Anyone who doubts the need for a single justice to uniformly adjudicate the overlapping legal claims asserted in the string of residential mortgage-backed securities cases in Manhattan Supreme Court need only weigh this recent exchange between a judge and litigator.
During a June 20 oral argument, Adam S. Hakki, partner at Shearman & Sterling, arguing on a motion to dismiss on behalf of defendant Countrywide, urged Commercial Justice Jeffrey Oing to consider that a U.S. district judge recently dismissed with prejudice a federal suit with similar claims brought against Wells Fargo by the same plaintiff, Loreley Financing.
“I have enough problems with my state side. I have no need to look across the street,” Oing told Hakki, to which the attorney responded, “We have a split at this courthouse.”
“A split?” Oing responded. “More like a divide,” while adding that the First Department “is divided too," according to a transcript from Loreley Financing v. Morgan Stanley, 653316/2012.
It is a concern that has not gone unaddressed – an administrative order in May designated Commercial Justice Marcy Friedman to handle all new RMBS cases seeking judicial intervention to prevent “inconsistent rulings.” (see " Friedman Is Assigned to Hear New RMBS Cases,” New York Law Journal, June 3, 2013).
Oing had reason for his exasperation. “The goal of the Commercial Division is to be consistent and I think all of the judges are going to look at other judges’ decisions,” Mark S. Arisohn, partner at Labaton Sucharow, said in an interview with CLI.
As of May 23, the date of that order, Friedman has since been assigned 27 new RMBS cases, according to Office of Court Administration spokesman David Bookstaver.
Based on court filings, attorneys for these cases have demonstrated a propensity to try and convince court officials that the matter actually belongs before a certain judge since it’s related to pending cases on that judge’s docket; these efforts are not always so successful.
Administrative Judge Sherry Klein Heitler declined an interview request on the issue of weighing such requests.
The effort of writing letters to the court to angle for specific judges is certainly not new. In the context of RMBS litigation, however, it points to a growing awareness among litigators as to which trial-level judges are more likely to rule in favor of plaintiff investors versus defendant banks or other financial institutions.
For example, in Ambac Assurance Corp. v. Nomura Credit & Capital, 651359-2013, defendant firm Orrick, Herrington & Sutcliffe attached a rider to an RJI arguing why it felt the case should be assigned to Commercial Justice O. Peter Sherwood.
The attachment specifically notes not only that the Ambac action was filed on April 15 – before the May 23 administrative order – but that, like seven other pending cases involving Nomura Credit & Capital before Sherwood, the Ambac action involves a mortgage loan purchase agreement featuring “substantively identical sole remedy provision that limits the available remedies” to the cure or repurchase of defective loans.
On May 10, Orrick scored a big win on behalf of its client when Sherwood, in Nomura Asset Acceptance Alternative Loan Trust v. Nomura Credit & Capital, 653541/2011, dismissed a breach of contract claim, holding that the statute of limitations period had expired.
“Given Justice Sherwood’s familiarity with the sole remedy provisions at issue as a result of his having presided over all of the Related Cases, assigning Ambac to Justice Sherwood will conserve significant and judicial resources,” Orrick’s June 4 letter to the court stated. “It will also avoid the risk of inconsistent rulings from this Court regarding the enforcement of sole remedy clauses.”
Peter W. Tomlinson, partner at Patterson Belknap Webb & Tyler, representing the Ambac plaintiff, responded in a letter to Heitler, “there is no reason to deviate from the Court’s well-established policy of assigning all RMBS cases to Justice Friedman, and for all of the foregoing reasons, we respectfully request that Your Honor reassign the case to Justice Friedman.”
The case is still before Friedman.
Similarly, in a May 23 letter, Labaton Sucharow, representing the plaintiff, tried to persuade court administration to assign Sealink Funding Limited v. The Goldman Sachs Group, 658210/2012, to Justice Eileen Bransten by presenting a similar related-case argument.
“Sealink respectfully submits that given the substantial similarities of the operative facts and commonality of legal issues, judicial economy would be served by relating this action to the Sealink Actions,” Labaton Sucharow partner David J. Goldsmith wrote to Heitler, pointing out such common issues as standing and foreign statutes of limitations.
In a reply letter to the court, Sullivan & Cromwell partner Richard H. Klapper, on behalf of defendant Goldman Sachs, said the plaintiff firm’s assertion of commonalities was “incorrect,” while suggesting his own idea of an appropriate judge in this instance.
“Goldman Sachs respectfully submits that judicial economy and the interests of the parties would be better served by having this Action remain with Justice Friedman in accordance with the Court’s policy regarding assignment of RMBS cases,” Klapper wrote. “Alternatively, if the Action is to be reassigned for any reason, then Goldman Sachs requests that the Action be assigned to Justice Ramos or randomly assigned in accordance with the Court’s procedures regarding the commencement of cases.”
In support of his position, Klapper pointed out that the grounds for dismissal in this matter are “substantially similar” to defense arguments presented in pending motions in Phoenix Light SF Limited v. J.P. Morgan Securities, 651755/2012 and Royal Park Investments SA/NV v. Merrill Lynch, Pierce, Fenner & Smith, 652607/2012, cases both before Ramos.
Nevertheless, Sealink v. Goldman Sachs remains assigned to Friedman.
Many attorneys contacted were reluctant to publicly express a viewpoint on any perceived divide among the Commercial Division bench when it comes to RMBS rulings.
Others acknowledge a slowly emerging pattern as more decisions begin to trickle in.
“Other than the unique particularities of statute of limitations issues, the decisions are coming out generally in favor of plaintiffs upholding fraud claims," Arisohn, of Labaton Sucharow, said.
Whatever the trend proves to be moving forward, the slowly-building body of case law surrounding RMBS cases will only place more of a spotlight on the Commercial Division in the months to come, according to Michael S. Shuster of boutique firm Holwell Shuster & Goldberg, which handles about a dozen such cases in state court.
“This will be somewhat reflective of how the Commercial Division can and will handle high-dollar cases all pertaining to the same subject matter,” he said.