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National Credit Union Administration Board v. Rbs Securities Inc.

United States District Court, S.D. New York

June 15, 2015

NATIONAL CREDIT UNION ADMINISTRATION BOARD, as Liquidating Agent of Southwest Corporate Federal Credit Union and Members United Corporate Federal Credit Union, Plaintiff,
v.
RBS SECURITIES INC., f/k/a Greenwich Capital Markets, Inc., and RBS ACCEPTANCE INC., f/k/a Greenwich Capital Acceptance, Inc., Defendants.

David C. Fredrick, Wan J. Kim, Gregory G. Rapawy, and Andrew C. Shen KELLOGG, HUBER, HANSEN, TODD, EVANS & FIGEL, P.L.L.C., Washington, DC, for plaintiff.

George A. Zelcs, KOREIN TILLERY LLC, Chicago, IL, Stephen M. Tillery, Greg G. Gutzler, and Robert L. King, KOREIN TILLERY LLC, St. Louis, MO, David H. Wollmuth, Fredrick R. Kessler, Steven S. Fitzgerald, and Ryan A. Kane, WOLLMUTH MAHER & DEUTSCH LLP, New York, NY, Norman E. Siegel, and Rachel E. Schwartz, STUEVE SIEGEL HANSON LLP, Kansas City, MO, R. Alexander Pilmer, David I. Horowitz, Jay L. Bhimani, Kristin E. Rose, and Gavin C.P. Campbell, KIRKLAND & ELLIS LLP, Los Angeles, CA, for defendants.

OPINION & ORDER

DENISE COTE, District Judge.

On February 20, 2015, defendants RBS Securities Inc. and RBS Acceptance Inc. (collectively "RBS") moved pursuant to Fed.R.Civ.P. 12(c) to dismiss the claims brought under Section 12(G) of the Illinois Securities Law of 1953, 815 Ill. Comp. Stat. 5/12(G) ("Illinois Blue Sky Law"), by plaintiff National Credit Union Administration Board ("NCUA") for failure to plead the element of reliance. For the following reasons, the motion, which was fully submitted on March 13, is denied.

BACKGROUND

Before addressing the legal issues raised by the Rule 12(c) motion, the procedural context of the motion will be described. This is one of a set of coordinated actions brought by NCUA in this District, the District of Kansas, and the Central District of California, as liquidating agent of various credit unions, against various financial institutions involved in the packaging, marketing, and sale of residential mortgage backed securities that the credit unions purchased in the period from 2005 to 2007. See NCUA v. Morgan Stanley & Co. ("Morgan Stanley"), No. 13cv6705 (DLC), 2014 WL 1673351, at *1 & n.1 (S.D.N.Y. Apr. 28, 2014), reconsideration denied in part, No. 13cv6705 (DLC), 2014 WL 1909499 (S.D.N.Y. May 13, 2014). NCUA brings this particular action against RBS on behalf of Southwest Corporate Federal Credit Union ("Southwest") and Members United Corporate Federal Credit Union ("Members United"), alleging that the Offering Documents for the relevant securities contained misrepresentations regarding loan originators' compliance with underwriting guidelines and certain quantitative characteristics of the mortgage loan collateral backing the offerings.

The initial complaint, filed on September 23, 2013, asserted claims on behalf of both credit unions under Sections 11 and 12(a)(2) of the Securities Act of 1933, 15 U.S.C. §§ 77k-77l; on behalf of Southwest under the Texas Securities Act, Tex. Rev. Civ. Stat. art. 581, § 33 ("Texas Blue Sky Law"); and on behalf of Members United under the Illinois Blue Sky Law. The instant motion concerns only the claims brought under Section 12(G) of the Illinois Blue Sky Law.

NCUA's action against Morgan Stanley was designated as the lead case in this District, and defendants in the other actions were to await resolution of Morgan Stanley's motion to dismiss before filing their own. Morgan Stanley's motion to dismiss did not call for dismissal of NCUA's claims under Section 12(G) of the Illinois Blue Sky Law for failure to plead reliance.

A January 22, 2014 Opinion on Morgan Stanley's motion to dismiss dismissed NCUA's Securities Act claims as time-barred but permitted the Blue Sky Law claims to go forward. NCUA v. Morgan Stanley & Co., No. 13cv6705 (DLC), 2014 WL 241739 (S.D.N.Y. Jan. 22, 2014), reconsideration denied, No. 13cv6705 (DLC), 2014 WL 5017822 (S.D.N.Y. Sept. 30, 2014). A March 17, 2014 Stipulation and Order applied those rulings to the RBS action as well. Neither RBS nor any defendant in the other coordinated actions moved to dismiss NCUA's claims under Section 12(G) of the Illinois Blue Sky Law for failure to plead reliance.

NCUA was given until November 14, 2014 to amend its pleadings. Over a week before that deadline, NCUA provided RBS with a "redline version" of the amended complaint that it intended to file and asked that by November 12 RBS indicate the basis of any objections to the amendments so they could be discussed before November 14. In response to this request, RBS raised no objection to NCUA's Section 12(G) claims; nor did RBS move to dismiss NCUA's First Amended Complaint for failure to plead reliance before answering on December 15, 2014.

RBS filed the instant motion under Rule 12(c) on February 20, 2015, arguing for the first time that NCUA was required to plead reliance to support its Section 12(G) claims. No defendant in any of the other coordinated actions has made a similar argument.

DISCUSSION

I. Legal Standard

Pursuant to Fed.R.Civ.P. 12(c), "[a]fter the pleadings are closed - but early enough not to delay trial - a party may ...


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