On November 25, the United States Court of Appeals for the Second Circuit upheld the dismissal of IKB Deutsche Industriebank AG’s suit against Bank of America. IKB alleged that BofA fraudulently misrepresented the quality of loans underlying mortgage backed securities sold in 2005 and 2006. The court held that the complaint’s generalized allegations that BofA knew of claimed mortgage defects by virtue of access to due diligence reports prepared by Clayton and BofA’s own due diligence procedures were not sufficient to plead fraudulent intent. The court also affirmed dismissal of IKB’s claim for fraud relating to representations about the transfer of mortgages to the issuing trust, holding that these representations constituted promises to perform in the future and thus were not the proper subject of a fraud claim absent allegations that there was an intent not to perform at the time the promises were made. Summary Order.
On October 30, Bank of America notified Judge Katherine B. Forrest of the United States District Court for the Southern District of New York of a planned settlement of an action brought by pension funds in 2012. The funds had alleged that Bank of America and U.S. Bank violated their duty to ensure that the loans underlying 19 Washington Mutual RMBS portfolios did not contain missing, defective, or incomplete documents, and to ensure that defective loans were removed from the trusts. The complaint included claims for violating the Trust Indenture Act of 1939, breach of contract, and breach of the implied covenant of good faith and fair dealing. Letter. Complaint.
On August 28, in light of a settlement reached between the parties, Judge Mariana R. Pfaelzer of the United States District Court for the Central District of California dismissed a lawsuit brought by National Integrity Life Insurance Company against various Bank of America and Countrywide entities in connection with more than US$447 million in RMBS. The complaint alleged claims under the Securities Act of 1933, the Ohio Securities Act, the Ohio Corrupt Activities Act, and various common law causes of action arising out of alleged misstatements made in the RMBS offering documents. The amount and terms of the settlement were not disclosed. Order.
On August 18, Judge Katherine Forrest of the United States District Court for the Southern District of New York terminated a pending motion for class certification in light of a settlement in principle reached between a class of RMBS investors and Bank of America N.A. and U.S. Bank N.A., the trustees for the RMBS trusts. Plaintiffs had alleged that Bank of America and U.S. Bank allowed incomplete or defective loan files as well as loans with underwriting errors to remain in the loan pool, despite their statutory duty as trustees to have such loans repurchased from the trusts. The amount and terms of the settlement were not disclosed. Order.
On March 26, Bank of America and the Federal Housing Finance Agency (FHFA), as conservator of Fannie Mae and Freddie Mac, announced a settlement of FHFA’s RMBS-related suits against the Bank. The Bank has agreed to pay approximately US$9.3 billion to settle allegations that it violated federal and state securities laws in connection with private-label RMBS purchased by Fannie Mae and Freddie Mac between 2005 and 2007. Pursuant to the agreement, approximately US$5.83 billion will be allocated by FHFA to settle all claims asserted in four lawsuits brought by FHFA against Bank of America, Countrywide, and Merrill Lynch, and the remainder will be allocated to repurchases by Bank of America of RMBS held by Fannie Mae and Freddie Mac. Bank of America Press Release. FHFA Press Release. Settlement Agreement.
On January 31, Justice Barbara R. Kapnick of the Supreme Court of New York for New York County approved, with one exception, an US$8.5 billion settlement between Bank of America and a group of RMBS investors. The Bank of New York Mellon, acting as the trustee for trusts that in the aggregate issued US$424 billion in RMBS backed by mortgages originated by Countrywide, entered into an agreement with Bank of America in 2011 to resolve claims alleging breaches of representations and warranties and alleged violations of prudent servicing obligations. After more than two years of State and Federal Court proceedings, Justice Kapnick approved the settlement, and found that BNY Mellon as Trustee did not abuse its discretion or act in bad faith or outside the bounds of reasonable judgment in reaching the settlement, except to agree to the settlement of certain loan modification claims, which the Court did not approve. The Court declined to approve the compromise of the loan modification claims based on its conclusion that BNY Mellon settled those claims “without investigating their potential worth or strength.” Order.
On November 21, the Court of Appeals for the Second Circuit affirmed the dismissal of a suit brought by South Korea‘s Woori Bank against Merrill Lynch & Co., Inc. and Bank of America Corp. on statute of limitations grounds. The bank brought claims for fraud, rescission, negligent misrepresentation and unjust enrichment on May 18, 2012 stemming from its $143 million investment in several collateralized debt obligations. The Second Circuit agreed with the lower court that publicity about Merrill Lynch’s CDOs, related lawsuits and government investigations sufficiently alerted Woori to any claims prior to May 2009. The bank’s claims were therefore time-barred under South Korea’s applicable three year statute of limitations. Decision.
On December 2, Bank of America announced that it settled claims brought by Freddie Mac for $404 million. The settlement resolves all remaining representations and warranties claims against Bank of America brought by Freddie Mac related to residential mortgage loans sold to the government-controlled company between 2000 and 2009. The settlement does not cover loan servicing obligations, loans in private label securitizations, or securities and disclosure claims. Press Release.
On August 6, the SEC and the U.S. Department of Justice filed parallel civil suits against several Bank of America affiliates, alleging that the bank defrauded investors in connection with its packaging and sale of US$850 million in RMBS. The actions, both filed in the Western District of North Carolina, allege that BofA misled investors by failing to disclose information concerning the quality of the loans backing the RMBS, including their origination channel, misrepresenting compliance with underwriting guidelines, and making other false statements in loan tapes and free writing prospectuses filed with the SEC. The SEC sued BofA for alleged violations of Sections 17(a)(2), 17(a)(3), and 5(b)(1) of the Securities Act of 1933. SEC Complaint. The DOJ sued BofA for alleged violations of Sections 1001 and 1014 of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. DOJ Complaint.
On May 29, Justice Eileen Bransten in the Supreme Court of the State of New York partially granted a motion to dismiss in a case by U.S Bank against Bank of America and Countrywide seeking the repurchase of 4,484 mortgages securitized in a $1.75 billion RMBS trust. Justice Bransten held that U.S. Bank could not, under the relevant contracts, seek repurchase of all loans in the trust on the basis of alleged “pervasive breaches” of representations and warranties related to mortgage loans, and therefore dismissed the portion of U.S. Bank’s complaint seeking complete repurchase of all loans. Justice Bransten, however, held that U.S. Bank’s claim for repurchase of 495 individual loans for which U.S. Bank had provided notice of breach to Countrywide, and that Countrywide had not yet repurchased, was adequately pled and thus could proceed. Order.