ModeratorHON. GLEN M.ASHWORTH (RET.)Mediator/Arbitrator, JAMS (Dallas)www.jamsadr.com

Securitization Litigation & The DebtCrisis: What’s on the Horizon?

AShworth: Thesubjectofourconversationtodayistheimpactofthecurrentdebtcrisisonmortgageandassetbackedsecuritieslitigation.Debtsecuritizationhascertainlybeenthemostsignificantfinancingvehiclesincethe1980s,butwearecurrentlyworkinginanenvironmentofheightenedrisk.Weknowthatapproximately70%ofsubprimeloanshavebeensecuritized,buttherearealsomassivepoolsofcommercialandconsumerdebt,includingautoloans,studentloansandcreditcarddebt.Anewsdaydoesn’tpasswithoutsomenewreferencetotheU.S.mortgagecrisis,thecreditmeltdown,therecentrescueandacquisitionofBearStearnsbyJPMorganChase&Co.,theFannieMae/FreddieMacrescue,Congressionalinvestigationandgovernmentintervention.ThepotentiallossesintheU.S.mortgagecrisisaloneareestimatedatupto$1trilliondollars.

ParticipantsTalcott (Tal) J. Franklin, Esq. Partner, Patton Boggs, LLPTerrell (Terry) Oxford, Esq. Partner, Susman Godfrey, LLPGerard (Gerry) G. Pecht, Esq. Partner, Fulbright & Jaworski, LLPGeorge Wailand, Esq. Partner, Cahill Gordon & Reindel, LLP

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Astheuseofsecuritizationhasexpand-edinthemarkets,eachuniqueunderlyingassetgroupwhichistransformedintoanew,moreliquidinvestmentvehiclealsooffersequallyuniqueinvestorrightsandresponsibilities.IknoweachofyouhavecommittedasubstantialamountofyourpracticestothesesecuritizationissuesandI’dliketotalkaboutyourviewsregardingwherewearetodayandwhat’sonthelegalhorizon.

Generallyspeaking,thetrialofasecuritizationcaserepresentsasubstan-tialundertakingoftimeandresources.Procedurallyunwieldy,itismostcertainlydocumentintensive,oftenwithhundredsofthousandsofinstrumentssupportingandassigningtheunderlyingdebt.Soasastartingpoint,let’sbeginwithadiscus-sionofstanding.Whoownstherighttosuehasalwaysbeenadifficultthresholdquestioninthesecases. Tal,youhavetriedaswellaswrittenonthisissue.Whatisthestatusnow? FrAnklin: Standinginthesecaseshascausedgreatdifficulty.Inarecentruling,abankruptcycourtsanctionedasecu-ritization’sservicer,itscounsel,andthetrusteeacombined$650,000forwhatIbelievewasaresultofcounsel’sfailuretounderstandthesecuritizationstructurewithrespecttostanding.Judgesarealsodismissingcasesforfailuretodemonstrateloanownershipinbringingthesuit.Inotherinstances,judgesarequestioningtheveracityofaffidavitsdemonstrat-ingloanownershipbythesecuritizationtrusts.Regardlessofwhethertheserulingssignifyatrendoradepartureinthelawofstanding,theypointouttheneedforadditionalpre-suitdiligencebyattorneyslitigatinginthisarea.Ifyouarelitigatingsomeaspectofthecreditcrisisanddon’tunderstandsecuritization,youarecourt-ingdisaster. Pecht: InthebankruptcycaseTalmentions,thecourtsanctionedboththeloanoriginatorandthetrusteeofthesubprimemortgagepoolforrepeatedly

misrepresentingwhoactuallyownedthecreditor’srights.Thecourtcommentedthat“[t]helinkbetweenlenderandbor-rowerinthecurrentresidentialmortgageindustryisamultilayered,tightly—ifnothopelessly—entangled‘assemblyline,’thepurposeofwhichseemstobetheavoid-anceofresponsibility.”Thecourtshavebeenalertedtothiscomplication,andarebeingvigilantinensuringthatthecorrectentitiesareassertingcreditors’rights.Inthatenvironment,lawyersandtheirclientsmustpayattentiontothedetailsofthetransactions,nomatterhowcomplicated. oxForD: Iwouldsaythatanyservicershouldcertainlytrytomakesure,whennegotiatingthedealonthefrontend,thattheoperativedocumentsgiveittherighttosue.Leavingalawsuitinthe

“We know that securitization litigation has the capability to require a huge time outlay by the lawyers, a significant cost to clients, and take up a sizeable amount of the court’s time.”

