Prudential Ins. Co. of Am. v. Bank of Am.

Prudential Ins. Co. of Am. v. Bank of Am.

Opinion

 [*594]  CHESLER, U.S.D.J.

This matter comes before the Court on the motion to dismiss the Complaint for failure to state a valid claim for relief, pursuant to Federal Rule of Civil Procedure 12(b)(6), by Defendants Asset Backed Funding Corporation, Banc of America Funding Corporation, Bank of America Mortgage Securities Inc., Bank of America, National Association, First Franklin Financial Corporation, Merrill Lynch & Co., Inc., Merrill Lynch Mortgage Capital, Inc., Merrill Lynch Mortgage Investors, Inc., Merrill Lynch Mortgage Lending, Inc., and Merrill Lynch, Pierce, Fenner & Smith, Inc. (collectively, "Defendants."). For the reasons stated below, the motion will be granted in part and denied in part.

BACKGROUND

In a nutshell, this case arises from a dispute over the sale of certain residential mortgage-backed securities ("RMBS") by Defendants to Plaintiffs the Prudential Life Insurance Company, Ltd., Pruco Life Insurance Company of New Jersey, Prudential Asset Allocation Fund, Pru Alpha Fixed  [**3] Income Opportunity Master Fund I, L.P., the Prudential Investment Portfolios, Inc., the Prudential Insurance Company of America, Prudential Retirement Insurance & Annuity Company, Prudential Annuities Life Assurance Corporation, the Gibraltar Life Insurance Company, Ltd., Prudential Total Return Bond Fund, Inc., Prudential Trust Company, Commerce Street Investments, LLC, Pruco Life Insurance Company, Prudential Investment Portfolios 2, the Prudential Series Fund, and Park Place Commerce Investments, LLC. (collectively,  [*595]  "Plaintiffs"). The Complaint alleges that Defendants obtained the underlying mortgages, created the securitizations based on them, issued "Offering Materials" for their sale, and sold them to Plaintiffs. The Complaint asserts eight causes of action: 1) common law fraud; 2) aiding and abetting common law fraud; 3) equitable fraud; 4) negligent misrepresentation; 5) violation of New Jersey Civil RICO ("NJRICO"); 6) violation of § 11 of the Securities Act of 1933 (the "1933 Act"); 7) violation of § 12(a)(2) of the 1933 Act; and 8) violation of § 15 of the 1933 Act. Defendants have now moved to dismiss the Complaint.

The Complaint alleges a variety of statistics in support  [**4] of its claims. It is often not clear, however, what the basis for a particular statistic is. The Complaint highlights one particular research study and appears to use the phrases "forensic analysis" and "loan-level analysis" to refer to it interchangeably. The forensic analysis was performed on 20,906 mortgages across 29 or 30 securitizations, but it is not always clear which statistics came from it. (Compl. ¶¶ 20, 148, 153.) For each securitization examined, this analysis looked at 400 defaulted loans and 400 randomly selected loans. (Compl. ¶ 149.) The Complaint clearly states that this forensic analysis yielded the "Occupancy Analysis." The Occupancy Analysis aimed to test Defendants' representations about owner-occupancy, based on tax and property records. (Compl. ¶ 6.) There are four other subjects for which statistics are given, and it is not clear whether the loans examined were the same as those used in the forensic analysis: 1) chain of title; 2) material defects; 3) default and delinquency rates; and 4) the AVM Study. The AVM Study aimed "to test the reasonableness of Defendants' appraisal values." (Compl. ¶ 8.) The Complaint also alleges a "loan-level analysis" which looked  [**5] for loans with at least one "material defect" and found over 62,000 such loans. (Compl. ¶ 21.) This suggests that at least the material defect analysis was performed on a different loan sample from the 20,906 mortgage forensic analysis.

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