Dexia SA/NV et al. v. Bear Stearns & Co., Inc. et al., No. 12-cv-4761 (JSR)

On April 2, 2013, Judge Jed S. Rakoff of the United States District Court for the Southern District of New York granted Defendants’ motion for summary judgment with respect to 60 of the 65 residential mortgage-backed certificates at issue in Dexia SA/NV et al. v. Bear Stearns et al. (“Dexia”), including dismissing all claims brought by Dexia SA/NV, Dexia Holdings Inc and Dexia Credit Local SA.  Although Judge Rakoff’s rationale will be explained in a forthcoming opinion, it appears the Court dismissed the 60 certificates on the ground that the Dexia entities did not have standing to assert claims related to those certificates.  As Defendants explained in their summary judgment briefs, the remaining plaintiff’s (FSAM) losses on those 5 certificates were no more than approximately $5.7 million (thus this decision eliminates at least approximately $769 million of the approximately $774 million in total damages sought by Plaintiffs).

The Dexia Entities filed this action against the Defendants alleging that they purchased over $1.6 billion worth of Defendants’ residential mortgage-backed securities certificates in 51 offerings between 2005 and 2007 and that the Defendants misrepresented the risk profile of the certificates and the underlying mortgage loans in various offering documents.  The Dexia Entities brought claims of common law fraud, fraudulent inducement, aiding and abetting fraud and negligent misrepresentation against the Defendants.  

Defendants filed a motion for summary judgment on January 21, 2013.  Following briefing and two days of oral argument on the motion on February 22 and March 4, 2013, the Court ordered the dismissal of the claims brought by all the Dexia Entities except for those brought by FSAM relating to 5 of the 65 certificates at issue.  The Court indicated that an opinion explaining the reasons for these rulings will issue in due course.

Defendants were represented by Cravath partners Daniel Slifkin, Michael Paskin and J. Wesley (Wes) Earnhardt.

This is another significant victory achieved by Cravath in securities fraud litigation in the past several weeks.  At the end of February, Cravath successfully rebutted the fraud-on-the-market presumption of reliance, securing a win for Vivendi following a two-day bench trial in a securities fraud lawsuit brought by GAMCO investors.  This is the first public market purchase case in which the presumption of reliance has been successfully rebutted at a trial on the merits.  GAMCO Investors, Inc. v. Vivendi, S.A., No. 03-cv-5911 (SDNY) (Judge Shira A. Scheindlin).

This is the second major win that Cravath has achieved for JPMorgan and certain related entities in residential mortgage-backed securities litigation.  As lead trial counsel defending certain Washington Mutual entities in In re Washington Mutual Mortgage Backed Securities Litigation, No. 09-cv-0037 (W.D. Wash.), Cravath successfully advanced the “tranche-level” theory of standing to limit class claims to 13 out of 123 tranches of securities, eliminating from litigation bonds worth approximately $8 billion.  Shortly before jury trial in September 2012, the parties settled for $26 million, far below the $558 million in damages the class had sought as covering approximately $2.4 billion in securities.