– Glen Ashworth

handsoftheinvestorsconstitutesarecipefordisaster–lackofwillingnesstosue,coordinationofsuits,allkindsofprob-lems. AShworth: Irecentlymediatedacaselikethat–whereloanownershipwasnotclearlydemonstrableandaffectedtheservicer’srighttosue.Theissuecreatedahugeproblemregardingproofandwasoneofthemainreasonsthepartieschoseearlymediation. Okay,nowlet’sturntoclaims.Hasthecurrentexpansionofdebtsecuritizationaffectedapotentialplaintiff’scausesofactions,notjustthebreachclaims,but

GEORGE WAiLAND, ESq.Partner, cahill Gordon & reindel, llP (new York)

www.cahill.com

“The success of any claims against rating agencies would depend on whether there is real evidence of intentional wrongdoing, given their First Amendment protections.”

– George Wailand

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alsothetortclaims? FrAnklin: Asecuritizationhasanenormousnumberofparticipants,eachofwhomisapotentialplaintiff:thebor-rowerswhoseloansaresecuritized,thelenders,depositors,andotherpartieswhoparticipateinestablishingthetrustoritscollateral,theservicersandtrusteeswhoadministerthetrust,andthecer-tificateholderswhoinvestinthetrust.Ifyouchartoutthepartiesandstartdrawinglinesbetweenthemsignifyingwhocansuewho,itlookslikeabowlofspaghetti. Whiletheclaimsthemselvesap-pearrelativelyconventional–breachofcontractandwarranty,negligentmisrepresentation,fraud–placingtheseinasecuritizationcontextputstheminunchartedterritory.Forexample,youhaveaseriesofvoluminousandcomplexdocumentsthatestablishthesecuritiza-tiontrust,subjecttolending,securities,andtaxlaw.Further,manyoftherulingsthatexistappearcontradictory,particu-larlywithrespecttothetortclaims.Soyouhaveatransactiongenerallyworthover$1billionthatinvolveshundredsofpartiesandisgovernedbyvoluminousregulations,complexdocuments,andinconsistentprecedent.Notsurprisingly,itwilltakealongtimetosortthisout. wAilAnD: The‘33and‘34Actclaimsbyinvestorsagainstissuersandunder-writersmaybedifficulttodefendifthelevelofdiligencehaddeterioratedtotheextentdescribedbythemediaandpundits.Otherareaslikelytobepursuedarethesufficiencyofthedisclosureaboutthecreditworthinessofthebor-rowers,thequalityoftheappraisals,theassumptionsusedindefiningthelevelofriskinvestorswereundertaking,thepossibleimpairmentinthevalueofthemortgagesandtheriskdisclosureitself.Thesuccessofanyclaimsagainstratingagencieswoulddependuponwhetherthereisrealevidenceofintentionalwrongdoing,giventheirFirstAmend-mentprotections. Wearelikelytoseenumerousput-backclaimstooriginators,loansellersanddepositors.Totheextentthatorigi-natorsmayhaveencouragedorbeen

complicitinborrowerfraud,thoseclaimswillbedifficultclaimstodefend.Mu-nicipalitiesarealsogettingintotheactbytryingtoprotecttheirlargeswathsofneighborhoodsfrombeingoverrunbyforeclosures.Thereare,ofcourse,thesecuritiesandderivativeclaimsbyinves-torsinthefinancialinstitutionsthathavetakenbillionsofdollarsinwrite-downsandhavetakenoff-bookitemsontotheirbalancesheets.Onarelatednote,valuationofMBSsecuritieshasproventobedifficultinthisareaandislikelytogeneratecustomerlitigation.Howfinan-cialinstitutionschoseassetstoputintoSIVsandpotentialdifferencesinhowinstitutionsvaluedtheirownportfolioversusthevaluationgiventocomparableassetsplacedinSIVsmaypresentsomeinterestingdisputes. Finally,someofthefundsinvestinginrealestateonaleveragedbasiswere

