From left: Matthew Ingber, Kathy Patrick, and Hector Gonzalez. ()

While mortgage-backed securities investors were still dusting themselves off from the financial crisis more than three years ago, Kathy Patrick of the small Texas law firm Gibbs & Bruns was busy doing something about it.

Patrick orchestrated a $8.5 billion settlement with Bank of America Corp. that promised to serve as a template to hold banks liable for their roles in the subprime debacle. Last Friday, after a hotly contested bench trial and two-and-a-half years of litigation, Patrick’s road map won judicial approval, thanks in no small part to a massive effort by Patrick and a platoon of other lawyers, most prominently Matthew Ingber of Mayer Brown and Hector Gonzalez of Dechert.

In a Jan. 31 ruling, then–New York Supreme Court Justice Barbara Kapnick mostly approved the settlement, which absolved Countrywide Financial Corp. from claims that it made misrepresentations in connection with mortgage-backed securities it sold before the financial crisis. (BofA acquired Countrywide in 2008.) Some high-profile MBS investors, like American International Group Inc., argued that the settlement was inadequate and collusive. Kapnick largely rejected those arguments, though AIG did persuade her not to approve one portion of the deal.

The ruling was obviously a big win for Patrick and her colleagues at Gibbs & Bruns, who represented a group of 22 institutional investors backing the deal. But it was also a major victory for Bank of New York Mellon Corp., which served as trustee for the Countrywide securitizations at issue and played a crucial role in putting the settlement together. Ingber and Gonzalez represented BNYMellon and played a large role in the bench trial.

Before the financial crisis, Countrywide created 530 trusts that sold a combined $400 billion in mortgage-backed securities to investors. BNYMellon served as trustee, a role that allowed it to pursue claims against Countrywide on behalf of a sufficiently large bloc of investors. Patrick cobbled together a coalition of major investors including Blackrock Inc. and Metlife Inc. that were willing to pursue claims that Countrywide misled them about the home loans underlying the MBS. Without filing suit, Patrick’s investor group began hammering out the $8.5 billion deal with BofA in 2010. BNYMellon’s executives and in-house lawyers threw their weight behind the settlement. BNYMellon was advised in the deal by Mayer Brown’s Jason Kravitt, a seasoned securities lawyer.

The settlement, first announced in June 2011, was binding on all MBS investors. It also called for Patrick and her colleagues to recover $85 million in legal fees. The parties agreed to seek judicial approval of the settlement through Article 77 of the New York civil code, a provision that allows for trustees to ask a judge to review the reasonableness of their actions.

AIG, among others, promptly sought to intervene, arguing that BofA was “dramatically underpaying.” That set the stage for a nine-week bench trial before Kapnick last year. Patrick and her Gibbs & Bruns colleagues Robert Madden and Scott Humphries represented the institutional investors. Mayer Brown’s Ingber and Dechert’s Gonzalez represented BNYMellon along with cocounsel at their respective firms.

Kravitt, the Mayer Brown lawyer who advised BNYMellon during the settlement negotiations, ended up being a key witness at trial. Under direct examination by Gonzalez, Kravitt testified that BNYMellon carefully debated its decision to support the deal.

Ingber and Gonzalez also put on the stand experts who testified that a $8.5 billion lump sum was a good result. The experts concluded that Countrywide only had $4.8 billion available, and that it was an open question whether Bank of America could be on the hook under a theory of successor liability.

The fight isn’t over yet, since Kapnick’s ruling left open the possibility of MBS investors pursuing claims relating to certain types of home loans, as we explained here. But the decision was undoubtedly a milestone. “The trustee settled for all the sensible reasons that so many parties settle—for finality, for certainty, to avoid years of costly litigation and to lock in a recovery,” Ingber wrote in an email. “The court vindicated that decision.”

As with any case of this magnitude, the battle over the settlement mobilized a small army of lawyers. Mayer Brown’s Christopher Houpt and Sagi Tamir and Dechert’s James McGuire and Mauricio Espana were key members of BNYMellon’s trial team. Manhattan solo practitioner Kenneth Warner is local counsel to Patrick’s institutional investor group.