CAPITAL MARKETS LITIGATION

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1 LOWENSTEIN SANDLER PC CLIENT ALERT CAPITAL MARKETS LITIGATION ATTORNEY ADVERTISING RESIDENTIAL MORTGAGE-BACKED SECURITIES LITIGATION: 2010 SURVEY By Jonathan C. Wishnia, Esq., Scott L. Walker, Esq., Elliott Z. Stein, Esq., Kelly Lloyd, Esq., and Megan E. Hiorth, Esq. February 2011 In 2010, courts throughout the country continued to confront litigation arising out of the financial crisis and the collapse of the U.S. housing market. Among the areas of litigation spawned by that crisis are disputes involving residential mortgage-backed securities (RMBSs). Below is Lowenstein Sandler s 2010 RMBS litigation survey. Our survey begins with a brief overview of themes that can be gleaned from recent decisions in RMBS cases and follows with detailed case summaries of the RMBS litigation landscape for select cases in which decisions on substantive motions have been made in the past 12 months. Overview of 2010 RMBS Litigation Investors claims related to RMBS are often brought as fraud or misrepresentation claims, alleging both claims of common-law fraud and claims under Section 11 (Civil Liabilities on Account of False Registration Statement), Section 12 (Civil Liabilities Arising in Connection with Prospectuses and Communications) and Section 15 (Liability of Controlling Persons) of the Securities Act of 1933 (Securities Act). Investors have also brought or at least have begun to bring put back claims, which seek to have the originating banks or selling aggregators repurchase the bad loans sold into the RMBS trust. Regardless of the type of relief sought, allegations of misrepresentations regarding the compliance of mortgage loan originations with underwriting guidelines form the common thread in all RMBS cases. Over the past year, courts consistently found that for a plaintiff to have standing for claims of securities fraud, the plaintiff must have actually participated in each offering at issue and must allege that it purchased securities in offerings directly from the defendants. By contrast, put back actions do not require participation in the initial offering although those actions face other significant procedural hurdles imposed by the relevant RMBS deal documents, including a requirement that at least 25% (typically) of the voting rights for an RMBS trust must participate in the litigation as plaintiffs. Courts have sustained claims and found a sufficient nexus between the alleged abandonment of underwriting standards and the loans underlying RMBS certificates where a plaintiff alleges widespread abandonment of underwriting guidelines together with an increased percentage of defaulting loans shortly after the RMBS deal closed. Courts have generally dismissed claims, however, against defendants not involved in the underwriting or issuing of certificates, although parent-subsidiary control may be sufficient for a Section 15 claim. Where a plaintiff alleges that underwriting guidelines are systematically disregarded, courts have found that disclosures in the offering documents do not necessarily cure the misstatements and omissions

2 Capital Markets Litigation LOWENSTEIN SANDLER PC CLIENT ALERT alleged. As with most claims in the securities context, courts have generally found that certificate holders need not plead their exact damages. Allegations that investments dropped in value may be a sufficient statement of damages to survive dismissal. Claims against rating agencies have not fared well in the RMBS context. Courts have typically held that ratings are opinions and therefore actionable only if the rating agencies did not believe the opinions when issued. Furthermore, courts have typically found no duty to disclose rating agencies conflicts of interest or allegedly outdated ratings methodology. Likewise, Section 11 claims typically do not extend to claims against rating agencies because rating agencies do not themselves underwrite or issue certificates. Rating agencies are generally deemed not to be control persons for purposes of Section 15. At least one California state court, in CALPERS v. Moody s (see below), however, refused to dismiss the rating agencies, rejecting the argument that rating agencies necessarily have First Amendment immunity and finding that those agencies can face liability in certain circumstances where their opinions were a select group of investors rather. Case Summaries RMBS Put Back Case Dismissed Entirely Greenwich Fin. Svcs. Distressed Mortgage Fund 3, LLC, et al. v. Countrywide Fin. Corp., et al., No /08 (N.Y. Sup. Oct. 7, 2010) In this recently decided put back case, plaintiffs sought a declaratory judgment that Defendants were required under a Pooling and Service Agreement (PSA) to purchase any mortgage loan for which Defendants had agreed to reduce payments, pursuant to a settlement agreement reached among the Defendants and various state attorneys general. Among other grounds, Defendants moved to dismiss the complaint on the grounds that Plaintiffs failed to comply with the PSA s procedural requirement that litigation could be commenced only when certificateholders owning at least 25% of the voting rights made a demand on the Trustee and then waited at least 60 days for the Trustee to commence a lawsuit. The court