United States District Court, S.D. New York
For Nomura Holding America Inc., Plaintiff: Barbara S. Steiner, Christopher C. Dickinson, PRO HAC VICE, Jenner & Block LLP (Chicago), Chicago, IL; Brian Jason Fischer, Jenner & Block LLP (NYC), New York, NY.
For Federal Insurance Company, Defendant: Joseph Gregory Finnerty, III, LEAD ATTORNEY, Eric Shawn Connuck, DLA Piper U.S. LLP (NY), New York, NY.
OPINION AND ORDER
KATHERINE POLK FAILLA, United States District Judge.
Plaintiff Nomura Holding America, Inc. (" Nomura" or " Plaintiff" ) initiated this action against Federal Insurance Company (" Federal" or " Defendant" ) on August 21, 2013. The parties' dispute arises out of Federal's denial of coverage under insurance policies purchased by Nomura for claims related to five lawsuits initiated between 2011 and 2012 against Nomura, its subsidiaries, or its directors and officers; the lawsuits arose out of various securitizations of residential mortgage-backed securities. Federal contends that two provisions of the insurance policies preclude coverage for those lawsuits, and the parties have cross-moved for summary judgment on that issue. For the reasons set forth in this Opinion, the Court finds that coverage is not available for the five lawsuits under the policies Nomura purchased from Federal, and on that basis, grants in part and denies in part both parties' motions.
A. Factual Background
1. The Parties and Nomura's Business
Nomura is a Delaware corporation with its principal place of business in New York; Federal is an Indiana corporation with its principal place of business in New Jersey. (Joint 56.1 ¶ ¶ 1-2).
Nomura provides investment and financial services and products to clients, through its various wholly-owned subsidiaries, by creating and selling securities by way of public offerings in the U.S. securities markets. (Pl. 56.1 ¶ 1). As relevant here, those subsidiaries include (i) Nomura Credit & Capital, Inc. (" NCCI" ); (ii) Nomura Asset Acceptance Corporation (" NAAC" ); (iii) Nomura Home Equity Loan, Inc. (" NHELI" ); and (iv) Nomura Securities International, Inc. (" NSI" ) (individually, a " Nomura Sub," and collectively, the " Nomura Subs" ). ( Id. at ¶ 2). Prior to October 2007, each of the Nomura Subs was engaged in some facet of the business of securitizing residential mortgage loans originated by third parties, otherwise known as residential mortgage-backed securities, or " RMBS." ( Id. at ¶ 3).
RMBS certificates entitle a certificateholder to an interest in a trust, which in turn holds one or more pools of residential mortgage loans; the certificateholder receives an allocation of the income stream of, among other things, repayment of mortgage loans held by the trust. (Pl. 56.1 ¶ 4). In the event of a mortgage default, the trust absorbs any loss, and payments to certificateholders are reduced by a corresponding amount. ( Id.).
The creation of RMBS involves multiple parties, including originators, sponsors, depositors, issuing entities, and underwriters. (Pl. 56.1 ¶ 6). Broadly speaking, originators issue mortgage loans to borrowers, secured by residential properties, and underwriters sell certificates to investors, either directly or indirectly. ( Id. at ¶ ¶ 7-8). Sponsors purchase various types of residential mortgage loans from originators, and pool the mortgage loans to be securitized by the depositor. ( Id. at ¶ ¶ 9, 12).
Between 2003 and 2007, NCCI acted as a sponsor for various RMBS, and would also pool the mortgage loans to be securitized by a depositor; NCCI exists today but no longer undertakes new business concerning RMBS or residential mortgage
loans. (Pl. 56.1 ¶ 9). NHELI and NAAC are special purpose corporations that acted as a depositors in RMBS transactions, NHELI from 2005 to 2007, and NAAC from 2003 to 2007. ( Id. at ¶ 10). Both corporations exist today but are not operational. ( Id.). Lastly, NSI, a registered broker-dealer, was the lead or co-lead underwriter for various NAAC and NHELI offerings. ( Id. at ¶ 13).
2. The Plumbers' Union Action
On January 31, 2008, various Nomura Subs, as well as certain of Nomura's directors and officers (" D& Os" ), were named in a case that was ultimately styled as Plumbers' Union Local No. 12 Pension Fund, Individually and On Behalf of All Others Similarly Situated v. Nomura Asset Acceptance Corp., et al., No. 08-cv-10446 (RGS) (D. Mass., filed Mar. 18, 2008 (the " Plumbers' Union Action" ). (Joint 56.1 ¶ 10). The case was removed from Massachusetts state court on March 18, 2008, to the United States District Court for the District of Massachusetts. ( Id.). On June 30, 2008, plaintiffs filed an Amended Complaint. (Pl. 56.1 ¶ 54). The case was consolidated with two other cases involving pension and welfare funds; accordingly, a Consolidated Amended Complaint (the " Plumbers' Union CAC" ) was filed thereafter on January 20, 2009. (Joint 56.1 ¶ 11; Pl. 56.1 ¶ 55). The Plumbers' Union CAC is the operative complaint in that action. (Pl. 56.1 ¶ 55).
