Blackrock Balanced Capital Portfolio (Fi) vs. Deutsche Bank Trust Company Americas

Opposition

Cal. Super. - 4th Dist.March 25, 2016

MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & MORGAN, LEWIS & BOCKIUS LLP Tera M. Heintz, Bar No. 241414 tera.heintz@morganlewis.com Joseph E. Floren, Bar No. 168292 joseph.floren @morganlewis.com Rollin B. Chippey, II, Bar No. 107941 rollin.chippey @morganlewis.com Elizabeth A. Frohlich, Bar No. 195454 elizabeth.frohlich@morganlewis.com Cristina A. Ashba, Bar No. 294065 cristina.ashba@morganlewis.com One Market, Spear Street Tower San Francisco, CA 94105-1596 Tel: +1.415.442.1000; Fax: +1.415.442.1001 Attorneys for Defendant ELECTRONICALLY FILED Superior Court of California, County of Orange 04/02/2018 at 02:00:00 Av Clerk of the Superior Court By Sarah Loose Deputy Clerk DEUTSCHE BANK NATIONAL TRUST COMPANY and DEUTSCHE BANK TRUST COMPANY AMERICAS, as Trustees SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF ORANGE BLACKROCK BALANCED CAPITAL PORTFOLIO (FI), ET AL., Plaintiff, VS. DEUTSCHE BANK NATIONAL TRUST COMPANY and DEUTSCHE BANK TRUST COMPANY AMERICAS, Defendants. Case No. 30-2016-00843062-CU-BC-CXC CLASS ACTION DEFENDANTS DEUTSCHE BANK NATIONAL TRUST COMPANY AND DEUTSCHE BANK TRUST COMPANY AMERICA, AS TRUSTEES’, OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION Date: May 21, 2018 Time: 9:00 a.m. Dept.: CX-103 Judge: Hon. Ronald L. Bauer Trial Date: Not Set Action Filed: March 25, 2016 CONDITIONALLY FILED UNDER SEAL PURSUANT TO CALIFORNIA RULES OF COURT 2.551(d) Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO IL. III. IV. TABLE OF CONTENTS Page INTRODUCTION ...outiiiiiiiiiiitit ieee eects sects seas saber ese saaesebeeae esses sree ean 1 BACKGROUND ¢yieisvs swsswassessvsnsosssoesansssss s sss 500s s555 055515 F005 5401455555 0500565 65505 AVS R045 57655 4955 3 ARGUMENT oot sess sae sees 5 A. Plaintiffs Lack Standing as Real Parties in Interest ...........ccocevveenieeiecnecnneenneen 5 B. The Class 15 Not. ASCETtATNABIE «x: sss ss camsuas svsussn ss susnses avussan sn semanas avsmsss ss sussssn assananas 10 C. Individualized Issues of Law and Fact Predominate Over Common Issues......... 13 1. Proof of Liability to Plaintiffs is Necessarily Individualized.................... 14 2. Proof of Causation and Damages is Necessarily Individualized .............. 14 3. Proof of Statute of Limitations Defenses Is Highly Individualized.......... 19 4. Plaintiffs Have Not Demonstrated Any Significant Issue of Liability or That Damages Could Be Determined in One Stroke ............. 23 D. A Class Action IS NOt SUPETIOT.......cccueriiiiiiiiieiieeie cece cece e s 26 I. This Case Cannot Be Managed as a Class ACtion .........ccccceeveeerecneennenne 26 2. Class Members Are Sophisticated Investors and Have Already Commenced Lawsuits Against the Trustees ..........cccceeeveevveenieeiecneennnenns 27 E. Plaintiffs Are Inadequate Representatives and Have Atypical Claims................. 28 CONCLUSION coos seers sae sree eee 30 i Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO TABLE OF AUTHORITIES Page(s) Cases ABF Cap. Corp. v. Berglass 130 Cal. App. 4th 825 (2005)... .eeceeieiieeiie eit eters ete eee esteeette estes tee stbe esse ese esseessae esse anaes 8 Aliv. U.S.A. Cab Ltd. 176 Cal App. 4th 1333 (2009)....c.uiiiiieiieeiie eters etter sbee eevee eee s ee saae eens 26 Bennett v. Regents of Univ. of Cal. 133 Cal. Appi. A. BAT (ZOOS Jus suum. orssn.osmmense comsssss mss 55555.56 50505555 E5555 5518 5555558 SVR035.50 35555508 SR5553855 23 Blackrock Allocation Target Shares Series S Portfolio et al. v. US Bank Nat’l Ass'n No. 14-cv-9401, Dkt. 253 (S.D.N.Y. Jan. 31, 2018)....cccccuiiiiiiieeieiecieeeeeee cec 1 BlackRock Allocation Target Shares: Series S Portfolio v. Wells Fargo Bank, Nat’l Ass’n No. 14-¢v-9371, 2017 WL 3610511 (S.D.N.Y. Aug. 21, 2017) .ceeviieiieeiieiieiieeie e e 24 BlackRock Allocation Target Shares: Series S Portfolio v. Wells Fargo Bank, Nat’l Ass'n No. 14-cv-9371, 2017 WL 953550 (S.D.N.Y. Mar. 10, 2017) .ccccoveeririeeeieeeeieeeeieeeerie eev 24 Blackrock Balanced Cap. Portfolio (FI) et al. v. HSBC Bank USA, N.A. No. 14-cv-09366, 2018 WL 679495 (S.D.N.Y. Feb. 1, 2018)...ccceeviuireeriieeiieecieeeeieens passim Blazer Foods, Inc. v. Rest. Props., Inc. 259 Mich. APP. 241 (2003) ...cciieieieeieeet ieee cites testes teste sabe ee estes sbbe este enna ebee sabe eens 22 Bronx Ent., LLC v. St. Paul’s Mercury Ins. Co. 265 F. Supp. 2d 359 (S.D.NLY. 2003) ecient eisai eter tessa s essa eee 19 Burkhardt v. Bailey 260 Mich. App. 636 C1SE DIST. AP. ZOU, cx us5s50.8 mans sown onsmwssss 55555500 5055550 5555 50.45 SH53578 055555 305555 6 Caro v. Procter & Gamble Co. 18 Cal. APP. 4th 644 (1993)...neiieiieeiieie eects cease etter sbtesebe eee esas eaae eens 29 CashCall, Inc. v. Superior Court 159 Cal. App. 4th 273 (2008)... ..eeueeeeiieetieetie atest teeta e ert eestaeetbe eee sb ee este esbe ene e sates esse esse anneas 8 Casiopea Bovet, LLC v. Chiang 12 Cal, Apps St -G50 GD: {ZO TT sesmsssnnsnsosnsnsommsns cosmos vos som ome 5s osm sama 19 In re Cellnet Data Systems, Inc. 313 B.R. 604 (ID. DEL 2004) ...oeceeie eee eee eee eeee steers etree stare estas ee srve ee sase ee sabe ae ssseesesaeesnsaeas 22 ii Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO TABLE OF AUTHORITIES (continued) Page(s) Chern v. Bank of Am. 15 Cal. 3d 866 (1976) ..eeeeeieieeeeeeie eee eee eset eee e esse ae eset ae eee abe ae es sass ae ee snnsae ae ensaeae an 28 City of Boston v. Aetna Life Ins. Co. B99 IESE. SOD CLIBT Yiu msn sss vaso assis sesso 453555 2555555. 5050550 75 508 ARS 55505 FAS E5585 55% 6 City of San Jose v. Superior Ct. 12 Cal. 3d 447 (1974) coe eee eee eee ete eres seas sree eases sate aeeaae ae saae ee sase ee ssse ee ssseeesees 29 Cockerell v. Title Ins. & Trust Co. 42 Cal. 2d 284 (1954) eevee eee eee eee eee eet ae ete eeaae seas eras star eee aae ae eabe ae etre ee eaae ee etaeaeraees 8 Comm Trade USA, Inc. v. INTL FCStone, Inc. No. 13 Civ. 3998, 2014 WL 787912 (S.D.N.Y. Feb. 27, 2014) c..ooeevreeeeieeeeeeeeeeeeeee s 22 Commerzbank AG v. Deutsche Bank Nat'l Tr. Co. 234 F. Supp. 3d 462, 468-73 (S.D.N.Y. 2017) cueeeeiieeiieeeeeeiesie eects seers 21,28 In re Countrywide Fin. Corp. MBS Litig. No. 2:11-ML-02265, 2014 WL 3529677 (C.D. Cal. July 14, 2014) ..cccoiviieeiieeeeeeeee 20 De Martino v. Rivera 148 A.D.2d 568 (N.Y. App. Div. 2d Dept 1989).....ccuiiiiiiiieiie ieee eee 21 Duran v. U.S. Bank Nat’l Ass’n 59 Cal. 4th 1 (2014) eevee eects eects e err ae eee ae ee saar ae ee ennsae eee sbe ae ae nanees 12, 13, 26 Eaton v. Keyser 53 AD.3d 1029 (N.Y. App. Dive. 3d Dep't 2008). usss50. sussnss sunsnsnsssnwsnsn cosossnss sass sams sams 5 21 Ellington Credit Fund, Ltd. v. Select Portfolio Servicing, Inc. 837 F. Supp. 2d 162 (S.D.INLY. 2011) eee ects eee sate sabes 9 Evans v. Lasco Bathware, Inc. 178 Cal. App. 4th 1417 (2009)......uiiiiieiieeiie eee eects este eters sbeesebe esse e esas saae eens 29 Excelsior Fund, Inc. v. JPMorgan Chase Bank No. 06 Civ. 5246, 2007 WL. 950134 (S.D.N.Y. Mar. 28, 2007 )sssesssusss cxsssmnssss suns usssusuensonss sas 9 FDIC v. Citibank N.A. No. 1:15-CV-6560, 2016 WL 8737356 (S.D.N.Y. Sept. 30, 2016)......cccceerereirianiiriienieereeneen 7 Fixed Income Shares: Series M v. Citibank N.A. No. 14-cv-9373, 2018 WL 1449580 (S.D.N.Y. Mar. 22, 2018) ....ecevveeeerieeeieeecreeeeieeecvie ee 3 iii Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO TABLE OF AUTHORITIES (continued) Page(s) Gianino v. Alacer Corp. 846 F. Supp. 2d 1096 (C.D. Cal. 2012)..c.uiiiiieiieeiie eects eters eevee estes sabes 23 Global Fin. Corp. v. Triarc Corp. G3 No Yo 2 S25 (1 TDTY 150 0n05 50.5 mms. nos 250575.55 5505550. 5550555 36 5755355 £55555. 55458 SSH S55 50 SHG S TAS 59 21 Global Minerals & Metals Corp. v. Superior Ct. 113 Cal. App. 4th 836 (2003).....ccuiiiiieiieeiie eee s ers esas 10, 13, 18, 26 Gluck v. Amicor, Inc. 487 F. Supp. 608 (S.D.IN.Y. 1980) ...ccuuieiiieiieiie etait etic etcetera estes sate eevee sarees 20 Hale v. Sharp Healthcare 202 Cal. App. A, SU L201 Ue csnnesnonssanssnsosestsmons osm nsus a 0 ss os 0 mo 5s oS Saas 10 In re Houston Drywall, Inc. No. 05-95161, 2008 WL 2754526 (Bankr. S.D. Tex. July 10, 2008) .......cccceevveirrierienreaneenen. 6 Hughes Elecs. Corp. v. Citibank Del. 120 Cal. App. 4th 251 (2004) ....ee cee eee ete eee esas saeeeebe ese e esas ssae eens 20 Hypolite v. Carleson 52 Cal. APP. 3d 566 (1975) uci sees eet sees a ee shee ee bee ne eee ee sae eens 13 IKB Int’l S.A. v. Bank of Am. No. 12 Civ. 4036, 2014 WL 1377801 (S.D.N.Y. Mar. 31, 2014)....cccceiviirriinieeiieeeeienne 20, 28 Independent Inv. Protective League v. Saunders 64 BRD): 564. (B.D), Pie TOTAY cusson is suman ssmsnomnsmwsnss soso sass 5550-5 55555 5055545 545455558 R53 55049 5035504959 6 J.P. Morgan & Co. v. Superior Ct. 113 Cal. App. 4th 195 (2003)....cecieeeieieiie eects sees steerer sbbeesbe ese eeseesnae anne 30 Jay v. Mahaffey 218 Cal. APP. 4th 1522 (2013) ieee eects steers stearate estes st eesbbe sabe aneeensaens 9 Johnson v. GlaxoSmithKline, Inc. 168 Cal. Ap. UE, 1A0T (280) krmessssnsoonsnsommsns osmosis Soa, 29 Kennedy v. Baxter Healthcare Corp. 43 Cal. APP. 4th 799 (1996)....c.ueieiieeieeeeee eee eee ters sates est esate sabe e sees seen 14 Kracht v. Perrin, Gartland & Doyle 219 Cal. APP. 3d 1019 (1990)......eee iii eects eters sates eerste sabe sabe e sees sans 7 iv Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO TABLE OF AUTHORITIES (continued) Page(s) Lockheed Martin Corp. v. Superior Ct. 29 Cal. 4th 1096 (2003) ...eeieieiie eit etait eters sabe e teste esbae sabe ese ese eesbbe esse aneeeseessee eens 18 Lopez v. Brown 217 Cal. Apps AH. 111A (ROTI mssim cumin so sumans cnssn on smssss omwmssn.o6 5505555 555555515 5555558 55035. 3555 558 SR55553859 29 McGhee v. Bank of Am. 60 Cal. APP. 3d 442 (1976) ..ceoeieeeieeeeeeeeeee eee ees aters sate este e ease ee eaae eens 24 Mendel v. Henry Phipps Plaza W., Inc. 6 N.Y .3d 783 (20000) ...eeeeneietieetieeeeeteeetteetteeit ee teeet test e te e she sabe e a es e ebte sete ene ee tae es e eens 14 Miller v. Woods 148 (Cal. As Sl BIE2: {158 Twusenmsessssssnnsosossnsoonsss s o ss sss 0800s 0000 VAS OSS SEARS 13 Mission Valley East, Inc. v. Cty. of Kern 120 Cal. APP. 3d 89 (1981) uit sbt esate eee a ee sbaeenbeanneas 8 Nedlloyd Lines B.V. v. Superior Ct. 3 Cal. 4th 459 (1992) eee eee eee eee eter ee sbeebs teehee abe e eee teehee anne 14 NES Fin. Corp. v. JPMorgan Chase Bank 556 F. APP X 12 (2d Cir. 2014) ccna seats se be este eines saae eee 28 Northwest Diversified, Inc. v. Desai 353 111. App. 3d 378 (1st Dist. APP. 2004) .e.neeeeuieeiieiieiie eects eee eee ever e eee 6 Okla. Police Pension & Ret. Sys. v. U.S. Bank Nat'l Ass’n G86 BE. Supp. 2d. 412, (BIDINCY : FONT Yn. msn ausssno swam. vss oomws 55555559 5555550 0555555.58 500855 E5555 95.48 555 9 Phoenix Light SF Ltd. v. Deutsche Bank Nat’l Trust Co. 172 F. Supp. 3d 700, 713 (S. DN.Y. 2016) ..ccuuiiiieiieeiie cease cease site eevee seen 14, 28 Poldon Eng’g & Mfg. Co. v. Zell Elec. Mfg. Co. I55 N.Y.S.2d 115 (City Ct. 1955) cniiiiiieeiie eects eee ete sete eaae eee 19 Portfolio Recovery Assocs., LLC v. King liz TY 0 160, 1200 1 00) ssn sso 0 S568 20, 21 Quezada v. Loan Ctr. of Cal., Inc. No. CIV. 2:08-00177, 2009 WL 5113506 (E.D. Cal. Dec. 18, 2009) ......cccceevueervirriierieereane 23 Retirement Bd. of Policeman’s Annuity & Benefit Fund v. Bank of N.Y. Mellon (“PABF 7) TTS F.3d 154 (2d Cir. 2014) cocci eee seers sate sees 1,15,21,24 Vv Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO TABLE OF AUTHORITIES (continued) Page(s) Reyes v. San Diego Cty. Bd. Of Supervisors 196 Cal. APP. 3d 1263 (1987) ..eeecieeeeieeie eects eee etter estes sbae saber e et ee saan 26 Richmond v. Dart Indus., Inc. 29 CAL 3. AOR CUTE TY sc m5 cs si iti ss sss 235. 57 0 A E55 5 FASS E555. 