Western and Southern Life Insurance Company et al v. Countrywide Financial Corp. et al

Opposition Opposition re: MOTION to Dismiss Case and Joinder in Other Defendants' Motions to Dismiss 154 , MOTION to Dismiss Case 168 , MOTION to Dismiss Case 162 , MOTION to Dismiss Defendant Stanford Kurland 152 , MOTION to Dismiss Case 158 , MOTION to Dismiss Case

C.D. Cal.January 14, 2012

1 LYSAGHT LAW GROUP Brian C. Lysaght (Bar. No. 61965) 2 b1ysaght@lysaghtlegaI.com 3 12021 Wilshire Boulevard Los Angeles, California 90025 4 Telephone: (310) 567-1111 5 Facsimile: (310) 472-0243 (Additional counsel listed below) 6 Attorneys for Plaintiffs UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA 12 13 20 Plaintiffs, - v- NATIONAL INTEGRITY LIFE INSURANCE COMPANY, Plaintiffs, -v- Case No. 2:11-cv-07166 Hon. Mariana R. pfaelzer Case No.2: 11-cv-09889 Hon. Mariana R. Pfaelzer 21 COUNTRYWIDE FINANCIAL 22 CORPORATION et aI., 23 24 25 26 27 Defendants. MEMORANDUM OF POINTS OF AUTHORITY IN OPPOSITION TO DEFENDANTS' MOTIONS TO DISMISS Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 1 of 71 Page ID #:10148 TABLE OF CONTENTS BACKGROUND 4 1 2 PRELIMINARY STATEMENT 2 3 4 5 1. Plaintiffs and Their Purchase of Countrywide MBS .4 6 II. The Complaints 5 C. Plaintiffs' OCAA Claims 7 ARGUMENT 8 A. Procedural History 5 B. Plaintiffs' Misrepresentation and Omission Claims 6 a. Press Reports Contradicted By Defendants Did Not Provide Constructive Notice 16 a. Constructive Notice Must Be Assessed Individually For Each Category of Misrepresentation 12 Western & Southern's OSA and Common Law Claims Based On Countrywide's Systemic Abandonment of Underwriting Guidelines Are Timely 14 The OSA Claims Based Upon Failure Properly to Transfer Notes and Files, and to Assign Mortgages Are Timely 9 1. 2. A. Defendants Concede the OCAA Claims Are Timely 9 B. The OSA Claims Are Timely 9 1. Plaintiffs' Claims are Timely 9 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 2 of 71 Page ID #:10149 III. Western & Southern's OSA Claims Are Tolled Under Ohio Law .....36 C. American Pipe Tolls Plaintiffs' State Law Claims 36 A. Eight ofPlaintiffs , Tranches Are Backed By The Same Loan Pools as Tranches Purchased By the Luther Plaintiffs 30 IV. This Court Has Personal Jurisdiction Over All of the Other Defendants .36 Countrywide and Bank ofAmerica Fraudulently Concealed Their OSA Violations 19 Western & Southern Was Not Aware That It Suffered Actual Injury Prior To April 2009 23 Complaints Involving Different Frauds Did Not Provide Constructive Notice 18 b. d. c. 1. The National Integrity Action Is Not "Procedurally Improper" 27 3. The OSA Statute ofRepose Is Not Applicable .24 Mozilo and Sambol Are Subject to Jurisdiction Under the OCAA .42 The Tolled Tranches Provide Pendent Personal Jurisdiction Over Sieracki and Spector .41 National Integrity's Common Law Fraud Claims Are Timely 25 C. B. B. There Is a Strong Trend In Favor of the Application of American Pipe Tolling Notwitstanding That the Class Plaintiff Lacked Standing 33 A. II. Plaintiffs' Securities Act and OSA Claims Are Tolled Under American Pipe 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 11 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 3 of 71 Page ID #:10150 V. This Court Should Grant Plaintiffs Leave to Replead Any Claims This Court Dismisses 50 1. The Officer Defendants Transacted Business In Ohio .. .43 Jurisdiction Exists Under Ohio's Long Arm Statute .42 2. The Officer Defendants Caused Tortious Injury in Ohio ....................................................................................... .44 This Court's Exercise of Jurisdiction Satisfies Due Process ... .47 C. D. 1 2 3 4 5 6 7 8 9 CONCLUSION 51 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 iii Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 4 of 71 Page ID #:10151 1 2 Case TABLE OF AUTHORITIES Pa 3 4 United States Fidelity & Guaranty Co. v. Lee Investments, LLC, 76 Cal. Compo Cases 472 (9thCir. Cal. 2011) .40 6 5 Abstract Serv., Inc. V. First Am. Title Ins. Co., 173 F.3d 725 (9th Cir. 1999) .48 7 Aguiar V. Natbony, 8 10-cv-6531-PGG, 2011 U.S. Dist. LEXIS (S.D.N.Y. May 16,2011) ..........29 A-INursing Care V. Florence Nightingale Nursing, 97 Ohio App. 3d 623,647 N.E.2d 222 (Ohio 1994) 3812 9 Ahrendt V. Palmetto Federal Sav. & Loan Asso., 10 680 F. Supp. 1125 (S.D. Ohio 1987) .44 11 Allegaert V. Warren, 480 F. Supp. 817 (S.D.N.Y. 1979) 26 Am. Sign. Inc. V. Moody's Investors, 09-cv-878-GLF, 2010 U.S. Dist. 68042 (S.D. Ohio July 2,2010) 29 Allstate Insurance Company V. Countrywide Financial Corporation, No. 2:11-CV-05236-MRP, 2011 U.S. Dist. LEXIS 123844 (C.D. Cal. Oct. 21, 2011) 10,33 13 Albano V. Shea Homes Ltd. P'ship, 14 634 F.3d 524 (9th Cir. 2011) 30, 36 15 16 17 18 19 20 21 22 American Lumbermens Mutual Casualty Co. ofIllinois V. Cochrane, 129 N.Y.S.2d 489 (N.Y. Sup. Ct. 1954) .26 23 24 American Pipe and Construction Company V. Utah, 414 U.S. 538 (1974) 29, 30 27 25 26 Anschutz Corp. V. Merrill Lynch & Co., 785 F. Supp. 2d 799 (N.D. Cal. 2011) 50 iv Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 5 of 71 Page ID #:10152 1 2 3 4 5 Antone v. General Motors Corporation, 64 N.Y.2d 20 (1984) 26 Arandell Corporation v. American Electric Power Company, No. 09-cv-231-MHW, 2010 U.S. Dist. LEXIS 96372 (S.D. Ohio Sept. 15, 2010) .40 6 Armstrong v. Martin Marietta Corp., 7 138F.3d 1374 (11thCir.1998) 32 8 Ashcroft v. Iqbal, 9 556 U.S. 662, S. Ct. 1937 (2009) 8 10 Assured Guar. (UK) Ltd. v. J.P. Morgan Inv. Mgt. Inc., 11 2011 NY Slip Op 9162 (N.Y. Ct. App. Dec. 20, 2011) .15 12 Athenian Venture Partners III, L.P. v. Infrastructure Solutions, Inc., 13 No. 08-cv-821, 2009 U.S. Dist. LEXIS 48840 (S.D. Ohio May 19, 2009) ..43 14 Bahn v. Korean Airlines Co. (In re Korean Air Lines Co.), 15 642 F.3d 685 (9th Cir. 2011) 8 Blue Flame Energy Corp. v. Ohio Dep't ofCommerce, 21 171 Ohio App. 3d 514 (Ohio Ct. App. 10th Dist. 2006) ..44 22 Bowles v. Reade, 23 198 F.3d 752 (9th Cir. 1999) 50 16 Bell Atlantic Corp. v. Twombly, 17 550 U.S. 544 (2007) 8 18 Betz v. Trainer Wortham & Co., 19 519 F.3d 863 (9th Cir. 2008) 8 20 24 Chapman v. Hardin County, 25 No. 05-CV-433-S, 2006 U.S. Dist. LEXIS 47095 (W.D. Ky. May 15, 2006) .41 26 27 City ofPainesville v. First Montauk Fin., v Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 6 of 71 Page ID #:10153 178 F.R.D. 180 (N.D. Ohio 1998) 12, 181 2 CollegeSource, Inc. v. AcademyOne, Inc., 653 F.3d 1066 (9th Cir. 2011) 473 Connerly v. State Personnel Bd., 92 Cal. App. 4th 16 (Cal. App. 3d Dist. 2001) .32 Curtis v. Williamson, 226 F.3d 133 (2d Cir. 2000) 27 DeChant v. Developers, No. 37745,1978 Ohio App. LEXIS 8128 (Ohio Ct. App. 8th App. Dist. Oct. 28, 1978) 14 4 Commonwealth ofMassachusetts v. Bank ofAmerica, NA., 5 No. 11-cv-4363 (Mass. Super. Suffolk Cty.) 9 6 7 8 Cullen v. Margiotta, 9 811 F.2d 698 (2d Cir. 1987) 36 10 11 12 13 14 Esplin v. Hirschi, 402 F.2d 94 (lOth Cir. 1968) 32, 35 Dunn & Fenley, LLC v. Diederich, 06-cv-6243-TC, 2010 U.S. Dist. LEXIS 326 (D. Ore. Jan. 5,2010) 29 20 15 Doe v. Blue Cross/Blue Shield ofOhio, 79 Ohio App. 3d 369,607 N.E.2d 492 (Ohio Ct. App. 10th Dist. 2000) ..... 19 16 17 18 19 22 21 Federal Deposit Ins. Corp. v. Nichols, 885 F.2d 633 (9th Cir. 1989) 27 23 Federated Mgmt. Co. v. Coopers & Lybrand, 137 Ohio App. 3d 366 (Ohio Ct. App., Franklin County 2000) 16,22 24 26 27 Garnier v. Ludwick, 25 Gaines v. Preterm-Cleveland, Inc., 33 Ohio St. 3d 54 (1987) .24 VI Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 7 of 71 Page ID #:10154 1 2 No. H024269, 2003 Cal. App. Unpub. LEXIS 7204 (Cal. App. 6th Dist. 2003) .30 Genentech, Inc. v. Eli Lilly and Co., 998 F.2d 931 (Fed. Cir. 1993) .27 3 Gelman v. Westinghouse Electric Corp., 556 F.2d 699 (3d Cir. 1977) 32 4 5 6 Goldstein v. Christiansen, 70 Ohio St. 3d 232 (Ohio 1994) .43 Giovanniello v. ALMMedia, LLC, No. 09-cv-1409-JBA, 2010 U.S. Dist. LEXIS 92181 (D. Conn. Sept. 3, 2010) 32 13 7 Genesee County Emps. ' Ret. Sys. v. Thornburg Mortg. Sec. Trust 2006-3, No. Civ. 09-CV-300, JBIKBM, 2011 U.S. Dist. LEXIS 133462 (D.N.M. 8 Nov. 12, 2011) 34 9 10 11 12 Griffin v. Singletary, 17 F.3d 356 (11th Cir. 1994) 34 Gruelich v. Monnin, 50 N.E. 2d 310 (Ohio 1943) 39 14 Gor-Vue Corp. v. Hornell ElektrooptikAB, 15 634 F. Supp. 535 (N.D. Ohio 1986) .44 16 17 18 19 20 Hardy v. VerMeulen, 21 32 Ohio St. 3d 45 (1987) .24 Hater v. Gradison Div. ofMcDonald & Co. Sees. Inc., 101 Ohio App. 3d 99, 655 N.E.2d 189 (Ohio Ct. App. 1st App. Dist. 1995) .......................................................................................................................14 25 26 27 Helman v. EPL Prolong, Inc., 22 Harris Rutsky & Co. Ins. Servs. v. Bell & Clements Ltd., 23 328 F.3d 1122 (9th Cir. Cal. 2003) .49 24 Vll Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 8 of 71 Page ID #:10155 130 Ohio App. 3d 231 (Ohio Ct. App., 7th Dist. 2002) 19,241 2 Herbruck v. LaJolla Capital, 3 No. 19586,2000 Ohio App. LEXIS 4668, 2000 WL 1420282 (Ohio Ct. App. 9th Dist. Sept. 27, 2000) .44 4 5 Heritage Funding & Leasing Co. v. Phee, 120 Ohio App. 3d 422 (Ohio Ct. App. 10th Dist. 1997) .45 6 7 In re Alstom SA Sec. Litig., 406 F. Supp 2d 402 (S.D.N.Y. 2005) 12, 13, 14,48 8 In re Deutsche Bank AG Sec. Litig., 2011 U.S. Dist. LEXIS 93867 (S.D.N.Y. Aug. 19,2011) 34 In re Columbus Skyline Securities, 74 Ohio St. 3d 495 (1996) 15 14 9 In re CINAR Corp. Sec. Litig., 186 F. Supp. 2d 279 (E.D.N.Y. 2002) .48 10 11 12 13 In re Initial Public Offering Sec. Litig., No. 21 MC 92, 01-CV-9741 (SAS), 2004 U.S. Dist. LEXIS 26000 (S.D.N.Y. Dec. 27, 2004) 34 15 In re Flag Telecom Holdings, Ltd. Sec. Litig., 352 F. Supp. 2d 429 (SD.N.Y. 2005) 34 16 17 In re IndyMac Mortgage-Backed Sec. Litig., 793 F. Supp. 2d 637 (S.D.N.Y. June 21, 2011) 34 18 19 20 21 In re LDK Solar Sees. Litig., 22 No. 07-cv-05182 WHA, 2008 U.S. Dist. LEXIS 80717 (N.D. Cal. 2008) ...47 23 In re Linerboard Antitrust Litig., 24 223 F.R.D. 335 (ED. Pa. 2004) 36 25 In re Medeva Sec. Litig., 26 93-cv-4376 KN, 1994 U.S. Dist. LEXIS 11675 (C.D. Cal. June 3, 1994) ..49 27 viii Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 9 of 71 Page ID #:10156 1 In re Morgan Stanley Mortg. Pass-Through Certificates Litig., 2011 U.S. Dist. LEXIS 104280 (S.D.N.Y. Sept. 15,2011) 34,35 2 3 In re Nat 'I Century Fin. Enters., 541 F. Supp. 2d 986 (S.D. Ohio 2007) 19 4 5 In re Piper Aircraft Distribution System Antitrust Litigation, 551 F.2d 213 (8th Cir. 1977) 27 6 7 In re Polyurethane Foam Antitrust Litig., No. 1:10 MD 2196, 2011 U.S. Dist. LEXIS 104419 (N.D. Ohio Sept. 15, 8 2011) .22 9 10 11 In re UltraFem Inc. Sec. Litig., 91 F. Supp. 2d 678 (S.D.N.Y. 2000) 12 24 In re Vertrue Mktg. & Sales Practices Litig., 12 712 F. Supp. 2d 703 (N.D. Ohio 2010) 32, 41 Indiana Plumbing Supply v. Standard ofLynn, 880 F. Supp. 743 (C.D. Cal. 1995) ..48 17 21 22 23 Italian Colors Restaurant, 03-cv-3719-SI, 2003 U.S. Dist. LEXIS 20338 (N.D. Cal. Nov. 7, 2003) ....29 25 iYogi Holding Pvt. Ltd. v. Secure Remote Support, Inc., No. C-11-0592 CW, 2011 U.S. Dist. LEXIS 144425 (N.D. Cal. Oct. 24, 26 2011) 50 27 IX Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 10 of 71 Page ID #:10157 1 j2 Global Communications, Inc. v. Blue Jay, Inc., No. 08-cv-4254, 2009 U.S. Dist. LEXIS 1616,2009 WL 29905 (N.D. Cal. 2 Jan. 5, 2009) .48 3 4 5 6 Javitch v. Neuma, Inc., No. 04-CV-1487, 2006 U.S. Dist. LEXIS 3561 (N.D. Ohio Jan. 31, 2006).43 Jelm v. Galan, No. 58093, 1991 Ohio App. LEXIS 936 (Ohio Ct. App. 8th Dist. 1991).....22 Jimenez v. Weinberger, 523 F.2d 689 (7th Cir. 1975) 32,35 Kinney v. Ohio Dep't ofAdministrative Services, 30 Ohio App. 3d 123 (Ohio Ct. App. 1986) 39 Konig v. State Bar ofCal., No. 04-cv-2210, 2004 U.S. Dist. LEXIS 19498 (N.D. Cal. Sept. 16,2004) 50 21 Ky. Oaks Mall Co. v. Mitchell's Formal Wear, 53 Ohio St. 3d 73 (Ohio 1990) .43 22 Lamp/, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 23 501 U.S. 350 (U.S. 1991) 24 27 24 Lanthorn v. Cincinnati Ins. Co., 2002 Ohio App. LEXIS 6573 (Ohio Ct. App., 4th Dist. Dec. 5,2002) 3825 26 Lopardo v. Lehman Bros., Inc., 548 F. Supp. 2d 450 (N.D. Ohio 2008) 19,24 x Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 11 of 71 Page ID #:10158 Luther v. Countrywide Home Loans Servicing LP, BC380698 (Cal. Super. Ct.) 3, 33, 35 1 Loyd v. Huntington Nat 'I Bank, 2 No. 08-CV-2301-DCN, 2009 U.S. Dist. LEXIS 51858 (N.D. Ohio 2009) ..24 3 4 5 Me. State Ret. Sys. v. Countrywide Fin. Corp., 722 F. Supp. 2d 1157 (C.D. Cal. 2010) 30, 35, 36, 39 Mathison v. Bumbo, No. 08-cv-0369, 2008 U.S. Dist. LEXIS 108511 (C.D. Cal. Aug. 18,2008) .......................................................................................................................51 McMahon & Company v. Donaldson, Lufkin & Jenrette Securities Corporation, 727 F. Supp. 833 (S.D.N.Y. 1989) 26 Manzarek v. St. Paul Fire & Marine Ins. Co., 6 519 F.3d 1025 (9th Cir. 2008) 50 7 8 15 9 10 McKowanLowe & Co., Ltd. v. Jasmine, Ltd., 11 295 F.3d 380 (3d Cir. 2002) .34 12 13 14 16 Merck & Co. v. Reynolds, 17 130 S. Ct. 1784 (2010) 9 18 Merrick Bank Corp. v. Savvis, Inc., 19 No. 08-cv-675-ERW, 2008 LEXIS 99393 (E.D. Mo. Dec. 8,2008) ..... 27,28 20 Metz v. Unizan Bank, 21 No. 05 CV 1510,2008 U.S. Dist. LEXIS 37270 (N.D. Ohio May 5, 2008) 24 22 Moffitt v. Richard M Hamlin Constr. Co., 23 29 Ohio App. 3d 98 (Ohio Ct. App., 9th Dept. 1985) 23 24 National Paint & Coatings Assn. v. State ofCalifornia, 25 58 Cal. App. 4th 753 (Cal. App. 2d Dist. 1997) 32 26 New Mexico State Investment Council v. Countrywide Financial Corporation, 27 No. D-O101-CV-2008-02289 (N.M. Dist. Ct.) .49 Xl Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 12 of 71 Page ID #:10159 Norgard v. Brush Wellman, 95 Ohio St. 3d 165 (Ohio 2002) 23 1 Newby v. Enron Corp. (In re Enron Corp. Sees), 2 465 F. Supp. 2d 687 (S.D. Tex. 2006) .36 3 4 NPF XII, Inc. v. Special Care, Inc., No. 00-CV-1048, 2001 U.S. Dist. LEXIS 24351 (S.D. Ohio Feb. 13,2001) .......................................................................................................................45 9 5 6 7 8 Oglesby v. County ofKern, No. 05-cv-873-REC, 2005 U.S. dist. LEXIS 29363 (E.D. Cal. Nov. 4, 2005) .......................................................................................................................27 10 Ohio ex rei. Dewine v. GMAC Mortg., LLC, No. 10-CV-2537, 2011 U.S. Dist. LEXIS 53449 (N.D. Ohio May 18, 2011) .......................................................................................................................45 Openwave Sys. v. Fuld, No. 08-cv-5683-SI, 2009 U.S. Dist. LEXIS 48206 (N.D. Cal. June 6, 2009) ................................................................................................................ 48,50 11 Ohio Civ. Rights Comm 'n v. Triangle Real Estate Servs., No. 06AP-157, 2007 Ohio App. LEXIS 1639 (Ohio Ct. App., 10th App. 12 Dist., Apr. 17, 2007) 23 13 14 15 16 17 18 19 Pebble Beach Co. v. Caddy, 453 F.3d 1151 (9th Cir. 2006) 48 20 21 Popoola v. Md-Individual Practice Ass 'n, 230 F.R.D. 424 (D. Md. 2005) 34 22 26 23 Ralston v. Mortgage Investors Group, Inc., C 08- 536 IF (RS), 2009 WL 688858 (N.D. Cal. Mar. 16,2009) 51 24 25 Raniere v. Citigroup Inc., No. 11-cv-2448-RWS, 2011 U.S. Dist. LEXIS 135393 (S.D.N.Y. Nov. 22, 2011) 27 27 Xli Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 13 of 71 Page ID #:10160 1 Rippey v. Smith, 16 Fed. Appx. 596 (9th Cir. 2001) .49 2 3 Satterwhite v. City ofGreenville, 578 F.2d 987 (5th Cir. 1978) 32, 35, 42 4 5 Scheuer v. Rhodes, 416 U.S. 232 (1974) 8 6 Sherman v. Air Reduction Sales Co., 251 F.2d543 (6thCir. 