Bank of New York Mellon Corp. asked a federal judge to return Bank of America Corp.’s proposed $8.5 billion mortgage-bond settlement to the New York state court where it had been submitted for approval.
A group of bond investors moved the case to federal court in Manhattan on Aug. 26, arguing that that court has jurisdiction under federal class-action laws.
BNY Mellon, the trustee for 530 securitization trusts that hold loans underlying the bonds, asked U.S. District Judge William Pauley today to send the case back to state court in Manhattan. Countrywide Financial, which originated the loans, was acquired by Charlotte, North Carolina-based Bank of America in 2008.
“There is no basis” for keeping the case in federal court, Matthew Ingber, a lawyer for BNY Mellon, told Pauley at today’s scheduling hearing. The judge, rejecting BNY Mellon’s arguments for an expedited hearing, set Sept. 21 for arguments on the question of removal. The settlement, which is being challenged by some investors, would resolve claims against Countrywide Financial.
The Federal Deposit Insurance Corp., the Federal Housing Finance Agency, pension funds and other investors have objected to the settlement, saying they need more information to determine whether it’s fair. New York Attorney General Eric Schneiderman has also protested the settlement, claiming the state may have claims against Bank of America.
The $8.5 billion settlement, which was negotiated with a group of institutional investors, including BlackRock Inc. and Pacific Investment Management Co., would apply to all the investors if approved.
BNY Mellon requested a so-called Article 77 proceeding, used in New York state courts to determine disputes related to trusts, to try to win approval of the settlement. Pauley asked Ingber several times whether his client was violating its fiduciary duty to the 530 trust beneficiaries.
The judge also asked if BNY Mellon was trying to prevent objecting investors from derailing the deal by using a procedure “the main benefit of which is to limit the right of trust beneficiaries to opt out of the settlement.”
Ingber told Pauley the bank chose Article 77 for its speed and simplicity.
“This was a very good settlement for the trusts, for a variety of reasons,” Ingber said.
The case is Bank of New York Mellon v. Walnut Place LLC, 11-cv-5988, U.S. District Court, Southern District of New York (Manhattan).