Countrywide Securities Suit Dismissal Motions Substantially Denied; Allows Greater Prospect for Subprime Litigation

We try to provide news stories that are related to the contract attorney industry as much as we can: a trend in the industry, current litigation/projects, or a “primer” on an area of law, for example.

We know the market is weak for work right now and we hope that our prognostications (along with other pundits) are right and that there are lots of projects “just around the corner”.

In that regard, a recent subprime opinion might help.  On December 1, 2008, in a massive, detailed 112-page opinion, U.S. District Cort Judge Mariana R. Pfaelzer substantially denied the defendants’ motions to dismiss the Countrywide subprime-related securities class action lawsuit.

For full links go to Kevin LaCroix’s site by clicking here.

As LaCroix states, the overall effect of the opinion is a substantial rebuttal to the his suggestion (as well as many other analysts) that plaintiffs may not be faring well in the subprime cases.  We discussed the case with several attorneys involved in subprime cases in Chicago, D.C.,  LA,  Miami,  and NYC and they agreed: the opinion will help many subprime cases to proceed which — we hope — will lead to a lot of document reviews.

LaCroix believes the case makes several key points:

1. The judge made clear that this was a case where a company’s essential operations were so at odds with the company’s public statements that many statements that would not be actionable in the vast majority of cases are rendered cognizable to the securities laws.

2.  The judge noted the complaint “adequately alleges that Countrywide’s practices so departed from its public statements that even ‘high quality’ became materially false and misleading” and “to apply the puffery rule to such allegations would deny that ‘high quality’ has any meaning.”

3.   Among her noteworthy observations that may reverberate in other subprime cases is one she makes in connection with the defendants’ arguments based on market forces. Defendants in this case, as in many of the subprime cases, sought to argue that the company’s woes were largely due to marketwide forces. As the judge put it, “for the past year, almost all defendants have recited…that an ‘unprecedented’ external ‘liquidity crisis’ caused all (or most) of Countrywide’s decline.”   Countrywide’s shares declined only as the company’s deteriorating underwriting standards came to light, though “Countrywide held itself out for a long while as situated differently than from other subprime lenders” and “concurrently with corrective disclosures” made “continued misrepresentations and omissions” into early 2008.

4.  With respect to the amended complaints Rule 10b-5 allegations,  the judge’s opinion concludes that the plaintiffs “have created a cogent and compelling inference of a company obsessed with loan production and market share with little regard for the attendant risks, despite the company’s repeated assurances to the market.”

We’ve only provided some highlights from LaCroix’s review of the case.  It is excellent and you can download the opinion via his site as referenced above.