwriting process, including that loan originators collected financial information from borrowers to ensure that loans could be repaid, that originators consistently applied underwriting standards to confirm borrowers’ ability to repay, and that any deviations from the standards were justified by sufficient compensating factors. Plaintiff further alleges that these representations were false because the originators systematically violated the underwriting standards by, for example, issuing loans on the basis of overstated incomes, inflated appraisals, and unjustified exceptions to the standards.
Plaintiff provides varying degrees of support for these allegations in the different complaints. All of the complaints allege (1) that there was a general incentive in the industry to abandon underwriting guidelines, (2) that the underlying loans have experienced high percentages of defaults, delinquencies, and foreclosures that, according to Plaintiff, can only be explained by a widespread abandonment of underwriting standards, and (3) that a subsequent forensic analysis of thе loan data confirms that Defendants abandoned their disclosed underwriting standards. Some of the complaints provide further factual support. In the complaints against the
Defendants make a two-fold argument for why these allegations are insufficient to state a claim. First, Defendants argue that the offering documents accurately disclosed all of the information Plaintiff claims was misstated or omitted.
The disclosures noted by Defendants, however, are not enough to vitiate Plaintiffs section 410(a) claim. The First Circuit considered similar disclosures in Plumbers’ Union Local No. 12 Pension Fund v. Nomura Asset Acceptance Corp. (“Nomura”) and held that these types of warnings and disclosures cannot defeat a claim that, like the claims here, is based on “wholesale abandonment of underwriting standards.”
Second, Defendants contend that the complaints have failed to plead a “wholesale abandonment of underwriting standards.” This argument is also unpersuasive. In light of the standard set forth in Nomura, Plaintiff has satisfied the pleading requirements for a motion to dismiss in all cases. In Nomura, the First Circuit held that to state a claim upon which relief can be granted, the complaint must allege specific practices of abandoning guidelines and must “link such practices with specific lending banks that supplied the mortgages that underpinned the trusts.” Id. at 773-74. The court noted that, while most complaints cite to more substantial sources such as statements from confidential witnesses, former employees, and internal e-mails, the allegations in Nomura of a “sharp drop in the credit ratings” along with allegations regarding the spеcific defendants were sufficient to warrant some initial discovery, even without those more substantial sources. Id.
Among the cases now before this court, the two complaints that do cite to internal documents and witness testimony easily pass the pleading hurdle set forth in Nomura. The allegations set forth in the remaining complaints, while they present a closer call, are also sufficient to survive a motion to dismiss. As in Nomura, Plaintiff has alleged in each of the complaints a widespread abandonment of underwriting guidelines by these specific Defendants and poor performance of the loans. Defendants’ contend that the poor performance of the loans is due solely to the economic downturn, but this is a question of fact that cannot be resolved on a motion to dismiss. Under the applicable Rule 8(a) pleading standard, the allegations in all of the complaints are sufficient at this stage of the proceedings.
b. Appraisals and LTV Ratios.
Plaintiff also alleges misstatements and omissions of material fact regarding the standards used for appraisals of the mortgaged properties and the resulting LTV ratios for the loans. Plaintiff alleges that the appraisals were routinely conducted in violation of the disclosed standards and, as a result, Defendants inflated appraisals and understated LTV ratios. Plaintiff further alleges that, based on Defendants’ involvement in the securitization process
Defendants raise several arguments against these allegations. First, Defendants argue that all of the offering documents actually disclosed the information Plaintiff now claims was misstated. The documents warned investors that no assurance could be given that the value of any mortgaged property would remain at its current appraised value and that the LTV ratios might not provide an accurate measure of the risk of loss because property values could fluctuate. For example, some of the documents warned that appraisers might be staff appraisers employed by the originator, that appraisers might feеl pressure from loan originators to overstate the appraised value of property, and that appraisal values might not equal the actual values of the properties.
The reasoning of Nomura concerning disclosures of underwriting guidelines again applies here. As with the warnings regarding underwriting standards, warnings to the effect that some of the appraisals might be overstated or that property values might fluctuate are insufficient to defeat Plaintiffs claims because these disclosures did not put Plaintiff on notice that the appraisers were systematically abandoning the represented appraisal procedures and understating LTV ratios. Furthermore, any warning that the property values might fluctuate did not warn Plaintiff that Defendants knew the existing appraisal values were inaccurate at the time of representation, as Plaintiff alleges.
