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Scott+Scott Obtains ClassCertification Decision In Washington Mutual Mortgage-Backed Securities Suit
Scott+Scott attorneys recently scored a major victory for purchasers of Washington Mutual (“WaMu”) Mortgage Pass-Through Certificates. On October 21, 2011, the U.S. District Court for the Western District of Washington granted, in part, the motion of lead plaintiffs to certify a class of purchasers of WaMu mortgage-backed securities sold in six separate offerings. The court certified a class of all persons and entities who purchased or otherwise acquired the following WaMu Mortgage-Pass Through Certificates: 2006 AR7 tranche 1A; 2006 AR12 tranche 1-A1; 2006 AR16 tranches 2-A1, L-B-1, L-B-2, L-B-3, 3-B-1, 3-B-2, and 3-B-3; 2006 AR17 tranche 1A; 2006 AR18 tranche 2-A1; and 2007-HYI tranches 1-A1 and 3-A3 on or before August 1, 2008, pursuant and/or traceable to their registration statements and accompanying prospectuses filed with the Securities and Exchange Commission. The court’s order also appointed Scott+Scott as co-lead counsel for the class.
Filed on April 1, 2010, the lead plaintiffs’ consolidated complaint alleges that the offering documents of six WaMu Mortgage Pass-Through Certificates contained material misstatements and ommissions. The certificates were sold primarily to institutional investors between January 26, 2006, and June 26, 2007. The complaint charges the defendants, key executive officers with Washington Mutual Asset Acceptance Corporation (“WMAAC”), with violations of Sections 11 of the Securities Act of 1933, under which companies and their officers can be found strictly liable for inaccurate statements in their securities’ offering materials.
The WaMu Mortgage Pass-Through Certificates that are the subject of the action are fixed-income securities that represent an undivided interest in certain pools of mortgages, primarily adjustable rate mortgages, assembled by WMAAC. The complaint alleges that the registration statements and prospectuses for the certificate offerings plaintiffs purchased falsely represented that the pool of mortgages underlying the certificates, which provide the income stream “passed through” to certificate purchasers, were underwritten according to the standards outlined in these documents. In reality, the complaint charges WMAAC completely disregarded their stated standards in selecting mortgages for the certificates, conducted little or no due diligence as to whether the mortgages were originated in conformity with their stated underwriting guidelines, and systematically ignored deficient lending documentation and inflated appraisal values.
Within months after each of the offerings, the delinquency and default rates on the underlying mortgages increased exponentially, and the ratings of the certificates collapsed. Indeed, over 94.1% of the $44.2 billion of WaMu Mortgage Pass-Through Certificates initially rated AAA have been downgraded to speculative “junk” status. Moreover, over 51% of the mortgage loans underlying the certificates are currently in some stage of default or foreclosure. As a result, the value of the certificates purchased by plaintiffs and the class declined sharply.
The defendants filed their motion to dismiss the suit on April 27, 2010, which Scott+Scott vigorously opposed. In the motion, the defendants argued that, among other things, lead plaintiffs’ complaint failed to plead actionable misrepresentations or omissions in the underwriting guidelines in the offering documents. On September 28, 2010, the district court, finding no need to hear oral argument on the matter, denied the defendants’ motion to dismiss finding that “Plaintiffs’ underwriting allegations survive dismissal because the statements may be misleading if they mask the extent to which the sponsor’s underwriting guidelines were disregarded . . . In essence, Plaintiffs allege the underwriting guidelines ceased to exist.” The district court’s decision allowed the lead plaintiffs to proceed with claims on behalf of purchasers in six offerings of Certificates, through which approximately $10 billion of the securities were sold to investors.
On March 11, 2011, the lead plaintiffs filed a motion to certify a class consisting of the purchasers of the securities in the six offerings, which the district court granted in part in its October 21 order. The court found that the lead plaintiffs and the putative class met the requirements of Federal Rule of Civil Procedure 23 for certification: the class is sufficiently numerous; common legal questions bind the class together; the lead plaintiffs’ claims are typical of all class members; and lead plaintiffs and their counsel will vigorously prosecute the action on behalf of the class.
