On May 8, Judge Jed Rakoff of the United States District Court for the Southern District of New York dismissed claims by the United States for damages and civil penalties under the False Claims Act against Countrywide and Bank of America. The court held that the government could proceed with its claims for violations of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989. FIRREA permits the government to recover civil penalties for fraudulent activities that “affect” federally insured financial institutions. The government alleged that Countrywide’s mortgage origination business had defrauded Fannie Mae and Freddie Mac. The court noted it would explain its reasoning at a later date. Order. Amended Complaint.
On April 29, Justice Eileen Bransten of the New York State Supreme Court issued an opinion granting in part and denying in part competing motions for summary judgment filed by MBIA and Countrywide in connection with tort and contract claims MBIA asserted concerning its insurance policies wrapping certain Countrywide RMBS. With respect to Countrywide’s motion, the Court i) granted Countrywide’s motion to dismiss MBIA’s claim for indemnification because the contract did not unequivocally provide MBIA with a right to indemnification for claims between the parties; (ii) denied the motion as to MBIA’s fraudulent inducement claim because of Countrywide’s failure to demonstrate that justifiable reliance is a required element of the claim under either statutory or common law; (iii) denied the motion as to claims for breach of the insurance agreements, holding that the language of the insurance agreement at issue did not limit MBIA to a “sole remedy” of repurchase and that MBIA had presented sufficient evidence to raise a triable issue that Countrywide was on notice of breaches throughout the collateral pools backing the RMBS at issue; (iv) ruled that MBIA had created issues of fact as to whether Countrywide committed servicing breaches with gross negligence; and (v) found triable issues of fact exist with respect to MBIA’s request for punitive damages in connection with its fraudulent inducement claim.
With respect to MBIA’s motion for summary judgment, the Court i) ruled that loans need not be in default in order to be eligible for repurchase; ii) found factual issues as to whether loans Countrywide classified as “severely unsatisfactory” breached Countrywide’s representations; iii) rejected MBIA’s argument that Countrywide’s refusal to repurchase loans constituted an anticipatory repudiation of its repurchase obligations; and iv) found that Countrywide had failed to raise triable fact issues on a loan-by-loan basis concerning the falsity of representations including as to appraisals, defaults, the accuracy of the mortgage loan schedule, and the contents of mortgage loan files. The Court ruled that whether those breaches were sufficiently material and adverse to trigger Countrywide’s repurchase obligation was a question for trial. Because that issue remains for trial, the Court declined MBIA’s request to extrapolate breach findings within a loan sample to the entire pool of loans at issue. Order.
On April 8, U.S. District Judge Mariana R. Pfaelzer of the Central District of California dismissed the FDIC’s suit against Countrywide. FDIC, as the receiver for Colonial Bank, filed suit against Countrywide and Bank of America as its successor for violations of the 1933 Securities Act. FDIC alleged Countrywide made false statements in offering documents in connection with the issuance of residential mortgage-backed securities in violation of Sections 11 and 15 of the Act. Judge Pfaelzer held that each claim was barred by the statute of limitations of one year from when the plaintiff discovered, or a reasonably diligently investor would have discovered, the alleged misstatement. Judge Pfalezer held that a reasonably diligent plaintiff would have had adequate information to make such a discovery before August 14, 2008, and consequently the bank’s claims had expired by the time the FDIC was appointed receiver, one year later. Decision.
On March 15, Judge Mariana Pfaelzer of the United States District Court for the Central District of California denied in part motions to dismiss brought by Countrywide, various individuals and various underwriters in connection with an amended complaint brought by the Federal Housing Finance Agency in connection with the sale of $26.6 billion in RMBS. Countrywide and its affiliates are alleged to have acted as issuer, originator and depositor in connection with the securitizations. The court held that FHFA plausibly alleged that the offering documents concerning the sale of the RMBS contained material misrepresentations and omissions regarding loan-to-value ratios, underwriting guidelines and credit ratings of the RMBS, but dismissed FHFA’s allegations involving owner-occupancy data. The court dismissed claims of negligent misrepresentation and aiding and abetting fraud as to all defendants, claims under Washington, D.C.’s blue sky law and Section 12(a)(2) of the Securities Act of 1933 against subsidiaries of Countrywide that were depositors, successor liability claims against Bank of America and claims under Section 11 of the Securities Act of 1933 against the Individual Defendants. Among the claims that survived the motions to dismiss are claims under Sections 11 and 12(a)(2) against the underwriter defendants and a common law fraud claim against the Countrywide defendants. Defendants initially had filed first-stage motions to dismiss FHFA’s claims on timeliness and legislative jurisdiction grounds, which the court denied last year. Order.
