In re Thornburg Mortgage, Inc. Securities Litigation

683 F.Supp.2d 1236

In re THORNBURG MORTGAGE, INC. SECURITIES LITIGATION.

No. Civ 07-0815 JB/WDS.

United States District Court, D. New Mexico.

January 27, 2010.

Frederick S. Fox, Aviah Cohen Pierson, Kaplan Fox & Kilsheimer, Nancy Kaboolian, Abbey Spanier Rodd Abrams & Paradis, LLP, Curtis V. Trinko, Law Offices of Curtis V. Trinko, LLP, Fred T. Isquith, Rachel S. Poplock, Martin E. Restituyo, Gregory Nespole, Wolf Haldenstein Adler Freeman & Herz, LLP, New York, NY, Richard A. Lockridge, Nathan D. Prosser, Karen H. Riebel, Lockridge Gindal Nauen & Holstein, Minneapolis, MN, Evan J. Smith, Brodsky & Smith, L.L.C., Mineola, NY, David R. Scott, Scott & Scott, LLC, Colchester, CT, Arthur Shingler, III, Scott & Scott, LLP, Francis M. Gregorek, Rachele R. Rickert, Patrick Moran, Betsy C. Manifold, Wolf Haldenstein Adler Freeman & Herz, LLP, San Diego, CA, Charlotte Itoh, Cody Kelley, Kelley Law Offices, Shane C. Youtz, Turner W. Branch, Branch Law Firm, Albuquerque, NM, Andrew Zivitz, Benjamin Sweet, Michelle Newcomer, Richard Russo, Jr., Sean M. Handler, Stewart L. Berman, D. Seamus Kaskela Barroway Topaz Kessler Meltzer & Check, LLP, Radnor, PA, for the Plaintiffs.

Amy L. Neuhardt, Boies, Schiller & Flexner, LLP, Washington, D.C., Philip C. Korologos, Boies, Schiller & Flexner, LLP New York, NY, for Defendants Garrett Thornburg, Anne-Drue M. Anderson, David A. Ater, Joseph H. Badal, Eliot R. Cutler, Ike Kalangis, Francis I. Mullin, III, Stuart C. Sherman, and Paul G. Decoff.

Donald L. Flexner, Boies, Schiller & Flexner, LLP New York, NY, for Defendants Garrett Thornburg, Anne-Drue M. Anderson, David A. Ater, Eliot R. Cutler, Ike Kalangis, and Francis I. Mullin, III.

Frank T. Herdman, Rubin Katz Law Firm, P.C., Santa Fe, NM, William H. Forman Scheper Kim & Overland, LLP, Los Angeles, CA for Defendants Thornburg Mortgage, Inc., Garrett Thornburg, Larry A. Goldstone, Clarence G. Simmons, Anne-Drue M. Anderson, David A. Ater, Joseph H. Badal, Eliot R. Cutler, Michael B. Jeffers, Ike Kalangis, Owen M. Lopez, Francis I. Mullin, III, and Stuart C. Sherman.

David F. Cunningham, Thompson, Hickey, Cunningham, Clow & April, P.A., Santa Fe, NM., for Defendants Thornburg Mortgage, Inc., Garrett Thornburg, Larry A. Goldstone, Clarence G. Simmons, Anne-Drue M. Anderson, David A. Ater, Eliot R. Cutler, Ike Kalangis, and Francis I. Mullin, III.

Clinton W. Marrs Tax, Estate & Business Law, N.A., LLC, Albuquerque, NM, for Defendants Larry A. Goldstone and Clarence G. Simmons.

Robert Badal, Wilmer Cutler Pickering Hale and Dorr, LLP, Los Angeles, CA for Defendants Thornburg Mortgage, Inc., Larry A. Goldstone, Clarence G. Simmons, Michael B. Jeffers, and Owen M. Lopez.

