(Wavebreak Media LTD)

Goldman Sachs & Co. just can’t shake a class action alleging that it duped investors in a $780 million mortgage-backed security. Having dismissed the case without prejudice twice before, U.S. District Judge Miriam Cedarbaum in Manhattan ruled on Thursday that a shifting legal landscape has left her no choice but to let the investor-plaintiffs proceed to discovery.

Cedarbaum concluded that investors in the security, known as GSR Mortgage Loan Trust 2007-4F, adequately alleged that Goldman caused them an economic loss, a necessary element of their claims under Section 12 and Section 15 of the Securities Act of 1933. Cedarbaum had previously come out the other way on the issue, but she reversed course because of a September 2012 decision from the U.S. Court of Appeals for the Second Circuit in a similar case against Goldman. “That opinion has significantly changed the landscape of the pleading standards for loss causation,” Cedarbaum wrote.

Goldman Sachs marketed GSR Mortgage Loan Trust 2007-4F to investors before the financial crisis. Investors paid a total of $780 million for certificates in the MBS trust. Credit rating agencies downgraded the security to junk status after the financial crisis, but Goldman Sachs still managed to make scheduled payments to investors.

The Police and Fire Retirement System of the City of Detroit, which bought $1.8 million worth of certificates in the trust, brought a class action against Goldman Sachs in 2010. The two plaintiffs firm behind the case, Wolf Haldenstein Adler Freeman & Herz and Kohn Swift & Graf, alleged that the bank misrepresented the standards used to select home loans pooled into the MBS deal.

Cedarbaum dismissed the case without prejudice in September 2011 and May 2012. Each time, she essentially ruled that the pension fund couldn’t show economic loss because it got the periodic payments it was entitled to. The plaintiff argued that its economic loss was the fact that the certificates dropped in resale value because of their downgraded status.

Wolf Haldenstein and Kohn Swift caught a break in September 2012, when the Second Circuit weighed in on a similar case against Goldman involving different MBS trusts. Siding with the plaintiffs firm handling that case, Robbins Geller Robbins & Dowd, the Second Circuit ruled that a decrease in certificate value is a cognizable economic loss. (The decision in that case, NECA-IBEW v. Goldman, is best known for ushering in a plaintiff-friendly approach to standing in MBS cases, as we’ve reported here and here).

Because of that decision, Cedarbaum has now finally given the green light to the Detroit pension fund (known as PFRS). “PFRS has alleged an actionable injury,” she wrote. “The fact that PFRS received payments throughout the life of the certificates, and was arguably aware of the risk that there would not be a secondary market for its certificates, is immaterial.”

Plaintiffs counsel Lawrence Kolker of Wolf Haldenstein praised the ruling in an interview, telling us he hopes the case is now through the pleading stage after four years of briefing.

Goldman counsel, Richard Klapper of Sullivan & Cromwell, didn’t immediately return a call seeking comment.