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September 6, 2005.

TEAMSTERS LOCAL 445 FREIGHT DIVISION PENSION FUND, on its own behalf and on behalf of all those similarly situated, Plaintiff,

The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge



  Teamsters Local 445 Freight Division Pension Fund ("Teamsters") brings this action on behalf of open market purchasers of certain Certificates offered by Bombardier Capital Mortgage Securitization Corporation ("BCM") and Bombardier Capital Inc. ("BCI"). The Certificates were secured by pools of manufactured housing installment sales contracts and mortgage loans. The gravamen of plaintiff's allegations is that defendants engaged in a scheme to defraud investors through misrepresentations and omissions regarding the integrity of BCI's underwriting standards for loan origination in order to amass large volumes of manufactured housing loans for immediate profit in the asset-backed securities market.*fn1 Plaintiff is alleging violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 of the Securities and Exchange Commission.*fn2

  All defendants other than Gillespie*fn3 now move to dismiss the Complaint, arguing that it fails to state a cause of action for securities fraud, that Teamsters' claims are time-barred, and that Teamsters does not have standing to pursue the vast majority of the claims asserted.*fn4 For the following reasons, defendants' motion is denied as to BCI, BCM, Peters, and Assell, but granted as to BI and Beaudoin. II. THE COMPLAINT

  The following allegations are drawn from the Complaint and presumed to be true for purposes of this motion.

  A. The Parties

  On May 10, 2002, Teamsters purchased $250,000 par value Series 2000-A Class A-2 Certificates for a total investment of $234,826.*fn5 On February 7, 2005, Teamsters filed a Complaint pursuant to Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure, defining a class of all purchasers of the Series 2000-A Certificates, who purchased their shares between January 7, 2000 and May 6, 2004.*fn6 On April 15, 2005, plaintiff amended the Complaint to expand the class to include purchasers of Series 1998-A, 1998-B, 1998-C, 1999-A, 1999-B and 2001-A Certificates, and enlarge the class period to include purchases between February 7, 2000 and February 7, 2005.*fn7

  Bombardier, Inc. ("BI") is a Canadian corporation operating multinational business divisions, principally engaged in the manufacture and sale of aircraft, recreational vehicles, railroad trains, and locomotive engines.*fn8 BCI, a wholly owned subsidiary of BI, is a financial services company principally engaged in the financing and leasing of BI's products, as well as the financing and leasing of manufactured housing (also known as "mobile homes") to consumers.*fn9 Plaintiff alleges that the "sole" purpose of BCM, a wholly owned limited purpose subsidiary of BCI, was to issue the Certificates.*fn10 BI, BCM, and BCI will hereafter be referred to collectively as "Bombardier."*fn11 Laurent Beaudoin was the President, Chief Executive Officer, and Chairman of the Board of Directors of BI.*fn12 Brian Peters and Lawrence F. Assell were directors and/or officers of BCI.*fn13

  B. The Alleged Scheme

  Plaintiff alleges that, beginning in 1997, Bombardier rushed to originate a massive number of mobile home loans and then, between January 1998 and January 2001, packaged these loans for issuance in the asset-backed securities market through a number of separate certificate offerings.*fn14 Each series of Certificates had the same basic structure and was divided into classes which were assigned specific pools of mobile home collateral and came due on different dates.*fn15 Bombardier was drawn to this market by the "financial allure of `gain on sale' accounting," which allowed it, "as the issuer of securitized assets, to book future expected profits on those securities as current income, boosting reported earnings."*fn16

  From 1998 to 2001, Bombardier issued false statements to investors regarding the "strict and prudent" underwriting standards used in the origination of the collateral supporting the Certificates.*fn17 The Certificate Offering Document or Prospectus for each series of Certificates contained an identical description of underwriting standards.*fn18 Each Prospectus stated that Bombardier's Credit Department would adhere, with limited deviation, to certain underwriting guidelines, such as requiring each loan applicant to demonstrate stability of employment and residence, excluding applicants with debt-to-income ratios in excess of 45%, and applying the Fair Isaac Credit Organization ("FICO") credit scoring system.*fn19 Each Prospectus also disclosed the delinquency rates for the loans constituting the collateral for the Series 2000-A offering as 2% in 1998 and 8.14% in January 2000.*fn20 These "purported rigorous underwriting standards" and delinquency disclosures led, in material part, to the assignment of high ratings to the Certificates by various rating agencies.*fn21 Additionally, this description of Bombardier's underwriting guidelines, repeated in each Prospectus, was the only description of the origination of Certificate collateral upon which purchasers relied.*fn22

