FHFA V Banks Attachment 1

13-
United States Court of Appeals

for the
Second Circuit

IN RE FHFA COORDINATED SECURITIES LITIGATION
_______________________________
PETITION FOR A WRIT OF MANDAMUS RELATING TO DECISIONS OF
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT
OF NEW YORK NOS. 11 CIV. 5201, 11 CIV. 6188, 11 CIV. 6189, 11 CIV. 6190,
11 CIV. 6192, 11 CIV. 6193, 11 CIV. 6195, 11 CIV. 6196, 11 CIV. 6198, 11 CIV. 6200,
11 CIV. 6201, 11 CIV. 6202, 11 CIV. 6203, 11 CIV. 6739, 11 CIV. 7010
(HONORABLE DENISE L. COTE)

APPENDIX TO JOINT PETITION FOR WRIT OF MANDAMUS
Volume 1 of 8 (Pages A-1 to A-295)

SKADDEN, ARPS, SLATE, MEAGHER
& FLOM LLP
Four Times Square
New York, New York 10036
(212) 735-3000

Attorneys for Petitioners UBS
Americas Inc., UBS Real Estate
Securities Inc., UBS Securities LLC,
Mortgage Asset Securitization
Transactions, Inc., David Martin,
Per Dyrvik, Hugh Corcoran and
Peter Slagowitz

SULLIVAN & CROMWELL LLP
125 Broad Street
(212) 558-4000

Attorneys for Petitioners JPMorgan Chase
& Co., JPMorgan Chase Bank, N.A., J.P.
Morgan Mortgage Acquisition Corporation,
J.P. Morgan Securities LLC, J.P. Morgan
Acceptance Corporation I, Bear Stearns &
Co., Inc., EMC Mortgage LLC, Structured
Asset Mortgage Investments II Inc., Bear
Stearns Asset Backed Securities I LLC,
WaMu Asset Acceptance Corporation,
WaMu Capital Corporation, Washington
Mutual Mortgage Securities Corporation,
Long Beach Securities Corporation and
certain of the Individual Defendants

(For Continuation of Appearances See Inside Cover)

Case: 13-1122 Document: 2 Page: 1 03/26/2013 889983 308

MAYER BROWN LLP
1675 Broadway
(212) 506-2500

Attorneys for Petitioners HSBC North
America Holdings Inc., HSBC USA Inc.,
HSBC Markets (USA) Inc., HSBC Bank
USA, N.A. and HSI Asset Securitization
Corporation

SIMPSON THACHER & BARTLETT LLP
425 Lexington Avenue
(212) 455-2000

Attorneys for Petitioners Deutsche Bank
AG, Taunus Corporation, Deutsche Bank
Securities Inc., DB Structured Products,
Inc., Ace Securities Corp. and Mortgage
IT Securities Corp.

WILLIAMS & CONNOLLY LLP
725 Twelfth Street, N.W.
Washington, DC 20005
(202) 434-5000

Attorneys for Petitioners Bank of
America Corporation, Bank of America,
N.A., Asset Backed Funding Corp. and
Banc of America Funding Corp.

125 Broad Street
(212) 558-4000

Attorneys for Petitioners Barclays
Capital Inc., Barclays Bank PLC,
Securitized Asset Backed Receivables
LLC, Paul Menefee, John Carroll and
Michael Wade

125 Broad Street
(212) 558-4000

1701 Pennsylvania Avenue, N.W.
(202) 956-7500

Attorneys for Petitioners First Horizon
National Corporation, First Tennessee
Bank National Association, FTN
Financial Securities Corporation, First
Horizon Asset Securities, Inc., Gerald
L. Baker, Peter F. Makowiecki, Charles
G. Burkett and Thomas J. Wageman

PAUL, WEISS, RIFKIND, WHARTON
& GARRISON LLP
1285 Avenue of the Americas
New York, New York 10019-6064
(212) 373-3000

Attorneys for Petitioners Citigroup
Inc., Citigroup Mortgage Loan Trust
Inc., Citigroup Global Markets Realty
Corp., Citigroup Global Markets Inc.,
Susan Mills, Randall Costa, Scott
Freidenrich, Richard A. Isenberg,
Mark I. Tsesarsky, Peter Patricola,
Jeffrey Perlowitz and Evelyn
Echevarria

125 Broad Street
(212) 558-4000

Attorneys for Petitioners Goldman, Sachs
& Co, GS Mortgage Securities Corp.,
Goldman Sachs Mortgage Company, The
Goldman Sachs Group, Inc., Goldman
Sachs Real Estate Funding Corp.,
Howard S. Altarescu, Kevin Gasvoda,
Michelle Gill, David J. Rosenblum,
Jonathan S. Sobel, Daniel L. Sparks and
Mark Weiss

125 Broad Street
(212) 558-4000

(202) 956-7500

Attorneys for Petitioners Nomura
Securities International, Inc., Nomura
Holding America Inc., Nomura Asset
Acceptance Corporation, Nomura Home
Equity Loan, Inc., Nomura Credit &
Capital, Inc., David Findlay, John
McCarthy, John P. Graham, Nathan
Gorin and N. Dante LaRocca

CRAVATH, SWAINE & MOORE LLP
Worldwide Plaza
825 Eighth Avenue
(212) 474-1000

Attorneys for Petitioners Credit Suisse
Securities (USA) LLC, Credit Suisse
Holdings (USA), Inc., Credit Suisse
(USA), Inc., DLJ Mortgage Capital,
Inc., Credit Suisse First Boston
Mortgage Securities Corporation,
Asset Backed Securities Corporation,
Credit Suisse First Boston Mortgage
Acceptance Corporation, Andrew A.
Kimura, Jeffrey A. Altabef, Evelyn
Echevarria, Michael A. Marriott,
Zev Kindler, Thomas E. Siegler,
Thomas Zingalli, Carlos Onis,
Steven L. Kantor, Joseph M. Donovan,
Juliana Johnson and Greg Richter

(202) 434-5000

Attorneys for Petitioners Merrill Lynch
& Co., Inc., Merrill Lynch Mortgage
Lending, Inc., Merrill Lynch Mortgage
Capital Inc., First Franklin Financial
Corp., Merrill Lynch Mortgage
Investors, Inc., Merrill Lynch
Government Securities, Inc. and
Merrill Lynch, Pierce, Fenner & Smith
Inc.

SKADDEN, ARPS, SLATE, MEAGHER
& FLOM LLP
Four Times Square
(212) 735-3000

Attorneys for Petitioners SG Americas,
Inc., SG Americas Securities Holdings,
LLC, SG Americas Securities, LLC, SG
Mortgage Finance Corp., and SG
Mortgage Securities, LLC, Arnaud Denis,
Abner Figueroa, Tony Tusi and Orlando
Figueroa

MAYER BROWN LLP
1675 Broadway
New York, NY 10019
(212) 506-2500

MAYER BROWN LLP
1999 K Street, N.W.
(202) 263-3000

Attorneys for Petitioners Ally Financial
Inc. and GMAC Mortgage Group, Inc.

(212) 455-2000

Attorneys for Petitioner RBS Securities
Inc.
DAVIS POLK & WARDWELL LLP
(212) 450-4000

Attorneys for Petitioners Morgan
Stanley, Morgan Stanley & Co.
Incorporated (n/k/a Morgan Stanley &
Co. LLC), Morgan Stanley Mortgage
Capital Holdings LLC (successor-in-
interest to Morgan Stanley Mortgage
Capital Inc.), Morgan Stanley ABS
Capital I Inc., Morgan Stanley Capital
I Inc., Saxon Capital, Inc., Saxon
Funding Management LLC, Saxon
Asset Securities Company, Gail P.
McDonnell, Howard Hubler, David R.
Warren and Steven S. Stern

KIRKLAND & ELLIS LLP
(212) 446-4800

KIRKLAND & ELLIS LLP
300 North LaSalle Street
Chicago, Illinois 60654
(312) 862-2000

Attorneys for Petitioner
Ally Securities, LLC

i
TABLE OF CONTENTS
Page
Plaintiff FHFAs Proposal for the Efficient
Administration of the Cases Pursuant to
Paragraph 3 of the District Courts September 16,
2011, Order, dated October 19, 2011 ..................... A-1
Plaintiff FHFAs Proposal for Certain Case
Management Issues, dated J anuary 10, 2012 ......... A-19
Transcript of Proceedings before the Honorable
Denise L. Cote, dated December 2, 2011 .............. A-36
Opinion and Order of the Honorable Denise L.
Cote, dated May 4, 2012 ........................................ A-97
Denise L. Cote, dated May 14, 2012 ..................... A-163
Notice of Motion by Defendants to Certify an
Appeal Pursuant to 28 U.S.C. 1292(b) of
Certain Portions of the District Courts May 4,
2012, Order Denying in part the Motion to
Dismiss the Second Amended Complaint, dated
May 23, 2012 ......................................................... A-223
Declaration of J ay B. Kasner, for Defendants, in
Support of Motion to Certify an Appeal Pursuant
to 28 U.S.C. 1292(b), of Certain Portions of the
District Courts May 4, 2012, Order Denying in
part the Motion to Dismiss the Second Amended
Complaint, dated May 23, 2012 ............................ A-226
Exhibit A to Kasner Declaration -
Ross Todd, Quinn Emanuel and FHFA Clear Big
Hurdle in Huge MBS Case, The American
Lawyer, May 4, 2012 ............................................. A-228

Page
ii
Defendants Submission Regarding Certain Matters
Identified in the J une 6, 2012, Rule(f) J oint
Report, dated J une 6, 2012 .................................... A-230
Exhibit 1 to Submission -
Plaintiffs Responses to Defendants First Set of
Interrogatories, dated May 31, 2012 ...................... A-251
Exhibit 2 to Submission -
List of Modifications for Tranches 2, 3 and 4 ....... A-269
Defendants Supplemental Submission Regarding
Certain Developments Bearing on the J une 6,
2012, Rule 26(f) J oint Report, dated
J une 12, 2012 ......................................................... A-272
Opinion and Order of the Honorable Denise L.
Cote, dated J une 19, 2012 ...................................... A-282
Denise L. Cote, dated J une 13, 2012 ..................... A-296
Letter from J ay B. Kasner to Denise L. Cote, dated
J uly 2, 2012 ............................................................ A-353
Letter from J ay B. Kasner to Denise L. Cote, dated
J uly 17, 2012 .......................................................... A-355
Denise L. Cote, dated J uly 19, 2012 ...................... A-357
Denise L. Cote, dated J uly 31, 2012 ...................... A-391
Defendants Amended Submission for J uly 31,
2012, Hearing, filed August 7, 2012 ..................... A-515
Attachment to Letter -
Proposed Order of the Honorable Denise L. Cote
with attachments thereto ........................................ A-527

Page
iii
Order of the Honorable Denise L. Cote, dated
August 28, 2012 ..................................................... A-681
Letter from Edward J . Bennett to the Honorable
Dense L. Cote, dated August 14, 2012 ................. A-683
Attachment to Letter -
Proposed Memorandum of Law in Support of the
Merrill Lynch Corporate Defendants Motion for
Reconsideration of the J uly 31, 2012, Order
Regarding Discovery of Documents within the
GSEs Whole Loan Units Evidencing the GSEs
Relationships with Originators, dated August 14,
2012, with attachments thereto .............................. A-686
Denise L. Cote, dated October 26, 2012 ................ A-754
Letter from Philippe Z. Selendy to the Honorable
Denise L. Cote, dated
November 5, 2012 ................................................. A-757
Transcript of Proceedings held before the
Honorable Denise L. Cote, dated
November 6, 2012 ................................................. A-768
Order of the Honorable Denise L. Cote, dated
November 9, 2012 ................................................. A-898
Letter from Steven M. Cady to the Honorable
Denise L. Cote, filed November 9, 2012 ............... A-900
November 14, 2012 ............................................... A-902
Transcript of Proceedings held before the
November 15, 2012 ............................................... A-906

Page
iv
Letter from Penny Shane to the Honorable Denise
L. Cote, filed November 16, 2012 ......................... A-1013
Attached to Letter
(i) Motion to Compel, by Defendants, dated
November 5, 2012 ................................................. A-1015
(ii) Memorandum of Law in Support of Motion
to Compel, dated November 5, 2012 (Redacted) .. A-1022
(iii) Declaration of Penny Shane, for Defendants,
in Support of Motion to Compel, dated
November 5, 2012 (Redacted) ............................... A-1059
Denise L. Cote, dated November 19, 2012
(Reproduced at pp. A-2073 - A-2105)
Letter from Robert A. Fumerton to the Honorable
November 19, 2012, with Exhibit A ...................... A-1081
Revised Pretrial Scheduling Order, dated
November 26, 2012 ............................................... A-1088
Order Regarding Deposition Protocol, dated
November 27, 2012 ............................................... A-1092
Denise L. Cote, dated December 12, 2012, with
Exhibits A-B .......................................................... A-1110
Denise L. Cote, dated December 13, 2012 ............ A-1121
Redacted Letter from Penny Shane to the Honorable

Page
v
Corrected Order Regarding Deposition Protocol,
dated December 15, 2012 ...................................... A-1244
Redacted Letter from Edward J . Bennett to the
December 7, 2012 .................................................. A-1376
Letter from Richard H. Klapper to the Honorable
Exhibit A to Letter -
Letter from B. Harsh to A. Abensohn, dated
December 3, 2012 .................................................. A-1384
Exhibit B to Letter -
[Redacted] .............................................................. A-1390
Exhibit C to Letter -
All Clayton Trending Reports, 1
st
Quarter 2006 -
2
nd
Quarter ............................................................. A-1391
Exhibit D to Letter -
Excerpts of Report of Special Litigation
Committee of the Federal Home Loan Mortgage
Corporation, dated February 25, 2011 ................... A-1403

Page
vi
Exhibit E to Letter -
Excerpts of Memorandum of Law in Support of
Fannie Maes Motion to Dismiss Claims Under
the Securities Exchange Act of 1934, dated
September 19, 2009 ............................................... A-1413
Exhibit F to Letter -
Excerpts of Memorandum of Law in Support of
Freddie Macs Motion to Dismiss the Amended
Complaint with Prejudice, dated
September 23, 2009 ............................................... A-1425
Exhibit G to Letter -
Letter from Richard A. Schirtzer to Bradley
Harsch, dated December 7, 2012 ........................... A-1447
Exhibit H to Letter -
Letter from Bradley Harsch to Richard A.
Schirtzer, dated December 10, 2012 ...................... A-1451
Exhibit A to Letter -
Chart comparing Characteristics and Guidelines .. A-1456
Exhibit B to Letter -
Quote from Bethany McLean and J oe Nocera, All
the Devils are Here: The Hidden History of the
Financial Crisis ..................................................... A-1476
Exhibit C to Letter -
The Financial Crisis Inquiry Report, dated
J anuary 2011 .......................................................... A-1478

Page
vii
Exhibit D to Letter -
Excerpt of Complaint, dated April 18, 2011, in
the matter of U.S. Securities and Exchange
Commission v. Syron, No. 11 civ 9201 .................. A-1493
Memo-Endorsed Letter of the Honorable Denise L.
Cote, dated J anuary 2, 2013 ................................... A-1501
Letter from Richard A. Schirtzer to the Honorable
J anuary 10, 2013, with Exhibit A .......................... A-1505
Denise L. Cote, dated February 4, 2013, with
Attachments thereto ............................................... A-1515
Attachments thereto ............................................... A-1580
Letter from Robert J . Kopecky to the Honorable
Denise L. Cote, dated February 5, 2013 ................ A-1616
Redacted Letter from Richard H. Klapper to the
Honorable Denise L. Cote, dated February 13,
2013 with Attachments thereto .............................. A-1736
Exhibits A-I ............................................................ A-1776

Page
viii
Attached Proposed Order, dated
February _, 2013 and Exhibit A ............................. A-1788
Declaration of Robert A. Fumerton, for Defendants,
in Support of Request for Information Regarding
Plaintiffs Retention of Freddie Mac Emails,
dated February 13, 2013 ........................................ A-1796
Exhibit A to Fumerton Declaration -
Transcript, 30(b)(6) Deposition of Richard
Kehoe, dated J uly 20, 2012 (EXCERPTS) ............ A-1803
Exhibit B to Fumerton Declaration -
Declaration of Richard Kehoe, Case No.1:11-cv-
383 (LMB/J FA), dated November 22, 2011 .......... A-1819
Exhibit C to Fumerton Declaration -
Declaration of Richard Kehoe, Case No. 1:11-cv-
383 (LMB/J FA), dated October 12, 2011 .............. A-1823
Exhibit D to Fumerton Declaration -
List of Proposed Freddie Mac Custodians ............. A-1827
Exhibit E to Fumerton Declaration -
Transcript, November 6, 2012, Conference
Before the District Court (EXCERPTS) ................ A-1830
Exhibit F to Fumerton Declaration -
Letter from Andrew Dunlap to Robert A.
Fumerton, dated J anuary 25, 2013 ......................... A-1835
Denise L. Cote, dated February 14, 2013 .............. A-1838
February 15, 2013 .................................................. A-1943

Page
ix
Denise L. Cote, dated February 21, 2013 .............. A-1946
Amended Order Regarding Deposition Protocol,
filed February 25, 2013 .......................................... A-2042
Cote, dated March 8, 2013 ..................................... A-2061
Cote, dated March 19, 2013 ................................... A-2063
Redacted Memo-Endorsed Letter of the Honorable
Denise L. Cote, filed March 22, 2013 ................... A-2071
Denise L. Cote, dated November 19, 2012 ............ A-2073
1
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
FEDERAL HOUSING FINANCE AGENCY,
AS CONSERVATOR FOR THE FEDERAL
NATIONAL MORTGAGE ASSOCIATION
AND THE FEDERAL HOME LOAN
MORTGAGE CORPORATION,
Plaintiff,
-against-
HSBC NORTH AMERICA HOLDINGS INC.
et al.,
Defendants.
Case No. 1:11-cv-06189-LAK
PLAINTIFF FHFAs PROPOSAL
FOR THE EFFICIENT
ADMINISTRATION OF THE CASES
PURSUANT TO PARAGRAPH 3 OF
THE COURTS SEPTEMBER 16,
2011 ORDER
Other Cases Brought By This Plaintiff:
11 Civ. 5201 (VM)
11 Civ. 6188 (DLC)
11 Civ. 6190 (DAB)
11 Civ. 6192 (LAK)
11 Civ. 6193 (PGG)
11 Civ. 6195 (JFK)
11 Civ. 6196 (PAC)
11 Civ. 6198 (DAB)
11 Civ. 6200 (RPP)
11 Civ. 6201 (JFK)
11 Civ. 6202 (DLC)
11 Civ. 6203 (JSR)
11 Civ. 6739 (PKC)
11 Civ. 7010 (RJH)
11 Civ. 7048 (VM)
Pursuant to this Courts Orders dated September 16, September 21, October 11, October
17, and October 18, 2011, Plaintiff Federal Housing Finance Agency (FHFA), as Conservator
for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan
Mortgage Corporation (Freddie Mac), respectfully submits this report and proposal for the
efficient administration of the above-captioned cases (the Cases). As set forth below, while
Case 1:11-cv-05201-DLC Document 17 Filed 10/19/11 Page 1 of 18
A-1
D
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there are fundamental differences between the Cases precluding consolidation, coordination may
be possible in certain areas to resolve truly common questions and to reduce burdens in
discovery.
BACKGROUND
A. The Pending Cases
In its capacity as Conservator for Fannie Mae and Freddie Mac (together, the GSEs),
FHFA, through two sets of counsel, filed 13 complaints in the Southern District of New York
and four complaints in New York State Court against over two hundred unique defendants based
on transactions in approximately five hundred separate securitizations.
1
These actions were
brought pursuant to congressional authority under the Housing and Economic Recovery Act of
2008 for the benefit of American taxpayers to redress Defendants misconduct. Specifically, the
complaints allege violations of the Securities Act of 1933, the Blue Sky laws of the District of
Columbia and/or Virginia, and one or more common law torts, including fraud, aiding and
abetting fraud, and negligent misrepresentation.
FHFA filed the first of these actions, against several entities and individuals affiliated
with UBS, on July 27, 2011. See FHFA v. UBS Americas Inc., Index No. 11 Civ. 5201 (VM),
Dkt. 1. The remaining cases were filed in State and Federal Court on September 2, 2011. In
each Case, FHFA asserts causes of action arising out of numerous misrepresentations, by
different Defendant banks and affiliated entities and individuals, concerning the quality of the
1
All four of the State-filed actions have been removed, and FHFA will seek remand of
each. Three of those cases, FHFA v. Morgan Stanley, Index No. 11 Civ. 6739 (PKC), FHFA v.
Ally Financial Inc., Index No. 11 Civ. 7010 (RJH), and FHFA v. General Electric Co., Index No.
11 Civ. 7048 (VM), are included within the Courts September 16 and related Orders; FHFA v.
Countrywide, Index No. 11 Civ. 6916 (JSR), is not. In addition, FHFA has an action pending
against several entities and individuals affiliated with the Royal Bank of Scotland, in the District
of Connecticut. See FHFA v. Royal Bank of Scotland Group PLC, Index No. 11 Civ. 1383
(AWT) (D. Conn.).
A-2
D
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mortgage loans that those Defendants selected as the collateral for residential mortgage-backed
securities (RMBS) that they offered and sold to the GSEs. Each complaint is organized around
a lead defendant (and its affiliates), and asserts causes of action with respect to securitizations
sponsored, offered and/or sold by those defendants.
2
In addition, each complaint names as
defendants unaffiliated parties who are liable for their roles in the offer and sale of such
securities, including underwriters, signatories to the registration statements, and those who
controlled other defendants. As detailed in each complaint, FHFA has confirmed Defendants
misrepresentations, which have already been well documented through Congressional
investigations and media accounts, by undertaking extensive loan-level analysis of the mortgage
loans collateralizing the securities that are the subject of each Case.
While the Cases all involve misrepresentations by Defendants in connection with the sale
of RMBS certificates, resolution of FHFAs claims depends on considerations unique to each
Case. Among other things, each Case involves: (i) different securitizations, (ii) collateralized by
different mortgage loans, (iii) underwritten by different loan originators (or a different
combination of loan originators), (iv) according to different underwriting guidelines,
(v) marketed and sold by different Defendants, (vi) on different dates, (vii) by means of different
registration statements and prospectus supplements, (viii) signed by different directors and
officers, and (ix) containing different representations. Moreover, six of the Cases assert causes
of action for fraud and aiding and abetting fraud, and thus include allegations addressed
specifically to the scienter of particular Defendants named in those actions, and one of the Cases
includes a cause of action for successor liability.
2
Although a small number of Defendants are named in more than one complaint (and
always because they served a different role with respect to the subject securitizations), the
substantial majority are named in only one action.
A-3
D
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B. The Courts Orders
The Court issued an Order on September 16, 2011, directing the parties to meet and
confer for the purposes of presenting a joint report identifying similarities and differences among
and between the Cases, and a joint report or, if not possible, separate reports proposing
means by which the cases can most efficiently be handled. FHFA initiated the meet and
confer process with a written request to Defendants on September 26, 2011, and the parties have
since held two meetings the first on October 11, at the offices of Paul, Weiss, Rifkind, Wharton
& Garrison LLP, and the second on October 14, 2011, at the offices of Sullivan & Cromwell
LLP. At FHFAs suggestion, the parties exchanged written proposals on October 7, 2011, with
follow-up correspondence on October 13, 2011. Exs. AD. Through this process, the parties
have prepared and submitted a joint report identifying differences and similarities between the
Cases, but have not been able to agree on a proposed protocol for the management of these Cases
going forward.
Defendants maintain that there are several common issues suitable for disposition
across Cases in a joint motion to dismiss on behalf of all Defendants. Defendants initially
described such purported common issues in the broadest possible terms (e.g., statute of
limitations) during the meeting on October 11, but declined to discuss the issues or explain the
basis for Defendants contention that the issues could be resolved without consideration of the
specific facts and allegations underlying each action. Counsel for FHFA therefore requested at
that meeting that Defendants make a further submission identifying the so-called common
issues so that FHFA could assess Defendants claim that those issues would be suitable for joint
A-4
D
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resolution.
3
As set forth in section I.A., infra, Defendants subsequent submission, on October
13, actually reveals that those matters are fact-specific and can only be resolved through separate
analysis in each Case.
PROPOSAL
No party has claimed that the Cases qualify as related, under Rule 13(d) for the
Division of Business Among District Judges, Southern District, and full consolidation of these
matters is unwarranted under that Rule. Under similar circumstances, in fact, Judge Batts
rejected an application to consolidate five RMBS complaints, which, like the complaints here,
were filed by the same plaintiffs against different defendants with respect to different
securitizations. See Allstate Bank v. JP Morgan Chase Bank, NA, Index No. 11 Civ. 1869
(DAB) (S.D.N.Y. Apr. 14, 2011) (Ex. E). As Judge Batts concluded, the actions were not
sufficiently related to warrant their transfer and coordinated treatment. Id.
For the same reason that these actions are not appropriate for full consolidation, broad
coordination between and among the Cases would not be appropriate or efficient here. Indeed,
each complaint addresses different securitizations of different collateral pools sponsored or
deposited at different times by different lead defendants. As a result, each Case presents unique
issues pertaining to distinct sets of securitizations, requiring the application of law to the
particular allegations and surrounding facts, and cannot be generally addressed or resolved on an
undifferentiated basis across actions. FHFA therefore proposes that the Cases be coordinated on
a more limited basis, and only to the extent that such coordination would actually achieve
3
During the same session, Defendants requested that FHFA provide a letter describing
its anticipated remand applications. Although the Courts Orders do not address remand, and
despite the fact that two of the State-filed cases were not covered by the Courts Orders, FHFA
accommodated Defendants request and submitted a letter outlining FHFAs intentions on
remand. Ex. C.
A-5
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increased efficiencies for the parties and the Court, rather than introducing needless complexity,
delays, and inefficiency. Specifically, FHFA proposes the following:
i) That Defendants be required to enter all motions to dismiss and related briefing, in
each Case, on the schedule that the parties have agreed to previously motions and
opening briefs on December 2, 2011, oppositions or amended pleadings on March 2,
2012, and reply briefs on April 16, 2012.
ii) That only in the event the Court, based on the parties submissions today, identifies
specific issues suitable for consideration across Cases, Defendants may present such
issues in a common brief submitted on the same agreed-upon schedule indicated
above; and
iii) That the Court set uniform standards for discovery across the Cases, including
provisions that no individual witness be deposed more than once, and that document
discovery relevant to multiple Cases or parties be undertaken pursuant to a uniform
set of requests and search terms.
For the reasons that follow, the above protocol would maximize the efficient administration of
the Cases by achieving coordination where possible, while ensuring separate consideration and
resolution of those issues that require analysis of the particular facts and allegations in each Case.
DISCUSSION
I. MOTIONS TO DISMISS
A. Distinct Issues Predominate And Can Most Efficiently Be
Resolved Through Separate Motions Submitted On A Case-
By-Case Basis
The common issues that Defendants have thus far identified are not suitable for
disposition pursuant to joint briefing across actions, and it would be most efficient for those
matters to be presented for resolution on a case-by-case basis. Among other things, each Case
involves different defendants, who marketed and sold different securitizations, pursuant to
different registration statements and prospectus supplements, containing different representations
and warranties, concerning mortgage loans that were originated by different entities in different
economic circumstances according to different underwriting guidelines. As set forth below, in
A-6
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light of these differences, among others, the common issues that Defendants identified in their
written exchange with FHFA are actually different in each case and should be considered
separately in each Case. See Ex. D.
1. Statute Of Limitations
Defendants propose joint briefing as to the applicable statute of
limitations and/or statute of repose for each claim, including the
applicability of 12 U.S.C. 4617(b)(12) to the various limitations and
repose periods, such as those found in 15 U.S.C. 77m, with the relevant
time periods generally keyed off common or knowable dates, such as the
date of the offerings, publicly available admissions made by Fannie and
Freddie, other publicly available information that placed Fannie and
Freddie on notice of any potential claims, and the date of
conservatorship.
Defendants proposed joint briefing of statutes of limitations and/or repose is
unworkable. Most obviously the date of the offerings in each Case is different. Likewise,
even if it were proper for Defendants to rely on publicly available information in a motion on
the pleadings, any such information would presumably have different implications across
Cases, depending on the timing of the subject transactions and the identity of the named
Defendants. And any argument by Defendants that the GSEs were on notice of particular
claims would necessarily depend on a case-by-case analysis as to when the GSEs learned that the
representations by particular Defendants concerning particular securitizations were false.
Finally, any effort to address the relevant time periods across actions is further complicated by
the fact that there were tolling agreements, covering different date ranges, between different
parties, in some but not all of the Cases.
A-7
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2. Standing And Capacity Of FHFA To Assert Claims
Defendants propose joint briefing as to the standing and capacity of
FHFA to assert claims, despite issues including: (a) the continued validity
of the appointment of the Acting Director; and (b) whether FHFA suffered
cognizable injury as to all or some of the certificates on which it sues.
While the validity of the appointment of the Acting Director may be common across
cases (though it is unclear from Defendants submission why this is pertinent), issues pertaining
to the injuries sustained by the GSEs plainly are not. Indeed, Defendants own formulation
i.e., whether FHFA suffered cognizable injury as to all or some of the certificates on which it
sues demonstrates that this issue cannot be resolved on the same basis across certificates and
across Cases. The losses on the certificates will necessarily vary on a certificate-by-certificate
basis, depending on the extent of Defendants misrepresentations as well as the degree of
subordination, the degree of cross-collateralization, the present value of that collateral, and other
factors.
3. Falsity And Materiality Of Defendants Misrepresentations
Defendants propose joint briefing as to the alleged falsity and materiality
of any actionable misrepresentations, including whether the complaints
plausibly allege any misrepresentation as to which Plaintiff lacked
knowledge and that was material, i.e., that disclosure would have been
viewed as significantly altering the total mix of available information,
such as for example: (a) whether any deviations from underwriting
standards were known by Defendants, as required by Item 1111 of SEC
Regulation AB; (b) whether the allegations that concern loan-to-value
ratios, credit ratings, or owner occupancy representations were not
actionable misrepresentations of fact because they are based on subjective
opinions or expressions of intent; and (c) whether the alleged statements
were otherwise materially misleading.
Joint briefing across the Cases as to the alleged falsity and materiality of any actionable
misrepresentations is impracticable. It is black letter law that materiality is a fact-specific
question. Basic Inc. v. Levinson, 485 U.S. 224, 240, 108 S. Ct. 978, 988 (1988) (In order to
determine whether a misleading statement is material, courts must engage in a fact-specific
A-8
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9
inquiry.).
4
Whether and how particular misrepresentations by particular Defendants were
material will depend on the nature and extent of those misrepresentations, which vary from one
securitization to the next (and from one Case to the next), and the extent (if at all) to which the
Defendants in each Case might establish that the GSEs were already aware that the true
characteristics of the collateral underlying each securitization were different than Defendants had
represented.
4. Loss Causation
Defendants propose joint briefing as to alleged loss causation issues,
including for example whether the complaints allege enough factual
matter plausibly to suggest that any decline in performance was caused by
the purported misrepresentations regarding underwriting guidelines or the
relevant loans.
Loss causation is a heavily fact-specific affirmative defense, applicable only to certain of
the causes of action, and one that will vary across the Cases. Consideration of the defense of loss
causation is not appropriate in a motion to dismiss these Cases, not least because resolution of
issues of causation will involve consideration of the extent of the material misrepresentations by
each particular Defendant and the extent to which Defendants might establish (if at all) that some
4
A number of Defendants purportedly common issues are not suitable for resolution
on a motion to dismiss at all. See, e.g., Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161, 169
(2d Cir. 2005) (Our recent decisions reinforce the fact-specific nature of the limitations defense,
particularly where the claim is foreclosed by inquiry notice.); id. at 174 (Loss causation is a
fact-based inquiry and the degree of difficulty in pleading will be affected by circumstances .
If the loss was caused by an intervening event, like a general fall in the price of Internet stocks,
the chain of causation is a matter of proof at trial and not to be decided on a Rule 12(b)(6)
motion to dismiss.) (alterations, citations, and internal quotation marks omitted); AIG Global
Sec. Lending Corp. v. Banc of Am. Sec., LLC, 2005 WL 2385854, at *9 n.5 (S.D.N.Y. Sept. 26,
2005) ([T]he issue of whether an investor reasonably relied on a defendants misrepresentations
is a fact-intensive inquiry that cannot be decided on this motion to dismiss.) (citations omitted);
Century Pac., Inc. v. Hilton Hotels Corp., 2004 WL 868211, at *8 (S.D.N.Y. Apr. 21, 2004)
(Courts in this circuit have held that a determination of whether a special relationship exists is
highly fact-specific and generally not susceptible to resolution at the pleadings stage.) (citation
omitted). In any event, as discussed in text, these issues are highly fact specific and not suited
for disposition in a single common motion across Cases.
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10
other factor, aside from their own misrepresentations, impaired the value of the collateral
underlying the particular securitizations at issue in each Case, taking into account factors such as
the quality of the underlying loans, the standards of the particular originators and underwriters,
the specific vintages of the mortgage loans, the type of loans (e.g., prime, Alt-A, subprime), the
type of liens (1st or 2nd lien), the degree of subordination, the degree of cross-collateralization,
and the present value of that collateral. This fact-specific analysis is not conducive to being
resolved through joint briefing across Cases.
5. Reliance And Knowledge
Defendants propose joint briefing as to issues concerning Plaintiffs
assertions of reliance and Plaintiffs and the GSEs knowledge and
sophistication.
Reliance is an element only for the common law causes of action of negligent
misrepresentation and fraud. Determining whether the GSEs justifiably relied on Defendants
misrepresentations will require consideration not only of the specific representations and
disclosures in each set of offering materials, but also (among other things) the history of dealings
between the GSEs and each originator, between the GSEs and each underwriter, and between the
GSEs and each sponsor or depositor. Likewise, any claim by Defendants that the GSEs had
knowledge that particular securitizations were different than represented requires an analysis of
the GSEs supposed knowledge concerning each Defendant and each securitization at the time
they entered into each transaction.
6. Special Relationship For Negligent Misrepresentation
Defendants propose joint briefing as to the existence (or lack) of a special
relationship for negligent misrepresentation claims.
Under the common law of both Virginia and the District of Columbia, the existence of a
special relationship is not generally required to prove negligent misrepresentation or constructive
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11
fraud. To the extent a special relationship is relevant, the determination of whether such a
relationship exists between a particular GSE and a particular Defendant as of the time of a given
transaction is a fact-specific inquiry that must be conducted on a case-by-case and Defendant-by-
Defendant basis. Indeed, in order to determine whether the GSEs had a special relationship with
a particular Defendant, it is of course necessary to examine the GSEs interactions with that
particular Defendant. In addition, a special relationship may be demonstrated on the basis of a
defendants superior knowledge of the underlying facts. These factors will necessarily vary
case-by-case and Defendant-by-Defendant. Alternatively, a duty to disclose accurate
information and to correct half truths may arise on the basis of previously inadequate
disclosures by a defendant. The nature of any past disclosures will necessarily vary across Cases
and Defendants. Resolving such issues in joint briefing across all transactions and all Cases is
impracticable.
7. Controlling Person Liability
Defendants propose joint briefing as to certain elements of control
person liability, including for example whether control person claims
must be dismissed for want of a primary violation, for failure adequately
to allege control over a primary violator and for failure to allege culpable
participation.
The existence of control person liability depends upon the relationship between each
particular Defendant and its affiliated entities, a fact-specific inquiry that necessarily varies from
one Defendant to the next. It is not possible to determine across the board whether FHFAs
controlling person allegations are sufficient. Rather, it is a determination that requires an
analysis of the relationships between the affiliated Defendants named in each individual Case
and the role and involvement of each individual Defendant.
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12
* * *
In sum, the issues that Defendants have identified as common during the parties meet
and confer sessions are actually fact specific and, even assuming they could be appropriately
asserted in a motion to dismiss at all, the analysis of those issues would necessarily vary across
Cases.
5
It would therefore be highly inefficient for Defendants to be permitted to pursue their
so-called common issues in a joint motion to dismiss.
Such consolidation also would be inconsistent with positions that several of the
Defendants have taken previously. When the Federal Home Loan Bank commenced eleven
RMBS actions in Washington State Court against different defendants alleging violations of
Washington State law and sought consolidation, many of the defendants here vigorously opposed
that request. UBS, for instance, noted that it face[d] claims regarding particular securities
offerings, involving specific disclosures and unique mortgage loans, and argued therefore that
[r]eassignment and coordination will not result in any gain in efficiency, since each offering
involves adjudication of particular facts.
6
Fed. Home Loan Bank of Seattle (FHLB) v. UBS
Securities LLC, Index No. 09-2-46350-6 SEA, Response to Plaintiffs Motion to Reassign and
5
Tellingly, despite insisting that their proffered common issues are identical across
Cases, Defendants would not agree to FHFAs proposal that such issues be adjudicated based on
a representative complaint selected by FHFA. The reality is that there are key differences in
each action, and the issues that Defendants have identified can only be adjudicated on a case-by-
case basis.
6
See also FHLB v. Barclays Capital, Inc., Index No. 09-2-46320-4 SEA, Barclayss
Response to Federal Home Loan Bank of Seattles Motion to Reassign and Coordinate, at 2
(Wash. Sup. Ct. Sept. 28, 2010) (Ex. F) (The law does not permit transactionally unrelated
cases to be brought together for litigation advantage. An investor who happens to invest in 11
different stocks of 11 different technology companies bought at 11 different times cant sue them
all together willy-nilly. It cant do so just because the claims involve alleged violations of the
same statute. It cant do so period.). The State Court in Washington initially declined to
consolidate the actions as related, as Judge Batts did in the Allstate Order, but changed that
determination after three of the defendants consented to plaintiffs request. As indicated in text,
none of the parties here claim that the Cases qualify as related under the applicable local rule.
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13
Coordinate Cases, at 1 2 (Wash. Sup. Ct. Sept. 28, 2010) (Ex. G). It is for similar reasons,
among others, that FHFA does not propose consolidation across cases, and asks instead that
Defendants be directed to move separately in each Case with respect to those arguments that are
not actually common across Cases.
7
B. If It Is Determined That Defendants Have Identified One Or More
Truly Common Issues, Defendants Should Be Directed To Present
Such Issues In A Single Joint Motion Submitted With Any Separate
Motions In The Individual Cases
If it is determined that Defendants submission identifies certain truly common issues
suitable for disposition across Cases, FHFA proposes that Defendants be directed to present such
issues, and only such issues, in a single joint motion to dismiss, to be briefed on the same
schedule that the parties have already negotiated and agreed to for the filing of motions in each
individual Casespecifically, motion and opening brief due on December 2, 2011, opposition
brief or amended pleading due on March 2, 2012, and reply brief due on April 16, 2012.
Moreover, any such joint motion should be presented for consideration by the Judges presiding
over all of the Cases (or a panel of those Judges who elect to participate in the resolution of
dispositive motions in their assigned Cases).
8
During the parties meet and confer sessions, Defendants advocated for a different and
unorthodox proposal. They suggested that briefing for their anticipated motions to dismiss in
7
Certain individual defendants have not participated in the meet and confer process.
Thus, the proposal by Defendants is actually a proposal only on behalf of certain defendants,
which is another consideration against its adoption and points to the difficulty of imposing joint
briefing. There is no reason to assume that these other defendants agree with their co-defendants
that so-called common issues are suitable for presentation in a joint motion to dismiss.
8
Defendants suggested during the parties meet and confer sessions that they might
request that a joint motion to dismiss be decided by a single judge. Given that these cases are not
related, FHFA does not see a basis for such a request. Nevertheless, in the event the Judges here
adopt such an approach, Rule 13(d) for the Division of Business Among SDNY Judges provides
useful guidance for assignment of any such motion.
A-13
14
each individual Case not even commence until after a decision on their proposed joint motion.
The delay and prejudice resulting from such a protocol is obvious and extreme. FHFA agreed to
Defendants request that their answer dates be extended in each Case until December 2, 2011 a
generous extension specifically to ensure a reasonable time for Defendants to present all issues
that they plan to pursue as grounds for dismissal, not as a starting point for the first of two stages
of staggered briefing. Under that agreed-upon schedule, which affords Defendants ample time to
formulate motions advancing any and all arguments that they plan to assert as grounds for
dismissal, briefing will be completed by mid-April 2012. If briefing on a second round of
dismissal motions does not begin until after disposition of a joint motion, it is likely that briefing
would not even begin on that second round of motions until well into 2012.
9
This would
seriously impair FHFAs right to pursue its claims, asserted in the public interest, without delay.
II. DISCOVERY
While each Case involves fundamental differences e.g., different parties, different
securitizations, different purchase dates, different transaction documents the parties will likely
seek discovery of similar categories of information with respect to the distinct transactions at
issue in each Case. FHFA believes that this creates opportunities for the formulation of a
discovery protocol, applicable across Cases, which would minimize the burden on individual
witnesses and avoid unnecessary duplication of effort in document production. FHFA proposes
that the Court adopt such a protocol with the following components:
First, for purposes of both e-discovery and discovery of hard copy documents,
Defendants should jointly provide a proposed single set of search terms to be employed by
9
The impact of these delays are exacerbated by the fact that it is Defendants position,
based on their representations in the parties meet and confer sessions, that they are under no
obligation to furnish any discovery until all motions are fully disposed.
A-14
15
FHFA for the purpose of locating and gathering documents for production (with those terms
subject to negotiation between FHFA and Defendants, and, if necessary, Court resolution of any
disputes). Similarly, where feasible, FHFA could propose a single set of search term requests to
Defendants named in multiple FHFA complaints, to be supplemented as necessary based on the
specifics of each complaint.
Second, each individual witness should be deposed at most once, including where such
witness possesses relevant knowledge that bears on more than one Case. For each deposition of
a GSE witness with information relevant to more than one Case, Defendants should select a
lead counsel to question the witness as to matters common to multiple Cases, with remaining
counsel questioning the witness on a targeted basis, and with an appropriate time limitation, on
topics unique to their Cases. FHFA would similarly be limited to a single deposition of any
defense witnesses with relevant information across more than one Case.
Third, Defendants should submit a single proposed set of interrogatories/requests for
admission as to any common issues (e.g., GSE organizational structure, policies or procedures,
etc.), while reserving the ability to make targeted requests addressed to the securitizations in a
particular Case.
Fourth, FHFA would likewise submit a standard set of requests directed to Defendants
on matters relevant across the Cases (e.g., Defendants organizational structure, policies or
procedures, etc.), while reserving the option of making particularized requests addressed to the
personnel and transactions at issue in each Case.
A-15
16
Adopting these measures would ensure efficient document discovery, limit the burdens
on individual witnesses, and limit the burdens on the Court insofar as discovery disputes
concerning search terms and document requests could be resolved on a uniform basis across
Cases.
III. REMAND
All four of the cases that FHFA filed in State court have now been removed to the
Southern District of New York and FHFA has filed, or will file shortly, motions to remand each
of those actions (the State-Filed Cases). See FHFA v. Morgan Stanley, Index No. 11 Civ.
6739 (PKC); FHFA v. Countrywide, Index No. 11 Civ. 6916 (JSR); FHFA v. Ally Financial Inc.,
Index No. 11 Civ. 7010 (RJH); FHFA v. General Electric Co., Index No. 11 Civ. 7048 (VM).
Apart from the fact that one of the State-Filed Cases is not subject to the Courts Orders, remand
is not a common issue that could be coordinated across the Cases 13 of which were filed in
Federal court. As FHFA detailed in its letter to Defense counsel on October 13, see Ex. C, its
remand motions will depend on distinct legal and factual issues in each State-Filed Case and
would not be appropriate, under any circumstances, for consolidation in a single joint motion.
Accordingly, FHFA does not propose coordinated submission or consideration of its remand
applications, and opposes any such request, in the event there is one, by Defendants.
The different issues implicated by FHFAs four remand motions are extensive, and
reflect that each of the four removal petitions allege different bases for removal jurisdiction. The
Countrywide, Ally Financial, and Morgan Stanley petitions allege that removal is appropriate
because the removed actions are somehow related to a pending bankruptcy proceeding, but the
General Electric petition does not. The Countrywide petition alleges that the Edge Act,
12 U.S.C. 632, confers federal question jurisdiction, but the others do not. The General
Electric and Morgan Stanley petitions allege that 28 U.S.C. 1345 warrants removal, but the
A-16
17
others do not. Finally, the Ally Financial and Morgan Stanley petitions allege that 28 U.S.C.
1452(f)(2) warrants removal, but the others do not. Even where a common ground is asserted
for removal, moreover, the analysis will necessarily require fact-specific inquiries that will differ
in each case including, for instance, an evaluation of whether a particular identified bankruptcy
is related to the complaint, or an evaluation of whether the loans collateralizing a particular
securitization have a sufficiently international connection to warrant application of the Edge
Act.
CONCLUSION
For the reasons set forth above, broad coordination between and among the Cases would
not be efficient, as there are fundamental differences between each action. FHFA therefore
proposes coordination on a more limited basis, as follows: i) Defendants should present all
dismissal motions in each Case on the schedule that the parties previously negotiated;
(ii) Defendants should present any truly common issues, if the Court finds that there are such
issues, in a single joint motion to be briefed on the same agreed upon schedule; and
(iii) discovery should proceed in each Case pursuant to a protocol ensuring that each witness be
deposed once, and that document production proceed, where possible, pursuant to a uniform set
of search terms.
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DATED: New York, New York
October 19, 2011
51 Madison Avenue, Floor
(212) 849-7000
Aflorneys far Plaintiff rederai Housing
Finance Agency In I! C/V. 5201 (VA.f). II
CI, 6188 (DLC), 11 Cly. 6192 (LAK), 11
Clv. 6196 (PAC), and 1 I Civ. 6198 (DAB)
QUINN EMANUEL URQUHART &
SULLlV AN, LLP
By' f:.g -kt-ut-
Richard A. Schirtzer
51 Madison Avenlle, Floor
(2 t 2) 849-7000
Aflorneysjar Plaintiff Federal Housing
Finance Agency ill 11 eiv. 6189 (I.AK)
and 11 Clv. 6201 (JFK)
QUINN BMANUEL URQUHART &
SULLIVAN, LLP