The Plumbers' Union CAC alleged violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the " Securities Act" ), 15 U.S.C. § § 77k, l (a)(2), o, against NSI, NAAC, and certain Nomura D& Os, among other defendants. (Pl. 56.1 ¶ ¶ 53, 56). The plaintiffs in that case brought claims against the Nomura defendants in connection with the issuance of certificates in eight trusts, even though plaintiffs only alleged purchases of certificates in two of those trusts. ( Id.). With respect to the two securitizations in which they had purchased certificates, the Plumbers' Union plaintiffs alleged that the offering documents for those securitizations -- in which NCCI was the sponsor, NAAC was the depositor, and NSI was the underwriter -- contained misleading statements or omissions of material facts. ( Id. at ¶ ¶ 57-61). Those misstatements, at a general level, were as follows: (i) the mortgages were issued in accordance with the relevant underwriting guidelines; (ii) the properties securing the mortgages were properly valued; and (iii) the credit ratings for the securitizations reflected the actual risk of investing. ( Id. at ¶ 62).
On September 30, 2009, the district judge presiding over the Plumbers' Union Action dismissed the claims pertaining to the six securitizations in which no plaintiff had purchased a certificate on Article III standing grounds, and dismissed the claims brought in connection with the two securitizations in which plaintiffs had purchased certificates for failure to state a claim. See Plumbers' Union Local No. 12 Pension Fund v. Nomura Asset Acceptance Corp., 658 F.Supp.2d 299, 303-04 (D. Mass. 2009). On January 20, 2011, the United States Court of Appeals for the First Circuit affirmed the standing-based dismissals, but reversed in part the other dismissals, allowing those claims to proceed insofar as they related to certain misstatements regarding the lending practices of a specific originator, First National Bank of Nevada (" FNBN" ). See Plumbers' Union Local No. 12 Pension Fund v. Nomura Asset Acceptance Corp., 632 F.3d 762 (1st Cir. 2011).
3. The Insurance Policies at Issue
As of 2008, when the Plumbers' Union action was initiated, Nomura's D& O liability
insurance was provided by the Greenwich Insurance Company; Nomura initiated a claim during that period in connection with Plumbers' Union. (Joint 56.1 ¶ 9; Compl. ¶ ¶ 3, 16-20). Nomura subsequently purchased three successive one-year policies from Federal for D& O liability insurance for the period from July 1, 2010, to July 1, 2013 (individually, a " Policy," and collectively, the " Policies" ). (Joint 56.1 ¶ 5). Nomura contends that it paid substantial premiums to Federal for the Policies, and that it purchased them to protect itself against liability to investors, including with respect to the Nomura Subs' former RMBS business. (Pl. 56.1 ¶ ¶ 16, 17).
Understanding the claims raised in the parties' cross-motions requires a basic understanding of the language of the Policies. By their terms, the Policies provide coverage for " Loss which the Organization becomes legally obligated to pay on account of any Securities Claim first made against the Organization during the Policy Period ... for a Wrongful Act committed, attempted, or allegedly committed or attempted by the Organization or the Insured Persons before or during the Policy Period, but only if such Securities Claim is reported to the Company in writing." (Pl. 56.1 ¶ 34). " Loss" means the amount the " Organization  becomes legally obligated to pay on account of any covered Claim." ( Id. at ¶ 27). " Claim" is defined in relevant part as " a civil proceeding commenced by the service of a complaint or similar pleading" against an Insured Person for a Wrongful Act (Steiner Decl. Ex. F), and " Securities Claim" is defined in relevant part as a Claim that " alleges that an Organization or any of its Insured Persons (i) violated a federal, state, local, or foreign securities law or a rule or regulation promulgated under any such securities law; or (ii) committed a Wrongful Act that constitutes or arises from a purchase, sale, or offer to purchase or sell securities of such Organization" (Pl. 56.1 ¶ 31). " Wrongful Acts" are defined in relevant part as " any error, misstatement, misleading statement, act, omission, neglect, or breach of duty committed, attempted, or allegedly committed or attempted." ( Id. at ¶ 33). Coverage under the Policies is triggered on a " claims-made" basis. ( Id. at ¶ 36). The Policies limit Nomura's liability to $5 million per Claim, and $5 million per Policy Period. ( Id. at ¶ 20).
