Joint Declaration of Class Counsel in Support of Plaintiffs' Motion for Final Approval of Class Action

235 Pages·2017·4.3 MB·English

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

POLICEMEN’S ANNUITY AND
BENEFIT FUND OF THE CITY OF
CHICAGO, LABORERS’ PENSION
FUND AND HEALTH AND WELFARE
DEPARTMENT OF THE Civil Action No. 1:12-CV-02865-KBF
CONSTRUCTION AND GENERAL
LABORERS’ DISTRICT COUNCIL OF Honorable Katherine B. Forrest
CHICAGO AND VICINITY, IOWA
PUBLIC EMPLOYEES’ RETIREMENT
SYSTEM, ARKANSAS PUBLIC
EMPLOYEES’ RETIREMENT SYSTEM,
VERMONT PENSION INVESTMENT
COMMITTEE, WASHINGTON STATE
INVESTMENT BOARD, ARKANSAS

TEACHER RETIREMENT SYSTEM,
MISSISSIPPI PUBLIC EMPLOYEES’
RETIREMENT SYSTEM , CITY OF
TALLAHASSEE RETIREMENT
SYSTEM, and CENTRAL STATES,
SOUTHEAST AND SOUTHWEST
AREAS PENSION FUND,

Plaintiffs,
- against-

BANK OF AMERICA, NA (as Trustee
Under Various Pooling and Servicing
Agreements), and U.S. BANK NATIONAL
ASSOCIATION (as Trustee Under Various
Pooling and Servicing Agreements),
Defendants.

JOINT DECLARATION OF CLASS COUNSEL IN SUPPORT OF
PLAINTIFFS’ MOTION FOR FINAL APPROVAL OF CLASS ACTION SETTLEMENT
AND APPROVAL OF THE PROPOSED PLAN OF ALLOCATION AND
CLASS COUNSEL’S MOTION FOR AN AWARD OF ATTORNEYS’ FEES
AND REIMBURSEMENT OF LITIGATION EXPENSES
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DEBORAH CLARK-WEINTRAUB, JULIE GOLDSMITH REISER AND SHARAN
NIRMUL declare as follows:
1. We, Deborah Clark-Weintraub, Julie Goldsmith Reiser and Sharan Nirmul, are
partners of the law firms Scott+Scott, Attorneys at Law, LLP (“Scott+Scott”), Cohen Milstein
Sellers & Toll, PLLC (“Cohen Milstein”) and Kessler Topaz Meltzer & Check, LLP (“KTMC”),
respectively. Scott + Scott, Cohen Milstein and KTMC (collectively “Class Counsel”) represent
Policemen’s Annuity and Benefit Fund of the City of Chicago, Laborers’ Pension Fund and
Health and Welfare Department of the Construction and General Laborers’ District Council of
Chicago and Vicinity, Iowa Public Employees’ Retirement System, Arkansas Public Employees’
Retirement System, Vermont Pension Investment Committee, Washington State Investment
Board, Arkansas Teacher Retirement System, Mississippi Public Employees’ Retirement
System, City of Tallahassee Retirement System, and Central States, Southeast and Southwest
Areas Pension Fund (each a Plaintiff and collectively, “Plaintiffs” or “Class Representatives”) in
these consolidated class actions (the “Action”). We have personal knowledge of the matters set
forth herein based on our active, day-to-day supervision and participation in the prosecution and
settlement of the claims asserted on behalf of Plaintiffs and the putative Class, as defined below,
in this Action.
2. We respectfully submit this declaration in support of Plaintiffs’ motion for final
approval of the proposed Settlement1 and approval of the proposed Plan of Allocation, as well as
Class Counsel’s motion for an award of attorneys’ fees and reimbursement of Litigation
Expenses.

1 All terms with initial capitalization not otherwise defined herein shall have the meanings
ascribed to them in the Stipulation of Settlement dated November 7, 2014 (“Stipulation”) (ECF
No. 295-1).
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3. This declaration does not seek to detail each and every event that occurred since
the Action was commenced nearly three years ago. Rather, this declaration provides the Court
with highlights of the litigation, the events leading to the Settlement, and the basis upon which
Class Counsel and Plaintiffs recommend its approval and seek an award of attorneys’ fees and
reimbursement of litigation expenses.
I. PRELIMINARY STATEMENT
4. In entering into the Settlement with Defendants,2 Plaintiffs and Class Counsel
were fully informed about the strengths and weaknesses of the case. As detailed below, this

