Ambac

New York Court of Appeals Requires Ambac to Follow Repurchase Protocol and Prove Elements of Fraud Claim

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On June 27, 2018, the New York Court of Appeals ruled that Ambac Assurance Corporation (“Ambac“) could not recover the full $2.2 billion in damages it sought in the form of claim payouts on $25 billion worth of securitized mortgages from Countrywide Home Loans, Inc. (“Countrywide“). Ambac, a monoline financial guaranty insurer, had agreed to insure payments of principal and interest owed to holders of 17 RMBS securitizations that had been sponsored by Countrywide. Ambac sued Countrywide, alleging claims for fraudulent inducement and breach of contractual representations and warranties. At summary judgment, Ambac contended that it was not required to prove justifiable reliance or loss causation for the fraudulent inducement claim, and that the contract’s repurchase protocol—specified to be the sole remedy for breaches of representations and warranties—did not govern its contractual claims. READ MORE →

Monoline Insurer Sues Trustee Over Settlement Figure in RMBS Repurchase Action

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On June 8, 2018, monoline insurer Ambac Assurance Corporation (“Ambac“) filed a complaint in the United States District Court for the Southern District of New York against U.S. Bank National Association (“U.S. Bank“), trustee of the Harborview Mortgage Loan Trust 2005-10 (the “Trust“). The complaint alleges that U.S. Bank breached certain contractual and common law duties when it agreed to a proposed $94 million settlement of an ongoing RMBS repurchase action in New York state court against Bank of America, N.A. and certain affiliates, as successors to Countrywide Home Loans, Inc. (the “Countrywide Action“). Among other things, Ambac alleges that U.S. Bank was required to observe heightened duties of care when an Event of Default occurred under the governing PSA, and that U.S. Bank breached those duties when it agreed to settle the Countrywide Action for approximately 28% of the amount that its expert opined it was entitled to recover. Ambac further alleges that U.S. Bank breached the PSA by incorrectly accounting for recoveries received by the Trust. The complaint asserts two claims for declaratory judgments, two claims for breach of contract, and one claim for breach of fiduciary duty.  Complaint.

Ambac and J.P. Morgan Reach $995M RMBS Settlement

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On Monday, January 25, 2016, monoline insurer Ambac Assurance Corporation (“Ambac”) reached a $995 million settlement with J.P. Morgan, resolving two RMBS actions pending before Justice Ramos in the Supreme Court of the State of New York and Ambac’s objections to J.P. Morgan’s $4.5 billion global settlement with RMBS trustees.  We previously covered Ambac’s actions against J.P. Morgan here, here and here.  In those actions, Ambac brought claims against J.P. Morgan as the successor to EMC Mortgage and Bear Stearns for alleged misrepresentation of the quality the loans underlying eleven RMBS transactions.  The settlement also resolves Ambac’s objections to J.P. Morgan’s 2014 settlement with RMBS trustees of claims for alleged breaches of representations and warranties and servicing deficiencies. The adequacy of that settlement is currently the subject of an Article 77 proceeding before Justice Friedman of the Supreme Court of the State of New York, which we previously covered here.  Press Release.  Stipulation of Withdrawal.

Ambac Sues Countrywide For Alleged Fraud in Connection with $1.7 Billion in RMBS

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On December 27, Ambac Assurance Corporation filed a complaint against several Countrywide entities and Bank of America Corporation in New York state court, seeking to recover at least $600 million in damages in connection with claims payments Ambac allegedly made under insurance policies it issued on eight RMBS trusts. Ambac alleges that between 2005 and 2007, Countrywide made false and misleading statements at meetings with Ambac and in prospectus supplements and loan tapes issued in connection with the trusts that induced Ambac to issue its insurance policies. Ambac asserts a cause of action for fraudulent inducement against the Countrywide entities and a cause of action for successor liability against Bank of America.  Complaint.

Commentary: Five Lessons from the Municipal Derivatives Litigation Front

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Pre-financial crisis, interest rate derivatives were widely recognized as a valuable part of the municipal issuer’s financial toolkit.  Post-crisis, they have been a thorn in the side of many issuers, resulting in expensive litigation with failed swap providers – most notably the Lehman and Ambac derivatives trading subsidiaries – and public criticism of municipal issuers said to have fallen prey to more sophisticated providers.  There are several lessons to be learned from the recent spate of litigation, which Orrick covered in an article recently published in The Bond Buyer.