1958) 39 Semmes Motors, Inc. v. Ford Motor Co., 429 F.2d 1197 (2d Cir. 1970) 28 7 See In re Nat 'I Century Fin. Enters., 755 F. Supp. 2d 857 (S.D. Ohio 2010), 8 partial summary judgment denied, 755 F. Supp. 2d 857 (S.D. Ohio 2010) ....9 9 10 11 12 13 State ex rel. Coles v. Granville, 14 116 Ohio St. 3d 231,877 N.E.2d 968 (Ohio 2007) 38 The Fair Die & Specialty Co., 228 U.S. 22 (1913) .28 Tosti v. Los Angeles, 754 F.2d 1485 (9th Cir. 1985) 36 25 26 Toyz, Inc. v. Wireless Toyz Franchise, LLC, 22 No. C-09-05091 JF, 2010 U.S. Dist. LEXIS 12032 (N.D. Cal. Jan. 25, 2010) .......................................................................................................................4823 24 Unencumbered Assets, Trust v. JP Morgan Chase Bank (In re Nat'l Century Fin. Enters.), 617 F. Supp. 2d 700 (S.D. Ohio 2009) .44 27 United States ex reI. Tillson v. Lockheed Martin Energy Sys., xiii Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 14 of 71 Page ID #:10161 1 No. 5:00CV-39-M, 2004 U.S. Dist. LEXIS 22246 (D. Ky. 2004) .23 Veliz v. Cintas Corp., No. 03-cv-1180-SBA, 2007 U.S. Dist. LEXIS 24428 (N.D. Cal. Mar. 20, 2007) .32 Washington State Plumbing & Pipefitting Pension Trust v. Countrywide Financial Corp., BC392571 (Cal. Super. Ct. 2008) 35 2 United Western Bank v. Countrywide Financial Corporation, No. 2010-CV-3325 (C.O. Dist. Ct.) .493 4 Vaccariello v. Smith & Nephew Richards, Inc. 5 94 Ohio St. 3d 380 (Ohio 2002) 3, 36 6 12 13 7 8 9 Verizon Directories Corp. v Continuum Health Partners, Inc., 2010 NY Slip Op 4640 (N.Y. App. Div. 1st Dept. 2010) 25 10 11 Womack v. UPS, 311 F. Supp. 2d 492 (E.D.N.C. 2004) 32 Wyatt v. Terhune, 315 F.3d 1108 (9th Cir. 2003) 8 Wydallis v. United States Fidelity & Guaranty Co., 63 N.Y.2d 872 (1984) 25, 26 21 Wyser-Pratte Mgmt. Co., Inc. v. Telxon Corp., 22 413 F.3d 553 (6th Cir. 2005) .40 23 Zanders v. 0 'Gara-Hess & Eisenhardt Armoring Co., 24 1992 U.S. App. LEXIS 535 (6th Circuit 1992) 39 25 26 27 xiv Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 15 of 71 Page ID #:10162 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 16 of 71 Page ID #:10163 1 The Western and Southern Life Insurance Company, Western-Southern Life 2 Assurance Company, Columbus Life Insurance Company, Integrity Life Insurance 3 Company, and Fort Washington Investment Advisors, Inc. (collectively, "Western 4 & Southern"), plaintiffs in The Western and Southern Life Insurance Company et 5 at. v. Countrywide Financial Corporation et al., No. 11-CV-7166-MRP (the 6 "Western & Southern Action"), and National Integrity Life Insurance Company the Declaration ofBrian C. Lysaght, dated January 13,2012 ("Lysaght Decl."), in opposition to Countrywide's,! Bank ofAmerica's2 and the Officer Defendants ,3 motions to dismiss. See Western & Southern Action Dkt. Nos. 152, 154, 158, 162, 164,168,170,171; Nationaiintegrity ActionDkt. Nos. 47, 49,52,56,58,59,60, 14 62.4 7 ("National Integrity"), plaintiff in National Integrity Life Insurance Company v. 8 Countrywide Financial Corporation et al., No. 11-CV-9889-MRP (the "National 9 Integrity Action"), respectfully submit this memorandum ofpoints of authority and 10 11 12 13 15 16 17 I References to "Countrywide" are to defendants Countrywide Financial Corporation ("Countrywide Financial"), Countrywide Home Loans, Inc., 18 Countrywide Capital Markets, LLC, Countrywide Securities Corporation 19 ("Countrywide Securities"), and CWALT, Inc., CWABS, Inc., CWHEQ, Inc., and 20 CWMBS, Inc. 21 22 2 References to "Bank ofAmerica" are to defendants Bank of America Corporation, Bank ofAmerica, N.A., BAC Home Loans Servicing, LP ("BAC Servicing"), and NB Holdings Corporation. 25 23 3 References to the "Officer Defendants" are to defendants Angelo Mozilo, David 24 Sambol, Eric Sieracki, Ranjit Kripalani, Stanford Kurland, David A. Spector, N. Joshua Adler, and Jennifer Sandefur. 26 4 Bank ofAmerica and the Officer Defendants have joined in Countrywide's motion to dismiss. As a result, the points of authority set forth in this 27 memorandum apply equally to each Defendant's motion to dismiss. 1 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 17 of 71 Page ID #:10164 5 References to the "Complaints" are to the Amended Complaint in the Western & Southern Action and the substantially similar Complaint in the National Integrity 27 Action. 1 PRELIMINARY STATEMENT 2 Defendants' motions to dismiss should be denied because they are based on 3 the faulty premise that the Western & Southern Action and the National Integrity 4 Action are substantially identical to certain cases already considered by this Court. 5 Aside from the identity ofDefendants and some overlapping evidence concerning 6 their misconduct, the instant actions bear little resemblance to those previously 7 considered lawsuits. 8 First, unlike any of the prior actions, the Western & Southern Action and the 9 National Integrity Action assert claims under the Ohio Corrupt Activities Act (the 10 "OCAA"). Defendants concede that these claims are timely. 11 Second, the Western & Southern Action and the National Integrity Action 12 assert claims under the Ohio Securities Act (the "OSA") and common law fraud 13 that are based on misrepresentations and other misconduct not before this Court in 14 any ofthe prior actions. For example, Plaintiffs allege that Countrywide 15 misrepresented to investors that promissory notes and loan files were properly 16 transferred and mortgages properly assigned to securitization trusts. These steps 17 were necessary to ensure that the Countrywide-sponsored securitization trusts 18 could foreclose in the event of a borrower default. As detailed in the Complaints,5 19 as well as in recent actions by multiple state attorneys general, Countrywide in fact 20 consistently failed to meet rules governing assignment ofmortgages, and transfer 21 ofpromissory notes and loan files. Countrywide does not contest that Plaintiffs 22 could not have known ofthis misconduct prior to September 2010. Defendants 23 thus concede that Plaintiffs' OSA and common law fraud claims based on transfer 24 and assignment misrepresentations are timely. 25 26 2 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 18 of 71 Page ID #:10165 1 Third, unlike any of the prior actions, the Western & Southern Action and 2 the National Integrity Action allege that from 2007 through at least June 2009, 3 Countrywide and Bank ofAmerica (after its acquisition of Countrywide) provided 4 Remittance Reports6 for Plaintiffs to use in monitoring their Countrywide 5 mortgage-backed securities ("MBS") certificates (the "Certificates"). 6 Unbeknownst to Plaintiffs, the Remittance Reports falsely portrayed material 7 aspects of loan pools underlying the Certificates. This disinformation led Plaintiffs 8 to believe that virtually all of the Certificates were performing well and would 9 make all expected principal and interest payments. As a result, the principles of 10 equitable estoppel and fraudulent concealment require tolling of the limitations 11 periods on Plaintiffs' common law fraud claims and certain ofPlaintiffs , Exchange 12 Act and OSA claims. 13 Fourth, Plaintiffs assert arguments relating to American Pipe tolling that 14 have not been previously submitted to this Court. Plaintiffs own a number of 15 tranches that are backed by the same loan pools as those at issue in Luther v. 16 Countrywide Home Loans Servicing LP, BC380698 (Cal. Super. Ct.) ("Luther"). 17 As this Court is aware, Luther has been reinstated. The Court appears not to have 18 had the opportunity to consider the long line of Circuit Court rulings that when a 19 class action is reinstated, class members' claims are tolled as if the class claims ha 20 never been dismissed. In addition, the Court has yet to consider whether Western 21 & Southern is entitled to tolling under the decision of the Ohio Supreme Court in 22 Vaccariello v. Smith & Nephew Richards, Inc. 94 Ohio St. 3d 380 (Ohio 2002) 23 ("Vaccariello"). As described below, Vaccariello requires that Western & 24 Southern be allowed at least one year from this Court's dismissal of the First 25 26 6 References to "Remittance Reports" are to the loan tapes and statistical matrices 27 described in Paragraphs 375 and 380 ofthe Complaints. 3 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 19 of 71 Page ID #:10166 1 Amended Complaint in Maine State Retirement System v. Countrywide Financial 2 Corporation, No. 10-CV-0302-MRP ("Maine State") on November 4, 2010 to 3 assert their Ohio state law claims. 4 In sum, Defendants' motions to dismiss are based on little more than an 5 unsupported mantra that the Western & Southern Action and the National Integrity 6 Action are virtually identical to prior actions dismissed by this Court. In fact, there 7 are numerous and highly substantial differences between the instant lawsuits and 8 the prior actions, and Plaintiffs respectfully submit that those differences require 9 that Defendants' motions to dismiss be denied. 10 BACKGROUND 11 I. Plaintiffs and Their Purchase of Countrywide MBS 12 Five of the six Plaintiffs in the present actions are mutual life insurance 13 companies. Complaints ~ 2.7 Mutual insurers are subject to state insurance 14 regulations including capital requirements that effectively limit the types of such 15 insurers' investments. Id. Plaintiffs generally purchased only senior "Class A" 16 Certificates rated triple-A or the equivalent, seeking securities with stable principal 17 and interest payments that would allow them to comply with insurance regulatory 18 capital requirements. Id. Plaintiffs diligently analyzed expected cash flows under 19 the Certificates for valuation, regulatory and accounting purposes. Until mid-2009, 20 Plaintiffs used a propriety monitoring system developed with input from 21 Countrywide for this purpose. Id. ~~ 374-75. 22 From June 2005 to March 2008, Plaintiffs purchased $541 million of 23 Countrywide-sponsored MBS (Western & Southern $447 million, and National 24 25 7 The sixth plaintiff is Fort Washington Investment Advisors, Inc., a registered 26 investment advisor acting on behalf of Fort Washington Active Fixed Income LLC. Western & Southern Am. Complaint ~ 19. 27 4 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 20 of 71 Page ID #:10167 1 Integrity $94 million). Complaints, Ex. A. The Certificates were issued in 32 2 separate offerings; Western & Southern purchased certificates in all 32 offerings, 3 and National Integrity purchased in 24. Id. ~ 11. In total, Plaintiffs bought 4 Certificates in 37 tranches (Western & Southern in 36 tranches, and National 5 Integrity in 26). Id. ~ 373. 6 The Certificates are generally situated at senior levels in the capital structure 7 oftheir respective offerings. Indeed, 33 ofPlaintiffs , 37 tranches are so called 8 "Class A" certificates at or near the top of the payment waterfall, id. ~ 373, and 34 9 tranches were rated trip1e-A or the equivalent at the time ofpurchase, id. Ex. C. 10 The Certificates did not suffer any diminution in interest or principal 11 payments prior to February 2010, and only 6 of the 37 tranches have experienced 12 such shortfalls since that time. Id. ~ 384.8 13 II. The Complaints 14 A. Procedural History 15 On April 27, 2011, Plaintiffs filed a complaint in the Southern District of 16 Ohio against Countrywide, Bank ofAmerica, and the Officer Defendants asserting 17 claims under the Securities Act, the Exchange Act, the OSA, and Ohio common 18 law. On November 8, 2011, after this action had been transferred to the 19 Countrywide MBS MDL, Western & Southern filed an Amended Complaint 20 dropping National Integrity as a party, and adding claims under the Ohio Corrupt 21 Activities Act (the "OCAA") and for civil conspiracy. 22 On November 9, 2011, National Integrity filed its own action in the 23 Southern District ofNew York. The National Integrity Complaint is substantially 24 25 8 The National Integrity Complaint inaccurately alleges that six ofNational 26 Integrity's tranches have experienced principal or interest shortfalls. National Integrity Complaint ~ 384. In fact, National Integrity has experienced shortfalls 27 with respect to five tranches, all ofwhich are also held by Western & Southern. 5 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 21 of 71 Page ID #:10168 1 similar to the Western & Southern Amended Complaint. National Integrity 2 ensured that the MDL Panel learned of its New York action, and, as a result, the 3 Panel transferred the National Integrity Action to the Countrywide MBS MDL on 4 November 30,2011. 5 B. Plaintiffs' Misrepresentation and Omission Claims 6 The Complaints assert that Countrywide made multiple misrepresentations 7 and omissions in registration statements, prospectuses, prospectus supplements, 8 data compilations, and loan tapes concerning the Certificates (collectively, the 9 "Offering Materials"), an in the monthly Remittance Reports Countrywide 10 prepared following the offerings. The Complaints identify five categories of these 11 misrepresentations and omissions: 12 • Misrepresentations and omissions concerning adherence to prudent 13 underwriting guidelines. Complaints"if"if 76-130. 14 • Misrepresentations and omissions concerning the transfer of notes and 15 loan files and assignment ofmortgages to the trusts. Id. "if"if 197-242. 16 • Misrepresentations and omissions regarding Countrywide's property 17 appraisal practices. Id. "if"if 243-255. 18 • Misrepresentations and omissions regarding the Certificates' credit 19 ratings. Id. "if"if 256-259. 20 • Misrepresentations and omissions regarding mortgage insurance and 21 Countrywide's mortgage insurance kickback scheme. Id. "if"if 260-276. Plaintiffs allege claims based on these misrepresentations and omissions under the OSA,9 the Securities Act of 1933 (the "Securities Act"), the Securities , Western & Southern and National Integrity assert claims under ORC §§ 1707.41 (Count I), 1707.44(B)(4) (CountII), 1707.44(J) (Count III), 1707.44(G) (Count IV), and 1707.43 (Count V). 27 22 23 24 25 26 6 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 22 of 71 Page ID #:10169 1 and Exchange Act of 1934 (the "Exchange Act"), common law fraud, civil 2 conspiracy and negligent misrepresentation. Plaintiffs further allege that they 3 could not have known of their claims based on Countrywide's failure to properly 4 deliver original notes and loan files and assign mortgages until September 2010, 5 Complaints ~ 386, and could not have known oftheir other misrepresentation and 6 omission claims prior to April 27, 2009. Id. ~~ 372-386. 7 C. Plaintiffs' OCAA Claims 8 The Complaints allege that Mozilo, Sambol, Countrywide, and Bank of 9 America, along with certain unnamed parties, conducted the affairs of an 10 association-in-fact enterprise through a pattern of corrupt activity in violation of 11 the OCAA. Complaints ~~ 419-420. This pattern of corrupt activity included 12 Defendants' multiple violations ofthe OSA and a wide range of other misconduct. 13 For example, Countrywide's principal loan originator, Countrywide Home Loans, 14 approved any loan that could be off-loaded onto investors without regard to 15 whether the loan complied with Countrywide's already lax underwriting standards. 16 Id. ~~ 5,62-74,76-130. Where borrowers plainly could not repay loans 17 Countrywide sought to foist upon them, Countrywide employees many times 18 forged documents to create the appearance that the borrowers qualified for a loan. 19 Id. ~~ 131-167. As another example, BAC Servicing routinely overcharged 20 defaulting borrowers for services such as property inspection and maintenance. 21 Complaints ~~ 189-195. BAC Servicing also engaged in a corrupt "force-placed" 22 insurance scheme whereby it replaced homeowner insurance policies on defaulted 23 properties with policies underwritten by an insurer owned by Bank ofAmerica at 24 wildly inflated premiums. Id. ~ 196. Bank ofAmerica continued the work of the 25 enterprise by having its employees regularly commit perjury in foreclosure 26 proceedings necessitated by Countrywide's failure properly to deliver notes and 27 loan files, and to assign mortgages. Id. ~~ 209-240. 7 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 23 of 71 Page ID #:10170 1 ARGUMENT 2 In deciding a motion to dismiss, "the Court must assume the plaintiffs 3 allegations are true and draw all reasonable inferences in the plaintiff's favor." 4 Stichting Pensioenfonds ABP v. Countrywide Financial Corporation, No. 10-CV- 5 07275 MRP, 2011 U.S. Dist. LEXIS 91441, at *5 (C.D. Cal. Aug. 9, 2011) Defendants bear a "considerable burden" on a motion to dismiss based on a statute "[I]t is well-settled that statutes of limitations are affirmative defenses, not pleading requirements." Wyatt v. Terhune, 315 F.3d 1108, 1117 (9th Cir. 2003). 