Quinn Emanuel Urquhart & Sullivan helped wring yet another settlement from Bank of America Corporation on Wednesday, guiding American International Group Inc. to a global resolution of its mortgage-backed securities litigation against the bank. AIG will pocket $650 million in cash, plus its pro rata share of an earlier $8.5 billion deal between BofA and MBS investors.
The deal caps a five-year litigation spree for Quinn Emanuel in a trio of major battles with Bank of America tied to the credit crisis. The firm represented the bond insurer MBIA Inc. in mortgage buy-back litigation against the bank, culminating in a $1.7 billion settlement that ended multiple disputes between the companies. In March, Quinn Emanuel also wrested $9.3 billion from BofA on behalf of the Federal Housing Finance Agency, resolving a big chunk of the FHFA’s campaign against banks that sold mortgage-backed securities to Fannie Mae and Freddie Mac.
There are two main components to the AIG settlement, which the insurer unveiled on Wednesday morning. Most importantly, AIG will drop its sprawling fraud case over residential mortgage-backed securities sponsored, sold and underwritten by BofA and its Countrywide and Merrill Lynch units. AIG will also withdraw its objections to the $8.5 billion settlement BofA reached with institutional investors in 2011, allowing the bank to finally resolve its bondholder liabilities.
The $650 million cash payment is far less than the $10.5 billion in damages AIG had initially sought in the fraud case, though AIG’s claims shrank somewhat as the underlying securities regained value. A Quinn Emanuel team led by Michael Carlinsky spearheaded the litigation as it unfolded in New York and Los Angeles, where U.S. District Judge Mariana Pfaelzer is overseeing nationwide cases involving Countrywide. Lawyers at Munger Tolles & Olson, Reed Smith and Goodwin Procter represented BofA.
BofA’s lawyers tried to gut the fraud case on standing grounds in late 2012, arguing that BofA transferred its fraud claims to the Federal Reserve Bank of New York as part of its 2008 government bailout. Pfaelzer rejected that argument in a May 2013 ruling, and the case was moving toward a ruling on summary judgment.
AIG had separately objected to Bank of America’s $8.5 billion bondholder settlement, which stemmed from claims that BofA is obligated to repurchase (or “put back”) shoddy mortgages pooled into RMBS. A coalition of institutional investors represented by Kathy Patrick of Gibbs & Bruns negotiated the deal, which would bind all RMBS investors. Mark Zauderer of Flemming Zulack Williamson Zauderer objected on behalf of AIG, calling the deal woefully inadequate.
A state court judge in New York dismissed AIG’s objections in January 2014. By agreeing Wednesday to drop a pending appeal of that ruling, AIG will now collect its share of the $8.5 billion, which will likely be in the low nine figures. That sum will come up on top of the $650 million cash payment.
As The American Lawyer and others have noted, Quinn Emanuel was well positioned to take on Bank of America thanks to its early entry in mortgage-backed securities litigation, and its willingness to invest heavily in understanding the ins and outs of Wall Street’s mortgage securitization machine. Is the firm wistful, or worried, now that the BofA litigation and other credit crisis-era cases are winding down? Carlinsky declined to comment, but one thing’s for sure: It’s better to have fought multiple billion-dollar cases and settled than never to have litigated at all.