Action was ground-breaking and one of the first of its kind to seek to hold Trustees of residential
mortgage-backed securities (“RMBS”) trusts accountable for alleged failures in adequately
protecting and safeguarding trust assets. The legal theories advanced in this litigation were the
product of Class Counsel’s diligent research and investigation, and the successful outcome is the
result of Class Counsel’s vigorous prosecution of the claims.
5. The Parties reached an agreement to settle in June 2014—two-and-a-half years
after the commencement of the Action—and only after extensive litigation before the Court.
Prior to commencing the litigation, Class Counsel conducted an extensive pre-suit investigation
reflected in the multiple, detailed complaints that were filed. In addition, Class Counsel (i)
opposed two rounds of motions to dismiss that dealt with numerous issues of first impression;
(ii) opposed two partial summary judgment motions; (iii) conducted class certification discovery;
(iv) retained and worked with statistical and damages experts to develop a common methodology
for proving numerosity, causation and damages; (v) prepared a comprehensive motion for class
certification supported by expert analysis and the discovery record; (vi) defended two

2 Defendants are Bank of America, N.A. (“BANA”) and U.S. Bank National Association
(“USB”).
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depositions of Plaintiffs’ class certification damages expert; (vii) deposed Defendants’ expert in
opposition to class certification; (viii) prepared a voluminous reply memorandum in support of
class certification supported by additional facts and expert analysis; (ix) prepared for and argued
for class certification at an evidentiary hearing before the Court; (x) came within a month of
completing merits discovery, which included analyzing more than three million pages of
documents, setting into place a statistical sampling methodology for the review of thousands of
loan files that had been secured in discovery, and taking or defending 30 fact depositions around
the country, including in Chicago, Seattle, Los Angeles and New York; (xi) engaged and
conferred with additional statistical and re-underwriting experts with respect to the merits; and
(xii) engaged in extensive negotiation with Defendants in an effort to resolve this Action.
6. Further, the negotiations necessary to document the Settlement were protracted
and hard-fought and required the frequent intervention and assistance of Robert A. Meyer, an
experienced and highly respected mediator.
7. Based upon our experience, evaluation of the facts and applicable law and the
recognition of the risk and expense of continued litigation, Plaintiffs and Class Counsel submit
that the proposed Settlement is fair, reasonable and adequate. In our view, the Settlement
represents an excellent result, and is in the best interest of the Settlement Class.
8. From the outset of this case, Plaintiffs supervised Class Counsel, participated in
all aspects of the litigation, remained informed throughout the settlement negotiations, and
ultimately approved the Settlement. In addition to understanding the support for, and challenges
to, their claims and damages, Plaintiffs and Class Counsel became intimately familiar with
Defendants’ affirmative defenses – including, for example, defenses based on the Trustees’ lack
of “actual knowledge”; whether such knowledge could be deemed to be uniform across all of the
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Covered Trusts at issue in this Action; and whether and to what extent Plaintiffs’ out-of-pocket
losses, which formed the measure of Plaintiffs’ damages, were caused by the Trustees’ inaction
or other unrelated events. In our view, the Settlement here is fair and reasonable given the
relative strength of these claims and defenses. Moreover, as detailed further below, the Action
involved significant risks on the novel factual and legal questions at issue, many of which had
not previously been addressed by any court.
9. The Settlement requires BANA, on behalf of both Defendants, to deposit or cause
to be deposited $69,000,000 in cash (the “Settlement Amount”) into the Escrow Account
established for these proceeds. On December 1, 2014, the Settlement Amount was deposited
into the Escrow Account and invested in accordance with the terms of the Stipulation. The
Settlement benefits the Settlement Class by conferring a guaranteed, immediate and substantial
benefit of $69,000,000 and avoids the risks and expenses of continued litigation, including the
risk of recovering less than the Settlement Amount after substantial delay, or nothing at all.
10. In addition to seeking final approval of the Settlement, Plaintiffs seek final
approval of the proposed Plan of Allocation as fair and reasonable. To prepare the Plan of
Allocation, Class Counsel engaged Bradford Cornell, Ph.D., a well-recognized valuation expert
with Compass Lexecon and a Visiting Professor of Financial Economics at the California
Institute of Technology, who has worked on several cases involving similar mortgage-backed
securities (“MBS”). As described in Section III.C below, the Plan of Allocation takes into
account the varying risks to recovery associated with each Certificate, given the Certificate’s
position in the hierarchy of the Covered Trusts. Under the proposed Plan of Allocation, the
Settlement Amount (plus interest accrued and after deduction of Court-approved expenses and
attorneys’ fees) will be distributed on a pro rata basis to members of the Settlement Class who
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submit timely and valid Proof of Claim Forms, based on their “Recognized Claim” amounts as
calculated pursuant to the Plan of Allocation set forth in the Notice.
11. In addition, Class Counsel request an award of attorneys’ fees and reimbursement
of Litigation Expenses (the “Fee and Expense Application”). Specifically, Class Counsel are
applying for a fee award of $12,420,000 (or, 18% of the Settlement Fund), and for
reimbursement of Class Counsel’s Litigation Expenses in the amount of $2,621,520.12.

