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November 2014: Favorable Settlement of Allstate RMBS Lawsuits

November 2014

In 2010 and 2011, Quinn Emanuel filed eight lawsuits for Allstate Insurance Company against Wall Street banks arising from Allstate’s losses on residential mortgage-backed securities (“RMBS”). Like other institutional investors, Allstate invested in RMBS based on representations from the banks about the quality of mortgage loans underlying the securities. Over time, it became publicly known that the loans were overvalued and misrepresented by the banks, which prompted a crash in the RMBS market and led to enormous losses for investors like Allstate. Like fellow clients Federal Housing Finance Agency (“FHFA”), American International Group, The Prudential Insurance Company of America, Massachusetts Mutual Life Insurance Company, and MBIA Insurance Company, Quinn Emanuel brought a suite of lawsuits for Allstate against the banks that sold RMBS to the company.

Allstate filed lawsuits against Countrywide, GMAC and Residential Funding, J.P. Morgan, Citigroup, Deutsche Bank, Merrill Lynch, Credit Suisse, and Goldman Sachs. In its complaints, Allstate alleged common-law fraud, negligent misrepresentation, and in several cases, violations of the Securities Act of 1933. The complaints drew on internal emails and reports disclosed in federal investigations; confidential witnesses; a forensic analysis of the securities that Quinn Emanuel developed; and other sources which demonstrated the extent of misrepresentation underlying the securities and defendants’ knowledge.

The Allstate cases were among the earliest RMBS fraud suits filed nationwide, and they were pioneering. We were able to quantify how many mortgage loans underlying each security misrepresented borrowers’ residence and the property values, without access to mortgage loan files, using a retrospective quantitative analysis that we developed. That loan-level analysis, coupled with detailed security-by-security allegations and extensive facts, helped Allstate to defeat every motion to dismiss in every case that reached a decision. The many favorable Allstate court decisions, in turn, created helpful precedent for RMBS lawsuits that followed.

All but two cases were filed in New York state court. Defendants removed the cases to the Southern District, arguing that they were related to pending bankruptcies of third parties that originated some of the underlying loans in each case. The firm successfully achieved remand to state court in all but one case. The case against GMAC and Residential Funding was pursued in bankruptcy court after most of the defendants filed for Chapter 11 protection. Quinn Emanuel represented Allstate, Prudential, AIG, and MassMutual as creditors in the bankruptcy proceeding, eventually settling those claims.

Beginning in 2013, Quinn Emanuel and Allstate have settled all eight of the Allstate cases with defendants on mutually-agreeable terms, recovering enormous value for the company.