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "The plausibility standard is not akin to a 'probability oflimitations defense. Betz v. Trainer Wortham & Co., 519 F.3d 863,871 (9th Cir. 2008). Here, Defendants have not met that heavy burden. 6 ("Stitchting'). A motion to dismiss must be denied if the complaint '''state[s] a 7 claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, _, 8 9 10 requirement.'" Id. Accordingly, "a well-pleaded complaint may proceed even if it 11 strikes a savvy judge that actual proof of those facts is improbable, and 'that a 12 recovery is very remote and unlikely.'" Twombly, 550 U.S. at 556 (quoting 13 Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).10 14 15 16 17 18 19 20 . 21 22 23 10 As an MDL transferee court, this Court applies the law ofthe transferor court as 24 to choice oflaw, and Ninth Circuit law as to interpretation of federal law. See Bahn v. Korean Airlines Co. (In re Korean Air Lines Co.), 642 F.3d 685, 700 n.12 25 (9th Cir. 2011). As a result, Ohio choice of law rules apply to the Western & 26 Southern Action, and New York choice of law rules to the National Integrity Action. 27 8 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 24 of 71 Page ID #:10171 1 I. Plaintiffs' Claims are Timely 2 A. Defendants Concede the OCAA Claims Are Timely 3 Countrywide concedes that Western & Southern's and National Integrity's 4 claims under the OCAA are timely.ll 5 B. The OSA Claims Are Timely 6 OSA claims are timely if brought within "two years after the plaintiff knew, 7 or had reason to know, of the facts by reason of which the actions ofthe person or 8 director were unlawful." O.R.C. § 1707.43(B). In determining constructive notice 9 under this provision, Ohio courts look to federal law and apply to OSA claims the 10 standard set forth in Merck & Co. v. Reynolds, 130 S. Ct. 1784 (2010). See In re 11 Nat'l Century Fin. Enters., 755 F. Supp. 2d 857 at 868 (S.D. Ohio 2010). Under 12 Merck, the limitations period for securities fraud does not begin to run until the 13 plaintiffknew or should have known of all the elements of its fraud claims, 14 including scienter. 130 S. Ct. 1784, 1796 (U.S. 2010). Countrywide does not 15 dispute that, applying the Merck standard, Plaintiffs were not on constructive 16 notice of their OSA claims until they knew or should have known facts alerting 17 that each distinct misrepresentation was made with the requisite intent. In re Nat'l 18 Century Fin. Enters., 755 F. Supp. 2d at 869-70; see also Countrywide Mem. at 33. 19 1. The OSA Claims Based Upon Failure Properly to Transfer 20 Notes and Files, and to Assign Mortgages Are Timely 21 Multiple state attorneys general have recently commenced actions against 22 Bank ofAmerica or its agents alleging widespread misconduct in foreclosure 23 proceedings due to Countrywide's failure properly to transfer notes and loan files, 24 and to assign mortgages to securitizations trusts. See Commonwealth of 25 26 11 An OCAA claim is timely if brought (i) within five years "after the unlawful conduct terminates" or (ii) within five years after "the cause of action accrues," 27 whichever date is later. O.R.C. § 2923.34(J). 9 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 25 of 71 Page ID #:10172 1 Massachusetts v. Bank 0/America, NA., No. ll-CV-4363 (Mass. Super. Suffolk 2 Cty.); In the Matter o/Banko/New York Mellon v. Walnut Place LLC et aI., No. 3 ll-CV-05988-WHP (S.D.N.Y.). Similar allegations form the basis ofa distinct set 4 of Plaintiffs' OSA Claims, and that set of claims was not addressed in Maine State, 5 Stitchting, or Allstate Insurance Company v. Countrywide Financial Corporation, 6 No. ll-CV-05236-MRP, 2011 U.S. Dist. LEXIS 123844 (C.D. Cal. Oct. 21, 2011) 7 ("Allstate"). 8 The Complaints allege that Countrywide misrepresented that original 9 mortgage notes and loan files would be delivered, and that mortgages would be 10 properly assigned, to the securitization trusts that issued the Certificates. 11 Complaints ~~ 197-242. The Offering Materials indicated that "each loan is 12 secured by a valid lien on, or a perfected security interest with respect to, the 13 Property." Complaints ~ 205. Countrywide further represented: 14 In connection with the transfer and assignment of a mortgage loan, the 15 depositor will deliver or cause to be delivered to the trustee, or a 16 custodian for the trustee, the mortgage file, which contains among 17 other things, 18 • the original mortgage note (and any modification or amendment to it) 19 endorsed in blank without recourse, except that the depositor may 20 deliver or cause to be delivered a lost note affidavit in lieu of any 21 original mortgage note that has been lost; 22 • the original instrument creating a first lien on the related mortgaged 23 property with evidence of recording indicated thereon or a copy of 24 such instrument; [and] 25 • an assignment in recordable form of the mortgage or a copy of such 26 assignment .... 27 10 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 26 of 71 Page ID #:10173 1 Complaints ~ 206 (quoting CWALT 2007-16CB Prospectus Supplement at S-39-S- 2 40); see also id. ~ 207 (reassuring statements regarding the use of the Mortgage 3 Electronic Registration System). 4 The Complaints detail how these statements were false and misleading. 5 Complaints ~~ 209-242. In many instances, the collateral did not properly secure 6 the underlying loans and could not be efficiently realized because Defendants 7 either lost, failed to timely create, or failed to timely deliver the paperwork 8 necessary to prove title to the mortgages and the notes under state law. Id. For 9 example, the Complaints cite testimony of a Countrywide employee that 10 Countrywide did not make any attempt to transfer or endorse notes to 11 securitization trusts. Id. ~~ 211-217. This testimony came to light only in 12 November 2010. See Kemp v. Countrywide Home Loans, Inc. (In re Kemp), 440 13 B.R. 624 (Bankr. D.N.J. Nov. 16,2010). 14 The Complaints establish that Countrywide and Bank ofAmerica have 15 engaged in pervasive acts of fraudulent "robo-signing" in an attempt to cover up 16 the massive failure to deliver notes and loan files, and to assign mortgages. 17 Complaints ~~ 218-40. Bank of America and BAC Servicing employ an army of 18 "robo-signers" who execute tens of thousands offoreclosure affidavits a month, all 19 ofwhich falsely aver personal knowledge, and many ofwhich lack valid 20 documentation. Id. The Complaints detail numerous other acts ofperjury and 21 forgery in foreclosure proceedings by Countrywide and BAC Servicing personnel. 22 Id. ~~ 229-40. 23 Countrywide does not dispute that Plaintiffs could not have known of 24 Countrywide's systemic documentation failures prior to September 2010. See 25 Complaints ~ 386. Indeed, none of the complaints or press reports pre-dating 26 September 2010 attached to the Request for Judicial Notice ("RJN") references 27 11 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 27 of 71 Page ID #:10174 1 Countrywide's systemic failure properly to deliver notes and loan files, and to 2 assign mortgages to the trusts. See Countrywide's RJN Exs. 71-95,106-114. 3 Countrywide argues that the Complaints' "robo-signing" allegations cannot 4 toll claims relating to Countrywide's fraudulent origination practices. See 5 Countrywide Mem. at 36. But Plaintiffs' allegations concerning transfer of notes 6 and loan files and assignment of mortgages do not concern merely "robo-signing" 7 and are entirely unrelated to their allegations concerning loan origination 8 guidelines. The misrepresentations concerning failure properly to transfer notes 9 and loan files, and to assign mortgages to the trusts, and the vast "robo-signing" 10 conspiracy to hide that failure, give rise to distinct claims dealt with in a distinct 11 section of each Complaint. See Complaints ~~ 197-242. 12 a. Constructive Notice Must Be Assessed Individually 13 For Each Category of Misrepresentation 14 When a prospectus contains multiple categories ofmisrepresentations, a 15 court must independently assess the date that plaintiffs knew or should have known 16 ofeach category of misrepresentation. See In re Alstom SA Sec. Litig., 406 F. 17 Supp. 2d 402, 423-24, 429 (S.D.N.Y. 2005); In re UltraFem Inc. Sec. Litig., 91 F. 18 Supp. 2d 678, 693 (S.D.N.Y. 2000). Notice of one misstatement does not provide 19 notice of all misstatements or claims. See City ofPainesville v. First Montauk 20 Fin., 178 F.R.D. 180, 195 (N.D. Ohio 1998) (lawsuit involving same securities did 21 not trigger OSA or federal limitations period because subsequent complaint alleged 22 new and distinct fraud). 23 For example, in UltraFem, defendants argued that the plaintiffs were on 24 notice of their Securities Act and Exchange Act claims because a news article 25 disclosed facts concerning some, but not all, of the misstatements cited in the 26 complaint. 91 F. Supp. 2d at 691-92. The court held that knowledge of some 27 misstatements did not start the limitations period for claims relating to other 12 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 28 of 71 Page ID #:10175 1 distinct misstatements, and that therefore claims based on misstatements that were 2 not disclosed in the news report were timely. Id. at 693. In Alstom, the plaintiffs 3 alleged that the defendants failed accurately to disclose costs associated with 4 defective turbines and certain financing agreements. 406 F. Supp 2d at 421-24. 5 Although the misrepresentations were in the same offering documents and made 6 for the same fraudulent purpose, the court found that because the 7 misrepresentations were "dissimilar" the plaintiffs had alleged two separate frauds. 8 Id. 424-25. That the plaintiffs had notice of misstatements concerning the 9 financing agreements could not cause claims based on the turbine 10 misrepresentations to be untimely. Id. 424-25,429. 11 Like the misrepresentations in Ultrafem and Alstom, Countrywide's distinct 12 misrepresentations regarding delivery of notes, delivery ofloan files, and 13 assignment ofmortgages have nothing to do with Countrywide's other 14 misrepresentations concerning origination guidelines, property appraisals, credit 15 ratings, or mortgage insurance. Compare Complaints 'If'lf 197-242 with id. 'If'lf 76- 16 130 (misrepresentations concerning origination guidelines), id. 'If'lf 243-255 17 (misrepresentations concerning appraisals), id. 'If'lf 256-259 (misrepresentations 18 concerning ratings), id. 'If'lf 260-276 (misrepresentations concerning mortgage 19 insurance). Countrywide's failure properly to deliver notes and loan files, and to 20 assign mortgages relates to securitization trust administration and loan servicing, 21 not the fraudulent origination practices earlier considered by this Court. Moreover, 22 that failure has caused and continues to cause harm arising out of foreclosure and 23 loan restructuring delays that is wholly unrelated to origination practices. 24 Indeed, the parties advocating for the $8.5 billion loan put-back settlement i 25 In the Matter ofBank ofNew York Mellon v. Walnut Place LLC et al., 11-CV- 26 05988-WHP (S.D.N.Y.) have emphasized that Countrywide's monumental 27 documentation failures have severely harmed investors and threaten future injury 13 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 29 of 71 Page ID #:10176 1 as wei!. See Lysaght Dec!. Ex. 1 at 2 (servicing improvements and "document 2 indemnity" agreed to in the settlement agreement could avoid billions of dollars of 3 future investor losses). 4 That Countrywide made all the misstatements alleged in the Complaints in 5 order to cause the Certificates to appear more attractive to investors does not 6 negate the fact that notice of different misstatements-and thus different claims- the OSA claims and common law based on the misstatements alleged in Section VII of the Complaints are indisputably timely. All of the Exchange Act claims are similarly timely to the extent not precluded by the applicable 5-year statute of repose.12 7 accrued on different dates. See A/stom, 406 F. Supp 2d at 429. Accordingly, all of 8 9 10 11 12 13 2. Western & Southern's OSA and Common Law Claims Based On Countrywide's Systemic 14 Abandonment of Underwriting Guidelines Are Timely 15 Western & Southern filed this action on April 27, 2011. Accordingly, its 16 OSA and Ohio common law fraud claims based on Countrywide's systemic 17 abandonment of its underwriting standards are timely if Western & Southern did 18 not have actual or constructive notice of its claims prior to April 27, 2009. See 19 O.R.C. § 1707.43(B).13 20 21 13 Under O.R.C. § 2305.09(C), common law fraud claims must be brought within four years of discovery of the facts giving rise to the claim. The majority of Ohio 27 intermediate appellate courts that have considered the issue have ruled that O.R.C. 12 While the Stitchting opinion mentions allegations regarding failure "to properly 22 convey title to secondary purchasers," Stitchting, 2011 U.S. Dist. LEXIS 91441, at *22, the Stitchting opinions did not address the allegations concerning 23 Countywide's systemic failure to deliver notes and loan files and assign mortgages. 24 Indeed, none of the misrepresentations Plaintiffs allege relating to documentation failures were identified in the Stitchting complaint. 25 26 14 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 30 of 71 Page ID #:10177 1 None of this Court's prior limitations rulings in the Countrywide MDL have 2 involved Ohio law or the OSA, and for that reason, none have had to take into 3 account the unique policy objections of Ohio law and the OSA as regards 4 limitations. Under Ohio law, statutes of limitations do not set forth fundamental 5 rights, are considered remedial and procedural, and are to be liberally constructed 6 so that whenever possible litigants will win or lose on the merits, and not on a unscrupulous securities dealers." In re Columbus Skyline Securities, 74 Ohio St. Moreover, the OSA is intended "to prevent the fraudulent exploitation of the investing public through the sale of securities" and was "drafted broadly to protect the investing public from its own imprudence as well as the chicanery of 23 24 Plaintiffs submit that ifthe issue came before it, the Ohio Supreme Court would apply O.R.C. § 2305.09(C) to common law fraud claims arising out ofthe sale of securities. Section 2305.09(C) expressly provides that common law fraud claims are subject to a four-year limitations period, "except when the cause of action is a 21 violation of [the Ohio identity theft statute]". Section 1707.40 of the OSA further 22 provides that nothing in OSA is meant to "restrict common law liabilities for deception or fraud other than as specified" on the face of the statute. O.R.C. § 1707.40; see also Assured Guar. (UK) Ltd. v. J.P. Morgan Inv. Mgt. Inc., 2011 Slip Op 9162, at 4 (N.Y. Ct. App. Dec. 20, 2011) (state securities laws do not preempt common law claims absent clear legislative intent). Plaintiffs respectfully 25 suggest that this Court should certify this question to the Ohio Supreme Court. See 26 Ohio S. Ct. Prac. R. 18.1 ("The Supreme Court may answer a question oflaw certified to it by a court of the United States."). 27 15 7 procedural matter. See, e.g., In re The Antioch Co., 456 B.R. 791, 848-49 (Bankr. 8 S.D. Ohio 2011) (collecting cases). 9 10 11 12 13 14 § 1707.43(B) nevertheless applies to common law fraud claims arising out of the sale of securities. See, e.g., Hater v. Gradison Div. ofMcDonald & Co. Sees. Inc., 101 Ohio App. 3d 99, 655 N.E.2d 189, 198 (Ohio Ct. App. 1st App. Dist. 1995). 16 But see DeChantv. Developers, No. 37745,1978 Ohio App. LEXIS 8128, at *12- 14 (Ohio Ct. App. 8th App. Dist. Oct. 28, 1978). The Ohio Supreme Court has not 17 yet ruled on the issue. 18 19 20 15 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 31 of 71 Page ID #:10178 1 3d 495,498 (1996). Consistent with the OSA's broad remedial purpose, courts 2 have ruled that conflicting public reports of wrongdoing are insufficient to put an 3 OSA plaintiff on notice of its claims, see In re Nat'l Century Fin. Enters., 755 F. 4 Supp. 2d at 871; Federated Mgmt. Co. v. Coopers & Lybrand, 137 Ohio App. 3d 5 366,400-01 (Ohio Ct. App., Franklin County 2000), and that a prior lawsuit is 6 similarly insufficient where the prior action involved different allegations offraud, 7 see City a/Painesville, 178 F.R.D. at 195. 