MBIA Class Action Defense Case-In re MBIA Inc. Securities Litigation: New York Federal Court Grants Defense Motion To Dismiss Securities Fraud Class Action Finding Class Action Claims Time-Barred By Inquiry Notice

Plaintiffs in Securities Fraud Class were on Inquiry Notice of Claims Against Company thus Rendering Class Action Complaint Barred by Statute of Limitations New York Court Holds

Several securities fraud class action lawsuits were filed in federal courts against MBIA and various individual defendants alleging that certain financial statements contained materially misleading statements in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. The actions were consolidated in the Southern District of New York, and defense attorneys moved to dismiss on the grounds that claims were time barred and that the allegations in the class action complaints failed to satisfy the heightened pleading requirements for securities fraud cases. In re MBIA Inc. Securities Litig., ___ F.Supp.2d ___, 2007 WL 473708 (S.D.N.Y. February 13, 2007) [Slip Opn., at 1-2]. The district court concluded that the class action claims were barred by the applicable statute of limitations and dismissed the complaint.

The class action complaint alleges that in 1998 MBIA – which is in the “primary business [of] selling financial guarantee insurance to public finance and structured finance clients” – entered into retroactive reinsurance agreements to protect itself against an anticipated $170 million loss in order to avoid a downgrade of its AAA rating. MBIA, at 3-4. According to the complaint, MBIA entered into a series of side agreements with the reinsurance companies that were not publicly disclosed for the purpose of inducing the reinsurers to cover the $170 million loss; under these side agreements, “MBIA promised to transfer insurance policies on the highest rated bonds in its portfolio, along with the associated premiums, to the Reinsurers over a period of six years.” Id., at 4-5. The complaint also alleged that MBIA improperly booked these premiums as income rather than as loans. MBIA’s disclosures of these transactions painted a positive picture for the company, see id., at 5-6; however, in the months following MBIA’s disclosures, several published reports explained the trade-offs realized through the deals, some viewing the strategy as “the bond insurance equivalent to Houdini” and others viewing it as “innovative,” id., at 6-7. And in 2002, a 66-page research report by Gotham Partners on MBIA detailed credit concerns involving the company’s guarantee portfolio, which MBIA immediately criticized in a press release that “contained no factual discussion of the transactions related by the [research] report.” Id., at 8-10.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

Jenkens & Gilchrist Class Action Defense Case-Olson v. Jenkens & Gilchrist: Illinois Federal Court Grants Defense Motion To Compel Arbitration Of Claims Against Law Firm/Lawyers Involved In Tax Shelter Ultimately Held Illegal By IRS

In Multifaceted Action Against Several Defendants, Illinois Court Grants Ernst & Young’s Defense Motion to Dismiss, Grants Timmis Law Firm/Lawyers Defense Motion to Compel Arbitration, and Grants Deutsche Bank Defense Motion for Stay

Plaintiffs filed a putative class action in Illinois state court against various lawyers, accountants, and bankers with whom they had consulted in connection with minimizing tax liability arising from the sale of their respective companies because the IRS subsequently determined that the tax saving strategy recommended to plaintiffs was “illegal” and they “ended up losing hundreds of thousands of dollars in the transactions.” Olson v. Jenkens & Gilchrist, 461 F.Supp.2d 710, 714 (N.D. Ill. 2006). Defense attorneys removed the action to federal court. Certain defendants then moved to dismiss the class action complaint, and other defendants moved to compel arbitration under a clause governed by the Federal Arbitration Act (FAA), and still other defendants moved for a stay of proceedings, id. The district court granted the defense motions.

The tax strategy recommended to plaintiffs involved digital option contracts, sometimes called Currency Options Bring Reward Alternatives (COBRA). Olson, at 714-15. We do not summarize here the convoluted and complicated fact pattern underlying the class action complaint. Suffice it to say that plaintiffs were persuaded by some of the law firm defendants to use digital options as a tax shelter in connection with the sale of their companies, the IRS subsequently determined such tax shelters to be illegal, and that plaintiffs suffered substantial damages as a result. The law firm defendants also allegedly advised plaintiffs not to participate in an IRS amnesty program and, even after the IRS determination, defendants failed to “retract, modify, or qualify their advice that the tax strategy was legal.” Id., at 716.

