Sometimes a court ruling is almost as noteworthy for its dicta as for its holding. That’s the case for a ruling Wednesday in which U.S. District Judge Harold Baer Jr. in Manhattan took a jab at the “immorality” of our “win at any price society.”
This striking condemnation came in a 10-page decision in one of the many cases stemming from the collapse of the mortgage-backed securities market. The case was brought by Assured Guaranty Municipal Corp., which had sued UBS Real Estate Securities Inc. for allegedly breaching contracts governing three residential mortgage-backed certificates that Assured insured.
Assured’s complaint, which was originally filed in New York State Court by Quinn, Emanuel, Urquhart & Sullivan, is here. (UBS transferred the case to federal court.) The bond insurer maintains that $1.17 billion of the loans backing the UBS certificates are delinquent and that a “staggering percentage of these loans” did not meet the standards contractually required.
UBS, represented by Skadden, Arps, Slate, Meagher & Flom, moved to dismiss the case in April, challenging Assured’s standing to bring its securities claims. Assured’s opposition motion is here.
Judge Baer refused to dismiss Assured’s claim that UBS breached its representations and warranties about the quality of the loans collateralizing the RMBS. Even though Assured wasn’t a party to the Pooling and Service Agreements that contained the reps and warranties, he wrote, it was named as a third-party beneficiary. In a significant win for UBS, however, the judge did dismiss Assured’s claim that UBS had breached its obligation to repurchase defective loans. Only the trustee for the RMBS can enforce that obligation, Baer held. An obligation to repurchase more than $1 billion in loans would likely be more onerous to UBS than having to pay contract damages. (The trustee, U.S. Bank, has not sought to repurchase these loans.)
Baer then addressed Assured’s claim that UBS breached its obligation to confirm that the loans had received certain high credit ratings. Assured accused UBS of securing high ratings with false and misleading information. UBS countered that, for purposes of Assured’s claim, it didn’t matter how UBS obtained the ratings, as long as it got them.
Not only did Baer reject that argument, but he was moved to bemoan the state of our society. “If Plaintiffs allegations are true and the Defendant actually contends that it was proper to procure the ratings regardless of the material provided it rivals much of the immorality to which we have all been privy in recent days. It presages a win at any price society, with more than a dollop of cupidity.”
Skadden’s Jay Kasner, who represents UBS, declined to comment. (Kasner, we should note, has been earning his keep over the past few days, fending off claims against Deutsche Bank securities underwriters; paving the way for dismissal of Merrill Lynch auction-rate securities claims; and earning UBS AG a chance to challenge a crucial ruling for the Federal Housing Finance Administration in multibillion-dollar mortgage-backed securities litigation.)
We reached out to Philippe Selendy at Quinn Emanuel, who represents Assured, but didn’t hear back.
