On March 1, 2012, Asset Management Fund filed a summons with notice in New York state court against Bank of America, Merrill Lynch, Countrywide, Credit Suisse, Goldman Sachs, and others. Asset Management Fund alleges that it purchased $239 million in RMBS from defendants, and that the offering documents in connection with the sales of those securities contained material misstatements and omissions. The summons asserts claims for common-law fraud, fraudulent inducement, negligent misrepresentation, aiding and abetting fraud, declaratory judgment, and breach of contract. Asset Management Fund is seeking approximately $478 million in damages, including punitive damages, and alternatively seeks rescission. Summons.
Countrywide
U.S. Supreme Court Denies Countrywide’s Petition for Certiorari
On December 5, 2011, the United States Supreme Court denied a petition for certiorari in a California state court securities class action case against Countrywide Financial. In that case, plaintiffs allege that Countrywide made false and misleading statements about the quality of loans underlying RMBS. Countrywide argued that the case should be heard in federal court because plaintiffs asserted claims solely under the Securities Act of 1933, and the Securities Litigation Uniform Standards Act of 1998 establishes exclusive federal jurisdiction in certain ’33 Act cases. The California Court of Appeal had decided the case could properly be brought in state court. Order List.
Court Grants Unopposed Motion for Class Certification in $2.5 Billion Countrywide RMBS Lawsuit
On November 29, 2011, Judge Mariana R. Pfaelzer of the Central District of California issued an order certifying a class of Countrywide Financial Corp. investors in an action alleging that Countrywide made misrepresentations in connection with the sale of certain RMBS. On September 30, 2011, the plaintiffs and defendants stipulated to a proposed class that was consistent with the Court’s rulings on various motions to dismiss, which had significantly narrowed the scope of the potential class plaintiffs originally sought to represent. The Iowa Public Employees’ Retirement System was named lead plaintiff on behalf of a class of purchasers of eight different tranches of Countrywide RMBS. Order.
New York and Delaware Attorneys General Permitted to Intervene in Bank of America Settlement Approval Proceeding
On November 18, 2011, U.S. District Judge William H. Pauley III of the Southern District of New York granted the requests of the attorneys general of New York and Delaware to intervene in the proceeding seeking approval of an $8.5 billion settlement between Bank of America Corp. and the Bank of New York Mellon, as trustee for several trusts that issued Countrywide Financial Corp. RMBS certificates. The Court found that the intervention of the state AGs would protect the interests of absent investors. In the same order, the Court denied requests to intervene brought by four individual homeowners who are obligors on mortgages owned by one or more of the trusts covered by the proposed settlement agreement. The Court found that the homeowners lacked a direct financial interest in the outcome of the case and could not establish any potential prejudice they might suffer by not being permitted to participate in the settlement approval proceeding. Order.
Insurance Company Files Mortgage-Backed Security Action Against Countrywide, Bank of America
On November 9, 2011, National Integrity Life Insurance Co. filed a complaint against Countrywide Financial Corporation, former Countrywide executives and Bank of America in the United States District Court for the Southern District of New York, accusing Countrywide of fraud and misstatements in connection with nearly $450 million in RMBS allegedly purchased by the insurer. National Integrity alleges Countrywide abandoned its underwriting standards and misled the insurer about the quality of loans underlying the securities. National Integrity asserts causes of action for common law fraud, civil conspiracy, and violations of the Ohio Securities Act, the Ohio Corrupt Activities Act and federal securities laws, including Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Section 10(b) and 20(a) of the Exchange Act of 1934. Complaint.
Bank of America’s Motion to Consolidate Actions by Bond Insurers Denied
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.
