Three union pension and welfare funds 1 appeal from a district court order dismissing at the complaint stage their putative *766 class action against eight trusts, the “depositor” that organized them, the trusts’ underwriters and five officers of the depositor. The lawsuit sought redress for losses suffered when plaintiffs acquired trust certificates representing mortgage-backed securities. The background facts are largely undisputed.
The lead defendant, Nomura Asset Acceptance Corporation (“Nomura Asset”), played the organizing role in the creation of the securities at issue in this case. As depositor, it acquired mortgages from various banks and transferred them to the eight trusts, all of which are separate legal entities. Each trust pooled the mortgages acquired by it and, with Nomura Asset, issued trust certificates representing interests in that trust. Then Nomura Asset and the trusts worked with underwriters to sell the certificates to investors.
The certificates constitute securities under the federal securities laws, and to permit their initial sale, a registration statement was required, disclosing information about the securities being offered. One registration statement, filed on July 22, 2005, covered three trusts (2006-AP1, 2006-AR1, 2006-AR2); the other, filed on April 19, 2006, covered the remaining five (2006-AF1, 2006-AF2, 2006-AR3, 2006-AR4, 2006-WF1). These were “shelf registrations,” see 17 C.F.R. § 230.415(a) (2010), signaling an intent to offer securities in the future and containing certain information about Nomura Asset, the trusts and the securities.
The registration statemеnts were not themselves offerings and did not become effective until Nomura Asset and the trusts updated them by filing prospectus supplements that described the details of the offering for each trust. The registration statements and prospectus supplements (collectively, “offering documents”) explain in detail the characteristics of the mortgages that Nomura Asset acquired and transferred to each trust. The federal securities laws, yet to be discussed, impose liability for false or misleading statements causing harm to purchasers.
In this case, plaintiffs bought trust certificates representing interests in two of the eight trusts; one trust (API trust) was covered by the earlier registration statement and a September 27, 2005, prospectus supplement; the other (AF1 trust), by the later of the two registration statements and a May 25, 2006, prospectus supplement. One of the three plaintiffs bought certificates in the AF1 trust, a second in the API trust and the third in both trusts. Thereafter, on November 13, 2007, Moody’s downgraded the rating of all of the certificates for all eight trusts and the certificates are now worth much less than what plaintiffs originally paid for them. This lawsuit followed shortly thereafter.
On January 31, 2008, one of the three union funds filed suit in state court, asserting violations of sections 11, 12(a)(2) and 15 of the Securities Act of 1933, 15 U.S.C. §§ 77k(a), 77l(a)(2), 77o(2006). Section 11 imposes liability for false or misleading statements contained in a registration statеment, id. § 77k(a); section 12(a)(2) imposes similar liability on sellers who make such statements in a prospectus or oral communication, id. § 77l(a)(2). Section 15 imposes liability on one who “controls any person liable” under sections 11 or 12. Id. § 77o.
The case was removed to federal district court, the other funds entered as plaintiffs and ultimately a joint amended complaint was filed listing as defendants Nomura Asset, the eight trusts, the trusts’ underwriters and five officers and directors of *767 Nomura Asset. 2 The gravamen of the complaint is that the offering documents contained false or misleading statements, and as a result plaintiffs purchased securities whose true value when purchased was less than what was paid for them. The suit was cast as a class action comprised of purchasers of the certificates of the eight trusts covered by the two registration statements.
Defendants filed motions to dismiss for lack of standing, Fed.R.Civ.P. 12(b)(1), and for failure to state a claim, Fed.R.Civ.P. 12(b)(6). On September 30, 2009, the district court granted defendants’ motions to dismiss and entered judgment. Claims related to the trusts whose certificates had been purchased by none of the named plaintiffs were dismissed for lack of Article III standing; claims relating to the other two trusts were dismissed on statutory grounds; and no class was ever certified. The present appeal followed.
Jurisdiction.
At the outset, plaintiffs say that the original action brought in state court may have been improperly removed and that the district court may thus have lacked subject matter jurisdiction; although plaintiffs did not contest jurisdiction until they lost the case in the district court, lack of subject matter jurisdiction can be noticed at any time and cannot be waived.