marketedassafe,cash-equivalenttypeinvestmentsgeneratinghigherreturns.Theliquiditycrisiswipedoutmassiveamountsofvalueinthesefundsastheywereforcedtoselltheirleveragedpositionsintohighlyilliquidmarketsathugelossestomeetlenders’callstopaydowntheloansorpostadditionalcollateral.TheresultwasthatinvestorswhounderstoodtheywereputtingtheirmoneyintoconservativeinvestmentvehiclesthatwerepurchasingAAA-ratedmortgageandotherdebtsecuritieslostmostoralloftheirinvestments.Thattooshouldbeafertilegroundforlitigation. Pecht: Securitizationsuitscomeinmanyflavorswithmanypotentialparticipants.Somesuitsinvolvethepartiestothesecuritizationtransac-tionsthemselves,somesuitsinvolvethemortgageessuchasthebankruptcycasementionedabove,andmanyothersinvolveshareholdersintheinvestmentbanksandinvestorsinsubprimesecuri-ties.Investmentbanksinparticularfacelitigationonanumberoffronts.Thebankshavebeensuedbytheirownshareholdersallegingfailuretodisclose

exposuretosubprimeassets,byinves-torsinsecuritizedpoolsofsubprimemortgagesallegedfailuretodiscloseriskintheprospectuses,byinvestorsallegingthatthebanksaidedfraudcommittedbyhedgefunds,andbytrusteesofnowdefunctloanoriginatorsallegingthatthebanksaidedthemisconductofthemanagementofthebankruptoriginator. Thesubprimecollapsealsocreatedarippleeffect,embroilingentitiesofallsortsinlitigationtangentiallyrelatedtothesubprimemarket.Forexample,theeffectofthecollapseonthemonolineinsurerscausedaliquiditycrisisforhold-ersofauction-ratesecurities,andaspateoflitigationhasbloomedinthatmarketaswell,affectingissuers,investmentbanks,brokers,insurers,andinvestors.Thesheervarietyofissuesandpotentialclaimsmeansthatlawyersmusthaveagoodgraspofboththeeconomicandlegalissuessurroundingthesubprimemarket.WeatFulbright&JaworskihaveformedaSubprimePracticeGrouptodealwiththeseissues,pullingtalentfromacrosspracticeareastoensurewehavetheneededexpertise.WehavealsoformedanAuction-RateSecuritiesTask-forcetodealspecificallywithlitigationspawnedfromthatsituation. oxForD: Thegoodnewsabouttheclaimsisthatthecontractstypi-callycontainstrongrepresentationsandwarranties–atleast,strongenoughtosupporttheclaims.Theplaintiffshouldbeentitledtorelyontheserepresenta-tionsasamatteroflaw,withouthavingtoprovematerialityoractualreliance.Moreover,representationsandwarran-tiesservethepurposeofrelievingthepurchaserofduediligenceonthosematters.Anysubsequentlawsuitshouldthereforeavoidgoingoffonatangentofwhetherthepurchaserwasorwasnotcarefulenoughinexaminingtheloansinthetrust. Thebadnewsisthatthelawofmoststatesgreatlyreducestheabilitytobringtortclaimsincontractcases–Imightadd–particularlyincasessoheavilylaw-yeredandpaperedover.Severalpanel-istshavenotedthecomplexityofthesesecuritizationtransactions.Ihopetheplaintiff’slawyerscanfindintheircaseswhatwefoundinoneofours–adocu-mentpreparedbythedefendantthatsimplyexplainstheentireprocess.Idon’tthinkanyonecangetasluckyaswedid,becausethedefendant’sdrawingturnedonanalogizingtheentiresecuritizationprocessto“makingsausages.” Thisdrawing,bytheway,findsacloseparallelinwhatIhaveheardseveralWallStreetanalystssay:ifyouputgarbagein,howcanyouexpectanyresultotherthan“garbageout.”Implicitinwhat

TALCOTT (TAL) J. FRANkLiN , ESq.Partner, Patton Boggs, llP (Dallas)www.pattonboggs.com

“If you are litigating some aspect of the credit crisis and don’t understand securitiza-tion, you are courting disas-ter.” – Tal Franklin

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“[T]he defendant’s drawing turned on analogizing the entire securitization process to “making sausages.””