Two provisions in the Policies have particular significance to the instant motions. First, a " manuscript endorsement"  to each of the Policies provided that no coverage would be available for any Claim against Nomura that was
based upon, arising from, or in consequence of any fact, circumstance, situation, transaction, event or matter described or cited below or the same or any substantially similar fact, circumstance, situation, transaction, event or matter:
Amended Complaint for Violation of Sections 11, 12(a)(2) and 15 of the Securities Act 1933 (USA), PLUMBERS' UNION LOCAL NO. 12 PENSION FUND, Individually and on behalf of All Others Similarly Situated vs. NOMURA ASSET ACCEPTANCE CORPORATION, et al., United States District Court for the District of Massachusetts, No. 08-10446-RGS.
(Pl. 56.1 ¶ 49) (the " Plumbers' Union Exclusion" ).
Second, Section 13(g) of each of the Policies provides that
All Related Claims shall be treated as a single Claim first made on the date the earliest of such Related Claims was first made ... regardless of whether such date is before or during the Policy Period.
Pl. 56.1 ¶ 44). " Related Claims" are defined as " all Claims for Wrongful Acts based upon, arising from, or in consequence of the same or related facts, circumstances, situations, transactions or events or the same or related series of facts, circumstances, situations, transactions or events." ( Id. at ¶ 30).
4. The Underlying Actions
The parties' dispute centers on whether the Policies provide coverage for five lawsuits filed between 2011 and 2012 (the " Underlying Actions" ). (Joint 56.1 ¶ 6). Those actions are, in order of filing date:
(i) Fed. Home Loan Bank of Boston v. Ally Financial, Inc., et al., No. 11-cv-10952 (GAO) (D. Mass, filed April 20, 2011) (the " FHLB-Boston Action" ). The FHLB-Boston Action alleges claims under Massachusetts state law, including the state securities law, against Nomura, NCCI, NAAC, and NSI, related to FHLB-Boston's purchases of certificates in four securitizations in 2006 and 2007. (Pl. 56.1 ¶ ¶ 66-70).
(ii) Nat'l Credit Union Admin. Bd., as Liquidating Agent of U.S. Central Fed. Credit Union v. RBS Securities, Inc., et al., No. 11-cv-2340 (JWL/JPO) (D. Kan., filed June 20, 2011) (the " NCUA Kansas-U.S. Central" action). The NCUA Kansas-U.S. Central Action alleges claims under the Securities Act and state securities laws against NHELI, related to U.S. Central Federal Credit Union's purchase of certificates in a 2007 securitization. (Pl. 56.1 ¶ ¶ 72-76).
(iii) Nat'l Credit Union Admin. Bd., as Liquidating Agent of Western Corp. Fed. Credit Union v. RBS Securities, Inc., et al., No. 11-cv-5887 (GW/JEM) (C.D. Cal., filed July 18, 2011) (the " NCUA California-WesCorp Action" ). The NCUA California-WesCorp Action alleges claims against NAAC and NHELI arising under the Securities Act, related to WesCorp's purchases of certificates in two securitizations in 2006 and 2007. (Pl. 56.1 ¶ ¶ 79-82).
(iv) Fed. Hous. Fin. Agency, as Conservator for the Fed. Nat'l Mortg. Ass'n and the Fed. Home Loan Mort. Co. v. Nomura Holding Amer., Inc., et al., No. 11-cv-6201 (DLC) (S.D.N.Y., filed Sept. 2, 2011) (the " FHFA Action" ). The FHFA Action alleges claims against Nomura, NCCI, NHELI, NAAC, NSI, and various Nomura D& Os, arising under the Securities Act, as well as pendent claims under Virginia and District of Columbia law, related to Fannie Mae's and Freddie Mac's purchases of certificates in seven securitizations between 2005 and 2007. (Pl. 56.1 ¶ ¶ 90-106).
(v) The Prudential Ins. Co. of Amer., et al. v. Nomura Secur. Int'l, Inc., et al., No. 12-cv-5597 (SDW/MCA) (D.N.J., filed Aug. 1, 2012) (the " Prudential Action" ). The Prudential Action alleges claims against NCCI, NHELI, and NSI arising under New Jersey State law, including the state securities
law, related to Prudential's purchases of certificates in five securitizations between 2006 and 2007. (Pl. ...