13 Rosack v. Volvo Am. Corp. 131 Cal. APP. 3A TAT (1982) cenit eee eee eee este eee esses sate este e see ete e saa eeee 18 Rose v. City of Hayward 126 Cal. APP. 3d 926 (1981) enue sabes t ae saan 10 Royal Park Investments SA/NV v. Deutsche Bank Nat’l Trust Co. No. 14-cv-4394, 2017 WL 1331288 (S.D.N.Y. Apr. 4, 2017) cecveevviiiiiinieienieeeieens passim Royal Park Investments SA/NV v. Deutsche Bank Nat’l Trust Co. No. 14-cv-4394 (S.D.N.Y. Mar. 29, 2018) ..ccuvieeiiiecieee cities estes eevee erase eevee serve aera s 1 Royal Park Investments SA/NV v. HSBC Bank USA, N.A. INO. 14-CV-8175 (LLGS) wettest eee etter sh teste ates tee sate esbe eae e ens eeesbesnbeenneas 6 Royal Park Investments SA/NV v. Wells Fargo Bank, N.A. No. 14-cv-9764, 2018 WL 739580 (S.D.N.Y. Jan. 10, 2018) ..cceeeviiirrienieeieeeeiiei passim Royal Park Invs. SA/NV v. Deutsche Bank Nat’l Tr. Co. No. 14-cv-4394, 2016 WL 439020 (S.D.N.Y. Feb. 3, 2016).....cccceevvrieerriieeieeecieeeeie e 24 Schreiner Farms, Inc. v. Am. Tower, Inc. L73 Wash: APR. 154 (2008) cus mmmums orn osmsenss comsss se mss 5555.56 50505555 S555555 18 5555558 55055-55555 558 SR55573855 22 Seastrom v. Neways, Inc. 149 Cal. App. 4th 1496 (2007)..cccuueeiiieiieeiie eee eerie eee esterases seas e sees stee sabe ssbeasaeesseens 29, 30 Semi-Tech Litig., LLC v. Bankers Trust Co. 272 F. Supp. 2d 319 (S.D.NLY. 2003) ..uiiiiieiieeiieeiteetteeiteeiie s tes e se e sate sie e se s sseessae sab enee essen 7 Sevidal v. Target Corp. 189 Cal. Apps AE FOS {20 ENwr000esmsssscnensonsossnsoonsssossinensosioanss sss os 00mes 5s a6 SARI SEAS 10 Sharma v. Skaarup Ship Mgm’t Corp. 916 F.2d 820 (2d Cir. 1990) ......ii ieee eee eee save eee are ee srae ee saae ee ssae ee esse eens 15 Sicav v. Wang No. 12 Civ. 6682, 2015 WL 268855 (S.D.N.Y. Jan. 21, 2015) ..cceeevrieeciieeeieeeceeece e 14 Vi Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO TABLE OF AUTHORITIES (continued) Page(s) Simon v. Electrospace Corp. 28 NY. 2d 1360 (1971) weitere ee e esas sb be este ese ee beeesee eens 15 St. John’s Univ. v. Bolton 157 BE. Supp. 2d. 144. (B.D. NV. DOTY sain sun ss sumsns anssnonsnsss swans mss se5555:8 5455855 505555 5555555845 21 Targa Int’l Corp. v. Gross 112 Misc. 2d 688, 447 N.Y.S.2d 384 (Sup. Ct. 1982) ...ceuiiiiieiieeieeeeeeee e e ee e s 6 Thompson v. Auto. Club of S. Cal. 217 Cal. APP. 4th 719 (2013) eerie eee eee ees eee esate staat e reese esa eee 11 Vasquez v. Superior Ct. A Cal, 36. BOD: CLIT TY qounussensusasnnssonsomnsensnmnsasisnsatenssssas a s osnessuas ss ss ess 4504 85308 65 538 06 V5 SHBRGSH NAH 965% 10 Wal-Mart Stores, Inc. v. Dukes 564 U.S. 338 (2011) cuit eects eee este eaters t teste sabe e atest ee eb be enbe ene ee tee esae anne 23 Walsh v. IKON Office Solutions 148 Cal. App. 4th 1440 (2007) ..eecuueeieieiieeiie etter ette steer esate stte settee ee steesbee esse enneesseessae anne 13 Wash. Mutual Bank, FA v. Superior Ct. 24 Cal. 4th 906 (2010) uveitis eee es e eater e estes sbae sabe ee eet eesaaeenbeennees 13, 26, 27 In re Wash. Public Power Supply Sys. Sec. Litig. 720 F. Supp. 1379 (D. ATIZ. 1989) ....ueiiiiieiiieeieieee eects eet eee sabes 6 Weisz v. Calpine Corp. No. 4:02-CV-1200, 2002 WL 32818827 (N.D. Cal. Aug. 19,2002) .....cceveerirrreaieerieenieenn 17 Westminster Investing Co. v. Lamps Unlimited, Inc. 237 Va. 543 (1989) eee eee eae eee eet esate seat eats sabe ene e teeta sateen 22 Williams v. Superior Ct. 221 Cal. APP. 4th 1353 (2013) eee eee testes ste eee sees t ee sbae este aae ee saessee eens 23 Statutes 13 Pa. C.S.A. § 2725(Q) +eeeureeieeetee steer ee eee teeta eee t eet te eaten beet ee ab ee ehte este a nee e tee ehte sabe eneeebeens 22 Cal. Code Civ. Proc. S BET 1 cusussonsussansnmasissssorsosnsassans eas mstesessssss ows ous Ss 5 405555000155 AS 455A SHR A SSH AER 5 NH FARE RN 5% 22 § Bete eee heehee teehee hte ea bean teat ee ehte ahha ante e atte ehte sabe ene ee teeesee eens 10, 13 vii Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO TABLE OF AUTHORITIES (continued) Page(s) Colo. Rev. Stat. Ann. § 13-80-TOT(I)(A) cvurrerreeieeieieiiiere ieee eee eect cece eeeee reer eee eee ee eb aa reas sees es eebar bear ease seen snararaeaeaeaens 22 Del. Code Ann. tit: 105 S STO, (A) ssess.ssmmssn swmmsmois somos swomssn e555 5073550055555 5573355 55 5555535 5557375 50 555575 955355 00 5955955 395355 09.00 22 HE 10, § BL2T coo 20 Fla. Stat. § 05.11 (2)(D) ceric eee eee e eee eee eee ee ee eb -a ae ae ae eeeatab bebe ae ae ee ennrararaeaeaens 22 German Civ. Code S10 e t ----------------------------------------------------------------------otot--.. 22 Kan. Stat. Ann. § BOL 1IC1 issn smvnss onssmmvon swnsns oo 75m 005355 06 5555535 5555555.55 5505505 S505 515.35 050400 07.50.00 TA S005 50590 S535 85. 22 Mo. Ann. Stat. G STO. 12001) coerce eee e eee e ae ee eter babe ae teas ener bebe ae ae ee enenbararaeaeaes 22 N.C. Gen. Stat. Ann. S LoD te -- at ----------------------------------------------------------------------_. 22 N.H. Rev. Stat. Ann. § 508 AI) eee eect e eee eer aaa eee eee -e tea e esas ee bab rare ae ae ee eerbarae ar aeaes 22 New York General Obligation Law § L317 ee eee sees sates eee e esate esate e ebb ee nbbe esate s passim Tex. Civ. Prac. & Rem. Code Ann. § TB.004 eee a- aa ---------------t--------------------at---tata-------------------a-------ata-a, 22 Rules and Regulations New York Civil Practice Law and Rules § 202 .........ooooviiiiiiiiiiiieeeeeeeeeeeeeeeee 20 Other Authorities 1 Witkin, Summary of Cal. Law Contracts § 709 (10th ed. 2005).....ccccceeriiirmiiimniiinnieirnieeniieenne 6 viii Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & IL. INTRODUCTION Flush with massively profitable positions in their supposedly underperforming investments in residential mortgage-backed securities (“RMBS”), Plaintiffs ask this Court to certify an unprecedented class of staggering proportions in the hopes of achieving a litigation bonanza. For compelling reasons, every court to consider the question has denied motions to certify classes of investors suing RMBS trustees, in cases just like this one. See, e.g., Blackrock Balanced Cap. Portfolio (FI) et al. v. HSBC Bank USA, N.A., No. 14-cv-09366, 2018 WL 679495 (S.D.N.Y. Feb. 1, 2018) (“Blackrock/HSBC”); Blackrock Allocation Target Shares Series S Portfolio et al. v. US Bank Nat’l Ass’n, No. 14-cv-9401, Dkt. 253 (S.D.N.Y. Jan. 31, 2018) (“Blackrock/U.S. Bank); Royal Park Investments SA/NV v. Wells Fargo Bank, N.A., No. 14-cv-9764, 2018 WL 739580 (S.D.N.Y. Jan. 10, 2018) (“RPI/WF”); Royal Park Investments SA/NV v. Deutsche Bank Nat'l Trust Co. (“RPI/DBNTC II”), No. 14-cv-4394 (S.D.N.Y. Mar. 29, 2018). These courts found that a host of individual issues overwhelm any common issues, making class treatment inappropriate. None of this is surprising, given the myriad individual factual and legal issues flowing from the law’s mandate that Plaintiffs prove their purported claims “loan-by-loan and trust-by-trust.” Retirement Bd. of Policeman’s Annuity & Benefit Fund v. Bank of N.Y. Mellon (“PABF”), 775 F.3d 154, 162 (2d Cir. 2014). In their motion to certify a class against defendants Deutsche Bank National Trust Company and Deutsche Bank Trust Company Americas, as Trustees (the “Trustees”), Plaintiffs press the same arguments for class treatment that have been thoroughly considered and uniformly rejected. In fact, the Blackrock/HSBC and Blackrock/U.S. Bank cases involved an identical class definition supported by the same expert and the same defective damages theory. Yet Plaintiffs present their case as a run-of-the-mill candidate for certification, driven by common issues regarding the Trustees’ supposedly uniform obligations under trust documents. It is anything but. At the outset, Plaintiffs do not even have standing to assert claims for 286 Trusts, in which none of them had invested at the time of the alleged contractual breaches at issue here. Plaintiffs purport to assert the claims of prior investors, but courts unanimously reject Plaintiffs’ argument that litigation claims of prior investors are “automatically transferred” to them under New York 1 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & law. Plaintiffs cannot represent a class of which they are not members, requiring denial of class certification as to 286 Trusts. As to the entire putative class, moreover, the Court must analyze investor-specific legal and factual issues to determine whether any given class member has the right to sue for alleged breaches occurring nearly a decade ago, which requires a detailed but practically impossible inquiry into the transfer history of each class member’s Certificates. Given the required individualized factual and legal determinations, Plaintiffs’ proposed class of all current beneficial owners of the Certificates of the 457 Trusts at issue is not ascertainable without immense burden. This is an independent reason why certification should be denied for all Trusts. Individualized assessments are also necessary to adjudicate virtually every aspect of liability, damages, and the Trustees’ statute of limitations defense. Plaintiffs proffer no admissible evidence that any significant issue of liability or damages can be resolved in one stroke for all class members. Nor do Plaintiffs provide any evidence that class members (who purchased Certificates at different times, for different prices, and under different market conditions) suffered any common injury. Further, courts have properly rejected Plaintiffs’ proposed damages methodology because it has virtually nothing to do with their legal claims. Any legally tenable damages theory must consider individualized factors impacting damages and causation as to each investor, including the prices they paid for their Certificates as well as an array of other factors specific to each investor, underlying loan and Trust-all of which Plaintiffs ignore. The Trustees’ statute of limitations defense also presents inherently class member-specific questions, because the Court must determine and apply different statutes of limitations for different investors (and their assignors) based on where they suffered an alleged injury. Resolving the timeliness of claims by potentially thousands of investors residing in dozens of states and around the world would require separate factual and legal determinations that overwhelm any possible common issues. These individualized issues also mean that class treatment is not “superior” in this case. Plaintiffs do not even attempt to proffer a plan for how the extraordinarily complex individualized issues presented here could ever be managed as a class action. This alone defeats their motion. On top of these issues, most of the named Plaintiffs also are inadequate representatives or have 2 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & atypical claims because they suffered no losses, and in fact, Plaintiffs alone have profited from the RMBS investments about which they complain fo the tune of over $1.9 billion on a net basis. Plaintiffs nonetheless assure the Court that this case is well-suited for class action treatment. Plaintiffs are wrong. This case raises exactly the same individualized issues as numerous other RMBS trustee cases in which courts have denied certification. It is not a close call. The Court should reach the same conclusion and deny Plaintiffs” motion. II. BACKGROUND Plaintiffs are 181 current investors in 457 separate RMBS Trusts (“the Trusts”), that issued over 7,200 different securities, backed by more than 1,663,000 mortgage loans. Each Trust is governed by a separate set of governing contracts, including Pooling and Servicing Agreements (“PSAs”). Those contracts define the obligations of the Trustees, who are like stakeholders and do not have the broad duties of a common-law trustee. See, e.g., Fixed Income Shares: Series M v. Citibank N.A., No. 14-cv-9373, 2018 WL 1449580 (S.D.N.Y. Mar. 22, 2018). Plaintiffs are not parties to the PSAs, but claim that, as “Certificate Holders”-defined as the registered owners of the Certificates-they are third party beneficiaries of the PSAs.! See Compl. { 57; Request for Judicial Notice (“RIN”) at 1-2; Declaration of Cristina Ashba (“Ashba Decl.”) { 5, Ex. 3. The Trusts are extremely diverse. Each Trust contains thousands of loans made by a total of at least 107 different lenders secured by over 1.6 million different homes across the country. James Decl. 99, 117. The loans were mostly originated between 2004 and 2007, at the height of the housing boom and just before its unprecedented collapse, the nationwide financial crisis, and the worst recession in modern times. Id., Ex. 13. The loans were of every type and description: prime, Alt-A, sub-prime, with fixed, floating, or hybrid interest rates; were made to borrowers with widely varying credit ratings; and were for every purpose: home purchases, cash-out second liens, refinances, and purchases of vacation homes and investment properties. Id. q 120-124, Ex. I The structure of and parties to an RMBS Trust are explained in the declaration of Christopher James (“James Decl.”), attached as Exhibit 1 to the Declaration of Tera Heintz (“Heintz Decl.”). See James Decl. |] 16-23. Each Trust issued many different classes (or “tranches”) of Certificates (which are securities) when it was organized and sold to investors (by third parties), each with separate rights and priorities with respect to some or all loans owned by a particular Trust. There are a total of 7,276 different types of Certificates at issue in this case. Id. {{ 19-21, 99. 