It’s been a while since I’ve talked about the subprime mess.  For the record, I believe I was the first person to ever link the words "subprime" and "tsunami" in a single article when I predicted back on March 16, 2006, in a post entitled "The Subprime Squeeze," that "tsunami-like" waves of defaults would likely result from the "hockey stick" growth patterns in the subprime industry.  In fact, I just did a search of WESTLAW’s newspaper database, and no one had ever used the words subprime and tsunami in the same article before I had written that post.  How things have changed!  The "Subprime Tsunami" has hit land, deluged households, stalled the economy, revived a moribund class action industry, and become the full employment act for a battalion of defense lawyers worldwide.

Back about a year ago when subprime litigation was first revving up, I was moved to comment in this post on the Bankers Life v. Credit Suisse case, one of the first subprime litigation complaints filed nationwide, based on a post I had read in the Calculated Risk Blog (which remains to this day my number 1 "go-to" blog for timely, insightful, and depressing financial news).  In that post, I predicted the 8-count complaint wouldn’t fare too well.

Well, my prediction proved correct, as the plaintiff substantially amended the complaint about five months later to drop the four securities law-related counts and the third party beneficiary count that I predicted would be dismissed.  In its 17-count amended complaint, the plaintiff kept the fraud claims, which I predicted would be dismissed for lack of particularity, and added several new breach of fiduciary duty and breach of contract causes of action.  It also repled the negligent misrepresentation claim, which I predicted would be dismissed, by smartly beefing up this count to include specific allegations pointing to alleged misstatements in the prospectus upon which plaintiff allegedly relied in purchasing the depressed securities.

So how did the amended complaint fare against BigLaw’s motion to dismiss?

In this decision handed down by US District Court Judge Elizabeth A. Kovachevich last week, pretty darn well.  Bankers Life Ins. Co. v. Credit Suisse First Boston Corp., 2008 WL 1817294 (M.D. Fla. 4/22/08).  The fraud claims were dismissed, as predicted, for failure to plead with particularity, as was the conspiracy claim.   But, most of the breach of contract claims, the beefed-up negligent misrepresentation claim, and the breach of fiduciary duty counts stuck, to the sure dismay of the six defendants, none of whom were given a free pass by Judge Kovachevich.

So where does the litigation go from here?  My guess is that a global settlement is reached, and fast, with the hardest question being how to allocate fault (i.e., dollars) among the various deep-pocket defendants.  The plaintiff’s total stated loss is about $875,000, and with six different law firms representing the six defendants in the case, you can bet that $875,000 would be burned through long before the close of discovery.  

So, congrats to the plaintiff’s lawyers at The Hodkin Lopelowitz Ostrow Firm and Ledbetter & Associates, who proved, through their persistence, that hard work in litigation does sometimes pay off.

© Steve Jakubowski 2008