Court Grants, in Large Part, Motions to Dismiss in Allstate’s Lawsuit Against Countrywide
On October 21, 2011, Judge Pfaelzer of the U.S. District Court for the Central District of California issued an order largely granting motions by Countrywide, various of its officers and directors, and Bank of America to dismiss various federal securities and state law claims asserted by Allstate arising out of Allstate’s investments in 25 Countrywide RMBS. Judge Pfaelzer found the federal claims time-barred, holding that Allstate brought its action more than three years after it was put on notice of its claims, and that the three-year period was not tolled by an earlier-filed action in which the plaintiff had standing to sue only as to different Countrywide RMBS. Certain of the state law claims, involving certificates purchased prior to December 27, 2005, also were held to be time-barred. As to later-purchased certificates, the court found that Allstate adequately alleged claims under New York and Illinois law for common law fraud arising out of alleged misrepresentations in the offering documents of those certificates concerning Countrywide’s origination and underwriting practices and the characteristics of the loans in the collateral pools. The court dismissed, without prejudice, additional claims for aiding and abetting fraud and for negligent misrepresentation, finding as to the former that Allstate had not alleged scienter on the part of the alleged aiders and abettors, and as to the latter that Allstate had not alleged sufficient privity between it and the Defendants. The court also dismissed, without prejudice, Allstate’s claim for successor liability against Bank of America. Decision.
Bank of America $8.5 Billion RMBS Settlement Proceeding to Stay in Federal Court
Judge William H. Pauley III of the Southern District of New York ruled on October 19 that federal court is the proper forum for the proceeding brought by Bank of New York Mellon Corp., as Trustee, seeking court approval of the $8.5 billion settlement between Bank of America Corp. and holders of Countrywide mortgage-backed securities. BONY Mellon commenced the proceeding in state court in June 2011. A number of investor groups, and the attorneys general of two states, intervened to oppose the settlement, and one of the objecting investor groups – the “Walnut Place” investors – then removed the action to federal court. Judge Pauley denied BONY Mellon’s motion to remand to state court, holding that the case was properly removed as a “mass action” under the Class Action Fairness Act. Order.
Loreley Financing Initiates CDO Actions Against Deutsche Bank, Bank of America, Countrywide and Merrill Lynch
On October 5, 2011, Loreley Financing (“Loreley”), a group of special purpose entities based in the Channel Islands, commenced two actions in New York State Supreme Court concerning the sale of CDO’s. In the first action, Loreley filed a complaint against Deutsche Bank in connection with a $440 million investment in six CDOs between 2005 and 2007. Loreley accuses Deutsche Bank of concealing inside knowledge, gathered through its work originating subprime loans and securitizing RMBS, that the loans underlying the CDOs were highly risky and very likely to default. Loreley alleges that Deutsche Bank marketed the CDOs to Loreley while offloading the riskiest RMBS off its own books into the CDOs and contemporaneously advising favored clients to place short bets against the same assets. The complaint alleges common-law claims for fraud, rescission, conspiracy to defraud, aiding and abetting fraud, fraudulent conveyance, and unjust enrichment. Complaint.
The second action, in which Loreley has to date filed only a summons with notice, involves preliminary allegations against Bank of America, Countrywide and Merrill Lynch based on a $92 million investment in two CDOs. Without making any factual allegations, Loreley asserts common-law claims for rescission, fraud, fraudulent inducement, conspiracy to defraud, fraudulent conveyance, aiding and abetting fraud, breach of fiduciary duty, and unjust enrichment. Summons.
German Banks Sue Bank of America, JP Morgan and Others for Over $4.5 Billion
On September 29, 2011 two German banks, Landesbank Sachsen AG and Landesbank Baden-Wurttemberg, and the banks’ Irish asset manager, Sealink, filed three suits in New York state court. Plaintiffs name Bank of America Corp., JP Morgan, Countrywide Financial Corp., Bear Stearns, Washington Mutual, and certain Countrywide executives in claims for fraudulent and negligent misrepresentation, aiding and abetting, and vicarious and successor liability. Plaintiffs allege that the defendants concealed the risks of the underlying mortgages through alleged misstatements as to originator underwriting practices and allegedly overstated appraisals. Plaintiffs seek compensatory, rescissory, and punitive damages. Index No. 652680/2011. Index No. 652681/2011. Index No. 652679/2011.