Case 1:09-md LAK-GWG Document 1025 Filed 11/05/12 Page 1 of 5 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

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1 Case 1:09-md LAK-GWG Document 1025 Filed 11/05/12 Page 1 of 5 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK In re: LEHMAN BROTHERS SECURITIES AND ERISA LITIGATION, This Document Applies To: No. 09-MD-2017 (LAK) Stichting Pensioenfonds ABP v. Merrill Lynch & Co., Inc., et al., No. 10 Civ (LAK) PLAINTIFF S MEMORANDUM IN RESPONSE TO ORDER TO SHOW CAUSE GRANT & EISENHOFER P.A. Jay W. Eisenhofer, Esq. Geoffrey C. Jarvis, Esq. Deborah A. Elman, Esq. David M. Haendler, Esq. Robert D. Gerson, Esq. 485 Lexington Avenue, 29 th Floor New York, New York Telephone: (646) Facsimile: (646) Attorneys for Plaintiff Stichting Pensioenfonds ABP

2 Case 1:09-md LAK-GWG Document 1025 Filed 11/05/12 Page 2 of 5 Plaintiff Stichting Pensioenfonds ABP ( ABP ) respectfully submits this memorandum in response to this Court s Order to Show Cause, entered October 15, 2012 (Pretrial Order No. 38). On October 15, 2012, this Court entered an Order upholding in part and dismissing in part certain actions (the Lehman Actions ) brought by purchasers of debt and equity certificates issued by Lehman Brothers Holdings Inc. ( Lehman ). ABP s claims, however, do not involve Lehman debt or equity securities. Instead, they concern fraud and negligence in the issuance and sale of residential mortgage-backed securities ( RMBS ) by affiliates of Merrill Lynch & Co., Inc. and RBS Holdings USA Inc. ABP s Lehman-related RMBS claims were settled almost a year ago and, in any case, were readily distinguishable from the claims involved in the Lehman Actions. ABP s remaining action involves different defendants, different securities, different alleged misrepresentations, different legal theories, different defenses, and different proof of wrongdoing than the Lehman Actions. Accordingly, the facts and analysis involved in this Court s October 15, 2012 Order governing the Lehman Actions are inapplicable to ABP s case. PROCEDURAL BACKGROUND On August 19, 2010, Plaintiff ABP filed its Complaint in the Supreme Court of the State of New York, New York County, asserting causes of action for violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, and negligent misrepresentation under New York state law. Specifically, ABP alleges that it purchased RMBS in reliance on false and misleading offering documents that misrepresented the quality of the underlying mortgage collateral and the standards by which the securities had been assembled Fifteen of the thirty RMBS at issue were issued and sold by Lehman affiliates, and some officers and directors of a Lehman affiliate that participated in these securitizations were named as Defendants (the ABP Lehman 1 All references in the form of are to Plaintiff s Amended Complaint, dated October 7,

3 Case 1:09-md LAK-GWG Document 1025 Filed 11/05/12 Page 3 of 5 Defendants ) due to their roles in signing and authorizing Registration Statements containing material misstatements and omissions , 61, 64. On September 7, 2010, the ABP Lehman Defendants filed a Notice of Removal, seeking to have the claims against them removed to federal court on the grounds that they were related to the Lehman bankruptcy. These Defendants asserted that the claims against them implicated indemnification agreements with and insurance coverage of bankrupt Lehman affiliates. In October 2010, the remaining defendants (the Merrill and Greenwich Defendants ) filed joinders to the ABP Lehman Defendants Notice of Removal seeking to have the claims against them removed to federal court as well, on the theory that some of the third-party originators of mortgage loans underlying some of the RMBS purchased by ABP have entered bankruptcy. On October 7, 2011, ABP filed an Amended Complaint adding claims for violations of Section 10(b) of the Exchange Act and Rule 10b-5, violations of Section 20(a) of the Exchange Act, common-law fraud, fraudulent inducement, and aiding and abetting fraud. On November 8, 2011, ABP and the ABP Lehman Defendants executed a Settlement Agreement and Mutual Release. On December 22, 2012, the ABP Lehman Defendants filed a Motion for Entry of Bar and Judgment Reduction Order, which this Court granted on January 31, 2012 (attached hereto as Exhibit A). On January 6, 2012, the Merrill and Greenwich Defendants moved to dismiss Plaintiff s Complaint. The motions to dismiss filed by the Merrill and Greenwich Defendants have been fully briefed and are awaiting a decision by this Court. 2