Defendants next argue that, even if the disclosures were insufficient to defeat Plaintiffs claims, Plaintiffs allegations regarding appraisals and LTV ratios are based on non-actionable opinions of third parties. According to Defendants, appraisals are not statements of fact, but opinions. Cf. Nomura,
In this case, while the appraisals and LTV ratios themselves may have been opinions, Defendants ignore Plaintiffs allegation that the appraisals were conducted in violation of disclosed appraisal standards. A representation that certain specific standards will be used to generate appraisals is itself an actionable statement of fact.
Furthermore, Plaintiff has also made sufficient allegations to plead an actionable opinion. While Defendants accurately note that Plaintiff has not pled that the aрpraisers did not believe their appraisals at the time they were given, such an allegation is not necessary to state a claim under section 410(a). An opinion is also
stop[ped] short of alleging expressly that the leadership of [defendant] believed that their companies’ ratings were false or were unsupported by models that generally captured the quality of the securities being rated.
Id.
Finally, Defendants argue that the complaints lack any factual matter to support allegations of knowledge on Defendants’ part. This argument is also unpersuasive. Knowledge may be inferred from surrounding circumstances and Defendants’ alleged access to the underlying appraisal data аs well as their duty to conduct due diligence creates a reasonable inference of knowledge.- Furthermore, Plaintiffs allegations regarding its AVM model provide further support that the appraisals had no basis in fact. Plaintiff alleges that the AVM appraisals are based on similar data as in-person appraisals and that they are widely accepted and produce accurate estimates. According to Plaintiff, the results of the AVM, which diverge greatly from the appraisals Defendants supplied, create a reasonable inference that the LTV ratios were knowingly understated and the appraisals knowingly inflated.
Defendants take issue with Plaintiffs reliance on the AVM, arguing that Plaintiff has not fully revealed the assumptions and inputs that generated its AVM, that the AVM is fundamentally flawed because it relies on subsequent sale prices of the properties, and that the results of the AVM are irrelevant because, per the decision in Nomura, Defendants cannot be held liable on the grounds that they could have formed a “better” opinion. These arguments regarding the methodological flaws of the AVM, however, are premature at the motion to dismiss stage, especially considering the significant allegations Plaintiff hаs made concerning the methodology of the AVM model. Furthermore, while the results of the AVM do not conclusively show that Defendants knew the LTV ratios had no basis in fact, these results combined with Plaintiffs allegation of Defendants’ access to the underlying appraisal data and their duty to conduct due diligence are more than sufficient at this stage of the litigation.
In sum, Plaintiff has alleged actionable misrepresentations of fact by alleging that Defendants misrepresented the standard used to generate appraisals. Plaintiff has also alleged actionable misrepresentations of opinion by pleading that the appraisals and LTV ratios had no basis in fact, thus subjecting Defendants to liability for third party opinions.
c. Owner-Occupancy Rates.
The third and final category of misrepresentations that Plaintiff alleges concern owner-occupancy rates. Plaintiff alleges that Defendants represented certain owner-occupancy rates for the properties underlying the securitizations. Plaintiff further alleges that a forensic analysis it conducted of tax records, borrower credit records, and property records found owner-occupancy rates to be substantially lower than Defendants represented.
These allеgations fail to state an actionable claim against most of the Defendants.
These disclosures made by Defendants in the cases now before this court were fundamentally different from those the First Circuit found insufficient to shield the defendants from liability in Nomura. Unlike the disclosures in Nomura, the disclosures regarding owner-occupancy rates in these cases did more than simply warn investors that guidelines might not always be followed or that some of the rates might fluctuate. The disclosures specifically stated that all owner-occupancy rates were based only on borrowers’ representations. The disclosures thus put investors on notice that none of the owner-occupancy information had been verified by Defendants and that the rates represented only the self-reported data provided by borrowers, which might be inaccurate.