– Terry Oxford

Iamsayingisthatitisthejoboftheplaintiff’scounseltomaketheprocess–andthecase,forthatmatter–assimpleandunderstandableaspossible. AShworth:George,havinghadtheprivilegeofbeingthespecialmasterinacaseinwhichyouweredefensecounsel,whatnewdefenseshavedevelopedandhowhavetheymorphedtorespondtotheseclaims? wAilAnD: PleadinghurdleserectedbyrecentSupremeCourtcaselawwillmakestatingasecuritiesclaimtougher,butthesemattersaresowellpublicized,particularlyinthesubprimearea,thattheburdensarecertainlynotinsurmountable.Moreover,withthevariousSEC,federalgrandjuryandAGinvestigations,hotdocumentsarelikelytoturnupsoonerratherthanlater.Ianticipatethatcausationwillbeanimportantdefenseonboththeliabilityandthedamagesides.Wehavehadanunprecedentedmeltdowninthehousingmarketandalesserdisruptioninotherrealestateanddebtmarkets.Theattri-butionoflossescausedbythesemarketdeclinestofraudwillbeproblematicandenormousamountsofresourceswillbespentoneconomiststoshowthatdamagesclaimedwerenotproximatelycausedbyanyallegedfraud,butratherbygeneraldeclinesinrealestatevalues.ArelatedcausationissuearisesfromthefactsthatMBSinvestorsknewtheywerepurchasingilliquidsecuritiesandthattheilliquidityofthesecuritieswasasignificantfactorcontributingtotheloss.Thesophisticationofinvestorsinsecuritizationvehicles,theiraccesstoinformationregardingthespecificinvest-mentandtheirknowledgeofthemarketconditionsandunderwritingpracticesthatcreatedsomeoftheproblemsinthesub-primemarketwillprovidesomeinterestingargumentsfordefendants. AShworth: Gerry,Iknowyoufollowthecasesclosely,whatareyourthoughtsaboutthis? Pecht: TheSupremeCourtandotherfederalcourtshavebecomeincreasinglyhostiletoplaintiffs’claimsunderthesecuritieslaws.TheSupremeCourt’sdecisionsinTellabs Inc. v. Makor Issuers & Rights Ltd.andinDura Pharmaceuti-cals, Inc. v. Broudrequirethataplaintiffpleadfactsraisingastronginferenceofscienteranddemonstratelosscausa-tion.IntheFifthCircuit,plaintiffsmustnowdemonstratelosscausationtoevencertifyaclassunderthesecuritieslaws.Mostrecently,theSupremeCourtstrictlylimitedtheabilityofplaintiffstomakeclaimsagainstsecondaryactorsunderthe“schemeliability”theoryinStoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc.Giventheweb

oftransactionsinvolvedinthesesecuri-tiessuits,plaintiffsmayhavedifficultyassertingclaimsagainstabankwhentheallegedprimaryactoris,forexample,ahedgefundorloanoriginator,andwhentheprecisecauseofthesubprimelossesishardtopinpoint. AShworth: Terry,anyresponsefromthePlaintiff’sperspective? oxForD: Plaintiff’scounselcanmuchmoreeasilybuildacasearoundafewhotdocumentsandgoodexamplesthantrytoexamineeveryloanthatwentintothepackage.Bestleaveittothedefen-dantstoborethejurywiththedetailsofeachloanandwhythedefendants–inspiteoftheparticularmesstheycreatedandtheawfulstinkarisingoutoftheindustryingeneral–reallydidrightbytheinvestors.GeorgeandGerrybothnotethehostilityoftheSupremeCourttoplaintiffs’securitiesclaims,but–hey!–whyshouldthoseclaimsbeanydif-ferent?OurSupremeCourtascurrentlyconstitutedexhibitsahostilitytoALLplaintiffs’claims,no?Forthisreason,however,Ilikethelawsuitsinwhichthetrusteeorservicerbringscontractclaims

basedontherepsandwarranties.ThatkindoflawsuitpresentsthebestchancetoavoidmischiefbyanactiveCourt. AShworth: OneofthetrendsI’mnoticinginmyADRpracticeisthatthefinancialpaininthiscreditmeltdownisbringingmoreanddifferentpartiesintothelitigationprocess.Inyouropinion,whichpartieswithinthe“securitizationstructure”haveemergedwiththemostinterestingclaimsanddefenses? FrAnklin: Peopleseemfascinatedbyadefenseanticipatedfromtheratingagencies.Theratingagencieseachreceiveda“nationallyrecognizedstatisticalratingorganizations”desig-nationfromtheSECtoperformtheirwork,sotheyhadfewcompetitors.Theissuerwouldpaytheratingagencytoratethetransaction,whichtheratingagenciesmaintainconstitutesanopinionastothedefaultriskoftheunderlyingassets.Accordingtooneestimate,due

