Judge Throws Out CDO Claims Against Merrill Lynch

Munger, Tolles & Olson obtained a dismissal with prejudice on March 25, 2014 for client Merrill Lynch, Pierce, Fenner & Smith Incorporated in an action arising from Merrill Lynch’s sale of collateralized debt obligations (CDOs) to Eastern Financial Florida Credit Union.

Eastern Financial’s successor entity, Space Coast Credit Union, had alleged that Merrill Lynch and other broker-dealers made misrepresentations and falsely manipulated the credit ratings of CDOs sold to Eastern Financial. In March 2013, U.S. District Court Judge James I. Cohn of the Southern District of Florida dismissed the suit with leave to amend because the fraud-based allegations had not been pleaded with the required specificity. Space Coast responded with a much longer 150-page amended complaint, alleging that its “broad-based, loan-level forensic analyses” showed that the CDOs were “doomed” at the time of issuance and undeserving of higher credit ratings.

Munger Tolles’s motion to dismiss argued, among other things, that these allegations were still inadequate because Space Coast’s purported analyses were not sufficiently explained. The court agreed. “Space Coast has again failed to plead sufficient facts to show that the Bank Defendants committed fraud against Eastern,” it held. The court went on to deny leave to amend because, “in view of the substantial resources already expended in this case, granting leave to amend would not serve the interests of justice.”

The case is Space Coast Credit Union v. Merrill Lynch Pierce Fenner & Smith Inc. et al., case number 0:12-cv-60430.

The Munger Tolles team includes Marc T.G. Dworsky, George M. Garvey, Aaron S. Lowenstein and Christian K. Wrede.

Mr. Dworsky handles complex litigation in federal and state courts nationwide, particularly in the financial sector.

Mr. Garvey focuses his practice on securities and corporate governance, including class actions and derivative suits.

Mr. Lowenstein is a litigator whose practice is wide-ranging, with an emphasis on defending and counseling clients in professional malpractice, securities and antitrust matters.

Mr. Wrede is a complex civil litigation associate.