United States v. Cotton,
Removal is ordinarily permitted in civil actions where the same case could originally have been brought in federal court “[e]xcept as otherwise expressly provided by Act of Congress.” 28 U.S.C. § 1441(a). One exception — section 22 of the Securities Act, 15 U.S.C. § 77v(a) — is that “no case arising under [the Securities Act] and brought in any State court of competent jurisdiction shall be removed to any court of the United States.” However, assuming that this limitation applied, 3 we conclude that section 22’s limitation would not be one of subject matter jurisdiction but merely an advantage that a plaintiff could forfeit by failure to make timely objection.
There are some casual references in reported circuit-court decisions to section 22 as a limitation on subject matter jurisdiction,
e.g., Emrich v. Touche Ross & Co.,
Civil suits asserting claims under the Securities Act are within the “arising under” clause of Article III and can easily be brought as original actions in federal court. 15 U.S.C. § 77v(a). Although expressed as a bar on removal of such cases from state court, section 22(a)’s aim is not to preclude hearing such cases in federal court but instead to “favor[] plaintiffs’ choice of forum.”
Pinto v. Maremont Corp.,
Given that federal courts are otherwise competent to address federal securities сlaims and do so all the time, it makes far more sense to view section 22 as creating a waivable right to insist on non-removal. That course achieves the statute’s aim to protect the plaintiffs preference for a state forum, but it prevents the mischief of allowing a party to sit on an objection, raising it only if and when the objector is dissatisfied with the result. Cf. 14C C. Wright, A. Miller, E. Cooper & J. Steinman, Federal Practice & Procedure § 3739, at 817-18 (4th ed. 2009) (limiting removal objections to thirty-day period prevents use of a defect as insurance against unfavorable developments).
Standing. The more difficult threshold question presented by the appeal is whether plaintiffs can pursue claims, to the extent claims may be stated, based on offerings in which they did not participate and against trusts whose certificates they did not purchase. This issue, styled by defendants primarily as one of Article III standing and secondarily as a standing issue under the Securities Act, was resolved in defendants’ favor by the district court. The issue looks straightforward and one would expect it to be well settled; neither assumption is entirely true.
It is clear that the named plaintiffs have no claim
on their own behalf
based on trust certificates that they did not buy;
5
and they bought no certificates issued by six of the defendant trusts. To the extent claims exist based on such purchases, they belong to the actual purchasers. Since a requisite of an ordinary case or controversy is an injury to the plaintiff traceable to the defendant,
Lujan v. Defenders of Wildlife,
*769 In a properly certified class action, the named plaintiffs regularly litigate not only their own claims but also claims of other class members based on transactions in which the named plaintiffs played no part. Yet, here certain defendants, including six of the eight trusts named as defendants, are not liable to the named plaintiffs on any claims. In these circumstances older cases, including a decision of this court, have refused to allow the case to proceed — whether as a class action or not— against defendants not implicated in any of the wrongs done to the named plaintiffs.
Thus, in
Barry v. St. Paul Fire & Marine Insurance Co.,
How far
Barry
extends today may be debatable. Although its discussion of the issue was terse and not the main focus of the decision, its approach had support not only from sister circuit cases but from statements from the Supreme Court.
See Barry,
It is axiomatic that the judicial power conferred by Art. Ill may not be exercised unless the plaintiff shows “that he personally has suffered some actual or threatened injury as a result of some putatively illegal conduct of the defendant.” ... It is not enough that the conduct of which the plaintiff complains will injure someone.
But the Supreme Court has not been consistent. In
Ortiz v. Fibreboard Corp.,
Further, several circuits have cut themselves loose from a strict requirement that, in a plaintiff class action, no defendant may be sued unless a named plaintiff has a counterpart claim against that defendant. Arguing that the class action should be a flexible instrument, these courts сonclude that the class action should embrace defendants against whom no named plaintiff has a claim so long as the claims are essentially of the same character as the claim against a properly named defendant, and that the sorting out of this issue should be left to Rule 23 criteria rather than by use of standing concepts focusing on named plaintiffs. 7
There is no reason to inventory stray Supreme Court quotations that can be found on both sides; nor is there a single recent holding by the Court that with perfect clarity resolves the issue directly before us. Indeed, Rule 23 criteria can still be used as a required tool for shaping the scope of a class actiоn without abandoning the notion that Article III creates some outer limit based on the incentives of the named plaintiffs to adequately litigate issues of importance to them.
