Dismissal Motion Granted in Downey Financial Subprime Securities Suit

Dismissal Motion Granted in Downey Financial Subprime Securities Suit - 3/23/2009

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2009 News and Press Releases

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News	News 2009
HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

DISMISSAL NEWS:

Dismissal Motion Granted in Downey Financial Subprime Securities Suit
Kevin LaCroix

The D & O Diary. March 23, 2009
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EXCERPT: On March 18, 2009, Judge John F. Walter of the Southern District of California granted the defendants' motion to dismiss, with leave to amend, in the subprime-related securities lawsuit involving certain former directors and officers of Downey Financial Corp. […] In the amended complaint, the plaintiff alleged certain specific misrepresentations as to each of the three defendants, as well as other misrepresentation not attributed to any one defendant. On November 21, 2008, the FDIC took control of Downey and sold its assets to another institution (about which refer here). The March 18 Order The defendants moved to dismiss the plaintiffs complaint. Judge Walker summarized the plaintiff's amended complaint (and perhaps tipped his hand about how he felt about plaintiff's allegations) when he observed that "in short, Plaintiff alleges that the decline in Downey's shareholder value resulted from alleged misrepresentations made to the investing public by Downey's current and former officers and/or directors, and not from the current economic climate." Judge Walker granted the motion on each of the grounds urged by the defendants: he found as follows: first, that the plaintiff failed to plead that the individual defendants made a material misrepresentation or omission; second, that the plaintiff failed to plead scienter adequately; and third, that plaintiff had failed to plead loss causation adequately. With respect to the individual defendants' own alleged misrepresentations, Judge Walter found that "there is not a single actionable misrepresentation or omission in the 161 pages of the [amended complaint] attributed to the Individual Defendants." The specific statements on which plaintiffs sought to rely were "far too vague to be actionable." He also found that "the general allegations against Downey cannot be attributed to the Individual Defendants under the group pleading doctrine, because as this Court previously held, the group pleading doctrine did not survive the PSLRA."

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