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13-United States Court of Appeals

for the

Second Circuit

IN RE FHFA COORDINATED SECURITIES LITIGATION

_______________________________

PETITION FOR A WRIT OF MANDAMUS RELATING TO DECISIONS OFTHE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT

OF NEW YORK NOS. 11 CIV. 5201, 11 CIV. 6188, 11 CIV. 6189, 11 CIV. 6190,11 CIV. 6192, 11 CIV. 6193, 11 CIV. 6195, 11 CIV. 6196, 11 CIV. 6198, 11 CIV. 6200,

11 CIV. 6201, 11 CIV. 6202, 11 CIV. 6203, 11 CIV. 6739, 11 CIV. 7010

(HONORABLE DENISE L. COTE)

APPENDIX TO JOINT PETITION FOR WRIT OF MANDAMUS

Volume 1 of 8 (Pages A-1 to A-295)

SKADDEN, ARPS, SLATE, MEAGHER

& FLOM LLP

Four Times Square New York, New York 10036(212) 735-3000

Attorneys for Petitioners UBS Americas Inc., UBS Real EstateSecurities Inc., UBS Securities LLC, Mortgage Asset SecuritizationTransactions, Inc., David Martin,Per Dyrvik, Hugh Corcoran and Peter Slagowitz

SULLIVAN & CROMWELL LLP125 Broad Street

New York, New York 10004(212) 558-4000

Attorneys for Petitioners JPMorgan Chase& Co., JPMorgan Chase Bank, N.A., J.P. Morgan Mortgage Acquisition Corporation, J.P. Morgan Securities LLC, J.P. Morgan Acceptance Corporation I, Bear Stearns &Co., Inc., EMC Mortgage LLC, Structured Asset Mortgage Investments II Inc., Bear Stearns Asset Backed Securities I LLC,

WaMu Asset Acceptance Corporation,WaMu Capital Corporation, Washington Mutual Mortgage Securities Corporation, Long Beach Securities Corporation and certain of the Individual Defendants

(For Continuation of Appearances See Inside Cover)

Case: 13-1122 Document: 2 Page: 1 03/26/2013 889983 308



MAYER BROWN LLP

1675 Broadway New York, New York 10019

(212) 506-2500

Attorneys for Petitioners HSBC North

America Holdings Inc., HSBC USA Inc., HSBC Markets (USA) Inc., HSBC Bank

USA, N.A. and HSI Asset Securitization

Corporation

SIMPSON THACHER & BARTLETT LLP425 Lexington Avenue

New York, New York 10017

(212) 455-2000

Attorneys for Petitioners Deutsche Bank

AG, Taunus Corporation, Deutsche Bank Securities Inc., DB Structured Products,

Inc., Ace Securities Corp. and Mortgage

IT Securities Corp.

WILLIAMS & CONNOLLY LLP

725 Twelfth Street, N.W.

Washington, DC 20005(202) 434-5000

Attorneys for Petitioners Bank of

America Corporation, Bank of America,

N.A., Asset Backed Funding Corp. and

Banc of America Funding Corp.

SULLIVAN & CROMWELL LLP

125 Broad Street New York, New York 10004

(212) 558-4000

Attorneys for Petitioners Barclays

Capital Inc., Barclays Bank PLC,Securitized Asset Backed Receivables

LLC, Paul Menefee, John Carroll and

Michael Wade

SULLIVAN & CROMWELL LLP125 Broad Street


(212) 558-4000


1701 Pennsylvania Avenue, N.W.Washington, DC 20006(202) 956-7500

Attorneys for Petitioners First Horizon

National Corporation, First Tennessee

Bank National Association, FTN

Financial Securities Corporation, First

Horizon Asset Securities, Inc., Gerald

L. Baker, Peter F. Makowiecki, Charles

G. Burkett and Thomas J. Wageman

PAUL, WEISS, R IFKIND, WHARTON

& GARRISON LLP

1285 Avenue of the Americas New York, New York 10019-6064

(212) 373-3000

Attorneys for Petitioners Citigroup

Inc., Citigroup Mortgage Loan Trust

Inc., Citigroup Global Markets Realty

Corp., Citigroup Global Markets Inc.,

Susan Mills, Randall Costa, Scott Freidenrich, Richard A. Isenberg,

Mark I. Tsesarsky, Peter Patricola,

Jeffrey Perlowitz and Evelyn

Echevarria





125 Broad Street New York, New York 10004

(212) 558-4000

Attorneys for Petitioners Goldman, Sachs

& Co, GS Mortgage Securities Corp.,

Goldman Sachs Mortgage Company, The

Goldman Sachs Group, Inc., GoldmanSachs Real Estate Funding Corp.,

Howard S. Altarescu, Kevin Gasvoda,

Michelle Gill, David J. Rosenblum,

Jonathan S. Sobel, Daniel L. Sparks and

Mark Weiss


125 Broad Street

New York, New York 10004(212) 558-4000


1701 Pennsylvania Avenue, N.W.Washington, DC 20006

(202) 956-7500

Attorneys for Petitioners Nomura

Securities International, Inc., Nomura

Holding America Inc., Nomura Asset

Acceptance Corporation, Nomura Home

Equity Loan, Inc., Nomura Credit &

Capital, Inc., David Findlay, John

McCarthy, John P. Graham, Nathan

Gorin and N. Dante LaRocca

CRAVATH, SWAINE & MOORE LLP

Worldwide Plaza825 Eighth Avenue


(212) 474-1000

Attorneys for Petitioners Credit Suisse

Securities (USA) LLC, Credit Suisse

Holdings (USA), Inc., Credit Suisse(USA), Inc., DLJ Mortgage Capital,

Inc., Credit Suisse First Boston

Mortgage Securities Corporation,

Asset Backed Securities Corporation,

Credit Suisse First Boston Mortgage

Acceptance Corporation, Andrew A.

Kimura, Jeffrey A. Altabef, Evelyn

Echevarria, Michael A. Marriott,

Zev Kindler, Thomas E. Siegler,

Thomas Zingalli, Carlos Onis,

Steven L. Kantor, Joseph M. Donovan, Juliana Johnson and Greg Richter



Washington, DC 20005(202) 434-5000

Attorneys for Petitioners Merrill Lynch

& Co., Inc., Merrill Lynch Mortgage

Lending, Inc., Merrill Lynch Mortgage

Capital Inc., First Franklin FinancialCorp., Merrill Lynch Mortgage

Investors, Inc., Merrill Lynch

Government Securities, Inc. and

Merrill Lynch, Pierce, Fenner & Smith

Inc.




SKADDEN, ARPS, SLATE, MEAGHER

& FLOM LLPFour Times Square


(212) 735-3000

Attorneys for Petitioners SG Americas,

Inc., SG Americas Securities Holdings,

LLC, SG Americas Securities, LLC, SG Mortgage Finance Corp., and SG

Mortgage Securities, LLC, Arnaud Denis,

Abner Figueroa, Tony Tusi and Orlando

Figueroa

MAYER BROWN LLP1675 Broadway

New York, NY 10019(212) 506-2500

MAYER BROWN LLP1999 K Street, N.W.

Washington, DC 20006

(202) 263-3000

Attorneys for Petitioners Ally Financial

Inc. and GMAC Mortgage Group, Inc.

SIMPSON THACHER & BARTLETT LLP

425 Lexington Avenue New York, New York 10017

(212) 455-2000

Attorneys for Petitioner RBS Securities

Inc.

DAVIS POLK & WARDWELL LLP

450 Lexington Avenue New York, New York 10017

(212) 450-4000

Attorneys for Petitioners Morgan

Stanley, Morgan Stanley & Co.

Incorporated (n/k/a Morgan Stanley &

Co. LLC), Morgan Stanley MortgageCapital Holdings LLC (successor-in-

interest to Morgan Stanley Mortgage

Capital Inc.), Morgan Stanley ABS

Capital I Inc., Morgan Stanley Capital

I Inc., Saxon Capital, Inc., Saxon

Funding Management LLC, Saxon

Asset Securities Company, Gail P.

McDonnell, Howard Hubler, David R.

Warren and Steven S. Stern

K IRKLAND & ELLIS LLP601 Lexington Avenue

New York, New York 10022(212) 446-4800

K IRKLAND & ELLIS LLP300 North LaSalle Street

Chicago, Illinois 60654

(312) 862-2000

Attorneys for Petitioner

Ally Securities, LLC




i

TABLE OF CONTENTS

Page

Plaintiff FHFA’s Proposal for the Efficient

Administration of the Cases Pursuant to

Paragraph 3 of the District Court’s September 16,

2011, Order, dated October 19, 2011 ..................... A-1

Plaintiff FHFA’s Proposal for Certain Case

Management Issues, dated January 10, 2012 ......... A-19

Transcript of Proceedings before the Honorable

Denise L. Cote, dated December 2, 2011 .............. A-36

Opinion and Order of the Honorable Denise L.

Cote, dated May 4, 2012 ........................................ A-97


Denise L. Cote, dated May 14, 2012 ..................... A-163

Notice of Motion by Defendants to Certify an

Appeal Pursuant to 28 U.S.C. § 1292(b) of

Certain Portions of the District Court’s May 4,

2012, Order Denying in part the Motion to

Dismiss the Second Amended Complaint, dated May 23, 2012 ......................................................... A-223

Declaration of Jay B. Kasner, for Defendants, in

Support of Motion to Certify an Appeal Pursuant

to 28 U.S.C. § 1292(b), of Certain Portions of the

District Court’s May 4, 2012, Order Denying in

part the Motion to Dismiss the Second Amended

Complaint, dated May 23, 2012 ............................ A-226

Exhibit A to Kasner Declaration -

Ross Todd, Quinn Emanuel and FHFA Clear Big

Hurdle in Huge MBS Case, The AmericanLawyer, May 4, 2012 ............................................. A-228




Page

ii

Defendants’ Submission Regarding Certain Matters

Identified in the June 6, 2012, Rule(f) Joint

Report, dated June 6, 2012 .................................... A-230

Exhibit 1 to Submission -

Plaintiff’s Responses to Defendants’ First Set of

Interrogatories, dated May 31, 2012 ...................... A-251

Exhibit 2 to Submission -

List of Modifications for Tranches 2, 3 and 4 ....... A-269

Defendants’ Supplemental Submission Regarding

Certain Developments Bearing on the June 6,2012, Rule 26(f) Joint Report, dated

June 12, 2012 ......................................................... A-272

Opinion and Order of the Honorable Denise L.

Cote, dated June 19, 2012 ...................................... A-282


Denise L. Cote, dated June 13, 2012 ..................... A-296

Letter from Jay B. Kasner to Denise L. Cote, dated

July 2, 2012 ............................................................ A-353

Letter from Jay B. Kasner to Denise L. Cote, dated

July 17, 2012 .......................................................... A-355


Denise L. Cote, dated July 19, 2012 ...................... A-357


Denise L. Cote, dated July 31, 2012 ...................... A-391

Defendant’s Amended Submission for July 31,

2012, Hearing, filed August 7, 2012 ..................... A-515

Attachment to Letter -Proposed Order of the Honorable Denise L. Cote

with attachments thereto ........................................ A-527




Page

iii

Order of the Honorable Denise L. Cote, dated

August 28, 2012 ..................................................... A-681

Letter from Edward J. Bennett to the Honorable

Dense L. Cote, dated August 14, 2012 ................. A-683

Attachment to Letter -

Proposed Memorandum of Law in Support of the

Merrill Lynch Corporate Defendants’ Motion for

Reconsideration of the July 31, 2012, Order

Regarding Discovery of Documents within the

GSE’s Whole Loan Units Evidencing the GSE’sRelationships with Originators, dated August 14,

2012, with attachments thereto .............................. A-686


Denise L. Cote, dated October 26, 2012 ................ A-754

Letter from Philippe Z. Selendy to the Honorable

Denise L. Cote, dated

November 5, 2012 ................................................. A-757

Transcript of Proceedings held before the

Honorable Denise L. Cote, dated

November 6, 2012 ................................................. A-768

Order of the Honorable Denise L. Cote, dated

November 9, 2012 ................................................. A-898

Letter from Steven M. Cady to the Honorable

Denise L. Cote, filed November 9, 2012 ............... A-900



November 14, 2012 ............................................... A-902

Transcript of Proceedings held before theHonorable Denise L. Cote, dated

November 15, 2012 ............................................... A-906




Page

iv

Letter from Penny Shane to the Honorable Denise

L. Cote, filed November 16, 2012 ......................... A-1013

Attached to Letter –

(i) Motion to Compel, by Defendants, dated

November 5, 2012 ................................................. A-1015

(ii) Memorandum of Law in Support of Motion

to Compel, dated November 5, 2012 (Redacted) .. A-1022

(iii) Declaration of Penny Shane, for Defendants,

in Support of Motion to Compel, dated

November 5, 2012 (Redacted) ............................... A-1059


Denise L. Cote, dated November 19, 2012

(Reproduced at pp. A-2073 - A-2105)

Letter from Robert A. Fumerton to the Honorable


November 19, 2012, with Exhibit A ...................... A-1081

Revised Pretrial Scheduling Order, dated

November 26, 2012 ............................................... A-1088

Order Regarding Deposition Protocol, dated

November 27, 2012 ............................................... A-1092


Denise L. Cote, dated December 12, 2012, with

Exhibits A-B .......................................................... A-1110


Denise L. Cote, dated December 13, 2012 ............ A-1121



Redacted Letter from Penny Shane to the Honorable





Page

v

Corrected Order Regarding Deposition Protocol,

dated December 15, 2012 ...................................... A-1244







Redacted Letter from Edward J. Bennett to theHonorable Denise L. Cote, dated

December 7, 2012 .................................................. A-1376

Letter from Richard H. Klapper to the Honorable


Exhibit A to Letter -

Letter from B. Harsh to A. Abensohn, dated

December 3, 2012 .................................................. A-1384

Exhibit B to Letter -

[Redacted] .............................................................. A-1390Exhibit C to Letter -

All Clayton Trending Reports, 1st

Quarter 2006 -

2nd

Quarter ............................................................. A-1391

Exhibit D to Letter -

Excerpts of Report of Special Litigation

Committee of the Federal Home Loan Mortgage

Corporation, dated February 25, 2011 ................... A-1403




Page

vi

Exhibit E to Letter -

Excerpts of Memorandum of Law in Support of

Fannie Mae’s Motion to Dismiss Claims Under

the Securities Exchange Act of 1934, dated

September 19, 2009 ............................................... A-1413

Exhibit F to Letter -

Excerpts of Memorandum of Law in Support of

Freddie Mac’s Motion to Dismiss the Amended

Complaint with Prejudice, dated

September 23, 2009 ............................................... A-1425

Exhibit G to Letter -

Letter from Richard A. Schirtzer to Bradley

Harsch, dated December 7, 2012 ........................... A-1447

Exhibit H to Letter -

Letter from Bradley Harsch to Richard A.

Schirtzer, dated December 10, 2012 ...................... A-1451



Exhibit A to Letter -

Chart comparing Characteristics and Guidelines .. A-1456

Exhibit B to Letter -

Quote from Bethany McLean and Joe Nocera, All

the Devils are Here: The Hidden History of the

Financial Crisis ..................................................... A-1476

Exhibit C to Letter -

The Financial Crisis Inquiry Report, dated

January 2011 .......................................................... A-1478




Page

vii

Exhibit D to Letter -

Excerpt of Complaint, dated April 18, 2011, in

the matter of U.S. Securities and Exchange

Commission v. Syron, No. 11 civ 9201 .................. A-1493



Memo-Endorsed Letter of the Honorable Denise L.

Cote, dated January 2, 2013 ................................... A-1501

Letter from Richard A. Schirtzer to the Honorable

Denise L. Cote, dated January 10, 2013, with Exhibit A .......................... A-1505


Denise L. Cote, dated February 4, 2013, with

Attachments thereto ............................................... A-1515



Attachments thereto ............................................... A-1580

Letter from Robert J. Kopecky to the Honorable

Denise L. Cote, dated February 5, 2013 ................ A-1616





Redacted Letter from Richard H. Klapper to the

Honorable Denise L. Cote, dated February 13,

2013 with Attachments thereto .............................. A-1736



Exhibits A-I ............................................................ A-1776




Page

viii



Attached Proposed Order, dated

February _, 2013 and Exhibit A ............................. A-1788

Declaration of Robert A. Fumerton, for Defendants,

in Support of Request for Information Regarding

Plaintiffs’ Retention of Freddie Mac Emails,

dated February 13, 2013 ........................................ A-1796

Exhibit A to Fumerton Declaration -

Transcript, 30(b)(6) Deposition of Richard Kehoe, dated July 20, 2012 (EXCERPTS) ............ A-1803

Exhibit B to Fumerton Declaration -

Declaration of Richard Kehoe, Case No.1:11-cv-

383 (LMB/JFA), dated November 22, 2011 .......... A-1819

Exhibit C to Fumerton Declaration -

Declaration of Richard Kehoe, Case No. 1:11-cv-

383 (LMB/JFA), dated October 12, 2011 .............. A-1823

Exhibit D to Fumerton Declaration -

List of Proposed Freddie Mac Custodians ............. A-1827

Exhibit E to Fumerton Declaration -

Transcript, November 6, 2012, Conference

Before the District Court (EXCERPTS) ................ A-1830

Exhibit F to Fumerton Declaration -

Letter from Andrew Dunlap to Robert A.

Fumerton, dated January 25, 2013 ......................... A-1835


Denise L. Cote, dated February 14, 2013 .............. A-1838

Letter from Robert A. Fumerton to the HonorableDenise L. Cote, dated

February 15, 2013 .................................................. A-1943




Page

ix


Denise L. Cote, dated February 21, 2013 .............. A-1946

Amended Order Regarding Deposition Protocol,

filed February 25, 2013 .......................................... A-2042


Cote, dated March 8, 2013 ..................................... A-2061


Cote, dated March 19, 2013 ................................... A-2063

Memo-Endorsed Letter of the Honorable Denise L.Cote, dated March 21, 2013 ................................... A-2065


Cote, dated March 21, 2013 ................................... A-2068

Redacted Memo-Endorsed Letter of the Honorable

Denise L. Cote, filed March 22, 2013 ................... A-2071


Denise L. Cote, dated November 19, 2012 ............ A-2073




1

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK

FEDERAL HOUSING FINANCE AGENCY,AS CONSERVATOR FOR THE FEDERAL

NATIONAL MORTGAGE ASSOCIATIONAND THE FEDERAL HOME LOANMORTGAGE CORPORATION,

Plaintiff,

-against-

HSBC NORTH AMERICA HOLDINGS INC.

et al.,

Defendants.

Case No. 1:11-cv-06189-LAK

PLAINTIFF FHFA’s PROPOSAL

FOR THE EFFICIENT

ADMINISTRATION OF THE CASES

PURSUANT TO PARAGRAPH 3 OF

THE COURT’S SEPTEMBER 16,

2011 ORDER

Other Cases Brought By This Plaintiff:

11 Civ. 5201 (VM)

11 Civ. 6188 (DLC)11 Civ. 6190 (DAB)11 Civ. 6192 (LAK)11 Civ. 6193 (PGG)11 Civ. 6195 (JFK)

11 Civ. 6196 (PAC)11 Civ. 6198 (DAB)

11 Civ. 6200 (RPP)11 Civ. 6201 (JFK)11 Civ. 6202 (DLC)11 Civ. 6203 (JSR)11 Civ. 6739 (PKC)11 Civ. 7010 (RJH)11 Civ. 7048 (VM)

Pursuant to this Court’s Orders dated September 16, September 21, October 11, October

17, and October 18, 2011, Plaintiff Federal Housing Finance Agency (“FHFA”), as Conservator

for the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan

Mortgage Corporation (“Freddie Mac”), respectfully submits this report and proposal for the

efficient administration of the above-captioned cases (the “Cases”). As set forth below, while

Case 1:11-cv-05201-DLC Document 17 Filed 10/19/11 Page 1 of 18

A-1DCase: 13-1122 Document: 2 Page: 14 03/26/2013 889983 308



2

there are fundamental differences between the Cases precluding consolidation, coordination may

be possible in certain areas to resolve truly common questions and to reduce burdens in

discovery.

BACKGROUND

A. The Pending Cases

In its capacity as Conservator for Fannie Mae and Freddie Mac (together, the “GSEs”),

FHFA, through two sets of counsel, filed 13 complaints in the Southern District of New York

and four complaints in New York State Court against over two hundred unique defendants based

on transactions in approximately five hundred separate securitizations.1

These actions were

brought pursuant to congressional authority under the Housing and Economic Recovery Act of

2008 for the benefit of American taxpayers to redress Defendants’ misconduct. Specifically, the

complaints allege violations of the Securities Act of 1933, the Blue Sky laws of the District of

Columbia and/or Virginia, and one or more common law torts, including fraud, aiding and

abetting fraud, and negligent misrepresentation.

FHFA filed the first of these actions, against several entities and individuals affiliated

with UBS, on July 27, 2011. See FHFA v. UBS Americas Inc., Index No. 11 Civ. 5201 (VM),

Dkt. 1. The remaining cases were filed in State and Federal Court on September 2, 2011. In

each Case, FHFA asserts causes of action arising out of numerous misrepresentations, by

different Defendant banks and affiliated entities and individuals, concerning the quality of the

1

All four of the State-filed actions have been removed, and FHFA will seek remand of each. Three of those cases, FHFA v. Morgan Stanley, Index No. 11 Civ. 6739 (PKC), FHFA v. Ally Financial Inc., Index No. 11 Civ. 7010 (RJH), and FHFA v. General Electric Co., Index No.11 Civ. 7048 (VM), are included within the Court’s September 16 and related Orders; FHFA v.

Countrywide, Index No. 11 Civ. 6916 (JSR), is not. In addition, FHFA has an action pendingagainst several entities and individuals affiliated with the Royal Bank of Scotland, in the Districtof Connecticut. See FHFA v. Royal Bank of Scotland Group PLC , Index No. 11 Civ. 1383(AWT) (D. Conn.).





3

mortgage loans that those Defendants selected as the collateral for residential mortgage-backed

securities (“RMBS”) that they offered and sold to the GSEs. Each complaint is organized around

a lead defendant (and its affiliates), and asserts causes of action with respect to securitizations

sponsored, offered and/or sold by those defendants.2

In addition, each complaint names as

defendants unaffiliated parties who are liable for their roles in the offer and sale of such

securities, including underwriters, signatories to the registration statements, and those who

controlled other defendants. As detailed in each complaint, FHFA has confirmed Defendants’

misrepresentations, which have already been well documented through Congressional

investigations and media accounts, by undertaking extensive loan-level analysis of the mortgage

loans collateralizing the securities that are the subject of each Case.

While the Cases all involve misrepresentations by Defendants in connection with the sale

of RMBS certificates, resolution of FHFA’s claims depends on considerations unique to each

Case. Among other things, each Case involves: (i) different securitizations, (ii) collateralized by

different mortgage loans, (iii) underwritten by different loan originators (or a different

combination of loan originators), (iv) according to different underwriting guidelines,

(v) marketed and sold by different Defendants, (vi) on different dates, (vii) by means of different

registration statements and prospectus supplements, (viii) signed by different directors and

officers, and (ix) containing different representations. Moreover, six of the Cases assert causes

of action for fraud and aiding and abetting fraud, and thus include allegations addressed

specifically to the scienter of particular Defendants named in those actions, and one of the Cases

includes a cause of action for successor liability.

2Although a small number of Defendants are named in more than one complaint (and

always because they served a different role with respect to the subject securitizations), thesubstantial majority are named in only one action.





4

B. The Court’s Orders

The Court issued an Order on September 16, 2011, directing the parties to meet and

confer for the purposes of presenting a joint report identifying similarities and differences among

and between the Cases, and a joint report – or, if not possible, separate reports – proposing

“means by which the cases can most efficiently be handled.” FHFA initiated the meet and

confer process with a written request to Defendants on September 26, 2011, and the parties have

since held two meetings – the first on October 11, at the offices of Paul, Weiss, Rifkind, Wharton

& Garrison LLP, and the second on October 14, 2011, at the offices of Sullivan & Cromwell

LLP. At FHFA’s suggestion, the parties exchanged written proposals on October 7, 2011, with

follow-up correspondence on October 13, 2011. Exs. A–D. Through this process, the parties

have prepared and submitted a joint report identifying differences and similarities between the

Cases, but have not been able to agree on a proposed protocol for the management of these Cases

going forward.

Defendants maintain that there are several “common issues” suitable for disposition

across Cases in a joint motion to dismiss on behalf of all Defendants. Defendants initially

described such purported common issues in the broadest possible terms (e.g., “statute of

limitations”) during the meeting on October 11, but declined to discuss the issues or explain the

basis for Defendants’ contention that the issues could be resolved without consideration of the

specific facts and allegations underlying each action. Counsel for FHFA therefore requested at

that meeting that Defendants make a further submission identifying the so-called “common

issues” so that FHFA could assess Defendants’ claim that those issues would be suitable for joint





5

resolution.3

As set forth in section I.A., infra, Defendants’ subsequent submission, on October

13, actually reveals that those matters are fact-specific and can only be resolved through separate

analysis in each Case.

PROPOSAL

No party has claimed that the Cases qualify as “related,” under Rule 13(d) for the

Division of Business Among District Judges, Southern District, and full consolidation of these

matters is unwarranted under that Rule. Under similar circumstances, in fact, Judge Batts

rejected an application to consolidate five RMBS complaints, which, like the complaints here,

were filed by the same plaintiffs against different defendants with respect to different

securitizations. See Allstate Bank v. JP Morgan Chase Bank, NA, Index No. 11 Civ. 1869

(DAB) (S.D.N.Y. Apr. 14, 2011) (Ex. E). As Judge Batts concluded, the actions were “not

sufficiently related to warrant their transfer and coordinated treatment.” Id.

For the same reason that these actions are not appropriate for full consolidation, broad

coordination between and among the Cases would not be appropriate or efficient here. Indeed,

each complaint addresses different securitizations of different collateral pools sponsored or

deposited at different times by different lead defendants. As a result, each Case presents unique

issues pertaining to distinct sets of securitizations, requiring the application of law to the

particular allegations and surrounding facts, and cannot be generally addressed or resolved on an

undifferentiated basis across actions. FHFA therefore proposes that the Cases be coordinated on

a more limited basis, and only to the extent that such coordination would actually achieve

3During the same session, Defendants requested that FHFA provide a letter describing

its anticipated remand applications. Although the Court’s Orders do not address remand, anddespite the fact that two of the State-filed cases were not covered by the Court’s Orders, FHFAaccommodated Defendants’ request and submitted a letter outlining FHFA’s intentions onremand. Ex. C.





6

increased efficiencies for the parties and the Court, rather than introducing needless complexity,

delays, and inefficiency. Specifically, FHFA proposes the following:

i) That Defendants be required to enter all motions to dismiss and related briefing, ineach Case, on the schedule that the parties have agreed to previously – motions andopening briefs on December 2, 2011, oppositions or amended pleadings on March 2,2012, and reply briefs on April 16, 2012.

ii) That only in the event the Court, based on the parties’ submissions today, identifies

specific issues suitable for consideration across Cases, Defendants may present suchissues in a “common brief” submitted on the same agreed-upon schedule indicatedabove; and

iii) That the Court set uniform standards for discovery across the Cases, including provisions that no individual witness be deposed more than once, and that documentdiscovery relevant to multiple Cases or parties be undertaken pursuant to a uniformset of requests and search terms.

For the reasons that follow, the above protocol would maximize the efficient administration of

the Cases by achieving coordination where possible, while ensuring separate consideration and

resolution of those issues that require analysis of the particular facts and allegations in each Case.

DISCUSSION

I. MOTIONS TO DISMISS

A. Distinct Issues Predominate And Can Most Efficiently Be

Resolved Through Separate Motions Submitted On A Case-

By-Case Basis

The “common issues” that Defendants have thus far identified are not suitable for

disposition pursuant to joint briefing across actions, and it would be most efficient for those

matters to be presented for resolution on a case-by-case basis. Among other things, each Case

involves different defendants, who marketed and sold different securitizations, pursuant to

different registration statements and prospectus supplements, containing different representations

and warranties, concerning mortgage loans that were originated by different entities in different

economic circumstances according to different underwriting guidelines. As set forth below, in





7

light of these differences, among others, the “common issues” that Defendants identified in their

written exchange with FHFA are actually different in each case and should be considered

separately in each Case. See Ex. D.

1. Statute Of Limitations

Defendants propose joint briefing as to “the applicable statute of limitations and/or statute of repose for each claim, including the

applicability of 12 U.S.C. § 4617(b)(12) to the various limitations andrepose periods, such as those found in 15 U.S.C. § 77m, with the relevanttime periods generally keyed off common or knowable dates, such as thedate of the offerings, publicly available admissions made by Fannie and

Freddie, other publicly available information that placed Fannie andFreddie on notice of any potential claims, and the date of conservatorship.”

Defendants’ proposed joint briefing of statutes of limitations and/or repose is

unworkable. Most obviously “the date of the offerings” in each Case is different. Likewise,

even if it were proper for Defendants to rely on “publicly available information” in a motion on

the pleadings, any such “information” would presumably have different implications across

Cases, depending on the timing of the subject transactions and the identity of the named

Defendants. And any argument by Defendants that the GSEs were “on notice” of particular

claims would necessarily depend on a case-by-case analysis as to when the GSEs learned that the

representations by particular Defendants concerning particular securitizations were false.

Finally, any effort to address the “relevant time periods” across actions is further complicated by

the fact that there were tolling agreements, covering different date ranges, between different

parties, in some but not all of the Cases.





8

2. Standing And Capacity Of FHFA To Assert Claims

Defendants propose joint briefing as to “the standing and capacity of FHFA to assert claims, despite issues including: (a) the continued validityof the appointment of the Acting Director; and (b) whether FHFA sufferedcognizable injury as to all or some of the certificates on which it sues.”

While the “validity of the appointment of the Acting Director” may be common across

cases (though it is unclear from Defendants’ submission why this is pertinent), issues pertaining

to the injuries sustained by the GSEs plainly are not. Indeed, Defendants’ own formulation –

i.e., whether “FHFA suffered cognizable injury as to all or some of the certificates on which it

sues” – demonstrates that this issue cannot be resolved on the same basis across certificates and

across Cases. The losses on the certificates will necessarily vary on a certificate-by-certificate

basis, depending on the extent of Defendants’ misrepresentations as well as the degree of

subordination, the degree of cross-collateralization, the present value of that collateral, and other

factors.

3. Falsity And Materiality Of Defendants’ Misrepresentations

Defendants propose joint briefing as to “the alleged falsity and materialityof any actionable misrepresentations, including whether the complaints plausibly allege any misrepresentation as to which Plaintiff lackedknowledge and that was material, i.e., that disclosure would have beenviewed as significantly altering the total mix of available information,such as for example: (a) whether any deviations from underwritingstandards were known by Defendants, as required by Item 1111 of SECRegulation AB; (b) whether the allegations that concern loan-to-value

ratios, credit ratings, or owner occupancy representations were notactionable misrepresentations of fact because they are based on subjectiveopinions or expressions of intent; and (c) whether the alleged statementswere otherwise materially misleading.”

Joint briefing across the Cases as to “the alleged falsity and materiality of any actionable

misrepresentations” is impracticable. It is black letter law that materiality is a fact-specific

question. Basic Inc. v. Levinson, 485 U.S. 224, 240, 108 S. Ct. 978, 988 (1988) (“In order to

determine whether a misleading statement is material, courts must engage in a fact-specific





9

inquiry.”).4

Whether and how particular misrepresentations by particular Defendants were

material will depend on the nature and extent of those misrepresentations, which vary from one

securitization to the next (and from one Case to the next), and the extent (if at all) to which the

Defendants in each Case might establish that the GSEs were already aware that the true

characteristics of the collateral underlying each securitization were different than Defendants had

represented.

4. Loss Causation

Defendants propose joint briefing as to “alleged loss causation issues,including for example whether the complaints allege enough factualmatter plausibly to suggest that any decline in performance was caused bythe purported misrepresentations regarding underwriting guidelines or the

relevant loans.”

Loss causation is a heavily fact-specific affirmative defense, applicable only to certain of

the causes of action, and one that will vary across the Cases. Consideration of the defense of loss

causation is not appropriate in a motion to dismiss these Cases, not least because resolution of

issues of causation will involve consideration of the extent of the material misrepresentations by

each particular Defendant and the extent to which Defendants might establish (if at all) that some

4A number of Defendants’ purportedly “common issues” are not suitable for resolution

on a motion to dismiss at all. See, e.g., Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161, 169

(2d Cir. 2005) (“Our recent decisions reinforce the fact-specific nature of the limitations defense, particularly where the claim is foreclosed by inquiry notice.”); id. at 174 (“Loss causation is afact-based inquiry and the degree of difficulty in pleading will be affected by circumstances ….If the loss was caused by an intervening event, like a general fall in the price of Internet stocks,the chain of causation is a matter of proof at trial and not to be decided on a Rule 12(b)(6)motion to dismiss.”) (alterations, citations, and internal quotation marks omitted); AIG Global

Sec. Lending Corp. v. Banc of Am. Sec., LLC , 2005 WL 2385854, at *9 n.5 (S.D.N.Y. Sept. 26,2005) (“[T]he issue of whether an investor reasonably relied on a defendant’s misrepresentationsis a fact-intensive inquiry that cannot be decided on this motion to dismiss.”) (citations omitted);Century Pac., Inc. v. Hilton Hotels Corp., 2004 WL 868211, at *8 (S.D.N.Y. Apr. 21, 2004)(“Courts in this circuit have held that a determination of whether a special relationship exists ishighly fact-specific and generally not susceptible to resolution at the pleadings stage.”) (citationomitted). In any event, as discussed in text, these issues are highly fact specific and not suitedfor disposition in a single “common” motion across Cases.





10

other factor, aside from their own misrepresentations, impaired the value of the collateral

underlying the particular securitizations at issue in each Case, taking into account factors such as

the quality of the underlying loans, the standards of the particular originators and underwriters,

the specific vintages of the mortgage loans, the type of loans (e.g., prime, Alt-A, subprime), the

type of liens (1st or 2nd lien), the degree of subordination, the degree of cross-collateralization,

and the present value of that collateral. This fact-specific analysis is not conducive to being

resolved through joint briefing across Cases.

5. Reliance And Knowledge

Defendants propose joint briefing as to “issues concerning Plaintiff’s

assertions of reliance and Plaintiff’s and the GSEs’ knowledge andsophistication.”

Reliance is an element only for the common law causes of action of negligent

misrepresentation and fraud. Determining whether the GSEs justifiably relied on Defendants’

misrepresentations will require consideration not only of the specific representations and

disclosures in each set of offering materials, but also (among other things) the history of dealings

between the GSEs and each originator, between the GSEs and each underwriter, and between the

GSEs and each sponsor or depositor. Likewise, any claim by Defendants that the GSEs had

knowledge that particular securitizations were different than represented requires an analysis of

the GSEs’ supposed knowledge concerning each Defendant and each securitization at the time

they entered into each transaction.

6. Special Relationship For Negligent Misrepresentation

Defendants propose joint briefing as to “the existence (or lack) of a specialrelationship for negligent misrepresentation claims.”

Under the common law of both Virginia and the District of Columbia, the existence of a

special relationship is not generally required to prove negligent misrepresentation or constructive


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11

fraud. To the extent a special relationship is relevant, the determination of whether such a

relationship exists between a particular GSE and a particular Defendant as of the time of a given

transaction is a fact-specific inquiry that must be conducted on a case-by-case and Defendant-by-

Defendant basis. Indeed, in order to determine whether the GSEs had a special relationship with

a particular Defendant, it is of course necessary to examine the GSEs’ interactions with that

particular Defendant. In addition, a special relationship may be demonstrated on the basis of a

defendant’s “superior knowledge” of the underlying facts. These factors will necessarily vary

case-by-case and Defendant-by-Defendant. Alternatively, a duty to disclose accurate

information and to correct “half truths” may arise on the basis of previously inadequate

disclosures by a defendant. The nature of any past disclosures will necessarily vary across Cases

and Defendants. Resolving such issues in joint briefing across all transactions and all Cases is

impracticable.

7. Controlling Person Liability

Defendants propose joint briefing as to “certain elements of ‘control person’ liability, including for example whether control person claims

must be dismissed for want of a primary violation, for failure adequatelyto allege control over a primary violator and for failure to allege culpable participation.”

The existence of control person liability depends upon the relationship between each

particular Defendant and its affiliated entities, a fact-specific inquiry that necessarily varies from

one Defendant to the next. It is not possible to determine across the board whether FHFA’s

controlling person allegations are sufficient. Rather, it is a determination that requires an

analysis of the relationships between the affiliated Defendants named in each individual Case

and the role and involvement of each individual Defendant.


A-11Case: 13-1122 Document: 2 Page: 24 03/26/2013 889983 308



12

* * *

In sum, the issues that Defendants have identified as “common” during the parties’ meet

and confer sessions are actually fact specific and, even assuming they could be appropriately

asserted in a motion to dismiss at all, the analysis of those issues would necessarily vary across

Cases.5

It would therefore be highly inefficient for Defendants to be permitted to pursue their

so-called “common issues” in a joint motion to dismiss.

Such consolidation also would be inconsistent with positions that several of the

Defendants have taken previously. When the Federal Home Loan Bank commenced eleven

RMBS actions in Washington State Court against different defendants alleging violations of

Washington State law and sought consolidation, many of the defendants here vigorously opposed

that request. UBS, for instance, noted that it “face[d] claims regarding particular securities

offerings, involving specific disclosures and unique mortgage loans,” and argued therefore that

“[r]eassignment and coordination will not result in any gain in efficiency, since each offering

involves adjudication of particular facts.”

6

Fed. Home Loan Bank of Seattle (“FHLB”) v. UBS

Securities LLC , Index No. 09-2-46350-6 SEA, Response to Plaintiff’s Motion to Reassign and

5Tellingly, despite insisting that their proffered “common issues” are identical across

Cases, Defendants would not agree to FHFA’s proposal that such issues be adjudicated based ona representative complaint selected by FHFA. The reality is that there are key differences ineach action, and the issues that Defendants have identified can only be adjudicated on a case-by-case basis.

6See also FHLB v. Barclays Capital, Inc., Index No. 09-2-46320-4 SEA, Barclays’s

Response to Federal Home Loan Bank of Seattle’s Motion to Reassign and Coordinate, at 2

(Wash. Sup. Ct. Sept. 28, 2010) (Ex. F) (“The law does not permit transactionally unrelatedcases to be brought together for litigation advantage. An investor who happens to invest in 11different stocks of 11 different technology companies bought at 11 different times can’t sue themall together willy-nilly. It can’t do so just because the claims involve alleged violations of thesame statute…. It can’t do so period.”). The State Court in Washington initially declined toconsolidate the actions as related, as Judge Batts did in the Allstate Order, but changed thatdetermination after three of the defendants consented to plaintiffs’ request. As indicated in text,none of the parties here claim that the Cases qualify as “related” under the applicable local rule.





13

Coordinate Cases, at 1 – 2 (Wash. Sup. Ct. Sept. 28, 2010) (Ex. G). It is for similar reasons,

among others, that FHFA does not propose consolidation across cases, and asks instead that

Defendants be directed to move separately in each Case with respect to those arguments that are

not actually common across Cases.7

B. If It Is Determined That Defendants Have Identified One Or More

Truly Common Issues, Defendants Should Be Directed To Present

Such Issues In A Single Joint Motion Submitted With Any Separate

Motions In The Individual Cases

If it is determined that Defendants’ submission identifies certain truly common issues

suitable for disposition across Cases, FHFA proposes that Defendants be directed to present such

issues, and only such issues, in a single joint motion to dismiss, to be briefed on the same

schedule that the parties have already negotiated and agreed to for the filing of motions in each

individual Case—specifically, motion and opening brief due on December 2, 2011, opposition

brief or amended pleading due on March 2, 2012, and reply brief due on April 16, 2012.

Moreover, any such joint motion should be presented for consideration by the Judges presiding

over all of the Cases (or a panel of those Judges who elect to participate in the resolution of

dispositive motions in their assigned Cases).8

During the parties’ meet and confer sessions, Defendants advocated for a different and

unorthodox proposal. They suggested that briefing for their anticipated motions to dismiss in

7Certain individual defendants have not participated in the meet and confer process.

Thus, the proposal by Defendants is actually a proposal only on behalf of certain defendants,which is another consideration against its adoption and points to the difficulty of imposing joint

briefing. There is no reason to assume that these other defendants agree with their co-defendantsthat so-called “common” issues are suitable for presentation in a joint motion to dismiss.

8Defendants suggested during the parties’ meet and confer sessions that they might

request that a joint motion to dismiss be decided by a single judge. Given that these cases are notrelated, FHFA does not see a basis for such a request. Nevertheless, in the event the Judges hereadopt such an approach, Rule 13(d) for the Division of Business Among SDNY Judges providesuseful guidance for assignment of any such motion.


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14

each individual Case not even commence until after a decision on their proposed joint motion.

The delay and prejudice resulting from such a protocol is obvious and extreme. FHFA agreed to

Defendants’ request that their answer dates be extended in each Case until December 2, 2011 – a

generous extension – specifically to ensure a reasonable time for Defendants to present all issues

that they plan to pursue as grounds for dismissal, not as a starting point for the first of two stages

of staggered briefing. Under that agreed-upon schedule, which affords Defendants ample time to

formulate motions advancing any and all arguments that they plan to assert as grounds for

dismissal, briefing will be completed by mid-April 2012. If briefing on a second round of

dismissal motions does not begin until after disposition of a joint motion, it is likely that briefing

would not even begin on that second round of motions until well into 2012.9

This would

seriously impair FHFA’s right to pursue its claims, asserted in the public interest, without delay.

II. DISCOVERY

While each Case involves fundamental differences – e.g., different parties, different

securitizations, different purchase dates, different transaction documents – the parties will likely

seek discovery of similar categories of information with respect to the distinct transactions at

issue in each Case. FHFA believes that this creates opportunities for the formulation of a

discovery protocol, applicable across Cases, which would minimize the burden on individual

witnesses and avoid unnecessary duplication of effort in document production. FHFA proposes

that the Court adopt such a protocol with the following components:

First , for purposes of both e-discovery and discovery of hard copy documents,

Defendants should jointly provide a proposed single set of search terms to be employed by

9The impact of these delays are exacerbated by the fact that it is Defendants’ position,

based on their representations in the parties’ meet and confer sessions, that they are under noobligation to furnish any discovery until all motions are fully disposed.





15

FHFA for the purpose of locating and gathering documents for production (with those terms

subject to negotiation between FHFA and Defendants, and, if necessary, Court resolution of any

disputes). Similarly, where feasible, FHFA could propose a single set of search term requests to

Defendants named in multiple FHFA complaints, to be supplemented as necessary based on the

specifics of each complaint.

Second, each individual witness should be deposed at most once, including where such

witness possesses relevant knowledge that bears on more than one Case. For each deposition of

a GSE witness with information relevant to more than one Case, Defendants should select a

“lead counsel” to question the witness as to matters common to multiple Cases, with remaining

counsel questioning the witness on a targeted basis, and with an appropriate time limitation, on

topics unique to their Cases. FHFA would similarly be limited to a single deposition of any

defense witnesses with relevant information across more than one Case.

Third, Defendants should submit a single proposed set of interrogatories/requests for

admission as to any common issues (e.g., GSE organizational structure, policies or procedures,

etc.), while reserving the ability to make targeted requests addressed to the securitizations in a

particular Case.

Fourth, FHFA would likewise submit a standard set of requests directed to Defendants

on matters relevant across the Cases (e.g., Defendants’ organizational structure, policies or

procedures, etc.), while reserving the option of making particularized requests addressed to the

personnel and transactions at issue in each Case.


A-15




16

Adopting these measures would ensure efficient document discovery, limit the burdens

on individual witnesses, and limit the burdens on the Court insofar as discovery disputes

concerning search terms and document requests could be resolved on a uniform basis across

Cases.

III. REMAND

All four of the cases that FHFA filed in State court have now been removed to the

Southern District of New York and FHFA has filed, or will file shortly, motions to remand each

of those actions (the “State-Filed Cases”). See FHFA v. Morgan Stanley, Index No. 11 Civ.

6739 (PKC); FHFA v. Countrywide, Index No. 11 Civ. 6916 (JSR); FHFA v. Ally Financial Inc.,

Index No. 11 Civ. 7010 (RJH); FHFA v. General Electric Co., Index No. 11 Civ. 7048 (VM).

Apart from the fact that one of the State-Filed Cases is not subject to the Courts’ Orders, remand

is not a common issue that could be coordinated across the Cases – 13 of which were filed in

Federal court. As FHFA detailed in its letter to Defense counsel on October 13, see Ex. C, its

remand motions will depend on distinct legal and factual issues in each State-Filed Case and

would not be appropriate, under any circumstances, for consolidation in a single joint motion.

Accordingly, FHFA does not propose coordinated submission or consideration of its remand

applications, and opposes any such request, in the event there is one, by Defendants.

The different issues implicated by FHFA’s four remand motions are extensive, and

reflect that each of the four removal petitions allege different bases for removal jurisdiction. The

Countrywide, Ally Financial, and Morgan Stanley petitions allege that removal is appropriate

because the removed actions are somehow “related to” a pending bankruptcy proceeding, but the

General Electric petition does not. The Countrywide petition alleges that the Edge Act,

12 U.S.C. § 632, confers federal question jurisdiction, but the others do not. The General

Electric and Morgan Stanley petitions allege that 28 U.S.C. § 1345 warrants removal, but the


A-16




17

others do not. Finally, the Ally Financial and Morgan Stanley petitions allege that 28 U.S.C.

§ 1452(f)(2) warrants removal, but the others do not. Even where a common ground is asserted

for removal, moreover, the analysis will necessarily require fact-specific inquiries that will differ

in each case – including, for instance, an evaluation of whether a particular identified bankruptcy

is “related to” the complaint, or an evaluation of whether the loans collateralizing a particular

securitization have a sufficiently “international” connection to warrant application of the Edge

Act.

CONCLUSION

For the reasons set forth above, broad coordination between and among the Cases would

not be efficient, as there are fundamental differences between each action. FHFA therefore

proposes coordination on a more limited basis, as follows: i) Defendants should present all

dismissal motions in each Case on the schedule that the parties previously negotiated;

(ii) Defendants should present any truly common issues, if the Court finds that there are such

issues, in a single joint motion to be briefed on the same agreed upon schedule; and

(iii) discovery should proceed in each Case pursuant to a protocol ensuring that each witness be

deposed once, and that document production proceed, where possible, pursuant to a uniform set

of search terms.






A-18

DATED: New York, New York

October 19, 2011

51Madison Avenue , 2 2 ~ d FloorNew York, New York 10010

(212) 849-7000

Aflorneys far Plaintiff rederai Housing

Finance Agency In I! C/V. 5201 (VA.f). I ICI, 6188 (DLC), 11 Cly. 6192 (LAK), 11Clv. 6196 (PAC), and 1I Civ. 6198 (DAB)

QU INN EMANUEL URQ UHART &

SULLlVAN, LLP

By' f : .g . ~ -kt-ut-Richard A. Schirtzer

51Mad ison Avenlle, Floo r

New York, New York 10010(2 t 2) 849-7000

Aflorneysjar PlaintiffFederal HousingFinance Agency ill 11 eiv. 6189 (I.AK)

and 11 Clv. 6201 (JFK)

QUINN BMANUEL URQUHART &SULLIVAN, LLPB Y : ~

ha M. Shech

j IMad ison Avenue, 22 nd FloorNew York, New York 10010

(212) 849-7000

Attorneys/or PlaintiffFederal HousingFinance Agency in 11 Civ. 6190 (DAB)

and 11 Clv. 6202 (DLC)

18

KASOW1TZ BENSON TORRES &

RIEDMAN LLP ..

By, ~ ~ ~ l ~ ~ 7 -Marc E. Kasowitz

1633 BroadwHY


(212) 506-1700

Artorneysjar Plaintiff Federal HousingFinance Agency in f! Civ. 6203 (.ISR). 11

Clv. 6739 (PKC), 11 Civ. 7010 (RJH), and

11 Clv. 7048 (VM)

QUINN EMANUEL URQUHART &

SULLlVAN, LLP

By: ~ C ~ Irr»c.-Christine H. Chung ,

51Madison Avenue, 22nd

FloorNew York , New Yo rk 10010

(2 12) 849-7000

Attnrney.'ifnr P laint iff Federal Hnw.ing

Finance Agency in 11 Civ. 6193 (PGG),

11 Civ. 6195 (JFK), and 11 Ci\'. 6200

(RPP)





A-19

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

FEDERAL HOUSING FINANCE AGENCY,

AS CONSERVATOR FOR THE FEDERAL

NATIONAL MORTGAGE ASSOCIATION

AND THE FEDERAL HOME LOAN

MORTGAGE CORPORATION,

Plaintiff,

-v-

UBS AMERICAS, INC.,et at.

Defendants.

Other Cases Brought By Plaintiff:

11 Civ.6188 (OLC)

11 Civ. 6189 (OLC)

11 Civ. 6190 (OLC)

11 Civ. 6192 (OLC)

11 Civ. 6193 (OLC)

11 Civ. 6195 (OLC)

11Civ. 6196 (DLC)11 Civ. 6198 (DLC)

11 Civ. 6200 (DLC)

11 Civ. 6201 (DLC)

11 Civ. 6202 (DLC)

11 Civ. 6203 (DLC)

11 Civ. 6739 (DLC)

11 Civ. 6916 (DLC)

11 Civ. 7010 (OLC)

11 Civ. 7048 (OLC)

Case No. 11 CIV. 5201 (DLC)

PLAINTIFF FHFA'S PROPOSAL

FOR CERTAIN CASE

MANAGEMENT ISSUES

Pursuant to this Court's Order dated December 5, 2011 in the above-captioned cases (the

"Cases"), Plaintiff Federal Housing Finance Agency ("Plaintiff' ), as Conservator for the Federal

National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage

Corporation ("Freddie Mac") (together, the "GSEs"), respectfully submits this report and

proposal regarding "the sequencing of discovery, protective orders! e-discovery, the sampling of





A-20

loan files, limits on depositions, and the time frames regarding document production,

depositions, and expert discovery.") As the parties have not reached agreement on (i) limitations

on depositions and interrogatories; (ii) the use of statistical sampling for loan files in discovery

and at summary judgment and trial; and (iii) the sequence of and timeframes for discovery, the

below report sets forth FHFA's proposal regarding those case management issues.