See Baker v. Carr,
For the present,
Barry
— however terse its treatment — is on our books; and we are inclined (and perhaps required) to follow its lead — with a qualification that does not affect the outcome in this case. The qualification, on which we reserve judgment, is one where the claims of the named plaintiffs necessarily give them— not just their lawyers — essentially the same incentive to litigate the counterpart claims of the class members because the establishment of the named plaintiffs’ claims necessarily establishes those of other class members. The matter is one of identity of issues not in the abstract but at a ground floor level. In such a case, which might include the kind of claims that were present in
Payton,
Turning back to our own situation — claims based on mortgage-backed securities — most district courts have continued to hold that named plaintiffs must themselves possess claims against each defendant.
E.g., In re Salomon Smith Barney Mut. Fund Fees Litig.,
*770 [ejvery court to address the issue in a [mortgage-backed security] class action has concluded that a plaintiff lacks standing under ... Article III ... to represent the interests of investors in [mortgage-backed securities] offerings in which the [named] plaintiffs did not themselves buy.
*771 In our case, as in others involving mortgage-backed securities, the necessary identity of issues and alignment of incentives is not present so far as the claims involve sales of certificates in the six trusts. Each trust is backed by loans from a different mix of banks; no named plaintiff has a significant interest in establishing wrongdoing by the particular group of banks that financed a trust from which the named plaintiffs made no purchases. Thus, the claims related to the six trusts from which the named plaintiffs never purchased securities were properly dismissed, as were the six trusts and defendants connected to only those six trusts.
Although Nomura Asset is a common defendant with respect to all eight of the trusts, claims against it as well fail so far as they are based on the six trusts whose certificates were purchased by no named plaintiff. Although Nomura Asset is a properly named defendant, the named plaintiffs have no stake in establishing liability as to misconduct involving the sales of those certificates. In the Supreme Court’s words: “Nor does a plaintiff who has been subject to injurious conduct of one kind possess by virtue of that injury the necessary stake in litigating conduct of another kind, although similar, to which he has not been subject.”
Blum,
Adequacy of claims.
The district court held that on the face of the complaint,
no
claims were sufficiently stated. We review that ruling
de novo,
accepting as true all well-pled facts in the complaint and drawing all reasonable inferences in favor of plaintiffs.
SEC v. Tambone,
To state a claim, the complaint must “contain sufficient factual matter, acсepted as true, to ‘state a claim to relief that is plausible on its face,’ ”
Ashcroft v. Iqbal,
— U.S. -,
The district court found that of plaintiffs’ main efforts to assert adequate claims, all three failed. The statute provides the blueprint against which a claim must be measured and we start by outlining the requirements of section 11, which reads in relevant part:
In case any part of the rеgistration statement, when such part became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring such security ... may ... sue [enumerated defendants].
15 U.S.C. § 77k(a).
Here, plaintiffs properly alleged that they acquired securities pursuant to a
*772
registration statement, and defendants— which include the issuer and underwriters, as well as the directors of Nomura Asset and signers of the offering documents— are those enumerated in section 11.
8
Plaintiffs also alleged that misstatements or misleading statements were made and that thеy were “material,” that is, that “ ‘there is a substantial likelihood that a reasonable shareholder would consider it important’ to the investment decision.”
Milton v. Van Dorn Co.,
One qualification is important to understanding the district court’s rulings. Cautionary statements may “negate any reasonable reliance,” 2 Hazen,
supra,
§ 7.3[1][B], at 216; but this exception, known as the “bespeaks caution” doctrine, normally applies only to “forward-looking” statements such as projections or forecasts and not to “representation[] of present fact.”
Shaw v. Digital Equip. Corp.,
This brings us to the individual charges of false or misleading statements and to the specific allegations of the complaint. On this appeal, plaintiffs claim that three sеts of allegations were adequately alleged: one relates to the lending guidelines, another to appraisal standards and a third to credit ratings. The district court disagreed in each case, and we consider the adequacy of the allegations charge by charge.
