In 2010 and 2011, Quinn Emanuel filed eight lawsuits for Allstate Insurance Company arising from Allstate’s losses on residential mortgage-backed securities (“RMBS”) sold by Wall Street banks. Five of the cases—against J.P. Morgan, Deutsche Bank, Citigroup, Goldman Sachs, and GMAC/Residential Funding—have been favorably resolved. Only three cases are pending, against Credit Suisse, Countrywide, and Merrill.
Allstate has defeated defendants’ motions to dismiss in five lawsuits, winning every motion that has reached a decision. Most recently, in a January 2014 decision, Justice Marcy Friedman of New York’s Supreme Court denied Credit Suisse’s motion to dismiss. Allstate purchased over $200 million in RMBS from Credit Suisse. Allstate alleges that Credit Suisse fraudulently misrepresented the quality and characteristics of the mortgage loans underlying the securities. The court rejected all of the defendants’ arguments, finding that Allstate’s claims were timely and that Allstate adequately pled misrepresentations, Credit Suisse’s knowledge, reasonable reliance, and causation.
Justice Friedman’s decision is consistent with the large body of law upholding RMBS investors’ fraud claims at the pleading stage. The court declined to hold that Allstate was on notice of its claims before February 2008. The defendants argued that disclosures in the offering materials negated Allstate’s misrepresentation claims, but the court held that the disclosures did not squarely address Allstate’s claims that the loan underwriting guidelines were abandoned and the statistics in the offering materials were false. The defendants also argued that certain representations were mere opinions, but Allstate adequately alleged that the defendants knew the “opinions” were false. The Court also found that Allstate sufficiently tied its allegations to the securities at issue, citing to a loan-level analysis that Allstate performed on the loans. Allstate also sufficiently pled reasonable reliance based on its allegations that it did not have access to the raw data about the loan collateral underlying the offering materials.
The case against Credit Suisse is now proceeding to full discovery. Allstate is seeking internal Credit Suisse documents that will prove its case, and will also “reunderwrite” a sample of the mortgage loans underlying its investments to show they were misrepresented.