  Plaintiff alleges that, in fact, BCI's senior management disregarded underwriting standards in favor of volume loan purchases, infecting the pool of collateral with loans to "patently uncreditworthy" borrowers.*fn23 Defendants recruited a senior management team, including Ronald Peace, Daniel J. Bialon, and Dan Stout, who directed employees to focus on loan volume and disregard underwriting standards.*fn24 Bombardier systematically purchased "large quantities of facially defective and deficient mobile home loans," including loans to applicants with no assets, no evidence of employment, debt exceeding income, and poor FICO scores.*fn25 Additionally, by linking low reports of delinquencies and repossessions to employee compensation, the management of BCI created incentives for underreporting.*fn26 At Stout's direction, repossessions were re-categorized as "re-financings" in order to avoid reporting.*fn27 Thus, Bombardier's reported delinquency figures were systematically understated.*fn28

  Bombardier's systematic practice of purchasing "bad paper" through reckless underwriting led to a rapid increase in the percentage of delinquencies.*fn29 In early 2000, Bombardier's management began to realize that reckless underwriting practices had caused increasing rates of delinquencies and foreclosures.*fn30 In response, Peace, Bialon, and Stout were replaced, and in April 2000, Bombardier disclosed certain understatements of delinquencies and claimed that the problems had been corrected.*fn31

  However, Bombardier did not disclose its improper underwriting practices between 2001 and 2003 in its Form 8-K filings or otherwise.*fn32 In the Series 2001-A Prospectus supplement, BCI and BCM explained worsened delinquency rates as arising from collection problems.*fn33 In September, 2001, Bombardier left the manufactured housing asset-backed securities industry and, in a press release, attributed the cause of its exit to market conditions.*fn34 In its March 19, 2002 Annual Report, BI explained portfolio downgrades by reference to the "slowdown of the U.S. economy."*fn35

  On December 16, 2002, the Series 2000-A Certificates were downgraded below investment grade.*fn36 On December 27, 2002, Certificate prices declined by an average of 13.25%.*fn37 On February 25, 2003, the 1998-C and 1999-A Series Certificates were downgraded below investment grade. On March 5, 2003, the Certificates declined an average of 27%, resulting in an average price decline of 38% from December 24, 2002.*fn38


  A. Standard of Review

  Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a motion to dismiss should be granted only if "`it appears beyond doubt that the plaintiff[s] can prove no set of facts in support of [their] claim[s] which would entitle [them] to relief.'"*fn39 The task of the court in ruling on a Rule 12(b)(6) motion is "merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof."*fn40 When deciding a motion to dismiss, courts must accept all factual allegations in the complaint as true, and draw all reasonable inferences in plaintiffs' favor.*fn41 Courts generally do not consider matters outside the pleadings but may consider documents attached to the pleadings, documents referenced in the pleadings, or documents that are integral to the pleadings.*fn42 Moreover, courts "may take judicial notice of well-publicized stock prices without converting the motion to dismiss into a motion for summary judgment."*fn43

  B. Section 10(b) and Rule 10b-5

  1. Standing

  Only an actual purchaser or seller of a security has standing to sue under section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.*fn44 The purpose of this rule, in a misrepresentation case, is to "limit? the class of plaintiffs to those who have at least dealt in the security to which the prospectus, representation, or omission relates."*fn45 A putative class representative lacks standing to bring a claim if it did not suffer the injury that gives rise to that claim.*fn46