I. BACKGROUND

FHFA has attempted to reach agreement with Defendants on the matters raised in the

Court's December 5 Order. Although FHFA and Defendants participated in four telephonic

meet-and-confers to discuss the parties' responses to the Court's December 5 Order, Defendants

did not provide written comments on FHFA's proposed Joint Report (provided to Defendants on

December 27) until January 9, 20 12-one day before the Joint Report was due to the Court.

Prior to January 9, Defendants refused to offer any serious counterproposal, other than to state

that they believed it was premature to set numerical limits on discovery, and that discovery

should be equally allocated between the two sides despite a vastly disproportionate number of

Defendants. Moreover, Defendants were reluctant to provide any information in advance of this

Court's decision on the motion to dismiss that would aid the parties in determining appropriate

limits.

Defendants' tactics are consistent with their general approach in these Cases, which is to

push discovery further and further down the road? By contrast, FHF A has proposed a clear path

forward that would enable the parties to begin discovery as soon as this Court rules on the

) This Report applies only to those actions filed by plaintiff FHFA that are currently

pending before this Court or that are transferred or ultimately removed to this Court.

2 Although Defendants have agreed in the Joint Report to meet and confer in good faith

in the future, FHFA reserves the right to seek relief from the Court should Defendants fail to do

so.

2





A-21

motion to dismiss in 11 Civ. 5201 (FHFA v. UBS). FHFA believes that the below schedule and

approach will permit the parties to lay the groundwork for discovery to move forward in a fair

and efficient manner, and makes the best use of the time between now and the Court' s ruling on

the motion to dismiss in 11 Civ. 5201.

II. LIMITATIONS ON DEPOSITIONS AND INTERROGATORIES

A. Depositions

FHFA proposes that the generall0-deposi tion limit under Fed. R. Civ. P. 30 be modified

to accommodate the complex nature of the Cases, while also taking into account the significant

degree offactua l overlap between the various Cases. Under FHFA's proposal, all parties would

be subject to the same number of depositions, in an amount that is both sufficient to obtain

relevant information while not being unduly burdensome for any party.

FHFA proposes that it may take the deposition of up to 20 witnesses from each

institutional Defendant, in the aggregate across all Cases (excluding 30(b )(6) depositions and

depositions of Individual Defendants). FHFA has further proposed that any deposition of a fact

witness be limited to two seven-hour days, and any deposition of an Individual Defendant be

limited to one seven-hour day.

FHFA proposes that Defendants (as a group) may take the depositions of up to 20

witnesses from each GSE (i. e., 20 from Fannie Mae and 20 from Freddie Mac). FHF A proposes

that any deposition of a fact witness be limited to two seven-hour days, but that such time period

may be extended upon a showingof

good causeif

that witness was involved in numerous

Securitizations across all Cases.

In addition, although it unlikely that Defendants will have a legitimate need to depose

any FHFA witnesses given that the purchases of the residential mortgage-backed securities were

made by the GSEs, to the extent Defendants seek to depose current or former employees of

3





A-22

FHFA, FHFA has proposed that such depositions be limited in scope (e.g., with respect to

procedures surrounding the appointment of the Acting Director ofFHFA, which is an issue

raised in Defendants' motion to dismiss in the 11 Civ. 5201 action), and subject to a reasonable

limit of depositions on current or former FHFA employees.

Defendants have rej ected FHFA's proposals, and argue that, regardless of how many

depositions Plaintiff is entitled to take, Defendants as a group should receive the same number of

depositions ofGSE witnesses. That is, Defendants propose that if Defendants took 50

depositions of the GSEs, FHF A would be entitled to only 50 depositions across 17 cases where

there are 83 different entity Defendants-less than one deposition per institution. Such an

approach has no basis in the Federal Rules of Civil Procedure or case law, and contravenes the

spirit of this Court's prior statements that these cases have not been consolidated into a single

action.

Instead, FHFA's proposal is more reasonable and fair in that each party is subject to no

more than 20 depositions. That FHF A will be permitted to take a larger aggregate number of

depositions than Defendants follows directly from the fact that there are many more Defendants

than the two GSEs. Moreover, Defendants originated, arranged, underwrote, and marketed these

securitizations; by contrast the GSEs simply acted as investors in the RMBS certificates. It

stands to reason that in light of their extensive role, the Defendants will have much more relevant

information on a wide range of topics than the GSEs. Holding FHFA's depositions hostage to

Defendants' demand that it receive the same number of depositions as FHF A denies FHF A the

opportunity to depose a significant number of the Defendants in any meaningful way (or else

subject itsel f to an arbitrarily large number of depositions as a cost of seeking necessary and

4





A-23

proper discovery). Accordingly, FHFA's proposal calls for a reasonable limitation whereby each

party would be subject to not more than 20 depositions.

B. Interrogatories and Requests for Admission

FHF A proposes that Plaintiff and Defendants each submit a single set of interrogatories

and requests for admission pursuant to Fed. R. Civ. P. 33, 36 and Local Civil Rule 33.3. Under

this proposal, Defendants as a group would serve Plaintiff with no more than 50 interrogatories

or requests for admission, including all discrete subparts, in the aggregate across all Cases.

Plaintiff would serve each Defendant, including Individual Defendants, with no more than 50

interrogatories or requests for admission, including all discrete subparts, in the aggregate across

all Cases. All interrogatories and requests for admission would be subject to the scope

limitations of Fed. R. Civ. P. 33(b) and Local Civil Rule 33.3, and Fed. R. Civ. P. 36,

respectively.

Under FHFA's proposal, Plaintiff and each of the Defendants would be subject to the

same total number of interrogatories and requests for admission, not to exceed the 50-

interrogatory/request for admission limit. Although interrogatory limitations are generally on a

per-party basis, such an approach is not efficient across 17 actions with the same Plaintiff, many

of the same Defendants, and similar factual issues raised in all 17 Cases. In light of that overlap,

and the potentially large burden of permitting over a hundred different defendants to each serve

on FHF A 25 interrogatories and unlimited requests for admission under the Federal Rules of

Civil Procedure, FHF A has proposed a general 50-interrogatory/request for admission limit to

which Plaintiff and each Defendant would be subject.

As with depositions, Defendants have refused to make a serious counterproposal, but

have insisted that the number of interrogatories permitted to each side be equal. For the reasons

discussed above in Section ILA, supra, Defendants' position is unreasonable and unworkable; in

5





A-24

this context, it would potentially result in thousands of interrogatories being served upon

Plaintiff. Defendants' position is especially unreasonable in light of Plaintiffs offer to limit its

interrogatories and request for admission to 50.

III. SEQUENCING OF DISCOVERY

A. Custodian and Search Term Lists

To ensure that the parties can proceed expeditiously with discovery once the

Court issues its decision on the motion to dismiss, FHFA proposes that, by January 27, 2012,

each Defendant exchange with FHFA the names and titles of the custodians whose files, both

electronic and hard copy, it intends to search for purposes of discovery in the Cases. Similarly,

FHF A has proposed that FHF A exchange with Defendants the names and titles of the custodians

whose files, both electronic and hard copy, it intends to search for purposes of discovery in each

Case.

FHF A further proposes that, following a meet and confer shortly thereafter, each group of

affiliated Defendants jointly provide a proposed single setof

search terms that it expects to

employ for the purpose of locating and gathering electronic documents for production to

Plaintiff. Similarly, Plaintiff agrees to provide a proposed single set of search terms that it

expects to employ for the purpose of locating and gathering electronic documents of Plaintiff for

production to Defendants. All parties would be entitled to supplement such proposed search

terms as necessary based on the documents produced in discovery. Further, Plaintiff and

Defendants would reserve the right to make targeted search term proposals addressed to certain

Securitizations or other Case-specific issues.

Although the parties agree that the exchange of document custodians and search terms

should be one of the first items exchanged between the parties, the parties disagree about

whether such exchange should happen prior to the decision on the pending motion to dismiss.

6





A-25

FHF A believes establishing such a schedule at the outset of discovery is crucial to ensuring that

discovery proceeds expeditiously. As an initial matter, there is no reason to delay assembling

proposed custodian and search term lists. Assembling such information will undoubtedly take

time, and pushing it offwill only delay the commencement ofdiscovery. Once custodian lists

and search terms have been exchanged and finalized, the parties can run the search terms after

the Court rules on the motion to dismiss in 11 Civ. 5201.

In addition, to the extent Defendants are truly unable, as they claimed during the meet

and confers, to anticipate what custodians or search terms might be relevant to FHFA' s claims,

FHFA has proposed (and Defendants have rejected) that it be permitted to serve some initial

document requests on Defendants within the next 20 days while holding the return date open

pending resolution of the motion to dismiss, in order to provide Defendants with additional

guidance as to the custodians and search terms relevant to the Cases. Defendants' unwillingness

to agree to such a proposal reveals the disingenuousness of their claim that they lack sufficient

information to formulate custodians and search terms, and makes clear that their true strategy is

to delay laying any groundwork for discovery until the Court rules on the motion to dismiss.

In any event, the parties should be well-positioned to exchange an initial set of search

terms and custodians by January 27. Each complaint identifies the securitizations at issue, and it

should not be difficult for Defendants to identify which of their private label securities personnel

had significant roles in dealing with Fannie Mae and Freddie Mac. Moreover, Defendants have

already proposed likely topics of discovery in their submission responding to the October 19,

2011, Order of Judge Kaplan on the efficient handling of the Cases; an initial set of search terms

could be drafted based on that proposal. See Dkt. 10 (Defendants' Proposal) at 10-11. In light of

these facts, Defendants' present reticence appears to be little more than a delay tactic.

7





A-26

B. Prioritization of Certain Categories of Document Production

As reflected in the Joint Report, the parties have agreed to meet and confer regarding

each side's requested categories of documents for prioritization. Plaintiff has informed

Defendants that it is seeking to prioritize the production of the following categories of

documents: (i) loan origination and servicing files, (ii) loan underwriting guidelines, (iii) any

reports or findings regarding the mortgage loans or samples of mortgage loans reviewed by third

party due diligence firms on behalf of the securities underwriter or broker dealer defendants; (iv)

documents produced to government agencies relating to policies, practices and/or procedures in

the origination, servicing, underwriting and/or selling ofmortgage loans in the secondary market

through the securitization process; (v) any prior deposition transcripts ofwitnesses from other

RMBS litigations (whether involving Defendants or others), who were involved in the

origination, underwriting and/or selling ofmortgage loans in the secondary market through the

securitization process; and (vi) any transcripts of Defendant witnesses who testified before any

government committee, subcommittee, regulatory agency, or investigatory body on the

origination, underwriting and/or selling ofmortgage loans in the secondary market through the

securitization process.

With respect to loan origination and servicing files, such information should be within the

custody, possession, or control of one or more of the entity Defendants, as such information

would have been reviewed or at least received by multiple entities involved in the

Securitizations. These files are relevant to FHFA's

claims because they will reveal whether the

statements in the Registration Statements regarding the mortgage loans in the securitizations

were true and correct. Moreover, the loan origination and servicing files will reveal the true

credit characteristics of the mortgage loans, and whether the loans were underwritten and

8





A-27

serviced in accordance with the applicable guidelines and prudent and customary industry

standards.

Likewise, the underwriting guidelines for the loans should generally be within the

possession, custody, or control of one or more of the entity Defendants, as such information

would have been reviewed or at least received by multiple entities involved in the

Securitizations. These guidelines are relevant to determining whether the loans were originated

in compliance with the applicable underwriting guidelines.

Similarly, documents relating to any reports or findings regarding the mortgage loans or

samples ofmortgage loans reviewed by third party due diligence firms on behalfof the securities

underwriter or broker dealer defendants are also relevant to establishing the true credit quality of

the mortgage loans, whether the statements in the Registration Statements were accurate, and the

knowledge of certain Defendants regarding the same.

Finally, to the extent that any of the Defendants produced documen!s to any government

agency relating to policies, practices, and/or procedures in the origination, underwriting,

servicing, and/or selling ofmortgage loans in the secondary market through the securitization

process, such documents are relatively easy to collect and produce, as are any prior deposition

transcripts and accompanying exhibits. The production of such documents and prior deposition

transcripts from other RMBS litigations, helps to streamline the discovery process by allowing

FHFA to build on the documents previously produced and testimony taken, streamline its

discovery requests, and reduce the burden to Defendants by allowing them to re-produce

previously produced documents and testimony.

Each of these categories of documents is within the possession, custody, or control ofone

or more of the entity Defendants, and should be readily identified, collected, and produced to

9





A-28

FHFA. Such categories of documents are directly relevant to the care (or lack thereof) with

which Defendants effected the Securitizations, and therefore are relevant both to FHFA's claims

and potentially to Defendants' affirmative defenses.

IV. STATISTICAL SAMPLING

The parties have agreed that, before January 30, 2012, they shall meet-and-confer

regarding the use of statistical sampling as a method ofproof in this action, and on or before

February 3,2012, shall jointly report to the Court on the status of those discussions and proposed

next steps, if any.

At the December 2, 2011 hearing before this Court, FHF A proposed that statistical

sampling of loan files would be an efficient and fair approach in determining whether and/or to

whatextent there have been material misrepresentations of the quality of the collateral of the

underlying residential mortgage-backed securities. With over 530 Securitizations, and most

containing several thousand individual loans, there are hundreds of thousands of loans and loan

origination and servicing files at issue in these Cases. Many of these loan files may contain

upwards of 100 pages, thus representing hundreds of millions of page of documents.

Determining a statistically valid random sample that is agreed to by the parties at the outset is an

important step to reducing the discovery burdens on the parties, as well as the burden on the

Court and parties at summary judgment and trial. The Court agreed at the December 2 hearing

that "we need a good sampling technique. That it would be extraordinarily burdensome and

inefficient to reassemble, gather, review and analyze all of these files." Transcr. at 35-36.

Although Defendants have stated during the meet and confers that they do not object to

FHFA requesting only a sample of the universe ofloans at issue, they declined to agree that

statistical sampling was a valid method ofproof at trial. Any agreement to limit discovery to a

statistically valid random sample of loans must be accompanied by an agreement that statistical

10





A-29

sampling is an appropriate method ofproofat trial. Otherwise, Plaint iff is put in the untenable

position of agreeing to limit discovery without any corresponding commitment from Defendants

that the Case may be proved at trial with only such discovery.

Moreover, for sampling to be a useful approach, all parties must agree on a statistically

valid random sample, preferably at the outset ofthe litigation in order to avoid disputes down the

road as to whether each party's chosen sampling methodology is sound. Defendants' proposed

approach of producing only a sample ofloans to FHFA in discovery, while permitting

Defendants to rely on the entire universe of mortgage loans at summary judgment or trial,

accomplishes nothing and prejudices Plaintiff. That is, under Defendants' preferred approach,

Defendants could produce and the parties could review tens of thousands of loan f i les

consuming thousands of review hours and hundreds of thousands of taxpayer dollars-{)nly to

have Defendants later claim that FHFA should have chosen a different set of loan files to review.

Such an approach would in effect force FHFA to prove its case on a loan-by-loan basis, thus

eliminating the benefit of statistical sampling.

In order to prevent such an inefficient and wasteful result, FHF A seeks an approach

under which FHFA and Defendants would submit proposed sampling protocols to the Court so

that all parties can receive the benefit of the Court's guidance at this early stage of the Cases.

Defendants have made no serious counterproposal, but instead seek to delay any resolution of

this issue, apparently until such time as FHFA attempts to introduce evidence based on a sample,

so that Defendants can at that time question the legitimacy ofFHFA's sampling methodology.

Such an approach would be wasteful, and would represent an inefficient use of both the Court

and the litigants' time and resources. Despite the fact that statistical sampling as a scientific

method is not a novel concept, Defendants have also stated to FHFA that they need additional

11





A-30

information before they can agree to the use of statistical sampling as a method of proof.

However, Defendants failed to provide any description of the additional information that they

require.

FHF A therefore proposes that the parties take the present opportunity afforded by the

Court's consideration of the motion to dismiss in 11 Civ. 5201 to brief the issue of statistical

sampling in order to receive guidance from the Court on an appropriate sampling protocol, for

discovery, summary judgment and trial.

V. PRETRIAL SCHEDULE

As reflected in the Joint Report, the parties reached agreement on a pretrial schedule with

respect to Rule 26(f) Conference; Rule 26(a) Disclosures; expert discovery and a pretrial

schedule for dispositive motions. However, the parties did not reach agreement on a schedule

for the following three issues: (i) whether the parties may proceed with discovery immediately

following the Court's decision on the motion to dismiss in 11 Civ. 5201; (ii) whether document

custodians and search terms should be exchanged in advance of the decision on the motion to

dismiss; and (iii) a schedule for completion of document and deposition discovery.

First, discovery should commence promptly following this Court's decision of the motion

to dismiss. To the extent any Defendant believes a stay of discovery is applicable as to those

Defendants or in their Case pending resolution of their motion to dismiss, such Defendant may

file a motion with the Court. During the pendency of such a motion, there should be no stay of

discovery for the reasons previously briefed by FHFA in11

Civ. 6200 (FHFAv.

Credit Suisse).

Second, in order to move this case along expeditiously, and to take full advantage of the

time afforded by this Court's consideration of the motion to dismiss in 11 Civ. 5201, the parties

should exchange custodian lists and search terms in advance of the decision on the motion to

dismiss.

12





A-31

Third, in their latest proposal to Plaintiff, Defendants have proposed one year from the

completion of Rule 26(a) Initial Disclosures to complete document discovery and another year

after the close of document discovery to complete deposition discovery. There is no reason to

have such a protracted and extended schedule, and even in complex cases, courts in the Southern

District have allowed for much shorter time periods consistent with Plaintiffs proposed

schedule. Such an extended delay advocated by Defendants will result in increased difficulties

. in locating witnesses and fading memories.

Accordingly, FHF A proposes the following schedule for pretrial discovery. Such a

focused approach to discovery is consistent with other similarly complex cases:

, 1. Custodian and Search Term Lists: By January 27, 2012, the parties shall

exchange proposed custodian and search term lists. To the extent that the Court finds that

Defendants cannot formulate such lists because of their uncertainty as to what custodians or

search terms are relevant to the Cases, FHFA should be permitted to serve initial document

requests on Defendants to, among other things, provide Defendants with guidance.

2. Sampling: By January 30, 2012, each ofFHFA and Defendants shall meet and

confer on proposed sampling methodologies for mortgage loan files and shall report to the Court

on the status of those discussions and proposed next steps by February 3, 2012. To the extent

that Defendants refuse to agree that statistical sampling should be a valid method ofproof in the

Cases, FHFA will seek leave to file a motion with the Court supporting the use of statistical

sampling generally.

3. Rule 26Cf) Conference: The parties shall participate in a Rule 26(f) conference

within 14 days following this Court's decision on the motion to dismiss in 11 Civ. 5201. In

13





A-32

accordance with Rule 26(f), the parties will have developed a further plan for discovery in

advance of the Rule 26(f) Conference.

4. Rule 26(a) Initial Disclosures: The parties shall exchange initial disclosures

pursuant to Fed. R. Civ. P. 26(a)(l) within 14 days of the Rule 26(f) Conference. The proposals

will set out time frames not to exceed 30 days following this Court's decision on the motion to

dismiss in 11 Civ. 5201 to exchange the proposed initial disclosures.

5. Document Discovery: Document discovery will be completed within eight

months after the service of the Rule 26(a) Initial Disclosures.

6. Deposition Discovery: Deposition discovery will be completed within five

months after the completion of document discovery.

7. Expert Discovery:

(a) In advance of the deadline to file initial expert reports, each party will

disclose the topics of that party's anticipated initial expert reports. Following such

disclosure, the parties will meet and confer on any issues where there is a disagreement

about which party bears the burden ofproof. The parties will also meet and confer about

the time to serve responsive reports, and each party reserves its right to seek additionaltime beyond that specified in (b) and (c) if any expert report is based on analysis of

voluminous data.

(b) Each party who bears the burden of proofconcerning an issue with respect

to which it intends to submit expert evidence will identify its experts as to that issue, if

any, and submit its expert report(s) related thereto, within 60 days after the close of

deposition discovery.

(c) Responsive reports, or initial reports by a party that does not bear the

burden of proof concerning an issue, will be due no later than 60 days after the parties

have provided their initial expert reports.

(d) Any expert depositions will commence after the exchange of any

responsive reports, and will be completed within 60 days after the parties have exchanged

their responsive expert reports.

(e) Both Plainti ff and Defendants agree to limit their expert reports to one

report per subject per Case on behalf of all Defendants in that Case. Similarly, Plaintiff

14





A-33

will limit its expert reports to one report per subject per Case. The parties agree to confer

in good faith regarding numerical limits on experts in any given case.

8. Disposit ive Motions:

(a) . Summary judgment motions may be filed at any time up to 45 days after

the close of expert discovery.

(b) Oppositions to any motion for summary judgment will be filed within 45

days of the date such motion is filed.

(c) Reply briefs in support of summary judgment will be filed within 20 days

of the filing of the opposition to such motion(s).

* * *

In response to the Court's December 5 Order, FHFA has proposed (i) reasonable

limitations on depositions, interrogatories, and requests for admission; (ii) the prioritization of

the production of certain clearly delineated and readily available categories of documents; and

(iii) a pretrial schedule that, among other things, includes a time ine under which the parties

would propose custodians and search terms for discovery, as well as determination of a statistical

sampling methodology for loan files that would be applicable in discovery and at summary

judgment and trial. If adopted, these proposals would allow for the efficient conduct of

discovery, and would serve the interests of udicial economy. FHFA is available at the Court's

convenience to further discuss its proposal.

Dated: January 10,2012

Ne w York, New York

15





A-34

Respectfully submitted,

Philippe Z. Selendy

([email protected])


SULLIVAN, LLP

51 Madison Avenue, 22nd Floor

New York, New York 100 10

(212) 849-7000

Attorneysfor PlaintiffFederal Housing Finance

Agency in FHFA v. UBS Americas, Inc., FHFA

v. JPMorgan Chase & Co., FHFA v. DeutscheBankAG, FHFA v. Citigroup Inc., and FHFA v.

Goldman, Sachs & Co.

Christine H. Chun

([email protected])


SULLIVAN, LLP51 Madison Avenue, 22nd Floor

Ne w York, New York 10010

Attorneys for Plaintif f Federal Housing Finance

Agency in FHFA v. First Horizon National

Corp., FHFA v. Bank ofAmerica Corp., FHFA

v. Credit Suisse Holdings (USA), Inc., and

FHFA v. Countrywide Financial Corp.

RichardA.

Schirtzer([email protected])

Adam M. Abensohn

([email protected])


SULLIVAN,LLP



16

1d16t..-Marc E. Kasowitz [email protected])

Hector Torres ([email protected])

Michael S. Shuster ([email protected] )

Christopher P. Johnson

(cj [email protected])

Michael Hanin ([email protected])

Kanchana Wangkeo Leung

([email protected])

KASOWITZ, BENSON, TORRES &

FRIEDMAN LLP

1633 Broadway


Manlsha M. Sheth

([email protected])


SULLIV AN, LLP51 Madison Avenue, 22nd Floor


Attorneysfor Plaintif f Federal Housing Finance


v. JPMorgan Chase & Co., FHFA v. Barclays

BankPLC, FHFA v. Citigroup Inc., and FHFA

v. Merrill Lynch & Co., Inc.





A-35

Attorneys for PlaintiffFederal Housing Finance

Agency in FHFA v. HSBC North America Holdings, Inc.

and FHFA v. Nomura Holding America, Inc.

17




1c2QfhaC

1

1 UNITED STATES DISTRICT COURT


2 --------------------------------x

IN RE:3 FEDERAL HOUSING FINANCE AGENCY 11 CV 5201 (DLC)

4 --------------------------------x

Also Docket Nos.

5 11 CV 6188, 11 CV 6189, 11 CV 6190,

11 CV 6192, 11 CV 6193, 11 CV 6195,

6 11 CV 6196, 11 CV 6198, 11 CV 6200,

11 CV 6201, 11 CV 6202, 11 CV 6203,

7 11 CV 6739, 11 CV 6916, 11 CV 7010,

11 CV 7048

8 -------------------------------x

9 VNB REALTY,Plaintiff, 11 CV 6805

10 v.

Bank of America, et al.

11 Defendants.

12 -------------------------------x

13 New York, NY

14 December 2, 2011

2:00 p.m.

15

Before:16

HON. DENISE L. COTE,

17

District Judge

18

19

20

21

22

23

24

25

SOUTHERN DISTRICT REPORTERS, P.C.

(212) 805-0300


A-36




1c2QfhaC

2

1 APPEARANCES

2

QUINN,EMANUEL, URQUHART & SULLIVAN, LLP3 Attorneys for Plaintiffs FHFA

PHILIPPE SELENDY

4 CHRISTINE CHUNG

ADAM ABENSOHN

5 MANISHA SHETH

6 KASOWITZ, BENSON, TORRES & FRIEDMAN, LLP

Attorneys for Plaintiffs FHFA

7 MARC KASOWITZ

MICHAEL SHUSTER

8 KANCHANA LEUNG

9 SKADDEN, ARPS, SLATE, MEAGHER & FLOM, LLPAttorneys for Defendant UBS Investment Bank

10 JAY KASNER

SCOTT MUSOFF

11

SULLIVAN & CROMWELL

12 Attorneys for Defendants

PENNY SHANE (JP Morgan Chase)

13 BRUCE CLARK (First Horizon Nat. Corp and Nomura Holding Amer.)

AMANDA DAVIDOFF (First Horizon Nat. Corp. & Normura Holding)

14 JEFFREY SCOTT (Barclays Bank PLC)

THEODORE EDELMAN (Goldman Sachs & Co. & Goldman Sachs Mort. Co)

15 MICHAEL TOMAINO

JORDAN RAZZA16

17 PAUL, WEISS, RIFKIND, WHARTON & GARRISON, LLP

Attorneys for Defendants Citigroup

18 BRAD SCOTT KARP

SUSANNA BUERGEL

19

20 CRAVATH, SWAINE & MOORE, LLP

Attorneys for Defendants Credit Suisse

21 RICHARD CLARY

22 SIMPSON, THACHER & BARTLETT, LLPAttorneys for Defendants

23 THOMAS RICE (Deutsche Bank & RBS)

MICHAEL CHEPIGA (Samuel L. Molinaro)

24

25


(212) 805-0300


A-37




1c2QfhaC

3

1 APPEARANCES CONTINUED

2

WILLIAMS & CONNOLLY, LLP3 Attorneys for Defendants Bank of America & Merrill Lynch

DAVID S. BLATT

4 EDWARD BENNETT

5

MAYER BROWN, LLP

6 Attorneys for Defendants HSBC North America Holding

RICHARD SPEHR

7 MICHAEL WARE

8

9 GOODWIN PROCTER, LLPAttorneys for Defendants Countrywide Fin. Corp.

10 BRIAN PASTUSZENSKI

MARK HOLLAND

11

12 DAVIS, POLK & WARDWELL, LLP

Attorneys for Defendants Morgan Stanley

13 JAMES ROUHANDEH

14

WEIL, GOTSHAL & MANGES, LLP

15 Attorneys for Defendants General Electric Co.

GREG DANILOW16

GIBSON, DUNN & CRUTCHER, LLP

17 Attorneys for Defendants Citigroup, Deutsche Bank,

RBS & UBS

18 ARIC WU

19 LEVINE LEE, LLP

Attorneys for Defenedant David Spector

20 SCOTT KLUGMAN

21

22 SNR DENTONAttorneys for Individual Defendants

23 SANDRA HAUSER

24

25


(212) 805-0300


A-38




1c2QfhaC

4

1 APPEARANCES CONTINUED

2 RICHARDS, KIBBE & ORBE, LLP

Attorneys for Individual Defendants3 NEIL BINDER

4 PAUL HASTINGS

Attorneys for Individual Defendants

5 KEVIN LOGUE

6 DLA PIPER US, LLP


7 KEARA GORDON

8 CALDWELL, LESLIE & PROCTOR, PC

Attorneuys for Individual Defendant

9 DAVID WILLINGHAM

10 KRAMER, LEVIN, NAFTALIS

Attorneys for Individual Defendant

11 JADE BURNS

12 MORRISON & FOERSTER


13 LASHANN DeARCY

14

15

16

17

18

19

20

21

22

23

24

25


(212) 805-0300


A-39




1c2QfhaC

5

1 (In open court)

2 THE DEPUTY CLERK: I am going to call each case, and I

3 will ask counsel to please state their name for the record.

4 In the matter of the Federal Housing Finance Agency

5 and others against UBS America, Inc. and others. Counsel for

6 plaintiffs, are you ready to proceed? If you would please

7 state name for the record.

8 MR. SELENDY: Yes, we are. Philippe Selendy for the

9 Federal Housing Finance Agency.

10 THE DEPUTY CLERK: Would you introduce each attorney?

11 MR. SELENDY: For UBS. We are also here with Adam

12 Abensohn. And Manisha Sheth.

13 THE COURT: For the defendant, please state your name

14 for the record.

15 MR. KASNER: Good afternoon, your Honor. Jay Kasner

16 and my partner Scott Musoff from Skadden Arps.

17 THE DEPUTY CLERK: In the case of Federal Housing

18 Finance Agency against JP Morgan Chase & Company and others.

19 Counsel for plaintiffs, please state your name for the

20 record.

21 MR. SELENDY: Again, your Honor, Philippe Selendy and

22 our team.

23 THE COURT: You don't need to reintroduce other

24 members of your team, Mr. Selendy if they are the same. Thank

25 you very much.


(212) 805-0300


A-40




1c2QfhaC

6

1 For the defendant.

2 MS. SHANE: Penny Shane, your Honor, from Sullivan &

3 Cromwell for JP Morgan.

4 MR. RICE: Tom Rice for RBS Securities which is one of

5 a number of defendants in this case. Do you want to have

6 appearances as you go through them for the main defendant in

7 this case?

8 THE COURT: For each defendant who is represented --

9 well, for each defendant in the case by at least principal

10 trial counsel for them in that case.

11 MR. RICE: In that case, I am appearing for RBS

12 Securities in this case.

13 MR. CLARY: William Clary from Cravath, Swaine & Moore

14 representing the Credit Suisse defendants in the JP Morgan

15 case.

16 MR. KARP: Brad from Paul, Weiss, along with my

17 partner Susanna Buergel, representing the Citigroup defendants

18 in that case.

19 THE DEPUTY CLERK: In the matter of Federal Housing

20 Finance Agency against HSBC North American Holdings, Inc. and

21 others. Counsel for plaintiffs, please state your name for the

22 record.

23 MR. ABENSOHN: Adam Abensohn, your Honor, for FHFA.

24 THE COURT: I'm sorry?

25 MR. ABENSOHN: Adam Abensohn for FHFA.


(212) 805-0300





1c2QfhaC

7

1 MR. SPEHR: For HSBC Richard Spehr and Michael Ware

2 from Mayer Brown.


4 Finance Agency against Barclays Bank PLC and others.

5 MS. SHETH: Manisha Sheth on behalf of the FHFA.

6 THE COURT: Any defense counsel in that case?

7 MR. SCOTT: It's Jeff Scott from Sullivan and Cromwell

8 on behalf of Barclays.

9 THE COURT: So, Mr. Scott, you are way back there.

10 You need to come on up. There is a chair for you right up

11 here.


13 Finance Agency against Deutsche Bank AG and others.

14 Counsel for plaintiffs, state your name for the

15 record.

16 MR. SELENDY: Philippe Selendy for FHFA.

17 MR. RICE: Good afternoon, your Honor. Tom Rice for

18 the Deutsche Bank defendants.

19 THE COURT: We are going to read the docket number for

20 each of these cases too to make sure that we are all on the

21 same page with respect to which case we are calling.

22 THE DEPUTY CLERK: Federal Housing Finance Agency

23 against First Horizon National Corp. and others, Docket No. 11

24 CV 6193.

25 Counsel for the plaintiff, please state your name for


(212) 805-0300





1c2QfhaC

8

1 the record.

2 MS. CHUNG: Good afternoon, your Honor. Christine

3 Chung for the plaintiff, FHFA.

4 MR. CLARK: Good afternoon, your Honor. Bruce Clark

5 and Amanda Davidoff, Sullivan and Cromwell for the defendant.

6 THE COURT: Mr. Clark, do you want to come up to the

7 jury box?

8 MR. CLARK: I would be glad to join you.

9 THE COURT: Very well.

10 MR. BENNETT: Edward Bennett with my partner David

11 Blatt, Williams & Connolly for Merrill Lynch.

12 THE DEPUTY CLERK: Step up and state your name again

13 for the record for the court reporter.

14 MR. BENNETT: Edward Bennett and David Blatt from

15 Williams & Connolly for Merrill Lynch.

16 MR. KASNER: Jay Kasner on behalf of UBS.

17 MR. CLARY: Richard Clary on behalf of the Credit

18 Suisse defendants.

19 THE DEPUTY CLERK: Is there anyone else in the matter

20 of 11 CV 6193.

21 MS. SHANE: Penny Shane for JP Morgan, Sullivan &

22 Cromwell.


24 against Bank of America Corp. and others, case number 11 CV

25 6195.


(212) 805-0300


A-43




1c2QfhaC

9


2 the record.

3 MS. CHUNG: Christine Chung for FHFA.

4 MR. BLATT: David Blatt for Bank of America

5 defendants.

6 MR. BENNETT: Edward Bennett for Bank of America as

7 well.

8 MR. BINDER: Neil Binder, Richards, Kibbe & Orbe. We

9 represent several individuals for the Bank of America, in the

10 case of Paul Park, Robert Caruso --

11 THE COURT: I think several is just fine.

12 MR. BINDER: Several, but not all, your Honor.

13 THE COURT: Thank you.

14 Any other defense counsel in that case?

15 So, do you know where defense counsel for the other

16 individual defendants is?

17 MR. BINDER: No, your Honor. Some of them, I think

18 haven't been served.


20 THE DEPUTY CLERK: The matter of Federal Housing

21 Finance Agency against Citigroup, Inc. and others 11 CV 6196.

22 Counsel for the plaintiffs, please state your name for

23 the record.


25 MR. KARP: Your Honor, Brad Karp for CitiGroup.


(212) 805-0300





1c2QfhaC

10

1 THE DEPUTY CLERK: Is there anyone else for defendants

2 in this case?

3 In the matter of Federal Housing Finance Agency

4 against Goldman, Sachs & Company, 11 CV 6198.

5 Counsel for the plaintiff?


7 THE DEPUTY CLERK: Is there someone else?

8 MR. EDELMAN: We are here on behalf of defendants,

9 Theodore Edelman, Michael Tomaino and Jordan Razza from

10 Sullivan & Cromwell.

11 THE COURT: Spell your last names, please.

12 MR. EDELMAN: Certainly, your Honor. Edelman,

13 E-D-E-L-M-A-N.

14 MR. TOMAINO: T-O-M-A-I-N-O.

15 MS. RAZZA: R-A-Z-Z-A.

16 THE COURT: Thank you. If you could come up and join

17 us in the jury box.

18 MR. EDELMAN: We represent also the Goldman Sachs

19 defendants in JP Morgan Chase matter, which is 11 CV 6188.


21 against Credit Suisse Holdings USA, Inc., 11 CV 6200.

22 Counsel for the plaintiffs, please state name for the

23 record.

24 MS. CHUNG: Christine Chung for the FHFA.

25 MR. CLARY: Richard Clary for all the defendants in


(212) 805-0300


A-45




1c2QfhaC

11

1 that case.

2 THE DEPUTY CLERK: Thank you.

3 Paragraph Federal Housing Finance Agency against

4 Numora Holding America, Inc. and others, 11 CV of 6201.

5 MR. ABENSOHN: Adam Abensohn for the FHFA.

6 MR. CLARK: Bruce Clark for the Nomura defendants.

7 MR. RICE: Tom Rice for RBS Securities.

8 THE DEPUTY CLERK: In the matter Federal Housing

9 Finance Agency against SG America, Inc. and others, case number

10 11 CV 6203.

11 Counsel for the plaintiffs.

12 MR. KASOWITZ: Marc Kasowitz for FHFA. My partner,

13 Mike Shuster and Kanchana Leung.

14 THE DEPUTY CLERK: For the defendant.

15 MR. KASNER: Good afternoon again, your Honor. Jay

16 Kasner and Scott Musoff from Skadden, Arps for the defendants.

17 MS. SHANE: Penny Shane Sullivan, Cromwell for JP

18 Morgan.

19 MR. RICE: Tomorrow Rice for Deutsche Bank Securities.

20 THE COURT: Federal Housing Finance Agency against

21 Morgan Stanley and others, case number 11 CV 6739.

22 Counsel for the plaintiffs, please state your name for

23 the record.

24 MR. KASOWITZ: Marc Kasowitz for FHFA.

25 MR. ROUHANDEH: Good afternoon, your Honor, Jim


(212) 805-0300


A-46




1c2QfhaC

12

1 Rouhandeh from Davis, Polk & Wardwell for Morgan Stanley.

2 MR. CLARY: Richard Clary for the Credit Suisse

3 defendants.


5 THE COURT: The Federal Housing Finance Agency against

6 Countrywide Financial Corporation and others, 11 CV 6916.


8 the record.

9 MS. CHUNG: Christine Chung for the FHFA.

10 MR. PASTUSZENSKI: Good afternoon, your Honor. Brian

11 Pastuszenski from Goodwin Procter LLP for Countrywide

12 defendants. And with me my partner, Mark Holland from Goodwin

13 Procter.

14 THE DEPUTY CLERK: Counsel, if you could come forward

15 and state your name.

16 MR. WILLINGHAM: Good afternoon, your Honor. David

17 Willingham, Caldwell Leslie on behalf of defendant Stanford

18 Kurland and Jeff Grogin.

19 MR. LOGUE: Kevin Logue from Paul Hastings for

20 defendants Boone, Kripalani, McLaughlin and Sandefur.

21 MR. WU: Aric Wu from Gibson Dunn for Citigroup

22 Deutsche Bank, RBS and UBS.

23 MS. GORDON: Good afternoon, Keara Gordon from DLA

24 Piper for defendant Eric Sieracki.

25 MR. KLUGMAN: Scott Klugman from Levine Lee for


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1 defendant David Spector.

2 MR. BENNETT: Edward Bennett and David Blatt from

3 Williams & Connolly for Bank of America.

4 THE DEPUTY CLERK: Federal Housing Finance against

5 Ally Financial, Inc. and others 11 CV 7010.

6 MR. KASOWITZ: Marc Kasowitz for plaintiff.

7 MR. SPEHR: Richard Spehr, Michael Ware, Mayer Brown

8 for Ally.

9 MR. KASNER: Good afternoon again, your Honor. Jay

10 Kasner for UBS and the Ally Financial matter.

11 MR. KARP: Brad Karp for Citigroup, Citigroup

12 defendants.

13 MR. CLARY: Richard Clary for Credit Suisse

14 defendants.

15 MS. SHANE: Penny Shane for JP Morgan.

16 MR. EDELMAN: Theodore Edelman for Goldman, Sachs &

17 Company.

18 MR. SCOTT: Jeff Scott for Barclays Capital, Inc.



21 Finance Agency against General Electric Company and others,

22 case number 11 CV 7048.

23 MR. KASOWITZ: Marc Kasowitz for FHFA.

24 MR. DANILOW: Greg Danilow, Weil, Gotshal for the

25 General Electric defendants.


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1 MR. ROUHANDEH: Jim Rouhandeh, Davis Polk for Morgan

2 Stanley defendants.

3 MR. CLARY: Richard Clary for Credit Suisse

4 defendants.


6 THE DEPUTY CLERK: There is one more.

7 MS. HAUSER: Sandra Hauser for several individual

8 defendants. I apologize for not introducing sooner.

9 THE COURT: That's fine.

10 MS. BURNS: Also for case 6188, Jade Burns for

11 defendant Jeffrey Wertleiser from Kramer, Levin, Naftalis &

12 Frankel.

13 MS. DeARCY: Lashann DeArcy, your Honor, also for case

14 6188. I am with Morrison & Foerster for defendants Michael

15 Nierenberg and Thomas Moreino.

16 MR. CHEPIGA: Your Honor, Michael Chepiga from

17 Simpson, Thacher 6188 for defendant Sam Molinaro.

18 THE DEPUTY CLERK: You can sit. Come up with way.

19 There are more chairs here.

20 THE COURT: I am going to call one additional case,

21 VNB Realty against Bank of America and others, 11 CV 6805. For

22 the plaintiff.

23 MR. TSAPATSARIS: Peter Tsapatsaris from Peter N.

24 Tsapatsaris, LLC for VNB Realty.

25 THE COURT: For the defendants in 11 CV 6805.


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1 MS. KOTLER: Meredith Kotler from Cleary Gottlieb on

2 behalf of all defendants except Mr. Kamat, who has not been

3 served.

4 MR. BINDER: Your Honor, unless I missed it, I don't

5 believe 11 CV 6202 was called FHFA, Merrill Lynch.

6 THE COURT: 6202?

7 MR. BENNETT: Yes.

8 THE COURT: Thank you so much. So we will call that

9 case now.

10 FHFA against Merrill Lynch and others 11 CV 6202 for

11 the plaintiff.

12 MS. SHETH: Manisha Sheth often behalf of FHFA.

13 THE COURT: For the defendants?

14 MR. BENNETT: Ted Bennett on behalf of Merrill Lynch.

15 MR. BINDER: Neil Binder on behalf of individual

16 defendants.

17 THE COURT: Thank you, Mr. Binder.

18 So, as much as I studied the appearance sheet lists

19 that I have, I really appreciate this demonstration of the

20 overlap in parties and their counsel. Let me thank you for

21 making yourselves available today. I expect counsel have a lot

22 of issues they would like to raise with me. Let me give you an

23 overview of the issues I have identified that I would like to

24 cover this afternoon.

25 there are a number of administrative issues that I


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1 want to address with you. There is the issue of outstanding

2 motion practice and the scheduling of that motion practice. I

3 want to talk about discovery issues.

4 I want to talk about coordination of any cases that

5 are not before me right now and get a sense of how many more

6 cases there might be filed in this court or in other courts

7 that may or may not be related.

8 I want to explore on that coordination issue the case

9 I will refer to as 6805, which was the penultimate case called.

10 I expected it to be the last, but it was the penultimate case

11 called.

12 Lastly, on my list is settlement. I want to talk

13 about a process to get these cases organized for settlement

14 discussions. I am not expecting them to be settled tomorrow,

15 but I want to begin talking about process.

16 So let's just talk about administrative matters. I

17 should say, I won't end this conference without making sure

18 everyone has an opportunity to present any additional issues

19 they think should be discussed at today's conference.

20 Consolidation of these cases. I have talked with our

21 clerk's office because I am concerned about getting notice to

22 everybody in the most efficient manner possible and yet making

23 sure that each of these cases is treated separately as

24 appropriate. So I think probably -- and you can speak to this

25 and explain why you think we should handle it some other way,


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1 but I think I probably will not be entering any kind of

2 consolidation order even for pretrial purposes, but that

3 everything that I issue in this group of cases, I will docket

4 in the first case 5201, and in every other case where it is

5 appropriate to do so with respect to that order.

6 So, let us say that I was granting a motion to dismiss

7 in the case 6200, that opinion or order would be docketed two

8 places: In the case 5201 and in the case 6200. Some docketing

9 will occur in every case, and it will have the kind of caption

10 one way or another like you saw with the scheduling of this

11 conference.

12 That means that -- and, again, there may be many

13 volunteers for this task I think we need to talk about, and it

14 would be helpful to me to have just for liaison purposes and

15 for no other purposes, not substantive, one plaintiff's counsel

16 that I can call or my chambers can call, and one defense

17 counsel that my chambers can call who would take upon

18 themselves the obligation to make sure everyone else is

19 notified. Obviously, I hope to do most notification through

20 docketing and reliance on our ECF notice process, but unless

21 you are part of the case 5201, you will not get ECF notice, and

22 this is what I talked to our clerk's office about. I can only

23 get ECF notice to all of you for something filed in 5201 if I

24 consolidate all the cases into 5201.

25 So, Mr. Kasner, you are the likely volunteer.


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1 MR. KASNER: Your Honor, and I appreciate it, if you

2 hadn't asked, I actually was going to raise my hand. The one

3 caveat, your Honor, is Ms. Farrell has since gone to the U.S.

4 Attorney's office. However, I'm confident that some of our

5 colleagues will fill her very large shoes. So we're happy to

6 do that. Thank you, your Honor.

7 THE COURT: Thank you, Mr. Kasner. It's a pleasure to

8 see your name on this roster today.

9 MR. KASNER: Appreciate it, your Honor. Thank you.

10 THE COURT: So for plaintiff's volunteer, Mr. Selendy?

11 MR. SELENDY: Yes, I will be glad to do that, your

12 Honor.

13 THE COURT: Thank you so much. My clerk's office asks

14 me to remind everyone that your email address and your law firm

15 identification information should be current. Make sure it is.

16 Make sure you have an ECF log-in and password. Make sure you

17 filed a notice of appearance. All of those things have to

18 happen if you are going to get effective ECF notice from us.

19 In terms of communication with the Court, we do not

20 accept faxes. I have no secretary. I have three wonderful law

21 clerks and no secretary. So we operate by letter, and, as you

22 know, in the Southern District you cannot file letters on ECF.

23 So it is snail mail or hand delivery.

24 The letter can be no longer than two pages. If it

25 requires more substantive discussion than two pages permits, I


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1 will get everybody on the phone, or, if necessary, hold a

2 conference. I won't necessarily wait for a responsive letter

3 before I get everybody on the phone. It depends.

4 Hand deliveries. If something is urgent and you need

5 me to act on it that very day, and, therefore, read your letter

6 that very day, it can be hand delivered to the Worth Street

7 entrance, but we won't know it's there unless you tell us.

8 Things that are delivered to the Worth Street entrance go

9 through security and then they go to the mail room and then

10 hopefully I will get it within the next day or two. So if you

11 would actually like me to read it that day, that's fine, just

12 call us and let us know there's a hand delivery, and have your

13 messenger call chambers again when it's actually there, so one

14 of my staff can go down and retrieve it.

15 If you hand deliver something to us Friday after 5:00

16 or on a weekend, which hopefully won't happen, but in any

17 event, you should understand that the security folks are going

18 to put it in the night depository so I will not see it until

19 Monday afternoon. So, it is particularly important in those

20 circumstances that you have made a phone call so that we can

21 make sure that we personally pick it up.

22 There is one disclosure I want to make. I have two

23 wonderful sisters. One of them happens to live in Seattle.

24 Her name is Lenore Cote, and she is vice-president of

25 operations risk at the Federal Home Loan Bank of Seattle.


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1 So let's turn to motion practice. I am putting to the

2 side for a moment the VNB case. So right now I am just going

3 to talk about the other cases. I want to thank counsel for the

4 way they responded to Judge Kaplan's order which helped inform

5 this Court about management issues and the extent that there is

6 overlap or lack of overlap among the cases. Out of those

7 submissions and a discussion among several of us, and then

8 ultimately agreement by all of us, a volunteer raised her hand

9 and has this group of cases, very happily.

10 So the first thing I did was issue the order staying

11 all motion practice except in the lead case 5201.

12 I want to make sure that we set up briefing of the

13 motion to dismiss issues in the way that's most helpful to the

14 plaintiffs and defendants. I want to make sure that 5201 is a

15 good vehicle. I notice it doesn't have a 10-b claim.

16 I have the second lowest Docket No. 6188 as it was

17 originally filed, and it does have a 10-b claim.

18 I am thinking about having two motions to dismiss. I

19 don't want to do duplicative work, but I was thinking that

20 counsel might find it useful to have actually complete motions

21 to dismiss in at least one case and maybe two, and that at

22 least one of those cases should be a case with a 10b-5 claim.

23 So I am anxious to hear from you on that.

24 I am thinking, and you noticed this from my proposal,

25 that plaintiffs would have the right to amend in response to


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1 the first motion to dismiss, but that would be it with respect

2 to any issue raised in the motion to dismiss. It would be apt

3 to cure the issues that were raised or not, and then we would

4 have full briefing of the motion to dismiss if it were renewed.

5 I would like to do that on sort of a tight schedule,

6 not unreasonably tight because we have holidays here and it is

7 falling at a period of time when I know lots of people have

8 family plans and travel plans, but I think that you would like

9 to know, at least from the representative cases that we are

10 going to choose out of today's meeting and the motion to

11 dismiss was due in 5201 today, at least on the common issues, I

12 thought you'd like to have as soon as I am able to get it to

13 you, a reading on the issues presented by any motion to

14 dismiss.

15 Let me tell you what I think would happen after that.

16 I am thinking that I will stay discovery until I rule on the

17 motions to dismiss, and I am aware that we have motion practice

18 ongoing, whether the PSLRA stay of discovery applies or not

19 given the nature of the plaintiffs here, or the plaintiff, but

20 that if a sufficient amount of the one or two complaints that

21 are tested through the motion practice survive, that then we

22 would move immediately into document discovery on all the cases

23 I have one caveat on that, and, that is, I don't have

24 a feeling yet for how important the statute of limitations

25 issues are going to be and how unique they are with respect to


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1 the different cases, so whether or not any resolution of a

2 statute of limitations issue with respect to 5201 and

3 potentially 6188 would be decided, how universally those

4 rulings would apply across the board I have no feeling.

