All the court’s a stage: BofA asks 2nd Cir. to hear venue appeal
Like a stage mom watching from the wings, Bank of America and its lawyers at Wachtell, Lipton, Rosen & Katz have so far been observers — and not direct participants — in the fight to win court approval of the bank’s proposed $8.5 billion settlement with Countrywide mortgage-backed securities holders. BofA signed the settlement, of course, but the case was filed as an Article 77 proceeding in New York State Supreme Court by Bank of New York Mellon, as Countrywide’s MBS trustee. The 22 institutional investors that negotiated the proposed deal with BofA and BNY Mellon intervened in the proceeding in support of the settlement. And their lawyers from Gibbs & Bruns have worked alongside BNY Mellon’s counsel from Mayer Brown and Dechert to ward off opposition to the deal, without overt involvement from BofA and Wachtell. When the case was removed to federal court, it was Mayer Brown and Gibbs & Bruns that argued before U.S. District Judge William Pauley III of Manhattan that the proceeding should be remanded to state court; then, when Pauley decided to retain jurisdiction, it was BNY Mellon and the Gibbs clients who asked the U.S. Court of Appeals for the Second Circuit to review the district court judge’s decision.
Late Monday, BofA took the stage. In a pair of filings at the Second Circuit, the bank’s Wachtell lawyers petitioned for leave to submit an amicus brief and filed the proposed brief itself. We can all chuckle at the idea that BofA is a mere friend of the court in this case, given that the bank was relying so heavily on the proposed $8.5 billion deal to remove the black cloud of Countrywide MBS liability from its attempt to return to market stability. But the bank makes a strong argument for why it should be heard if the Second Circuit decides to take the appeal of Pauley’s ruling: it is, after all, BofA’s settlement.
The bank’s lawyers repeat in summary (though quite elegant) fashion the same arguments we’ve already seen from BNY Mellon and the Gibbs investors about Pauley’s alleged errors. BofA’s proposed amicus brief argued that the judge twisted the language of the Class Action Fairness Act in a way Congress never intended in order to hold onto the $8.5 billion case. The judge improperly construed a state court proceeding that sought what amounts to a declaratory judgment on the trustee’s conduct into a mass settlement for money damages, BofA argued. He considered the dissident Countrywide MBS investors (known as Walnut Place) a defendant under CAFA, even though Walnut Place doesn’t fit the traditional definition of a defendant. And, most significantly, the proposed BofA brief said, Pauley misapplied the Second Circuit’s own precedent on the securities exception to CAFA, interpreting the exception in a way that would essentially strip it of any meaning. For all of those reasons, the bank argued, the Second Circuit should accept the appeal.
I was most intrigued, however, by a paragraph near the end of BofA’s proposed amicus brief. I’ve posed the question of whether Bank of America might try to walk away from the $8.5 billion settlement if it stays in federal court. BofA’s filing hints that the bank just might do that.
“It is essential that this settlement be considered by, and that any approval come from, a court of unquestionable jurisdiction,” the brief said. “This point is so critical that the settlement agreement itself specifically provides for review of the trustee’s decision to enter into the settlement agreement in a proceeding under Article 77 … in the state court. The settlement agreement obliged the trustee to file the Article 77 proceeding in the Supreme Court of the State of New York, County of New York — which it defines as the ‘settlement court’ — seeking the specified final order and judgment.”
The settlement, BofA goes on to note, is conditioned on approval from the settlement court — which means the New York State Supreme Court. And if final court approval is impossible, the brief said, the deal is null and void. BofA doesn’t come right out and say the deal’s off unless the Second Circuit sends the case back to state court. But to stick with my opening metaphor, that paragraph is sort of like the gun on the mantelpiece in Act One. Get ready for it to be shot off later in the show.
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