While the decision allows the case to move forward toward trial, the court’s order falls short of a complete victory as it limits the class to those who bought in the same specific tranches as lead plaintiffs, reducing class membership. Scott+Scott attorneys are currently seeking leave to appeal this aspect of the decision in the Ninth Circuit. In the meantime, the lead plaintiffs are moving forward with extensive discovery in the case, which includes depositions of several key figures in the suit in the coming months.
After one of its most successful seasons of all time in 2010, the recent NFL offseason was plagued by player lawsuits, a lockout, and fan apprehension about whether the 2011 season would be interrupted. The owners locked out the players after the collective bargaining agreement expired on March 11, 2011. The players responded by filing an antitrust class action lawsuit. The named plaintiffs in the suit were some of the biggest names in the sport, including star quarterbacks Tom Brady, Peyton Manning, and Drew Brees. The suit alleged that many of the NFL’s business practices, including the salary cap, the franchise tag, and even the league’s annual college draft, were illegal under the antitrust laws. Eventually, however, the owners and players signed a new collective bargaining agreement on July 25, 2011. The 132-day lockout was lifted, and the players’ lawsuit was dropped.
The most recent NBA season was similarly one of the more successful seasons in recent memory with the NBA Finals matchup of the Dallas Mavericks and Miami Heat drawing record TV ratings. The NBA offseason also produced a labor dispute between players and owners. The owners locked out the players after the collective bargaining agreement expired on July 1, 2011. For months, both sides made little progress, resulting in canceled training camps, the exhibition season, and even the first part of the regular season. NBA players, however, unlike the NFL players, did not initially file a lawsuit against the owners, instead seeking administrative relief from the National Labor Relations Board.
The main difference between the situations of the NFL and NBA players is that the NFL players chose to immediately decertify their union. This distinction is significant because of how courts treat the often conflicting federal antitrust laws with federal labor laws. Labor laws seek to advance bargaining between unions and employer groups, the result of which necessarily restrains the free market for employee services. The antitrust laws, in contrast, seek to outlaw such restraints on the free market. The result of this conflict is the “nonstatutory labor exemption,” which generally prevents courts from applying antitrust laws to collective bargaining relationships between unions and employers.
When the NFL players decertified their union, the nonstatutory labor exemption no longer applied, and suddenly the NFL’s business practices were potentially exposed to antitrust scrutiny. The looming antitrust lawsuit was one of the main motivators for a timely resolution of the labor dispute, as owners feared an adverse judicial determination on the league’s challenged business practices.
Once negotiations broke down, the NBA players’
union filed a “disclaimer of interest,” a procedure similar to
decertification. NBA players were then
free to file suit and did so in federal courts in both
Over the Thanksgiving holiday weekend, the NBA players and owners settled the antitrust case, subject to the approval of a majority of players and owners. The players are now in the process of reforming the players’ union to facilitate the vote on a proposed new collective bargaining agreement. The 2011-2012 NBA season is anticipated to begin on December 25, 2011.
Collusion In The Pharmaceutical Industry Inflates Health And Welfare Funds’ Prescription Drug Benefit Costs
Generic versions of brand-name drugs cost substantially less than their brand-name counterparts. As a result, when generics become available, consumers rapidly replace brand-name drug purchases with lower cost generic equivalents. As more generic manufacturers enter the market, prices for generic versions drop even further because of competition among the generic manufacturers. Correspondingly, brand-name drugs continue to lose even more market share to the generic competition.
