In the latest appellate decision to affirm the dismissal of a subprime-related securities class action lawsuit, on June 29, 2010, a three-judge panel of the Ninth Circuit issued an opinion (designated "not for publication") affirming the dismissal of the securities suit that had been filed against Impac Mortgage Holdings and certain of its directors and officers.


As discussed in greater detail here, investors first filed their suit in August 2007, alleging that contrary to Impac’s representations the company’s Alt-A loans were being sold to less creditworthy borrowers, so that the loan portfolio was experiencing the same risks and discounts in securitization as sub-prime mortgages.


The plaintiffs alleged further that the defendants deceived investors by representing that Impac’s underwriting guidelines were strict and that its loans were high-quality, which in fact the executives were overriding the underwriting guidelines to originate and purchase poor-quality loans.


In a March 9, 2009 order (here), Central District of California Judge Andrew Guilford granted with prejudice the defendants’ motion to dismiss the plaintiffs’ Third Amended Complaint, and the plaintiffs appealed. My prior post about the district court proceedings can be found here.


In the Ninth Circuit’s June 29 opinion affirming the district courts dismissal, the panel found that the plaintiffs had "stated insufficient facts to create a strong inference of scienter." The panel found that none of the plaintiffs’ allegations taken individually "describe any underwriting-guideline violations or tie those violations to the class period with the ‘great detail’ required to give rise to a strong inferences of scienter."


Taking the plaintiffs allegations as a whole, the panel concluded that "the inference that the defendants intended to deceive investors is still less compelling than a competing inference of non-fraudulent intent." The court went on to observe that "at bottom, a non-fraudulent inference – namely that Impact’s efforts to minimize risk exposure in the mortgage industry came too late to avoid large losses – is more compelling than an inference that Impac’s officers intended to defraud investors by falsely claiming to tighten its underwriting guidelines."


The Ninth Circuit’s opinion in the Impac case is the third appellate decision issued in connection with the subprime and credit crisis-related litigation wave, joining the Second Circuit’s decision in the Centerline case (about which refer here) and the Eighth Circuit’s decision in the NovaStar case (about which refer here). In each of these decisions, the appellate courts have affirmed the lower court’s dismissal of the complaint.


While three cases represents far too small of a data set to draw any conclusions, at least so far it seems that plaintiffs have not been rewarded for appealing the lower court dismissals.


I was somewhat curious about the significance of the fact that the Ninth Circuit’s opinion was designated "not for publication." Although I have never been able to figure out why Courts bother with that sort of thing in this day and age (obviously it is public so why bother with the designation), it is clear that the Ninth Circuit cannot bar participants from referencing the case, as Federal Rule of Appellate Procedure 32.1 expressly provides that courts may not "prohibit or restrict" the citation to appellate opinions by designating them as, for example, "not for publication." So why bother designating an opinion as not for publication?


In any event, I have adjusted my running tally of subprime related case dispositions (which can be accessed here) to reflect the appellate decision in the Impac case.