5 (Pause; machine malfunction)

6 (In open court)

7 THE COURT: Just to summarize, we just discussed in

8 the interim the fact that there are many private actions filed

9 around this country in different courts brought by private

10 plaintiffs based on the securitizations that are present in the

11 Fannie Mae/Freddie Mac litigation before me.

12 So I think we were at the point where I was anxious to

13 hear from counsel about the best way to approach motion

14 practice. Again, while you can say anything, I am most

15 interested in hearing whether 5201 is a good vehicle to

16 litigate the common issues in, whether or not it makes sense to

17 add a 10b-5 case to the initial motion practice, and whether if

18 it does make sense, it should be 6188 which is, again, just

19 arbitrarily the lowest Docket No. case with a 10b-5 claim in

20 it.

21 Let me start with Mr. Selendy. I will give you a

22 chance to be heard on that issue

23 MR. SELENDY: OK, your Honor. We think that the

24 coordination approach that you outlined, coordination but not

25 consolidation is appropriate and sensible.

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1 With respect to the motions to dismiss, as you are

2 aware, our view is that the so-called common issues outlined by

3 defendants in many cases have fact-intensive questions that

4 truly are not common, but if there is to be a case designated,

5 we think it's entirely appropriate to select the first filed

6 and second filed cases.

7 Just to clarify, we have not asserted 10b-5 claims; we

8 have asserted common law fraud claims, and that will be true in

9 the half dozen cases you referred to. But those do raise

10 issues which are distinct from the claims in the non-fraud

11 cases, obviously because scienter is an element only for the

12 fraud case whereas the Section 11 and 12 claims do not involve

13 that.

14 There are also the state statutory claims, although

15 those are common across all of these actions, and there are

16 certain very important differences between the state statutory

17 claims and the federal statutory claims that we can address.

18 In general, your Honor, we think that the approach is

19 sensible. Our primary concern is not so much the scheduling of

20 the briefing but discovery, as we set forth in the PSLRA

21 briefing. This is a series of public actions brought by

22 independent federal agency. In its capacity as conservator for

23 Fannie Mae Freddie Mac, it's trying to vindicate public rights,

24 public interests in the protection of the housing market and

25 its statutorily mandated objective of preserving and conserving


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1 the assets of the GSE's. And while we were prepared to extend

2 to all defendants a stipulation until today, that was based on

3 the presumption that all briefing would be done as of today,

4 and we had not agreed that discovery would be held back.

5 So, what we are concerned about is that we will run

6 another three or six months before discovery begins, and we

7 would like to see that process start even as to limited areas,

8 for example, production of the loan files which are required to

9 be maintained by defendants, initial disclosures, initial

10 discussions of custodians and electronic search terms. We

11 think it's very important to begin that process. And as to the

12 briefing of defendant's motions, your schedule sounds

13 appropriate.

14 THE COURT: Thank you very much, Mr. Selendy.

15 MR. SELENDY: Thank you.

16 THE COURT: Mr. Kasner.

17 MR. KASNER: Good afternoon, your Honor. If it please

18 the Court, for efficiency's sake, we had spoken amongst

19 ourselves. I am prepared to address your Honor's questions

20 with respect to motion practice, if that is all right with the

21 Court. Mr. Clary, who is the litigating client on the issue of

22 lifting the stay, is prepared to address issues associated with

23 discovery, your Honor.

24 Then counsel from Davis Polk will address the remand

25 if you have any issues relating to remand because our clients


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1 are not associated primarily with any of those motions, if that

2 is all right with your Honor.

3 With respect to the motion practice itself, we have

4 not had an opportunity to confer with Ms. Shane, who is counsel

5 in the JP Morgan case.

6 Yes, the UBS case, which is the lowest number, does

7 not have a 10b-5 claim; it doesn't have a common law fraud

8 claim. If there are pleading issues associated with that type

9 of claim, scienter being one of them, actual reliance under

10 applicable state law principles potentially being another. If

11 it please the Court, that is something I would defer to counsel

12 in the JP Morgan case to address.

13 With respect to the issue that your Honor asked about,

14 the motion practice that as soon as I get back to the office, I

15 will review for one last time and then we are prepared to file.

16 There are issues that cut across all of the cases.

17 Your Honor picked up one with respect to the statute of

18 limitations. There are a number of case dispositive issues,

19 your Honor. I know your Honor well enough to know I am not

20 certainly here today to argue those motions. I only advise the

21 Court of sort of generally what the issues are so that your

22 Honor can understand why they would cut across if that is

23 something that the Court is interested in.

24 THE COURT: No. I just want to know if you think 5201

25 is a good vehicle to present those common issues.


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1 MR. KASNER: Your Honor, the issues associated with

2 all of the cases that are raised in our motion would be

3 appropriate for all of the other cases, your Honor. There are

4 some issues that are derivative of when Fannie and

5 Freddie actually purchased these securities, but in terms of

6 statute of repose arguments under federal law and the state

7 laws under which the claim in our case are brought and the

8 others, there is an absolute bar, your Honor, of three years

9 from the date of purchase. It is undisputed in the record

10 cutting across all of the cases, your Honor, that the last

11 purchase by Fannie and Freddie was more than three years ago.

12 The legal arguments that will be presented by both sides as to

13 why that repose does or does not apply will apply across all of

14 the cases.

15 There are arguments concerning inquiry notice. Those

16 will apply, by and large, to all of the cases.

17 There is an issue, your Honor, with respect to the

18 impact of tolling agreements as a tertiary argument. Again,

19 depending on individual cases, the legal principles that your

20 Honor articulates in the UBS matter, the lowest number, ought

21 to apply across the board there as well. I'm not saying this

22 to your Honor because our papers are ready, but I do think,

23 your Honor, that they do cut across, and it would not surprise

24 the Court to learn that we obviously had the benefit of views

25 of co-counsel on the common issues as well.


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1 THE COURT: I was expecting that. I had thought I

2 could put that in the order that everybody should consult, but

3 I knew you would. Thank you.

4 What about this, Mr. Kasner, if the plaintiff amends

5 and you decide to move to dismiss again, how about making it to

6 dismiss the entire pleading as opposed to just addressed to the

7 common issues, or is the motion you've already prepared to

8 dismiss the entire pleading?

9 MR. KASNER: For our client in the lowest numbered

10 case, your Honor -- I keep saying lowest number I should know

11 it -- 5201, yes, it would be to dismiss the whole case.

12 At this juncture there isn't unique jurisdictional or

13 other issue that would apply to us that we're not raising.

14 That is not to say, your Honor, that down the road should some

15 individual issue be decided by the Court that somehow would

16 apply to us that we wouldn't come back to the Court and say we

17 should be dismissed as well.

18 THE COURT: Ms. Shane, is it helpful to have a motion

19 to dismiss in a case of the fraud claim or not?

20 MS. SHANE: If that is what your Honor would prefer to

21 have, JP Morgan would be pleased to have its case serve as that

22 vehicle. If your Honor wouldn't mind, I would like to consult

23 with my colleagues briefly about whether, given their greater

24 familiarity with their own cases and the pleadings in them, a

25 comparison among us about which would be a good vehicle and


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1 whether this would be in fact the best one, given the number,

2 it is in fact right.

3 It seems perfectly reasonable, and I don't doubt that

4 we could get there, but it might be that I don't know of a

5 particular way in which one of their cases does get there.

6 THE COURT: Well, we are going to take a break so

7 folks will have a chance at the appropriate point to consult

8 and revisit any of these issues.

9 I would be happy to have just one motion to dismiss.

10 So, if you tell me that there is really not enough extra

11 learning that you get from a decision on a case with a fraud

12 claim, then I feel no need to decide a second motion to dismiss

13 MS. SHANE: Your Honor, if I might, I think one of the

14 things we would like to consult about and get back to you is

15 the suspicion that there may be nothing to be added at this

16 stage with respect to fraud because if the pleading does not

17 survive the arguments that are being made with respect to the

18 statute of limitations, for example, and also the common law

19 claims that are asserted in the UBS matter, including negligent

20 misrepresentation, one could infer that the pleading will not

21 survive on the fraud standard or its elements.

22 THE COURT: Absolutely. That would be, I think, the

23 assumption.

24 MS. SHANE: Thank you.

25 THE COURT: Good. So why don't we say that everyone


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1 will have a chance during our break to talk about these issues,

2 but right now based on what I have heard, there will be just

3 the one motion to dismiss. It will be in 5201. There will be

4 an amendment or not, and if there is an amended pleading, we

5 have a schedule for it, and then we have the renewed motion to

6 dismiss and it would be made against the complete complaint to

7 the extent defense counsel can articulate arguments. It

8 wouldn't be restricted to the so-called common issues. They

9 would be included, but it wouldn't be restricted to them.

10 Counsel, I proposed a schedule for this motion

11 practice. I haven't heard anybody say that that schedule won't

12 work. I have suggested that if there is an amendment, it would

13 be filed December 21. If there is no amendment, then

14 opposition would be due January 6, and reply would be due

15 January 27. I'm not hearing opposition.

16 MR. KASOWITZ: Your Honor, before we turn to the

17 schedule, I just have one question about the issue of a

18 common -- a motion with respect to a complaint that would be

19 common to others.

20 THE COURT: Counsel, I'm so sorry, I'm going to ask

21 you, and really everyone else who stands, just because there

22 are so many voices to be heard here, that before you speak, if

23 you could just identify yourself for the record.

24 MR. KASOWITZ: I'm sorry for that, your Honor, of

25 course. Marc Kasowitz for plaintiff. The question I have is


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1 this, your Honor -- and this will be helpful to us when we

2 confer amongst ourselves, and I'm sure when the defendants

3 do -- but I am assuming that it is not the case that a decision

4 on a complaint that's common will end up necessarily to be

5 binding as to all other matters.

6 This is, I take it, your Honor, for the Court's

7 edification on issues that might deem to be common, but there

8 are many, many different issues in all of these complaints

9 including ones that would differ with respect to almost all of

10 the claims. So, while some of the issues certainly are common

11 and some of the legal argument will be common, there are so

12 many factual disparities and the like that the Court isn't

13 suggesting, I assume, that there will be a binding effect to

14 the motion on the first complaint.

15 THE COURT: No, that is absolutely correct. Thank you

16 so much, Mr. Kasowitz for raising that issue. It's an

17 important thing for us to all -- for me to articulate my

18 understanding of the impact of the decision on the motion to

19 dismiss in 5201.

20 Every case is being treated on its own merits. This

21 is not consolidated litigation. So I will do my best to

22 address any motion to dismiss that is made in 5201. The

23 complaint will survive or it won't. If it survives, I plan --

24 right now, I am going to be a lot wiser after I address this

25 motion practice, but the presumption would be that discovery


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1 will go forward in all cases, at least document discovery and

2 at least core document discovery, and we are about to get to

3 the discovery issue in a moment.

4 But there would be a right to bring other motions to

5 dismiss in the other actions or no motion to dismiss an answer,

6 but in bringing a motion to dismiss and I've denied the

7 argument that you're about to make in addressing the same issue

8 in 5201, I plan probably to just adopt my reasoning in 5201.

9 Again, the only exception that I am thinking about

10 now, and I will be much wiser after I have the full briefing on

11 that first motion to dismiss, is whether or not if some other

12 case has a terrific statute of limitations argument that has

13 not been captured by the 5201 briefing, whether or not I should

14 stay discovery in that particular action because of its unique

15 statute of limitations argument.

16 So does that answer your question Mr. Kasowitz?

17 MR. KASOWITZ: It does, your Honor. Thank you.

18 THE COURT: Meanwhile, I would be resolving the remand

19 motions as promptly as I could.

20 So I think just to summarize where we are again -- you

21 can revisit this after you have your joint meeting -- but there

22 is only going to be one motion to dismiss. It's going to be in

23 5201. We are not going to have a motion to dismiss in 6188.

24 There is nothing to be gained by it at this initial phase.

25 And we move on now to discovery. Let me talk about


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1 discovery. I do think it makes sense for counsel to start

2 their discussions about electronic discovery protocols, and

3 that we set a schedule today for those discussions to be

4 completed and any failures to agree to be raised with me.

5 I am going to let during the break you folks talk

6 about what would be a reasonable schedule for those discussions

7 given the fact that it's December and we are moving into the

8 holiday period, but I would like an end date for an agreement

9 or a two-page letter to me outlining the issues that there is a

10 failure to agree upon and then we will have a conference.

11 With respect to document discovery, I can't remember

12 who mentioned it here, but someone mentioned the loan files.

13 Are the loan files electronic or are they hard copy?

14 MR. SELENDY: Your Honor, Phillipe Selendy. Typically

15 in our experience, the electronic files, the loan files are

16 maintained both in electronic form and hard copy, although it

17 depends on how good the operations are of the various banks and

18 services. There is a contractual obligation for those files to

19 be maintained as to every single securitization, and that is

20 because those are the basic documents that inform the quality

21 of the loan, the creditworthiness of the borrower, the value of

22 the property and the like, and the trustees in the various RMBS

23 trusts are entitled to get access to those files.

24 It's a primary source of evidence, although not the

25 only source of evidence, to test whether the representations of


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1 warranties made as to individual loans are in fact accurate and

2 whether those loans were eligible to be included in the trust

3 or not.

4 So, all of the defendants who maintain loan files are

5 in fact obligated to maintain them in a way that can be readily

6 transferred upon demand, and that is why we focused upon that

7 as an initial request because that should not be unduly

8 burdensome, and it's something that ought to be maintained in

9 the ordinary course and readily handed over.

10 THE COURT: They may be accessible, but it may still

11 be burdensome. Can you give me a sense -- and there may be no

12 average -- how many loan files are behind any one

13 securitization?

14 MR. SELENDY: That does vary. It can range from the

15 thousands to the tens of thousands, although we are prepared to

16 frame a request that is much more narrow than that because we

17 believe that the allegations of systemic representation can be

18 tested on a sampling basis.

19 So, provided we avoid any cherry picking of those

20 loans, and we identify a random sort, then we can identify a

21 much smaller number in order to then evaluate that. And we

22 would be prepared to do that across the cases.

23 THE COURT: OK. Is it Mr. Clary?

24 MR. CLARY: Yes, your Honor. Richard Clary for Credit

25 Suisse defendants, and I am counsel in six of the 18 cases we


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1 have here today. I'm also counsel for Credit Suisse in a

2 variety of other lawsuits by institutional investors bringing

3 claims similar to the Fannie and Freddie claims, so I actually

4 have pretty good firsthand information about how discovery has

5 proceeded.

6 Just to set the table, your Honor, in this set of

7 cases, the FHFA cases, there are 535 different securitizations

8 at issue across 18 cases which translates, because we have been

9 doing the math and collecting the information on the number of

10 loans in each of the pools, it's over 2.7 million loans, so

11 that is over 2.7 million loan files.

12 In other litigation, principally litigation over

13 whether or not to stay discovery in the state court actions

14 where there is no PSLRA stay, the evidence has been that on

15 average, an average loan file in one of these has about 300

16 pages. So that takes us to 815 million pages if they're just

17 on the 300 page. Some of the loan files in other cases have

18 had over a thousand pages in a loan file. Some will have less

19 than 300, but on average the figures we have been getting are

20 300 pages.

21 The loan files are in many instances not held by any

22 of the defendants. They're held by non-parties, by various

23 services, for instance.

24 In at least some of the state court cases, I am aware

25 that those non-parties came forward and said we don't keep the


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1 loan files in one physical place. We have collections of

2 electronic documents. We have also boxes of hard copy

3 documents that are in various warehouses with various vendors,

4 and that what would be required would be for those, whoever has

5 the loan files, and frequently it's non-parties, to physically

6 pull the hard copies and the electronic copies because they

7 keep the parts present that they actually need to be able to

8 use, and the rest goes off to various warehouses and mountains

9 or wherever they go. And they would have to pull all that

10 material, reassemble each of the loan files, and then of course

11 they have to be reviewed because, as I'm sure your Honor is

12 aware, all of the loan files would contain a great deal of

13 personal financial information. There will have to be

14 protective orders entered. Some of that information may still

15 have to be blocked out under various federal statutes such as

16 the borrower's social security numbers and things like that.

17 There are a lot of mechanical issues to be addressed.

18 So it's not nearly the simple process that Mr. Selendy

19 suggested. It is quite a bit of time, effort and money on the

20 part not only of the defendants to the extent they have loan

21 files but of the non-parties who have loan files.

22 THE COURT: What I am hearing really suggests that

23 both plaintiff's counsel and defense counsel may actually be in

24 agreement that we need a good sampling technique. That it

25 would be extraordinarily burdensome and inefficient to


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1 reassemble, gather, review and analyze all of these files.

2 MR. CLARY: Your Honor, may I intercede?

3 THE COURT: Yes.

4 MR. CLARY: Although what I described is one of the

5 reasons why we think it is entirely appropriate to not commence

6 that effort until such time as your Honor has had a chance to

7 at least rule on motions to dismiss in the test case, because

8 at least some of the grounds of that motion will dispose of all

9 of the actions, and, therefore, any need to look at any of

10 these if in fact the cases proceed, I for one am somewhat

11 skeptical about the sampling for the simple reason that the

12 claims here are that in each securitization which has its own

13 prospectus supplement describing its particular mortgage pool

14 whether or not there are material misstatements about that

15 mortgage pool, and I am not sure -- there's been some

16 discussion in various cases around the country about whether or

17 not sampling would or would not work, and there are some

18 serious issues as to whether in fact you can create a

19 statistical sample that in fact covers each of those 595

20 separate pools because each pool has to be analyzed against the

21 supplemental prospectus towards that pool and for that tranche

22 of that pool that these particular clients Fannie and Freddie

23 have purchased. So I am certainly not --

24 THE COURT: Do I have the wrong number? Is it 535?

25 MR. KASNER: I'm sorry, 535 securitizations, but


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1 within those securitizations there are tranches and different

2 mortgages are relied on to pay different tranches, and I

3 believe the total number of tranches is 600 something. I had

4 had that number, and, I apologize, I lost it in the papers.

5 THE COURT: OK.

6 MR. SELENDY: Your Honor, may I respond briefly?

7 THE COURT: Well, sure.

8 MR. SELENDY: I just wanted to point out first that

9 Mr. Clary's argument about the extraordinary difference between

10 all of the securitizations is obviously in direct tension with

11 their argument that these issues are common and can be commonly

12 tested. Moreover, in both federal and state court in New York,

13 the principle of sampling specifically as to RMBS trusts in

14 order to determine whether there have been systemic

15 misrepresentations of representations and warranties as we have

16 alleged here as to several different categories of

17 representations of warranties, that has been accepted. And

18 there is a reason for it is --

19 THE COURT: Well, Mr. Selendy, I don't want to cut you

20 off but I am. We are not going to argue the issue right now.

21 MR. SELENDY: I did have one proposal. We are

22 certainly prepared to work with defense counsel to identify

23 those files that are in fact maintained electronically, to

24 select files on a sampling basis which reduces the burden of

25 defendants, and obviously it will be our burden to demonstrate


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1 to the court why sampling is appropriate. We are totally

2 prepared to do that.

3 The servicers are in fact obligated to maintain the

4 files in order to exercise their servicing responsibilities,

5 which is why it's somewhat difficult for them to say they don't

6 have the files. We're prepared to work with counsel.


8 So, during this period of briefing and analysis of the

9 motion to dismiss, besides working on a protocol for the

10 production of any electronically kept materials, I do want

11 counsel to work to see if you can achieve agreement with

12 respect to production of a sample of loan files. I will hear

13 you on a schedule that you'll discuss and present to me after

14 our break if you are not able to reach agreement about it, and

15 we will take that up at a separate conference, but I want you

16 to use this next month or two to try to organize a discovery

17 plan that would include sampling of the loan files.

18 I think as a practical matter, the burden on the

19 defendants and the plaintiffs of personally and individually

20 reviewing 2.7 million loan files, each of which has at least

21 300 pages, says there has to be a better way. So, I am going

22 to count on you to figure out the better way, and use this time

23 to do that, and give me a schedule by which you will have

24 finished those discussions and we will meet again if you don't

25 have agreement.


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1 I want you to use this time also to come up with a

2 discussion about limitation on depositions should we get that

3 far. And Mr. Kasner and Mr. Karp at least are familiar with

4 one system that was used before me for limiting the number of

5 days of depositions. There are many different systems that can

6 be used to reduce the burden of depositions, so I want you to

7 use this time as well to think creatively about how to manage

8 the deposition process.

9 I do not know if there is some core discovery here

10 that can be produced relatively expeditiously once discovery

11 begins that would give the parties great insight into the

12 factual development of this case such that having that

13 discovery in hand would permit you to make a reasonable

14 assessment about settlement discussions.

15 So I want you also to think about sequencing of

16 discovery. I don't know that this is a case that you can

17 identify some core group of documents or a 30(b)(6) deposition

18 or something that would give you the insight to put you in a

19 good position to settle this case sooner rather than later, or

20 these cases.

21 So that is what I wanted to talk about with respect to

22 discovery. Let's move on to coordination issues.

23 MR. CLARY: Your Honor?

24 THE COURT: Yes.

25 MR. CLARY: Did you want me -- I know Mr. Selendy


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1 started his arguing about the PSLRA. Did you want me to

2 discuss at all the PSLRA or should we leave that, and,

3 similarly, if your Honor is inclined to decide now that

4 discovery will be held in abeyance at least through the motion

5 to dismiss on a test case, then perhaps my office can be

6 relieved of the burden of filing the reply brief on the PSLRA

7 status that is due next week. Otherwise, we will file it on

8 the 7th per Judge Patterson's order.

9 THE COURT: You don't have to file a reply. I am

10 going to finish going through my outline. Then we are going to

11 take a break so that you get a chance to talk with each other

12 and come back and convince me why my tentative suggestions here

13 are wrong and I should change my mind, but right now there will

14 be no discovery until I issue a ruling on the motion to

15 dismiss.

16 If 5201 survives that motion to dismiss, right now I'm

17 thinking that discovery would proceed in all of the cases.

18 There is one caveat. If I got a sense that there was a really

19 strong statute of limitations argument in another case or two,

20 that the motion practice in 5201 didn't really tee up well, I

21 would be open to extending the discovery stay in that small set

22 of cases. That is my preliminary thinking.

23 So we use this time while the motion to dismiss is

24 being briefed and decided for you folks to talk about if

25 discovery starts how it would be organized both in terms of


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1 electronic discovery, sampling of documents, deposition limits,

2 etc. So we wouldn't have to waste any time. We could hit the

3 ground running after a motion assuming that it's denied.

4 Coordination: We have the Connecticut case before

5 Judge Thompson, and I looked at the docket sheet, and I have

6 some information about that case that we were able to glean.

7 It doesn't look to me -- feel free to correct me if I'm

8 wrong -- that those parties have had a conference. It is not

9 clear to me why there is a case in Connecticut. I'm happy to

10 take that case, but there may be very good reasons to have the

11 case in Connecticut. So, at the very least, if the case

12 doesn't come here and get folded into our coordinated plan, I

13 would want to reach out to Judge Thompson, and to the extent

14 that it makes sense and he agrees to coordinate what we do so

15 that the burdens on the parties are equally borne. So I will

16 just say that for now.

17 I am not aware of any other case brought by the GSEs

18 other than the Connecticut case. Are there others?

19 MR. SELENDY: That's correct, your Honor, that's the

20 universe.

21 THE COURT: OK. Good. Are there going to be more

22 filed?

23 MR. SELENDY: Well, I think that's a question for the

24 Federal Housing Finance Agency. I don't know if I can answer

25 that.


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1 MR.HART: Your Honor?

2 THE COURT: Sir, could you put your name on the

3 record?

4 MR. HART: Stephen Hart. There could be another case

5 or two, but that is a decision that will have to be made by the

6 director of the agency, and it will not come soon.

7 THE COURT: Thank you. Do you expect if it is filed

8 or they are filed, will they be in this courthouse?

9 MR. HART: That would be my anticipation.

10 THE COURT: Thank you so much.

11 In terms of coordination, I think we are up to in my

12 outline VNB Realty.

13 MR. TSAPATSARIS: Your Honor, if I may, Peter

14 Tsapatsaris for VNB Realty. VNB is the owner of a single

15 security that overlaps with the securities owned by FHFA in

16 case against Bank of America.

17 THE COURT: Keep your voice up.

18 MR. TSAPATSARIS: Of course. We filed this case

19 related case because we rely very heavily on the FHFA complaint

20 and the forensic review results that they report within. We do

21 think there are going to be significant common issues of fact.

22 However, the last thing we want to do is delay the FHFA case or

23 interfere with the schedule in that case. I did confer with

24 counsel for Bank of America who takes no position on

25 relatedness, and I have heard the Court's reticence to raise


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1 its hand and act as a lightening rod for private actions that

2 overlap all over the nation.

3 That being the case, I would like the opportunity to

4 confer with Bank of America again and Quinn Emanuel and then

5 submit a letter to the Court potentially withdrawing or setting

6 up arguments on why we think the case should be related.

7 THE COURT: OK. Well, we are unlikely to have another

8 conference on that issue. I am not saying we won't, but I

9 appreciate what you're saying. Let me just give you my

10 off-the-cuff reaction. I am happy to keep this case and fold

11 it in and coordinate document production and everything, but if

12 there were 15 more or 50 more private plaintiff lawsuits, I

13 would have to think really carefully about what we are doing

14 and if it makes sense for this core group to be joined by these

15 additional cases.

16 So, why doesn't everybody have a chance to think about

17 that, and you may all be in agreement. You may have

18 disagreements. And you will feel free to write me a letter no

19 longer than two pages.

20 MS. KOTLER: Your Honor, Meredith Kotler for Bank of

21 America. If we may, let me confer with my adversary over the

22 break, and perhaps we can come back to you at the beginning

23 with what might be a somewhat different position on this.


25 MS. CHUNG: Your Honor, I'm sorry, but just because --


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1 THE COURT: Ms. Chung.

2 MS. CHUNG: Christine Chung. Because it's come up a

3 couple of times, to make the record clear, FHFA does not

4 believe that the VNB case is related, so we would object to any

5 related designation, and the reasons have already been

6 discussed so I don't want to belabor the record. In fact, the

7 area of overlap is a single securitization. I think your Honor

8 started with, you are a private entity. That really is the

9 distinction. There are so many other cases where if this was

10 the rule, it could end up being the case that many -- the fact

11 that there might be overlapping securitizations is not the same

12 thing in our mind as saying there is true judicial efficiency

13 by putting that case together with this case. So we'll confer,

14 but I just wanted to make clear that our view is that the cases

15 are not related.

16 THE COURT: Good.

17 So why don't we take a break, and during the break

18 counsel can feel free to discuss any of the issues I've raised

19 and ask me to revisit them because they have now had a chance

20 to confer with each other and there is something they want me

21 to hear or suggest any additional issues that I haven't raised

22 at all that you think should be discussed at this conference.

23 Let's take a ten minute break.

24 (Recess)

25 (In open court)


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1 THE COURT: One issue I didn't mention was the

2 protective order. One of you mentioned it. So that is another

3 thing that should be worked on during our interim period here.

4 So I will just sort of in grand topic form, anybody

5 have anything they want to revisit on sort of the

6 administration aspects of the litigation?

7 Anybody have anything they want to revisit on the

8 overview issue of motion practice?

9 Ms. Shane.

10 MS. SHANE: Thank you, your Honor. Penny Shane,

11 Sullivan Cromwell. We have conferred about the idea of having

12 a separate or subsequent briefing on fraud issues or doing it

13 at the same time; and having conferred, the defendants' view is

14 that it would make sense for your Honor to receive a brief with

15 respect to the fraud issues, but that rather than pick a

16 particular case, the group believes your Honor would benefit

17 more from a single brief that seeks to address the fraud issue

18 as it arises in each of the six cases in which it arises, and

19 the defendants would work to coordinate to make sure that we

20 best present those issues in a way that successful and capable

21 of resolution.

22 As to the scheduling of it, your Honor, the defendants

23 are happy to be guided by your Honor's view of what makes most

24 sense, but we would suggest that in the event that the

25 plaintiff plans to amend the schedule your Honor already set


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1 out with respect to the UBS case, that amendment come with

2 respect not only to the UBS case but with respect to the cases

3 in which the fraud claim does arise so that we can all address

4 our motions to the amended pleading and can do it in a way that

5 will have some finality to it.

6 In the event that the plaintiff does not elect to

7 amend, we would suggest to your Honor that we could be on

8 roughly the same briefing schedule sort of carried a little bit

9 further back as your Honor has imposed in the UBS case, and

10 that in order to permit time to coordinate, we would be

11 prepared to file sometime in mid January.

12 THE COURT: So thank you. Very helpful. I think what

13 I would prefer to do then is pick one of the fraud cases. If

14 it is not 6188, that's fine. I am going to say I will presume

15 it will be 6188 but if defense counsel agree among themselves

16 it should be one of the other fraud cases, that's fine with me.

17 We will set a schedule today for you to move to dismiss. The

18 plaintiffs will have an opportunity to amend in response or to

19 oppose.

20 I am trying to think whether you should move to

21 dismiss before we see any amended pleading in 5201 or not. It

22 is now December 2. I think that amended pleading is

23 December 23.

24 MS. SHANE: December 21, your Honor.

25 THE COURT: December 21.


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1 MR. SELENDY: Your Honor, if the purpose is to test

2 the separate fraud allegations, then the amendment of the UBS

3 complaint would not appear to be relevant to that purpose, and

4 we would suggest as defendants have all been operating until

5 recently on the assumption that they would file their briefs by

6 today, that there be a very early date set such as next week

7 for the fraud claim.

8 THE COURT: Good. Thank you.

9 So let me throw this out as a possible schedule for

10 motion to dismiss in 6188; that the motion to dismiss be filed

11 January 6. If there is going to be an amended pleading in 6188

12 in response to that motion, it be filed January 27. If there

13 is no amended pleading, that the opposition be served

14 February 3, and the reply due February 17. How does that

15 sound, Ms. Shane?

16 MS. SHANE: That sounds fair, your Honor, and just to

17 clarify this motion in 6188 or such other case we may

18 substitute in would be a motion strictly addressing the fraud

19 claim notwithstanding that there are other issues that have

20 been and are being briefed fully in the UBS case, is that

21 correct?

22 THE COURT: I don't think so. I don't want to set up

23 a situation where we have multiple motions to dismiss in every

24 action. We either do this sort of concurrently or we don't do

25 it at all now, and we wait for an opinion on the motion to


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1 dismiss in 5201. I can see arguments both ways. I'm sure you

2 can too. I think there is such a benefit from getting you a

3 decision sooner rather than later that argues in favor of

4 concurrent briefing.

5 MS. SHANE: We recognize that as well, your Honor,

6 which is why we suggested that we go ahead and do a brief on a

7 rough and contemporaneous schedule. The concern I think may be

8 that whichever case ends up being the vehicle for that briefing

9 will be in a position unlike either the UBS case that has come

10 before or those that are to come after in the sense that while

11 addressing the fraud claim, there will be a need to anticipate

12 a ruling with respect to the other common issues that have been

13 briefed by UBS but not decided yet and no instruction will yet

14 have been given.

15 So that that second test case might be thought of as

16 foregoing the opportunity to analyze your Honor's decision,

17 avoid duplication of argument or repetition of anything that

18 you have properly decided once you get around to deciding the

19 UBS case, but that opportunity shouldn't be lost, I don't

20 think, and the repetition that would result from having to

21 anticipate how your Honor might rule on the UBS issues and how

22 that might or might not affect that defendant might be worth

23 seeking to avoid.

24 MR. SELENDY: Your Honor, if I may, in the ordinary

25 course, defendants would have to file their motions without


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1 some initial test rulings being made available by the Court.

2 So the idea that it would be somehow inadequate for defense

3 counsel to have to file motions just two motions across 18

4 cases without having initial guidance.

5 THE COURT: 17 --

6 MR. SELENDY: Well, I left open the fact we have also

7 the RBS complaint then.

8 THE COURT: No, Connecticut is what I am thinking of.

9 MR. SELENDY: Yes. Yes.

10 THE COURT: Hopefully 18.

11 MR. SELENDY: So, in light of that we submit that

12 there should not be further delay from discovery in particular

13 by waiting for a ruling on the first test case before having

14 another test case.

15 Further, your Honor, although you've suggested that

16 defendants could select, we think the process should be

17 non-arbitrary, and it should be the lowest docket number JP

18 Morgan rather than some selection by defendants among them.

19 MS. SHANE: Your Honor, may I suggest as a way to

20 resolve the difficulty or clarify, we are not looking for an

21 opportunity to have another brief that is any different than

22 the other brief that your Honor's current schedule contemplates

23 from those defendants who are to become educated, as everybody

24 will become educated, by the result of the UBS brief.

25 So that simply in order to prevent the one defendant,


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1 which JP Morgan will be happy to be, from being in a different

2 position, all that we would seek to have happen is that JP

3 Morgan would likely adopt and reiterate the arguments that have

4 been made by UBS and would not take the trouble to try to

5 anticipate, distinguish and otherwise show how they will apply

6 when they haven't yet been rendered and will not be prejudiced

7 at such time as your Honor renders decision in the UBS case by

8 the fact that JPM has filed a brief already with respect to the

9 fraud issues adopting the UBS arguments, but instead would have

10 the same opportunity other defendants would have to present to

11 your Honor distinctions, if any, from the UBS ruling that

12 deserve your Honor's attention on those common issues only.

13 THE COURT: Counsel know their pleadings. I don't. I

14 love the idea, Ms. Shane, that you will just adopt arguments

15 that have been made in 5201 on common issues and not seek to

16 submit different briefing with respect to those issues. I

17 would encourage that approach. I am not sure that you are

18 going to get a second chance to revisit any of the issues. If

19 6188 has one motion to dismiss, I think I will decide that

20 motion to dismiss, and that's going to be it.

21 MS. SHANE: Thank you, your Honor.

22 THE COURT: So we will get out a scheduling order

23 adopting my proposed schedule in 5201 and the proposed schedule

24 I've just outlined in 6188, and if there is a substitution at

25 defense counsel's choice of a different fraud case than 6188,


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1 counsel, I would ask you to advise me of that by December 9.

2 Is there.

3 Is there any other issue that counsel wish to raise

4 with me on the general topic of the motion practice?

5 With respect to discovery, counsel, we are going to

6 confer about some scheduling here of proposals. Do we have a

7 date by which you would have completed your discussions on

8 electronic discovery protocols?

9 MR. SELENDY: Unfortunately, your Honor, we did not

10 have an opportunity to confer with defense counsel. It seems

11 that we each were participating in our own meetings. I would

12 suggest that we come back in as to each of the issues you've

13 raised -- sampling, electronic discovery, depositions and

14 protective order -- in early January, perhaps January 6, and

15 inform the Court of the results of discussions.

16 THE COURT: I would look forward to seeing everyone

17 again, of course, but I know that it is a real burden on

18 counsel and your clients to spend an afternoon in this

19 beautiful courtroom.

20 So, I will take a report from counsel, and hopefully

21 it will be a joint report with a proposal that I can adopt on

22 January 10, and it will address a protective order, ediscovery,

23 sampling of documents, that's for loan files, and limits on

24 depositions, and, of course, a proposal with respect to the

25 time frame for document production and a separate proposal for


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1 time frame for depositions and then for expert discovery and

2 summary judgment practice.

3 MR. CLARY: Your Honor, had also mentioned before the

4 break --

5 THE COURT: Mr. Clary?

6 MR. CLARY: I'm sorry. Richard Clary for the Credit

7 Suisse defendants.

8 Before the break, your Honor, had also mentioned

9 potentially sequencing of discovery, and I assume you would

10 like that addressed in the report.

11 THE COURT: Yes. What I am hoping then you will do is

12 set up a series of meetings among yourselves in December and

13 early January so if at all possible I get a report that shows

14 consensus on these issues. Obviously, if you can't reach

15 agreement, you can't.

16 Anything else with respect to the general issue of

17 discovery?

18 Anything to discuss on the general topic of

19 coordination?

20 MR. TSAPATSARIS: Peter Tsapatsaris for VNB.

21 I conferred with counsel for Bank of America and

22 counsel for FHFA during the break. Bank of America's counsel

23 has informed me that they now plan to contest the relatedness.

24 I would like -- I know your Honor was hesitant to grant me this

25 before -- an opportunity to confer with my client. We came in


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1 here thinking it was unopposed, and the Court has raised

2 concerns and FHFA counsel has raised concerns, B of A's counsel

3 has raised concerns which may cause us to withdraw that

4 request.

5 I would ask the Court to give us leave to file a

6 two-page letter after I confer with my client which will either

7 state our grounds for why it should be related or withdraw the

8 request for the relatedness.

9 THE COURT: Good. Shall we say I'll get such a letter

10 no later than December 9?

11 MR. TSAPATSARIS: Yes, your Honor.


13 Any other coordination issue?

14 Settlement: Have the parties talked about a process

15 for settlement discussions?

16 MR. SELENDY: Your Honor, Philippe Selendy. There

17 have not been global discussions with all of the defendants nor

18 has there been discussion of a general process. There have

19 been certain discussions with certain parties.

20 THE COURT: While I encourage you all to think about

21 settlement at any time, I am going to assume that you need a

22 decision on the motion to dismiss at least in 5201 before you

23 can really talk seriously about settlement. So I plan to

24 address that motion.

25 If the motion is denied and if all of these cases are


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1 going forward into discovery, I plan to refer you to Magistrate

2 Judge Maas initially and potentially to a senior judge on this

3 court for supervision of settlement discussions.

4 If counsel decide among themselves that they would

5 prefer to make other arrangements for settlement process, that

6 would be just fine with me, and that would relieve you of the

7 obligation to participate in good faith in the settlement

8 discussions before Judge Maas. So that is how we will leave

9 that.

10 But I do want after a decision on the motion to

11 dismiss if it is denied for you to at least begin those

12 discussions.

13 Is there any other issue we need to address this

14 afternoon?

15 MS. CHUNG: Your Honor, we had the remand issues.

16 THE COURT: Yes. Yes. I know, Ms. Chung.

17 MS. CHUNG: I think it was in some category. I was

18 looking back at my notes.

19 Your Honor, you have before you four of the FHFA

20 actions that were commenced in state court. There is a

21 threshold issue of whether the cases have been properly

22 removed. Mr. Kasowitz's firm has three of those cases.

23 In the Countrywide case, which is the one that our

24 firm is handling, we had gotten on the phone with Judge

25 Rakoff's chambers within days of the case being assigned to him


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1 with cross applications, and there was an application from the

2 defendants to stay any consideration of what was going to be

3 our motion to remand. We had asked to have a briefing schedule

4 on the motion for remand that pretty closely complied with the

5 rules of the Court.

6 The Judge turned down a request by the defendants to

7 have a slower schedule, and within a month we were fully

8 briefed and were scheduled to have the argument on this very

9 dramatic day when we got the announcement that the case was

10 being transferred.

11 So, in this case our concern is, did the Judge order

12 that the motion for stay and motion for remand be briefed

13 contemporaneously. If that schedule had been kept, there is,

14 as your Honor noted, this issue of the JPML transfer motion.

15 It is now agreed by the parties, it's been conceded by

16 the defendants, that the first time it appears that JPML would

17 consider the transfer motion is January 26.

18 We had made a big effort -- and I think Judge Rakoff,

19 he had set a schedule by which it would have been possible to

20 have a decision on that threshold issue well before the JPML

21 would begin even to consider transfer, much less the remand

22 motion if the case were to be transferred.

23 Our view is still that the judicial efficiencies and

24 the efficiencies for the parties is to finish off this process

25 of having the oral argument in the Countrywide case. It is a


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56

1 case in which this one thing somehow has become sort of --

2 there was a big consequence of having reassignment of cases,

3 which this piece was moving forward at quite a good clip and is

4 now in abeyance.

5 So, we would renew our request to have the argument

6 rescheduled, and I don't know if Mr. Kasowitz wants to address

7 the other remand motion separately.

8 MR. KASOWITZ: Simply, that there is a schedule for

9 the other remand motions. There is a schedule set. There is

10 going to be reply in the Morgan Stanley case filed today and

11 oppositions in the other two cases filed today, and there are

12 dates set for replies then your Honor.

13 THE COURT: Good. And, of course, you can consent to

14 removal at any time.

15 MR. KASOWITZ: Understood, your Honor. Thank you.

16 MR. PASTUSZENSKI: Your Honor, if I my Brian

17 Pastuszenski from the Goodwin Procter firm for the Countrywide

18 defendants.

19 Your Honor, I simply want to note that, as Ms. Chung

20 pointed out, there is both pending a motion to remand and a

21 motion to stay in light of the fact that the judicial panel of

22 multidistrict litigation has conditionally transferred the case

23 and your Honor received letters from the parties, from

24 Ms. Chung and then from myself, regarding acceleration of that

25 hearing.


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57

1 There is the ID case, which is Second Circuit

2 authority, which speaks to the efficiencies of letting the

3 transferee judge decide these issues. Those are all before

4 your Honor. If your Honor knows those issues, I simply want to

5 point out that the briefing process on the conditional transfer

6 order is now complete. That is now fully briefed. It's before

7 the panel. The next hearing session is January 26. We don't

8 know when the panel will issue a ruling, but it has been fully

9 briefed, and it's ready for decision now by the MDL panel.

10 The MDL panel has referred transferred to Judge

11 Pfaelzer 13 mortgage-backed securities cases those include both

12 class cases, most them are individual institutional investors

13 like the cases your Honor has before you. There are also an

14 additional five mortgage-backed securities cases that have been

15 conditionally transferred. This is one of them. Those are in

16 front of Judge Pfaelzer, and the multi-district litigation

17 process is now proceeding forward in front of her.

18 So, your Honor, what Judge Rakoff had in front of him

19 and what was scheduled for hearing on the 16th was not simply

20 the remand issue, but, frankly, also the parallel motion to

21 stay all of that pending action by the JPML. Because as we

22 noted to Judge Rakoff and noted in the letter to your Honor,

23 one of the core issues that is before your Honor to decide

24 which is in two of the other cases; namely, bankruptcy related

25 to jurisdiction has been addressed a number of times already by


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1 Judge Pfaelzer.

2 I simply want to provide that context, your Honor.

3 Thank you.

4 THE COURT: Thank you very much.

5 MS. CHUNG: Your Honor, I'm only rising again to

6 respond to your Honor's comment that, of course, we can always

7 consent to removal. I want to say that in the Countrywide

8 case, of course we knew about the MDL. Among considerations,

9 the FHFA has statutory top prerogative to file in state court

10 or federal court. In the Countrywide case, there was this

11 unique situation where we knew that as soon as we filed in

12 federal court, Countrywide was going to try to get the case

13 swept into the MDL.

14 I want to make it clear in terms of your Honor's

15 proposal, we'd be very willing to consent to removal. So, we

16 would forego our remand motion if the defendants would agree

17 not to pursue their transfer motion to the MDL. So that would

18 be a way that in that case we would be willing to resolve this

19 issue of the remand motion and the transfer motion. So just to

20 advance the ball that much.

21 THE COURT: Well, I think that would be a wonderful

22 result personally, and I encourage counsel to discuss that with

23 each other. I am not going to ask for commitment from

24 Countrywide on the record one way or the other now, but why

25 doesn't everybody reflect, and why don't you let me know what


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1 your positions are -- December 9 seems to be a popular date --

2 so by December 9.

3 MR. PASTUSZENSKI: Your Honor, if I may very, very

4 briefly, Brian Pastuszenski, Goodwin Procter for the

5 Countrywide defendants.

6 I will certainly confer with Countrywide and will let

7 you know by the 9th Countrywide's response or actually the

8 response of the defendants, because there are other defendants

9 in the case, to the proposition that Ms. Chung just addressed

10 to your Honor.

11 But one thing I want to make clear, your Honor, is

12 that there seemed to be an implication that rushing things to

13 the MDL. The reason the multidistrict litigation proceeding

14 exists at all, your Honor, is that starting in the third

15 quarter of 2007, four years ago, your Honor, litigants that had

16 bought, investors had bought mortgage-backed securities began

17 suing Countrywide for the very same things that the FHFA is

18 today alleging in the complaint against Countrywide that your

19 Honor has. More than four years ago, your Honor.

20 The reason that MDL exists is because there are

21 multiple actions, both class and individual, that had at their

22 core the common allegations about alleged abandonment of

23 underwriting guidelines, manipulation of appraisals and so

24 forth. The reason the JPML formed the MDL was because of the

25 extraordinary commonality and extraordinary efficiency of


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60

1 having one judge deal with those allegations against

2 Countrywide.

3 So, Ms. Chung is right that had this case been filed

4 immediately or initially in federal court, it would have been

5 tagged, but it would have been tagged because of those

6 efficiencies, because of the common factual allegations,

7 because of the common legal issues that all of the cases

8 against Countrywide present.

9 So, I wanted to make clear that this isn't some sort

10 of litigation strategy. It has to do with the fact that all of

11 these cases allege fundamentally the same thing, your Honor.

12 This one, the many, many cases that are in front of Judge

13 Pfaelzer, frankly, whether they involve mortgage-backed

14 securities, common stock or other kinds of securities, they've

15 all been alleging the same things since August/September of

16 2007, your Honor, which, by the way, also in the Countrywide

17 case, as in these other cases, presents some very, very serious

18 statute of limitations and statute of repose issues.

19 But with respect to the MDL, that has to do with the

20 efficiency and the commonality of the allegation against my

21 clients.

22 THE COURT: I appreciate that you are trying to let me

23 down gently here, but on December 9 continue to cede the

24 transfer. There are many different ways to achieve efficiency,

25 of course, and you are arguing in favor of a common defendant.



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1 We are here because of a common plaintiff. There are many

2 different ways to slice and dice this. So, we are all trying

3 to do our best here to try to figure out how to reduce

4 litigation costs and get to the merits in an efficient way.

5 MR. PASTUSZENSKI: Absolutely, your Honor. There is

6 no disagreement. We will respond to your Honor by the 9th.

7 THE COURT: Good. Thank you all for your cooperation

8 today.

9 (Adjourned)

10

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15

16

17

18

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1


------------------------------------------

FEDERAL HOUSING FINANCE AGENCY, etc.,

Plaintiff,

-v-

UBS AMERICAS, INC., et al.,

Defendants.

------------------------------------------

X

:

:

:

:

:

:

:

:

X

11 Civ. 5201 (DLC)

OPINION & ORDER

APPEARANCES:

For the plaintiff:

Philippe Z. Selendy

Kathleen M. Sullivan

Adam M. Abensohn

Manisha M. Sheth

Jordan A. Goldstein

Quinn Emanuel Urquhart & Sullivan, LLP


New York, New York 10010-1601

For defendants:Jay B. Kasner

Scott D. Musoff

Robert A. Fumerton

Skadden, Arps, Slate, Meagher & Flom LLP

Four Times Square


DENISE COTE, District Judge:

This is one of seventeen actions brought by the Federal

Housing Finance Agency (“FHFA” or “the Agency”), as conservator

of the Federal National Mortgage Association (“Fannie Mae”) and

the Federal Home Loan Mortgage Corporation (“Freddie Mac”)

(collectively, the “Government Sponsored Enterprises” or


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2

“GSEs”), against various financial institutions involved in the

packaging, marketing and sale of residential mortgage-backed

securities that the GSEs purchased in the period from 2005 to

2007. Fifteen of the actions filed in New York courts -- both

state and federal -- are currently concentrated before this

Court for coordinated pretrial proceedings.1

FHFA brought this case against USB Americas, Inc. (“UBS

Americas”) and various affiliated entities and individuals2on

July 27, 2011. The Agency’s Second Amended Complaint (“SAC”),

filed on December 21, 2011, asserts claims under Sections 11,

12(a)(2), and 15 of the Securities Act of 1933, 15 U.S.C.

§§ 77k, l(a)(2), o; the Virginia Securities Act, VA Code Ann.

1See Federal Housing Finance Agency (“FHFA”) v. UBS Americas,

Inc., et al., 11 Civ. 5201 (DLC); FHFA v. JPMorgan Chase & Co.,et al., 11 Civ. 6188 (DLC); FHFA v. HSBC North America Holdings,

Inc., et al., 11 Civ. 6189 (DLC); FHFA v. Barclays Bank PLC, et

al., 11 Civ 6190 (DLC); FHFA v. Deutsche Bank AG, et al., 11

Civ. 6192 (DLC); FHFA v. First Horizon National Corp., et al.,

11 Civ 6193 (DLC); FHFA v. Bank of America Corp., et al., 11

Civ. 6195 (DLC); FHFA v. Citigroup Inc., et al., 11 Civ. 6196

(DLC); FHFA v. Goldman, Sachs & Co., et al., 11 Civ. 6198 (DLC);

FHFA v. Credit Suisse Holdings (USA), Inc., et al., 11 Civ. 6200

(DLC); FHFA v. Nomura Holding America, Inc., et al., 11 Civ.

6201 (DLC); FHFA v. Merrill Lynch & Co., Inc., et al., 11 Civ.

6202 (DLC); FHFA v. SG Americas, Inc., et al., 11 Civ. 6203

(DLC); FHFA v. Morgan Stanley, et al., 11 Civ. 6739 (DLC); FHFA

v. Ally Financial Inc., et al., 11 Civ. 7010 (DLC).

2The defendants are UBS Americas, UBS Real Estate Securities,

Inc. (“UBS Real Estate”), UBS Securities, LLC (“UBS

Securities”), Mortgage Asset Securitization Transactions, Inc.

(“MASTR”), David Martin, Per Dyrvik, Hugh Corcoran, and Peter

Slagowitz.


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3

§ 13.1-522(A)(ii), (C); the District of Columbia Securities Act,

D.C. Code § 31-5606.05(a)(1)(B), (c); and the common law tort of

negligent misrepresentation. On January 20, 2012, defendants

filed a motion to dismiss the SAC. The motion was fully

submitted on February 24. For the reasons that follow, the

motion is granted in part.

BACKGROUND

On July 30, 2008, in the midst of a housing crisis,

Congress passed the Housing and Economic Recovery Act of 2008

(“HERA”). See Pub. L. No. 110-289, 122 Stat. 2654 (2008). As

part of the Act, Congress established FHFA as the regulator of

Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. See

id. § 1101. HERA included a provision authorizing the Director

of FHFA to place the GSEs into conservatorship under the

Agency’s authority “for the purpose of reorganizing,

rehabilitating, or winding up [their] affairs.” Id.

§ 1367(a)(3). On September 6, 2008, FHFA Director James B.

