The hearing scheduled to take place tomorrow before Manhattan state supreme court judge Barbara Kapnick could turn out to be a straight-forward affair. The judge could simply hear brief arguments on whether to expedite discovery on Bank of America’s proposed $8.5 billion settlement of Countrywide MBS noteholders’ breach-of-warranty claims, issue a ruling, and call it a day. Given that this will be the first time that the architects of the deal — Mayer Brown for Bank of New York Mellon, the MBS trustee; Gibbs & Bruns for a group of 22 major institutional investors ; and Wachtell, Lipton, Rosen & Katz for BofA — will be gathered in the same room with the small but feisty group of lawyers opposing the settlement, I’m hoping for some heated rhetoric, at the very least. Remember, this hearing is the first chance for these lawyers to register their positions with Judge Kapnick. It’s going to be very interesting to see what each of them make of that opportunity.
The nominal issue before the judge comes from a July 27 order to show cause, filed by Scott + Scott on behalf of a four public pension funds. The show-cause order argues that the schedule suggested by BNY Mellon (and approved by Judge Kapnick) doesn’t offer investors a chance to reach an informed decision about whether to oppose or endorse the proposed deal. Noteholders are supposed to file intervention notices by August 30. Scott + Scott says investors need to conduct expedited discovery before then.
“Document discovery is needed to evaluate the reliability of the expert opinions and the reasonableness of the settlement,” the filing says. “The [self-styled] public pension fund committee also believes that discovery bearing upon the interests and potential conflicts of the negotiating parties, the adequacy of the development of the facts, as well as the basis of the expert reports, is warranted.”
Scott + Scott has already been in consultation with lawyers for other opponents of the proposed settlement, including David Grais of Grais & Ellsworth. Grais has been the most prolific intervenor in the BofA MBS proceeding. Early on he filed an objection on behalf of a group of unidentified investors operating under the name Walnut Place who were already deep in MBS litigation against BofA at the time the global settlement was announced. Since then Grais has moved to intervene on behalf of six Federal Home Loan Banks and three other Countrywide noteholders, including a motion Wednesday on behalf of a new investor group called Cranberry Park. (Walnut Place and Cranberry Park? What’s up with that?)
The intervenors’ side of Kapnick’s courtroom will probably also include two other firms representing Federal Home Loan Banks in MBS litigation: Keller Rohrback and Robins, Kaplan, Miller & Ciresi, both of which signed Grais’s brief on behalf of the FHLBs. There’s also a new intervenor group of six insurance companies, which is represented by Wollmuth Maher & Deutsch.