A Detroit police car
A Detroit police car ()

After throwing out a putative class action against Goldman Sachs twice before, a federal judge has switched gears on the mortgage securities suit brought by Detroit police and fire retirees and allowed it to proceed.

The Police and Fire Retirement System of the City of Detroit first took to the courts in 2010, alleging that its pension fund had suffered losses due to Goldman Sachs’ false and misleading statements about the health of mortgage loans it backed, many of which were based on inflated and undocumented income and property appraisals.

In PFRS v. Goldman Sachs & Co., the plaintiffs claim the fund lost about $166,000 when the mortgage-backed securities market crashed in 2009. Read the complaint here.

Judge Miriam Cederbaum of U.S. District Court for the Southern District of New York, dismissed that complaint, and an amended one filed later, for not showing how Goldman Sachs’ alleged misrepresentations caused any direct loss to the fund.

In her March 27 opinion, Cederbaum said she changed her mind after a federal appeals court reversed her opinion in a similar case, NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co.

“That opinion has significantly changed the landscape of the pleading standards for loss causation,” Cederbaum wrote in her PFRS opinion.

Attorneys for PFRS are Lawrence Kolker and Michael Liskow, Wolf Haldenstein Adler Freeman & Herz LLP, New York; and Joseph Kohn, Denis Sheils, Willilam Hoese and Barbara Moyer, Kohn, Swift & Graf, PC, Philadelphia.

Attorneys for Goldman Sachs are Richard Klapper, Theodore Edelman, Michael Tomaino, Jr., Matthew Peller and D. Andrew Pietro, Sullivan & Cromwell LLP, New York.

Lisa Hoffman is a contributing writer for The National Law Journal.