Lockhart III invoked this authority and appointed the Agency as

conservator of both GSEs, giving FHFA the right to assert legal

claims on their behalf.

The SAC can be briefly summarized. Plaintiff contends that

Fannie Mae and Freddie Mac purchased over $6.4 billion in

residential mortgage-backed securities (“RMBS”) sponsored or


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4

underwritten by UBS entities during the period between September

2005 and August 2007. RMBS are securities entitling the holder

to income payments from pools of residential mortgage loans that

are held by a trust. For each of the securities at issue here,

the offering process began with a “sponsor,” which acquired or

originated the mortgage loans that were to be included in the

offering.3

The sponsor transferred a portfolio of loans to a

trust that was created specifically for that securitization;

this task was accomplished through the involvement of an

intermediary known as a “depositor.”4

The trust then issued

Certificates to an underwriter, in this case UBS Securities,

which in turn, sold them to the GSEs. The Certificates were

backed by the underlying mortgages. Thus, their value depended

on the ability of mortgagors to repay the loan principal and

interest and the adequacy of the collateral in the event of

default.

Each of the Certificates implicated in this case was issued

pursuant to one of seven Shelf Registration Statements filed

3The mortgage originators in this case, none of whom are parties

to the action, include Wells Fargo Bank, N.A.; Countrywide Home

Loans; American Home Mortgage Corp.; Fremont Investment & Loan;

WMC Mortgage Corp.; IndyMac Bank, F.S.B.; and New Century

Mortgage Corp.

4For 16 of the 22 securitizations at issue in this case,

defendant UBS Real Estate acted as the sponsor and defendant

MASTR acted as the depositor.


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5

with the Securities and Exchange Commission (“SEC”). Each

individual defendant signed one or more of the two Shelf

Registration Statements that pertained to the securitizations

for which MASTR acted as depositor. The Registration Statement,

together with the relevant prospectus and prospectus supplement

constitute the “offering documents” for each security.

Generally, FHFA asserts that the offering documents for the

twenty-two securitizations identified in the complaint

“contained materially false statements and omissions.”5

More

5The twenty-two securitizations at issue are: Argent Securities

Inc. Trust, Series 2006-W3 ("ARSI 2006-W3"); Fremont Home Loan

Trust, Series 2006-B ("FHLT 2006-B"); Home Equity Mortgage Loan

Asset-Backed Trust, Series INABS 2005-C ("INABS 2005-C"); Home

Equity Mortgage Loan Asset-Backed Trust, Series INABS 2005-

D("INABS 2005-D"); Home Equity Mortgage Loan Asset-Backed Trust,

Series INABS 2006-D ("INABS 2006-D"); Home Equity Mortgage Loan

Asset-Backed Trust, Series INABS 2007-A ("INABS 2007-A"); MASTRAsset Backed Securities Trust, Series 2005-WFl ("MABS 2005-

WFl"); MASTR Asset Backed Securities Trust, Series 2005-FRE1

("MABS 2005-FRE1"); MASTR Asset Backed Securities Trust, Series

2005-HE2 ("MABS 2005-HE2"); MASTR Adjustable Rate Mortgages

Trust, Series 2005-8 ("MARM 2005-8"); MASTR Adjustable Rate

Mortgages Trust, Series 2006-2 ("MARM 2006-2"); MASTR Adjustable

Rate Mortgages Trust, Series 2006-OA1 ("MARM 2006-OA1"); MASTR

Asset Backed Securities Trust, Series 2006-FRE2 ("MABS 2006-

FRE2); MASTR Asset Backed Securities, Series 2006-WMC2 ("MABS

2006-WMC2"); MASTR Asset Backed Securities Trust, Series 2006-

WMC3 ("MABS 2006-WMC3"); MASTR Asset Backed Securities Trust,

Series 2006-NC2 ("MABS 2006-NC2"); MASTR Asset Backed

Securities, Series 2006-WMC4 ("MABS 2006-WMC4"); MASTR Asset

Backed Securities Trust, Series 2006-NC3 ("MABS 2006-NC3");

MASTR Adjustable Rate Mortgages Trust, Series 2007-1 ("MARM

2007-1"); MASTR Asset Backed Securities Trust, Series 2007-WMCI

("MABS 2007-WMC1"); MASTR Adjustable Rate Mortgages Trust,

Series 2007-3 ("MARM 2007-3"); and MASTR Asset Backed Securities

Trust 2007-HE2 ("MABS 2007-HE2").


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6

particularly, the SAC alleges that “[d]efendants falsely

represented that the underlying mortgage loans complied with

certain underwriting guidelines and standards, including

representations that significantly overstated the borrowers’

capacity to repay their mortgage loans.” The offering documents

are also alleged to have contained representations regarding

“the percentage of loans secured by owner-occupied properties

and the percentage of the loan group’s aggregate principal

balance with loan-to-value ratios within specified ranges” that

were both false and materially incomplete. Plaintiff asserts

that “the false statements of material facts and omissions of

material facts in the Registration Statements, including the

Prospectuses and Prospectus Supplements, directly caused Fannie

Mae and Freddie Mac to suffer billions of dollars in damages,”

because “[t]he mortgage loans underlying the GSE Certificates

experienced defaults and delinquencies at a much higher rate

than they would have had the loan originators adhered to the

underwriting guidelines set forth in the Registration

Statement.” DISCUSSION

I. FHFA’s Claims are Not Barred by the Securities Act’s Statute

of Repose.

Defendants’ chief argument in favor of dismissal is that

this action is untimely because “all of Plaintiff’s claims were


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7

extinguished no later than August 30, 2010 -- nearly one full

year before the original complaint was filed on July 27, 2011.”

Defendants argue that this action is governed by Section 13 of

the Securities Act, which sets forth the time limitations that

generally apply to claims under Section 11 or Section 12(a)(2).

Titled “Limitation of Actions,” Section 13 provides:

No action shall be maintained to enforce any liability

created under section 77k [Section 11] or 771(a)(2)

[Section 12(a)(2)] of this title unless brought within

one year after the discovery of the untrue statement

or the omission, or after such discovery should have

been made by the exercise of reasonable diligence

. . . . In no event shall any such action be brought

to enforce a liability created under section 77k or

771(a)(2) of this title more than three years after

the security was bona fide offered to the public, or

under section 771(a)(2) of this title more than three

years after the sale.

15 U.S.C. § 77m (emphasis added). Thus, under Section 13, a

suit alleging that a defendant violated either Section 11 or

Section 12(a)(2) must be filed (a) within one year of the date

that the plaintiff discovered the violation, or (b) within three

years of the date that the security was offered to the public,

whichever is earlier. Courts sometimes refer to the former

period as a “statute of limitations” and the latter period as a

“statute of repose.” See P. Stoltz Family Partnership L.P. v.

Daum, 355 F.3d 92, 102 (2d Cir. 2004).

As noted above, FHFA’s claims pertain to securities

offerings that occurred between September 2005 and August 2007.


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8

Because these offerings occurred more than three years before

July 27, 2011, when this suit was filed, under normal

circumstances Section 13 would bar FHFA’s Securities Act claims,

irrespective of when the Agency “discovered” the violations that

it alleges. FHFA does not dispute that this is so. It argues,

however, that the timeliness of its claims is governed not by

Section 13 but rather by HERA, which the Agency argues

establishes superseding rules governing the timeliness of any

action in which FHFA is a plaintiff.

In particular, FHFA relies on HERA § 1367(b)(12), which

provides:

(A) In general -- Notwithstanding any provision of any

contract, the applicable statute of limitations with

regard to any action brought by the Agency as

conservator or receiver shall be--

(i) in the case of any contract claim, the longerof--

(I) the 6-year period beginning on the date

on which the claim accrues; or

(II) the period applicable under State law;

and

(ii) in the case of any tort claim, the longer

of--

(I) the 3-year period beginning on the date

on which the claim accrues; or

(II) the period applicable under State law.

(B) Determination of the date on which a claim accrues

-- For purposes of subparagraph (A), the date onwhich the statute of limitations begins to run on

any claim described in such subparagraph shall be

the later of--

(i) the date of the appointment of the Agency as

conservator or receiver; or


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9

(ii) the date on which the cause of action

accrues.

12 U.S.C. § 4617(b)(12) (emphasis added). In the Agency’s view,

HERA governs the timeliness of its Securities Act claims, to the

exclusion of Section 13 entirely. For the claims at issue in

this case, which accrued prior to the conservatorship and sound

in tort, the Agency maintains that the only relevant timeliness

concern is the three-year statute of limitations dictated by

HERA. Thus, because FHFA was appointed conservator of the GSEs

on September 6, 2008, it had until September 6, 2011 to bring

this case, making it timely when filed on July 27, 2011.

Defendants dispute this reading of HERA. They argue that,

to the extent it applies to federal claims at all, the statute’s

only effect with regard to the Securities Act was to relieve

FHFA of the requirement that it file suit within one year of

discovering the misrepresentations for which it seeks to

recover; the three-year post-offering deadline remains in place.

But this argument cannot be squared with HERA’s text or purpose.

A. “Statutes of Limitations” and “Statutes of Repose”

Because the parties’ disagreement turns on the meaning of

HERA, a federal statute, we must “begin with the language

employed by Congress and the assumption that the ordinary

meaning of that language accurately expresses the legislative

purpose.” Engine Mfrs. Ass'n v. S. Coast Air Quality Mgmt.


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10

Dist., 541 U.S. 246, 252 (2004) (citation omitted). If a

statute's language is unambiguous, “the sole function of the

courts is to enforce it according to its terms.” Katzman v.

Essex Waterfront Owners LLC, 660 F.3d 565, 568 (2d Cir. 2011)

(citation omitted). As the Supreme Court has recently reminded

us, however, when it comes to the meaning of a particular

statutory phrase, “context matters.” Carco Pharm. Labs., Ltd.

v. Novo Nordisk A/S, 132 S. Ct. 1670, 1681 (2012); see also id.

n.6 (citing FCC v. AT&T Inc., 131 S. Ct. 1177, 1181-85 (2011),

for the proposition that a proposed definition should be

rejected where “it [does] not always hold in ordinary usage and

the statutory context suggest[s] it [does] not apply”). Thus,

when interpreting a statute, courts are not to “construe each

phrase literally or in isolation.” Pettus v. Morgenthau, 554

F.3d 293, 297 (2d Cir. 2009). Rather, they must “attempt to

ascertain how a reasonable reader would understand the statutory

text, considered as a whole.” Id.

In contending that HERA does not affect Section 13’s three-

year deadline for claims under the Securities Act, defendants

rely heavily on the semantic distinction between “statutes of

limitations” and “statutes of repose.” Although closely

related, the two terms are, at least in theory, conceptually

distinct:


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11

“[S]tatutes of limitations bear on the availability of

remedies and, as such, are subject to equitable

defenses, the various forms of tolling, and thepotential application of the discovery rule. In

contrast, statutes of repose affect the availability

of the underlying right: That right is no longer

available on the expiration of the specified period of

time. In theory, at least, the legislative bar to

subsequent action is absolute, subject to

legislatively created exceptions set forth in the

statute of repose.”

Stoltz, 355 F.3d at 102 (quoting Calvin W. Corman, Limitation of

Actions, § 1.1, at 4-5 (1991)).

Relying on this distinction, defendants argue that because

HERA addresses only “statutes of limitations” and makes no

mention of “statutes of repose,” it cannot have altered the

three-year post-offering bar that Section 13 imposes on claims

under the Securities Act. But, as is apparent even from the

title of the treatise on which the Stoltz Court relied, in

ordinary usage, the semantic distinction between “statutes of

repose” and “statutes of limitations” is not as clear as

defendants would have us believe.

Indeed, Congress, the courts and learned commentators

regularly use the term “limitations” to encompass both types of

timeliness provision. As FHFA notes, Section 13 itself is

entitled “Limitations on Actions,” and nowhere uses the term

“repose.” See 15 U.S.C. § 77m. Even more tellingly, in 2002,

Congress modified the repose period applicable to claims under


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12

the Securities Exchange Act of 1934, the Securities Act’s cousin

statute, in a provision entitled “Statute of limitations for

securities fraud.” Sarbanes-Oxley Act, Pub. K. No. 107-204, §

804, 116 Stat. 745, 801 (2002) (codified at 28 U.S.C. § 1658(b))

(emphasis added); see Stoltz, 355 F.3d at 104 (acknowledging

that this provision “extend[ed] the effective date of the

statute of repose from three years to five years”). This Court

and others in this District, well versed in the law of

securities, have likewise used the term “statute of limitations”

to invoke the three-year repose period on which the defendants

rely here. See In re WorldCom, Inc. Sec. Litig., Nos. 02 Civ.

3288 (DLC), 03 Civ. 9499 (DLC), 2004 WL 1435356, at *3 (S.D.N.Y.

June 28, 2004) (referencing “the three year statute of

limitations contained in the Securities Act”); id. at *6 (“Prior

to the enactment of Sarbanes-Oxley, the statute of limitations for Exchange Act claims was a one-year/three-year regime.”); In

re Alcatel Sec. Litig., 382 F. Supp. 2d 513, 522 (S.D.N.Y. 2005)

(“The Court need not address the three-year statute of

limitations under section 13 of the Securities Act”); In re

Global Crossing, Ltd. Sec. Litig., 313 F. Supp. 2d 189, 198

(S.D.N.Y. 2003) (Lynch, J.) (discussing “the one-year/three-year

statute of limitations set forth in 15 U.S.C. § 77m”); Griffin

v. PaineWebber Inc., 84 F. Supp. 2d 508, 512 n.1 (S.D.N.Y. 2000)


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(addressing the “3-year statute of limitations” applicable to

claims under Section 12(a)(2) of the Securities Act).

Using the term “statute of limitations” to encompass both

the narrow meaning intended by Stoltz as well as any repose

period makes sense, because, conceptually, a “statute of repose”

must be understood in relation to the “statute of limitations”

that it acts upon -- that is as a limitation on the plaintiff’s

ability to argue that the regular time limit for bringing a

claim should be tolled or that it began to run at some later-

than-expected point. Indeed, when the only timeliness provision

in a statute is one that is not subject to equitable defenses

and is therefore absolute -- in the terminology of Stoltz, when

the claim is governed only by a “statute of repose” -- the law

generally refers to the timeliness provision not as a “statute

of repose” but as a “statute of limitations” that is

“jurisdictional” in nature. See John R. Sand & Gravel Co. v.

United States, 552 U.S. 130, 133-34 (2008).6

As should be apparent from this discussion, the definition

of “statute of limitations” proposed by the defendants does not

6Admittedly, there is a formal distinction between Soltz’s

notion of a “statue of repose,” which is envisioned as a

substantive bar to recovery, and a jurisdictional statute of

limitations, which bars the Court from acting on the plaintiff’s

claim but, in theory, does not alter her substantive rights.

This difference is largely theoretical, however. What matters

from the perspective of the “reasonable reader,” Pettus, 554

F.3d at 297, is that the claim is categorically barred.


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14

always “hold in ordinary usage.” Novo Nordisk, 132 S. Ct. at

1681 n.6. Moreover, the statutory context strongly suggests

that defendants’ proposed definition of “statute of limitations”

does not apply here.

Passed by the Senate during a special weekend session and

signed by the President only days later, HERA is emergency

legislation aimed at addressing some of the most pressing

problems of the housing crisis -- chief among them the

questionable financial security of the GSEs. Consistent with

this goal, Congress gave FHFA the power to appoint itself

conservator of the GSEs and “take such action as may be -- (i)

necessary to put the [GSEs] in a sound and solvent condition;

and (ii) appropriate to carry on the business of the [GSEs] and

preserve and conserve [their] assets and property,” 12 U.S.C.

§ 4617(b)(2)(D). In addressing the Agency’s powers as

conservator, Congress specifically referenced the “collect[ion

of] all obligations and money due to the [GSEs].” Id.

§ 4617(b)(2)(B)(ii). In order to facilitate these functions,

HERA specified a “statute of limitations with regard to any

action brought by the Agency as conservator” that, in the case

of claims such as these, entitles the Agency to three years from

the onset of the conservatorship to bring suit. As another

court has recognized, the purpose of this provision was


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15

unambiguously to give FHFA “more time to decide whether and how

to pursue any claims it inherited as [the GSEs’] newly-appointed

conservator.” In re Fed. Nat. Mortg. Ass’n Sec., Deriv., ERISA

Litig., 725 F. Supp. 2d 169, 177-78 (D.D.C. 2010), reversed on

other grounds by Kellmer v. Raines, 674 F.3d 848 (D.C. Cir.

2012).7

Reading HERA’s reference to “statute of limitations” in the

narrow fashion that defendants propose would undermine the

congressional purpose of a statute whose overriding objective

was to maximize the ability of FHFA to “put the [GSEs] in a

sound and solvent condition.” 12 U.S.C. § 4617(b)(2)(D). The

7Defendants contend that while this may have been Congress’s

intent with respect to statutes of limitations, Congress could

not have intended to affect statutes of repose for another

reason as well. The argument turns on defendants’

characterization of statutes of limitations as “procedural” andstatutes of repose as “substantive.” Defendants assert that

because “a federal statute cannot re-write state substantive

law,” HERA could not, as a matter of federal power, displace

state statutes of repose. Accordingly, they conclude that

HERA’s limitations provision must be read to apply only to

statutes of limitations at both the state and federal levels.

Defendants’ argument fails on two fronts. First, they have

the legal doctrine backwards: state sovereignty principles

primarily limit Congress’s ability to affect state-court

procedure, not its ability to modify state substantive law. See

Jinks v. Richland County, 538 U.S. 456, 464 (2003). Second, the

Supreme Court has rejected defendants’ argument that state

statutes of limitation should be considered “procedural” for

purposes of federalism analysis. Indeed, in Jinks itself, the

Court recognized that federal legislation purporting to toll

state statutes of limitations “falls on the ‘substantive’ side

of the line” and is therefore within the federal power. Id. at

465.





16

more natural reading of the provision, the one that is both in-

line with everyday usage and consistent with the objectives of

the statute overall, is that by including in HERA a provision

explicitly setting out the “staute[s] of limitations” applicable

to claims by FHFA, Congress intended to prescribe comprehensive

time limitations for “any action” that the Agency might bring as

conservator, including claims to which a statute of repose

generally attaches.8

B. HERA’s Statute of Limitations Provision Applies to Both

Federal and State Claims.

Defendants next argue that HERA’s limitations provision

applies only to state statutes of limitations and, consequently,

has no relevance to federal-law claims such as those that

plaintiff brings under the Securities Act. In support of this

argument, defendants point out chiefly that while HERA

§ 1367(b)(12) anticipates cases in which state tort and contract

8 Defendants argue that in order to conclude that Section 13’s

three-year statute of repose does not apply to FHFA’s claims,

the Court would be required to conclude that HERA impliedly

repealed that provision of the Securities Act. They are wrong.

Even on the construction suggested by the plaintiff, Section 13

continues to apply with full force to the vast majority of

litigants; HERA creates an exception for a single, privileged

plaintiff -- FHFA. Moreover, because, as explained above,

HERA’s reference to the “statute of limitations” encompasses not

only the narrower use of the term advocated by defendants but

also what defendants refer to as “statutes of repose,” HERA no

more impliedly repealed the latter than it did the former. And

even defendants agree that, to the extent it applies to federal

claims, HERA constitutes a valid extension of Section 13’s one-

year limitation period.





17

law might afford a statute of limitations longer than the three-

and six-year periods specified, it makes no similar provision

for federal statutes, such as the Racketeer Influenced and

Corrupt Organizations Act, that carry a longer limitations

period.

This argument fails in the face of the limitations

provision’s plain language, which states in unambiguous terms

that it shall apply to “any action brought by the Agency as

conservator,” 12 U.S.C. § 4617(b)(12)(A) (emphasis added).

Defendants’ interpretation is also inconsistent with HERA’s

objective, discussed at length above, of facilitating FHFA’s

mission to “to put the [GSEs] in a sound and solvent condition”

by, among other things, “collect[ing on] all obligations and

money due to [them].” Id. § 4617(b)(2)(D), 4617(b)(2)(B)(ii).9

Although it may be the case, as defendants contend, that

Congress could have been clearer about HERA’s applicability to

claims under federal law, “the mere possibility of clearer

phrasing cannot defeat the most natural reading of a statute; if

it could (with all due respect to Congress), we would interpret

a great many statutes differently than we do.” Novo Nordisk

A/S, 132 S. Ct. at 1682. In this case, for the reasons that

9 For the same reasons the Court rejects defendants’ argument,

made in a footnote, that HERA does not apply to statutory

claims.


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18

have been discussed at length in this Opinion, the most natural

reading of Section 1367(b)(12) is that it affords FHFA three

years from the date of conservatorship to bring suit on its

Securities Act claims, irrespective of any other provision of

law.

II. The GSEs’ Claims Were Open When FHFA’s Conservatorship

Began.

Defendants also contend that, even if HERA governs the

timeliness of Securities Act claims in general, plaintiff’s

particular claims were barred by Section 13’s one-year statute

of limitations before the relevant provision of the HERA took

effect. As defendants note, HERA explicitly provides that the

statute does not revive claims for which the statute of

limitations had expired prior to the conservatorship unless the

claim arose from “fraud, intentional misconduct resulting in

unjust enrichment, or intentional misconduct resulting in

substantial loss to the regulated entity.” 12 U.S.C.

§ 4617(b)(13).

In order to show that plaintiff’s Securities Act claims

accrued and expired prior to the conservatorship, defendants

cite a series of news accounts, lawsuits and other reports that

they assert placed the GSEs on “inquiry notice” of the potential

that the offering materials for these securities contained

material misstatements or omissions. In focusing their





19

arguments around when the GSEs had “inquiry notice,” defendants

rely on Second Circuit authority that plaintiff argues has been

abrogated by the Supreme Court’s decision in Merck & Co. v.

Reynolds, 130 S. Ct. 1784 (2010). Thus, before analyzing

defendants’ specific claims, some discussion of the accrual

standard under the Securities Act is warranted.

A. Accrual of Claims Under the Securities Act

As noted, Section 13 of the Securities Act sets out the

accrual standards and time limitations that apply to actions

brought under Sections 11 or 12(a)(2). As relevant here,

Section 13 provides:


created under section 77k or 77l(a)(2) of this title

unless brought within one year after the discovery of

the untrue statement or the omission, or after such

discovery should have been made by the exercise of

reasonable diligence . . . .

15 U.S.C. § 77m (emphasis added). The equivalent provision

governing claims under the Exchange Act reads, in relevant part:

[A] private right of action that involves a claim of

fraud, deceit, manipulation, or contrivance in

contravention of a regulatory requirement concerning

the securities laws, as defined in section 3(a)(47) of

the Securities Exchange Act of 1934, may be brought

not later than . . . 2 years after the discovery ofthe facts constituting the violation . . . .

28 U.S.C. § 1658 (emphasis added).


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20

Unlike Section 13, the Exchange Act provision omits any

reference to circumstances in which discovery of the basis for

the claim “should have been made by the exercise of reasonable

diligence.” Nonetheless, prior to Merck, the law in this

Circuit was that the accrual standards under the two statutes

were identical. See Dodds v. Cigna Secs., Inc., 12 F.3d 346,

349-50 (2d Cir. 1993).10

Thus, a potential plaintiff under

either the Securities Act or the Exchange Act was deemed to have

“discover[ed]” an untrue statement or omission upon obtaining

“actual knowledge of the facts giving rise to the action or

notice of the facts, which in the exercise of reasonable

diligence, would have led to actual knowledge.” Kahn v.

Kohlberg, Kravis, Roberts & Co., 970 F.2d 1030, 1042 (2d Cir.

1992). Moreover, the prevailing view in this Circuit became

that the two statutes “impose[d] a duty of inquiry,” that was

triggered when “the circumstances [were] such as to suggest to a

10Although the Sarbanes-Oxley Act of 2002 (“SOX”), Pub. L. No.

107-204, 116 Stat. 745, lengthened the limitations periods

available to Exchange Act plaintiffs, the key accrual language

was left unchanged. Before SOX, claims under Section 10(b) of

the Exchange Act were governed by the statute of limitations

applicable to private claims of market manipulation under

Section 9(e) of the original Act. That provision read, in part:


created under this section, unless brought within one

year after the discovery of the facts constituting the

violation and within three years after such violation.

See Dodds, 12 F.3d at 350 n.2 (quoting 15 U.S.C. § 78i(e)

(1988)).


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21

person of ordinary intelligence the probability” that she had a

cause of action. Jackson Nat. Life Ins. Co. v. Merrill Lynch &

Co., Inc., 32 F.3d 697, 701 (2d Cir. 1994) (emphasis added)

(citation omitted).

In Merck, the Supreme Court rejected the Second Circuit’s

“inquiry notice” standard as applied to the accrual of claims

under the Exchange Act. As the Court explained, “the

‘discovery’ of facts that put a plaintiff on ‘inquiry’ notice

does not automatically begin the running of the limitations

period.” 130 S. Ct. at 1798. “If the term ‘inquiry notice’

refers to the point where the facts would lead a reasonably

diligent plaintiff to investigate further, that point is not

necessarily the point at which the plaintiff would already have

discovered facts showing scienter or other ‘facts constituting

the violation.’” Id. at 1797.

The Court acknowledged, however, that, “‘discovery’ in

respect to statutes of limitations for fraud has long been

understood to include discoveries a reasonably diligent

plaintiff would make.” Id. at 1795. Accordingly it declined to

fashion a rule that would require an Exchange Act plaintiff, in

all cases, to possess actual knowledge of the facts constituting

the violation before the statute of limitations could begin to

run. Rather, the Court concluded that the limitations period





22

under the Exchange Act begins to run upon discovery of, or when

“a reasonably diligent plaintiff would have discovered, the

facts constituting the violation.” Id. at 1798 (quoting 28

U.S.C. § 1658(b)(1)). Following Merck, the Second Circuit has

held that a fact is not “discovered” for the purposes of

Exchange Act claims until “a reasonably diligent plaintiff would

have sufficient information about that fact to adequately plead

it in a complaint.” City of Pontiac Gen. Emps. Ret. Sys. v.

MBIA, Inc., 637 F.3d 169, 175 (2d Cir. 2011).

The Second Circuit has yet to rule on whether Merck’s

holding extends beyond the context of the Exchange Act to claims

under the Securities Act. But the majority of district courts

that have considered the matter have concluded that it does.

See In re Bear Stearns Mortgage Pass-Through Certificates

Litig., No. 08 Civ. 8093 (LTS)(KNF), 2012 WL 1076216, at *12

(S.D.N.Y. Mar. 30, 2012); In re Wachovia Equity Sec. Litig., 753

F. Supp. 2d 326, 370–71 & n.39 (S.D.N.Y. 2011); Brecher v.

Citigroup Inc., 797 F. Supp. 2d 354, 367 (S.D.N.Y. 2011); New

Jersey Carpenters Health Fund v. Residential Capital, LLC, Nos.

08 CV 8781 (HB), 08 CV 5093 (HB), 2011 WL 2020260, at *4

(S.D.N.Y. May 19, 2011); but see In re IndyMac Mortgage–Backed

Securities Litig., 793 F. Supp. 2d 637, 648 (S.D.N.Y. 2011).


A-118

--------------------------




23

The majority position makes good sense. Both statutes use

the plaintiff’s “discover[y]” of the factual predicate of the

claim as the triggering date for the statute of limitations.

Although the Securities Act includes the qualification that the

limitations period may also begin to run “after such discovery

should have been made by the exercise of reasonable diligence,”

15 U.S.C. § 77m, the Merck Court interpreted the use of the term

“discover” in the context of the Exchange Act to embrace an

essentially identical diligence requirement and nonetheless

concluded that the inquiry standard that defendants advocate in

this case was excessively broad.

Given that the Supreme Court has interpreted the Exchange

Act’s “discovery” standard to imply the diligence requirement

that the Securities Act makes explicit, there appears to be no

principled reason to depart from the precedents of this Circuit

holding that the accrual standards under the two statutes are to

be interpreted identically. See Dodds, 12 F.3d at 349-50.

Indeed, the Merck Court itself described with approval the long-

standing practice of adopting the Securities Act’s explicit

“reasonable diligence” standard for the Exchange Act accrual

date, despite “the omission of an explicit provision to that

effect.” Merck, 130 S. Ct. at 1795. Accordingly, the Court

concludes that the statute of limitations for FHFA’s Securities


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24

Act claims did not begin to run until “a reasonably diligent

plaintiff” in the GSEs’ position would have had “sufficient

information about [a given misstatement or omission] to

adequately plead it in a complaint.” City of Pontiac, 637 F.3d

at 175.

B. The GSEs’ Discovery of Defendants’ Alleged Misstatements

Applying the accrual standard set out in Merck and City of

Pontiac, the Court has little trouble concluding that FHFA’s

Securities Act claims were open at the time the time the GSEs

were placed into conservatorship. As discussed in greater

detail below, the essence of the Agency’s case is that the

offering materials for the securitizations at issue here

included materially false or misleading information regarding:

(1) the value of the underlying mortgage properties; (2) the

percentage of underlying properties that were owner occupied;

and (3) the degree to which the underlying mortgage loans were

underwritten in accordance with certain risk guidelines. To

support these allegations, the SAC relies principally on FHFA’s

own survey of loan-level data for a sample of mortgage loans in

each securitization, which the Agency argues, reveals that the

offering materials contained material inaccuracies with regard

to each of the three categories of information. To support the

allegation that defendants failed to act diligently to ensure


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25

that loans included in the securitizations had been underwritten

in accordance with the risk guidelines set out in the offering

materials, the SAC also cites a series of government and private

reports that have revealed systematic underwriting failures by

many of the mortgage originators whose loans were included in

the Securitizations.

Defendants seize on this last point, noting that a myriad

of legal complaints, government investigations, news articles

and statements by the GSEs’ own representatives makes clear that

the originators’ questionable loan practices were widely known

as early as September 2007. From this fact, defendants conclude

that “Fannie Mae and Freddie Mac . . . were on notice of the

misrepresentations and omissions about which they complain” more

than a year before September 6, 2008, when they were placed into

conservatorship. As noted above, however, under Merck the

relevant question in assessing the timeliness of these claims is

not when the GSEs were put “on notice” of the potential that the

prospectuses included material misstatements or omissions, but

rather when they, or a reasonably diligent plaintiff in their

position, could have “discovered” that this was so with

sufficient particularity to plead a Securities Act claim that

would survive a motion to dismiss.





26

To the extent defendants contend this standard was met as

early as September 2007, that claim is significantly undercut by

the assertion elsewhere in their motion to dismiss that FHFA

has, even now, failed to allege facts sufficient to support a

claim under the Securities Act. Recognizing this tension in

their argument, defendants attempt to turn the tables on the

plaintiff -- asserting that “either the information in the SAC

is insufficient to plead its claims, or Plaintiff had enough

information to plead its claims prior to September 2007.” But

defendants pose a false dichotomy. Between 2007 and the filing

of this complaint an important event occurred that caused the

GSEs to discover that the loans included in the securitizations

they bought from defendants were not as advertised: the

securities were downgraded from investment grade to near-junk

status. The earliest of those downgrades occurred on February

15, 2008 for Freddie Mac, and March 3, 2008, for Fannie Mae --

less than a year before September 6, 2008, when the GSEs were

placed into conservatorship.

The truth of the matter is that when the GSEs learned of

the loan originators’ dubious underwriting practices says little

about when they discovered the facts that form the basis of this

complaint. FHFA’s claim here is not that the originators failed

to scrutinize loan applicants adequately in general; it is that





27

defendants failed to act diligently to ensure that, consistent

with the representations in the offering materials, the

originators’ questionable practices did not lead to the

inclusion of non-conforming loans in the particular

securitizations sold to the GSEs. The downgrade of the

securities’ credit ratings and the results of the loan audit

that FHFA undertook in response to that action are crucial to

the Agency’s claim in this regard, since they are the only facts

that connect the originators’ general practices to particular

securities that the GSEs bought from defendants. Accord In re

Bear Sterns Mortg. Pass-Through Certs. Litig., No. 08 Civ.

8093(LTS)(KNF), 2012 WL 1076216, at *14 (“[A]bsent a decline in

the Certificates' ratings (or some other indicator of a steep

decline in the Certificates' value), it is difficult to see how

a plaintiff could have plausibly pled that the epidemic of

indiscretions in the MBS industry had infected his or her

Certificates.”). Indeed, several courts in this district have

concluded that, even under the pre-Merck, duty-of-inquiry

standard for accrual, generalized reports like those relied upon

by defendants are insufficient to trigger the statute of

limitations. See, e.g., Pub. Emples. Ret. Sys. v. Merrill Lynch

& Co., 714 F. Supp. 2d 475, 479-80 (S.D.N.Y. 2010).


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28

The 2007 reports, lawsuits and investigations regarding

loan origination practices cited by defendants may have signaled

a potential for problems in the RMBS market generally -- and

may, as plaintiff suggests, have triggered a duty on the part of

defendants to scrutinize the loans included in their

securitizations more closely -- but such reports were

insufficient to trigger the Securities Act’s statute of

limitations. Until such time they did or with diligence should

have “discovered” otherwise, the GSEs were entitled to rely on

defendants’ assertion that the loans that underlay these

particular securities complied with the guidelines set out in

the offering materials.11

The public reporting discussed in the

SAC is relevant to plaintiff’s claims only insofar as it negates

any effort by defendants to maintain that they exercised due

diligence or reasonable care to ensure that the loans included

in the securitizations were as described. See In re Morgan

Stanley Info. Fund Sec. Litig., 592 F.3d 347, 359 n.7 (2d Cir.

2010) (recognizing that “section 11 provides several due

diligence defenses available to non-issuer defendants, see 15

11For this reason, the fact that, in August 2007, Freddie Mac

sued American Home Mortgage (“AHM”), one of the originators at

issue here, asserting that AHM had sold it loans “determined to

be of non-investment quality” is not sufficient to show that the

claims at issue here had accrued as of that date. The GSEs were

entitled to assume that defendants had made diligent efforts to

ensure that the originators’ dubious lending practices did not

infect the particular loans included in these securitizations.





29

U.S.C. § 77k(b), and section 12(a)(2) contains a ‘reasonable

care’ defense, id. § 77l (a)(2).”). Whatever questions the GSEs

might have harbored in 2007 about the quality of the

securitizations they bought from defendants, it cannot be said

that they should have “discovered” that those securitizations in

fact contained loans that failed to meet the standards set out

in the offering materials until they were alerted to this

possibility by the ratings agencies in early 2008. The claims

were therefore open in September 2008 when FHFA’s

conservatorship began.

III. FHFA Has Standing to Bring This Action.

HERA provides that during the period beginning with the

creation of FHFA and “ending on the date on which the [FHFA]

Director is appointed and confirmed, the person serving as the

Director of the Office of Federal Housing Enterprise Oversight

[OFHEO] of the Department of Housing and Urban Development . . .

shall act for all purposes as, and with the full powers of, the

Director.” 12 U.S.C. § 4512(b)(5). Consistent with this

provision, James Lockhart, the President-appointed and Senate-

confirmed Director of OFHEO, led FHFA from the time of its

creation until the President designated Edward Demarco as Acting

Director of FHFA on August 25, 2009.


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30

Defendants contend that Section 4512(b)(5) violates the

Appointments Clause of the Constitution, which provides, as

relevant here, that “the Congress may by Law vest the

Appointment of such inferior Officers, as they think proper, in

the President alone, in the Courts of Law, or in the Heads of

Departments.” U.S. Const. art. II, § 2, cl. 2. Defendants

maintain that because Lockhart, an inferior officer, was not

separately nominated and confirmed to lead FHFA, his

directorship was an unconstitutional congressional appointment

and that, consequently, the actions that he took as Acting

Director -- including placing Fannie Mae and Freddie Mac into

conservatorship -- were invalid under the Appointments Clause.

They further argue that because Lockhart never validly served as

Director of FHFA, his resignation could not trigger the

provision under which DeMarco was appointed, so that the

constitutional defect in Lockhart’s appointment infects

DeMarco’s tenure as Acting Director as well. These claims are

meritless.

It is well established that Congress may confer on validly

appointed officers “additional duties, germane to the offices

already held by them . . . without thereby rendering it

necessary that the incumbent should be again nominated and

appointed.” Shoemaker v. United States, 147 U.S. 282, 301


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31

(1893); accord Weiss v. United States, 510 U.S. 163, 171-75

(1994); Lo Duca v. United States, 93 F.3d 1100, 1110 (2d Cir.

1996). Defendants do not seriously contend that the functions

that HERA assigned to the Director of FHFA were not germane to

those that Lockhart was already performing as the Director of

OFHEO. HERA transferred the “functions, personnel, and

property” of OFHEO from the Department of Housing and Urban

Development to the newly created FHFA, which, like OFHEO, was

tasked primarily with overseeing the operations of the GSEs.

See HERA, tit. III, 122 Stat. 2794-2799 (codified at 12 U.S.C. §

4511 note). The powers that HERA assigned to FHFA beyond those

previously enjoyed by OFHEO were intended to further this common

mission and thus entirely germane to Lockhart’s previous

function.12 Defendants’ Appointments Clause challenge therefore

fails.

III. FHFA Has Adequately Pled Violations of the Securities Act.

Defendants also maintain that FHFA has failed to plead

sufficient facts to state a claim under the Securities Act.

Because FHFA does not allege that the defendants engaged in

fraud, its pleadings are governed by Federal Rule of Civil

12To the extent this conclusion is inconsistent with Olympic

Fed. Sav. & Loan Ass’n v. Dir., Office of Thrift Supervision,

732 F. Supp. 1183, 1193 (D.D.C. 1990), the Court respectfully

disagrees with that decision.





32

Procedure 8(a)(2), which requires that the complaint contain a

“short and plain statement of the claim showing that the pleader

is entitled to relief.” Although this rule “does not require

detailed factual allegations, . . . a complaint must contain

sufficient factual matter, accepted as true, to state a claim to

relief that is plausible on its face.” Ashcroft v. Iqbal, 556

U.S. 662, 678 (2009) (citation omitted). “A pleading that

offers labels and conclusions or a formulaic recitation of the

elements of a cause of action will not do.” Id. (citation

omitted).

The SAC asserts claims under Sections 11, 12(a)(2), and 15

of the Securities Act. Section 11 provides a private cause of

action against the issuers and other signatories of a

registration statement that “contained an untrue statement of a

material fact or omitted to state a material fact required to be

stated therein or necessary to make the statements therein not

misleading,” 15 U.S.C. § 77k(a). A fact is material for the

purposes of Section 11 if “there is a substantial likelihood

that a reasonable shareholder would consider it important in

deciding how to act.” Hutchison v. Deutsche Bank Sec. Inc., 647

F.3d 479, 485 (2d Cir. 2011) (citation omitted). Section

12(a)(2) imposes liability under similar circumstances with

respect to prospectuses and oral communications, 15 U.S.C.


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33

§ 77l(a)(2). Neither provision requires allegations of

scienter, reliance, or loss causation in order to state a claim.

Fait v. Regions Fin. Corp., 655 F.3d 105, 109 (2d Cir. 2011).

Section 15 extends “control person” liability to “[e]very person

who, by or through stock ownership, agency, or otherwise . . .

controls any person liable under [Section 11] or [Section 12].”

15 U.S.C. § 77o.

As noted above, FHFA identifies three principal categories

of what it argues is misleading or false information in the

offering materials that accompanied the RMBS at issue here.

First, the Agency asserts that the prospectus supplements

understated the loan-to-value (LTV) ratio of the underlying

mortgage pools. Second, it contends that the offering materials

overstated the percentage of properties in the supporting loan

groups that were owner occupied. Finally, FHFA maintains that

the offering materials represented that the underlying mortgage

loans were underwritten according to certain risk guidelines

when, in fact, “there were pervasive and systematic breaches of

those guidelines.” Defendants contend that the SAC fails to

state a claim with respect to any of the three categories of

statements.13

13In a footnote, defendants also maintain that, in addition to

failing adequately to allege conduct violative of the Securities

Act, the SAC does not assert that MASTR was a “statutory


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34

A. LTV Ratio

The offering materials for each securitization included

group-level representations regarding the LTV ratios of the

underlying mortgages. For any given mortgage, the LTV ratio is

determined by computing the balance of the loan as a percentage

of the value of the property that secures it, often determined

on the basis of an appraisal. LTV ratio is a measure of credit

risk. The higher the ratio, the less equity the homeowner has

in the property, and the more likely she is to default.

Mortgages with an LTV ratio in excess of 100% are “underwater,”

and are highly susceptible to default, because the homeowner has

little financial incentive to continue making payments in the

event her financial circumstances change or the value of her

home further declines. Such mortgages are highly risky for note

holders, because the value of the property is insufficient to

cover the balance of the loan in the event of a default.

seller,” a necessary condition for establishing liability under

Section 12. This argument is easily rejected. A person is a

“statutory seller” -- and therefore a proper Section 12(a)(2)

defendant -- if he “successfully solicited the purchase of a

security, motivated at least in part by a desire to serve his

own financial interests or those of the securities’ owner.” In

re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d at 359

(citation omitted). Consistent with this definition, the SAC

alleges that MASTR “actively participated in the solicitation of

the GSEs’ purchase of the GSE Certificates, and did so in order

to benefit itself.”


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35

Just as LTV ratio is a measure of the riskiness of an

individual home loan, so too is it an indicator of the

investment-worthiness of a security backed by the income from

many such loans. Each Prospectus Supplement that defendants

signed in connection with these offerings included statistics

regarding the distribution of LTV ratios across the underlying

loan pool. For example, the Prospectus Supplement prepared

regarding the MABS 2007-WMC1 Securitization, cited in the

complaint, represented that none of the mortgages in the

supporting loan group had an LTV ratio in excess of 100% and

that “approximately 29.24% of the Group I Mortgage Loans [whose

certificates the GSEs purchased] had loan-to-value ratios

. . . in excess of 80.00%.”

FHFA alleges that these figures, and similar LTV

information reported in the offering materials for the other

twenty-one issuances, were material to the GSEs in deciding

whether to invest in the securities. It further alleges these

data were false and therefore actionable under Sections 11 and

12(a). In support of the latter assertion, the Agency cites the

results of its own review of loan-level data for a sampling of

mortgage loans included in each securitization. The data

review, which used an automated valuation model to estimate the

property value at the time of origination for each loan sampled,


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revealed that, for each securitization at issue here, the

Prospectus Supplement significantly understated the percentage

of loans with an LTV ratio in excess of 80%. Moreover, although

the Prospectus Supplements indicated that the securitizations

included no loans that were underwater, the Agency found that,

with regard to seventeen of the securitizations, underwater

loans accounted for 10% or more of the sample. In the case of

the MABS 2007-WMC1 Securitization, for example, the Agency found

that while the prospectus supplement indicated that only about

29.24% of the relevant loans had LTV ratios above 80%, the

actual number was 61.97%. The data review also determined that

18.55% of the loans sampled in the MABS 2007-WMC1 Securitization

had LTV ratios in excess of 100%.

Defendants counter that the LTV ratios and the housing

appraisals that underlie them are statements of opinion that

cannot give rise to liability under Sections 11 and 12(a)(2).

They note that appraisal value is a subjective determination

that is largely a function of the particular methods and

assumptions employed by the appraiser, and that claims under the

Securities Act generally lie only when there has been an “untrue

statement of a material fact,” 15 U.S.C. § 77k(a) (emphasis

added). In support of their position, defendants cite a series

of cases from this District, which they claim, hold that LTV


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ratios are, at root, opinion statements and therefore non-

actionable under the Securities Act. Defendants misstate the

holdings of these cases and the law in this area.

1. Opinion Liability Under the Securities Act

It is true, as defendants note, that Sections 11 and

12(a)(2) of the Securities Act impose liability only for an

omission or “untrue statement of a material fact.” 15 U.S.C.

§§ 77k(a), 77l(a)(2) (emphasis). But “matters of belief and

opinion are not beyond the purview of these provisions.” Fait,

655 F.3d at 110. In Fait, the Second Circuit concluded that

statements in the offering materials for certain securities that

purported to convey management’s estimates of goodwill in an

acquired company, despite “depend[ing] on management’s

determination of the ‘fair value’ of assets acquired and

liabilities assumed, which are not matters of objective fact,”

could nevertheless give rise to liability under the Securities

Act, provided the plaintiff could show that the estimates were

both objectively false and disbelieved by the speaker when made

(“subjectively false”). See id. at 113.

Defendants and FHFA agree that the statements regarding LTV

ratios at issue in this case depend on appraisers’ estimates

regarding the values of the underlying properties and that

because those values “are not matters of objective fact,” Fait


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governs plaintiff’s claims in this respect. They disagree only

about the identity of the “speaker” whose disbelief in the

statements plaintiff must plead. Plaintiff contends that it is

sufficient under Fait that the SAC alleges that the appraisers,

who are not defendants in this case, did not believe that the

valuations they assigned to the underlying properties were

accurate. Defendants counter that in order to state a claim

adequately under Fait, plaintiff must assert that the statement

upon which it seeks to predicate liability “was both objectively

false and disbelieved by the defendant at the time it was

expressed.” Fait, 655 F.3d at 110 (emphasis added). Although,

admittedly, there is dictum in Fait that superficially supports

defendants’ claim, upon closer examination of that decision and

its reasoning, the Court is convinced that plaintiff has the

better of the argument.

The confusion surrounding whom Fait requires to have

disbelieved an opinion statement in order for it to be

actionable under the Securities Act can be explained largely by

the fact that, in the majority of cases, the opinion upon which

the plaintiff seeks to rely is an opinion first articulated by

one or more of the Securities Act defendants. In Fait itself,

for example, Regions Financial Corporation was both a defendant

in the Securities Act case and the originator of the goodwill


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estimates that the plaintiffs alleged were materially false.

Id. at 110-12; see also In re Gen. Elec. Co. Sec. Litig., No. 09

Civ. 1951 (DLC), 2012 WL 1371016, at *9 (S.D.N.Y. Apr. 18, 2012)

(analyzing officer-defendant’s statement that “in the recent

market volatility, we continue to successfully meet our

commercial paper needs.”) Fait, therefore, did not require the

Second Circuit to address the issue that the parties pose here:

how to treat opinions that the offering materials attribute to

someone other than a defendant. Fait’s reasoning is, however,

helpful in addressing this question. It points squarely in

favor of plaintiff’s position, imposing upon the plaintiff the

duty to plead that the person who formed the opinion did not

believe the opinion when she expressed it.

As noted above, Fait recognized a narrow set of

circumstances under which statements of opinion may constitute

an “untrue statement of a material fact,” 15 U.S.C. §§ 77k(a),

77l(a)(2), and therefore support liability under the Securities

Act. In reaching this outcome, the Second Circuit relied

heavily on the Supreme Court’s analysis in Virginia Bankshares,

Inc. v. Sandberg, which recognized that statements of opinion or

belief “are factual in two senses: as statements that [the

person to whom the belief is ascribed] . . . hold[s] the belief


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stated and as statements about the subject matter of the . . .

belief expressed.” 501 U.S. 1083, 1092 (1991).

In order to understand the Court’s reasoning, it is helpful

to analyze it in the context of this case. Here, for example,

the Prospectus Supplement for the MABS 2007-WMC1 Securitization

represented that 29.24% of the loans in the relevant group had

LTV ratios above 80%. This representation is equivalent to a

claim that, for the remaining 70.76% of loans, an appraiser

subjectively valued the mortgage security at or above 125% of

the relevant loan amount.

The valuations are, of course, the subjective judgments of

the appraisers. See In re Salomon Analyst Level 3 Litig., 373

F. Supp. 2d 248, 251–52 (S.D.N.Y. 2005) (Lynch, J.)

(“[V]aluation models depend so heavily on the discretionary

choices of the modeler . . . that the resulting models and their

predictions can only fairly be characterized as subjective

opinions.”). But although the appraisals are matters of opinion

in one sense, they also constitute factual statements: that the

appraised value represents the appraiser’s true belief as to the

value of the property. Fait holds that, under the Securities

Act, liability may attach to this implied assertion -- that the

originator of the opinion sincerely holds the belief reported --

where the assertion is shown to be false. Applied to this case,


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the plaintiff alleges that the appraisers did not accurately

communicate their subjective views regarding the value of the

properties at issue. To put it bluntly, the plaintiff asserts

that the appraisers did not actually believe that the homes

underlying the LTV ratios were worth as much as the appraisers

reported they were worth.

Plaintiff is therefore correct that the “subjective

falsity” that Fait requires in order to impose Securities Act

liability based on a statement of opinion is falsity on the part

of the originator of the opinion, who may or may not be a

Securities Act defendant. This conclusion is confirmed by the

practice in federal court with respect to opinion-based

Securities Act claims in multi-defendant cases. The Securities

Act does not require a defendant-specific showing of subjective

falsity in order to impose liability for opinion statements, nor

do defendants argue that such a requirement exists. Indeed, in

Fait the Second Circuit seemed to assume that if the complaint

had alleged that the company’s representations regarding

goodwill “falsely represented the speakers' beliefs at the time

they were made,” 655 F.3d at 107, such an allegation would be

sufficient to state a claim against not only the company, but

also against the individuals, underwriters and accounting firm

named in the complaint. Defendants have articulated no legal


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principle that would distinguish their position in this case

from that of an underwriter that is subjected to Securities Act

liability based on insincere statements of opinion by its issuer

co-defendant.

Indeed, the fact that Fait requires a showing of

“subjective falsity” only on the part of the originator of an

opinion statement serves to clarify the relationship between

“subjective falsity” and scienter in the context of claims under

the Exchange Act. Although the Fait Court was careful to

emphasize that the concepts are different, see 655 F.3d at 112

n.5, courts have struggled to distinguish these two lines of

inquiry, in part because, where the originator of the opinion is

a defendant, “proving the falsity of the statement ‘I believe

this investment is sound’ is the same as proving scienter.”

