More than a dozen banking giants filed a joint petition, urging a U.S. Appeals Court to step in and reverse several rulings by U.S. District Court Judge Denise Cote, who is accused of depriving the companies of evidence to defend their cases.
In 2011, the Federal Housing Finance Agency sued fifteen major banks including Bank of America (BAC), Citigroup (C) and JPMorgan Chase (JPM), on claims that Fannie Mae and Freddie Mac purchased $200 billion in residential mortgage-backed securities sold in 500 securitizations, representing the largest collection of litigation ever filed in the U.S., the petition noted.
The lawsuits filed accuse the banks of violating securities laws by "misleading" the government-sponsored enterprises about the quality of the home loans packaged into RMBS deals worth billions of dollars.
The companies argued that "the District Court has deprived petitioners of their rights to obtain evidence that the GSEs either knew the extent to which those mortgage originators had abandoned their guidelines or, more likely, had concluded that originators did not materially deviate from the guidelines disclosed in petitioner’s offering documents."
The banks added, "The District Court has also barred discovery on other important issues – including statute of limitations, loss causation, the materiality of any alleged defects, the adequacy of petitioners’ due diligence, and justifiable reliance – on the grounds that any discovery beyond the business units that purchased the securitizations at issue is irrelevant and burdensome."
The petition explained that of the 18 lawsuits the FHFA filed, 16 were given to Cote in 2011 and since then, the banks believe they must proceed under a series of "gravely prejudicial rulings, some aimed at pressuring petitioners to settle."
Cote denied the motion to dismiss the cases and also limited depositions and document discovery as well as set an immediate trial schedule, the petition stated.
The first trial is set for Jan. 2014 against UBS AG (UBS). Trials for the other cases are scheduled for later on next year and even Jan. 2015. Additionally, most banks will be tried before different federal district court judges.
The banks also complained that Cote limited the companies to 20 depositions of the GSEs and FHFA for all lawsuits, but granted the FHFA to take more than 400 depositions.
"These one-sided rulings operate to excise from litigation what the GSEs knew about the mortgage underwriting and origination practices at the heart of FHFA’s claims – and when they knew it – as well as GSE admissions about the existence and materiality of the alleged misrepresentations, the adequacy of Petitioners’ due diligence, and loss causation," the banks said in court filings.
The banks added, "The rulings prejudge facts a jury should decide based on a full evidentiary record. Neither a fair and reasonable compromise of FHFA’s claims nor a fair determination of them at trial can come from placing the parties on such uneven footing."