NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co.

One of the Last MBS Purchaser Recoveries Arising out of the Global Financial Crisis

On May 2, 2016, the Honorable Loretta A. Preska of the Southern District of New York issued an order granting final approval of a $272 million recovery in a case that challenged Goldman Sachs’s mortgage securitization practices. After over seven years of hard-fought litigation, the settlement concludes one of the last remaining mortgage-backed securities (MBS) purchaser class actions arising out of the global financial crisis. The settlement resolves claims that Goldman Sachs used registration statements to sell MBS certificates that incorporated false and misleading statements about the quality of the certificates issued by various securitization trusts in violation of the federal securities laws. Although the case was initially dismissed three times by the district court, lead plaintiff NECA-IBEW Health & Welfare Fund (“NECA”) made the important decision to appeal the case to the Second Circuit. That appeal – which was briefed and argued by Robbins Geller attorneys – resulted in a landmark decision that changed the face of RMBS litigation.

NECA had alleged that the shelf registration statement and the prospectuses for the RMBS offerings contained false and misleading statements and omissions as to the true nature, risk (including borrowers’ ability to repay the loans pooled therein), and overall quality of the certificates. While NECA had purchased certificates in 2 of the offerings, it sought to represent purchasers in all 17. The district court held that NECA could, at best, only represent those purchasers who bought not only in the same specific offerings, but also in the same specific tranches that the fund had purchased.

The Second Circuit reversed the district court and reinstated NECA’s claims against defendants where they were made on behalf of purchasers who shared “the same set of concerns” over securities originating from the same lenders whose mortgage pools also made up NECA’s purchases (and which would share any misstatements as to the underlying mortgages’ quality). This allowed NECA to sue over seven of the offerings, and not just in the specific tranches that the fund had purchased. The defendants petitioned the Supreme Court for a writ of certiorari, with Goldman Sachs claiming that the Second Circuit’s decision presented massive new liability concerns for Wall Street: “The stakes implicated by the Second Circuit’s new and expansive standard for class standing are difficult to overstate,” wrote Goldman Sachs. “[T]he decision will effectively increase by tens of billions of dollars the potential liability that financial institutions face in this and similar class actions.” The Supreme Court denied Goldman Sachs’s writ.

As a result of the NECA decision, the entire landscape of RMBS-related litigation changed for the benefit of investors.  Prior to this action, at least a dozen district courts had dismissed investors’ claims for certificates the named plaintiffs had not purchased.  In the wake of NECA, many of these decisions were overturned, and claims for hundreds of millions of dollars of RMBS were reinstated.  An example is the recent record-breaking $388 million settlement achieved by Robbins Geller in the Fort Worth Employees’ Retirement Fund v. J.P. Morgan Chase & Co. RMBS litigation. After the NECA decision, plaintiffs successfully moved for reconsideration of the district court’s earlier dismissal in J.P. Morgan, resulting in the reinstatement of claims for hundreds of additional investors that purchased billions of dollars' worth of faulty RMBS who would have been denied recovery.

The $272 million settlement serves as a bookend to the long and complex series of RMBS class action lawsuits filed by Robbins Geller’s clients that began with the first RMBS case against Countrywide Financial Corp. (now owned by Bank of America), which was filed by Robbins Geller in 2008 and settled in 2013 for $500 million.  Robbins Geller was sole or co-lead plaintiff’s counsel on half of the major RMBS actions, more than any other law firm, and has recovered in excess of $1.25 billion for RMBS investors worldwide.

In March 2016, the plaintiff asked U.S. District Judge Miriam Goldman Cedarbaum to certify a class of more than 400 investors, paving the way for a settlement.

“Our trial team and appellate lawyers worked tirelessly for over seven years to get to this point for our clients,” said Robbins Geller partner Lucas F. Olts.  “We take pride that our attorneys have obtained settlements that have returned more than a billion dollars to investors in MBS purchaser class actions arising out of the global financial crisis.”

At the final approval hearing for the settlement, Judge Preska complimented Robbins Geller attorneys, noting: “Counsel, thank you for your papers. They were, by the way, extraordinary papers in support of the settlement, and I will particularly note Professor Miller’s declaration in which he details the procedural aspects of the case and then speaks of plaintiffs’ counsel’s success in the Second Circuit essentially changing the law. I will also note what counsel have said, and that is that this case illustrates the proper functioning of the statute. . . . Counsel, you can all be proud of what you’ve done for your clients. You’ve done an extraordinarily good job.”

The Robbins Geller team responsible for this achievement consisted of partners Darren J. Robbins, Arthur C. Leahy, Joseph D. Daley, Thomas E. Egler, Lucas F. Olts and Nathan R. Lindell and associates Sara Polychron and Michael Albert, as well as a team of other highly skilled and dedicated attorneys and support staff.

NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., No. 1:08-cv-10783 (S.D.N.Y.).