April 24 (Bloomberg) -- The New York and Delaware attorneys general urged a judge to approve their participation in litigation over Bank of America Corp.’s $8.5 billion settlement with mortgage-bond investors.
New York Attorney General Eric Schneiderman and Delaware Attorney General Beau Biden have criticized Bank of America’s proposed settlement and asked Justice Barbara Kapnick of New York State Supreme Court in Manhattan today to approve their requests to intervene in the case.
“This is a massive waiver of liability for Bank of America and Countrywide,” Steven Wu, a lawyer with the New York attorney general’s office, told Kapnick.
Kapnick said she wouldn’t rule today on the states’ requests. The judge denied a motion by some investors to prevent the settlement from moving forward as an Article 77 proceeding, which is used in New York to resolves issues related to trusts. The investors argued the case was too large and complex to proceed as an Article 77.
Schneiderman argues that the settlement, reached with investors in Countrywide Financial Corp. mortgage bonds, is unfair and settles investor claims for “a small fraction” of losses, his office said in court papers.
The attorney general also says Bank of New York Mellon Corp., which acts as the trustee for investors and has sought approval of the settlement, was involved in negotiating the deal without the participation of the vast majority of affected investors.
Biden said intervention should be approved because the settlement, which includes provisions for servicing mortgage loans, affects homeowners who aren’t involved in the case. The servicing proposals are vague and don’t provide an incentive for servicers to help struggling borrowers, the office said in court papers.
BNY Mellon and the institutional investor group that negotiated the settlement, which includes BlackRock Inc. and Pacific Investment Management Co., opposed the interventions. The investor group argued the attorneys general don’t have standing to intervene in a private contract dispute.
Delaware’s “sweeping assertion of standing is unprecedented and would have significant adverse consequences to private settlements and business transactions,” BNY Mellon said in a court filing.
Greg Strong, a deputy attorney general for Delaware, said his office isn’t seeking to “throw a huge wrench” into the proceeding.
“We need more information to be able to evaluate it,” Strong told the judge.
The case is In the application of the Bank of New York Mellon, 651786-2011, New York State Supreme Court (Manhattan).
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