3 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & 10. Every loan is unique. The Trusts had dozens of different Servicers, each responsible for collecting monthly payments on a particular set of loans and enforcing each mortgage through foreclosure if necessary (and if allowed by the law) when a borrower failed to pay. Id. {q 19, 99. Not surprisingly, many borrowers defaulted during the economic meltdown that began in 2008 and accelerated thereafter, resulting in varying degrees of losses on many loans. Id. | 56-66. Equally unsurprising is that many of the lenders and others who warranted and were responsible for various aspects of the loans also went bankrupt during the financial crisis. Id. 4 69, 74, 90. Plaintiffs allege the Trustees breached their obligations under the PSAs in three main ways. First, Plaintiffs claim the Trustees discovered breaches by sponsors, sellers, and originators (“Warrantors”) of the Warrantors’ representations and warranties (“R&Ws”) regarding the qualities of the individual mortgage loans that the Warrantors issued or sold to each Trust. See Plaintiffs’ Motion (“Motion”) at 11-12. Plaintiffs also allege that the Trustees “discovered” defects in the documentation for individual mortgage loans. Id. According to Plaintiffs, once the Trustees “discovered” these breaches of R&Ws and document defects, the Trustees were obligated to enforce the Warrantors’ obligations to substitute or repurchase the “defective” loans. Second, Plaintiffs contend that, after gaining actual knowledge of material breaches of servicing obligations by the Servicers of the mortgages that allegedly constituted “Events of Default” under the PSAs, the Trustees did not take appropriate action to replace the Servicers or improve their performance. Id. Plaintiffs contend that the Trustees’ inaction caused damages in the form of “realized collateral losses” to the Trusts. Id. at 10. Plaintiffs broadly claim that the Trustees discovered breaches of R&Ws and gained actual knowledge of Servicer Events of Defaults “by January 2009,” supposedly triggering duties by the Trustees to act on behalf of the investors. Heintz Decl., Ex. 5 [Rog 9.1]. Plaintiffs’ claims are unsubstantiated. Their Motion identifies no particular “defective loans” that the Trustees discovered and therefore should have “put back” to their respective Warrantors, any evidence suggesting that the “put back” efforts, whether through litigation or otherwise, would have been successful, or any loss by any investor attributable to the Trustees. Nor have Plaintiffs done so in discovery. Heintz Decl., Ex. 6 [Rogs 1-5]. But if any investor suffered losses, it was not 4 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & Plaintiffs. They mostly purchased their Certificates long after 2009, benefiting from the price declines that occurred during the financial crisis, and today are sitting on in excess of $1.9 billion in net profits on all of their Certificates collectively-without even counting the interest payments they have received. Ex. 3, Declaration of Jennifer Press (“Press Decl.”) | 76-77. Plaintiffs had not invested in 286 out of the 457 Trusts in or before January 2009. Heintz Decl., Ex. 1 [Declaration of John Dolan (“Dolan Decl.”) { 82]. For these 286 Trusts, Plaintiffs seek to recover the alleged damages of prior investors, but have provided no information regarding who those investors are, when they bought or sold the Certificates at issue, the price at which such Certificates were bought or sold, what losses the prior investors allegedly incurred, where the prior investors resided, or whether they sold their Certificates pursuant to written agreements. Heintz Decl., Ex. 6 [Rogs 19-33]. They admittedly do not know these facts. Id. III. ARGUMENT A. Plaintiffs Lack Standing as Real Parties in Interest Plaintiffs lack standing to pursue claims for 286 Trusts. Plaintiffs’ central theory of liability is that the Trustees failed to take certain actions allegedly required under the PSAs after discovering breaches of R&Ws or Events of Default by January 2009. Heintz Decl., Ex. 5 [Rog 9.1].2 But, for at least 286 of the 457 Trusts at issue, Plaintiffs admit that they had not invested in the Trusts by January 2009-and thus were not “Certificate Holders” with standing to sue at the time the claims accrued.’ Dolan Decl. 82 & Ex. 5; see also Press Decl. {19 n.8 & Ex. 4. Plaintiffs also cannot establish standing as assignees of prior investors who held the Certificates at the time of the alleged breaches.” Plaintiffs admit that they were not expressly assigned litigation claims from any prior investors. Heintz Decl., Ex. 6 [Rogs 19-33]. Rather, 2 Unless noted otherwise, all emphases are added, and all quotations and citations are omitted. 3 The term “holders” refer to holders of beneficial ownership interests. None of Plaintiffs are actually “Certificate Holders”-rather, as Mr. Dolan explains, Plaintiffs own beneficial interests in Certificates, and the Certificates are ultimately held by a securities depository. Dolan Decl. q 15 1.6; 23; 25. * Plaintiffs argue that they are transferees, not “assignees.” New York courts have rejected their argument, which is more semantic than substantive. Blackrock/HSBC, No. 14-cv-09366, Dkt. N170, at 4-5 (S.D.N.Y. June 2, 2016) (finding that any claim seeking recovery of prior investors’ losses is a claim as an assignee); see also Targa Int’l Corp. v. Gross, 112 Misc. 2d 688, 690, 447 N.Y.S.2d 384, 385 (Sup. Ct. 1982) (“transfer of a bond” under section 13-107 is “subject to any limitation on assignment contained in the instrument”). 5 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO Plaintiffs argue that all litigation claims of all prior investors of their Certificates “automatically” transferred to them under New York General Obligation Law section 13-107 (“Section 13-1077). Id. If a Certificate transfer is governed by New York law, Section 13-107 creates a default rule that certain litigation claims against an indenture trustee automatically transfer with the transfer of the underlying securities, unless the claims are reserved in writing. By contrast, most other jurisdictions impose the opposite presumption, requiring a “manifestation of intent” to effect an assignment of litigation claims.’ Plaintiffs argue that Section 13-107 controls all transfers of all Certificates by all investors due to the New York choice-of-law provisions in (most of) the PSAs on which their claims are based. Heintz Decl., Ex. 6, [Rogs 19-33]. Plaintiffs’ argument, however, has been rejected by every court to address the issue. Most recently, in denying class certification in Royal Park Investments SA/NV v. HSBC Bank USA, N.A., No. 14-¢v-8175 (LGS) and Blackrock/HSBC, 2018 WL 679495, the court held that the “choice-of- law provisions in the PSAs govern the rights and duties of the parties to the agreements-as relevant here, the trustee and the certificateholders. They do not purport to govern the separate contracts between buyers and sellers of the certificates.” Id. at *5; see also Royal Park Investments SA/NV v. Deutsche Bank Nat’l Trust Co. (“RPI/DBNTC I’), No. 14-cv-4394, 2017 WL 1331288, at *7 (S.D.N.Y. Apr. 4, 2017) (rejecting argument that New York choice of law provisions in trust governing agreements “operate ... to bind independent assignment contracts” between the buyers and sellers of Certificates); Semi-Tech Litig., LLC v. Bankers Trust Co., 272 F. Supp. 2d 319, 330 (S.D.N.Y. 2003) (indenture’s governing law clause had ‘no relevance to the > See e.g., California: 1 Witkin, Summary of Cal. Law Contracts § 709 (10th ed. 2005) (citing Cockerell v. Title Ins. & Trust Co., 42 Cal. 2d 284, 291 (1954)); Massachusetts: City of Boston v. Aetna Life Ins. Co., 399 Mass. 569, 572 (1987) (“A valid assignment may be made by any words or acts which fairly indicate an intention to make the assignee owner of a claim.”); Texas: In re Houston Drywall, Inc., No. 05-95161, 2008 WL 2754526, at *13 (Bankr. S.D. Tex. July 10, 2008) (“an assignment is a manifestation to another person by the owner of a right indicating his intention to transfer.”); Illinois: Northwest Diversified, Inc. v. Desai, 353 111. App. 3d 378, 387 (1st Dist. App. 2004) (“Whether an assignment has occurred is dependent upon proof of intent to make an assignment and that intent must be manifested.”); Michigan: Burkhardt v. Bailey, 260 Mich. App. 636, 655 (1st Dist. App. 2004) (“[A]n assignment requires an assignor’s intent to presently assign be clearly manifested.”); Pennsylvania: Independent Inv. Protective League v. Saunders, 64 F.R.D. 564, 572 (E.D. Pa. 1974) (“the causes of action belonging to a prior holder do not pass with the transfer of the security.”); Arizona: In re Wash. Public Power Supply Sys. Sec. Litig., 720 F. Supp. 1379, 1420 (D. Ariz. 1989) (litigation rights “do not accompany securities as they move from holder to holder, but remain with the ones who claim injury.”). 6 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & question whether the contracts of sale of notes operated to assign certain rights of action’-I[a] question . . . controlled, as to each sale, by New York choice of law principles”). Contrary to Plaintiffs” argument, determining the choice of law that controls the transfer of litigation claims is an inherently individualized inquiry that requires the Court to consider transaction-specific evidence. Blackrock/HSBC, 2018 WL 679495, at *4. As a first step, the Court would have to apply applicable choice of law rules “to determine which jurisdiction’s law governs a particular assignment.” Id. Next, the court has to determine, at every link in the chain of transfer, whether the right to bring claims against the Trustees transferred along with the Certificate.> RPI/DBNTC I,2017 WL 1331288, at *7. While the courts in Blackrock/HSBC, RPI/DBNTC I, and RPI/WF applied New York choice of law rules (as required for federal courts sitting in diversity jurisdiction), California’s approach to choice of law is identical. Under California law, even where a contract is assignable, “the assignment itself is a separate act . . . the validity of which is tested with reference to the law of the state with the most significant relationship fo the assignment.” Kracht v. Perrin, Gartland & Doyle, 219 Cal. App. 3d 1019, 1026-27 (1990) (applying California law to assignment “where assignment was effected in California, upon motion by a California resident, by an order of a California court; and the assignee and assignor . . . were in California at the time of the assignment”). Where no choice of law provision governs the transfer agreement, the Court must determine the state with the most “significant relationship” to the assignment based on such factors as “the place at which the parties made the contract, the place at which their negotiations took place, the place of the contract’s performance, the location of the contract’s subject matter and, as 6 See also RPI/WF, 2018 WL 739580, at *14 (choice of law determined under “New York's fact- intensive center of gravity test”; Section 13-107 cannot be presumed to apply to any transaction). 7 New York's choice of law test focuses on: (1) place of contracting, (2) place of negotiation, (3) place of performance, (4) location of the subject matter and (5) domicile or place of business of the contracting parties.” RPI/DBNTC I, 2017 WL 1331288, at *7 n.8. 8 Plaintiffs also have no evidence that Delaware law would apply to transfers of Certificates for Trusts governed by Delaware law. The sole case cited by Plaintiffs, FDIC v. Citibank N.A., No. 1:15-CV-6560, 2016 WL 8737356 (S.D.N.Y. Sept. 30, 2016), supports the Trustees’ point, in that New York law governed the PSAs upon which the plaintiffs sued, but Delaware law governed the agreements transferring plaintiffs’ certificates. Id. at *2. This is not an isolated example, as the Certificates at issue here were transferred in an untold number of transactions governed by different jurisdictions’ laws. See Dolan Decl. {[{39-41. This case underscores the need for transaction-specific facts to determine the choice of law governing the transfer. See id. q 94-102. 