Countrywide

Investor Files Derivative Suit Against Bank of America

On September 26, 2011, a shareholder derivative complaint was filed against Bank of America (“BAC”) directors and officers (“Defendants”) alleging that they knew about supposedly inadequate review and authorization of foreclosure documents and other activities that exposed BAC to potential liability. Plaintiff alleges that, despite gaining detailed knowledge from extensive due diligence performed prior to BAC’s acquisition of Countrywide Financial Corp., Defendants recklessly mismanaged the risks posed by the acquisition and exposed BAC to substantial liability by refusing to cooperate with government regulators investigating BAC’s foreclosure practices, obtaining reimbursement on government guaranteed mortgages in violation of the False Claims Act, and other allegedly wrongful acts. Plaintiff alleges violations of Sections 10(b) and 10b-5 of the Exchange Act, breach of fiduciary duty, and breach of the duty of candor. Complaint.

Federal Judge Denies Countrywide’s Motion to Dismiss On Three Offerings in MBS Litigation

On September 13, 2011, Central District of California Judge Mariana Pfaelzer denied Countrywide’s motion to dismiss claims in a putative class action complaint arising out of Countrywide RMBS offerings that Countrywide violated Sections 11, 12, and 15 of the Securities Act of 1933. Countrywide argued that Plaintiffs purchased the MBS for three of the nine contested offerings before Countrywide issued its prospectus supplements, thus making it impossible for Plaintiffs to have relied on the alleged misstatements contained in those prospectus supplements. Judge Pfaelzer found that there were too many unknown facts regarding the circumstances of Plaintiffs’ purchases to dismiss these claims, including the possibility that Plaintiffs reviewed drafts of the prospectus supplements. Decision.

Walnut Place Investors Remove Proceeding Concerning Bank of America’s Proposed $8.5 Billion Settlement to Federal Court

On August 26, 2011, Walnut Place Investors removed Bank of America’s proposed $8.5 billion settlement with holders of Countrywide Financial Corporation’s RMBS from New York State Court to the United States District Court for the Southern District of New York. The attorneys for Walnut Place Investors, Grais & Ellsworth, noted that the case is subject to federal jurisdiction as a mass action under the Class Action Fairness Act (“CAFA”). In a letter addressed to counsel for Bank of New York Mellon, Grais & Ellsworth argued that removal should not create any additional delay in ultimately settling the action. Grais & Ellsworth also represents several other parties that intervened in the proposed settlement including several Federal Home Loan Banks, pension funds, and private equity firms. Letter and Notice of Removal.

New York Court Grants Investors’ Petitions to Intervene In Proposed $8.5 Billion Bank Of America Settlement

On August 19, 2011, New York Supreme Court Judge Barbara Kapnick granted the petitions to intervene by various investors, including Walnut Place LLC and affiliates, various pension funds, several Federal Home Loan Banks, and several insurance companies, in the proposed $8.5 billion settlement agreement between Bank of New York Mellon, as Trustee on behalf of holders of Countrywide Financial Corp.’s mortgage-backed securities, and Bank of America. As a result of this decision, these intervening entities will now participate in the settlement proceedings. New York Attorney General Eric Schneiderman’s motion to intervene is still pending. Decision.

Countrywide RMBS Suits Consolidated

On August 15, 2011, the United States Judicial Panel on Multidistrict Litigation consolidated in the Central District of California eight actions pending against Countrywide Financial Corp. alleging that Countrywide misrepresented origination practices for, and the credit quality of, mortgage loans that it originated from 2004–2007 in connection with the sale of RMBS. Decision.

Knights of Columbus Seek Damages from Bank of New York Mellon

On August 16, 2011, the Knights of Columbus amended their complaint against Bank of New York Mellon in New York state court to seek damages from BNY Mellon as trustee of 18 RMBS trusts serviced by Countrywide Financial Corp. In an initial complaint filed in May, the Knights of Columbus sought an accounting for the 18 trusts. Alleging that information obtained after the filing of that complaint demonstrates that BNY Mellon has violated its contractual and other obligations, the amended complaint seeks to preserve plaintiff’s claims against BNY Mellon for breach of contract, breach of fiduciary duty, negligence, and unfair trade practices to the extent that those claims survive Bank of America’s proposed $8.5 billion settlement of Countrywide Financial Corp. representations and warranties claims. Complaint.

Institutional Investors Question AIG’s Motion to Intervene in Proposed BofA Settlement

On August 15, 2011, the institutional investors that negotiated the proposed $8.5 billion settlement with Bank of America regarding representations and warranties claims against Countrywide Financial Corp. filed a response to AIG’s motion to intervene and oppose the settlement. The institutional investors did not object to AIG’s intervention, but urged the court to carefully scrutinize AIG’s objection, pointing to AIG’s failure to disclose a simultaneously filed individual securities lawsuit against BofA as evidence that AIG is improperly attempting to advance its own interests ahead of those of other certificate holders. Investors’ Response.

Federal Court In California Finds Countrywide RMBS Suit Time-Barred

Judge Mariana Pfaelzer of the Central District of California ruled on August 10, 2011 that claims asserted by Stichting Pensioenfonds ABP on August 18, 2010 and in an amended complaint on February 14, 2011 were barred by the applicable statutes of limitations and repose. ABP had argued its claims under Sections 11, 12(a)(2) and 15 of the ’33 Act were tolled by a class action in California state court against Countrywide on the same securitizations. Judge Pfaelzer held American Pipe class action tolling only applies where an earlier class plaintiff had standing as to the specific tranche. ABP was given leave to amend its complaint to allege tranche-specific tolling for its Section 11, 12(a)(2), and 15 claims. Judge Pfaelzer further held that plaintiff was on inquiry notice as of early 2008 about the allegations of fraud at Countrywide. She therefore dismissed ABP’s remaining claims, under Sections 10(b) and 20(a) of the ’34 Act, Sections 25400 and 25500 of the California Corporations Code, and state law fraud and aiding and abetting, based on the relevant statutes of limitations and repose, without leave to amend. Order.

Delaware AG Joins New York AG In Challenging $8.5 Billion Bank Of America Settlement

Delaware Attorney General Joseph “Beau” Biden III moved on August 9 for leave to intervene in the court proceeding brought to approve Bank of America’s $8.5 billion settlement with holders of Countrywide Financial Corp.’s mortgage-backed securities. The Delaware AG challenges the fairness of the settlement, expressing concerns about the impact of the proposed settlement on the rights of the Delaware state pension funds. Motion.

AIG Sues Bank Of America Over Alleged Fraud In RMBS

On August 8, 2011, American International Group sued Bank of America Corp., Countrywide Financial Corp., and Merrill Lynch & Co. in New York state court, claiming that between 2005 and 2007 the defendants fraudulently induced AIG to invest in 350 residential mortgage-backed securities at a cost of $28 billion. AIG claims that the defendants did not engage in prudent underwriting practices, and ignored mischaracterizations made by borrowers about income and employment. The AIG complaint cited a forensic investigation done of the securitizations before the suit was filed, alleging that 40% of loans sampled were improperly evaluated on the risk metrics the defendants included in their offering materials. AIG alleges violations of Sections 11, 12(a)(2), and 15 of the ’33 Act, and state law claims of fraudulent inducement, aiding and abetting fraudulent inducement, negligent misrepresentation, and vicarious and successor liability. AIG seeks $10 billion in compensatory damages, among other remedies. Complaint.