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Federal Home Loan Bank of v. Countrywide Financial

March 29, 2013


(San Francisco County Super. Ct. No. CGC10505133) Superior Court of the County of San Francisco, No. CGC-10-505133, Richard A. Kramer, Judge.

The opinion of the court was delivered by: Jones, P.J.


The trial court concluded res judicata barred Federal Home Loan Bank of San Francisco's (the Bank) claim against Countrywide Financial Corporation (Countrywide Financial) and sustained Countrywide Financial's demurrer to the first amended complaint without leave to amend.

The Bank appeals. It contends the court erred by concluding res judicata barred its claim against Countrywide Financial because "[t]here was no final judgment on the merits in a prior action that could have given rise to res judicata in this action." We disagree and affirm. We conclude the doctrine of res judicata bars the Bank's claim against Countrywide Financial because: (1) the Bank's voluntary dismissal of its claim against Countrywide Financial in the prior action was a final judgment on the merits; and (2) the claim the Bank dismissed in a prior lawsuit is the same cause of action as the claim it asserts against Countrywide Financial in the current lawsuit. Having voluntarily dismissed with prejudice claims of control person wrongdoing against one of multiple defendants for its own strategic reasons, the Bank may not avoid the res judicata consequences of its decision and sue the dismissed defendant anew, again alleging control-person liability, in reliance on the pendency of these same claims against the remaining actors in the first action.


We accept as true the following allegations in the Bank's amended complaint for the purpose of reviewing the order sustaining Countrywide Financial's demurrer:

In a process called securitization, an entity "originate[s]" mortgage loans or acquires those loans and aggregates them into a "collateral pool" or loan pool for sale to a financial institution called a "depositor."*fn1 The depositor sells the loans to a trust, which then issues certificates that investors -- like the Bank -- can purchase. At some point before May 2010, the Bank purchased 95 residential mortgage-backed securities from various securities dealers "in 78 securitization trusts backed by residential mortgage loans" at a cost of over $13.5 billion dollars. The Bank purchased certificates in five securitizations from Countrywide Securities Corporation (Countrywide Securities). CWALT, Inc. (CWALT) issued the certificates in four securitizations. Countrywide Securities apparently issued the certificates in the fifth securitization.*fn2

The Credit Suisse and Declaratory Relief Actions

In May 2010, the Bank sued eight securities dealers which offered and sold the 95 residential mortgage-backed securities, as well as the entities which issued the certificates or controlled one of the entities that issued the certificates (Credit Suisse or the Credit Suisse action).*fn3 The crux of the Bank's claims was defendants made untrue or misleading statements in offering documents issued in connection with the residential mortgage-backed securities the Bank purchased.

Among the defendants in Credit Suisse were Countrywide Securities Corporation, CWALT, and Countrywide Financial. As relevant here, the Bank alleged: (1) Countrywide Securities made untrue or misleading statements in the sale of securities in violation of Corporations Code sections 25401 and 25501 with respect to securitizations 74 through 78;*fn4 (2) Countrywide Securities and CWALT made untrue or misleading statements in violation of sections 11 and 12 of the Securities Act of 1933 (sections 11 & 12) with respect to securitizations 75 through 78; and (3) Countrywide Financial violated section 15 of the Securities Act (Section 15) based on its control of CWALT. In its Section 15 claim against Countrywide Financial, the Bank alleged "CWALT existed for no purpose than to receive and deposit loans into the trusts. Under Section 15 . . . Countrywide . . . therefore is liable to the Bank jointly and severally with, and to the same extent as, CWALT."

In November 2010, the Bank filed the complaint in the action before us seeking declaratory relief against Bank of America Corporation (declaratory relief action). The Bank sought a declaration that Bank of America Corporation -- which had purchased Countrywide's assets -- was liable for any damages Countrywide was required to pay in the Credit Suisse action.

In August 2011, and following an adverse tentative ruling on a demurrer, the Bank dismissed with prejudice its Securities Act claims in the Credit Suisse action, including its Section 15 claim against Countrywide Financial. The Bank did so to avoid affirmatively pleading the circumstances surrounding its discovery of facts giving rise to its claims as required by the Securities Act. Two months later, in October 2011, the Bank amended the subject declaratory relief complaint to add Countrywide Financial as a defendant. The operative first amended complaint in the declaratory relief action alleged a single claim against Countrywide Financial as a "control person" under section 25504. Specifically, the Bank alleged "[i]n doing the acts alleged in the sale to the Bank of the seven certificates in securitizations 74 through 78 described in the [Credit Suisse] [a]ction, Countrywide Securities violated [s]sections 25401 and 25501 . . . by offering or selling securities . . . that included untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading." The Bank further alleged Countrywide Financial "controlled Countrywide Securities directly or indirectly within the meaning of section 25504" and was "therefore jointly and severally liable with and to the same extent as Countrywide Securities for Countrywide Securities' violation of [s]sections 25401 and 25501. . . ." The amended complaint attached a copy of the operative Credit Suisse complaint, incorporated it by reference, and alleged "[t]he control person liability claims asserted against [Countrywide Financial] arise out of the same facts alleged in [Credit Suisse], and [the Bank] seeks the same remedy that it sought in the [Credit Suisse] [a]ction, that is, rescission and recovery of the consideration paid for the seven certificates."

Countrywide Financial's Demurrer to the Amended Declaratory Relief Complaint

Countrywide Financial demurred to the operative amended declaratory relief complaint, contending res judicata barred the Bank's section 25504 claim because the Bank was "impermissibly seeking to relitigate a cause of action that was dismissed with prejudice in a prior action involving the same parties." Specifically, Countrywide Financial argued the Bank's section 25504 claim was "the same cause of action as its Section 15 claim" under the 'primary rights' theory." According to Countrywide Financial, the Bank sought to hold it liable in the Credit Suisse action "as a control person for alleged misrepresentations in [residential mortgage-backed securities] offering documents" and in the declaratory relief action, the Bank "seeks to hold [Countrywide Financial] liable as a control person for the same alleged misrepresentations in the same . . . offering documents." Countrywide Financial conceded the legal theories in the two cases were different, but contended the Bank "alleged a ...

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