Because the offering documents explicitly stated that all occupancy rates were based only on borrowers’ representations and because Plaintiff does not allege that Defendants falsely reported the borrowers’ representations, the documents relied on by Plaintiff contained no misstatements or omissions concerning owner-occupancy rates as a matter of law. For this reason, Defendants’ motions will be allowed as to Plaintiffs claims of misstatements or omissions regarding owner-occupancy rates.
3. Nowr-Underwriter Defendants.
To be liable under section 410(a) of MUSA, Defendants must have offered or sold securities. Mass. Gen. Laws ch. 110A, § 410(a). Defendants argue that the non-underwriter Defendants — those Defendants who did not directly sell certificates to investors — are not offerors or sellers of securities, as defined by MUSA, and thus Plaintiffs claims against these Defendants must be dismissed.
An offeror or seller for purposes of MUSA is someone who “successfully solicits the purchasе [of securities], motivated at least in part by a desire to serve his own financial interests or those of the securities owner.” Pinter v. Dahl,
It is undisputed that the non-underwriter Defendants did not directly transfer title of the securities to Plaintiff.
The more specific allegations of the non-underwriter Defendants’ conduct contained in the complaints are that Defendants acquired the mortgage loans, convеyed or sold them to the offering trusts, were responsible for registering the securities with the Securities and Exchange Commission (“SEC”), helped prepare the offering materials, and profited from the sale of the certificates. Again, these allegations do not suffice. The relevant inquiry for seller liability is the “defendant’s relationship with the plaintiff-purchaser,” not “the defendant’s degree of involvement in the securities transaction and its surrounding circumstances.” Pinter v. Dahl,
As in those cases, Plaintiffs allegations here — all of which deal primarily with Defendants’ involvement in the securities transactions — are insufficient to allege the
Plaintiff relies on SEC Rule 159A, which provides that an issuer is a seller of securities for purposes of section 12(a)(2) of the Securities Act of 1933. 17 C.F.R. § 230.159A. While this Rule would seem to bear directly on the issue, only two courts have applied the Rule since it became effective on December 1, 2005. See In re Oppenheimer Rochester Funds Group Sec. Litig., No. 09-MD-02063-JKL-KMT,
Under Pinter, it is not enough that a defendant “participate[d] in soliciting the purchase” of securities or was a “ ‘substantial factor’ in causing the sale of [ ] securities” to hold the defendant liable as a seller.
4. Control Person Claims.
To state a control person claim under section 410(b), Plaintiff must first plead a primary violation under section 410(a). For the reasons discussed earlier, Plaintiff has adequately pled primary violations by the underwriter Defendants, but not by the non-underwriter Defendants. Consequently, the section 410(b) claims against those Défendants who are alleged to be control persons of only non-underwriter Defendants will be dismissed. For all other Defendants, Plaintiff has alleged that they controlled primary violators, and the allegations of control are sufficient to survive a motion to dismiss.
Claims under MUSA section 410(a) are subject to a four-year statute of limitations that runs from the date the plaintiff is put on inquiry notice of its claims. Marram,
In support of this argument, Defendants point to newspaper articles, industry publications, and government reports that were publicly available before early 2007. Defendants claim these documents put Plaintiff on notice of the mortgage loan origination problems alleged in the complaints, including the failure of originators to verify borrower information, inflated appraisals and 'understated LTV ratios, and occupancy fraud.
This information, however, was insufficient to establish inquiry notice because it did not directly relate to the misrepresentations and omissions alleged in the complaints. The articles and other publications provided only generalized reports on the industry, did not discuss Defendants’ practices specifically, and did not alert Plaintiff to potential fraud in any specific securitization it had purchased.
Defendants also argue that, when Plaintiff began buying the certificates in 2005, it had access to monthly loan data reports that were publicly available through the trust administrators. Thеse reports disclosed the percentage of loans in delinquency or default for each loan pool underlying the certificates at issue. According to Defendants, the reports showed an increase in the number of loans going into default as the market worsened in 2006 and 2007, putting Plaintiff on inquiry notice. Additionally, according to Defendants, the offering documents for the 2007 certificates included additional warnings of increasing loan defaults, depreciation of appraisal values, and problems with loan originators.