8 a. Press Reports Contradicted By 9 Defendants Did Not Provide Constructive Notice 10 Countrywide attaches to its motion to dismiss eight press reports that it 11 claims put Western & Southern on notice of OSA claims and common law based 12 on Countrywide's abandonment of loan origination standards. See Countrywide 13 RJN Exs. 106-113. But these press reports cannot be read in isolation, and when 14 considered together with the total mix of information, they do not suggest that 15 Western & Southern should have known of OSA claims and common law relating 16 to systemic abandonment of origination guidelines more than two years prior to the 17 filing of its lawsuit on April 27, 2011. As the press reports themselves 18 demonstrate, any negative information concerning Countrywide was 19 counterbalanced by Countrywide's public statements and other public information. 20 For example, Countrywide cites March 2008 reports that the FBI had 21 commenced an investigation of Countrywide and other loan originators to 22 determine whether they had made false statements regarding their financial 23 condition and the quality of their mortgage loans. But the reports cited also 24 indicate that Countrywide denied any knowledge of such an investigation. RJN 25 Ex. 106; see also id. Ex. 109. Moreover, it was widely reported that after 26 conducting due diligence on Countrywide, "Bank ofAmerica is rushing to close 27 the Countrywide acquisition as quickly as possible." RJN Ex. 106. The fact that a 16 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 32 of 71 Page ID #:10179 1 powerful and sophisticated financial institution such as Bank of America agreed- 2 after exhaustive due diligence-to pay $4.1 billion for Countrywide more than 3 counterbalanced press reports that Countrywide might be involved in some degree 4 of improper origination activity. 5 Defendants also reference reports of fraud by one Mark Zachary. Id. Exs. 6 107, 110. But Defendants' own documents make clear that Countrywide denied 7 Zachary's claims, and went out of its way to discredit Zachary, stating he was a 8 disgruntled employee who had demanded a million dollars before he went public 9 with the story. Id. As talk-show host Larry King put it according to 10 Countrywide's own exhibit: 11 Here is what Countrywide said - asked them for this, and they said, 12 "while we cannot comment on pending litigation, we will say that 13 during Zachary's employment with Countrywide, the company 14 [investigated] each ofhis claims and found no merit to his 15 accusations. Further, we can confirm Mr. Zachary's termination was 16 performance related and not related to concerns he raised. 17 Countrywide has a firm policy against any such action." 18 Id. Ex. 110. Such firm denials ofwrongdoing plainly negate allegations of 19 wrongdoing for determining constructive notice under the OSA. See, e.g., In re 20 Nat'l Century Fin. Enters., 755 F. Supp. 2d at 87l. 21 Indeed, to this day, Countrywide continues to deny its mortgage 22 underwriting misconduct, and to shift all blame onto the downturn in the real estate 23 market. For example, in an October 5, 2011 oral argument in MBIA Ins. Corp. v. 24 Countrywide Home Loans, Inc., No. 08/602825 (N.Y. Sup. Ct.) Countrywide 25 asserted that MBS plaintiffs are "trying to take advantage ofthe recession and the 26 mortgage market meltdown to avoid" their losses. Lysaght Dec!. Ex. 2 at 62: 16- 27 19. In October 2010, Brian Moynihan, CEO ofBank ofAmerica, sarcastically 17 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 33 of 71 Page ID #:10180 1 demeaned MBS investors by comparing them to a car buyer who complains, "I 2 bought a Chevy Vega but I want it to be a Mercedes." Lysaght Dec!. Ex. 3 at 21; 3 see also id. at 12 (October 19, 2010 statement by Bank ofAmerica CFO: "We 4 believe many of the losses observed in these [MBS] deals have been, and continue 5 to be, driven by external factors ... diminishing the likelihood that any loan defect 6 should one exist at all, was the cause ofthe loan's default."). 7 b. Complaints Involving Different Frauds 8 Did Not Provide Constructive Notice 9 Countrywide attaches to its RJN a number of complaints filed in other 10 actions. Many of these complaints involve claims brought by investors in 11 Countrywide's common stock or equity securities. See Countrywide RJN Exs. 75- 12 78,80-84,86,88-91. Plaintiffs in those actions generally allege that Countrywide 13 originated and kept on its books poor quality mortgage loans, and that 14 Countrywide's lax origination guidelines caused losses to Countrywide equity 15 investors. Id. Western & Southern alleges an entirely different fraud, namely that 16 Countrywide off-loaded toxic loans onto MBS investors such as Western & 17 Southern while "cherry picking" more creditworthy loans for its own account. 18 Complaints ~~ 87-89. Under the OSA, a prior lawsuit does not trigger inquiry 19 notice ofa plaintiff's claims when it involved a distinct fraud. See City of 20 Painesville, 178 F.R.D. at 195. 21 Countrywide also cites complaints by MBS investors asserting claims under 22 the Securities Act filed before April 2009. Countrywide RJN Exs. 72-73. These 23 complaints do not allege any fraud at all, relying instead on the strict liability 24 provisions ofthe Securities Act. Id. Indeed, these investors specifically 25 disclaimed any allegations that the Defendants acted knowingly. Id. Ex. 72 ~ 87, 26 27 18 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 34 of 71 Page ID #:10181 Countrywide and Bank of Americac. 5 Fraudulently Concealed Their OSA Violations Under Ohio law, the doctrine of equitable estoppel may be employed to 6 prohibit the inequitable use ofthe OSA limitations periods. See Helman v. EPL 1 Ex. 73 ~78. By definition, these complaints could not provide Plaintiffs with 2 notice of their OSA claims. See City o/Painesville, 178 F.R.D. at 195.14 3 4 7 Prolong, Inc., 139 Ohio App. 3d 231, 246 (Ohio Ct. App., 7th Dist. 2002). 8 Equitable estoppel may toll both the OSA two-year statute of limitations and the 9 five-year statute of repose. Id. In order to allege tolling based on equitable 10 estoppel, a plaintiff must assert that "'(1) that the defendant made a factual 11 misrepresentation; (2) that it is misleading; (3) [that it induced] actual reliance 12 which is reasonable and in good faith; and (4) [that the reliance caused] detriment 13 to the relying party."'). Id. (quoting Doe v. Blue Cross/Blue Shield 0/Ohio, 79 14 Ohio App. 3d 369,379,607 N.E.2d 492 (Ohio Ct. App. 10th Dist. 2000)). 15 The limitations period in O.R.C. § 1707.43(B) may also be tolled if a 16 defendant fraudulently conceals its unlawful conduct. See Lopardo v. Lehman tolling based on fraudulent concealment, a plaintiffmust assert that (i) the defendant wrongfully concealed its actions; (2) the plaintifffailed to discover operative facts that are the basis of his cause of action; and (3) the plaintiff 17 Bros., Inc., 548 F. Supp. 2d 450, 466-67 (N.D. Ohio 2008); In re Nat 'I Century 18 Fin. Enters., 541 F. Supp. 2d 986 at 1008 (S.D. Ohio 2007). In order to allege 19 20 21 22 exercised due diligence in seeking out facts supporting a cause of action. See Iron 23 24 14 Countrywide also cites Complaints by MBIA Insurance Corporation ("MBIA") and Syncora Guarantee Inc. ("Syncora"). Countrywide RJN Exs. 87, 95. 25 However, MBIA and Syncora are monoline insurers that had access to relevant 26 loan files. The Plaintiffs here never had access to loan files and, thus, cannot be expected to have learned through investigation the facts learned by MBIA and 27 Syncora supporting their claims. 19 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 35 of 71 Page ID #:10182 1 Workers Local Union No.l7 Ins. Fundv. Philip Morris, Inc., 29 F. Supp. 2d 801, 2 808 (N.D. Ohio 1998). 3 The Complaint alleges that MBS trading seized up following the September 4 2008 Lehman Brothers bankruptcy. In response, using statistical metrics and 5 guidance provided earlier by Countrywide, Plaintiffs developed an internal system 6 to monitor their MBS investments (including the Certificates) and estimate their 7 value based on projected cash flows. Complaints ~ 376. At the time, there were 8 no industry standards for analyzing MBS values according to cash flows or 9 otherwise. Id. ~~ 381-82. Indeed, the National Association ofInsurance 10 Commissioners ("NArC") recognized the need for such a pricing model, but did 11 not develop one until late 2009. Id. 12 From the fall of2008 through June 2009, Western & Southern utilized 13 information in monthly Remittance Reports generated by Countrywide and Bank 14 ofAmerica (after its acquisition of Countrywide) to monitor and value the 15 Certificates through Western & Southern's internal system. Id. ~~ 374-78. Under 16 item 1121 of SEC Regulation AB, such reports were to disclose, among other 17 things, data on loan performance and modifications and "[m]aterial breaches of 18 pool asset representations or warranties or transaction covenants." See 17 C.F.R. § 19 229.1121(a)(l2) (attached as Exhibit 4 to the Lysaght Declaration). The Pooling 20 and Servicing Agreements between loan servicers and the trusts that issued the 21 Certificates include similar requirements. See, e.g., Lysaght Dec!. Ex. 5 §§ 2.03(c) 22 atII-I0, 4.06 at IV_7. 15 23 24 15 Countrywide never disclosed any intention to change the substance of its 25 Remittance Reports once the MBS trust ceased to be reporting entities. 26 Accordingly, Western & Southern was entitled to assume the reports would continue to comply with Regulation AB consistent with past practice. 27 20 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 36 of 71 Page ID #:10183 1 Moreover, Countrywide and certain of its affiliates were required to and did 2 file with the SEC a signed certification attesting that they were responsible for 3 assessing and did assess the servicing criteria in Schedule A to the certification. 4 See, e.g., Lysaght Dec!. Ex. 6. In the Schedule, Countrywide, and later Bank of 5 America, certified that it had directly assessed its compliance with numerous 6 requirements, including that monthly Remittance Reports to investors were "in 7 accordance with the transaction agreements and applicable Commission 8 requirements." Id., Schedule A at Reference 1122(d)(3)(i). Countrywide also 9 certified that collateral on pool assets was maintained as required by the 10 transaction agreements, and that pool assets and related documents were 11 safeguarded. Id., Schedule A at References 1122(d)(4)(i) and (ii). 12 Contrary to their certifications, the monthly Remittance Reports provided to 13 Western & Southern and other investors in the Certificates never indicated 14 (contrary to Commission requirements) that numerous representations in 15 Certificate transaction documents were false, including representations that (i) no 16 mortgage had a loan-to-value ratio greater than 100 percent, (ii) the origination, 17 underwriting and collection practices used by Countrywide with respect to each 18 mortgage loan were "legal, prudent and customary" in all respects, and (iii) each 19 mortgage loan was underwritten in all material respects in accordance with 20 underwriting guidelines as set forth in the Offering Documents. A representative 21 copy of the relevant representations and warranties is attached hereto as Exhibit 5, 22 Schedule III-A. 23 Nor did the Remittance Reports disclose that Countrywide had breached its 24 covenant to deliver the complete mortgage file to the issuing Trustee as required b 25 Section 2.01 ofthe relevant pooling and servicing agreements. Documents that 26 were to have been delivered with the mortgage file included, among others, each 27 original mortgage note and a duly executed assignment of mortgage (except in the 21 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 37 of 71 Page ID #:10184 1 case ofMERS loans). The failure to deliver this documentation has led to the 2 highly-publicized inability ofMBS trusts, including the Certificate trusts, to 3 efficiently recover the mortgage collateral following borrower defaults, as 4 discussed above in Section I(B)(I). Complaints ~ 206. Instead, the Remittance 5 Reports purported to confirm that there were no material breaches of 6 representations regarding the mortgage collateral and most ofthe Certificates could 7 payout virtually all expected interest and principal payments. Id. ~~ 377-380.16 8 In sum, the Remittance Reports assured Western & Southern that 9 Countrywide had carefully and faithfully originated and analyzed their mortgage 10 loan pools, such that the pools' performance would be consistent with data 11 presented to Western & Southern. Western & Southern reasonably relied on the 12 Remittance Reports, and was thereby prevented from discovering the true nature 0 13 the mortgage loans underlying the Certificates. Western & Southern also exercised 14 reasonable due diligence by diligently analyzing expected cash flows for valuation, 15 regulatory and accounting purposes. Complaints ~~ 372-84. 16 For these reasons, under Ohio law, Western & Southern's OSA claims based 17 on Countrywide's misrepresentations concerning adherence to underwriting 18 guidelines were tolled until at least June 2009. See e.g., In re Nat'l Century Fin. 19 Enters., 541 F. Supp. 2d at 993, 1008 (fraudulent concealment where defendant 20 gave false assurances about collateral underlying asset-backed securities); Jelm v. 21 Galan, No. 58093,1991 Ohio App. LEXIS 936, at *5-6,19 (Ohio Ct. App. 8th 22 Dist. 1991) (reassuring statements constituted fraudulent concealment); see also 23 Lybrand, 137 Ohio App. 3d at 400 (plaintiffs satisfied due diligence by following 24 25 16 As now disclosed in connection with the settlement action filed in New York, 26 Bank ofAmerica artificially indicated a greater recovery under the Certificates due to its poor servicing. 27 22 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 38 of 71 Page ID #:10185 1 up with company and underwriters who provided reassuring statements concerning 2 certain accruals and liabilities); In re Polyurethane Foam Antitrust Litig., No. 1:10 3 MD 2196, 2011 U.S. Dist. LEXIS 104419, at *49 (N.D. Ohio Sept. 15,2011) 4 (doctrine requires "reasonable diligence, not constant cynicism.,,).17 5 6 d. Western & Southern Was Not Aware That It Suffered Actual Injury Prior To April 2009 to prevent unjust results when the wrongful act does not immediately result in injury or damage, such as in ... fraud" cases.); see also Moffitt v. Richard M Brush Wellman, 95 Ohio St. 3d 165, 167 (Ohio 2002); Ohio Civ. Rights Comm 'n v. Triangle Real Estate Servs., No. 06AP-157, 2007 Ohio App. LEXIS 1639, at *25 (Ohio Ct. App., 10th App. Dist., Apr. 17,2007) ("The discovery rule was designed 7 Under Ohio law, a cause of action does not accrue "until the plaintiff 8 discovers, or by the exercise of reasonable diligence should have discovered, that 9 he or she was injured by the wrongful conduct ofthe defendant." Norgard v. 10 11 12 13 14 15 Hamlin Constr. Co., 29 Ohio App. 3d 98, 100 (Ohio Ct. App., 9th Dep't 1985) 16 (injury is an essential element of common law fraud claims). 17 Western & Southern did not know, nor could it have known, prior to April 18 27,2009 that Countrywide's misstatements concerning loan origination practices 19 injured Western & Southern.18 Western & Southern did not suffer any diminution 20 18 Western & Southern's Ohio common law fraud claims would also be timely under Section 1707.43(B) for the reasons set forth in Section I(B). 23 21 17 The Complaints further allege that Countrywide fraudulently concealed the 22 existence ofPlaintiffs , claims by engaging in a pattern of intimidation against employees who tried to blow the whistle on Countrywide's fraud. Complaints"J"J 132-144,251-55,259,387; see e.g., United States ex reI. Tillson v. Lockheed 24 Martin Energy Sys., No. 00-CV-39-M, 2004 U.S. Dist. LEXIS 22246, at *8-11, 74- 25 75 (D. Ky. 2004) (tolling based on fraudulent concealment where defendants concealed whistleblower reports). 