Countrywide Reaches $500M Settlement in Mortgage-Backed Securities Class Actions

LOS ANGELES - (Mealey's) Countrywide Financial Corp. will pay $500 million to shareholders in three related securities class action lawsuits to settle claims that it misrepresented the investment quality of mortgage-backed securities (MBS) in what is being called the largest-ever MBS class action recovery under the Securities Act of 1933, according to a press release issued by class counsel April 17 (David H. Luther v. Countrywide Financial Corp., No. 12-5125; Western Conference of Teamsters Pension Plan v. Countrywide Financial Corp., No. 12-5122; and Maine State Retirement System v. Countrywide Financial Corp., No. 10-0302, C.D. Calif.; January 2012, Page. 6).

According to the press release, under the terms of the settlement, Countrywide will make the $500 million cash payment to shareholders in exchange for a full release of all claims against it.

The settlement is subject to court approval.

Luther

In Luther (See December 2011, Page 12), shareholder David H. Luther filed his class action lawsuit in the Los Angeles County Superior Court on behalf of all purchasers of Countrywide Home Loans Servicing LP common stock from January 2005 to June 2007.  He alleged that Countrywide, its subsidiaries, executive officers and third-party investment banks violated Sections 11, 12(a)(2) and 15 of the Securities Act by issuing a series of false and misleading statements with regard to certain information about the underlying mortgages and borrowers of those mortgages for certain mortgage-backed securities.

On Dec. 14, 2007, the defendants removed the action to the U.S. District Court for the Central District of California.  Luther moved to remand the action to the state court on Jan. 10, 2008.  Judge Marianna R. Pfaelzer granted Luther's motion, ruling that the Class Action Fairness Act (CAFA) does not trump Section 22(e) of the Securities Act, which prohibits claims filed in state court that arise under the act from being removed to federal court.  The defendants then appealed to the Ninth Circuit U.S. Court of Appeals, which affirmed.

Upon remand, the defendants demurred, contending that the trial court lacked jurisdiction under the Securities Act, as amended by the Securities Litigation Uniform Standards Act (SLUSA) in 1998.

Securities Act

The trial court agreed, and lead plaintiffs State of Vermont Employee Pension  Funds, Maine State Retirement System, Pension Trust Fund for Operating Engineers, Washington State Plumbing and Pipefitting Pension Trust and Mashreq Bank appealed to the Second District California Court of Appeal, Division 5, which reversed, holding that the amended language of the Securities Act does not preempt the lead plaintiffs from bringing their claims in the state court, stating that "[w]e 'do not read statutes in little bites,' and cannot endorse such a limited reading of section 77v" of the Securities Act.

The appellate court denied the defendants' motion for rehearing on June 17, and the California Supreme Court denied review on Sept. 14.

The defendants then filed a petition for writ of certiorari in the Supreme Court, which denied review on Dec. 5, 2011.

In addition to Luther, shareholders in Western Conference of Teamsters Pension Plan v. Countrywide Financial Corp. and Maine State Retirement System v. Countrywide Financial Corp. are also subject to the terms of the settlement.

Counsel

The lead plaintiffs in Luther and Western Conference of Teamsters are represented by Spencer A. Burkholz, Thomas E. Egler, Scott H. Saham, Nathan R. Lindell and Ashley M. Robinson of Robbins Geller Rudman & Dowd in San Diego and Andrew L. Zivitz, Sharan Nirmul, Kimberly Justice and Jennifer L. Joost of Kessler Topaz Meltzer & Check in Radnor, Pa.

The lead plaintiffs in Maine State Retirement System are represented by Michael Goldberg and Lionel Z. Glancy of Glancy Binkow & Goldberg in Los Angeles; Steven J. Toll, Julie Goldsmith Reiser and Joshua S. Devore of Cohen Milstein Sellers & Toll in Washington, D.C.; Joel P. Laitman, Christopher Lometti, Richard Speirs and Daniel B. Rehns of Cohen Milstein Sellers & Toll in New York; and Ira M. Press and Randall K. Berger of Kirby McInerney in New York.

The Countrywide defendants are represented by Brian E Pastuszenski, Inez H. Friedman-Boyce, Brian C. Devine and Michele E. Connolly of Goodwin Procter in Boston and John O. Farley of Goodwin Procter in Los Angeles.

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