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Public Employees' Retirement System of Mississippi, Individually and On Behalf of All Others Similarly Situated v. Goldman Sachs Group

February 3, 2012

PUBLIC EMPLOYEES' RETIREMENT SYSTEM OF MISSISSIPPI, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
GOLDMAN SACHS GROUP, INC., GOLDMAN SACHS MORTGAGE COMPANY, GS MORTGAGE SECURITIES CORP., GOLDMAN, SACHS & CO., INC., DANIEL L. SPARKS, MARK WEISS, JONATHAN S. SOBEL, GSAA HOME EQUITY TRUST 2006-2, GSAA HOME EQUITY TRUST 2006-3, AND GSAMP TRUST 2006-S2, DEFENDANTS.



The opinion of the court was delivered by: Hon. Harold Baer, Jr., District Judge:

OPINION & ORDER

Plaintiff Public Employees' Retirement System of Mississippi ("Plaintiff" or "MissPERS") moves pursuant to Fed. R. Civ. P. 23(a) and 23(b)(3) to (1) certify a class of all persons and entities that purchased or acquired publicly offered certificates of GSAMP Trust 2006-S2 (the "Offering") and who were damaged thereby (the "Class"); and (2) appoint Plaintiff as Class Representative and Bernstein Litowitz Berger & Grossmann LLP ("BLB&G") as Class Counsel. For the following reasons, the motion for class certification and appointment of class counsel is GRANTED.

I.BACKGROUND

This securities class action arises out of a single offering, by Defendants The Goldman Sachs Group, Inc., Goldman Sachs Mortgage Co., GS Mortgage Securities Corp., Goldman, Sachs & Co., Daniel L. Sparks, Mark Weiss, and Jonathan S. Sobel ("Defendants"), in March 2006 of $698 million of certificates derived from a pool of securitized fixed-rate, second-lien home mortgages. All of the mortgage loans underlying the certificates were originated by New Century Financial Corp. ("New Century") and purchased by Defendants in late 2005 to be securitized. The Second Amended Complaint ("Complaint") asserts that the Offering Documents for the Certificates contained untrue statements and omitted material facts in violation of §§ 11, 12(a)(2), and 15 of the Securities Act of 1933, 15 U.S.C. §§77k, 77l(a)(2), 77o. The background to this case is discussed in greater detail in an earlier opinion of this Court. See Pub. Emps.' Ret. Sys. of Miss. v. Goldman Sachs Group, Inc., No. 09 CV 1110(HB), 2011 WL 135821 (S.D.N.Y. Jan. 12, 2011).

Plaintiff contends that New Century failed to follow its own stated underwriting standards and used improper appraisals overstating the collateral value, and that Defendants failed to conduct adequate due diligence when acquiring the loans for securitization. Consequently, the statements in the Offering Documents concerning compliance with underwriting and appraisal standards were materially untrue when they were made, and as a result, Plaintiff and the Class purchased certificates that were far riskier than represented.

Plaintiff requests that the following Class be certified: All persons or entities who purchased or otherwise acquired publicly offered certificates of GSAMP Trust 2006-S2 and who were damaged thereby. Excluded from the Class are Defendants and their respective officers, affiliates, and directors at all relevant times, members of their immediate families, and their legal representatives, heirs, successors, or assigns and any entity in which Defendants have or had a controlling interest.

Pl.'s Mem. Supp. Class Certification ("Pl.'s Supp.") 1.

II.DISCUSSION

To qualify for class certification, Plaintiffs must prove that the putative class meets the four threshold requirements of Rule 23(a); if those requirements are satisfied, a district court may grant certification if the class is maintainable under at least one of the subsections of Rule 23(b). See Teamsters Local 445 Freight Div. Pension Fund v. Bombardier Inc., 546 F.3d 196, 202 (2d Cir. 2008). The party seeking certification "bears the burden of establishing by a preponderance of the evidence that each of Rule 23's requirements has been met." Myers v. Hertz Corp., 624 F.3d 537, 547 (2d Cir. 2010). Courts must engage in a "rigorous analysis"*fn1 to determine whether a plaintiffhas met this burden. In re Initial Pub. Offering Sec. Litig. ("In re IPO"), 471 F.3d 24, 36 (2d Cir. 2006). The resolution of any factual dispute that is material to a Rule 23 requirement is made only for the purposes of the class certification phase "and is not binding on the trier of facts, even if that trier is the class certification judge." Id. at 41.

