The subprime-related securities lawsuit pending against BankAtlantic Bancorp and certain of its directors and officers is headed to trial on October 6, 2010 in Miami, following the recent summary judgment rulings in the case. Southern District of Florida Judge Ursula Ungaro’s 62-page ruling, issued August 18, 2010, which granted in part and denied in part the parties’ cross-motions for summary judgment, contains a number of interesting features, discussed below.
BankAtlantic Bancorp is the publicly traded parent company of Bank Atlantic, a federally chartered bank. As reflected in greater detail here, plaintiffs first filed their securities class action lawsuit in October 2007. Judge Ungaro granted the defendants’ initial motion to dismiss the plaintiffs complaint, but allowed the plaintiffs leave to amend. However, in May 2009, Judge Ungaro denied the defendants’ renewed motions to dismiss after plaintiffs’ their amended complaint.
The plaintiffs’ amended complaint basically alleges that the defendants made misleading statements about the credit quality of certain land loans in the bank’s commercial real estate portfolio; failed to follow conservative lending practices as described in its underwriting policies, and therefore its loan portfolio was exposed to a higher level of risk than represented to investors, and misrepresented that BankAtlantic’s loan loss reserves were adequate.
Plaintiffs contend that when the truth about the banks loan portfolio was revealed between April and October 2007, the company’s stock price fell and investors were harmed.
In her August 18 order, Judge Ungaro addressed the plaintiffs’ motion for partial summary judgment with respect to the falsity of certain July 2007 statements by the company’s former Chairman and CEO, as well as the defendants’ motions for summary judgment as to all of plaintiffs’ claims.
Plaintiffs’ conceded that the defendants were entitled to summary judgment as to all claims for the period prior to October 18, 2006 and as to all claims arising from alleged misstatements about loan loss reserves, and accordingly Judge Ungaro granted defendants summary judgment as to those issues.
A significant portion of Judge Ungaro’s opinion is focused on defendants’ motion to exclude the testimony of the plaintiffs’ expert on the issues of market efficiency, materiality, loss causation and damages, which Judge Ungaro addressed because she considered the motion relevant to the summary judgment motion.
Judge Ungaro largely granted the defendants’motion to exclude the expert’s testimony on the issue of loss causation and materiality, ruling that the expert may testify on only narrow parts of these issues, although she ruled that the expert may testify as to the cause of certain specific aspects of the decline in the company’s share price. Judge Ungaro also excluded certain aspects of the expert’s testimony on damages, but ruled that the testimony will be permitted on other damages issues.
With respect to the defendants’ motions for summary judgment on the plaintiffs’ claims, Judge Ungaro held that the "the evidence raises genuine issues of material fact as to whether Defendants’ statements beginning in April of 2007, focusing solely on the credit and repayment problems with [builder land bank, or BLB] loans and omitting mention of the problems the non-BLB land loans were contemporaneously experiencing were misleading."
Judge Ungaro also concluded that the defendants were not entitled to summary judgment on the issue of scienter, concluding that the evidence raised genuine issues of fact as to whether the defendants knew their class period statements creased a "an obvious danger of misleading investors" as to "the true credit quality of the land loan portfolio"; as to "the accelerating deterioration of credit quality throughout the land loan portfolio"; and as to the "worsening credit and repayment problems with the BLB loans."
Finally, on the issue of loss causation, Judge Ungaro concluded that there were genuine issues of material fact regarding the April 26, 2007 and October 26, 2007 price declines, but not as to the October 29, 2007 price declines.
Judge Ungaro then turned to the plaintiffs’ motion for partial summary judgment on to certain statements by the company’s former Chairman and CEO in a July 25, 2007 analyst conference call. In response to a specific question in the call about the Bank’ BLB loans, the Chairman made a number of reassuring statements, including the statement that "the portfolio has always performed extremely well, continues to perform extremely well."
In reliance on prior email exchanges in which the Chairman and CEO participated, as well as the testimony of other bank officials, Judge Ungaro concluded that there were not genuine issues of material fact that the July 25, 2007 statements were false when made, and accordingly ruled that the plaintiffs are entitled to summary judgment on this issue.
This decision is noteworthy if for no other reason it means that (absent intervening events) a trial in this case will commence in just a few short weeks. As most readers of this blog know, trials in securities class action cases are quite rare, and it would be a significant and noteworthy event if this case were to go to trial beginning on or about October 6.
The decision is also noteworthy for Judge Ungaro’s detailed explication of the issues on which the plaintiffs’ expert will be permitted to testify. Again, because so few of these cases actually go to trial, there is relatively little judicial authority on questions concerning the issues on which expert testimony will be admitted. The absence of this authority can present a challenge when parties attempt to rely in expert testimony, for example, in connection with settlement negotiations, which can be vexing without knowing whether the expert’s views are relevant in any way. However, because Judge Ungaro’s analysis of these issues is very case and fact specific, her analysis of the expert testimony questions, though interesting, may be of limited value in other cases.
But perhaps the most interesting thing about this ruling is Judge Ungaro’s grant of partial summary judgment for the plaintiffs on the issue of falsity. It is relatively rare for any case to get to the point where a decision on this kind of issue is even ripe, and in most cases courts are inclined to leave these kinds of issues to the jury. I actually can’t recall ever having seen a court granting summary judgment in the claimants’ favor on the issue of falsity.
The plaintiffs will still have to prove that these false statements were materially misleading, were made with scienter, and cause damages. However, it will be a singular development when the court instructs the jury that the court has already concluded that the statements are false.
And so, if this case does go to trial on October 6, it will be interesting to watch, for a number of reasons.
I have in any event noted Judge Ungaro’s August 18 order in my running tally of rulings in subprime and credit-crisis related cases, which can be found here.
Special thanks to a loyal reader for sending me a copy of Judge Ungaro’s ruling.