12. Class Counsel respectfully submit that the Fee and Expense Application is
justified in light of the significant benefits conferred on the Settlement Class, the substantial risks
undertaken by Class Counsel, the quality of representation, and the nature and extent of the legal
services provided. As explained in the accompanying memorandum in support of Class
Counsel’s request for attorneys’ fees and reimbursement of Litigation Expenses, the requested
fee of 18% of the Settlement Fund is consistent with or less than the amount awarded in other
class actions involving RMBS. In addition, the fee requested is less than the $18,380,850.15
lodestar incurred by Class Counsel in prosecuting the case. Plaintiffs support an award of
attorneys’ fees in the requested amount.
13. The proposed Settlement Class representatives are large, sophisticated,
institutional investors whose active involvement in the prosecution and resolution of this Action,
as well as their approval and support of the Settlement and requested award of attorneys’ fees
and reimbursement of Litigation Expenses, are additional factors that should be taken into
consideration by the Court in deciding whether to finally approve the Settlement and Plan of
Allocation and grant the Fee and Expense Application.
14. We respectfully submit that the Settlement and the Plan of Allocation, for the
reasons discussed herein and in the accompanying memoranda, are each “fair, reasonable, and
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adequate” in all respects, and that the Court should therefore approve them pursuant to Rule
23(e) of the Federal Rules of Civil Procedure. Likewise, we respectfully submit that the Fee and
Expense Application is merited under the circumstances and should be approved.
II. HISTORY OF THE ACTION
15. On April 11, 2012, Policemen’s Annuity and Benefit Fund of the City of Chicago
(“Chicago Police”) filed a putative class action in the United States District Court for the
Southern District of New York entitled Policemen’s Annuity and Benefit Fund of the City of
Chicago v. Bank of America, NA (as Trustee Under Various Pooling and Serving Agreements),
and U.S. Bank National Association (as Trustee Under Various Pooling and Servicing
Agreements) (case number 1:12-CV-02865-KBF) (“Policemen’s Action”), asserting claims for
alleged breach of contract, alleged breaches of the implied covenant of good faith and fair
dealing, and alleged violations of the federal Trust Indenture Act of 1939, as amended (the
“TIA”), 15 U.S.C. §77aaa et seq., against BANA and USB, the former and current trustee of
various RMBS trusts sponsored by Washington Mutual Bank and/or its affiliates (collectively,
“WaMu”). ECF No. 1.3
16. On June 1, 2012, Defendants moved to dismiss the Policemen’s Action in its
entirety. BANA’s motion, which was joined by USB, argued that RMBS trustees in general, and
in this case, perform only narrow administrative duties, and did not have any of the contractual
duties alleged in the Complaint. Moreover, Defendants argued that even assuming arguendo that
such duties existed, the Complaint failed to allege a breach by Defendants because Plaintiff
failed to identify specific loans in the Covered Trusts that breached representations and
warranties and should have been put-back to the Seller. Further, Defendants argued that the TIA