Podany v. Robertson Stephens, Inc., 318 F. Supp. 2d 146, 154

(S.D.N.Y. 2004). Once it is acknowledged that the “subjective

falsity” inquiry is directed at determining the truth of the

statement, “I believe,” rather than the fraudulent intent of any

defendant who later reports that claim, the distinction becomes

clearer. And, of course, while a plaintiff must plead scienter

for each Exchange Act defendant, under the Securities Act the

plaintiff need only allege subjective falsity as to the

originator of the opinion expressed in the offering documents.


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Although they are not dispositive of the issue, policy

considerations also make plain that this interpretation of

Fait’s “subjective falsity” requirement is the correct one. A

statement of opinion included in a registration statement or

other offering document is material from the perspective of the

reasonable investor only to the extent that the person to whom

the opinion is attributed has particular expertise with regard

to the matter about which the opinion is rendered. In other

words, what makes the opinion statement relevant and worthy of

inclusion in the offering materials is that it purports to

represent the view of an individual whose judgment matters. As

noted, this person will often be an agent, director, or

underwriter of the company issuing the securities, but it need

not necessarily be. For instance, in this case representations

regarding LTV ratios -- and the property value estimates that

underlay them -- were material to investors precisely because

they believed that these figures represented the sincere

judgments of professional appraisers with experience making

these sorts of assessments. Without a doubt it is as important

to investors that the appraisers truly believed the estimates on

which the LTV ratios were built as it is that defendants -- who

tabulated and reported appraisal values following the completion


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of their due diligence inquiry -- believed that this information

was correct.

Finally, this reading of Virginia Bankshares and Fait is

entirely consistent with the Structure of the Securities Act and

the affirmative defenses that it makes available to defendants

under Sections 11 and 12(a)(2). Where a non-issuer defendant

can show that he conducted a “reasonable investigation” and

concluded that the statements contained in the registration

statement were true, he can avoid liability under Section 11.

See 15 U.S.C. § 77k(b)(3)(A); In re WorldCom, Inc. Secs. Litig.,

346 F. Supp. 2d 628, 662 (S.D.N.Y. 2004). Section 12(a)(2)

likewise permits a defendant to avoid liability by making an

affirmative showing that he exercised “reasonable care” to avoid

any untruth or omission. See 15 U.S.C. § 77l(a)(2).

“Underwriters function as the first line of defense with respect

to material misrepresentations and omissions in registration

statements,” WorldCom, 346 F. Supp. 2d at 662, and it is

entirely appropriate to impose on them the obligation to vet the

accuracy of opinion statements attributed to third parties. But

the availability of these defenses gives some comfort that

Securities Act defendants will not be held liable for

inaccuracies that they truly could not have prevented.


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2. Application

In light of the forgoing analysis, FHFA has alleged

actionable misrepresentations with regard to the LTV ratios that

defendants reported in their offering materials. Since the

materiality of this information is undisputed, the only issue is

whether the Agency has adequately alleged that the property

appraisals -- as presented through the LTV ratios -- “were both

false and not honestly believed when made.” Fait, 655 F.3d at

113.

The loan-sampling results reported in the SAC are

sufficiently suggestive of widespread inaccuracies in appraisal

value to render plausible the Agency’s claim that the LTV

information reported in the offering materials was “objectively

false.” As discussed above, FHFA’s analysis of the loan data

suggests that the Prospectus Supplement for the MABS 2007-WMC1

Securitization overstated the percentage of loans with an LTV

ratio at or below 80% by over 30%. The Agency reports similar

findings with respect to the other twenty-one securitizations at

issue here.

The allegations in the SAC likewise satisfy Fait’s

“subjective falsity” requirement. The SAC asserts that

“appraisers themselves routinely furnished appraisals that the

appraisers understood were inaccurate and that they knew bore no





46

reasonable relationship to the actual value of the underlying

property.” To support this claim, the SAC cites a series of

news stories, lawsuits and government investigations that have

revealed instances in which appraisers connected to some of the

mortgage originators at issue here were found to have

systematically and knowingly overstated the value of homes in

order to allow borrowers to obtain larger loans than they could

afford. The SAC also alleges that the LTV data reported in the

offering materials deviates so significantly from the results of

plaintiff’s loan-loan level analysis as to raise a plausible

inference that the appraisers knowingly inflated their

valuations.

B. Owner-Occupancy Rates

Defendants next attack FHFA’s allegation that the offering

materials overstated the percentage of properties in the

supporting loan group for each securitization that were owner

occupied. The prospectus supplement for each securitization

provided a break-down of the mortgages in the supporting loan

group based on whether the property that secured the loan was

owner occupied, a second home, or an investment property.

Staying with the example of the MABS 2007-WMC1 Securitization,

the prospectus supplement reported that, for the Group I

certificates that the GSEs purchased, 1,810 (or 98.32%) of the





47

1,841 underlying properties were owner occupied. This

information was material to investors, because a borrower whose

primary residence is the mortgaged property is less likely to

default than one who uses it as a second home or as an

investment.

FHFA contends that the owner-occupancy information in the

prospectus supplement for the MABS 2007-WMC1 Securitization, as

well similar information reported for the other twenty-one

securitizations at issue here, was false. As part of its survey

of the loan group supporting each securitization, FHFA used a

number of tests in an effort to determine whether the owner-

occupancy information reported in the prospectus supplements was

accurate. Specifically it examined whether (1) a borrower’s

property tax bill was being mailed to the mortgaged property six

months after the loan closed; (2) whether the borrower claimed

an owner-occupied tax exemption on the mortgaged property; and

(3) whether the mailing address of the property was reflected in

the borrower’s credit reports, tax records, or lien records.

The survey revealed that 13.11% of the loans in the supporting

loan group for the MABS 2007-WMC1 Securitization failed two or

more of these tests, indicating that in all likelihood these

properties were not owner occupied. The Agency contends that

the 11.62% difference between its own findings and the owner-


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occupancy numbers reported in the prospectus supplement is a

strong indicator that the reported data was materially false at

the time of origination. Its survey reveals similar

discrepancies with regard to the other securitizations at issue

in this case.

Defendants do not dispute that the SAC adequately alleges

that the reported rates of owner occupancy were material. They

maintain instead that, because the prospectus supplements for

sixteen of the twenty-two securitizations included a disclaimer

that owner-occupancy statistics were “as reported by the

mortgagor at the time of origination,” the SAC was required to

allege that the representations incorporated into the offering

materials were not in fact made by the borrowers at the time of

origination. As plaintiff notes, by its own terms, defendants’

argument does not apply to six of the twenty-two securitizations

cited in the SAC. In any case, as outlined below, defendants’

contention that the Agency was required to allege falsity on the

part of the underlying borrowers is without merit.

1. Securities Act Liability for Third-Party Statements of Fact

As noted, liability under the Securities Act is strict

liability. Section 11 of the Act provides that any signer,

director of the issuer, preparing or certifying accountant, or

underwriter may be liable if “any part of the registration





49

statement . . . contained an untrue statement of a material fact

or omitted to state a material fact.” 15 U.S.C. § 77k(a).

Section 12(a)(2) likewise imposes liability on “any person . . .

who offers or sells a security by means of a prospectus or oral

communication, which includes an untrue statement of a material

fact or omits to state a material fact.” 15 U.S.C. § 77l(a)(2).

As the Supreme Court has recognized with regard to Section

11, these provisions are designed “to assure compliance with the

disclosure provisions of the [Securities] Act by imposing a

stringent standard of liability on the parties who play a direct

role in a registered offering.” Herman & MacLean v. Huddleston,

459 U.S. 375, 381-82 (1983). If defendants were correct that a

party could transform the Securities Act’s strict liability

regime into one that required scienter simply by attributing

factual information in the offering materials to a non-defendant

third-party, this purpose would be significantly undermined.

Defendants’ position is also inconsistent with the

structure of statute. Although the liability of issuers under

Section 11 is “virtually absolute,” In re Morgan Stanley Info.

Fund. Sec. Litig., 592 F.3d at 359 (citation omitted), Section

11 provides an affirmative defense of “due diligence” that is

available to defendants other than the issuer of the security.

See 15 U.S.C. § 77k(b)(3); WorldCom, 346 F. Supp. 2d at 659,


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50

662-64 (S.D.N.Y. 2004). As is true of all affirmative defenses,

a Securities Act defendant generally bears the burden of

demonstrating his due diligence, and, for that reason, due

diligence cannot be asserted as a basis for dismissal pursuant

to Rule 12(b)(6). In re Morgan Stanley Info. Fund. Sec. Litig.,

592 F.3d at 359 n.7.

For present purposes, the precise contours of the due

diligence defense are less important than the fact that, in

setting out the defense, the Securities Act specifically

contemplates circumstances in which a plaintiff’s prima facie

case is founded on a factual assertions in the registration

statement “purporting to be a copy of or extract from a report

or valuation of [a third-party] expert,” or “purporting to be a

statement made by an official person.” 15 U.S.C. §

77k(b)(3)(B)-(D). These provisions discuss in detail the “due

diligence” showing required to avoid liability for such an

assertion and nowhere suggest that the plaintiff’s prima facie

case is somehow undermined by the attribution of the information

to a third-party. It is thus plain from the statutory structure

itself that a Securities Act defendant cannot simply claim that

she blindly reported information given to her by third parties

and thereby avoid liability for inaccuracies that made their way

into the offering materials.


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2. Application

Turning to plaintiff’s specific claim that the offering

documents for these securitizations contained material

misstatements regarding owner-occupancy, the SAC adequately

states a claim for relief under the Securities Act. As

discussed above, defendants do not dispute that the SAC

adequately alleges that the reported rates of owner occupancy

were material to a reasonable investor’s decision whether to buy

the securities. Nor do they challenge the Agency’s finding that

borrowers’ credit reports and lien records provide a plausible

basis for inferring that the true rates of owner occupancy were

substantially lower than those reported in the offering

materials. Moreover, as set forth above, the Securities Act

does not condition liability on a showing that defendants

themselves inaccurately represented the data that they received

from the borrowers.

Defendants only remaining argument is that the Agency’s

survey, which examined, among other things, where borrowers’

property tax bills were being mailed six-months after the loan

closed, does not establish that at the time of origination

owner-occupancy rates differed from those reported in the

offering materials. Whether or not defendants are correct with

regard to the proof that would be required at trial, at the very





52

least, the Agency’s survey results render plausible its claim

that the owner-occupancy rates reported in the offering

materials were materially false. That is all that is required

at this stage of the litigation.

C. Compliance With Underwriting Standards

The prospectus and prospectus supplement for each of the

securitizations at issue in this case described the underwriting

guidelines that were said to govern the origination of mortgages

with whose income the securitization was backed. The MABS 2007-

WMC1 Securitization, already discussed in the context of FHFA’s

other claims, provides a useful example.

MABS 2007-WMC1 was assembled from mortgages originated by

WMC Mortgage Corp., a mortgage banking company incorporated in

California. Defendant MASTR acted as the depositor for the

securitization; defendant UBS Real Estate was the sponsor and

seller; and defendant UBS Securities was the underwriter. The

prospectus supplement for the MABS 2007-WMC1 Securitization

included the following representations:

Underwriting Standards. The mortgage loans have been

either (i) originated generally in accordance with

the underwriting guidelines established by [WMC

Mortgage Corp.] (collectively, the “UnderwritingGuidelines”) or (ii) purchased by WMCMC or GE Money

Bank after re-underwriting the mortgage loans

generally in accordance with the Underwriting

Guidelines.


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53

The Underwriting Guidelines are primarily intended to

(a) determine that the borrower has the ability to

repay the mortgage loan in accordance with its termsand (b) determine that the related mortgaged property

will provide sufficient value to recover the

investment if the borrower defaults.

Under the Underwriting Guidelines, WMC verifies the

loan applicant’s eligible sources of income for all

products, calculates the amount of income from

eligible sources indicated on the loan application,

reviews the credit and mortgage payment history of

the applicant and calculates the Debt Ratio to

determine the applicant’s ability to repay the loan,

and reviews the mortgaged property for compliancewith the Underwriting Guidelines.

Under the Underwriting Guidelines, various risk

categories are used to grade the likelihood that the

mortgagor will satisfy the repayment conditions of

the mortgage loan. These risk categories establish

the maximum permitted LTV, maximum loan amount and

the allowed use of loan proceeds given the borrower’s

mortgage payment history, the borrower’s consumer

credit history, the borrower’s liens/charge-

offs/bankruptcy history, the borrower’s Debt Ratio,

the borrower’s use of proceeds (purchase orrefinance), the documentation type and other factors.

In general, higher credit risk mortgage loans are

graded in categories that require lower Debt Ratios

and permit more (or more recent) major derogatory

credit items such as outstanding judgments or prior

bankruptcies.

The Underwriting Guidelines permit mortgage loans

with LTVs . . . of up to 100% (which is subject to

reduction depending upon credit-grade, loan amount

and property type).

The Underwriting Guidelines are applied in accordance

with a procedure which complies with applicable

federal and state laws and regulations and require,

among other things, (1) an appraisal of the mortgaged

property which conforms to Uniform Standards of

Professional Appraisal Practice and (2) an audit of


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•

•

•

•

•




54

such appraisal by a WMC-approved appraiser or by

WMC’s in-house collateral auditors (who may be

licensed appraisers) and such audit may in certaincircumstances consist of a second appraisal, a field

review, a desk review or an automated valuation

model.

(emphasis added). The prospectus supplements for the other

twenty-one securitizations contained similar representations.

The MABS 2007-WMC1 Securitization did, however, contain the

following clause:

On a case-by-case basis [the originator] may determine

that, based upon compensating factors, a prospective

mortgagor not strictly qualifying under the

underwriting risk category or other guidelines

described below warrants an underwriting exception.

Compensating factors may include, but are not limited

to, low debt-to-income ratio (“Debt Ratio”), good

mortgage payment history, an abundance of cash

reserves, excess disposable income, stable employment

and time in residence at the applicant’s current

address. It is expected that a substantial number of

the mortgage loans to be included in the trust will

represent such underwriting exceptions.

(emphasis added). Similar cautionary language was included in

the prospectus supplements for six of the other twenty-one

securitizations.

FHFA alleges that the originators of the loans underlying

the securitizations systematically disregarded these

underwriting guidelines in order to increase production and

profits derived from their mortgage lending businesses.

Defendants counter that the SAC fails to state a plausible claim

that the statements regarding the underwriting standards were


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false. They argue that plaintiff’s claims impermissibly rely on

a forensic analysis of too few loans and on statistics about

loan performance years after registration. They also argue that

plaintiff has ignored warnings in the offering materials that

there were “exceptions” to the stated guidelines and, in some

cases, that a “substantial number” of the underlying loans

deviated from those guidelines.

The SAC has plausibly alleged that the offering materials

contained false statements regarding originators’ compliance

with the underwriting standards. In support of this claim, the

SAC relies primarily on the results of FHFA’s forensic review of

individual loan files, which found, for example, that out of 996

randomly selected loans included in the MABS 2007-WMC1 and MABS

2006-WMC2 securitizations, approximately 78% were not

underwritten in accord with the applicable underwriting

guidelines. The claim is further supported by: investigations

by government and private agencies that revealed underwriting

failures by originators that contributed loans to the

securitizations at issue here, confidential witness accounts,

and, ultimately, the surge in defaults on the underlying

mortgages and collapse of the certificates’ credit ratings. Taken together, these allegations are sufficient to render


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plausible FHFA’s assertion that the mortgage originators

serially deviated from their mortgage underwriting standards.

This conclusion is unaltered by statements in the offering

materials that the standards were only “generally” followed.

Such limiting language does not assist a Securities Act

defendant faced with a plausible assertion that as few as 1/4 of

the mortgages in a given loan pool conformed to the underwriting

standards. Nor are plaintiff’s claims defeated by the

disclosure in seven of the prospectus supplements that a

“substantial” number of the loans deviated from the underwriting

standards. These prospectus supplements also represented that

any deviations would be warranted based on “compensating

factors.” By plausibly alleging a widespread failure to conduct

any underwriting, the plaintiff has adequately pleaded the

falsity of this representation as well.

Finally, defendants cite Item 1111 of SEC Regulation AB, 17

C.F.R. § 229.1111(a)(3), for the proposition that they may be

held liable only for failing to disclose deviations from the

underwriting guidelines that were known to them. This is

another meritless attempt by the defendants to alter the

plaintiff’s pleading burden by grafting a scienter requirement

onto Securities Act claims.


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Item 1111 of Regulation AB requires that issuers of asset-

backed securities disclose “the solicitation, credit-granting or

underwriting criteria used to originate or purchase the pool

assets, including, to the extent known, any changes in such

criteria and the extent to which such policies and criteria are

or could be overridden.” 17 C.F.R. § 229.1111(a)(3) (emphasis

added). The regulation thus imposes on a Section 11 defendant

the duty to disclose not only underwriting criteria for the

assets that underlie the securities, but also, “to the extent”

the issuer knows of them, any changes in those criteria and the

extent to which those criteria “could be overridden.” Id.

Indeed, this duty imposed by Item 1111 may have prompted the

cautionary language recited above that was incorporated into the

offering materials for seven of the securitizations.

Yet, plaintiff’s claim with regard to loan-underwriting

standards is not that defendants failed to report information

about changes in the underwriting criteria of which the

defendants were aware, but that they affirmatively

misrepresented the standards that “generally” governed the

underwriting of mortgages included in the supporting pools.

Regulation AB’s guidance with regard to what information must be

included in the offering materials does nothing to call into

question defendants’ overriding obligation under the Securities


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58

Act to avoid false statements in their offering materials. In

re Lehman Bros. Secs. and ERISA Litig., 684 F. Supp. 2d 485,

493-94 (S.D.N.Y. 2010).

D. Section 15 Control Person Liability

UBS Americas, UBS Real Estate, and the individual

defendants also contend that the SAC fails to allege that they

exercised sufficient authority over the primary defendants to

establish “control person” liability under Section 15. As noted

above, Section 15 extends liability under the Securities Act to

“[e]very person who, by or through stock ownership, agency, or

otherwise . . . controls any person liable under [Section 11] or

[Section 12].” 15 U.S.C. § 77o. This Court has previously held

that the act of signing a registration statement, as the

individual defendants in this case are alleged to have done, is

a manifestation of the signer’s responsibility for the

information contained in the document and, therefore, sufficient

to establish “control person” status. See In re. WorldCom, Inc.

Sec. Litig., 294 F. Supp. 2d 392, 420 (S.D.N.Y. 2003). With

respect to the corporate defendants, the SAC alleges that UBS

Real Estate was actively involved in coordinating the

securitization process and determining the structure of each

offering and that UBS Americas was not simply the corporate

parent of UBS Securities and MASTR but, in practice, controlled


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59

their actions in issuing and selling RMBS certificates. These

allegations are sufficient to avoid dismissal of plaintiff’s

Section 15 claims at this early stage of the litigation.

E. MASTR is a Statutory Seller Under Section 12(a)(2).

Finally, defendants maintain that MASTR is not a proper

defendant with respect to plaintiff’s Section 12(a)(2) and

equivalent state-law claims. While Section 11 is limited to

certain offering participants by its express terms, liability

under Section 12(a)(2) is governed by the “statutory seller”

requirement.

An individual is a ‘statutory seller’ -- and therefore

a potential section 12(a)(2) defendant -- if he: (1)

passed title, or other interest in the security, to

the buyer for value, or (2) successfully solicited the

purchase of a security, motivated at least in part by

a desire to serve his own financial interests or those

of the securities' owner.

In re Morgan Stanley Info. Fund Secs. Litig., 592 F.3d at 359

(citation omitted).

Defendants contend that the SAC does not allege that MASTR

is a “statutory seller” or include facts that would support such

a finding. As plaintiff notes, however, SEC Rule 159A, provides

that “in a primary offering of securities,” an issuer is a

statutory seller for the purposes of Section 12(a)(2)

“regardless of the underwriting method used to sell the issuer’s

securities.” See 17 C.F.R. § 230.159A; accord Citiline


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60

Holdings, Inc. v. iStar Financial Inc., 701 F. Supp. 2d 506, 512

(S.D.N.Y. 2010). Moreover, the Securities Act provides that

“with respect to certificates of interest or shares in an

unincorporated investment trust not having a board of directors

. . . the term ‘issuer’ means the person or persons performing

the acts and assuming the duties of depositor.” 15 U.S.C. §

77b(a)(4). As noted, the securitizations at issue here were

structured as investments trusts, and, for sixteen of the

twenty-two of them, MASTR acted as depositor. MASTR is

therefore a proper defendant under Section 12(a)(2).

Defendants resist this analysis by asserting that the

provision of the Securities Act equating an “issuer” with a

“depositor” does not apply to RMBS. But this argument is

contradicted by Securities Act Rule 191, which provides that

“[t]he depositor for the asset-backed securities acting solely

in its capacity as depositor to the issuing entity is the

‘issuer’ for purposes of the asset-backed securities of that

issuing entity.” 17 CFR § 230.191. To the extent defendants

would argue that the Rule’s reference to “asset-backed

securities” does not encompass RMBS, they are foreclosed from

doing so by their reliance elsewhere in their motion on

Regulation AB, which likewise governs “asset-backed securities”

and was adopted as part of the same rulemaking proceeding that


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61

resulted in Rule 191. See Asset-Backed Securities, SEC Release

No. 8518, 84 S.E.C. Docket 1624, 2004 WL 2964659, at *9, *2012

(Dec. 22, 2004).

IV. FHFA’s Negligent Misrepresentation Claims Fail.

Although FHFA has adequately alleged violations of the

securities laws, the Agency cannot sustain its negligent

misrepresentation claims. Under New York law, a plaintiff

asserting a claim for negligent misrepresentation must allege,

inter alia, that “the defendant had a duty, as a result of a

special relationship, to give correct information.” Hydro

Investors, Inc. v. Trafalgar Power Inc., 227 F.3d 8, 20 (2d Cir.

2000) (citation omitted). In a commercial context, liability

does not attach as a matter of course for merely negligent

statements; rather, it is imposed “only on those who possess

unique or specialized expertise, or who are in a special

position of confidence and trust with the injured party such

that reliance on the negligent misrepresentation is justified.”

Kimmel v. Schaefer, 675 N.E.2d 450, 454 (1996).

The Agency cannot credibly allege that a “special

relationship” existed between the GSEs and the defendants, nor

has it seriously attempted to do so. While it is true that

“[w]hether the nature and caliber of the relationship between

the parties is such that the injured party's reliance on a


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62

negligent misrepresentation is justified generally raises an

issue of fact,” id., courts regularly hold as a matter of law

that an arm's length business arrangement between sophisticated

and experienced parties cannot give rise to a “special

relationship.” See, e.g., Aerolineas Galapagos, S.A. v.

Sundowner Alexandria, LLC, 905 N.Y.S.2d 152, 152 (App. Div. 1st

Dep't 2010); Sebastian Holdings, Inc. v. Deutsche Bank AG, 912

N.Y.S.2d 13, 15 (App. Div. 1st Dep’t 2010); Silvers v. State,

893 N.Y.S.2d 12 (App. Div. 1st Dep't 2009).

MBIA Ins. Corp. v. Countrywide Home Loans, Inc., 928

N.Y.S.2d 229 (App. Div. 1st Dep’t 2010), is particularly

instructive here. MBIA, a provider of financial guarantee

insurance, brought fraud and negligent misrepresentation claims

against Countrywide, asserting that Countrywide entities had

made material misrepresentations concerning the origination and

quality of the mortgage loans that underlay mortgage-backed

securities for which the plaintiff had written insurance

policies. While permitting the fraud claim to go forward, the

New York State motion court dismissed the negligent

misrepresentation claim as inadequately pled. The Appellate

Division affirmed, noting that in light of the fact that “[t]he

transactions in question were conducted by two sophisticated

commercial entities” operating at arms length, “[t]he claim that


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63

Countrywide had superior knowledge of the particulars of its own

business practices [was] insufficient to sustain the cause of

action.” Id. at 235-36.

So too here, FHFA cannot plausibly assert that the GSEs

were so unequally situated vis-à-vis the defendants as to give

rise to a claim for negligent misrepresentation. As defendants

emphasize in their motion to dismiss, the GSEs were highly

sophisticated players in the mortgage-backed securities market,

which they participated in not only as purchasers but also as

packagers and marketers of securities. As in MBIA, the fact

that, with regard to the securities at issue in this case, the

defendants had greater knowledge of the underlying loan files

and the practices of third-party due diligence providers is not

sufficient to establish a “special relationship.”

The Agency seeks to avoid the “special relationship”

requirement by arguing that its negligent misrepresentation

claims are governed by the law of the District of Columbia, in

the case of Fannie Mae, and Virginia, in the case of Freddie

Mac. Unlike New York, these jurisdictions appear not to require

that a plaintiff demonstrate a “special relationship” in order

to sustain a negligent misrepresentation claim. Unfortunately

for FHFA, however, its choice-of-law argument is meritless.


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64

The Agency’s common law claims are governed by New York

choice-of-law principles pursuant to Klaxon co. v. Stentor Elec.

Mfg. Co, 313 U.S. 487, 496-97 (1941). New York has adopted the

“interest analysis” approach to choice of law, which seeks “to

give controlling effect to the law of the jurisdiction which,

because of its relationship or contact with the occurrence or

the parties, has the greatest concern with the specific issue

raised in the litigation.” Licci ex rel. Licci v. Lebanese

Canadian Bank, SAL, 672 F.3d 155, 158 (2d Cir. 2012) (citation

omitted). In the context of tort law, interest analysis

distinguishes between conduct-regulating rules, which dictate

appropriate standards of conduct, and loss-allocating rules,

which “prohibit, assign, or limit liability after the tort

occurs.” Id. (citation omitted). “If conflicting conduct-

regulating laws are at issue, the law of the jurisdiction where

the tort occurred will generally apply because that jurisdiction

has the greatest interest in regulating behavior within its

borders.” GlobalNet Fin. Com, Inc. v. Frank Crystal & Co.,

Inc., 449 F.3d 377, 384 (2d Cir. 2006) (citation omitted).

The parties agree that the duty to avoid negligent

misrepresentations is a conduct-regulating rule and that,

consequently, the law of the jurisdiction where the tort

occurred should govern FHFA’s claims. They disagree only about


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65

whether the alleged misrepresentations “occurred” in New York,

where the defendants are based, or in the District of Columbia

and Virginia, where Fannie Mae and Freddie Mac, respectively,

were injured. This dispute is easy to resolve. As should be

clear from the discussion above, interest analysis understands

the jurisdiction where the tort occurred to be that in which the

defendant engaged in the behavior that the conduct-regulating

rule seeks to deter. In this case, that jurisdiction is

undisputedly New York, where the defendants prepared and

disseminated the allegedly misleading offering materials that

are at the center of this litigation. Because New York is the

jurisdiction with the most significant relationship to

plaintiff’s negligent misrepresentation claims and because, as

noted above, plaintiff’s pleadings are inadequate to state a

claim under New York law, the negligent misrepresentation claims

are dismissed.


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CONCLUSION

Defendants ' January 20 motion to dismiss i s denied as to

FHFA's s e c u r i t i e s la w claims and granted as to the negl igent

misrepresenta t ion c la ims.

SO ORDERED:

Dated: New York, New York

M ay 4, 2012

United es D i s t r i c t Judge

66


A-162

CONCLUSION

Defendants ' January 20 motion to dismiss i s denied as to

FHFA's s e c u r i t i e s law claims and granted as to the negl igent

misrepresenta t ion c la ims.

SO ORDERED:


May4 , 2012

D NISE COTE

United S t ~ t e s D i s t r i c t Judge

66




C5EFFHFC

1

1 UNITED STATES DISTRICT COURT


2 ------------------------------x

11 CV 05201 (DC)3 FEDERAL HOUSING

FINANCING AGENCY 11 CV 06188 (DC)

4 11 CV 06190 (DC)

v. 11 CV 06192 (DC)

5 11 CV 06193 (DC)

UBS AMERICAS INC. 11 CV 06195 (DC)

6 and others and its 11 CV 06196 (DC)

related cases 11 CV 06198 (DC)

7 11 CV 06200 (DC)

11 CV 06201 (DC)

8 11 CV 06202 (DC)

11 CV 06203 (DC)

9 11 CV 06739 (DC)11 CV 07010 (DC)

10 11 CV 07048 (DC)

------------------------------x

11 May 14, 2012

3:15 p.m.

12 Before:

HON. DENISE COTE,

13

District Judge

14

APPEARANCES

15

QUINN EMANUEL URQUHART & SULLIVAN, LLP16 Attorneys for Plaintiff Federal Housing Finance Agency

PHILLIPPE SELENDY, ESQ.

17 ADAM ABENSOHN, ESQ.

MANISHA SHETH, ESQ.

18 CHRISTINE CHUNG, ESQ.

19 KASOWITZ, BENSON, TORRES & FRIEDMAN, LLP

Attorneys for Plaintifff Federal Housing Finance Agency

20 HECTOR TORRES, ESQ.

KANCHANA LEUNG, ESQ.

21

PETER TSAPATSARIS, ESQ.

22 Attorney for Plaintiff VNB Realty

23 SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP

Attorneys for Defendant UBS AMERICAS INC. and affiliated

24 entities and individuals (11 CV 5201) SG Americas, Inc. and

affiliated entities and individuals (11 CV 6203)

25 JAY KASNER, ESQ.

SCOTT MUSOFF, ESQ.


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2

1 APPEARANCES (Contd)

2 SULLIVAN & CROMWELL, LLP

Attorneys for Defendant JP Morgan Chase & Co. and3 affiliated entities, Goldman Sachs & Co. (11 CV 6188) (11 CV

6198) (11 CV 6203) Barclays Bank Plc and affiliated entities

4 and individuals (11 CV 6190) First Horizon National Corporation

and affiliated entities and individuals (11 CV 6193) Nomura

5 Holding America, Inc. and affiliated entities and individuals

(11 CV 6201)

6 PENNY SHANE, ESQ.

RICHARD KLAPPER, ESQ.

7 JEFFREY SCOTT, ESQ.

DAVID BRAFF, ESQ.

8 BRUCE CLARK, ESQ.

AMANDA DAVIDOFF, ESQ.

9PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP

10 Attorneys for Defendant Citigroup Global Markets, Inc.

(11 CV 6188) CitiGroup, Inc. and affiliated entities and

11 individuals (11 CV 6196)

BRAD KARP, ESQ.

12


13 Attorneys for Defendant Credit Suisse Securities (USA) LLC

and affiliated entities and individuals

14 RICHARD CLARY, ESQ.

15 SIMPSON THACHER & BARTLETT LLP

Attorneys for Defendant RBS Securities Inc. (11 CV 6188)16 Deutsche Bank AG and affiliated entities (11 CV 6192)

THOMAS RICE, ESQ.

17

SNR DENTON US LLP

18 Attorneys for Individual Defendant Perkins

SANDRA HAUSER, ESQ.

19

MAYER BROWN, LLP

20 Attorneys for Defendant HSBC North America Holdings and

affiliated entities and individuals (11 CV 6189) Ally Financial

21 Inc. and GMAC Mortgage Group Inc. (11 CV 7010)

MICHAEL WARE, ESQ.

22 REGINALD GOEKE, ESQ.

23 LAZARE POTTER & GIACOVAS LLP

Attorneys for Defendant Residential Capital and affiliated

24 entities

JAMES BATTLE, ESQ.

25


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3

1 APPEARANCES (Cont'd)

2 WILLIAMS & CONNOLLY, LLP

Attorneys for Defendant Bank of America Corporation and3 affiliated entities and individuals (11 CV 6195) Merrill Lynch

and affiliated entities and individuals (11 CV 6202)

4 EDWARD BENNETT, ESQ.

JOHN McNICHOLS, ESQ.

5 BETH STEWART, ESQ.

6 RICHARDS KIBBE & ORBE, LLP

Attorneys for individual defendants (11 CV 6195) (11 CV

7 6202)

NEIL BINDER

8


9 Attorneys for Defendant Margan Stanley and affiliatedentities and individuals (11 CV 6739)

10 BRIAN WEINSTEIN, ESQ.

DANIEL SCHWARTZ, ESQ.

11

WEIL, GOTSHAL & MANGES LLP

12 Attorneys for defendant General Electric Company and

affiliated entities

13 GREGG DANILOW, ESQ.

14 o0o

15 (Case called)

16 (In open court)

17 THE DEPUTY CLERK: Federal Housing Finance Agency v.

18 UBS Americas Inc. and others and its related cases. Counsel,

19 state your appearances for the record and the party you

20 represent, beginning with counsel for the plaintiffs.

21 MR. SELENDY: Philippe Selendy of Quinn Emanuel for

22 FHFA.

23 MS. SHETH: Good afternoon, your Honor. Manisha

24 Sheth, Quinn Emanuel on behalf of FHFA.

25 MS. CHUNG: Christine Chung, Quinn Emanuel on behalf


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C5EFFHFC

4

1 of FHFA.

2 MR. ABENSOHN: Adam Abensohn, also Quinn Emanuel for

3 FHFA.

4 MR. HART: Your Honor, I'm Steven Hart with FHFA.

5 MR. TORRES: Good afternoon, your Honor. Hector

6 Torres for FHFA.

7 MS. LEUNG: Kanchana Leung, Kasowitz, Benson, Torres &

8 Friedman, LLP, for FHFA.

9 MR. TSAPATSARIS: Peter Tsapatsaris for Valley

10 National Bank.

11 THE COURT: Thank you, counsel. We'll start with the

12 defendants in 5201 UBS.

13 MR. KASNER: Good afternoon, your Honor. Jay Kasner

14 and Scott Musoff from Skadden, Arps for the defendants.

15 THE COURT: Excuse me one second.

16 (Pause)

17 THE COURT: Thank you. I've located your name,

18 Mr. Musoff. It's helpful to have it. Thank you so much.

19 MR. MUSOFF: Thank you, your Honor.

20 THE COURT: Then I think is it 6188 next?

21 MS. SHANE: Yes, your Honor. Penny Shane from

22 Sullivan & Cromwell for JPMorgan Chase and related entities.

23 MR. KARP: Brad Karp from Paul Weiss for Citigroup and

24 related entities and individuals.

25 MR. KLAPPER: Richard Klapper, Sullivan & Cromwell,


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C5EFFHFC

5

1 for Goldman Sachs & Co.

2 MR. CLARY: Richard Clary from Cravath, Swain & Moore

3 for the Credit Suisse defendants.


5 MS. HAUSER: Sandra Hauser, SNR Denton for Matthew

6 Perkins.

7 THE COURT: Let's pick up with the next case, 6189,

8 which is HSBC, Mayer Brown.

9 MR. WARE: Good afternoon, your Honor. Michael Ware,

10 Mayer Brown, for all defendants.

11 THE COURT: Thank you. And then 6190.

12 MR. SCOTT: Jeff Scott for Sullivan & Cromwell on

13 behalf of all defendants.

14 MR. BRAFF: And Dave Braff from Sullivan & Cromwell.

15 THE COURT: Thank you. And I think we already have

16 6192's appearances from Mr. Rice, is that right?

17 MR. RICE: Yes, your Honor. I'm also here for the

18 Deutsche Bank defendants in that case.

19 THE COURT: Thank you so much. And then we're at

20 6193, we may already have appearances from -- oh, I'm sorry.

21 MR. CLARK: Good afternoon, your Honor. Bruce Clark,

22 Amanda Davidoff for First Horizon.

23 THE COURT: Thank you. And then 6195.

24 MR. BENNETT: Good afternoon, your Honor. Edward

25 Bennett from Williams & Connolly. With me is Beth Stewart and


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C5EFFHFC

6

1 John McNichols for Bank of America and related entities.

2 MR. BINDER: Good afternoon, your Honor. Neil Binder

3 from Richards Kibbe & Orbe on behalf of the individual

4 defendants.

5 THE COURT: 6196, Mr. Karp again?

6 MR. KARP: That is correct, your Honor.

7 THE COURT: And 6198?

8 MR. KLAPPER: Richard Klapper, Sullivan and Cromwell

9 for all defendants.

10 THE COURT: Thank you. 6200?

11 MR. CLARY: Richard Clary again for Credit Suisse.

12 THE COURT: 6201?

13 MR. CLARK: Good afternoon again, your Honor. Bruce

14 Clark and Amanda Davidoff for the NHA defendants and the

15 individuals.

16 THE COURT: Thank you. And Mr. Rice again?

17 MR. RICE: Yes, your Honor.


19 MR. CLARK: Good afternoon again, your Honor. Ted

20 Bennett, John McNichols and Beth Stewart for all the Merrill

21 Lynch defendants.

22 THE COURT: Thank you. And Mr. Binder again?

23 MR. BINDER: Yes, your Honor.

24 THE COURT: 6203, we have Mr. Kasner and Mr. Rice

25 again?


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C5EFFHFC

7

1 MR. KASNER: Yes, your Honor, along with my found

2 colleague, Mr. Musoff.

3 THE COURT: And we also have Ms. Shane again?

4 MS. SHANE: Yes, your Honor.


6 MR. WEINSTEIN: Good afternoon, your Honor. Brian

7 Weinstein and Daniel Schwartz from Davis Polk for the Morgan

8 Stanley defendants.

9 THE COURT: We have Mr. Rice again and Mr. Clary.

10 MR. CLARY: Yes, your Honor.

11 THE COURT: 7010?

12 MR. WARE: Michael Ware and Reginald Goeke of Mayer

13 Brown for Ally Financial and GMAC Mortgage Group.

14 MR. BATTLE: Jim Battle from Lazare Potte & Giacovas

15 on behalf of Residental Capital and affiliated entities.

16 MR. KARP: Brad Karp on behalf of Citigroup.

17 MR. KLAPPER: Richard Klapper on behalf of Goldman

18 Sachs & Co.

19 MR. CLARY: Richard Clary on behalf of Credit Suisse.


21 MS. SHANE: Penny Shane for JPMorgan.

22 MR. KASNER: Jay Kasner for UBS Securities.

23 MR. SCOTT: Jeff Scott on behalf of Barclays Capital

24 Inc.

25 THE COURT: That takes us I think to 7048.


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A-169




C5EFFHFC

8

1 MR. DANILOW: Your Honor, I apologize. I'm

2 temporarily in a wheelchair. Gregg Danilow from Weil, Gotshal

3 for the GE defendants.

4 THE COURT: I'm sorry. I can't even see that. I'm

5 very sorry to hear that, Mr. Danilow.

6 MR. DANILOW: I thought I would mention it.

7 THE COURT: Mr. Broderick, yes, and I believe also in

8 7048 we have Mr. Clary again.

9 MR. CLARY: Yes, your Honor.

10 MR. WEINSTEIN: And Davis Polk for the Morgan Stanley

11 defendants, your Honor. Brian Weinstein and Daniel Schwartz.

12 THE COURT: Thank you. Well, this has been a physical

13 illustration of some of the charts I've been making about the

14 overlaps and as we all think hard about how to organize this

15 case and perhaps in the an efficient manner or a more efficient

16 manner than certain configurations might yield, one notices

17 that certain cases just have a single set of defendants and

18 others represent a broad collection.

19 Let me begin with what I hope will be good news. You

20 are going to be part of an experiment that I think you will be

21 happy to be a part of. I'm a dinosaur in terms of mail and we

22 haven't permitted faxes to chambers because, as many of you

23 have heard I don't have a secretary and so management issues

24 are important to our chambers functioning smoothly for your

25 benefit, hopefully. So this is the experiment. I'm going to


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C5EFFHFC

9

1 permit e-mailing of letters, so you don't have to hand deliver

2 or mail letters anymore. As you know, you cannot file letters

3 in the Southern District ECF system, but you are each getting a

4 copy of an order today or each being given a copy now of an

5 order that will permit you to file -- well, to send me, e-mail

6 me letters to the address in the order and attachments, so you

7 will only have to mail me a copy of the letter if the

8 attachment is greater than ten pages.

9 Now, what is the experimental part of this? One of

10 the reasons to not make it easier for you to send me a letter

11 so that you don't send me letters just as part of a whim or a

12 fancy but think carefully about whether or not I need to get

13 this letter and all the other things I have to do as part of my

14 life in chambers. So the letters can't be longer than two

15 pages and hopefully it won't, hopefully the rest of the Bar

16 will be able to benefit from the excellent experience I have in

17 this experiment.

18 Second thing I want to say is thank you so much for

19 making yourselves available on such short notice. I know you

20 got the decision very recently, but I didn't want to waste any

21 time in helping to organize this case, because I know that a

22 lot of money could be wasted really quickly unless we get our

23 hands around it. I was pleased to receive a letter on Friday

24 indicating that the three motions to remand are being withdrawn

25 in 6739, 7010 and 7048.


(212) 805-0300





C5EFFHFC

10

1 I wanted to ask the plaintiff whether or not it

2 intends to file amended pleadings or if we're ready to schedule

3 any motions to dismiss in the remaining 15 actions.

4 MR. SELENDY: Your Honor, Philippe Selendy. With

5 respect to the remaining 15 actions, one of them is as I

6 believe you know subject to a bankruptcy stay now so we're

7 talking about 14 other cases.

8 THE COURT: I want to get to that in a moment, but I'm

9 happy to address it now. I don't know that the entire action

10 will be stayed, and indeed, I think I probably won't stay the

11 entire action. I'll obviously give everybody a chance to be

12 heard, but there are a lot of other moving parts in that case.

13 MR. SELENDY: All right, as for that one my colleague

14 Hector Torres will address it.

15 With respect to the fourteen other cases we do propose

16 to amend the complaints in order to bring them, generally

17 speaking, into conformity with the amended UBS complaint and to

18 add additional data that we have developed that may be

19 pertinent to the development of the allegations. We do not

20 think it's necessary to wait for the motions to dismiss on the

21 residual issues that are out there, and what we would propose

22 to do in order to manage this process is to amend them in two

23 stages, the first seven complaints within 30 days and the next

24 seven complaints 15 days thereafter so there's not a single

25 wave of all the complaints at once. We would like to reserve


(212) 805-0300





C5EFFHFC

11

1 our ability to amend once we receive motions to dismiss if

2 there are any new issues, although, frankly, we don't expect to

3 require that. Nonetheless, we'd like to reserve that right,

4 your Honor, but in the interests of moving this forward

5 expeditiously, we think we're prepared now to go ahead and put

6 together amendments for all of the other actions.

7 THE COURT: Okay. I don't think -- let me begin again

8 with a question. When you say you're prepared to amend in six

9 or seven cases, are you addressing that list or suggesting that

10 that be by docket number or are you making a distinction

11 between the cases that have fraud claims in them and those that

12 have just Section 11 claims?

13 MR. SELENDY: I was not distinguishing between fraud

14 and non-fraud cases, your Honor. It's simply that as time has

15 passed we developed more data which we would like to integrate

16 into the complaints. That applies to both the fraud and

17 non-fraud complaints and we would like to be responsive to some

18 of the same issues that led us to amend the UBS complaint

19 before the Court's consideration of the motion to dismiss.

20 THE COURT: Okay. Maybe we should talk a little bit

21 about the stay issues and come back and revisit this, so let me

22 address the issue of a stay. At our first conference together

23 we talked about how many test motions to dismiss there would

24 be, and I gave the parties an opportunity to select a second

25 action with a fraud claim and the parties talked about that and


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C5EFFHFC

12

1 declined to do so and communicated that decision to me in a

2 letter of December 15th. I now have requests from six cases

3 for a stay and as you remember what we had talked about was

4 that I decide the motion to dismiss in this first action which

5 ended up being the UBS action, and then everyone -- and then I

6 expected I would lift the PSLRA stay with respect to all cases

7 before me but everybody would have a right to write me in seven

8 days of my decision to explain why the stay should not be

9 lifted in their case.

10 And so six cases wrote. There's the VNB action, which

11 I'll put to a side for a moment because there's agreement

12 there, but I want to talk a little bit about that, but with

13 respect to the FHFA cases, I got five requests. Three of those

14 have fraud claims; 6198, 6202 and 7010. Two do not have fraud

15 claims; 6189 and 6195 but they share defense counsel with the

16 first three, Mayor, Brown & Platt and Williams & Connolly.

17 So I'm just going to think long and hard about the

18 three with the fraud claims. So I think -- I'm not going to

19 lift the -- I am going to lift the stay with respect to all

20 FHFA cases and I'll talk a little bit more about that, but I

21 think if there's going to be amended pleading we might want to

22 amend first in the cases with the fraud claims as a group and

23 do those motions to dismiss if there are any.

24 MR. SELENDY: We would be glad to do that, your Honor.

25 THE COURT: Okay. So, Mr. Selendy, I'm going to ask


(212) 805-0300





C5EFFHFC

13

1 you to talk this week with a proposal about a schedule for two

2 rounds of amendments; first, for those cases with fraud claims

3 and then a second round of amendments for the remaining FHFA

4 cases. And I believe the cases with fraud claims are 6188,

5 6192, 6198, 6202, 6739 and 7010. So not all of the cases with

6 fraud claims have resisted the lifting of the stay. I just

7 want to note that.

8 So 7010 is the case in which Ally Financial is a

9 defendant and there's been a filing for bankruptcy and I

10 appreciate counsel being present for this conference even

11 though some of the defendants in that case, as I understand it,

12 are filing for bankruptcy.

13 I think there are, as I understand it, six defendants

14 filing for bankruptcy in the Ally Financial case, 11 Civ. 7010,

15 but we have many other defendants, including JPMorgan, Credit

16 Suisse, Citi, RBS, Barclays, UBS, Goldman Sachs and why I'm

17 thinking that I won't stay the entire action is because one of

18 the things I think everyone has agreed upon is that if someone

19 is deposed if at all possible that only happen once in this

20 suite of cases. And as you'll hear later in this conference,

21 lucky UBS is probably going to be among the first to be deposed

22 here. At least that's going to be my proposal to all of you.

23 And they're in 7010. So when their deposition happens, it

24 should cover 7010 as well as every other case in which they're

25 a defendant.


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1 So my proposal would be, unless I hear a good reason

2 otherwise, that obviously the automatic bankruptcy stay affects

3 7010 insofar as it affects the parties who have filed for

4 bankruptcy court protection, but that the remainder of the case

5 go forward, including against the underwriter defendants.

6 Okay, so that takes care of the stay application in 7010

7 insofar as it addresses the bankruptcy issue.

8 The only developed argument with respect to pleading

9 issues I think was made in 6202 and to some extent in 6195 and

10 I looked at the two complaints in those actions to just make a

11 quick assessment of the merits of the Section 11 arguments that

12 had been highlighted in that brief letter. I noticed that --

13 I'm sorry, I might have given you the wrong numbers. 6202 and

14 6195. If I said other numbers I apologize.

15 As you know, there are three basic misrepresentations

16 underlying the Section 11 claims and the letter does not

17 suggest there was a failure to plead adequately one of those

18 three claims on owner occupancy. I looked at the allegations

19 with respect to the underwriter guidelines and the LTV issue.

20 I don't think that they are sufficiently different that it

21 would be appropriate to enter a stay.

22 Many of the cases who have asked for a stay have

23 referred generally to the PSLRA stay language in principle. I

24 don't think that's relevant anymore because of what I explained

25 earlier, the process that we've undergone here together, my


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1 willingness to decide a motion to dismiss that had a fraud

2 claim, no one taking me up on that, so we're going to move

3 forward as I gave everyone notice we would do at our first

4 conference.

5 The last issue that's been raised is the shelf

6 registration issue. This was an issue presented in footnotes

7 in the motion to dismiss and I issued an order, as you all

8 know, to ask for briefing in the text and I think I have the

9 first brief on that and I'll address it when I get the complete

10 set of briefs. So that will be decided soon.

11 That leaves I think in terms of stay issues the VNB

12 case. There is agreement there that the VNB case be stayed.

13 It's the only non-HFA case on my docket related to this matter.

14 I'm happy to stay that case. There's consent by one and all.

15 I think it makes good sense in a lot of ways, but I want to

16 make sure that the plaintiff understands there that it will not

17 be permitted to redepose any witness deposed in the FHFA

18 litigation unless it can show it has discrete, unique questions

19 that were not captured by the other questioning at a

20 deposition. Is that agreeable, counsel?

21 MR. TSAPATSARIS: Yes, your Honor, although I do have

22 a concern and we ask, VNB would ask if we be allowed to attend

23 those depositions and have access to the transcripts if we're

24 going to be locked into those issues.

25 THE COURT: I'll let you discuss that with counsel.


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1 I'm not quite sure why you would want to attend if you can't

2 have a speaking role because when the stay is lifted of course

3 you'll have access. Why don't you just reflect on that, and if

4 you do want to attend, talk with everybody. If there's no

5 objection, I don't have a problem.

6 MR. TSAPATSARIS: Thank you, your Honor.

7 THE COURT: But there may be objection.

8 MR. TSAPATSARIS: Understood.


10 The protective order. Thank you so much for

11 cooperating with each other so well on the protective order

12 process. There are four principal disputes and then an

13 additional objection presented by Ally. So let me just give

14 you quick rulings on the four outstanding issues on the

15 protective order. First, the documents including confidential

16 material produced in the FHFA actions may be shared among all

17 parties and so I reject the FHFA's objection there.

18 With respect to the second issue, whether a party may

19 unilaterally rachet up a confidentiality designation of a

20 document produced by another party or non-party, I grant the

21 FHFA's objection and will not permit that.

22 With respect to the third issue, the FHFA's fear that

23 the protective order will constrain its obligations under the

24 law to report actual or potential violations of law of which it

25 learns during discovery, I don't see any reason why the


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1 protective order in this case should separately address that.

2 If any party to a protective order wants an exception, whether

3 it's a plaintiff or a defendant, for good cause, they can come

4 to the Court and seek an exception and I'll address it. But I

5 note that the FHFA was not able to point in its papers to

6 specific legal obligations that put it in a very unique

7 position in this regard.

8 And, finally, on the fourth issue, the FHFA's request

9 that highly confidential material be shared with a limited

10 group of subject matter experts in government service but

11 outside the FHFA and I'm going to grant that in part. I'm

12 going to grant it for the purpose of assisting the FHFA with

13 the prosecution of these actions. I'm not going to grant it to

14 the extent it's requested to assist the FHFA in carrying out

15 its regulatory functions. And, Mr. Selendy, were you thinking

16 of five individuals? Do you have a number that you were

17 thinking of or a ballpark figure?

