Robert Cooper, Jr. (Photo: Diego M. Radzinschi/NLJ.)
A federal judge has unbundled lawsuits filed against ratings agency Standard & Poor’s Financial Services LLC by the attorneys general of 16 states and the District of Columbia, sending them back to the state courts in which they were filed.
The ruling was a win for the states, which allege that S&P’s ratings of mortgage backed securities before the 2008 financial crash were not objective or independent as promised because the agency was obtaining lucrative fees from investment bank clients. S&P, owned by McGraw Hill Financial Inc., previously had removed the cases to federal court, where they were pending before U.S. District Judge Jesse Furman in the Southern District of New York.
On Tuesday, Furman agreed with the attorneys general that their cases, brought under state consumer-protection statutes, should be remanded. He dismissed two related pre-emptive lawsuits brought by S&P against the states of South Carolina and Tennessee.
Furman rejected S&P’s argument that the U.S. Credit Rating Agency Reform Act of 2006 required that the cases remain in federal court. Instead, he ruled that “in order to prove their cases, the states will have to show only that S&P made certain statements and that those statements were deceptive. They do not have to, and indeed may very well have forgone the opportunity to, prove that S&P issued its code of conduct in a way that violated CRARA or any other federal law. Having made that choice, the states cannot now be forced to litigate in a forum they did not choose.”
“At the end of the day, it’s about an individual state’s rights to vindicate the well-established sovereign interest of securing an honest marketplace for its citizens,” said Olha Rybakoff, senior counsel for Tennessee Attorney General Robert Cooper, lead attorney for the states. “To me, that’s at the heart of the case: Making sure that state enforcement officials can take steps in their home courts to protect their citizens from deceptive business practices.”
S&P spokesman Edward Sweeney said in an emailed statement: “As the opinion states clearly, this ruling concerns only whether these matters will be litigated in federal or state court and not the substance of the claims. We are committed to fully defending against these meritless claims upon their remand to the state courts.”
The ruling effectively vacates last year’s order by the U.S. Judicial Panel on Multidistrict Litigation coordinating the cases.
In addition to Tennessee, South Carolina and the District of Columbia, the states with claims against S&P that are affected by the ruling are Arizona, Arkansas, Colorado, Delaware, Idaho, Indiana, Iowa, Maine, Mississippi, Missouri, New Jersey, North Carolina, Pennsylvania and Washington.
Attorneys general in California, Connecticut and Illinois have lawsuits against S&P that have remained in state court.
The Justice Department, which filed a statement of interest before Furman in support of remanding the attorneys general actions, has a separate $5 billion lawsuit against S&P pending in U.S. District Court for the Central District of California. .
Contact Amanda Bronstad at email@example.com.