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.
New York Mellon
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.
Investment Company Sues Bank of America Claiming Recently Announced Proposed $8.5 Billion Settlement Proves Fraud
On July 18, 2011, Federated Investment Management Co. and affiliated entities sued Bank of America, Countrywide, affiliated entities, and individual officers and directors in California state court. Plaintiff claims that Bank of America’s recently announced proposed $8.5 billion settlement with various MBS investors and Bank of New York Mellon as Trustee evidences that Countrywide fraudulently concealed the quality of the loans it originated. Specifically, the complaint alleges that Countrywide’s underwriting standards and guidelines failed to meet industry standards and that it misrepresented that fact to investors. While the plaintiffs allege they do not have access to the loan files underlying the securities they purchased, they assert that the disclosure of the proposed settlement and challenges by investors and regulators have uncovered Countrywide’s alleged fraud. Plaintiff brings claims for fraud and negligent misrepresentation, as well as claims under the Securities Act of 1933, the California Corporate Securities Act, and the California Civil Code, and seek both compensatory and/or recessionary damages, as well as punitive damages. Complaint.
Challenges Mount to Bank of America’s Proposed $8.5 Billion Settlement
Numerous investor groups, regulators and politicians have challenged Bank of America’s June 29, 2011 announcement proposing an $8.5 billion settlement of claims based on representations and warranties made by Countrywide in RMBS securitizations. Between July 5 and July 13, four separate groups of investors each moved to intervene in the Article 77 proceeding brought by Bank of New York Mellon, as Trustee or Indenture Trustee of the various securitization trusts, seeking judicial approval of the settlement. Potential objections have been voiced to the size of the settlement, potential conflicts of interest, and a failure to provide sufficient information to evaluate the settlement terms. On July 12, New York Attorney General Eric Schneiderman reportedly sent letters to investors that participated in the settlement negotiations seeking additional information, suggesting that the Attorney General’s office may object to the settlement. Representative Brad Miller, a North Carolina Democrat, raised additional questions about the terms of the settlement in a July 8 letter to the Federal Housing Finance Agency. Walnut Place Motion to Intervene. Pension Fund Motion to Intervene. TM1 Motion to Intervene. FHLB Motion to Intervene. Miller Letter.