26 27 23 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 39 of 71 Page ID #:10186 1 in interest or principal payments prior to February 2010, and only six of its 36 2 tranches have experienced such shortfalls since. Western & Southern Complaint '\I 3 384. As a regulated entity, Western & Southern was (and is) required to monitor 4 the Certificates and regularly evaluate whether they are impaired for the purposes 5 of generally accepted accounting principals ("GAAP") and statutory accounting. 6 Complaints '\1378. Western & Southern is generally required to recognize an 7 impairment of a security when it becomes apparent that the security will result in a 8 loss. Id. With the exception ofnine tranches backed by subprime or second lien 9 loans, Western & Southern did not determine that any of its senior Class A 10 tranches were impaired for regulation purposes prior to June 2009. Id. '\1'\1378-79, 11 383. As a result, the Complaints allege that the earliest date Western & Southern 12 could have learned of its injuries was June 2009. 19 13 3. The OSA Statute of Repose Is Not Applicable 14 None ofPlaintiffs' OSA claims are barred by the OSA statute of repose 15 because absolute statutes of repose are unenforceable under Article I, Section 16 0 16 the Ohio Constitution ("All courts shall be open, and every person, for an injury 17 done him in his lands, goods, person, or reputation, shall have remedy by due 18 course of law, and shall have justice administered without denial or delay"). See 19 Hardy v. VerMeulen, 32 Ohio St. 3d 45,48 (1987); Gaines v. Preterm-Cleveland, 20 Inc., 33 Ohio St. 3d 54,57 (1987); Metz v. Unizan Bank, No. 05-CV-1510, 2008 21 U.S. Dist. LEXIS 37270, at *20 (N.D. Ohio May 5, 2008) ("[I]t appears most 22 likely that the Ohio courts would find that the five year statute of repose contained 23 in the Ohio securities statute violates the right-to-remedy clause of the Ohio 24 Constitution. That provision is, therefore, unenforceable."); see also Loyd v. 25 26 19 The arguments in this Section are generally applicable to Western & Southern's Exchange Act claims based on misstatements regarding underwriting guidelines, 27 and those claims are timely as a result. 24 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 40 of 71 Page ID #:10187 1 Huntington Nat'l Bank, No. 08-CV-2301-DCN, 2009 U.S. Dist. LEXIS 51858, at 2 *34 (N.D. Ohio 2009); Lopard, 548 F. Supp. 2d at 466. For this reason, any 3 argument that the statute of repose in Section 1707.43(B) bars any ofPlaintiffs , 4 claims is without merit. 5 C. National Integrity's Common Law 6 Fraud Claims Are Timely 7 Countrywide does not dispute that all ofNational Integrity's common law 8 fraud claims are timely ifNational Integrity is a "resident" ofNew York within the 9 meaning ofNew York Civil Practice Law and Rules ("NY CPLR") 202, New 10 York's borrowing statute.20 According to Countrywide, however, National 11 Integrity is not a resident ofNew York because, although incorporated under New 12 York law, its principal place of business is in Ohio. 13 Countrywide is plainly wrong. A New York corporation is a New 14 York "resident" under NY CPLR 202, even if its principal place of business 15 is outside the state. See Wydallis v. United States Fidelity & Guaranty Co., 16 63 N.Y.2d 872,873-75 (1984). The plaintiff in Wydallis was a New York 17 corporation with its principal place of business in Massachusetts. Id. at 873- 18 74. The New York Court ofAppeals held that regardless of its 19 Massachusetts place ofbusiness, the plaintiffwas a resident ofNew York 20 under NY CPLR 202 because it was incorporated under the laws ofNew 21 22 20 NY CPLR 202 provides: 23 24 25 26 27 An action based upon a cause of action accruing without the state cannot be commenced after the expiration ofthe time limited by the laws of either the state or the place without the state where the cause of action accrued, except that where the cause of action accrued in favor of a resident of the state the time limited by the laws of the state shall apply. 25 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 41 of 71 Page ID #:10188 21 1 York. Id. at 875; see also Verizon Directories Corp. v. Continuum Health 2 Partners, Inc., 2010 NY Slip Op 4640, at 1 (N.Y. App. Div. 1st Dep't 2010) 3 ("For purposes of CPLR 202, plaintiff is a 'resident' of ... the state of its 4 incorporation."). 5 Countrywide misreads Antone v. General Motors Corp., 64 N.Y.2d 20 6 (1984). See Countrywide Mem. at 49. Antone was a products liability 7 action arising out of a car accident in Pennsylvania. 64 N.Y.2d at 26. The 8 plaintiffwas an individual who lived in Pennsylvania, but maintained a post 9 office box in the town ofhis former New York residence. I d. The Court of 10 Appeals held that the plaintiffwas not a "resident" within the meaning of 11 NY CPLR 202, because he did not have "a significant connection with some 12 locality in the State as the result of living there for some length of time 13 during the course of a year." Id. at 30. The court's opinion says nothing 14 about a corporation's residence under NY CPLR 202.21 15 16 17 18 19 21 Countrywide's reliance on McMahon & Company v. Donaldson, Lufkin & 20 Jenrette Securities Corporation, 727 F. Supp. 833, 834 (S.D.N.Y. 1989) is similarly misplaced. McMahon involved a New York partnership, not a corporation and it failed to consider Wydallis, the controlling authority. 22 Allegaert v. Warren, 480 F. Supp. 817, 820 (S.D.N.Y. 1979) and American 23 Lumbermens Mutual Casualty Co. ofIllinois v. Cochrane, 129 N.Y.S.2d 489 (N.Y. 24 Sup. Ct. 1954) provide no support for Countrywide's position because in each the plaintiffwas incorporated outside New York. The cases, which both pre-date 25 Wydallis, merely held that a foreign corporation with its principal place of business 26 outside ofNew York is not a New York resident within the meaning ofthe borrowing statute. 27 26 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 42 of 71 Page ID #:10189 1 1. The National Integrity Action 2 Is Not "Procedurally Improper" 3 Countrywide asserts that this Court may dismiss the National Integrity 4 Action as "procedurally improper." Countrywide is wrong. 5 A party that voluntarily dismisses itself from one action without prejudice 6 may file a new action in a different forum regardless of its motivation for doing so. 7 See Federal Deposit Ins. Corp. v. Nichols, 885 F.2d 633,638 (9th Cir. 1989); 8 Keystone Fruit Mktg. v. Nat 'I Fire Ins. Co. ofHartford, No. 10-CV-5145, 2011 9 U.S. Dist. LEXIS 83977, at *7 (E.D. Wash. Aug. 1,2011). In Nichols, the FDIC 10 voluntarily dismissed a state law action and the same day filed a substantively 11 identical federal action. 885 F.2d at 635. The Ninth Circuit ruled that the district 12 court abused its discretion in declining to exercise jurisdiction and dismissing the 13 case for "improper forum shopping." Id. at 637. As the Court ofAppeals held, 14 principles of abstention do not apply when there is no concurrent state court 15 proceeding, and a district court cannot decline jurisdiction merely because it 16 believes a party to be forum shopping. Id.; see also In re Piper Aircraft 17 Distribution System Antitrust Litigation, 551 F.2d 213,219 (8th Cir. 1977) ("The 18 effect of a voluntary dismissal without prejudice is to render the proceedings a 19 nullity and leave the parties as ifthe action had never been brought.") 20 The cases relied upon by Countrywide merely state that under certain 21 circumstances a court may stay or dismiss one action if there is an entirely 22 duplicative action involving identical parties proceeding concurrently in another 23 forum,zz Here, that is plainly not the case. National Integrity is a distinct legal 24 25 22 The cases further state that even under such circumstances, dismissal is 26 appropriate only in exceptional circumstances. Indeed, dismissal was denied in all but one of the cases. See Curtis v. Williamson, 226 F.3d 133, 141 (2d Cir. 2000) 27 (reversing dismissal); Genentech, Inc. v. Eli Lilly and Co., 998 F.2d 931, 939 (Fed. 27 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 43 of 71 Page ID #:10190 1 entity. It is not a plaintiff in the Western & Southern Action, and its claims are not 2 asserted in the Western & Southern Action. Countrywide cites no case holding 3 that a distinct legal entity injured by a defendant's conduct must join its corporate 4 family in a litigation in a different forum. As pointed out in a case cited by 5 Countrywide, such a rule "would make [Countrywide] the master of [National 6 Integrity's] claim" contrary to Supreme Court precedent. Merrick Bank Corp. v. Cir. 1993)(same); Raniere v. Citigrouplnc., No. 11-CV-2448-RWS, 2011 U.S. Dist. LEXIS 135393, at *89 (S.D.N.Y. Nov. 22, 2011) (dismissal denied); Merrick Bank Corp. v. Savvis, Inc., No. 08-CV-675-ERW, 2008 U.S. Dist. LEXIS 99393, at *17 (E.D. Mo. Dec. 8,2008) (same); Oglesby v. County a/Kern, No. 05-CV- 873-REC, 2005 U.S. Dist. LEXIS 29363, at *28 (E.D. Cal. Nov. 4,2005) (same); Kellen Co., Inc. v. Calphalon Corp., 54 F. Supp. 2d 218,222 (S.D.N.Y. 1999). Countrywide's attempt to characterize National Integrity's filing as imprope "forum shopping" is without merit. National Integrity had every right to respond to this Court's holding in Allstate by filing a New Yark action to avail itself of its rights as aNew York corporation. National Integrity never sought to extricate itself from this Court. As soon as the National Integrity Complaint was served, National Integrity and Western & Southern notified the MDL Panel that the National Integrity Action was related to the Countrywide MBS MDL. See Dkt. 21 22 23 Defendants contend that Semmes Motors, Inc. v. Ford Motor Co., 429 F.2d 1197 23 (2d Cir. 1970) (Friendly, J.) supports their position. See Countrywide Mem. at 41 24 n.45. But Semmes expressly contradicts Countrywide's argument by noting that if a plaintiff could have terminated its first filed action, the defendant would have no 25 basis to argue for a stay or dismissal of the second filed action. 429 F.2d at 1202. 26 The plaintiff did not have that procedural right because the defendant asserted a counterclaim. Id. n.7. 7 Savvis Inc., No. 08-CV-675-ERW, 2008 U.S. Dist. LEXIS 99393, at *5; see also 8 The Fair Die & Specialty Co., 228 U.S. 22, 25 (1913) ("[T]he party who brings 9 suit is master to decide what law he will rely upon.,,).23 10 11 12 13 14 15 16 17 18 19 20 27 28 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 44 of 71 Page ID #:10191 1 No. 143 (Notice of Related Case). The matter was transferred to this Court soon 2 thereafter, as Plaintiffs always intended and expected. As for Countrywide's 3 argument that the National Integrity Action and Western & Southern Action will 4 be tried separately, National Integrity will agree to a transfer to Ohio for trial.24 5 D. The Civil Conspiracy Claims Are Timely 6 Under Ohio law, a conspiracy to violate the OCAA supports a civil 7 conspiracy claim. See Iron Workers Local Union No. 17 Ins. Fund v. Philip 8 Morris Inc., 23 F. Supp. 2d 771, 795 (N.D. Ohio 1998). Countrywide does not Claims Are Tolled Under American Pipe Under American Pipe and Construction Company v. Utah, 414 U.S. 538, 553 (1974) and its progeny, '''the commencement of the original class suit tolls the civil conspiracy claims are also timely. Moreover, as set forth throughout Section I, Plaintiffs have asserted timely 12 claims under both the OSA and common law fraud. These timely claims also 13 support Plaintiffs' civil conspiracy claims. See, e.g., Unencumbered Assets Trust 14 v. JP Morgan Chase Bank (In re Nat'l Century Fin. Enters.), 604 F. Supp. 2d 1128, 15 1154 (S.D. Ohio 2009); Iron Workers Local Union No. 17 Ins. Fund v. Philip 16 Morris Inc., 29 F. Supp. 2d 801, 816 (N.D. Ohio 1998). 17 II. Plaintiffs' Securities Act and OSA 18 19 20 9 dispute that Plaintiffs have asserted timely claims under the OCAA and, thus, their 10 11 21 22 24 Countrywide cites a number of cases that are irrelevant because they involved motions to transfer and did not address dismissal. See Aguiar v. Natbony, No. 10- 23 CV-6531-PGG, 2011 U.S. Dist. LEXIS, at *33 (S.D.N.Y. May 16, 2011); Dunn & 24 Fenley, LLC v. Diederich, No. 06-CV-6243-TC, 2010 U.S. Dist. LEXIS 326, at *23 (D. Ore. Jan. 5, 2010); Am. Sign. Inc. v. Moody's Investors, No. 09-CV-878- 25 GLF, 2010 U.S. Dist. 68042, at *12 (S.D. Ohio July 2,2010); Italian Colors 26 Restaurant, No. 03-CV-3719-SI, 2003 U.S. Dist. LEXIS 20338, at *20 (N.D. Cal. Nov. 7, 2003). 27 29 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 45 of 71 Page ID #:10192 1 running of the statute for all purported members of the class'" pending a 2 determination on class certification. Albano v. Shea Homes Ltd. P'ship, 634 F.3d 3 524,531 (9th Cir. 2011) (quoting American Pipe, 414 U.S. at 553). The rule of 4 American Pipe is grounded in two fundamental principles. First, class members 5 should not be forced to file duplicative suits or motions to intervene, as the Rule 23 6 procedure is meant to promote "efficiency and economy of litigation." Id. (citation 7 omitted). Second, because the initial class complaint provided notice of the class 8 claims, "policies of ensuring essential fairness to defendants" must be satisfied. Id. 9 A. Eight of Plaintiffs' Tranches Are Backed by the Same Loan 10 Pools as Tranches Purchased by the Luther Plaintiffs 11 Countrywide represents that the Luther plaintiffs purchased at least two 12 tranches owned by Plaintiffs (CWALT 2005-26CB A6 and CWL 2006-S9 A3)25 13 citing a filing made by the purported Luther plaintiffs in Maine State. See 14 Countrywide Mem., Tabs 10-11; Countrywide RJN Ex. 102 at 4195. Thus, 15 21 22 26 Countrywide contends that the repose period for CWALT 2005-26CB A6 expire 23 before a named plaintiffwith standing to bring this claim was added to the Luther 24 action. See Countrywide Mem. at 28-29. Not so. Under California law, the named plaintiffs claims related back to the date of the initial filing of the Luther 25 action (November 14,2007). See Garnier v. Ludwick, No. H024269, 2003 Cal. 26 App. Unpub. LEXIS 7204, at *26 (Cal. App. 6th Dist. 2003) (when original named plaintiffs lacked standing to bring securities claims, new named plaintiff was added 27 and claims were timely because they were tolled). 18 19 20 25 Countrywide refers to this offering as "CWHEQ 2006-S9" which is another acronym used to describe the same offering. Because the Complaints utilize the "CWL" prefix, Plaintiffs will use the "CWL" prefix herein. Countrywide in effect concedes that at least some ofPlaintiffs' claims are tolled 16 under this Court's prior rulings requiring for class action tolling, that a plaintiff 17 demonstrate a named plaintiff in a class action had standing to assert the relevant claim. See, e.g, Maine State 1,722 F. Supp. 2d 1157, 1166-67 (C.D. Cal. 2010).26 30 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 46 of 71 Page ID #:10193 12 13 14 15 16 17 18 19 20 1 Plaintiffs also purchased six additional tranches (CWL 2006-S9 A4, CWL 2 2006-S9 A6, CWHL 2007-5 A5, CWALT 2005-46CB A14, CWALT 2005-54CB 3 1A4 and CWALT 2007-17CB MIl? backed by the same loan pools as tranches 4 purchased by the Luther plaintiffs.28 This Court's prior rulings do not foreclose 5 that Plaintiffs may obtain tolling for these same-pool tranches. 6 Indeed, the Court observed in Maine State Retirement System v. 7 Countrywide Financial Corporation, that "[t]he key to the standing issue is the 8 significant differences between the underlying pools of mortgages." No. 11-CV- 9 0302-MRP, 2011 U.S. Dist. LEXIS 125203, at *27-28 (C.D. Cal. May 5, 2011) 10 (Maine State III). 11 Because the loan groups backing the Certificates differed from tranche to tranche, the statements regarding underwriting and credit characteristics found in the prospectus supplements for those MBS deals were essentially different statements for each tranche, given that the point of reference for those statements-the loan groups-differed at the tranche level. In other words, an alleged misstatement as to the origination practices with respect to one loan group backing a particular tranche would not necessarily constitute a misstatement as 21 27 See Countrywide RJN, Ex. 102 at 4195 (CWHL 2007-5 A2), 4196 (CWALT 22 2005-46CB A20, CWALT 2005-54CB 1A7, CWALT 2005-II 3A1, CWALT- 23 17CB 1A3). 