On June 28, 2012, the New York Appellate Division, First Department, affirmed the dismissal of Walnut Place’s $1.1 billion RMBS suit against Countrywide and Bank of America. Walnut Place sued derivatively on behalf of an RMBS trustee seeking to compel repurchase of securitized loans due to alleged breaches of representations and warranties about the loans in the pooling and servicing agreement (“PSA”). The court held that the “no-action” clause in the PSA precludes the investor plaintiffs from bringing any action related to the PSA other than for an “event of default,” which is defined to include only loan servicing-related claims and does not include the representation and warranty claims plaintiffs attempted to assert. Order.
Countrywide
New York, Delaware AGs Again Intervene in BofA-Countrywide MBS Settlement Proceeding
On Wednesday, June 6, 2012, Judge Barbara R. Kapnick granted the motions of the Attorneys General of the states of New York and Delaware to intervene in the proceeding to approve the $8.5 billion settlement between Bank of America and investors in certain Countrywide MBS. Both Attorneys General previously had been allowed to intervene in related federal court proceedings. The case was subsequently remanded to state court, where the New York and Delaware AGs again sought to intervene. In granting the motions over the objection of the trustee for the MBS trusts and certain institutional investors, Judge Kapnick found that the Attorneys General had “identified legitimate quasi-sovereign interests at play in this Proceeding,” and that the intervention would not result in undue delay. Order.
Court Dismisses in Part AIG’s Claims Against Bank of America and Countrywide
On May 23, 2012, Judge Mariana R. Pfaelzer of the Central District of California dismissed with prejudice the majority of claims brought by AIG in a suit against Bank of America and Countrywide over the sale of RMBS certificates. Judge Pfaelzer held that because AIG purchased the securities at issue more than three years before filing suit, its federal securities claims were time-barred under the three-year statute of repose for claims under the Securities Act of 1933. Judge Pfaelzer determined that a majority of AIG’s common law claims, including negligent misrepresentation and fraud, were also time-barred under the relevant states’ statutes of limitation. The court found that certain additional common law claims were part of a tolling agreement that tolled claims between January 13, 2011 and August 5, 2011, and were thus timely. Order.
IKB Brings Two RMBS Lawsuits Against Bank of America and Related Entities
On May 15, 2012, IKB Deutsche Industriebank AG and an IKB affiliate filed two lawsuits against Bank of America and related entities in the New York Supreme Court. The first, in which several Countrywide entities are also defendants, arises out of IKB’s alleged investment in 29 RMBS certificates worth $200.3 million issued by Countrywide. The second, in which several Merrill Lynch entities are also defendants, arises out of IKB’s alleged investment in 13 RMBS certificates worth $56.2 million issued by Bank of America and Merrill Lynch. The summonses with notice filed in the suits are substantively identical. In each, IKB alleges that the offering materials for the RMBS in which it invested contained material misrepresentations and omissions regarding the underwriting standards used to originate the underlying mortgage loans, the statistical characteristics of the loans, the securities’ credit ratings, the legal validity of the assignment of the underlying mortgage loans to the issuing trusts, and the entitlement of the trusts to receive principal and interest payments on the loans. IKB asserts causes of action for common-law fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, declaratory judgment, and contract claims. IKB seeks actual and punitive damages, rescissory damages, and fees and costs. IKB-BofA/Merrill Summons. IKB-BofA/Countrywide Summons.
California Federal Court Partially Dismisses RMBS Claims In Countrywide MDL Action
On April 16, 2012, Judge Mariana R. Pfaelzer of the Central District of California dismissed in part an RMBS action brought by Massachusetts Mutual Life Insurance Co. (“MassMutual”) against Countrywide, JPMorgan, Deutsche Bank, UBS, and various individual defendants. This case, which asserts claims under the Massachusetts Uniform Securities Act (“MUSA”), was transferred to the Countrywide MDL for pre-trial proceedings. In addressing defendants’ initial motions to dismiss on the issues of timeliness, standing and jurisdiction, Judge Pfaelzer found that the court lacked personal jurisdiction over the individual defendants who moved on this ground and dismissed all claims against them with prejudice. Judge Pfaelzer also found that only the Underwriter Defendants could be held liable as a seller under the MUSA, and dismissed the MUSA claims against the other defendants with prejudice. Judge Pfaelzer declined to dismiss the remaining claims based on the statute of limitations. Decision.
New York State Appeals Court Affirms Denial of BofA’s Motion to Sever and Consolidate Successor Liability Claims
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.
New York Attorney General Again Seeks to Intervene in $8.5 Billion Bank of America MBS Settlement
On April 10, 2012, New York Attorney General Eric Schneiderman filed an amended pleading in intervention in the Article 77 settlement approval proceeding concerning Countrywide RMBS that is currently pending New York state court. The Attorney General challenges the fairness and adequacy of Bank of America’s $8.5 billion proposed settlement addressing representation and warranty claims against Countrywide, claiming that the $8.5 billion settlement does not adequately cover investors’ losses, which are alleged to be $242 billion. The Attorney General also points out that only 22 investors directly participated in the settlement negotiations. The Attorney General’s earlier motion to intervene, filed last August, was determined to be moot when the case was removed to federal court. Pleading.
Federal Court Dismisses Claims Against Bank of New York Mellon
On April 3, 2012, Judge William H. Pauley of the U.S. District Court for the Southern District of New York dismissed with prejudice nearly all claims against Bank of New York Mellon, as trustee, by four plaintiff pension funds in a putative class action relating to 530 Countrywide RMBS trusts worth $424 billion. Plaintiffs allege that Bank of New York Mellon violated the Trust Indenture Act and breached its contractual and fiduciary duties by failing to remedy the allegedly inadequate servicing of the mortgages underlying the trusts. The court found the plaintiffs lacked standing to bring claims under the Trustee Indenture Act relating to trusts in which they did not actually invest. As a result of the decision, only 26 trusts worth $30 billion remain in the litigation. Decision.
Landesbank Baden-Wuttenberg Files $455 Million RMBS Suit Against Countrywide
On March 29, 2012, German bank Landesbank Baden-Wurttemberg (“LBW”) filed a suit against Countrywide Financial Corp. and related entities in the Supreme Court of the State of New York alleging that Countrywide misrepresented the underwriting standards and appraisals for the loans underlying $455 million of RMBS allegedly purchased by LBW in eleven offerings between 2005 and 2007. LBW further alleges that Countrywide misrepresented information to credit rating agencies resulting in faulty ratings, misrepresented that the issuing trusts possessed good title to the underlying loans, and ignored underwriting deficiencies by other originators whose loans it purchased. LBW alleges claims for fraud, aiding and abetting fraud, negligent misrepresentation, successor and vicarious liability, and violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933. LBW seeks unspecified money damages and rescission. Complaint.
Walnut Place’s $1.1 Billion RMBS Suit Against Countrywide Dismissed
On March 28, 2012, Justice Barbara R. Kapnick of the Supreme Court of the State of New York dismissed Walnut Place LLC’s suit against Countrywide and Bank of America in connection with the repurchase of $1.1 billion in Countrywide RMBS. Walnut Place, a holder of the certificates issued by the securitization trusts at issue, filed the action as a derivative suit asserting breach of contract claims. It alleged that Countrywide made false representations and warranties in the offering documents concerning the characteristics and credit quality of the loans underlying the securities at issue. In dismissing the case, the court held that the lawsuit was premature, noting that it was filed by Walnut Place only a few days after the bondholders’ trustee, nominal defendant Bank of New York Mellon, had requested more time to evaluate Walnut Place’s pre-litigation demand concerning the alleged breaches. Order.