Cases & Deals

Financial institutions win Sixth Circuit appeal dismissing novel public nuisance suit filed by City of Cleveland

Clients Lehman Brothers Holdings Inc., Morgan Stanley, Bank of America Corporation and RBS Greenwich Capital

On July 27, 2010, the United States Court of Appeals for the Sixth Circuit ruled in favor of Jones Day clients Morgan Stanley and RBS Securities, along with 20 other financial institutions, in an appeal involving a novel, high-profile public nuisance claim filed by the City of Cleveland. The City had claimed that the financial services industry, or "Wall Street," created a public nuisance by engaging in the securitization of subprime mortgages on residences in Cleveland. According to the City, "Wall Street" knew or should have known that Cleveland's "unique" economic situation made it inappropriate for subprime lending. The City alleged hundreds of millions of dollars in damages to it from this purported public nuisance as a result of increased monitoring, maintenance, and demolition of foreclosed properties, and the diminution of the City's property tax revenues.

On behalf of the larger defense group, Jones Day took the lead in removing the case to federal court and moving to dismiss. The District Court refused to remand the case to state court and subsequently dismissed the case. The City appealed, and Jones Day once again took the lead on behalf of the defense group. The Court of Appeals affirmed, holding that the case was properly removed to federal court and that the City had failed to state a legally sufficient claim. In particular, the Court held that the connection between the alleged harms and the alleged misconduct was too indirect to warrant recovery. The Jones Day appellate team included David Adler of the Firm's Financial Institutions Litigation and Regulation practice (who argued the appeal on behalf of all defendants-appellees) and Louis Chaiten and Eric Murphy of the Firm's Issues and Appeals practice.

City of Cleveland v. Ameriquest Mortgage Securities, Inc. et al., United States Court of Appeals for the Sixth Circuit, Case No. 09-3608

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