HARTFORD, Conn. (4/3/13)--The Department of Justice Friday said it opposes ratings agency Standard & Poor's request to move lawsuits filed against it by state attorneys general in various state courts into a single federal court in Connecticut. The lawsuits allege S&P committed fraud in rating residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs).
The suits were filed simultaneously on Feb. 5 by attorneys general in 17 states and the District of Columbia, as well as by the Justice Department in a federal court in California, against the McGraw-Hill Cos. Inc. and S&P's Financial Services LLC, which is owned by McGraw-Hill. The suit in California involves RMBS and CDOs sold to Western Corporate FCU.
S&P filed a motion March 25 in U.S. District Court in Hartford, Conn., asking it to take over the suit brought by Connecticut Attorney General George Jepsen and the other states. S&P does not argue taking over the federal case involving WesCorp. The Credit Union National Association is monitoring all the cases involving credit unions.
In its motion, S&P contends that state law claims can be moved to the federal court because state-court consideration of those claims would "disrupt and supplant" the regulation of S&P by the Securities & Exchange Commission under the Credit Rating Agency Reform Act of 2006, and would require "evaluation and adjudication of the scope and nature" of the act's regulatory scheme.
The Justice Department filed Friday a statement of interest supporting the states' claim with the court in Hartford. "There is no necessary federal component to the state-law claims, and hence no basis for S&P's assertion that the state cases fall within the 'special and small category' of cases in which removal may be appropriate," it noted. It made three arguments:
The states assert only state-law causes of action;
The states' right to relief does not necessarily depend on resolution of a substantial question of federal law; and
S&P's asserted preemption and First Amendment defenses do not provide a basis for removal.