  In order to maintain a class action, Plaintiffs must first establish that they have a valid claim with respect to the shares that they purchased. If the named plaintiffs have no cause of action in their own right, their complaint must be dismissed, even though the facts set forth in the complaint may show that others might have a valid claim.*fn47 Where plaintiffs bring multiple claims, at "least one named plaintiff must have standing to pursue each claim alleged."*fn48

  A named plaintiff in a class action that purchased securities from one issuer does not have standing to bring claims on behalf of purchasers of securities from a different issuer.*fn49 Additionally, courts have held that a class action plaintiff does not have standing to bring claims on behalf of purchasers of different securities where those claims are based on different factual allegations and legal theories.*fn50

  2. Statute of Limitations and Statute of Repose

  Section 804(a) of the Sarbanes-Oxley Act of 2002 states that:
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 (15 U.S.C. ยง 78c(a)(47), may be brought not later than the earlier of
(1) 2 years after the discovery of the facts constituting the violation; or
(2) 5 years after such violation.*fn51
  "Discovery of facts for the purposes of this statute of limitations `includes constructive or inquiry notice, as well as actual notice.'"*fn52
A plaintiff in a federal securities case will be deemed to have discovered fraud for purposes of triggering the statute of limitations when a reasonable investor of ordinary intelligence would have discovered the existence of the fraud. . . . Moreover, when the circumstances would suggest to an investor of ordinary intelligence the probability that she has been defrauded, a duty of inquiry arises, and knowledge will be imputed to the investor who does not make such an inquiry.*fn53
  To be placed on inquiry notice, plaintiffs "need not be able to learn the precise details of the fraud, but they must be capable of perceiving the general fraudulent scheme based on the information available to them."*fn54 "The issue that the Court must consider is . . . whether Plaintiffs `had constructive notice of facts sufficient to create a duty to inquire further into that matter. An investor does not have to have notice of the entire fraud being perpetrated to be on inquiry notice.'"*fn55

  However, available information must establish "a probability, not a possibility" of fraud to trigger inquiry notice.*fn56 Moreover, on a motion to dismiss, "[u]nless Defendants can produce `uncontroverted evidence [that] irrefutably demonstrates when plaintiff discovered or should have discovered the fraudulent scheme,' they cannot satisfy the heavy burden of establishing inquiry notice as a matter of law."*fn57 The Court of Appeals has been "decidedly reluctant to foreclose ? claims as untimely absent a manifest indication that plaintiffs could have learned the facts underpinning their allegations" prior to the statutory limitations period.*fn58 Facts triggering a duty to inquire are frequently termed "storm warnings."*fn59 Once sufficient storm warnings appear, "plaintiffs must exhibit `reasonable diligence' in investigating the possibility that they have been defrauded. If they fail to meet this obligation, plaintiffs will be held to have had `constructive knowledge' of the fraud against them."*fn60

  Section 804(a)(2) of the Sarbanes-Oxley Act is a statute of repose which requires that a plaintiff bring a section 10(b) or Rule 10b-5 claim within five years of the violation of the securities laws, regardless of when the plaintiff discovered the violation.*fn61 The period of repose begins when the last alleged misrepresentation was made.*fn62

  3. Prima Facie Case To state a prima facie case for securities fraud under section 10(b) of the Exchange Act*fn63 and Rule 10b-5 promulgated thereunder, a plaintiff must allege that "`the defendant, in connection with the purchase or sale of securities, made a materially false statement or omitted a material fact, with scienter, and that plaintiff's reliance on defendant's action caused injury to the plaintiff.'"*fn64 The requisite scienter, or state of mind, in an action under section 10(b) and Rule 10b-5 is "`an intent to deceive, manipulate or defraud.'"*fn65

  Securities fraud actions are subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b).*fn66 In addition, a plaintiff alleging securities fraud under section 10(b) and Rule 10b-5 must satisfy the heightened pleading standards of the Private Securities Litigation Reform Act of 1995 ("PSLRA").*fn67 To plead a material misrepresentation or omission under the PSLRA "the complaint [must] specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information or belief, the complaint shall state with particularity all facts on which that belief is formed."*fn68 ...

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