The underwriting guidelines. Plaintiffs first point to a set of statements in the offering documents implying that the banks that originated the mortgages used lending guidelines to determine borrowers’ creditworthiness and ability to repay the loans. For example, the prospectus supplements for the two trusts at issue stated that First National Bank of Nevada (“FNBN”), one of the “key” loan originators for those trusts, used “underwriting guidelines [that] are primarily intendеd to evaluate the prospective borrower’s credit standing and ability to repay the loan, as well as the value and adequacy of the proposed mortgaged property as collateral.” 9
In fact, plaintiffs allege, FNBN “routinely violated” its lending guidelines and instead approved as many loans as possible, even “scrub[bing]” loan applications of potentially disqualifying material. Indeed, plaintiffs allege that this was FNBN’s “business model,” aimed at milling applications at high speed to generate profits from the sale of such risky loans to others. Thus, plaintiffs say, contrary to the registration statement, borrowers did not “demonstrate[] an established ability to repay *773 indebtedness in a timely fashion” and employment history was not “verified.” 10
Admittedly, warnings in the offering documents state, for example, that the “underwriting standards ... typically differ from, and are ... generally less stringent than, the underwriting standards established by Fannie Mae or Freddie Mac”; that “certain exceptions to the underwriting standards ... are made in the event that compensating factors are demonstrated by a prospective borrower”; and that FNBN “originates or purchases loans that have been originated under certain limited documentation programs” that “may not require income, employment or asset verification.”
The district court ruled that, read together with such warnings, the complained-of assurances were not materially false or misleading, but we cannot agree. Neither being “less stringent” than Fannie Mae nor saying that exceptions occur when borrowers demonstrate other “compensating factors” reveals what plaintiffs allege, namely, a wholesale abandonment of underwriting standards. 11 That is true too of the warning that less verification may be employed for “certain limited documentation programs designed to streamline the loan underwriting process.” Plaintiffs’ allegation of wholesale abandonment may not be proved, but — if accepted at this stage — it is enough to defeat dismissal.
Defendants say that no detailed factual supрort is provided for the allegation and that it is implausible. Despite the familiar generalization that evidence need not be pled at the complaint stage,
see Twombly,
“Conclusory” and “implausible” are matters of degree rather than sharp-edged categories.
Iqbal,
This is a familiar problem: plaintiffs want discovery to develop such evidence, while courts are loath to license fishing expeditions. While this case presents a judgment call, the sharp drop in the credit
*774
ratings after the sales and the
specific
allegations as to FNBN offer enough basis to warrant some initial discovery aimed at these precise allegations. The district court is free to limit discovery stringently and to revisit the adequacy of the allegations thereafter and even before possible motions for summary judgment.
See, e.g., Miss. Pub. Emps.’ Ret. Sys. v. Bos. Sci. Corp.,
Appraisal practices. The complaint also alleges that the offering documents contained false statements relating to the methods used to appraise the property values of potential borrowers' — the ratio of property value to loan being a key indicator of risk. For example, the April 19, 2006, registration statement and the prospectus supplements stated that “[a]ll appraisals” were conducted in accordance with the “Uniform Standards of Professional Appraisal Practice” (“USPAP”). These in turn require that appraisers “perform assignments with impartiality, objectivity, and independence” and make it unethical for appraisers, among other things, to accept an assignment contingent on reporting a predetermined result.
The complaint alleges in a single general statement that the appraisals underlying the loans at issue here failed to comply with USPAP requirements; but there is no allegation that any specific bank that supplied mortgages to the trusts did exert undue pressure, let alone that the pressure succeeded. The complaint fairly read is that many appraisers in the banking industry were subject to such pressure. 12 So, unlike the lending standard allegation, the complaint is еssentially a claim that other banks engaged in such practices, some of which probably distorted loans, and therefore this may have happened in this case.
On this basis, virtually
every
investor in mortgage-backed securities could subject a multiplicity of defendants “to the most unrestrained of fishing expeditions.”
