CLI Editor’s Note: This artice is from CLI affiliate publication The Litigation Daily.
Judging by the flurry of lawsuits Bernstein Litowitz Berger & Grossmann unleashed late Wednesday against some of the world’s top banks, mortgage-backed securities litigation has life in it yet.
Nine of the world’s largest institutional investors, including BlackRock Inc. and Pacific Investment Management Company (PIMCO), sued six big banks over their roles as trustees for residential mortgage-backed securities trusts marketed to investors between 2004 and 2008. The trustees—The Bank of New York Mellon Corp, Citibank NA, Deutsche Bank AG, HSBC Holdings plc, Wells Fargo & Co. and U.S. Bank National Association—are accused of breaching their fiduciary duties to investors by “knowing that the pools of loans backing the trusts were filled with defective mortgage loans” and “unreasonably refusing to take any action.”
Bernstein Litowitz filed the six cases in New York Supreme Court in Manhattan. All told, they involve more than 2,200 RMBS trusts—with combined original principal balances of more than $2 trillion—that purportedly lost a combined $250 billion in value. The complaints are styled as derivative actions, with the investors suing on behalf of the individual trusts themselves. (Here’s a representative complaint against U.S. Bank.)
The cases could represent a new front in the MBS wars. In the wake of the financial crisis, investors brought classic securities class actions against banks that packaged and sold mortgage-backed securities, and they also sued to force banks to repurchase (or “put back”) the underlying mortgages. Many of those suits are now time-barred because of a December 2013 appeals court ruling that adopted a defendant-friendly approach to determining when the statute of limitations for put-back claims begins to run. In light of that ruling, more plaintiffs firms may follow Bernstein Litowitz’s lead and sue MBS trustees, rather than issuers, on a breach of fiduciary duty and negligence theories.
It’s understandable that Bernstein Litowitz would want to keep MBS litigation alive. In addition to pursuing put-back cases, the firm has netted more than $5 billion in settlements by bringing shareholder class actions against Wall Street banks, as we reported here.
Bernstein Litowitz partners Blair Nicholas, Timothy DeLange and Benjamin Galdston are spearheading the new raft of derivative suits. The firm declined to comment on Thursday.