sha M. Shech
j I Madison Avenue, 22
nd
Floor
(212) 849-7000
Attorneys/or Plaintiff Federal Housing
Finance Agency in 11 Civ. 6190 (DAB)
and 11 Clv. 6202 (DLC)
18
KASOW1TZ BENSON TORRES &
RIEDMAN LLP ..
By,
Marc E. Kasowitz
1633 BroadwHY
(212) 506-1700
Artorneysjar Plaintiff Federal Housing
Finance Agency in f! Civ. 6203 (.ISR). 11
Clv. 6739 (PKC), 11 Civ. 7010 (RJH), and
11 Clv. 7048 (VM)
SULLlV AN, LLP
By: Irrc.-
Christine H. Chung ,
51 Madison Avenue, 22
nd
Floor
(2 12) 849-7000
Attnrney.'ifnr Plaintiff Federal Hnw.ing
Finance Agency in 11 Civ. 6193 (PGG),
11 Civ. 6195 (JFK), and 11 Ci\'. 6200
(RPP)
A-19
FEDERAL HOUSING FINANCE AGENCY,
Plaintiff,
-v-
UBS AMERICAS, INC., et at.
Defendants.
Other Cases Brought By Plaintiff:
11 Civ.6188 (OLC)
11 Civ. 6189 (OLC)
11 Civ. 6190 (OLC)
11 Civ. 6192 (OLC)
11 Civ. 6193 (OLC)
11 Civ. 6195 (OLC)
11 Civ. 6196 (DLC)
11 Civ. 6198 (DLC)
11 Civ. 6200 (DLC)
11 Civ. 6201 (DLC)
11 Civ. 6202 (DLC)
11 Civ. 6203 (DLC)
11 Civ. 6739 (DLC)
11 Civ. 6916 (DLC)
11 Civ. 7010 (OLC)
11 Civ. 7048 (OLC)
Case No. 11 CIV. 5201 (DLC)
PLAINTIFF FHFA'S PROPOSAL
FOR CERTAIN CASE
MANAGEMENT ISSUES
Pursuant to this Court's Order dated December 5, 2011 in the above-captioned cases (the
"Cases"), Plaintiff Federal Housing Finance Agency ("Plaintiff'), as Conservator for the Federal
National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage
Corporation ("Freddie Mac") (together, the "GSEs"), respectfully submits this report and
proposal regarding "the sequencing of discovery, protective orders! e-discovery, the sampling of
A-20
loan files, limits on depositions, and the time frames regarding document production,
depositions, and expert discovery.") As the parties have not reached agreement on (i) limitations
on depositions and interrogatories; (ii) the use of statistical sampling for loan files in discovery
and at summary judgment and trial; and (iii) the sequence of and timeframes for discovery, the
below report sets forth FHF A's proposal regarding those case management issues.
I. BACKGROUND
FHF A has attempted to reach agreement with Defendants on the matters raised in the
Court's December 5 Order. Although FHFA and Defendants participated in four telephonic
meet-and-confers to discuss the parties' responses to the Court's December 5 Order, Defendants
did not provide written comments on FHFA's proposed Joint Report (provided to Defendants on
December 27) until January 9, 20 12-one day before the Joint Report was due to the Court.
Prior to January 9, Defendants refused to offer any serious counterproposal, other than to state
that they believed it was premature to set numerical limits on discovery, and that discovery
should be equally allocated between the two sides despite a vastly disproportionate number of
Defendants. Moreover, Defendants were reluctant to provide any information in advance of this
Court's decision on the motion to dismiss that would aid the parties in determining appropriate
limits.
Defendants' tactics are consistent with their general approach in these Cases, which is to
push discovery further and further down the road? By contrast, FHF A has proposed a clear path
forward that would enable the parties to begin discovery as soon as this Court rules on the
) This Report applies only to those actions filed by plaintiff FHF A that are currently
pending before this Court or that are transferred or ultimately removed to this Court.
2 Although Defendants have agreed in the Joint Report to meet and confer in good faith
in the future, FHF A reserves the right to seek relief from the Court should Defendants fail to do
so.
2
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motion to dismiss in 11 Civ. 5201 (FHFA v. UBS). FHFA believes that the below schedule and
approach will permit the parties to lay the groundwork for discovery to move forward in a fair
and efficient manner, and makes the best use of the time between now and the Court's ruling on
the motion to dismiss in 11 Civ. 5201.
II. LIMITATIONS ON DEPOSITIONS AND INTERROGATORIES
A. Depositions
FHFA proposes that the generall0-deposition limit under Fed. R. Civ. P. 30 be modified
to accommodate the complex nature of the Cases, while also taking into account the significant
degree offactual overlap between the various Cases. Under FHFA's proposal, all parties would
be subject to the same number of depositions, in an amount that is both sufficient to obtain
relevant information while not being unduly burdensome for any party.
FHF A proposes that it may take the deposition of up to 20 witnesses from each
institutional Defendant, in the aggregate across all Cases (excluding 30(b )(6) depositions and
depositions of Individual Defendants). FHF A has further proposed that any deposition of a fact
witness be limited to two seven-hour days, and any deposition of an Individual Defendant be
limited to one seven-hour day.
FHFA proposes that Defendants (as a group) may take the depositions of up to 20
witnesses from each GSE (i. e., 20 from Fannie Mae and 20 from Freddie Mac). FHF A proposes
that any deposition of a fact witness be limited to two seven-hour days, but that such time period
may be extended upon a showing of good cause if that witness was involved in numerous
Securitizations across all Cases.
In addition, although it unlikely that Defendants will have a legitimate need to depose
any FHFA witnesses given that the purchases of the residential mortgage-backed securities were
made by the GSEs, to the extent Defendants seek to depose current or former employees of
3
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FHFA, FHFA has proposed that such depositions be limited in scope (e.g., with respect to
procedures surrounding the appointment of the Acting Director ofFHFA, which is an issue
raised in Defendants' motion to dismiss in the 11 Civ. 5201 action), and subject to a reasonable
limit of depositions on current or former FHF A employees.
Defendants have rej ected FHF A's proposals, and argue that, regardless of how many
depositions Plaintiff is entitled to take, Defendants as a group should receive the same number of
depositions ofGSE witnesses. That is, Defendants propose that if Defendants took 50
depositions of the GSEs, FHF A would be entitled to only 50 depositions across 17 cases where
there are 83 different entity Defendants-less than one deposition per institution. Such an
approach has no basis in the Federal Rules of Civil Procedure or case law, and contravenes the
spirit of this Court's prior statements that these cases have not been consolidated into a single
action.
Instead, FHF A's proposal is more reasonable and fair in that each party is subject to no
more than 20 depositions. That FHF A will be permitted to take a larger aggregate number of
depositions than Defendants follows directly from the fact that there are many more Defendants
than the two GSEs. Moreover, Defendants originated, arranged, underwrote, and marketed these
securitizations; by contrast the GSEs simply acted as investors in the RMBS certificates. It
stands to reason that in light of their extensive role, the Defendants will have much more relevant
information on a wide range of topics than the GSEs. Holding FHFA's depositions hostage to
Defendants' demand that it receive the same number of depositions as FHF A denies FHF A the
opportunity to depose a significant number of the Defendants in any meaningful way (or else
subject itself to an arbitrarily large number of depositions as a cost of seeking necessary and
4
A-23
proper discovery). Accordingly, FHF A's proposal calls for a reasonable limitation whereby each
party would be subject to not more than 20 depositions.
B. Interrogatories and Requests for Admission
FHF A proposes that Plaintiff and Defendants each submit a single set of interrogatories
and requests for admission pursuant to Fed. R. Civ. P. 33, 36 and Local Civil Rule 33.3. Under
this proposal, Defendants as a group would serve Plaintiff with no more than 50 interrogatories
or requests for admission, including all discrete subparts, in the aggregate across all Cases.
Plaintiff would serve each Defendant, including Individual Defendants, with no more than 50
interrogatories or requests for admission, including all discrete subparts, in the aggregate across
all Cases. All interrogatories and requests for admission would be subject to the scope
limitations of Fed. R. Civ. P. 33(b) and Local Civil Rule 33.3, and Fed. R. Civ. P. 36,
respectively.
Under FHFA's proposal, Plaintiff and each of the Defendants would be subject to the
same total number of interrogatories and requests for admission, not to exceed the 50-
interrogatory/request for admission limit. Although interrogatory limitations are generally on a
per-party basis, such an approach is not efficient across 17 actions with the same Plaintiff, many
of the same Defendants, and similar factual issues raised in all 17 Cases. In light of that overlap,
and the potentially large burden of permitting over a hundred different defendants to each serve
on FHF A 25 interrogatories and unlimited requests for admission under the Federal Rules of
Civil Procedure, FHF A has proposed a general 50-interrogatory/request for admission limit to
which Plaintiff and each Defendant would be subject.
As with depositions, Defendants have refused to make a serious counterproposal, but
have insisted that the number of interrogatories permitted to each side be equal. For the reasons
discussed above in Section ILA, supra, Defendants' position is unreasonable and unworkable; in
5
A-24
this context, it would potentially result in thousands of interrogatories being served upon
Plaintiff. Defendants' position is especially unreasonable in light of Plaintiffs offer to limit its
interrogatories and request for admission to 50.
III. SEQUENCING OF DISCOVERY
A. Custodian and Search Term Lists
To ensure that the parties can proceed expeditiously with discovery once the
Court issues its decision on the motion to dismiss, FHFA proposes that, by January 27, 2012,
each Defendant exchange with FHFA the names and titles of the custodians whose files, both
electronic and hard copy, it intends to search for purposes of discovery in the Cases. Similarly,
FHF A has proposed that FHF A exchange with Defendants the names and titles of the custodians
whose files, both electronic and hard copy, it intends to search for purposes of discovery in each
Case.
FHF A further proposes that, following a meet and confer shortly thereafter, each group of
affiliated Defendants jointly provide a proposed single set of search terms that it expects to
employ for the purpose of locating and gathering electronic documents for production to
Plaintiff. Similarly, Plaintiff agrees to provide a proposed single set of search terms that it
expects to employ for the purpose of locating and gathering electronic documents of Plaintiff for
production to Defendants. All parties would be entitled to supplement such proposed search
terms as necessary based on the documents produced in discovery. Further, Plaintiff and
Defendants would reserve the right to make targeted search term proposals addressed to certain
Securitizations or other Case-specific issues.
Although the parties agree that the exchange of document custodians and search terms
should be one of the first items exchanged between the parties, the parties disagree about
whether such exchange should happen prior to the decision on the pending motion to dismiss.
6
A-25
FHF A believes establishing such a schedule at the outset of discovery is crucial to ensuring that
discovery proceeds expeditiously. As an initial matter, there is no reason to delay assembling
proposed custodian and search term lists. Assembling such information will undoubtedly take
time, and pushing it off will only delay the commencement of discovery. Once custodian lists
and search terms have been exchanged and finalized, the parties can run the search terms after
the Court rules on the motion to dismiss in 11 Civ. 5201.
In addition, to the extent Defendants are truly unable, as they claimed during the meet
and confers, to anticipate what custodians or search terms might be relevant to FHF A's claims,
FHF A has proposed (and Defendants have rejected) that it be permitted to serve some initial
document requests on Defendants within the next 20 days while holding the return date open
pending resolution of the motion to dismiss, in order to provide Defendants with additional
guidance as to the custodians and search terms relevant to the Cases. Defendants' unwillingness
to agree to such a proposal reveals the disingenuousness of their claim that they lack sufficient
information to formulate custodians and search terms, and makes clear that their true strategy is
to delay laying any groundwork for discovery until the Court rules on the motion to dismiss.
In any event, the parties should be well-positioned to exchange an initial set of search
terms and custodians by January 27. Each complaint identifies the securitizations at issue, and it
should not be difficult for Defendants to identify which of their private label securities personnel
had significant roles in dealing with Fannie Mae and Freddie Mac. Moreover, Defendants have
already proposed likely topics of discovery in their submission responding to the October 19,
2011, Order of Judge Kaplan on the efficient handling of the Cases; an initial set of search terms
could be drafted based on that proposal. See Dkt. 10 (Defendants' Proposal) at 10-11. In light of
these facts, Defendants' present reticence appears to be little more than a delay tactic.
7
A-26
B. Prioritization of Certain Categories of Document Production
As reflected in the Joint Report, the parties have agreed to meet and confer regarding
each side's requested categories of documents for prioritization. Plaintiff has informed
Defendants that it is seeking to prioritize the production of the following categories of
documents: (i) loan origination and servicing files, (ii) loan underwriting guidelines, (iii) any
reports or findings regarding the mortgage loans or samples of mortgage loans reviewed by third
party due diligence firms on behalf of the securities underwriter or broker dealer defendants; (iv)
documents produced to government agencies relating to policies, practices and/or procedures in
the origination, servicing, underwriting and/or selling of mortgage loans in the secondary market
through the securitization process; (v) any prior deposition transcripts of witnesses from other
RMBS litigations (whether involving Defendants or others), who were involved in the
origination, underwriting and/or selling of mortgage loans in the secondary market through the
securitization process; and (vi) any transcripts of Defendant witnesses who testified before any
government committee, subcommittee, regulatory agency, or investigatory body on the
origination, underwriting and/or selling of mortgage loans in the secondary market through the
securitization process.
With respect to loan origination and servicing files, such information should be within the
custody, possession, or control of one or more of the entity Defendants, as such information
would have been reviewed or at least received by multiple entities involved in the
Securitizations. These files are relevant to FHF A's claims because they will reveal whether the
statements in the Registration Statements regarding the mortgage loans in the securitizations
were true and correct. Moreover, the loan origination and servicing files will reveal the true
credit characteristics of the mortgage loans, and whether the loans were underwritten and
8
A-27
serviced in accordance with the applicable guidelines and prudent and customary industry
standards.
Likewise, the underwriting guidelines for the loans should generally be within the
possession, custody, or control of one or more of the entity Defendants, as such information
would have been reviewed or at least received by multiple entities involved in the
Securitizations. These guidelines are relevant to determining whether the loans were originated
in compliance with the applicable underwriting guidelines.
Similarly, documents relating to any reports or findings regarding the mortgage loans or
samples of mortgage loans reviewed by third party due diligence firms on behalf of the securities
underwriter or broker dealer defendants are also relevant to establishing the true credit quality of
the mortgage loans, whether the statements in the Registration Statements were accurate, and the
knowledge of certain Defendants regarding the same.
Finally, to the extent that any of the Defendants produced documen!s to any government
agency relating to policies, practices, and/or procedures in the origination, underwriting,
servicing, and/or selling of mortgage loans in the secondary market through the securitization
process, such documents are relatively easy to collect and produce, as are any prior deposition
transcripts and accompanying exhibits. The production of such documents and prior deposition
transcripts from other RMBS litigations, helps to streamline the discovery process by allowing
FHF A to build on the documents previously produced and testimony taken, streamline its
discovery requests, and reduce the burden to Defendants by allowing them to re-produce
previously produced documents and testimony.
Each of these categories of documents is within the possession, custody, or control of one
or more of the entity Defendants, and should be readily identified, collected, and produced to
9
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FHF A. Such categories of documents are directly relevant to the care (or lack thereof) with
which Defendants effected the Securitizations, and therefore are relevant both to FHFA's claims
and potentially to Defendants' affirmative defenses.
IV. STATISTICAL SAMPLING
The parties have agreed that, before January 30, 2012, they shall meet-and-confer
regarding the use of statistical sampling as a method of proof in this action, and on or before
February 3,2012, shall jointly report to the Court on the status of those discussions and proposed
next steps, if any.
At the December 2, 2011 hearing before this Court, FHF A proposed that statistical
sampling of loan files would be an efficient and fair approach in determining whether and/or to
what extent there have been material misrepresentations of the quality of the collateral of the
underlying residential mortgage-backed securities. With over 530 Securitizations, and most
containing several thousand individual loans, there are hundreds of thousands of loans and loan
origination and servicing files at issue in these Cases. Many of these loan files may contain
upwards of 100 pages, thus representing hundreds of millions of page of documents.
Determining a statistically valid random sample that is agreed to by the parties at the outset is an
important step to reducing the discovery burdens on the parties, as well as the burden on the
Court and parties at summary judgment and trial. The Court agreed at the December 2 hearing
that "we need a good sampling technique. That it would be extraordinarily burdensome and
inefficient to reassemble, gather, review and analyze all of these files." Transcr. at 35-36.
Although Defendants have stated during the meet and confers that they do not object to
FHFA requesting only a sample of the universe ofloans at issue, they declined to agree that
statistical sampling was a valid method of proof at trial. Any agreement to limit discovery to a
statistically valid random sample of loans must be accompanied by an agreement that statistical
10
A-29
sampling is an appropriate method of proof at trial. Otherwise, Plaintiff is put in the untenable
position of agreeing to limit discovery without any corresponding commitment from Defendants
that the Case may be proved at trial with only such discovery.
Moreover, for sampling to be a useful approach, all parties must agree on a statistically
valid random sample, preferably at the outset ofthe litigation in order to avoid disputes down the
road as to whether each party's chosen sampling methodology is sound. Defendants' proposed
approach of producing only a sample ofloans to FHFA in discovery, while permitting
Defendants to rely on the entire universe of mortgage loans at summary judgment or trial,
accomplishes nothing and prejudices Plaintiff. That is, under Defendants' preferred approach,
Defendants could produce and the parties could review tens of thousands of loan files-
consuming thousands of review hours and hundreds of thousands of taxpayer dollars-{)nly to
have Defendants later claim that FHF A should have chosen a different set of loan files to review.
Such an approach would in effect force FHF A to prove its case on a loan-by-loan basis, thus
eliminating the benefit of statistical sampling.
In order to prevent such an inefficient and wasteful result, FHF A seeks an approach
under which FHF A and Defendants would submit proposed sampling protocols to the Court so
that all parties can receive the benefit of the Court's guidance at this early stage of the Cases.
Defendants have made no serious counterproposal, but instead seek to delay any resolution of
this issue, apparently until such time as FHF A attempts to introduce evidence based on a sample,
so that Defendants can at that time question the legitimacy ofFHFA's sampling methodology.
Such an approach would be wasteful, and would represent an inefficient use of both the Court
and the litigants' time and resources. Despite the fact that statistical sampling as a scientific
method is not a novel concept, Defendants have also stated to FHF A that they need additional
11
A-30
information before they can agree to the use of statistical sampling as a method of proof.
However, Defendants failed to provide any description of the additional information that they
require.
FHF A therefore proposes that the parties take the present opportunity afforded by the
Court's consideration of the motion to dismiss in 11 Civ. 5201 to brief the issue of statistical
sampling in order to receive guidance from the Court on an appropriate sampling protocol, for
discovery, summary judgment and trial.
V. PRETRIAL SCHEDULE
As reflected in the Joint Report, the parties reached agreement on a pretrial schedule with
respect to Rule 26(f) Conference; Rule 26(a) Disclosures; expert discovery and a pretrial
schedule for dispositive motions. However, the parties did not reach agreement on a schedule
for the following three issues: (i) whether the parties may proceed with discovery immediately
following the Court's decision on the motion to dismiss in 11 Civ. 5201; (ii) whether document
custodians and search terms should be exchanged in advance of the decision on the motion to
dismiss; and (iii) a schedule for completion of document and deposition discovery.
First, discovery should commence promptly following this Court's decision of the motion
to dismiss. To the extent any Defendant believes a stay of discovery is applicable as to those
Defendants or in their Case pending resolution of their motion to dismiss, such Defendant may
file a motion with the Court. During the pendency of such a motion, there should be no stay of
discovery for the reasons previously briefed by FHFA in 11 Civ. 6200 (FHFA v. Credit Suisse).
Second, in order to move this case along expeditiously, and to take full advantage of the
time afforded by this Court's consideration of the motion to dismiss in 11 Civ. 5201, the parties
should exchange custodian lists and search terms in advance of the decision on the motion to
dismiss.
12
A-31
Third, in their latest proposal to Plaintiff, Defendants have proposed one year from the
completion of Rule 26(a) Initial Disclosures to complete document discovery and another year
after the close of document discovery to complete deposition discovery. There is no reason to
have such a protracted and extended schedule, and even in complex cases, courts in the Southern
District have allowed for much shorter time periods consistent with Plaintiffs proposed
schedule. Such an extended delay advocated by Defendants will result in increased difficulties
. in locating witnesses and fading memories.
Accordingly, FHF A proposes the following schedule for pretrial discovery. Such a
focused approach to discovery is consistent with other similarly complex cases:
, 1. Custodian and Search Term Lists: By January 27, 2012, the parties shall
exchange proposed custodian and search term lists. To the extent that the Court finds that
Defendants cannot formulate such lists because of their uncertainty as to what custodians or
search terms are relevant to the Cases, FHF A should be permitted to serve initial document
requests on Defendants to, among other things, provide Defendants with guidance.
2. Sampling: By January 30, 2012, each ofFHFA and Defendants shall meet and
confer on proposed sampling methodologies for mortgage loan files and shall report to the Court
on the status of those discussions and proposed next steps by February 3, 2012. To the extent
that Defendants refuse to agree that statistical sampling should be a valid method of proof in the
Cases, FHF A will seek leave to file a motion with the Court supporting the use of statistical
sampling generally.
3. Rule 26Cf) Conference: The parties shall participate in a Rule 26(f) conference
within 14 days following this Court's decision on the motion to dismiss in 11 Civ. 5201. In
13
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accordance with Rule 26(f), the parties will have developed a further plan for discovery in
advance of the Rule 26(f) Conference.
4. Rule 26(a) Initial Disclosures: The parties shall exchange initial disclosures
pursuant to Fed. R. Civ. P. 26(a)(l) within 14 days of the Rule 26(f) Conference. The proposals
will set out time frames not to exceed 30 days following this Court's decision on the motion to
dismiss in 11 Civ. 5201 to exchange the proposed initial disclosures.
5. Document Discovery: Document discovery will be completed within eight
months after the service of the Rule 26(a) Initial Disclosures.
6. Deposition Discovery: Deposition discovery will be completed within five
months after the completion of document discovery.
7. Expert Discovery:
(a) In advance of the deadline to file initial expert reports, each party will
disclose the topics of that party's anticipated initial expert reports. Following such
disclosure, the parties will meet and confer on any issues where there is a disagreement
about which party bears the burden of proof. The parties will also meet and confer about
the time to serve responsive reports, and each party reserves its right to seek additional
time beyond that specified in (b) and (c) if any expert report is based on analysis of
voluminous data.
(b) Each party who bears the burden of proof concerning an issue with respect
to which it intends to submit expert evidence will identify its experts as to that issue, if
any, and submit its expert report(s) related thereto, within 60 days after the close of
deposition discovery.
(c) Responsive reports, or initial reports by a party that does not bear the
burden of proof concerning an issue, will be due no later than 60 days after the parties
have provided their initial expert reports.
(d) Any expert depositions will commence after the exchange of any
responsive reports, and will be completed within 60 days after the parties have exchanged
their responsive expert reports.
(e) Both Plaintiff and Defendants agree to limit their expert reports to one
report per subject per Case on behalf of all Defendants in that Case. Similarly, Plaintiff
14
A-33
will limit its expert reports to one report per subject per Case. The parties agree to confer
in good faith regarding numerical limits on experts in any given case.
8. Dispositive Motions:
(a) . Summary judgment motions may be filed at any time up to 45 days after
the close of expert discovery.
(b) Oppositions to any motion for summary judgment will be filed within 45
days of the date such motion is filed.
(c) Reply briefs in support of summary judgment will be filed within 20 days
of the filing of the opposition to such motion(s).
* * *
In response to the Court's December 5 Order, FHFA has proposed (i) reasonable
limitations on depositions, interrogatories, and requests for admission; (ii) the prioritization of
the production of certain clearly delineated and readily available categories of documents; and
(iii) a pretrial schedule that, among other things, includes a time line under which the parties
would propose custodians and search terms for discovery, as well as determination of a statistical
sampling methodology for loan files that would be applicable in discovery and at summary
judgment and trial. If adopted, these proposals would allow for the efficient conduct of
discovery, and would serve the interests of judicial economy. FHFA is available at the Court's
convenience to further discuss its proposal.
Dated: January 10,2012
New York, New York
15
A-34
Respectfully submitted,
Philippe Z. Selendy
(philippeselendy@quinnemanuel.com)
SULLIVAN, LLP
51 Madison Avenue, 22nd Floor
New York, New York 100 10
(212) 849-7000
Attorneys for Plaintiff Federal Housing Finance
Agency in FHFA v. UBS Americas, Inc., FHFA
v. JPMorgan Chase & Co., FHFA v. Deutsche
BankAG, FHFA v. Citigroup Inc., and FHFA v.
Goldman, Sachs & Co.
Christine H. Chun
( christinechung@quinnemanuel.com)
SULLIVAN, LLP
Agency in FHF A v. First Horizon National
Corp., FHFA v. Bank of America Corp., FHFA
v. Credit Suisse Holdings (USA), Inc., and
FHFA v. Countrywide Financial Corp.
(richardschirtzer@quinnemanuel.com)
Adam M. Abensohn
(adamabensohn@quinnemanuel.com)
SULLIVAN,LLP
16
1d16t..-
Marc E. Kasowitz kasowitz@kasowitz.com)
Hector Torres (htorres@kasowitz.com)
Michael S. Shuster (mshuster@kasowitz.com )
Christopher P. Johnson
(cj ohnson@kasowitz.com)
Michael Hanin (mhanin@kasowitz.com)
Kanchana Wangkeo Leung
(kleung@kasowitz.com)
KASOWITZ, BENSON, TORRES &
FRIEDMAN LLP
1633 Broadway
Manlsha M. Sheth
(manishasheth@quinnemanuel.com)
SULLIV AN, LLP
v. JPMorgan Chase & Co., FHFA v. Barclays
BankPLC, FHFA v. Citigroup Inc., and FHFA
v. Merrill Lynch & Co., Inc.
A-35
Agency in FHF A v. HSBC North America Holdings, Inc.
and FHFA v. Nomura Holding America, Inc.
17
1c2QfhaC
1
1 UNITED STATES DISTRICT COURT
2 --------------------------------x
IN RE:
3 FEDERAL HOUSING FINANCE AGENCY 11 CV 5201 (DLC)
4 --------------------------------x
Also Docket Nos.
5 11 CV 6188, 11 CV 6189, 11 CV 6190,
11 CV 6192, 11 CV 6193, 11 CV 6195,
6 11 CV 6196, 11 CV 6198, 11 CV 6200,
11 CV 6201, 11 CV 6202, 11 CV 6203,
7 11 CV 6739, 11 CV 6916, 11 CV 7010,
11 CV 7048
8 -------------------------------x
9 VNB REALTY,
Plaintiff, 11 CV 6805
10 v.
Bank of America, et al.
11 Defendants.
12 -------------------------------x
13 New York, NY
14 December 2, 2011
2:00 p.m.
15
Before:
16
HON. DENISE L. COTE,
17
District Judge
18

19
20
21
22
23
24
25
SOUTHERN DISTRICT REPORTERS, P.C.
(212) 805-0300
A-36
1c2QfhaC
2
1 APPEARANCES
2
QUINN,EMANUEL, URQUHART & SULLIVAN, LLP
3 Attorneys for Plaintiffs FHFA
PHILIPPE SELENDY
4 CHRISTINE CHUNG
ADAM ABENSOHN
5 MANISHA SHETH

6 KASOWITZ, BENSON, TORRES & FRIEDMAN, LLP
Attorneys for Plaintiffs FHFA
7 MARC KASOWITZ
MICHAEL SHUSTER
8 KANCHANA LEUNG

9 SKADDEN, ARPS, SLATE, MEAGHER & FLOM, LLP
Attorneys for Defendant UBS Investment Bank
10 JAY KASNER
SCOTT MUSOFF
11
SULLIVAN & CROMWELL
12 Attorneys for Defendants
PENNY SHANE (JP Morgan Chase)
13 BRUCE CLARK (First Horizon Nat. Corp and Nomura Holding Amer.)
AMANDA DAVIDOFF (First Horizon Nat. Corp. & Normura Holding)
14 JEFFREY SCOTT (Barclays Bank PLC)
THEODORE EDELMAN (Goldman Sachs & Co. & Goldman Sachs Mort. Co)
15 MICHAEL TOMAINO
JORDAN RAZZA
16
17 PAUL, WEISS, RIFKIND, WHARTON & GARRISON, LLP
Attorneys for Defendants Citigroup
18 BRAD SCOTT KARP
SUSANNA BUERGEL
19
20 CRAVATH, SWAINE & MOORE, LLP
Attorneys for Defendants Credit Suisse
21 RICHARD CLARY

22 SIMPSON, THACHER & BARTLETT, LLP
Attorneys for Defendants
23 THOMAS RICE (Deutsche Bank & RBS)
MICHAEL CHEPIGA (Samuel L. Molinaro)
24
25
(212) 805-0300
A-37
1c2QfhaC
3
1 APPEARANCES CONTINUED
2
WILLIAMS & CONNOLLY, LLP
3 Attorneys for Defendants Bank of America & Merrill Lynch
DAVID S. BLATT
4 EDWARD BENNETT

5
MAYER BROWN, LLP
6 Attorneys for Defendants HSBC North America Holding
RICHARD SPEHR
7 MICHAEL WARE

8
9 GOODWIN PROCTER, LLP
Attorneys for Defendants Countrywide Fin. Corp.
10 BRIAN PASTUSZENSKI
MARK HOLLAND
11
12 DAVIS, POLK & WARDWELL, LLP
Attorneys for Defendants Morgan Stanley
13 JAMES ROUHANDEH

14
WEIL, GOTSHAL & MANGES, LLP
15 Attorneys for Defendants General Electric Co.
GREG DANILOW
16
GIBSON, DUNN & CRUTCHER, LLP
17 Attorneys for Defendants Citigroup, Deutsche Bank,
RBS & UBS
18 ARIC WU

19 LEVINE LEE, LLP
Attorneys for Defenedant David Spector
20 SCOTT KLUGMAN
21
22 SNR DENTON
Attorneys for Individual Defendants
23 SANDRA HAUSER
24
25
(212) 805-0300
A-38
1c2QfhaC
4
1 APPEARANCES CONTINUED
2 RICHARDS, KIBBE & ORBE, LLP
3 NEIL BINDER

