You're viewing Docket Item 53 from the case Doral Bank Puerto Rico v. Washington Mutual Asset Acceptance Corporation et al. View the full docket and case details.

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UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF WASHINGTON

AT SEATTLE




v.

Plaintiffs,

DORAL BANK PUERTO RICO, et al.,





WAMU ASSET ACCEPTANCE CORP., et al.,





Defendants.


Case No. C09-1557MJP

ORDER ON MOTIONS FOR
APPOINTMENT AS LEAD
PLAINTIFF



The Honorable Marsha J. Pechman

This matter comes before the Court on motions from Plaintiff Doral Bank Puerto Rico

(“Doral”) and Plaintiff Greater Pennsylvania Carpenters Pension Fund (“GPCP”) for

appointment as lead plaintiff and approval of selection of counsel. (Dkt. Nos. 27, 29.) The

Court has reviewed the motions, the responses (Dkt. Nos. 42, 45), the replies (Dkt. Nos. 48, 49),

and the parties’ presentations to the Court at oral argument on March 18, 2010. For the reasons

set forth below, the Court GRANTS Doral’s motion for appointment as lead Plaintiff and

approves its selection of Cohen Milstein Sellers & Toll (“Cohen Milstein”) as lead counsel and

Tousley Brain Stephens PLLC (“Tousley”) as local counsel.

ORDER ON MOTIONS FOR APPOINTMENT AS LEAD
PLAINTIFF - 1









CASE NO. C09-1557MJP





Plaintiffs are purchasers of WaMu Mortgage Pass-Through Certificates, issued pursuant a

Background

Registration Statement filed by the WaMu Asset Acceptance Corporation with the SEC in March

2006. The Statement was supplemented on April 9, 2007 and plaintiffs purchased certificates in

13 public offerings between April 23, 2007 and June 26, 2007. Plaintiffs allege violations of the

Securities Act and violations of Washington State law. (See Dkt. No. 18.) As required by the

PSLRA, Doral published notice of this action on December 24, 2009. (Lometti Decl., Ex. A.)



Plaintiff Doral Bank purchased $421,753,412.00 in WaMu Pass-Through Certificates at

issue in the Complaint. (Lometti Decl., Ex. B (Schedule A).) Plaintiff GPCP, by contrast,

invested approximately $450,000.00 in certificates during the proposed class period.

(McDermott Decl., Ex. B (Schedule A).) GPCP submits that, despite the massive difference in

financial stake, Doral should not be appointed as lead plaintiff because it is subject to unique

factual defenses.



In essence, GPCP argues Doral has been embroiled in the same type of manipulation of

mortgage-backed securities at issue in this matter. First, GPCP points to allegations in leveled

against Doral in a securities suit. (Dkt. No. 45 at 7 citing No. 01-md-01706, Dkt. No. 55

(S.D.N.Y. June 22, 2006).) Doral’s former treasurer, Mario “Sammy” Levis, is set to stand trial

for criminal securities fraud for his role in disseminating false and misleading statements. (Dkt.

No. 45 at 7.) Second, GPCP argues Doral ought not to serve as lead plaintiff because several of

its employees have a history with WaMu. In particular, they point to Frank Baier, an executive

who left Doral for a month to serve as an advisor to WaMu’s CEO before returning to Doral’s

board. Doral points out that Baier’s 22 day stay at WaMu occurred more than a year after the

alleged fraud at issue in this case. GPCP also takes issue with Marangal Domingo, who worked

for WaMu and Countrywide before joining Doral as treasurer. (McDermott Decl., Ex. D.)