7 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & pertinent here, the residence, place of incorporation and place of business of the parties.” ABF Cap. Corp. v. Berglass, 130 Cal. App. 4th 825, 838 (2005). Further, Plaintiffs must prove the assignments with “clear and positive” evidence. Cockerell v. Title Ins. & Trust Co., 42 Cal. 2d 284, 292-93 (1954) (assignees “stand in the same position as their assignor . . . and must prove their chain of title” to the claims in question); Mission Valley East, Inc. v. Cty. of Kern, 120 Cal. App. 3d 89, 96-97 (1981) (“clear and positive” proof of assignment required). There is no presumption of assignment. Plaintiffs concede that they have no facts-much less “clear and positive” evidence- showing that they have acquired the litigation claims of investors who held the Certificates at the time of the alleged breaches. See Heintz Decl., Ex. 6 [Rogs 19-33]. Plaintiffs do not (and cannot) identify facts such as: (1) the identity or residences of the parties to each Certificate transfer; (i1) where negotiations for such transfers occurred; (iii) where the transfers were performed; (iv) whether investors entered into express agreements transferring or retaining litigation claims, or designating particular law governing their transfers; or even (v) how many transfers are in the chain of transfers for each Certificate. Id. Without transaction-specific evidence for each link in the chain of transfers evidencing that New York law governs, however, Plaintiffs cannot meet their burden of showing that litigation claims transferred to them, “automatically” or otherwise. Blackrock/HSBC, 2018 WL 679495, at *9 (“A certificateholder has standing to sue only if every prior transaction in the chain included an assignment of the right to sue along with the underlying certificate.”); CashCall, Inc. v. Superior Court, 159 Cal. App. 4th 273, 286 (2008) (class representatives “must have standing to prosecute an action. Standing is typically treated as a threshold issue, in that without it no justiciable controversy exists.”). Plaintiffs try to distinguish RPI/DBNTC I by arguing that the Certificates themselves (as opposed to the PSAs) also have an express choice of law provision. Even if Plaintiffs had submitted evidence in support of this assertion (they did not), it would not aid them.! A choice of ? The third-party discovery obtained by the Trustees shows that many prior investors resided in states that do not recognize automatic transfers of claims, including California, Massachusetts, Illinois, Texas, and Pennsylvania. Dolan Decl. | 39; see also note 5 supra. 10° Plaintiffs submit evidence of only a single Certificate: Impac Secured Assets Corp. Series 2004- 3 Trust. See Delange Decl. Ex. 24, at A-1. Contrary to Plaintiffs’ unsupported assertion, the 8 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & law provision in a Certificate “do[es] not dictate the governing law for separate contracts transferring th[o]se certificates from one holder to the next.” Blackrock/HSBC, 2018 WL 679495, at *5. Instead, the law is determined by the law governing the transfers. In arguing the contrary, Plaintiffs rely on a misreading of Excelsior Fund, Inc. v. JPMorgan Chase Bank, No. 06 Civ. 5246, 2007 WL 950134 (S.D.N.Y. Mar. 28, 2007), which courts have firmly rejected. As explained in Blackrock/HSBC, the court in Excelsior did not find that New York law governed the transfer of litigation claims by virtue of a New York governing law provision in the Certificates. 2018 WL 679495, at *5. Rather, the court simply “denied the motion to dismiss to allow the parties to brief after any appropriate discovery whether New York choice of law rules indicate that New York substantive law applies such that [plaintiff] has obtained the right to pursue the claims of prior holders of the notes.” Id.; see Excelsior, 2007 WL 950134, at *6.!! Further, even if Plaintiffs could establish that New York law governed the transfers of all Certificates, Section 13-107 applies, by its terms, only if the parties to the transfer did not have a written agreement expressly retaining litigation claims. N.Y. Gen. Oblig. L. § 13-107. Express reservations of litigation claims are not uncommon for RMBS transfers. RPI/WF, 2018 WL 739580, at *14 (“It is apparently common to divorce the litigation rights from the underlying securities”); RPI/DBNTC I, 2017 WL 1331288, at *7 (“But Royal Park also subsequently sold some or all of its holdings under a contract by which it expressly retained its litigation rights.”). Specific reservations of claims were made in certain historical transactions in Certificates issued by many of the 457 Trusts at issue. See Dolan Decl. {{ 100-102. Indeed, a former investor of some of the Certificates at issue in this case is currently litigating claims against the Trustee, Certificates for the vast majority of the 457 Trusts do not contain any choice of law provision. See Ashba Decl., (4, Ex. 2; Reyes Decl., {7, Ex. A. Plaintiffs cannot cure this evidentiary defect on reply. Jay v. Mahaffey, 218 Cal. App. 4th 1522, 1537 (2013). In any case, such a provision would only govern the terms of a Certificate, not separate agreements to buy and sell it. 1" Plaintiffs also cite Okla. Police Pension & Ret. Sys. v. U.S. Bank Nat'l Ass'n, 986 F. Supp. 2d 412 (S.D.N.Y. 2013), and Ellington Credit Fund, Ltd. v. Select Portfolio Servicing, Inc., 837 F. Supp. 2d 162 (S.D.N.Y. 2011), in their discovery responses as supporting across-the-board application of Section 13-107. The courts in neither case, however, conducted a choice of law analysis because the defendants never disputed that New York law applied to the alleged transfers. Okla. Police, 986 F. Supp. 2d at 415; Ellington, 837 F. Supp. 2d at 182. Neither case is relevant here, where the question is whether New York law applies to each transfer in the first instance. 9 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & claiming that it retained those claims even while transferring ownership of its Certificates. Id. 94-99. Plaintiffs have no way to determine which proposed Class Members now own those Certificates, which may not carry with them any litigation rights that accrued to prior owners. Id. Nor do Plaintiffs demonstrate the absence of express agreements among other prior investors. Plaintiffs have thus failed to prove the circumstances in which Section 13-107 might apply, even if New York law governed the transfer of litigation claims between any particular investors. Without “clear and positive” proof that litigation claims of prior investors transferred to them, Plaintiffs lack standing to sue for 286 Trusts. See Dolan Decl., Ex. 5. Their motion as to these 286 Trusts must be denied. B. The Class is Not Ascertainable For many of these same reasons, Plaintiffs’ proposed class is also overbroad and not ascertainable under California law. Ascertainability “goes to the heart of the question of class certification, which requires a class definition that is precise, objective, and presently ascertainable. Otherwise, it is not possible to give adequate notice to class members or to determine after the litigation has concluded who is barred from relitigating.” Global Minerals & Metals Corp. v. Superior Ct., 113 Cal. App. 4th 836, 858 (2003). Plaintiffs bear the burden of proving that their proposed class is “ascertainable” under Code of Civil Procedure section 382, which is determined by examining “(1) the class definition, (2) the size of the class, and (3) the means available for identifying class members.” Id. Class members are ‘ascertainable’ only where they may be “readily identified without unreasonable expense or time by reference to official records.” Rose v. City of Hayward, 126 Cal. App. 3d 926, 932 (1981). “[T]he right of each individual to recover may not be based on a separate set of facts applicable only to him.” Vasquez v. Superior Ct., 4 Cal. 3d 800, 809 (1971). Further, a class is not ascertainable “when the proposed definition is overbroad and the plaintiff offers no means by which only those class members who have claims can be identified from those who should not be in the class.” Sevidal v. Target Corp., 189 Cal. App. 4th 905, 921 (2010); Hale v. Sharp Healthcare, 232 Cal. App. 4th 50, 58-61 (2014) (affirming decertification order where “there is no reasonable way for [the plaintiff] to ascertain who has claims and who does not 10 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & without an individualized analysis of each patient’s payment record”); Thompson v. Auto. Club of S. Cal., 217 Cal. App. 4th 719, 729-31 (2013) (affirming denial of certification where proposed class contained members not entitled to relief on any causes of action). Here, Plaintiffs provide no common mechanism to distinguish between class members who do, and those who do not, have the legal right to pursue the claims asserted in this case. As explained above, identifying investors with the right to pursue claims will require an individualized factual and legal analysis to determine and apply the law governing the transfer of litigation claims between investors. Blackrock/HSBC, 2018 WL 679495, at *4 (denying certification of substantively identical class because “determining which class members have contractual claims will require individual inquiries . . . for each transfer in the chain from the original certificateholder to the potential class member.”); RPI/WF, 2018 WL 739580, at *12-14 (same); RPI/DBNTC I, 2017 WL 1331288, at *8 (denying certification on ascertainability grounds based on same rationale).'? As discussed above, determining whether each individual class member has the right to pursue litigation claims at issue will require a multi-part, individualized, factual and legal inquiry. The first step-tracing the chain of ownership-cannot be done through common proof. The fungible Certificates at issue lack “unique identifiers,” making it impossible to distinguish one owner’s holdings from another owner’s holdings within the same RMBS tranche. RPI/DBNTC I, 2017 WL 1331288, at *6; Dolan Decl. |] 21-23. Further, the RMBS certificates are traded “over- the-counter” among investors residing all over the world, with ownership interests often “sold off in pieces to multiple investors” and “purchase orders likely at times being filled by holdings previously acquired from multiple different sources.” RPI/DBNTC I,2017 WL 1331288, at 6; Dolan Decl. 31, 35-38. In some instances, the broker of the transaction may have purchased and owned the Certificate(s) for some time before selling them, adding additional links to each chain of transfer that must be analyzed to conduct the required choice of law analysis. Dolan 12° Plaintiffs assert that RPI/DBNTC I and RPI/WF are irrelevant because those proposed classes included both current and former holders. This is wrong; the same issues that precluded class certification there apply equally here. Blackrock/HSBC, 2018 WL 679495, at *4 (applying same analysis to both class of current and former holders and Plaintiffs’ proposed current holder class). 11 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & Decl. {f131, 35-38. There is no central repository of trade history to allow one to track changes in ownership over time. RPI/DBNTC I, 2017 WL 1331288, at *6; Dolan Decl. | 20, 32. Further, the respective parties to each transfer often cannot identify the counterparty to their own Certificate transfers, let alone investors further down the chain of ownership. Id. 31. All of this means that simply “reconstructing the chain of ownership of any given [Clertificate can only be ascertained through highly detailed and individualized inquiry.” RPI/DBNTC I, 2017 WL 1331288 at *6; Dolan Decl. {{ 80-88. Further, tracing ownership history becomes impossible where-as occurred here-multiple investors’ Certificates are aggregated and then resold to other investors by trading parties. Dolan Decl. {57-63 (providing multiple examples in the Trusts). Consistent with these complexities, Plaintiffs have admitted that tracing the transfer history of Certificates between investors is virtually impossible. Heintz Decl., Ex. 8 at 1 (“Plaintiffs are unaware of any way that Plaintiffs can reliably discover the full chain of custody for prior owners of Plaintiffs’ certificates . . .”)