4 PAUL HASTINGS
5 KEVIN LOGUE

6 DLA PIPER US, LLP
7 KEARA GORDON

8 CALDWELL, LESLIE & PROCTOR, PC
Attorneuys for Individual Defendant
9 DAVID WILLINGHAM

10 KRAMER, LEVIN, NAFTALIS
Attorneys for Individual Defendant
11 JADE BURNS

12 MORRISON & FOERSTER
13 LASHANN DeARCY
14
15
16
17
18
19
20
21
22
23
24
25
(212) 805-0300
A-39
1c2QfhaC
5
1 (In open court)
2 THE DEPUTY CLERK: I am going to call each case, and I
3 will ask counsel to please state their name for the record.
4 In the matter of the Federal Housing Finance Agency
5 and others against UBS America, Inc. and others. Counsel for
6 plaintiffs, are you ready to proceed? If you would please
7 state name for the record.
8 MR. SELENDY: Yes, we are. Philippe Selendy for the
9 Federal Housing Finance Agency.
10 THE DEPUTY CLERK: Would you introduce each attorney?
11 MR. SELENDY: For UBS. We are also here with Adam
12 Abensohn. And Manisha Sheth.
13 THE COURT: For the defendant, please state your name
14 for the record.
15 MR. KASNER: Good afternoon, your Honor. Jay Kasner
16 and my partner Scott Musoff from Skadden Arps.
17 THE DEPUTY CLERK: In the case of Federal Housing
18 Finance Agency against JP Morgan Chase & Company and others.
19 Counsel for plaintiffs, please state your name for the
20 record.
21 MR. SELENDY: Again, your Honor, Philippe Selendy and
22 our team.
23 THE COURT: You don't need to reintroduce other
24 members of your team, Mr. Selendy if they are the same. Thank
25 you very much.
(212) 805-0300
A-40
1c2QfhaC
6
1 For the defendant.
2 MS. SHANE: Penny Shane, your Honor, from Sullivan &
3 Cromwell for JP Morgan.
4 MR. RICE: Tom Rice for RBS Securities which is one of
5 a number of defendants in this case. Do you want to have
6 appearances as you go through them for the main defendant in
7 this case?
8 THE COURT: For each defendant who is represented --
9 well, for each defendant in the case by at least principal
10 trial counsel for them in that case.
11 MR. RICE: In that case, I am appearing for RBS
12 Securities in this case.
13 MR. CLARY: William Clary from Cravath, Swaine & Moore
14 representing the Credit Suisse defendants in the JP Morgan
15 case.
16 MR. KARP: Brad from Paul, Weiss, along with my
17 partner Susanna Buergel, representing the Citigroup defendants
18 in that case.
19 THE DEPUTY CLERK: In the matter of Federal Housing
20 Finance Agency against HSBC North American Holdings, Inc. and
21 others. Counsel for plaintiffs, please state your name for the
22 record.
23 MR. ABENSOHN: Adam Abensohn, your Honor, for FHFA.
24 THE COURT: I'm sorry?
25 MR. ABENSOHN: Adam Abensohn for FHFA.
(212) 805-0300
A-41
1c2QfhaC
7
1 MR. SPEHR: For HSBC Richard Spehr and Michael Ware
2 from Mayer Brown.
4 Finance Agency against Barclays Bank PLC and others.
5 MS. SHETH: Manisha Sheth on behalf of the FHFA.
6 THE COURT: Any defense counsel in that case?
7 MR. SCOTT: It's Jeff Scott from Sullivan and Cromwell
8 on behalf of Barclays.
9 THE COURT: So, Mr. Scott, you are way back there.
10 You need to come on up. There is a chair for you right up
11 here.
13 Finance Agency against Deutsche Bank AG and others.
14 Counsel for plaintiffs, state your name for the
15 record.
16 MR. SELENDY: Philippe Selendy for FHFA.
17 MR. RICE: Good afternoon, your Honor. Tom Rice for
18 the Deutsche Bank defendants.
19 THE COURT: We are going to read the docket number for
20 each of these cases too to make sure that we are all on the
21 same page with respect to which case we are calling.
22 THE DEPUTY CLERK: Federal Housing Finance Agency
23 against First Horizon National Corp. and others, Docket No. 11
24 CV 6193.
25 Counsel for the plaintiff, please state your name for
(212) 805-0300
A-42
1c2QfhaC
8
1 the record.
2 MS. CHUNG: Good afternoon, your Honor. Christine
3 Chung for the plaintiff, FHFA.
4 MR. CLARK: Good afternoon, your Honor. Bruce Clark
5 and Amanda Davidoff, Sullivan and Cromwell for the defendant.
6 THE COURT: Mr. Clark, do you want to come up to the
7 jury box?
8 MR. CLARK: I would be glad to join you.
9 THE COURT: Very well.
10 MR. BENNETT: Edward Bennett with my partner David
11 Blatt, Williams & Connolly for Merrill Lynch.
12 THE DEPUTY CLERK: Step up and state your name again
13 for the record for the court reporter.
14 MR. BENNETT: Edward Bennett and David Blatt from
15 Williams & Connolly for Merrill Lynch.
16 MR. KASNER: Jay Kasner on behalf of UBS.
17 MR. CLARY: Richard Clary on behalf of the Credit
18 Suisse defendants.
19 THE DEPUTY CLERK: Is there anyone else in the matter
20 of 11 CV 6193.
21 MS. SHANE: Penny Shane for JP Morgan, Sullivan &
22 Cromwell.
24 against Bank of America Corp. and others, case number 11 CV
25 6195.
(212) 805-0300
A-43
1c2QfhaC
9
2 the record.
3 MS. CHUNG: Christine Chung for FHFA.
4 MR. BLATT: David Blatt for Bank of America
5 defendants.
6 MR. BENNETT: Edward Bennett for Bank of America as
7 well.
8 MR. BINDER: Neil Binder, Richards, Kibbe & Orbe. We
9 represent several individuals for the Bank of America, in the
10 case of Paul Park, Robert Caruso --
11 THE COURT: I think several is just fine.
12 MR. BINDER: Several, but not all, your Honor.
13 THE COURT: Thank you.
14 Any other defense counsel in that case?
15 So, do you know where defense counsel for the other
16 individual defendants is?
17 MR. BINDER: No, your Honor. Some of them, I think
18 haven't been served.
20 THE DEPUTY CLERK: The matter of Federal Housing
21 Finance Agency against Citigroup, Inc. and others 11 CV 6196.
22 Counsel for the plaintiffs, please state your name for
23 the record.
25 MR. KARP: Your Honor, Brad Karp for CitiGroup.
(212) 805-0300
A-44
1c2QfhaC
10
1 THE DEPUTY CLERK: Is there anyone else for defendants
2 in this case?
3 In the matter of Federal Housing Finance Agency
4 against Goldman, Sachs & Company, 11 CV 6198.
5 Counsel for the plaintiff?
7 THE DEPUTY CLERK: Is there someone else?
8 MR. EDELMAN: We are here on behalf of defendants,
9 Theodore Edelman, Michael Tomaino and Jordan Razza from
10 Sullivan & Cromwell.
11 THE COURT: Spell your last names, please.
12 MR. EDELMAN: Certainly, your Honor. Edelman,
13 E-D-E-L-M-A-N.
14 MR. TOMAINO: T-O-M-A-I-N-O.
15 MS. RAZZA: R-A-Z-Z-A.
16 THE COURT: Thank you. If you could come up and join
17 us in the jury box.
18 MR. EDELMAN: We represent also the Goldman Sachs
19 defendants in JP Morgan Chase matter, which is 11 CV 6188.
21 against Credit Suisse Holdings USA, Inc., 11 CV 6200.
22 Counsel for the plaintiffs, please state name for the
23 record.
24 MS. CHUNG: Christine Chung for the FHFA.
25 MR. CLARY: Richard Clary for all the defendants in
(212) 805-0300
A-45
1c2QfhaC
11
1 that case.
2 THE DEPUTY CLERK: Thank you.
3 Paragraph Federal Housing Finance Agency against
4 Numora Holding America, Inc. and others, 11 CV of 6201.
5 MR. ABENSOHN: Adam Abensohn for the FHFA.
6 MR. CLARK: Bruce Clark for the Nomura defendants.
7 MR. RICE: Tom Rice for RBS Securities.
8 THE DEPUTY CLERK: In the matter Federal Housing
9 Finance Agency against SG America, Inc. and others, case number
10 11 CV 6203.
11 Counsel for the plaintiffs.
12 MR. KASOWITZ: Marc Kasowitz for FHFA. My partner,
13 Mike Shuster and Kanchana Leung.
14 THE DEPUTY CLERK: For the defendant.
15 MR. KASNER: Good afternoon again, your Honor. Jay
16 Kasner and Scott Musoff from Skadden, Arps for the defendants.
17 MS. SHANE: Penny Shane Sullivan, Cromwell for JP
18 Morgan.
19 MR. RICE: Tomorrow Rice for Deutsche Bank Securities.
20 THE COURT: Federal Housing Finance Agency against
21 Morgan Stanley and others, case number 11 CV 6739.
22 Counsel for the plaintiffs, please state your name for
23 the record.
24 MR. KASOWITZ: Marc Kasowitz for FHFA.
25 MR. ROUHANDEH: Good afternoon, your Honor, Jim
(212) 805-0300
A-46
1c2QfhaC
12
1 Rouhandeh from Davis, Polk & Wardwell for Morgan Stanley.
2 MR. CLARY: Richard Clary for the Credit Suisse
3 defendants.
5 THE COURT: The Federal Housing Finance Agency against
6 Countrywide Financial Corporation and others, 11 CV 6916.
8 the record.
9 MS. CHUNG: Christine Chung for the FHFA.
10 MR. PASTUSZENSKI: Good afternoon, your Honor. Brian
11 Pastuszenski from Goodwin Procter LLP for Countrywide
12 defendants. And with me my partner, Mark Holland from Goodwin
13 Procter.
14 THE DEPUTY CLERK: Counsel, if you could come forward
15 and state your name.
16 MR. WILLINGHAM: Good afternoon, your Honor. David
17 Willingham, Caldwell Leslie on behalf of defendant Stanford
18 Kurland and Jeff Grogin.
19 MR. LOGUE: Kevin Logue from Paul Hastings for
20 defendants Boone, Kripalani, McLaughlin and Sandefur.
21 MR. WU: Aric Wu from Gibson Dunn for Citigroup
22 Deutsche Bank, RBS and UBS.
23 MS. GORDON: Good afternoon, Keara Gordon from DLA
24 Piper for defendant Eric Sieracki.
25 MR. KLUGMAN: Scott Klugman from Levine Lee for
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1 defendant David Spector.
2 MR. BENNETT: Edward Bennett and David Blatt from
3 Williams & Connolly for Bank of America.
4 THE DEPUTY CLERK: Federal Housing Finance against
5 Ally Financial, Inc. and others 11 CV 7010.
6 MR. KASOWITZ: Marc Kasowitz for plaintiff.
7 MR. SPEHR: Richard Spehr, Michael Ware, Mayer Brown
8 for Ally.
9 MR. KASNER: Good afternoon again, your Honor. Jay
10 Kasner for UBS and the Ally Financial matter.
11 MR. KARP: Brad Karp for Citigroup, Citigroup
12 defendants.
13 MR. CLARY: Richard Clary for Credit Suisse
14 defendants.
15 MS. SHANE: Penny Shane for JP Morgan.
16 MR. EDELMAN: Theodore Edelman for Goldman, Sachs &
17 Company.
18 MR. SCOTT: Jeff Scott for Barclays Capital, Inc.
21 Finance Agency against General Electric Company and others,
22 case number 11 CV 7048.
23 MR. KASOWITZ: Marc Kasowitz for FHFA.
24 MR. DANILOW: Greg Danilow, Weil, Gotshal for the
25 General Electric defendants.
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1 MR. ROUHANDEH: Jim Rouhandeh, Davis Polk for Morgan
2 Stanley defendants.
3 MR. CLARY: Richard Clary for Credit Suisse
4 defendants.
6 THE DEPUTY CLERK: There is one more.
7 MS. HAUSER: Sandra Hauser for several individual
8 defendants. I apologize for not introducing sooner.
9 THE COURT: That's fine.
10 MS. BURNS: Also for case 6188, Jade Burns for
11 defendant Jeffrey Wertleiser from Kramer, Levin, Naftalis &
12 Frankel.
13 MS. DeARCY: Lashann DeArcy, your Honor, also for case
14 6188. I am with Morrison & Foerster for defendants Michael
15 Nierenberg and Thomas Moreino.
16 MR. CHEPIGA: Your Honor, Michael Chepiga from
17 Simpson, Thacher 6188 for defendant Sam Molinaro.
18 THE DEPUTY CLERK: You can sit. Come up with way.
19 There are more chairs here.
20 THE COURT: I am going to call one additional case,
21 VNB Realty against Bank of America and others, 11 CV 6805. For
22 the plaintiff.
23 MR. TSAPATSARIS: Peter Tsapatsaris from Peter N.
24 Tsapatsaris, LLC for VNB Realty.
25 THE COURT: For the defendants in 11 CV 6805.
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1 MS. KOTLER: Meredith Kotler from Cleary Gottlieb on
2 behalf of all defendants except Mr. Kamat, who has not been
3 served.
4 MR. BINDER: Your Honor, unless I missed it, I don't
5 believe 11 CV 6202 was called FHFA, Merrill Lynch.
6 THE COURT: 6202?
7 MR. BENNETT: Yes.
8 THE COURT: Thank you so much. So we will call that
9 case now.
10 FHFA against Merrill Lynch and others 11 CV 6202 for
11 the plaintiff.
12 MS. SHETH: Manisha Sheth often behalf of FHFA.
13 THE COURT: For the defendants?
14 MR. BENNETT: Ted Bennett on behalf of Merrill Lynch.
15 MR. BINDER: Neil Binder on behalf of individual
16 defendants.
17 THE COURT: Thank you, Mr. Binder.
18 So, as much as I studied the appearance sheet lists
19 that I have, I really appreciate this demonstration of the
20 overlap in parties and their counsel. Let me thank you for
21 making yourselves available today. I expect counsel have a lot
22 of issues they would like to raise with me. Let me give you an
23 overview of the issues I have identified that I would like to
24 cover this afternoon.
25 there are a number of administrative issues that I
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1 want to address with you. There is the issue of outstanding
2 motion practice and the scheduling of that motion practice. I
3 want to talk about discovery issues.
4 I want to talk about coordination of any cases that
5 are not before me right now and get a sense of how many more
6 cases there might be filed in this court or in other courts
7 that may or may not be related.
8 I want to explore on that coordination issue the case
9 I will refer to as 6805, which was the penultimate case called.
10 I expected it to be the last, but it was the penultimate case
11 called.
12 Lastly, on my list is settlement. I want to talk
13 about a process to get these cases organized for settlement
14 discussions. I am not expecting them to be settled tomorrow,
15 but I want to begin talking about process.
16 So let's just talk about administrative matters. I
17 should say, I won't end this conference without making sure
18 everyone has an opportunity to present any additional issues
19 they think should be discussed at today's conference.
20 Consolidation of these cases. I have talked with our
21 clerk's office because I am concerned about getting notice to
22 everybody in the most efficient manner possible and yet making
23 sure that each of these cases is treated separately as
24 appropriate. So I think probably -- and you can speak to this
25 and explain why you think we should handle it some other way,
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1 but I think I probably will not be entering any kind of
2 consolidation order even for pretrial purposes, but that
3 everything that I issue in this group of cases, I will docket
4 in the first case 5201, and in every other case where it is
5 appropriate to do so with respect to that order.
6 So, let us say that I was granting a motion to dismiss
7 in the case 6200, that opinion or order would be docketed two
8 places: In the case 5201 and in the case 6200. Some docketing
9 will occur in every case, and it will have the kind of caption
10 one way or another like you saw with the scheduling of this
11 conference.
12 That means that -- and, again, there may be many
13 volunteers for this task I think we need to talk about, and it
14 would be helpful to me to have just for liaison purposes and
15 for no other purposes, not substantive, one plaintiff's counsel
16 that I can call or my chambers can call, and one defense
17 counsel that my chambers can call who would take upon
18 themselves the obligation to make sure everyone else is
19 notified. Obviously, I hope to do most notification through
20 docketing and reliance on our ECF notice process, but unless
21 you are part of the case 5201, you will not get ECF notice, and
22 this is what I talked to our clerk's office about. I can only
23 get ECF notice to all of you for something filed in 5201 if I
24 consolidate all the cases into 5201.
25 So, Mr. Kasner, you are the likely volunteer.
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1 MR. KASNER: Your Honor, and I appreciate it, if you
2 hadn't asked, I actually was going to raise my hand. The one
3 caveat, your Honor, is Ms. Farrell has since gone to the U.S.
4 Attorney's office. However, I'm confident that some of our
5 colleagues will fill her very large shoes. So we're happy to
6 do that. Thank you, your Honor.
7 THE COURT: Thank you, Mr. Kasner. It's a pleasure to
8 see your name on this roster today.
9 MR. KASNER: Appreciate it, your Honor. Thank you.
10 THE COURT: So for plaintiff's volunteer, Mr. Selendy?
11 MR. SELENDY: Yes, I will be glad to do that, your
12 Honor.
13 THE COURT: Thank you so much. My clerk's office asks
14 me to remind everyone that your email address and your law firm
15 identification information should be current. Make sure it is.
16 Make sure you have an ECF log-in and password. Make sure you
17 filed a notice of appearance. All of those things have to
18 happen if you are going to get effective ECF notice from us.
19 In terms of communication with the Court, we do not
20 accept faxes. I have no secretary. I have three wonderful law
21 clerks and no secretary. So we operate by letter, and, as you
22 know, in the Southern District you cannot file letters on ECF.
23 So it is snail mail or hand delivery.
24 The letter can be no longer than two pages. If it
25 requires more substantive discussion than two pages permits, I
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1 will get everybody on the phone, or, if necessary, hold a
2 conference. I won't necessarily wait for a responsive letter
3 before I get everybody on the phone. It depends.
4 Hand deliveries. If something is urgent and you need
5 me to act on it that very day, and, therefore, read your letter
6 that very day, it can be hand delivered to the Worth Street
7 entrance, but we won't know it's there unless you tell us.
8 Things that are delivered to the Worth Street entrance go
9 through security and then they go to the mail room and then
10 hopefully I will get it within the next day or two. So if you
11 would actually like me to read it that day, that's fine, just
12 call us and let us know there's a hand delivery, and have your
13 messenger call chambers again when it's actually there, so one
14 of my staff can go down and retrieve it.
15 If you hand deliver something to us Friday after 5:00
16 or on a weekend, which hopefully won't happen, but in any
17 event, you should understand that the security folks are going
18 to put it in the night depository so I will not see it until
19 Monday afternoon. So, it is particularly important in those
20 circumstances that you have made a phone call so that we can
21 make sure that we personally pick it up.
22 There is one disclosure I want to make. I have two
23 wonderful sisters. One of them happens to live in Seattle.
24 Her name is Lenore Cote, and she is vice-president of
25 operations risk at the Federal Home Loan Bank of Seattle.
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1 So let's turn to motion practice. I am putting to the
2 side for a moment the VNB case. So right now I am just going
3 to talk about the other cases. I want to thank counsel for the
4 way they responded to Judge Kaplan's order which helped inform
5 this Court about management issues and the extent that there is
6 overlap or lack of overlap among the cases. Out of those
7 submissions and a discussion among several of us, and then
8 ultimately agreement by all of us, a volunteer raised her hand
9 and has this group of cases, very happily.
10 So the first thing I did was issue the order staying
11 all motion practice except in the lead case 5201.
12 I want to make sure that we set up briefing of the
13 motion to dismiss issues in the way that's most helpful to the
14 plaintiffs and defendants. I want to make sure that 5201 is a
15 good vehicle. I notice it doesn't have a 10-b claim.
16 I have the second lowest Docket No. 6188 as it was
17 originally filed, and it does have a 10-b claim.
18 I am thinking about having two motions to dismiss. I
19 don't want to do duplicative work, but I was thinking that
20 counsel might find it useful to have actually complete motions
21 to dismiss in at least one case and maybe two, and that at
22 least one of those cases should be a case with a 10b-5 claim.
23 So I am anxious to hear from you on that.
24 I am thinking, and you noticed this from my proposal,
25 that plaintiffs would have the right to amend in response to
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1 the first motion to dismiss, but that would be it with respect
2 to any issue raised in the motion to dismiss. It would be apt
3 to cure the issues that were raised or not, and then we would
4 have full briefing of the motion to dismiss if it were renewed.
5 I would like to do that on sort of a tight schedule,
6 not unreasonably tight because we have holidays here and it is
7 falling at a period of time when I know lots of people have
8 family plans and travel plans, but I think that you would like
9 to know, at least from the representative cases that we are
10 going to choose out of today's meeting and the motion to
11 dismiss was due in 5201 today, at least on the common issues, I
12 thought you'd like to have as soon as I am able to get it to
13 you, a reading on the issues presented by any motion to
14 dismiss.
15 Let me tell you what I think would happen after that.
16 I am thinking that I will stay discovery until I rule on the
17 motions to dismiss, and I am aware that we have motion practice
18 ongoing, whether the PSLRA stay of discovery applies or not
19 given the nature of the plaintiffs here, or the plaintiff, but
20 that if a sufficient amount of the one or two complaints that
21 are tested through the motion practice survive, that then we
22 would move immediately into document discovery on all the cases
23 I have one caveat on that, and, that is, I don't have
24 a feeling yet for how important the statute of limitations
25 issues are going to be and how unique they are with respect to
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1 the different cases, so whether or not any resolution of a
2 statute of limitations issue with respect to 5201 and
3 potentially 6188 would be decided, how universally those
4 rulings would apply across the board I have no feeling.
5 (Pause; machine malfunction)
6 (In open court)
7 THE COURT: Just to summarize, we just discussed in
8 the interim the fact that there are many private actions filed
9 around this country in different courts brought by private
10 plaintiffs based on the securitizations that are present in the
11 Fannie Mae/Freddie Mac litigation before me.
12 So I think we were at the point where I was anxious to
13 hear from counsel about the best way to approach motion
14 practice. Again, while you can say anything, I am most
15 interested in hearing whether 5201 is a good vehicle to
16 litigate the common issues in, whether or not it makes sense to
17 add a 10b-5 case to the initial motion practice, and whether if
18 it does make sense, it should be 6188 which is, again, just
19 arbitrarily the lowest Docket No. case with a 10b-5 claim in
20 it.
21 Let me start with Mr. Selendy. I will give you a
22 chance to be heard on that issue
23 MR. SELENDY: OK, your Honor. We think that the
24 coordination approach that you outlined, coordination but not
25 consolidation is appropriate and sensible.
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1 With respect to the motions to dismiss, as you are
2 aware, our view is that the so-called common issues outlined by
3 defendants in many cases have fact-intensive questions that
4 truly are not common, but if there is to be a case designated,
5 we think it's entirely appropriate to select the first filed
6 and second filed cases.
7 Just to clarify, we have not asserted 10b-5 claims; we
8 have asserted common law fraud claims, and that will be true in
9 the half dozen cases you referred to. But those do raise
10 issues which are distinct from the claims in the non-fraud
11 cases, obviously because scienter is an element only for the
12 fraud case whereas the Section 11 and 12 claims do not involve
13 that.
14 There are also the state statutory claims, although
15 those are common across all of these actions, and there are
16 certain very important differences between the state statutory
17 claims and the federal statutory claims that we can address.
18 In general, your Honor, we think that the approach is
19 sensible. Our primary concern is not so much the scheduling of
20 the briefing but discovery, as we set forth in the PSLRA
21 briefing. This is a series of public actions brought by
22 independent federal agency. In its capacity as conservator for
23 Fannie Mae Freddie Mac, it's trying to vindicate public rights,
24 public interests in the protection of the housing market and
25 its statutorily mandated objective of preserving and conserving
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1 the assets of the GSE's. And while we were prepared to extend
2 to all defendants a stipulation until today, that was based on
3 the presumption that all briefing would be done as of today,
4 and we had not agreed that discovery would be held back.
5 So, what we are concerned about is that we will run
6 another three or six months before discovery begins, and we
7 would like to see that process start even as to limited areas,
8 for example, production of the loan files which are required to
9 be maintained by defendants, initial disclosures, initial
10 discussions of custodians and electronic search terms. We
11 think it's very important to begin that process. And as to the
12 briefing of defendant's motions, your schedule sounds
13 appropriate.
14 THE COURT: Thank you very much, Mr. Selendy.
15 MR. SELENDY: Thank you.
16 THE COURT: Mr. Kasner.
17 MR. KASNER: Good afternoon, your Honor. If it please
18 the Court, for efficiency's sake, we had spoken amongst
19 ourselves. I am prepared to address your Honor's questions
20 with respect to motion practice, if that is all right with the
21 Court. Mr. Clary, who is the litigating client on the issue of
22 lifting the stay, is prepared to address issues associated with
23 discovery, your Honor.
24 Then counsel from Davis Polk will address the remand
25 if you have any issues relating to remand because our clients
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1 are not associated primarily with any of those motions, if that
2 is all right with your Honor.
3 With respect to the motion practice itself, we have
4 not had an opportunity to confer with Ms. Shane, who is counsel
5 in the JP Morgan case.
6 Yes, the UBS case, which is the lowest number, does
7 not have a 10b-5 claim; it doesn't have a common law fraud
8 claim. If there are pleading issues associated with that type
9 of claim, scienter being one of them, actual reliance under
10 applicable state law principles potentially being another. If
11 it please the Court, that is something I would defer to counsel
12 in the JP Morgan case to address.
13 With respect to the issue that your Honor asked about,
14 the motion practice that as soon as I get back to the office, I
15 will review for one last time and then we are prepared to file.
16 There are issues that cut across all of the cases.
17 Your Honor picked up one with respect to the statute of
18 limitations. There are a number of case dispositive issues,
19 your Honor. I know your Honor well enough to know I am not
20 certainly here today to argue those motions. I only advise the
21 Court of sort of generally what the issues are so that your
22 Honor can understand why they would cut across if that is
23 something that the Court is interested in.
24 THE COURT: No. I just want to know if you think 5201
25 is a good vehicle to present those common issues.
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1 MR. KASNER: Your Honor, the issues associated with
2 all of the cases that are raised in our motion would be
3 appropriate for all of the other cases, your Honor. There are
4 some issues that are derivative of when Fannie and
5 Freddie actually purchased these securities, but in terms of
6 statute of repose arguments under federal law and the state
7 laws under which the claim in our case are brought and the
8 others, there is an absolute bar, your Honor, of three years
9 from the date of purchase. It is undisputed in the record
10 cutting across all of the cases, your Honor, that the last
11 purchase by Fannie and Freddie was more than three years ago.
12 The legal arguments that will be presented by both sides as to
13 why that repose does or does not apply will apply across all of
14 the cases.
15 There are arguments concerning inquiry notice. Those
16 will apply, by and large, to all of the cases.
17 There is an issue, your Honor, with respect to the
18 impact of tolling agreements as a tertiary argument. Again,
19 depending on individual cases, the legal principles that your
20 Honor articulates in the UBS matter, the lowest number, ought
21 to apply across the board there as well. I'm not saying this
22 to your Honor because our papers are ready, but I do think,
23 your Honor, that they do cut across, and it would not surprise
24 the Court to learn that we obviously had the benefit of views
25 of co-counsel on the common issues as well.
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1 THE COURT: I was expecting that. I had thought I
2 could put that in the order that everybody should consult, but
3 I knew you would. Thank you.
4 What about this, Mr. Kasner, if the plaintiff amends
5 and you decide to move to dismiss again, how about making it to
6 dismiss the entire pleading as opposed to just addressed to the
7 common issues, or is the motion you've already prepared to
8 dismiss the entire pleading?
9 MR. KASNER: For our client in the lowest numbered
10 case, your Honor -- I keep saying lowest number I should know
11 it -- 5201, yes, it would be to dismiss the whole case.
12 At this juncture there isn't unique jurisdictional or
13 other issue that would apply to us that we're not raising.
14 That is not to say, your Honor, that down the road should some
15 individual issue be decided by the Court that somehow would
16 apply to us that we wouldn't come back to the Court and say we
17 should be dismissed as well.
18 THE COURT: Ms. Shane, is it helpful to have a motion
19 to dismiss in a case of the fraud claim or not?
20 MS. SHANE: If that is what your Honor would prefer to
21 have, JP Morgan would be pleased to have its case serve as that
22 vehicle. If your Honor wouldn't mind, I would like to consult
23 with my colleagues briefly about whether, given their greater
24 familiarity with their own cases and the pleadings in them, a
25 comparison among us about which would be a good vehicle and
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1 whether this would be in fact the best one, given the number,
2 it is in fact right.
3 It seems perfectly reasonable, and I don't doubt that
4 we could get there, but it might be that I don't know of a
5 particular way in which one of their cases does get there.
6 THE COURT: Well, we are going to take a break so
7 folks will have a chance at the appropriate point to consult
8 and revisit any of these issues.
9 I would be happy to have just one motion to dismiss.
10 So, if you tell me that there is really not enough extra
11 learning that you get from a decision on a case with a fraud
12 claim, then I feel no need to decide a second motion to dismiss
13 MS. SHANE: Your Honor, if I might, I think one of the
14 things we would like to consult about and get back to you is
15 the suspicion that there may be nothing to be added at this
16 stage with respect to fraud because if the pleading does not
17 survive the arguments that are being made with respect to the
18 statute of limitations, for example, and also the common law
19 claims that are asserted in the UBS matter, including negligent
20 misrepresentation, one could infer that the pleading will not
21 survive on the fraud standard or its elements.
22 THE COURT: Absolutely. That would be, I think, the
23 assumption.
24 MS. SHANE: Thank you.
25 THE COURT: Good. So why don't we say that everyone
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1 will have a chance during our break to talk about these issues,
2 but right now based on what I have heard, there will be just
3 the one motion to dismiss. It will be in 5201. There will be
4 an amendment or not, and if there is an amended pleading, we
5 have a schedule for it, and then we have the renewed motion to
6 dismiss and it would be made against the complete complaint to
7 the extent defense counsel can articulate arguments. It
8 wouldn't be restricted to the so-called common issues. They
9 would be included, but it wouldn't be restricted to them.
10 Counsel, I proposed a schedule for this motion
11 practice. I haven't heard anybody say that that schedule won't
12 work. I have suggested that if there is an amendment, it would
13 be filed December 21. If there is no amendment, then
14 opposition would be due January 6, and reply would be due
15 January 27. I'm not hearing opposition.
16 MR. KASOWITZ: Your Honor, before we turn to the
17 schedule, I just have one question about the issue of a
18 common -- a motion with respect to a complaint that would be
19 common to others.
20 THE COURT: Counsel, I'm so sorry, I'm going to ask
21 you, and really everyone else who stands, just because there
22 are so many voices to be heard here, that before you speak, if
23 you could just identify yourself for the record.
24 MR. KASOWITZ: I'm sorry for that, your Honor, of
25 course. Marc Kasowitz for plaintiff. The question I have is
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1 this, your Honor -- and this will be helpful to us when we
2 confer amongst ourselves, and I'm sure when the defendants
3 do -- but I am assuming that it is not the case that a decision
4 on a complaint that's common will end up necessarily to be
5 binding as to all other matters.
6 This is, I take it, your Honor, for the Court's
7 edification on issues that might deem to be common, but there
8 are many, many different issues in all of these complaints
9 including ones that would differ with respect to almost all of
10 the claims. So, while some of the issues certainly are common
11 and some of the legal argument will be common, there are so
12 many factual disparities and the like that the Court isn't
13 suggesting, I assume, that there will be a binding effect to
14 the motion on the first complaint.
15 THE COURT: No, that is absolutely correct. Thank you
16 so much, Mr. Kasowitz for raising that issue. It's an
17 important thing for us to all -- for me to articulate my
18 understanding of the impact of the decision on the motion to
19 dismiss in 5201.
20 Every case is being treated on its own merits. This
21 is not consolidated litigation. So I will do my best to
22 address any motion to dismiss that is made in 5201. The
23 complaint will survive or it won't. If it survives, I plan --
24 right now, I am going to be a lot wiser after I address this
25 motion practice, but the presumption would be that discovery
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1 will go forward in all cases, at least document discovery and
2 at least core document discovery, and we are about to get to
3 the discovery issue in a moment.
4 But there would be a right to bring other motions to
5 dismiss in the other actions or no motion to dismiss an answer,
6 but in bringing a motion to dismiss and I've denied the
7 argument that you're about to make in addressing the same issue
8 in 5201, I plan probably to just adopt my reasoning in 5201.
9 Again, the only exception that I am thinking about
10 now, and I will be much wiser after I have the full briefing on
11 that first motion to dismiss, is whether or not if some other
12 case has a terrific statute of limitations argument that has
13 not been captured by the 5201 briefing, whether or not I should
14 stay discovery in that particular action because of its unique
15 statute of limitations argument.
16 So does that answer your question Mr. Kasowitz?
17 MR. KASOWITZ: It does, your Honor. Thank you.
18 THE COURT: Meanwhile, I would be resolving the remand
19 motions as promptly as I could.
20 So I think just to summarize where we are again -- you
21 can revisit this after you have your joint meeting -- but there
22 is only going to be one motion to dismiss. It's going to be in
23 5201. We are not going to have a motion to dismiss in 6188.
24 There is nothing to be gained by it at this initial phase.
25 And we move on now to discovery. Let me talk about
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1 discovery. I do think it makes sense for counsel to start
2 their discussions about electronic discovery protocols, and
3 that we set a schedule today for those discussions to be
4 completed and any failures to agree to be raised with me.
5 I am going to let during the break you folks talk
6 about what would be a reasonable schedule for those discussions
7 given the fact that it's December and we are moving into the
8 holiday period, but I would like an end date for an agreement
9 or a two-page letter to me outlining the issues that there is a
10 failure to agree upon and then we will have a conference.
11 With respect to document discovery, I can't remember
12 who mentioned it here, but someone mentioned the loan files.
13 Are the loan files electronic or are they hard copy?
14 MR. SELENDY: Your Honor, Phillipe Selendy. Typically
15 in our experience, the electronic files, the loan files are
16 maintained both in electronic form and hard copy, although it
17 depends on how good the operations are of the various banks and
18 services. There is a contractual obligation for those files to
19 be maintained as to every single securitization, and that is
20 because those are the basic documents that inform the quality
21 of the loan, the creditworthiness of the borrower, the value of
22 the property and the like, and the trustees in the various RMBS
23 trusts are entitled to get access to those files.
24 It's a primary source of evidence, although not the
25 only source of evidence, to test whether the representations of
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1 warranties made as to individual loans are in fact accurate and
2 whether those loans were eligible to be included in the trust
3 or not.
4 So, all of the defendants who maintain loan files are
5 in fact obligated to maintain them in a way that can be readily
6 transferred upon demand, and that is why we focused upon that
7 as an initial request because that should not be unduly
8 burdensome, and it's something that ought to be maintained in
9 the ordinary course and readily handed over.
10 THE COURT: They may be accessible, but it may still
11 be burdensome. Can you give me a sense -- and there may be no
12 average -- how many loan files are behind any one
13 securitization?
14 MR. SELENDY: That does vary. It can range from the
15 thousands to the tens of thousands, although we are prepared to
16 frame a request that is much more narrow than that because we
17 believe that the allegations of systemic representation can be
18 tested on a sampling basis.
19 So, provided we avoid any cherry picking of those
20 loans, and we identify a random sort, then we can identify a
21 much smaller number in order to then evaluate that. And we
22 would be prepared to do that across the cases.
23 THE COURT: OK. Is it Mr. Clary?
24 MR. CLARY: Yes, your Honor. Richard Clary for Credit
25 Suisse defendants, and I am counsel in six of the 18 cases we
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1 have here today. I'm also counsel for Credit Suisse in a
2 variety of other lawsuits by institutional investors bringing
3 claims similar to the Fannie and Freddie claims, so I actually
4 have pretty good firsthand information about how discovery has
5 proceeded.
6 Just to set the table, your Honor, in this set of
7 cases, the FHFA cases, there are 535 different securitizations
8 at issue across 18 cases which translates, because we have been
9 doing the math and collecting the information on the number of
10 loans in each of the pools, it's over 2.7 million loans, so
11 that is over 2.7 million loan files.
12 In other litigation, principally litigation over
13 whether or not to stay discovery in the state court actions
14 where there is no PSLRA stay, the evidence has been that on
15 average, an average loan file in one of these has about 300
16 pages. So that takes us to 815 million pages if they're just
17 on the 300 page. Some of the loan files in other cases have
18 had over a thousand pages in a loan file. Some will have less
19 than 300, but on average the figures we have been getting are
20 300 pages.
21 The loan files are in many instances not held by any
22 of the defendants. They're held by non-parties, by various
23 services, for instance.
24 In at least some of the state court cases, I am aware
25 that those non-parties came forward and said we don't keep the
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1 loan files in one physical place. We have collections of
2 electronic documents. We have also boxes of hard copy
3 documents that are in various warehouses with various vendors,
4 and that what would be required would be for those, whoever has
5 the loan files, and frequently it's non-parties, to physically
6 pull the hard copies and the electronic copies because they
7 keep the parts present that they actually need to be able to
8 use, and the rest goes off to various warehouses and mountains
9 or wherever they go. And they would have to pull all that
10 material, reassemble each of the loan files, and then of course
11 they have to be reviewed because, as I'm sure your Honor is
12 aware, all of the loan files would contain a great deal of
13 personal financial information. There will have to be
14 protective orders entered. Some of that information may still
15 have to be blocked out under various federal statutes such as
16 the borrower's social security numbers and things like that.
17 There are a lot of mechanical issues to be addressed.
18 So it's not nearly the simple process that Mr. Selendy
19 suggested. It is quite a bit of time, effort and money on the
20 part not only of the defendants to the extent they have loan
21 files but of the non-parties who have loan files.
22 THE COURT: What I am hearing really suggests that
23 both plaintiff's counsel and defense counsel may actually be in
24 agreement that we need a good sampling technique. That it
25 would be extraordinarily burdensome and inefficient to
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1 reassemble, gather, review and analyze all of these files.
2 MR. CLARY: Your Honor, may I intercede?
3 THE COURT: Yes.
4 MR. CLARY: Although what I described is one of the
5 reasons why we think it is entirely appropriate to not commence
6 that effort until such time as your Honor has had a chance to
7 at least rule on motions to dismiss in the test case, because
8 at least some of the grounds of that motion will dispose of all
9 of the actions, and, therefore, any need to look at any of
10 these if in fact the cases proceed, I for one am somewhat
11 skeptical about the sampling for the simple reason that the
12 claims here are that in each securitization which has its own
13 prospectus supplement describing its particular mortgage pool
14 whether or not there are material misstatements about that
15 mortgage pool, and I am not sure -- there's been some
16 discussion in various cases around the country about whether or
17 not sampling would or would not work, and there are some
18 serious issues as to whether in fact you can create a
19 statistical sample that in fact covers each of those 595
20 separate pools because each pool has to be analyzed against the
21 supplemental prospectus towards that pool and for that tranche
22 of that pool that these particular clients Fannie and Freddie
23 have purchased. So I am certainly not --
24 THE COURT: Do I have the wrong number? Is it 535?
25 MR. KASNER: I'm sorry, 535 securitizations, but
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1 within those securitizations there are tranches and different
2 mortgages are relied on to pay different tranches, and I
3 believe the total number of tranches is 600 something. I had
4 had that number, and, I apologize, I lost it in the papers.
5 THE COURT: OK.
6 MR. SELENDY: Your Honor, may I respond briefly?
7 THE COURT: Well, sure.
8 MR. SELENDY: I just wanted to point out first that
9 Mr. Clary's argument about the extraordinary difference between
10 all of the securitizations is obviously in direct tension with
11 their argument that these issues are common and can be commonly
12 tested. Moreover, in both federal and state court in New York,
13 the principle of sampling specifically as to RMBS trusts in
14 order to determine whether there have been systemic
15 misrepresentations of representations and warranties as we have
16 alleged here as to several different categories of
17 representations of warranties, that has been accepted. And
18 there is a reason for it is --
19 THE COURT: Well, Mr. Selendy, I don't want to cut you
20 off but I am. We are not going to argue the issue right now.
21 MR. SELENDY: I did have one proposal. We are
22 certainly prepared to work with defense counsel to identify
23 those files that are in fact maintained electronically, to
24 select files on a sampling basis which reduces the burden of
25 defendants, and obviously it will be our burden to demonstrate
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1 to the court why sampling is appropriate. We are totally
2 prepared to do that.
3 The servicers are in fact obligated to maintain the
4 files in order to exercise their servicing responsibilities,
5 which is why it's somewhat difficult for them to say they don't
6 have the files. We're prepared to work with counsel.
8 So, during this period of briefing and analysis of the
9 motion to dismiss, besides working on a protocol for the
10 production of any electronically kept materials, I do want
11 counsel to work to see if you can achieve agreement with
12 respect to production of a sample of loan files. I will hear
13 you on a schedule that you'll discuss and present to me after
14 our break if you are not able to reach agreement about it, and
15 we will take that up at a separate conference, but I want you
16 to use this next month or two to try to organize a discovery
17 plan that would include sampling of the loan files.
18 I think as a practical matter, the burden on the
19 defendants and the plaintiffs of personally and individually
20 reviewing 2.7 million loan files, each of which has at least
21 300 pages, says there has to be a better way. So, I am going
22 to count on you to figure out the better way, and use this time
23 to do that, and give me a schedule by which you will have
24 finished those discussions and we will meet again if you don't
25 have agreement.
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1 I want you to use this time also to come up with a
2 discussion about limitation on depositions should we get that
3 far. And Mr. Kasner and Mr. Karp at least are familiar with
4 one system that was used before me for limiting the number of
5 days of depositions. There are many different systems that can
6 be used to reduce the burden of depositions, so I want you to
7 use this time as well to think creatively about how to manage
8 the deposition process.
9 I do not know if there is some core discovery here
10 that can be produced relatively expeditiously once discovery
11 begins that would give the parties great insight into the
12 factual development of this case such that having that
13 discovery in hand would permit you to make a reasonable
14 assessment about settlement discussions.
15 So I want you also to think about sequencing of
16 discovery. I don't know that this is a case that you can
17 identify some core group of documents or a 30(b)(6) deposition
18 or something that would give you the insight to put you in a
19 good position to settle this case sooner rather than later, or
20 these cases.
21 So that is what I wanted to talk about with respect to
22 discovery. Let's move on to coordination issues.
23 MR. CLARY: Your Honor?
24 THE COURT: Yes.
25 MR. CLARY: Did you want me -- I know Mr. Selendy
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1 started his arguing about the PSLRA. Did you want me to
2 discuss at all the PSLRA or should we leave that, and,
3 similarly, if your Honor is inclined to decide now that
4 discovery will be held in abeyance at least through the motion
5 to dismiss on a test case, then perhaps my office can be
6 relieved of the burden of filing the reply brief on the PSLRA
7 status that is due next week. Otherwise, we will file it on
8 the 7th per Judge Patterson's order.
9 THE COURT: You don't have to file a reply. I am
10 going to finish going through my outline. Then we are going to
11 take a break so that you get a chance to talk with each other
12 and come back and convince me why my tentative suggestions here
13 are wrong and I should change my mind, but right now there will
14 be no discovery until I issue a ruling on the motion to
15 dismiss.
16 If 5201 survives that motion to dismiss, right now I'm
17 thinking that discovery would proceed in all of the cases.
18 There is one caveat. If I got a sense that there was a really
19 strong statute of limitations argument in another case or two,
20 that the motion practice in 5201 didn't really tee up well, I
21 would be open to extending the discovery stay in that small set
22 of cases. That is my preliminary thinking.
23 So we use this time while the motion to dismiss is
24 being briefed and decided for you folks to talk about if
25 discovery starts how it would be organized both in terms of
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1 electronic discovery, sampling of documents, deposition limits,
2 etc. So we wouldn't have to waste any time. We could hit the
3 ground running after a motion assuming that it's denied.
4 Coordination: We have the Connecticut case before
5 Judge Thompson, and I looked at the docket sheet, and I have
6 some information about that case that we were able to glean.
7 It doesn't look to me -- feel free to correct me if I'm
8 wrong -- that those parties have had a conference. It is not
9 clear to me why there is a case in Connecticut. I'm happy to
10 take that case, but there may be very good reasons to have the
11 case in Connecticut. So, at the very least, if the case
12 doesn't come here and get folded into our coordinated plan, I
13 would want to reach out to Judge Thompson, and to the extent
14 that it makes sense and he agrees to coordinate what we do so
15 that the burdens on the parties are equally borne. So I will
16 just say that for now.
17 I am not aware of any other case brought by the GSEs
18 other than the Connecticut case. Are there others?
19 MR. SELENDY: That's correct, your Honor, that's the
20 universe.
21 THE COURT: OK. Good. Are there going to be more
22 filed?
23 MR. SELENDY: Well, I think that's a question for the
24 Federal Housing Finance Agency. I don't know if I can answer
25 that.
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1 MR.HART: Your Honor?
2 THE COURT: Sir, could you put your name on the
3 record?
4 MR. HART: Stephen Hart. There could be another case
5 or two, but that is a decision that will have to be made by the
6 director of the agency, and it will not come soon.
7 THE COURT: Thank you. Do you expect if it is filed
8 or they are filed, will they be in this courthouse?
9 MR. HART: That would be my anticipation.
10 THE COURT: Thank you so much.
11 In terms of coordination, I think we are up to in my
12 outline VNB Realty.
13 MR. TSAPATSARIS: Your Honor, if I may, Peter
14 Tsapatsaris for VNB Realty. VNB is the owner of a single
15 security that overlaps with the securities owned by FHFA in
16 case against Bank of America.
17 THE COURT: Keep your voice up.
18 MR. TSAPATSARIS: Of course. We filed this case
19 related case because we rely very heavily on the FHFA complaint
20 and the forensic review results that they report within. We do
21 think there are going to be significant common issues of fact.
22 However, the last thing we want to do is delay the FHFA case or
23 interfere with the schedule in that case. I did confer with
24 counsel for Bank of America who takes no position on
25 relatedness, and I have heard the Court's reticence to raise
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1 its hand and act as a lightening rod for private actions that
2 overlap all over the nation.
3 That being the case, I would like the opportunity to
4 confer with Bank of America again and Quinn Emanuel and then
5 submit a letter to the Court potentially withdrawing or setting
6 up arguments on why we think the case should be related.
7 THE COURT: OK. Well, we are unlikely to have another
8 conference on that issue. I am not saying we won't, but I
9 appreciate what you're saying. Let me just give you my
10 off-the-cuff reaction. I am happy to keep this case and fold
11 it in and coordinate document production and everything, but if
12 there were 15 more or 50 more private plaintiff lawsuits, I
13 would have to think really carefully about what we are doing
14 and if it makes sense for this core group to be joined by these
15 additional cases.
16 So, why doesn't everybody have a chance to think about
17 that, and you may all be in agreement. You may have
18 disagreements. And you will feel free to write me a letter no
19 longer than two pages.
20 MS. KOTLER: Your Honor, Meredith Kotler for Bank of
21 America. If we may, let me confer with my adversary over the
22 break, and perhaps we can come back to you at the beginning
23 with what might be a somewhat different position on this.
25 MS. CHUNG: Your Honor, I'm sorry, but just because --
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1 THE COURT: Ms. Chung.
2 MS. CHUNG: Christine Chung. Because it's come up a
3 couple of times, to make the record clear, FHFA does not
4 believe that the VNB case is related, so we would object to any
5 related designation, and the reasons have already been
6 discussed so I don't want to belabor the record. In fact, the
7 area of overlap is a single securitization. I think your Honor
8 started with, you are a private entity. That really is the
9 distinction. There are so many other cases where if this was
10 the rule, it could end up being the case that many -- the fact
11 that there might be overlapping securitizations is not the same
12 thing in our mind as saying there is true judicial efficiency
13 by putting that case together with this case. So we'll confer,
14 but I just wanted to make clear that our view is that the cases
15 are not related.
16 THE COURT: Good.
17 So why don't we take a break, and during the break
18 counsel can feel free to discuss any of the issues I've raised
19 and ask me to revisit them because they have now had a chance
20 to confer with each other and there is something they want me
21 to hear or suggest any additional issues that I haven't raised
22 at all that you think should be discussed at this conference.
23 Let's take a ten minute break.
24 (Recess)
25 (In open court)
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1 THE COURT: One issue I didn't mention was the
2 protective order. One of you mentioned it. So that is another
3 thing that should be worked on during our interim period here.
4 So I will just sort of in grand topic form, anybody
5 have anything they want to revisit on sort of the
6 administration aspects of the litigation?
7 Anybody have anything they want to revisit on the
8 overview issue of motion practice?
9 Ms. Shane.
10 MS. SHANE: Thank you, your Honor. Penny Shane,
11 Sullivan Cromwell. We have conferred about the idea of having
12 a separate or subsequent briefing on fraud issues or doing it
13 at the same time; and having conferred, the defendants' view is
14 that it would make sense for your Honor to receive a brief with
15 respect to the fraud issues, but that rather than pick a
16 particular case, the group believes your Honor would benefit
17 more from a single brief that seeks to address the fraud issue
18 as it arises in each of the six cases in which it arises, and
19 the defendants would work to coordinate to make sure that we
20 best present those issues in a way that successful and capable
21 of resolution.
22 As to the scheduling of it, your Honor, the defendants
23 are happy to be guided by your Honor's view of what makes most
24 sense, but we would suggest that in the event that the
25 plaintiff plans to amend the schedule your Honor already set
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1 out with respect to the UBS case, that amendment come with
2 respect not only to the UBS case but with respect to the cases
3 in which the fraud claim does arise so that we can all address
4 our motions to the amended pleading and can do it in a way that
5 will have some finality to it.
6 In the event that the plaintiff does not elect to
7 amend, we would suggest to your Honor that we could be on
8 roughly the same briefing schedule sort of carried a little bit
9 further back as your Honor has imposed in the UBS case, and
10 that in order to permit time to coordinate, we would be
11 prepared to file sometime in mid January.
12 THE COURT: So thank you. Very helpful. I think what
13 I would prefer to do then is pick one of the fraud cases. If
14 it is not 6188, that's fine. I am going to say I will presume
15 it will be 6188 but if defense counsel agree among themselves
16 it should be one of the other fraud cases, that's fine with me.
17 We will set a schedule today for you to move to dismiss. The
18 plaintiffs will have an opportunity to amend in response or to
19 oppose.
20 I am trying to think whether you should move to
21 dismiss before we see any amended pleading in 5201 or not. It
22 is now December 2. I think that amended pleading is
23 December 23.
24 MS. SHANE: December 21, your Honor.
25 THE COURT: December 21.
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1 MR. SELENDY: Your Honor, if the purpose is to test
2 the separate fraud allegations, then the amendment of the UBS
3 complaint would not appear to be relevant to that purpose, and
4 we would suggest as defendants have all been operating until
5 recently on the assumption that they would file their briefs by
6 today, that there be a very early date set such as next week
7 for the fraud claim.
8 THE COURT: Good. Thank you.
9 So let me throw this out as a possible schedule for
10 motion to dismiss in 6188; that the motion to dismiss be filed
11 January 6. If there is going to be an amended pleading in 6188
12 in response to that motion, it be filed January 27. If there
13 is no amended pleading, that the opposition be served
14 February 3, and the reply due February 17. How does that
15 sound, Ms. Shane?
16 MS. SHANE: That sounds fair, your Honor, and just to
17 clarify this motion in 6188 or such other case we may
18 substitute in would be a motion strictly addressing the fraud
19 claim notwithstanding that there are other issues that have
20 been and are being briefed fully in the UBS case, is that
21 correct?
22 THE COURT: I don't think so. I don't want to set up
23 a situation where we have multiple motions to dismiss in every
24 action. We either do this sort of concurrently or we don't do
25 it at all now, and we wait for an opinion on the motion to
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1 dismiss in 5201. I can see arguments both ways. I'm sure you
2 can too. I think there is such a benefit from getting you a
3 decision sooner rather than later that argues in favor of
4 concurrent briefing.
5 MS. SHANE: We recognize that as well, your Honor,
6 which is why we suggested that we go ahead and do a brief on a
7 rough and contemporaneous schedule. The concern I think may be
8 that whichever case ends up being the vehicle for that briefing
9 will be in a position unlike either the UBS case that has come
10 before or those that are to come after in the sense that while
11 addressing the fraud claim, there will be a need to anticipate
12 a ruling with respect to the other common issues that have been
13 briefed by UBS but not decided yet and no instruction will yet
14 have been given.
15 So that that second test case might be thought of as
16 foregoing the opportunity to analyze your Honor's decision,
17 avoid duplication of argument or repetition of anything that
18 you have properly decided once you get around to deciding the
19 UBS case, but that opportunity shouldn't be lost, I don't
20 think, and the repetition that would result from having to
21 anticipate how your Honor might rule on the UBS issues and how
22 that might or might not affect that defendant might be worth
23 seeking to avoid.
24 MR. SELENDY: Your Honor, if I may, in the ordinary
25 course, defendants would have to file their motions without
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1 some initial test rulings being made available by the Court.
2 So the idea that it would be somehow inadequate for defense
3 counsel to have to file motions just two motions across 18
4 cases without having initial guidance.
5 THE COURT: 17 --
6 MR. SELENDY: Well, I left open the fact we have also
7 the RBS complaint then.
8 THE COURT: No, Connecticut is what I am thinking of.
9 MR. SELENDY: Yes. Yes.
10 THE COURT: Hopefully 18.
11 MR. SELENDY: So, in light of that we submit that
12 there should not be further delay from discovery in particular
13 by waiting for a ruling on the first test case before having
14 another test case.
15 Further, your Honor, although you've suggested that
16 defendants could select, we think the process should be
17 non-arbitrary, and it should be the lowest docket number JP
18 Morgan rather than some selection by defendants among them.
19 MS. SHANE: Your Honor, may I suggest as a way to
20 resolve the difficulty or clarify, we are not looking for an
21 opportunity to have another brief that is any different than
22 the other brief that your Honor's current schedule contemplates
23 from those defendants who are to become educated, as everybody
24 will become educated, by the result of the UBS brief.
25 So that simply in order to prevent the one defendant,
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1 which JP Morgan will be happy to be, from being in a different
2 position, all that we would seek to have happen is that JP
3 Morgan would likely adopt and reiterate the arguments that have
4 been made by UBS and would not take the trouble to try to
5 anticipate, distinguish and otherwise show how they will apply
6 when they haven't yet been rendered and will not be prejudiced
7 at such time as your Honor renders decision in the UBS case by
8 the fact that JPM has filed a brief already with respect to the
9 fraud issues adopting the UBS arguments, but instead would have
10 the same opportunity other defendants would have to present to
11 your Honor distinctions, if any, from the UBS ruling that
12 deserve your Honor's attention on those common issues only.
13 THE COURT: Counsel know their pleadings. I don't. I
14 love the idea, Ms. Shane, that you will just adopt arguments
15 that have been made in 5201 on common issues and not seek to
16 submit different briefing with respect to those issues. I
17 would encourage that approach. I am not sure that you are
18 going to get a second chance to revisit any of the issues. If
19 6188 has one motion to dismiss, I think I will decide that
20 motion to dismiss, and that's going to be it.
21 MS. SHANE: Thank you, your Honor.
22 THE COURT: So we will get out a scheduling order
23 adopting my proposed schedule in 5201 and the proposed schedule
24 I've just outlined in 6188, and if there is a substitution at
25 defense counsel's choice of a different fraud case than 6188,
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1 counsel, I would ask you to advise me of that by December 9.
2 Is there.
3 Is there any other issue that counsel wish to raise
4 with me on the general topic of the motion practice?
5 With respect to discovery, counsel, we are going to
6 confer about some scheduling here of proposals. Do we have a
7 date by which you would have completed your discussions on
8 electronic discovery protocols?
9 MR. SELENDY: Unfortunately, your Honor, we did not
10 have an opportunity to confer with defense counsel. It seems
11 that we each were participating in our own meetings. I would
12 suggest that we come back in as to each of the issues you've
13 raised -- sampling, electronic discovery, depositions and
14 protective order -- in early January, perhaps January 6, and
15 inform the Court of the results of discussions.
16 THE COURT: I would look forward to seeing everyone
17 again, of course, but I know that it is a real burden on
18 counsel and your clients to spend an afternoon in this
19 beautiful courtroom.
20 So, I will take a report from counsel, and hopefully
21 it will be a joint report with a proposal that I can adopt on
22 January 10, and it will address a protective order, ediscovery,
23 sampling of documents, that's for loan files, and limits on
24 depositions, and, of course, a proposal with respect to the
25 time frame for document production and a separate proposal for
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1 time frame for depositions and then for expert discovery and
2 summary judgment practice.
3 MR. CLARY: Your Honor, had also mentioned before the
4 break --
5 THE COURT: Mr. Clary?
6 MR. CLARY: I'm sorry. Richard Clary for the Credit
7 Suisse defendants.
8 Before the break, your Honor, had also mentioned
9 potentially sequencing of discovery, and I assume you would
10 like that addressed in the report.
11 THE COURT: Yes. What I am hoping then you will do is
12 set up a series of meetings among yourselves in December and
13 early January so if at all possible I get a report that shows
14 consensus on these issues. Obviously, if you can't reach
15 agreement, you can't.
16 Anything else with respect to the general issue of
17 discovery?
18 Anything to discuss on the general topic of
19 coordination?
20 MR. TSAPATSARIS: Peter Tsapatsaris for VNB.
21 I conferred with counsel for Bank of America and
22 counsel for FHFA during the break. Bank of America's counsel
23 has informed me that they now plan to contest the relatedness.
24 I would like -- I know your Honor was hesitant to grant me this
25 before -- an opportunity to confer with my client. We came in
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1 here thinking it was unopposed, and the Court has raised
2 concerns and FHFA counsel has raised concerns, B of A's counsel
3 has raised concerns which may cause us to withdraw that
4 request.
5 I would ask the Court to give us leave to file a
6 two-page letter after I confer with my client which will either
7 state our grounds for why it should be related or withdraw the
8 request for the relatedness.
9 THE COURT: Good. Shall we say I'll get such a letter
10 no later than December 9?
11 MR. TSAPATSARIS: Yes, your Honor.
13 Any other coordination issue?
14 Settlement: Have the parties talked about a process
15 for settlement discussions?
16 MR. SELENDY: Your Honor, Philippe Selendy. There
17 have not been global discussions with all of the defendants nor
18 has there been discussion of a general process. There have
19 been certain discussions with certain parties.
20 THE COURT: While I encourage you all to think about
21 settlement at any time, I am going to assume that you need a
22 decision on the motion to dismiss at least in 5201 before you
23 can really talk seriously about settlement. So I plan to
24 address that motion.
25 If the motion is denied and if all of these cases are
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1 going forward into discovery, I plan to refer you to Magistrate
2 Judge Maas initially and potentially to a senior judge on this
3 court for supervision of settlement discussions.
4 If counsel decide among themselves that they would
5 prefer to make other arrangements for settlement process, that
6 would be just fine with me, and that would relieve you of the
7 obligation to participate in good faith in the settlement
8 discussions before Judge Maas. So that is how we will leave
9 that.
10 But I do want after a decision on the motion to
11 dismiss if it is denied for you to at least begin those
12 discussions.
13 Is there any other issue we need to address this
14 afternoon?
15 MS. CHUNG: Your Honor, we had the remand issues.
16 THE COURT: Yes. Yes. I know, Ms. Chung.
17 MS. CHUNG: I think it was in some category. I was
18 looking back at my notes.
19 Your Honor, you have before you four of the FHFA
20 actions that were commenced in state court. There is a
21 threshold issue of whether the cases have been properly
22 removed. Mr. Kasowitz's firm has three of those cases.
23 In the Countrywide case, which is the one that our
24 firm is handling, we had gotten on the phone with Judge
25 Rakoff's chambers within days of the case being assigned to him
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1 with cross applications, and there was an application from the
2 defendants to stay any consideration of what was going to be
3 our motion to remand. We had asked to have a briefing schedule
4 on the motion for remand that pretty closely complied with the
5 rules of the Court.
6 The Judge turned down a request by the defendants to
7 have a slower schedule, and within a month we were fully
8 briefed and were scheduled to have the argument on this very
9 dramatic day when we got the announcement that the case was
10 being transferred.
11 So, in this case our concern is, did the Judge order
12 that the motion for stay and motion for remand be briefed
13 contemporaneously. If that schedule had been kept, there is,
14 as your Honor noted, this issue of the JPML transfer motion.
15 It is now agreed by the parties, it's been conceded by
16 the defendants, that the first time it appears that JPML would
17 consider the transfer motion is January 26.
18 We had made a big effort -- and I think Judge Rakoff,
19 he had set a schedule by which it would have been possible to
20 have a decision on that threshold issue well before the JPML
21 would begin even to consider transfer, much less the remand
22 motion if the case were to be transferred.
23 Our view is still that the judicial efficiencies and
24 the efficiencies for the parties is to finish off this process
25 of having the oral argument in the Countrywide case. It is a
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1 case in which this one thing somehow has become sort of --
2 there was a big consequence of having reassignment of cases,
3 which this piece was moving forward at quite a good clip and is
4 now in abeyance.
5 So, we would renew our request to have the argument
6 rescheduled, and I don't know if Mr. Kasowitz wants to address
7 the other remand motion separately.
8 MR. KASOWITZ: Simply, that there is a schedule for
9 the other remand motions. There is a schedule set. There is
10 going to be reply in the Morgan Stanley case filed today and
11 oppositions in the other two cases filed today, and there are
12 dates set for replies then your Honor.
13 THE COURT: Good. And, of course, you can consent to
14 removal at any time.
15 MR. KASOWITZ: Understood, your Honor. Thank you.
16 MR. PASTUSZENSKI: Your Honor, if I my Brian
17 Pastuszenski from the Goodwin Procter firm for the Countrywide
18 defendants.
19 Your Honor, I simply want to note that, as Ms. Chung
20 pointed out, there is both pending a motion to remand and a
21 motion to stay in light of the fact that the judicial panel of
22 multidistrict litigation has conditionally transferred the case
23 and your Honor received letters from the parties, from
24 Ms. Chung and then from myself, regarding acceleration of that
25 hearing.
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1 There is the ID case, which is Second Circuit
2 authority, which speaks to the efficiencies of letting the
3 transferee judge decide these issues. Those are all before
4 your Honor. If your Honor knows those issues, I simply want to
5 point out that the briefing process on the conditional transfer
6 order is now complete. That is now fully briefed. It's before
7 the panel. The next hearing session is January 26. We don't
8 know when the panel will issue a ruling, but it has been fully
9 briefed, and it's ready for decision now by the MDL panel.
10 The MDL panel has referred transferred to Judge
11 Pfaelzer 13 mortgage-backed securities cases those include both
12 class cases, most them are individual institutional investors
13 like the cases your Honor has before you. There are also an
14 additional five mortgage-backed securities cases that have been
15 conditionally transferred. This is one of them. Those are in
16 front of Judge Pfaelzer, and the multi-district litigation
17 process is now proceeding forward in front of her.
18 So, your Honor, what Judge Rakoff had in front of him
19 and what was scheduled for hearing on the 16th was not simply
20 the remand issue, but, frankly, also the parallel motion to
21 stay all of that pending action by the JPML. Because as we
22 noted to Judge Rakoff and noted in the letter to your Honor,
23 one of the core issues that is before your Honor to decide
24 which is in two of the other cases; namely, bankruptcy related
25 to jurisdiction has been addressed a number of times already by
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1 Judge Pfaelzer.
2 I simply want to provide that context, your Honor.
3 Thank you.
4 THE COURT: Thank you very much.
5 MS. CHUNG: Your Honor, I'm only rising again to
6 respond to your Honor's comment that, of course, we can always
7 consent to removal. I want to say that in the Countrywide
8 case, of course we knew about the MDL. Among considerations,
9 the FHFA has statutory top prerogative to file in state court
10 or federal court. In the Countrywide case, there was this
11 unique situation where we knew that as soon as we filed in
12 federal court, Countrywide was going to try to get the case
13 swept into the MDL.
14 I want to make it clear in terms of your Honor's
15 proposal, we'd be very willing to consent to removal. So, we
16 would forego our remand motion if the defendants would agree
17 not to pursue their transfer motion to the MDL. So that would
18 be a way that in that case we would be willing to resolve this
19 issue of the remand motion and the transfer motion. So just to
20 advance the ball that much.
21 THE COURT: Well, I think that would be a wonderful
22 result personally, and I encourage counsel to discuss that with
23 each other. I am not going to ask for commitment from
24 Countrywide on the record one way or the other now, but why
25 doesn't everybody reflect, and why don't you let me know what
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1 your positions are -- December 9 seems to be a popular date --
2 so by December 9.
3 MR. PASTUSZENSKI: Your Honor, if I may very, very
4 briefly, Brian Pastuszenski, Goodwin Procter for the
5 Countrywide defendants.
6 I will certainly confer with Countrywide and will let
7 you know by the 9th Countrywide's response or actually the
8 response of the defendants, because there are other defendants
9 in the case, to the proposition that Ms. Chung just addressed
10 to your Honor.
11 But one thing I want to make clear, your Honor, is
12 that there seemed to be an implication that rushing things to
13 the MDL. The reason the multidistrict litigation proceeding
14 exists at all, your Honor, is that starting in the third
15 quarter of 2007, four years ago, your Honor, litigants that had
16 bought, investors had bought mortgage-backed securities began
17 suing Countrywide for the very same things that the FHFA is
18 today alleging in the complaint against Countrywide that your
19 Honor has. More than four years ago, your Honor.
20 The reason that MDL exists is because there are
21 multiple actions, both class and individual, that had at their
22 core the common allegations about alleged abandonment of
23 underwriting guidelines, manipulation of appraisals and so
24 forth. The reason the JPML formed the MDL was because of the
25 extraordinary commonality and extraordinary efficiency of
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1 having one judge deal with those allegations against
2 Countrywide.
3 So, Ms. Chung is right that had this case been filed
4 immediately or initially in federal court, it would have been
5 tagged, but it would have been tagged because of those
6 efficiencies, because of the common factual allegations,
7 because of the common legal issues that all of the cases
8 against Countrywide present.
9 So, I wanted to make clear that this isn't some sort
10 of litigation strategy. It has to do with the fact that all of
11 these cases allege fundamentally the same thing, your Honor.
12 This one, the many, many cases that are in front of Judge
13 Pfaelzer, frankly, whether they involve mortgage-backed
14 securities, common stock or other kinds of securities, they've
15 all been alleging the same things since August/September of
16 2007, your Honor, which, by the way, also in the Countrywide
17 case, as in these other cases, presents some very, very serious
18 statute of limitations and statute of repose issues.
19 But with respect to the MDL, that has to do with the
20 efficiency and the commonality of the allegation against my
21 clients.
22 THE COURT: I appreciate that you are trying to let me
23 down gently here, but on December 9 continue to cede the
24 transfer. There are many different ways to achieve efficiency,
25 of course, and you are arguing in favor of a common defendant.
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1 We are here because of a common plaintiff. There are many
2 different ways to slice and dice this. So, we are all trying
3 to do our best here to try to figure out how to reduce
4 litigation costs and get to the merits in an efficient way.
5 MR. PASTUSZENSKI: Absolutely, your Honor. There is
6 no disagreement. We will respond to your Honor by the 9th.
7 THE COURT: Good. Thank you all for your cooperation
8 today.
9 (Adjourned)
10
11
12
13
14
15
16
17
18
19
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1

------------------------------------------

FEDERAL HOUSING FINANCE AGENCY, etc.,
Plaintiff,
-v-

UBS AMERICAS, INC., et al.,
Defendants.