18 MR. SELENDY: I believe we said five individuals. The

19 idea was to confine it to a very small group that would allow

20 us to permit the functions, including taking advantage of the

21 expertise within FHFA while still respecting the desire for a

22 limited sharing of confidential information.

23 THE COURT: I'll grant the access to five people.

24 MR. SELENDY: Thank you.

25 MS. STEWART: Your Honor, I'm Beth Stewart from the


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1 Bank of America defendants. Just with respect to that, would

2 it be possible that those five individuals be required to sign

3 the undertaking that was appended to the protective order so

4 that we would have notice of them? If it turns out those

5 individuals seem to be people with access to competitive

6 information defendants may want to raise that with the Court

7 and if we don't know who they are we won't be able to do that.

8 MR. SELENDY: Yes, we would agree to that.

9 MS. STEWART: Great. Thank you.

10 THE COURT: So, Ally had an objection and it is

11 denied, so I think that puts us in the position of being able

12 to finalize the protective order and I'll expect that to be

13 done, shall we say, within the next two weeks?

14 MR. SELENDY: Yes, your Honor.

15 THE COURT: Thank you. Let's turn to the issue of

16 scheduling. I've given this some thought and I'm sure counsel

17 have. So I have some preliminary questions. I'm unsure how

18 susceptible these claims are to resolution on summary judgment,

19 and that's from the perspective of both the plaintiffs and the

20 defendants, so let me start with you, Mr. Selendy. Looking at

21 the three core allegations in the Section 11 claims that I'm

22 familiar with from the UBS case, do you think you'd be able to

23 win summary judgment with respect to any three of those claims?

24 MR. SELENDY: Your Honor, we do believe that we'll be

25 in a position to present data that demonstrates in our view


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1 dispositively that in each of these three categories there have

2 been rampant and systematic misrepresentations of fact, and as

3 we indicated, the use of sampling would facilitate our ability

4 to do that, and often that is done through stipulation between

5 the parties as to which subpopulation of loans would be

6 examined. But we think the evidence is overwhelming and we do

7 intend, with your Honor's leave, to file summary judgment

8 motions at the conclusion of discovery. We don't think on the

9 merits there is, frankly, much debate about it, given the

10 minimal requirements under both the Section 11 and 12 claims

11 and under the blue sky statutes as to which we're also

12 asserting claims for every single one of the securitizations in

13 dispute.

14 THE COURT: Okay, let's just turn to the LTV issue.

15 Do you think I can grant summary judgment with respect to the

16 subjective falsity issue on appraisals?

17 MR. SELENDY: With respect to the question of falsity

18 of appraisals we think that will depend in part on the evidence

19 that we obtain through discovery both from the appraisers and

20 from the underwriters as to their own data regarding the

21 properties, their internal procedures for validating the

22 information and the data that's available generally with

23 respect to the valuations. So that is, as your Honor suggests,

24 that is something that will turn in part on the evidence we

25 uncover and can demonstrate to the Court.


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1 THE COURT: But there may be facts in dispute there?

2 MR. SELENDY: Yes, there may.

3 THE COURT: And with respect to the guidelines

4 calculation -- the application of the guidelines -- taking that

5 hat off -- so putting owner occupancy aside, where I can see

6 potentially an ability to grant summary judgment, potentially,

7 on the guidelines issues don't you think that one of the

8 questions will be the operation in context and the factual

9 complexity of the application of the guidelines?

10 MR. SELENDY: Your Honor, if we're able to demonstrate

11 that internally at the underwritings there was awareness of a

12 significant and material departure from the guidelines in the

13 generation of loans and there was a decision nonetheless to

14 disregard findings from third party due diligence providers and

15 warnings from internal compliance personnel and to securitize

16 the loans on the presumption that they would no longer be on

17 the bank's balance sheet but instead sold out to investors, if

18 we see those internal acknowledgments, which are effectively

19 admissions, then we do submit we would be able to demonstrate

20 on summary judgment that a ruling should be granted in our

21 favor. And that's not because scienter is an element. It is

22 not an element. But because it would be a demonstration, an

23 acknowledgment of the falsity of the representations.

24 Similarly, if we're able to demonstrate that the

25 incidence of defect is so great, for example, that we see


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1 across securitizations a very high percentage, well above the

2 5 percent or 8 percent you might expect to get through on the

3 grounds of mistake or unawareness, once we cross some

4 threshold, whatever that may be, of materiality, then we think

5 we would have a position that your Honor would be able to rule

6 upon on summary judgment.

7 THE COURT: Thank you. So, Mr. Kasner, I know that

8 there would be many, many able defense counsel in this room to

9 respond to a few questions about the affirmative defenses on

10 the Section 11 cases, but --

11 MR. KASNER: And I'm not one of them, your Honor.

12 THE COURT: Well, I expect you've thought long and

13 hard about these issues already.

14 MR. KASNER: Which particular -- I mean, the short

15 answer is yes, your Honor, I have thought long and hard about

16 the affirmative defenses and why we think that our client in

17 the UBS case, if that's what we're talking about, will prevail

18 ultimately either on summary judgment or after trial.

19 THE COURT: So, do you think you have a summary

20 judgment motion I can grant on affirmative defenses on the

21 Section 11 claims?

22 MR. KASNER: Your Honor, I say yes, depending upon

23 what discovery yields, and I couldn't possibly stand up before

24 the Court and say absolutely 100 percent, because a very

25 significant issue, as your Honor recognized in her opinion


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1 dismissing the negligent misrepresentation claims, is we're not

2 dealing with a bunch of babes in the woods here as a plaintiff.

3 This isn't some individual living in New Orleans that bought a

4 mortgage-backed security. You are dealing with the ultimate

5 sophisticated investors who knew everything that was going on.

6 So, your Honor, I would fully suspect that we're going to find

7 evidence in the files of Fannie and Freddie and the FHFA that

8 would demonstrate that which I think your Honor believed may

9 have been lacking when looking solely at the four corners of

10 the complaint.

11 For example, you asked about loan to value ratios, you

12 asked about appraisals, you asked about owner occupancy.

13 Fannie and Freddie securitized billions and billions and

14 billions of dollars of these securities. To the extent that

15 there are issues, and that will remain for another day as to

16 the evidentiary basis whether there are or there aren't, our

17 argument is going to be, your Honor, they had far more

18 knowledge than UBS, for example, which didn't originate, your

19 Honor, a single loan. So, yes, yes, your Honor, we're subject

20 to what discovery yields. We feel fairly confident that we're

21 going to find evidence that they knew all about this stuff

22 which is how, with respect, your Honor, they were able to bring

23 suit against American Home Mortgage, one of the originators in

24 our case, long before the statute of limitations had expired.

25 So, anyway, on the issue of knowledge, your Honor, we do


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1 believe subject to what the evidence shows at least we're going

2 to give it a shot. I may come away feeling somewhat

3 disappointed, but nevertheless, your Honor, we believe we have

4 a shot.

5 We believe on the notice provision, your Honor, as

6 well, with respect to the statute of limitations, of course

7 I've read your Honor's opinion, I understand the significance

8 with which your Honor placed, for example, the downgrades and

9 the ratings, we believe that we're going to be able to make an

10 evidentiary showing that they knew well outside of the statute

11 of limitations period the problems about which they are

12 complaining now sufficient to have brought these claims far

13 earlier. So that is a separate summary judgment issue, your

14 Honor, on which we would intend to proffer undisputed evidence.

15 We think we had proffered some of that on our motion. I

16 understand the Court disagreed with that at least for purposes

17 of a motion to dismiss. So those are two issues on which we

18 believe there will be no material issues of fact in dispute,

19 your Honor.

20 THE COURT: So in terms of the other potential

21 defenses, due diligence, causation, too fact specific?

22 MR. KASNER: No, your Honor. With respect, and again,

23 I am familiar with at least one case where your Honor expressed

24 a summary judgment view on due diligence. Nevertheless there

25 are differently situated defendants in these cases and


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1 Mr. Selendy uses the term underwriter, your Honor, and of

2 course he's not referring to a securities underwriter, he is

3 referring to an underwriter of loans by originators. Our

4 client, again, UBS, did not originate loans. In its case it

5 purchased loans. It may have sold securities to the public.

6 In the Ally case to which your Honor referred, UBS was just an

7 underwriter of securities, and so there are, as the Court is

8 aware, different affirmative defenses that apply, for example,

9 to an underwriter.

10 We would anticipate to the extent UBS has been sued as

11 an underwriter, your Honor, to attempt to see whether we have a

12 record based on undisputed facts relating to due diligence.

13 The process that occurred here, your Honor, occurred, as the

14 Court is well aware, during an unprecedented credit crisis, a

15 tsunami as it's been referred to by many of your brethren in

16 their opinions in this area. We would develop evidence to

17 determine if we could present a defense of negative causation

18 to the Court that any losses that were suffered were in fact

19 the product of this massive credit upheaval and not

20 necessarily, even if you accept for the moment, which we

21 disagree, that Mr. Selendy could prove based on undisputed

22 facts that the appraisals were false or that the owner

23 occupancy rates that were told to UBS in which they said this

24 is what we were told were false.

25 And so I hope that wasn't too long winded a way, your


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1 Honor, but there are a number of affirmative defenses that at

2 least for purposes of getting into discovery we do have our eye

3 on potential summary judgment motions. And as the Court knows,

4 I would say if we conclude that we don't have a good-faith

5 basis to tell your Honor that there's no material issue of fact

6 that exists we wouldn't move on that basis.

7 THE COURT: Is there any dispute, and I just want to,

8 I don't need an answer now. I wonder if there's any dispute

9 among the parties with respect to the knowledge defense and if

10 there is you might want to think of teeing that up for a

11 motion. I'll let you think about that, so that everybody's

12 operating under the same legal standard which would guide their

13 tactical decisions in this case, you know, what kind of

14 knowledge FHFA or Fannie and Freddie had to have, how

15 specifically attached to the securitizations that are being

16 sued upon it must be to be a winning argument. In any event, I

17 just tell you that if there is something that would help the

18 parties figure out if something should be settled or if there

19 should be a summary judgment motion because of the lack of

20 clarity of the legal standard, I'd be happy to give you my

21 opinion.

22 MR. KASNER: Your Honor, we appreciate that and

23 certainly we will consult with the other defense counsel and

24 our client. I would tell the Court just in listening to it

25 that I think rather than having your Honor address that issue


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1 in the abstract without facts drawn from their files which I --

2 you know, you can tell me, Kasner, you told me X months ago

3 you'd find something and you haven't found a thing. Your

4 Honor, I would take that on because I can guarantee you in the

5 files of Fannie and Freddie they are all over this stuff like a

6 bad suit. And so I really think it would do the Court a

7 disservice not to have a fully-developed fact record on that

8 issue against which to decide the issue of the legal standard.

9 THE COURT: Sounds very wise, Mr. Kasner. Now, I'm

10 happy to hear from any other defense counsel, but I think

11 Mr. Kasner has adequately answered my question to just give me

12 a sense of whether or not there might be a potential for

13 summary judgment motions by plaintiffs or defendants in these

14 cases. Mr. Selendy?

15 MR. SELENDY: Your Honor, very briefly. I did want to

16 clarify that when I was speaking of underwriters I was in fact

17 speaking of underwriters, not loan originators, as Mr. Kasner

18 appeared to believe. Secondly, the issue about a defense of

19 negative causation doesn't arise in the blue sky claims which

20 have no affirmative defense. Thank you.

21 THE COURT: Thank you. So let's turn to organize this

22 case or these cases. I'm working on the assumption that each

23 of these 16 cases, each of these 16 FHFA cases will have to be

24 tried separately, so theoretically 16 trials. I'm working on

25 the assumption, and I think it's been borne out by what I've


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1 heard here, that the principal evidence that each side will be

2 relying upon is documentary, that if the documents aren't

3 there, trying to build the case through depositions is going to

4 prove difficult, whether it's plaintiff's case or an

5 affirmative defense. And I'm working on the assumption that

6 everybody wants a deponent to be deposed once.

7 So let me outline what I'm thinking of doing here in

8 terms of organizing these 16 cases, my proposal for you. That

9 I take advantage of the fact that 5201 is a good representative

10 case here, and that it be the first to go to trial, and that it

11 be tried in the fall of next year with a pretrial order date of

12 August 2, 2013. That the remaining 15 cases be tried in three

13 tranches. Roughly five of them have their pretrial orders due

14 December 6, 2013 will be tried in January, roughly five more

15 have a pretrial order date of May 2, 2014, they'll be tried in

16 the summer starting in June, and the remaining five or so would

17 be tried in the fall of 2014, their pretrial orders would be

18 due August 1, 2014.

19 We'll spend this year doing document discovery.

20 Document discovery will be substantially complete by the end of

21 September. You'll spend the fall looking at the documents and

22 preparing for depositions and in January we'll begin

23 depositions and the depositions that will begin will be those

24 in 5201, which means that the plaintiff's depositions will take

25 place first along with the UBS depositions and the third


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1 parties relevant to that action. But UBS is in four actions

2 and FHFA is, as we know, in 16 actions. So the depositions

3 that would be taking place in this early round of depositions

4 would affect all 16 actions.

5 Looking at 5201 we have the plaintiff, we have the UBS

6 family of defendants, we have four individuals, we'll have a

7 certain number of third parties.

8 I've thought about identifying which five cases would

9 go in the second tranche, and I've looked at it in various

10 ways, but I think instead of me deciding which would be in

11 which tranche I'd let counsel take a shot at this, and I'm

12 happy to make the decision if there's a disagreement.

13 Now, in a February order I allowed the plaintiffs to

14 serve their initial document demands, so those I expect defense

15 counsel have those. Were initial document demands served,

16 Mr. Selendy?

17 MS. SHETH: Good afternoon, your Honor Manisha Sheth.

18 Individual document demands were not served. We're in the

19 process of finalizing those and should have them ready in short

20 order. We thought it best to have the protective issues

21 resolved as well as the issues pertaining to the sampling

22 discovery which was ordered by the Court in progress as well.

23 THE COURT: Okay. So let's talk a little bit about

24 depositions. I would like us, I'm hoping we would come to

25 agreement that the following could occur: That if any party


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1 calls as a witness for trial someone who was not deposed, that

2 the adversary or other parties in the case would have an

3 opportunity to depose that person before trial. Probably not

4 third parties, but a party witness. Is there anybody opposed

5 to that? Thank you. Good. So. That leads to my proposal for

6 depositions.

7 I read your competing submissions and thank you very

8 much for them. And, again, I'm throwing this out as a proposal

9 and it is as follows: Well, before I get to the proposal, this

10 is I think fundamentally a document case, and I think the

11 comments I've heard this afternoon reconfirm that, so I think

12 that this might be workable in terms of depositions. That the

13 defendants are permitted to take ten depositions of Fannie Mae

14 and ten depositions of Freddie Mac or in essence 20 depositions

15 of the plaintiff. That the plaintiff is permitted to take 20

16 depositions of any entity family of companies. Therefore, in

17 the UBS case, there would be 20 depositions taken of the

18 plaintiff. Of course, all, the defendants in all 16 actions

19 would have to participate in those 20 depositions and then

20 there would be no more depositions of the plaintiff.

21 The plaintiffs could take 20 depositions of the UBS

22 defendants cutting across the four actions in which UBS is a

23 defendant. There would be no more depositions of the UBS

24 family of companies.

25 There are four individuals, four individual


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1 defendants. There's a potential for third party depositions.

2 Counsel have identified the following categories of third

3 parties: Originators, servicers, due diligence firms,

4 appraisers, credit rating agencies. I've thought about some

5 presumptive numbers of depositions for those kinds of third

6 parties wholly apart from 30(b)(6) depositions, which I think

7 would not be included in these numbers, and again, this is a

8 proposal, that other than 30(b)(6) depositions there be no more

9 than two depositions of an originator, one of a servicer, three

10 of a due diligence firm, one of a credit rating agency. Across

11 all cases, the same. If there was one credit rating agency

12 that was common to 16 cases, there would be one deposition

13 which everyone could participate in.

14 Now, this may not be possible for you to reach

15 agreement on. I'm hopeful that there are a lot of reasons you

16 would because, again, it's the documents that are going to tell

17 the story and this doesn't count for 30(b)(6) depositions and

18 this is going to be costly litigation no matter what, and there

19 are going to be a lot of depositions no matter what and there's

20 only a limited amount of time in any one human being's

21 lifetime. Mr. Kasner?

22 MR. KASNER: Your Honor, if it please the Court, we

23 only represent one -- actually, we have two clients in these

24 cases. The courtroom is filled with lawyers with other clients

25 defending these cases. Since we are hearing some of this for


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1 the first time, I would ask for the Court's indulgence that we

2 have the opportunity to confer with other defense counsel who

3 may or may not have issues. Our client, as I mentioned, your

4 Honor, was not an originator, has no loan files, your Honor.

5 There are issues about sampling and burdens of discovery that

6 are far different among some of the other defendants in the

7 other cases than they are for our client, so to that extent

8 while I'm gratified that your Honor has selected our case to be

9 tried first, there are other cases that defendants have far

10 different issues than we and so if it please the Court I really

11 do feel in fairness to the other defense counsel that we be

12 given some opportunity to confer.

13 THE COURT: Absolutely, and that's why I described so

14 many of these things as proposals and I have conference dates

15 available for you all day June 13th or the morning of June 14th

16 and not that, you know, just a conference, but that's a day and

17 a half. I'll let counsel discuss among each other and notify

18 my chambers of when our next conference should be, at some

19 window of time during that day and a half.

20 MR. KASNER: Thank you.

21 THE COURT: Yes.

22 MR. BENNETT: Ted Bennett for Bank of America and

23 Merrill. When your Honor proposed a certain number of

24 depositions of the entity families in the Merrill cases, and

25 I'm sure this is true in other cases, there are individual


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1 defendants who are current employees of an entity defendant.

2 Assuming the plaintiffs want to depose the individual

3 defendants, would they count against the 20 depositions of the

4 entity or would those be separate depositions?

5 THE COURT: I haven't thought about that. My

6 reaction, my initial reaction is that any individual named in a

7 caption doesn't count against or isn't included in the limit of

8 the number of depositions for the entity defendants. But I

9 have not worked through how the numbers would play out, so I

10 think that's a very important thing for counsel to think about

11 and discuss with each other. It may be that they should be

12 included among the 20.

13 MR. BENNETT: Thank you, your Honor.

14 THE COURT: I have looked at how many entity

15 defendants are named in how many actions and there are in fact

16 seven cases in which there is only one defendant and seven

17 instances in which only one entity, in which an entity is only

18 in one case. But there are -- I take it that means that on the

19 other hand there are a number of entities that are in many

20 cases. So there are many ways to slice and dice this. I have

21 to say with respect to UBS it is a good candidate I think for

22 our first tranche, not only because I have Mr. Kasner in the

23 case, who I know will effectively represent his client, but

24 that doesn't differentiate that case from all the other fine

25 lawyers in the room, but its total investment amount is


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1 6.4 billion, which puts it right in the middle of where a lot

2 of these cases fall. I mean, there are outliers at the low end

3 and at the high end, but a lot of the cases have an investment

4 amount falling between six and fourteen billion, and UBS has

5 the advantage that it only has one family of entity defendants.

6 So a lot of the issues that we want to test and use as a marker

7 in all the other cases I think will hopefully appear through

8 the full litigation of the UBS case.

9 Now, with respect to trials, I don't expect that I'm

10 going to be able to try five trials in the fall or the spring

11 or the summer and I am extraordinarily fortunate, I may try one

12 or two. I doubt I'd try more than that per season. I have a

13 wonderful bench of colleagues here and they'll be able to step

14 in and try the remainder of the five cases per season. So that

15 means that the plaintiffs are going to have to have trial teams

16 here and be able to go at five trials per season and defendants

17 who are, depending on how you organize yourselves per season

18 are going to have to be able to do that, too.

19 If there is going to be summary judgment practice in

20 5201, I'd like it to be fully submitted by May 17, 2013.

21 Let's talk about the sampling issue. In my May 8th

22 order I required prompt disclosure of the final closing loan

23 tapes to trustees and identification of the originators of each

24 loan. Mr. Selendy, where do we stand on that? Do you know?

25 MR. SELENDY: My partner, Chris Chung, will address


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1 the sampling issues.

2 MS. CHUNG: Good afternoon, your Honor. We had

3 offered before as FHFA once we received the loan tape and

4 originator information to begin providing a protocol.

5 Certainly your Honor has ordered the information to be produced

6 in all cases and we're standing by to provide protocols for

7 those cases on a rolling basis as soon as we receive the

8 information. We have not had any communications with

9 defendants about when they expect to produce the information.

10 THE COURT: Okay. So let me just take a poll of the

11 cases. Well, I guess that's not actually a useful way to do

12 it.

13 MS. SHANE: Your Honor, may we suggest that defendants

14 do have a useful way of letting your Honor know where things

15 stand with respect to the production by defendants?

16 THE COURT: Yes, please. Thank you, Ms. Shane.

17 MS. SHANE: The defendants generally are prepared to

18 make the production that your Honor has ordered within 30 days,

19 if that's acceptable to your Honor. There may be some

20 institutions, and I speak now only for institutions as the

21 individuals don't have anything to produce on this score, which

22 have some exceptional circumstances that they would expect

23 either to work out themselves in the coming period and make

24 production on time or to meet and confer with the plaintiff

25 about in order to work out those issues. I'm not aware of


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1 anybody who is unable to do it at this time, so that of those

2 defendants who have not sought a stay or otherwise found a

3 reason to have a stay, there is agreement that we will be able

4 to comply or substantially comply within 30 days.

5 THE COURT: Explain to me why it takes 30 days to

6 provide the loan tapes that were provided to the trustees, the

7 final closing loan tapes that were provided to the trustees.

8 MS. SHANE: Your Honor, the short answer is that there

9 are many, many securitizations at issue here. There's no

10 centralized repository that we know of, other than, for

11 example, if you went to the trustees themselves there would be

12 a small universe of trustees who received them, but in the

13 ordinary course of business at least with respect to my client,

14 JPM, there wasn't a single place where the final closing tape

15 that went to the trustee ended up being collected and kept in

16 that form. In fact, there can in some instances be some

17 question about which was such tape, and how did it find that

18 tape. I realize that it sounds like the kind of thing that

19 would be kept in a red robe or a closing binder.

20 Unfortunately, for some institutions and some of the heritage

21 institutions that JPM, for example, has come to be responsible

22 for in the production world, that is not the case.

23 So people are working through those problems and fully

24 expect to be able to find at least a very good proxy and talk

25 openly with the plaintiff about where the questions may lie.


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1 For some it may not be possible to be certain which was that

2 tape until you've conducted a full e-mail search, for example,

3 your Honor, which we would expect to be working with the

4 plaintiff to fashion. But we do expect that we should be able

5 to come up with something that is very much like or is exactly

6 like what your Honor has ordered us to do in that time. It

7 won't be easy. JPM has 103 securitizations for which it is

8 responsible. Others have some significantly smaller numbers

9 and some are right in the middle, 50's and 60's. It's old, so

10 it just takes some time to gather those up from old systems.

11 THE COURT: Okay. So I'll assume that the information

12 responsive to my May 8th order will be produced no later than

13 June 8th, and that plaintiff's counsel and defense counsel will

14 consult with each other during this period before June 8th so

15 that there is no delay beyond that date. Ms. Chung?

16 MS. CHUNG: Your Honor, there is a loose end. I just

17 raise it now so we don't need to trouble your Honor about it

18 later. As part of loan tapes, sometimes they can vary in form

19 slightly from tape to tape. It's usual to have what's called a

20 data dictionary or in less fancy terms it's just an index of

21 what the different columns are in case it's not quite called

22 the same thing from tape to tape. It will be very -- it would

23 be productive if those data dictionaries were produced at the

24 same time the loan tapes were produced, because then there

25 would be no delay in us processing the information putting


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1 together a protocol.

2 THE COURT: Is there any objection to that by any

3 defendant?

4 MS. SHANE: Your Honor, we don't have an objection,

5 but it's the first we've heard of it, and as I say the format

6 and retention of these kinds of documents is not uniform, as

7 far as I know, across defendants, so we would respectfully

8 request permission to try to track it down for the plaintiff

9 and if we have a problem let the plaintiff know and if we still

10 have a problem come to your Honor with any specifics about it.

11 THE COURT: Thank you, Ms. Shane. So I'm going to

12 assume since no one voiced an objection that everyone will

13 produce that to the extent they're able to and we'll discuss

14 any difficulty with Ms. Chung as soon as they become aware of

15 any difficulty. Thank you so much for your cooperation on that

16 score.

17 Let's turn to sampling. As I understand it in the 16

18 cases there are 449 securitizations. There are 83 entity

19 defendants. The investments are in billions of dollars. As

20 low as half a billion to as much as 33 billion. There are

21 2.7 million loans and an individual loan file averages as many

22 as 300 pages. I indicated at our first conference that it

23 would be important to control the expense and burden of

24 discovery in this case and we would be sampling the loan files.

25 We're going to sample the loan files from the beginning of the


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1 case. We're not going to produce all the loan files, have

2 expert discovery with respect to all the loan files, and then

3 come up with a sampling mechanism as the defendants propose.

4 That saves no one any expense or burden.

5 So the issue is what is our universe of loan files to

6 be scrutinized here. The plaintiff has made a detailed

7 proposal and before -- and I have a number of questions for

8 counsel about these matters, but I did ask Mr. Kasner to be

9 prepared and I'm happy to hear from other defense counsel in

10 their cases about how due diligence -- whether as part of the

11 due diligence function of the defendants loan files were

12 examined and if so was there any sampling protocol and if so

13 what percentage of loan files were sampled.

14 Mr. Kasner, were you able to get any light shed on

15 that issue?

16 MR. KASNER: Yes, your Honor, some. I can't vouch for

17 the holder of the flashlight, but I believe based on what I'm

18 about to tell your Honor that that is the case, and I do

19 appreciate your Honor acknowledging that different defendants

20 in these cases are differently situated.

21 Ms. Shane I believe is prepared to address your Honor

22 as well on the issue of sampling on behalf of the group as a

23 whole, but mindful of your Honor's order, at UBS as I've

24 advised the Court there were two different roles that UBS had.

25 It was not a loan originator as opposed to some of the other


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1 defendants in the cases. UBS was a whole loan purchaser which

2 then formed the basis to some extent of the securitization, or

3 it was an underwriter of a securitization that was offered for

4 sale by a different issuer or a non-affiliated UBS issuer. In

5 both cases as I understand your Honor is that UBS received a

6 tape and then it engaged in what was called a stratification of

7 the tape to some extent, and again, just to be clear, I'm

8 advising the Court and everybody else what I understand to be

9 the case as of this point. I wouldn't want Mr. Selendy to say,

10 Kasner, you said X and the witness said Y, but I doubt that

11 that would happen.

12 As I understand it, the tapes were received and then

13 there was a stratification done. In other words, your Honor,

14 there was an attempt to sample. The sampling was based, as I

15 understand it, on two sets of criterion. One was a random

16 sampling and the other one is what is known as an adverse

17 sampling. By that I mean there were certain criterion of the

18 loans that were in a particular pool, a particular credit

19 score, a particular geographic location, a particular loan to

20 value ratio that may have indicated a higher risk for that

21 particular loan. There were samplings that were then applied

22 to that universe of loan, your Honor. Your Honor had inquired

23 about the statistics or what percentages were sampled. It

24 varies, your Honor, based upon a whole different set of

25 criterion, including but not limited to the identity of the


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1 loan originator itself, the familiarity that UBS may have had

2 with that loan originator from other deals.

3 On average, your Honor, the sampling where it was a

4 UBS-sponsored deal was approximately 37 percent of the pool and

5 where UBS was an underwriter of a non-UBS deal, it was

6 approximately nine percent and that's give or take a little bit

7 on either side from what I understand.

8 The due diligence itself, your Honor, went into a

9 whole host of different criterion that had to do with what were

10 called credit issues, what were called legal compliance issues,

11 and then separate data review. And, your Honor, I'm confident

12 that when Mr. Selendy and his team of lawyers depose the

13 appropriate people they will get into what those various due

14 diligence were that I've just described to the Court, but I

15 hope that answers your Honor's question.

16 THE COURT: You say sampling -- thank you, it's very

17 helpful and very responsive -- and gave the percentages of

18 37 percent and 9 percent. Are you telling me that 37 percent

19 of the loan files as opposed to, for instance, a loan tape or a

20 tape that gives summary information about a loan was sampled?

21 MR. KASNER: As I understand it, your Honor, UBS

22 received this tape and it had a whole -- it was an Excel

23 spreadsheet, for lack of a better word, and it had many, many,

24 many fields of data. From those fields of data selection was

25 applied, random selection and then this adverse selection to


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1 which I was referring. Once that list was arrived at a

2 percentage, either that generated a percentage and it was then

3 given, in other words, UBS worked with third party due

4 diligence providers who actually received the loan files and

5 conducted the due diligence.

6 To answer your Honor's question, my understanding is

7 that 37 percent -- the loan files with respect to 37 percent of

8 the pool of loans were due diligence. In other words, let's

9 assume, your Honor, that there were ten loans in a pool, or

10 excuse me, there were a hundred loans in a pool as a result of

11 this selection and sampling ten of those loans were reviewed.

12 So that's ten out of a hundred is 10 percent. That would have

13 been ten percent. Here, as I say on average -- some were

14 higher, your Honor. There were 26 deals that are at issue in

15 the UBS case. Some portion of those are UBS-sponsored deals.

16 There's a range, your Honor. Again, as I mentioned to

17 the Court there were a whole host of factors that led to a

18 decision of how many loans to sample. Some were more than 37,

19 some -- obviously, the nature of the term average.

20 THE COURT: And just to make sure I understand

21 correctly there's a tape that reflects all the loans within a

22 securitization.

23 MR. KASNER: Well, your Honor, there is a tape with

24 respect -- let's assume in the hypothetical that UBS is

25 purchasing 100 loans from American Home Mortgage, to use an


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1 example. UBS would then get a tape, as I understand it,

2 reflecting the data for those hundred loans. I apologize, your

3 Honor, I interrupted you. I didn't mean to do that.

4 THE COURT: No, it's very important, I think, to me

5 that I understand you.

6 So what you referred to as stratification was applied

7 against that tape and I just want to make sure that the

8 37 percent or the 9 percent, the two figures you gave me --

9 MR. KASNER: Yes, your Honor.

10 THE COURT: -- were with respect to the hundred loans

11 on the tape, to use your hypothetical, as opposed to a subset

12 of the 100 that was identified after the analysis that was

13 done, the adverse sampling, etc. If there was a subset of the

14 100 that was pulled out because of some kind of statistical

15 analysis, and then from that subset, which could be, let's say,

16 for my example, 20 percent, and of that 20 percent, then,

17 9 percent or 37 percent of the actual loan files were sampled,

18 do you know --

19 MR. KASNER: Your Honor, if I could confer with my

20 brain trust, the ever elusive Mr. Musoff, if you give me a

21 moment, your Honor. He's feverishly scribbling a note. I just

22 want to make sure I know the answer.

23 Yes. So the percentage, the 37 percent is 37 percent

24 of the loans that appeared on the original tape and do not

25 represent a lesser universe of all of the loans that are then


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1 stratified that are then percentaged against.

2 THE COURT: Thank you. And so the range of the

3 sampling of the original loans in the UBS securitizations

4 ranges from 9 percent to 37 percent?

5 MR. KASNER: Well, your Honor, no, with all due

6 respect, I believe you may be mixing the two concepts. In the

7 deals where UBS was solely an underwriter where you have Ally

8 Financial, to use an example, perhaps a poor one at this point

9 in time, but nevertheless Ally Financial having sold the

10 securitization. The average loans that were reviewed, sampled,

11 to use the Court's term, was -- approximately, your Honor.

12 This is not a science and if it's 8-1/2 or 9-1/2, it's in that

13 ballpark as best as we can tell.

14 And then with respect to UBS-sponsored deals that are

15 at issue in the FHFA case against UBS and the family entities,

16 to use your Honor's term, that is, what did I say, 37 percent?

17 Yes, 37 percent, your Honor, approximately.

18 THE COURT: Okay. Thank you.

19 MR. KASNER: And again, your Honor, I would caution,

20 just because there are a lot of financial institutions that are

21 represented in this courthouse at this moment, I don't know of

22 any information one way or the other as to how that stacks up

23 against what other financial institutions did.

24 THE COURT: And, Ms. Shane, you wanted to be heard?

25 MS. SHANE: I'm afraid that Mr. Kasner may have



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1 indicated that I would be able to speak more intelligently than

2 I can at this time about other institutions' practices. I can

3 say that just as he said there is an enormous amount of variety

4 and variation both across institutional entities and even

5 within institutions depending on the very factors Mr. Kasner

6 has listed as well as additional factors. The additional

7 factors can include such things as the type of deal at issue,

8 not just the role that the institution is playing, although it

9 ends up being a slightly different role, but there are in this

10 case in a number of instances things known as

11 resecuritizations. So, for example, there's been a whole

12 exercise in the first securitization and this is a further

13 exercise on that exercise, just as in Mr. Kasner's example

14 where you have an underwriter who is playing a different role

15 than a sponsor. In those situations you may have diligence or

16 sampling that reflects a stepback role for an institution.

17 In addition, you may have situations in which the pool

18 is not as uniform. As in Mr. Kasner's illustration, which was

19 helpful, in many, many of these securitizations instead of

20 coming as one big batch subject to one-time diligence through

21 sampling or otherwise, you sometimes may have situations where

22 for one reason or another different pools that have been

23 diligenced at different times will end up being part of a

24 securitization and those standards may differ, depending on

25 where they came from and other factors of the sort Mr. Kasner


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1 has mentioned. So the light that I can shed is it's a great

2 big world of very varied practice within institutions and

3 certainly across institutions, your Honor.

4 THE COURT: Okay. Very helpful.

5 So the factors that the parties' papers mentioned that

6 might drive how to personalize the sampling system for a

7 particular securitization were factors like who the originator

8 is or who the originators were, how many there are, the time

9 frame covered by the origination of the loans, what parts of

10 the country the loans originated in, any changes in

11 underwriting guidelines during the period of that

12 securitization with respect to that originator, and certainly

13 the conversation this morning or this afternoon suggests

14 additional factors and levels of complexity.

15 In the plaintiff's papers they suggested

16 hypothetically that a 10 percent sampling might be enough.

17 That is still a humongous undertaking. Huge. And I would

18 think it would be unnecessary to do that, to have that kind of

19 production if there was a lot of consistency within a

20 particular securitization.

21 There's another issue that the parties' papers

22 addressed and that is whether or not you'd be looking at the

23 entire securitization or what the parties referred to as the

24 supporting loan groups for the claims at issue here. And I

25 would hope we could have agreement that it would be only the


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1 supporting loan groups that we would be talking about as our

2 universe, since the plaintiff's claims rise or fall with

3 respect to that. Ms. Chung?

4 MS. CHUNG: May I, your Honor? As to the focuses on

5 the percentages, I think in some way that could be misleading.

6 Really the holy grail here is to get to the 95 percent

7 confidence level. So your Honor is right in pointing out that

8 in our paper we gave an example of a 4,000 loan population or

9 universe, you could get to that confidence level by sampling

10 384 loans. If the number of loans in the pool may move much

11 higher than that, and actually the number of loans won't move

12 in proportion because under statistical principles you're not

13 going to drive the number higher, you can keep the confidence

14 number the same without driving the sample that much higher.

15 I hope we haven't falsely raised the specter that if

16 the loan pool is 10,000 then you're going to be moving to a

17 number that's again 10 percent of that. The numbers that we're

18 hearing for the due diligence that was done by UBS just in our

19 experience sound high, although based on what we know about the

20 industry, other cases that we've worked on, but we concede that

21 yes, there can be different characteristics. It may be due to

22 the role UBS was playing with the loans, so that's fine, we

23 take the information as it's given.

24 I would say that in terms of the characteristics and

25 the supporting loan groups specifically --


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1 THE COURT: I'm sorry?

2 MS. CHUNG: The specific loan groups and whether or

3 not that's going to be the specific universe or all the loans

4 and your Honor knows that moves the number from about a million

5 loans to 2.7 million loans, so that could be a huge difference.

6 We have not heard the rationale for why something larger than

7 the supporting loan groups would be relevant in this case.

8 Certainly it was our position in our papers that the relevant

9 loan groups is the supporting loan groups.

10 THE COURT: Okay. This may be too much to hope for,

11 but I'm hopeful that you folks could come to agreement before

12 our June conference on a sampling protocol. I could even

13 envision that you would jointly agree as to an expert who would

14 consider the factors the parties identify and randomly select

15 the right number of loan files and which loan files in a

16 particular universe will be produced in discovery here, and

17 subject to proof at trial as representative of all the issues

18 in the case. And I'm going to assume, unless I'm convinced

19 otherwise, that we're only talking about the supporting loan

20 groups within a securitization that would be subject to the

21 sampling and that no evidence would be admitted at trial with

22 respect to loans outside the supporting loan groups. I mean,

23 that is the substance of the individual loans. I'm not talking

24 about the raw numbers, that there were so many loans within a

25 securitization and this percentage were part of the support is


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1 loan groups. I'm talking about the contents of the loans

2 themselves, the characteristics. And I think this has to be

3 decided, I'm hoping it will be decided before our June

4 conference, but it has to be decided. I will have to decide it

5 at the June conference or within days of the June conference if

6 there's a disagreement. Mr. Selendy?

7 MR. SELENDY: Yes, your Honor, thank you. I did want

8 to say with respect to the protocol for stratification or

9 clustering of deals within a given case, we had submitted that

10 the loan tapes would be important to that exercise because,

11 frankly, there are many different ways in which one could

12 conceivably stratify a population or complicate the exercise

13 and we've adduced certain grounds that we think are material,

14 such as loan performance or documentation type or LTV. The

15 defendants have suggested there may be many more factors. In

16 practice one could proceed with a simple random sample. One

17 could proceed without even reaching a 95 percent degree of

18 confidence because what we're trying to accomplish is a degree

19 of significance such that misrepresentations in that area would

20 matter that there would be some confidence in saying, look,

21 this is fairly reflective of the pool, even if it's not

22 95 percent.

23 We do wish to, however, present the Court with the

24 best data we can, which is why we would like to arrive at

25 samples that yield that 95 percent degree of confidence and we


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1 would like to use stratification and possibly clustering as

2 means of achieving that both from a standpoint of efficiency

3 and to insure that any extrapolation is as informative as

4 possible. But as we have talked with our expert we understand

5 in this and in other matters, frankly, that the loan tapes are

6 an important step to develop the precise protocol. So if it's

7 correct that we won't be getting those loan tapes for 30 days I

8 have some concern that we won't be able to present your Honor

9 with a full protocol as of the conference 30 days from today.

10 THE COURT: Well, I don't actually -- perhaps this is

11 wishful thinking. What I'm thinking about is that we would,

12 you would agree upon a process, and it may be easier to do it

13 one case at a time and we may as well start with the UBS case

14 and see if you can get agreement there and then prioritize the

15 next five that are going to trial, whichever they are. But I

16 think --

17 MR. SELENDY: That makes a great deal of sense to us,

18 your Honor.

19 MS. SHANE: May I be heard just for a moment?

20 THE COURT: Ms. Shane.

21 MS. SHANE: Yes. Thank you, your Honor. We welcome

22 further engagement in a process with the plaintiff. Contrary

23 to the impression that appears to have been created, it has

24 never been defendant's position in any way at any time that the

25 only way to conduct discovery in this case or to get to the


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1 merits is by full production of every loan file. Our position

2 has been instead that just as in many other cases that are

3 currently being litigated and in this world as well as in other

4 cases, it is entirely appropriate for each party to come to its

5 view and even to exchange views about what would be a more

6 efficient method of proof including proof through sampling that

7 is being done in other cases. The discovery that would then

8 follow from that could easily be much more efficient and

9 economical than production of all loan files.

10 The only time that defendants have referenced the

11 concept of production of all loan files, your Honor, is simply

12 to make clear that we were not in any way resisting producing

13 loan files and then saying, oh, and unless you proved your case

14 through all the loan files, plaintiff, you're going to lose.

15 If plaintiff had wanted the loan files, defendants were

16 prepared to produce the loan files and that remains the case.

17 Defendants also are concerned, your Honor, that while

18 the sampling approach has surface appeal and may very well

19 prove to reduce some costs in some ways, it can be potentially

20 dangerous in the sense that, for example, if what a random sort

21 in a particular test case were to come up with is that you

22 needed to have a representative sample from each of the

23 originators that fed into the pool, you might well find that

24 you still need to go out and do the non-party discovery

25 necessary in order to figure out whether there were or were not


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1 misrepresentations from those original pools. It might not

2 solve the problems it looks like it's going to solve at least

3 not nearly as neatly as it might look.

4 So we would welcome having a sense, a better sense

5 than we've had to date from the plaintiff of what it is that

6 the plaintiff regards as the steps that would in fact create

7 these savings. We're open to doing that with them. We also

8 think that, just as Mr. Kasner has described for your Honor,

9 the kinds of sampling that may have been done in the ordinary

10 course at UBS, it would be quite helpful if plaintiff would do

11 the same. As Mr. Kasner has mentioned to your Honor a couple

12 of times, the plaintiff was in this business as well, that is,

13 the GSE's were in the business, they had samplings they had

14 tapes and they have had samplings that they used to make

15 allegations in this case already, so kind of exchange of

16 information rather than trying to come at it with defendants

17 saying what they would do or with both parties having to say it

18 at the same time we think would be a better process for getting

19 to a sensible way to go forward on this, which we would be

20 happy to do, your Honor.

21 THE COURT: Ms. Shane, the plaintiffs have been asking

22 for the loan tapes for months. You resisted turning them over.

23 I did not require them to be turned over until now. They've

24 indicated from the beginning that they needed the loan tapes in

25 order to have the ability to make a more detailed proposal.


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1 Three, your brief, I'll go back and read it again if

2 you would like me to, but made very clear that you were not

3 making any proposal and I thought that it was also clear that

4 you did not think any proposal could be made until all

5 discovery had taken place, including all the fact and expert

6 discovery.

7 Now, if the only party that I have a sampling proposal

8 from is the plaintiffs and the defendants aren't going to

9 engage in this process in any meaningful way, sobeit. I'll do

10 my best. But I don't have a proposal from the defendants for

11 sampling in any individual case or across the cases, and I am

12 very aware that from case to case it may, the protocol for

13 sampling may be very different because of the securitizations

14 in that particular case. But it takes two to tango here and if

15 the defendants want to participate, I would be thrilled. You

16 have the loan tapes. You know what your due diligence

17 protocols were. The plaintiffs don't at this point. If you

18 have a proposal to make to them, please do so.

19 MS. SHANE: We certainly will, your Honor, and I

20 apologize if we created the impression at any point that we

21 were not prepared to participate meaningfully. The point in

22 our papers with respect to the stage at which this might most

23 productively occur had to do with determinations of

24 admissibility and the like, which there is concern not be done

25 prematurely. I realize that we need to find a way to do


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1 discovery that won't be a mismatch with what ends up being

2 admissibility at summary judgment or at trial and defendants

3 would like to work on that project as well. The concern is

4 that we get ahead of ourselves, unfortunately, if we determine

5 admissibility before we've even done the discovery.

6 As the plaintiff acknowledged, they did not serve the

7 document request that your Honor permitted them to serve or

8 make a request for the tapes as of February 6 since the time

9 that they were permitted to do so. They did wait until now in

10 order to do it and, actually, your Honor has issued an order

11 for them. We are prepared to make that production that your

12 Honor has called for so that we have a basis on which to go

13 forward with these discussions. We certainly will engage in it

14 in good faith with an effort to come to a sensible resolution.

15 But we have not been resisting that today.

16 THE COURT: Thank you, Ms. Shane.

17 MR. KASNER: Your Honor --

18 THE COURT: Mr. Kasner.

19 MR. KASNER: If it please the Court, just 30 seconds

20 more. To pick up on one point Ms. Shane addressed, we had

21 communicated with the Court in a letter subsequent to the entry

22 of your Honor's May 8th order requesting that the FHFA or

23 Fannie and Freddie provide similar information to the defense

24 counsel. The reason we did that, your Honor, it elicited a

25 response from counsel, well, this case is about your


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1 securitizations, not ours.

2 We differ with that, your Honor. Now is not the time

3 to lay out every reason as to why because there is a motion

4 before the Court, but if we're going to have an intelligent

5 conversation on both sides with respect to sampling and with

6 respect to sampling sizes, your Honor, I believe, placed

7 tremendous reliance in her opinion on the sampling or the

8 statistical analyses that were done by the FHFA that's

9 referenced in paragraphs 298 to 316 of their pleading against

10 UBS. In addition, they did their own sampling as originators.

11 They, like all of the other financial institutions in this

12 court, securitized loans and sold those securitizations to the

13 public. If they sampled those loans for the same purpose your

14 Honor has ordered UBS to provide the information we think that

15 would be enlightening. If they're taking the position, oh,

16 35 percent is enormous and their methodology to give them the

17 comfort that they needed under the securities laws to sell

18 securities to the public was 2 or 50, we think that that would

19 bear on the issue that your Honor is at least asking us to

20 consult with counsel on in advance.

21 THE COURT: And I'll absolutely allow you to have

22 those conversations with them, Mr. Kasner. Thanks so much.

23 So we will have sampling and I urge counsel to come to

24 agreement on that, and if you can't I'll hear from you further

25 and give you a ruling.


(212) 805-0300


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C5EFFHFC

55

1 Let's turn to the issue of settlement. Your

2 magistrate judge is Judge Maas. I mentioned at our last

3 conference that I would have the ability to ask a senior judge

4 of this Court, one or more, to participate in settlement

5 discussions. One of the questions is when. Is any case in

6 this courtroom ready for settlement discussions now? Do we

7 need document discovery? Do we need depositions? Do we need a

8 few depositions, do we need all depositions? The timing of

9 settlement discussions.

10 With respect to 5201, the UBS case, Judge Kaplan has

11 kindly offered his services to assist in the settlement of that

12 case. So I'll ask plaintiff's counsel and defense counsel to

13 talk with each other and to talk about when it might be ripe to

14 begin those settlement discussions with the assistance of the

15 Court. And, of course, if you would prefer to in any case use

16 some alternative method of mediation or settlement discussions

17 that's just fine with me. This is just an opportunity that we

18 make available to you.

19 Lastly, with respect to coordination of the cases, I'm

20 only aware of one case that I need to make sure I coordinate

21 with another judicial officer and that's the Connecticut case

22 and Judge Thompson. I'd ask counsel if there are any

23 additional cases, please to let me know so I can reach out to

24 other judicial officers to make sure that our discovery goes

25 along a similar track.


(212) 805-0300





C5EFFHFC

56

1 MS. CHUNG: Your Honor, we would just raise the

2 CountryWide case, as you know, was transferred to the MDL.

3 That remains a case that may benefit from coordination given

4 that the issues remain in common.


6 Okay, let me ask if there are any other issues that

7 counsel wish to address. Mr. Selendy?

8 MR. SELENDY: I think we are set, your Honor, thank

9 you.

10 THE COURT: Ms. Shane.

11 MS. SHANE: Your Honor, I'm sorry if I misunderstood,

12 but with respect to the proposals with respect to how to

13 conduct the document discovery and the depositions, are those

14 for us to discuss and come back to your Honor about or have

15 you -- okay, very good.

16 THE COURT: Other than the pretrial order dates which

17 are firm and you should consider them and the fact that we'll

18 proceed on four tranches. Well, I shouldn't even say that.

19 I'd like the idea, obviously, of four tranches with one case

20 being in the first tranche so you'd have an ability to focus

21 your initial deposition discovery on the plaintiff and one set

22 of defendants and I expect everyone would learn a lot from

23 that. You'd have a single summary judgment motion, which I'd

24 address and I expect everybody would learn a lot from that.

25 We'd have one pretrial order and I expect everyone would learn


(212) 805-0300


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C5EFFHFC

57

1 a lot from that and if it went to trial one trial. And I think

2 that there would be efficiencies for the other 15 cases to

3 proceeding this way, and yet I don't want to do 15 cases one at

4 a time. That would just take us all too long.

5 So I'm really open to getting feedback at the June

6 conference on everything and if you as a group, if you had

7 unanimity about a counter proposal or a different way of

8 looking at this and organizing our lives I'd be absolutely

9 happy to hear it. But I think as a structure this makes sense.

10 Ms. Shane?

11 MS. SHANE: Thank you for that clarification, your

12 Honor. I think it does make more sense for us to confer with

13 each other and come back in June about the proposals.

14 Mr. Kasner may have something to add.

15 MR. KASNER: Thank you, your Honor. If I could impose

16 upon you for 30 more seconds. I recognize the hour is late.

17 Two housekeeping matters. With respect to UBS's time to

18 answer, we had thought that if all the cases were proceeding

19 together that we would request that our time to answer the

20 complaint be abated until the resolution of motion practice

21 with respect to the other complaints. I don't know in view of

22 the schedule that your Honor is now contemplating whether that

23 is something that the Court would entertain or not.

24 I have not had a chance to ask Mr. Selendy about this,

25 because much of what was discussed today we're hearing, as the


(212) 805-0300


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C5EFFHFC

58

1 Court is aware, for the first time. But we would propose and

2 ask that our time to answer be held in abeyance until all the

3 other defendants had an opportunity to resolve and then we can

4 all answer at once.

5 THE COURT: I'm happy to have counsel talk with each

6 other about that, but I think we need to get the UBS case

7 moving and I'm happy to extend your time to answer, to give you

8 four to six weeks or whatever, but I think -- I don't even have

9 a proposal for amended pleadings in this first group of cases

10 and there's going to be a second group, and I'll have lots of

11 motions to decide and who knows when times to answers will

12 begin. So I think UBS, for better or worse, having the

13 pleasure of being named in 5201, the lowest docket number,

14 needs to answer.

15 MR. KASNER: All right. Then, your Honor, I would

16 take the Court up on the generous offer for a six-week

17 extension so that we can prepare an answer. I don't know if

18 the Court requires a stipulation or could just so order what

19 your Honor has just said, whatever your pleasure.

