On April 30, 2012, the United States Court of Appeals for the Second Circuit affirmed the denial of class certification to holders of more than $3.5 billion of residential mortgage-backed securities (“RMBS”) that asserted claims under Sections 11, 12 and 15 of the federal Securities Act of 1933 against Simpson Thacher client The Royal Bank of Scotland Group and related entities (“RBS”).  The action alleges that RBS as sponsor, issuer and underwriter of certain RMBS, made material misstatements and omissions in the RMBS offering documents concerning the underwriting standards mortgage lenders applied to the loans backing the RMBS at issue.  Judge Harold  Baer, Jr. of the United States District Court for the Southern District of New York denied class certification, finding that the class was comprised of large, sophisticated investors that had their own contacts and knowledge of mortgage origination practices, so that individual issues related to each investor’s knowledge of the alleged misstatements (a defense under the Securities Act of 1933) would predominate over issues common to the putative class.  The decision is, to date, the only defeat of plaintiffs’ efforts to certify classes in various RMBS litigation, and the appeal (granted on an interlocutory basis) was closely watched.  In affirming the lower court’s decision that plaintiffs failed to show predominance, the Second Circuit ruled that the evidentiary record supported Judge Baer’s determination that knowledge-based inquiries of each class member might be necessary and that the proposed class was not cohesive because it included investors who purchased after the alleged misstatements came to light.

The case is New Jersey Carpenters Vacation Fund, et al. v. The Royal Bank of Scotland Group, plc., et al.  The Simpson Thacher team consists of Tom Rice, Alan Turner, Alyssa Watzman, Abigail Williams and John Robinson.