agreed with Defendants, finding that Plaintiffs had not complied with the PSA s procedural requirements, and therefore dismissed the action. RMBS Fraud Cases in Which at Least Some Claims Were Sustained Pub. Employees Ret. Sys. of Miss. v. Goldman Sachs Group, Inc., 2011 WL , No. 09-cv-1110 (S.D.N.Y. Jan. 12, 2011) In this class action lawsuit related to RMBS investments, Plaintiff brought claims under Sections 11, 12(a)(2) and 15 of the Securities Act, alleging that: (1) the offering documents contained misstatements and omissions; (2) the Goldman Sachs Defendants knew of, or in the exercise of reasonable care should have known of, the misstatements and omissions contained in the Prospectuses ; and (3) Defendants were liable as control persons. According to Plaintiff, the descriptions of the underwriting guidelines in the offering documents contained material misstatements and omissions because the loan originators systematically disregarded their underwriting standards in order to increase loan volume. The court dismissed for lack of standing all claims related to offerings in which the named plaintiff did not invest. The court sustained Plaintiff s claims related to those offerings in which the named plaintiff did invest, finding that the complaint alleged the exact security that Plaintiff bought, the date of purchase and that Plaintiff and other Class members purchased their Certificates directly from GS&Co. Moreover, the court found that Plaintiff s claims were not timebarred, because Defendants had not demonstrated that Plaintiff should have been on inquiry notice about the alleged misrepresentations and omissions. The court further found that Plaintiff adequately pled damages. The court dismissed all claims against the Defendant rating agencies, finding that the rating agencies cannot be held liable as underwriters. Public Employees Ret. Sys. v. Merrill Lynch & Co., 2010 WL , No. 08-cv-10841(JSR) (S.D.N.Y. Dec. 1, 2010) In this consolidated class action lawsuit, Plaintiff asserted claims for violations of Sections 11, 12(a)(2) and 15 of the Securities Act, alleging that offering documents contained untrue statements and material omissions regarding: (1) the underwriting standards purportedly used in connection with the origination of the underlying mortgages; (2) the 2

3 maximum loan-to-value (LTV) ratios used to qualify borrowers; (3) the appraisals of the properties underlying the mortgages; (4) the debt-to-income ratios permitted on the loans; and (5) the ratings of the certificates. The court dismissed with prejudice: (1) for lack of standing, all claims based on the offerings from which no named plaintiff purchased securities; (2) all Section 11 claims against the rating agencies and sponsors because those Defendants were not underwriters and did not participate in the undertaking; and (3) the Section 15 claims against certain corporate Defendants because Plaintiff s mere allegations of a corporate affiliation between Defendants were insufficient to indicate control by one over another. The court denied motions to dismiss the Section 11 claims against the depositor and the individual Defendants but dismissed the remaining claims without prejudice, allowing Plaintiff to re-plead the asserted violations. In response to the Amended Complaint, the court determined that Plaintiff cured the standing deficiency of the original complaint because the Amended Complaint alleged that Plaintiff purchased the certificates in the offerings directly from the Defendants against which it alleged a Section 12(a)(2) violation. Moreover, the court found that the Amended Complaint alleged a closer connection between the Merrill parent and its subsidiary, the depositor, sufficient to survive a motion to dismiss. The court noted that the allegations suggested that Merrill exercised greater control over the subsidiary than that inherent in a typical parent-subsidiary relationship. The court did not reach the appraisal issue but it did note that several recent cases in the Southern District of New York suggested that appraisals do not constitute false statements of fact. The court dismissed with prejudice all claims against the junior underwriters and all claims against the other Defendants related to the sole offering in which the junior underwriters were involved because, among other things, the allegations were time-barred under the Securities Act s one-year statute of limitations. NECA-IBEW Health & Welfare Fund v. Goldman, Sachs & Co., 2010 WL , No. 08 Civ (MGC)(S.D.N.Y. Oct. 14, 2010) In this action, Plaintiff brought claims against Goldman Sachs for violations of Sections 11, 12(a)(2) and 15 of the Securities Act. The court sustained Plaintiff s Section 12(a)(2) and 15 claims but dismissed the Section 11 claim, in part because the certificates contained a warning that they may not be able to be resold. As a result, the court concluded the Plaintiff could not allege an injury based on the decrease in value of its investment. Boilermakers Nat l Annuity Trust Fund v. WAMU Mortgage Pass- Through Certificates, Series AR1, 2010 WL , No. C (W.D. Wash. Sept. 28, 2010) This case arose out of Plaintiff s RMBS investments in 36 offerings. Plaintiff alleged Defendants violated Sections 11, 12 and 15 of the Securities Act by making material