totheinitialratingscombinedwiththere-securitizationofvarioussecuritizedinterests,82centsoutofeverysubprimedollarultimatelycommandedan“AAA”rating.Withthebenefitofhindsight,theratingagencieshavedowngradedanumberofsubprimetransactions.Downgradesinothercontextshavehis-toricallyledtolitigationovertheratings.Inthosecases,theratingagencieshaveassertedthattheratingmerelyconstitut-edtheagency’sopinion,whichisspeechprotectedbytheFirstAmendmenttotheUnitedStatesConstitution.InanotablecaseinvolvingEnron,thisdefenseprovedsuccessful.Whethertheratingagenciescansimilarlysucceedinthiscontextwillbeinterestingtofollow. AShworth: ItappearsobviousthatthedepthandbreadthofthiscreditcrisiswillnotavoidthescrutinyofregulatorsandCongress.Whatistheoneproposaleachofyouhaveseensofarthatwillhavethegreatestimpactonsecuritiza-tionfinancinggoingforward,andwhatwouldbeitslegalimplication? wAilAnD: TheproposalsthatIhavefoundthemosttroublinginvolvetheimpositionofalong-termmoratoriumonforeclosureandfreezesonadjustableinterestratesthataretemporallyunre-latedtotheperceivedcrisisand,thus,constitutionallydubiousandproposalsthatrequirelenderstoacceptareducedprincipalvaluecommensuratewiththedeclineinthevalueofthesecuredrealestate.Totheextentthatthereexiststhepotentialforonceagainhavingavibrantnon-GSEMBSmarketinthefuture,suchproposalswouldkillit. FrAnklin: Themaindangerofmanyproposalsbeingconsideredtodealwiththewaveofforeclosuresisthattheydonottakeintoaccounttheuniqueaspectsofthesecuritizationstructure.Forexam-ple,aservicermaynothaveanoptionwhetherornottoadjustanadjustableratemortgage.Buteveniftheservicerhasanoptionunderitscontract,thepossibilityofcertificateholdersuitsstillexists.Forexample,acertificateholderwhowasentitledtoreceiveinterestbutnotprincipalmightobjectifaservicerchosenottoadjusttheadjustable

TERRELL (TERRY) OXFORD, ESq.Partner, Susman Godfrey, llP (Dallas)

www.susmangodfrey.com

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ratemortgagesinapool,becausethecertificateholdermadetheinvestmentanticipatingtheinterestrateadjust-ments.Soproposalsthatdonotaccountforthesecuritizationstructurecancausemoreproblemsthantheysolve. Pecht: Thesheervarietyofpropos-alsfloatedinanattempttodealwiththesubprimecrisiswillprobablymakeithardforanysingleproposaltobead-opted.Giventhevarietyofparticipantsinthesubprimemarket,includingbanks,creditratingagencies,loanoriginators,trustees,andinvestors,itwouldalsobedifficultforanysingleproposaltoad-dresstheissuesrelatedtothesubprimemarketinanysortofcomprehensiveway.Becauseofthenetworkoftransac-tionsandparticipantsinthesubprimemarket,regulationinthisareaisfarmorelikelytohavesevereunintendedconsequencesthantoultimatelybesuc-cessful. AShworth: Weknowthatsecuriti-zationlitigationhasthecapabilitytore-quireahugetimeoutlaybythelawyers,asignificantcosttoclients,andtakeupasizeableamountofthecourt’stime.WhataspectsofADRdoyoubelievearehelpfultomaketheprocessmoreefficient?Arethereanyinnovativeuseswhichyouhavefoundeffective? wAilAnD: Securitizationcases,par-ticularlythoseinvolvinganentirepooloralargepartofone,havethecapacitytoclogthecourtsystem.Eachpropertyhasitsownissuessoyouaredealingwithtensorevenhundredsofsmallercasesbundledupintoabiggercase.Inmyexperience,thelevelofjudicialinterven-tionrequiredinsuchcasesexceedsthetimemostjudgesareableorwillingtocommit.Foralloftheissuesthatcanarisetobeaddressedinameaningfulway,aspecialmasterwhohasthetime,skillandjudicialbackgroundisreallyanecessity. Anotherfrighteningthoughtisex-plainingthefinancialconceptsinvolvedinsecuritizationtoevenasophisticatedjury(andonethatnodoubtisangryabouttherequiredtimecommitment)andhopingthattheycanabsorbthenumerousdifferentfactualscenariosthat

arelikelytobeinvolvedinasecuriti-zationcaseandplacethemintothecontextofaseriesofcomplexgovern-ingcontracts.Inmyexperiencewithselectingjurorsinthisarea,onesideconsistentlysoughttoseatthemosthighlyeducatedjurorsandtheothersidewaslookingforexactlytheopposite,suggestingthattheparties’juryresearchyieldedstrikinglysimilarresults. Tome,thesecasescryoutforADR.NotonlydoIbelievethatthepartiesoweittothemselvesandthejudicialsystemtofindthebestmediators,butthesecasesarestrongcandidatesforpost-disputearbitrationagreementssothattheissuescanbequicklyandefficientlydecidedbyapanelthathasthebackgroundandtemperamenttocomprehendtheissuesinvolvedandmakedispassionatedecisionsbasedontheevidenceandagreementsandfreeofpreconceivednotionsaboutparticipantsinthefinancialmarkets.

