The opinion of the court was delivered by: Hon. Mariana R. Pfaelzer United States District Judge
Order Re Motions to Dismiss
Countrywide Financial Corporation, Countrywide Securities Corporation, Countrywide Capital Markets, LLC, CWALT, Inc., CWMBS, Inc. ("Countrywide,") and Bank of America Corporation and UBS Securities LLC (collectively, the "Defendants,") move to dismiss the amended complaint ("AC") filed by the Federal Deposit Insurance Corporation as receiver for United Western Bank ("Plaintiff"). This Court has previously ruled on the motion to dismiss the initial complaint, ECF No. 91 (June 15, 2012,) and assumes knowledge of the facts and posture of the case.
The only remaining direct legal claim brought by the Plaintiffs is for violation of Section 11-51-501(1)(b) of the Colorado Securities Act ("CSA").*fn1
That section forbids "any person" from making an "untrue statement of a material fact" "in connection with the offer, sale, or purchase of any security." Colo. Rev. Stat. § 11-51-501(1)(b) ("Section 501(1)(b)"). Countrywide moves to dismiss the amended complaint on two grounds. First, they argue that the claim is time-barred under the statute of limitations of the CSA. Second, they argue that the amended complaint fails to state a claim, since it does not plead an actionable misrepresentation and fails to include allegations of either reliance or loss causation, which is an element of the CSA. Bank of America Corporation ("Bank of America") moves separately to dismiss the successor liability claims.
The Court denies the motion to dismiss filed by Countrywide and UBS Securities LLC except as to alleged misstatements of owner-occupancy data and additional liens. The Court grants Bank of America's motion.
II.Countrywide's Motion to Dismiss is Denied Except as to Allegations of Misstatements Regarding Owner-Occupancy and Undisclosed Liens Countrywide asserts that the Plaintiff's amended complaint was untimely and fails to state a claim. Colorado has a three-year statute of limitations for Section 501(1)(b) claims, beginning when the plaintiff discovers or should have discovered a misstatement. Colo. Rev. Stat. § 11-51-604(8) ("No person may sue under [Section 501(1)(b)] more than three years after the discovery of the facts giving rise to a cause of action . . . or after such discovery should have been made by the exercise of reasonable diligence."). Countrywide argues that United Western Bank should have discovered any alleged misstatements before April 23, 2007, three years before Plaintiff filed its original complaint in this case in state court. If the claim is timely, Countrywide argues that the amended complaint does not include specific allegations regarding misstatements by Defendants, and omits elements necessary to state a claim under the Colorado Securities Act.
For purposes of the motion presently before the Court, Plaintiff's claim must be considered timely. This Court has repeatedly stated that reasonable investors cannot, as a matter of law, be held to have discovered misstatements until after August 31, 2007. Allstate Ins. Co. v. Countrywide Fin. Corp., 824 F. Supp. 2d 1164, 1182--83 (C.D. Cal. 2011) (refusing to dismiss when Defendants propose December 27, 2007 as date of alleged discovery); Mass. Mut. Life Ins. Co. v. Countrywide Fin. Corp., No. 11-CV-10414-MRP ("Mass. Mutual I,") 2012 WL 1322884, at **3--4 (C.D. Cal. Apr. 16, 2012) (refusing to dismiss on date of August 31, 2007); Fed. Hous. Fin. Agency v. Countrywide Fin. Corp., No. 2:12-CV-01059-MRP, 2012 WL 5275327, at *10 n.11 (C.D. Cal. Oct. 18, 2012) (same with date of September 6, 2007). While the amended complaint relies heavily on an automated valuation model ("AVM,") which uses data that could theoretically have been available as early as April 2007, the Court cannot hold as a matter of law, without further facts, that such data would have led a reasonable investor both to recognize the misstatements and to link those to the possibility that the securities purchased by United Western Bank would suffer losses. Mass. Mutual I, 2012 WL 1322884, at *4. Many of the relevant details of the "Countrywide saga" became available "between December 27, 2007 and February 14, 2008." Allstate, 824 F. Supp. 2d at 1183; Mass. Mutual I, 2012 WL 1322884, at *4 ("2007 was a turbulent time during which the causes, consequences, and interrelated natures of the housing downturn and subprime crisis were still being worked out.")
Countrywide also moves to dismiss on grounds the Court has already
considered regarding the adequacy of the amended complaint.*fn2
The amended complaint plausibly states that loan-to-value
ratios were inflated. The AVM used by the Plaintiff is not simply an
opinion, the appraisals made in the "Offering Documents"*fn3
were actionable statements and Countrywide's mathematical
arguments regarding margins of error are seriously flawed. Bank
v. Countrywide Fin. Corp., No. 12-CV-4316, slip op. at 12--14 (C.D.
Cal. Dec. 21, 2012). The allegation that Countrywide misstated its
underwriting standards in the Offering Documents is also plausible.
Id. at 15. The owner-occupancy allegations do not plead a
misstatement, since the Offering Documents revealed that
owner-occupancy data was self-reported by borrowers. Id. at
Countrywide finally argues that the amended complaint does not include allegations of reliance or causation, either of which is necessary to plead a claim for violation of the CSA. The amended complaint does not include either element.
At best, Plaintiff includes mere labels and facts that do not support the inference that they actually relied upon the Offering Documents. See AC ¶ 35 ("reasonable investor considers LTV critical to the decision whether to purchase a certificate in a securitization of mortgage loans"); ¶ 91 ("ratings were important to the decision of any reasonable investor whether to purchase the certificates. Many investors, including UWB, have investment policies that require a certain minimum rating for all investments. The investment policy of UWB was to purchase only certificates that were rated at least double-A.").
However, the Court believes that neither reliance or causation is an element of Section 501(1)(b). The Colorado Supreme Court looks first "to the plain language of the controlling statutes under our law" when interpreting the CSA. Rosenthal v. Dean Witter Reynolds, Inc., 908 P.2d 1095, 1100 (Colo. 1995). In full, Section 501(1)(b) forbids any person in connection with the sale of a security from making "any untrue statement of a material fact or [omission of] a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading." The private right of action for enforcing Section 501(1)(b) grants the person who bought a security the right to sue "[a]ny person who sells a security in violation of section ...