New York State Appeals Court Affirms Denial of BofA’s Motion to Sever and Consolidate Successor Liability Claims

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On April 5, 2012, a five-judge panel for the New York’s First Department intermediate appellate court affirmed a lower court’s ruling that denied Bank of America’s motion to sever successor liability claims brought against it from the primary claims in four separate actions brought by four monoline insurers. Bank of America had requested that, once severed from the underlying lawsuits, the successor liability claims should be consolidated into a separate proceeding for discovery purposes. The four insurers, Ambac Assurance Corp, Financial Guaranty Insurance Co, MBIA Inc, and Syncora Guarantee Inc., claim in their respective lawsuits that Countrywide ignored underwriting guidelines, resulting in loans that were riskier than had been represented to the insurers and thus subjecting the insurers to billions of dollars in insurance claims when the loans defaulted. They seek to hold Bank of America liable under theories of successor liability related to Bank of America’s acquisition of Countrywide. In affirming the denial of Bank of America’s motion, the appeals court reasoned that the four actions were at different stages of discovery and that consolidation would result in undue delay.  Order.

Ambac Sues JP Morgan Over Insurance of Bear Stearns RMBS

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On March 30, 2012, Ambac Assurance Corp. brought claims against J.P. Morgan Chase, EMC Mortgage, and Bear Stearns in the Supreme Court of the State of New York, alleging fraudulent marketing of RMBS by Bear Stearns. Ambac alleges that Bear Stearns, which was acquired by J.P. Morgan, misrepresented the quality of the underlying mortgage loans when obtaining insurance from Ambac on the RMBS. Ambac, which alleges losses of $200 million, brings claims for fraudulent inducement, breach of contract, and successor liability. Complaint.

Bank of America’s Motion to Consolidate Actions by Bond Insurers Denied

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On October 31, 2011, Justice Bransten of the Supreme Court for the State of New York denied Bank of America’s (“BofA”) motion to split the successor liability claims from four separate lawsuits pending against the bank and consolidate those claims into a single case. Four monoline insurers that insured Countrywide mortgage-backed securities – MBIA Inc., Syncora Guarantee Inc., Ambac Assurance Corp., and Financial Guaranty Insurance Co. – have sued BofA and Countrywide for fraud and breach of contract. BofA argued that the nearly identical successor liability claims in the four suits should be severed from the individual cases, consolidated, and stayed until after primary liability is decided. Justice Bransten agreed the claims were similar but found severance and consolidation would prejudice MBIA, the first to file suit, by unduly delaying its claims while the other insurers conduct discovery. Decision.

Ambac, Underwriters Settle Putative Class Action for $33 Million

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On May 6, 2011, Ambac Financial Group, Inc., several of its officers and directors, and several underwriters of Ambac securities offerings filed stipulations of settlement with the Southern District of New York to resolve a putative shareholder class action filed on behalf of purchasers and acquirers of Ambac securities. Plaintiffs claimed that the now bankrupt bond insurer concealed that it had lowered its policy underwriting standards, allowing it to insure risky financial products, including RMBS. The settlements provide for payments of $2.5 million by Ambac, $24.6 million by Ambac’s D&O policy insurers, and $5.9 million by the underwriters, UBS Securities, Goldman Sachs & Co., and JP Morgan Securities. Ambac Complaint. Ambac Settlement. Ambac Underwriters Settlement.

Orrick Obtains Dismissal of Ambac’s Fraud Claim Against Credit Suisse

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Ambac Assurance Corp. v. DLJ Mortgage Capital, Inc./ Credit Suisse, No. 600070/2010 (Sup. Ct. N.Y. Apr. 7, 2011) (Kornreich, J.)

Justice Shirley Kornreich of the Supreme Court of the State of New York dismissed Ambac Assurance Corp.’s claim that it was fraudulently induced to insure a Credit Suisse RMBS issuance. Among other things, the Court found that an allegedly fraudulent representation that the loans at issue conformed to underwriting guidelines was not actionable because Ambac had access to all relevant information and failed to investigate, and because Ambac failed to obtain a contractual representation or warranty. Other aspects of the fraud claim were dismissed as duplicative of Ambac’s contract claim, which alleges that certain loans did not meet applicable representations and warranties. Orrick represents Credit Suisse in this matter. Decision.