While these reports and warnings may have indicated that the loans were performing poorly, they did not put Plaintiff on notice that the specific underwriting and appraisal practices represented in the offering materials were false. According to Plaintiff, the loan reports and additional warnings related only to a small subset of the securitizations, and could not alert Plaintiff to a wholesale abandonment of guidelines for each of the securitizations alleged in the complaints. Plaintiff further disputes Defendants’ characterization of the reports, arguing that these few loan reports, did not reflect extraordinarily high rates of default and delinquencies.
At this point in the litigation, Defendаnts have not met the relatively high burden to demonstrate that Plaintiff was on inquiry notice in 2007. Cf. Warren Freedenfeld Assocs., Inc. v. McTigue,
6. Personal Jurisdiction.
The last global issue in these cases is personal jurisdiction. Defendants argue that the court lacks personal jurisdiction over the non-resident Individual Defendants. To establish personal jurisdiction, Plaintiff must make a prima facie showing of facts necessary to satisfy the requirements of a statute that authorizes jurisdiction and of the Due Process Clause. Boit v. Gar-Tec Products, Inc.,
To satisfy the first component of the due process analysis — relatedness—a plaintiff must show that “the cause of action either arises directly out of, or is related to, the defendant’s forum-based contacts.” Id. (internal citation omitted). In other words, the defendant’s in-state contacts must be an important or material element of proof in the case. Id.
In these cases, the relatedness component has been met. Plaintiff alleges that the Individual Defendants engaged in activities in Massachusetts, such as directing the Corporate Defendants to sell securities in Massachusetts, including to Plaintiff, and signing registration statements for those securitizations. Those registration statements contained the allegedly false statements on which Plaintiff now directly bases its claims.
The second component — purposeful availment — presents a more difficult question. To show that a defendant purposefully availed himself of “the privilege of conducting activities in the forum state,” a plaintiff must show voluntariness and foreseeability. Daynard v. Ness, Motley, Loadholt, Richardson & Poole, P.A.,
Plaintiff alleges that the Individual Defendants exercised control over the Corporate Defendants and directed the Corporate Defendants to sell securities in Massachusetts. In this way, according to Plaintiff, the Individual Defendants purposefully availed themselves of the privilege of conducting business in Massachusetts. Apart from these general allegations of control, the only allegation of specific conduct by the Individuаl Defendants is that they signed registration statements that were filed with the SEC and pursuant to which securities were sold in Massachusetts.
Plaintiff argues that these allegations are sufficient for personal jurisdiction and cite decisions by other courts that have exercised personal jurisdiction on the basis of defendants’ signing registration statements. See, e.g., In re LDK Solar Sec. Litig., No. C 07-05182 WHA,
While these cases offer some support for Plaintiff, their value is limited, because they involve foreign defendants accused of violating the federal securities laws, which provide for nationwide service of process. The jurisdictional inquiry in those cases focused on whether the foreign defendants had sufficient minimum contacts with the Untied States, not any particular stаte. The courts found that signing registration statements that were filed with the SEC and distributed to U.S. investors was sufficient to establish minimum contacts with the United States. In the eases before this court, on the other hand, Plaintiff must establish that Defendants had sufficient minimum contacts with Massachusetts specifically. The Individual Defendants did not sign anything that was filed with any Massachusetts authority; they only signed documents that were filed with the SEC and distributed to investors in numerous different states, including Massachusetts.
While it may (or may not) be true that merely signing a SEC registration is insufficient to establish personal jurisdiction in Massachusetts, Plaintiffs allegations go a step further. The complaint asserts that the Individual Defendants were “control” persons who directed the sale of securities in Massachusetts. Allegations of this sort, which must be accepted as true on a motion to dismiss, are sufficient to make a prima facie showing of purposeful availment. Cf. j2 Global Commc’ns, Inc. v. Blue Jay, Inc., No. C 08-4254 PJH,
Finally, the third component— reasonableness — is determined by weighing five factors:
(1) the defendant’s burden of appearing; (2) the forum state’s interest in adjudicating the dispute; (3) the рlaintiffs interest in obtaining convenient and effective relief; (4) the judicial system’s interest in obtaining the most effective resolution of the controversy, and (5) the common interests of all sovereigns in promoting substantive social policies.
