McGraw Hill Financial Inc. (MHFI) and its Standard & Poor’s unit won a bid to move to federal court in New York lawsuits filed by 14 states and the District of Columbia accusing the companies of inflating mortgage-backed securities ratings.
The U.S. Judicial Panel on Multidistrict Litigation today granted the request, concluding that consolidating the cases for pre-trial matters including motions and the disclosure of evidence was the most efficient way to proceed.
“S&P has its principal place of business in this district and the witnesses and evidence relating to the states’ claims may be found there,” the six-judge panel said in its order. “New York is also where some of the alleged misconduct occurred.”
Almost all the state lawsuits faced by New York-based McGraw Hill and S&P were brought in February and timed to coincide with the U.S. Justice Department’s filing of a lawsuit in Santa Ana, California, that raised similar allegations.
In March, the companies filed for removal of state court cases filed by Arizona, Colorado, Delaware, Maine, Missouri, North Carolina, South Carolina, Washington and other states to corresponding federal court districts as a prelude to the defense request for pre-trial consolidation in New York.
“Even though we have never centralized litigation comprised solely of sovereign enforcement actions such as these, centralization is appropriate in light of the significant factual overlap among all actions,” said U.S. District Judge Kathryn Vratil of Topeka, Kansas, who signed the panel’s ruling.
Deputy Delaware Attorney General Greg Strong led the opposition on the states’ behalf at a May 30 panel hearing in Louisville, Kentucky. Strong told the panel the attorneys general were capable of working together without it.
The chief law officer for each jurisdiction wants to enforce the law of his state, Strong said. He also told the panel that there would be “significant harm and significant expense” in compelling attorneys general from states as far as Arizona and Idaho to travel to New York.
Panelist Lewis Kaplan, a Manhattan federal judge, called that argument “a wee bit exaggerated,” noting the litigants would still need to come to New York for depositions of McGraw Hill and S&P witnesses and that the cases would be returned to their home federal courts for trial.
Floyd Abrams of Cahill Gordon & Reindel LLP, who is leading the defense, told the panel that “anyone who has anything to do with this case” in New York. He also emphasized that consolidation would be for pre-trial purposes.
“These states aren’t losing any substantive rights to try these cases before their people in these states,” Abrams said.
“We are pleased that this panel of federal judges agreed with us and granted our motion to consolidate these 15 cases before one federal court in the Southern District of New York,” Edward Sweeney, an S&P spokesman, said in an e-mail. The companies have said the suits lack merit.
“It’s a big win,” Paul Huey-Burns, a securities-enforcement defense attorney at Potomac, Maryland’s Shulman Rogers Gandal Pordy & Ecker PA, said in a phone interview today. “You want to fight one battle, rather than multiple battles and you want to fight it in a jurisdiction where you have some reasonable belief that you will get a reasonable and fair hearing.”
While the companies weren’t precluded from getting a fair hearing elsewhere, the attorney said, it was clear they were concerned with having to defend the allegations in courts more local to the attorneys general who filed the lawsuits.
“That may be winning this battle, but by no means does it mean that they’ve won the war,” said Huey-Burns, calling the states’ allegations serious. “They still have to defend this case, even if they only have to fight it once.” He isn’t involved in the litigation.
Connecticut, which filed suit in 2010, and Illinois, which sued the companies in 2012, won federal court orders returning their cases to the state courts where they were first filed. Judges in each case concluded the defense had waited too long to transfer the matters to U.S. court.
Pending motions by the states to return, or remand, the cases to their respective state courts will now be decided by U.S. District Judge Jesse M. Furman, to whom the multidistrict panel assigned the litigation.
Class-action plaintiffs’ lawyer Kenneth A. Wexler of Chicago, who has practiced before the multidistrict panel and isn’t involved in the McGraw Hill cases, said today’s decision may affect how Furman rules on the motions.
“If I was a state, with a motion for remand pending, I’d be concerned that the reasons given for consolidating these actions before one judge could have an influence on the remand decision of that judge,” Wexler said today in a phone interview. “It seems that the panel has expressed a preference to not have 15 different cases pending.”
Furman will also need to be briefed on the applicable laws of each state, Wexler said. “As a sovereign, I would rather have a judge within my sovereignty, who knows the law of the state, making those decisions.”
The multidistrict case is In Re: Ratings Agency Litigation, MDL No. 2446, Judicial Panel on Multidistrict Litigation (Louisville, Kentucky). The U.S. case is U.S. v. McGraw-Hill, 13-cv-00779, U.S. District Court, Central District of California (Santa Ana).
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