------------------------------------------
X
:
:
:
:
:
:
:
:
X

11 Civ. 5201 (DLC)

OPINION & ORDER
APPEARANCES:

For the plaintiff:
Philippe Z. Selendy
Kathleen M. Sullivan
Adam M. Abensohn
Manisha M. Sheth
Jordan A. Goldstein
Quinn Emanuel Urquhart & Sullivan, LLP

For defendants:
Jay B. Kasner
Scott D. Musoff
Robert A. Fumerton
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square

DENISE COTE, District Judge:
This is one of seventeen actions brought by the Federal
Housing Finance Agency (FHFA or the Agency), as conservator
of the Federal National Mortgage Association (Fannie Mae) and
the Federal Home Loan Mortgage Corporation (Freddie Mac)
(collectively, the Government Sponsored Enterprises or
A-97
2

GSEs), against various financial institutions involved in the
packaging, marketing and sale of residential mortgage-backed
securities that the GSEs purchased in the period from 2005 to
2007. Fifteen of the actions filed in New York courts -- both
state and federal -- are currently concentrated before this
Court for coordinated pretrial proceedings.
1

FHFA brought this case against USB Americas, Inc. (UBS
Americas) and various affiliated entities and individuals
2
on
July 27, 2011. The Agencys Second Amended Complaint (SAC),
filed on December 21, 2011, asserts claims under Sections 11,
12(a)(2), and 15 of the Securities Act of 1933, 15 U.S.C.
77k, l(a)(2), o; the Virginia Securities Act, VA Code Ann.

1
See Federal Housing Finance Agency (FHFA) v. UBS Americas,
Inc., et al., 11 Civ. 5201 (DLC); FHFA v. JPMorgan Chase & Co.,
et al., 11 Civ. 6188 (DLC); FHFA v. HSBC North America Holdings,
Inc., et al., 11 Civ. 6189 (DLC); FHFA v. Barclays Bank PLC, et
al., 11 Civ 6190 (DLC); FHFA v. Deutsche Bank AG, et al., 11
Civ. 6192 (DLC); FHFA v. First Horizon National Corp., et al.,
11 Civ 6193 (DLC); FHFA v. Bank of America Corp., et al., 11
Civ. 6195 (DLC); FHFA v. Citigroup Inc., et al., 11 Civ. 6196
(DLC); FHFA v. Goldman, Sachs & Co., et al., 11 Civ. 6198 (DLC);
FHFA v. Credit Suisse Holdings (USA), Inc., et al., 11 Civ. 6200
(DLC); FHFA v. Nomura Holding America, Inc., et al., 11 Civ.
6201 (DLC); FHFA v. Merrill Lynch & Co., Inc., et al., 11 Civ.
6202 (DLC); FHFA v. SG Americas, Inc., et al., 11 Civ. 6203
(DLC); FHFA v. Morgan Stanley, et al., 11 Civ. 6739 (DLC); FHFA
v. Ally Financial Inc., et al., 11 Civ. 7010 (DLC).

2
The defendants are UBS Americas, UBS Real Estate Securities,
Inc. (UBS Real Estate), UBS Securities, LLC (UBS
Securities), Mortgage Asset Securitization Transactions, Inc.
(MASTR), David Martin, Per Dyrvik, Hugh Corcoran, and Peter
Slagowitz.
A-98
3

13.1-522(A)(ii), (C); the District of Columbia Securities Act,
D.C. Code 31-5606.05(a)(1)(B), (c); and the common law tort of
negligent misrepresentation. On January 20, 2012, defendants
filed a motion to dismiss the SAC. The motion was fully
submitted on February 24. For the reasons that follow, the
motion is granted in part.
BACKGROUND
On July 30, 2008, in the midst of a housing crisis,
Congress passed the Housing and Economic Recovery Act of 2008
(HERA). See Pub. L. No. 110-289, 122 Stat. 2654 (2008). As
part of the Act, Congress established FHFA as the regulator of
Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. See
id. 1101. HERA included a provision authorizing the Director
of FHFA to place the GSEs into conservatorship under the
Agencys authority for the purpose of reorganizing,
rehabilitating, or winding up [their] affairs. Id.
1367(a)(3). On September 6, 2008, FHFA Director James B.
Lockhart III invoked this authority and appointed the Agency as
conservator of both GSEs, giving FHFA the right to assert legal
claims on their behalf.
The SAC can be briefly summarized. Plaintiff contends that
Fannie Mae and Freddie Mac purchased over $6.4 billion in
residential mortgage-backed securities (RMBS) sponsored or
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4

underwritten by UBS entities during the period between September
2005 and August 2007. RMBS are securities entitling the holder
to income payments from pools of residential mortgage loans that
are held by a trust. For each of the securities at issue here,
the offering process began with a sponsor, which acquired or
originated the mortgage loans that were to be included in the
offering.
3
The sponsor transferred a portfolio of loans to a
trust that was created specifically for that securitization;
this task was accomplished through the involvement of an
intermediary known as a depositor.
4
The trust then issued
Certificates to an underwriter, in this case UBS Securities,
which in turn, sold them to the GSEs. The Certificates were
backed by the underlying mortgages. Thus, their value depended
on the ability of mortgagors to repay the loan principal and
interest and the adequacy of the collateral in the event of
default.
Each of the Certificates implicated in this case was issued
pursuant to one of seven Shelf Registration Statements filed

3
The mortgage originators in this case, none of whom are parties
to the action, include Wells Fargo Bank, N.A.; Countrywide Home
Loans; American Home Mortgage Corp.; Fremont Investment & Loan;
WMC Mortgage Corp.; IndyMac Bank, F.S.B.; and New Century
Mortgage Corp.

4
For 16 of the 22 securitizations at issue in this case,
defendant UBS Real Estate acted as the sponsor and defendant
MASTR acted as the depositor.
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5

with the Securities and Exchange Commission (SEC). Each
individual defendant signed one or more of the two Shelf
Registration Statements that pertained to the securitizations
for which MASTR acted as depositor. The Registration Statement,
together with the relevant prospectus and prospectus supplement
constitute the offering documents for each security.
Generally, FHFA asserts that the offering documents for the
twenty-two securitizations identified in the complaint
contained materially false statements and omissions.
5
More

5
The twenty-two securitizations at issue are: Argent Securities
Inc. Trust, Series 2006-W3 ("ARSI 2006-W3"); Fremont Home Loan
Trust, Series 2006-B ("FHLT 2006-B"); Home Equity Mortgage Loan
Asset-Backed Trust, Series INABS 2005-C ("INABS 2005-C"); Home
Equity Mortgage Loan Asset-Backed Trust, Series INABS 2005-
D("INABS 2005-D"); Home Equity Mortgage Loan Asset-Backed Trust,
Series INABS 2006-D ("INABS 2006-D"); Home Equity Mortgage Loan
Asset-Backed Trust, Series INABS 2007-A ("INABS 2007-A"); MASTR
Asset Backed Securities Trust, Series 2005-WFl ("MABS 2005-
WFl"); MASTR Asset Backed Securities Trust, Series 2005-FRE1
("MABS 2005-FRE1"); MASTR Asset Backed Securities Trust, Series
2005-HE2 ("MABS 2005-HE2"); MASTR Adjustable Rate Mortgages
Trust, Series 2005-8 ("MARM 2005-8"); MASTR Adjustable Rate
Mortgages Trust, Series 2006-2 ("MARM 2006-2"); MASTR Adjustable
Rate Mortgages Trust, Series 2006-OA1 ("MARM 2006-OA1"); MASTR
Asset Backed Securities Trust, Series 2006-FRE2 ("MABS 2006-
FRE2); MASTR Asset Backed Securities, Series 2006-WMC2 ("MABS
2006-WMC2"); MASTR Asset Backed Securities Trust, Series 2006-
WMC3 ("MABS 2006-WMC3"); MASTR Asset Backed Securities Trust,
Series 2006-NC2 ("MABS 2006-NC2"); MASTR Asset Backed
Securities, Series 2006-WMC4 ("MABS 2006-WMC4"); MASTR Asset
Backed Securities Trust, Series 2006-NC3 ("MABS 2006-NC3");
MASTR Adjustable Rate Mortgages Trust, Series 2007-1 ("MARM
2007-1"); MASTR Asset Backed Securities Trust, Series 2007-WMCI
("MABS 2007-WMC1"); MASTR Adjustable Rate Mortgages Trust,
Series 2007-3 ("MARM 2007-3"); and MASTR Asset Backed Securities
Trust 2007-HE2 ("MABS 2007-HE2").
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6

particularly, the SAC alleges that [d]efendants falsely
represented that the underlying mortgage loans complied with
certain underwriting guidelines and standards, including
representations that significantly overstated the borrowers
capacity to repay their mortgage loans. The offering documents
are also alleged to have contained representations regarding
the percentage of loans secured by owner-occupied properties
and the percentage of the loan groups aggregate principal
balance with loan-to-value ratios within specified ranges that
were both false and materially incomplete. Plaintiff asserts
that the false statements of material facts and omissions of
material facts in the Registration Statements, including the
Prospectuses and Prospectus Supplements, directly caused Fannie
Mae and Freddie Mac to suffer billions of dollars in damages,
because [t]he mortgage loans underlying the GSE Certificates
experienced defaults and delinquencies at a much higher rate
than they would have had the loan originators adhered to the
underwriting guidelines set forth in the Registration
Statement.
DISCUSSION
I. FHFAs Claims are Not Barred by the Securities Acts Statute
of Repose.

Defendants chief argument in favor of dismissal is that
this action is untimely because all of Plaintiffs claims were
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7

extinguished no later than August 30, 2010 -- nearly one full
year before the original complaint was filed on July 27, 2011.
Defendants argue that this action is governed by Section 13 of
the Securities Act, which sets forth the time limitations that
generally apply to claims under Section 11 or Section 12(a)(2).
Titled Limitation of Actions, Section 13 provides:
No action shall be maintained to enforce any liability
created under section 77k [Section 11] or 771(a)(2)
[Section 12(a)(2)] of this title unless brought within
one year after the discovery of the untrue statement
or the omission, or after such discovery should have
been made by the exercise of reasonable diligence
. . . . In no event shall any such action be brought
to enforce a liability created under section 77k or
771(a)(2) of this title more than three years after
the security was bona fide offered to the public, or
under section 771(a)(2) of this title more than three
years after the sale.

15 U.S.C. 77m (emphasis added). Thus, under Section 13, a
suit alleging that a defendant violated either Section 11 or
Section 12(a)(2) must be filed (a) within one year of the date
that the plaintiff discovered the violation, or (b) within three
years of the date that the security was offered to the public,
whichever is earlier. Courts sometimes refer to the former
period as a statute of limitations and the latter period as a
statute of repose. See P. Stoltz Family Partnership L.P. v.
Daum, 355 F.3d 92, 102 (2d Cir. 2004).
As noted above, FHFAs claims pertain to securities
offerings that occurred between September 2005 and August 2007.
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8

Because these offerings occurred more than three years before
July 27, 2011, when this suit was filed, under normal
circumstances Section 13 would bar FHFAs Securities Act claims,
irrespective of when the Agency discovered the violations that
it alleges. FHFA does not dispute that this is so. It argues,
however, that the timeliness of its claims is governed not by
Section 13 but rather by HERA, which the Agency argues
establishes superseding rules governing the timeliness of any
action in which FHFA is a plaintiff.
In particular, FHFA relies on HERA 1367(b)(12), which
provides:

(A) In general -- Notwithstanding any provision of any
contract, the applicable statute of limitations with
regard to any action brought by the Agency as
conservator or receiver shall be--
(i) in the case of any contract claim, the longer
of--
(I) the 6-year period beginning on the date
on which the claim accrues; or
(II) the period applicable under State law;
and
(ii) in the case of any tort claim, the longer
of--
(I) the 3-year period beginning on the date
on which the claim accrues; or
(II) the period applicable under State law.
(B) Determination of the date on which a claim accrues
-- For purposes of subparagraph (A), the date on
which the statute of limitations begins to run on
any claim described in such subparagraph shall be
the later of--
(i) the date of the appointment of the Agency as
conservator or receiver; or
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9

(ii) the date on which the cause of action
accrues.

12 U.S.C. 4617(b)(12) (emphasis added). In the Agencys view,
HERA governs the timeliness of its Securities Act claims, to the
exclusion of Section 13 entirely. For the claims at issue in
this case, which accrued prior to the conservatorship and sound
in tort, the Agency maintains that the only relevant timeliness
concern is the three-year statute of limitations dictated by
HERA. Thus, because FHFA was appointed conservator of the GSEs
on September 6, 2008, it had until September 6, 2011 to bring
this case, making it timely when filed on July 27, 2011.
Defendants dispute this reading of HERA. They argue that,
to the extent it applies to federal claims at all, the statutes
only effect with regard to the Securities Act was to relieve
FHFA of the requirement that it file suit within one year of
discovering the misrepresentations for which it seeks to
recover; the three-year post-offering deadline remains in place.
But this argument cannot be squared with HERAs text or purpose.
A. Statutes of Limitations and Statutes of Repose
Because the parties disagreement turns on the meaning of
HERA, a federal statute, we must begin with the language
employed by Congress and the assumption that the ordinary
meaning of that language accurately expresses the legislative
purpose. Engine Mfrs. Ass'n v. S. Coast Air Quality Mgmt.
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10

Dist., 541 U.S. 246, 252 (2004) (citation omitted). If a
statute's language is unambiguous, the sole function of the
courts is to enforce it according to its terms. Katzman v.
Essex Waterfront Owners LLC, 660 F.3d 565, 568 (2d Cir. 2011)
(citation omitted). As the Supreme Court has recently reminded
us, however, when it comes to the meaning of a particular
statutory phrase, context matters. Carco Pharm. Labs., Ltd.
v. Novo Nordisk A/S, 132 S. Ct. 1670, 1681 (2012); see also id.
n.6 (citing FCC v. AT&T Inc., 131 S. Ct. 1177, 1181-85 (2011),
for the proposition that a proposed definition should be
rejected where it [does] not always hold in ordinary usage and
the statutory context suggest[s] it [does] not apply). Thus,
when interpreting a statute, courts are not to construe each
phrase literally or in isolation. Pettus v. Morgenthau, 554
F.3d 293, 297 (2d Cir. 2009). Rather, they must attempt to
ascertain how a reasonable reader would understand the statutory
text, considered as a whole. Id.
In contending that HERA does not affect Section 13s three-
year deadline for claims under the Securities Act, defendants
rely heavily on the semantic distinction between statutes of
limitations and statutes of repose. Although closely
related, the two terms are, at least in theory, conceptually
distinct:
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11

[S]tatutes of limitations bear on the availability of
remedies and, as such, are subject to equitable
defenses, the various forms of tolling, and the
potential application of the discovery rule. In
contrast, statutes of repose affect the availability
of the underlying right: That right is no longer
available on the expiration of the specified period of
time. In theory, at least, the legislative bar to
subsequent action is absolute, subject to
legislatively created exceptions set forth in the
statute of repose.

Stoltz, 355 F.3d at 102 (quoting Calvin W. Corman, Limitation of
Actions, 1.1, at 4-5 (1991)).
Relying on this distinction, defendants argue that because
HERA addresses only statutes of limitations and makes no
mention of statutes of repose, it cannot have altered the
three-year post-offering bar that Section 13 imposes on claims
under the Securities Act. But, as is apparent even from the
title of the treatise on which the Stoltz Court relied, in
ordinary usage, the semantic distinction between statutes of
repose and statutes of limitations is not as clear as
defendants would have us believe.
Indeed, Congress, the courts and learned commentators
regularly use the term limitations to encompass both types of
timeliness provision. As FHFA notes, Section 13 itself is
entitled Limitations on Actions, and nowhere uses the term
repose. See 15 U.S.C. 77m. Even more tellingly, in 2002,
Congress modified the repose period applicable to claims under
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12

the Securities Exchange Act of 1934, the Securities Acts cousin
statute, in a provision entitled Statute of limitations for
securities fraud. Sarbanes-Oxley Act, Pub. K. No. 107-204,
804, 116 Stat. 745, 801 (2002) (codified at 28 U.S.C. 1658(b))
(emphasis added); see Stoltz, 355 F.3d at 104 (acknowledging
that this provision extend[ed] the effective date of the
statute of repose from three years to five years). This Court
and others in this District, well versed in the law of
securities, have likewise used the term statute of limitations
to invoke the three-year repose period on which the defendants
rely here. See In re WorldCom, Inc. Sec. Litig., Nos. 02 Civ.
3288 (DLC), 03 Civ. 9499 (DLC), 2004 WL 1435356, at *3 (S.D.N.Y.
June 28, 2004) (referencing the three year statute of
limitations contained in the Securities Act); id. at *6 (Prior
to the enactment of Sarbanes-Oxley, the statute of limitations
for Exchange Act claims was a one-year/three-year regime.); In
re Alcatel Sec. Litig., 382 F. Supp. 2d 513, 522 (S.D.N.Y. 2005)
(The Court need not address the three-year statute of
limitations under section 13 of the Securities Act); In re
Global Crossing, Ltd. Sec. Litig., 313 F. Supp. 2d 189, 198
(S.D.N.Y. 2003) (Lynch, J.) (discussing the one-year/three-year
statute of limitations set forth in 15 U.S.C. 77m); Griffin
v. PaineWebber Inc., 84 F. Supp. 2d 508, 512 n.1 (S.D.N.Y. 2000)
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13

(addressing the 3-year statute of limitations applicable to
claims under Section 12(a)(2) of the Securities Act).
Using the term statute of limitations to encompass both
the narrow meaning intended by Stoltz as well as any repose
period makes sense, because, conceptually, a statute of repose
must be understood in relation to the statute of limitations
that it acts upon -- that is as a limitation on the plaintiffs
ability to argue that the regular time limit for bringing a
claim should be tolled or that it began to run at some later-
than-expected point. Indeed, when the only timeliness provision
in a statute is one that is not subject to equitable defenses
and is therefore absolute -- in the terminology of Stoltz, when
the claim is governed only by a statute of repose -- the law
generally refers to the timeliness provision not as a statute
of repose but as a statute of limitations that is
jurisdictional in nature. See John R. Sand & Gravel Co. v.
United States, 552 U.S. 130, 133-34 (2008).
6

As should be apparent from this discussion, the definition
of statute of limitations proposed by the defendants does not

6
Admittedly, there is a formal distinction between Soltzs
notion of a statue of repose, which is envisioned as a
substantive bar to recovery, and a jurisdictional statute of
limitations, which bars the Court from acting on the plaintiffs
claim but, in theory, does not alter her substantive rights.
This difference is largely theoretical, however. What matters
from the perspective of the reasonable reader, Pettus, 554
F.3d at 297, is that the claim is categorically barred.
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14

always hold in ordinary usage. Novo Nordisk, 132 S. Ct. at
1681 n.6. Moreover, the statutory context strongly suggests
that defendants proposed definition of statute of limitations
does not apply here.
Passed by the Senate during a special weekend session and
signed by the President only days later, HERA is emergency
legislation aimed at addressing some of the most pressing
problems of the housing crisis -- chief among them the
questionable financial security of the GSEs. Consistent with
this goal, Congress gave FHFA the power to appoint itself
conservator of the GSEs and take such action as may be -- (i)
necessary to put the [GSEs] in a sound and solvent condition;
and (ii) appropriate to carry on the business of the [GSEs] and
preserve and conserve [their] assets and property, 12 U.S.C.
4617(b)(2)(D). In addressing the Agencys powers as
conservator, Congress specifically referenced the collect[ion
of] all obligations and money due to the [GSEs]. Id.
4617(b)(2)(B)(ii). In order to facilitate these functions,
HERA specified a statute of limitations with regard to any
action brought by the Agency as conservator that, in the case
of claims such as these, entitles the Agency to three years from
the onset of the conservatorship to bring suit. As another
court has recognized, the purpose of this provision was
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15

unambiguously to give FHFA more time to decide whether and how
to pursue any claims it inherited as [the GSEs] newly-appointed
conservator. In re Fed. Nat. Mortg. Assn Sec., Deriv., ERISA
Litig., 725 F. Supp. 2d 169, 177-78 (D.D.C. 2010), reversed on
other grounds by Kellmer v. Raines, 674 F.3d 848 (D.C. Cir.
2012).
7

Reading HERAs reference to statute of limitations in the
narrow fashion that defendants propose would undermine the
congressional purpose of a statute whose overriding objective
was to maximize the ability of FHFA to put the [GSEs] in a
sound and solvent condition. 12 U.S.C. 4617(b)(2)(D). The

7
Defendants contend that while this may have been Congresss
intent with respect to statutes of limitations, Congress could
not have intended to affect statutes of repose for another
reason as well. The argument turns on defendants
characterization of statutes of limitations as procedural and
statutes of repose as substantive. Defendants assert that
because a federal statute cannot re-write state substantive
law, HERA could not, as a matter of federal power, displace
state statutes of repose. Accordingly, they conclude that
HERAs limitations provision must be read to apply only to
statutes of limitations at both the state and federal levels.
Defendants argument fails on two fronts. First, they have
the legal doctrine backwards: state sovereignty principles
primarily limit Congresss ability to affect state-court
procedure, not its ability to modify state substantive law. See
Jinks v. Richland County, 538 U.S. 456, 464 (2003). Second, the
Supreme Court has rejected defendants argument that state
statutes of limitation should be considered procedural for
purposes of federalism analysis. Indeed, in Jinks itself, the
Court recognized that federal legislation purporting to toll
state statutes of limitations falls on the substantive side
of the line and is therefore within the federal power. Id. at
465.

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16

more natural reading of the provision, the one that is both in-
line with everyday usage and consistent with the objectives of
the statute overall, is that by including in HERA a provision
explicitly setting out the staute[s] of limitations applicable
to claims by FHFA, Congress intended to prescribe comprehensive
time limitations for any action that the Agency might bring as
conservator, including claims to which a statute of repose
generally attaches.
8

B. HERAs Statute of Limitations Provision Applies to Both
Federal and State Claims.

Defendants next argue that HERAs limitations provision
applies only to state statutes of limitations and, consequently,
has no relevance to federal-law claims such as those that
plaintiff brings under the Securities Act. In support of this
argument, defendants point out chiefly that while HERA
1367(b)(12) anticipates cases in which state tort and contract

8
Defendants argue that in order to conclude that Section 13s
three-year statute of repose does not apply to FHFAs claims,
the Court would be required to conclude that HERA impliedly
repealed that provision of the Securities Act. They are wrong.
Even on the construction suggested by the plaintiff, Section 13
continues to apply with full force to the vast majority of
litigants; HERA creates an exception for a single, privileged
plaintiff -- FHFA. Moreover, because, as explained above,
HERAs reference to the statute of limitations encompasses not
only the narrower use of the term advocated by defendants but
also what defendants refer to as statutes of repose, HERA no
more impliedly repealed the latter than it did the former. And
even defendants agree that, to the extent it applies to federal
claims, HERA constitutes a valid extension of Section 13s one-
year limitation period.
A-112
17

law might afford a statute of limitations longer than the three-
and six-year periods specified, it makes no similar provision
for federal statutes, such as the Racketeer Influenced and
Corrupt Organizations Act, that carry a longer limitations
period.
This argument fails in the face of the limitations
provisions plain language, which states in unambiguous terms
that it shall apply to any action brought by the Agency as
conservator, 12 U.S.C. 4617(b)(12)(A) (emphasis added).
Defendants interpretation is also inconsistent with HERAs
objective, discussed at length above, of facilitating FHFAs
mission to to put the [GSEs] in a sound and solvent condition
by, among other things, collect[ing on] all obligations and
money due to [them]. Id. 4617(b)(2)(D), 4617(b)(2)(B)(ii).
9

Although it may be the case, as defendants contend, that
Congress could have been clearer about HERAs applicability to
claims under federal law, the mere possibility of clearer
phrasing cannot defeat the most natural reading of a statute; if
it could (with all due respect to Congress), we would interpret
a great many statutes differently than we do. Novo Nordisk
A/S, 132 S. Ct. at 1682. In this case, for the reasons that

9
For the same reasons the Court rejects defendants argument,
made in a footnote, that HERA does not apply to statutory
claims.
A-113
18

have been discussed at length in this Opinion, the most natural
reading of Section 1367(b)(12) is that it affords FHFA three
years from the date of conservatorship to bring suit on its
Securities Act claims, irrespective of any other provision of
law.
II. The GSEs Claims Were Open When FHFAs Conservatorship
Began.

Defendants also contend that, even if HERA governs the
timeliness of Securities Act claims in general, plaintiffs
particular claims were barred by Section 13s one-year statute
of limitations before the relevant provision of the HERA took
effect. As defendants note, HERA explicitly provides that the
statute does not revive claims for which the statute of
limitations had expired prior to the conservatorship unless the
claim arose from fraud, intentional misconduct resulting in
unjust enrichment, or intentional misconduct resulting in
substantial loss to the regulated entity. 12 U.S.C.
4617(b)(13).
In order to show that plaintiffs Securities Act claims
accrued and expired prior to the conservatorship, defendants
cite a series of news accounts, lawsuits and other reports that
they assert placed the GSEs on inquiry notice of the potential
that the offering materials for these securities contained
material misstatements or omissions. In focusing their
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19

arguments around when the GSEs had inquiry notice, defendants
rely on Second Circuit authority that plaintiff argues has been
abrogated by the Supreme Courts decision in Merck & Co. v.
Reynolds, 130 S. Ct. 1784 (2010). Thus, before analyzing
defendants specific claims, some discussion of the accrual
standard under the Securities Act is warranted.
A. Accrual of Claims Under the Securities Act
As noted, Section 13 of the Securities Act sets out the
accrual standards and time limitations that apply to actions
brought under Sections 11 or 12(a)(2). As relevant here,
Section 13 provides:
created under section 77k or 77l(a)(2) of this title
unless brought within one year after the discovery of
the untrue statement or the omission, or after such
discovery should have been made by the exercise of
reasonable diligence . . . .

15 U.S.C. 77m (emphasis added). The equivalent provision
governing claims under the Exchange Act reads, in relevant part:
[A] private right of action that involves a claim of
fraud, deceit, manipulation, or contrivance in
contravention of a regulatory requirement concerning
the securities laws, as defined in section 3(a)(47) of
the Securities Exchange Act of 1934, may be brought
not later than . . . 2 years after the discovery of
the facts constituting the violation . . . .

28 U.S.C. 1658 (emphasis added).
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20

Unlike Section 13, the Exchange Act provision omits any
reference to circumstances in which discovery of the basis for
the claim should have been made by the exercise of reasonable
diligence. Nonetheless, prior to Merck, the law in this
Circuit was that the accrual standards under the two statutes
were identical. See Dodds v. Cigna Secs., Inc., 12 F.3d 346,
349-50 (2d Cir. 1993).
10
Thus, a potential plaintiff under
either the Securities Act or the Exchange Act was deemed to have
discover[ed] an untrue statement or omission upon obtaining
actual knowledge of the facts giving rise to the action or
notice of the facts, which in the exercise of reasonable
diligence, would have led to actual knowledge. Kahn v.
Kohlberg, Kravis, Roberts & Co., 970 F.2d 1030, 1042 (2d Cir.
1992). Moreover, the prevailing view in this Circuit became
that the two statutes impose[d] a duty of inquiry, that was
triggered when the circumstances [were] such as to suggest to a

10
Although the Sarbanes-Oxley Act of 2002 (SOX), Pub. L. No.
107-204, 116 Stat. 745, lengthened the limitations periods
available to Exchange Act plaintiffs, the key accrual language
was left unchanged. Before SOX, claims under Section 10(b) of
the Exchange Act were governed by the statute of limitations
applicable to private claims of market manipulation under
Section 9(e) of the original Act. That provision read, in part:
created under this section, unless brought within one
year after the discovery of the facts constituting the
violation and within three years after such violation.
See Dodds, 12 F.3d at 350 n.2 (quoting 15 U.S.C. 78i(e)
(1988)).
A-116
21

person of ordinary intelligence the probability that she had a
cause of action. Jackson Nat. Life Ins. Co. v. Merrill Lynch &
Co., Inc., 32 F.3d 697, 701 (2d Cir. 1994) (emphasis added)
(citation omitted).
In Merck, the Supreme Court rejected the Second Circuits
inquiry notice standard as applied to the accrual of claims
under the Exchange Act. As the Court explained, the
discovery of facts that put a plaintiff on inquiry notice
does not automatically begin the running of the limitations
period. 130 S. Ct. at 1798. If the term inquiry notice
refers to the point where the facts would lead a reasonably
diligent plaintiff to investigate further, that point is not
necessarily the point at which the plaintiff would already have
discovered facts showing scienter or other facts constituting
the violation. Id. at 1797.
The Court acknowledged, however, that, discovery in
respect to statutes of limitations for fraud has long been
understood to include discoveries a reasonably diligent
plaintiff would make. Id. at 1795. Accordingly it declined to
fashion a rule that would require an Exchange Act plaintiff, in
all cases, to possess actual knowledge of the facts constituting
the violation before the statute of limitations could begin to
run. Rather, the Court concluded that the limitations period
A-117
22

under the Exchange Act begins to run upon discovery of, or when
a reasonably diligent plaintiff would have discovered, the
facts constituting the violation. Id. at 1798 (quoting 28
U.S.C. 1658(b)(1)). Following Merck, the Second Circuit has
held that a fact is not discovered for the purposes of
Exchange Act claims until a reasonably diligent plaintiff would
have sufficient information about that fact to adequately plead
it in a complaint. City of Pontiac Gen. Emps. Ret. Sys. v.
MBIA, Inc., 637 F.3d 169, 175 (2d Cir. 2011).
The Second Circuit has yet to rule on whether Mercks
holding extends beyond the context of the Exchange Act to claims
under the Securities Act. But the majority of district courts
that have considered the matter have concluded that it does.
See In re Bear Stearns Mortgage Pass-Through Certificates
Litig., No. 08 Civ. 8093 (LTS)(KNF), 2012 WL 1076216, at *12
(S.D.N.Y. Mar. 30, 2012); In re Wachovia Equity Sec. Litig., 753
F. Supp. 2d 326, 37071 & n.39 (S.D.N.Y. 2011); Brecher v.
Citigroup Inc., 797 F. Supp. 2d 354, 367 (S.D.N.Y. 2011); New
Jersey Carpenters Health Fund v. Residential Capital, LLC, Nos.
08 CV 8781 (HB), 08 CV 5093 (HB), 2011 WL 2020260, at *4
(S.D.N.Y. May 19, 2011); but see In re IndyMac MortgageBacked
Securities Litig., 793 F. Supp. 2d 637, 648 (S.D.N.Y. 2011).
A-118
--------------------------
23

The majority position makes good sense. Both statutes use
the plaintiffs discover[y] of the factual predicate of the
claim as the triggering date for the statute of limitations.
Although the Securities Act includes the qualification that the
limitations period may also begin to run after such discovery
should have been made by the exercise of reasonable diligence,
15 U.S.C. 77m, the Merck Court interpreted the use of the term
discover in the context of the Exchange Act to embrace an
essentially identical diligence requirement and nonetheless
concluded that the inquiry standard that defendants advocate in
this case was excessively broad.
Given that the Supreme Court has interpreted the Exchange
Acts discovery standard to imply the diligence requirement
that the Securities Act makes explicit, there appears to be no
principled reason to depart from the precedents of this Circuit
holding that the accrual standards under the two statutes are to
be interpreted identically. See Dodds, 12 F.3d at 349-50.
Indeed, the Merck Court itself described with approval the long-
standing practice of adopting the Securities Acts explicit
reasonable diligence standard for the Exchange Act accrual
date, despite the omission of an explicit provision to that
effect. Merck, 130 S. Ct. at 1795. Accordingly, the Court
concludes that the statute of limitations for FHFAs Securities
A-119
24

Act claims did not begin to run until a reasonably diligent
plaintiff in the GSEs position would have had sufficient
information about [a given misstatement or omission] to
adequately plead it in a complaint. City of Pontiac, 637 F.3d
at 175.
B. The GSEs Discovery of Defendants Alleged Misstatements
Applying the accrual standard set out in Merck and City of
Pontiac, the Court has little trouble concluding that FHFAs
Securities Act claims were open at the time the time the GSEs
were placed into conservatorship. As discussed in greater
detail below, the essence of the Agencys case is that the
offering materials for the securitizations at issue here
included materially false or misleading information regarding:
(1) the value of the underlying mortgage properties; (2) the
percentage of underlying properties that were owner occupied;
and (3) the degree to which the underlying mortgage loans were
underwritten in accordance with certain risk guidelines. To
support these allegations, the SAC relies principally on FHFAs
own survey of loan-level data for a sample of mortgage loans in
each securitization, which the Agency argues, reveals that the
offering materials contained material inaccuracies with regard
to each of the three categories of information. To support the
allegation that defendants failed to act diligently to ensure
A-120
25

that loans included in the securitizations had been underwritten
in accordance with the risk guidelines set out in the offering
materials, the SAC also cites a series of government and private
reports that have revealed systematic underwriting failures by
many of the mortgage originators whose loans were included in
the Securitizations.
Defendants seize on this last point, noting that a myriad
of legal complaints, government investigations, news articles
and statements by the GSEs own representatives makes clear that
the originators questionable loan practices were widely known
as early as September 2007. From this fact, defendants conclude
that Fannie Mae and Freddie Mac . . . were on notice of the
misrepresentations and omissions about which they complain more
than a year before September 6, 2008, when they were placed into
conservatorship. As noted above, however, under Merck the
relevant question in assessing the timeliness of these claims is
not when the GSEs were put on notice of the potential that the
prospectuses included material misstatements or omissions, but
rather when they, or a reasonably diligent plaintiff in their
position, could have discovered that this was so with
sufficient particularity to plead a Securities Act claim that
would survive a motion to dismiss.
A-121
26

To the extent defendants contend this standard was met as
early as September 2007, that claim is significantly undercut by
the assertion elsewhere in their motion to dismiss that FHFA
has, even now, failed to allege facts sufficient to support a
claim under the Securities Act. Recognizing this tension in
their argument, defendants attempt to turn the tables on the
plaintiff -- asserting that either the information in the SAC
is insufficient to plead its claims, or Plaintiff had enough
information to plead its claims prior to September 2007. But
defendants pose a false dichotomy. Between 2007 and the filing
of this complaint an important event occurred that caused the
GSEs to discover that the loans included in the securitizations
they bought from defendants were not as advertised: the
securities were downgraded from investment grade to near-junk
status. The earliest of those downgrades occurred on February
15, 2008 for Freddie Mac, and March 3, 2008, for Fannie Mae --
less than a year before September 6, 2008, when the GSEs were
placed into conservatorship.
The truth of the matter is that when the GSEs learned of
the loan originators dubious underwriting practices says little
about when they discovered the facts that form the basis of this
complaint. FHFAs claim here is not that the originators failed
to scrutinize loan applicants adequately in general; it is that
A-122
27

defendants failed to act diligently to ensure that, consistent
with the representations in the offering materials, the
originators questionable practices did not lead to the
inclusion of non-conforming loans in the particular
securitizations sold to the GSEs. The downgrade of the
securities credit ratings and the results of the loan audit
that FHFA undertook in response to that action are crucial to
the Agencys claim in this regard, since they are the only facts
that connect the originators general practices to particular
securities that the GSEs bought from defendants. Accord In re
Bear Sterns Mortg. Pass-Through Certs. Litig., No. 08 Civ.
8093(LTS)(KNF), 2012 WL 1076216, at *14 ([A]bsent a decline in
the Certificates' ratings (or some other indicator of a steep
decline in the Certificates' value), it is difficult to see how
a plaintiff could have plausibly pled that the epidemic of
indiscretions in the MBS industry had infected his or her
Certificates.). Indeed, several courts in this district have
concluded that, even under the pre-Merck, duty-of-inquiry
standard for accrual, generalized reports like those relied upon
by defendants are insufficient to trigger the statute of
limitations. See, e.g., Pub. Emples. Ret. Sys. v. Merrill Lynch
& Co., 714 F. Supp. 2d 475, 479-80 (S.D.N.Y. 2010).
A-123
28

The 2007 reports, lawsuits and investigations regarding
loan origination practices cited by defendants may have signaled
a potential for problems in the RMBS market generally -- and
may, as plaintiff suggests, have triggered a duty on the part of
defendants to scrutinize the loans included in their
securitizations more closely -- but such reports were
insufficient to trigger the Securities Acts statute of
limitations. Until such time they did or with diligence should
have discovered otherwise, the GSEs were entitled to rely on
defendants assertion that the loans that underlay these
particular securities complied with the guidelines set out in
the offering materials.
11
The public reporting discussed in the
SAC is relevant to plaintiffs claims only insofar as it negates
any effort by defendants to maintain that they exercised due
diligence or reasonable care to ensure that the loans included
in the securitizations were as described. See In re Morgan
Stanley Info. Fund Sec. Litig., 592 F.3d 347, 359 n.7 (2d Cir.
2010) (recognizing that section 11 provides several due
diligence defenses available to non-issuer defendants, see 15

11
For this reason, the fact that, in August 2007, Freddie Mac
sued American Home Mortgage (AHM), one of the originators at
issue here, asserting that AHM had sold it loans determined to
be of non-investment quality is not sufficient to show that the
claims at issue here had accrued as of that date. The GSEs were
entitled to assume that defendants had made diligent efforts to
ensure that the originators dubious lending practices did not
infect the particular loans included in these securitizations.
A-124
29

U.S.C. 77k(b), and section 12(a)(2) contains a reasonable
care defense, id. 77l (a)(2).). Whatever questions the GSEs
might have harbored in 2007 about the quality of the
securitizations they bought from defendants, it cannot be said
that they should have discovered that those securitizations in
fact contained loans that failed to meet the standards set out
in the offering materials until they were alerted to this
possibility by the ratings agencies in early 2008. The claims
were therefore open in September 2008 when FHFAs
conservatorship began.
III. FHFA Has Standing to Bring This Action.
HERA provides that during the period beginning with the
creation of FHFA and ending on the date on which the [FHFA]
Director is appointed and confirmed, the person serving as the
Director of the Office of Federal Housing Enterprise Oversight
[OFHEO] of the Department of Housing and Urban Development . . .
shall act for all purposes as, and with the full powers of, the
Director. 12 U.S.C. 4512(b)(5). Consistent with this
provision, James Lockhart, the President-appointed and Senate-
confirmed Director of OFHEO, led FHFA from the time of its
creation until the President designated Edward Demarco as Acting
Director of FHFA on August 25, 2009.
A-125
30

Defendants contend that Section 4512(b)(5) violates the
Appointments Clause of the Constitution, which provides, as
relevant here, that the Congress may by Law vest the
Appointment of such inferior Officers, as they think proper, in
the President alone, in the Courts of Law, or in the Heads of
Departments. U.S. Const. art. II, 2, cl. 2. Defendants
maintain that because Lockhart, an inferior officer, was not
separately nominated and confirmed to lead FHFA, his
directorship was an unconstitutional congressional appointment
and that, consequently, the actions that he took as Acting
Director -- including placing Fannie Mae and Freddie Mac into
conservatorship -- were invalid under the Appointments Clause.
They further argue that because Lockhart never validly served as
Director of FHFA, his resignation could not trigger the
provision under which DeMarco was appointed, so that the
constitutional defect in Lockharts appointment infects
DeMarcos tenure as Acting Director as well. These claims are
meritless.
It is well established that Congress may confer on validly
appointed officers additional duties, germane to the offices
already held by them . . . without thereby rendering it
necessary that the incumbent should be again nominated and
appointed. Shoemaker v. United States, 147 U.S. 282, 301
A-126
31

(1893); accord Weiss v. United States, 510 U.S. 163, 171-75
(1994); Lo Duca v. United States, 93 F.3d 1100, 1110 (2d Cir.
1996). Defendants do not seriously contend that the functions
that HERA assigned to the Director of FHFA were not germane to
those that Lockhart was already performing as the Director of
OFHEO. HERA transferred the functions, personnel, and
property of OFHEO from the Department of Housing and Urban
Development to the newly created FHFA, which, like OFHEO, was
tasked primarily with overseeing the operations of the GSEs.
See HERA, tit. III, 122 Stat. 2794-2799 (codified at 12 U.S.C.
4511 note). The powers that HERA assigned to FHFA beyond those
previously enjoyed by OFHEO were intended to further this common
mission and thus entirely germane to Lockharts previous
function.
12
Defendants Appointments Clause challenge therefore
fails.
III. FHFA Has Adequately Pled Violations of the Securities Act.
Defendants also maintain that FHFA has failed to plead
sufficient facts to state a claim under the Securities Act.
Because FHFA does not allege that the defendants engaged in
fraud, its pleadings are governed by Federal Rule of Civil

12
To the extent this conclusion is inconsistent with Olympic
Fed. Sav. & Loan Assn v. Dir., Office of Thrift Supervision,
732 F. Supp. 1183, 1193 (D.D.C. 1990), the Court respectfully
disagrees with that decision.

A-127
32

Procedure 8(a)(2), which requires that the complaint contain a
short and plain statement of the claim showing that the pleader
is entitled to relief. Although this rule does not require
detailed factual allegations, . . . a complaint must contain
sufficient factual matter, accepted as true, to state a claim to
relief that is plausible on its face. Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (citation omitted). A pleading that
offers labels and conclusions or a formulaic recitation of the
elements of a cause of action will not do. Id. (citation
omitted).
The SAC asserts claims under Sections 11, 12(a)(2), and 15
of the Securities Act. Section 11 provides a private cause of
action against the issuers and other signatories of a
registration statement that contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, 15 U.S.C. 77k(a). A fact is material for the
purposes of Section 11 if there is a substantial likelihood
that a reasonable shareholder would consider it important in
deciding how to act. Hutchison v. Deutsche Bank Sec. Inc., 647
F.3d 479, 485 (2d Cir. 2011) (citation omitted). Section
12(a)(2) imposes liability under similar circumstances with
respect to prospectuses and oral communications, 15 U.S.C.
A-128
33

77l(a)(2). Neither provision requires allegations of
scienter, reliance, or loss causation in order to state a claim.
Fait v. Regions Fin. Corp., 655 F.3d 105, 109 (2d Cir. 2011).
Section 15 extends control person liability to [e]very person
who, by or through stock ownership, agency, or otherwise . . .
controls any person liable under [Section 11] or [Section 12].
15 U.S.C. 77o.
As noted above, FHFA identifies three principal categories
of what it argues is misleading or false information in the
offering materials that accompanied the RMBS at issue here.
First, the Agency asserts that the prospectus supplements
understated the loan-to-value (LTV) ratio of the underlying
mortgage pools. Second, it contends that the offering materials
overstated the percentage of properties in the supporting loan
groups that were owner occupied. Finally, FHFA maintains that
the offering materials represented that the underlying mortgage
loans were underwritten according to certain risk guidelines
when, in fact, there were pervasive and systematic breaches of
those guidelines. Defendants contend that the SAC fails to
state a claim with respect to any of the three categories of
statements.
13

13
In a footnote, defendants also maintain that, in addition to
failing adequately to allege conduct violative of the Securities
Act, the SAC does not assert that MASTR was a statutory
A-129
34

A. LTV Ratio
The offering materials for each securitization included
group-level representations regarding the LTV ratios of the
underlying mortgages. For any given mortgage, the LTV ratio is
determined by computing the balance of the loan as a percentage
of the value of the property that secures it, often determined
on the basis of an appraisal. LTV ratio is a measure of credit
risk. The higher the ratio, the less equity the homeowner has
in the property, and the more likely she is to default.
Mortgages with an LTV ratio in excess of 100% are underwater,
and are highly susceptible to default, because the homeowner has
little financial incentive to continue making payments in the
event her financial circumstances change or the value of her
home further declines. Such mortgages are highly risky for note
holders, because the value of the property is insufficient to
cover the balance of the loan in the event of a default.

seller, a necessary condition for establishing liability under
Section 12. This argument is easily rejected. A person is a
statutory seller -- and therefore a proper Section 12(a)(2)
defendant -- if he successfully solicited the purchase of a
security, motivated at least in part by a desire to serve his
own financial interests or those of the securities owner. In
re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d at 359
(citation omitted). Consistent with this definition, the SAC
alleges that MASTR actively participated in the solicitation of
the GSEs purchase of the GSE Certificates, and did so in order
to benefit itself.
A-130
35