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ORDER ON MOTIONS FOR APPOINTMENT AS LEAD
PLAINTIFF - 2









CASE NO. C09-1557MJP



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Discussion

Under the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 77z-1, et seq.,

the Court must appoint the “most capable” plaintiff as lead plaintiff for a putative class. 15

U.S.C. § 78u-4(B)(i)-(iii) (also referring to the “most adequate” plaintiff). The “most capable”

plaintiff is presumptively the one “who has the greatest financial stake in the outcome of the

case” while also satisfying the requirements of Fed. R. Civ. P. 23. In re Cavanaugh, 306 F.3d

726, 729 (9th Cir. 2002); 15 U.S.C. §§ 78-4u(B)(iii)(I)(aa)-(cc). There is a three step process for

identifying the lead plaintiff under the PSLRA. First, the plaintiff who filed the action must

publish notice to alter other potential plaintiffs of the pendency of the action. Cavanaugh, 306

F.3d at 729. Second, the court must “compare the financial stakes of the various plaintiffs and

determine which one has the most to gain from the lawsuit.” Id. If the plaintiff with the largest

financial stake also satisfies the requirements of Rule 23(a), he is the presumptive most adequate

plaintiff. Id. at 730. At this stage, the court relies only on the complaint and plaintiff’s sworn

certification. Third, other plaintiffs must have the opportunity to rebut the presumptive

plaintiff’s “showing that it satisfies Rule 23’s typicality and adequacy requirements.” Id.; see

also 15 U.S.C. § 78u-4(B)(iii)(II). In making this determination, other plaintiffs may present

evidence that calls into question the presumptive plaintiff’s prima facie showing. The most

adequate plaintiff may, subject to Court approval, select lead class counsel. 15 U.S.C. § 78u-

4(B)(v).

GPCP confuses what the Court may consider at the second and third steps. GPCP

repeatedly asserts that Doral cannot be the presumptive Plaintiff because of the factual issues it

raises with respect to its prior involvement in mortgage fraud. (See Dkt. No. 48 at 5.) But as

the Ninth Circuit made clear in Cavanaugh, once the Court identifies the plaintiff who stands to

gain the most from the lawsuit, “[i]t must then focus its attention on that plaintiff and determine,

based on the information he has provided in his pleadings and declarations,” whether the plaintiff

ORDER ON MOTIONS FOR APPOINTMENT AS LEAD
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CASE NO. C09-1557MJP



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is appropriate under Rule 23(a). 306 F.3d at 730 (emphasis in original). On the face of its

certification, Doral has made a prima facie showing it is the most adequate plaintiff. Thus, the

question before the Court is whether GPCP has presented evidence that would rebut the

presumption.

Rule 23(a) requires (1) numerosity, (2) commonality, (3) typicality and (4) adequacy of

representation. Fed. R. Civ. P. 23(a). In the context of motions for appointment, parties

generally limit the inquiry to typicality and adequacy of representation. In analyzing typicality,

the Court focuses on the injury: a representative’s claim is typical if the “injury allegedly

suffered by the named plaintiffs and the rest of the class resulted from the same allegedly” illegal

practice. Dukes v. Wal-Mart, Inc., 509 F.3d 1168, 1184 (9th Cir. 2007). In examining a

representative’s adequacy, the Court’s focus necessarily shifts to the party asserting the claim.

The Court inquires whether (1) “named plaintiffs and their counsel have any conflicts of interests

with other class members” and (2) “named plaintiffs and their counsel [can] prosecute the action

vigorously on behalf of the class.” Hanlon v. Chrysler Corp., 150 F.3d 1011, 1020 (9th Cir.

1998).

Though GPCP asserts Doral is neither typical nor adequate, its argument focuses solely

on the adequacy requirement of Rule 23(a). (Dkt. No. 45 at 6.) GPCP relies primarily on two

cases, Surebeam and Bally Total Fitness, but neither is on point with the facts of this case. In

Bally Total Fitness, a court declined to appoint a lead plaintiff who sold the securities at issue in

a putative PSLRA class action before the fraud became public. In re Bally Total Fitness Sec.