United Elec., Radio & Mach. Workers of Am. v. 163 Pleasant St. Corp.,
In these cases, Defendants have not met that burden. Although the Individual Defendants do not reside in Massachusetts, they have not shown any “special or unusual burden” they would face in defending against a suit in Massachusetts. Pritzker v. Yari,
For these reasons, the court’s exercise of jurisdiction over the non-resident Individual Defendants comports with the requirements of due process and Plaintiffs claims against them will not be dismissed.
B. Individual Complaints.
1. Residential Funding Company, LLC, et al. (11-30035-MAP).
For the reasons discussed earlier, the court will dismiss Plaintiffs claim of misstatements or omissions regarding owner-occupancy rates. The court will dismiss the section 410(a) claims against the non-underwriter Defendants: Residential Funding Company, LLC; Residential Accredit Loans, Inc.; Residential Asset Mortgage Products, Inc.; Residential Asset securities Corporation; and Residential Funding Securities, LLC. The court will dismiss the section 410(b) claims against Defendants whose control person liability stems from primary violations by the non-underwriter Defendants. The court, however, is unable to discern who these individuals or entities are. Defendants will have until two weeks from the date of this memorandum to file a status report establishing the identities of the non-underwriter control person Defendants. The court will deny Defendants’ motion in all other respects.
2. DB Structured Products, Inc., et al. (11-30039-MAP).
The court will dismiss Plaintiffs claim of misstatements or omissions regarding owner-occupancy rates. The court will dismiss the section 410(a) claims against the non-underwriter Defendants: DB Structured Products, Inc.; Deutsche Alt-A Securities, Inc.; and ACE Securities Corp. The court will dismiss the section 410(b) claims against Defendants whose control person liability stems from primary violations by the non-underwriter Defendants: Anilesh Ahuja, Jeffrey Lehocky, Michael Commaroto, Joseph Rice, Richard D’Albert, Richard Ferguson, Douglas Johnson, Evelyn Echevarria, and Julia Johnson. The court will deny Defendants’ motion in all other respects.
3. RBS Financial Products Inc., et al. (11-300U-MAP).
The court will dismiss Plaintiffs claim of misstatements or omissions regarding owner-occupancy rates. The court will dismiss the section 410(a) claims against the non-underwriter Defendants: RBS Financial Products, Inc.; RBS Acceptance Inc.; and Financial Asset Securities Corp. The court will dismiss the section 410(b) claim against John C. Anderson, whose control person liability stems from primary violations by a non-underwriter Defendant. The court will deny Defendants’ motion in all other respects.
4. DLJ Mortgage Capital, Inc., et al. (11-30017-MAP).
The court will dismiss Plaintiffs claim of misstatements or omissions regarding owner-occupancy rates. The court will dismiss the section 410(a) claims against the non-underwriter Defendants: DLJ Mortgage Capital, Inc. and Credit Suisse First Boston Mortgage Securities Corp. The court will dismiss the section 410(b)
5. Credit Suisse First Boston Mortgage Securities Corp., et al. (11-30018-MAP).
The court will dismiss Plaintiffs claim of misstatements or omissions regarding owner-occupancy rates. The court will dismiss Plaintiffs claims against the non-underwriter Defendants: Credit Suisse First Boston Mortgage Securities Corp.; DLJ Mortgage Capital, Inc.; Mortgage Asset Securitization Transactions, Inc.; and UBS Real Estate Securities Inc. The court will dismiss the claims against Defendants whose control person liability stems from primary violations by the non-underwriter Defendants: UBS Real Estate Securities Inc., Andrew A. Kimura, Jeffrey A. Altabef, Evelyn Echevarria, Michael A. Marriott, Thomas Zingalli, David Martin, Per Dyrvik, and Peter Slagowitz. The court will deny Defendants’ motion in all other respects.