Pecht: MeaningfulADRiscriticaltomanagetheriskofhigh-stakeslitigationinthisarea.Securitiesclassactionsoftenallegepotentialdamagesinthehun-dredsofmillionsofdollars,whilework-ingwithanexperiencedmediatorcanmitigatetheriskofalargejuryverdict.Particularlyinanarealikesubprime,withsomanycomplicatedrelationshipsandtransactionsandsomuchpresslikelytoinfluencepotentialjurors,anexperi-encedmediatorwithsecuritieslitigationexperiencecanbeinvaluableinresolvingacaseinwhichajuryverdictiswildlyunpredictable. FrAnklin: Jurorswhogetimpan-eledonthesecasesoftencry.Thejurorswillbesacrificingcareeropportunities,familytime,andmuchmoretodecidetheparties’dispute.Thelitigantsoweittothosepeopletoengageingoodfaithsettlementdiscussions.Goodfaithnego-tiationsoverseenbyamediatorlikeyouwithexperienceinsecuritizationcases

aremorelikelytoresultinresolutionor,ataminimum,acleanconscienceinask-ingthejurytohearthedispute.Inad-dition,itisoftenimportanttorealizeinlitigatingasecuritizationcasethat,whiletheremaybeadisputeaboutsomeportionoftheloanpool,thepartiesstillneedtoworktogetherwithrespecttotheotherloansinthepool. Consequently,lawyersmustzeal-ouslyrepresentclientswhileremainingcourteousandprofessional,treatingallwitnesseswithrespect,anddisagree-ingwithoutbeingdisagreeable.ADRcanhelpwiththis.Forexample,acourt,inreferencetothecasesyou,George,Terry,andIworkedon,calledthem“scorchedearth”litigation,buttherewasneveranyanimuswithrespecttocounsel.That’satributetotheprofes-sionalismofthelawyersinvolved,butalsotothefactthatyouasaspecialmasterhadtheluxuryofgainingadeepunderstandingoftheverycomplexfactsandmakingquickanddetailedrulings. AShworth: Thanksforthat,Tal,butIstillrememberhowuncomfortableweallfeltlookingatthejurypanelandappreciatingthattheirservicehadthepotentialtolastmanyweeks. oxForD: Wedidhaveonejurorbreakdownintearswhenselectedforourjury.Perhapsshefeltatthatpointshecouldmakeuseofheractingback-ground,butcertainlytheotherjurorsse-lecteddidnotfeelawholelotdifferent.IthinktheJudgeandplaintiff’scounselcandomuchtogivethejurypanelafeelingofsomeprideandpatriotisminhelpingresolveaseriousdisputestem-mingoutofanationwidecrisis.Beyondthat,ofcourse,alternativedisputereso-lutioncanprovideawelcomesolution. InthecaseTal,George,andIlitigated,thepartiesworkedoutaspecialmasterarrangementthatkeptthevastdisputeoutofthecourthouseandgreatlyreducedexpenses.Nevertheless,IoftenmarveledathowdifficultTexaslawmadeittocreatethatkindofarrange-ment.Forexample,wehadtomakecarefulprovisionforappealofcertainrulings.IthereforethinktheLegislaturecouldhelpusoutquiteabitbymakingiteasierforthepartiestofinancelitiga-tionparalleltotheusualcourtsystem,therebysparingthepublicjudicialsystemtheburdensofalargecase,whilepermittingthepartiestocraftasystemmoresuitedtotheirownneeds. AShworth: Gentlemen,thankyouforyourthoughtsandexpertiseonthisverydifficulttopic.Byallaccounts,westillhavenotseenthelightattheendofthecreditcrisistunnel.Itshouldpresentachallengingtimeforallofusinvolvedinthesesecuritizationissues.

GERARD (GERRY) G. PECHT, ESq.Partner, Fulbright &Jaworski, llP (houston)www.fulbright.com

“Particularly in an area like subprime, an experienced mediator with securities litigation experience can be invaluable in resolving a case in which a jury verdict is wildly unpredictable.”

– Gerry Pecht