The mortgage lender Countrywide Financial Corp., absorbed by Bank of America Corp. in 2008, has agreed to pay $500 million to resolve class claims that it misled mortgage-backed securities investors. The record deal brings an end to a long legal battle that didn’t unfold quite as plaintiffs lawyers had hoped.
The settlement, announced on April 17 by plaintiffs counsel at Cohen Milstein Sellers & Toll; Robbins Geller Rudman & Dowd; and Kessler Topaz Meltzer & Check, resolves three related investor class actions brought against Countrywide in the wake of the financial crisis. If the deal is approved by U.S. District Judge Mariana Pfaelzer in Los Angeles, it will be the largest settlement yet in a securities class action brought by mortgage-backed securities investors, eclipsing a $315 million deal BofA subsidiary Merrill Lynch reached in December 2011.
Investors first sued Countrywide in 2007, alleging it misrepresented its loan origination practices in public offering documents associated with 9,000 tranches of 427 separate MBS offerings with a combined value of $352 billion. Pfaelzer, who is presiding over nationwide multidistrict litigation related to Countrywide MBS, steadily whittled down the three settled cases to just 68 tranches in 57 offerings with a combined value of $2.6 billion. Crucially, she ruled that the lead plaintiffs only had standing to sue over securities they invested in. The U.S. Court of Appeals for the Second Circuit, where most MBS litigation is unfolded, has taken a much more plaintiffs-friendly stance on that key standing issue.
Robbins Geller’s Spence Burkholz said in an interview that if 100 percent of the recovery is allocated to the 68 tranches left in the case, recovery will be about 24 percent of statutory damages. He said a chunk of the settlement could go to investors in the tranches bounced from the case, but that no final decision on allocation of proceeds has been reached.
"This is the biggest settlement out there, no matter how you look at it," Burkholz said. "It’s a pretty amazing result, considering what we were facing."
Plaintiffs counsel will move for preliminary approval in the next month or two. They have yet to determine their attorney fees request, Burkholz said.
The cases covered by the settlement bounced around between state court and federal court for about four years. Because of the jurisdictional fight, the six-year old litigation was still in the pleading stage at the time of settlement. Burkholz said that he expected the case to survive into the discovery phase, but that the plaintiffs "were at risk of further cutbacks by the judge."
Bank of America’s defense team at Goodwin Procter was led by Brian Pastuszenski and included partners Brian Devine, John Farley, Inez Friedman-Boyce, and Daniel Roeser. BofA and Countrywide still face significant MBS claims in Pfaelzer’s court in cases brought by American International Group Inc. and the Federal Housing Finance Agency, among others.
@|Jan Wolfe is a reporter for affiliate The Litigation Daily. He can be contacted at email@example.com.