misstatements and omissions in their disclosures leading up to the offering. Specifically, Plaintiff alleged failures to disclose that: (1) the mortgage loans underlying the certificates were not originated in accordance with the loan underwriting guidelines stated in either the registration statements or the prospectus supplements; (2) WaMu failed to conduct adequate due diligence with respect to compliance with the loan underwriting guidelines stated in the offering documents; (3) the appraisals on many of the properties collateralizing the mortgages underlying the certificates were inflated; (4) there were material undisclosed conflicts of interest between WaMu and the rating agencies, including those reflected in undisclosed ratings shopping practices, which incentivized the rating agencies to inflate certificate ratings to maintain business with WaMu; and (5) the amount of credit enhancement provided to the certificates was inadequate to support AAA and other investment grade ratings because those amounts were determined primarily by the rating agencies outdated models. The court sustained Plaintiff s claims concerning abandonment of underwriting standards, finding that Plaintiff sufficiently alleged that the underwriting guidelines ceased to exist, and, if proven, the absence of underwriting standards could make the identified statements misleading. The court also declined to dismiss allegations based on the risk disclosures in the offering documents, noting that the sufficiency of the disclosures is a question of fact and should not be determined on a motion to dismiss. But the court dismissed many of 3

4 Capital Markets Litigation LOWENSTEIN SANDLER PC CLIENT ALERT Plaintiff s claims. The court held that Plaintiff lacked standing to sue under Section 11 for losses related to the certificates for which it failed to identify a purchaser, and failed to establish standing for all claims brought under Section 12, noting that if Plaintiff purchased the certificates directly from Defendants, it should have so alleged in the complaint. The court also dismissed Plaintiff s appraisal/ltv ratio allegations as conclusory. Similarly, the court found the credit ratings allegations insufficient because there was no duty to disclose that the methods used are outdated, nor was there a duty to disclose conflicts of interest between the rating agencies and WaMu. The court dismissed the Section 15 claims as to the individual defendants because Plaintiff failed to allege that those individuals were control persons, as required by the Securities Act. The court also dismissed the Section 15 claims against the rating agencies, finding that the rating agencies were not control persons, as required by the Securities Act. In re IndyMac Mortgage-Backed Sec. Litig., 718 F.Supp.2d 495 (S.D.N.Y. June 21, 2010) In this consolidated class action suit, Plaintiffs brought federal securities claims related to RMBS investments in more than 100 RMBS offerings. Plaintiffs alleged that the offering documents violated Sections 11, 12 and 15 of the Securities Act because: (1) the offering documents contained misleading descriptions of IndyMac Bank s underwriting standards, given IndyMac Bank s disregard of those standards in originating and acquiring the home loans; (2) the appraisal practices used for the underlying real estate collateral violated the Uniform Standards of Professional Appraisal Practice ( USPAP ), resulting in misstated LTV ratios; and (3) the offering documents failed to disclose that the ratings process was highly compromised (because the agencies used outdated models to evaluate the certificates), suffered from conflicts of interest and contained loan data that had not been independently verified. In deciding Defendants motion to dismiss, the court sustained Plaintiffs allegations related to IndyMac s underwriting standards. Specifically, the court found that Plaintiffs allegations of IndyMac Bank s widespread abandonment of its underwriting guidelines during the relevant time period and the rise in percentage of defaulting loans after the certificates were issued created a sufficient nexus between the alleged abandonment of underwriting standards and the loans securing Plaintiffs certificates. The court also dismissed and narrowed several claims. The court dismissed for lack of standing all claims concerning offerings in which the named class representatives did not participate, thereby eliminating all causes of action against HSBC Securities (USA) Inc., Goldman Sachs & Co., Citigroup Global Markets Inc. and IndyMac Securities Corp. Likewise, the court dismissed certain Section 13 claims (and all related Section 11 and Section 15 claims) that were brought beyond that statute s three-year statute of repose. Moreover, the court dismissed all claims against Bank of America, because the complaint s allegations were conclusory with respect to Bank of America s liability as a successor-ininterest to two entities Countrywide and Merrill Lynch that served as underwriters for particular classes of certificates. Regarding Plaintiffs allegations regarding the use of non-uspapcompliant appraisal practices (and the resulting misstated LTV ratios), the court found that real estate appraisals are opinions not actionable under the Securities Act unless