24 28 See Lysaght Decl. Ex. 8 (CWL 2006-S9 backed by a single loan pool); id. Ex. 9 (same for CWHL 2007-5); id. Ex. 10 (same for CWALT 2005-46CB); Ex. 11 25 (Plaintiffs' CWALT 2005-54CB 1A4 tranche and Luther plaintiffs' 1A7 tranche 26 both backed by Loan Group 1); Ex. 12 (Plaintiffs' CWALT 2007-17CB M1 tranche and Luther plaintiffs' 1A3 tranche both backed by Loan Group 1). 27 31 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 47 of 71 Page ID #:10194 to a different loan group backing a different tranche. In this case, the Court must view standing at the loan group level. 6 1 2 3 Id. at *29-30 (emphasis added). 4 29 The cases cited by Defendants are inapposite because none involved a class action reinstated on appeal. See Armstrong v. Martin Marietta Corp., 138 F.3d 21 1374,1379 (11th Cir. 1998); Giovanniello v. ALMMedia, LLC, No. 09-CV-1409- 22 JBA, 2010 U.S. Dist. LEXIS 92181, at *2 (D. Conn. Sept. 3,2010); Veliz v. Cintas Corp., No. 03-CV-1180-SBA, 2007 U.S. Dist. LEXIS 24428, at *22 (N.D. Cal. Mar. 20, 2007) (no appeal); Womack v. UPS, 311 F. Supp. 2d 492, 497 (B.D.N.C. 24 2004). 23 Defendants Sieracki, Spector, and Kurland argue that Luther cannot provide 5 tolling beyond January 6, 2010, the date Luther was initially dismissed. See Sieracki Mem. at 36; Spector Mem. at 7 n.6; Kurland Mem. at 16. They are 7 wrong. The Luther action was subsequently reinstated and continues to toll the 8 limitations period with respect to Plaintiffs' claims. See Satterwhite v. City of 9 Greenville, 578 F.2d 987, 997 (5th Cir. 1978) (en banc) ("[I]fa trial court's decision that the class may not be maintained is reversed on appeal, the status of 10 class members is to be determined from the time that suit was instituted."); Gelman 11 v. Westinghouse Electric Corp., 556 F.2d 699, 701 (3d Cir. 1977) (same); Jimenez 12 v. Weinberger, 523 F.2d 689, 696 (7th Cir. 1975) (same); Esplin v. Hirschi, 402 13 F.2d 94,101 n.14 (10th Cir. 1968) (same); In re Vertrue Mktg. & Sales Practices 14 Litig., 712 F. Supp. 2d 703,709,712-13 (N.D. Ohio 2010) (tolling applied during 15 pendency of successful appeal of order compelling arbitration).29 It is nonsensical 16 to argue that a putative class action that is currently being litigated with some of 17 the exact same offerings or loan pools at issue in this case cannot afford tolling 18 d A . P' 30un er merlcan lpe. 19 20 25 30 See, e.g., Connerly v. State Personnel Bd., 92 Cal. App. 4th 16, 29 (Cal. App. 3d 26 Dist. 2001); National Paint & Coatings Assn. v. State ofCalifornia, 58 Cal. App. 27 4th 753, 760-62 (Cal. App. 2d Dist. 1997). 32 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 48 of 71 Page ID #:10195 1 Even ifPlaintiffs' claims relating to their eight Luther tranches were not 2 subject to tolling as a result ofLuther's reinstatement, all such claims of Western 3 & Southern and all but two ofNational Integrity would nevertheless be timely. 4 The Luther plaintiffs filed the Maine State action and did not withdraw from that 5 action until the filing ofthe First Amended Complaint on July 13, 2010. Thus, the 6 claims relating to all eight tranches held by Plaintiffs were tolled until that date. 7 See AppendixA.3 ! 8 B. There Is a Strong Trend In Favor of the Application of 9 American Pipe ToIling Notwithstanding that the Class 10 Plaintiff Lacked Standing 11 Plaintiffs recognize that this Court previously ruled in Maine State, 12 Stitchting, and Allstate that a party may seek tolling from Luther or Maine State 13 only to the extent that a named plaintiff in either one of those cases purchased 14 certificates in the same tranches, or in trances with the same loan pools as those 15 purchased by the party. Plaintiffs respectfully submit that this Court should 16 reconsider those rulings and find that both Luther and Maine State toll all of 17 Plaintiffs' Securities Act claims. The majority of district courts and the two 18 Circuit Courts that have considered the issue have held that a putative class 19 20 31 Similarly, the First Amended Complaint in Maine State demonstrates that the Maine State named plaintiffs purchased two tranches purchased by Western & 21 Southern (CWALT 2007-5CB lAB and CWL 2007-11 2Al). See Lysaght Dec!. 22 Ex. 14 at' 21. The First Amended Complaint in Maine State further reveals that the Maine State class plaintiffs purchased certificates from three offerings at issue 23 in the Western & Southern Action (CWL 2006-S8 A2, CWL 2006-S9 A2, CWL 24 2007-11 2Al and CWL 2007-S1 AlB). The tranches purchased by Western & Southern in these offerings were backed by exactly the same loan pools as the 25 tranches purchased by the Luther plaintiffs. Indeed, each of these offerings 26 involved a single loan poo!. Id. Exs. 8-12. As a result, these tranches were subject to tolling from Maine State if deemed timely filed in Maine State. 27 33 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 49 of 71 Page ID #:10196 1 member may obtain tolling under American Pipe notwithstanding that the original 2 plaintiff lacked standing to bring the putative class member's claims.32 3 These courts have generally reasoned that a contrary rule "would be unduly 4 harsh" because American Pipe, and Rule 23 encourage class members "to remain 5 passive during the early stages of the class action." In re Morgan Stanley Mortg. 6 Pass-Through Certificates Litig., 2011 U.S. Dist. LEXIS 104280, at *53-54. As 12 11 9 10 7 the court in Morgan Stanley recently explained: 8 The Court is mindful that a blanket application ofAmerican Pipe tolling to cases where purported representatives lack standing holds the potential for abuse. There may be circumstances where the representative so clearly lacks standing that no reasonable class member would have relied. However, this is not such a case. The original complaint contained allegations that the harms ofwhich Plaintiffs complain flowed from the registration statement as well as other offering documents. While this Court ultimately found that the 13 14 15 16 17 32 See, e.g., McKowan Lowe & Co., Ltd. v. Jasmine, Ltd., 295 F.3d 380,385 (3d 18 Cir. 2002); Griffin v. Singletary, 17 F.3d 356, 360 (l1th Cir. 1994); Genesee County Emps. ' Ret. Sys. v. Thornburg Mortg. Sec. Trust 2006-3, No. 09-CV-300, 19 JBIKBM, 2011 U.S. Dist. LEXIS 133462, at *198 (D.N.M. Nov. 12,2011) (stating 20 the majority rule and collecting cases); In re Morgan Stanley Mortgage Pass- Through Certificates Litigation, No. 09-CV-2137, 2011 U.S. Dist. LEXIS 104280, 21 at *51-55 (S.D.N.Y. Sept. 15,2011); In re Deutsche Bank AG Sec. Litig., 2011 22 U.S. Dist. LEXIS 93867, at *19 (SD.N.Y. Aug. 19,2011); In re IndyMac Mortgage-Backed Sec. Litig., 793 F. Supp. 2d 637,647 (S.D.N.Y. June 21,2011); 23 see also In re Wachovia Equity Sec. Litig., No. 08-CV-6171, 2011 U.S. Dist. 24 LEXIS 36129, at *102 (S.D.N.Y. Mar. 31, 2011); In re Flag Telecom Holdings, Ltd. Sec. Litig., 352 F. Supp. 2d 429, 455-56 (S.D.N.Y. 2005); Popoola v. Md- 25 Individual Practice Ass 'n, 230 F.RD. 424, 430 (D. Md. 2005); In re Initial Public 26 Offering Sec. Litig., No. 21 MC 92, 01-CV-9741 (SAS), 2004 U.S. Dist. LEXIS 26000, at *21 (S.D.N.Y. Dec. 27, 2004). 27 34 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 50 of 71 Page ID #:10197 1 2 3 4 5 6 original plaintiffs lacked standing to bring the claims in question, there was at least some authority as ofDecember 2008 that indicated that a reasonable class member could have believed that MissPERS had standing to sue on behalf ofpurchasers from other trusts. See, e.g., In re Countrywide Financial Corp. Securities Litigation, 588 F. Supp. 2d 1132, 1165-66 (C.D. Cal. 2008) (plaintiffs have standing Under this reasoning, Plaintiffs' Securities Act claims are timely because Luther has been reinstated and the claims they all relate to MBS offerings that were included in Luther.33 See Complaints"if"if 390-95; Satterwhite, 578 F.2d at 997 (when class action is reinstated class members claims are deemed tolled from the LEXIS 104280, at *54-56. 8 7 15 regarding later offerings from which they did not purchase securities because those offerings were based on the same initial registration statement) .... 9 In re Morgan Stanley Mortg. Pass-Through Certificates Litig., 2011 U.S. Dist. 10 11 12 13 14 34 National Integrity is not claiming that Maine State tolls its Securities Act claims. successful appeal). Virtually all of Western & Southern's Securities Act claims are also tolled by virtue of their inclusion in Maine State.34 Maine State tolled Western & 23 date suit was filed); Gelman, 556 F.2d at 701 (same); Jimenez, 523 F.2d at 696 16 (same); Esplin, 402 F.2d at 101 n.14 (same); In re Vertrue Mktg. & Sales Practices 17 Litig., 712 F. Supp. 2d at 709,712-13 (tolling applied during pendency of 18 19 20 21 22 33 This Court recognizes that American Pipe tolling applies to class actions filed in state court. Me. State Ret. Sys. v. Countrywide Fin. Corp., 722 F. Supp. 2d 1157, 24 1166 (C.D. Cal. 2010) (Maine State 1). As this Court is aware, the Luther action was subsequently consolidated with Washington State Plumbing & Pipefitting 25 Pension Trust v. Countrywide Financial Corp., BC392571 (Cal. Super. Ct. 2008) 26 which increased the number ofMBS offerings included in Luther. 27 35 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 51 of 71 Page ID #:10198 1 Southern's claims with respect to 31 of its 36 tranches until this Court's dismissal 2 on November 4,2011. As set forth in Appendix B to this brief, 29 of Western & 3 Southern's 36 tranches were offered publicly after May 7, 2005. As a result, the 4 statute of repose had not run with respect to these claims when the Western & 5 Southern Action was filed on April 27,2011. See Appendix B?5 6 C. American Pipe Tolls the OSA Claims 7 An individual plaintiffs claims need not be identical to the claims asserted 8 in a class action complaint in order for American Pipe tolling to apply. Tosti v. Los 9 Angeles, 754 F.2d 1485, 1489 (9th Cir. 1985). When state law claims rely on the 10 same evidence as the federal claims in a class action complaint, American Pipe 11 tolls the state as well as the federal law claims. See Cullen v. Margiotta, 811 F.2d 12 698,720-21 (2d Cir. 1987); Newby v. Enron Corp. (In re Enron Corp. Sees.), 465 13 F. Supp. 2d 687, 718-719 (S.D. Tex. 2006) (same); In reLinerboardAntitrust 14 Litig., 223 F.R.D. 335, 352 (E.D. Pa. 2004) (same). 15 Plaintiffs' OSA claims indisputably involve the same evidence and 16 witnesses as Plaintiffs' Securities Act claims. Accordingly, to the extent American 17 Pipe tolls Plaintiffs' Securities Act claims, Plaintiffs' OSA claims are also tolled. 18 III. Western & Southern's OSA Claims Are Tolled Under Ohio Law 19 "Federal courts [applying state law] must abide by a state's tolling rules, 20 which are integrally related to statutes of limitations." Albano, 634 F.3d at 530. In 21 Vaccariello , the Ohio Supreme Court held "that the filing of a class action, 22 whether in Ohio or the federal court system tolls the statute of limitations as to all 23 24 25 35 This Court and others recognize that the Securities Act's three-year statute of 26 repose is subject to American Pipe tolling. See, e.g., Maine State I, 722 F. Supp. 2d at 1166; see also Albano, 634 F.3d at 535. 27 36 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 52 of 71 Page ID #:10199 1 asserted members of the class who would have been parties had the suit been 2 permitted to continue as a class action." 94 Ohio St. 3d at 382-83. While 3 Vaccariello discusses some federal case law, the Ohio Supreme Court emphasized 4 that its decision announced a unique Ohio rule for Ohio claims, stating that "we 5 reach our conclusion independently, without regard to the federal cases discussed 6 as binding on this Court." See id. at 382. 7 Vaccariello applies tolling to "all asserted class members," so that "a 8 plaintiff who could have filed suit in Ohio irrespective ofthe class action filed in 9 federal court ... [may] rely on that class action to protect her rights in Ohio." Id. 10 at 383. The court reasoned that to hold otherwise "would encourage all potential 11 plaintiffs in Ohio who might be part of a class action to file suit individually in 12 Ohio to preserve their Ohio claims," thus defeating the efficiency purpose of 13 federal class actions. Id. The court held that where a federal class action fails 14 "otherwise than on the merits," the Ohio savings statute, (O.R.C. § 2305.19), 15 applies, and allows a plaintiff one year from failure of the federal class action to 16 file a new action asserting Ohio claims.36 Id. at 383. 17 The Ohio Savings Statute, O.R.C. § 2305.19 provides, in relevant part, that 18 "in any action ... ifthe plaintiff fails otherwise than upon the merits, the plaintiff. 19 .. may commence a new action within one year ... or within the period of the 20 original applicable statute of limitations, whichever occurs later." O.R.C. § 21 2305.19. "Ohio law thus provides for a kind oftolling that extends, rather than 22 suspends, a statute of limitations." Vaccariello, 94 Ohio St. 3d at 392. If a 23 plaintiff has commenced an action that fails otherwise than on the merits, and ifthe 24 25 36 The federal class action in Vaccariello failed due to denial of class certification. 26 Vaccariello, however, quoting the Ohio savings statute, concludes that tolling applied because the failure of the class action was "otherwise than on the merits." 27 37 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 53 of 71 Page ID #:10200 1 applicable limitation period for the action has expired, O.R.C. § 2305.19 permits 2 the plaintiff to commence a new action within one year. 3 On November 4,2010, Western & Southern's status as an asserted class 4 member in Maine State failed due to lack of standing. Western & Southern filed 5 this action on April 27, 2011, within one year ofthe failure of its status as an 6 asserted class member. Under established Ohio law, when an action fails for lack 7 of standing it is a failure "otherwise than on the merits." See, e.g., State ex reI. 8 Coles v. Granville, 116 Ohio St. 3d 231, 241,877 N.E.2d 968, 977 (Ohio 2007); A- 9 I Nursing Care v. Florence Nightingale Nursing, 97 Ohio App. 3d 623, 627 N.E.2d 10 222 (Ohio 1994). Accordingly, Western & Southern's Ohio state claims were 11 tolled by Vaccariello, and, under the Ohio savings statute, are deemed to have been 12 filed on the same date as Maine State - January 14, 2010. 