6. JP Morgan Chase Bank, N.A., et al. (11-30091,-MAP).
The court will dismiss Plaintiffs claim of misstatements or omissions regarding owner-occupancy rates. The court will dismiss the section 410(a) claims against the non-underwriter Defendants: J.P. Morgan Mortgage Acquisition Corp.; J.P. Morgan Acceptance Corporation I; J.P. Morgan Chase Bank, N.A.; EMC Mortgage Corporation; Cohen Legacy, LLC; Structured Asset Mortgage Investments II Inc.; Bear Stearns Asset Backed Securities I LLC; Washington Mutual Mortgage Securities Corporation; and WaMU Asset Acceptance Corporation. The court will dismiss the section 410(b) claims against Defendants whose control person liability stems from primary violations by the non-underwriter Defendants. The court is unable to discern who these individuals or entities are. Defendants will have until two weeks from the date of this memorandum to file a status report establishing the identities of these Defendants.
Defendants in this case have made additional arguments for dismissal of the claims against J.P. Morgan Chase Bank, N.A. and Cohen Legacy, LLC. These arguments do not need to be addressed because both Defendants are non-underwriter Defendants, and the claims against them will be dismissed for the reasons discussed earlier.
The court will deny Defendants’ motion in all other respects.
7. Goldman Sachs Mortgage Company, et al. (11-30126-MAP).
The court will dismiss Plaintiffs claim of misstatements or omissions regarding owner-occupancy rates. The court will dismiss the section 410(a) claims against the non-underwriter Defendants: Goldman Sachs Mortgage Co.; Bear Stearns Asset Backed Securities I LLC; American Home Mortgage Securities LLC; and American Home Mortgage Assets LLC. The court will dismiss the section 410(b) claims against Defendants whose control person liability stems from primary violations by the non-underwriter Defendants. The court is unable to discern who these individuals or entities are. Defendants will have until two weeks from the date of this memorandum to file a status report establishing the identities of these Defendants. The court will deny Defendants’ motion in all other respects.
The court will dismiss Plaintiffs claim of misstatements or omissions regarding owner-occupancy rates. The court will dismiss the section 410(a) claims against the non-underwriter Defendants: Impac Funding Corp. and Impac Secured Assets Corp. The court will dismiss the section 410(b) claims against Defendants whose control person liability stems from primary violations by the non-underwriter Defendants. The court is unable to discern who these individuals or entities are. Defendants will have until two weeks from the date of this memorandum to file a status report establishing the identities of these Defendants. The court will deny Defendants’ motion in all other respects.
9. HSBC Bank USA, National Association, et al. (11-30141-MAP).
This final complaint presents a unique issue that must now be addressed. It appears that the offering documents at issue in this case did not include a disclosure that the owner-occupancy rates were based on the borrowers’ representations of their intended use. A review of the offering documents submitted by Defendants did not uncover any such disclosure. Moreover, in their memorandum in support of the motion to dismiss, Defendants stated that the offering doсuments do not identify the methodology through which owner-occupancy rates were derived. Because the offering documents appear to lack the disclosure present in the other eight cases, the earlier discussion of owner-occupancy rates does not apply here.
Defendants argue that the claim regarding owner-occupancy rates should nevertheless be dismissed. According to Defendants, Plaintiffs forensic review that determined owner-occupancy rates were lower than those represented by Defendants is irrelevant. While Plaintiff may believe that its methodology is more accurate, Defendants argue that, because Defendants did not state that their representations were based on the same methodology, the fact that the two differ does not show any misrepresentation on Defendants’ part.
This argument is unconvincing. The offering documents in this case did not state that the rates were based on borrowers’ representations or that they represented the results of a particular methodology. They stated only that a certain percentage of properties was occupied by owners. If the actual owner-occupancy rate was different from that represented by Defendants, Defendants’ made a misrepresentation. Plaintiff alleges, based on a forensic analysis, that this was the case. Defendant may question the accuracy of Plaintiffs forensic analysis, but this is a question of fact that cannot be determined at this stage of the proceedings. For these reasons, Plaintiffs claim regarding the owner-occupancy rates will not be dismissed in this case.
The court will dismiss Plaintiffs section 410(a) claims against the non-underwriter Defendants: HSBC Bank USA, National Association and HSI Asset Securitization Corporation. The court will dismiss the section 410(b) claims against Defendants whose control person liability stems from primary violations by the non-underwriter Defendants.
