InfoBytes Blog

Second Circuit Moves MBS Case Back to New York State Court

On February 27, the United States Court of Appeals for the Second Circuit held that a residential mortgage-backed securities (MBS) case that had been removed from New York state court fell within the securities exception to both original and appellate jurisdiction under the Class Action Fairness Act of 2005 (CAFA). BlackRock Financial Management Inc. v. Segregated Account of Ambac Assurance Corp., No. 11-5309, 2012 WL 611401 (2nd Cir. Feb. 27, 2012). The case arose out of claims that the originator and servicer of MBS breached obligations owed to the trusts. After the trustee reached an $8.5 billion settlement agreement, it initiated an Article 77 proceeding in New York state court to confirm that it had authority to enter the settlement under the trust documents and that entry into the settlement did not violate its duties under the agreements and state law. Certain investors intervened and removed the case to federal court under the Class Action Fairness Act (CAFA). The district court denied a motion to remand to state court on the grounds that the case fell within CAFA's securities exception. On this interlocutory appeal, the court concluded that the case was one that solely involved a claim that "relates to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security." The court’s rationale was that, based on prior precedent, it did not have jurisdiction over claims that were based "either on the terms of the instruments that create and define securities or on the duties imposed on persons who administer securities," although it did have jurisdiction over "claims based on rights arising from independent sources of state law." Because the underlying Article 77 case sought a declaration authorizing the exercise of the trustee's power to enter a settlement, the trustee was seeking construction of its rights under the Pooling and Servicing Agreement (PSA) and an instruction from the court as to whether it complied with its duties and obligations arising under the PSA. Therefore, the court (i) held that the securities exception of CAFA applied, (ii) dismissed the appeal for lack of jurisdiction, (iii) reversed the district court's order, and (iv) directed the district court to vacate its decision and order and remand the case to state court.

Class Action RMBS

Ninth Circuit Holds That California Law Cannot be Applied to a Nationwide Class

On January 12, the U.S. Court of Appeals for the Ninth Circuit reversed the certification of a forty-four state class of consumers, finding that California’s consumer protection laws could not be applied to a nationwide class, and that even a California-only class failed the rigorous analysis required for certification recently affirmed in the Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). Mazza v. American Honda Motor Co., Inc., No. 09-55376, 2012 WL 89176 (9th Cir. January 12, 2012).

In Mazza, plaintiffs sued a California vehicle manufacturer for violations of California’s unfair competition and false advertising laws as well as unjust enrichment, alleging that the manufacturer misrepresented and concealed material information in its marketing of vehicles equipped with a collision safety system. The court found that under California’s choice of law rules, each state had an interest in the application of its own laws to the claims of those putative class members who purchased or leased vehicles in those states. Further, material differences among the forty-four states’ laws required that each state’s law must be applied to the transactions that occurred in-state. The court noted that each state has an interest in determining the level of liability faced by companies operating in-state, such that “[m]aximizing consumer and business welfare, and achieving the correct balance for society, does not inexorably favor greater consumer protection; instead, setting a baseline of corporate liability for consumer harm requires balancing the competing interests” in each state. Accordingly, the class could not be maintained under Federal Rule of Civil Procedure 23(b)(3) because the material variations in the laws of the multiple states “overwhelm common issues and preclude predominance for a single nationwide class.” The court also held that even a California-only class failed the predominance requirement of Rule 23(b)(3) because class members could not be presumed to have relied on the manufacturer’s “very limited” advertisements of the collision safety system. According to the court, unlike the sort of “extensive and long-term” fraudulent advertising campaign that could justify a presumption of reliance by members of the class, the manufacturer’s campaign was neither temporally expansive nor affirmatively dishonest. Thus, the individual factual issues regarding whether each class member had actually seen the advertising prior to purchasing or leasing the vehicle precluded class certification.

Class Action