In an earlier post (here) in which I raised the question whether lawyers would find themselves the targets of gatekeeper blame from the subprime meltdown, I discussed a malpractice action that had been brought against the Cadwalader law firm by Nomura Securities, in connection with a commercial mortgage securitization transaction in which Cadwalader had acted as counsel.
According to Susan Beck’s May 21, 2009 Law.com article (here), Nomura’s lawsuit has survived Cadwalader’s motion to dismiss. As the article notes, the "backstory" on this case "is complicated." Cadwalader had been Nomura’s counsel in connection with the securitization. After one of the underlying commercial mortgages defaulted, LaSalle National Bank, the loan servicer, had sued Nomura. Nomura settled the LaSalle case for $67.5 million and then sued Cadwalader for malpractice in connection with the securitization documentation.
In his April 28, 2009 opinion (here) denying Cadwalader’s motion to dismiss, New York Superior Court Judge Melvin L. Schweitzer ruled that Nomura’s position in the LaSalle case that Cadwalader’s actions were proper did not preclude Nomura’s claims in the malpractice action, and that Cadwalader’s reliance on standard language from a Standard & Poor’s publication did not create a defense for a motion to dismiss.
Though the underlying securitization is from an era long ago (the transaction took place in 1997), the attempt to impose gatekeeper liability on the law firm raises the possibility that lawyers may find themselves among the targets in connection with more recent securitization transactions. The Nomura lawsuit’s survival of the initial motion to dismiss, though for reasons very specific to the particular case, may motivate other erstwhile plaintiffs to consider the possibility of targeting the transaction attorneys involved in the many securitizations now the subject of extensive litigation.
If the Nomura case is any indication, aggrieved parties may well attempt to seize on purported defects in the securitization documents to attempt to target the law firms that drafted the documents. To the extent law firms’ clients and former clients are compelled to pay investor losses on securities they sold to investors, the clients and former clients may attempt to shift those losses to the lawyers that drafted the securitization documents.
Interestingly, according to the Law.com article, the attorney that initiated the Nomura lawsuit was none other than Marc Dreier, who recently pled guilty to a series of criminal actions that may be even harder to believe than they are to summarize. The Nomura case is being carried forward by two attorneys from Drier’s former law firm.
Florda Bank Becomes Larges Bank to Fail This Year: In a rare Thurday night regulatory action, on May 21, 2009, BankUnited FSB became the thirty-fourth bank failure so far this year when regulators took control of the bank and sold its assets to a group of investors. According to news reports (here), the BankUnited closure is also the biggest bank failure so far this year. The failed bank had assets of $12.80 billion.
According to the Wall Street Journal (here), BankUnited’s woes were due in part to its significant exposure to "nonresident alien" mortigage, which foreign domiciled individuals (primarily in Latin America) used the loans to acquire Flordia residential properties.
The DealBook blog has a lengthy description (here) of the private equity process that resulted in the transfer of BankUnited’s assets.
In connection with prior bank closures this year, the FDIC had waited until after the close of business at the end of the week on Friday afternoon to announce its regulatory action. The FDIC’s Thursday afternoon action on BankUnited breaks this otherwise consistent pattern. Perhaps the banking regulators wanted to get ahead to allow them to get an early start on the upcoming holiday weekend.
The FDIC’s press release regarding the closure can be found here and additional background information from the FDIC can be found here. The FDIC’s complete list of failed banks can be found here. A helpful Wall Street Journal table regarding the recent bank closures can be found here.