Bank of America Corp. won dismissal from Allstate Corp.’s lawsuit over the insurer’s alleged losses from $700 million in mortgage-backed securities purchased from Countrywide Financial Corp.
Bank of America, as a corporate parent, isn’t responsible for the liabilities of Countrywide, the mortgage lender it acquired in 2008, U.S. District Judge Mariana Pfaelzer in Los Angeles ruled yesterday. The judge found that the evidence Allstate provided wasn’t sufficient to support its allegations that Bank of America set out to defraud Countrywide’s creditors.
Pfaelzer in October had granted Bank of America’s request to be dismissed from the case and gave Allstate permission to amend its claims to address the deficiencies she identified. Allstate argued in its revised complaint that Bank of America structured the Countrywide acquisition so as to strip the unit of all its valuable assets and leave a “raided” shell for creditors to sue.
“This is significant for settlement negotiations,” James Kwak, a law professor at the University of Connecticut, said in a phone interview before the ruling was filed. “It gives Bank of America a card to play in negotiations.”
Bank of America merged Countrywide with a subsidiary and subsequently transferred most of the mortgage lender’s assets from that unit, Countrywide Financial, to other Bank of America operations and retired the Countrywide brand. Allstate claimed that the asset transfers should be treated as a so-called de facto merger under Delaware law.
Pfaelzer previously said that under Delaware law an asset transfer can’t be treated as a de facto merger, which would make Bank of America liable as the successor of Countrywide, unless there was fraud involved. Allstate argued that the consideration Bank of America paid the Countrywide subsidiary for the assets was insufficient and was evidence of fraud.
“We respectfully disagree with the court’s opinion,” Maryellen Thielen, a spokeswoman for Northbrook, Illinois-based Allstate, said in an e-mailed statement.
“Even if it is upheld on appeal,” she said, the “decision only affected whether Bank of America, in addition to Countrywide, will have to pay should Allstate’s claim reach judgment in its favor.”
Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, said in an e-mail that the bank is pleased with the ruling.
The case is Allstate Insurance Co. v. Countrywide Financial Corp., 11-05236, U.S. District Court, Central District of California (Los Angeles).