Luther v. Countrywide Financial Corporation
Largest Residential Mortgage-Backed Securities Purchaser Class Action Recovery Obtained in Countrywide
In May 2016, a settlement in which Countrywide Financial Corporation (“Countrywide”) agreed to pay $500 million to investors who alleged that they were misled by the company’s sale of mortgage-backed securities (“MBS”) from 2005 to 2007 became final. The half-billion dollar settlement, a result of Robbins Geller lawyers’ perseverance, is the largest residential mortgage-backed securities purchaser class action recovery in history.
Lead plaintiffs in this action included two state pension funds – Vermont Pension Investment Committee and Maine State Retirement System; three union pension funds – Pension Trust Fund for Operating Engineers, Operating Engineers Annuity Plan and Washington State Plumbing & Pipefitting Pension Trust; a financial institution – (Mashreqbank, P.S.C.); and an individual plaintiff, David H. Luther. Plaintiffs alleged that Countrywide, along with various Wall Street banks, packaged billions of dollars’ worth of MBS with defective Countrywide loans and sold them to plaintiffs and class members. Although the securities that pooled the loans were rated investment grade (A to AAA), in reality they were “junk” and held massive amounts of defective loans. When the risky loans started to fail, the value of the MBS plummeted, and the ratings on the securities were downgraded below investment grade.
Robbins Geller initially filed the case as a class action in California state court and alleged that defendants issued $350 billion of MBS certificates through 430 offerings tied to registration statements and prospectus supplements that materially misrepresented the underwriting standards and loan origination practices used in originating the underlying mortgages.
Robbins Geller fought hard to keep the action in state court, opposing defendants’ jurisdictional challenges and repeated removals. The United States Court of Appeals for the Ninth Circuit and the California Court of Appeal each time vindicated plaintiffs’ right to bring their Securities Act claims in state court – a tremendous victory. Eventually, however, the action landed in federal court for good when defendants removed the action a third time in 2012, based on federal bankruptcy jurisdiction, and the district court denied plaintiffs’ motion to remand.
The landscape of MBS litigation is riddled with challenges, particularly concerning the scope of the class an MBS plaintiff can pursue, and the ability of a plaintiff to “toll” the statute of limitations for others. The court that was assigned this action applied a restrictive view, paring down the scope of the action to only the 58 tranches purchased by plaintiffs out of 9,000 tranches issued in the 430 offerings. Had Robbins Geller not achieved a reversal of the state trial court’s dismissal of the claims, there would have been no recovery for any meaningful class of plaintiffs in this or any Countrywide MBS action. Robbins Geller lawyers, however, forged their way through the complex litigation in state and federal court and achieved this enormously favorable result, bringing closure to Robbins Geller’s clients and the class.
“This was an incredible recovery for our clients, and was the result of the hard work by our team of lawyers. The defendants paid a substantial sum to settle the cases because of our ability to prepare the case and send it to trial, if necessary,” said Spencer A. Burkholz, a partner at Robbins Geller.
The settlement resolves Luther v. Countrywide Fin. Corp., No. 2:12-cv-05125-MRP-MAN (C.D. Cal.); Western Conference of Teamsters Pension Trust Fund v. Countrywide Fin. Corp., No. 2:12-cv-05122-MRP-MAN (C.D. Cal.); and Maine State Ret. Sys. v. Countrywide Fin. Corp., No. 10-cv-00302-MRP-MAN (C.D. Cal.)
- Coughlin Stoia Corporate Governance Bulletin
- Corporate Governance Newsletter