In what is the largest settlement so far of an
mortgage-backed securities class action lawsuit filed as part of the subprime
and credit-crisis securities litigation wave, the parties to the consolidated
Countrywide mortgage-backed securities suit pending in the Central District of
California have agreed to settle the litigation for $500 million. The
settlement is subject to court approval. The plaintiffs' lawyers' April 17,
2013 press release describing the settlement can be found here.
The consolidated litigation that has been settled
involves several different lawsuits and several different sets of claimants.
Background regarding the litigation can be found here. All of the
claimants allege that they purchased mortgage-backed securities that had been
issued by Countrywide prior to its acquisition by Bank of America, and that the
offering documents accompanying the offering contained misrepresentations and
omissions about the mortgages underlying the securities. Among other things,
the claimants alleged that the defendants had misrepresented the underlying
process that had been used in the origination of the mortgages and the
creditworthiness of the mortgage borrowers.
This litigation has a long and complicated procedural
history. Among other cases that are consolidated in this litigation is the Luther
v. Countrywide case, which I have written about several times in the past,
as pertains to questions of concurrent state court jurisdiction under Section
22 of the '33 Act. (Refer here
for the background of the Luther case and a discussion of the jurisdictional
Further complicating the attempts to settle the case is
that during the pendency of the case, Central District of California Judge
Marianne Pfaelzer entered several orders dismissing certain groups of claimants
on standing and tolling issues. These dismissed claimants preserved rights to
appeal these rulings. However, all of the claimants claims are settled through
this settlement, including even those whose claims had been dismissed and who
might have appealed the dismissal rulings.
According to Steve Toll of the Cohen Milstein Sellers
& Toll law firm, who is lead counsel for the class plaintiffs, a plan of
allocation will have to be agreed to in order to apportion the settlement
amount among the various groups of plaintiffs. The plaintiffs' lawyers will
have to negotiate a proposed allocation amongst themselves and submit a plan of
allocation when the settlement papers are submitted to the court.
The $500 million settlement is by far the largest
settlement of a mortgage-backed securities class action lawsuit (MBS) as part
of the current subprime and credit crisis litigation wave. The next largest MBS
securities suit settlement is the December 2011 $315 million
Merrill Lynch mortgage backed securities settlement, followed by the $125
million Wells Fargo mortgage backed securities suit settlement. There have
of course been larger subprime and credit crisis-related securities class
action settlements, led by the massive $2.43 billion BofA/Merrill Lynch merger
settlement, among others. However, these other larger settlements did not
relate to mortgage backed securities, which, as the procedural history of these
cases show, posed a different set of hurdles for the prospective claimants.
Overall, this settlement ranks as the sixth largest settlement among all subprime
and credit crisis-related securities suit settlements, as shown by the
settlement table that can be found here.
I have in any event added the Countrywide Mortgage Backed
securities settlement to my running tally of settlements and other case
resolutions of the subprime and credit crisis-related lawsuits, which can be
other items of interest from the world of directors & officers liability,
with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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