the appraiser did not truly believe the appraisal at the time it was issued. The court found that the complaint lacked such allegations and that, as a result, the complaint did not raise an inference that the appraisals were inflated or that the derivative LTV ratios were false or misleading. The court dismissed the claims against the rating agencies, relying on In re Lehman Brothers Sec. & ERISA Litig., 681 F. Supp. 2d 495 (S.D.N.Y. 2010), a case holding that rating agencies are neither underwriters nor sellers of mortgage-backed securities offerings and do not control persons who are. The IndyMac court emphasized that ratings are opinions that are actionable only if the rating agencies did not believe the ratings were true when issued. Regarding Plaintiffs allegations that the certificates ratings were derived from a highly compromised ratings process, the court found the complaint lacked allegations as to why the offering documents statements regarding ratings were false or misleading. As to the rating agencies alleged conflicts of interest, the court found no duty to disclose, stating that the risk that the rating agencies operated under a conflict of interest 4

5 because they were paid by the issuers had been known publicly for years. Finally, the court found that the rating agencies role in structuring the certificates was immaterial as a matter of law. Citing In re Lehman Brothers Sec. & ERISA Litig., the court noted that a disclosure that a rating agency was involved in structuring the certificates prior to rating them would have added nothing important to the total mix of information available, because a reasonable investor would have known that the rating agencies were paid by the issuers. Cal. Public Employees Ret. Sys. v. Moody s Corp., et al., 2010 WL (Superior Ct. Cal., San Francisco Cty., May 24, 2010) In this lawsuit, CALPERS pension fund alleged that it purchased $1.3 billion of debt issued by structured investment vehicles based on inflated credit ratings. Plaintiff argued that the Defendant rating agencies did not have a reasonable basis for giving their highest ratings to the structured investment vehicles. The case is particularly noteworthy because the court rejected the rating agencies arguments that Plaintiff s claims were preempted by the First Amendment. According to the court: It is well-established that under typical circumstances, the First Amendment protects rating agencies, subject to an actual malice exception, from liability arising out of their issuance of ratings and reports because their ratings are considered matters of public concern. However, where a rating agency has disseminated their ratings to a select group of investors rather than to the public at large, the rating agency is not afforded the same protection. The court held that Plaintiff properly alleged a claim for negligent misrepresentation related to the purportedly inflated ratings. City of Ann Arbor Employees' Ret. Sys. v. Citigroup Mortgage Loan Trust, 703 F. Supp. 2d 253, No. 08- cv (E.D.N.Y. April 6, 2010) In this class action suit arising out of Plaintiffs RMBS investments in 18 offerings, Plaintiffs alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act. Plaintiffs based their claims principally on Defendants alleged misrepresentation of the risk profile of the investments described in the offering documents, specifically with respect to the underwriting standards purportedly used for the mortgages securing Plaintiffs certificates. The court dismissed for lack of standing all claims involving offerings in which Plaintiffs had not purchased a certificate. The court further granted Plaintiffs leave to re-plead the remaining causes of action with greater specificity. The court held that Plaintiffs sufficiently alleged: (1) a departure from the disclosed underwriting standards; and (2) that the offering documents were materially misleading with respect to such standards. The court also rejected Defendants argument that that Plaintiffs failed to exercise their option to have Defendants either repurchase or replace nonconforming mortgages. The court noted that the language relied upon by Defendants in making this argument likely violates the antiwaiver provision of the Securities Act. Finally, the court held that Plaintiffs allegations that their investments dropped in value constituted a sufficient statement of damages to survive dismissal. The court noted that, unlike claims brought under the Securities Exchange Act of 1934 (Exchange Act), claims brought under the Securities Act need not allege scienter, reliance or loss causation. New Jersey Carpenters Health Fund v. Residential Capital, LLC, 2010 WL , No. 08-cv-8781 (HB)(S.D.N.Y. March 31, 2010) In this proposed class action lawsuit related to Plaintiffs RMBS investments in 59 different offerings, Plaintiffs alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act. Specifically, Plaintiffs alleged that: (1) the underwriting guidelines used to originate the underlying loans were systematically disregarded by the originator; (2) the credit enhancements built into the certificates were inadequate and the model for credit rating was outdated ; and (3) there were undisclosed conflicts of interests between the Defendants and rating agencies. The court sustained Plaintiffs claims related to the alleged disregard of underwriting guidelines, finding that Plaintiffs alleged affirmative misstatements (i.e., that the stated guidelines were not actually followed) in addition to omissions and linked the alleged misrepresentations to the failures of the underlying loan pools. The court also held that the risk disclosures in the offering documents 5

