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Court orders additional briefing in securities case (UPDATED)

UPDATED 4:57 p.m.  This post has been updated by Lyle Denniston with background material on the proposed settlement.


Today the Court ordered the parties in Public Employees’ Retirement System of Mississippi v. IndyMac MBS, Inc., to file new, ten-page briefs addressing the possibility that the case could become moot. The Court granted review in the case in early March to consider the statute of limitations for securities class actions, and oral argument is currently scheduled for October 6, the first day of the Court’s new Term. But today’s order directs both sides to file simultaneous briefs, due by noon on Thursday, on “the effect, if any, of the proposed settlement agreement now pending before the district court.” Details of the proposed settlement were not available, but it presumably calls for the dismissal of the case, which would moot the Supreme Court proceedings. Because the order refers to a “proposed” settlement, there may be open questions about if and when the case will be resolved, including because of the need for approval of a class action settlement.

The Justices are scheduled to meet on Monday for their first private Conference in several months, so this schedule would allow them to consider the new briefs then. Depending on the nature of the parties’ responses, the Court could decide to dismiss the case before oral argument; alternatively, the Justices could opt to let the oral argument proceed as scheduled and raise any further questions that they might have then. The Court faced a similar issue two years ago in another class action case, Comcast v. Behrend. In that case, there was a proposed settlement that, the plaintiffs argued, mooted the case, but the Justices nonetheless ruled on the merits.

It’s also worth noting that the Court granted this case after it adopted its apparent practice of granting petitions only after they have been relisted at least once (presumably to provide more time to verify that a case is a suitable one for the Court’s review, and thereby avoid having to dismiss cases once they have been granted): although that apparent practice no doubt helps to identify any existing flaws in a case, it obviously cannot always account for the possibility that the case could eventually settle.

Background on the settlement:

This case has been ongoing in federal court for nearly five years.  Now, according to a series of filings this month in federal district court in New York City, a proposed settlement has been worked out.  Lawyers involved told U.S. District Judge Lewis A. Kaplan that they had been bargaining over a deal for fifteen months — talks that presumably continued after the Supreme Court had granted review of the investors’ case on March 10.

At the center of the broad class-action lawsuit are claimed losses from investing in mortgage-backed securities sold by IndyMac MBS, Inc. — a major player in that line of business until it collapsed after the 2008 financial crisis.

In a key legal filing on September 11, Judge Kaplan was notified that the investors had made a deal with six major securities firms to pay $340 million to the class, with no favoritism of those who had directly joined in the class lawsuit.  If Judge Kaplan approves that deal, the filing said, that would leave only IndyMac MBS still technically in the case as a defendant.

But, the document said, IndyMac MBS “has no ongoing business or income, little to no assets and no applicable insurance.”  (IndyMac’s lawyers notified the Supreme Court in July that they would not be filing a brief in the case.)

The investing groups added that its members “believe that any judgment entered against IndyMac MBS would be uncollectible,” so claims against it would be voluntarily dismissed.  Dismissal would be only on condition of the judge’s approval of the settlement, it stressed.

If Judge Kaplan signed off on the settlement, he was told, the class would be notified of the plan and given a right to object to it.

Those are the developments that the Supreme Court now wants examined by lawyers in the case in the new briefs.

One uncertainty that may be a factor in those briefs is that the case now before the Supreme Court involves a different set of investors from those who have told Judge Kaplan of the plan to settle with the six investment firms.  Mississippi’s Public Employment Retirement System is appealing the lower courts’ refusal to allow it to intervene in the lawsuit filed by other investing groups, to make its own claims.  The denial of a role to Mississippi PERS is based upon the timing issue that the Court agreed to hear in the pending petition.

The lead suing party in the settlement now awaiting Judge Kaplan’s reaction is the Wyoming Retirement System, representing the class of investors who bought some of the mortgage-backed offerings by IndyMac MBS.   Mississippi PERS bought different offerings of the securities by IndyMac.

An issue before the Supreme Court now could be whether, even if it were to rule that Mississippi PERS had a right to get involved in the Wyoming case, that new participant would have any right to block the proposed settlement.

Recommended Citation: Amy Howe, Court orders additional briefing in securities case (UPDATED), SCOTUSblog (Sep. 23, 2014, 2:49 PM),