In re National Mortgage Equity Corp. Mortgage Pool Certificates Securities Litigation

David Feldman (defendant) was the manager of National Mortgage Equity Corporation (NMEC) (defendant). In coordination with Wells Fargo Bank (Wells Fargo) (defendant) and Advance Mortgage Corporation (Advance) (defendant), NMEC marketed mortgage pass-through certificates to various institutional investors. Each certificate represented an undivided interest in a pool of residential mortgages, which entitled the certificate holder to receive pass-through payments at a fixed rate, irrespective of the mortgage rates paid by individual mortgagors. NMEC marketed the certificates through private-placement memoranda prepared by the law firm of Lord, Bissell and Brook (Lord Bissell) (defendant) and its partner, Leslie Michael (defendant). Bank of America (BOA) (plaintiff) acted as escrow agent for each pool of loans. BOA also served as trustee for most, but not all, of the pools of loans. In its capacity as trustee, BOA reviewed documentation provided by NMEC regarding the mortgages to determine whether the mortgages satisfied the applicable standards in the pooling and servicing agreements. NMEC, Feldman, Lord Bissell, and Michael made representations to the investors that the mortgages in each pool met high underwriting standards and were adequately insured. In reality, the mortgages did not meet these standards. NMEC, Feldman, Lord Bissell, and Michael falsely described the mortgages in an effort to personally profit from fraudulent mortgage-related transactions. In late 1984 and early 1985, one of the investor institutions advised BOA of irregularities in the mortgage-pool documents. BOA investigated and discovered the underlying fraudulent conduct. BOA, as trustee, stood to incur liability to the investor institutions based on the investors’ losses associated with the fraud. Accordingly, BOA resolved the liability by repaying the investors through cash and collateral in the amount of $133 million. After paying back the investors, BOA was left with a net loss of $38 million. BOA filed a lawsuit against NMEC, Feldman, Lord Bissell, and Michael based on the violation of federal and state securities laws, common-law fraud, and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). Lord Bissell and Michael moved to dismiss on the grounds that the one-satisfaction rule (also known as the one-recovery rule), pursuant to which an injured party could recover only once for a single injury, precluded assignment to BOA of the securities and common-law-fraud claims.