6 Capital Markets Litigation LOWENSTEIN SANDLER PC CLIENT ALERT did not cure the alleged misstatements and omissions that Plaintiffs alleged. The court dismissed for lack of standing Plaintiffs claims related to offerings they did not purchase. The court also dismissed Plaintiffs claims related to alleged conflicts of interest with rating agencies and the allegedly outdated credit ratings and inadequate credit enhancement for the certificates. Likewise, the court dismissed Plaintiffs Section 15 claims for failure to allege sufficient control by the underwriters. NJ Carpenters Health Fund v. DLJ Mortgage Capital, Inc., 2010 WL , No. 08-cv-5653(PAC) (S.D.N.Y. Mar. 29, 2010) This proposed class action relates to Plaintiffs RMBS investments in four offerings. Plaintiffs brought claims under Section 11 and Section 12 of the Securities Act, alleging: (1) a systematic disregard of the underwriting guidelines outlined in the offering documents; (2) alleged payments from Defendants to Moody s and S&P to ensure desirable, although unwarranted, ratings; and (3) misrepresentations regarding home loan appraisal practices. The court sustained Plaintiffs claims based on misrepresentations regarding underwriting standards but dismissed claims based on appraisal practices and the rating agencies because Plaintiffs failed to allege that Defendants were aware those representations were false when made. The court also dismissed, for lack of standing, claims based on offerings in which the lead Plaintiff did not participate. Consistent with other recent RMBS decisions, the court rejected Defendants argument that market value was irrelevant and found that because RMBS certificates are securities a loss in market value is a recognized and accepted way to measure loss. New Jersey Carpenters Vacation Fund v. The Royal Bank of Scotland Group, 2010 WL , No. 08- cv-5093(hb) (S.D.N.Y. Mar. 26, 2010) In this proposed class action lawsuit, Plaintiffs alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act, claiming that: (1) the underwriting guidelines used to originate the underlying loans were systematically disregarded by the originator; (2) the credit enhancements built into the certificates were inadequate and the model for credit rating was outdated; and (3) there were undisclosed conflicts of interest between the Defendants and rating agencies. The court sustained Plaintiffs claims related to the alleged disregard of underwriting guidelines. The court found that that Plaintiffs had alleged affirmative misstatements (i.e., that the stated guidelines were not actually followed) in addition to omissions, and had linked the alleged misrepresentations to the failures of the underlying loan pools. Again, as with other recent RMBS decisions, the court concluded that the risk disclosures in the offering documents did not cure the alleged misstatements and omissions. With regard to Plaintiffs allegations about the underwriting guidelines, the court sustained Plaintiffs Section 15 claims because Plaintiffs sufficiently alleged control and a primary violation under Section 11 and/or 12(a)(2). The court dismissed all claims against the rating agencies because rating agencies cannot be held liable as underwriters. The court dismissed for lack of standing Plaintiffs claims related to offerings they did not purchase. The court also dismissed Plaintiffs claims related to alleged conflicts of interest with rating agencies and allegedly outdated credit ratings and inadequate credit enhancements. Significantly, the court denied class certification on January 18, 2011, finding that individual questions predominated each investor s knowledge of the underwriting guidelines and practices that allegedly were misstated in the offering documents. Furthermore, the court held that class action treatment would not be a superior method for resolving investors claims because the proposed class consisted of large, institutional and sophisticated investors could pursue their own claims, and because the proposed class members were likely to have competing interests in prosecuting the action. Tsereteli v. Residential Asset Securitization Trust, 692 F. Supp. 2d 387, No. 08 Civ (LAK)(S.D.N.Y. Mar. 11, 2010) In this class action lawsuit, Plaintiffs alleged that Defendants issued RMBS certificates pursuant to materially misleading offering documents in violation of Sections 11(a)(5) and 12(a)(2) of the Securities Act. 6