Just as LTV ratio is a measure of the riskiness of an
individual home loan, so too is it an indicator of the
investment-worthiness of a security backed by the income from
many such loans. Each Prospectus Supplement that defendants
signed in connection with these offerings included statistics
regarding the distribution of LTV ratios across the underlying
loan pool. For example, the Prospectus Supplement prepared
regarding the MABS 2007-WMC1 Securitization, cited in the
complaint, represented that none of the mortgages in the
supporting loan group had an LTV ratio in excess of 100% and
that approximately 29.24% of the Group I Mortgage Loans [whose
certificates the GSEs purchased] had loan-to-value ratios
. . . in excess of 80.00%.
FHFA alleges that these figures, and similar LTV
information reported in the offering materials for the other
twenty-one issuances, were material to the GSEs in deciding
whether to invest in the securities. It further alleges these
data were false and therefore actionable under Sections 11 and
12(a). In support of the latter assertion, the Agency cites the
results of its own review of loan-level data for a sampling of
mortgage loans included in each securitization. The data
review, which used an automated valuation model to estimate the
property value at the time of origination for each loan sampled,
A-131
36

revealed that, for each securitization at issue here, the
Prospectus Supplement significantly understated the percentage
of loans with an LTV ratio in excess of 80%. Moreover, although
the Prospectus Supplements indicated that the securitizations
included no loans that were underwater, the Agency found that,
with regard to seventeen of the securitizations, underwater
loans accounted for 10% or more of the sample. In the case of
the MABS 2007-WMC1 Securitization, for example, the Agency found
that while the prospectus supplement indicated that only about
29.24% of the relevant loans had LTV ratios above 80%, the
actual number was 61.97%. The data review also determined that
18.55% of the loans sampled in the MABS 2007-WMC1 Securitization
had LTV ratios in excess of 100%.
Defendants counter that the LTV ratios and the housing
appraisals that underlie them are statements of opinion that
cannot give rise to liability under Sections 11 and 12(a)(2).
They note that appraisal value is a subjective determination
that is largely a function of the particular methods and
assumptions employed by the appraiser, and that claims under the
Securities Act generally lie only when there has been an untrue
statement of a material fact, 15 U.S.C. 77k(a) (emphasis
added). In support of their position, defendants cite a series
of cases from this District, which they claim, hold that LTV
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37

ratios are, at root, opinion statements and therefore non-
actionable under the Securities Act. Defendants misstate the
holdings of these cases and the law in this area.
1. Opinion Liability Under the Securities Act
It is true, as defendants note, that Sections 11 and
12(a)(2) of the Securities Act impose liability only for an
omission or untrue statement of a material fact. 15 U.S.C.
77k(a), 77l(a)(2) (emphasis). But matters of belief and
opinion are not beyond the purview of these provisions. Fait,
655 F.3d at 110. In Fait, the Second Circuit concluded that
statements in the offering materials for certain securities that
purported to convey managements estimates of goodwill in an
acquired company, despite depend[ing] on managements
determination of the fair value of assets acquired and
liabilities assumed, which are not matters of objective fact,
could nevertheless give rise to liability under the Securities
Act, provided the plaintiff could show that the estimates were
both objectively false and disbelieved by the speaker when made
(subjectively false). See id. at 113.
Defendants and FHFA agree that the statements regarding LTV
ratios at issue in this case depend on appraisers estimates
regarding the values of the underlying properties and that
because those values are not matters of objective fact, Fait
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governs plaintiffs claims in this respect. They disagree only
about the identity of the speaker whose disbelief in the
statements plaintiff must plead. Plaintiff contends that it is
sufficient under Fait that the SAC alleges that the appraisers,
who are not defendants in this case, did not believe that the
valuations they assigned to the underlying properties were
accurate. Defendants counter that in order to state a claim
adequately under Fait, plaintiff must assert that the statement
upon which it seeks to predicate liability was both objectively
false and disbelieved by the defendant at the time it was
expressed. Fait, 655 F.3d at 110 (emphasis added). Although,
admittedly, there is dictum in Fait that superficially supports
defendants claim, upon closer examination of that decision and
its reasoning, the Court is convinced that plaintiff has the
better of the argument.
The confusion surrounding whom Fait requires to have
disbelieved an opinion statement in order for it to be
actionable under the Securities Act can be explained largely by
the fact that, in the majority of cases, the opinion upon which
the plaintiff seeks to rely is an opinion first articulated by
one or more of the Securities Act defendants. In Fait itself,
for example, Regions Financial Corporation was both a defendant
in the Securities Act case and the originator of the goodwill
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39

estimates that the plaintiffs alleged were materially false.
Id. at 110-12; see also In re Gen. Elec. Co. Sec. Litig., No. 09
Civ. 1951 (DLC), 2012 WL 1371016, at *9 (S.D.N.Y. Apr. 18, 2012)
(analyzing officer-defendants statement that in the recent
market volatility, we continue to successfully meet our
commercial paper needs.) Fait, therefore, did not require the
Second Circuit to address the issue that the parties pose here:
how to treat opinions that the offering materials attribute to
someone other than a defendant. Faits reasoning is, however,
helpful in addressing this question. It points squarely in
favor of plaintiffs position, imposing upon the plaintiff the
duty to plead that the person who formed the opinion did not
believe the opinion when she expressed it.
As noted above, Fait recognized a narrow set of
circumstances under which statements of opinion may constitute
an untrue statement of a material fact, 15 U.S.C. 77k(a),
77l(a)(2), and therefore support liability under the Securities
Act. In reaching this outcome, the Second Circuit relied
heavily on the Supreme Courts analysis in Virginia Bankshares,
Inc. v. Sandberg, which recognized that statements of opinion or
belief are factual in two senses: as statements that [the
person to whom the belief is ascribed] . . . hold[s] the belief
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40

stated and as statements about the subject matter of the . . .
belief expressed. 501 U.S. 1083, 1092 (1991).
In order to understand the Courts reasoning, it is helpful
to analyze it in the context of this case. Here, for example,
the Prospectus Supplement for the MABS 2007-WMC1 Securitization
represented that 29.24% of the loans in the relevant group had
LTV ratios above 80%. This representation is equivalent to a
claim that, for the remaining 70.76% of loans, an appraiser
subjectively valued the mortgage security at or above 125% of
the relevant loan amount.
The valuations are, of course, the subjective judgments of
the appraisers. See In re Salomon Analyst Level 3 Litig., 373
F. Supp. 2d 248, 25152 (S.D.N.Y. 2005) (Lynch, J.)
([V]aluation models depend so heavily on the discretionary
choices of the modeler . . . that the resulting models and their
predictions can only fairly be characterized as subjective
opinions.). But although the appraisals are matters of opinion
in one sense, they also constitute factual statements: that the
appraised value represents the appraisers true belief as to the
value of the property. Fait holds that, under the Securities
Act, liability may attach to this implied assertion -- that the
originator of the opinion sincerely holds the belief reported --
where the assertion is shown to be false. Applied to this case,
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41

the plaintiff alleges that the appraisers did not accurately
communicate their subjective views regarding the value of the
properties at issue. To put it bluntly, the plaintiff asserts
that the appraisers did not actually believe that the homes
underlying the LTV ratios were worth as much as the appraisers
reported they were worth.
Plaintiff is therefore correct that the subjective
falsity that Fait requires in order to impose Securities Act
liability based on a statement of opinion is falsity on the part
of the originator of the opinion, who may or may not be a
Securities Act defendant. This conclusion is confirmed by the
practice in federal court with respect to opinion-based
Securities Act claims in multi-defendant cases. The Securities
Act does not require a defendant-specific showing of subjective
falsity in order to impose liability for opinion statements, nor
do defendants argue that such a requirement exists. Indeed, in
Fait the Second Circuit seemed to assume that if the complaint
had alleged that the companys representations regarding
goodwill falsely represented the speakers' beliefs at the time
they were made, 655 F.3d at 107, such an allegation would be
sufficient to state a claim against not only the company, but
also against the individuals, underwriters and accounting firm
named in the complaint. Defendants have articulated no legal
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42

principle that would distinguish their position in this case
from that of an underwriter that is subjected to Securities Act
liability based on insincere statements of opinion by its issuer
co-defendant.
Indeed, the fact that Fait requires a showing of
subjective falsity only on the part of the originator of an
opinion statement serves to clarify the relationship between
subjective falsity and scienter in the context of claims under
the Exchange Act. Although the Fait Court was careful to
emphasize that the concepts are different, see 655 F.3d at 112
n.5, courts have struggled to distinguish these two lines of
inquiry, in part because, where the originator of the opinion is
a defendant, proving the falsity of the statement I believe
this investment is sound is the same as proving scienter.
Podany v. Robertson Stephens, Inc., 318 F. Supp. 2d 146, 154
(S.D.N.Y. 2004). Once it is acknowledged that the subjective
falsity inquiry is directed at determining the truth of the
statement, I believe, rather than the fraudulent intent of any
defendant who later reports that claim, the distinction becomes
clearer. And, of course, while a plaintiff must plead scienter
for each Exchange Act defendant, under the Securities Act the
plaintiff need only allege subjective falsity as to the
originator of the opinion expressed in the offering documents.
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Although they are not dispositive of the issue, policy
considerations also make plain that this interpretation of
Faits subjective falsity requirement is the correct one. A
statement of opinion included in a registration statement or
other offering document is material from the perspective of the
reasonable investor only to the extent that the person to whom
the opinion is attributed has particular expertise with regard
to the matter about which the opinion is rendered. In other
words, what makes the opinion statement relevant and worthy of
inclusion in the offering materials is that it purports to
represent the view of an individual whose judgment matters. As
noted, this person will often be an agent, director, or
underwriter of the company issuing the securities, but it need
not necessarily be. For instance, in this case representations
regarding LTV ratios -- and the property value estimates that
underlay them -- were material to investors precisely because
they believed that these figures represented the sincere
judgments of professional appraisers with experience making
these sorts of assessments. Without a doubt it is as important
to investors that the appraisers truly believed the estimates on
which the LTV ratios were built as it is that defendants -- who
tabulated and reported appraisal values following the completion
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44

of their due diligence inquiry -- believed that this information
was correct.
Finally, this reading of Virginia Bankshares and Fait is
entirely consistent with the Structure of the Securities Act and
the affirmative defenses that it makes available to defendants
under Sections 11 and 12(a)(2). Where a non-issuer defendant
can show that he conducted a reasonable investigation and
concluded that the statements contained in the registration
statement were true, he can avoid liability under Section 11.
See 15 U.S.C. 77k(b)(3)(A); In re WorldCom, Inc. Secs. Litig.,
346 F. Supp. 2d 628, 662 (S.D.N.Y. 2004). Section 12(a)(2)
likewise permits a defendant to avoid liability by making an
affirmative showing that he exercised reasonable care to avoid
any untruth or omission. See 15 U.S.C. 77l(a)(2).
Underwriters function as the first line of defense with respect
to material misrepresentations and omissions in registration
statements, WorldCom, 346 F. Supp. 2d at 662, and it is
entirely appropriate to impose on them the obligation to vet the
accuracy of opinion statements attributed to third parties. But
the availability of these defenses gives some comfort that
Securities Act defendants will not be held liable for
inaccuracies that they truly could not have prevented.
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2. Application
In light of the forgoing analysis, FHFA has alleged
actionable misrepresentations with regard to the LTV ratios that
defendants reported in their offering materials. Since the
materiality of this information is undisputed, the only issue is
whether the Agency has adequately alleged that the property
appraisals -- as presented through the LTV ratios -- were both
false and not honestly believed when made. Fait, 655 F.3d at
113.
The loan-sampling results reported in the SAC are
sufficiently suggestive of widespread inaccuracies in appraisal
value to render plausible the Agencys claim that the LTV
information reported in the offering materials was objectively
false. As discussed above, FHFAs analysis of the loan data
suggests that the Prospectus Supplement for the MABS 2007-WMC1
Securitization overstated the percentage of loans with an LTV
ratio at or below 80% by over 30%. The Agency reports similar
findings with respect to the other twenty-one securitizations at
issue here.
The allegations in the SAC likewise satisfy Faits
subjective falsity requirement. The SAC asserts that
appraisers themselves routinely furnished appraisals that the
appraisers understood were inaccurate and that they knew bore no
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46

reasonable relationship to the actual value of the underlying
property. To support this claim, the SAC cites a series of
news stories, lawsuits and government investigations that have
revealed instances in which appraisers connected to some of the
mortgage originators at issue here were found to have
systematically and knowingly overstated the value of homes in
order to allow borrowers to obtain larger loans than they could
afford. The SAC also alleges that the LTV data reported in the
offering materials deviates so significantly from the results of
plaintiffs loan-loan level analysis as to raise a plausible
inference that the appraisers knowingly inflated their
valuations.
B. Owner-Occupancy Rates
Defendants next attack FHFAs allegation that the offering
materials overstated the percentage of properties in the
supporting loan group for each securitization that were owner
occupied. The prospectus supplement for each securitization
provided a break-down of the mortgages in the supporting loan
group based on whether the property that secured the loan was
owner occupied, a second home, or an investment property.
Staying with the example of the MABS 2007-WMC1 Securitization,
the prospectus supplement reported that, for the Group I
certificates that the GSEs purchased, 1,810 (or 98.32%) of the
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47

1,841 underlying properties were owner occupied. This
information was material to investors, because a borrower whose
primary residence is the mortgaged property is less likely to
default than one who uses it as a second home or as an
investment.
FHFA contends that the owner-occupancy information in the
prospectus supplement for the MABS 2007-WMC1 Securitization, as
well similar information reported for the other twenty-one
securitizations at issue here, was false. As part of its survey
of the loan group supporting each securitization, FHFA used a
number of tests in an effort to determine whether the owner-
occupancy information reported in the prospectus supplements was
accurate. Specifically it examined whether (1) a borrowers
property tax bill was being mailed to the mortgaged property six
months after the loan closed; (2) whether the borrower claimed
an owner-occupied tax exemption on the mortgaged property; and
(3) whether the mailing address of the property was reflected in
the borrowers credit reports, tax records, or lien records.
The survey revealed that 13.11% of the loans in the supporting
loan group for the MABS 2007-WMC1 Securitization failed two or
more of these tests, indicating that in all likelihood these
properties were not owner occupied. The Agency contends that
the 11.62% difference between its own findings and the owner-
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48

occupancy numbers reported in the prospectus supplement is a
strong indicator that the reported data was materially false at
the time of origination. Its survey reveals similar
discrepancies with regard to the other securitizations at issue
in this case.
Defendants do not dispute that the SAC adequately alleges
that the reported rates of owner occupancy were material. They
maintain instead that, because the prospectus supplements for
sixteen of the twenty-two securitizations included a disclaimer
that owner-occupancy statistics were as reported by the
mortgagor at the time of origination, the SAC was required to
allege that the representations incorporated into the offering
materials were not in fact made by the borrowers at the time of
origination. As plaintiff notes, by its own terms, defendants
argument does not apply to six of the twenty-two securitizations
cited in the SAC. In any case, as outlined below, defendants
contention that the Agency was required to allege falsity on the
part of the underlying borrowers is without merit.
1. Securities Act Liability for Third-Party Statements of Fact
As noted, liability under the Securities Act is strict
liability. Section 11 of the Act provides that any signer,
director of the issuer, preparing or certifying accountant, or
underwriter may be liable if any part of the registration
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49

statement . . . contained an untrue statement of a material fact
or omitted to state a material fact. 15 U.S.C. 77k(a).
Section 12(a)(2) likewise imposes liability on any person . . .
who offers or sells a security by means of a prospectus or oral
communication, which includes an untrue statement of a material
fact or omits to state a material fact. 15 U.S.C. 77l(a)(2).
As the Supreme Court has recognized with regard to Section
11, these provisions are designed to assure compliance with the
disclosure provisions of the [Securities] Act by imposing a
stringent standard of liability on the parties who play a direct
role in a registered offering. Herman & MacLean v. Huddleston,
459 U.S. 375, 381-82 (1983). If defendants were correct that a
party could transform the Securities Acts strict liability
regime into one that required scienter simply by attributing
factual information in the offering materials to a non-defendant
third-party, this purpose would be significantly undermined.
Defendants position is also inconsistent with the
structure of statute. Although the liability of issuers under
Section 11 is virtually absolute, In re Morgan Stanley Info.
Fund. Sec. Litig., 592 F.3d at 359 (citation omitted), Section
11 provides an affirmative defense of due diligence that is
available to defendants other than the issuer of the security.
See 15 U.S.C. 77k(b)(3); WorldCom, 346 F. Supp. 2d at 659,
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50

662-64 (S.D.N.Y. 2004). As is true of all affirmative defenses,
a Securities Act defendant generally bears the burden of
demonstrating his due diligence, and, for that reason, due
diligence cannot be asserted as a basis for dismissal pursuant
to Rule 12(b)(6). In re Morgan Stanley Info. Fund. Sec. Litig.,
592 F.3d at 359 n.7.
For present purposes, the precise contours of the due
diligence defense are less important than the fact that, in
setting out the defense, the Securities Act specifically
contemplates circumstances in which a plaintiffs prima facie
case is founded on a factual assertions in the registration
statement purporting to be a copy of or extract from a report
or valuation of [a third-party] expert, or purporting to be a
statement made by an official person. 15 U.S.C.
77k(b)(3)(B)-(D). These provisions discuss in detail the due
diligence showing required to avoid liability for such an
assertion and nowhere suggest that the plaintiffs prima facie
case is somehow undermined by the attribution of the information
to a third-party. It is thus plain from the statutory structure
itself that a Securities Act defendant cannot simply claim that
she blindly reported information given to her by third parties
and thereby avoid liability for inaccuracies that made their way
into the offering materials.
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51

2. Application
Turning to plaintiffs specific claim that the offering
documents for these securitizations contained material
misstatements regarding owner-occupancy, the SAC adequately
states a claim for relief under the Securities Act. As
discussed above, defendants do not dispute that the SAC
adequately alleges that the reported rates of owner occupancy
were material to a reasonable investors decision whether to buy
the securities. Nor do they challenge the Agencys finding that
borrowers credit reports and lien records provide a plausible
basis for inferring that the true rates of owner occupancy were
substantially lower than those reported in the offering
materials. Moreover, as set forth above, the Securities Act
does not condition liability on a showing that defendants
themselves inaccurately represented the data that they received
from the borrowers.
Defendants only remaining argument is that the Agencys
survey, which examined, among other things, where borrowers
property tax bills were being mailed six-months after the loan
closed, does not establish that at the time of origination
owner-occupancy rates differed from those reported in the
offering materials. Whether or not defendants are correct with
regard to the proof that would be required at trial, at the very
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52

least, the Agencys survey results render plausible its claim
that the owner-occupancy rates reported in the offering
materials were materially false. That is all that is required
at this stage of the litigation.
C. Compliance With Underwriting Standards
The prospectus and prospectus supplement for each of the
securitizations at issue in this case described the underwriting
guidelines that were said to govern the origination of mortgages
with whose income the securitization was backed. The MABS 2007-
WMC1 Securitization, already discussed in the context of FHFAs
other claims, provides a useful example.
MABS 2007-WMC1 was assembled from mortgages originated by
WMC Mortgage Corp., a mortgage banking company incorporated in
California. Defendant MASTR acted as the depositor for the
securitization; defendant UBS Real Estate was the sponsor and
seller; and defendant UBS Securities was the underwriter. The
prospectus supplement for the MABS 2007-WMC1 Securitization
included the following representations:
Underwriting Standards. The mortgage loans have been
either (i) originated generally in accordance with
the underwriting guidelines established by [WMC
Mortgage Corp.] (collectively, the Underwriting
Guidelines) or (ii) purchased by WMCMC or GE Money
Bank after re-underwriting the mortgage loans
generally in accordance with the Underwriting
Guidelines.

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53

The Underwriting Guidelines are primarily intended to
(a) determine that the borrower has the ability to
repay the mortgage loan in accordance with its terms
and (b) determine that the related mortgaged property
will provide sufficient value to recover the
investment if the borrower defaults.

Under the Underwriting Guidelines, WMC verifies the
loan applicants eligible sources of income for all
products, calculates the amount of income from
eligible sources indicated on the loan application,
reviews the credit and mortgage payment history of
the applicant and calculates the Debt Ratio to
determine the applicants ability to repay the loan,
and reviews the mortgaged property for compliance
with the Underwriting Guidelines.

Under the Underwriting Guidelines, various risk
categories are used to grade the likelihood that the
mortgagor will satisfy the repayment conditions of
the mortgage loan. These risk categories establish
the maximum permitted LTV, maximum loan amount and
the allowed use of loan proceeds given the borrowers
mortgage payment history, the borrowers consumer
credit history, the borrowers liens/charge-
offs/bankruptcy history, the borrowers Debt Ratio,
the borrowers use of proceeds (purchase or
refinance), the documentation type and other factors.
In general, higher credit risk mortgage loans are
graded in categories that require lower Debt Ratios
and permit more (or more recent) major derogatory
credit items such as outstanding judgments or prior
bankruptcies.

The Underwriting Guidelines permit mortgage loans
with LTVs . . . of up to 100% (which is subject to
reduction depending upon credit-grade, loan amount
and property type).

The Underwriting Guidelines are applied in accordance
with a procedure which complies with applicable
federal and state laws and regulations and require,
among other things, (1) an appraisal of the mortgaged
property which conforms to Uniform Standards of
Professional Appraisal Practice and (2) an audit of
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54

such appraisal by a WMC-approved appraiser or by
WMCs in-house collateral auditors (who may be
licensed appraisers) and such audit may in certain
circumstances consist of a second appraisal, a field
review, a desk review or an automated valuation
model.

(emphasis added). The prospectus supplements for the other
twenty-one securitizations contained similar representations.
The MABS 2007-WMC1 Securitization did, however, contain the
following clause:
On a case-by-case basis [the originator] may determine
that, based upon compensating factors, a prospective
mortgagor not strictly qualifying under the
underwriting risk category or other guidelines
described below warrants an underwriting exception.
Compensating factors may include, but are not limited
to, low debt-to-income ratio (Debt Ratio), good
mortgage payment history, an abundance of cash
reserves, excess disposable income, stable employment
and time in residence at the applicants current
address. It is expected that a substantial number of
the mortgage loans to be included in the trust will
represent such underwriting exceptions.

(emphasis added). Similar cautionary language was included in
the prospectus supplements for six of the other twenty-one
securitizations.
FHFA alleges that the originators of the loans underlying
the securitizations systematically disregarded these
underwriting guidelines in order to increase production and
profits derived from their mortgage lending businesses.
Defendants counter that the SAC fails to state a plausible claim
that the statements regarding the underwriting standards were
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55

false. They argue that plaintiffs claims impermissibly rely on
a forensic analysis of too few loans and on statistics about
loan performance years after registration. They also argue that
plaintiff has ignored warnings in the offering materials that
there were exceptions to the stated guidelines and, in some
cases, that a substantial number of the underlying loans
deviated from those guidelines.
The SAC has plausibly alleged that the offering materials
contained false statements regarding originators compliance
with the underwriting standards. In support of this claim, the
SAC relies primarily on the results of FHFAs forensic review of
individual loan files, which found, for example, that out of 996
randomly selected loans included in the MABS 2007-WMC1 and MABS
2006-WMC2 securitizations, approximately 78% were not
underwritten in accord with the applicable underwriting
guidelines. The claim is further supported by: investigations
by government and private agencies that revealed underwriting
failures by originators that contributed loans to the
securitizations at issue here, confidential witness accounts,
and, ultimately, the surge in defaults on the underlying
mortgages and collapse of the certificates credit ratings.
Taken together, these allegations are sufficient to render
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56

plausible FHFAs assertion that the mortgage originators
serially deviated from their mortgage underwriting standards.
This conclusion is unaltered by statements in the offering
materials that the standards were only generally followed.
Such limiting language does not assist a Securities Act
defendant faced with a plausible assertion that as few as 1/4 of
the mortgages in a given loan pool conformed to the underwriting
standards. Nor are plaintiffs claims defeated by the
disclosure in seven of the prospectus supplements that a
substantial number of the loans deviated from the underwriting
standards. These prospectus supplements also represented that
any deviations would be warranted based on compensating
factors. By plausibly alleging a widespread failure to conduct
any underwriting, the plaintiff has adequately pleaded the
falsity of this representation as well.
Finally, defendants cite Item 1111 of SEC Regulation AB, 17
C.F.R. 229.1111(a)(3), for the proposition that they may be
held liable only for failing to disclose deviations from the
underwriting guidelines that were known to them. This is
another meritless attempt by the defendants to alter the
plaintiffs pleading burden by grafting a scienter requirement
onto Securities Act claims.
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57

Item 1111 of Regulation AB requires that issuers of asset-
backed securities disclose the solicitation, credit-granting or
underwriting criteria used to originate or purchase the pool
assets, including, to the extent known, any changes in such
criteria and the extent to which such policies and criteria are
or could be overridden. 17 C.F.R. 229.1111(a)(3) (emphasis
added). The regulation thus imposes on a Section 11 defendant
the duty to disclose not only underwriting criteria for the
assets that underlie the securities, but also, to the extent
the issuer knows of them, any changes in those criteria and the
extent to which those criteria could be overridden. Id.
Indeed, this duty imposed by Item 1111 may have prompted the
cautionary language recited above that was incorporated into the
offering materials for seven of the securitizations.
Yet, plaintiffs claim with regard to loan-underwriting
standards is not that defendants failed to report information
about changes in the underwriting criteria of which the
defendants were aware, but that they affirmatively
misrepresented the standards that generally governed the
underwriting of mortgages included in the supporting pools.
Regulation ABs guidance with regard to what information must be
included in the offering materials does nothing to call into
question defendants overriding obligation under the Securities
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58

Act to avoid false statements in their offering materials. In
re Lehman Bros. Secs. and ERISA Litig., 684 F. Supp. 2d 485,
493-94 (S.D.N.Y. 2010).
D. Section 15 Control Person Liability
UBS Americas, UBS Real Estate, and the individual
defendants also contend that the SAC fails to allege that they
exercised sufficient authority over the primary defendants to
establish control person liability under Section 15. As noted
above, Section 15 extends liability under the Securities Act to
[e]very person who, by or through stock ownership, agency, or
otherwise . . . controls any person liable under [Section 11] or
[Section 12]. 15 U.S.C. 77o. This Court has previously held
that the act of signing a registration statement, as the
individual defendants in this case are alleged to have done, is
a manifestation of the signers responsibility for the
information contained in the document and, therefore, sufficient
to establish control person status. See In re. WorldCom, Inc.
Sec. Litig., 294 F. Supp. 2d 392, 420 (S.D.N.Y. 2003). With
respect to the corporate defendants, the SAC alleges that UBS
Real Estate was actively involved in coordinating the
securitization process and determining the structure of each
offering and that UBS Americas was not simply the corporate
parent of UBS Securities and MASTR but, in practice, controlled
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59

their actions in issuing and selling RMBS certificates. These
allegations are sufficient to avoid dismissal of plaintiffs
Section 15 claims at this early stage of the litigation.
E. MASTR is a Statutory Seller Under Section 12(a)(2).
Finally, defendants maintain that MASTR is not a proper
defendant with respect to plaintiffs Section 12(a)(2) and
equivalent state-law claims. While Section 11 is limited to
certain offering participants by its express terms, liability
under Section 12(a)(2) is governed by the statutory seller
requirement.
An individual is a statutory seller -- and therefore
a potential section 12(a)(2) defendant -- if he: (1)
passed title, or other interest in the security, to
the buyer for value, or (2) successfully solicited the
purchase of a security, motivated at least in part by
a desire to serve his own financial interests or those
of the securities' owner.

In re Morgan Stanley Info. Fund Secs. Litig., 592 F.3d at 359
(citation omitted).
Defendants contend that the SAC does not allege that MASTR
is a statutory seller or include facts that would support such
a finding. As plaintiff notes, however, SEC Rule 159A, provides
that in a primary offering of securities, an issuer is a
statutory seller for the purposes of Section 12(a)(2)
regardless of the underwriting method used to sell the issuers
securities. See 17 C.F.R. 230.159A; accord Citiline
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60

Holdings, Inc. v. iStar Financial Inc., 701 F. Supp. 2d 506, 512
(S.D.N.Y. 2010). Moreover, the Securities Act provides that
with respect to certificates of interest or shares in an
unincorporated investment trust not having a board of directors
. . . the term issuer means the person or persons performing
the acts and assuming the duties of depositor. 15 U.S.C.
77b(a)(4). As noted, the securitizations at issue here were
structured as investments trusts, and, for sixteen of the
twenty-two of them, MASTR acted as depositor. MASTR is
therefore a proper defendant under Section 12(a)(2).
Defendants resist this analysis by asserting that the
provision of the Securities Act equating an issuer with a
depositor does not apply to RMBS. But this argument is
contradicted by Securities Act Rule 191, which provides that
[t]he depositor for the asset-backed securities acting solely
in its capacity as depositor to the issuing entity is the
issuer for purposes of the asset-backed securities of that
issuing entity. 17 CFR 230.191. To the extent defendants
would argue that the Rules reference to asset-backed
securities does not encompass RMBS, they are foreclosed from
doing so by their reliance elsewhere in their motion on
Regulation AB, which likewise governs asset-backed securities
and was adopted as part of the same rulemaking proceeding that
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61

resulted in Rule 191. See Asset-Backed Securities, SEC Release
No. 8518, 84 S.E.C. Docket 1624, 2004 WL 2964659, at *9, *2012
(Dec. 22, 2004).
IV. FHFAs Negligent Misrepresentation Claims Fail.
Although FHFA has adequately alleged violations of the
securities laws, the Agency cannot sustain its negligent
misrepresentation claims. Under New York law, a plaintiff
asserting a claim for negligent misrepresentation must allege,
inter alia, that the defendant had a duty, as a result of a
special relationship, to give correct information. Hydro
Investors, Inc. v. Trafalgar Power Inc., 227 F.3d 8, 20 (2d Cir.
2000) (citation omitted). In a commercial context, liability
does not attach as a matter of course for merely negligent
statements; rather, it is imposed only on those who possess
unique or specialized expertise, or who are in a special
position of confidence and trust with the injured party such
that reliance on the negligent misrepresentation is justified.
Kimmel v. Schaefer, 675 N.E.2d 450, 454 (1996).
The Agency cannot credibly allege that a special
relationship existed between the GSEs and the defendants, nor
has it seriously attempted to do so. While it is true that
[w]hether the nature and caliber of the relationship between
the parties is such that the injured party's reliance on a
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62

negligent misrepresentation is justified generally raises an
issue of fact, id., courts regularly hold as a matter of law
that an arm's length business arrangement between sophisticated
and experienced parties cannot give rise to a special
relationship. See, e.g., Aerolineas Galapagos, S.A. v.
Sundowner Alexandria, LLC, 905 N.Y.S.2d 152, 152 (App. Div. 1st
Dep't 2010); Sebastian Holdings, Inc. v. Deutsche Bank AG, 912
N.Y.S.2d 13, 15 (App. Div. 1st Dept 2010); Silvers v. State,
893 N.Y.S.2d 12 (App. Div. 1st Dep't 2009).
MBIA Ins. Corp. v. Countrywide Home Loans, Inc., 928
N.Y.S.2d 229 (App. Div. 1st Dept 2010), is particularly
instructive here. MBIA, a provider of financial guarantee
insurance, brought fraud and negligent misrepresentation claims
against Countrywide, asserting that Countrywide entities had
made material misrepresentations concerning the origination and
quality of the mortgage loans that underlay mortgage-backed
securities for which the plaintiff had written insurance
policies. While permitting the fraud claim to go forward, the
New York State motion court dismissed the negligent
misrepresentation claim as inadequately pled. The Appellate
Division affirmed, noting that in light of the fact that [t]he
transactions in question were conducted by two sophisticated
commercial entities operating at arms length, [t]he claim that
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Countrywide had superior knowledge of the particulars of its own
business practices [was] insufficient to sustain the cause of
action. Id. at 235-36.
So too here, FHFA cannot plausibly assert that the GSEs
were so unequally situated vis--vis the defendants as to give
rise to a claim for negligent misrepresentation. As defendants
emphasize in their motion to dismiss, the GSEs were highly
sophisticated players in the mortgage-backed securities market,
which they participated in not only as purchasers but also as
packagers and marketers of securities. As in MBIA, the fact
that, with regard to the securities at issue in this case, the
defendants had greater knowledge of the underlying loan files
and the practices of third-party due diligence providers is not
sufficient to establish a special relationship.
The Agency seeks to avoid the special relationship
requirement by arguing that its negligent misrepresentation
claims are governed by the law of the District of Columbia, in
the case of Fannie Mae, and Virginia, in the case of Freddie
Mac. Unlike New York, these jurisdictions appear not to require
that a plaintiff demonstrate a special relationship in order
to sustain a negligent misrepresentation claim. Unfortunately
for FHFA, however, its choice-of-law argument is meritless.
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64

The Agencys common law claims are governed by New York
choice-of-law principles pursuant to Klaxon co. v. Stentor Elec.
Mfg. Co, 313 U.S. 487, 496-97 (1941). New York has adopted the
interest analysis approach to choice of law, which seeks to
give controlling effect to the law of the jurisdiction which,
because of its relationship or contact with the occurrence or
the parties, has the greatest concern with the specific issue
raised in the litigation. Licci ex rel. Licci v. Lebanese
Canadian Bank, SAL, 672 F.3d 155, 158 (2d Cir. 2012) (citation
omitted). In the context of tort law, interest analysis
distinguishes between conduct-regulating rules, which dictate
appropriate standards of conduct, and loss-allocating rules,
which prohibit, assign, or limit liability after the tort
occurs. Id. (citation omitted). If conflicting conduct-
regulating laws are at issue, the law of the jurisdiction where
the tort occurred will generally apply because that jurisdiction
has the greatest interest in regulating behavior within its
borders. GlobalNet Fin. Com, Inc. v. Frank Crystal & Co.,
Inc., 449 F.3d 377, 384 (2d Cir. 2006) (citation omitted).
The parties agree that the duty to avoid negligent
misrepresentations is a conduct-regulating rule and that,
consequently, the law of the jurisdiction where the tort
occurred should govern FHFAs claims. They disagree only about
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65

whether the alleged misrepresentations occurred in New York,
where the defendants are based, or in the District of Columbia
and Virginia, where Fannie Mae and Freddie Mac, respectively,
were injured. This dispute is easy to resolve. As should be
clear from the discussion above, interest analysis understands
the jurisdiction where the tort occurred to be that in which the
defendant engaged in the behavior that the conduct-regulating
rule seeks to deter. In this case, that jurisdiction is
undisputedly New York, where the defendants prepared and
disseminated the allegedly misleading offering materials that
are at the center of this litigation. Because New York is the
jurisdiction with the most significant relationship to
plaintiffs negligent misrepresentation claims and because, as
noted above, plaintiffs pleadings are inadequate to state a
claim under New York law, the negligent misrepresentation claims
are dismissed.
A-161
CONCLUSION
Defendants' January 20 motion to dismiss is denied as to
FHFA's securities law claims and granted as to the negligent
misrepresentation claims.
SO ORDERED:
Dated: New York, New York
May 4, 2012
United es District Judge
66
A-162
CONCLUSION
Defendants' January 20 motion to dismiss is denied as to
FHFA's securities law claims and granted as to the negligent
misrepresentation claims.
SO ORDERED:
May 4, 2012
D NISE COTE
United S t ~ t e s District Judge
66
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1
1 UNITED STATES DISTRICT COURT
2 ------------------------------x
11 CV 05201 (DC)
3 FEDERAL HOUSING
FINANCING AGENCY 11 CV 06188 (DC)
4 11 CV 06190 (DC)
v. 11 CV 06192 (DC)
5 11 CV 06193 (DC)
UBS AMERICAS INC. 11 CV 06195 (DC)
6 and others and its 11 CV 06196 (DC)
related cases 11 CV 06198 (DC)
7 11 CV 06200 (DC)
11 CV 06201 (DC)
8 11 CV 06202 (DC)
11 CV 06203 (DC)
9 11 CV 06739 (DC)
11 CV 07010 (DC)
10 11 CV 07048 (DC)
------------------------------x
11 May 14, 2012
3:15 p.m.
12 Before:
HON. DENISE COTE,
13
District Judge
14
APPEARANCES
15
QUINN EMANUEL URQUHART & SULLIVAN, LLP
16 Attorneys for Plaintiff Federal Housing Finance Agency
PHILLIPPE SELENDY, ESQ.
17 ADAM ABENSOHN, ESQ.
MANISHA SHETH, ESQ.
18 CHRISTINE CHUNG, ESQ.

19 KASOWITZ, BENSON, TORRES & FRIEDMAN, LLP
Attorneys for Plaintifff Federal Housing Finance Agency
20 HECTOR TORRES, ESQ.
KANCHANA LEUNG, ESQ.
21
PETER TSAPATSARIS, ESQ.
22 Attorney for Plaintiff VNB Realty

23 SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Attorneys for Defendant UBS AMERICAS INC. and affiliated
24 entities and individuals (11 CV 5201) SG Americas, Inc. and
affiliated entities and individuals (11 CV 6203)
25 JAY KASNER, ESQ.
SCOTT MUSOFF, ESQ.
(212) 805-0300
A-163
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2
1 APPEARANCES (Contd)
2 SULLIVAN & CROMWELL, LLP
Attorneys for Defendant JP Morgan Chase & Co. and
3 affiliated entities, Goldman Sachs & Co. (11 CV 6188) (11 CV
6198) (11 CV 6203) Barclays Bank Plc and affiliated entities
4 and individuals (11 CV 6190) First Horizon National Corporation
and affiliated entities and individuals (11 CV 6193) Nomura
5 Holding America, Inc. and affiliated entities and individuals
(11 CV 6201)
6 PENNY SHANE, ESQ.
RICHARD KLAPPER, ESQ.
7 JEFFREY SCOTT, ESQ.
DAVID BRAFF, ESQ.
8 BRUCE CLARK, ESQ.
AMANDA DAVIDOFF, ESQ.
9
PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP
10 Attorneys for Defendant Citigroup Global Markets, Inc.
(11 CV 6188) CitiGroup, Inc. and affiliated entities and
11 individuals (11 CV 6196)
BRAD KARP, ESQ.
12
13 Attorneys for Defendant Credit Suisse Securities (USA) LLC
and affiliated entities and individuals
14 RICHARD CLARY, ESQ.

15 SIMPSON THACHER & BARTLETT LLP
Attorneys for Defendant RBS Securities Inc. (11 CV 6188)
16 Deutsche Bank AG and affiliated entities (11 CV 6192)
THOMAS RICE, ESQ.
17
SNR DENTON US LLP
18 Attorneys for Individual Defendant Perkins
SANDRA HAUSER, ESQ.
19
MAYER BROWN, LLP
20 Attorneys for Defendant HSBC North America Holdings and
affiliated entities and individuals (11 CV 6189) Ally Financial
21 Inc. and GMAC Mortgage Group Inc. (11 CV 7010)
MICHAEL WARE, ESQ.
22 REGINALD GOEKE, ESQ.

23 LAZARE POTTER & GIACOVAS LLP
Attorneys for Defendant Residential Capital and affiliated
24 entities
JAMES BATTLE, ESQ.
25
(212) 805-0300
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3
1 APPEARANCES (Cont'd)
2 WILLIAMS & CONNOLLY, LLP
Attorneys for Defendant Bank of America Corporation and
3 affiliated entities and individuals (11 CV 6195) Merrill Lynch
and affiliated entities and individuals (11 CV 6202)
4 EDWARD BENNETT, ESQ.
JOHN McNICHOLS, ESQ.
5 BETH STEWART, ESQ.