."> But the difficulty of this task does not absolve Plaintiffs of their burden of establishing ascertainability. See Blackrock/HSBC, 2018 WL 679495, at *3 (“Investors claiming losses incurred by previous holders must prove that they have the standing to do so.”); Duran v. U.S. Bank Nat’l Ass’n, 59 Cal. 4th 1, 34 (2014) (“Class actions are provided only as a means to enforce substantive law. Altering the substantive law to accommodate procedure would be to confuse the means with the ends-to sacrifice the goal for the going.”). Further, even if the “tracing” prong of this ascertainability analysis could be accomplished, the second part of the analysis-determining whether litigation claims transferred-requires its own individualized, multi-layered, factual and legal inquiry. First, it would be necessary to determine, under the applicable choice-of-law framework, “which jurisdiction’s law governs the relevant assignment (or assignments, if the ownership chain includes multiple links). And second, the Court would have to apply that law to determine whether claims were assigned along with the 13° See also Heintz Decl., Ex. 8 at 5 (“Plaintiffs purchased the at-issue securities from anonymous sellers through brokers on an actively traded secondary market. Requiring Plaintiffs to track down and produce information from the potentially thousands of prior certificateholders is neither required nor possible.”); Id., at 1 (“Plaintiffs are unaware of any methodology by which predecessor owners could be reasonably identified.”). 12 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & Certificates or retained by the seller.” RPI/DBNTC I, 2017 WL 1331288, at #7 14 Because Plaintiffs provide no mechanism for differentiating between class members who do, and do not, have standing to assert claims, Plaintiffs have failed to meet their burden of proving the proposed class is ascertainable. This requires denial of class certification. Hypolite v. Carleson, 52 Cal. App. 3d 566, 577 (1975) (it is “uniformly” held that there “must” be an ascertainable class for a case to be certified). C. Individualized Issues of Law and Fact Predominate Over Common Issues Plaintiffs also fail to meet their burden of demonstrating a community of interest among class members, and, in particular, that common questions of law or fact predominate over any individualized issues. Global Mins., 113 Cal. App. 4th at 848 (party seeking certification bears burden to establish “a well-defined community of interest among the class members”). The “community of interest” requirement has three elements: “(1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.” Richmond v. Dart Indus., Inc., 29 Cal. 3d 462, 470 (1981); Miller v. Woods, 148 Cal. App. 3d 862, 874 (1983). The predominance requirement means that “each [class] member must not be required to individually litigate numerous and substantial questions to determine his [or her] right to recover following the class judgment.” Wash. Mutual Bank, FA v. Superior Ct., 24 Cal. 4th 906, 913-914 (2010). In assessing predominance, the Court must also consider whether individualized issues impact affirmative defenses. Walsh v. IKON Office Solutions, 148 Cal. App. 4th 1440, 1450 (2007). The class action device “may not be used to abridge a party’s substantive rights,” by, for example, foreclosing the ability to litigate an affirmative defense. Duran, 59 Cal. 4th at 34. Here, as numerous courts have held, individualized issues permeate Plaintiffs’ claims and massively overwhelm any possible common issues. 14 While the court in RPI/DBNTC I originally denied class certification on grounds that ascertaining the class was not “administratively feasible,” later courts have adopted the analysis of RPI/DBNTC I to hold that the same individualized issues required to identify class members with the right to pursue legal claims predominate over any possible common issues. Here, the RPI/DBNTC I court’s analysis applies both to this Court’s assessment of ascertainability-which is based on the requirements of Section 382-and the predominance requirement (Section III (C) infra). 13 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & 1. Proof of Liability to Plaintiffs is Necessarily Individualized The same individualized inquiries required to prove Plaintiffs’ standing and identify class members are also required to establish liability for breach of contract under New York law.'> To prove their claims for breach of contract as third party beneficiaries, Plaintiffs must show that they were either “Certificate Holders” at the time of the alleged breaches, or assignees of “Certificate Holders.” Compl. (57; Ashba Decl., 5, Ex. 3; Mendel v. Henry Phipps Plaza W., Inc., 6 N.Y.3d 783, 786 (2006). Thus, the same individualized tracing and choice-of-law determinations required to identify class members with legal claims, are also required to prove the elements of Plaintiffs’ claims, and predominate over any common issues. Kennedy v. Baxter Healthcare Corp., 43 Cal. App. 4th 799, 810-11 (1996) (individualized issues as to liability predominated because, inter alia, contractual “privity would have to be determined on a case-by-case basis for each plaintiff.”). 2, Proof of Causation and Damages is Necessarily Individualized Individualized issues also permeate with respect to causation and damages. This case is not like a standard securities class action in which an identifiable loss-causing event allegedly harms all investors of securities at the same time, in the same way. Cf. Sicav v. Wang, No. 12 Civ. 6682, 2015 WL 268855, at *2 (S.D.N.Y. Jan. 21, 2015) (“In a typical securities fraud class action, plaintiffs allege that the market reacted negatively on a given day or several-day period to a corrective disclosure, causing a decline in stock value that simultaneously harmed all shareholder class members in the same way.”). Here, Plaintiffs assert hundreds, if not thousands, of different breaches, none of which is claimed to have impacted class members in the same way (if at all). And to prevail on any claims, they must prove each breach on a “loan-by-loan and trust-by-trust basis.” Phoenix Light SF Ltd. v. Deutsche Bank Nat’l Trust Co., 172 F. Supp. 3d 700, 713 (S.D.N.Y. 2016); see PABF, 775 F.3d at 162. For example, Plaintiffs’ claims as to alleged breaches by one Warrantor, affecting one loan or group of them in any given Trust, will have no 15° Although New York law does not apply to the transfer of Plaintiffs’ Certificates for the reasons discussed above, New York law does govern the substance of Plaintiffs’ breach of contract claims against the Trustees pursuant to the parties’ choice of law provisions in the PSAs. See Nedlloyd Lines B.V. v. Superior Ct., 3 Cal. 4th 459, 465-66 (1992) (courts apply parties’ choice of law unless “the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice”). This test is met because DBTCA is chartered in New York and DBNTC has employees in the state. Declaration of Ronaldo R. Reyes, q 6; Heintz Decl., Ex. 11-17. Further, many of the other parties to the PSAs are New York residents. 14 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & effect on their claims with respect to all the other loans. Just as the loans were unique, the Warrantors were diverse and any action the Trustees allegedly should have taken would have yielded different outcomes depending on the circumstances. James Decl. q{ 88-95. For example, entities that went bankrupt before 2009, such as IndyMac, American Home Mortgage, and New Century, were the sole Warrantors for 170 of the Trusts. Id. {90 & Ex. 8. Under New York law, “the loss caused by a breach [of contract] is determined as of the time of breach.” Sharma v. Skaarup Ship Mgm’t Corp., 916 F.2d 820, 825 (2d Cir. 1990). New York courts preclude evidence “based on what the actual economic conditions and performance were in light of hindsight.” Id. at 826; Simon v. Electrospace Corp., 28 N.Y.2d 136, 145 (1971) (damages for breach of contract is determined “by the loss sustained or gain prevented at the time and place of breach” based on the “value” of defendant’s performance at that time). Plaintiffs’ proposed damages methodology violates these legal strictures. Plaintiffs’ expert admittedly proposes no method to measure the existence or amount of damages at the time of the alleged breaches. Heintz Decl., Ex. 7 at 46:3-7 (“my damages methodology measures [damages] as of today”); James Decl. 434-35. Additionally, while Plaintiffs’ theory of liability is that the Trustees failed to undertake enforcement actions against the Warrantors, Plaintiffs proffer no mechanism that could establish on a common basis whether (or how much) the Trustees would have recovered against any Warrantor. Id. { 88-95; Heintz Decl., Ex. 7 [43:3-13] (“I assume that the plaintiffs are successful and that the Court finds that they would have gotten 100 percent of the proceeds from repurchase as the measure of damage for a particular loan.”). Instead, Plaintiffs’ expert proposes a damages theory that would calculate all realized losses for all allegedly breaching loans in the Trusts, regardless of when those losses occurred, and regardless of whether the losses would (or could) have been recovered from any particular Warrantor or Servicer if the Trustees had taken action against it. James Decl. 34-55. This calculation would be based largely on prohibited post-breach hindsight evidence, in that Plaintiffs’ expert assumes, without any basis, that the Trustees would have successfully eliminated all realized losses that actually occurred for allegedly defective loans over the last decade. Id. 35. Plaintiffs would then allocate those alleged losses to all current investors of the Certificates without regard to whether the 15 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & current investors actually suffered any losses, or have the contractual rights to recover for the alleged losses of prior investors. Id. ]35-36. Such “damages” would end up flowing to different tranches and different investors than the ones whose Certificates were affected (if at all) at the time of breach. Moreover, Plaintiffs offer nothing to distinguish the losses resulting from the housing market collapse and Great Recession, from the consequences, if any, of the Trustees’ alleged breaches. Their theory would make the Trustees guarantors. Id. {q 52-53. Making matters worse, because their theory is focused solely upon losses to the Trusts rather than class members, who purchased at widely disparate times and prices, Plaintiffs’ theory would disproportionately reward recent investors who bought Certificates at a discount. Id. { 33, 35-36. Plaintiffs admittedly do not consider the individual circumstances of any putative class members or the investors from whom they allegedly obtained their litigation claims. Id. 39-43, 47. Plaintiffs’ expert thus admits that investors who purchased a $1 million (original face value) Certificate at a price of “$0.00,” i.e., zero dollars, with no expectation of any future principal and interest payments, would receive the same recovery under his proposed methodology, as an investor who purchased the same Certificate for $1 million, 100% of par value, with expectation of 100% payments of principal and interest. Id. {40-41; Heintz Decl., Ex. 7 [231:7-232:18]. This methodology, which is divorced from any losses of investors actually caused by the Trustees’ alleged breaches, represents a manufactured effort to circumvent individualized issues necessarily impacting causation and damages. James Decl., 34-102. Not incidentally, it also would give the named Plaintiffs a windfall. It comes as no surprise that courts have rejected this methodology by the same expert in another case by Plaintiffs. As the Blackrock/U.S. Bank court explained: Here, all of plaintiffs’ certificates were purchased at a discount . . . when the effect of the trustees’ [alleged] misconduct was disclosed to the market . . . Plaintiffs purchased only that probability of full payment which was reflected in the purchase price. The market price at the time of purchase reflected the risk that the certificates would not be fully redeemed, and plaintiffs cannot argue that they expected full redemption. If the trustees’ conduct resulted in a further decrease in the probability of full redemption, plaintiffs’ damages are limited to that decrease that resulted from the trustees’ breach, which would be reflected in the further decline of the [notes]” market price or would be apparent at maturity. Plaintiffs are not entitled to full payment on the certificates. 