BofA moves to toss Quinn Emanuel off $10 bln AIG MBS case

October 18, 2011

Bank of America filed a motion late Monday to disqualify Quinn Emanuel Urquhart & Sullivan as counsel to AIG in the insurer’s $10 billion suit claiming BofA, Merrill Lynch, First Franklin Financial, and Countrywide misrepresented the mortgage-backed securities they sold AIG. According to BofA’s lawyers at Munger, Tolles & Olson, a Quinn Emanuel partner who reviewed a draft of AIG’s complaint previously worked at Munger — and was privy to confidential information about how Merrill Lynch and its mortgage origination unit First Franklin intended to defend against MBS claims. Munger asserted that its former partner, Marc Becker, has a direct conflict of interest that should result in Quinn Emanuel’s removal from the AIG case.

“Quinn undertook this representation without even requesting a conflict waiver and screened Becker from involvement in this case only after defendants raised the issue,” the Munger disqualification motion said. “By then it was too late — Quinn had represented AIG in preparing this lawsuit for months, and Becker had already been involved in drafting the complaint and a significant motion in the case. Quinn’s flouting of the ethical rules mandates disqualification.”

Munger’s filings, first spotted by my Reuters colleague Noeleen Walder, disclose a trove of information about what happened between AIG and BofA in the months before AIG filed its $10 billion suit in July. They also raise the possibility that Bank of America will move to disqualify Quinn Emanuel in other cases involving MBS allegations against Merrill or First Franklin, including suits by the Federal Housing Finance Agency, Allstate, and Massachusetts Mutual.

Quinn Emanuel’s counsel, Gregory Joseph, said Munger’s disqualification motion is purely tactical. “Marc Becker practiced at Munger Tolles for 19 years as a highly respected and trusted associate and partner. They know perfectly well that he would not share any confidential information and he never did,” Joseph said in an email. “Bank of America doesn’t want to face Quinn Emanuel on the other side. Its motion never even addresses the governing standard — whether there is any risk of trial taint — because of course there isn’t.” (Quinn, as I’ve reported, pioneered MBS litigation and has filed dozens of suits for MBS investors, including most of the FHFA’s cases.)

Here’s the back story: Marc Becker was a partner at Munger Tolles until 2008, when he moved to Quinn Emanuel’s London office. According to declarations by Munger partner Marc Dworsky and former First Franklin general counsel and CEO Mark Malovos, Becker worked with First Franklin officers to craft an MBS defense strategy while he was a Munger partner. “Through his communications with Merrill Lynch and First Franklin representatives, Becker had access to highly confidential information and analysis regarding First Franklin’s home loan origination business,” the Dworsky declaration said. “Even more significantly, Becker was provided First Franklin’s internal projections of its exposure in connection with mortgage originations — the sensitivity and confidentiality of which is self evident.”

Munger’s filings said the firm first became aware of Becker’s alleged conflict in September, as partners reviewed Munger Tolles’ past work for Merrill Lynch and First Franklin. On Sept. 19, the firm sent a letter to AIG counsel Michael Carlinsky of Quinn, asserting that Becker had worked on Merrill Lynch and First Franklin matters, that Quinn Emanuel had not requested or received a waiver of conflict from either of them, and that both Becker and Quinn Emanuel should be disqualified as a result. Munger said it was first raising the issue with Quinn in a letter, rather than in a court filing, “given the importance of the issue.” The Munger letter asked Quinn to disclose whether Becker had worked on the AIG complaint.

At the same time, Munger partner Brad Brian emailed Quinn partner John Quinn. “Can we talk about Marc Becker and AIG v. Merrill?” Brian’s email said. Quinn replied, “Needless to say, Marc in London, has had and will have nothing to do with case.” (Here’s the full email exchange.)

Nevertheless, Quinn Emanuel was concerned enough about Munger’s letter that it brought in Joseph, whose Sept. 26 letter to Munger Tolles is a fascinating document. In it, Joseph asserted that BofA has been trying to knock Quinn Emanuel out of representing AIG since last January, when AIG and BofA signed a tolling agreement. In March or April, according to the Joseph letter, BofA informed AIG that it could participate in the talks that eventually produced the proposed $8.5 billion deal with Countrywide MBS investors — but only if it ditched Quinn Emanuel.

Moreover, the Joseph letter asserted, BofA has its own conflict problem. The bank’s associate general counsel, Christopher Garvey, worked on AIG matters as a partner at Goodwin Procter, and though AIG waived the conflict for prelitigation talks, Joseph wrote, AIG didn’t realize Garvey was still technically a Goodwin partner “seconded” to BofA. “Goodwin represented AIG in mortgage lending matters,” Joseph wrote. “If BofA pursues its reckless charge against Quinn Emanuel, AIG will be forced to address Mr. Garvey’s conflicts, and this will not be limited to Mr. Garvey but extend to all whom Mr. Garvey has tainted.”

Munger called Joseph’s assertion about Garvey “flatly incorrect” and “a smokescreen raised in an attempt to deflect attention from Quinn’s breach of its ethical duties” in an Oct. 4 reply to the Joseph letter. More importantly, the Munger letter said, Joseph hadn’t answered its question: Did Becker work on the AIG case against BofA?

It turns out that he did, as Joseph conceded in a second letter to Munger Tolles. Becker wasn’t part of Quinn’s AIG team, Joseph said, but had spent a total of 5.8 hours reading and suggesting structural changes in a draft of the original complaint and then reviewing AIG’s remand motion after BofA removed the case from New York state supreme court to federal court. Joseph said, however, that Becker never disclosed any confidential information about Franklin Financial or Merrill Lynch. (The Quinn partner didn’t even remember, according to Joseph’s first letter, that he’d done MBS work for those Munger clients.)

Munger’s response was to file Monday’s disqualification motion. Quinn Emanuel, as Munger noted in a footnote, is no stranger to such motions: It successfully moved to disqualify the Glaser Weil firm from representing MGA Entertainment in the Bratz doll dispute because a former Quinn lawyer had moved over to the Glaser firm. (Quinn Emanuel has also been in a long-running effort to remove Apple counsel Bridges & Mavrakis in the Samsung patent case in San Jose.)

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