Judge Nixes Bid to Revive S&P Ratings Class Action
Like its fellow ratings agencies, Standard & Poor's once seemed virtually immune from liability for doling out AAA ratings to doomed-to-fail securities in the run-up to the subprime meltdown. A proposed class action lawsuit brought by investors in S&P parent McGraw Hill Companies Inc. was a case in point: A federal judge tossed the case back in March 2012, and the U.S. Court of Appeals for the Second Circuit briskly affirmed the dismissal last August.
Lately, however, the ratings agencies have been looking much more vulnerable to litigation fallout from the financial crisis, especially since the U.S. Justice Department lodged its own claims against S&P earlier this year. Maybe sensing opportunity in S&P's shifting fortunes, plaintiffs lawyers at Robbins Geller Rudman & Dowd cited the DOJ's suit and other new evidence in a last-ditch bid to revive their failed shareholder lawsuit. But U.S. District Judge Sidney Stein in Manhattan rejected the effort in a ruling Tuesday, concluding it was too little too late.
The Robbins Geller plaintiffs originally filed suit back in 2007, accusing S&P and two executives of making misleading statements and egregiously mismanaging the company's ratings of securities backed by residential mortgages.
Stein dismissed the suit in March 2012, ruling that some of the S&P statements at issue were "mere commercial puffery" and that the plaintiffs failed to adequately allege an intent to deceive investors. The Second Circuit upheld the ruling five months later.
Robbins Geller petitioned Stein for another shot at S&P after the Justice Department filed its 119-page complaint against the company in February. The plaintiffs pointed to detailed allegations in the DOJ's complaint related to S&P's ratings of residential mortgage-backed securities and collateralized debt obligations. (U.S. District Judge David Carter in Santa Ana, Calif., refused to dismiss the government's case against the company in July.)
The plaintiffs also cited deposition testimony given by the head of RMBS ratings for S&P during discovery in Abu Dhabi Commercial Bank's suit against Morgan Stanley & Co. That suit also originally named McGraw Hill as a defendant before dropping the S&P claims in April.
Stein was unmoved in Tuesday's decision, ruling that he wouldn't take the "extraordinary" step of resuscitating a twice-dismissed case.
"Plaintiffs' purported new evidence would not have changed the outcome of the original decision because those allegations do not correct the pleading defects for which the Court dismissed its previous complaint," Stein wrote.
We reached out to David George of Robbins Geller but didn't immediately hear back.
Floyd Abrams of Cahill Gordon & Reindel, who represents S&P, also did not immediately respond to a request for comment.
"Yesterday's ruling fully validates our position that the claim cannot be sustained and should never have been brought," an S&P spokesman said in a statement.