The Second Circuit Court of Appeals ruled on Monday that a Bank of America (BofA) dispute over unresolved liabilities stemming from its 2008 Countrywide acquisition should be decided in a New York state court, not the federal court system. The ruling reverses an October 2011 decision from District Judge William Pauley, which yanked the case from the state courts, reports Reuters.
Second Circuit Chief Judge Dennis Jacobs, writing for a three-judge panel, found that the case fell within the securities exception to both original and appellate federal jurisdiction under the Class Action Fairness Act of 2005 (CAFA).
The Bank of New York Mellon (BNY), acting as a trustee, negotiated an $8.5 billion BofA mortgage settlement with 22 investors last year to resolve claims over Countrywide mortgage-backed securities. BNY initiated an Article 77 proceeding in New York Supreme Court to get approval for the settlement, but encountered opposition from a group of investors led by Walnut Place LLC. The intervening investors tried to remove the case to federal court, which would afford BNY less discretion in the settlement than the state court.
Last fall, Judge Pauley granted the removal request. This week, the Second Circuit Court of Appeals ruled that federal courts lacked jurisdiction to review the settlement. It is now up to a New York state court to rule on the Article 77 proceeding, and decide whether BNY had the authority to enter into the settlement and acted reasonably and in good faith, according to Reuters.
Barclays Capital suggests, "The move back to New York state court increases the likelihood of the [BofA mortgage] settlement going through and pushes the timeline forward," reports Bloomberg.
- BlackRock Financial Management Inc., et al. v. The Segregated Account of Ambac Assurance Corporation, et al. (Second Circuit Court of Appeals)
- Judge Narrows Countrywide Suit (FindLaw's Courtside)
- No Admission, No Problem Says SEC Consent Judgment Appeal (FindLaw's Second Circuit blog)