Ernst & Young moved to dismiss the 10 claims against it, which included claims for fraud, violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (Illinois Consumer Fraud Act), conspiracy, declaratory relief, and breach of the duty of good faith and fair dealing. The district court granted the motion finding that the class action complaint alleged only that Ernst & Young was involved “in the initial creation of the COBRA tax strategy in 1999”: plaintiffs “[did] not allege that [Ernst & Young] provided any professional services to Plaintiffs; received any fees from Plaintiffs directly or as a result of any transaction Plaintiffs engaged in; communicated with Plaintiffs in any way; or had any relationship with Plaintiffs whatsoever. While the Complaint does allege that [Ernst & Young] had a relationship with Jenkens and Deutsche Bank, Plaintiffs do not allege that relationship led to any damages to Plaintiffs.” Olson, at 718. Accordingly, the district court dismissed the class action claims against Ernst & Young, but did so without prejudice. Id.

Arbitration Class Action Court Decisions Uncategorized

TILA Class Action Defense Cases-LaLiberte v. Pacific Mercantile Bank: As Matter Of First Impression California Court Holds That Rescission Under Federal Truth-In-Lending Act (TILA) Not Suitable For Class Action Treatment

California Court Surprisingly Holds that Under Certain Circumstances Plaintiffs need not be Members of Class to Serve as Class Representatives and that, as Matter of First Impression, Rescission Under TILA (Truth-in-Lending Act) is a Personal Remedy Unsuitable for Class Action Treatment

Plaintiffs filed a putative class-action lawsuit against their lender alleging inter alia violations of the federal Truth In Lending Act (TILA) arising from the lender’s failure to disclose certain closing fees charged in connection with refinance loans. LaLiberte v. Pacific Merc. Bank, 147 Cal.App.4th 1. 53 Cal.Rptr.3d 745, 746 (Cal.App. 2007). Defense attorneys demurred to the class-action complaint on the ground that the class allegations failed to establish commonality; the trial court agreed but granted plaintiffs leave to amend. After extensive motion practice, plaintiffs filed a third amended class-action complaint seeking to represent a single class of borrowers who obtained loans after November 20, 2002. Id., at 746-47. Defense attorneys again demurred, this time on the ground that because the putative class representatives secured their loans in April 2002, they were not members of the class they sought to represent. Id., at 747. The trial court agreed, and sustained the demurred to the class action allegations without leave to amend. Id. as a matter of first impression, the California appellate court affirmed the trial court’s order, holding that rescission under TILA was not suitable for class action treatment.

Under California law, “An order sustaining demurs to class action allegations ‘is appealable to the extent that it prevents further proceedings as a class action.’” LaLiberte, at 747 (citation omitted). In this case, two standards of review apply on appeal. The first involves the independent judgment exercised by an appellate court in reviewing an order sustaining a demurrer; the second involves whether the trial court abused its discretion in denying leave to amend. Id., at 747-48 (citations omitted). The trial court had relied upon Payne v. United California Bank, 23 Cal.App.3d 850 (Cal.App. 1972), in support of its conclusion that plaintiffs lacked standing to sue on behalf of the proposed class because they were never members of that class. See id., at 748. The Court of Appeal disagreed, holding that La Sala v. American Sav. & Loan Ass’n, 5 Cal.3d 864 (Cal. 1971), was more on point. Id.