13 In contrast to cases decided under American Pipe, tolling under Vaccariello 14 applies to all of Western & Southern's claims, including those requiring scienter, 15 despite the fact that Maine State asserted only strict liability claims under the 16 Securities Act. The Ohio savings statute applies "when the original suit and the 17 new action are substantially the same," Children's Hospital v. Ohio Dep't a/Public 18 Welfare, 433 N.E.2d 187, 189 (Ohio 1982), but the question ofwhether actions are 19 substantially the same, however, "largely turns on whether the original complaint 20 and the new complaint contain similar factual allegations so that it can reasonably 21 be said that the party or parties were put on fair notice of the type of claims that 22 could be asserted." Lanthorn v. Cincinnati Ins. Co., 2002 Ohio App. LEXIS 6573, 23 *11 (Ohio Ct. App., 4th Dist. Dec. 5,2002).37 24 25 26 37 The Ohio savings statute the statute is "'broad and unambiguous' and should be 'liberally construed in order that controversies ... be decided upon important 27 substantive questions rather than upon technicalities ofprocedure." Kinney v. Ohio 38 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 54 of 71 Page ID #:10201 1 Given that Ohio law mandates liberal construction of the savings statute, 2 Ohio courts have held that a new action asserts a claim that is substantially the 3 same where, for example, the first action alleges negligent construction and the 4 second alleges negligent supervision, the first action alleges wrongful death but 5 fails to invoke the wrongful death statute and the second does, and where the 6 second action adds allegations of "willful and wanton misconduct." See Sherman 7 v. Air Reduction Sales Co., 251 F.2d 543,545-546 (6th Cir. 1958); Zanders v. 8 O'Gara-Hess & Eisenhardt Armoring Co., 1992 U.S. App. LEXIS 535, at *7 (6th 9 Circuit 1992) (Sixth Circuit applied tolling doctrine to permit plaintiffs wrongful 10 termination claim, even though plaintiff only timely filed his claim for wrongful 11 suspension). Given that by the filing ofMaine State on January 14,2010 12 Countrywide had already been the subject ofa criminal investigation and 13 numerous regulatory and private civil proceedings alleging scienter-based claims 14 relating to its NIBS offerings, it cannot be seriously asserted that Countrywide was 15 not on full notice ofpossible scienter-based claims on January 14, 2010. Thus, all 16 of such Plaintiffs' claims under Ohio law are timely.38 17 Countrywide contends that Vaccariello does not apply because Maine State 18 was not timely filed. Countrywide Mem. at 34. Countrywide utterly misreads 19 Vaccariello. Since Vaccariello tolls the statute for Ohio state claims for putative 20 members of a federal class, the question is whether such Ohio state claims were 21 timely as of the date the federal class action was filed and tolling began. The Ohio 22 23 Dep't ofAdministrative Services, 30 Ohio App. 3d 123, 126 (Ohio Ct. App. 1986) 24 (quoting Gruelich v. Monnin, 50 N.E. 2d 310, 312 (Ohio 1943)). 25 38 This Court has previously ruled that inquiry notice as to such claims accrued "in 26 late 2007 or early 2008." See, e.g, Maine State 1,722 F. Supp. 2d at 1165. A further factual record must be developed before a precise date is determined. 27 Western & Southern's claims requiring scienter were timely in January 2010. 39 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 55 of 71 Page ID #:10202 1 state claims at issue were all clearly alive as of the filing ofMaine State, at least 2 for purposes ofthis motion. While Countrywide may believe that the tolling 3 afforded by Vaccariello is too broad, this Court is required to apply Ohio law as it 4 was written by the Ohio Supreme Court in Vaccariello, "without predicting 5 potential changes in that law." United States Fidelity & Guaranty Co. v. Lee 6 Investments, LLC, 76 Cal. Compo Cases 472, 479 (9th Cir. 2011) (citation omitted). 7 Defendants' reliance on Arandell Corporation v. American Electric Power 8 Company, No. 09-CV-231-MHW, 2010 U.S. Dist. LEXIS 96372 (S.D. Ohio Sept. 9 15,2010) is also clearly misplaced. The federal court in Arandell declined to 10 allow tolling because the class action that failed was originally filed in a foreign 11 state court - and Ohio clearly does not allow cross jurisdictional tolling from a 12 foreign-filed state action to Ohio. Id. at *28 (holding that the court "will follow the 13 Supreme Court of Ohio's 'unambiguous holding that the savings statute is not to be 14 applied to protect actions originally filed in other states"'). The court's suggestion 15 that Vaccariello may not apply to failuresof class member status due to lack of 16 personal jurisdiction is thus clearly dicta. Id. It is also plainly incorrect, as 17 Vaccariello expressly incorporates the standard of a failure "otherwise than on the 18 merits" set forth in the Ohio savings statute, and nowhere suggests that the savings 19 statute may only apply where failure of the class action was due to denial of class 20 certification. Vaccariello, 94 Ohio St. 3d at 382-83. Further, no Ohio court has 21 adopted the reasoning ofArandell, and Arandell does not purport to address 22 whether a plaintiff may obtain the benefit of Ohio's savings statute where, as here, 23 it loses its status as a putative class member due to lack of standing. 39 24 25 "Defendants also rely upon Wyser-Pratte Mgmt. Co., Inc. v. Telxon Corp., 413 26 F.3d 553 (6th Cir. 2005). While Wyser holds that a plaintiffwho files an action during the pendency of a class certification loses tolling, courts in the Sixth Circuit 27 do not apply Wyser-Pratte where, as here, no motion for class certification was 40 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 56 of 71 Page ID #:10203 I IV. This Court Has Personal Jurisdiction Over All of the Other Defendants 2 Defendants Mozilo, Sambol, Adler, Kripalani, Sandefur, Sieracki and 3 Spector argue that this Court lacks jurisdiction over them in the Western & 4 Southern Action because they lack sufficient contacts with the State of Ohio. 5 Defendant Adler also contends that the National Integrity Action must be 6 dismissed as to him because he lacks sufficient contacts with the State ofNew None of the Officer Defendants contend that this Court lacks jurisdiction over them if the Complaints assert timely federal claims. Thus, they concede their motions to dismiss must be denied if any ofthe federal claims against them The Tolled Tranches Provide Personal JurisdictionA. 7 York. Defendant Kurland does not contest personal jurisdiction. 8 9 10 II survive. As set forth above, Plaintiffs have alleged timely Securities Act claims 12 against all Officer Defendants, and timely Exchange Act claims against Defendants 13 Mozilo and Sambo!. Thus, the Officer Defendants' jurisdictional motions should 14 be denied. They must also be denied for the following additional reasons. IS 16 17 18 The Officer Defendants do not dispute that if a plaintiff in Luther purchased a tranche held by Western & Southern, their motions should be denied if (i) the repose period for filing a claim did not expire before April 27, 2011 (giving credit 19 for applicable tolling); and (ii) the Officer Defendant either signed the relevant 20 registration statement or is alleged to be a control person. 21 22 pending at the time that the plaintiff filed its own action, or where the class certification issue will never be reached as to the putative plaintiff in question 23 because the class action failed prior to certification on some other ground (such as 24 lack of standing). See, e.g., The Western and Southern Life Insurance Company v. Morgan Stanley Mortgage Capital, Inc., No. I: 11-cv-00576, 2011 U.S. Dist. 25 LEXIS 146213, at *12 (S.D. Ohio Dec. 20, 2011); In re Vertrue Mktg. & Sales 26 Practices Litig., 712 F. Supp. 2d at 709,712-13; Chapman v. Hardin County, No. 05-CV-433-S, 2006 U.S. Dist. LEXIS 47095, at *4-5 (W.D. Ky. May IS, 2006). 27 41 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 57 of 71 Page ID #:10204 person's: (1) Transacting any business in this state; ... (6) Causing C. Jurisdiction Exists Under Ohio's Long Arm Statute Ohio's long arm statute provides, in relevant part: (A) A court may exercise personal jurisdiction over a person who acts directly or by an agent, as to a cause of action arising from the 1 The Luther plaintiffs purchased CWL 2006-S9 A3, a tranche that was also 2 purchased by Western & Southern. Defendants Sieracki and Spector signed the 3 registration statement that facilitated this offering. Complaints ~~ 32,35. They 4 claim that the statute of repose with respect to claims related to CWL 2006-S9 A3 5 prior to the filing ofthe Western & Southern Action. However, this argument 6 ignores the fact that the Luther action was reinstated and that "the status of class 7 members is to be determined from the time that suit was instituted." Satterwhite, 8 578 F.2d at 997; see also supra Section I1(A).40 9 B. Mozilo and Sambol Are Subject to Jurisdiction Under the OCAA 10 Mozilo and Sambol essentially concede for the purposes of this motion that 11 they were members of an association-in-fact enterprise that committed numerous 12 criminal acts in the state of Ohio and caused injuries in Ohio. See Complaints ~ 13 421. The OCAA expressly provides for jurisdiction over all members involved in 14 the conduct of an enterprise under the OCAA. O.R.C. § 2923.34(K). Mozilo and 15 Sambol do not contest that Western & Southern's OCAA claims are timely and 16 thus concede jurisdiction exists under O.R.C. § 2923.34(K). 17 18 19 20 21 22 23 40 As set forth in Section I1(A), Western & Southern purchased several other 24 tranches (CWL 2006-S9 A4, CWL 2006-S9 A6, CWHL 2007-5 A5, CWALT 2005-46CB A14, CWALT 2005-54CB lA4 and CWALT 2007-17CB Ml) which 25 are backed by the same loan pools at issue in the Luther Action. Defendants Adler, 26 Kripalani, Sandefur, Sieracki and Spector all signed registration statements related to these offerings. See Western & Southern Am. Compl. ~~ 32-37. 27 42 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 58 of 71 Page ID #:10205 1 tortious injury in this state to any person by an act outside this state 2 committed with the purpose of injuring persons, when he might 3 reasonably have expected that some person would be injured thereby 4 in this state; .... 5 O.R.C. § 2307.382. The Officer Defendants are subject to jurisdiction in Ohio 6 under the long arm staute because (i) this action arises out of their transaction of 7 business within the state; and (ii) the Officer Defendants caused tortious injury in 8 Ohio reasonably expecting that an investor in Ohio could be injured. 9 1. The Officer Defendants Transacted Business In Ohio 10 "It is clear that [O.R.C.] 2307.382(A)(1) ... [is] very broadly worded and 11 permit[s] jurisdiction over nonresident defendants who are transacting any busines 12 in Ohio." Ky. Oaks Mall Co. v. Mitchell's Formal Wear, 53 Ohio St. 3d 73, 75 13 (Ohio 1990). A lack of "physical presence in Ohio does not preclude a finding that 14 [an individual] transacted business in this state." Id. at 53; Javitch v. Neuma, Inc., 15 No. 04-CV-1487, 2006 U.S. Dist. LEXIS 3561, at *11 (N.D. Ohio Jan. 31, 2006) 16 ("direction of documents to Ohio" constitutes transacting business in Ohio). 17 Ohio courts have jurisdiction over a defendant who participated in the 18 preparation of false financial information that is disseminated into the state. See 19 Goldstein v. Christiansen, 70 Ohio St. 3d 232,236-37 (Ohio 1994) ("dissemination 20 ofmisleading financial information to Ohio investors" constituted transacting 21 business in Ohio); Athenian Venture Partners III, L.P. v. Infrastructure Solutions, 22 Inc., No. 08-CV-821, 2009 U.S. Dist. LEXIS 48840, at *8-9 (S.D. Ohio May 19, 23 2009) (same). Here, the Complaints allege that each ofthe Officer Defendants was 24 25 26 27 43 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 59 of 71 Page ID #:10206 1 actively involved in the dissemination offalse Offering Materials in Ohio.41 2 Accordingly, each ofthe Officer Defendants transacted business in Ohio. 3 Moreover, when a dispute involves a claim relating to securities, any officer 4 that signed a securities filing necessary to facilitate the sale of a security in Ohio is 5 subject to jurisdiction in Ohio. See Blue Flame Energy Corp. v. Ohio Dep't of 6 Commerce, 171 Ohio App. 3d 514,531-532 (Ohio Ct. App. 10th Dist. 2006) 32-37. jurisdiction."). Defendants Adler, Kripalani, Sandefur, Sieracki and Spector all signed multiple registration statements that allowed Countrywide to offer the Certificates to Plaintiffs and, thus, transacted business in Ohio. See Complaints ~~ 7 (defendant's "actions in his official capacity as the president ofBlue Flame- 8 specifically, his signature on the Form Ds" justified the "assertion ofpersonal 9 10 11 12 13 2. The Officer Defendants Caused Tortious Injury in Ohio "Ohio courts seem to be quite willing to give a broad definition to tortious 41 See Complaints ~~ 33,179,290,303,306,463 (Kripalani); 32,100,179,290, 300,301,463 (Sieracki); 35, 179,290,463 (Spector); 36, 179,290,463 (Adler); 37,179,290,301,463 (Sandefur); 5, 88, 97,179,290,305-317 (Mozilo); 5, 87, 179, 193,290,323,325,330,332 (Sambol). conduct." Gor-Vue Corp. v. Hornell ElektrooptikAB, 634 F. Supp. 535, 537 (N.D. 22 14 15 16 Ohio 1986). Long arm jurisdiction exists over an officer of a corporation who 17 allegedly violated securities law in connection with the issuance of securities by 18 the corporation.42 19 20 21 23 42 See, e.g., Unencumbered Assets, Trust v. JP Morgan Chase Bank (In re Nat'l 24 Century Fin. Enters.), 617 F. Supp. 2d 700, 710 (S.D. Ohio 2009) (officer whose conduct allowed issuance of securities in Ohio is subject to long arm jurisdiction 25 even ifher acts occurred outside the state); Ahrendt v. Palmetto Federal Sav. & 26 Loan Asso., 680 F. Supp. 1125, 1128 (S.D. Ohio 1987) (similar holding); Herbruc v. LaJolla Capital, No. 19586,2000 Ohio App. LEXIS 4668, 2000 WL 1420282 at 27 *3 (Ohio Ct. App. 9th Dist. Sept. 27,2000) (similar holding); see also Ohio ex reI. 44 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 60 of 71 Page ID #:10207 1 The Officer Defendants argue that this Court lacks long arm jurisdiction 2 under the fiduciary shield doctrine. They are wrong. The fiduciary shield doctrine 3 does not apply when a corporate officer participated in alleged securities law 4 violations. See NPF XII, Inc. v. Special Care, Inc., No. 00-CV-1048, 2001 U.S. 5 Dist. LEXIS 24351, at *16 (S.D. Ohio Feb. 13,2001); Heritage Funding & 6 Leasing Co. v. Phee, 120 Ohio App. 3d 422,431 (Ohio Ct. App. 10th Dist. 1997). 7 The Complaints establish that each of the Officer Defendants participated in 8 the OSA violations alleged in the Western & Southern Action. For example, 9 • Mozilo personally directed Countrywide Home Loans to approve any 10 loan that could be off-loaded onto investors such as Western & Southern. 11 Complaints ~ 5. Mozilo was a member of Countrywide Financial's 12 Executive Strategy Committee, Credit Committee, and Finance 13 Committee, and, as CEO and Chairman of the Board, he oversaw the 14 Ethics and Asset Liability Committees. Id. ~ 28. Mozilo orchestrated 15 Countrywide Financial's scheme to dominate the mortgage-lending 16 market by abandoning underwriting standards, creating and selling 17 fraudulent mortgage-backed securities, and engaging in various other 18 wrongful acts. See generally id. ~~ 305-332. 19 • Sambol played a central role in bringing about the sweeping change that 20 transformed Countrywide from a mortgage company with relatively 21 prudent underwriting policies into an entity that originated virtually any 22 loan that could be repackaged for investors. Complaints ~~323, 326. He 23 expressly directed Countrywide employees "to price virtually any loan 24 25 Dewine v. GMAC Mortg., LLC, No. 10-CV-2537, 2011 U.S. Dist. LEXIS 53449, 26 at *4-7 (N.D. Ohio May 18, 2011) (Defendant caused tortious injury in Ohio by his acts in Pennsylvania (where he signed the allegedly false affidavits)). 27 45 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 61 of 71 Page ID #:10208 1 that we reasonably believe we can sell/securitize without losing money, 2 even if other lenders can't or won't do the deal." Id. ~ 5; see also id. ~~ 3 323,330. 4 • Sieracki authorized the dissemination ofthe Offering Materials relating 5 to the Certificates. Complaints ~~ 32, 463. As member of the 6 Asset/Liability Committee and Corporate Credit Risk Committee, he was 7 responsible for managing fraud prevention and investigation, and 8 protecting against risk. Id. ~~299-300. 9 • Spector authorized the dissemination of the Offering Materials. 10 Complaints ~ 35. He served as Executive Vice President of Secondary 11 Markets, was promoted to Managing Director in 2001, and served as 12 Senior Managing Director of Secondary Marketing at Countrywide 13 Financial from 2004 to 2006. Id. As head of Secondary Markets, he was 14 part ofthe Countrywide team that consciously endeavored to off-load 15 toxic mortgage loans onto investors such as Western & Southern. 16 • Kripalani, President and CEO of both Countrywide Capital Markets and 17 Countrywide Securities, authorized the dissemination of the Offering 18 Materials relating to seven offerings at issue. Complaints ~~ 33,303. 19 His responsibilities included oversight of Countrywide Securities, 20 Countrywide's underwriting arm. Id. ~ 303. Kripalani allowed 21 Countrywide Securities to ignore the gate-keeping function normally 22 expected of underwriters in order to allow Countrywide to offload its 23 toxic mortgages. 