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A ruling on Friday from Los Angeles federal district court judge Mariana Pfaelzer in a purported class action by purchasers of mortgage-backed securities was a mixed result for Bank of America. As expected, the judge followed several other recent cases and limited the plaintiffs’ claims to the securities the named plaintiffs had actually purchased from Countrywide, which was bought by BofA in 2008. But Bofa and Countrywide failed in their attempt to throw out the case on statute of limitation grounds. In this amended complaint filed earlier this year, the plaintiffs alleged that Countrywide systemically disregarded its underwriting guidelines, and its offering documents for securities purchased by the class contained numerous material misstatements about the quality of its loans. Led by the Iowa Public Employees’ Retirement System, the plaintiffs sought damages under federal securities law for $352 billion face amount of securities they had purchased in 427 separate offerings from 2005 to 2007. In her written order, Judge Pfaelzer cited rulings in similar cases against Wells Fargo and Lehman Brothers to hold that the plaintiffs could only sue over the securities that the Iowa retirement system and the three other named plaintiffs had purchased, and not over the universe of securities that the class may have purchased. For this reason she dismissed the suit for lack of standing, but allowed the plaintiffs to file an amended complaint to fix this pleading error. According to a press release issued by Bank of America, this ruling will reduce the securities at issue to 22 offerings with a face value of approximately $31 billion. Jurge Pfaelzer rejected arguments advanced by BofA and Countrywide (which are separately represented) that the whole case should be thrown out on statute of limitations grounds. She found that under the Supreme Court’s American Pipe doctrine the statute of limitation had been tolled when an unsuccessful predecessor suit had been filed in state court. The judge acknowledged that this was a thorny issue, and noted: “The Ninth Circuit has not addressed this particular issue, and this Court has devoted substantial time to its consideration. Certainly, the topic deserves lengthy written analysis, which the Court intends to provide at a later date.” The judge also noted in her decision that after the plaintiffs amend their filing, she would address the “many other flaws” in their complaint. We spoke to plaintiffs lead counsel Steven Toll of Cohen Milstein Sellers & Toll. “Preliminarily, it’s still a good result for us,” he said. “She’s given us an opportunity to clarify certain things.” Bank of America is represented by Seth Aronson and Jonathan Rosenberg of O’Melveny & Myers, who referred us to the bank. A bank spokesperson said that the company would not comment beyond its press release. Countrywide is represented by Brian Pastuszenski of Goodwin Proctor, who was not available for comment.

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