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In a ruling issued on January 18, 2011, the U.S. District Court for the Southern District of New York denied class certification in a mortgage-backed securities action in which the defendants, affiliates of the Royal Bank of Scotland, are represented by Simpson Thacher. The lawsuit asserts claims under sections 11, 12 and 15 of the Securities Act of 1933, for alleged misstatements and omissions about residential mortgage loan origination practices in the offering documents for securities backed by those mortgage loans. Plaintiffs sought certification of a class comprising investors who purchased $3.4 billion worth of securities in two offerings. The court denied class certification on two grounds. First, the Court held that individual questions predominate regarding each investor’s knowledge of the underwriting guidelines and practices that were allegedly misstated in the offering documents. The Court noted that different investors’ knowledge depended on factors including their respective levels of sophistication and the time that they made their purchases of the securities. Second, the Court held that class action treatment would not be a superior method for resolving investors’ claims, where the proposed class consisted of large, institutional and sophisticated investors who could pursue their own claims, and where those class members are likely to have competing interests in prosecuting the action. To our knowledge, this is the first ruling on class certification among the numerous mortgage-backed securities actions pending in various courts across the country.

The case is New Jersey Carpenters Vacation Fund, et al. v. The Royal Bank of Scotland Group, Plc, et al. The Simpson Thacher team comprises Tom Rice, Alan Turner, Jason Meltzer, Sara Ricciardi, Alyssa Watzman, John Robinson, Abigail Williams, Sabrina Lee and Jonathan Menitove, and paralegals Maria Gonzalez and Jennifer Ross. Bruce Angiolillo argued the class certification motion before the Court.