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Federal Home Loan Bank of Boston v. Ally Financial, Inc.

Superior Court of Massachusetts, Suffolk, Business Litigation Session

June 26, 2018


          File Date: June 28, 2018


          Mitchell H. Kaplan, Justice of the Superior Court

          Plaintiff, the Federal Home Loan Bank of Boston, has moved for reconsideration of an order entered by the United States District Court (USDC) for the District of Massachusetts, when this action was pending in that Court. That order dismissed the claims that plaintiff asserted under § 410(a)(2) of the Massachusetts Uniform Securities Act (MUSA) in Count I of its Amended Complaint against the following defendants: IMH Assets Corp., Impac Secured Assets Corp., and Nomura Asset Acceptance Corporation (collectively the "Depositor Defendants"). Sometime after this order entered, this case was remanded to this court. Thereafter, the parties stipulated that certain orders entered while the case was pending in the USDC should be adopted as orders of this court, including the order at issue in this motion for reconsideration. In support of its motion, the plaintiff now argues that there has been a change in the law that warrants reconsideration and reversal of the order. For the reasons that follow, the motion is DENIED.


         This litigation arises out of the plaintiff’s purchase of various mortgage-backed securities and was brought against various classes of defendants. These Depositor Defendants are alleged to have formed some of the mortgage pools that were securitized and sold to investors in the form of bonds or certificates (for simplicity "Bonds"), including the plaintiff. In the case of these Bonds, they were sold to underwriters (also defendants in this action), who then sold them to investors. As to the plaintiff, the Depositor Defendants were sellers to the underwriters who in turn sold the Bonds to the plaintiff-sometimes referred to as a remote seller or seller’s seller.

         In a decision dated September 30, 2013, the USDC (O’Toole, D.J.) considered motions to dismiss filed by a number of defendants with respect to a number of different kinds of claims (the Decision). As relevant to this motion for reconsideration, the USDC held that the complaint did not state a claim against the Depositor Defendants "under § 410(a)(2) because they did not offer or sell securities to the [plaintiff]." In reaching this conclusion, the USDC relied upon the seminal decision of the United States Supreme Court, Pinter v. Dahl, 486 U.S. 622 (1988) interpreting the cognate provisions of § 12(1) of the Securities Act of 1933 (the "1933 Act," on which MUSA is based) and Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1215 (1st Cir. 1996), which specifically applied the Pinter rationale to § 12(2) claims as follows: "Because the issuer in a firm commitment underwriting does not pass title to the securities, DEC and its officers cannot be held liable as ‘sellers’ under Section 12(2) unless they actively ‘solicited’ the plaintiffs’ purchase of securities to further their own financial motives, in the manner of a broker or vendor’s agent. See Pinter, 486 U.S. at 644-47. Absent such solicitation, DEC can be viewed as no more than a ‘seller’s seller, ’ whom plaintiffs would have no right to sue under Section 12(2)." Id. In the Decision, Judge O’Toole rejected the specific argument advanced in this motion for reconsideration "that [SEC Rule 159A][1] trumps the Supreme Court’s earlier Pinter decision under the Chevron doctrine," and concluded "because judicial precedent makes clear that the depositors are not sellers under the federal act, it is likely the same result would be reached by Massachusetts courts interpreting the state act."


          The change in law on which the plaintiff grounds its motion for reconsideration is based on an opinion issued by the Second Circuit Court of Appeals on September 28, 2017: FHFA v. Nomura Holding America, Inc., 873 F.3d 85 (2d Cir. 2017) (Nomura). In Nomura, the Court affirmed a decision of the District Court finding that, under SEC Rule 159A, depositors like the Depositor Defendants in this case were proper defendants under Section 12(a)(2) of the 1933 Act notwithstanding the Supreme Court’s decision in Pinter. Id. at 139. In other words, the Second Circuit rejected Judge O’Toole’s reasoning concerning the effect of Rule 159A on the holding in Pinter. Having given careful consideration to the parties’ memoranda and the arguments advanced during the hearing on this motion, the court concludes that Nomura is not sufficient basis on which to reconsider the dismissal of the claims asserted against the Depositor Defendants under § 410(a)(2) of the MUSA. First, the court does not find that Nomura necessarily expresses a tidal change in the relevant law. Second, this motion was not timely brought.

         As an initial matter, this court notes that the parties’ stipulation after remand, adopting the Decision as an order of this court does not preclude this court from reconsidering the order dismissing the § 410(a)(2) claims. Although, this court is in the unusual position of deciding how Nomura affects Judge O’Toole’s reasoning, as expressed in the Decision.

         Turning first to whether Nomura works a notable change in existing law, the USDC decision which the Second Circuit affirmed in Nomura was issued on June 19, 2012, more than a year before Judge O’Toole’s Decision. See FHFA v. Nomura Holding America, Inc., 858 F.Supp.2d 306 (S.D.N.Y. 2012). It was undoubtedly brought to Judge O’Toole’s attention; as was an unreported Massachusetts District Court decision which had a similar holding concerning the effect of SEC Rule 159A on this issue. See Capital Ventures International v. J.P. Morgan Mortgage Acquisition Corp., No. 12-10085-RWZ, 2013 WL 535320 (D.Mass. Feb. 13, 2013). Judge O’Toole, nonetheless, adopted the view of the majority of the courts that had considered this issue in finding that a seller’s seller was not liable under § 12 of the 1933 Act or § 410(a)(1) or (2) of MUSA, unless it had also actively participated in the sale of the securities. See cases cited in Depositor Defendants’ opposition, pp 14-16. The fact that Nomura affirmed the trial court’s position regarding the interplay between Pinter and Rule 159A does not constitute a notable change in the law.

         Moreover, in a March 2, 2018 USDC decision, also issued in the Southern District of New York, the District Court held that Nomura did not apply to claims asserted under those provisions of the Alabama Securities Act modeled on Section 410 of the Uniform Securities Act. See FDIC v. First Horizon Asset Secs. Inc., 291 F.Supp.3d 364, 375-76 (S.D.N.Y. 2018). The District Court reasoned that Nomura held that SEC Rule 159A must be applied to claims brought under the federal 1933 Act, notwithstanding Pinter, but state courts would still likely apply the United States Supreme Court’s reasoning in Pinter when interpreting their own state securities laws:

The Alabama legislature, on the other hand, has delegated no authority to the SEC to interpret or implement the Alabama Securities Act, and there is no reason to think that Alabama courts would apply the SEC’s view of the unity of issuers, depositors and statutory sellers under its rule, rather than Pinter’s pronouncement that "a buyer cannot recover against his seller’s seller." Pinter, 486 U.S. at 644, 108 S.Ct. at 2077.
The question facing this court, unlike the question facing the Second Circuit in Nomura, is one of ordinary statutory construction: are the depositor defendants sellers within the meaning of Section 8-6-19(a)(2) of the Alabama Securities Act? In answering that question, the Supreme Court’s holding in Pinter that to be a seller requires a privity-like relationship with the plaintiff, Id. at 642, is one that courts in Alabama look to.
See, e.g., Ryder Int’l Corp. v. First Am. Nat’l Bank,943 F.2d 1521, 1522 n.1 & 1524 (11th Cir. 1991) (using Pinter’s statutory seller test to interpret both Section 12(2) of the 1933 Act and ...

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