4 Case 1:09-md LAK-GWG Document 1025 Filed 11/05/12 Page 4 of 5 ARGUMENT Plaintiffs in the Lehman Actions contended that Lehman s offering documents with respect to Lehman debt and equity securities were false and misleading due to alleged misstatements regarding Lehman s (1) risk management policies, (2) liquidity risk, (3) use of Repo 105 transactions, (4) valuations of its commercial real estate holdings, and (5) concentrations of credit risk. None of these matters are or ever have been at issue in ABP s action. First, ABP settled all of its claims against the ABP Lehman Defendants some time ago. Thus, the Court s findings with respect to Lehman are wholly inapposite to the remaining portions of ABP s case. The details of Lehman s financial reporting are completely irrelevant to the RMBS transactions between ABP and the Merrill and Greenwich Defendants. Second, examining the legal matters that are actually in dispute in ABP s action (i.e., those that the Merrill and Greenwich Defendants have raised in their motions to dismiss), it is clear that the Court s October 15, 2012 Order did not resolve this case. Instead of looking to the issuer s financial reporting and business operations the matters at the heart of the Lehman Actions the most critical disclosures to RMBS investors were the RMBS offering documents that described the pooled mortgage loans and the standards by which those loans had been issued. 2 The primary questions that this Court must answer in order to decide the pending motions to dismiss are: a) Whether ABP has adequately alleged that the RMBS offering documents at issue contained material misrepresentations or omissions regarding underwriting guidelines, quality control procedures, or owner-occupancy statistics; 2 While SEC-mandated financial reports may be relevant to determining matters such as the relationships between different entities, see, e.g., 374, they are not typically documents that an RMBS investor would review at the time of its investment. 3

5 Case 1:09-md LAK-GWG Document 1025 Filed 11/05/12 Page 5 of 5 b) Whether the Merrill and Greenwich Defendants statements regarding appraisals, loan-to-value ratios, credit ratings, and credit enhancements were mere statements of opinion; c) Whether ABP has sufficiently alleged conscious misbehavior and/or recklessness on the part of the Merrill and Greenwich Defendants; d) Whether ABP has adequately alleged that it relied on the RMBS offering documents; e) Whether ABP has adequately alleged loss causation; and f) Whether the tolling doctrine announced in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974) applies to ABP s Securities Act claims. The Court s October 15, 2012 Order regarding the Lehman Actions did not answer any of these questions, and as such, ABP respectfully submits that that Order does not provide a basis to dismiss any of ABP s claims. ABP takes no position on an order lifting the stay of discovery and holding a conference to fix a discovery schedule and plan. DATED: November 5, 2012 GRANT & EISENHOFER P.A. /s/ Geoffrey C. Jarvis Jay W. Eisenhofer Geoffrey C. Jarvis Deborah A. Elman David M. Haendler Robert D. Gerson 485 Lexington Ave., 29th Floor New York, NY Tel: (646) Fax: (646) Counsel for Plaintiff Stichting Pensioenfonds ABP 4

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7 Case Case 1:09-md LAK-GWG 1:10-cv LAK Document Filed 01/31/12 Filed 11/05/12 Page Page 1 of 12 of 2 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK x In re: LEHMAN BROTHERS SECURITIES AND ERISA LITIGATION This document applies to: 09 MD 2017 (LAK) Stich tung Pensioenfonds ABP v. Merrill Lynch & Co. 10 Civ (LAK) x PRETRIAL ORDER NO. 27 (Bar and Judgment Reduction Order) LEWIS A. KAPLAN, District Judge. On December 22, 2011, Lana Franks Harber and other defendants moved for the entry ofa proposed bar and judgment reduction order. The motion [10 Civ Dr. 44], which is unopposed, is granted. Counsel shall submit a proposed order, properly captioned in accordance with Pretrial Order No.1, in the manner set forth in Section 18.1 ofthe Court's Electronic Case Filing Rules & Instructions. SO ORDERED. Dated: January 31,2012 L w' Ian United States District Judge

8 Case 1:09-md LAK-GWG Document Filed 11/05/12 Page 1 of 1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK In re: LEHMAN BROTHERS SECURITIES AND ERISA LITIGATION This Document Applies To: No. 09-MD-2017 (LAK) Stichting Pensioenfonds ABP v. Merrill Lynch & Co., Inc., et al., No. 10 Civ (LAK) CERTIFICATE OF SERVICE I, Geoffrey C. Jarvis, Esq., an attorney admitted to practice in the State of New York and a Director with the firm of Grant & Eisenhofer, P.A., hereby certify that: On the 5 th day of November, 2012, I have caused service of the Plaintiff s Memorandum in Response to Order to Show Cause to be made by electronic filing with the Clerk of the Court using the CM/ECF System, which will send a Notice of Electronic Filing to all parties with an e- mail address of record, who have appeared and consent to electronic service in this action. Dated: New York, New York Nov. 5, 2012 /s/ Geoffrey C. Jarvis Geoffrey C. Jarvis