Gooley v. Mobil Oil Corp.,
Investment ratings. The prospectus supplements set forth ratings that Standard & Poor’s Rating Services, Inc. (“S & P”) or Moody’s Investor Services, Inc. (“Moody’s”) had assigned to the certificates or stated that the certificates would not be offered unless they received an “investment grade” rating from S & P (AAA through BBB) or Moody’s (Aaa through Baa3). There is no claim that the ratings given were misreported or that the “unless” condition was not met. Rather, *775 plaintiffs say that these ratings were misleading, primarily because they were based on “outdated models, lowered ratings criteria, and inaccurate loan information.”
The ratings are
opinions
purportedly expressing the agencies’ professional judgment about the value and prospects of the certificates.
See In re Credit Suisse First Bos. Corp.,
The complaint includes acknowledgments from S & P and Moody’s executives conceding, in hindsight, that the models and data that the rating agencies were using were deficient. But the ratings were not false or misleading because rating agencies should have been using better methods and data. Defendants are not liable under the securities laws when their opinions, or those they reported, were honestly held when formed but simply turn out later to be inaccurate; nor are they liable only because they could have formed “better” opinions.
See Boilermakers,
In addition to сlaiming that the ratings were faulty, the complaint also alleges that the ratings agencies produced high ratings aimed at keeping business, and it quotes individuals at the rating companies to support that proposition and to suggest that some inside the company thought that ratings were skewed. 16 But, tellingly, the complaint stops short of alleging expressly that the leadership of S & P or Moody’s believed that their companies’ ratings were false or were unsupported by models that generally captured the quality of the securities being rated.
The line is admittedly a fine one, but the ratings — inherently opinions and not warranties against error,
J & R Mktg.,
As sections 11 and 12 are structured, there is liability without fault even for those who merely report the statements or opinions of others; under section 11 this liability for the issuer is absolute; for other defendants (including the issuer under section 12), a defense is available fоr reporting statements of others if due diligence was exercised. See 15 U.S.C. §§ 77k(a)-(b), 77i(a)(2). 17 Either way, the absence of a scienter element may suggest special caution before classifying an accurate report of a third-party opinion as “misleading” based on implied representations about subjective intent or qualifications known only to the third party.
Seller or solicitor allegations.
Section 12(a)(2) permits a plaintiff to sue only a defendant who either sold its own security to the plaintiff or (for financial gain) successfully solicited the sale of that security to the plaintiff.
Pinter,
But the complaint also alleged that plaintiffs “acquired ... [Certificates from defendant Nomura Securities” and that the “[d]efendants promoted and sold the [Certificates to [the p]laintiffs and other members of the [Class” (emphasis added); these allegations are sufficient to state a claim under section 12(a)(2) so long as material misstatements or misleading omissions are alleged. The district court’s dismissal of plaintiffs’ section 12(a)(2) claims for failure to allege defendants’ requisite connections with the sale was in error.
Control person liability.
Finally, the district court dismissed plaintiffs’ section 15 “control person” liability claims because it held that plaintiffs failed to state a violation of the securities laws to begin with. Section 15 creates liability for any individual or entity that “controls any person liable” under sections 11 or 12. 15 U.S.C. §
77o; see Shaw,
We affirm the dismissal of all claims based upon purchases of the AR1, AR2, AF2, AR3, AR4 and WF1 trusts and all defendants including those six trusts implicated only аs to their certificates. As to *777 claims against the AF1 and API trusts and other remaining defendants, we affirm the dismissal of all claims save those relating to the statements regarding the lending banks’ underwriting practices but vacate the dismissal of the latter claims and remand for further proceedings consistent with this decision. Each party will bear its own costs on this appeal.
It is so ordered.
Notes
. Plumbers’ Union Local No. 12 Pension Fund ("Plumbers' Fund”), Plumbers’ & Pipe-fitters’ Welfare Educational Fund (“Plumbers' & Pipefitters’ Fund”) and the NECA-IBEW Health & Welfare Fund (“NECA-IBEW Fund”).