6 RICHARDS KIBBE & ORBE, LLP
Attorneys for individual defendants (11 CV 6195) (11 CV
7 6202)
NEIL BINDER
8
9 Attorneys for Defendant Margan Stanley and affiliated
entities and individuals (11 CV 6739)
10 BRIAN WEINSTEIN, ESQ.
DANIEL SCHWARTZ, ESQ.
11
WEIL, GOTSHAL & MANGES LLP
12 Attorneys for defendant General Electric Company and
affiliated entities
13 GREGG DANILOW, ESQ.
14 o0o
15 (Case called)
16 (In open court)
17 THE DEPUTY CLERK: Federal Housing Finance Agency v.
18 UBS Americas Inc. and others and its related cases. Counsel,
19 state your appearances for the record and the party you
20 represent, beginning with counsel for the plaintiffs.
21 MR. SELENDY: Philippe Selendy of Quinn Emanuel for
22 FHFA.
23 MS. SHETH: Good afternoon, your Honor. Manisha
24 Sheth, Quinn Emanuel on behalf of FHFA.
25 MS. CHUNG: Christine Chung, Quinn Emanuel on behalf
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4
1 of FHFA.
2 MR. ABENSOHN: Adam Abensohn, also Quinn Emanuel for
3 FHFA.
4 MR. HART: Your Honor, I'm Steven Hart with FHFA.
5 MR. TORRES: Good afternoon, your Honor. Hector
6 Torres for FHFA.
7 MS. LEUNG: Kanchana Leung, Kasowitz, Benson, Torres &
8 Friedman, LLP, for FHFA.
9 MR. TSAPATSARIS: Peter Tsapatsaris for Valley
10 National Bank.
11 THE COURT: Thank you, counsel. We'll start with the
12 defendants in 5201 UBS.
13 MR. KASNER: Good afternoon, your Honor. Jay Kasner
14 and Scott Musoff from Skadden, Arps for the defendants.
15 THE COURT: Excuse me one second.
16 (Pause)
17 THE COURT: Thank you. I've located your name,
18 Mr. Musoff. It's helpful to have it. Thank you so much.
19 MR. MUSOFF: Thank you, your Honor.
20 THE COURT: Then I think is it 6188 next?
21 MS. SHANE: Yes, your Honor. Penny Shane from
22 Sullivan & Cromwell for JPMorgan Chase and related entities.
23 MR. KARP: Brad Karp from Paul Weiss for Citigroup and
24 related entities and individuals.
25 MR. KLAPPER: Richard Klapper, Sullivan & Cromwell,
(212) 805-0300
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5
1 for Goldman Sachs & Co.
2 MR. CLARY: Richard Clary from Cravath, Swain & Moore
3 for the Credit Suisse defendants.
5 MS. HAUSER: Sandra Hauser, SNR Denton for Matthew
6 Perkins.
7 THE COURT: Let's pick up with the next case, 6189,
8 which is HSBC, Mayer Brown.
9 MR. WARE: Good afternoon, your Honor. Michael Ware,
10 Mayer Brown, for all defendants.
11 THE COURT: Thank you. And then 6190.
12 MR. SCOTT: Jeff Scott for Sullivan & Cromwell on
13 behalf of all defendants.
14 MR. BRAFF: And Dave Braff from Sullivan & Cromwell.
15 THE COURT: Thank you. And I think we already have
16 6192's appearances from Mr. Rice, is that right?
17 MR. RICE: Yes, your Honor. I'm also here for the
18 Deutsche Bank defendants in that case.
19 THE COURT: Thank you so much. And then we're at
20 6193, we may already have appearances from -- oh, I'm sorry.
21 MR. CLARK: Good afternoon, your Honor. Bruce Clark,
22 Amanda Davidoff for First Horizon.
23 THE COURT: Thank you. And then 6195.
24 MR. BENNETT: Good afternoon, your Honor. Edward
25 Bennett from Williams & Connolly. With me is Beth Stewart and
(212) 805-0300
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6
1 John McNichols for Bank of America and related entities.
2 MR. BINDER: Good afternoon, your Honor. Neil Binder
3 from Richards Kibbe & Orbe on behalf of the individual
4 defendants.
5 THE COURT: 6196, Mr. Karp again?
6 MR. KARP: That is correct, your Honor.
7 THE COURT: And 6198?
8 MR. KLAPPER: Richard Klapper, Sullivan and Cromwell
9 for all defendants.
10 THE COURT: Thank you. 6200?
11 MR. CLARY: Richard Clary again for Credit Suisse.
12 THE COURT: 6201?
13 MR. CLARK: Good afternoon again, your Honor. Bruce
14 Clark and Amanda Davidoff for the NHA defendants and the
15 individuals.
16 THE COURT: Thank you. And Mr. Rice again?
17 MR. RICE: Yes, your Honor.
19 MR. CLARK: Good afternoon again, your Honor. Ted
20 Bennett, John McNichols and Beth Stewart for all the Merrill
21 Lynch defendants.
22 THE COURT: Thank you. And Mr. Binder again?
23 MR. BINDER: Yes, your Honor.
24 THE COURT: 6203, we have Mr. Kasner and Mr. Rice
25 again?
(212) 805-0300
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7
1 MR. KASNER: Yes, your Honor, along with my found
2 colleague, Mr. Musoff.
3 THE COURT: And we also have Ms. Shane again?
4 MS. SHANE: Yes, your Honor.
6 MR. WEINSTEIN: Good afternoon, your Honor. Brian
7 Weinstein and Daniel Schwartz from Davis Polk for the Morgan
8 Stanley defendants.
9 THE COURT: We have Mr. Rice again and Mr. Clary.
10 MR. CLARY: Yes, your Honor.
11 THE COURT: 7010?
12 MR. WARE: Michael Ware and Reginald Goeke of Mayer
13 Brown for Ally Financial and GMAC Mortgage Group.
14 MR. BATTLE: Jim Battle from Lazare Potte & Giacovas
15 on behalf of Residental Capital and affiliated entities.
16 MR. KARP: Brad Karp on behalf of Citigroup.
17 MR. KLAPPER: Richard Klapper on behalf of Goldman
18 Sachs & Co.
19 MR. CLARY: Richard Clary on behalf of Credit Suisse.
21 MS. SHANE: Penny Shane for JPMorgan.
22 MR. KASNER: Jay Kasner for UBS Securities.
23 MR. SCOTT: Jeff Scott on behalf of Barclays Capital
24 Inc.
25 THE COURT: That takes us I think to 7048.
(212) 805-0300
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8
1 MR. DANILOW: Your Honor, I apologize. I'm
2 temporarily in a wheelchair. Gregg Danilow from Weil, Gotshal
3 for the GE defendants.
4 THE COURT: I'm sorry. I can't even see that. I'm
5 very sorry to hear that, Mr. Danilow.
6 MR. DANILOW: I thought I would mention it.
7 THE COURT: Mr. Broderick, yes, and I believe also in
8 7048 we have Mr. Clary again.
9 MR. CLARY: Yes, your Honor.
10 MR. WEINSTEIN: And Davis Polk for the Morgan Stanley
11 defendants, your Honor. Brian Weinstein and Daniel Schwartz.
12 THE COURT: Thank you. Well, this has been a physical
13 illustration of some of the charts I've been making about the
14 overlaps and as we all think hard about how to organize this
15 case and perhaps in the an efficient manner or a more efficient
16 manner than certain configurations might yield, one notices
17 that certain cases just have a single set of defendants and
18 others represent a broad collection.
19 Let me begin with what I hope will be good news. You
20 are going to be part of an experiment that I think you will be
21 happy to be a part of. I'm a dinosaur in terms of mail and we
22 haven't permitted faxes to chambers because, as many of you
23 have heard I don't have a secretary and so management issues
24 are important to our chambers functioning smoothly for your
25 benefit, hopefully. So this is the experiment. I'm going to
(212) 805-0300
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9
1 permit e-mailing of letters, so you don't have to hand deliver
2 or mail letters anymore. As you know, you cannot file letters
3 in the Southern District ECF system, but you are each getting a
4 copy of an order today or each being given a copy now of an
5 order that will permit you to file -- well, to send me, e-mail
6 me letters to the address in the order and attachments, so you
7 will only have to mail me a copy of the letter if the
8 attachment is greater than ten pages.
9 Now, what is the experimental part of this? One of
10 the reasons to not make it easier for you to send me a letter
11 so that you don't send me letters just as part of a whim or a
12 fancy but think carefully about whether or not I need to get
13 this letter and all the other things I have to do as part of my
14 life in chambers. So the letters can't be longer than two
15 pages and hopefully it won't, hopefully the rest of the Bar
16 will be able to benefit from the excellent experience I have in
17 this experiment.
18 Second thing I want to say is thank you so much for
19 making yourselves available on such short notice. I know you
20 got the decision very recently, but I didn't want to waste any
21 time in helping to organize this case, because I know that a
22 lot of money could be wasted really quickly unless we get our
23 hands around it. I was pleased to receive a letter on Friday
24 indicating that the three motions to remand are being withdrawn
25 in 6739, 7010 and 7048.
(212) 805-0300
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10
1 I wanted to ask the plaintiff whether or not it
2 intends to file amended pleadings or if we're ready to schedule
3 any motions to dismiss in the remaining 15 actions.
4 MR. SELENDY: Your Honor, Philippe Selendy. With
5 respect to the remaining 15 actions, one of them is as I
6 believe you know subject to a bankruptcy stay now so we're
7 talking about 14 other cases.
8 THE COURT: I want to get to that in a moment, but I'm
9 happy to address it now. I don't know that the entire action
10 will be stayed, and indeed, I think I probably won't stay the
11 entire action. I'll obviously give everybody a chance to be
12 heard, but there are a lot of other moving parts in that case.
13 MR. SELENDY: All right, as for that one my colleague
14 Hector Torres will address it.
15 With respect to the fourteen other cases we do propose
16 to amend the complaints in order to bring them, generally
17 speaking, into conformity with the amended UBS complaint and to
18 add additional data that we have developed that may be
19 pertinent to the development of the allegations. We do not
20 think it's necessary to wait for the motions to dismiss on the
21 residual issues that are out there, and what we would propose
22 to do in order to manage this process is to amend them in two
23 stages, the first seven complaints within 30 days and the next
24 seven complaints 15 days thereafter so there's not a single
25 wave of all the complaints at once. We would like to reserve
(212) 805-0300
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11
1 our ability to amend once we receive motions to dismiss if
2 there are any new issues, although, frankly, we don't expect to
3 require that. Nonetheless, we'd like to reserve that right,
4 your Honor, but in the interests of moving this forward
5 expeditiously, we think we're prepared now to go ahead and put
6 together amendments for all of the other actions.
7 THE COURT: Okay. I don't think -- let me begin again
8 with a question. When you say you're prepared to amend in six
9 or seven cases, are you addressing that list or suggesting that
10 that be by docket number or are you making a distinction
11 between the cases that have fraud claims in them and those that
12 have just Section 11 claims?
13 MR. SELENDY: I was not distinguishing between fraud
14 and non-fraud cases, your Honor. It's simply that as time has
15 passed we developed more data which we would like to integrate
16 into the complaints. That applies to both the fraud and
17 non-fraud complaints and we would like to be responsive to some
18 of the same issues that led us to amend the UBS complaint
19 before the Court's consideration of the motion to dismiss.
20 THE COURT: Okay. Maybe we should talk a little bit
21 about the stay issues and come back and revisit this, so let me
22 address the issue of a stay. At our first conference together
23 we talked about how many test motions to dismiss there would
24 be, and I gave the parties an opportunity to select a second
25 action with a fraud claim and the parties talked about that and
(212) 805-0300
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12
1 declined to do so and communicated that decision to me in a
2 letter of December 15th. I now have requests from six cases
3 for a stay and as you remember what we had talked about was
4 that I decide the motion to dismiss in this first action which
5 ended up being the UBS action, and then everyone -- and then I
6 expected I would lift the PSLRA stay with respect to all cases
7 before me but everybody would have a right to write me in seven
8 days of my decision to explain why the stay should not be
9 lifted in their case.
10 And so six cases wrote. There's the VNB action, which
11 I'll put to a side for a moment because there's agreement
12 there, but I want to talk a little bit about that, but with
13 respect to the FHFA cases, I got five requests. Three of those
14 have fraud claims; 6198, 6202 and 7010. Two do not have fraud
15 claims; 6189 and 6195 but they share defense counsel with the
16 first three, Mayor, Brown & Platt and Williams & Connolly.
17 So I'm just going to think long and hard about the
18 three with the fraud claims. So I think -- I'm not going to
19 lift the -- I am going to lift the stay with respect to all
20 FHFA cases and I'll talk a little bit more about that, but I
21 think if there's going to be amended pleading we might want to
22 amend first in the cases with the fraud claims as a group and
23 do those motions to dismiss if there are any.
24 MR. SELENDY: We would be glad to do that, your Honor.
25 THE COURT: Okay. So, Mr. Selendy, I'm going to ask
(212) 805-0300
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13
1 you to talk this week with a proposal about a schedule for two
2 rounds of amendments; first, for those cases with fraud claims
3 and then a second round of amendments for the remaining FHFA
4 cases. And I believe the cases with fraud claims are 6188,
5 6192, 6198, 6202, 6739 and 7010. So not all of the cases with
6 fraud claims have resisted the lifting of the stay. I just
7 want to note that.
8 So 7010 is the case in which Ally Financial is a
9 defendant and there's been a filing for bankruptcy and I
10 appreciate counsel being present for this conference even
11 though some of the defendants in that case, as I understand it,
12 are filing for bankruptcy.
13 I think there are, as I understand it, six defendants
14 filing for bankruptcy in the Ally Financial case, 11 Civ. 7010,
15 but we have many other defendants, including JPMorgan, Credit
16 Suisse, Citi, RBS, Barclays, UBS, Goldman Sachs and why I'm
17 thinking that I won't stay the entire action is because one of
18 the things I think everyone has agreed upon is that if someone
19 is deposed if at all possible that only happen once in this
20 suite of cases. And as you'll hear later in this conference,
21 lucky UBS is probably going to be among the first to be deposed
22 here. At least that's going to be my proposal to all of you.
23 And they're in 7010. So when their deposition happens, it
24 should cover 7010 as well as every other case in which they're
25 a defendant.
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14
1 So my proposal would be, unless I hear a good reason
2 otherwise, that obviously the automatic bankruptcy stay affects
3 7010 insofar as it affects the parties who have filed for
4 bankruptcy court protection, but that the remainder of the case
5 go forward, including against the underwriter defendants.
6 Okay, so that takes care of the stay application in 7010
7 insofar as it addresses the bankruptcy issue.
8 The only developed argument with respect to pleading
9 issues I think was made in 6202 and to some extent in 6195 and
10 I looked at the two complaints in those actions to just make a
11 quick assessment of the merits of the Section 11 arguments that
12 had been highlighted in that brief letter. I noticed that --
13 I'm sorry, I might have given you the wrong numbers. 6202 and
14 6195. If I said other numbers I apologize.
15 As you know, there are three basic misrepresentations
16 underlying the Section 11 claims and the letter does not
17 suggest there was a failure to plead adequately one of those
18 three claims on owner occupancy. I looked at the allegations
19 with respect to the underwriter guidelines and the LTV issue.
20 I don't think that they are sufficiently different that it
21 would be appropriate to enter a stay.
22 Many of the cases who have asked for a stay have
23 referred generally to the PSLRA stay language in principle. I
24 don't think that's relevant anymore because of what I explained
25 earlier, the process that we've undergone here together, my
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15
1 willingness to decide a motion to dismiss that had a fraud
2 claim, no one taking me up on that, so we're going to move
3 forward as I gave everyone notice we would do at our first
4 conference.
5 The last issue that's been raised is the shelf
6 registration issue. This was an issue presented in footnotes
7 in the motion to dismiss and I issued an order, as you all
8 know, to ask for briefing in the text and I think I have the
9 first brief on that and I'll address it when I get the complete
10 set of briefs. So that will be decided soon.
11 That leaves I think in terms of stay issues the VNB
12 case. There is agreement there that the VNB case be stayed.
13 It's the only non-HFA case on my docket related to this matter.
14 I'm happy to stay that case. There's consent by one and all.
15 I think it makes good sense in a lot of ways, but I want to
16 make sure that the plaintiff understands there that it will not
17 be permitted to redepose any witness deposed in the FHFA
18 litigation unless it can show it has discrete, unique questions
19 that were not captured by the other questioning at a
20 deposition. Is that agreeable, counsel?
21 MR. TSAPATSARIS: Yes, your Honor, although I do have
22 a concern and we ask, VNB would ask if we be allowed to attend
23 those depositions and have access to the transcripts if we're
24 going to be locked into those issues.
25 THE COURT: I'll let you discuss that with counsel.
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1 I'm not quite sure why you would want to attend if you can't
2 have a speaking role because when the stay is lifted of course
3 you'll have access. Why don't you just reflect on that, and if
4 you do want to attend, talk with everybody. If there's no
5 objection, I don't have a problem.
6 MR. TSAPATSARIS: Thank you, your Honor.
7 THE COURT: But there may be objection.
8 MR. TSAPATSARIS: Understood.
10 The protective order. Thank you so much for
11 cooperating with each other so well on the protective order
12 process. There are four principal disputes and then an
13 additional objection presented by Ally. So let me just give
14 you quick rulings on the four outstanding issues on the
15 protective order. First, the documents including confidential
16 material produced in the FHFA actions may be shared among all
17 parties and so I reject the FHFA's objection there.
18 With respect to the second issue, whether a party may
19 unilaterally rachet up a confidentiality designation of a
20 document produced by another party or non-party, I grant the
21 FHFA's objection and will not permit that.
22 With respect to the third issue, the FHFA's fear that
23 the protective order will constrain its obligations under the
24 law to report actual or potential violations of law of which it
25 learns during discovery, I don't see any reason why the
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1 protective order in this case should separately address that.
2 If any party to a protective order wants an exception, whether
3 it's a plaintiff or a defendant, for good cause, they can come
4 to the Court and seek an exception and I'll address it. But I
5 note that the FHFA was not able to point in its papers to
6 specific legal obligations that put it in a very unique
7 position in this regard.
8 And, finally, on the fourth issue, the FHFA's request
9 that highly confidential material be shared with a limited
10 group of subject matter experts in government service but
11 outside the FHFA and I'm going to grant that in part. I'm
12 going to grant it for the purpose of assisting the FHFA with
13 the prosecution of these actions. I'm not going to grant it to
14 the extent it's requested to assist the FHFA in carrying out
15 its regulatory functions. And, Mr. Selendy, were you thinking
16 of five individuals? Do you have a number that you were
17 thinking of or a ballpark figure?
18 MR. SELENDY: I believe we said five individuals. The
19 idea was to confine it to a very small group that would allow
20 us to permit the functions, including taking advantage of the
21 expertise within FHFA while still respecting the desire for a
22 limited sharing of confidential information.
23 THE COURT: I'll grant the access to five people.
24 MR. SELENDY: Thank you.
25 MS. STEWART: Your Honor, I'm Beth Stewart from the
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1 Bank of America defendants. Just with respect to that, would
2 it be possible that those five individuals be required to sign
3 the undertaking that was appended to the protective order so
4 that we would have notice of them? If it turns out those
5 individuals seem to be people with access to competitive
6 information defendants may want to raise that with the Court
7 and if we don't know who they are we won't be able to do that.
8 MR. SELENDY: Yes, we would agree to that.
9 MS. STEWART: Great. Thank you.
10 THE COURT: So, Ally had an objection and it is
11 denied, so I think that puts us in the position of being able
12 to finalize the protective order and I'll expect that to be
13 done, shall we say, within the next two weeks?
14 MR. SELENDY: Yes, your Honor.
15 THE COURT: Thank you. Let's turn to the issue of
16 scheduling. I've given this some thought and I'm sure counsel
17 have. So I have some preliminary questions. I'm unsure how
18 susceptible these claims are to resolution on summary judgment,
19 and that's from the perspective of both the plaintiffs and the
20 defendants, so let me start with you, Mr. Selendy. Looking at
21 the three core allegations in the Section 11 claims that I'm
22 familiar with from the UBS case, do you think you'd be able to
23 win summary judgment with respect to any three of those claims?
24 MR. SELENDY: Your Honor, we do believe that we'll be
25 in a position to present data that demonstrates in our view
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1 dispositively that in each of these three categories there have
2 been rampant and systematic misrepresentations of fact, and as
3 we indicated, the use of sampling would facilitate our ability
4 to do that, and often that is done through stipulation between
5 the parties as to which subpopulation of loans would be
6 examined. But we think the evidence is overwhelming and we do
7 intend, with your Honor's leave, to file summary judgment
8 motions at the conclusion of discovery. We don't think on the
9 merits there is, frankly, much debate about it, given the
10 minimal requirements under both the Section 11 and 12 claims
11 and under the blue sky statutes as to which we're also
12 asserting claims for every single one of the securitizations in
13 dispute.
14 THE COURT: Okay, let's just turn to the LTV issue.
15 Do you think I can grant summary judgment with respect to the
16 subjective falsity issue on appraisals?
17 MR. SELENDY: With respect to the question of falsity
18 of appraisals we think that will depend in part on the evidence
19 that we obtain through discovery both from the appraisers and
20 from the underwriters as to their own data regarding the
21 properties, their internal procedures for validating the
22 information and the data that's available generally with
23 respect to the valuations. So that is, as your Honor suggests,
24 that is something that will turn in part on the evidence we
25 uncover and can demonstrate to the Court.
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1 THE COURT: But there may be facts in dispute there?
2 MR. SELENDY: Yes, there may.
3 THE COURT: And with respect to the guidelines
4 calculation -- the application of the guidelines -- taking that
5 hat off -- so putting owner occupancy aside, where I can see
6 potentially an ability to grant summary judgment, potentially,
7 on the guidelines issues don't you think that one of the
8 questions will be the operation in context and the factual
9 complexity of the application of the guidelines?
10 MR. SELENDY: Your Honor, if we're able to demonstrate
11 that internally at the underwritings there was awareness of a
12 significant and material departure from the guidelines in the
13 generation of loans and there was a decision nonetheless to
14 disregard findings from third party due diligence providers and
15 warnings from internal compliance personnel and to securitize
16 the loans on the presumption that they would no longer be on
17 the bank's balance sheet but instead sold out to investors, if
18 we see those internal acknowledgments, which are effectively
19 admissions, then we do submit we would be able to demonstrate
20 on summary judgment that a ruling should be granted in our
21 favor. And that's not because scienter is an element. It is
22 not an element. But because it would be a demonstration, an
23 acknowledgment of the falsity of the representations.
24 Similarly, if we're able to demonstrate that the
25 incidence of defect is so great, for example, that we see
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1 across securitizations a very high percentage, well above the
2 5 percent or 8 percent you might expect to get through on the
3 grounds of mistake or unawareness, once we cross some
4 threshold, whatever that may be, of materiality, then we think
5 we would have a position that your Honor would be able to rule
6 upon on summary judgment.
7 THE COURT: Thank you. So, Mr. Kasner, I know that
8 there would be many, many able defense counsel in this room to
9 respond to a few questions about the affirmative defenses on
10 the Section 11 cases, but --
11 MR. KASNER: And I'm not one of them, your Honor.
12 THE COURT: Well, I expect you've thought long and
13 hard about these issues already.
14 MR. KASNER: Which particular -- I mean, the short
15 answer is yes, your Honor, I have thought long and hard about
16 the affirmative defenses and why we think that our client in
17 the UBS case, if that's what we're talking about, will prevail
18 ultimately either on summary judgment or after trial.
19 THE COURT: So, do you think you have a summary
20 judgment motion I can grant on affirmative defenses on the
21 Section 11 claims?
22 MR. KASNER: Your Honor, I say yes, depending upon
23 what discovery yields, and I couldn't possibly stand up before
24 the Court and say absolutely 100 percent, because a very
25 significant issue, as your Honor recognized in her opinion
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1 dismissing the negligent misrepresentation claims, is we're not
2 dealing with a bunch of babes in the woods here as a plaintiff.
3 This isn't some individual living in New Orleans that bought a
4 mortgage-backed security. You are dealing with the ultimate
5 sophisticated investors who knew everything that was going on.
6 So, your Honor, I would fully suspect that we're going to find
7 evidence in the files of Fannie and Freddie and the FHFA that
8 would demonstrate that which I think your Honor believed may
9 have been lacking when looking solely at the four corners of
10 the complaint.
11 For example, you asked about loan to value ratios, you
12 asked about appraisals, you asked about owner occupancy.
13 Fannie and Freddie securitized billions and billions and
14 billions of dollars of these securities. To the extent that
15 there are issues, and that will remain for another day as to
16 the evidentiary basis whether there are or there aren't, our
17 argument is going to be, your Honor, they had far more
18 knowledge than UBS, for example, which didn't originate, your
19 Honor, a single loan. So, yes, yes, your Honor, we're subject
20 to what discovery yields. We feel fairly confident that we're
21 going to find evidence that they knew all about this stuff
22 which is how, with respect, your Honor, they were able to bring
23 suit against American Home Mortgage, one of the originators in
24 our case, long before the statute of limitations had expired.
25 So, anyway, on the issue of knowledge, your Honor, we do
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1 believe subject to what the evidence shows at least we're going
2 to give it a shot. I may come away feeling somewhat
3 disappointed, but nevertheless, your Honor, we believe we have
4 a shot.
5 We believe on the notice provision, your Honor, as
6 well, with respect to the statute of limitations, of course
7 I've read your Honor's opinion, I understand the significance
8 with which your Honor placed, for example, the downgrades and
9 the ratings, we believe that we're going to be able to make an
10 evidentiary showing that they knew well outside of the statute
11 of limitations period the problems about which they are
12 complaining now sufficient to have brought these claims far
13 earlier. So that is a separate summary judgment issue, your
14 Honor, on which we would intend to proffer undisputed evidence.
15 We think we had proffered some of that on our motion. I
16 understand the Court disagreed with that at least for purposes
17 of a motion to dismiss. So those are two issues on which we
18 believe there will be no material issues of fact in dispute,
19 your Honor.
20 THE COURT: So in terms of the other potential
21 defenses, due diligence, causation, too fact specific?
22 MR. KASNER: No, your Honor. With respect, and again,
23 I am familiar with at least one case where your Honor expressed
24 a summary judgment view on due diligence. Nevertheless there
25 are differently situated defendants in these cases and
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1 Mr. Selendy uses the term underwriter, your Honor, and of
2 course he's not referring to a securities underwriter, he is
3 referring to an underwriter of loans by originators. Our
4 client, again, UBS, did not originate loans. In its case it
5 purchased loans. It may have sold securities to the public.
6 In the Ally case to which your Honor referred, UBS was just an
7 underwriter of securities, and so there are, as the Court is
8 aware, different affirmative defenses that apply, for example,
9 to an underwriter.
10 We would anticipate to the extent UBS has been sued as
11 an underwriter, your Honor, to attempt to see whether we have a
12 record based on undisputed facts relating to due diligence.
13 The process that occurred here, your Honor, occurred, as the
14 Court is well aware, during an unprecedented credit crisis, a
15 tsunami as it's been referred to by many of your brethren in
16 their opinions in this area. We would develop evidence to
17 determine if we could present a defense of negative causation
18 to the Court that any losses that were suffered were in fact
19 the product of this massive credit upheaval and not
20 necessarily, even if you accept for the moment, which we
21 disagree, that Mr. Selendy could prove based on undisputed
22 facts that the appraisals were false or that the owner
23 occupancy rates that were told to UBS in which they said this
24 is what we were told were false.
25 And so I hope that wasn't too long winded a way, your
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1 Honor, but there are a number of affirmative defenses that at
2 least for purposes of getting into discovery we do have our eye
3 on potential summary judgment motions. And as the Court knows,
4 I would say if we conclude that we don't have a good-faith
5 basis to tell your Honor that there's no material issue of fact
6 that exists we wouldn't move on that basis.
7 THE COURT: Is there any dispute, and I just want to,
8 I don't need an answer now. I wonder if there's any dispute
9 among the parties with respect to the knowledge defense and if
10 there is you might want to think of teeing that up for a
11 motion. I'll let you think about that, so that everybody's
12 operating under the same legal standard which would guide their
13 tactical decisions in this case, you know, what kind of
14 knowledge FHFA or Fannie and Freddie had to have, how
15 specifically attached to the securitizations that are being
16 sued upon it must be to be a winning argument. In any event, I
17 just tell you that if there is something that would help the
18 parties figure out if something should be settled or if there
19 should be a summary judgment motion because of the lack of
20 clarity of the legal standard, I'd be happy to give you my
21 opinion.
22 MR. KASNER: Your Honor, we appreciate that and
23 certainly we will consult with the other defense counsel and
24 our client. I would tell the Court just in listening to it
25 that I think rather than having your Honor address that issue
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1 in the abstract without facts drawn from their files which I --
2 you know, you can tell me, Kasner, you told me X months ago
3 you'd find something and you haven't found a thing. Your
4 Honor, I would take that on because I can guarantee you in the
5 files of Fannie and Freddie they are all over this stuff like a
6 bad suit. And so I really think it would do the Court a
7 disservice not to have a fully-developed fact record on that
8 issue against which to decide the issue of the legal standard.
9 THE COURT: Sounds very wise, Mr. Kasner. Now, I'm
10 happy to hear from any other defense counsel, but I think
11 Mr. Kasner has adequately answered my question to just give me
12 a sense of whether or not there might be a potential for
13 summary judgment motions by plaintiffs or defendants in these
14 cases. Mr. Selendy?
15 MR. SELENDY: Your Honor, very briefly. I did want to
16 clarify that when I was speaking of underwriters I was in fact
17 speaking of underwriters, not loan originators, as Mr. Kasner
18 appeared to believe. Secondly, the issue about a defense of
19 negative causation doesn't arise in the blue sky claims which
20 have no affirmative defense. Thank you.
21 THE COURT: Thank you. So let's turn to organize this
22 case or these cases. I'm working on the assumption that each
23 of these 16 cases, each of these 16 FHFA cases will have to be
24 tried separately, so theoretically 16 trials. I'm working on
25 the assumption, and I think it's been borne out by what I've
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1 heard here, that the principal evidence that each side will be
2 relying upon is documentary, that if the documents aren't
3 there, trying to build the case through depositions is going to
4 prove difficult, whether it's plaintiff's case or an
5 affirmative defense. And I'm working on the assumption that
6 everybody wants a deponent to be deposed once.
7 So let me outline what I'm thinking of doing here in
8 terms of organizing these 16 cases, my proposal for you. That
9 I take advantage of the fact that 5201 is a good representative
10 case here, and that it be the first to go to trial, and that it
11 be tried in the fall of next year with a pretrial order date of
12 August 2, 2013. That the remaining 15 cases be tried in three
13 tranches. Roughly five of them have their pretrial orders due
14 December 6, 2013 will be tried in January, roughly five more
15 have a pretrial order date of May 2, 2014, they'll be tried in
16 the summer starting in June, and the remaining five or so would
17 be tried in the fall of 2014, their pretrial orders would be
18 due August 1, 2014.
19 We'll spend this year doing document discovery.
20 Document discovery will be substantially complete by the end of
21 September. You'll spend the fall looking at the documents and
22 preparing for depositions and in January we'll begin
23 depositions and the depositions that will begin will be those
24 in 5201, which means that the plaintiff's depositions will take
25 place first along with the UBS depositions and the third
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1 parties relevant to that action. But UBS is in four actions
2 and FHFA is, as we know, in 16 actions. So the depositions
3 that would be taking place in this early round of depositions
4 would affect all 16 actions.
5 Looking at 5201 we have the plaintiff, we have the UBS
6 family of defendants, we have four individuals, we'll have a
7 certain number of third parties.
8 I've thought about identifying which five cases would
9 go in the second tranche, and I've looked at it in various
10 ways, but I think instead of me deciding which would be in
11 which tranche I'd let counsel take a shot at this, and I'm
12 happy to make the decision if there's a disagreement.
13 Now, in a February order I allowed the plaintiffs to
14 serve their initial document demands, so those I expect defense
15 counsel have those. Were initial document demands served,
16 Mr. Selendy?
17 MS. SHETH: Good afternoon, your Honor Manisha Sheth.
18 Individual document demands were not served. We're in the
19 process of finalizing those and should have them ready in short
20 order. We thought it best to have the protective issues
21 resolved as well as the issues pertaining to the sampling
22 discovery which was ordered by the Court in progress as well.
23 THE COURT: Okay. So let's talk a little bit about
24 depositions. I would like us, I'm hoping we would come to
25 agreement that the following could occur: That if any party
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1 calls as a witness for trial someone who was not deposed, that
2 the adversary or other parties in the case would have an
3 opportunity to depose that person before trial. Probably not
4 third parties, but a party witness. Is there anybody opposed
5 to that? Thank you. Good. So. That leads to my proposal for
6 depositions.
7 I read your competing submissions and thank you very
8 much for them. And, again, I'm throwing this out as a proposal
9 and it is as follows: Well, before I get to the proposal, this
10 is I think fundamentally a document case, and I think the
11 comments I've heard this afternoon reconfirm that, so I think
12 that this might be workable in terms of depositions. That the
13 defendants are permitted to take ten depositions of Fannie Mae
14 and ten depositions of Freddie Mac or in essence 20 depositions
15 of the plaintiff. That the plaintiff is permitted to take 20
16 depositions of any entity family of companies. Therefore, in
17 the UBS case, there would be 20 depositions taken of the
18 plaintiff. Of course, all, the defendants in all 16 actions
19 would have to participate in those 20 depositions and then
20 there would be no more depositions of the plaintiff.
21 The plaintiffs could take 20 depositions of the UBS
22 defendants cutting across the four actions in which UBS is a
23 defendant. There would be no more depositions of the UBS
24 family of companies.
25 There are four individuals, four individual
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1 defendants. There's a potential for third party depositions.
2 Counsel have identified the following categories of third
3 parties: Originators, servicers, due diligence firms,
4 appraisers, credit rating agencies. I've thought about some
5 presumptive numbers of depositions for those kinds of third
6 parties wholly apart from 30(b)(6) depositions, which I think
7 would not be included in these numbers, and again, this is a
8 proposal, that other than 30(b)(6) depositions there be no more
9 than two depositions of an originator, one of a servicer, three
10 of a due diligence firm, one of a credit rating agency. Across
11 all cases, the same. If there was one credit rating agency
12 that was common to 16 cases, there would be one deposition
13 which everyone could participate in.
14 Now, this may not be possible for you to reach
15 agreement on. I'm hopeful that there are a lot of reasons you
16 would because, again, it's the documents that are going to tell
17 the story and this doesn't count for 30(b)(6) depositions and
18 this is going to be costly litigation no matter what, and there
19 are going to be a lot of depositions no matter what and there's
20 only a limited amount of time in any one human being's
21 lifetime. Mr. Kasner?
22 MR. KASNER: Your Honor, if it please the Court, we
23 only represent one -- actually, we have two clients in these
24 cases. The courtroom is filled with lawyers with other clients
25 defending these cases. Since we are hearing some of this for
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1 the first time, I would ask for the Court's indulgence that we
2 have the opportunity to confer with other defense counsel who
3 may or may not have issues. Our client, as I mentioned, your
4 Honor, was not an originator, has no loan files, your Honor.
5 There are issues about sampling and burdens of discovery that
6 are far different among some of the other defendants in the
7 other cases than they are for our client, so to that extent
8 while I'm gratified that your Honor has selected our case to be
9 tried first, there are other cases that defendants have far
10 different issues than we and so if it please the Court I really
11 do feel in fairness to the other defense counsel that we be
12 given some opportunity to confer.
13 THE COURT: Absolutely, and that's why I described so
14 many of these things as proposals and I have conference dates
15 available for you all day June 13th or the morning of June 14th
16 and not that, you know, just a conference, but that's a day and
17 a half. I'll let counsel discuss among each other and notify
18 my chambers of when our next conference should be, at some
19 window of time during that day and a half.
20 MR. KASNER: Thank you.
21 THE COURT: Yes.
22 MR. BENNETT: Ted Bennett for Bank of America and
23 Merrill. When your Honor proposed a certain number of
24 depositions of the entity families in the Merrill cases, and
25 I'm sure this is true in other cases, there are individual
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1 defendants who are current employees of an entity defendant.
2 Assuming the plaintiffs want to depose the individual
3 defendants, would they count against the 20 depositions of the
4 entity or would those be separate depositions?
5 THE COURT: I haven't thought about that. My
6 reaction, my initial reaction is that any individual named in a
7 caption doesn't count against or isn't included in the limit of
8 the number of depositions for the entity defendants. But I
9 have not worked through how the numbers would play out, so I
10 think that's a very important thing for counsel to think about
11 and discuss with each other. It may be that they should be
12 included among the 20.
13 MR. BENNETT: Thank you, your Honor.
14 THE COURT: I have looked at how many entity
15 defendants are named in how many actions and there are in fact
16 seven cases in which there is only one defendant and seven
17 instances in which only one entity, in which an entity is only
18 in one case. But there are -- I take it that means that on the
19 other hand there are a number of entities that are in many
20 cases. So there are many ways to slice and dice this. I have
21 to say with respect to UBS it is a good candidate I think for
22 our first tranche, not only because I have Mr. Kasner in the
23 case, who I know will effectively represent his client, but
24 that doesn't differentiate that case from all the other fine
25 lawyers in the room, but its total investment amount is
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1 6.4 billion, which puts it right in the middle of where a lot
2 of these cases fall. I mean, there are outliers at the low end
3 and at the high end, but a lot of the cases have an investment
4 amount falling between six and fourteen billion, and UBS has
5 the advantage that it only has one family of entity defendants.
6 So a lot of the issues that we want to test and use as a marker
7 in all the other cases I think will hopefully appear through
8 the full litigation of the UBS case.
9 Now, with respect to trials, I don't expect that I'm
10 going to be able to try five trials in the fall or the spring
11 or the summer and I am extraordinarily fortunate, I may try one
12 or two. I doubt I'd try more than that per season. I have a
13 wonderful bench of colleagues here and they'll be able to step
14 in and try the remainder of the five cases per season. So that
15 means that the plaintiffs are going to have to have trial teams
16 here and be able to go at five trials per season and defendants
17 who are, depending on how you organize yourselves per season
18 are going to have to be able to do that, too.
19 If there is going to be summary judgment practice in
20 5201, I'd like it to be fully submitted by May 17, 2013.
21 Let's talk about the sampling issue. In my May 8th
22 order I required prompt disclosure of the final closing loan
23 tapes to trustees and identification of the originators of each
24 loan. Mr. Selendy, where do we stand on that? Do you know?
25 MR. SELENDY: My partner, Chris Chung, will address
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1 the sampling issues.
2 MS. CHUNG: Good afternoon, your Honor. We had
3 offered before as FHFA once we received the loan tape and
4 originator information to begin providing a protocol.
5 Certainly your Honor has ordered the information to be produced
6 in all cases and we're standing by to provide protocols for
7 those cases on a rolling basis as soon as we receive the
8 information. We have not had any communications with
9 defendants about when they expect to produce the information.
10 THE COURT: Okay. So let me just take a poll of the
11 cases. Well, I guess that's not actually a useful way to do
12 it.
13 MS. SHANE: Your Honor, may we suggest that defendants
14 do have a useful way of letting your Honor know where things
15 stand with respect to the production by defendants?
16 THE COURT: Yes, please. Thank you, Ms. Shane.
17 MS. SHANE: The defendants generally are prepared to
18 make the production that your Honor has ordered within 30 days,
19 if that's acceptable to your Honor. There may be some
20 institutions, and I speak now only for institutions as the
21 individuals don't have anything to produce on this score, which
22 have some exceptional circumstances that they would expect
23 either to work out themselves in the coming period and make
24 production on time or to meet and confer with the plaintiff
25 about in order to work out those issues. I'm not aware of
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1 anybody who is unable to do it at this time, so that of those
2 defendants who have not sought a stay or otherwise found a
3 reason to have a stay, there is agreement that we will be able
4 to comply or substantially comply within 30 days.
5 THE COURT: Explain to me why it takes 30 days to
6 provide the loan tapes that were provided to the trustees, the
7 final closing loan tapes that were provided to the trustees.
8 MS. SHANE: Your Honor, the short answer is that there
9 are many, many securitizations at issue here. There's no
10 centralized repository that we know of, other than, for
11 example, if you went to the trustees themselves there would be
12 a small universe of trustees who received them, but in the
13 ordinary course of business at least with respect to my client,
14 JPM, there wasn't a single place where the final closing tape
15 that went to the trustee ended up being collected and kept in
16 that form. In fact, there can in some instances be some
17 question about which was such tape, and how did it find that
18 tape. I realize that it sounds like the kind of thing that
19 would be kept in a red robe or a closing binder.
20 Unfortunately, for some institutions and some of the heritage
21 institutions that JPM, for example, has come to be responsible
22 for in the production world, that is not the case.
23 So people are working through those problems and fully
24 expect to be able to find at least a very good proxy and talk
25 openly with the plaintiff about where the questions may lie.
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1 For some it may not be possible to be certain which was that
2 tape until you've conducted a full e-mail search, for example,
3 your Honor, which we would expect to be working with the
4 plaintiff to fashion. But we do expect that we should be able
5 to come up with something that is very much like or is exactly
6 like what your Honor has ordered us to do in that time. It
7 won't be easy. JPM has 103 securitizations for which it is
8 responsible. Others have some significantly smaller numbers
9 and some are right in the middle, 50's and 60's. It's old, so
10 it just takes some time to gather those up from old systems.
11 THE COURT: Okay. So I'll assume that the information
12 responsive to my May 8th order will be produced no later than
13 June 8th, and that plaintiff's counsel and defense counsel will
14 consult with each other during this period before June 8th so
15 that there is no delay beyond that date. Ms. Chung?
16 MS. CHUNG: Your Honor, there is a loose end. I just
17 raise it now so we don't need to trouble your Honor about it
18 later. As part of loan tapes, sometimes they can vary in form
19 slightly from tape to tape. It's usual to have what's called a
20 data dictionary or in less fancy terms it's just an index of
21 what the different columns are in case it's not quite called
22 the same thing from tape to tape. It will be very -- it would
23 be productive if those data dictionaries were produced at the
24 same time the loan tapes were produced, because then there
25 would be no delay in us processing the information putting
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1 together a protocol.
2 THE COURT: Is there any objection to that by any
3 defendant?
4 MS. SHANE: Your Honor, we don't have an objection,
5 but it's the first we've heard of it, and as I say the format
6 and retention of these kinds of documents is not uniform, as
7 far as I know, across defendants, so we would respectfully
8 request permission to try to track it down for the plaintiff
9 and if we have a problem let the plaintiff know and if we still
10 have a problem come to your Honor with any specifics about it.
11 THE COURT: Thank you, Ms. Shane. So I'm going to
12 assume since no one voiced an objection that everyone will
13 produce that to the extent they're able to and we'll discuss
14 any difficulty with Ms. Chung as soon as they become aware of
15 any difficulty. Thank you so much for your cooperation on that
16 score.
17 Let's turn to sampling. As I understand it in the 16
18 cases there are 449 securitizations. There are 83 entity
19 defendants. The investments are in billions of dollars. As
20 low as half a billion to as much as 33 billion. There are
21 2.7 million loans and an individual loan file averages as many
22 as 300 pages. I indicated at our first conference that it
23 would be important to control the expense and burden of
24 discovery in this case and we would be sampling the loan files.
25 We're going to sample the loan files from the beginning of the
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1 case. We're not going to produce all the loan files, have
2 expert discovery with respect to all the loan files, and then
3 come up with a sampling mechanism as the defendants propose.
4 That saves no one any expense or burden.
5 So the issue is what is our universe of loan files to
6 be scrutinized here. The plaintiff has made a detailed
7 proposal and before -- and I have a number of questions for
8 counsel about these matters, but I did ask Mr. Kasner to be
9 prepared and I'm happy to hear from other defense counsel in
10 their cases about how due diligence -- whether as part of the
11 due diligence function of the defendants loan files were
12 examined and if so was there any sampling protocol and if so
13 what percentage of loan files were sampled.
14 Mr. Kasner, were you able to get any light shed on
15 that issue?
16 MR. KASNER: Yes, your Honor, some. I can't vouch for
17 the holder of the flashlight, but I believe based on what I'm
18 about to tell your Honor that that is the case, and I do
19 appreciate your Honor acknowledging that different defendants
20 in these cases are differently situated.
21 Ms. Shane I believe is prepared to address your Honor
22 as well on the issue of sampling on behalf of the group as a
23 whole, but mindful of your Honor's order, at UBS as I've
24 advised the Court there were two different roles that UBS had.
25 It was not a loan originator as opposed to some of the other
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1 defendants in the cases. UBS was a whole loan purchaser which
2 then formed the basis to some extent of the securitization, or
3 it was an underwriter of a securitization that was offered for
4 sale by a different issuer or a non-affiliated UBS issuer. In
5 both cases as I understand your Honor is that UBS received a
6 tape and then it engaged in what was called a stratification of
7 the tape to some extent, and again, just to be clear, I'm
8 advising the Court and everybody else what I understand to be
9 the case as of this point. I wouldn't want Mr. Selendy to say,
10 Kasner, you said X and the witness said Y, but I doubt that
11 that would happen.
12 As I understand it, the tapes were received and then
13 there was a stratification done. In other words, your Honor,
14 there was an attempt to sample. The sampling was based, as I
15 understand it, on two sets of criterion. One was a random
16 sampling and the other one is what is known as an adverse
17 sampling. By that I mean there were certain criterion of the
18 loans that were in a particular pool, a particular credit
19 score, a particular geographic location, a particular loan to
20 value ratio that may have indicated a higher risk for that
21 particular loan. There were samplings that were then applied
22 to that universe of loan, your Honor. Your Honor had inquired
23 about the statistics or what percentages were sampled. It
24 varies, your Honor, based upon a whole different set of
25 criterion, including but not limited to the identity of the
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1 loan originator itself, the familiarity that UBS may have had
2 with that loan originator from other deals.
3 On average, your Honor, the sampling where it was a
4 UBS-sponsored deal was approximately 37 percent of the pool and
5 where UBS was an underwriter of a non-UBS deal, it was
6 approximately nine percent and that's give or take a little bit
7 on either side from what I understand.
8 The due diligence itself, your Honor, went into a
9 whole host of different criterion that had to do with what were
10 called credit issues, what were called legal compliance issues,
11 and then separate data review. And, your Honor, I'm confident
12 that when Mr. Selendy and his team of lawyers depose the
13 appropriate people they will get into what those various due
14 diligence were that I've just described to the Court, but I
15 hope that answers your Honor's question.
16 THE COURT: You say sampling -- thank you, it's very
17 helpful and very responsive -- and gave the percentages of
18 37 percent and 9 percent. Are you telling me that 37 percent
19 of the loan files as opposed to, for instance, a loan tape or a
20 tape that gives summary information about a loan was sampled?
21 MR. KASNER: As I understand it, your Honor, UBS
22 received this tape and it had a whole -- it was an Excel
23 spreadsheet, for lack of a better word, and it had many, many,
24 many fields of data. From those fields of data selection was
25 applied, random selection and then this adverse selection to
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1 which I was referring. Once that list was arrived at a
2 percentage, either that generated a percentage and it was then
3 given, in other words, UBS worked with third party due
4 diligence providers who actually received the loan files and
5 conducted the due diligence.
6 To answer your Honor's question, my understanding is
7 that 37 percent -- the loan files with respect to 37 percent of
8 the pool of loans were due diligence. In other words, let's
9 assume, your Honor, that there were ten loans in a pool, or
10 excuse me, there were a hundred loans in a pool as a result of
11 this selection and sampling ten of those loans were reviewed.
12 So that's ten out of a hundred is 10 percent. That would have
13 been ten percent. Here, as I say on average -- some were
14 higher, your Honor. There were 26 deals that are at issue in
15 the UBS case. Some portion of those are UBS-sponsored deals.
16 There's a range, your Honor. Again, as I mentioned to
17 the Court there were a whole host of factors that led to a
18 decision of how many loans to sample. Some were more than 37,
19 some -- obviously, the nature of the term average.
20 THE COURT: And just to make sure I understand
21 correctly there's a tape that reflects all the loans within a
22 securitization.
23 MR. KASNER: Well, your Honor, there is a tape with
24 respect -- let's assume in the hypothetical that UBS is
25 purchasing 100 loans from American Home Mortgage, to use an
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1 example. UBS would then get a tape, as I understand it,
2 reflecting the data for those hundred loans. I apologize, your
3 Honor, I interrupted you. I didn't mean to do that.
4 THE COURT: No, it's very important, I think, to me
5 that I understand you.
6 So what you referred to as stratification was applied
7 against that tape and I just want to make sure that the
8 37 percent or the 9 percent, the two figures you gave me --
9 MR. KASNER: Yes, your Honor.
10 THE COURT: -- were with respect to the hundred loans
11 on the tape, to use your hypothetical, as opposed to a subset
12 of the 100 that was identified after the analysis that was
13 done, the adverse sampling, etc. If there was a subset of the
14 100 that was pulled out because of some kind of statistical
15 analysis, and then from that subset, which could be, let's say,
16 for my example, 20 percent, and of that 20 percent, then,
17 9 percent or 37 percent of the actual loan files were sampled,
18 do you know --
19 MR. KASNER: Your Honor, if I could confer with my
20 brain trust, the ever elusive Mr. Musoff, if you give me a
21 moment, your Honor. He's feverishly scribbling a note. I just
22 want to make sure I know the answer.
23 Yes. So the percentage, the 37 percent is 37 percent
24 of the loans that appeared on the original tape and do not
25 represent a lesser universe of all of the loans that are then
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1 stratified that are then percentaged against.
2 THE COURT: Thank you. And so the range of the
3 sampling of the original loans in the UBS securitizations
4 ranges from 9 percent to 37 percent?
5 MR. KASNER: Well, your Honor, no, with all due
6 respect, I believe you may be mixing the two concepts. In the
7 deals where UBS was solely an underwriter where you have Ally
8 Financial, to use an example, perhaps a poor one at this point
9 in time, but nevertheless Ally Financial having sold the
10 securitization. The average loans that were reviewed, sampled,
11 to use the Court's term, was -- approximately, your Honor.
12 This is not a science and if it's 8-1/2 or 9-1/2, it's in that
13 ballpark as best as we can tell.
14 And then with respect to UBS-sponsored deals that are
15 at issue in the FHFA case against UBS and the family entities,
16 to use your Honor's term, that is, what did I say, 37 percent?
17 Yes, 37 percent, your Honor, approximately.
18 THE COURT: Okay. Thank you.
19 MR. KASNER: And again, your Honor, I would caution,
20 just because there are a lot of financial institutions that are
21 represented in this courthouse at this moment, I don't know of
22 any information one way or the other as to how that stacks up
23 against what other financial institutions did.
24 THE COURT: And, Ms. Shane, you wanted to be heard?
25 MS. SHANE: I'm afraid that Mr. Kasner may have
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1 indicated that I would be able to speak more intelligently than
2 I can at this time about other institutions' practices. I can
3 say that just as he said there is an enormous amount of variety
4 and variation both across institutional entities and even
5 within institutions depending on the very factors Mr. Kasner
6 has listed as well as additional factors. The additional
7 factors can include such things as the type of deal at issue,
8 not just the role that the institution is playing, although it
9 ends up being a slightly different role, but there are in this
10 case in a number of instances things known as
11 resecuritizations. So, for example, there's been a whole
12 exercise in the first securitization and this is a further
13 exercise on that exercise, just as in Mr. Kasner's example
14 where you have an underwriter who is playing a different role
15 than a sponsor. In those situations you may have diligence or
16 sampling that reflects a stepback role for an institution.
17 In addition, you may have situations in which the pool
18 is not as uniform. As in Mr. Kasner's illustration, which was
19 helpful, in many, many of these securitizations instead of
20 coming as one big batch subject to one-time diligence through
21 sampling or otherwise, you sometimes may have situations where
22 for one reason or another different pools that have been
23 diligenced at different times will end up being part of a
24 securitization and those standards may differ, depending on
25 where they came from and other factors of the sort Mr. Kasner
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1 has mentioned. So the light that I can shed is it's a great
2 big world of very varied practice within institutions and
3 certainly across institutions, your Honor.
4 THE COURT: Okay. Very helpful.
5 So the factors that the parties' papers mentioned that
6 might drive how to personalize the sampling system for a
7 particular securitization were factors like who the originator
8 is or who the originators were, how many there are, the time
9 frame covered by the origination of the loans, what parts of
10 the country the loans originated in, any changes in
11 underwriting guidelines during the period of that
12 securitization with respect to that originator, and certainly
13 the conversation this morning or this afternoon suggests
14 additional factors and levels of complexity.
15 In the plaintiff's papers they suggested
16 hypothetically that a 10 percent sampling might be enough.
17 That is still a humongous undertaking. Huge. And I would
18 think it would be unnecessary to do that, to have that kind of
19 production if there was a lot of consistency within a
20 particular securitization.
21 There's another issue that the parties' papers
22 addressed and that is whether or not you'd be looking at the
23 entire securitization or what the parties referred to as the
24 supporting loan groups for the claims at issue here. And I
25 would hope we could have agreement that it would be only the
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1 supporting loan groups that we would be talking about as our
2 universe, since the plaintiff's claims rise or fall with
3 respect to that. Ms. Chung?
4 MS. CHUNG: May I, your Honor? As to the focuses on
5 the percentages, I think in some way that could be misleading.
6 Really the holy grail here is to get to the 95 percent
7 confidence level. So your Honor is right in pointing out that
8 in our paper we gave an example of a 4,000 loan population or
9 universe, you could get to that confidence level by sampling
10 384 loans. If the number of loans in the pool may move much
11 higher than that, and actually the number of loans won't move
12 in proportion because under statistical principles you're not
13 going to drive the number higher, you can keep the confidence
14 number the same without driving the sample that much higher.
15 I hope we haven't falsely raised the specter that if
16 the loan pool is 10,000 then you're going to be moving to a
17 number that's again 10 percent of that. The numbers that we're
18 hearing for the due diligence that was done by UBS just in our
19 experience sound high, although based on what we know about the
20 industry, other cases that we've worked on, but we concede that
21 yes, there can be different characteristics. It may be due to
22 the role UBS was playing with the loans, so that's fine, we
23 take the information as it's given.
24 I would say that in terms of the characteristics and
25 the supporting loan groups specifically --
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1 THE COURT: I'm sorry?
2 MS. CHUNG: The specific loan groups and whether or
3 not that's going to be the specific universe or all the loans
4 and your Honor knows that moves the number from about a million
5 loans to 2.7 million loans, so that could be a huge difference.
6 We have not heard the rationale for why something larger than
7 the supporting loan groups would be relevant in this case.
8 Certainly it was our position in our papers that the relevant
9 loan groups is the supporting loan groups.
10 THE COURT: Okay. This may be too much to hope for,
11 but I'm hopeful that you folks could come to agreement before
12 our June conference on a sampling protocol. I could even
13 envision that you would jointly agree as to an expert who would
14 consider the factors the parties identify and randomly select
15 the right number of loan files and which loan files in a
16 particular universe will be produced in discovery here, and
17 subject to proof at trial as representative of all the issues
18 in the case. And I'm going to assume, unless I'm convinced
19 otherwise, that we're only talking about the supporting loan
20 groups within a securitization that would be subject to the
21 sampling and that no evidence would be admitted at trial with
22 respect to loans outside the supporting loan groups. I mean,
23 that is the substance of the individual loans. I'm not talking
24 about the raw numbers, that there were so many loans within a
25 securitization and this percentage were part of the support is
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1 loan groups. I'm talking about the contents of the loans
2 themselves, the characteristics. And I think this has to be
3 decided, I'm hoping it will be decided before our June
4 conference, but it has to be decided. I will have to decide it
5 at the June conference or within days of the June conference if
6 there's a disagreement. Mr. Selendy?
7 MR. SELENDY: Yes, your Honor, thank you. I did want
8 to say with respect to the protocol for stratification or
9 clustering of deals within a given case, we had submitted that
10 the loan tapes would be important to that exercise because,
11 frankly, there are many different ways in which one could
12 conceivably stratify a population or complicate the exercise
13 and we've adduced certain grounds that we think are material,
14 such as loan performance or documentation type or LTV. The
15 defendants have suggested there may be many more factors. In
16 practice one could proceed with a simple random sample. One
17 could proceed without even reaching a 95 percent degree of
18 confidence because what we're trying to accomplish is a degree
19 of significance such that misrepresentations in that area would
20 matter that there would be some confidence in saying, look,
21 this is fairly reflective of the pool, even if it's not
22 95 percent.
23 We do wish to, however, present the Court with the
24 best data we can, which is why we would like to arrive at
25 samples that yield that 95 percent degree of confidence and we
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1 would like to use stratification and possibly clustering as
2 means of achieving that both from a standpoint of efficiency
3 and to insure that any extrapolation is as informative as
4 possible. But as we have talked with our expert we understand
5 in this and in other matters, frankly, that the loan tapes are
6 an important step to develop the precise protocol. So if it's
7 correct that we won't be getting those loan tapes for 30 days I
8 have some concern that we won't be able to present your Honor
9 with a full protocol as of the conference 30 days from today.
10 THE COURT: Well, I don't actually -- perhaps this is
11 wishful thinking. What I'm thinking about is that we would,
12 you would agree upon a process, and it may be easier to do it
13 one case at a time and we may as well start with the UBS case
14 and see if you can get agreement there and then prioritize the
15 next five that are going to trial, whichever they are. But I
16 think --
17 MR. SELENDY: That makes a great deal of sense to us,
18 your Honor.
19 MS. SHANE: May I be heard just for a moment?
20 THE COURT: Ms. Shane.
21 MS. SHANE: Yes. Thank you, your Honor. We welcome
22 further engagement in a process with the plaintiff. Contrary
23 to the impression that appears to have been created, it has
24 never been defendant's position in any way at any time that the
25 only way to conduct discovery in this case or to get to the
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1 merits is by full production of every loan file. Our position
2 has been instead that just as in many other cases that are
3 currently being litigated and in this world as well as in other
4 cases, it is entirely appropriate for each party to come to its
5 view and even to exchange views about what would be a more
6 efficient method of proof including proof through sampling that
7 is being done in other cases. The discovery that would then
8 follow from that could easily be much more efficient and
9 economical than production of all loan files.
10 The only time that defendants have referenced the
11 concept of production of all loan files, your Honor, is simply
12 to make clear that we were not in any way resisting producing
13 loan files and then saying, oh, and unless you proved your case
14 through all the loan files, plaintiff, you're going to lose.
15 If plaintiff had wanted the loan files, defendants were
16 prepared to produce the loan files and that remains the case.
17 Defendants also are concerned, your Honor, that while
18 the sampling approach has surface appeal and may very well
19 prove to reduce some costs in some ways, it can be potentially
20 dangerous in the sense that, for example, if what a random sort
21 in a particular test case were to come up with is that you
22 needed to have a representative sample from each of the
23 originators that fed into the pool, you might well find that
24 you still need to go out and do the non-party discovery
25 necessary in order to figure out whether there were or were not
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1 misrepresentations from those original pools. It might not
2 solve the problems it looks like it's going to solve at least
3 not nearly as neatly as it might look.
4 So we would welcome having a sense, a better sense
5 than we've had to date from the plaintiff of what it is that
6 the plaintiff regards as the steps that would in fact create
7 these savings. We're open to doing that with them. We also
8 think that, just as Mr. Kasner has described for your Honor,
9 the kinds of sampling that may have been done in the ordinary
10 course at UBS, it would be quite helpful if plaintiff would do
11 the same. As Mr. Kasner has mentioned to your Honor a couple
12 of times, the plaintiff was in this business as well, that is,
13 the GSE's were in the business, they had samplings they had
14 tapes and they have had samplings that they used to make
15 allegations in this case already, so kind of exchange of
16 information rather than trying to come at it with defendants
17 saying what they would do or with both parties having to say it
18 at the same time we think would be a better process for getting
19 to a sensible way to go forward on this, which we would be
20 happy to do, your Honor.
21 THE COURT: Ms. Shane, the plaintiffs have been asking
22 for the loan tapes for months. You resisted turning them over.
23 I did not require them to be turned over until now. They've
24 indicated from the beginning that they needed the loan tapes in
25 order to have the ability to make a more detailed proposal.
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1 Three, your brief, I'll go back and read it again if
2 you would like me to, but made very clear that you were not
3 making any proposal and I thought that it was also clear that
4 you did not think any proposal could be made until all
5 discovery had taken place, including all the fact and expert
6 discovery.
7 Now, if the only party that I have a sampling proposal
8 from is the plaintiffs and the defendants aren't going to
9 engage in this process in any meaningful way, sobeit. I'll do
10 my best. But I don't have a proposal from the defendants for
11 sampling in any individual case or across the cases, and I am
12 very aware that from case to case it may, the protocol for
13 sampling may be very different because of the securitizations
14 in that particular case. But it takes two to tango here and if
15 the defendants want to participate, I would be thrilled. You
16 have the loan tapes. You know what your due diligence
17 protocols were. The plaintiffs don't at this point. If you
18 have a proposal to make to them, please do so.
19 MS. SHANE: We certainly will, your Honor, and I
20 apologize if we created the impression at any point that we
21 were not prepared to participate meaningfully. The point in
22 our papers with respect to the stage at which this might most
23 productively occur had to do with determinations of
24 admissibility and the like, which there is concern not be done
25 prematurely. I realize that we need to find a way to do
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1 discovery that won't be a mismatch with what ends up being
2 admissibility at summary judgment or at trial and defendants
3 would like to work on that project as well. The concern is
4 that we get ahead of ourselves, unfortunately, if we determine
5 admissibility before we've even done the discovery.
6 As the plaintiff acknowledged, they did not serve the
7 document request that your Honor permitted them to serve or
8 make a request for the tapes as of February 6 since the time
9 that they were permitted to do so. They did wait until now in
10 order to do it and, actually, your Honor has issued an order
11 for them. We are prepared to make that production that your
12 Honor has called for so that we have a basis on which to go
13 forward with these discussions. We certainly will engage in it
14 in good faith with an effort to come to a sensible resolution.
15 But we have not been resisting that today.
16 THE COURT: Thank you, Ms. Shane.
17 MR. KASNER: Your Honor --
18 THE COURT: Mr. Kasner.
19 MR. KASNER: If it please the Court, just 30 seconds
20 more. To pick up on one point Ms. Shane addressed, we had
21 communicated with the Court in a letter subsequent to the entry
22 of your Honor's May 8th order requesting that the FHFA or
23 Fannie and Freddie provide similar information to the defense
24 counsel. The reason we did that, your Honor, it elicited a
25 response from counsel, well, this case is about your
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1 securitizations, not ours.
2 We differ with that, your Honor. Now is not the time
3 to lay out every reason as to why because there is a motion
4 before the Court, but if we're going to have an intelligent
5 conversation on both sides with respect to sampling and with
6 respect to sampling sizes, your Honor, I believe, placed
7 tremendous reliance in her opinion on the sampling or the
8 statistical analyses that were done by the FHFA that's
9 referenced in paragraphs 298 to 316 of their pleading against
10 UBS. In addition, they did their own sampling as originators.
11 They, like all of the other financial institutions in this
12 court, securitized loans and sold those securitizations to the
13 public. If they sampled those loans for the same purpose your
14 Honor has ordered UBS to provide the information we think that
15 would be enlightening. If they're taking the position, oh,
16 35 percent is enormous and their methodology to give them the
17 comfort that they needed under the securities laws to sell
18 securities to the public was 2 or 50, we think that that would
19 bear on the issue that your Honor is at least asking us to
20 consult with counsel on in advance.
21 THE COURT: And I'll absolutely allow you to have
22 those conversations with them, Mr. Kasner. Thanks so much.
23 So we will have sampling and I urge counsel to come to
24 agreement on that, and if you can't I'll hear from you further
25 and give you a ruling.
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1 Let's turn to the issue of settlement. Your
2 magistrate judge is Judge Maas. I mentioned at our last
3 conference that I would have the ability to ask a senior judge
4 of this Court, one or more, to participate in settlement
5 discussions. One of the questions is when. Is any case in
6 this courtroom ready for settlement discussions now? Do we
7 need document discovery? Do we need depositions? Do we need a
8 few depositions, do we need all depositions? The timing of
9 settlement discussions.
10 With respect to 5201, the UBS case, Judge Kaplan has
11 kindly offered his services to assist in the settlement of that
12 case. So I'll ask plaintiff's counsel and defense counsel to
13 talk with each other and to talk about when it might be ripe to
14 begin those settlement discussions with the assistance of the
15 Court. And, of course, if you would prefer to in any case use
16 some alternative method of mediation or settlement discussions
17 that's just fine with me. This is just an opportunity that we
18 make available to you.
19 Lastly, with respect to coordination of the cases, I'm
20 only aware of one case that I need to make sure I coordinate
21 with another judicial officer and that's the Connecticut case
22 and Judge Thompson. I'd ask counsel if there are any
23 additional cases, please to let me know so I can reach out to
24 other judicial officers to make sure that our discovery goes
25 along a similar track.
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1 MS. CHUNG: Your Honor, we would just raise the
2 CountryWide case, as you know, was transferred to the MDL.
3 That remains a case that may benefit from coordination given
4 that the issues remain in common.
6 Okay, let me ask if there are any other issues that
7 counsel wish to address. Mr. Selendy?
8 MR. SELENDY: I think we are set, your Honor, thank
9 you.
10 THE COURT: Ms. Shane.
11 MS. SHANE: Your Honor, I'm sorry if I misunderstood,
12 but with respect to the proposals with respect to how to
13 conduct the document discovery and the depositions, are those
14 for us to discuss and come back to your Honor about or have
15 you -- okay, very good.
16 THE COURT: Other than the pretrial order dates which
17 are firm and you should consider them and the fact that we'll
18 proceed on four tranches. Well, I shouldn't even say that.
19 I'd like the idea, obviously, of four tranches with one case
20 being in the first tranche so you'd have an ability to focus
21 your initial deposition discovery on the plaintiff and one set
22 of defendants and I expect everyone would learn a lot from
23 that. You'd have a single summary judgment motion, which I'd
24 address and I expect everybody would learn a lot from that.
25 We'd have one pretrial order and I expect everyone would learn
(212) 805-0300
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C5EFFHFC
57
1 a lot from that and if it went to trial one trial. And I think
2 that there would be efficiencies for the other 15 cases to
3 proceeding this way, and yet I don't want to do 15 cases one at
4 a time. That would just take us all too long.
5 So I'm really open to getting feedback at the June
6 conference on everything and if you as a group, if you had
7 unanimity about a counter proposal or a different way of
8 looking at this and organizing our lives I'd be absolutely
9 happy to hear it. But I think as a structure this makes sense.
10 Ms. Shane?
11 MS. SHANE: Thank you for that clarification, your
12 Honor. I think it does make more sense for us to confer with
13 each other and come back in June about the proposals.
14 Mr. Kasner may have something to add.
15 MR. KASNER: Thank you, your Honor. If I could impose
16 upon you for 30 more seconds. I recognize the hour is late.
17 Two housekeeping matters. With respect to UBS's time to
18 answer, we had thought that if all the cases were proceeding
19 together that we would request that our time to answer the
20 complaint be abated until the resolution of motion practice
21 with respect to the other complaints. I don't know in view of
22 the schedule that your Honor is now contemplating whether that
23 is something that the Court would entertain or not.
24 I have not had a chance to ask Mr. Selendy about this,
25 because much of what was discussed today we're hearing, as the
(212) 805-0300
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58
1 Court is aware, for the first time. But we would propose and
2 ask that our time to answer be held in abeyance until all the
3 other defendants had an opportunity to resolve and then we can
4 all answer at once.
5 THE COURT: I'm happy to have counsel talk with each
6 other about that, but I think we need to get the UBS case
7 moving and I'm happy to extend your time to answer, to give you
8 four to six weeks or whatever, but I think -- I don't even have
9 a proposal for amended pleadings in this first group of cases
10 and there's going to be a second group, and I'll have lots of
11 motions to decide and who knows when times to answers will
12 begin. So I think UBS, for better or worse, having the
13 pleasure of being named in 5201, the lowest docket number,
14 needs to answer.
15 MR. KASNER: All right. Then, your Honor, I would
16 take the Court up on the generous offer for a six-week
17 extension so that we can prepare an answer. I don't know if
18 the Court requires a stipulation or could just so order what
19 your Honor has just said, whatever your pleasure.
20 THE COURT: How about June 22?
21 MR. KASNER: Thank you, your Honor. That would be
22 fine.
23 THE COURT: I think in the future, again, UBS is
24 blazing the trail here. In the future people should assume,
25 counsel in other cases should assume the normal time frame for
(212) 805-0300
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59
1 reply.
2 MR. KASNER: Thank you, your Honor. The only other
3 point I wish to alert the Court to is a housekeeping matter.
4 As Mr. Selendy was quoted in the newspaper following your
5 Honor's decision, your Honor's decision was, quote, historic,
6 and addresses -- that is a quote at least according to the
7 media. The issues that your Honor addressed --
8 THE COURT: I thought it was about 12(b)(6).
9 MR. KASNER: Your Honor, some of the legal issues here
10 are actually quite important, so I wish to advise the Court
11 that on behalf of UBS we anticipate filing a motion under 28
12 U.S.C. 1292(b) to have some resolution perhaps by the Second
13 Circuit of the issues, at least the hearing issues that your
14 Honor has addressed for the first time.
16 So with respect to motion practice like that, I'll
17 just assume that the normal Southern District rules of two
18 weeks/one week will apply, but I am happy if counsel talk among
19 themselves and get me a stipulation with a more elongated
20 briefing schedule, certainly of two weeks and three weeks, that
21 would be fine with me. Three weeks for opposition, two weeks
22 for reply. So if you make such motions if you get me a stip
23 with a different proposed briefing schedule, I'd be happy to
24 sign. Anyone else have any other issue? Good. Thank you so
25 much for your help this afternoon.
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60
1 (Adjourned)
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
(212) 805-0300
A-222