IV. CONCLUSION
For the foregoing reasons, Defendants’ motions to dismiss (11-30035-MAP (Dkt. Nos. 22 and 28); 11-30039-MAP (Dkt. No. 17); 11-30044-MAP (Dkt. No. 17); 11-30047-MAP (Dkt. No. 16); 11-30048-MAP (Dkt. Nos. 23 and 27); 11-30094-MAP (Dkt. No. 24); 11-30126-MAP (Dkt. No. 26); 11-30127-MAP (Dkt. No. 10); 11-30141-MAP (Dkt. No. 11)) are hereby ALLOWED in part and DENIED in part. Plaintiffs claims regarding misrepresentations concerning owner-occupancy rates are dismissed in all of the complaints, except in the complaint аgainst HSBC Bank USA, National Association et al. (11-30141-MAP). Plaintiffs section 410(a) claims against the non-underwriter Defendants are dismissed in all of the complaints. These Defendants are identified in Part III, Section B of this memorandum and order. Plaintiffs section 410(b) claims against Defendants whose control person liability stems from primary violations by non-underwriter Defendants are also dismissed. Some of these Defendants are identified in Part III, Section B of this memorandum. The court is unable to identify these Defendants in the actions numbered 11-30035-MAP, 11-30094-MAP, 11-30126-MAP, 11-30127-MAP, and 11-30141-MAP. Defendants in these actions have until two weeks from the date of this memorandum to file a status report naming the relevant Defendants.
Defendants should now file Answers within twenty days. The cases will then be referred to Magistrate Judge Kenneth P. Neiman for a pretrial scheduling conference.
It is So Ordered.
Notes
. Defendants filed a joint memorandum in support of their motions to dismiss in the actions numbered 11-30035-MAP (Dkt. No. 22), 11-30039-MAP (Dkt. No. 17), 11-30044-MAP (Dkt. No. 17), 11-30047-MAP (Dkt. No. 16), and 11-30048-MAP (Dkt. No. 23); a substantially identical joint memorandum in support of their motions to dismiss in the actions numbered 11-30094-MAP (Dkt. No. 24), 11-30126-MAP (Dkt. No. 26), and 11-30127-MAP (Dkl. No. 10); and a separate memorandum, which to a large extent incorporates the arguments of the joint memoranda, in the action numbered 11-30141-MAP (Dkt. No. 11). Each group of Defendants has also filed a supplemental memorandum addressing faсts and arguments particular to its case. Plaintiff's oppositions to the motions to dismiss are also largely identical.
. These Defendants are: Residential Funding Company, LLC; Residential Accredit Loans, Inc.; Residential Asset Mortgage Products, Inc.; Residential Asset Securities Corporation; and Residential Funding Securities, LLC.
. These Defendants are: DB Structured Products, Inc.; Deutsche Alt-A Securities, Inc.; ACE Securities Corp.; and Deutsche Bank Securities, Inc.
. The JP Morgan Defendants are: JP Morgan Chase Bank, N.A.; J.P. Morgan Mortgage Acquisition Corporation; J.P. Morgan Securities LLC; and J.P. Morgan Acceptance Corporation I.
The Bear Stearns Defendants are: EMC Mortgage Corporation, Structured Asset Mortgage Investments II Inc.; Bear Stearns Asset Backed Securities I LLC; and Cohen Legacy, LLC.
The WaMu Defendants are: WaMu Asset Acceptance Corporation; WaMu Capital Corporation, and Washington Mutual Mortgage Securities Corporation.
. These Defendants are: Goldman Sachs Mortgage Company; Bear Stearns Asset Backed Securities I LLC; American Home Mortgage Securities LLC; American Home Mortgage Assets LLC; Goldman Sachs & Co., Inc.; J.P. Morgan Securities LLC; Barclays Capital Inc.; and UBS Securities LLC.
. In the complaint against the American Home Defendants, Plaintiff alleges that the mortgage loans underlying the certificates at issue were originated by non-party American Home Mortgage Investment Corp. ("AHM”). Plaintiff cites to statements by AHM employees, other witnesses, and internal documents to show that AHM imposed pressure on its underwriters to approve mortgage loans and routinely abandoned its underwriting guidelines.
In the complaint against the JP Morgan Defendants, Plaintiff cites statements by Defendants’ own employees and internal documents to show abandonment of underwriting guidelines.