. Nomura Securities International, Inc. ("Nomura Securities”) was the sole underwriter for the AF1, API, AR1 and AR2 trusts; the AF2 trust was underwritten by Nomura Securities, Greenwich Capital Markets, Inc. (“GCM”) and Merrill Lynch, Pierce, Fenner & Smith, Inc. ("Merrill Lynch”); the AR3 trust was underwritten by Nomura Securities and Goldman, Sachs & Co. (“Goldman”); the AR4 trust was underwritten by UBS Securities LLC ("UBS”) and GCM; and the WF1 trust was underwritten by Nomura Securities and Citigroup Global Markets, Inc. ("CGMI”). The officers and directors are John P. Graham, Chief Executive Officer and President of Nomura Asset; Nathan Gorin, Chief Financial Officer of Nomura Asset; and John McCarthy and David Findlay, directors of Nomura Asset. (Another defendant named in the complaint, Shunichi Ito, has apparently never been served with process.)
. Whether it applied depends on how one resolves a potential conflict between section 22 and language in a later statute, namely, the Class Action Fairness Act’s (“CAFA”) removal provision.
Compare Luther v. Countrywide Home Loans Servicing LP,
.
See, e.g., In re Norfolk S. Ry. Co., 592
F.3d 907, 912 (8th Cir.2010);
Vasquez v. N. Cnty. Transit Dist.,
. For section 11,
see Barnes v. Osofsky,
. See also 1 J. McLaughlin, Class Actions § 4:28, at 659-60 (6th ed. 2010) ("In a multidefendant case, a putative class representative must allege that he or she has been injured by the conduct of each defendant to establish standing.”); 5 J. Moore et al., Moore’s Federal Practice § 26.63[1][b], at 23-304 (3d ed. 2010) (“If a complaint includes multiple claims, at least one named class representative must have Article III standing to raise each claim.”).
.
Payton v. Cnty. of Kane,
. Although the issuer is not explicitly mentioned in the list of enumerated defendants, because the issuer must always sign registration statements, 15 U.S.C. § 77f(a), issuers are permissible defendants under section 11(a)(1), which includes as defendants "every person who signed the registration statement,” id. § 771c(a)(1). See 2 T. Hazen, The Law of Securities Regulation § 7.3[3], at 218 & n.49 (6th ed. 2009).
. The prospectus supplements also stated that "FNBN employs or contraсts with underwriters to scrutinize the prospective borrower’s credit profile”; its guidelines "are applied in a standard procedure that is intended to comply with applicable federal and state laws and regulations”; "the prospective borrower must have a credit history that demonstrates an established ability to repay indebtedness in a timely fashion”; and "employment history is verified through written or telephonic communication.”
. Similar claims were made for another "principal originator” for one of the two trusts, Metrocities Mortgage, LLC, but the basis for such claims appears to be only that such claims were made against that company in other litigation. As we are here concerned only with whether the claim is adequately supported as to some of the mortgages, we need not pursue this issue further.
. The same can be said about the warning that "[c]ertain [m]ortgage [ljoans were underwritten to nonconforming underwriting standards, which may result in losses or shortfalls to be incurred on the [ojffered [c]ertificates.” Using "nonconforming” standards is different than having no standards; and this statement makes it seem as though only some ("certain”) loans were underwritten under these standards, leaving the impression that most other loans used “conforming” standards.
. The complaint cites the testimony of Alan Hummel, the Chair of the Appraisal Institute, before the Senate Committеe on Banking that appraisers "experience^] systemic problems with coercion” and a 2007 survey showing that such pressure was widespread. How many succumbed and altered appraisals is not specified.
.
See In re IndyMac Mortgage-Backed Sec. Litig.,
.
See Lucia v. Prospect St. High Income Portfolio, Inc.,
.
E.g., J & R Mktg., SEP v. Gen. Motors Corp.,
. The strongest examples are from an S & P managing director now admitting that S & P intentionally inflated ratings and that he "knew it was wrong at the time” but did it because "[i]t was either that or skip the business” and from a CEO of Moody’s reportedly saying to his board in 2007 that Moody’s was pressured to rate higher and that sometimes they "drink the kool-aid.”
.
See 2
Sommer,
supra,
§ 9.02[12][d], at 9-24;
see also In re WorldCom, Inc. Sec. Litig.,