20 THE COURT: How about June 22?

21 MR. KASNER: Thank you, your Honor. That would be

22 fine.

23 THE COURT: I think in the future, again, UBS is

24 blazing the trail here. In the future people should assume,

25 counsel in other cases should assume the normal time frame for


(212) 805-0300


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C5EFFHFC

59

1 reply.

2 MR. KASNER: Thank you, your Honor. The only other

3 point I wish to alert the Court to is a housekeeping matter.

4 As Mr. Selendy was quoted in the newspaper following your

5 Honor's decision, your Honor's decision was, quote, historic,

6 and addresses -- that is a quote at least according to the

7 media. The issues that your Honor addressed --

8 THE COURT: I thought it was about 12(b)(6).

9 MR. KASNER: Your Honor, some of the legal issues here

10 are actually quite important, so I wish to advise the Court

11 that on behalf of UBS we anticipate filing a motion under 28

12 U.S.C. 1292(b) to have some resolution perhaps by the Second

13 Circuit of the issues, at least the hearing issues that your

14 Honor has addressed for the first time.


16 So with respect to motion practice like that, I'll

17 just assume that the normal Southern District rules of two

18 weeks/one week will apply, but I am happy if counsel talk among

19 themselves and get me a stipulation with a more elongated

20 briefing schedule, certainly of two weeks and three weeks, that

21 would be fine with me. Three weeks for opposition, two weeks

22 for reply. So if you make such motions if you get me a stip

23 with a different proposed briefing schedule, I'd be happy to

24 sign. Anyone else have any other issue? Good. Thank you so

25 much for your help this afternoon.






C5EFFHFC

60

1 (Adjourned)

2

3

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8

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10

11

12

13

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(212) 805-0300





Jay B. Kasner

Scott D. Musoff

Robert A. FumertonSKADDEN, ARPS, SLATE,

MEAGHER & FLOM LLP

Four Times Square


(212) 735-3000

Attorneys for Defendants UBS Americas Inc.,

UBS Real Estate Securities Inc., UBS

Securities LLC, Mortgage Asset Securitization

Transactions, Inc., David Martin, Per Dyrvik,

Hugh Corcoran and Peter Slagowitz



- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

FEDERAL HOUSING FINANCE AGENCYAS CONSERVATOR FOR THE FEDERAL




Plaintiff,

v.

UBS AMERICAS INC., UBS REAL ESTATE

SECURITIES INC., UBS SECURITIES, LLC,

MORTGAGE ASSET SECURITIZATION

TRANSACTIONS, INC., DAVID MARTIN,

PER DYRVIK, HUGH CORCORAN, and

PETER SLAGOWITZ,

Defendants.

::

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:

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11 CIV 5201 (DLC)

ECF Case

Electronically Filed

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

NOTICE OF MOTION TO CERTIFY AN APPEAL PURSUANT TO 28 U.S.C. § 1292(b)

OF CERTAIN PORTIONS OF THIS COURT'S MAY 4, 2012 ORDER DENYING

IN PART THE MOTION TO DISMISS THE SECOND AMENDED COMPLAINT

PLEASE TAKE NOTICE that, upon this Court's Opinion and Order dated May 4,

2012 (the "May 4 Order"); the accompanying Memorandum of Law dated May 23, 2012; the

accompanying Declaration of Jay B. Kasner dated May 23, 2012, with exhibits; and upon all


A-223




2

prior pleadings and proceedings herein, Defendants UBS Americas Inc., UBS Real Estate

Securities Inc., UBS Securities LLC, Mortgage Asset Securitization Transactions, Inc., David

Martin, Per Dyrvik, Hugh Corcoran and Peter Slagowitz will move this Court, before the

Honorable Denise L. Cote at the United States Courthouse, 500 Pearl Street, New York, New

York, 10007, on a date and at a time designated by the Court, (A) for an Order, pursuant to 28

U.S.C. § 1292(b), certifying for interlocutory appeal this Court’s Order, dated May 4, 2012 (the

“May 4 Order”), with respect to the following two issues raised in the May 4 Order: (1) whether

the "extender" provision found in Section 12 of the Housing and Economic Recovery Act of

2008 ("HERA") applies to statutes of repose; and (2) whether HERA's extender provision applies

to claims brought under federal law; and (B) for such other and further relief as this Court may

deem just and proper.


May 23, 2012


By: /s/ Jay B. Kasner

Jay B. Kasner

Scott D. Musoff

Robert A. Fumerton

SKADDEN, ARPS, SLATE,

MEAGHER & FLOM LLP

Four Times Square


Phone: (212) 735-3000

[email protected]

[email protected]

[email protected]

Attorneys for Defendants UBS Americas Inc., UBS Real

Estate Securities Inc., UBS Securities LLC, Mortgage

Asset Securitization Transactions, Inc., David Martin,

Per Dyrvik, Hugh Corcoran and Peter Slagowitz





3

TO: Philippe Z. Selendy


51 Madison Avenue, 22nd Floor New York, New York 10010-1601

(212) 849-7000

[email protected]

Attorneys for Plaintiff Federal Housing

Finance Agency


A-225





A-226



---- ------- ----- - -- -- --- ---- -----xFEDERAL HOUSING FINANCE AGENCY

AS CONSERVATOR FOR THE FEDERAL




Plaintiff,

v.

UBS AMERICAS INC ., UBS REAL ESTATE:

SECURITIES INC., UBS SECURITIES, LLC, :MORTGAGE ASSET SECURITIZATION

TRANSACTIONS, INC., DAVID MARTIN,

PER DYRVIK, HUGH CORCORAN, and

PETER SLAGOWITZ,

Defendants.- - - - - - - - - - - - -- -- - - -- - - - - - - - - - - - - -x

II CIV 5201 (DLC)

ECFCase

Electronically Filed

DECLARATION OF JAY B. KASNER IN SUPPORT OF DEFENDANTS'

MOTION TO CERTIFY AN APPEAL PURSUANT TO 28 U.S.C. § 1292(b)OF CERTAIN PORTIONS OF THIS COURT'S MAY 4, 2012 ORDER DENYING

IN PART THE MOTION TO DISMISS THE SECOND AMENDED COMPLAINT

Jay B. Kasner, under penalty of perjury, declares as follows:

I. J am a member of the Bar of this Court and of the firm Skadden, Arps, Slate,

Meagher & Flom LLP, attorneys for defendants UBS Americas Inc., UBS Real Estate Securities

Inc., UBS Securities LLC, Mortgage Asset Securitization Transactions, Inc., David Martin, Per

Dyrvik, Hugh Corcoran and Peter Slagowitz (collectively, the "Defendants").

2. I respectfully submit this declaration in support ofDefendants' Motion to Certify

an Appeal Pursuant to 28 U.S.C. § 1292(b) ofCertain Portions of this Court's May 4,2012

Order Denying in Part the Motion to Dismiss the Second Amended Complaint and to transmit to

the Court true and correct copies of the documents described below.





A-227

3. Attached hereto as Exhibits A through F are true and correct copies of the

following documents:

Exblblt DeSCription

A Ross Todd, Quinn Emanuel and FHFA Clear Big Hurdle in Huge MBS Case, The

American Lawyer, May 4, 2012.

8Ross Todd, Agency's Suit Against Bank Proceeds . New York Law Journal , May 8,

2012.

C

Complaint, Fed Deposit Ins. Corp. v. Bear Stearns. el al., No. 12-cv-4000, filed May

18,2012.

DComplaint, Fed. Deposit Ins. Corp. v. J.P. Morgan Securities LLC. et al., No. 12-cv-

4001, filed May 18.2012.

E Transcript ofMay 14, 2012 conference before the Honorable Denise L. Cote.

Letter from Congressman Darrell [ssa, Chairman of the House Committee on

F Oversight and Government Reform, to Edward DeMarco, dated Sept. 29, 20 11,

without attachment.

I declare under penalty of perjury pursuant to 28 U.S.C. § 1746 that the foregoing is true and

correct.

Executed on May 23, 2012.

/s/ Jay B. Kasner

Jay 8. Kasner

2




([KLELW $

Case 1:11-cv-05201-DLC Document 85-1 Filed 05/23/12 Page 1 of 2

A-228





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The American Lawyer: Quinn Emanuel and FHFA Clear Big Hurdle in ... I1ttp: /fwww.americanJawyer.comldigestFriendlyTAL.jsp?id-1202SS20 ..

lof l

THE

!\MLAw LITIGATION DAILYALM Propertiee, Inc.Page printed lrom: TOO American Lawyer

Back to Article

Quinn Emanuel and FHFA Clear Big Hurdle in Huge MBS Case

Ross Todd

Tte litigation Daly

05-04-2012

On Friday the Federal HousillJ Firarce Agency arxl its lawyer, at Quim EmarJ,IEIl UrQr.hIr1 & SUlivan Cf06tied a major tudle in ttllli" JU&w of claims against issuurs 01

resiclontlal m o ~ c k o d s ~ i l l o s . In lJ!i ;iI , * r u ! 9 . . ~ Pit0 Q.(i;lt(. Marl\aIttanlederal district judge DElme Cota sided with the Ft-FA, the ~ o r of Freddie Mac

arxl Fal1ie Mae, denying a motion to dismiss claims againi5t LeS filed by the balil.'s lawyer, at Skaddal\ Arps, Slate. Meagher & Flom.

The rulirg is a big >ActOI)' for Quinn arxl the Ft-FA. The firxlirgs directly affect al 15 Ft-FA cases belon! Cote, woo t-altstayed dlsrovery in thof;a cases..dlru her

rullrg on t.eS's motion. The H F t . _ 9 f " l g i r a l l y ~ s.iJs i ! I : ~ l ~ p t ~ r r L ~ agail'6t a wl"u's wl"u 01 the financial industry, lncIudlrg JPMorg an ChaH, Goklman Sachs, Credi

SWi5e, ar d Bar*. of America's Cotrirywide uriI. Quim's Philippe SelerUy ard Sltadden's Jay Kasner were appoinled iaison CO\XISeI in the the consolidated cases

befor8 Cota In December.

Salerdy wa5l.1lderst ardably plea5ed "On behalf of CU" clio .. we are deeply appreciative 01 Judge Cote's listoric ard well-reasoned decisionconfrming ttat FHFA

may prooeed with its cl81ms on behalf of Fannie Mae, Fred!ie Mac, ard the American taxpayer, to recover 1osre5 l.Ilder ledera l 800 stat e secl,l"ille$ laws agaill i l the

l.Ilderwrilersof mortg':9e-backed securities,· he wrota in an e-mal Frklay aftorroon.

When Skaddenfiled the moli9fl \9. dismlSl'i In Jarl.2IV, it argued that Ft-FA's clams wer8 barred by the statute 01 repose, tlut the allerq ladl;ed &arxlirg, ar n that the

plBintiff Iu d faifad to stata a claim under federa l S8CISitles law On the statue of initations issue, L.eS argued t tat 2007 media reports, IawsWs, ard investigations ttat

bJougl1 to ligl1loan origiretbn practices in the industry pre-dated the formation of the FrFA by more t tuna year.

Bi t Cote didn't agree with any of thcne arll\lffi9rts, ard dismissed oriy F l - F ~ ' s common law clams of negligent risrepreseotation, Cote fQl.Qj that Fame ar d Freddie

were enliled to rely on the ba""s assertions about thB loans that were In the off erirg mate.-ials for the seGWitie5. "'The public repatil1l •.• is releva .. to piail1iff's dai"ns

only insofar as i regates any effort by dllferxlants to maintain that they lIl!ercised due ddigenGe or reasonabla cars to anslSa that the loans i"cIuded i1 the5eCll"itizatiorli5were as descrbed,· Cote Wroill.

Skadden's Kasner did not immediately respond to Ol./I" request for commanl. A t.eS spollesperson passed alorg the foHowirg statame .. by email; "The Governnenl

Sponsored E",erprlses (GSEs) are, ard were, sopl"isticated participanls in the rasijanlial m o r t g a g e - b a c ~ secu-iies (RMBS) market with e.qJert kr uwledga of oan

origination prltCtices arxl secu-ilB s u-derwrlillJ starxlards. The losses sustained on their real astate portfoli() are attribliable to the detlpest recessbn In 75 years. UBS

is studyirg today's dacislon, ar d ramairrs corlida'" i1 i\$ defanses to the daims in the lX:ImpIairt."

Copyright 2012. AlM Media Properties, l lC. All rights reserved.

5122/201211:18 AM






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Plaintiff,

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Defendants.

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Plaintiff,v.

JPMORGAN CHASE & CO., et al.,

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Plaintiff,

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HSBC NORTH AMERICA HOLDINGS, INC., et al.,Defendants.

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Plaintiff,

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BARCLAYS BANK PLC, et al.,

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Plaintiff,

v.

DEUTSCHE BANK AG, et al.,

Defendants.

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Plaintiff,

v.FIRST HORIZON NATIONAL CORP., et al.,

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Plaintiff,

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BANK OF AMERICA CORP., et al.,Defendants.

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Plaintiff,

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CITIGROUP INC., et al.,

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Plaintiff,

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GOLDMAN, SACHS & CO., et al.,

Defendants.

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Plaintiff,

v.CREDIT SUISSE HOLDINGS (USA), INC., et al.,

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A-233




DEFENDANTS’ SUBMISSION REGARDING CERTAIN MATTERS IDENTIFIED IN

THE JUNE 6, 2012 RULE 26(f) JOINT REPORT

Pursuant to the Court’s Order dated May 15, 2012 (the “May 15 Order”) entered

in the above-captioned actions (the “Actions”), the defendants (collectively, the “Defendants”),

by and through their respective counsel, respectfully submit their positions concerning certain

case management proposals. The proposals were initially outlined by the Court at a May 14

conference and in the May 15 Order (collectively, the “Court’s Initial Proposals”) and by FHFA

in the course of the parties’ communications concerning the June 6, 2012 Rule 26(f) Joint Report

and the issue of “sampling” (the subject of a separate submission).

The Court’s Initial Proposals, and FHFA’s subsequent proposals, would

undermine the development and presentation of the factual issues in these 16 distinct cases.

Although a case management plan should provide for efficient coordination, such coordination

should not occur at the expense of full discovery. “The broad scope of discovery delimited by

the Federal Rules of Civil Procedure is designed to achieve disclosure of all the evidence

relevant to the merits of a controversy.” Thomas E. Hoar, Inc. v. Sara Lee Corp. , 882 F.2d 682,

687 (2d Cir. 1989) (italics altered). Defendants thus propose to modify the Court’s Initial

Proposals to achieve efficiencies without sacrificing fundamental fairness and due process. With

few exceptions, Defendants’ proposed modifications would not require delay of the trial-

readiness dates the Court identified in its Initial Proposals.

In prior submissions to this Court, FHFA has said:

x “[E]ach Case presents unique issues pertaining to distinct sets of securitizations,requiring the application of law to the particular allegations and surrounding facts,

and cannot be generally addressed or resolved on an undifferentiated basis.”

FHFA’s Proposal For the Efficient Admin. of the Cases (Oct. 19, 2011), at 5.

x “[E]ach Case involves different defendants, who marketed and sold different

securitizations, pursuant to different registration statements and prospectus

supplements, containing different representations and warranties, concerning


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different mortgage loans that were originated by different entities in different

economic circumstances according to different underwriting guidelines.” Id. at 6.

Notwithstanding these prior representations, FHFA now asserts that all

Defendants collectively in all Actions should be forced to share the same number of depositions,

interrogatories and requests to admit that FHFA would have in each case. But, as set forth

below, the development and presentation of evidence to finders of fact in each case requires at a

minimum: (i) an increase in the anticipated numbers of depositions of the GSEs, FHFA and non-

parties; (ii) greater balance between the numbers of interrogatories and requests to admit

between FHFA and the Defendants; and (iii) certain adjustments to the proposed schedule for

expert discovery and its foundational facts. None of these adjustments would impact the Court’s

proposed pre-trial order dates for any case other than the UBS case.

I. THE CURRENTLY PROPOSED LIMITS ON DEPOSITIONS WOULD

VIOLATE DUE PROCESS.

Just a few months ago, as a starting point in its negotiations with Defendants,

FHFA consented to 40 depositions of GSE witnesses in these cases. FHFA’s Proposal for

Certain Case Mgmt. Issues (Jan. 11, 2012), at 3. FHFA now prefers the Court’s Initial Proposal

that Defendants collectively be allowed only 20 depositions of GSE and FHFA personnel, while

FHFA can take up to 340 depositions of Defendants (or 457 if the Court determines that the

individual defendants are not included in the 20 allowed per corporate family). Defendants

respectfully submit that a limit of 20 (or even 40) total depositions — shared among 17 distinct

corporate groups of defendants and 117 individual defendants in 16 cases that FHFA filed as

unrelated —would violate Defendants’ due process rights, the Federal Rules of Civil Procedure,

and basic principles of fairness.1

As the Supreme Court has held, “[d]eposition-discovery rules

1FHFA filed this case in New York, hundreds of miles from the GSEs’ headquarters in

Washington, D.C. and McLean, Virginia. Almost all of the GSEs’ present and former


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are to be accorded a broad and liberal treatment” because “[m]utual knowledge of all the relevant

facts gathered by both parties is essential to proper litigation.” Hickman v. Taylor , 329 U.S. 495,

507 (1947); see 8A Charles A. Wright et al ., Federal Practice & Procedure § 2101 (3d ed.).2

If 17 separate corporate groups of defendants and 117 individual defendants

across 16 different cases may take only 20 GSE/FHFA depositions, more than 150 Defendants

would have to share the number of depositions that just two defendants would have by right

under Fed. R. Civ. P. 30(a)(2)(A)(i). In contrast, having filed 16 separate lawsuits, FHFA

presumptively is entitled to a total of 160 depositions —10 in each case. The Court’s Initial

Proposal thus subtracts at least several hundred depositions from Defendants’ total allotment

under the Rules, while adding hundreds to FHFA’s total allotment.

Despite Defendants’ entitlement to at least equivalent opportunity to take

discovery and the early stage of the litigation, in the interest of efficiency, Defendants do not

presently propose equal numbers of depositions, but rather to coordinate taking as an initial

matter up to 50 depositions of GSE/FHFA employees. Additionally, because depositions should

not start at the earliest until January 2013, Defendants propose a status conference after the close

of document discovery during which the parties and the Court can consider the appropriate

number of depositions in light of the facts developed through document discovery. To date,

Defendants have identified almost 200 GSE employees who appear to have played a direct role in

employees are beyond the Court’s trial subpoena power; jurors may have access to their

testimony only by deposition. Defendants are entitled to present that testimony as part of their

cases, and would have had access to these witnesses to call live at trial had FHFA not chosen adistant forum. Accordingly, there should be no preemptive limits on trial depositions of the

GSEs’ former and present officers and employees.

2 Every party has a “due process right to prosecute his own separate and distinct claims or

defenses without having them so merged into the claims or defenses of others that irreparable

injury will result.” Garber v. Randell , 477 F.2d 711, 716 (2d Cir. 1973); see also Long Island

Lighting Co. v. Barbash, 779 F.2d 793, 795 (2d Cir. 1985).


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the GSEs’ review and purchase of the 528 securities in the 16 cases. In its initial interrogatory

responses, FHFA itself already has identified more than 30 GSE and FHFA employees with

knowledge concerning or participation in one or more of the 528 GSE purchases. Ex. 1 (Int.

Resps. 1, 2).3

Common sense dictates that the 34 GSE representatives FHFA has disclosed so

far were not all or nearly all of the GSE representatives with direct involvement in the 449

securitizations involving billions of dollars of risk. Importantly, FHFA has refused to represent

that these 34 individuals collectively have knowledge of all 449 securitizations at issue, or that

one could put together any collection of 20 GSE representatives who, between them, have such

first-hand knowledge.

It is unjust to limit depositions to fewer than necessary to examine GSE personnel

with knowledge and involvement regarding each transaction. Elements of Defendants’ defenses

(e.g., GSE knowledge and statute of limitations) and FHFA’s claims (e.g., reasonable reliance,

materiality) necessarily require discovery into the GSEs’ state of mind and actions concerning

the securities they purchased, the disclosures made, and each alleged misrepresentation. For

example, while FHFA alleges the GSEs were misled concerning the “widespread abandonment”

of originators’ underwriting guidelines, as the two largest participants in the mortgage market,

the GSEs dealt extensively with these same originators and possessed detailed knowledge about

the underwriting guidelines and practices they employed during the relevant time period,

including in connection with the 449 securitizations at issue. Present and former GSE employees

3 FHFA admitted during “meet and confer” calls that it withheld the identities of

significant numbers of GSE personnel with direct involvement in the GSEs’ purchases, while

refusing to identify any GSE employees with knowledge concerning the originators at issue,

making it impossible for Defendants, at this time, to estimate the number of potential witnesses

with this sort of relevant information. Ex. 1 (Int. Resps. 1-3). In most cases, the Defendants

have not yet even seen FHFA’s amended complaint, and there has been no production of

documents by FHFA or the GSEs. A strict cap on depositions at this point is likely to bear little

if any relation to how many people possess relevant information.


A-237




-5-

will have highly relevant information about these issues, and full and fair discovery of these

witnesses is critical to Defendants’ ability to develop their defenses.

In addition, while Defendants anticipate certain common depositions (e.g.,

depositions of high-level employees of the GSEs, FHFA, and its predecessor, OFHEO), there

also will need to be many “case-specific” depositions concerning, for example, the negotiation,

purchase, and analysis of the certificates that the GSEs purchased and the unique pools of

mortgage loans underlying each certificate. The number of case-specific depositions necessarily

will differ by case and party, depending on the number of securitizations, pools of loans, and

originators at issue, as well as the internal structures and processes of the GSEs at the time.

Limiting all Defendants to 20 party depositions in total will deprive most

defendants of any meaningful opportunity to examine GSE personnel with knowledge and

responsibility for the purchases on which FHFA has brought suit. If the Court’s and FHFA’s

proposal to treat UBS as a “bellwether” case is adopted, then depositions likely will be noticed

first in that case. If the UBS defendants then notice 20 depositions (which would still be less

than one deposition per securitization at issue in that case), the defendants in the remaining 15

actions would be entitled to no additional depositions. While some witnesses whom UBS

deposes may have knowledge relevant to other cases, others almost certainly will not. And it is

virtually certain that they will not have extensive knowledge regarding the more than 400

securitizations at issue in the other cases. Defendants should not be forced to fight among

themselves to divvy up manifestly inadequate deposition discovery.

II. THE PROPOSED LIMITS ON THIRD-PARTY DEPOSITIONS ARE UNFAIR

AND UNWORKABLE.

As the Court indicated at the May 14 conference, these cases will require

significant third-party discovery. The Court proposed to impose numerical limits on non-party

depositions (other than Rule 30(b)(6) depositions) that could be taken of certain non-party


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-6-

entities, with different limits according to the type of entity at issue. For example, the Parties

could take only two depositions of an originator, three depositions of a due diligence firm, one of

a servicer and one of a credit rating agency. The Court did not expressly cap the total number of

non-parties that could be deposed in any category, in any case, or across cases, during discovery

or for purposes of trial. It is also not clear how the Parties would select the single servicer

deposition or the two originator depositions, or how they would resolve any disagreement if

FHFA and Defendants selected different witnesses to depose. Defendants raised this issue with

FHFA, but received no response other than a concession from FHFA that it does not know either.

FHFA has agreed that if the limits proposed by the Court apply, they should apply case by case,

rather than across all cases. Thus, FHFA agrees with Defendants that more non-party discovery

will be required than was suggested in the Court’s Initial Proposal.

Thus, all appear to agree that evidence from non-party entities will be critical to

the claims and defenses in each case. For example, FHFA claims that appraisers of the relevant

mortgaged homes knowingly inflated their appraisals, and that originators “abandoned” their

underwriting guidelines. To explore those claims, the Parties must be free to depose the many

appraisers and originators involved, especially where any departure from underwriting guidelines

may have reflected an exercise in judgment. FHFA similarly has placed at issue the conduct of

servicers, due diligence firms, and credit ratings agencies, all of whom may have probative

information to provide through testimony and documents. The great majority of the relevant

third parties likely reside beyond the Court’s trial subpoena power and must be deposed so that

their testimony may be presented to jurors.

In light of the importance of non-party discovery, and the practical inability to

determine at this time what non-party discovery will be required, Defendants propose that no

numerical or other limits be imposed at this time, but rather, that the Parties continue to meet and


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-7-

confer concerning appropriate limits on this discovery, once FHFA has identified those loans that

it believes were inconsistent with any statements made and what specific breaches it alleges with

respect to those loans. FHFA has rejected this proposal.

III. THE PROPOSED NUMBER OF INTERROGATORIES IS INSUFFICIENT.

Defendants propose that each corporate family of Defendants may serve 50

interrogatories and 50 requests for admission on FHFA across all cases. For example, all UBS-

affiliated entities across the four actions in which UBS appears as a Defendant may collectively

serve 50 interrogatories upon FHFA. This approach would result in far fewer interrogatories

than the 25 interrogatories per party per case that the Federal Rules allow. Fed. R. Civ. P. 33

(a)(1). Robust interrogatory discovery, including identification of alleged breaches, as discussed

below, is particularly appropriate here, because of the breadth of FHFA’s allegations (covering

more than 500 securities and over 150 defendants) and the truncated discovery schedule in these

cases. But FHFA continues to insist on a one-sided and wholly imbalanced proposal that FHFA

be able to serve 50 interrogatories on each Defendant group (850 total), with Defendants

collectively limited to 50 interrogatories on FHFA.

IV. FHFA MUST PROVIDE TIMELY IDENTIFICATION OF ALLEGED

BREACHES.

FHFA proposes that expert reports for each tranche be due 45 days after its

proposed close of fact discovery for that tranche and that rebuttal expert reports be due 45 days

thereafter. Defendants do not oppose this kind of schedule for the exchange of expert reports,

with one critically important modification.

A central component of these cases will be a time-intensive process of loan-by-

loan re-underwriting of a quantity of loans large enough, at least, to reveal probative information

about the overall quality of the original underwriting. In order to meet its burden of proof on

liability, FHFA’s experts will undertake this process, so that they may opine as to which loans


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-8-

they contend materially breached underwriting guidelines and the relevant statements at issue in

prospectus supplements (“Allegedly Breaching Loans”). In order to respond to FHFA’s breach

allegations, Defendants’ experts will need to conduct their own loan-by-loan analysis. Although

it is difficult to predict accurately at this stage how long this process will take — in part because it

is not yet known how many loans FHFA and Defendants will re-underwrite — it is expected that

under any scenario it would take many months. Defendants’ experts will not be in a position to

assess FHFA’s loan-by-loan allegations of breach until they know what they are. It would make

no sense, and be entirely inefficient and wasteful, to have Defendants’ experts review all the loan

files and re-underwrite all the loans without knowing what the allegations of breach are, only to

have to do it again once those allegations are disclosed. Because the re-underwriting process

will take far longer than 45 days, Defendants have proposed that FHFA be required to identify

which loans are alleged to be in breach, and in what way, sufficiently in advance so that

Defendants’ experts will be able to conduct their loan-by-loan analysis.4

FHFA has refused to

agree to this.

Defendants need to know in advance which loans FHFA is claiming were in

breach for a second basic reason. Defendants intend to submit expert evidence supporting their

affirmative defense of negative causation that the GSEs’ asserted losses were not caused by

alleged breaches of underwriting guidelines or by representations concerning LTV ratios or

occupancy rates, but instead, were caused by other factors such as the decline in home prices and

the most dramatic recession since the Great Depression. As described more fully in Defendants’

submission concerning sampling and the accompanying affidavits of Professors James and

4Defendants have not asked that FHFA submit its full expert report in advance, but

simply to provide its basic contentions about which loans are alleged to be in breach, and what is

the breach.





-9-

Barnett, one or more of the methodologies defendants contemplate using require knowing which

loans FHFA claims were in breach, so that their performance can be compared to loans not in

breach. Because Defendants bear the burden of proof on affirmative defenses, it will be

tremendously difficult for their experts to conduct such an analysis and submit an expert report

under the schedule proposed by FHFA if Defendants do not know sufficiently in advance which

loans FHFA contends are in breach.5

V. OTHER DISCOVERY DEADLINES SHOULD BE ADJUSTED WITHOUT

SIGNIFICANT DELAY OF THE PROPOSED PRE-TRIAL ORDER DATES.

Given the substantial volume of party and non-party document and deposition

discovery necessary in the Actions, Defendants believe — whether or not the Court adopts some

form of trial “tranching” and even if the Court adheres to the trial readiness dates proposed for

the Actions (other than UBS ) — that the scheduling order in this case should provide, at a

minimum: (i) six months for the substantial completion of document discovery; (ii) nine months

for deposition discovery; and (iii) three months for expert discovery (in parallel with the last

three months of fact discovery). This is similar to what FHFA proposed in its original proposed

pretrial schedule submitted on January 11, 2012. FHFA took the position that: (i) document

discovery will be completed within eight months after Initial Disclosures; (ii) deposition

discovery will be completed within five months after the completion of document discovery; and

(iii) expert reports submitted within 60 days after the close of fact discovery, rebuttal reports

5Defendants have proposed that for Tranche 2 cases, FHFA be required to provide such

information by November 30, 2012, in order to give Defendants what they hope will be enough

time for their experts to do their loan-by-loan analysis, and also to conduct their related negative

causation analyses, by the time expert reports would be due on July 15, 2013. Defendants

propose that the information for cases in Tranches 3 and 4 be provided a commensurate amount

of time in advance of the due dates for expert reports. FHFA has offered no counter-proposal.





-10-

within 60 days thereafter, and depositions within 60 days thereafter. FHFA’s Proposal for

Certain Case Mgmt. Issues, at 14.

VI. DEFENDANTS HAVE SUGGESTED VARIOUS WAYS TO ORGANIZE THE 16

CASES FOR TRIAL.

Defendants have not agreed on a single approach to organizing these 16 cases for

trial, as certain Defendants have submitted separate proposals for the Court’s consideration that

would modify the tranches proposed by Plaintiff, and other Defendants do not oppose the

tranches proposed by Plaintiff. If, however, the tranches remain as proposed by FHFA, the

Defendants propose adding or modifying certain discovery dates within FHFA’s schedule. The

modifications for Tranches 2, 3 and 4 are attached as Exhibit 2.

* * *


June 6, 2012


A-243





/s/ David Potter .

David Potter ([email protected])

LAZARE, POTTER & GIACOVAS LLP

950 Third Avenue

New York, NY 10022

and

Jeffrey A. Lipps ([email protected])

Jennifer A.L. Battle([email protected])

CARPENTER, LIPPS & LELAND LLP

280 Plaza, Suite 1300

280 North High Street

Columbus, OH 43215

Attorneys for Ally Securities, LLC

/s/ Robert F. Serio .

Robert F. Serio ([email protected])

Aric H. Wu ([email protected])

GIBSON, DUNN & CRUTCHER LLP

200 Park Avenue

New York, NY 10166

Attorneys for Citigroup Inc., Citigroup

Mortgage Loan Trust Inc., Citigroup Global

Markets Realty Corp., Citigroup Global Markets Inc., Susan Mills, Randall Costa, Scott

Freidenrich, Richard A. Isenberg, Mark I.

Tsesarsky, Peter Patricola, Jeffrey Perlowitz

and Evelyn Echevarria

/s/ Thomas C. Rice .

Thomas C. Rice ([email protected])

David J. Woll (dwoll@stblaw com)Alan C. Turner ([email protected])


425 Lexington Avenue

New York, NY 10017-3954

Attorneys for Defendants Deutsche Bank AG,

Taunus Corporation, Deutsche Bank Securities

Inc , DB Structured Products, Inc., Ace

Securities Corp., Mortgage IT Securities Corp.

/s/ Richard A. Spehr .

Richard A. Spehr ([email protected])

Michael O. Ware ([email protected])MAYER BROWN LLP

1675 Broadway

New York, NY 10019

Attorneys for Defendants HSBC North America

Holdings Inc., HSBC USA Inc., HSBC Markets

(USA) Inc., HSBC Bank USA, NA., HSI Asset

Securitization Corporation





/s/ Jay B. Kasner .

Jay B. Kasner ([email protected])

Thomas J. Nolan ([email protected])

Scott Musoff ([email protected])

Robert A. Fumerton

([email protected])

SKADDEN, ARPS, SLATE, MEAGHER &

FLOM LLP

Four Times Square

New York, NY 10036


UBS Real Estate Securities Inc., UBS Securities

LLC, Mortgage Asset Securitization

Transactions, Inc., David Martin, Per Dyrvik, Hugh Corcoran and Peter Slagowitz

/s/ Brad S. Karp .

Brad S. Karp ([email protected])

Susanna M. Buergel ([email protected])

PAUL, WEISS, RIFKIND, WHARTON &

GARRISON LLP

1285 Avenue of the Americas

New York, NY 10019-6064

Attorneys for Citigroup Inc., Citigroup

Mortgage Loan Trust Inc., Citigroup Global

Markets Realty Corp., Citigroup Global

Markets Inc., Susan Mills, Randall Costa, Scott




/s/ James P. Rouhandeh .

James P. Rouhandeh

Brian S. Weinstein

Daniel L. Schwartz

Nicholas N. George

Jane M. Morril




Attorneys for Defendants Morgan Stanley,

Morgan Stanley & Co. Incorporated (n/k/a

Morgan Stanley & Co. LLC), Morgan Stanley

Mortgage Capital Holdings LLC (successor-in-

interest to Morgan Stanley Mortgage Capital

Inc.), Morgan Stanley ABS Capital I Inc.,

Morgan Stanley Capital I Inc., Saxon Capital,

Inc., Saxon Funding Management LLC, Saxon

Asset Securities Company, Gail P. McDonnell,

Howard Hubler, Craig S. Phillips, Alexander C.

Frank, David R. Warren, John E. Westerfield,

and Steven S. Stern

/s/ Penny Shane .

Penny Shane ([email protected])

Sharon L. Nelles ([email protected])

Jonathan M. Sedlak ([email protected])


125 Broad Street

New York, NY 10004

Attorneys for Defendants JPMorgan Chase &

Co., JPMorgan Chase Bank, N.A., J.P. Morgan Mortgage Acquisition Corporation, J.P.

Morgan Securities LLC, J.P. Morgan

Acceptance Corporation I, Bear Stearns & Co.,

Inc., EMC Mortgage LLC, Structured Asset

Mortgage Investments II Inc., Bear Stearns

Asset Backed Securities I LLC, WaMu Asset

Acceptance Corporation, WaMu Capital

Corporation, Washington Mutual Mortgage

Securities Corporation, Long Beach Securities

Corporation and certain of the Individual

Defendants


A-245




/s/ Bruce Clark .

Bruce Clark ([email protected])


125 Broad Street

New York, NY 10004

Amanda F. Davidoff ([email protected])


1701 Pennsylvania Avenue, N.W.


Attorneys for Defendants First Horizon

National Corporation, First Tennessee Bank

National Association, FTN Financial Securities

Corporation, First Horizon Asset Securities, Inc., Gerald L. Baker, Peter F. Makowiecki,

Charles G. Burkett, and Thomas J. Wageman

/s/ David H. Braff .

David H. Braff ([email protected])

Brian T. Frawley ([email protected])

Jeffrey T. Scott ([email protected])

Joshua Fritsch ([email protected])


125 Broad Street

New York, NY 10004

Attorneys for Barclays Capital Inc., Barclays

Bank PLC, Securitized Asset Backed

Receivables LLC, Paul Menefee, John Carroll,

and Michael Wade

/s/ David Blatt . . ..

David Blatt ([email protected])

John McNichols ([email protected])




Attorneys for Bank of America Corporation;

Bank of America, N.A.; Asset Backed Funding Corp.; Banc of America Funding Corp.; Merrill

Lynch & Co., Inc., Merrill Lynch Mortgage

Lending, Inc., Merrill Lynch Mortgage Capital

Inc., First Franklin Financial Corp., Merrill

Lynch Mortgage Investors, Inc., Merrill Lynch

Government Securities, Inc., Merrill Lynch,

Pierce, Fenner & Smith Inc.

/s/ Richard W. Clary .

Richard W. Clary ([email protected])

Michael T. Reynolds ([email protected])


Worldwide Plaza

825 Eighth Avenue

New York, NY 10019

Attorneys for Credit Suisse Securities (USA) LLC, Credit Suisse Holdings (USA), Inc., Credit

Suisse (USA), Inc., DLJ Mortgage Capital, Inc.,

Credit Suisse First Boston Mortgage Securities

Corporation, Asset Backed Securities

Corporation, Credit Suisse First Boston

Mortgage Acceptance Corporation, Andrew A.

Kimura, Jeffrey A. Altabef, Eveleyn Echevarria,

Michael A. Marriott, Zev Kindler, John P.

Graham, Thomas E. Siegler, Thomas Zingalli,

Carlos Onis, Steven L. Kantor, Joseph M.

Donovan, Juliana Johnson, and Greg Richter


A-246




/s/ Richard H. Klapper .

Richard H. Klapper ([email protected])

Theodore Edelman ([email protected])

Michael T. Tomaino, Jr.

([email protected])

Jordan T. Razza ([email protected])


125 Broad Street

New York, NY 10004

Attorneys for Goldman, Sachs & Co, GS

Mortgage Securities Corp., Goldman Sachs

Mortgage Company, The Goldman Sachs

Group, Inc., Goldman Sachs Real Estate

Funding Corp., Peter C. Aberg, Howard S. Altarescu, Robert J. Christie, Kevin Gasvoda,

Michelle Gill, David J. Rosenblum, Jonathan S.

Sobel, Daniel L. Sparks, Mark Weiss

/s/ Bruce Clark .



125 Broad Street

New York, NY 10004





Attorneys for Defendants Nomura Securities

International, Inc., Nomura Holding America

Inc., Nomura Asset Acceptance Corporation,

Nomura Home Equity Loan, Inc., NomuraCredit & Capital, Inc., David Findlay, John

McCarthy, John P. Graham, Nathan Gorin, and

N. Dante LaRocca





/s/ Jay B. Kasner .



George Zimmerman

([email protected])

Robert A. Fumerton

([email protected])


FLOM LLP

Four Times Square

New York, NY 10036

Attorneys for SG Americas, Inc., SG Americas

Securities Holdings, LLC, SG Americas

Securities, LLC, SG Mortgage Finance Corp.,and SG Mortgage Securities, LLC, Arnaud

Denis, Abner Figueroa, Tony Tusi, and Orlando

Figueroa

/s/ Richard A. Spehr .


Michael O. Ware ([email protected])

MAYER BROWN LLP

1675 Broadway

New York, NY 10019

Attorneys for Ally Financial Inc. and GMAC

Mortgage Group, Inc.

/s/ Vernon Broderick .

Greg A. Danilow ([email protected])

Vernon Broderick

([email protected])

WEIL, GOTSHAL, & MANGES LLP

767 Fifth Avenue, 25th Fl.

New York, NY 10153

Attorneys for General Electric Company,

General Electric Capital Services, Inc., GE

Mortgage Holding, LLC, GE-WMC Securities,

LLC

/s/ Sandra D. Hauser .

Sandra D. Hauser

(sandra.hauser@ snrdenton.com)

SNR DENTON US LLP



Attorneys for Matthew Perkins


A-248




/s/ Daniel C. Zinman .

Daniel C. Zinman ([email protected])

Neil S. Binder ([email protected])

RICHARDS KIBBE & ORBE LLP

One World Financial Center

New York, NY 10281

Attorneys for George C. Carp, Robert Caruso,

George E. Ellison, Adam D. Glassner, Daniel B.

Goodwin, Juliana Johnson, Michael J. Kula,

William L. Maxwell, Mark I. Ryan, and Antoine

Schetritt; Matthew Whalen; Brian Sullivan;

Michael McGovern; Donald Puglisi; Paul Park,

and Donald Han

/s/ Thomas C. Rice .


David J. Woll ([email protected])

Alan Turner ([email protected])



New York, NY 10017

Attorneys for Defendant RBS Securities Inc.

/s/ Joel C. Haims .

Joel C. Haims ([email protected])

LaShann M. DeArcy ([email protected])

Morrison & Foerster LLP


New York, NY 10104

Attorneys for Tom Marano and Michael

Nierenberg

/s/ Ronald D. Lefton .

Richard A. Edlin ([email protected])

Ronald D. Lefton ([email protected])

Candace Camarata ([email protected])

GREENBERG TRAURIG, LLP

200 Park Avenue,

New York, NY 10166

Phone: 212-801-9200

Attorneys for Defendant Jeffrey Mayer

/s/ Dani R. James .

Dani R. James ([email protected])

Jade A. Burns ([email protected])

KRAMER LEVIN NAFTALIS & FRANKEL

LLP



Attorneys for Defendant Jeffrey L. Verschleiser

/s/ Pamela Rogers Chepiga .

Pamela Rogers Chepiga

([email protected])

Josephine A. Cheatham

([email protected])

ALLEN & OVERY LLP


New York, NY 10020

Attorneys for Samuel L. Molinaro, Jr.


A-249





A-250




EXHIBIT 1


A-251






-------------------------------------------------------------------- x


Plaintiff,

v.


Defendants.

:

:

:

:

:

:

:

:

:

PLAINTIFF’S RESPONSES

TO DEFENDANTS’ FIRST

SET OF

INTERROGATORIES

11 Civ. 5201 (DLC)

-------------------------------------------------------------------- x


Plaintiff,

v.

JPMORGAN CHASE & CO., et al.,

Defendants.

:

::

:

:

:

:

:

:

11 Civ. 6188 (DLC)

-------------------------------------------------------------------- x


Plaintiff,

v.

HSBC NORTH AMERICA HOLDINGS, INC., et

al.,

Defendants.

:

:

:

::

:

:

:

:

:

:

11 Civ. 6189 (DLC)

-------------------------------------------------------------------- x


Plaintiff,

v.


Defendants.

:

:

:

::

:

:

:

:

:

11 Civ. 6190 (DLC)

-------------------------------------------------------------------- x


A-252




-------------------------------------------------------------------- x


Plaintiff,

v.


Defendants.

:

::

:

:

:

:

:

:

:

11 Civ. 6192 (DLC)

-------------------------------------------------------------------- x


Plaintiff,

v.

FIRST HORIZON NATIONAL CORP., et al.,

Defendants.

:

:

::

:

:

:

:

:

:

11 Civ. 6193 (DLC)

-------------------------------------------------------------------- x


Plaintiff,v.

BANK OF AMERICA CORP., et al.,

Defendants.

:

:

:

::

:

:

:

:

:

11 Civ. 6195 (DLC)

-------------------------------------------------------------------- x


Plaintiff,

v.


Defendants.

:

:

:

:

:

:

:

:

:

:

11 Civ. 6196 (DLC)

-------------------------------------------------------------------- x


A-253




-------------------------------------------------------------------- x


Plaintiff,

v.


Defendants.

:

::

:

:

:

:

:

:

:

11 Civ. 6198 (DLC)

-------------------------------------------------------------------- x


Plaintiff,

v.

CREDIT SUISSE HOLDINGS (USA), INC., et al.,

Defendants.

:

:

::

:

:

:

:

:

:

11 Civ. 6200 (DLC)

-------------------------------------------------------------------- x


Plaintiff,v.

NOMURA HOLDING AMERICA, INC., et al.,

Defendants.

:

:

:

::

:

:

:

:

:

11 Civ. 6201 (DLC)

-------------------------------------------------------------------- x


Plaintiff,

v.

MERRILL LYNCH & CO., INC., et al.,

Defendants.

:

:

:

:

:

:

:

:

:

:

11 Civ. 6202 (DLC)

-------------------------------------------------------------------- x


A-254




-------------------------------------------------------------------- x


Plaintiff,

v.


Defendants.

:

::

:

:

:

:

:

:

:

11 Civ. 6203 (DLC)

-------------------------------------------------------------------- x


Plaintiff,

v.

MORGAN STANLEY, et al.,

Defendants.

:

:

::

:

:

:

:

:

:

11 Civ. 6739 (DLC)

-------------------------------------------------------------------- x


Plaintiff,v.

ALLY FINANCIAL INC., et al.,

Defendants.

:

:

:

::

:

:

:

:

:

11 Civ. 7010 (DLC)

-------------------------------------------------------------------- x


Plaintiff,

v.


Defendants.

:

:

:

:

:

:

:

:

:

:

:

11 Civ. 7048 (DLC)

-------------------------------------------------------------------- x


A-255




3

Plaintiff Federal Housing Finance Agency (“FHFA”), as conservator for the Federal

National Mortgage Association and the Federal Home Loan Mortgage Corporation (collectively,

“the GSEs”), responds as follows to Defendants’ First Set of Interrogatories to Plaintiff FHFA,

served on May 17, 2012, and to each instruction and definition therein (the “Interrogatories”):

GENERAL OBJECTIONS

1. FHFA objects to the Interrogatories on the ground and to the extent they seek

information that is not relevant to the claim or defense of any party to the above-captioned

actions (the “Actions”), is not reasonably calculated to lead to the discovery of evidence

admissible in these Actions, or is otherwise beyond the scope of permissible discovery in the

Actions.

2. FHFA objects to the Interrogatories on the ground and to the extent that they

improperly attempt to expand, alter, or modify the scope of permissible discovery under the

Federal Rules of Civil Procedure and the Southern District of New York (“S.D.N.Y.”) Local

Rules or any other applicable law or rule.

3. FHFA objects to the Interrogatories on the ground and to the extent that although

served on May 17, 2012, they request a response on or before May 31, 2012. Pursuant to

Federal Rule of Civil Procedure 33(b)(2), FHFA is entitled to a 30-day period within which to

respond to the Interrogatories.

4. FHFA objects to the Interrogatories to the extent that they are vague and

ambiguous.

5. FHFA objects to the Interrogatories on the ground and to the extent that they are

overly broad, unduly burdensome, oppressive, or redundant.

6. FHFA objects to the Interrogatories on the ground and to the extent they seek

information outside of FHFA’s possession, custody, or control.


A-256




4

7. FHFA objects to the Interrogatories on the ground and to the extent that the

Definitions provided therein are inconsistent with or more expansive than the definitions set

forth in S.D.N.Y. Local Rule 26.3(c)(3).

8. FHFA objects to the Interrogatories on the ground and to the extent that the

Interrogatories seek information regarding a witness in addition to his or her name. FHFA’s

responses herein are limited to the names of witnesses, consist with S.D.N.Y. Local Rule 33.3,

which states that interrogatories served at the commencement of discovery may seek only the

“names of witnesses with knowledge of information relevant to the subject matter of the action.”

9. By responding to the Interrogatories, FHFA does not admit to Defendants’

characterizations of any documents, facts, theories or conclusions, nor does FHFA admit that the

information provided in response to the Interrogatories reflects any fact, characterization or

conclusion. Nothing contained in any response herein shall be deemed to be an admission,

concession or waiver by FHFA as to the relevance, materiality or admissibility of any

information or subject matter.

10. FHFA responds to the Interrogatories without waiving or intending to waive, but

rather preserving and intending to preserve, FHFA’s right to object on any grounds to the use of

any information or its subject matter in any aspect of these Actions or any other proceeding or

investigation.

11. FHFA responds to the Interrogatories without waiving or intending to waive, but

rather preserving and intending to preserve, its right to object to any other discovery, including,

without limitation, any other interrogatory.

12. FHFA objects to the Interrogatories to the extent that they seek information

subject to the attorney-client privilege, the work product doctrine, or any other applicable


A-257




5

privilege or immunity (“Privileged Information”). FHFA responds to the Interrogatories without

waiving or intending to waive, but rather preserving and intending to preserve, any applicable

privilege or immunity. Any inadvertent production of any Privileged Information shall not be

deemed or construed to constitute a waiver of the attorney-client privilege, work product

doctrine, or any other applicable privilege, immunity, or protection.

13. FHFA’s responses herein are not to be construed as an admission that any

information is admissible, relevant, or reasonably calculated to lead to the discovery of

admissible evidence, or that any contention or assumption contained in the interrogatories,

whether implicit or explicit, is correct.

14. FHFA expressly reserves the right to rely, at any time, including trial, upon

subsequently discovered information of which FHFA is currently unaware or information

omitted from these responses as a result of mistake, error, oversight, or inadvertence.

SPECIFIC RESPONSES AND OBJECTIONS

INTERROGATORY NO. 1:

For each Securitization, identify all persons employed by the GSEs or acting on their

behalf who participated in, were involved in, approved, or were responsible in any way for the

GSEs’ valuation, analysis, evaluation, or purchase of, or investment in, each of the Certificates at

issue in each of the above-captioned actions, or for any further transactions involving the

Securitizations or Certificates.

RESPONSE TO INTERROGATORY NO. 1:

FHFA incorporates by reference its General Objections as if fully set forth herein.

FHFA further objects to this Interrogatory on the ground that the phrases “in any way”

and “any further transactions” are overly broad, vague, and/or ambiguous.

FHFA further objects to this Interrogatory on the ground that it requires FHFA to identify

“all persons” who participated in, were involved in, approved, or were responsible in any way

for, a topic or issue. FHFA’s response is based on its current knowledge. FHFA responds to this


A-258




6

Interrogatory without waiving or intending to waive, but rather preserving and intending to

preserve, the right at any time to supplement these responses.

Subject to and without waiver of its general and specific objections, FHFA identifies the

following:

NAME ENTITY

Ramon de Castro Fannie Mae

Kin Chung Fannie Mae

Ashley Dyson Fannie Mae

Francisco Gonzalez-Rey Fannie Mae

David Gussmann Fannie Mae

Peter Niculescu Fannie Mae

Joseph Paul Norris Fannie Mae

Ben Perlman Fannie Mae

Bill Quinn Fannie Mae

Shayan Salahuddin Fannie Mae

Mike Shaw Fannie Mae

Pie-Chung Steve Shen Fannie Mae

C.J. Zhao Fannie Mae

Mike Aneiro Freddie Mac

David Hackney Freddie Mac

Gary Kain Freddie Mac

Aaron Pas Freddie Mac

Tom Raby Freddie Mac


For each Securitization, identify all persons employed by you or acting on your behalf

who participated in, were involved in, approved, or were responsible in any way for your

monitoring, analyzing, evaluating or surveilling the risk of each of the Certificates at issue in all

of the above-captioned actions, including but not limited to credit risk and market risk of the

Certificates.