Certification of Class Actions Class Action Court Decisions RESPA/TILA Class Actions Uncategorized

24 CFR § 3500.4—Reliance Upon Rule, Regulation Or Interpretation By HUD Under Regulation X (Real Estate Settlement Procedures Act-RESPA)

For class action defense attorneys who defend against RESPA (Real Estate Settlement Procedures Act) class actions, we provide the text of Regulation X. Congress gave authority to the Secretary of the Department of Housing and Urban Development (HUD) to promulgate regulations for RESPA, and the regulations are set forth in 24 CFR § 3500.1 et seq. The regulations provide for rules, regulations and interpretations by HUD in § 3500.4, which provides:

§ 3500.4. Reliance upon rule, regulation or interpretation by HUD

(a) Rule, regulation or interpretation.–(1) For purposes of sections 19(a) and (b) of RESPA (12 U.S.C. 2617(a) and (b)) only the following constitute a rule, regulation or interpretation of the Secretary:

(i) All provisions, including appendices, of this part. Any other document referred to in this part is not incorporated in this part unless it is specifically set out in this part;

(ii) Any other document that is published in the FEDERAL REGISTER by the Secretary and states that it is an “interpretation,” “interpretive rule,” “commentary,” or a “statement of policy” for purposes of section 19(a) of RESPA. Such documents will be prepared by HUD staff and counsel. Such documents may be revoked or amended by a subsequent document published in the FEDERAL REGISTER by the Secretary.

Statutes & Rules Uncategorized

Public Accommodation/ADA Class Action Lawsuits And Federal Fair And Accurate Credit Reporting Act (FACTA) Class Action Cases Share Top Spot In Weekly Class Action Filings In California State And Federal Courts As Labor Law Class Actions Drop Dramatically

Defense attorneys in California are facing another wave of public accommodation/ADA (Americans with Disabilities Act) class action cases, together with a surprising number of class action lawsuits alleging violations of the federal Fair and Accurate Credit Reporting Act (FACTA). The surge in class action cases falling within these two categories this past week coincide with a dramatic drop in employment law class action claims. In an effort to assist class action defense attorneys in anticipating the claims against which they may have to defend, we provide weekly, unofficial summaries of the legal categories for new class actions filed in California state and federal courts in the Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas.

Class Actions In The News Uncategorized

24 CFR § 3500.3—Questions Or Suggestions From Public And Copies Of Public Guidance Documents Under Regulation X (Real Estate Settlement Procedures Act-RESPA)

As a resource for class action defense attorneys who defend against RESPA (Real Estate Settlement Procedures Act) class actions, we provide the text of Regulation X. Congress gave authority to the Secretary of the Department of Housing and Urban Development (HUD) to promulgate regulations for RESPA, and the regulations are set forth in 24 CFR § 3500.1 et seq. The regulations concerning questions or suggestions from public and copies of public guidance documents are set forth in § 3500.

Statutes & Rules Uncategorized

Class Action Defense Cases-In re JP Morgan Chase: Judicial Panel On Multidistrict Litigation (MDL) Grants Plaintiff’s Motion To Centralize Class Action Litigation But Selects Northern District of Illinois As Transferee Court

Judicial Panel Grants Request, Unopposed by Defense, for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407 but Rejects Plaintiff’s Request to Transfer Class Actions to District of Delaware Three federal securities class action lawsuits (two in Delaware and one in Illinois) were filed against JP Morgan Chase alleging fraudulent misrepresentations relating to its merger in 2004 with Bank One Corp. In re JP Morgan Chase & Co.

Class Action Court Decisions Multidistrict Litigation Uncategorized

Class Action Defense Cases-In re Stand ‘N Seal: Judicial Panel On Multidistrict Litigation (MDL) Grants Defense Motion To Centralize Class Action Litigation In The Northern District of Georgia

Judicial Panel Rejects Opposition to Defense Request for Pretrial Coordination Pursuant to 28 U.S.C. § 1407 and Grants Defense Motion for Centralization of Three Class Action Lawsuits Numerous class action lawsuits were filed against several defendants alleging “that plaintiffs suffered injuries resulting from their use of Tile Perfect Stand ‘n Seal “Spray-On” Grout Sealer.” In re Stand ‘N Seal Products Liab. Litig., 469 F.Supp.2d 1351, 1351 (Jud. Pan.Mult.Lit. January 5, 2007).