16 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & Blackrock/U.S. Bank, No. 14-cv-9401, Dkt. 253, at 39-40. The Court also rejected Plaintiffs’ damages methodology for its failure to consider critical causation issues: Certificate holders cannot require the trustee to redeem the full value of the certificates, however, irrespective of the actual losses caused by the trustee’s breaches. Thus, an appropriate model of damages would have to account for: (1) whether and when [the Trustee] discovered the breaches; (2) whether the seller would have been in the financial position to repurchase or substitute the loan had [the Trustee] acted; (3) if not, whether litigation would have been appropriate; (4) for any litigation, whether it would have succeeded and whether any damages would have been collectible. Plaintiffs’ damages model does not address any of these issues. Accordingly, Plaintiffs’ damages model fails to correspond to their theory of liability and runs afoul of Comcast, and thus provides another basis for denying Plaintiffs’ motion for class certification. Id. at 58-59. The same holds true of Plaintiffs’ theory here. Other courts have similarly held that class members’ purchase of Certificates at different times, at different prices, and under different circumstances create inherently individualized issues that must be considered to reliably determine causation and damages, including to exclude investors who profited from the alleged breaches from the putative class. RPI/WF, 2018 WL 739580, at *15 (individualized issues of damages predominated, particularly where certain investors “may have benefitted from [the Trustee’s alleged] inaction because they were paid in full”); Weisz v. Calpine Corp., No. 4:02-CV-1200, 2002 WL 32818827, at *7 (N.D. Cal. Aug. 19, 2002) (declining to consider appointment of plaintiff who “may have actually profited, not suffered losses, as a result of the allegedly artificially inflated stock price.”). Indeed, Plaintiffs do not provide any evidence that the Trustees’ actions (good or bad) had any impact on the price paid for the Certificates at the time of the alleged breaches, or would have had an impact in the “but for” world. To the contrary, investors generally did not expect the Trustees to take unilateral remedial measures and, therefore, the Trustees’ alleged failure to take specific remedial measures would have had no measurable impact on market price at the time of the alleged breaches. See Declaration of John Richard (“Richard Decl.”), {21-29 (attached as Heintz Decl., Ex. 4). Rather, the factors driving market price of the Certificates at the time of the alleged breaches were the larger economic conditions that led to and resulted from the financial crisis. Id. 32-33. Plaintiffs’ failure to submit any evidence that class members suffered any injury in fact (let alone a common injury) at the time of the alleged breaches alone requires 17 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & denying class certification. Global Mins., 113 Cal. App. 4th at 857 (“[t]he burden [is] on Plaintiff to show sufficient causation of injury to justify certifying the class as to both liability and damages”); Rosack v. Volvo Am. Corp., 131 Cal. App. 3d 741, 752 (1982) (“If class-wide proof of illegality and impact is not possible, the class must be decertified”); Lockheed Martin Corp. v. Superior Ct., 29 Cal. 4th 1096, 1111 (2003) (inability to establish causation and damages through common evidence removes any efficiency gains from class action). The Trustees’ damages expert, Professor James, confirms that determining both the fact and amount of class members’ damages requires consideration of a constellation of individualized, interrelated factors, all of which impact different investors in different ways. For example, some investors bought and sold Certificates at discounted prices before any alleged breaches. See James Decl. 41. Those investors have no legal claim against the Trustees because they were not “Certificate Holders” at the time of the alleged breaches. Further, losses by those investors could not have been remediated by the Trustees in any repurchase actions after the Trustees allegedly discovered breaches of R&Ws in January 2009 because any recovery would not have flowed to investors that had already sold their Certificates. Id.; Hartzmark Report, {31. Further, investors that later purchased these Certificates at heavily discounted prices could not have experienced the 100% losses that Plaintiffs attribute to the Trustees because the price the investors paid for the Certificates already factored in an expectation of at least some of the losses included in Plaintiffs’ damages methodology. Id. It is impossible to propose a valid damages theory without accounting for such individualized circumstances, including the date and price of purchase and sales. Id. 34-54; see Blackrock/U.S. Bank, No. 14-cv-9401, Dkt. 253, at 39-40. Further, while Plaintiffs claim that they can assert the losses of prior investors (notwithstanding their own profits), Plaintiffs have not submitted “clear and positive” proof that Section 13-107 applies to their claims, or the claims of absent class members. Their own expert admits that, if the Court finds that all class members do not have the right to recover all damages of all prior investors, his proposed damages methodology has no application to this case. Heintz Decl., Ex 7 [251:11-17; 259:7-16]. Even assuming that litigation claims did transfer, however, Plaintiffs would still need to 18 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & determine damages based on the individualized circumstances of the prior investors who held the Certificates at the time of breach. Plaintiffs do not, and cannot, offer any basis to seek all losses of all prior investors, regardless of whether such losses were incurred by the investors who held the Certificates at the time of the alleged breaches. Rather, the law is clear in New York that damages for an assigned claim is limited to the damages incurred by the assignor. Bronx Ent., LLC v. St. Paul’s Mercury Ins. Co., 265 F. Supp. 2d 359, 361 (S.D.N.Y. 2003) (assignee of claim can only assert damages of assignor incurred before assignment, not its own damages, based on “elementary ancient law that an assignee never stands in any better position than his assignor.”); Poldon Eng’g & Mfg. Co. v. Zell Elec. Mfg. Co., 155 N.Y.S.2d 115, 117 (City Ct. 1955) (plaintiff, as an assignee, “may not recover from the defendant any damages arising out of a breach of contract which it, the plaintiff, sustained; it is limited to those which [the assignor] suffered”). Plaintiffs’ expert admits he does not seek to measure the losses to investors who held Certificates at the time of the alleged breaches, or to exclude the damages of those investors who retained their litigation claims.'® James Decl. {35; Heintz Decl., Ex. 7 [126:13-127:2; 130:25-131:12]; Dolan Decl., qq 94-103. Contrary to Plaintiffs” unsupported assertions and contrived damages theory, any reliable measure of causation and damages in this case must account for the inherently individualized circumstances of investors buying and selling Certificates at different times, at different prices, under different economic conditions, and pursuant to different laws governing the transfer of their litigation claims. James Decl. {{ 33-95. These individualized issues predominate. 3. Proof of Statute of Limitations Defenses Is Highly Individualized Applying the Trustees’ statute of limitations defense will also raise a host of individualized issues, as numerous courts have held. New York law requires application of the statute of limitations of each class member’s residence (or in the case of assigned claims, the statute of limitations of the residence of the investor who beneficially owned the Certificate at the time of 16 California law is in accord. Assignees of claims must stand in the shoes of assignors for all purposes, including determination of causation and damages. Casiopea Bovet, LLC v. Chiang, 12 Cal. App. 5th 656, 663 (2017). 19 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & the breach).!” Because the class members and their alleged assignors reside all around the world, determining the timeliness of Plaintiffs’ claims will require individual choice of law determinations to identify and then apply the differing statutes of limitations governing each of the breaches alleged by Plaintiffs. To determine the correct statute of limitations, a California court applying a New York choice of law provision must apply New York’s “borrowing statute” -New York Civil Practice Law and Rules (“CPLR”) § 202. See Hughes Elecs. Corp. v. Citibank Del., 120 Cal. App. 4th 251, 259 (2004). Under that law, the applicable statute of limitations for a claim of any non- resident plaintiff is the shorter of (1) New York’s 6-year statute of limitations; or (2) the statute of limitations of the state where the “cause of action accrued.” N.Y. CPLR § 202. Under New York law, where the injuries are purely economic (like here), the cause of action “accrues” where the plaintiff resides and sustains the economic impact of the loss. Hughes, 120 Cal. App. 4th at 259 n.5 (citing Global Fin. Corp. v. Triarc Corp., 93 N.Y.2d 525, 529-30 (1999)). For assigned claims, the cause of action “accrues” where the assignor resides. Gluck v. Amicor, Inc., 487 F. Supp. 608, 613 (S.D.N.Y. 1980) (if plaintiff asserts an assigned claim, statute of limitations of assignor’s residence applies); Portfolio Recovery Assocs., LLC v. King, 14 N.Y.3d 410, 416-17 (2010) (same)."® Determining the timeliness of any given class member’s claim will thus require a multi- layered, individualized analysis. This court would be required to “(1) identify when each claim accrued; (2) trace the note ownership to identify who the noteholder was at the time the claim accrued and where the noteholder resided; and (3) identify and apply the limitations period of the applicable jurisdiction”-all of which would require individualized determinations of law and fact. Blackrock/U.S. Bank, No. 14-cv-9401, Dkt. 253, at 52; Blackrock/HSBC, 2018 WL 679495, at *6 (denying certification due to individualized determinations required to identify “the holder of the 17 This same problem impacts the Delaware Trusts because Delaware also has a “borrowing statute,” which applies the shorter of (i) Delaware’s 3-year statute of limitations, or (ii) the statute of limitations of the state “where the cause of action arose.” Del. Code Ann. tit. 10, § 8121. 18 See also IKB Int’l S.A. v. Bank of Am., No. 12 Civ. 4036, 2014 WL 1377801, at *6 (S.D.N.Y. Mar. 31, 2014); In re Countrywide Fin. Corp. MBS Litig., No. 2:11-ML-02265, 2014 WL 3529677, at ¥5-6 (C.D. Cal. July 14, 2014). 