Jay B. Kasner
Scott D. Musoff
Robert A. Fumerton
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
Four Times Square
(212) 735-3000

Attorneys for Defendants UBS Americas Inc.,
UBS Real Estate Securities Inc., UBS
Securities LLC, Mortgage Asset Securitization
Transactions, Inc., David Martin, Per Dyrvik,
Hugh Corcoran and Peter Slagowitz

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
FEDERAL HOUSING FINANCE AGENCY

Plaintiff,

v.

UBS AMERICAS INC., UBS REAL ESTATE
SECURITIES INC., UBS SECURITIES, LLC,
MORTGAGE ASSET SECURITIZATION
TRANSACTIONS, INC., DAVID MARTIN,
PER DYRVIK, HUGH CORCORAN, and
PETER SLAGOWITZ,

Defendants.
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11 CIV 5201 (DLC)

ECF Case

Electronically Filed
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
NOTICE OF MOTION TO CERTIFY AN APPEAL PURSUANT TO 28 U.S.C. 1292(b)
OF CERTAIN PORTIONS OF THIS COURT'S MAY 4, 2012 ORDER DENYING
IN PART THE MOTION TO DISMISS THE SECOND AMENDED COMPLAINT

PLEASE TAKE NOTICE that, upon this Court's Opinion and Order dated May 4,
2012 (the "May 4 Order"); the accompanying Memorandum of Law dated May 23, 2012; the
accompanying Declaration of Jay B. Kasner dated May 23, 2012, with exhibits; and upon all
A-223

2
prior pleadings and proceedings herein, Defendants UBS Americas Inc., UBS Real Estate
Securities Inc., UBS Securities LLC, Mortgage Asset Securitization Transactions, Inc., David
Martin, Per Dyrvik, Hugh Corcoran and Peter Slagowitz will move this Court, before the
Honorable Denise L. Cote at the United States Courthouse, 500 Pearl Street, New York, New
York, 10007, on a date and at a time designated by the Court, (A) for an Order, pursuant to 28
U.S.C. 1292(b), certifying for interlocutory appeal this Courts Order, dated May 4, 2012 (the
May 4 Order), with respect to the following two issues raised in the May 4 Order: (1) whether
the "extender" provision found in Section 12 of the Housing and Economic Recovery Act of
2008 ("HERA") applies to statutes of repose; and (2) whether HERA's extender provision applies
to claims brought under federal law; and (B) for such other and further relief as this Court may
deem just and proper.

May 23, 2012


By: /s/ Jay B. Kasner

Jay B. Kasner
Scott D. Musoff
Robert A. Fumerton
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
Four Times Square
Phone: (212) 735-3000
jay.kasner@skadden.com
scott.musoff@skadden.com
robert.fumerton@skadden.com

Attorneys for Defendants UBS Americas Inc., UBS Real
Estate Securities Inc., UBS Securities LLC, Mortgage
Asset Securitization Transactions, Inc., David Martin,
Per Dyrvik, Hugh Corcoran and Peter Slagowitz
A-224

3
TO: Philippe Z. Selendy
(212) 849-7000
philippeselendy@quinnemanuel.com

Attorneys for Plaintiff Federal Housing
Finance Agency
A-225
A-226
---- ------- ----- - -- -- --- ---- -----x
FEDERAL HOUSING FINANCE AGENCY
Plaintiff,
v.
UBS AMERICAS INC., UBS REAL ESTATE:
SECURITIES INC., UBS SECURITIES, LLC, :
MORTGAGE ASSET SECURITIZATION
TRANSACTIONS, INC., DAVID MARTIN,
PER DYRVIK, HUGH CORCORAN, and
PETER SLAGOWITZ,
Defendants.
- ----------- -- -- - - -- - ---- --------x
II CIV 5201 (DLC)
ECFCase
Electronically Filed
DECLARATION OF JAY B. KASNER IN SUPPORT OF DEFENDANTS'
MOTION TO CERTIFY AN APPEAL PURSUANT TO 28 U.S.C. 1292(b)
OF CERTAIN PORTIONS OF THIS COURT'S MAY 4, 2012 ORDER DENYING
IN PART THE MOTION TO DISMISS THE SECOND AMENDED COMPLAINT
Jay B. Kasner, under penalty of perjury, declares as follows:
I. J am a member of the Bar of this Court and of the firm Skadden, Arps, Slate,
Meagher & Flom LLP, attorneys for defendants UBS Americas Inc., UBS Real Estate Securities
Inc., UBS Securities LLC, Mortgage Asset Securitization Transactions, Inc., David Martin, Per
Dyrvik, Hugh Corcoran and Peter Slagowitz (collectively, the "Defendants").
2. I respectfully submit this declaration in support of Defendants' Motion to Certify
an Appeal Pursuant to 28 U.S.C. 1292(b) of Certain Portions of this Court's May 4,2012
Order Denying in Part the Motion to Dismiss the Second Amended Complaint and to transmit to
the Court true and correct copies of the documents described below.
A-227
3. Attached hereto as Exhibits A through F are true and correct copies of the
following documents:
Exblblt DeSCription
A
Ross Todd, Quinn Emanuel and FHFA Clear Big Hurdle in Huge MBS Case, The
American Lawyer, May 4, 2012.
8
Ross Todd, Agency's Suit Against Bank Proceeds . New York Law Journal , May 8,
2012.
C
Complaint, Fed Deposit Ins. Corp. v. Bear Stearns. el al., No. 12-cv-4000, filed May
18,2012.
D
Complaint, Fed. Deposit Ins. Corp. v. J.P. Morgan Securities LLC. et al., No. 12-cv-
4001, filed May 18.2012.
E Transcript of May 14, 2012 conference before the Honorable Denise L. Cote.
Letter from Congressman Darrell [ssa, Chairman of the House Committee on
F Oversight and Government Reform, to Edward DeMarco, dated Sept. 29, 20 11,
without attachment.
I declare under penalty of perjury pursuant to 28 U.S.C. 1746 that the foregoing is true and
correct.
Executed on May 23, 2012.
/s/ Jay B. Kasner
Jay 8. Kasner
2
([KLELW $
Case 1:11-cv-05201-DLC Document 85-1 Filed 05/23/12 Page 1 of 2
A-228
A-229
The American Lawyer: Quinn Emanuel and FHFA Clear Big Hurdle in ... I1ttp: /fwww.americanJawyer.comldigestFriendlyTAL.jsp?id-1202SS20 ...
lofl
THE
!\M LAw LITIGATION DAILY
ALM Propertiee, Inc.
Page printed lrom: TOO American Lawyer
Back to Article
Quinn Emanuel and FHFA Clear Big Hurdle in Huge MBS Case
Ross Todd
Tte litigation Daly
05-04-2012
On Friday the Federal HousillJ Firarce Agency arxl its lawyer, at Quim EmarJ,IEIl UrQr.hIr1 & SUlivan Cf06tied a major tudle in ttllli" JU&w of claims against issuurs 01
resiclontlal InlJ!i.;iI Pit0 Q.(i;lt(. Marl\aIttanlederal district judge DElme Cota sided with the Ft-FA, the of Freddie Mac
arxl Fal1ie Mae, denying a motion to dismiss claims againi5t LeS filed by the balil.'s lawyer, at Skaddal\ Arps, Slate. Meagher & Flom.
The rulirg is a big >ActOI)' for Quinn arxl the Ft-FA. The firxlirgs directly affect al 15 Ft-FA cases belon! Cote, woo t-altstayed dlsrovery in thof;a cases..dlru her
rullrg on t.eS's motion. The s.iJs agail'6t a wl"u's wl"u 01 the financial industry, lncIudlrg JPMorgan ChaH, Goklman Sachs, Credi
SWi5e, ard Bar*. of America's Cotrirywide uriI. Quim's Philippe SelerUy ard Sltadden's Jay Kasner were appoinled iaison CO\XISeI in the the consolidated cases
befor8 Cota In December.
Salerdy wa5l.1lderstardably plea5ed "On behalf of CU" clio ... , we are deeply appreciative 01 Judge Cote's listoric ard well-reasoned decisionconfrming ttat FHFA
may prooeed with its cl81ms on behalf of Fannie Mae, Fred!ie Mac, ard the American taxpayer, to recover 1osre5 l.Ilder lederal 800 state secl,l"ille$ laws agaillil the
l.Ilderwrilers of mortg':9e-backed securities, he wrota in an e-mal Frklay aftorroon.
When Skaddenfiled the moli9fl \9. dismlSl'i In Jarl.2IV, it argued that Ft-FA's clams wer8 barred by the statute 01 repose, tlut the allerq ladl;ed &arxlirg, arn that the
plBintiff Iud faifad to stata a claim under federal S8CISitles law On the statue of linitations issue, L.eS argued ttat 2007 media reports, IawsWs, ard investigations ttat
bJougl1 to ligl1loan origiretbn practices in the industry pre-dated the formation of the FrFA by more ttuna year.
Bit Cote didn't agree with any of thcne arll\lffi9rts, ard dismissed oriy common law clams of negligent risrepreseotation, Cote fQl.Qj that Fame ard Freddie
were enliled to rely on the ba""s assertions about thB loans that were In the offerirg mate.-ials for the seGWitie5. "'The public repatil1l . is releva ... to piail1iff's dai"ns
only insofar as i regates any effort by dllferxlants to maintain that they lIl!ercised due ddigenGe or reasonabla cars to anslSa that the loans i"cIuded i1 the
5eCll"itizatiorli5 were as descrbed, Cote Wroill.
Skadden's Kasner did not immediately respond to Ol./I" request for commanl. A t.eS spollesperson passed alorg the foHowirg statame ... by email; "The Governnenl
Sponsored E",erprlses (GSEs) are, ard were, sopl"isticated participanls in the rasijanlial secu-iies (RMBS) market with e.qJert kruwledga of loan
origination prltCtices arxl secu-ilBs u-derwrlillJ starxlards. The losses sustained on their real astate portfoli() are attribliable to the detlpest recessbn In 75 years. UBS
is studyirg today's dacislon, ard ramairrs corlida'" i1 i\$ defanses to the daims in the lX:ImpIairt."
Copyright 2012. AlM Media Properties, llC. All rights reserved.
5122/201211:18 AM

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Plaintiff,
v.
Defendants.
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11 Civ. 5201 (DLC)
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Plaintiff,
v.
JPMORGAN CHASE & CO., et al.,
Defendants.
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11 Civ. 6188 (DLC)
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Plaintiff,
v.
HSBC NORTH AMERICA HOLDINGS, INC., et al.,
Defendants.
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11 Civ. 6189 (DLC)
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Plaintiff,
v.
BARCLAYS BANK PLC, et al.,
Defendants.

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11 Civ. 6190 (DLC)
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A-230

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Plaintiff,
v.
DEUTSCHE BANK AG, et al.,
Defendants.
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11 Civ. 6192 (DLC)
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Plaintiff,
v.
FIRST HORIZON NATIONAL CORP., et al.,
Defendants.
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11 Civ. 6193 (DLC)
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Plaintiff,
v.
BANK OF AMERICA CORP., et al.,
Defendants.
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11 Civ. 6195 (DLC)
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Plaintiff,
v.
CITIGROUP INC., et al.,
Defendants.

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11 Civ. 6196 (DLC)
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A-231

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Plaintiff,
v.
GOLDMAN, SACHS & CO., et al.,
Defendants.
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11 Civ. 6198 (DLC)
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Plaintiff,
v.
CREDIT SUISSE HOLDINGS (USA), INC., et al.,
Defendants.
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11 Civ. 6200 (DLC)
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Plaintiff,
v.
NOMURA HOLDING AMERICA, INC., et al.,
Defendants.
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11 Civ. 6201 (DLC)
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Plaintiff,
v.
MERRILL LYNCH & CO., INC., et al.,
Defendants.
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A-232

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Plaintiff,
v.
SG AMERICAS, INC., et al.,
Defendants.
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11 Civ. 6203 (DLC)
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Plaintiff,
v.
MORGAN STANLEY, et al.,
Defendants.
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11 Civ. 6739 (DLC)
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Plaintiff,
v.
ALLY FINANCIAL INC., et al.,
Defendants.
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11 Civ. 7010 (DLC)
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Plaintiff,
v.
GENERAL ELECTRIC COMPANY, et al.,
Defendants.
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11 Civ. 7048 (DLC)

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A-233

DEFENDANTS SUBMISSION REGARDING CERTAIN MATTERS IDENTIFIED IN
THE JUNE 6, 2012 RULE 26(f) JOINT REPORT

Pursuant to the Courts Order dated May 15, 2012 (the May 15 Order) entered
in the above-captioned actions (the Actions), the defendants (collectively, the Defendants),
by and through their respective counsel, respectfully submit their positions concerning certain
case management proposals. The proposals were initially outlined by the Court at a May 14
conference and in the May 15 Order (collectively, the Courts Initial Proposals) and by FHFA
in the course of the parties communications concerning the June 6, 2012 Rule 26(f) Joint Report
and the issue of sampling (the subject of a separate submission).
The Courts Initial Proposals, and FHFAs subsequent proposals, would
undermine the development and presentation of the factual issues in these 16 distinct cases.
Although a case management plan should provide for efficient coordination, such coordination
should not occur at the expense of full discovery. The broad scope of discovery delimited by
the Federal Rules of Civil Procedure is designed to achieve disclosure of all the evidence
relevant to the merits of a controversy. Thomas E. Hoar, Inc. v. Sara Lee Corp., 882 F.2d 682,
687 (2d Cir. 1989) (italics altered). Defendants thus propose to modify the Courts Initial
Proposals to achieve efficiencies without sacrificing fundamental fairness and due process. With
few exceptions, Defendants proposed modifications would not require delay of the trial-
readiness dates the Court identified in its Initial Proposals.
In prior submissions to this Court, FHFA has said:
x [E]ach Case presents unique issues pertaining to distinct sets of securitizations,
requiring the application of law to the particular allegations and surrounding facts,
and cannot be generally addressed or resolved on an undifferentiated basis.
FHFAs Proposal For the Efficient Admin. of the Cases (Oct. 19, 2011), at 5.
x [E]ach Case involves different defendants, who marketed and sold different
securitizations, pursuant to different registration statements and prospectus
supplements, containing different representations and warranties, concerning
A-234

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different mortgage loans that were originated by different entities in different
economic circumstances according to different underwriting guidelines. Id. at 6.
Notwithstanding these prior representations, FHFA now asserts that all
Defendants collectively in all Actions should be forced to share the same number of depositions,
interrogatories and requests to admit that FHFA would have in each case. But, as set forth
below, the development and presentation of evidence to finders of fact in each case requires at a
minimum: (i) an increase in the anticipated numbers of depositions of the GSEs, FHFA and non-
parties; (ii) greater balance between the numbers of interrogatories and requests to admit
between FHFA and the Defendants; and (iii) certain adjustments to the proposed schedule for
expert discovery and its foundational facts. None of these adjustments would impact the Courts
proposed pre-trial order dates for any case other than the UBS case.
I. THE CURRENTLY PROPOSED LIMITS ON DEPOSITIONS WOULD
VIOLATE DUE PROCESS.
Just a few months ago, as a starting point in its negotiations with Defendants,
FHFA consented to 40 depositions of GSE witnesses in these cases. FHFAs Proposal for
Certain Case Mgmt. Issues (Jan. 11, 2012), at 3. FHFA now prefers the Courts Initial Proposal
that Defendants collectively be allowed only 20 depositions of GSE and FHFA personnel, while
FHFA can take up to 340 depositions of Defendants (or 457 if the Court determines that the
individual defendants are not included in the 20 allowed per corporate family). Defendants
respectfully submit that a limit of 20 (or even 40) total depositionsshared among 17 distinct
corporate groups of defendants and 117 individual defendants in 16 cases that FHFA filed as
unrelatedwould violate Defendants due process rights, the Federal Rules of Civil Procedure,
and basic principles of fairness.
1
As the Supreme Court has held, [d]eposition-discovery rules

1
FHFA filed this case in New York, hundreds of miles from the GSEs headquarters in
Washington, D.C. and McLean, Virginia. Almost all of the GSEs present and former

A-235

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are to be accorded a broad and liberal treatment because [m]utual knowledge of all the relevant
facts gathered by both parties is essential to proper litigation. Hickman v. Taylor, 329 U.S. 495,
507 (1947); see 8A Charles A. Wright et al., Federal Practice & Procedure 2101 (3d ed.).
2

If 17 separate corporate groups of defendants and 117 individual defendants
across 16 different cases may take only 20 GSE/FHFA depositions, more than 150 Defendants
would have to share the number of depositions that just two defendants would have by right
under Fed. R. Civ. P. 30(a)(2)(A)(i). In contrast, having filed 16 separate lawsuits, FHFA
presumptively is entitled to a total of 160 depositions10 in each case. The Courts Initial
Proposal thus subtracts at least several hundred depositions from Defendants total allotment
under the Rules, while adding hundreds to FHFAs total allotment.
Despite Defendants entitlement to at least equivalent opportunity to take
discovery and the early stage of the litigation, in the interest of efficiency, Defendants do not
presently propose equal numbers of depositions, but rather to coordinate taking as an initial
matter up to 50 depositions of GSE/FHFA employees. Additionally, because depositions should
not start at the earliest until January 2013, Defendants propose a status conference after the close
of document discovery during which the parties and the Court can consider the appropriate
number of depositions in light of the facts developed through document discovery. To date,
Defendants have identified almost 200 GSE employees who appear to have played a direct role in

employees are beyond the Courts trial subpoena power; jurors may have access to their
testimony only by deposition. Defendants are entitled to present that testimony as part of their
cases, and would have had access to these witnesses to call live at trial had FHFA not chosen a
distant forum. Accordingly, there should be no preemptive limits on trial depositions of the
GSEs former and present officers and employees.
2
Every party has a due process right to prosecute his own separate and distinct claims or
defenses without having them so merged into the claims or defenses of others that irreparable
injury will result. Garber v. Randell, 477 F.2d 711, 716 (2d Cir. 1973); see also Long Island
Lighting Co. v. Barbash, 779 F.2d 793, 795 (2d Cir. 1985).
A-236

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the GSEs review and purchase of the 528 securities in the 16 cases. In its initial interrogatory
responses, FHFA itself already has identified more than 30 GSE and FHFA employees with
knowledge concerning or participation in one or more of the 528 GSE purchases. Ex. 1 (Int.
Resps. 1, 2).
3
Common sense dictates that the 34 GSE representatives FHFA has disclosed so
far were not all or nearly all of the GSE representatives with direct involvement in the 449
securitizations involving billions of dollars of risk. Importantly, FHFA has refused to represent
that these 34 individuals collectively have knowledge of all 449 securitizations at issue, or that
one could put together any collection of 20 GSE representatives who, between them, have such
first-hand knowledge.
It is unjust to limit depositions to fewer than necessary to examine GSE personnel
with knowledge and involvement regarding each transaction. Elements of Defendants defenses
(e.g., GSE knowledge and statute of limitations) and FHFAs claims (e.g., reasonable reliance,
materiality) necessarily require discovery into the GSEs state of mind and actions concerning
the securities they purchased, the disclosures made, and each alleged misrepresentation. For
example, while FHFA alleges the GSEs were misled concerning the widespread abandonment
of originators underwriting guidelines, as the two largest participants in the mortgage market,
the GSEs dealt extensively with these same originators and possessed detailed knowledge about
the underwriting guidelines and practices they employed during the relevant time period,
including in connection with the 449 securitizations at issue. Present and former GSE employees

3
FHFA admitted during meet and confer calls that it withheld the identities of
significant numbers of GSE personnel with direct involvement in the GSEs purchases, while
refusing to identify any GSE employees with knowledge concerning the originators at issue,
making it impossible for Defendants, at this time, to estimate the number of potential witnesses
with this sort of relevant information. Ex. 1 (Int. Resps. 1-3). In most cases, the Defendants
have not yet even seen FHFAs amended complaint, and there has been no production of
documents by FHFA or the GSEs. A strict cap on depositions at this point is likely to bear little
if any relation to how many people possess relevant information.
A-237

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will have highly relevant information about these issues, and full and fair discovery of these
witnesses is critical to Defendants ability to develop their defenses.
In addition, while Defendants anticipate certain common depositions (e.g.,
depositions of high-level employees of the GSEs, FHFA, and its predecessor, OFHEO), there
also will need to be many case-specific depositions concerning, for example, the negotiation,
purchase, and analysis of the certificates that the GSEs purchased and the unique pools of
mortgage loans underlying each certificate. The number of case-specific depositions necessarily
will differ by case and party, depending on the number of securitizations, pools of loans, and
originators at issue, as well as the internal structures and processes of the GSEs at the time.
Limiting all Defendants to 20 party depositions in total will deprive most
defendants of any meaningful opportunity to examine GSE personnel with knowledge and
responsibility for the purchases on which FHFA has brought suit. If the Courts and FHFAs
proposal to treat UBS as a bellwether case is adopted, then depositions likely will be noticed
first in that case. If the UBS defendants then notice 20 depositions (which would still be less
than one deposition per securitization at issue in that case), the defendants in the remaining 15
actions would be entitled to no additional depositions. While some witnesses whom UBS
deposes may have knowledge relevant to other cases, others almost certainly will not. And it is
virtually certain that they will not have extensive knowledge regarding the more than 400
securitizations at issue in the other cases. Defendants should not be forced to fight among
themselves to divvy up manifestly inadequate deposition discovery.
II. THE PROPOSED LIMITS ON THIRD-PARTY DEPOSITIONS ARE UNFAIR
AND UNWORKABLE.
As the Court indicated at the May 14 conference, these cases will require
significant third-party discovery. The Court proposed to impose numerical limits on non-party
depositions (other than Rule 30(b)(6) depositions) that could be taken of certain non-party
A-238

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entities, with different limits according to the type of entity at issue. For example, the Parties
could take only two depositions of an originator, three depositions of a due diligence firm, one of
a servicer and one of a credit rating agency. The Court did not expressly cap the total number of
non-parties that could be deposed in any category, in any case, or across cases, during discovery
or for purposes of trial. It is also not clear how the Parties would select the single servicer
deposition or the two originator depositions, or how they would resolve any disagreement if
FHFA and Defendants selected different witnesses to depose. Defendants raised this issue with
FHFA, but received no response other than a concession from FHFA that it does not know either.
FHFA has agreed that if the limits proposed by the Court apply, they should apply case by case,
rather than across all cases. Thus, FHFA agrees with Defendants that more non-party discovery
will be required than was suggested in the Courts Initial Proposal.
Thus, all appear to agree that evidence from non-party entities will be critical to
the claims and defenses in each case. For example, FHFA claims that appraisers of the relevant
mortgaged homes knowingly inflated their appraisals, and that originators abandoned their
underwriting guidelines. To explore those claims, the Parties must be free to depose the many
appraisers and originators involved, especially where any departure from underwriting guidelines
may have reflected an exercise in judgment. FHFA similarly has placed at issue the conduct of
servicers, due diligence firms, and credit ratings agencies, all of whom may have probative
information to provide through testimony and documents. The great majority of the relevant
third parties likely reside beyond the Courts trial subpoena power and must be deposed so that
their testimony may be presented to jurors.
In light of the importance of non-party discovery, and the practical inability to
determine at this time what non-party discovery will be required, Defendants propose that no
numerical or other limits be imposed at this time, but rather, that the Parties continue to meet and
A-239

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confer concerning appropriate limits on this discovery, once FHFA has identified those loans that
it believes were inconsistent with any statements made and what specific breaches it alleges with
respect to those loans. FHFA has rejected this proposal.
III. THE PROPOSED NUMBER OF INTERROGATORIES IS INSUFFICIENT.
Defendants propose that each corporate family of Defendants may serve 50
interrogatories and 50 requests for admission on FHFA across all cases. For example, all UBS-
affiliated entities across the four actions in which UBS appears as a Defendant may collectively
serve 50 interrogatories upon FHFA. This approach would result in far fewer interrogatories
than the 25 interrogatories per party per case that the Federal Rules allow. Fed. R. Civ. P. 33
(a)(1). Robust interrogatory discovery, including identification of alleged breaches, as discussed
below, is particularly appropriate here, because of the breadth of FHFAs allegations (covering
more than 500 securities and over 150 defendants) and the truncated discovery schedule in these
cases. But FHFA continues to insist on a one-sided and wholly imbalanced proposal that FHFA
be able to serve 50 interrogatories on each Defendant group (850 total), with Defendants
collectively limited to 50 interrogatories on FHFA.
IV. FHFA MUST PROVIDE TIMELY IDENTIFICATION OF ALLEGED
BREACHES.
FHFA proposes that expert reports for each tranche be due 45 days after its
proposed close of fact discovery for that tranche and that rebuttal expert reports be due 45 days
thereafter. Defendants do not oppose this kind of schedule for the exchange of expert reports,
with one critically important modification.
A central component of these cases will be a time-intensive process of loan-by-
loan re-underwriting of a quantity of loans large enough, at least, to reveal probative information
about the overall quality of the original underwriting. In order to meet its burden of proof on
liability, FHFAs experts will undertake this process, so that they may opine as to which loans
A-240

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they contend materially breached underwriting guidelines and the relevant statements at issue in
prospectus supplements (Allegedly Breaching Loans). In order to respond to FHFAs breach
allegations, Defendants experts will need to conduct their own loan-by-loan analysis. Although
it is difficult to predict accurately at this stage how long this process will takein part because it
is not yet known how many loans FHFA and Defendants will re-underwriteit is expected that
under any scenario it would take many months. Defendants experts will not be in a position to
assess FHFAs loan-by-loan allegations of breach until they know what they are. It would make
no sense, and be entirely inefficient and wasteful, to have Defendants experts review all the loan
files and re-underwrite all the loans without knowing what the allegations of breach are, only to
have to do it again once those allegations are disclosed. Because the re-underwriting process
will take far longer than 45 days, Defendants have proposed that FHFA be required to identify
which loans are alleged to be in breach, and in what way, sufficiently in advance so that
Defendants experts will be able to conduct their loan-by-loan analysis.
4
FHFA has refused to
agree to this.
Defendants need to know in advance which loans FHFA is claiming were in
breach for a second basic reason. Defendants intend to submit expert evidence supporting their
affirmative defense of negative causation that the GSEs asserted losses were not caused by
alleged breaches of underwriting guidelines or by representations concerning LTV ratios or
occupancy rates, but instead, were caused by other factors such as the decline in home prices and
the most dramatic recession since the Great Depression. As described more fully in Defendants
submission concerning sampling and the accompanying affidavits of Professors James and

4
Defendants have not asked that FHFA submit its full expert report in advance, but
simply to provide its basic contentions about which loans are alleged to be in breach, and what is
the breach.
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Barnett, one or more of the methodologies defendants contemplate using require knowing which
loans FHFA claims were in breach, so that their performance can be compared to loans not in
breach. Because Defendants bear the burden of proof on affirmative defenses, it will be
tremendously difficult for their experts to conduct such an analysis and submit an expert report
under the schedule proposed by FHFA if Defendants do not know sufficiently in advance which
loans FHFA contends are in breach.
5

V. OTHER DISCOVERY DEADLINES SHOULD BE ADJUSTED WITHOUT
SIGNIFICANT DELAY OF THE PROPOSED PRE-TRIAL ORDER DATES.
Given the substantial volume of party and non-party document and deposition
discovery necessary in the Actions, Defendants believewhether or not the Court adopts some
form of trial tranching and even if the Court adheres to the trial readiness dates proposed for
the Actions (other than UBS)that the scheduling order in this case should provide, at a
minimum: (i) six months for the substantial completion of document discovery; (ii) nine months
for deposition discovery; and (iii) three months for expert discovery (in parallel with the last
three months of fact discovery). This is similar to what FHFA proposed in its original proposed
pretrial schedule submitted on January 11, 2012. FHFA took the position that: (i) document
discovery will be completed within eight months after Initial Disclosures; (ii) deposition
discovery will be completed within five months after the completion of document discovery; and
(iii) expert reports submitted within 60 days after the close of fact discovery, rebuttal reports

5
Defendants have proposed that for Tranche 2 cases, FHFA be required to provide such
information by November 30, 2012, in order to give Defendants what they hope will be enough
time for their experts to do their loan-by-loan analysis, and also to conduct their related negative
causation analyses, by the time expert reports would be due on July 15, 2013. Defendants
propose that the information for cases in Tranches 3 and 4 be provided a commensurate amount
of time in advance of the due dates for expert reports. FHFA has offered no counter-proposal.
A-242

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within 60 days thereafter, and depositions within 60 days thereafter. FHFAs Proposal for
Certain Case Mgmt. Issues, at 14.
VI. DEFENDANTS HAVE SUGGESTED VARIOUS WAYS TO ORGANIZE THE 16
CASES FOR TRIAL.
Defendants have not agreed on a single approach to organizing these 16 cases for
trial, as certain Defendants have submitted separate proposals for the Courts consideration that
would modify the tranches proposed by Plaintiff, and other Defendants do not oppose the
tranches proposed by Plaintiff. If, however, the tranches remain as proposed by FHFA, the
Defendants propose adding or modifying certain discovery dates within FHFAs schedule. The
modifications for Tranches 2, 3 and 4 are attached as Exhibit 2.
* * *

June 6, 2012
A-243


/s/ David Potter .
David Potter (dpotter@lpgllp.com)
LAZARE, POTTER & GIACOVAS LLP
950 Third Avenue
New York, NY 10022

and

Jeffrey A. Lipps (lipps@carpenterlipps.com)
Jennifer A.L. Battle
(battle@carpenterlipps.com)
CARPENTER, LIPPS & LELAND LLP
280 Plaza, Suite 1300
280 North High Street
Columbus, OH 43215

Attorneys for Ally Securities, LLC

/s/ Robert F. Serio .
Robert F. Serio (RSerio@gibsondunn.com)
Aric H. Wu (AWu@gibsondunn.com)
GIBSON, DUNN & CRUTCHER LLP
200 Park Avenue
New York, NY 10166

Attorneys for Citigroup Inc., Citigroup
Mortgage Loan Trust Inc., Citigroup Global
Markets Realty Corp., Citigroup Global
Markets Inc., Susan Mills, Randall Costa, Scott
Freidenrich, Richard A. Isenberg, Mark I.
Tsesarsky, Peter Patricola, Jeffrey Perlowitz
and Evelyn Echevarria

/s/ Thomas C. Rice .
Thomas C. Rice (trice@stblaw.com)
David J. Woll (dwoll@stblaw com)
Alan C. Turner (aturner@stblaw.com)
New York, NY 10017-3954

Attorneys for Defendants Deutsche Bank AG,
Taunus Corporation, Deutsche Bank Securities
Inc , DB Structured Products, Inc., Ace
Securities Corp., Mortgage IT Securities Corp.
/s/ Richard A. Spehr .
Richard A. Spehr (rspehr@mayerbrown.com)
Michael O. Ware (mware@mayerbrown.com)
MAYER BROWN LLP
1675 Broadway
New York, NY 10019

Attorneys for Defendants HSBC North America
Holdings Inc., HSBC USA Inc., HSBC Markets
(USA) Inc., HSBC Bank USA, NA., HSI Asset
Securitization Corporation
A-244

/s/ Jay B. Kasner .
Jay B. Kasner (jay.kasner@skadden.com)
Thomas J. Nolan (thomas.nolan@skadden.com)
Scott Musoff (scott.musoff@skadden.com)
Robert A. Fumerton
(robert.fumerton@skadden.com)
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM LLP
Four Times Square
New York, NY 10036

UBS Real Estate Securities Inc., UBS Securities
LLC, Mortgage Asset Securitization

/s/ Brad S. Karp .
Brad S. Karp (bkarp@paulweiss.com)
Susanna M. Buergel (sbuergel@paulweiss.com)
PAUL, WEISS, RIFKIND, WHARTON &
GARRISON LLP
New York, NY 10019-6064


/s/ James P. Rouhandeh .
James P. Rouhandeh
Brian S. Weinstein
Daniel L. Schwartz
Nicholas N. George
Jane M. Morril

Attorneys for Defendants Morgan Stanley,
Morgan Stanley & Co. Incorporated (n/k/a
Morgan Stanley & Co. LLC), Morgan Stanley
Mortgage Capital Holdings LLC (successor-in-
interest to Morgan Stanley Mortgage Capital
Inc.), Morgan Stanley ABS Capital I Inc.,
Morgan Stanley Capital I Inc., Saxon Capital,
Inc., Saxon Funding Management LLC, Saxon
Asset Securities Company, Gail P. McDonnell,
Howard Hubler, Craig S. Phillips, Alexander C.
Frank, David R. Warren, John E. Westerfield,
and Steven S. Stern

/s/ Penny Shane .
Penny Shane (shanep@sullcrom.com)
Sharon L. Nelles (nelless@sullcrom.com)
Jonathan M. Sedlak (sedlakj@sullcrom.com)
125 Broad Street
New York, NY 10004

Attorneys for Defendants JPMorgan Chase &
Co., JPMorgan Chase Bank, N.A., J.P. Morgan
Mortgage Acquisition Corporation, J.P.
Morgan Securities LLC, J.P. Morgan
Acceptance Corporation I, Bear Stearns & Co.,
Inc., EMC Mortgage LLC, Structured Asset
Mortgage Investments II Inc., Bear Stearns
Asset Backed Securities I LLC, WaMu Asset
Acceptance Corporation, WaMu Capital
Corporation, Washington Mutual Mortgage
Securities Corporation, Long Beach Securities
Corporation and certain of the Individual
Defendants
A-245

/s/ Bruce Clark .
Bruce Clark (clarkb@sullcrom.com)
125 Broad Street
New York, NY 10004

Amanda F. Davidoff (davidoffa@sullcrom.com)

Attorneys for Defendants First Horizon
National Corporation, First Tennessee Bank
National Association, FTN Financial Securities
Corporation, First Horizon Asset Securities,
Inc., Gerald L. Baker, Peter F. Makowiecki,
Charles G. Burkett, and Thomas J. Wageman

/s/ David H. Braff .
David H. Braff (braffd@sullcrom.com)
Brian T. Frawley (frawleyb@sullcrom.com)
Jeffrey T. Scott (scottj@sullcrom.com)
Joshua Fritsch (fritschj@sullcrom.com)
125 Broad Street
New York, NY 10004

Attorneys for Barclays Capital Inc., Barclays
Bank PLC, Securitized Asset Backed
Receivables LLC, Paul Menefee, John Carroll,
and Michael Wade

/s/ David Blatt . . . .
David Blatt (dblatt@wc.com)
John McNichols (jmcnichols@wc.com)

Attorneys for Bank of America Corporation;
Bank of America, N.A.; Asset Backed Funding
Corp.; Banc of America Funding Corp.; Merrill
Lynch & Co., Inc., Merrill Lynch Mortgage
Lending, Inc., Merrill Lynch Mortgage Capital
Inc., First Franklin Financial Corp., Merrill
Lynch Mortgage Investors, Inc., Merrill Lynch
Government Securities, Inc., Merrill Lynch,
Pierce, Fenner & Smith Inc.

/s/ Richard W. Clary .
Richard W. Clary (rclary@cravath.com)
Michael T. Reynolds (mreynolds@cravath.com)
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019

Attorneys for Credit Suisse Securities (USA)
LLC, Credit Suisse Holdings (USA), Inc., Credit
Suisse (USA), Inc., DLJ Mortgage Capital, Inc.,
Credit Suisse First Boston Mortgage Securities
Corporation, Asset Backed Securities
Corporation, Credit Suisse First Boston
Mortgage Acceptance Corporation, Andrew A.
Kimura, Jeffrey A. Altabef, Eveleyn Echevarria,
Michael A. Marriott, Zev Kindler, John P.
Graham, Thomas E. Siegler, Thomas Zingalli,
Carlos Onis, Steven L. Kantor, Joseph M.
Donovan, Juliana Johnson, and Greg Richter
A-246

/s/ Richard H. Klapper .
Richard H. Klapper (klapperr@sullcrom.com)
Theodore Edelman (edelmant@sullcrom.com)
Michael T. Tomaino, Jr.
(tomainom@sullcrom.com)
Jordan T. Razza (razzaj@sullcrom.com)
125 Broad Street
New York, NY 10004

Attorneys for Goldman, Sachs & Co, GS
Mortgage Securities Corp., Goldman Sachs
Mortgage Company, The Goldman Sachs
Group, Inc., Goldman Sachs Real Estate
Funding Corp., Peter C. Aberg, Howard S.
Altarescu, Robert J. Christie, Kevin Gasvoda,
Michelle Gill, David J. Rosenblum, Jonathan S.
Sobel, Daniel L. Sparks, Mark Weiss

/s/ Bruce Clark .
125 Broad Street
New York, NY 10004


Attorneys for Defendants Nomura Securities
International, Inc., Nomura Holding America
Inc., Nomura Asset Acceptance Corporation,
Nomura Home Equity Loan, Inc., Nomura
Credit & Capital, Inc., David Findlay, John
McCarthy, John P. Graham, Nathan Gorin, and
N. Dante LaRocca
A-247

/s/ Jay B. Kasner .
George Zimmerman
(george.zimmerman@skadden.com)
Robert A. Fumerton
FLOM LLP
Four Times Square
New York, NY 10036

Attorneys for SG Americas, Inc., SG Americas
Securities Holdings, LLC, SG Americas
Securities, LLC, SG Mortgage Finance Corp.,
and SG Mortgage Securities, LLC, Arnaud
Denis, Abner Figueroa, Tony Tusi, and Orlando
Figueroa

/s/ Richard A. Spehr .
MAYER BROWN LLP
1675 Broadway
New York, NY 10019

Attorneys for Ally Financial Inc. and GMAC
Mortgage Group, Inc.

/s/ Vernon Broderick .
Greg A. Danilow (greg.danilow@weil.com)
Vernon Broderick
(vernon.broderick@weil.com)
WEIL, GOTSHAL, & MANGES LLP
767 Fifth Avenue, 25th Fl.
New York, NY 10153

Attorneys for General Electric Company,
General Electric Capital Services, Inc., GE
Mortgage Holding, LLC, GE-WMC Securities,
LLC

/s/ Sandra D. Hauser .
Sandra D. Hauser
(sandra.hauser@ snrdenton.com)
SNR DENTON US LLP

Attorneys for Matthew Perkins

A-248

/s/ Daniel C. Zinman .
Daniel C. Zinman (dzinman@rkollp.com)
Neil S. Binder (nbinder@rkollp.com)
RICHARDS KIBBE & ORBE LLP
One World Financial Center
New York, NY 10281

Attorneys for George C. Carp, Robert Caruso,
George E. Ellison, Adam D. Glassner, Daniel B.
Goodwin, Juliana Johnson, Michael J. Kula,
William L. Maxwell, Mark I. Ryan, and Antoine
Schetritt; Matthew Whalen; Brian Sullivan;
Michael McGovern; Donald Puglisi; Paul Park,
and Donald Han

/s/ Thomas C. Rice .
David J. Woll (dwoll@stblaw.com)
Alan Turner (aturner@stblaw.com)
New York, NY 10017

Attorneys for Defendant RBS Securities Inc.