Joseph Goldberg, David A. Freedman, David H. Urias, Freedman Boyd Hollander Goldberg Ices & Duncan, P.A., for Defendants Joseph H. Badal, Paul Decoff, Michael Jefers, Owen Lopez, and Stuart Sherman.

Joel Sher, Shapiro Sher Guinot & Sandler, Baltimore, MA, Mary R. Jenke, Walsh Anderson Brown Aldridge & Gallegos, Albuquerque, NM, for Thornburg Mortgage, Inc.

Clifford K. Atkinson, John Thal, Atkinson & Thal, P.C., Albuquerque, NM, for Defendants AG Edwards & Sons, Inc., BB & T Capital Markets, UBS Securities, Citigroup

Global Markets Inc., Friedman, Billings, Ramsey & Co., Oppenheimer & Company, Inc., RBC Dain Rauscher Corp., Stifel, Nicolaus & Company, Inc., and Bear Sterns & Co.

Jonathan C. Dickey, Gibson, Dunn & Crutcher, LLP, New York, NY, Dean J. Kitchens, Lindsay R. Pennington, Gibson, Dunn & Crutcher, LLP, Los Angeles, CA, for Defendants AG Edwards & Sons, Inc., BB & T Capital Markets, Citigroup Global Markets Inc., Oppenheimer & Company, Inc., RBC Dain Rauscher Corp., and Stifel, Nicolaus & Company, Inc.

David Bohan, David Stagman, Katten Muchin Rosenman, LLP, Chicago, IL, for Defendants UBS Securities and Bear Sterns & Co.

William Pittard, Williams & Connolly, LLP, Washington, D.C., for Defendant Friedman, Billings, Ramsey & Co.

MEMORANDUM OPINION AND ORDER

JAMES O. BROWNING, District Judge.

THIS MATTER comes before the Court on: (i) the Opposed Motion by May/June 2007 Underwriter Defendants to Dismiss Consolidated Class Action Complaint; Memorandum of Points and Authorities in Support Thereof, filed September 22, 2008 (Doc. 128)("May/June Underwriters' Motion"); (ii) the Opposed Motion to Dismiss of Underwriter Defendants UBS Securities LLC and Bear Stearns & Co., Inc., filed September 22, 2008 (Doc. 130)("UBS Motion"); and (iii) the Motion of Friedman, Billings, Ramsey & Co, Inc. to Dismiss and Memorandum of Points and Authorities in Support Thereof, filed September 22, 2008 (Doc. 132)("FBR Motion"). The Court held a hearing on April 22, 2009. The primary issue is whether the Plaintiffs have pled any false or misleading statements or omissions in the offering documents underlying Thornburg Mortgage, Inc.'s ("TMI's") May 2007, June 2007, September 2007, or January 2008 public stock offerings. Because the Court finds that none of the documents contained material misstatements or omissions as to which the underwriters had a duty to disclose, the Court grants all three motions.

FACTUAL BACKGROUND¹

This case—so far as is relevant to the disposition of this motion—involves four public offerings that, the Plaintiffs allege, were made pursuant to false or misleading offering documents. This consolidated action is brought by Lead Plaintiffs (i) W. Allen Gage, individually and on behalf of J. David Wrather; (ii) Harry Rhodes; (iii) FFF Investments, LLC; (iv) Robert Ippolito, individually and as Trustee for the Family Limited Partnership Trust; and (v) Nicholas F. Aldrich, Sr., individually and on behalf of the Aldrich Family, as well as the Plaintiffs (vi) Betty L. Manning and (vii) John Learch (collectively "the Plaintiffs"). The Lead Plaintiffs all purchased shares of TMI stock during the Class Period—from April 19, 2007 to March 19, 2008, inclusive—at prices that they allege were artificially inflated. They assert that they were damaged as a result of these inflated-price purchases, now that the truth has been revealed. See Consolidated Class Action Complaint ¶ 53, at 15-16, filed May 27, 2008 (Doc. 68)("CCAC"). Manning acquired 550 shares of TMI common stock during the May 2007 Offering. See id. ¶ 54, at 16. She bought them on May 4, 2007 and paid $27.05 per share. See id. Learch, as trustee for the Learch trust, acquired 400 shares of 7.5% Series E Cumulative Convertible Redeemable Preferred Stock in the June 2007 Offering. See id. ¶ 55, at 16. He bought his shares on June 19, 2007 and paid $25.00 per share. See id. No particular Plaintiff alleges to have purchased any TMI stock in the September 2007 or January 2008 offerings.

