Standard & Poor’s Financial Services LLC is attempting to coordinate consumer lawsuits filed in state courts by attorneys general in 17 states before a single federal judge.
The ratings agency and its parent corporation, McGraw-Hill Cos. Inc., are seeking to coordinate the litigation for pretrial purposes in federal multidistrict litigation.
The states have sued the ratings agency for issuing inflated ratings on high-risk, mortgage-backed securities just before the financial crisis in exchange for lucrative fees from investment bank clients. The states have opposed the coordination, with at least one calling the tactic "unprecedented."
On Wednesday, the U.S. Judicial Panel on Multidistrict Litigation issued an order scheduling the matter for discussion during its May 30 session in Louisville, Ky.
Most of the cases were filed on Feb. 5 in conjunction with the U.S. Justice Department, which filed its own suit against S&P in federal court in Los Angeles. S&P plans to respond to the federal suit on April 22.
On March 6, S&P removed most of the state actions to federal courts, arguing that its ratings are protected by the First Amendment and the U.S. Credit Rating Agency Reform Act of 2006.
Before the panel, S&P has argued that the attorneys general have made the same legal arguments and are working in conjunction with one another — both good reasons, it said, to coordinate cases in the Southern District of New York, near the ratings agency’s headquarters.
"Taken as a whole, the actions represent a concerted effort to supplant, if not undermine, a detailed, comprehensive, and carefully balanced federal scheme through patchwork and inevitably conflicting rulings across the country," S&P attorney Floyd Abrams, of New York’s Cahill Gordon & Reindel, wrote in a March 8 motion.
"These nominally separate actions — the vast majority of which were filed on the same day and touted as the result of a ‘coordinated’ effort at a joint press conference held by several of the Attorneys General to announce their filing — are, in effect, a single hindsight-infused attempt by the states to lay blame with S&P for failing to predict the financial crisis and they should be treated collectively."
Abrams did not return a call.
In S&P’s motion, Abrams wrote that representatives of several of the states went to Washington, D.C., in early January to discuss coordinating their cases. The attorneys general also have managed collecting documents together, he wrote.
"Not only is each of the State Actions brought under the same basic theory but the basic allegations themselves overlap among the actions, often word-for-word," he wrote.
"For example, a comparison of the allegations across each of the State Actions for which consolidation is sought reveals over 100 allegations that are found in substantially similar, if not identical, form in more than three-fourths of the complaints," he wrote.
The attorneys general have fired back, disputing any similarities. They noted that each alleges violations of the often differing consumer laws in their respective states. Because most have pending motions to remand their cases to state courts, they argued, the panel should hold off on deciding about coordination until that jurisdictional dispute is resolved.
"S&P has not identified any case in which the Panel has created an MDL under such circumstances, particularly where, as here, defendants are represented by the same national counsel in all cases and plaintiffs are government officials who have demonstrated their ability to work together efficiently," wrote special Assistant Attorney General George Neville of Mississippi in an April 2 filing opposing coordination.
Colorado Assistant Attorney General Andrew McCallin wrote on April 2, "S&P seeks to remove a state sovereign action and place it in a distant federal court."
In a reply on Tuesday, S&P acknowledged that "a series of cases brought exclusively by state attorneys general as plaintiffs may be unusual," but that no case prevented the ratings agency from moving for coordination.
Should the panel coordinate the cases, the states have moved to do so in federal courts in Connecticut, where the first case against S&P was filed in 2010, or Delaware.
The 17 states are Arizona, Arkansas, Colorado, Connecticut, Delaware, Idaho, Illinois, Iowa, Maine, Mississippi, Missouri, North Carolina, Pennsylvania, South Carolina, Tennessee, Washington, D.C., and the state of Washington. •