Second Circuit Affirms Denial of MBS Class Certification Given Limited Record

RMBS

On April 30, the U.S. Court of Appeals for the Second Circuit affirmed a district court’s dismissal of an action brought by a putative class of pension fund investors against issuers of certain mortgage-backed securities. New Jersey Carpenters Health Fund v. Rali Series 2006-QO1 Trust, No. 11-1683, 2012 WL 1481519 (2nd Cir. Apr. 30, 2012). The investors claimed that the issuers made false and misleading statements in the prospectuses of the MBS at issue, and brought suit to recover damages under the Securities Act. In denying the investors’ motion for class certification, the district court held that class treatment was not appropriate because individual issues predominate - each purchaser’s actual knowledge of the specific false or misleading statements or omissions would need to be determined on an individual basis. Based on the “limited evidence” available “without the benefit of discovery,” the circuit court affirmed the dismissal, but suggested that a different inference could have been drawn on a more complete record. The court also acknowledged several district court decisions that followed the instant case, in which the courts certified classes presenting similar claims.