20 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & certificate at the time the claim accrued, that certificateholder’s residency, and the statute of limitations in the applicable jurisdiction.”); RPI/WF, 2018 WL 739580, at *15 (same). As discussed above, tracing the transfer of the Certificates alone is a hopelessly individualized, if not impossible, exercise. See § III (B) supra. Determining the “residences” of each investor or assignor that owned the Certificates at the time of the alleged breaches is likewise inherently individualized. Portfolio Recovery, 14 N.Y.3d at 416. For individuals, “[r]esidency is a factual issue that ‘turns on whether [plaintiff] ha[d] a significant connection with some locality in the [s]tate as the result of living there for some length of time during the course of a year’.” Eaton v. Keyser, 53 A.D.3d 1029, 1030 (N.Y. App. Div. 3d Dep’t 2008). For corporations, New York courts have not decided whether the state of incorporation or principal place of business controls where the impact of the loss was sustained and thus, if there is a conflict, which jurisdiction’s statute of limitations applies. Global Fin. Corp., 93 N.Y.2d at 530; see also De Martino v. Rivera, 148 A.D.2d 568, 570 (N.Y. App. Div. 2d Dep’t 1989) (residency is determined at time cause of action accrued, not when the action was commenced). The Court would then need to apply the laws of the appropriate jurisdiction, including accrual and tolling rules of each of these jurisdictions. Portfolio Recovery, 14 N.Y.3d at 416-17 (foreign jurisdiction’s accrual and tolling rules apply along with its limitations period). Further, this Court would have to perform a separate tracing and statute of limitations analysis for each investor or assignor at the time of each alleged breach. PABF, 775 F.3d at 161-62 (liability of trustees must be proven loan-by-loan and trust-by-trust); St. John’s Univ. v. Bolton, 757 F. Supp. 2d 144, 163 (E.D.N.Y. 2010) (statute of limitations runs from date of breach). Plaintiffs claim none of this matters because the Trustees have not demonstrated they will prevail on a statute of limitations defense. Motion at 23. This is neither required, nor true. The 19° A recent court’s order addressing the statute of limitations of a single named plaintiff in a similar case illustrates the individualized issues at stake. In Commerzbank AG v. Deutsche Bank Nat’l Tr. Co., 234 F. Supp. 3d 462, 468-73 (S.D.N.Y. 2017), the court had to address numerous individualized issues bearing on the statute of limitations defense, including: (a) competing experts’ opinions regarding foreign law; (b) the transfer history of the certificates and claims; (c) tolling rules; (d) the locus of plaintiff’s economic injury; and (e) when the statute of limitations began to run. This was for a single plaintiff: any expectation that such determinations could be made for hundreds of investors, whose transfer histories are unknown or unknowable, under the laws of dozens or more jurisdictions, is fanciful at best. 21 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO statute of limitations is among the Trustees’ critical defenses. Because Plaintiffs waited more than five years after the alleged breaches in January 2009 to file suit, claims of investors from jurisdictions with three-, four-, and five-year statutes of limitations, as listed below, are likely time-barred: STATUTE OF LIMITATIONS FOR BREACH OF CONTRACT Delaware 3 years (Del. Code Ann. tit. 10, § 8106 (a)) Germany 3 years (German Civil Code § 195) California 4 years (Cal. Civ. Proc. Code § 337 (1)) Florida 5 years (Fla. Stat. § 95.11 (2)(b)) Pennsylvania 4 years (13 Pa. C.S.A. § 2725(a)) Colorado 3 years (Colo. Rev. Stat. Ann. § 13-80-101(1)(a)) Kansas 5 years (Kan. Stat. Ann. § 60-511(1)) Missouri 5 years (Mo. Ann. Stat. § 516.120(1)) New Hampshire 3 years for “all personal actions” (N.H. Rev. Stat. Ann. § 508:4(I), including breach of contract) North Carolina 3 years (N.C. Gen. Stat. Ann. § 1-52) Texas 4 years (Tex. Civ. Prac. & Rem. Code Ann. § 16.004) See also Dolan Decl., {39 (identifying jurisdictions of some investors). Plaintiffs also suggest the Trustees’ statute of limitations defense will not succeed because they have alleged “continuing breaches” based on the Trustees’ alleged failures to address breaches of servicing obligations, act prudently in responding to Events of Default, and provide notice of Events of Defaults to Noteholders. Motion at 23. This argument does not change the individualized nature of the statute of limitations analysis. First, the continuing breach doctrine does not apply where, as here, class members allege breaches that occurred at discrete moments, even where the alleged harm from the breaches continues. Comm Trade USA, Inc. v. INTL FCStone, Inc., No. 13 Civ. 3998, 2014 WL 787912, at *9 (S.D.N.Y. Feb. 27, 2014). Second, even if the continuing breach theory were valid, this Court would still have to undertake an individualized assessment of each investor’s (or assignor’s) statute of limitations because not all jurisdictions apply the continuing breach doctrine, or apply it the same way. See, e.g., Westminster Investing Co. v. Lamps Unlimited, Inc., 237 Va. 543, 548-59 (1989) (rejecting continuing breach theory).?’ Third, even if the continuing breach theory were valid, class members 20 See also Schreiner Farms, Inc. v. Am. Tower, Inc., 173 Wash. App. 154, 161 (2013) (rejecting continuing breach theory); Blazer Foods, Inc. v. Rest. Props., Inc., 259 Mich. App. 241, 251 (2003) (same); In re Cellnet Data Systems, Inc., 313 B.R. 604, 610 (D. Del. 2004) (“If the failure to perform, or failure to cure the nonperformance of, a defined contractual obligation at some fixed 22 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & would still have to prove such theory for each alleged breach pursuant to the relevant jurisdiction’s requirements. Applying the continuing breach theory, therefore, only adds another layer of complexity to an unavoidably individualized analysis. Plaintiffs brush these arguments aside, claiming that courts do not consider differences in statutes of limitations in determining predominance. Plaintiffs are mistaken. As discussed above, numerous courts have cited individualized issues impacting statute of limitations in denying class certification by Plaintiffs. California rules are no different. See, e.g., Gianino v. Alacer Corp., 846 F. Supp. 2d 1096, 1101, 1104 (C.D. Cal. 2012) (determining under California choice of law rules that common issues did not predominate in putative consumer-protection class action, in part because of multiple statutes of limitations).?! 4. Plaintiffs Have Not Demonstrated Any Significant Issue of Liability or That Damages Could Be Determined in One Stroke In contrast to these numerous and highly individualized determinations, Plaintiffs proffer no explanation or evidence showing how any significant issue of liability or damages can be determined in “one stroke” as required to demonstrate commonality and predominance. Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350 (2011); Williams v. Superior Ct., 221 Cal. App. 4th 1353, 1368 (2013) (adopting Dukes “one stroke” commonality standard). As explained in Dukes, any carefully drafted complaint can raise common issues. “What matters to class certification . . . is not the raising of common questions-even in droves-but, rather the capacity of a class-wide proceeding to generate common answers apt to drive the resolution of the litigation.” Dukes, 564 U.S. at 350 (emphasis in original). Class claims must depend upon a common contention, the truth or falsity of which “will resolve an issue that is central to the validity of each one of the claims in one stroke.” 1d. point in time were characterized as a ‘continuing’ breach, the non-breaching party would be able to avoid the impact of any applicable statute of limitations during the term of the contract.”) 21 See also Quezada v. Loan Ctr. of Cal., Inc., No. CIV. 2:08-00177, 2009 WL 5113506, at *7 (E.D. Cal. Dec. 18, 2009) (denying motion for class certification in part because “some class members will have statute of limitations issues that will need to be resolved, while others will not”); Bennett v. Regents of Univ. of Cal., 133 Cal. App. 4th 347, 354, 360 (2005) (affirming denial of class certification where trial court had identified the statute of limitations as issue requiring individual proof). 23 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & Plaintiffs fail to meet this requirement. This case is unlike any of the cases cited by Plaintiffs, in which the legality of a form contract constitutes the central issue of liability in the case. Motion at 20 (citing Harper v. 24 Hour Fitness, 167 Cal. App. 4th 966, 970 (2008)) (complaint alleged that defendant’s contracts themselves were deceptive); McGhee v. Bank of Am., 60 Cal. App. 3d 442, 445 (1976) (liability predicated on whether form contract created a “trust”). Here, Plaintiffs cannot just point to any contractual provisions or “policies and procedures” as supposedly common evidence to establish liability because “even proof that [the Trustee] always failed to act when it was required to do so would not prove their case, because they would still have to show which trusts [or loans] actually had deficiencies that required [the Trustee] to act in the first place.” PABF, 775 F.3d at 162 (emphasis in original). Indeed, the requirement for loan-by-loan determinations is dictated by the very contractual provisions at the core of Plaintiffs’ claims. BlackRock Allocation Target Shares: Series S Portfolio v. Wells Fargo Bank, Nat'l Ass’n, No. 14-cv-9371, 2017 WL 3610511, at *10 (S.D.N.Y. Aug. 21, 2017) (“Generalized information indicating the trusts with loan defaults or R&W breaches cannot substitute for proof that servicers had actual knowledge of loan-specific R&W breaches and that [Trustee] actually knew of the servicers’ failure to report those breaches.”); Royal Park Invs. SA/NV v. Deutsche Bank Nat’l Tr. Co., No. 14-cv-4394, 2016 WL 439020, at *6 (S.D.N.Y. Feb. 3, 2016) (“Without actual knowledge of non-conforming loans, Defendant would have no obligation to require a Seller to substitute or repurchase the defective loan.”); BlackRock Allocation Target Shares: Series S Portfolio v. Wells Fargo Bank, Nat'l Ass’n, No. 14-cv-9371, 2017 WL 953550, at *5 (S.D.N.Y. Mar. 10, 2017) (“The materiality of an R&W breach is also loan-specific.”); see also Ashba Decl. |] 6-9, Exs. 4-6 (providing examples of loan-specific remedies for breaches of R&Ws). Not only are Plaintiffs’ arguments regarding allegedly common provisions in the PSAs insufficient to establish commonality or predominance, the arguments are not even supported by admissible evidence. See Trustees Objections to Evidence to DeLange Declaration. Contrary to Plaintiffs’ unsupported assertions, the PSAs have many differing provisions that would need to be individually considered in connection with liability, causation, damages and defenses, including 24 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & (but not limited to): Differing enforcement obligations: in approximately 221 of the 457 Trusts, the Trustees have no obligation to enforce breaches of R&Ws. Ashba Decl., {{ 10-222, Exs. 7-218; Reyes Decl., |] 8-17; Exs. B-K. For other Trusts, any enforcement obligation is predicated on differing conditions precedents. Ashba Decl., {{ 223-28, Exs. 219-23. Analysis of the Trustees’ obligations with respect to R&Ws will need to be analyzed as to each separate trust. Differing remedies: the PSAs have differing remedies for breaches of R&Ws depending on such factors as the identity of the Warrantor, whether the primary Warrantor responsible for a R&W fails to repurchase a loan, and the time period in which the alleged breach is discovered. Ashba Decl., Ex. 246-50, Exs. 237-240; Reyes Decl., 1 18-21, Exs. L-O. Differing cure periods: the Trusts have differing time periods for Warrantors to cure, repurchase, or substitute any breaching loans, ranging from 30 to 90 days, sometimes depending on the type of R&W that was breached, or the identity of the Warrantor, which can impact when the cause of action accrues for purposes of determining statute of limitations, and the date on which to measure damages. Ashba Decl., {{229-45, Exs. 224-36; see also §§ 111 (C) (2), (3) supra. Differing obligations regarding document defects: the Trusts have differing obligations and time periods in which to address defects in loan documentation, including Trusts in which the Trustees have no duties to cure or provide notice of document defects and/or review mortgage loan files and prepare loan file certifications and exception reports. Ashba Decl., 251-322, Exs. 241-305; Reyes Decl., 22, Ex. P. Differing obligations regarding Events of Default: the Trusts have differing obligations regarding who is responsible for providing notice to Certificateholders of Events of Default, including a number of Trusts where a party other than the Trustee is charged with such notice. Ashba Decl., {{ 323-67, Exs. 306-49; Reyes Decl., {{ 23-26, Exs. Q- T. The requisite time periods in which notice must be provided also differs. Id., Iq 25 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & 368-84, Exs. 350-63. These differing provisions mean that even interpreting the contracts at issue would not tend to resolve any significant issue of liability or damages in “one stroke” for all class members.