Recent Securities Decisions

Maine State Retirement System v. Countrywide Financial Corp.

On behalf of its client Countrywide Financial Corporation, Goodwin Procter helped obtain two groundbreaking rulings from the federal district court in Los Angeles that greatly reduced the size of what had been the largest mortgage-backed securities ("MBS") class action filed in the United States. Maine State Ret. Sys. v. Countrywide Fin. Corp., 2011 WL 4389689 (C.D. Cal. May 5, 2011); Maine State Ret. Sys. v. Countrywide Fin. Corp., 722 F. Supp. 2d 1157 (C.D. Cal. 2010). Countrywide, acquired by Bank of America in July 2008, was the country's largest mortgage lender. The original complaint filed in federal court against Countrywide concerned 427 MBS offerings issued between early 2005 and late 2007 that had an original notional value of approximately $350 billion. Each MBS offering typically involves multiple "tranches," each of which is a separate security with different payment terms, "credit enhancement" features, risks, and credit ratings. On November 4, 2010, the Central District of California held that the named class plaintiffs lacked standing to sue over offerings in which they themselves did not buy securities. The court also held that limitations periods had not been tolled by an earlier class action filed in California state court. As a result of this ruling, the Maine State case was narrowed from 427 MBS offerings to just the 14 MBS offerings in which both the federal court named plaintiffs and the earlier state court named plaintiffs had purchased. Following that decision, the plaintiffs filed an amended complaint, and the court invited Countrywide to submit additional briefing on standing and statute of limitations issues. In response, Countrywide argued that the court's prior rulings regarding standing and tolling should be applied not only at the offering level, but also at the tranche level – i.e., that the federal court named plaintiffs lacked standing, and the state court named plaintiffs did not trigger tolling, with respect to any tranches that these named plaintiffs did not themselves purchase, even if they had purchased other tranches in the same offering. Although offering-based standing and tolling issues had been litigated in numerous MBS cases pending across the country, Countrywide was the first to argue tranche-based standing and tolling. On May 5, 2011, the court issued a ruling agreeing with Countrywide's arguments and sharply limiting the named...

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