/s/ Joel C. Haims .
Joel C. Haims (jhaims@mofo.com)
LaShann M. DeArcy (ldearcy@mofo.com)
Morrison & Foerster LLP
New York, NY 10104

Attorneys for Tom Marano and Michael
Nierenberg

/s/ Ronald D. Lefton .
Richard A. Edlin (edlinr@gtlaw.com)
Ronald D. Lefton (leftonr@gtlaw.com)
Candace Camarata (camaratac@gtlaw.com)
GREENBERG TRAURIG, LLP
200 Park Avenue,
New York, NY 10166
Phone: 212-801-9200

Attorneys for Defendant Jeffrey Mayer

/s/ Dani R. James .
Dani R. James (djames@kramerlevin.com)
Jade A. Burns (jburns@kramerlevin.com)
KRAMER LEVIN NAFTALIS & FRANKEL
LLP

Attorneys for Defendant Jeffrey L. Verschleiser

/s/ Pamela Rogers Chepiga .
Pamela Rogers Chepiga
(pamela.chepiga@allenovery.com)
Josephine A. Cheatham
(allie.cheatham@allenovery.com)
ALLEN & OVERY LLP
New York, NY 10020

Attorneys for Samuel L. Molinaro, Jr.

A-249
A-250

EXHIBIT 1
A-251
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants.
:
:
:
:
:
:
:
:
:
PLAINTIFFS RESPONSES
TO DEFENDANTS FIRST
SET OF
INTERROGATORIES
11 Civ. 5201 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants.
:
:
:
:
:
:
:
:
:
11 Civ. 6188 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
HSBC NORTH AMERICA HOLDINGS, INC., et
al.,
Defendants.
:
:
:
:
:
:
:
:
:
:
:
11 Civ. 6189 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants.
:
:
:
:
:
:
:
:
:
:
11 Civ. 6190 (DLC)
-------------------------------------------------------------------- x
A-252
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants.
:
:
:
:
:
:
:
:
:
:
11 Civ. 6192 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants.
:
:
:
:
:
:
:
:
:
:
11 Civ. 6193 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants.
:
:
:
:
:
:
:
:
:
:
11 Civ. 6195 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants.
:
:
:
:
:
:
:
:
:
:
11 Civ. 6196 (DLC)
-------------------------------------------------------------------- x
A-253
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants.
:
:
:
:
:
:
:
:
:
:
11 Civ. 6198 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants.
:
:
:
:
:
:
:
:
:
:
11 Civ. 6200 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants.
:
:
:
:
:
:
:
:
:
:
11 Civ. 6201 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants.
:
:
:
:
:
:
:
:
:
:
11 Civ. 6202 (DLC)
-------------------------------------------------------------------- x
A-254
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants.
:
:
:
:
:
:
:
:
:
:
11 Civ. 6203 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants.
:
:
:
:
:
:
:
:
:
:
11 Civ. 6739 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants.
:
:
:
:
:
:
:
:
:
:
11 Civ. 7010 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants.
:
:
:
:
:
:
:
:
:
:
:
11 Civ. 7048 (DLC)
-------------------------------------------------------------------- x
A-255
3
Plaintiff Federal Housing Finance Agency (FHFA), as conservator for the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation (collectively,
the GSEs), responds as follows to Defendants First Set of Interrogatories to Plaintiff FHFA,
served on May 17, 2012, and to each instruction and definition therein (the Interrogatories):
GENERAL OBJECTIONS
1. FHFA objects to the Interrogatories on the ground and to the extent they seek
information that is not relevant to the claim or defense of any party to the above-captioned
actions (the Actions), is not reasonably calculated to lead to the discovery of evidence
admissible in these Actions, or is otherwise beyond the scope of permissible discovery in the
Actions.
2. FHFA objects to the Interrogatories on the ground and to the extent that they
improperly attempt to expand, alter, or modify the scope of permissible discovery under the
Federal Rules of Civil Procedure and the Southern District of New York (S.D.N.Y.) Local
Rules or any other applicable law or rule.
3. FHFA objects to the Interrogatories on the ground and to the extent that although
served on May 17, 2012, they request a response on or before May 31, 2012. Pursuant to
Federal Rule of Civil Procedure 33(b)(2), FHFA is entitled to a 30-day period within which to
respond to the Interrogatories.
4. FHFA objects to the Interrogatories to the extent that they are vague and
ambiguous.
5. FHFA objects to the Interrogatories on the ground and to the extent that they are
overly broad, unduly burdensome, oppressive, or redundant.
6. FHFA objects to the Interrogatories on the ground and to the extent they seek
information outside of FHFAs possession, custody, or control.
A-256
4
7. FHFA objects to the Interrogatories on the ground and to the extent that the
Definitions provided therein are inconsistent with or more expansive than the definitions set
forth in S.D.N.Y. Local Rule 26.3(c)(3).
8. FHFA objects to the Interrogatories on the ground and to the extent that the
Interrogatories seek information regarding a witness in addition to his or her name. FHFAs
responses herein are limited to the names of witnesses, consist with S.D.N.Y. Local Rule 33.3,
which states that interrogatories served at the commencement of discovery may seek only the
names of witnesses with knowledge of information relevant to the subject matter of the action.
9. By responding to the Interrogatories, FHFA does not admit to Defendants
characterizations of any documents, facts, theories or conclusions, nor does FHFA admit that the
information provided in response to the Interrogatories reflects any fact, characterization or
conclusion. Nothing contained in any response herein shall be deemed to be an admission,
concession or waiver by FHFA as to the relevance, materiality or admissibility of any
information or subject matter.
10. FHFA responds to the Interrogatories without waiving or intending to waive, but
rather preserving and intending to preserve, FHFAs right to object on any grounds to the use of
any information or its subject matter in any aspect of these Actions or any other proceeding or
investigation.
11. FHFA responds to the Interrogatories without waiving or intending to waive, but
rather preserving and intending to preserve, its right to object to any other discovery, including,
without limitation, any other interrogatory.
12. FHFA objects to the Interrogatories to the extent that they seek information
subject to the attorney-client privilege, the work product doctrine, or any other applicable
A-257
5
privilege or immunity (Privileged Information). FHFA responds to the Interrogatories without
waiving or intending to waive, but rather preserving and intending to preserve, any applicable
privilege or immunity. Any inadvertent production of any Privileged Information shall not be
deemed or construed to constitute a waiver of the attorney-client privilege, work product
doctrine, or any other applicable privilege, immunity, or protection.
13. FHFAs responses herein are not to be construed as an admission that any
information is admissible, relevant, or reasonably calculated to lead to the discovery of
admissible evidence, or that any contention or assumption contained in the interrogatories,
whether implicit or explicit, is correct.
14. FHFA expressly reserves the right to rely, at any time, including trial, upon
subsequently discovered information of which FHFA is currently unaware or information
omitted from these responses as a result of mistake, error, oversight, or inadvertence.
SPECIFIC RESPONSES AND OBJECTIONS
INTERROGATORY NO. 1:
For each Securitization, identify all persons employed by the GSEs or acting on their
behalf who participated in, were involved in, approved, or were responsible in any way for the
GSEs valuation, analysis, evaluation, or purchase of, or investment in, each of the Certificates at
issue in each of the above-captioned actions, or for any further transactions involving the
Securitizations or Certificates.
RESPONSE TO INTERROGATORY NO. 1:
FHFA incorporates by reference its General Objections as if fully set forth herein.
FHFA further objects to this Interrogatory on the ground that the phrases in any way
and any further transactions are overly broad, vague, and/or ambiguous.
FHFA further objects to this Interrogatory on the ground that it requires FHFA to identify
all persons who participated in, were involved in, approved, or were responsible in any way
for, a topic or issue. FHFAs response is based on its current knowledge. FHFA responds to this
A-258
6
Interrogatory without waiving or intending to waive, but rather preserving and intending to
preserve, the right at any time to supplement these responses.
Subject to and without waiver of its general and specific objections, FHFA identifies the
following:
NAME ENTITY
Ramon de Castro Fannie Mae
Kin Chung Fannie Mae
Ashley Dyson Fannie Mae
Francisco Gonzalez-Rey Fannie Mae
David Gussmann Fannie Mae
Peter Niculescu Fannie Mae
Joseph Paul Norris Fannie Mae
Ben Perlman Fannie Mae
Bill Quinn Fannie Mae
Shayan Salahuddin Fannie Mae
Mike Shaw Fannie Mae
Pie-Chung Steve Shen Fannie Mae
C.J. Zhao Fannie Mae
Mike Aneiro Freddie Mac
David Hackney Freddie Mac
Gary Kain Freddie Mac
Aaron Pas Freddie Mac
Tom Raby Freddie Mac
For each Securitization, identify all persons employed by you or acting on your behalf
who participated in, were involved in, approved, or were responsible in any way for your
monitoring, analyzing, evaluating or surveilling the risk of each of the Certificates at issue in all
of the above-captioned actions, including but not limited to credit risk and market risk of the
Certificates.
RESPONSE TO INTERROGATORY NO 2:
FHFA further objects to this Interrogatory on the ground that the phrase in any way is
overly broad, vague, and/or ambiguous.
A-259
7
FHFA further objects to this Interrogatory on the ground that it requires FHFA to identify
all persons who participated in, were involved in, approved, or were responsible in any way
for, a topic or issue. FHFAs response is based on its current knowledge. FHFA responds to this
Interrogatory without waiving or intending to waive, but rather preserving and intending to
preserve, the right at any time to supplement these responses.
Subject to and without waiver of its general and specific objections, FHFA identifies the
following:
NAME ENTITY
Ramon de Castro Fannie Mae
Kin Chung Fannie Mae
Ashley Dyson Fannie Mae
Kieran Gifford Fannie Mae & Freddie Mac
Francisco Gonzalez-Rey Fannie Mae
David Gussmann Fannie Mae
Peter Niculescu Fannie Mae
Vanessa Moulin Fannie Mae
Ben Perlman Fannie Mae
Bill Quinn Fannie Mae
Mike Shaw Fannie Mae
Pie-Chung Steve Shen Fannie Mae
Kent Willard Fannie Mae
C.J. Zhao Fannie Mae
Peter Federico Freddie Mac
Chris Kuehl Freddie Mac
Doc Ghose Freddie Mac
Adama Kah Freddie Mac
Ray Romano Freddie Mac
Courtney Sapp Freddie Mac
Terin Vivian Freddie Mac
Bruce Wood Freddie Mac
Deirdre Kvartunis FHFA
Vikas Mehta FHFA
Phillip Millman FHFA
A-260
8
Identify all persons employed by you or acting on your behalf who participated in, were
involved in, approved, or were responsible in any way for the GSEs relationships, including as
purchaser of loans, with any mortgage loan originator disclosed in the prospectus supplements
for the Securitizations. Please specify which person(s) had responsibility for which originator(s).
RESPONSE TO INTERROGATORY NO 3:
FHFA further objects to this Interrogatory on the ground that the terms relationships
and in any way are overly broad, vague, and/or ambiguous.
FHFA further objects to this Interrogatory on the ground that it is vague, overly broad,
and not reasonably calculated to lead to the discovery of admissible evidence. Among other
things, information identifying individuals involved in the GSEs relationships with mortgage
loan originators, where the GSE is a purchaser of loans, is not reasonably calculated to lead to
the discovery of admissible evidence.
A-261
9
Dated: May 31, 2012
New York, New York
/s/ Philippe Z. Selendy
Philippe Z. Selendy
(philippeselendy@quinnemanuel.com)
QUINNEMANUEL URQUHART &
SULLIVAN, LLP
(212) 849-7000
v. JPMorgan Chase & Co., FHFA v. Deutsche
Bank AG, FHFA v. Citigroup Inc., and FHFA v.
Goldman, Sachs & Co.
/s/ Marc E. Kasowitz
Marc E. Kasowitz (mkasowitz@kasowitz.com )
Hector Torres (htorres@kasowitz.com)
Christopher P. Johnson
(cjohnson@kasowitz.com)
Michael Hanin (mhanin@kasowitz.com )
Kanchana Wangkeo Leung
(kleung@kasowitz.com)
KASOWITZ, BENSON, TORRES &
FRIEDMAN LLP
1633 Broadway
Agency in FHFA v. Ally Financial Inc., FHFA
v. General Electric Company, FHFA v. Morgan
Stanley, and FHFA v. SG Americas, Inc.
/s/ Christine H. Chung
Christine H. Chung
(christinechung@quinnemanuel.com)
SULLIVAN, LLP
Agency in FHFA v. First Horizon National
Corp., FHFA v. Bank of America Corp., and
FHFA v. Credit Suisse Holdings (USA), Inc.
/s/ Manisha M. Sheth
Manisha M. Sheth
(manishasheth@quinnemanuel.com)
SULLIVAN, LLP
v. JPMorgan Chase & Co., FHFA v. Barclays
Bank PLC, FHFA v. Citigroup Inc., and FHFA
v. Merrill Lynch & Co., Inc.
A-262
10
/s/ Richard A. Schirtzer
(richardschirtzer@quinnemanuel.com)
Adam Abensohn
(adamabensohn@quinnemanuel.com)
SULLIVAN, LLP
51 Madison Avenue, 22
nd
Floor
Agency in FHFA v. HSBC North America Holdings, Inc.
and FHFA v. Nomura Holding America, Inc.
A-263
CERTIFICATE OF SERVICE
I, Andrew Kutscher, hereby certify that on this 31st day of May 2012, I caused a true and
correct copy of the foregoing Plaintiffs Responses and Objections to Defendants First Set of
Interrogatories to be served by electronic mail upon:
Jay Kasner
jay.kasner@skadden.com
Scott Musoff
scott.musoff@skadden.com
George Zimmerman
george.zimmerman@skadden.com
Robert Fumerton
robert.fumerton@skadden.com
Four Times Square
New York, NY 10036
Penny Shane
shanep@sullcrom.com
Sharon Nelles
nelless@sullcrom.com
Jonathan Sedlack
sedlakj@sullcrom.com
David Castleman
castlemand@sullcrom.com
Theodore Edelman
edelmant@sullcrom.com
Richard Kapper
klapperr@sullcrom.com
Michael Tomaino
tomainom@sullcrom.com
Jordan Razza
razzaj@sullcrom.com
Rudy Kleysteuber
kleysteuberw@sullcrom.com
Damien Scott
scottj@sullcrom.com
David Braff
braffd@sullcrom.com
Brian Frawley
frawleyb@sullcrom.com
Joshua Fritsch
fritschj@sullcrom.com
Bruce Clark
A-264
clarkb@sullcrom.com
Amanda Davidoff
davidoffa@sullcrom.com
David Sollors
sollorsd@sullcrom.com
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Brad Karp
bkarp@paulweiss.com
Susanna Buergel
sbuergel@paulweiss.com
Caitlin Grusauskas
cgrusauskas@paulweiss.com
Paul, Weiss, Rifkind, Wharton & Garrison LLP
New York, NY 10019
Richard Clary
rclary@cravath.com
Michael Reynolds
mreynolds@cravath.com
Cravath, Swaine & Moore LLP
825 Eighth Avenue
New York, NY 10019
Thomas Rice
trice@stblaw.com
David Woll
dwoll@stblaw.com
Alan Turner
aturner@stblaw.com
Simpson Thacher & Bartlett LLP
New York, NY 10017
Richard Lefton
leftonr@gtlaw.com
Richard Edlin
edlinr@gtlaw.com
Candace Camarata
camaratac@gtlaw.com
Greenberg Traurig LLP
200 Park Avenue
New York, 10166
A-265
Pamela Chepiga
pamela.chepiga@allenovery.com
Allie Cheatham
allie.cheatham@allenovery.com
Allen & Overy LLP
New York, NY 10020
Joel Haims
jhaims@mofo.com
Lashann DeArcy
ldearcy@mofo.com
New York, NY 10104
Sandra Hauser
sandra.hauser@snrdenton.com
Patrick Fitzmaurice
patrick.fitzmaurice@snrdenton.com
SNR Denton US LLP
New York, NY 10020
Jade Burns
jburns@kramerlevin.com
Dani James
djames@kramerlevin.com
Kramer Levin Naftalis & Frankel LLP
1177 Sixth Avenue
New York, NY 10036
Michael Ware
mware@mayerbrown.com
Richard Spehr
rspehr@mayerbrown.com
Mayer Brown LLP
1675 Broadway
New York, NY 10019
David Blatt
dblatt@wc.com
John McNichols
jmcnichols@wc.com
Steven Cady
scady@wc.com
A-266
Edward Bennett
EBennett@wc.com
Williams & Connolly LLP
735 12th Street Northwest
Neil Binder
nbinder@rkollp.com
Daniel Zinman
dzinman@rkollp.com
Richards Kibbe & Orbe LLP
85 West Street
New York, NY 10006
James Rouhandeh
rouhandeh@davispolk.com
Brian Weinstein
brian.weinstein@davispolk.com
Daniel Schwartz
daniel.schwartz@davispolk.com
Nicholas George
nicholas.george@davispolk.com
Jane Morril
jane.morril@davispolk.com
Davis Polk & Wardwell LLP
New York, NY 10017
David Potter
dpotter@lpgllp.com
Lazare Potter & Giacovas LLP
950 Third Avenue
15th Floor
New York, NY 10022
Jeffrey Lipps
lipps@carpenterlipps.com
Jennifer Battle
battle@carpenterlipps.com
Carpenter, Lipps & Leland LLP
Columbus, Ohio 43215
A-267
Greg Danilow
greg.danilow@weil.com
Vernon Broderick
vernon.broderick@weil.com
Seth Goodchild
seth.goodchild@weil.com
Michael Firestone
michael.firestone@weil.com
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
/s/ Andrew Kutscher
Andrew Kutscher
QUINNEMANUEL URQUHART
&SULLIVAN, LLP
(212) 849-7000
A-268

EXHIBIT 2
A-269

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A-271


-------------------------------------------------------------------- x
Plaintiff,
v.
HSBC NORTH AMERICA HOLDINGS, INC., et al.,
Defendants.
:
:
:
:
:
:
11 Civ. 5201 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants.
:
:
:
:
:
:
11 Civ. 6188 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
HSBC North America Holdings, Inc., et al.,
Defendants.
:
:
:
:
:
:
11 Civ. 6189 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants.
:
:
:
:
:
:
11 Civ. 6190 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants. :

:
:
:
:
:
:
11 Civ. 6192 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants. :
:
:
:
:
:
:
11 Civ. 6193 (DLC)
-------------------------------------------------------------------- x
A-272

Plaintiff,
v.
Defendants. :

:
:
:
:
:
:
11 Civ. 6195 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants.

:
:
:
:
:
:
11 Civ. 6196 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants. :
:
:
:
:
:
:
11 Civ. 6198 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants. :

:
:
:
:
:
:
11 Civ. 6200 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants. :
:
:
:
:
:
:
11 Civ. 6201 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants. :
:
:
:
:
:
:
11 Civ. 6202 (DLC)
-------------------------------------------------------------------- x
A-273

Plaintiff,
v.
Defendants.
:
:
:
:
:
:
11 Civ. 6203 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants. :
:
:
:
:
:
:
11 Civ. 6739 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants. :
:
:
:
:
:
:
11 Civ. 7010 (DLC)
-------------------------------------------------------------------- x
Plaintiff,
v.
Defendants. :
-------------------------------------------------------------------- x
:
:
:
:
:
:
11 Civ. 7048 (DLC)

A-274

4
DEFENDANTS SUPPLEMENTAL SUBMISSION REGARDING CERTAIN
DEVELOPMENTS BEARING ON THE JUNE 6, 2012 RULE 26(f) JOINT REPORT
Defendants in the above-captioned actions (Actions), by and through their
respective counsel, submit this supplemental submission to alert the Court to important
developments bearing on certain issues identified in the parties June 6, 2012 Rule 26(f) Joint
Report and the parties respective separate submissions.
In its separate Rule 26(f) Report, FHFA took the position that Defendants, as a
group, should only be permitted to take up to 20 depositions in total of the GSEs and FHFA
(FHFA Report at 3), despite the fact that in its original response to Defendants First Set of
Interrogatories on May 31, 2012, FHFA had already identified 32 GSE and FHFA employees
with potential knowledge of the certificates at issue in the Actions. Yesterday, FHFA served its
First Supplementation of Responses to Defendants First Set of Interrogatories (Supplemental
Responses), dated June 11, 2012, which identifies an additional 36 individuals with potentially
relevant knowledge increasing the number of individuals that FHFA itself deems may have
relevant knowledge to 68. (Plaintiffs Supplemental Responses are attached as Exhibit A.) This
morning, FHFA identified 54 document custodians Plaintiff proposes to search, initially, for
potentially relevant information. Meanwhile, Defendants have identified nearly 200 GSE
employees who may have knowledge relevant to the GSEs purchase and analysis of the 449
securitizations in the Actions.
1
FHFA has refused to confirm that there are even 20 people who,
in the aggregate, had knowledge of all 449 securitizations. These new disclosures confirm that
there is no reasonable basis for the 20-deposition limit on GSE personnel and certain discovery
time periods that FHFA has asked the Court to impose.

1
None of these numbers includes any additional GSE employees who have knowledge regarding the originators at
issue, whom FHFA refuses to identify.
A-275

5
June 12, 2012


_/s/__________________________________
David Potter (dpotter@lpgllp.com)
LAZARE, POTTER & GIACOVAS LLP
950 Third Avenue
New York, NY 10022

and

Jeffrey A. Lipps (lipps@carpenterlipps.com)
Jennifer A.L. Battle
(battle@carpenterlipps.com)
CARPENTER, LIPPS & LELAND LLP
Columbus, OH 43215

Attorneys for Ally Securities, LLC

_/s/__________________________________
Brad S. Karp (bkarp@paulweiss.com)
Susanna M. Buergel (sbuergel@paulweiss.com)
PAUL, WEISS, RIFKIND, WHARTON &
GARRISON LLP
New York, NY 10019-6064


_/s/___________________________________
David J. Woll (dwoll@stblaw com)
Alan C. Turner (aturner@stblaw.com)
New York, NY 10017-3954

Attorneys for Defendants Deutsche Bank AG,
Taunus Corporation, Deutsche Bank Securities
Inc , DB Structured Products, Inc., Ace
Securities Corp., Mortgage IT Securities Corp.
__/s/__________________________________
MAYER BROWN LLP
1675 Broadway
New York, NY 10019

Attorneys for Defendants HSBC North America
Holdings Inc., HSBC USA Inc., HSBC Markets
(USA) Inc., HSBC Bank USA, NA., HSI Asset
Securitization Corporation
A-276

6

_/s/___________________________________
Thomas J. Nolan (thomas.nolan@skadden.com)
Robert A. Fumerton
FLOM LLP
Four Times Square
New York, NY 10036

UBS Real Estate Securities Inc., UBS Securities
LLC, Mortgage Asset Securitization

_/s/___________________________________
David J. Woll (dwoll@stblaw.com)
Alan Turner (aturner@stblaw.com)
New York, NY 10017

Attorneys for Defendant RBS Securities Inc

_/s/___________________________________
James R. Rouhandeh
Brian S. Weinstein
Daniel L. Schwartz
Nicholas N. George
Jane M. Morril

Attorneys for Defendants Morgan Stanley,
Morgan Stanley & Co. Incorporated (n/k/a
Morgan Stanley & Co. LLC), Morgan Stanley
Mortgage Capital Holdings LLC (successor-in-
interest to Morgan Stanley Mortgage Capital
Inc.), Morgan Stanley ABS Capital I Inc.,
Morgan Stanley Capital I Inc., Saxon Capital,
Inc., Saxon Funding Management LLC, Saxon
Asset Securities Company, Gail P. McDonnell,
Howard Hubler, Craig S. Phillips, Alexander C.
Frank, David R. Warren, John E. Westerfield,
and Steven S. Stern

__/s/__________________________________
Penny Shane (shanep@sullcrom.com)
Sharon L. Nelles (nelless@sullcrom.com)
Jonathan M. Sedlak (sedlakj@sullcrom.com)
125 Broad Street
New York, NY 10004

Attorneys for Defendants JPMorgan Chase &
Co., JPMorgan Chase Bank, N.A., J.P. Morgan
Mortgage Acquisition Corporation, J.P.
Morgan Securities LLC, J.P. Morgan
Acceptance Corporation I, Bear Stearns & Co.,
Inc., EMC Mortgage LLC, Structured Asset
Mortgage Investments II Inc., Bear Stearns
Asset Backed Securities I LLC, WaMu Asset
Acceptance Corporation, WaMu Capital
Corporation, Washington Mutual Mortgage
Securities Corporation, Long Beach Securities
Corporation and certain of the Individual
Defendants
A-277

7

__/s/_________________________________
125 Broad Street
New York, NY 10004


Attorneys for Defendants First Horizon
National Corporation, First Tennessee Bank
National Association, FTN Financial Securities
Corporation, First Horizon Asset Securities,
Inc., Gerald L. Baker, Peter F. Makowiecki,
Charles G. Burkett and Thomas J. Wageman

__/s/_________________________________
David H. Braff (braffd@sullcrom.com)
Brian T. Frawley (frawleyb@sullcrom.com)
Jeffrey T. Scott (scottj@sullcrom.com)
Joshua Fritsch (fritschj@sullcrom.com)
125 Broad Street
New York, NY 10004

Attorneys for Barclays Capital Inc., Barclays
Bank PLC, Securitized Asset Backed
Receivables LLC, Paul Menefee, John Carroll,
and Michael Wade

__/s/__________________________________
David Blatt (dblatt@wc.com)
John McNichols (jmcnichols@wc.com)

Attorneys for Bank of America Corporation;
Bank of America, N.A.; Asset Backed Funding
Corp.; Banc of America Funding Corp.; Merrill
Lynch & Co., Inc., Merrill Lynch Mortgage
Lending, Inc., Merrill Lynch Mortgage Capital
Inc., First Franklin Financial Corp., Merrill
Lynch Mortgage Investors, Inc., Merrill Lynch
Government Securities, Inc., Merrill Lynch,
Pierce, Fenner & Smith Inc.

__/s/________________________________
Richard W. Clary (rclary@cravath.com)
Michael Reynolds (mreynolds@cravath.com)
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019

Attorneys for Credit Suisse Securities (USA)
LLC, Credit Suisse Holdings (USA), Inc., Credit
Suisse (USA), Inc., DLJ Mortgage Capital, Inc.,
Credit Suisse First Boston Mortgage Securities
Corporation, Asset Backed Securities
Corporation, Credit Suisse First Boston
Mortgage Acceptance Corporation, Andrew A.
Kimura, Jeffrey A. Altabef, Eveleyn Echevarria,
Michael A. Marriott, Zev Kindler, John P.
Graham, Thomas E. Siegler, Thomas Zingalli,
Carlos Onis, Steven L. Kantor, Joseph M.
Donovan, Juliana Johnson, and Greg Richter
A-278

8

__/s/_________________________________
Richard H. Klapper (klapperr@sullcrom.com)
Theodore Edelman (edelmant@sullcrom.com)
Michael T. Tomaino, Jr.
(tomainom@sullcrom.com)
Jordan T. Razza (razzaj@sullcrom.com)
125 Broad Street
New York, NY 10004

Attorneys for Goldman, Sachs & Co, GS
Mortgage Securities Corp., Goldman Sachs
Mortgage Company, The Goldman Sachs
Group, Inc., Goldman Sachs Real Estate
Funding Corp., Peter C. Aberg, Howard S.
Altarescu, Robert J. Christie, Kevin Gasvoda,
Michelle Gill, David J. Rosenblum, Jonathan S.
Sobel, Daniel L. Sparks, Mark Weiss

__/s/_________________________________
Bruce E. Clark (clarkb@sullcrom.com)
125 Broad Street
New York, NY 10004


Attorneys for Defendants Nomura Securities
International, Inc., Nomura Holding America
Inc., Nomura Asset Acceptance Corporation,
Nomura Home Equity Loan, Inc., Nomura
Credit & Capital, Inc., David Findlay, John
McCarthy, John P. Graham, Nathan Gorin, and
N. Dante LaRocca
A-279

9

__/s/_________________________________
George Zimmerman
(george.zimmerman@skadden.com)
Robert A. Fumerton
FLOM LLP
Four Times Square
New York, NY 10036

Attorneys for SG Americas, Inc., SG Americas
Securities Holdings, LLC, SG Americas
Securities, LLC, SG Mortgage Finance Corp.,
and SG Mortgage Securities, LLC, Arnaud
Denis, Abner Figueroa, Tony Tusi, and Orlando
Figueroa

__/s/_________________________________
MAYER BROWN LLP
1675 Broadway
New York, NY 10019

Attorneys for Ally Financial Inc. and GMAC
Mortgage Group, Inc.

__/s/_________________________________
Greg A. Danilow (greg.danilow@weil.com)
Vernon Broderick
(vernon.broderick@weil.com)
WEIL, GOTSHAL, & MANGES LLP
767 Fifth Avenue, 25th Fl.
New York, NY 10153

Attorneys for General Electric Company,
General Electric Capital Services, Inc., GE
Mortgage Holding, LLC, GE-WMC Securities,
LLC

__/s/__________________________________
Sandra D. Hauser
(sandra.hauser@ snrdenton.com)
SNR DENTON US LLP

Attorneys for Matthew Perkins

A-280

10

__/s/_________________________________
Daniel C. Zinman (dzinman@rkollp.com)
Neil S. Binder (nbinder@rkollp.com)
RICHARDS KIBBE & ORBE LLP
One World Financial Center
New York, NY 10281

Attorneys for George C. Carp, Robert Caruso,
George E. Ellison, Adam D. Glassner, Daniel B.
Goodwin, Juliana Johnson, Michael J. Kula,
William L. Maxwell, Mark I. Ryan, and Antoine
Schetritt; Matthew Whalen; Brian Sullivan;
Michael McGovern; Donald Puglisi; Paul Park,
and Donald Han

/s/ _______________
Pamela Rogers Chepiga
(pamela.chepiga@allenovery.com)
Josephine A. Cheatham
(allie.cheatham@allenovery.com)
ALLEN & OVERY LLP
New York, NY 10020

Attorneys for Samuel L. Molinaro, Jr.

__/s/__________________________________
Joel C. Haims (jhaims@mofo.com)
LaShann M. DeArcy (ldearcy@mofo.com)
New York, NY 10104

Attorneys for Tom Marano and Michael
Nierenberg

__/s/__________________________________
Richard A. Edlin (edlinr@gtlaw.com)
Ronald D. Lefton (leftonr@gtlaw.com)
Candace Camarata (camaratac@gtlaw.com)
GREENBERG TRAURIG, LLP
200 Park Avenue,
New York, NY 10166
Phone: 212-801-9200

Attorneys for Defendant Jeffrey Mayer

__/s/__________________________________
Dani R. James (djames@kramerlevin.com)
Jade A. Burns (jburns@kramerlevin.com)
KRAMER LEVIN NAFTALIS & FRANKEL
LLP

Attorneys for Defendant Jeffrey L. Verschleiser

A-281
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Plaintiff,
-v-

Defendants.

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11 Civ. 5201 (DLC)

OPINION & ORDER

APPEARANCES:

For the plaintiff:
Philippe Z. Selendy
Kathleen M. Sullivan
Adam M. Abensohn
Manisha M. Sheth
Jordan A. Goldstein

For defendants:
Jay B. Kasner
Scott D. Musoff
Robert A. Fumerton
Four Times Square

DENISE COTE, District Judge:
This is one of sixteen actions pending before this Court
that have been brought by the Federal Housing Finance Agency
(FHFA or the Agency), as conservator of the Federal National
Mortgage Association (Fannie Mae) and the Federal Home Loan
Mortgage Corporation (Freddie Mac) (collectively, the
Government Sponsored Enterprises or GSEs), against various
A-282

2

financial institutions involved in the packaging, marketing and
sale of residential mortgage-backed securities that the GSEs
purchased in the period from 2005 to 2007.
1
An Opinion and Order
of May 4 granted in part defendants January 20 motion to
dismiss the Second Amended Complaint. See Federal Housing
Finance Agency v. UBS Americas, Inc., ___ F. Supp. 2d ___, No.
11 Civ. 5201 (DLC), 2012 WL 1570856 (S.D.N.Y. May 4, 2012) (the
May 4 Opinion).
This Opinion addresses the UBS defendants May 23 motion to
certify an interlocutory appeal from that portion of the May 4
Opinion that denied their motion to dismiss as untimely FHFAs
claims under Sections 11, 12(a)(2), and 15 of the Securities Act
of 1933, 15 U.S.C. 77k, l(a)(2), o. The Court ordered that
the motion be briefed on an expedited schedule, and it became
fully submitted on June 8, 2012.
In the interim, document discovery has begun in all sixteen
cases. Pursuant to an Order of June 14, fact and expert
discovery in this case must be complete no later than June 14,
2013. Any summary judgment motion must be fully submitted by
August 30, 2013. Trial is scheduled to begin at 9:30 a.m. on

1
The FHFA has also brought two similar actions, which are
pending in federal courts in California and Connecticut. See
FHFA v. Countrywide Financial Corp., et al., No. 12 Civ. 1059
(MRP) (C.D. Cal.); FHFA v. Royal Bank of Scotland, No. 11 Civ.
1383 (AWT) (D. Conn).
A-283

5

Section 1292(b) imposes both procedural and substantive
requirements on a would-be appellant).
The Court of Appeals has emphasized that Section 1292(b)
certification should be "strictly limited because only
exceptional circumstances will justify a departure from the
basic policy of postponing appellate review until after the
entry of a final judgment." Flor v. BOT Fin. Corp., 79 F.3d
281, 284 (2d Cir. 1996) (citation omitted). Certification is
thus appropriate only in the narrow class of cases in which "an
intermediate appeal may avoid protracted litigation." Koehler
v. Bank of Bermuda Ltd., 101 F.3d 863, 866 (2d Cir. 1996). In
considering whether to enact Section 1292(b), the House
Committee on the Judiciary specifically identified as falling
into that category cases such as this one, in which a long
trial is envisioned to determine liability over a defense
disputing the right to maintain the action. Id.
1. Controlling Question of Law
The Second Circuit has recognized that resolution of an
issue need not necessarily terminate an action in order to be
controlling, for the purposes of Section 1292(b).
Klinghoffer v. S.N.C. Achille Lauro, et al., 921 F.2d 21, 24 (2d
Cir. 1990). Rather, it is enough to satisfy the statutes first
prong that the issue is one that may importantly affect the
A-286

3

January 13, 2014. At a scheduling conference on June 13, 2012,
the defendants agreed that, if this Court granted their motion
for certification, they would seek expedited review in the Court
of Appeals.
Defendants seek interlocutory review of two specific
conclusions in the Courts May 4 Opinion: (1) that the Housing
and Economic Recovery Act of 2008 (HERA) prescribes
comprehensive time limitations for any claim the FHFA may bring
as conservator for the GSEs, including a claim to which a
statute of repose generally attaches; and (2) that HERAs
timeliness provision applies equally to federal and state causes
of action. For the purposes of certification, these conclusions
are closely intertwined. If interlocutory review is granted,
the Court of Appeals will address the specific question of
whether the May 4 Opinion correctly analyzed HERAs impact on
plaintiffs Securities Act claims. HERAs applicability to
federal claims will necessarily be entailed in that analysis.
Thus, while defendants motion for certification raises two
distinct legal issues, they reduce to a single question for
appeal: whether the May 4 Opinion erred in concluding that HERA
displaces the statute of repose that generally governs claims
under the Securities Act. The Court therefore addresses its
analysis of the Section 1292(b) factors to that single question,
A-284

4

recognizing that it is the order that is appealable, and not
the controlling question identified by the district court or
the parties. California Public Employees' Retirement System v.
Worldcom, Inc., 368 F.3d 86, 95 (2d Cir. 2004) (citation
omitted).
Having considered those factors, the Court concludes, for
the reasons that follow, that defendants have carried their
burden of demonstrating that an interlocutory appeal should be
certified. The motion is therefore granted on the condition
that defendants seek expedited review in the Court of Appeals.

DISCUSSION
The standard for certification is well established.
Section 1292(b) provides, in relevant part, that
[w]hen a district judge, in making in a civil action
an order not otherwise appealable under this section,
shall be of the opinion that such order involves a
controlling question of law as to which there is
substantial ground for difference of opinion and that
an immediate appeal from the order may materially
advance the ultimate termination of the litigation, he
shall so state in writing in such order. The Court of
Appeals which would have jurisdiction of an appeal of
such action may thereupon, in its discretion, permit
an appeal to be taken from such order, if application
is made to it within ten days after the entry of the
order.
28 U.S.C. 1292(b) (emphasis supplied); see Casey v. Long
Island R. Co., 406 F.3d 142, 146 (2d Cir. 2005) (noting that
A-285

6

conduct of [the] action. In re The Duplan Corp., 591 F.2d 139,
148 n.11 (2d Cir. 1978); accord In re Worldcom, Inc. Sec.
Litig., No. 02 Civ. 3288 (DLC), 2003 WL 22953644, at *4
(S.D.N.Y. Dec. 16, 2003). Moreover, timeliness determinations,
which go directly to the plaintiffs ability to maintain some or
all of its claims, are precisely the type of legal issue that
Congress intended to be addressed through the Section 1292(b)
procedure.
In resisting certification, plaintiff insists that, even if
the Court of Appeals were to conclude that HERA does not
abrogate the statute of repose generally applicable to claims
under the Securities Act, some portion of its claims would be
preserved by contractual tolling agreements with various
defendants or the class-action tolling doctrine enunciated in
American Pipe & Construction v. Utah, 414 U.S. 538 (1974).
Plaintiff also suggests that its state-law Blue Sky claims would
be unaffected by an interlocutory ruling, because, under the
doctrine articulated in United States v. Summerlin, the United
States is not bound by state statutes of limitations. 310 U.S.
414, 416 (1940). Needless to say, defendants take issue with
these contentions. The May 4 Opinion did not address them in
light of the Courts conclusion that plaintiffs claims were
timely under HERA.
A-287

7

Whether or not plaintiff is correct that an interlocutory
ruling on the issues raised by the defendants could not
terminate the litigation, there can be no question that such a
ruling would importantly affect the conduct of [the] action.
In re The Duplan Corp., 591 F.2d at 148 n.11. As defendants
note, plaintiffs tolling arguments do not apply to 14 of the 22
Certificates at issue here. Thus, even if those arguments have
merit, an appellate ruling that HERAs timeliness provision does
not abrogate statutes of repose would significantly narrow the
scope of discovery in this case and the proof that the parties
would be able to present at trial, saving the parties and the
public time and money. And given that defendants challenge the
plaintiffs Summerlin argument in part on the ground that the
Supreme Courts holding does not apply to state statutes of
repose (as distinct from statutes of limitations), an appellate
decision addressed to the relationship between those two
concepts would bear significantly on the Courts decision as to
whether to allow the Blue Sky claims to go forward in the event
the federal claims were dismissed. The issues upon which the
defendants seek interlocutory review thus constitute
controlling questions of law within the meaning of the
statute.
A-288

8

2. Material Advancement
For many of the same reasons, appellate resolution of the
issues identified by the defendants would materially advance
the ultimate termination of the litigation. As discussed, a
conclusion by the Court of Appeals that this Court erred in its
May 4 ruling has the potential to end or at a minimum
significantly restrict the scope of this litigation. But the
efficiencies to be gained by interlocutory review are not lost
if the Court of Appeals ultimately affirms this Courts May 4
ruling. An appellate ruling that FHFAs claims are in fact
timely is likely to significantly affect the parties bargaining
positions and may hasten the termination of this litigation
through settlement.
Appellate resolution of the timeliness of plaintiffs
Securities Act claims will also remove a cloud of legal
uncertainty that hangs over the other 17 actions in this suite
of cases. This, in turn, will facilitate and streamline motion
practice in those other cases and may affect the parties
strategic decision-making going forward. Courts may properly
consider such system-wide costs and benefits in determining
whether to permit interlocutory review. Klinghoffer, 921 F.2d
at 24. Indeed, several district courts, including this one,
have opined that certification may be particularly appropriate
A-289

9

in complex litigation involving multiple coordinated actions.
In such cases, interlocutory review may be the best way to
materially advance the ultimate termination of the litigation
by avoiding protracted litigation and multiple appeals of the
same or similar issues. In re Worldcom, Inc. Sec. Litig., 2003
WL 22953644, at *8 (quoting In re Air Crash Off Long Island, New
York on July 17, 1996, 27 F.Supp.2d 431, 434 (S.D.N.Y. 1998)).
3. Substantial Grounds for a Difference of Opinion
The remaining prong of Section 1292(b), which requires a
finding that the issue to be certified is one about which there
are substantial grounds for a difference of opinion, poses the
greatest challenge for the defendants. It is well established
that an issue of first impression, standing alone, is
insufficient to demonstrate a substantial ground for difference
of opinion. Flor v. BOT Fin. Corp., 79 F.3d 281, 284 (2d Cir.
1996). And, for reasons explained at length in the May 4
Opinion, the Court has little doubt that its interpretation of
HERA is the one that best comports with the everyday meaning
of the statutory text and the objectives of the statute
overall, 2012 WL 1570856, at *5.
In urging certification, defendants suggest that the
Opinions reference to the semantic distinction between
statutes of limitations and statutes of repose, 2012 WL
A-290

10

1570856, at *4, is inconsistent with Second Circuit precedent
emphasizing that the two concepts are substantively distinct.
That argument is disingenuous. The Courts use of the term
semantic was plainly intended in the literal sense, to refer
to a distinction relating to meaning in language. See
Merriam-Webster's Collegiate Dictionary 1129 (2003). At no
point was it suggested that the terms are synonymous. To the
contrary, the Court was careful to observe the conceptual
distinctions between them in arriving at its conclusion that
HERAs reference to statutes of limitations embraces both the
narrow sense of that term intended by the defendants as well as
what defendants refer to as statutes of repose. See 2012 WL
1570856, at *5.
Nor does the fact that, twenty years ago, Congress passed a
single statue tolling any . . . period of limitation or
repose, see Pub. L. No. 102-339, 3(b), 106 Stat. 869 (Aug.
11, 1992), and has since considered (without enacting) bills
that use the term statute of repose, suggest substantial
grounds for a difference of opinion with respect to the meaning
of this statute. As discussed in the May 4 Opinion, Congress,
the courts and learned commentators regularly use the term
limitations to encompass both statutes of limitations, in
the sense intended by the defendants, and statutes of repose.
A-291

11

2012 WL 1570856, at *4. Indeed, in 2002 Congress modified the
repose period applicable to claims under the Securities Exchange
Act of 1934 in a provision entitled Statute of limitations for
securities fraud. See SarbanesOxley Act, Pub. L. No. 107204,
804, 116 Stat. 745, 801 (2002) (codified at 28 U.S.C.
1658(b)) (emphasis added).
As the Supreme Court again reminded us only recently, when
confronted with a textual ambiguity of this kind, the task of
the Court is to give the statutory terms their ordinary meaning
unless the context clearly suggests that an atypical usage is
intended. Taniguchi v. Kan Pacific Saipan, Ltd., 132 S. Ct.
1997, 2002, 2004 (2012). In ordinary usage, the term statute
of limitations refers generally to a statute assigning a
certain time after which rights cannot be enforced by legal
action or offenses cannot be punished. Merriam-Webster's
Collegiate Dictionary 1220 (2003). Nothing in HERA suggests
that, in prescribing the applicable statute of limitations with
regard to any action brought by the [FHFA], 12 U.S.C.
4617(b)(12), Congress sought to depart from this ordinary
meaning in favor of the more technical definition proffered by
the defendants. To the contrary, the statutory context
indicates powerfully that the opposite is true. As emphasized
in the May 4 Opinion, [r]eading HERA's reference to statute of
A-292

12

limitations in the narrow fashion that defendants propose would
undermine the congressional purpose of a statute whose
overriding objective was to maximize the ability of FHFA to put
the [GSEs] in a sound and solvent condition. 2012 WL 1570856,
at *5 (quoting 12 U.S.C. 4617(b)(2)(D)).
In seeking certification, defendants do not challenge this
characterization of HERAs purpose. Rather, to establish that
there is a substantial ground for difference of opinion as to
HERAs meaning, they rely on two brief district court decisions
interpreting entirely different statues, albeit statutes whose
text is nearly identical to that of HERAs extender provision.
See Natl Credit Union Admin. Board v. RBS Secs., Inc., No. CV
11-5887-GW (C.D. Cal. Jan 30, 2012); Resolution Trust Corp. v.
Olson, 768 F. Supp. 283 (D. Ariz. 1991). It goes without saying
that these decisions, which concern the Federal Credit Union
Act, 12 U.S.C. 1787(b)(14)(B)(i), and the Financial
Institutions Reform, Recovery, and Enforcement Act (FIRREA), 12
U.S.C. 1821(d)(14), do not bear directly on the issue before
the Court: the proper interpretation that is to be given to
HERA, a different statute, enacted under different
circumstances, and addressed to a different class of problems.
While the Credit Union Act and FIRREA, like HERA, indicate a
Congressional intent to preserve and conserve the assets of
A-293

13

insolvent financial institutions, there are reasons to think
that Congress was willing to go further to ensure the solvency
of the two GSEs than to ensure the survival of any one of the
thousands of banks and credit unions around the country. See
May 4 Opinion, 2012 WL 1570856, at *5 n.8 (noting that HERA
creates an exception to the Securities Acts typical time
limitations for a single, privileged plaintiff -- FHFA).
Indeed, given that in 2008 the GSEs financed about 40% of all
American mortgages and owed debt in excess of $5.3 trillion,
their failure would have been catastrophic for the American
economy in a way that, with few exceptions, the failure of a
single bank or credit union would not be. See Carol D. Leonnig,
How HUD Mortgage Policy Fed the Crisis, Washington Post, June
10, 2008, at A01.
Yet the two decisions cited by the defendants do not reach
these issues of statutory purpose. Rather, with little
explanation, they conclude that the terms statute of
limitations and statute of repose are mutually exclusive, and
unambiguously so. For reasons that have been outlined at length
here and in the May 4 Opinion, the Court finds this position
untenable in light of the commonly understood meaning of
statute of limitations and the frequent practice by Congress,
federal courts and commentators of using the term to encompass
A-294
all forms of time limitation. Nonetheless, it must be
acknowledged that the existence of these two decisions suggests
that there may be grounds, however weak, for a difference of
opinion on this question.
In light of the compelling arguments for certification on
the other two prongs of the Section 1292(b) analysis, the
tension between the May 4 Opinion and the two decisions cited by
the defendants is sufficient to justify certification. But
because the Court's decision to certify is driven primarily by
the prospect that an immediate appeal may expedite the
conclusion of this litigation -- whether through judicial
resolution or settlement - the certification is contingent on
the defendants' seeking expedited review in the Court of
Appeals, a condition to which they agreed at the June 13
conference.
CONCLUSION
Defendants' May 23 motion for certification of an
interlocutory appeal of the May 4 Opinion is granted.
SO ORDERED:
June 19, 2012
United District Judge
14
A-295
all forms of time limitation. Nonetheless, it must be
acknowledged that the existence of these two decisions suggests
that there may be grounds, however weak, for a difference of
opinion on this question.
In light of the compelling arguments for certification on
the other two prongs of the Section 1292(b) analysis, the
tension between the May 4 Opinion and the two decisions cited by
the defendants is sufficient to justify certification. But
because the Court's decision to certify is driven primarily by
the prospect that an immediate appeal may expedite the
conclusion of this litigation -- whether through judicial
resolution or settlement -- the certification is contingent on
the defendants' seeking expedited review in the Court of
Appeals, a condition to which they agreed at the June 13
conference.
CONCLUSION
Defendants' May 23 motion for certification of an
interlocutory appeal of the May 4 Opinion is gI-anted.
SO ORDERED:
June 19, 2012
United District Judge
14

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