A.RULE 23(a) REQUIREMENTS

To qualify for class certification, Plaintiffs must prove four elements by a preponderance of the evidence: (1) numerosity, (2) commonality, (3) typicality, and (4) adequate representation. See Fed. R. Civ. P. 23(a). In addition to these elements, "Rule 23 contains an implicit requirement that the proposed class be precise, objective and presently ascertainable." Bakalar v. Vavra, 237 F.R.D. 59, 64 (S.D.N.Y. 2006). Each of the elements that are at issue in this case will be addressed in turn.

i.Numerosity

Rule 23 permits class certification if "the class is so numerous that joinder of all members is impracticable." Fed. R. Civ. P. 23(a)(1). Certification is appropriate when "the number of class members is sufficiently large so that joinder of all members would make litigation needlessly complicated and inefficient." Banyai v. Mazur, 205 F.R.D. 160, 163 (S.D.N.Y. 2002); see also Cent. States Se. & Sw. Areas Health & Welfare Fund v. Merck-Medco Managed Care, L.L.C., 504 F.3d 229, 244--45 (2d Cir. 2007) ("The numerosity requirement in Rule 23(a)(1) does not mandate that joinder of all parties be impossible-only that the difficulty or inconvenience of joining all members of the class make use of the class action appropriate"). The Second Circuit has held that a proposed class of more than forty members presumptively satisfies the numerosity requirement. Consol. Rail Corp. v. Town of Hyde Park, 47 F.3d 473, 483 (2d Cir. 1995).

Lead Plaintiff argues that numerosity is satisfied because there are more than 150 unique, geographically dispersed investors who purchased or otherwise acquired Certificates in the Offering. Pl.'s Supp. 9. Defendants argue that Plaintiff has not satisfied numerosity, when assessed on a certificate-by-certificate (or tranche) basis, because six of the eleven Certificates were purchased by fewer than five putative class members and two Certificates by fewer than twenty putative class members. Defs.' Mem. Opp'n Class Certification ("Defs.' Opp'n") 25. The tranches may include certain differences in terms, such as repayment schedules and exposure to risk. However, there is no reason to assume that these differences create any intra-class conflict with respect to the alleged misstatements in the Offering Documents. Nor is there any obvious reason why the tranches should be counted separately. The invocation of tranches as a means to defeat class certification has failed in similar cases and fails here. See Pub. Emps.' Ret. Sys. of Miss. v. Merrill Lynch & Co. ("Merrill"), 277 F.R.D. 97, 109 (S.D.N.Y. 2011) (Typicality); In re Dynex Capital, Inc. Sec. Litig., No. 05 Civ. 1897(HB), 2011 WL 781215, at *2 (S.D.N.Y. Mar. 7, 2011) (Adequacy of Representation); N.J. Carpenters Health Fund v. Residential Capital, LLC, 272 F.R.D. 160, 166 (S.D.N.Y.2011) (Typicality).

ii.Commonality

The commonality requirement of Fed. R. Civ. P. 23(a)(2) is satisfied if "plaintiffs' grievances share a common question of law or fact." Marisol A. v. Giuliani, 126 F.3d 372, 376 (2d Cir. 1997). A plaintiff must show that its claims rest upon a "common contention . . . capable of classwide resolution-which means that determination of its truth or falsity will resolve an issue that is central to the validityof each one of the claims in one stroke." Wal-Mart v. Dukes, 131 S. Ct. 2541, 2551 (2011). "What matters to class certification . . . is not the raising of common questions . . . but, rather the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation." Id. (internal quotation marks omitted). In securities actions, the commonality requirement is typically satisfied "where putative class members have been injured by similar material misrepresentations and omissions." In re Initial Pub. Offerings Sec. Litig., 243 F.R.D. 79, 85 (S.D.N.Y. 2007).

Lead Plaintiff argues that there are several issues of law and fact common to the class because all the putative class members are alleged to have been impacted by the same misrepresentations and omissions about the collateral.*fn2 Defendants do not contest the existence of commonality per se but focus their analysis on how the individual issues predominate. See infra (discussing the predominance requirement). Given that questions regarding the alleged misstatements in the Offering Documents and other issues articulated by Plaintiff are susceptible to common answers, Plaintiff has shown that commonality is satisfied. See Korn v. Franchard Corp., 456 F.2d 1206, 1210 (2d Cir.1972) ("[Commonality] is plainly satisfied since ...


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