RESPONSE TO INTERROGATORY NO 2:


FHFA further objects to this Interrogatory on the ground that the phrase “in any way” is

overly broad, vague, and/or ambiguous.


A-259




7

FHFA further objects to this Interrogatory on the ground that it requires FHFA to identify

“all persons” who participated in, were involved in, approved, or were responsible in any way

for, a topic or issue. FHFA’s response is based on its current knowledge. FHFA responds to this

Interrogatory without waiving or intending to waive, but rather preserving and intending to

preserve, the right at any time to supplement these responses.

Subject to and without waiver of its general and specific objections, FHFA identifies the

following:

NAME ENTITYRamon de Castro Fannie Mae

Kin Chung Fannie Mae

Ashley Dyson Fannie Mae

Kieran Gifford Fannie Mae & Freddie Mac

Francisco Gonzalez-Rey Fannie Mae

David Gussmann Fannie Mae

Peter Niculescu Fannie Mae

Vanessa Moulin Fannie Mae

Ben Perlman Fannie Mae

Bill Quinn Fannie Mae

Mike Shaw Fannie MaePie-Chung Steve Shen Fannie Mae

Kent Willard Fannie Mae

C.J. Zhao Fannie Mae

Peter Federico Freddie Mac

Chris Kuehl Freddie Mac

Doc Ghose Freddie Mac

Adama Kah Freddie Mac

Ray Romano Freddie Mac

Courtney Sapp Freddie Mac

Terin Vivian Freddie Mac

Bruce Wood Freddie Mac

Deirdre Kvartunis FHFA

Vikas Mehta FHFA

Phillip Millman FHFA


A-260




8


Identify all persons employed by you or acting on your behalf who participated in, wereinvolved in, approved, or were responsible in any way for the GSEs’ relationships, including as

purchaser of loans, with any mortgage loan originator disclosed in the prospectus supplements

for the Securitizations. Please specify which person(s) had responsibility for which originator(s).

RESPONSE TO INTERROGATORY NO 3:


FHFA further objects to this Interrogatory on the ground that the terms “relationships”

and “in any way” are overly broad, vague, and/or ambiguous.

FHFA further objects to this Interrogatory on the ground that it is vague, overly broad,

and not reasonably calculated to lead to the discovery of admissible evidence. Among other

things, information identifying individuals involved in the GSEs’ relationships with mortgage

loan originators, where the GSE is a purchaser of loans, is not reasonably calculated to lead to

the discovery of admissible evidence.


A-261




9

Dated: May 31, 2012

New York, New York

/s/ Philippe Z. Selendy

Philippe Z. Selendy

([email protected])


SULLIVAN, LLP



(212) 849-7000

Attorneys for Plaintiff Federal Housing Finance

Agency in FHFA v. UBS Americas, Inc., FHFAv. JPMorgan Chase & Co., FHFA v. Deutsche

Bank AG, FHFA v. Citigroup Inc., and FHFA v.

Goldman, Sachs & Co.

/s/ Marc E. Kasowitz

Marc E. Kasowitz ([email protected] )

Hector Torres ([email protected])

Christopher P. Johnson

([email protected])

Michael Hanin ([email protected] )

Kanchana Wangkeo Leung

([email protected])

KASOWITZ, BENSON, TORRES &

FRIEDMAN LLP

1633 Broadway New York, New York 10019


Agency in FHFA v. Ally Financial Inc., FHFA

v. General Electric Company, FHFA v. Morgan

Stanley, and FHFA v. SG Americas, Inc.

/s/ Christine H. Chung

Christine H. Chung

([email protected])

QUINN EMANUEL URQUHART & SULLIVAN, LLP




Agency in FHFA v. First Horizon National

Corp., FHFA v. Bank of America Corp., and

FHFA v. Credit Suisse Holdings (USA), Inc.

/s/ Manisha M. Sheth

Manisha M. Sheth

([email protected])

QUINN EMANUEL URQUHART & SULLIVAN, LLP





v. JPMorgan Chase & Co., FHFA v. Barclays

Bank PLC, FHFA v. Citigroup Inc., and FHFA

v. Merrill Lynch & Co., Inc.


A-262




10

/s/ Richard A. Schirtzer

Richard A. Schirtzer

([email protected])Adam Abensohn

([email protected])


SULLIVAN, LLP

51 Madison Avenue, 22nd

Floor



Agency in FHFA v. HSBC North America Holdings, Inc.

and FHFA v. Nomura Holding America, Inc.


A-263




CERTIFICATE OF SERVICE

I, Andrew Kutscher, hereby certify that on this 31st day of May 2012, I caused a true and

correct copy of the foregoing Plaintiff’s Responses and Objections to Defendants’ First Set of

Interrogatories to be served by electronic mail upon:

Jay Kasner

[email protected]

Scott Musoff

[email protected]

George Zimmerman

[email protected]

Robert [email protected]


Four Times Square

New York, NY 10036

Penny Shane

[email protected]

Sharon Nelles

[email protected]

Jonathan Sedlack

[email protected]

David Castleman

[email protected]

Theodore Edelman

[email protected]

Richard Kapper

[email protected]

Michael Tomaino

[email protected]

Jordan Razza

[email protected]

Rudy Kleysteuber

[email protected]

Damien Scott

[email protected] Braff

[email protected]

Brian Frawley

[email protected]

Joshua Fritsch

[email protected]

Bruce Clark


A-264




[email protected]

Amanda Davidoff

[email protected] Sollors

[email protected]

Sullivan & Cromwell LLP

125 Broad Street

New York, NY 10004

Brad Karp

[email protected]

Susanna Buergel

[email protected]

Caitlin Grusauskas

[email protected], Weiss, Rifkind, Wharton & Garrison LLP


New York, NY 10019

Richard Clary

[email protected]

Michael Reynolds

[email protected]

Cravath, Swaine & Moore LLP

825 Eighth Avenue

New York, NY 10019

Thomas Rice

[email protected]

David Woll

[email protected]

Alan Turner

[email protected]

Simpson Thacher & Bartlett LLP


New York, NY 10017

Richard Lefton

[email protected]

Richard Edlin

[email protected]

Candace Camarata

[email protected]

Greenberg Traurig LLP

200 Park Avenue

New York, 10166


A-265




Pamela Chepiga

[email protected]

Allie [email protected]

Allen & Overy LLP


New York, NY 10020

Joel Haims

[email protected]

Lashann DeArcy

[email protected]



New York, NY 10104

Sandra Hauser

[email protected]

Patrick Fitzmaurice

[email protected]

SNR Denton US LLP


New York, NY 10020

Jade Burns

[email protected]

Dani [email protected]

Kramer Levin Naftalis & Frankel LLP

1177 Sixth Avenue

New York, NY 10036

Michael Ware

[email protected]

Richard Spehr

[email protected]

Mayer Brown LLP

1675 Broadway

New York, NY 10019

David Blatt

[email protected]

John McNichols

[email protected]

Steven Cady

[email protected]


A-266




Edward Bennett

[email protected]

Williams & Connolly LLP735 12th Street Northwest


Neil Binder

[email protected]

Daniel Zinman

[email protected]

Richards Kibbe & Orbe LLP

85 West Street

New York, NY 10006

James [email protected]

Brian Weinstein

[email protected]

Daniel Schwartz

[email protected]

Nicholas George

[email protected]

Jane Morril

[email protected]

Davis Polk & Wardwell LLP


New York, NY 10017

David Potter

[email protected]

Lazare Potter & Giacovas LLP

950 Third Avenue

15th Floor

New York, NY 10022

Jeffrey Lipps

[email protected]

Jennifer Battle

[email protected]

Carpenter, Lipps & Leland LLP



Columbus, Ohio 43215


A-267




Greg Danilow

[email protected]

Vernon Broderick [email protected]

Seth Goodchild

[email protected]

Michael Firestone

[email protected]

Weil, Gotshal & Manges LLP

767 Fifth Avenue

New York, NY 10153

/s/ Andrew Kutscher

Andrew Kutscher QUINN EMANUEL URQUHART

& SULLIVAN, LLP



(212) 849-7000


A-268




EXHIBIT 2


A-269




P r o p o s e d S c h

e d u l e s i f T r a n c h i n g i s A d o p t e d

T r a n c h e 2

T r a n c h e 3

T r a n c h e 4

P l a i n t i f f ' s

P r o p o s a l

D e f e n d a n t s ’

P r o

p o s a l


P r o p o s a l

D e f e n d

a n t s ’

P r o p o

s a l


P r o p o s a l

D e f e n d a n t

s ’

P r o p o s a l

P l a i n t i f f t o i d e n t i f y l o a n s

i n

s a m p l e s ( s u b j e c t t o C o u

r t ' s r u l i n g )

N / A

J u l y 1 3 , 2 0 1 2 *

N / A

J u l y 1 3 , 2 0 1 2 *

N / A

J u l y 1 3 , 2 0 1

2 *

P r o d u c t i o n o f l o a n f i l e s i n

d e f e n d a n t s ' p o s s e s s i o n

c o m p l e t e d

S e p t . 3 0 , 2 0 1 2

S e p t .

3 0 , 2 0 1 2

S e p t . 3 0 , 2 0 1 2

S e p t . 3 0

, 2 0 1 2

S e p t . 3 0 , 2 0 1 2

S e p t . 3 0 , 2 0

1 2

S u b s t a n t i a l c o m p l e t i o n o

f

d o c u m e n t p r o d u c t i o n s

S e p t . 3 0 , 2 0 1 2

D e c . 3 , 2 0 1 2

S e p t . 3 0 , 2 0 1 2

D e c . 3

, 2 0 1 2

S e p t . 3 0 , 2 0 1 2

D e c . 3 , 2 0

1 2

P l a i n t i f f t o i d e n t i f y l o a n s

w i t h

b r e a c h e s

N / A

D e c . 3 , 2 0 1 2

N / A

M a y 2 2

, 2 0 1 3

N / A

J u l y 1 0 , 2 0

1 3

D e p o s i t i o n s c o m m e n c e

J a n . 2 , 2 0 1 3

J a n

. 2 , 2 0 1 3

J a n . 2 , 2 0 1 3

J a n . 2

, 2 0 1 3

J a n . 2 , 2 0 1 3

J a n . 2 , 2 0

1 3

F a c t d e p o s i t i o n s c o m p l e

t e d

J u n e 1 , 2 0 1 3

N / A

N o v . 1 6 , 2 0 1 3

S e p t . 3 0

, 2 0 1 3

J a n . 6 , 2 0 1 4

D e c . 2 0 , 2 0

1 3

E x p e r t r e p o r t s

J u l y 1 6 , 2 0 1 3

J u l y

1 6 , 2 0 1 3

J a n . 2 , 2 0 1 4

O c t . 3 0

, 2 0 1 3

F e b . 2 0 , 2 0 1 4

J a n . 2 0 , 2 0

1 4

R e b u t t a l e x p e r t r e p o r t s

A u g . 3 0 , 2 0 1 3

A u g .

3 0 , 2 0 1 3

F e b . 1 7 , 2 0 1 4

D e c . 2 0

, 2 0 1 3

A p r i l 7 , 2 0 1 4

M a r . 6 , 2 0

1 4

E x p e r t d e p o s i t i o n s c o m p

l e t e d

O c t . 1 4 , 2 0 1 3

N / A

A p r i l 3 , 2 0 1 4

J a n . 3 0

, 2 0 1 4

M a y 2 2 , 2 0 1 4

A p r i l 1 5 , 2 0

1 4

C o m p l e t i o n o f a l l d i s c o v e r y

N / A

S e p t .

3 0 , 2 0 1 3

N / A

J a n . 3 0

, 2 0 1 4

N / A

A p r i l 1 5 , 2 0

1 4

S u m m a r y j u d g m e n t m o t i o n s f i l e d

O c t . 1 , 2 0 1 3

O c t .

1 5 , 2 0 1 3

F e b . 2 8 , 2 0 1 4

F e b . 1 0

, 2 0 1 4

J u n e 2 , 2 0 1 4

M a y 6 , 2 0

1 4

O p p o s i t i o n s f i l e d

N o v . 1 5 , 2 0 1 3

N o v .

1 5 , 2 0 1 3

A p r i l 1 4 , 2 0 1 4

M a r c h 1 0

, 2 0 1 4

J u l y 1 7 , 2 0 1 4

J u n e 6 , 2 0

1 4

R e p l i e s f i l e d

D e c . 6 , 2 0 1 3

D e c . 6 , 2 0 1 3

M a y 5 , 2 0 1 4

M a r c h 3 1

, 2 0 1 4

A u g . 6 , 2 0 1 4

J u n e 2 7 , 2 0

1 4

P r e - t r i a l o r d e r f i l e d

D e c . 6 , 2 0 1 3

D e c . 6 , 2 0 1 3

M a y 2 , 2 0 1 4

M a y 2

, 2 0 1 4

A u g . 1 , 2 0 1 4

A u g . 1 , 2 0

1 4

* F i v e w e e k s a f t e r p l a i n t i f f r e c e i v e s a l l l o a n t a p e s .

T h e a b o v e s c h e d u l e s m

a i n t a i n t h e p r e - t r i a l o r d e r d a t e s p r o p o s e d b y t h e C o u r t f o r T r a n c h e s 2 , 3 , a n d 4 . D e f e n d a n t s ’ c h a n g e s t o

P l a i n t i f f ’ s p r o p o s a l c a n

b e s u m m a r i z e d a s f o l l o w s .

F i r s t , D

e f e n d a n t s h a v e p r o p o s e d d a t e s b y

w h i c h P l a i n t i f f m u s t i d e n t i f y l o a n s

i t

a l l e g e s w e r e i n b r e a c h a n d t h e b a s i s f o r s u c h a l l e g a t i o n s , s o t h a t D e f e n d a n t s a n d t h e i r e x p e r t s w i l l h a v e s u f f i c i e n t t i m e t o r e s p o n d

t o

l o a n - l e v e l a l l e g a t i o n s a

n d t o p r e p a r e t h e i r d e f e n s e s r e l a t i n g

t o t h e a l l e g e d b r e a c h i n g l o a n s , i n c l u d i n g r e - u n d e r w r i t i n g o f t h e l o a n s

a n d

p r e p a r a t i o n o f l o s s c a u s

a t i o n a n a l y s e s .

S e c o n d , i n t h e e v e n

t t h a t t h e C o u r t d i r e c t s D e f e n d a n t s

t o p r o d u c e o n l y a s a m p l e o f l o a n f i l e s i n

C a s e 1 : 1 1 - c v - 0 5 2 0 1 - D L C

D

o c u m e n t 9 7 - 2

F i l e d 0 6 / 0 7 / 1 2

P a g e 2 o f 3

A-270

,- - ,- - ,- ,- -




2

t h e f i r s t i n s t a n c e , D e f e n

d a n t s p r o p o s e t h a t s u c h l o a n s b e i d e n t i f i e d b y J u l y 1 3 , 2 0 1 2 s o t h a t D e

f e n d a n t s k n o w w h i c h l o a n f i l e s t o

p r i o r i t i z e f o r p r o d u c t i o n b y t h e S e p t e m b e r 3 0 , 2 0 1 2 d e a d l i n e p r o p o s e d b y t h e C o u r t ( a s p r e v i o u s l y s t a t e d , D e f e n d a n t s r e m a i n w i l l i n g

t o p r o d u c e a l l l o a n f i l e s

i n t h e i r p o s s e s s i o n ) . T h i r d , D e f e n d

a n t s h a v e p r o p o s e d a m o d e s t e x t e n s i o n o f t h e p r o p o s e d d e a d l i n e f o r t h e

c o m p l e t i o n o f d o c u m e n

t d i s c o v e r y , r e c o g n i z i n g t h a t t h e r e m a y b e f a c t o r s t h a t w i l l r e n d e r t h i s d a t e u n a c h i e v a b l e ( i n c l u d i n g t h i r d p

a r t y

d i s c o v e r y i s s u e s a n d t h e v o l u m e o f e m a i l s a n d o t h e r d o c u m

e n t s t h a t w i l l n e e d t o b e r e v i e w e d ,

w h i c h c a n n o t b e e s t i m a t e d a t t h i s t i m e

i n t h e a b s e n c e o f a g r e e m e n t o n c u s t o d i a n s a n d s e a r c h t e r m s , b u t c o u l d b e e n o r m o u s ) . F o u r t h ,

i n T r a n c h e 2 , D e f e n d a n t s h a v e

p r o p o s e d t h a t f a c t d e p o s i t i o n s c o n t i n u e t h r o u g h t h e e x p e r t d i s c o v e r y p e r i o d , i n

l i g h t o f t h e l a r g

e n u m b e r o f p a r t y a n d n o n - p a r t y

d e p o s i t i o n s t h a t w i l l n e e d t o b e c o n d u c t e d . W i t h r e s p e c t t o

T r a n c h e s 3 a n d 4 , g i v e n t h a t m o r e

t i m e i s a v a i l a b l e , e x p e r t d i s c o v e r y

w o u l d b e g i n a f t e r c o m p

l e t i o n o f f a c t d e p o s i t i o n s .

F i f t h , D e f e n d a n t s p r o p o s e a d j u s t m e n t s t o t h e s c h e d u l e s f o r T r a n c h e s 2 , 3 a n d 4

s o

t h a t a l l d i s c o v e r y w i l l b

e c o m p l e t e d b e f o r e s u m m a r y j u d g m

e n t m o t i o n s a r e r e q u i r e d t o b e f i l e d

, a n d i n t h e c a s e o f T r a n c h e s 3 a n d

4 s o

t h a t s u m m a r y j u d g m e n t m o t i o n s a r e f u l l y s u b m i t t e d a p p r o x

i m a t e l y o n e m o n t h p r i o r t o t h e f i l i n

g o f t h e p r e - t r i a l o r d e r . T h e p r o p o s e d

d a t e s w e r e a l s o a d j u s t e d w h e r e n e c e s s a r y t o a c c o u n t f o r d e a d l i n e s t h a t w o u l d o t h e r w i s e f a l l o n

w e e k e n d s o r h o l i d a y s .

A l t h o u g h t h e U B S D e f e n d a n t s j o i n i n C e r t a i n D e f e n d a n t s ' P r o p o s a l s f o r C a s e M a n a g e m e n t , i f

t h e C o u r t d e c l i n e s t o a d o p t e i t h e r o

f t h e

p r o p o s a l s c o n t a i n e d t h e

r e i n , t h e

U B S D e f e n d a n t s r e s p e c t f u

l l y s u b m i t t h a t D e f e n d a n t s ’ d a t e s f o

r T r a n c h e 2 s h o u l d a p p l y t o t h e U B

S

A c t i o n a s w e l l . F o r t h e

r e a s o n s s e t f o r t h i n D e f e n d a n t s ’ S u

b m i s s i o n R e g a r d i n g C e r t a i n M a t t e r s I d e n t i f i e d i n t h e J u n e 2 6 , 2 0 1 2 R u

l e

2 6 ( f ) J o i n t R e p o r t , e v e n

i f t h e U B S A c t i o n i s t o b e t r i e d f i r s t a s a “ t e s t ” o r “ r e p r e s e n t a t i v e ” c a s

e , t h e U B S D e f e n d a n t s r e s p e c t f u l l y

s u b m i t t h a t t h e d i s c o v e r y t i m e p e r i o d s r e f l e c t e d i n D e f e n d a

n t s ’ T r a n c h e 2 P r o p o s a l r e p r e s e n t t h e m i n i m u m a m o u n t o f t i m e n e c e s s a r y

f o r t h e f u l l a n d a d e q u a t e d e v e l o p m e n t o f t h e i r d e f e n s e s .

C a s e 1 : 1 1 - c v - 0 5 2 0 1 - D L C

D

o c u m e n t 9 7 - 2

F i l e d 0 6 / 0 7 / 1 2

P a g e 3 o f 3






-------------------------------------------------------------------- x


Plaintiff,

v.

HSBC NORTH AMERICA HOLDINGS, INC., et al.,

Defendants.

:

:

:

::

: 11 Civ. 5201 (DLC)

-------------------------------------------------------------------- x


Plaintiff,

v.

JPMORGAN CHASE & CO., et al.,Defendants.

:

:

:

:

::

11 Civ. 6188 (DLC)

-------------------------------------------------------------------- x


Plaintiff,

v.

HSBC North America Holdings, Inc., et al.,

Defendants.

:

:

:

:

::

11 Civ. 6189 (DLC)

-------------------------------------------------------------------- x


Plaintiff,v.


Defendants.

:

:

::

:

: 11 Civ. 6190 (DLC)

-------------------------------------------------------------------- x FEDERAL HOUSING FINANCE AGENCY, etc.,

Plaintiff,

v.


Defendants. :

:

:

:

:

:

: 11 Civ. 6192 (DLC)

-------------------------------------------------------------------- x


Plaintiff,

v.

FIRST HORIZON NATIONAL CORP., et al.,

Defendants. :

:

:

:

:

:

: 11 Civ. 6193 (DLC)

-------------------------------------------------------------------- x






Plaintiff,v.

BANK OF AMERICA CORP., et al.,

Defendants. :

:

:

:

:

:

: 11 Civ. 6195 (DLC)

-------------------------------------------------------------------- x


Plaintiff,

v.


Defendants.

:

:

:

:

:

: 11 Civ. 6196 (DLC)

-------------------------------------------------------------------- x


Plaintiff,v.


Defendants. :

:

:

:

:

:

: 11 Civ. 6198 (DLC)

-------------------------------------------------------------------- x


Plaintiff,

v.CREDIT SUISSE HOLDINGS (USA), INC., et al.,

Defendants. :

:

:

:

::

: 11 Civ. 6200 (DLC)

-------------------------------------------------------------------- x


Plaintiff,

v.

NOMURA HOLDING AMERICA, INC., et al.,

Defendants. :

:

:

:

:

:

: 11 Civ. 6201 (DLC)

-------------------------------------------------------------------- x

FEDERAL HOUSING FINANCE AGENCY, etc.,Plaintiff,

v.

MERRILL LYNCH & CO., INC., et al.,

Defendants. :

::

:

:

:

: 11 Civ. 6202 (DLC)

-------------------------------------------------------------------- x


A-273





Plaintiff,v.


Defendants.

:

:

:

:

:

: 11 Civ. 6203 (DLC)

-------------------------------------------------------------------- x


Plaintiff,

v.

MORGAN STANLEY, et al.,

Defendants. :

:

:

:

:

:

: 11 Civ. 6739 (DLC)

-------------------------------------------------------------------- x


Plaintiff,

v.

ALLY FINANCIAL INC., et al.,

Defendants. :

::

:

:

:

: 11 Civ. 7010 (DLC)

-------------------------------------------------------------------- x


Plaintiff,

v.


Defendants. :-------------------------------------------------------------------- x

:

:

:

:

:

:

11 Civ. 7048 (DLC)





4

DEFENDANTS’ SUPPLEMENTAL SUBMISSION REGARDING CERTAIN

DEVELOPMENTS BEARING ON THE JUNE 6, 2012 RULE 26(f) JOINT REPORT

Defendants in the above-captioned actions (“Actions”), by and through their

respective counsel, submit this supplemental submission to alert the Court to important

developments bearing on certain issues identified in the parties’ June 6, 2012 Rule 26(f) Joint

Report and the parties’ respective separate submissions.

In its separate Rule 26(f) Report, FHFA took the position that Defendants, as a

group, should only be permitted to take up to 20 depositions in total of the GSEs and FHFA

(FHFA Report at 3), despite the fact that in its original response to Defendants’ First Set of

Interrogatories on May 31, 2012, FHFA had already identified 32 GSE and FHFA employees

with potential knowledge of the certificates at issue in the Actions. Yesterday, FHFA served its

First Supplementation of Responses to Defendants’ First Set of Interrogatories (“Supplemental

Responses”), dated June 11, 2012, which identifies an additional 36 individuals with potentially

relevant knowledge – increasing the number of individuals that FHFA itself deems may have

relevant knowledge to 68. (Plaintiff’s Supplemental Responses are attached as Exhibit A.) This

morning, FHFA identified 54 document custodians Plaintiff proposes to search, initially, for

potentially relevant information. Meanwhile, Defendants have identified nearly 200 GSE

employees who may have knowledge relevant to the GSEs’ purchase and analysis of the 449

securitizations in the Actions.1

FHFA has refused to confirm that there are even 20 people who,

in the aggregate, had knowledge of all 449 securitizations. These new disclosures confirm that

there is no reasonable basis for the 20-deposition limit on GSE personnel and certain discovery

time periods that FHFA has asked the Court to impose.

1 None of these numbers includes any additional GSE employees who have knowledge regarding the originators at

issue, whom FHFA refuses to identify.


A-275




5


June 12, 2012


_/s/__________________________________

David Potter ([email protected])

LAZARE, POTTER & GIACOVAS LLP

950 Third Avenue

New York, NY 10022

and

Jeffrey A. Lipps ([email protected])

Jennifer A.L. Battle

([email protected])

CARPENTER, LIPPS & LELAND LLP



Columbus, OH 43215

Attorneys for Ally Securities, LLC

_/s/__________________________________

Brad S. Karp ([email protected])

Susanna M. Buergel ([email protected])

PAUL, WEISS, RIFKIND, WHARTON &

GARRISON LLP


New York, NY 10019-6064

Attorneys for Citigroup Inc., Citigroup Mortgage Loan Trust Inc., Citigroup Global

Markets Realty Corp., Citigroup Global

Markets Inc., Susan Mills, Randall Costa, Scott




_/s/___________________________________ Thomas C. Rice ([email protected])

David J. Woll (dwoll@stblaw com)

Alan C. Turner ([email protected])



New York, NY 10017-3954

Attorneys for Defendants Deutsche Bank AG,

Taunus Corporation, Deutsche Bank Securities Inc , DB Structured Products, Inc., Ace

Securities Corp., Mortgage IT Securities Corp.

__/s/__________________________________ Richard A. Spehr ([email protected])


MAYER BROWN LLP

1675 Broadway

New York, NY 10019

Attorneys for Defendants HSBC North America

Holdings Inc., HSBC USA Inc., HSBC Markets(USA) Inc., HSBC Bank USA, NA., HSI Asset

Securitization Corporation


A-276




6

_/s/___________________________________


Thomas J. Nolan ([email protected])


Robert A. Fumerton([email protected])


FLOM LLP

Four Times Square

New York, NY 10036


UBS Real Estate Securities Inc., UBS Securities

LLC, Mortgage Asset SecuritizationTransactions, Inc., David Martin, Per Dyrvik,

Hugh Corcoran and Peter Slagowitz

_/s/___________________________________


David J. Woll ([email protected])

Alan Turner ([email protected])

SIMPSON THACHER & BARTLETT LLP425 Lexington Avenue

New York, NY 10017

Attorneys for Defendant RBS Securities Inc

_/s/___________________________________

James R. Rouhandeh

Brian S. Weinstein

Daniel L. Schwartz

Nicholas N. George

Jane M. Morril




Attorneys for Defendants Morgan Stanley,

Morgan Stanley & Co. Incorporated (n/k/a

Morgan Stanley & Co. LLC), Morgan Stanley

Mortgage Capital Holdings LLC (successor-in-

interest to Morgan Stanley Mortgage Capital

Inc.), Morgan Stanley ABS Capital I Inc.,

Morgan Stanley Capital I Inc., Saxon Capital,

Inc., Saxon Funding Management LLC, Saxon Asset Securities Company, Gail P. McDonnell,

Howard Hubler, Craig S. Phillips, Alexander C.

Frank, David R. Warren, John E. Westerfield,and Steven S. Stern

__/s/__________________________________

Penny Shane ([email protected])

Sharon L. Nelles ([email protected])

Jonathan M. Sedlak ([email protected])


125 Broad Street

New York, NY 10004

Attorneys for Defendants JPMorgan Chase &Co., JPMorgan Chase Bank, N.A., J.P. Morgan

Mortgage Acquisition Corporation, J.P.

Morgan Securities LLC, J.P. Morgan

Acceptance Corporation I, Bear Stearns & Co.,

Inc., EMC Mortgage LLC, Structured Asset

Mortgage Investments II Inc., Bear Stearns

Asset Backed Securities I LLC, WaMu Asset

Acceptance Corporation, WaMu Capital

Corporation, Washington Mutual MortgageSecurities Corporation, Long Beach Securities

Corporation and certain of the Individual

Defendants





7

__/s/_________________________________



125 Broad Street

New York, NY 10004





Attorneys for Defendants First Horizon

National Corporation, First Tennessee Bank

National Association, FTN Financial SecuritiesCorporation, First Horizon Asset Securities,

Inc., Gerald L. Baker, Peter F. Makowiecki,

Charles G. Burkett and Thomas J. Wageman

__/s/_________________________________

David H. Braff ([email protected])

Brian T. Frawley ([email protected])

Jeffrey T. Scott ([email protected])

Joshua Fritsch ([email protected])SULLIVAN & CROMWELL LLP

125 Broad Street

New York, NY 10004

Attorneys for Barclays Capital Inc., Barclays

Bank PLC, Securitized Asset Backed

Receivables LLC, Paul Menefee, John Carroll,

and Michael Wade

__/s/__________________________________

David Blatt ([email protected])

John McNichols ([email protected])




Attorneys for Bank of America Corporation; Bank of America, N.A.; Asset Backed Funding

Corp.; Banc of America Funding Corp.; Merrill

Lynch & Co., Inc., Merrill Lynch Mortgage

Lending, Inc., Merrill Lynch Mortgage Capital

Inc., First Franklin Financial Corp., Merrill

Lynch Mortgage Investors, Inc., Merrill Lynch

Government Securities, Inc., Merrill Lynch,

Pierce, Fenner & Smith Inc.

__/s/________________________________

Richard W. Clary ([email protected])

Michael Reynolds ([email protected])


Worldwide Plaza

825 Eighth Avenue

New York, NY 10019

Attorneys for Credit Suisse Securities (USA)

LLC, Credit Suisse Holdings (USA), Inc., Credit

Suisse (USA), Inc., DLJ Mortgage Capital, Inc.,

Credit Suisse First Boston Mortgage Securities

Corporation, Asset Backed Securities

Corporation, Credit Suisse First Boston

Mortgage Acceptance Corporation, Andrew A.

Kimura, Jeffrey A. Altabef, Eveleyn Echevarria,

Michael A. Marriott, Zev Kindler, John P.Graham, Thomas E. Siegler, Thomas Zingalli,

Carlos Onis, Steven L. Kantor, Joseph M.

Donovan, Juliana Johnson, and Greg Richter


A-278




8

__/s/_________________________________

Richard H. Klapper ([email protected])

Theodore Edelman ([email protected])

Michael T. Tomaino, Jr.

([email protected])Jordan T. Razza ([email protected])


125 Broad Street

New York, NY 10004

Attorneys for Goldman, Sachs & Co, GS

Mortgage Securities Corp., Goldman Sachs

Mortgage Company, The Goldman Sachs

Group, Inc., Goldman Sachs Real Estate Funding Corp., Peter C. Aberg, Howard S. Altarescu, Robert J. Christie, Kevin Gasvoda,

Michelle Gill, David J. Rosenblum, Jonathan S.

Sobel, Daniel L. Sparks, Mark Weiss

__/s/_________________________________

Bruce E. Clark ([email protected])


125 Broad Street

New York, NY 10004





Attorneys for Defendants Nomura Securities

International, Inc., Nomura Holding America

Inc., Nomura Asset Acceptance Corporation, Nomura Home Equity Loan, Inc., NomuraCredit & Capital, Inc., David Findlay, John

McCarthy, John P. Graham, Nathan Gorin, and

N. Dante LaRocca


A-279




9

__/s/_________________________________



George Zimmerman

([email protected])Robert A. Fumerton

([email protected])


FLOM LLP

Four Times Square

New York, NY 10036

Attorneys for SG Americas, Inc., SG Americas

Securities Holdings, LLC, SG AmericasSecurities, LLC, SG Mortgage Finance Corp.,and SG Mortgage Securities, LLC, Arnaud

Denis, Abner Figueroa, Tony Tusi, and Orlando

Figueroa

__/s/_________________________________



MAYER BROWN LLP

1675 Broadway

New York, NY 10019

Attorneys for Ally Financial Inc. and GMAC

Mortgage Group, Inc.

__/s/_________________________________

Greg A. Danilow ([email protected])

Vernon Broderick

([email protected])

WEIL, GOTSHAL, & MANGES LLP767 Fifth Avenue, 25th Fl.

New York, NY 10153

Attorneys for General Electric Company,

General Electric Capital Services, Inc., GE

Mortgage Holding, LLC, GE-WMC Securities,

LLC

__/s/__________________________________

Sandra D. Hauser

(sandra.hauser@ snrdenton.com)

SNR DENTON US LLP



Attorneys for Matthew Perkins


A-280




10

__/s/_________________________________

Daniel C. Zinman ([email protected])

Neil S. Binder ([email protected])

RICHARDS KIBBE & ORBE LLP

One World Financial Center New York, NY 10281

Attorneys for George C. Carp, Robert Caruso,

George E. Ellison, Adam D. Glassner, Daniel B.

Goodwin, Juliana Johnson, Michael J. Kula,

William L. Maxwell, Mark I. Ryan, and Antoine

Schetritt; Matthew Whalen; Brian Sullivan;

Michael McGovern; Donald Puglisi; Paul Park,

and Donald Han

/s/ _______________

Pamela Rogers Chepiga

([email protected])

Josephine A. Cheatham

([email protected])ALLEN & OVERY LLP


New York, NY 10020

Attorneys for Samuel L. Molinaro, Jr.

__/s/__________________________________

Joel C. Haims ([email protected])

LaShann M. DeArcy ([email protected])



New York, NY 10104

Attorneys for Tom Marano and Michael

Nierenberg

__/s/__________________________________

Richard A. Edlin ([email protected])

Ronald D. Lefton ([email protected])

Candace Camarata ([email protected])

GREENBERG TRAURIG, LLP

200 Park Avenue,

New York, NY 10166

Phone: 212-801-9200

Attorneys for Defendant Jeffrey Mayer

__/s/__________________________________

Dani R. James ([email protected])

Jade A. Burns ([email protected])

KRAMER LEVIN NAFTALIS & FRANKEL

LLP



Attorneys for Defendant Jeffrey L. Verschleiser


A-281





---------------------------------------


Plaintiff,

-v-


Defendants.

---------------------------------------

X:::::::::X

11 Civ. 5201 (DLC)

OPINION & ORDER

APPEARANCES:

For the plaintiff:Philippe Z. Selendy

Kathleen M. Sullivan

Adam M. Abensohn

Manisha M. Sheth

Jordan A. Goldstein



New York, New York 10010-1601

For defendants:

Jay B. Kasner

Scott D. MusoffRobert A. Fumerton


Four Times Square


DENISE COTE, District Judge:

This is one of sixteen actions pending before this Court

that have been brought by the Federal Housing Finance Agency

(“FHFA” or “the Agency”), as conservator of the Federal National

Mortgage Association (“Fannie Mae”) and the Federal Home Loan

Mortgage Corporation (“Freddie Mac”) (collectively, the

“Government Sponsored Enterprises” or “GSEs”), against various


A-282




2

financial institutions involved in the packaging, marketing and

sale of residential mortgage-backed securities that the GSEs

purchased in the period from 2005 to 2007.1 An Opinion and Order

of May 4 granted in part defendants’ January 20 motion to

dismiss the Second Amended Complaint. See Federal Housing

Finance Agency v. UBS Americas, Inc., ___ F. Supp. 2d ___, No.

11 Civ. 5201 (DLC), 2012 WL 1570856 (S.D.N.Y. May 4, 2012) (the

“May 4 Opinion”).

This Opinion addresses the UBS defendants’ May 23 motion to

certify an interlocutory appeal from that portion of the May 4

Opinion that denied their motion to dismiss as untimely FHFA’s

claims under Sections 11, 12(a)(2), and 15 of the Securities Act

of 1933, 15 U.S.C. §§ 77k, l(a)(2), o. The Court ordered that

the motion be briefed on an expedited schedule, and it became

fully submitted on June 8, 2012.

In the interim, document discovery has begun in all sixteen

cases. Pursuant to an Order of June 14, fact and expert

discovery in this case must be complete no later than June 14,

2013. Any summary judgment motion must be fully submitted by

August 30, 2013. Trial is scheduled to begin at 9:30 a.m. on

1 The FHFA has also brought two similar actions, which arepending in federal courts in California and Connecticut. SeeFHFA v. Countrywide Financial Corp., et al., No. 12 Civ. 1059(MRP) (C.D. Cal.); FHFA v. Royal Bank of Scotland, No. 11 Civ.1383 (AWT) (D. Conn).


A-283




5

Section 1292(b) “imposes both procedural and substantive

requirements on a would-be appellant”).

The Court of Appeals has emphasized that Section 1292(b)

certification should be "strictly limited because only

exceptional circumstances will justify a departure from the

basic policy of postponing appellate review until after the

entry of a final judgment." Flor v. BOT Fin. Corp., 79 F.3d

281, 284 (2d Cir. 1996) (citation omitted). Certification is

thus appropriate only in the narrow class of cases in which "an

intermediate appeal may avoid protracted litigation." Koehler

v. Bank of Bermuda Ltd., 101 F.3d 863, 866 (2d Cir. 1996). In

considering whether to enact Section 1292(b), the House

Committee on the Judiciary specifically identified as falling

into that category cases such as this one, in which “a long

trial is envisioned to determine liability over a defense

disputing the right to maintain the action.” Id.

1. Controlling Question of Law

The Second Circuit has recognized that “resolution of an

issue need not necessarily terminate an action in order to be

‘controlling,’” for the purposes of Section 1292(b).

Klinghoffer v. S.N.C. Achille Lauro, et al., 921 F.2d 21, 24 (2d

Cir. 1990). Rather, it is enough to satisfy the statute’s first

prong that the issue is one “that may importantly affect the


A-286




3

January 13, 2014. At a scheduling conference on June 13, 2012,

the defendants agreed that, if this Court granted their motion

for certification, they would seek expedited review in the Court

of Appeals.

Defendants seek interlocutory review of two specific

conclusions in the Court’s May 4 Opinion: (1) that the Housing

and Economic Recovery Act of 2008 (“HERA”) prescribes

comprehensive time limitations for any claim the FHFA may bring

as conservator for the GSEs, including a claim to which a

statute of repose generally attaches; and (2) that HERA’s

timeliness provision applies equally to federal and state causes

of action. For the purposes of certification, these conclusions

are closely intertwined. If interlocutory review is granted,

the Court of Appeals will address the specific question of

whether the May 4 Opinion correctly analyzed HERA’s impact on

plaintiff’s Securities Act claims. HERA’s applicability to

federal claims will necessarily be entailed in that analysis.

Thus, while defendants’ motion for certification raises two

distinct legal issues, they reduce to a single question for

appeal: whether the May 4 Opinion erred in concluding that HERA

displaces the statute of repose that generally governs claims

under the Securities Act. The Court therefore addresses its

analysis of the Section 1292(b) factors to that single question,


A-284




4

recognizing that “it is the order that is appealable, and not

the controlling question identified by the district court” or

the parties. California Public Employees' Retirement System v.

Worldcom, Inc., 368 F.3d 86, 95 (2d Cir. 2004) (citation

omitted).

Having considered those factors, the Court concludes, for

the reasons that follow, that defendants have carried their

burden of demonstrating that an interlocutory appeal should be

certified. The motion is therefore granted on the condition

that defendants seek expedited review in the Court of Appeals.

DISCUSSION

The standard for certification is well established.

Section 1292(b) provides, in relevant part, that

[w]hen a district judge, in making in a civil action

an order not otherwise appealable under this section,

shall be of the opinion that such order involves a

controlling question of law as to which there is

substantial ground for difference of opinion and that

an immediate appeal from the order may materially

advance the ultimate termination of the litigation, he

shall so state in writing in such order. The Court of

Appeals which would have jurisdiction of an appeal of

such action may thereupon, in its discretion, permit

an appeal to be taken from such order, if application

is made to it within ten days after the entry of theorder.

28 U.S.C. § 1292(b) (emphasis supplied); see Casey v. Long

Island R. Co., 406 F.3d 142, 146 (2d Cir. 2005) (noting that


A-285




6

conduct of [the] action.” In re The Duplan Corp., 591 F.2d 139,

148 n.11 (2d Cir. 1978); accord In re Worldcom, Inc. Sec.

Litig., No. 02 Civ. 3288 (DLC), 2003 WL 22953644, at *4

(S.D.N.Y. Dec. 16, 2003). Moreover, timeliness determinations,

which go directly to the plaintiff’s ability to maintain some or

all of its claims, are precisely the type of legal issue that

Congress intended to be addressed through the Section 1292(b)

procedure.

In resisting certification, plaintiff insists that, even if

the Court of Appeals were to conclude that HERA does not

abrogate the statute of repose generally applicable to claims

under the Securities Act, some portion of its claims would be

preserved by contractual tolling agreements with various

defendants or the class-action tolling doctrine enunciated in

American Pipe & Construction v. Utah, 414 U.S. 538 (1974).

Plaintiff also suggests that its state-law Blue Sky claims would

be unaffected by an interlocutory ruling, because, under the

doctrine articulated in United States v. Summerlin, “the United

States is not bound by state statutes of limitations.” 310 U.S.

414, 416 (1940). Needless to say, defendants take issue with

these contentions. The May 4 Opinion did not address them in

light of the Court’s conclusion that plaintiff’s claims were

timely under HERA.


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7

Whether or not plaintiff is correct that an interlocutory

ruling on the issues raised by the defendants could not

terminate the litigation, there can be no question that such a

ruling would “importantly affect the conduct of [the] action.”

In re The Duplan Corp., 591 F.2d at 148 n.11. As defendants

note, plaintiff’s tolling arguments do not apply to 14 of the 22

Certificates at issue here. Thus, even if those arguments have

merit, an appellate ruling that HERA’s timeliness provision does

not abrogate statutes of repose would significantly narrow the

scope of discovery in this case and the proof that the parties

would be able to present at trial, saving the parties and the

public time and money. And given that defendants challenge the

plaintiff’s Summerlin argument in part on the ground that the

Supreme Court’s holding does not apply to state statutes of

repose (as distinct from statutes of limitations), an appellate

decision addressed to the relationship between those two

concepts would bear significantly on the Court’s decision as to

whether to allow the Blue Sky claims to go forward in the event

the federal claims were dismissed. The issues upon which the

defendants seek interlocutory review thus constitute

“controlling questions of law” within the meaning of the

statute.


A-288




8

2. Material Advancement

For many of the same reasons, appellate resolution of the

issues identified by the defendants would “materially advance

the ultimate termination of the litigation.” As discussed, a

conclusion by the Court of Appeals that this Court erred in its

May 4 ruling has the potential to end or at a minimum

significantly restrict the scope of this litigation. But the

efficiencies to be gained by interlocutory review are not lost

if the Court of Appeals ultimately affirms this Court’s May 4

ruling. An appellate ruling that FHFA’s claims are in fact

timely is likely to significantly affect the parties’ bargaining

positions and may hasten the termination of this litigation

through settlement.

Appellate resolution of the timeliness of plaintiff’s

Securities Act claims will also remove a cloud of legal

uncertainty that hangs over the other 17 actions in this suite

of cases. This, in turn, will facilitate and streamline motion

practice in those other cases and may affect the parties’

strategic decision-making going forward. Courts may properly

consider such “system-wide costs and benefits” in determining

whether to permit interlocutory review. Klinghoffer, 921 F.2d

at 24. Indeed, several district courts, including this one,

have opined that certification may be particularly appropriate


A-289




9

in complex litigation involving multiple coordinated actions.

In such cases, interlocutory review may be the best way to

“materially advance the ultimate termination of the litigation

by avoiding ‘protracted litigation and multiple appeals’” of the

same or similar issues. In re Worldcom, Inc. Sec. Litig., 2003

WL 22953644, at *8 (quoting In re Air Crash Off Long Island, New

York on July 17, 1996, 27 F.Supp.2d 431, 434 (S.D.N.Y. 1998)).

3. Substantial Grounds for a Difference of Opinion

The remaining prong of Section 1292(b), which requires a

finding that the issue to be certified is one about which there

are “substantial grounds for a difference of opinion,” poses the

greatest challenge for the defendants. It is well established

that an issue of “first impression, standing alone, is

insufficient to demonstrate a substantial ground for difference

of opinion.” Flor v. BOT Fin. Corp., 79 F.3d 281, 284 (2d Cir.

1996). And, for reasons explained at length in the May 4

Opinion, the Court has little doubt that its interpretation of

HERA is the one that best comports with the “everyday” meaning

of the statutory text and “the objectives of the statute

overall,” 2012 WL 1570856, at *5.

In urging certification, defendants suggest that the

Opinion’s reference to the “semantic distinction between

‘statutes of limitations’ and ‘statutes of repose,’” 2012 WL


A-290




10

1570856, at *4, is inconsistent with Second Circuit precedent

emphasizing that the two concepts are substantively distinct.

That argument is disingenuous. The Court’s use of the term

“semantic” was plainly intended in the literal sense, to refer

to a distinction “relating to meaning in language.” See

Merriam-Webster's Collegiate Dictionary 1129 (2003). At no

point was it suggested that the terms are synonymous. To the

contrary, the Court was careful to observe the conceptual

distinctions between them in arriving at its conclusion that

HERA’s reference to “statutes of limitations” embraces both the

narrow sense of that term intended by the defendants as well as

what defendants refer to as “statutes of repose.” See 2012 WL

1570856, at *5.

Nor does the fact that, twenty years ago, Congress passed a

single statue tolling “any . . . period of limitation or

repose,” see Pub. L. No. 102-339, § 3(b), 106 Stat. 869 (Aug.

11, 1992), and has since considered (without enacting) bills

that use the term “statute of repose,” suggest substantial

grounds for a difference of opinion with respect to the meaning

of this statute. As discussed in the May 4 Opinion, Congress,

the courts and learned commentators regularly use the term

“limitations” to encompass both “statutes of limitations,” in

the sense intended by the defendants, and “statutes of repose.”


A-291




11

2012 WL 1570856, at *4. Indeed, in 2002 Congress modified the

repose period applicable to claims under the Securities Exchange

Act of 1934 in a provision entitled “Statute of limitations for

securities fraud.” See Sarbanes–Oxley Act, Pub. L. No. 107–204,

§ 804, 116 Stat. 745, 801 (2002) (codified at 28 U.S.C.

§ 1658(b)) (emphasis added).

As the Supreme Court again reminded us only recently, when

confronted with a textual ambiguity of this kind, the task of

the Court is to give the statutory terms their ordinary meaning

unless the context clearly suggests that an atypical usage is

intended. Taniguchi v. Kan Pacific Saipan, Ltd., 132 S. Ct.

1997, 2002, 2004 (2012). In ordinary usage, the term “statute

of limitations” refers generally to “a statute assigning a

certain time after which rights cannot be enforced by legal

action or offenses cannot be punished.” Merriam-Webster's

Collegiate Dictionary 1220 (2003). Nothing in HERA suggests

that, in prescribing “the applicable statute of limitations with

regard to any action brought by the [FHFA],” 12 U.S.C.

§ 4617(b)(12), Congress sought to depart from this ordinary

meaning in favor of the more technical definition proffered by

the defendants. To the contrary, the statutory context

indicates powerfully that the opposite is true. As emphasized

in the May 4 Opinion, “[r]eading HERA's reference to ‘statute of


A-292




12

limitations’ in the narrow fashion that defendants propose would

undermine the congressional purpose of a statute whose

overriding objective was to maximize the ability of FHFA to ‘put

the [GSEs] in a sound and solvent condition.’” 2012 WL 1570856,

at *5 (quoting 12 U.S.C. § 4617(b)(2)(D)).

In seeking certification, defendants do not challenge this

characterization of HERA’s purpose. Rather, to establish that

there is a substantial ground for difference of opinion as to

HERA’s meaning, they rely on two brief district court decisions

interpreting entirely different statues, albeit statutes whose

text is nearly identical to that of HERA’s extender provision.

See Nat’l Credit Union Admin. Board v. RBS Secs., Inc., No. CV

11-5887-GW (C.D. Cal. Jan 30, 2012); Resolution Trust Corp. v.

Olson, 768 F. Supp. 283 (D. Ariz. 1991). It goes without saying

that these decisions, which concern the Federal Credit Union

Act, 12 U.S.C. § 1787(b)(14)(B)(i), and the Financial

Institutions Reform, Recovery, and Enforcement Act (FIRREA), 12

U.S.C. § 1821(d)(14), do not bear directly on the issue before

the Court: the proper interpretation that is to be given to

HERA, a different statute, enacted under different

circumstances, and addressed to a different class of problems.

While the Credit Union Act and FIRREA, like HERA, indicate a

Congressional intent to “preserve and conserve” the assets of


A-293




13

insolvent financial institutions, there are reasons to think

that Congress was willing to go further to ensure the solvency

of the two GSEs than to ensure the survival of any one of the

thousands of banks and credit unions around the country. See

May 4 Opinion, 2012 WL 1570856, at *5 n.8 (noting that “HERA

creates an exception” to the Securities Act’s typical time

limitations for “a single, privileged plaintiff -- FHFA”).

Indeed, given that in 2008 the GSEs financed about 40% of all

American mortgages and owed debt in excess of $5.3 trillion,

their failure would have been catastrophic for the American

economy in a way that, with few exceptions, the failure of a

single bank or credit union would not be. See Carol D. Leonnig,

How HUD Mortgage Policy Fed the Crisis, Washington Post, June

10, 2008, at A01.

Yet the two decisions cited by the defendants do not reach

these issues of statutory purpose. Rather, with little

explanation, they conclude that the terms “statute of

limitations” and “statute of repose” are mutually exclusive, and

unambiguously so. For reasons that have been outlined at length

here and in the May 4 Opinion, the Court finds this position

untenable in light of the commonly understood meaning of

“statute of limitations” and the frequent practice by Congress,

federal courts and commentators of using the term to encompass


A-294
