More Subprime-Related Dismissal Motion Rulings

More Subprime-Related Dismissal Motion Rulings - 8/19/2009

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

DISMISSAL NEWS:

More Subprime-Related Dismissal Motion Rulings
Kevin LaCroix

The D & O Diary. August 19, 2009
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EXCERPT: Two recent dismissal motion rulings in cases arising out of the subprime and credit crisis litigation wave involve two companies from outside the original core of the subprime lending sector – student lender First Marblehead and residential home builder Levitt Corporation. When these cases were filed early in 2008, I cited each of them as examples of how the subprime litigation wave was expanding to encompass a broader range of companies. Both of the recent opinions in these two cases are quite detailed and allegation-specific, but in many respects they point in divergent directions. The First Marblehead decision is a sweeping defense victory, but the Levitt Corp. opinion, while a split decision, is generally more favorable to the plaintiff in that case. […] Judge Tauro found that the plaintiffs had not sufficiently pled misrepresentation, because, he concluded, "First Marblehead disclosed what the Complaint alleges it concealed" with respect to the company’s supposedly changed lending criteria and loan standards; default rates; relationship with its insurer affiliate; and changes in the various factors that could undermine its financial projections. Because he found that the company had disclosed what the plaintiffs alleged was withheld, Judge Tauro also found that the plaintiffs had failed to plead sufficient facts to give rise to a strong inference of scienter. He also found that the complaint’s insider trading allegations were not sufficient to establish a strong inference of scienter, because the individual defendants who traded were not alleged to have particularized knowledge of the alleged fraudulent scheme, and because one individual’s trades were distant in time from the alleged corrective disclosure while the other individual’s trades were pursuant to trading plans whose existence had been publicly disclosed.

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