J.P. Morgan Securities Wins Dismissal of Securities Fraud Lawsuit

On September 30, 2014, Judge Sam A. Lindsay of the U.S. District Court for the Northern District of Texas dismissed a lawsuit brought by Town North Bank, N.A. (“Town North”) against J.P. Morgan Securities LLC as successor in interest to Bear Stearns & Co.

Town North sought approximately $113 million in damages from J.P. Morgan and several other banks for alleged misrepresentations and omissions regarding risks associated with asset‑backed securities, including residential mortgage‑backed securities and collateralized debt obligations, that it purchased from defendants and which declined in value after the 2008 stock market collapse. Plaintiff asserted violations of state securities laws, Sections 10(b) of the Securities Exchange Act and Rule 10(b)‑5, as well as common law fraud, among other claims. Although Judge Lindsay initially denied defendants’ motion to dismiss Town North’s amended complaint in March 2013, he re‑reviewed the parties’ briefing upon defendants’ motion for an interlocutory appeal and decided sua sponte that Town North failed to cure deficiencies in its pleadings. In his revised ruling dismissing the complaint with prejudice, Judge Lindsay held that some of plaintiff’s claims were time‑barred and that the others were not actionable under the standard set forth in the 2011 U.S. Supreme Court decision, Janus Capital Group Inc. v. First Derivative Traders. He stated, “Specifically, the Amended Complaint contains no allegations from which the court could reasonably infer that Defendants, as broker‑sellers of the securities, had ‘ultimate authority’ over the statements in the offering documents and whether and how to communicate such information,” such that they could be held liable for making the purportedly false statements.

The Cravath team included partners Michael T. Reynolds and Kevin J. Orsini and associate Dana Roizen. The case is Town North Bank, N.A. v. Shay Financial Services, Inc., et al., No. 11‑cv‑03125 (N.D. Tex.).