. In addition to pointing to specific disclosures concerning the underwriting guidelines, appraisals, and owner-occupancy rates, Defendants also argue that the offering documents all contained “cure, repurchase or substitute” provisions disclosing that some of the mortgage loans might not conform to the representations of the mortgage sellers. The provisions obligated sellers of such loans to cure, repurchase, or substitute the non-conforming loans upon request. According to Defendants, Defendants made no actionable misrepresentations in light of these provisions. See Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC ("Lone Star”),
However, the holding in Lone Star, on which Defendants exclusively rely, is limited to cases involving a small number of correctable mistakes, and courts have refused to allow such clauses to defeat claims of the type of widespread misrepresentation alleged here. See, e.g., Emps.’ Ret. Sys. of the Gov’t of the V.I. v. J.P. Morgan Chase & Co., 804
. It appears that the offering documents at issue in the complaint against HSBC Bank USA, National Association, et al. (11-30141-MAP) did not contain such disclosures. The court will discuss this issue in mоre detail after it finishes its discussion of the global issues and moves to a specific assessment of each complaint.
. Plaintiff argues that the First Circuit in Nomura held that allegations that "defendants promoted and sold [cjertificates to [the plaintiffs ” were sufficient to state a claim against a depositor and two trusts that issued mortgage-backed securities, but did not directly transfer title to plaintiffs.
. The cases Plaintiff relies on to establish seller liability are all not binding on this court and, more importantly, factually distinguishable from these cases. See, e.g., Capri v. Murphy,
. The first action, 11-30035-MAP, was filed on February 9, 2011. The last action, 11-30141-MAP, was filed on May 20, 2011.
. Defendants also argue that, in light of information available in the public domain as well as the various disclosures and warnings included in the offering documents, Plaintiff has failed to plead how the allegedly misstated or omitted information was material. Materiality is an element of a claim under section 410(a). See Marram,
Although the issue of materiality can be determined as a matter of law on a motion to dismiss under some circumstances, see, e.g., Glassman v. Computervision Corp.,
. Plaintiff argues that a different standard must be used for pre-discovery motions to dismiss. However, no case from the First Circuit supports this proposition. On the contrary, the First Circuit in Boit specifically noted that, while other jurisdictions "hold that allegations in a complaint, unsupported by any evidence in the record before the court, are sufficient to make a prima facie showing of personal jurisdiction .... [i]t has long been the rule of this circuit ... that plaintiffs may not rely on unsupported allegations in their pleadings to make a prima facie showing of personal jurisdiction.”
. All parties agree that section 414(h) of MUSA may also supply the statutory authorization necessary for personal jurisdiction. Mass. Gen. Laws ch. 110A, § 414(h) (“When any person, including any nonresident of the commonwealth, engages in conduct prohibited or made actionable by this chaptеr ... and he has not filed a consent of service of process under subsection (g) and personal jurisdiction over him cannot otherwise be obtained in the commonwealth, that conduct shall be considered equivalent to his appointment of the secretary or his successor in office to be his attorney to receive service of any lawful process in any non-criminal suit, action, or proceeding against him ... which grows out of that conduct and which is brought under this chapter ..., with the same force and validity as if served on him personally.”). Defendants argue, however, that the court’s exercise of personal jurisdiction over the Individual Defendants in these cases would violate the requirements of the Due Process Clause. A constitutional defect in the
. Defendants do not explicitly raise the issues concerning non-underwriter Defendants and control person liability in their motion to dismiss. The only argument that Defendants explicitly put forth in support of their motion to dismiss is that Plaintiff failed to allege any actionable misstatement or omission, for reasons similar to those raised in the other motions to dismiss. However, Defendants attempt to adopt, to the extent relevant, the
Generally, Defendants cannot incorporate by reference documents filed in other cases. See Langella v. Cercone, Civ. A. No. 09-312,
One reason courts are reluctant to allow this type of incorporation by reference is that "it is not [the] Court's responsibility to search another party's motion to determine which, if any, of the arguments set forth in said motion are applicable to a different defendant....” Langella,
At the least, the arguments on which the court will grant the motions to dismiss in the other eight cases — the definition of a statutory seller and control person liability for non-underwriter Defendants — do apply here. Consequently, the court will consider these arguments from the joint motions incorporated by reference here.