Merrill Lynch

HSBC Sues Merrill Lynch and Bank of America for $420 Million Relating to RMBS Deal

On May 24, 2016, HSBC Bank USA, N.A., in its capacity as Trustee of Merrill Lynch Alternative Note Asset Trust, Series 2007-0AR5 (“the Trust”), served a summons with notice on Merrill Lynch Mortgage Lending, Inc. (“Merrill”), Countrywide Home Loans, Inc. (“Countrywide”), and Bank of America, N.A. (“BofA”), in their respective capacities as sponsor, originator, and servicer of the Trust, alleging that the three Defendants discovered that mortgage loans securitized in the Trust breached certain representations and warranties and failed to notify the Trustee in accord with their contractual obligations.  Specifically, HSBC alleges that Merrill, Countrywide, and BofA discovered the breaches through (i) the performance of their respective roles as issuer, originator, and servicer; and (ii) through their participation in multiple government investigations related to the origination, securitization, and servicing or mortgage loans.  The summons with notice seeks $420 million in damages. Summons with Notice.

Eleven Banks Reach Settlement with Commonwealth of Virginia on RMBS Claims

On Friday, January 22, 2016, eleven banks, including Merrill Lynch, RBS, and Barclays, agreed to settle claims brought by the Commonwealth of Virginia in a 2014 action alleging misrepresentations as to the nature, quality, characteristics, and risk profile of RMBS certificates. The certificates were purchased by the Virginia Retirement System, an agency of the Virginia Commonwealth.  In its complaint, the Commonwealth alleged injury of $383.91 million and demanded treble damages of $1.15 billion, plus a civil penalty of $5,000-$11,000 per violation.  The settlement announced on January 22 is for $63 million.  Press ReleaseComplaint.

Prudential Settles $2B RMBS Suit with Bank of America and Merrill Lynch & Co.

On April 22, 2015, Bank of America and Merrill Lynch reached an agreement with several Prudential Insurance Co. affiliates to settle two lawsuits brought by Prudential.  Prudential had alleged that Bank of America and Merrill Lynch made false statements about the quality of $2.1 billion worth of residential mortgage backed securities they sold to Prudential.  The parties filed a stipulation of dismissal with prejudice but the settlement terms are otherwise undisclosed.  Stipulation.

Bank of America and Merrill Lynch Settle RMBS Lawsuit with FDIC

On November 17, Bank of America and Merrill Lynch settled securities claims brought by the FDIC related to RMBS sold to United Western Bank.  The FDIC, as the receiver for United Western Bank, alleged claims under the Securities Act of 1933 and the Colorado Securities Act against Bank of America, Merrill Lynch, Morgan Stanley, and RBS Securities related to $110 million in RMBS. The case against Morgan Stanley and RBS remains pending.  Stipulation.

Second Circuit Affirms Dismissal of Untimely CDO Claims against Merrill Lynch

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.

Prudential Sues Bank of America Over $2 Billion in RMBS

On March 14, several Prudential entities filed suit in the United States District Court for the District of New Jersey against several Bank of America and Merrill Lynch entities in connection with Prudential’s investments in more than $2 billion in RMBS sold by the Defendants.  The Complaint alleges that the Defendants made knowingly false statements of material fact and omissions regarding compliance with underwriting guidelines, omissions regarding due diligence results and misrepresentations as to owner-occupancy rates, appraisals, loan-to-value ratios, assignments of the loans underlying the securities to the trusts and the credit ratings of the securities.  Prudential asserts causes of action for common-law fraud and fraudulent inducement, aiding and abetting fraud and fraudulent inducement, equitable fraud, negligent misrepresentation, violations of New Jersey’s civil RICO statute and violations of sections 11 and 12(a)(2) of the Securities Act of 1933.  Complaint.

Court Grants in Part Motions to Dismiss Allstate RMBS Lawsuits

On March 15, Judge Eileen Bransten of the Supreme Court of the State of New York granted in part and denied in part motions to dismiss brought by Merrill Lynch, Deutsche Bank and Morgan Stanley entities (together Defendants) in respective lawsuits brought against them by certain Allstate entities related to Allstate’s purchases of RMBS.  The court dismissed Allstate’s negligent misrepresentation claim against all Defendants, concluding that Allstate had not alleged either that Defendants had the required specialized knowledge or that Defendants had a special or privity-like relationship with Allstate.  The court also dismissed all claims as to two of the Deutsche Bank certificates and federal securities claims against Merrill Lynch as untimely, but rejected Defendants’ arguments that other claims were untimely.  The court denied Defendants’ motions to dismiss as to Allstate’s fraud claims.  The court also concluded that Defendants can face liability for distributing statements they allegedly knew to be false, even if the statements were originally made by third parties, such as originators or rating agencies.  Deutsche Bank Order; Merrill Order; Morgan Stanley Order.

$193 Million RMBS Suit Against Countrywide Dismissed as Untimely

On January 10, Judge Mariana R. Pfaelzer of the United States District Court for the Central District of California dismissed a $193 million suit brought by mutual fund Asset Management Fund against several Bank of America and several related entities, including Merrill Lynch and Countrywide Financial.  The case initially was brought in New York Supreme Court and was removed to federal court and later transferred to be part of the Countrywide Multi-District Litigation.  The plaintiffs brought claims for common law fraud, fraudulent concealment, negligent misrepresentation, and aiding and abetting the fraud of others.  The court held that the suit, alleging misrepresentations regarding the underlying mortgage loans including compliance with underwriting rate of owner occupancy, ratio of LTV, and transfer of title, was untimely under all of the statutes of limitations that could apply.  The court granted Asset Management Fund leave to replead as to the $10 million purchase of RMBS it allegedly made after March 1, 2007.  Decision.

Trustee Brings Putback Action Against Merrill Lynch

On December 18, 2012, U.S. Bank, acting in its capacity as Trustee for two Merrill Lynch RMBS trusts that issued over $1 billion in RMBS certificates, filed a complaint in New York Supreme Court against Merrill Lynch.  The Trustee alleges that Merrill Lynch breached representations and warranties concerning the borrowers’ income and employment, the borrowers’ debts and debt-to-income ratio at the time the mortgages were originated, property value and loan-to-value ratios, and the owner-occupancy rates of the underlying properties.  The Trustee asserts seven causes of action for breach of contract, anticipatory breach, and declaratory judgment, and seeks to require Merrill Lynch to repurchase the loans.  Complaint. 

Federal Court Orders Bayerische Landesbank RMBS Lawsuits Back to State Court

On July 16, Judge Lewis A. Kaplan of U.S. District Court for the Southern District of New York remanded suits brought by Bayerische Landesbank against Bear Stearns and Merrill Lynch to the Supreme Court of the State of New York, where they were originally filed. The lawsuits allege that Defendants knowingly made misrepresentations in RMBS offering materials concerning the underwriting standards used in connection with the underlying mortgage loans. Defendants sought removal to federal court on the ground that the cases were related to bankruptcy proceedings of the originators of some of the underlying mortgages. Judge Kaplan’s remand order indicated that a further written order may be forthcoming. Order. Notice of Removal.