Litig., No. 04-C-3530, 2005 U.S. Dist. LEXIS 6243, *19-20 (N.D. Ill. Mar. 15, 2005). Even

though the plaintiff had made the initial showing required by the PSLRA, the court was

concerned that it “is likely to be ‘subject to’ the unique defense regarding loss causation.” Id. at

*19 (citation omitted). Unlike the challenging plaintiffs in Bally, GPCP has not identified any

specific defense that may arise as a result of Doral’s prior alleged malfeasance. (Dkt. No. 49 at

ORDER ON MOTIONS FOR APPOINTMENT AS LEAD
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CASE NO. C09-1557MJP



12.) Despite an invitation by the Court to describe the specific defenses at issue, GPCP did not

identify any at oral argument. Simply asserting that Doral is a bad actor in the universe of

securities transactions is not enough to actually indicate any specific defense may apply. Unlike

the potential loss causation defense in Bally Total Fitness that went to an element of plaintiffs’

claims, there is no indication in the record Doral may be subject to a defense on any of the claims

advanced in the complaint.

In Surebeam, the court declined to appoint a lead plaintiff group that included an

executive who was, at that time, subject to “over sixty complaints to securities regulators

including misrepresentation, unauthorized trading in client accounts, and use of unsuitable

investments.” In re Surebeam Corp. Sec. Litig., No. 03-cv-1721, 2003 U.S. Dist LEXIS 25022,

at *21-22 (S.D. Cal. Jan. 5, 2004). The court reasoned that the allegations implicated the

individual’s ability to serve as a fiduciary. Id. (citations omitted). None of Doral’s purported

deficiencies rise to the level observed in Surebeam. First, the private securities lawsuit against

Doral arose out of alleged misstatements related to its recognition of interest paid on mortgages.

(Dkt. No. 45 at 7.) Such allegations are very different from those in this matter, which arise out

of supposed misstatements regarding underwriting guidelines in the creation of mortgage-backed

securities. (Dkt. No. 49 at 11.) Second, Mr. Levis’ indictment for fraud relates to activities at

Doral from 2002 to 2005, long before the alleged fraud at issue in this case. Third, Mr.

Domingo, who is no longer at Doral, worked at WaMu until 2004. His service thus ended two

years before the securities at issue were brought to market. Last, Mr. Baier joined WaMu from

Doral over a year after the alleged fraud in this case. GPCP has not identified any knowledge

Baier gained during his 22 days at WaMu that would implicate the company’s ability to serve as

a fiduciary. The facts of this case are distinguishable from Surebeam because GPCP cannot

point to any current investigation or concern that would give rise to any unique defense.

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ORDER ON MOTIONS FOR APPOINTMENT AS LEAD
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CASE NO. C09-1557MJP



In the absence of any specifically identified defense that may arise, Doral has fulfilled the

requirements of the PSLRA and Cavanaugh. GPCP has not put forth evidence that would call

into question Doral’s typicality or adequacy. The Court therefore appoints Doral as lead plaintiff

in this matter. Upon review of the firm resume submitted by Doral in support of Cohen Milstein,

the Court approves its selection of class counsel. (Lometti Decl., Ex. C.)

Conclusion

The Court GRANTS Doral’s motion for appointment as lead plaintiff and selection of

lead plaintiff’s counsel and local counsel. (Dkt. No. 27.) The Court DENIES the Greater

Pennsylvania Carpenters Pension Fund’s motion for appointment. (Dkt. No. 29.) As in the

Boilermakers Action (C09-0037MJP), Kim Stephens of Tousley Brain Stephens PLLC and John

Pernick of Bingham McCutchen LLP shall serve as liaison counsel for Plaintiffs and Defendants,

respectively. The Clerk shall transmit a copy of this Order to all counsel of record.

Dated this 24th day of March, 2010.





A

Marsha J. Pechman

United States District Judge
























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ORDER ON MOTIONS FOR APPOINTMENT AS LEAD
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CASE NO. C09-1557MJP