7 Specifically, Plaintiffs alleged that certain statements in the offering documents were false or misleading because the originator had abandoned its underwriting standards and had relied on inflated appraisals obtained in violation of USPAP. Plaintiffs also alleged that the rating agencies inadequately considered certain factors including the credit quality of the mortgage pool, any credit support providers, structural and legal aspects associated with the certificates, and the extent to which the payment stream on the mortgage pool was adequate to make the payments required by the certificates in determining their ratings. The court found that Plaintiffs had standing to sue the underwriter, Credit Suisse, because there were adequate allegations that Plaintiffs purchased their certificates from Credit Suisse, which, in turn, had purchased the certificates from the issuer prior to the public offering. The court granted Defendant s motion to dismiss on all claims except for those based on the alleged abandonment of underwriting standards. As with other recent decisions, the court refused to dismiss those claims because it found a sufficient nexus between the alleged abandonment of underwriting standards and the loans securing the RMBS certificates. Predictably, the court dismissed all claims against the rating agencies, finding that the rating agencies are not underwriters and are therefore absolutely immune from liability under Section 11. The court also determined that the rating agencies are not solicitors or sellers of certificates and therefore cannot be liable under Section 12. Again, as with other recent decisions, the court noted that ratings and appraisals are actionable only if a Plaintiff alleges that the rating agencies did not truly believe in those ratings at the time they published them. RMBS Fraud Cases in Which Claims Were Dismissed Entirely Footbridge Limited Trust v. Countrywide Home Loans, Inc., 2010 WL , No. 09-Civ. 4050(PKC) (S.D.N.Y. Sept. 28, 2010) In this case, Plaintiffs purchased approximately $43 million in RMBSs from Defendant Countrywide through two separate public offerings. Plaintiffs brought claims for common-law fraud, federal securities fraud under Section 10(b) of the Exchange Act and SEC Rule 10b-5, and violations of Section 20(a). Plaintiffs alleged that Defendants made material misrepresentations and omissions in offering documents and in other public statements. These alleged misstatements and omissions included: (1) the percentage of underlying loans related to owneroccupied properties, (2) the nature and quality of Countrywide s underwriting guidelines for mortgage origination, (3) information regarding reduced application programs under which Countrywide issued some loans, (4) representations that the loans would not be selected in a manner that would adversely affect the interests of Certificateholders, and (5) representations regarding Countrywide s loan servicing. The court dismissed Plaintiffs claims, finding that the complaint did not plead fraud with sufficient particularity and failed to raise the strong inference of scienter necessary to succeed on a securities fraud claim. Although the court reviewed each category of misrepresentation separately, it found generally that Plaintiffs failed to include any details regarding the number of properties that were not actually owner occupied, to specify any abandoned origination standards, to identify any loans improperly serviced or to particularize any facts sufficient to substantiate their claims that Countrywide failed to research the borrowers ability to repay the loans. With regard to scienter, the court concluded that Plaintiffs failed to show that Defendants were aware their misrepresentations regarding defaulted loans were false when made. The court also found that Plaintiffs overlooked limiting statements and disclaimers in the offering documents that explained that Countrywide used a more flexible loan origination standard and acknowledged the possibility that the securitizations may contain delinquent or defaulted loans. For substantially the same reasons, the court also dismissed Plaintiffs common-law fraud claims. Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383 (5th Cir. 2010) In this case, Plaintiff filed a securities fraud lawsuit against Defendant for allegedly misrepresenting the quality of mortgage loans that were packaged into RMBS and sold to Plaintiff for $60 million. The district court granted 7

8 LOWENSTEIN SANDLER PC CLIENT ALERT CAPITAL MARKETS LITIGATION Defendant s motion to dismiss for failure to state a claim. The court noted that a breach of a representation as to the delinquency status of a mortgage loan did not give rise to a securities fraud claim because the transaction documents set forth remedies specifically on point substitution or repurchase. The circuit court affirmed dismissal. Please contact any of the following attorneys with questions related to this alert: Jonathan C. Wishnia jwishnia@lowenstein.com Scott L. Walker swalker@lowenstein.com Elliott Z. Stein estein@lowenstein.com Kelly Lloyd klloyd@lowenstein.com Megan E. Hiorth mhiorth@lowenstein.com Lowenstein Sandler makes no representation or warranty, express or implied, as to the completeness or accuracy of this Client Alert and assumes no responsibility to update the Client Alert based upon events subsequent to the date of its publication, such as new legislation, regulations and judicial decisions. Readers should consult legal counsel of their own choosing to discuss how these matters may relate to their individual circumstances. New York 1251 Avenue of the Americas New York, NY Palo Alto 590 Forest Avenue Palo Alto, CA Roseland 65 Livingston Avenue Roseland, NJ Lowenstein Sandler PC. In California, Lowenstein Sandler LLP.