Class Action

Countrywide Class Action Defense Cases–In re Countrywide: California Federal Court Grants In Part Motion To Dismiss Securities Fraud Class Action Claims And Holds SEC Rule 430B Not Retroactive

By Michael J. Hassen

Amended Securities Fraud Class Action Complaint Against Countrywide and Various other Defendants Largely Survives Motion to Dismiss because Allegations in Class Action Complaint Generally Satisfied Heightened Pleading Requirements of Private Securities Litigation Reform Act (PSLRA) and, as Matter of First Impression, SEC Rule 430B is not Retroactive California Federal Court Holds

Plaintiff filed a putative class action against Countrywide and certain individual defendants alleging violations of federal securities laws; the class action was one of “several related securities actions” in the district court involving Countrywide, underwriter defendants and outside directors. In re Countrywide Fin. Corp. Sec. Litig., ___ F.Supp.2d ___ (C.D.Cal. April 6, 2009) [Slip Opn., at 1-2]. Plaintiff’s class action was consolidated with several other class action lawsuits “involving publicly traded Countrywide securities.” Id., at 2. The district court appointed lead plaintiffs, and a consolidated amended class action complaint was filed, id. By prior court order, dated December 1, 2008, the amended class action complaint was dismissed in part, but the district court granted leave to amend and a second consolidated amended class action complaint was filed. Id. Defense attorneys for various defendants again moved to dismiss, id. The district court granted the motions in part, but largely denied the motions.

We do not discuss in detail the intensively detailed and fact-driven opinion. In broad terms, after summarizing recent Ninth Circuit authority, see In re Countrywide, at 3-5, and addressing certain evidentiary matters, see id., at 5-6, the district court turned to the merits, following the Ninth Circuit opinion in Glazer Capital Mgmt., LP v. Magistri, 549 F.3d 736 (9th Cir. 2008), which held that a securities fraud complaint must plead facts that constitute strong circumstantial evidence of scienter. The federal court summarily found that the accounting-related allegations against Countrywide, KPMG, and the Individual Defendants, as well as those against the Underwriters, in the second amended class action complaint were sufficient to satisfy the heightened pleading requirements of the Private Securities Litigation Reform Act (PSLRA). Id., at 6. However, the same could not be said for the insider trading-related allegations: the district dismissed these claims in the original class action complaint, with leave, because of the “weak support” of scienter; the second amended class action complaint “does nothing to alter the insider trading-based scienter analysis” in the prior order, so the federal court dismissed the Section 20A claims with prejudice (except for the claims against Mozilo that post-date October 26, 2006). Id., at 6-7.

Full post as published by Class Action Defense Blog on April 21, 2009 (boomark / email).