Bank of America Corp. and a group of investors that reached an $8.5 billion mortgage-bond settlement with the bank won their bid to remove the case from a federal judge and return it to state court.
The U.S. Court of Appeals in Manhattan overturned a lower court ruling and granted a request by Bank of America and the investor group to remand the case to New York state court, where it was first filed, according to a decision today.
“The case was not removable from state court and must be remanded,” the appeals court said.
The settlement, which would resolve claims from investors in Countrywide Financial Corp. mortgage bonds, was filed last year in New York State Supreme Court and was initially set for consideration at a November hearing. Before that hearing took place, the case was removed to federal court by entities under the name Walnut Place that own some of the securities.
The decision sending the case back to state court is good for investors in Countrywide bonds because it reduces uncertainty in the settlement, Barclays Capital said in a research note after the decision. Bank of America acquired Countrywide in 2008.
“The move back to New York state court increases the likelihood of the settlement going through and pushes the timeline forward,” Barclays said.
Bank of America along with the group of institutional investors that negotiated the settlement, including BlackRock Inc., fought the transfer of the case to federal court and argued the case belonged in state court. They were joined by Bank of New York Mellon Corp., the mortgage bond trustee, which sought approval for settlement in state court.
“We are pleased the jurisdictional issues have been resolved and we can now move toward getting the settlement approved,” Robert Madden, an attorney for the investor group, said in a telephone interview.
Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, said the lender looks forward to completing the court proceeding to obtain approval for the agreement.
“Bank of America’s chief interest has been that the proposed settlement be considered and eventually approved by a court of unquestionable jurisdiction,” Grayson said in a statement. “We are gratified that the matter has been resolved on appeal.”
American International Group Inc. and other investors affected by the settlement have criticized the terms or have demanded more information to evaluate the deal. New York Attorney General Eric Schneiderman also intervened in the case and asked that the settlement be rejected.
Kevin Heine, a spokesman for Bank of New York, and Owen Cyrulnik, a lawyer for Walnut Place, declined to comment.
The case is Bank of New York Mellon v. Walnut Place LLC, 11-cv-05988, U.S. District Court, Southern District of New York (Manhattan).