3 A corrected complaint was filed on May 31, 2012, for the purpose of correcting certain
ministerial errors including in a few of the trust names included in the Complaint.
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did not apply to the RMBS at issue here – i.e., “Certificates” governed by Pooling and Servicing
Agreements (“PSAs”). Defendants also argued that Plaintiff Chicago Police lacked standing to
sue as to 36 of the 41 trusts identified in the Complaint because it purchased Certificates issued
by only 5 of the trusts. See ECF No. 21. Defendant USB also filed its own supplemental
memorandum arguing that the claims against it should be dismissed for two additional reasons:
first, because Plaintiff’s losses had been incurred prior to the date USB succeeded BANA as
Trustee, and second, because the Complaint failed to distinguish between BANA’s and USB’s
wrongdoing and, therefore, violated Fed. R. Civ. P. 8(a)(2). See ECF No. 20.
17. Plaintiff Chicago Police filed a comprehensive response to both motions to
dismiss on July 7, 2012, rebutting each argument raised by Defendants, and Defendants each
filed reply briefs. See ECF Nos. 30, 34-35. Three days before hearing argument, the Court
issued an Order directing the parties to be prepared to address eleven specific questions arising
from the parties’ briefing in addition to the arguments raised in their respective briefs. See ECF
No. 37. The Court heard two hours of argument on Defendants’ motions on August 6, 2012. On
December 7, 2012, the Court granted in part and denied in part Defendants’ motions to dismiss.
See ECF No. 46. In this regard, the Court found that although Plaintiff had Article III standing
to assert claims with respect to all of the trusts identified in the Complaint by virtue of its own
alleged injury relating to the diminution in the value of the Certificates it purchased, Plaintiff
lacked “class standing” as defined in the intervening decision of the Second Circuit in NECA-
IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145 (2d Cir. 2012) (“NECA”),
because the fact that each trust was backed by a unique combination of loans meant that Plaintiff
did not have the “same set of concerns” as investors in trusts in which Plaintiff did not purchase
Certificates. Accordingly, the Court held that Plaintiff’s standing was limited to Certificates
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issued by five of the identified trusts that were either collateralized or cross-collateralized by the
loan groups that backed Plaintiff’s Certificates.
18. However, in only the second ruling of its kind, the Court rejected Defendants’
contention that the TIA did not apply to RMBS Certificates. Further, although the Court
dismissed certain of Plaintiff’s contract and TIA claims arising from the Trustee’s alleged duties
to review the Mortgage Files relating to the loans in the Trusts, the Court denied Defendants’
motion relating to the Complaint’s allegations that Defendants failed to give notice of breaches
of representations and warranties, including uncured document deficiencies, with respect to the
loans in the Trusts. It also granted leave to replead the Complaint with respect to its allegations
that an event of default had occurred giving rise to Defendants’ obligation to act as a prudent
person and enforce the Trusts’ repurchase rights. Finally, the Court rejected each of USB’s
separate, independent arguments for dismissal.
19. On January 4, 2013, an amended complaint was filed which added an additional
Plaintiff, Laborers’ Pension Fund and Health and Welfare Department of the Construction and
General Laborers’ District Council of Chicago and Vicinity (“Chicago Laborers”), as well as
additional factual allegations regarding the occurrence of an Event of Default and Defendants’
prudent person obligations to enforce the Covered Trusts’ put-back rights. See ECF No. 50.
Chicago Laborers owned Certificates backed by Loan Groups in six of the trusts that had been
previously dismissed by the Court and thus had standing consistent with the Court’s December 7,
2012 opinion. With the consent of Defendants and the Court’s permission, a Second Amended
Complaint was filed on January 15, 2013, adding two additional Plaintiffs – Iowa Public
Employees’ Retirement System (“IPERS”) and Arkansas Public Employees’ Retirement System
(“APERS”) – who owned Certificates backed by Loan Groups in 8 additional trusts that had
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been previously dismissed by the Court. See ECF No. 57. Thus, the addition of Chicago
Laborers, IPERS and APERS as additional plaintiffs expanded from 5 to 19 the number of trusts
for which Plaintiffs could pursue class claims consistent with the Court’s December 7, 2012
ruling on standing. Importantly, however, the Amended and Second Amended Complaints
preserved Plaintiffs’ right to appeal the Court’s ruling on Plaintiffs’ standing to assert claims on
behalf of investors in the 41 trusts identified in the initial Complaint.
20. On February 1, 2013, Defendants again moved to dismiss. With the Court’s
permission, Defendants requested reconsideration of the Court’s earlier rulings that the TIA
applied to RMBS styled “Certificates” and that Plaintiffs had stated a claim under the PSAs
based on publicly available information relating to Defendants’ alleged failure to provide notice
to Certificateholders and enforce the put-back claims of the Covered Trusts. In particular,
Defendants argued that the PSAs imposed an actual knowledge standard and that the Court had
erroneously utilized a constructive knowledge standard in sustaining Plaintiffs’ claims. Further,
Defendants argued that Plaintiffs had failed to remedy the pleading deficiencies in the prior
Complaint with respect to the occurrence of an Event of Default and whether a prudent trustee
would have acted to protect Certificateholders in the ways Plaintiffs alleged Defendants were
obligated to act. See ECF No. 61.
21. Plaintiffs opposed Defendants’ motion to dismiss in a comprehensive opposition
brief filed on February 25, 2013, and Defendants filed a reply brief in support of their motion on
March 8, 2013. The Court heard oral argument on Defendants’ motion on April 22, 2013. In an
Opinion and Order dated May 6, 2013, the Court denied Defendants’ motion in its entirety. The
Court once again rejected Defendants’ contention that the TIA did not apply to RMBS styled as
“Certificates,” and held that Plaintiffs had plausibly alleged Defendants’ actual knowledge of
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