Bank of America announced on January 7 that it would pay $3.6 billion to Federal National Mortgage Association (Fannie Mae) and repurchase for $6.75 billion certain residential mortgage loans sold to Fannie Mae. The agreement, which covers loans with an aggregate original principal balance of approximately $1.4 trillion and an aggregate outstanding principal balance of approximately $300 billion, resolves all outstanding and future representation and warranty claims associated with substantially all residential mortgage loans sold directly to Fannie Mae by Bank of America or Countrywide from January 1, 2000 through December 31, 2008. Press Release.
On January 3, Judge Mariana R. Pfaelzer of the Central District of California ruled on motions to dismiss filed by defendants Countrywide, Bank of America, and UBS in an action brought against them by the Federal Deposit Insurance Corp. (FDIC) concerning $108.4 million in residential mortgage-backed securities. The Court’s order concerned the FDIC’s claims under Section 11-51-501(1)(b) of the Colorado Securities Act. The Court granted the motions with respect to alleged misstatements pertaining to owner-occupancy data and additional liens because the Offering Documents indicated that this data was self-reported by borrowers. It also granted the motion with respect to successor liability claims asserted against Bank of America. The Court denied the motions with respect to alleged misstatements pertaining to loan underwriting standards and appraisals. The Court also denied the motions with respect to defendants’ argument that the FDIC did not adequately allege reliance and causation, holding that those are not elements of the FDIC’s claim and thus not required to be pled. Opinion.
On December 6, Judge Mariana Pfaelzer of the United States District Court for the Central District of California dismissed in part claims brought by several insurance companies, including Minnesota Life Insurance Company, in connection with the purchase of $114 million in RMBS issued by Countrywide. Although the court denied Countrywide’s motion to dismiss the fraud claim against it, the court dismissed plaintiffs’ negligent misrepresentation claim and claims under various Minnesota consumer protection statutes. The court granted Bank of America’s motion to dismiss in its entirety, holding that plaintiffs had not sufficiently alleged successor liability against Bank of America. Decision.
On November 13, Phoenix Light SF Limited and other investors filed a summons with notice in the Supreme Court for the State of New York against Bank of America and various Countrywide affiliates. Plaintiffs assert claims for common-law fraud, fraudulent inducement, negligent misrepresentation, and aiding and abetting fraud arising out of their alleged purchase of $261 million of RMBS. Plaintiffs allege misrepresentations in the offering documents regarding underwriting guidelines, loan characteristics, the securities’ credit ratings, and the validity of the trusts and the assignments of loans to the trusts. The case seeks over $122 million in damages. Summons with Notice.
On October 19, Judge Mariana R. Pfaelzer of the Central District of California dismissed with prejudice four cases against Countrywide Financial Corp., and related entities, pursuant to stipulations among the parties. Landesbank Baden-Wurttemberg, Dexia SA, Sealink Funding Ltd., and Thrivent Financial for Lutherans, had each pursued separate but similar claims against Countrywide alleging that Countrywide had concealed underwriting failures and misrepresented the quality of the loans to ratings agencies in order to receive better ratings for its RMBS. The plaintiffs, combined, had sought relief in connection with alleged misrepresentations that affected more than $2 billion RMBS bought between 2005 to 2007. The stipulations did not reveal any terms other than that each party would shoulder its own attorneys fees and costs. Stipulations.
On October 23, Royal Bank of Scotland (RBS) agreed to pay $42.5 million to the State of Nevada in a settlement to end an investigation by the Nevada Attorney General into RBS’s mortgage acquisition and securitization business. The investigation focused particularly on RBS’s acquisition and securitization of subprime and pay-option adjustable rate mortgages originated by Countrywide and Option One. The Nevada Attorney General’s investigation concerned potential misrepresentations made in connection with the origination of those loans as well as RBS’s potential awareness of the originators’ allegedly deceptive practices. In addition to the settlement payment, RBS agreed to certain conditions for its future financing of subprime and pay option mortgages secured by Nevada properties, including a “reasonable review” requirement to ensure that the loans adequately disclose interest rate and payment information and are based on documented borrower income. In entering into the settlement, RBS did not admit to any wrongdoing. Agreement.