1. The Defendants.

TMI, one of the Defendants in the underlying action and the company whose securities are at the heart of this action, is a publicly traded residential-mortgage lender that represents that it focuses primarily on the "jumbo" and "super-jumbo" segment, i.e., loans totaling over $417,000.00, of the adjustable-rate mortgage ("ARM") market.² See CCAC ¶ 5, at 2. As the Plaintiffs put it, "TMI generates income from the small, net spread between the interest income it earns on its assets and the cost of its borrowings." Id. TMI was formed under the laws of the State of Maryland, and has its principal place of business in Santa Fe, New Mexico. See CCAC ¶ 57, at 16. At all relevant times, TMI's securities have been traded on the New York Stock Exchange ("NYSE") under the symbol "TMA." Id. For federal income tax purposes, TMI is classified as a Real Estate Investment Trust.

The Defendants relevant to these motions are nine: (i) AG Edwards & Sons, Inc.; (ii) BB & T Capital Markets; (iii) UBS Securities, LLC; (iv) Citigroup Global Markets, Inc.; (v) Friedman, Billings, Ramsey & Co., Inc. ("FBR"); (vi) Oppenheimer & Company, Inc.; (vii) RBC Dain Rauscher Corp.; (viii) Stifel, Nicolaus & Company, Inc. ("SNC"); and (ix) Bear, Stearns & Co., Inc. The Court will refer to them as "the Underwriter Defendants." These Defendants are all underwriters of TMI's public offerings—in other words, these Defendants each bought TMI stock and sold that stock to other investors, implementing TMI's public offerings. Citibank, AG Edwards, and SNC underwrote the May 2007 offering, see CCAC ¶ 532, at 163; SNC, AG Edwards, RBC, BB & T, and Oppenheimer underwrote the June 2007 offering, see CCAC ¶ 535, at 164; FBR underwrote the September 2007 offering, see CCAC ¶ 538, at 164; and FBR, UBS, Bear Stearns, and SNC all underwrote the February 2008 offering, see CCAC ¶ 541, at 165.

2. The Claims.

This federal-securities class action sets forth claims under the Securities Act of 1933, 15 U.S.C. §§ 77a to 77aa ("Securities Act") and under the Securities Exchange Act of 1934, 15 U.S.C. §§ 78a to 78oo ("Exchange Act"). Only the Securities Act claims are relevant to this motion, however, because the Plaintiffs assert only violations of the Securities Act against the Underwriter Defendants. See CCAC ¶¶ 551-21, at 157-62. Specifically, the Plaintiffs assert that the Underwriter Defendants are liable for violations of Sections 11, 12(a)(2), and 15 of the Securities Act, 15 U.S.C. §§ 77k, 77l(a)(2), and 77o. See CCAC ¶¶ 598-620, at 181-86.

3. Problems for Thornburg Mortgage, Inc.

TMI has, historically, acquired capital through public offerings of its securities, short-term borrowings—including reverse repurchase agreements ("RPAs")³—the issuance of asset—backed commercial paper ("ABCP"),⁴ and the issuance of collateralized debt obligations ("CDO").⁵ See id. ¶ 6, at 3. TMI was "heavily leveraged"— meaning that it borrowed a large amount of money compared to the amount of money that it had available to it.

TMI recognized the potential risk of the real-estate market going south, but repeatedly reassured analysts and its investors that its liquidity position—its ability to satisfy debt obligations as they arise— was not at risk. See id. ¶¶ 7, 82,...