Price competition between brand-name and generic drug companies enables consumers of prescription drugs to purchase drugs at substantially lower prices. Competition allows purchasers to choose between either purchasing generic versions of a drug at a low cost or purchasing the brand-name drug at a lower price. Indeed, generics typically take 90% of the sales from the brand-name manufacturers within a year of entry. Consequently, brand-name drug manufacturers have a financial incentive to delay the entry of generic competition, causing purchasers of drugs to experience substantial cost inflation from that delay.
Aware of these economics, brand-name drug manufacturers will often enter into “pay-for-delay” agreements with generic drug manufacturers to delay the onset of generic competition. The origin of the pay-for-delay agreement is patent litigation that the brand-name manufacturer institutes after a generic manufacturer files documents with the Federal Drug Administration announcing its intent to produce a generic equivalent. In the settlement of the patent litigation, the brand-name drug manufacturer agrees to drop the suit, and the generic drug manufacturer agrees to delay entry of its drug in exchange for cash and other concessions.
In a 2006 study, the Federal Trade Commission (“FTC”) found that more than two-thirds of the approximate 10 settlement agreements between brand-name and generic manufacturers that year included a pay-off from the brand-name manufacturer to delay generic competition. Further, the FTC found that some brand-name pharmaceutical manufacturers colluded with generic drug manufacturers to delay the marketing of the lower cost generic drugs.
Monitoring pay-for-delay agreements for collusion remains a top priority at the FTC. The FTC reports that in 2007, there were 14 agreements with a pay-for-delay component. In 2008, there were 16 and 19 in 2009. Pay-for-delay agreements are estimated to cost American consumers $3.5 billion per year.
Two recent pay-for-delay agreements
have captured headlines. First, Pfizer
Inc., the manufacturer of the world’s best-selling pharmaceutical, LIPITOR, entered into an
agreement with a company that developed a generic equivalent. The agreement will delay the entry of a
generic equivalent into the
agreements violate the federal antitrust laws and various state antitrust and
consumer protection laws. Collusion
between pharmaceutical companies to delay the introduction into the
Scott+Scott Employees Support U.S. Marines Deployed To Afghanistan
Attorneys and staff from Scott+Scott proudly
donated money and care packages to support United States Marines deployed to
Twenty-one Marines of RCT-1 lived and trained
with local soldiers in the Afghanistan National Army at “
In June 2011, the RCT-1 ETT wrote a letter of
thanks to the contributors and sent an American flag that will be displayed in
The Marines of the RCT-1 ETT returned to their
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+December 4 - 7, 2011
The Information Management Network (IMN) 16th Annual Super Bowl of Indexing® Conference
IMN’s Super Bowl Conference comes highly recommended, and is designed to provide four days of lively discussion, debate, and countless networking opportunities for the investment management community. This year’s program will once again be developed in partnership with leading minds in the industry in order to arm investors with the knowledge necessary to succeed in today’s world of investment management. Traditionally, this conference has an outstanding speaker faculty that cover pressing issues facing the investment community. A notable figure such as Henry Kissinger, Bill Bradley, Harvey Pitt, Madeleine Albright, as well as several Nobel Laureates always present the keynote address. Attendees include public plans, union plans, nonprofit investors, and other institutional investors such as Sovereign funds, Native American groups and high net worth individuals.
+December 4 - 6, 2011
National Association of State Treasurers (NAST) 2011 Issues Conference on Public Funds Management
States face unprecedented fiscal challenges today: lean budgets, reduced federal assistance, and turbulent financial markets. The NAST Issues Conference is the premiere meeting for public and private sector officials to discuss strategies that address these important issues. National experts in the financial services industry and government will speak on pension fund investing, debt management, and new regulatory complexities. This conference will provide public finance officials with the tools they need to successfully manage state funds while navigating through a volatile economy.
+December 11 - 13, 2011
Institute for International Research (IIR) 20th Anniversary Public Fund Boards Forum
For 19 years, IIR has produced the Public Fund Boards Forum in
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International Corporate Governance Network (ICGN) 2011 Autumn Mid-Year Conference
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Government Finance Officers’ Association Conferences
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