Goldman to SCOTUS: Save Wall Street

November 6th, 2012
in econ_news, syndication

Econintersect:  The Goldman Sachs' argument to the Supreme Court of the United States (SCOTUS) is that of a victim being subjected to the claims of a bank-robbing-patronsSMALLparty with no standing to make a claim.  Goldman (NYSE:GS) has filed an appeal with the SCOTUS requesting the reversal of a decision by the 2nd U.S. Circuit Court of Appeals in New York which ruled in favor of the NECA-IBEW Health & Welfare Fund.  The fund, which owned some mortgage-backed certificates underwritten by Goldman, sued on behalf of investors in certificates backed by mortgages from the same lenders, but which the fund did not own itself.

Follow up:

The New York ruling appears to conflict with a judgment of the 1st U.S. Circuit Court of Appeals in Boston.  In that case the court found that claims against Nomura Asset Acceptance Corp could not be pursued on behalf of a class that primary plaintiff could not bring by itself.  Such conflicting decisions from two or more circuits make it more likely that the SCOTUS will hear the case.

Reuters summarized the Goldman appeal:

The stakes are "difficult to overstate," according to an October 26 brief by Theodore Olson, a partner at Gibson, Dunn & Crutcher and former U.S. solicitor general, who represents Goldman.

"In the context of mortgage-backed securities litigation in which this case arises, the decision will effectively increase by tens of billions of dollars the potential liability that financial institutions face in this and similar class actions," he wrote. "Moreover, the new standard threatens to expand the scope of class actions in many other areas of the law."

The ruling being appealed was made on the basis that it was a class action for 7 certificates made under a single offering containing securities backed by loans made by GreenPoint Mortgage Funding (later part of Capital One Financial Corp) and Wells Fargo & Co.   The Goldman appeal says the ruling should not be upheld because the NECA-IBEW Fund only bought two of the certificates and therefore cannot be part of a class action that covers the other five.

Goldman's appeal is U.S. Supreme Court, No. 12-528 - Goldman Sachs & Co et al v. NECA-IBEW Health & Welfare Fund et al.

The case that was decided in the 1st Circuit that appears to differ from the Goldman case was Case Number 09-2596 - Nomura Asset Acceptance Corporation et al v. Plumbers' Union Local No. 12 Pension Fund, Individually and On Behalf of All Others Similarly Situated, Plumbers' and Pipefitters' Welfare Educational Fund and NECA-IBEW Health & Welfare Fund.  The opinion denying the class action against Nomura was rendered January 21, 2011 by Michael Boudin, Appellate Judge; Jeffrey R. Howard, Appellate Judge and Paul J. Barbadoro, U.S. District Judge.

What is critical about this case is that the large banks who are and would be defendants is such cases will face much less potential liability if multiple buyers of narrowly defined classes of securities are not able to band together in class actions.  Thousands of potential plaintiffs with resources much less than the largest banks do not have the resources individually to file complaints on their own.

Editor's note: If class actions of the type discussed here are not supported it will be a result worth many billions to the banks.  The message would be:  If you want to deceive, mislead and take money under false pretenses make sure you do it for individuals much smaller than you are so they will not have the resources sufficient to take you to court.


John Lounsbury


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