Class Action Court Decisions Multidistrict Litigation Uncategorized

Class Action Defense Cases-Goplen v. 51job: New York Federal Court Grants Defense Motion To Dismiss Securities Fraud Class Action For Failing To Plead With Particularity Required by PSLRA and Rule 9(b)

Defense Attorneys Established that Class Action Complaint Failed to Adequately Plead Securities Fraud with Particularity as Required by Rule 9(b) and the Private Securities Litigation Reform Act of 1995 (PSLRA) but New York Federal Court Gives Plaintiffs Leave to Amend their Complaint

Seven putative securities fraud class actions were filed against 51Job and several of its officers and directors alleging “false and misleading statements with respect to the company’s revenues and expected growth, in violation of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 . . ., and Rule 10b-5,” Goplen v. 51job, Inc., 453 F.Supp.2d 759, 763 (S.D.N.Y. 2006) (citations omitted). Defense attorneys filed a motion to dismiss the class action complaint on the ground that it failed to satisfy the heightened pleading requirements set forth in Rule 9(b) of the Federal Rule of Civil Procedure and in the Private Securities Litigation Reform Act of 1995 (PSLRA), 15 U.S.C. § 78u-4, for securities fraud. Id. The district court agreed with the defense and dismissed the class action complaint, but granted plaintiffs leave to file an amended complaint if they could allege facts sufficient to satisfy the PSLRA.

We do not here summarize the particular factual allegations in this case; the facts are quite detailed and an attorney interested in understanding the applicability of the PSLRA’s heightened pleading requirements for securities fraud class actions is well advised to read the opinion in its entirety. We provide only a broad summary of the legal arguments in the opinion. The district court concisely summarized at pages 765 and 766 the legal standard it was to apply as follows:

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

Buller Trucking Class Action Defense Case: Illinois Federal Court Remands Class Action To State Court Holding Lawsuit Not Removable Under Class Action Fairness Act Of 2005 (CAFA)

State Law Governed the Effective Date of the Filing of an Amended Complaint for Purposes of CAFA (Class Action Fairness Act of 2005) Illinois Federal Court Holds

In January 2004, plaintiff filed a lawsuit in Illinois state court against its cargo loss insurer for breach of contract, delay in paying insurance claim and fraud. On February 7, 2005, plaintiff requested leave of court to file an amended complaint to allege class action allegations and to represent three nationwide classes against the insurer; the motion was granted on February 18 – the same date that CAFA(Class Action Fairness Act of 2005) became effective. Buller Trucking Co. v. Owner Operator Independent Driver Risk Retention Group, Inc., 461 F.Supp.2d 768, 770-71 (S.D. Ill. 2006). On March 7, 2005, defense attorneys removed the class action to federal court. The district court remanded the class action to state court and defense attorneys petitioned the Seventh Circuit for leave to appeal. Id., at 771. The Circuit Court vacated the district court’s remand order and instructed the lower court to consider whether the filing of the amended complaint after CAFA became effective rendered the class action removable under CAFA. Id. The district court concluded that the effective date of the amended complaint pre-dated CAFA thus compelling remand to state court.

After summarizing CAFA and observing that CAFA does not apply retroactively to cases filed before its effective date, Buller Trucking, at 772, the district court explained that whether an amended complaint “recommences” a class action under state law for purposes of CAFA generally turns on “whether the amendment ‘relates back’ to the filing date of the original complaint: if it does, then the case is not removable, but if it does not, the case is subject to removal under CAFA.” Id. (quoting Knudsen v. Liberty Mut. Ins. Co., 411 F.3d 805, 807 (7th Cir. 2005)). In the Seventh Circuit, “a new claim for relief (a new ’cause of action’ in state practice), the addition of a new defendant, or any other step sufficiently distinct that courts would treat it as independent for limitations purposes, could well commence a new piece of litigation for federal purposes even if it bears an old docket number for state purposes.” Id. (quoting Knudsen, 411 F.3d at 807).

Class Action Court Decisions Class Action Fairness Act (CAFA) Removal & Remand Uncategorized