* This inherent lack of commonality makes this case per se inappropriate for class treatment. Global Mins., 113 Cal. App. 4th at 857 (evidence establishing liability or damages only to “small groups” of class members is not appropriate for class action treatment). D. A Class Action Is Not Superior These myriad individualized issues also mean that a class action is not a “superior” means of adjudicating this case. Courts considers four factors in determining superiority: (1) the interest of each member in controlling his or her own case personally; (2) the difficulties in managing a class action; (3) the nature and extent of any litigation by individual class members already in progress involving the same controversy; and (4) the “desirability of consolidating all claims in a single action before a single court.” Ali v. U.S.A. Cab Ltd., 176 Cal App. 4th 1333, 1352 (2009). Each of these factors weighs against certification. 1. This Case Cannot Be Managed as a Class Action To assess the manageability of a case, the trial court must “carefully weigh the respective benefits and burdens of a class action” and “permit its maintenance only where substantial benefits will be accrued by both litigants and the courts alike.” Reyes v. San Diego Cty. Bd. Of Supervisors, 196 Cal. App. 3d 1263, 1275 (1987). The “manageability of individual issues is just as important as the existence of common questions uniting the proposed class.” Duran, 59 Cal. 4th at 29. Where the court determines that there are likely problems effecting manageability, “it should not certify the class merely on the assurance of counsel that some solution will be found.” Reyes, 196 Cal. App. 3d at 1275. While Plaintiffs suggest that defendants must show that the issues cannot be managed, the Supreme Court has placed the burden squarely on Plaintiffs. Wash. Mutual, 24 Cal. 4th at 924-25 22 Plaintiffs also do not explain how the scant evidence they cite would establish liability for alleged breaches for all class members. Plaintiffs cite, for example, loans that allegedly remained in foreclosure status for nine or ten years (Motion at 14), but never explain how such evidence would establish liability of the Trustee, let alone impact all class members in the same way. 26 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & (“Class action proponents should not expect the court to ferret through, disseminate, and craft manageable schemes from such materials when that burden clearly rests with the proponents.”). It is Plaintiffs’ burden “to credibly demonstrate, through a thorough analysis of the applicable state laws, that state law variations will not swamp common issues and defeat predominance.” Id. at 926. This proof “must be sufficient to permit the trial court, at the time of certification, to make a detailed assessment of how any state law differences could be managed fairly and efficiently at trial.” Id. The “court cannot accept ‘on faith’ an assertion that variations in state laws relevant to the case do not exist or are insignificant; rather, the party seeking certification must affirmatively demonstrate the accuracy of the assertion.” Id. at 924. Where Plaintiffs have not made the required showing, the court must “deny certification if it determines that such complexity results in common legal questions not predominating or makes a nationwide class litigation unmanageable.” Id. at 915. Here, Plaintiffs have proffered no evidence or plan to show how individualized evidentiary and legal issues could be managed as required to identify class members, adjudicate liability, determine and apply the varied statutes of limitations of over 1,000 putative class members (or their alleged assignors), and determine causation and damages. See RPI/WF, 2018 WL 739580, at *17 (denying certification because the “management of the litigation would be difficult, if not near impossible, and separate actions may be more appropriate.”); see also RPI/DBNTC II, No. 14-cv- 4394, Dkt. 597 (denying class certification for, among other reasons, lack of superiority).? It is difficult even to contemplate how a class notice, jury instructions, or verdict forms could be formulated to address these issues, particularly given the variations between the agreements governing the 457 Trusts, and the need to prove Plaintiffs’ claims loan-by-loan. These complications magnify with each breach alleged by the Plaintiffs, which require separate determinations of damages, and timeliness, and may implicate different alleged assignors. Plaintiffs’ failure to affirmatively address these issues requires denial of their Motion. 23 The court’s public order is attached as Heintz Decl., Ex. 24. As of this submission, the Court’s full opinion remains under seal. The Trustees will submit the full opinion once unsealed. 27 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & 2 Class Members Are Sophisticated Investors and Have Already Commenced Lawsuits Against the Trustees The remaining factors also weigh against superiority. As the court in RPI/WF emphasized, “[glenerally purchasers of the RMBS at issue were highly sophisticated, knowledgeable financial institutions or wealthy private investors.” RPI/WF, 2018 WL 739580, at *17. And, as in RPI/WF, many of the Trusts at issue here are also at issue in several other RMBS cases. See Exs. 18-21 [Royal Park, NCUA, Phoenix Light, Commerzbank and IKB Complaints]. Given that many cases involving the same Trusts at issue are being litigated in New York federal and state courts, there is no benefit to consolidating claims here. E. Plaintiffs Are Inadequate Representatives and Have Atypical Claims The Court also should deny class certification because most of the Plaintiffs have suffered no damages and have even profited from their purchase of Certificates, making their claims atypical of the class, and disqualifying them as adequate class representatives. Here, all of the 154 Plaintiffs who own Certificates issued by 196 Trusts (the “No-Loss Trusts”) have received complete payment of all principal and interest due on their certificates as to those Trusts. See Press Decl. {{47-48. Further, 166 Plaintiffs have profited from their investments in at least one Trust in which they invested, and these 166 Plaintiffs had cumulative net profits in those Trusts of nearly $2 billion. Id., 7 75-76. Plaintiffs who have suffered no losses are not even members of the proposed class.2* Motion at 1 (class includes current investors “damaged as a result of Defendants[’] . . . alleged breaches of contract”); > see also Chern v. Bank of Am., 15 Cal. 3d 866, 874 (1976) (“cases uniformly hold that a plaintiff seeking to maintain a 2% Damages must be determined as of the date of breach. To the extent Plaintiffs rely on hypothetical future losses (Hartzmark Report, at 9 78-79), such conjectural damages are not recoverable. See NES Fin. Corp. v. JPMorgan Chase Bank, 556 F. App’x 12, 13 (2d Cir. 2014). 2 To take just one example, one of the Plaintiffs, the PIMCO Income Fund, owns $15,000,020 (original face value) of the 2A3 Certificate issued by the FFML 2006-FF7 Trust. James Decl. qq 50, 143. This Certificate has experienced no principal write-downs and Certificate holders have received the total amount of all principal and interest payments due. Press Decl., Ex. 5, 7. This Plaintiff has a positive return of $1,356,084 on its investment in this Certificate as of January 31, 2018, not including the interest payments it received. Id. Ex. 10, at 41, Ex. 11, at 46. On this basis, Plaintiffs seek certification of a class that includes all investors in all Certificates issued by that Trust. There are hundreds of similar examples covering nearly all of the Trusts. Further, another former investor in that Trust claims to have retained many claims when it sold this Certificate under foreign law. Dolan Decl., { 100-102. 28 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & class action must be a member of the class he claims to represent.”). Plaintiffs’ claims are also atypical of the class. To establish typicality, a class representative must “sustain[] the same or similar damage” as other members in the putative class. Caro v. Procter & Gamble Co., 18 Cal. App. 4th 644, 664 (1993); accord Seastrom v. Neways, Inc., 149 Cal. App. 4th 1496, 1501-02 (2007). Absent this basic identity of claims and damages, a representative cannot “bind class members.” Caro, 18 Cal. App. 4th at 664. Courts have repeatedly found that differences in the existence, and magnitude, of damages suffered by named plaintiffs and class members defeat typicality, particularly where named plaintiffs profited from the alleged conduct. See Johnson v. GlaxoSmithKline, Inc., 166 Cal. App. 4th 1497, 1509 (2008) (“test of typicality” is whether “other members have the same or similar injury”); see also Seastrom, 149 Cal. App. 4th at 1501 (rejecting class representatives who “profited” and “may not have suffered any compensable damage”); Caro, 18 Cal. App. 4th at 664 (“[t]here can be no cognizable class unless it is first determined that members who make up the class have sustained the same or similar damage.”); Lopez v. Brown, 217 Cal. App. 4th 1114, 1130 (2013) (rejecting class representatives as atypical because of “disparity between the alleged value of plaintiff's claim and that of the other putative class members.”) These Plaintiffs-many of whom purchased the Certificates after the date of the alleged contractual breaches-are also subject to a unique defense that independently defeats typicality. See, e.g., Caro, 18 Cal. App. 4th at 663 (deeming class representatives’ claims atypical because representatives were aware of alleged misrepresentations and did not rely on them); Seastrom, 149 Cal. App. 4th at 1502-03 (deeming claims of class representatives ayptical, who had greater knowledge of the alleged misconduct of the class, and who were thus subject to unique defenses). Plaintiffs’ lack of damages also make them inadequate class representatives. Class representative may not pursue types of damage that class representatives themselves did not suffer; thus, certifying a class represented by a plaintiff who did not suffer damages effectively “deprive[s] class members of many elements of damage.” City of San Jose v. Superior Ct., 12 Cal. 3d 447, 464 (1974) (class representatives who could solely pursue damages for diminution in market value, but no other type of damage suffered by members are inadequate); Evans v. Lasco 20 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW SAN FRANCISCO ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & Bathware, Inc., 178 Cal. App. 4th 1417, 1433 (2009). This issue pervades Plaintiffs’ proposed class action. Because Plaintiffs have profits, their expert has constructed a “damage” model under which those profits are supposedly “not relevant.” Heintz Decl., Ex. 7 [98:24-99:12; 101:6-17]. So that Plaintiffs can receive money, any other investors who realized losses on selling their Certificates will receive nothing. James Decl., {{47-48, 133. Because of Plaintiffs’ lack of damages, Plaintiffs’ interests fundamentally conflict with absent class members regarding the appropriate damages theories to pursue. For example, Plaintiffs propose calculating damages based on a “trust-level” model, which would allocate any recovery to class members on a pro rata basis in proportion to each class member’s holdings, regardless of whether the member profited on her investment or received all principal and interest payments due, and regardless of whether the member purchased certificates at discounted prices after alleged contractual breaches were disclosed. James Decl. {{[ 35-36. This methodology directly conflicts with the interests of class members whose notes declined in value or who suffered a payment deficiency, because they would have to share a portion of any damages award with Plaintiffs who profited from their investments. By contrast, a damages model that would restrict recoveries to investors who suffered actual damages would preclude recoveries by Plaintiffs. Id., {q 137-143. Plaintiffs’ economic interests thus fundamentally conflict with the class, making Plaintiffs inadequate class representatives. See, e.g., J.P. Morgan & Co. v. Superior Ct., 113 Cal. App. 4th 195, 215 (2003); Seastrom, 149 Cal. App. 4th at 1502. IV. CONCLUSION For all of the foregoing reasons, this Court should deny Plaintiffs’ motion for class certification. Dated: March 30, 2018 MORGAN, LEWIS & BOCKIUS LLP By /s/ Tera M. Heintz Tera M. Heintz Attorneys for Defendants DEUTSCHE BANK NATIONAL TRUST COMPANY and DEUTSCHE BANK TRUST COMPANY AMERICAS, as Trustees 30 Case No. 30-2016-00843062-CU-BC-CXC DEFENDANTS’ OPPOSITION TO PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION