Litigation filed by 15 states accusing Standard & Poor's Financial Services LLC of misleading consumers by issuing inflated ratings on structured-finance securities prior to the 2008 recession will soon get underway in New York.
Southern District Judge Jesse Furman (See Profile) set the first hearing in the case for July 11 after the U.S. Judicial Panel on Multidistrict Litigation coordinated the actions earlier this month. The case is In re: Standard & Poor's Rating Agency Litigation, MDL No. 2446.
The multidistrict litigation against S&P and its parent corporation, McGraw-Hill Companies Inc., represents the first time that the MDL panel has coordinated cases brought by sovereign governments. The state attorneys general had argued that the implications of such a precedent were among the reasons to oppose coordination.
"Even though we have never centralized litigation comprised solely of sovereign enforcement actions such as these, centralization is appropriate in light of the significant factual overlap among all actions," the panel wrote in its June 6 order coordinating the cases, many of which were filed on the same day that the U.S. Justice Department announced its own lawsuit against S&P. "The factual overlap among the actions is unsurprising, given that most actions were filed in state court on the same day in February 2013; additionally, the complaints in each action are highly similar, if not identical in some respects."
The cases all assert that S&P's ratings of high-risk mortgage-backed securities were neither impartial nor objective because the agency was obtaining lucrative fees from investment bank clients. That violated various consumer fraud and securities laws, the suits allege.
S&P attorney Floyd Abrams of Cahill Gordon & Reindel did not return a call for comment. In an emailed statement, S&P spokesman Edward Sweeney wrote: "We appreciate that the panel granted our motion to consolidate these 15 state cases before one federal court, concluding that the 'centralization' of the actions 'will serve the convenience of the parties and witnesses and promote the just and efficient conduct of the litigation.'"
The panel coordinated 15 lawsuits brought by attorneys general for the District of Columbia and 14 states, plus two related declaratory actions brought by S&P against the states of South Carolina and Tennessee, in the Southern District of New York. The other 12 states are Arizona, Arkansas, Colorado, Delaware, Idaho, Iowa, Maine, Mississippi, Missouri, North Carolina, Pennsylvania and Washington.
Another two actions against S&P—neither of which was coordinated—were filed by attorneys general in Illinois and Connecticut, who successfully argued to remand their cases to state courts before the MDL panel's decision.
On May 2, U.S. District Judge Matthew Kennelly remanded the Illinois case to Cook County Circuit Court after concluding that S&P's removal motion was untimely and failed to establish federal jurisdiction. The case, originally filed in state court last year, had been removed to federal court on March 6, as was the Connecticut case, which was filed in 2010.
On April 24, U.S. District Judge Stefan Underhill remanded that case to the Connecticut Superior Court.
"As our complaint alleges, we believe S&P took its own financial interests into consideration when rating structured securities and misrepresented that fact to the public," Connecticut Attorney General George Jepsen said at the time of the decision. "We intend to pursue our claim vigorously as allowed under provisions of the Connecticut Unfair Trade Practices Act."
In the Connecticut case, the U.S. Justice Department moved to support remand on the ground that its own case, pending in the U.S. District Court for the Central District of California, involved a true federal issue—specifically, violations of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. S&P has moved to dismiss the Justice Department's case, and a hearing is scheduled for July 8.
In opposing coordination of the remaining litigation, many of the attorneys general argued that the panel should delay ruling until judges in their cases decided pending remand motions.
The panel disagreed. "If the various courts disagree as to the existence of federal question jurisdiction over the cases, delaying our decision may cause the very conflicting results and obligations and undue expenditure of judicial resources that centralization would help to avoid," it ruled.
In opting for New York, the panel sided with S&P and disagreed with states that argued for federal courts in Connecticut or Delaware. The panel refused to separate or remand claims against Moody's, associated with the MDL because Mississippi's suit against S&P also named Moody's Corp. and Moody's Investors Services Inc.
Connecticut also has a suit against Moody's, filed in 2010, which is pending in Connecticut Superior Court. That case is not part of the MDL.
In his first order, Furman requested that both sides update the court regarding the status and legal issues of the cases and recommend lead counsel by June 28.
@|Amanda Bronstad is a reporter for affiliate The National Law Journal. She can be contacted at firstname.lastname@example.org.