On Friday the Federal Housing Finance Agency and its lawyers at Quinn Emanuel Urquhart & Sullivan crossed a major hurdle in their pursuit of claims against issuers of residential mortage-backed securities. In this 66-page page order, Manhattan federal district judge Denise Cote sided with the FHFA, the conservator of Freddie Mac and Fannie Mae, denying a motion to dismiss claims against UBS filed by the bank’s lawyers at Skadden, Arps, Slate, Meagher & Flom.
The ruling is a big victory for Quinn and the FHFA. The findings directly affect all 15 FHFA cases before Cote, who had stayed discovery in those cases pending her ruling on UBS’s motion. The FHFA originally filed suits last September against a who’s who of the financial industry, including JPMorgan Chase, Goldman Sachs, Credit Suisse, and Bank of America’s Countrywide unit. Quinn’s Philippe Selendy and Skadden’s Jay Kasner were appointed liaison counsel in the the consolidated cases before Cote in December.
Selendy was understandably pleased. “On behalf of our client, we are deeply appreciative of Judge Cote’s historic and well-reasoned decision confirming that FHFA may proceed with its claims on behalf of Fannie Mae, Freddie Mac, and the American taxpayer, to recover losses under federal and state securities laws against the underwriters of mortgage-backed securities,” he wrote in an e-mail Friday afternoon.
When Skadden filed the motion to dismiss in January, it argued that FHFA’s claims were barred by the statute of repose, that the agency lacked standing, and that the plaintiff had failed to state a claim under federal securities law. On the statute of limitations issue, UBS argued that 2007 media reports, lawsuits, and investigations that brought to light loan origination practices in the industry pre-dated the formation of the FHFA by more than a year.
But Cote didn’t agree with any of those arguments, and dismissed only FHFA’s common law claims of negligent misrepresentation. Cote found that Fannie and Freddie were entitled to rely on the bank’s assertions about the loans that were in the offering materials for the securities. “The public reporting … is relevant to plaintiff’s claims only insofar as it negates any effort by defendants to maintain that they exercised due diligence or reasonable care to ensure that the loans included in the securitizations were as described,” Cote wrote.
Skadden’s Kasner did not immediately respond to our request for comment. A UBS spokesperson passed along the following statement by email: “The Government Sponsored Enterprises (GSEs) are, and were, sophisticated participants in the residential mortgage-backed securities (RMBS) market with expert knowledge of loan origination practices and securities underwriting standards. The losses sustained on their real estate portfolio are attributable to the deepest recession in 75 years. UBS is studying today’s decision, and remains confident in its defenses to the claims in the complaint.”
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