24 • Sandefur and Adler authorized the dissemination of the Offering 25 Materials relating to seven offerings at issue. Complaints ~~ 36-37. 26 The Complaints further allege that the Officer Defendants sold an enormous 27 amount ofthe stock of Countrywide at prices they themselves artificially inflated 46 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 62 of 71 Page ID #:10209 1 and received multi-million dollar bonuses for their participation in the 2 Countrywide fraud. Complaints 'If'lf 71, 179. These allegations are more than 3 sufficient to establish Ohio long arm jurisdiction over all the Officer Defendants. 4 D. This Court's Exercise of Jurisdiction Satisfies Due Process 5 The Due Process Clause requires that a non-resident defendant have 6 sufficient minimum contacts with the forum state such that imposition ofpersonal 7 jurisdiction "does not offend traditional notions of fair play and substantial 8 justice." Int'! Shoe Co. v. Washington, 326 U.S. 310, 315, 66 S. Ct. 154,90 L. Ed. 9 95 (1945). Courts in the Ninth Circuit apply a three part test in determining 10 whether the exercise oflong arm jurisdiction comports with due process: 11 (1) The non-resident defendant must purposefully direct his activities 12 or consummate some transaction with the forum or resident thereof; or 13 perform some act by which he purposefully avails himself ofthe 14 privilege of conducting activities in the forum, thereby invoking the 15 benefits and protections of its laws; (2) the claim must be one which 16 arises out of or relates to the defendant's forum-related activities; and 17 (3) the exercise ofjurisdiction must comport with fair play and 18 substantial justice, i.e., it must be reasonable. 19 CollegeSource, Inc. v. AcademyOne, Inc., 653 F.3d 1066, 1077 (9th Cir. 2011). 20 The first prong of this test is satisfied in a securities action when the officer 21 defendant signed the relevant registration statement, see, e.g., In re LDK Solar 22 Sees. Litig., No. 07-CV-05182 WHA, 2008 U.S. Dist. LEXIS 80717, at *16-17 23 (N.D. Cal. 2008), or was otherwise an active participant in the fraud, see, e.g., 24 Openwave Sys. v. Fuld, No. 08-CV-5683-SI, 2009 U.S. Dist. LEXIS 48206, at 25 26 27 47 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 63 of 71 Page ID #:10210 1 *34-35 (N.D. Cal. June 6, 2009).43 As discussed above, the Officer Defendants 2 each played a significant role in Countrywide's scheme to off-load toxic MBS on 3 investors such as Western & Southern, and for this reason alone personal 4 jurisdiction over the Officer Defendants in Ohio comports with due process. See 5 Abstract Serv., Inc. v. First Am. Title Ins. Co., 173 F.3d 725, 734 (9th Cir. 1999) 6 (corporate officers cannot "hide behind the corporation where [the officer was] an 7 actual participant in the tort");}2 Global Communications, Inc. v. Blue Jay, Inc., 8 No. 08-CV-4254, 2009 U.S. Dist. LEXIS 1616,2009 WL 29905, at *5, 9 (N.D. 9 Cal. Jan. 5,2009) Gurisdiction where defendant directed agents to send fax 10 advertisements to nationwide network of servers); Openwave Sys., 2009 U.S. Dist. 11 LEXIS 48206, at *34-35; In re LDK Solar Sees. Litig., 2008 U.S. Dist. LEXIS 12 80717, at *16_17.44 13 14 15 43 Defendant Adler is the only defendant who contests New York's exercise of 16 personal jurisdiction. His motion must be denied because under New York law, the signing of a registration statement is sufficient to confer personal jurisdiction. 17 In re Alstom SA Sec. Litig., 406 F. Supp. 2d at 399 ("The signing of documents 18 filed with the SEC which form the basis for [p]laintiffs' claims is sufficient contact with the jurisdiction to justify this Court's exercise ofjurisdiction over 19 [defendant]"); In re CINAR Corp. Sec. Litig., 186 F. Supp. 2d 279,305-06 20 (E.D.N.Y. 2002) (holding that the "signing the Registration Statement was enough to put the defendant on notice ofpotential suit in the United States and shows 21 purposeful availment," thus conferring personal jurisdiction over defendant). 22 44 Defendant Mozilo's reliance on Indiana Plumbing Supply v. Standard ofLynn, 23 880 F. Supp. 743 (C.D. Cal. 1995) is misplaced because the defendant was not 24 alleged to have had any role in the underlying misconduct. Similarly, Toyz, Inc. v. Wireless Toyz Franchise, LLC, No. C-09-05091 IF, 2010 U.S. Dist. LEXIS 12032, 25 at *24-25 (N.D. Cal. Jan. 25, 2010) and Pebble Beach Co. v. Caddy, 453 F.3d 1151 26 (9th Cir. 2006) are inapposite because the plaintiff did not allege that any act was directed to the relevant state. 27 48 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 64 of 71 Page ID #:10211 1 Moreover, due process concerns are satisfied here for the Officer Defendants 2 who signed registration statements, because by signing registration statements for 3 securities that they knew would be offered to investors in Ohio, those Officer 4 Defendants purposefully availed themselves of the privilege of conducting 5 activities in the forum. See, e.g., In re Medeva Sec. Litig., No. 93-CY-4376 KN, 6 1994 u.s. Dist. LEXIS 11675, at *18-19 (C.D. Cal. June 3,1994) (purposeful 7 availment met where defendant signed the registration statement); In re CINAR 8 Corp. Sec. Litig., 186 F. Supp. 2d at 305-06 ("signing the Registration Statement 9 was enough to put the defendant on notice ofpotential suit in the United States and 10 shows purposeful availment,,).45 11 The second prong of the Ninth Circuit jurisdictional due process test is 12 satisfied if "[b]ut-for defendants' forum related conduct, the injury would not have 13 occurred." Harris Rutsky & Co. Ins. Servs. v. Bell & Clements Ltd., 328 F.3d 14 1122, 1131-32 (9th Cir. Cal. 2003). Defendants implausibly contend that their 15 contacts with Ohio were not the "but for" cause of Western & Southern's claim. 16 However, it is settled law in the Ninth Circuit that when a defendant orchestrated 17 the alleged fraud or participated in the dissemination ofmisrepresentations, the 18 "but for" prong is easily met. See e.g., Rippey v. Smith, 16 Fed. Appx. 596, 599 19 (9th Cir. 2001); Harris Rutsky & Co. Ins. Servs., 328 F.3d at 1132 (same); 20 21 22 45 Defendants Adler, Sieracki, Mozilo and Spector's reliance on New Mexico State 23 Investment Council v. Countrywide Financial Corporation, No. D-OI0I-CY-2008- 02289 (N.M. Dist. Ct.), and Defendants Sieracki and Spector's reliance on United 24 Western Bank v. Countrywide Financial Corporation, No. 201O-CY-3325 (e.O. 25 Dist. Ct.) are misplaced, as the Colorado and New Mexico long arm statutes at issue in those cases are much narrower than Ohio's long arm statute. See C.O. ST 26 § 13-1-124 andN.M. ST § 38-1-16. 27 49 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 65 of 71 Page ID #:10212 1 Openwave Sys., 2009 U.S. Dist. LEXIS 48206, at *37 (same); Anschutz Corp. v. 2 Merrill Lynch & Co., 785 F. Supp. 2d 799,828 (N.D. Cal. 2011) (same). 3 Finally, the third prong of the due process test is met as there is a 4 presumption that the exercise ofjurisdiction is reasonable when the first two 5 prongs of the specific jurisdiction test have been met, as here. See iYogi Holding 6 Pvt. Ltd. v. Secure Remote Support, Inc., No. C-11-0592 CW, 2011 U.S. Dist. 7 LEXIS 144425, at *28-29 (N.D. Cal. Oct. 24, 2011). "[T]he touchstone [ofa 8 court's inquiry] is whether the defendant's conduct and connection with the forum 9 State are such that he should reasonably anticipate being haled into court there." 10 World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297,100 S. Ct. 559, 62 11 L. Ed. 2d 490 (1980). The Officer Defendants benefited from the sale of the 12 Certificates in Ohio, and they were aware that the Certificates would be purchased 13 by Ohio investors. In light of the Officer Defendants' active participation in the 14 activities that caused Western & Southern's injuries in Ohio, the exercise of 15 jurisdiction simply does not offend any notions offair play and justice. 16 V. This Court Should Grant Plaintiffs Leave to Replead Any Claims This 17 Court Dismisses 18 Under Federal Rule of Civil Procedure 15(a), leave to amend "shall be 19 freely given when justice so requires." See Bowles v. Reade, 198 F.3d 752,757 20 (9th Cir. 1999). "A complaint should not be dismissed unless it appears beyond 21 doubt that plaintiff can prove no set offacts in support ofthe claim which would 22 entitle him or her to relief." Konig v. State Bar ofCal., No. 04-CV-2210, 2004 23 U.S. Dist. LEXIS 19498, at *14-15 (N.D. Cal. Sept. 16,2004). Because Plaintiffs 24 have never had the opportunity to address any inadequacies that may exist in their 25 pleadings, leave should be granted. See Manzarek v. St. Paul Fire & Marine Ins. 26 Co., 519 F.3d 1025, 1034-35 (9th Cir. 2008) (district court abused its discretion 27 when it dismissed a complaint without leave to amend before providing the 50 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 66 of 71 Page ID #:10213 1 plaintiffs with an opportunity to explain how they could amend); Ralston v. 2 Mortgage Investors Group, Inc., C 08- 536 JF (RS), 2009 WL 688858, at *10 3 (N.D. Cal. Mar. 16,2009); Mathison v. Bumbo, No. 08-CV-0369, 2008 U.S. Dist. 4 LEXIS 108511, at *34 (C.D. Cal. Aug. 18,2008). 5 CONCLUSION By: Brian C. Lysaght Brian C. Lysaght (Bar. No. 61965) b1ysaght@lysaghtlegal.com LYSAGHT LAW GROUP 12021 Wilshire Boulevard Los Angeles, California 90025 Telephone: (310) 567-1111 Facsimile: (310) 472-0243 -and- David H. Wollmuth (pro hac vice) dwollmuth@wrnd-Iaw.com Thomas P. Ogden (pro hac vice pending) togden@wmd-Iaw.com Steven S. Fitzgerald (pro hac vice) sfitzgerald@wmd-Iaw.com WOLLMUTH MAHER & DEUTSCH LLP 500 Fifth Avenue New York, New York 10110 (212) 382-3300 Attorneys for Plaintiffs The Western and Southern Life Insurance Company, Western-Southern Life Assurance Company, Columbus Life Insurance Company, Integrity Life Insurance Company, and Fort Washington Investment Advisors, Inc. and National Integrity Life Insurance Company 6 For all of the foregoing reasons, Western & Southern and National Integrity 7 respectfully submit that Defendants' partial motions to dismiss should be denied. 8 Dated: January 13,2011 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 51 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 67 of 71 Page ID #:10214 APPENDIX A Western & Southern : Days I _~ays I ~,~a,te. Elapsed_~ays • ' n. Iv~L:a.l Prior to ~~~~!r _ .L ......... I . . I 1- From.. _L Filing of I - .. to • rnor to i ..._,-- - Pri~r t~ r ..LL 1T~;:'·, ..._" Western :"~..I . I & I Southern CWALT2005-26CB (A6) 512412005 11/1412007 904 1/6/2010 1/1412010 8 11/4/2010 174 1086 CWALT 2005-46CB 8/29/2005 11/14/2007 807 1/6/2010 1/14/2010 8 1l/4/2010 174 (AI4) 989 CWALT 2005-54CB 9/27/2005 1l/14/2007 778 1/6/2010 1/14/2010 8 1l/4/2010 174 (lA4) 960 CWALT2007-17CB (MI) 6/28/2007 9/9/2008 439 1/6/2010 1/14/2010 8 11/4/2010 174 621 CWHL 2007-5 (A5) 3/29/2007 9/9/2008 530 1/6/2010 1/14/2010 8 11/4/2010 174 712 CWL 2006-89 (A3) I 12/2812006 9/9/2008 621 1/6/2010 1/1412010 8 6/6/2011 0 629 CWL 2006-89 (A4) 12/28/2006 9/912008 621 1/6/2010 1/1412010 8 6/6/2011 0 629 CWL 2006-89 (A6) 12/28/2006 9/9/2008 621 1/6/2010 1/14/2010 8 6/612011 0 629 National Intef!ri 1282 817 1156 785 908 785 1l/4/2010 6/6/2011 I 156 1l/4/2010 I 370 1l/4/2010 11/4/2010 I 370 6/612011 I 156 Days . Elapsed I Diismiisset Prior to Inclusion I ~jtate 1/14/2010 I 8 1/14/2010 I 8 1/14/2010 I 8 1/14/2010 I 81/6/2010 1/6/2010 1/6/2010 1/6/2010 530 439 621 621 Days Date Elapsed Dismissed Prior to from lnclusion Luther 9/9/2008 9/9/2008 9/9/2008 9/9/2008 Date Added to Luther 6/28/2007 3/29/2007 12/28/2006 12/28/2006 I Countrywide refers to this offering as "CWHEQ 2006-89." Because the Complaints utilize the "CWL" prefix to describe the same offering, Plaintiffs will use the "CWL" prefix here. Appendix A to Plaintiffs' Opposition - I Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 68 of 71 Page ID #:10215 Appendix B MBS PURCHASED BY WESTERN & SOUTHERN ······2»>····> > »> ••..>. .> DaYS:E)~psed >'.>'. .......•.. ...... . ~... IF....~> In"t" ....... Days oM" >...... •• .... .. •.••••. I lllll;!Tr .•.•• •...• •••.•. 3'1' ·r.·. r Elapsed ~L:. PriprtoF;iling ,.,...in.>Arlil,,,l .... ofWesterll&.' 'Date Priorto St~;i ..,,:-~J •• _., i ". Soutb.erIl..... , > .•••.... Inclusion ' " ........ •• >. >" ••.• . . .. > • > •••••• Action .>••.' .',>" CWALT 2005-lOCB 3/28/2005 11114/2007 961 1114/2010 174 (lA8) 1135 CWALT 2005-13CB 3/22/2005 1111412007 967 11/4/2010 174 (A8) 1141 CWALT 2005-20CB 5/25/2005 11/14/2007 903 1114/2010 174 (lA3) 1077 CWALT 2005-20CB 5/25/2005 11114/2007 903 1114/2010 174 (lA4) 1077 CWALT 2005-26CB 5/24/2005 11114/2007 904 11/4/2010 174 (A6)*? 1078 CWALT 2005-28CB 6/27/2005 11/1412007 870 1114/2010 174 (2A4) 1044 CWALT 2005-30CB 6/27/2005 11/14/2007 870 1114/2010 174 (lA6) 1044 CWALT 2005-46CB 8/29/2005 11114/2007 807 1114/2010 174 (A14) 981 CWALT 2005-47CB 8/25/2005 11/14/2007 811 11/4/2010 174 (All) 985 CWALT 2005-49CB 9/27/2005 1111412007 778 11/4/2010 174 (A3) 952 * 3 years= 1095 days ** Defendants concede tolled by Luther. Appendix B to Plaintiffs' Opposition - 1 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 69 of 71 Page ID #:10216 i ,...>I .............. ••...•.•.. > .... ... i.·· .. ·· »·.i ...... ])a~~Elapsed i·· ..·..·.·, .. · ...........,.,. .•. ·''l''"''''"o· ...... I>..... ..... ··i·· ••..I"· l)llYS I Ullte rio •••••• •••• , ......le1"''''I,-... ...•. •• Prior.t()))'iHllg ri~?:~Y> 1.11I~{ ,. .•..•• b..' It 1".Ad;:'od Elapsed Ir.....lTI~ ..._:: •...•.• ofWestern &..... "'Utn~te .•.•.I".",. •• i. PriOl'to ~.,.}p. ...... " .....~J~,. 'Southern i·.···.· ... ,> , InClusion ..--.. ...... •• • ••.. Action.. , .... ..... , ..... CWALT 2005-54CB 9/27/2005 11/14/2007 778 11/4/2010 174 (lA4) 952 CWALT 2005-J1 1/26/2005 11/14/2007 1,022 11/4/2010 174 (lA8) 1196 CWALT 2006-14CB 4/25/2006 11/14/2007 568 11/4/2010 174 (A7) 742 CWALT 2006-39CB 11/29/2006 11/14/2007 350 11/4/2010 174 (lA4) 524 CWALT 2006-7CB 3/29/2006 11/14/2007 595 11/4/2010 174 (lAI4) 769 CWALT 2007-15CB 5/31/2007 11/14/2007 167 11/4/2010 174 (M) 341 CWALT 2007-16CB 6/28/2007 9/9/2008 439 11/4/2010 174 (Ml) 613 CWALT 2007-17CB 6/28/2007 9/9/2008 439 11/4/2010 174 (Ml) 613 CWALT 2007-21CB 7/27/2007 9/9/2008 410 11/4/2010 174 (lA6) 584 CWALT 2007-5CB 2/26/2007 9/9/2008 561 12/6/2010 142 (lAB) 703 CWHL 2005-24 (A33) 9/27/2005 9/9/2008 1,078 11/4/2010 174 1252 * 3 years= 1095 days ** Defendants concede tolled by Luther. Appendix B to Plaintiffs' Opposition - 2 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 70 of 71 Page ID #:10217 > , .'.'.,". ',.'. 1/>/' •• ,.' > .,,"."'."., /< l?aY!l(.E1llPsed «:.:.'.,'> >(1) IP, ', •••, I"· """:' Pays ., ',',',' " ···:'~X. ,',"» ,-,--41,1.1 lI>~ Ii IA~;'~ r' .Elaps~d U~t" priorlOl!'iling lQ...... , •• '•> ......,. •••• of'\V~st~rn&' n.pay'S,,> i?",l'll Action -: ... ' ',.'. ••••••• "~"~c. ,." ',".'< >' CWHL 2005-24 (A7) 9/27/2005 9/9/2008 1,078 11/4/2010 174 1252 CWHL 2005-25 (A6) 9/27/2005 9/9/2008 1,078 11/4/2010 174 1252 CWHL 2005-J2 6/29/2005 9/9/2008 1,168 1114/2010 174 (3A14) 1342 CWHL 2006-21 (A15) 12/27/2006 9/9/2008 622 1114/2010 174 796 CWHL 2007-14 (M) 7/27/2007 9/9/2008 410 1114/2010 174 584 CWHL 2007-15 (M) 7/27/2007 9/9/2008 410 11/4/2010 174 584 CWHL 2007-5 (A5) 3/29/2007 9/9/2008 530 11/4/2010 174 704 CWL 2006-S8 (A4) 12/27/2006 9/9/2008 622 12/6/2010 142 764 CWL 2006-S9 (A3)* I 12/2812006 9/9/2008 621 6/6/2011 0 621 CWL 2006-S9 (A4) 12/2812006 9/9/2008 621 6/6/2011 0 621 CWL 2006-S9 (A6) 12/28/2006 9/9/2008 621 6/6/2011 0 621 CWL 2007-S1 (A5) 2/27/2007 9/9/2008 560 12/6/2010 142 702 CWL 2007-S2 (A5F) 3/29/2007 9/9/2008 530 11/4/2010 174 704 CWL 2007-11 (2AO 6/28/2007 9/9/2008 439 12/6/2010 142 581 CWL 2007-4 (A5W) 3/28/2007 9/9/2008 531 11/4/2010 174 705 1 Countrywide refers to this offering as "CWHEQ 2006-S9" which is another acronym used to describe the same offering. Because the Complaints utilize the "CWL" prefix, Plaintiffs will use the "CWL" prefix herein. * 3 years= 1095 days ** Defendants concede tolled by Luther. Appendix B to Plaintiffs' Opposition - 3 Case 2:11-cv-07166-MRP-MAN Document 177 Filed 01/14/12 Page 71 of 71 Page ID #:10218