In the annals of mortgage-backed securities litigation, the fight between Bank of America Corporation and American International Group Inc. alone could fill volumes. Now one small chapter, at least, appears to be at an end.
In a brief order issued on Monday, the U.S. Court of Appeals for the Second Circuit ruled that Bank of America shareholders can’t pursue claims that the bank duped them about a massive impending lawsuit from AIG in 2011. The decision affirms a ruling by U.S. District Judge John Koeltl in Manhattan, who sided with BofA’s lawyers at Munger Tolles & Olson and Winston & Strawn and tossed the case last year.
AIG sued Bank of America in August 2011, seeking as much as $10.5 billion from the bank in what was then the biggest mortgage-backed securities suit brought by a single plaintiff. The insurance giant claimed that BofA and its Merrill Lynch and Countrywide Financial units fraudulently sold AIG about $28 billion in securities backed by shoddy loans. The case remains pending in New York state court and in federal court in Los Angeles, where U.S. District Judge Mariana Pfaelzer is presiding over nationwide litigation related to Countrywide MBS. (Quinn Emanuel Urquhart & Sullivan represents AIG.)
The initial filing of AIG’s suit helped spark a selloff by BofA investors that sent the bank’s shares plummeting by 20 percent in a single day. That got the attention of the securities class action plaintiffs bar, and the bank was soon fighting claims that it misled investors about the size and imminence of AIG’s case. In June 2012 Koeltl appointed Hagens Berman Sobol & Shapiro lead counsel for a proposed class of investors who bought BofA shares between February and August 2011.
Koeltl ultimately rejected the plaintiffs’ claims in a November 2013 ruling, finding that they failed to show that BofA intended to deceive investors. The bank disclosed in its February 2011 annual report that it was facing a smorgasbord of MBS-related litigation, Koeltl noted, and the most “compelling conclusion” is that the bank believed it had no duty to report the specifics of AIG’s looming lawsuit.
The Second Circuit panel affirmed on Monday, ruling that even if BofA hypothetically should have disclosed the potential AIG suit, the complaint “does not plausibly allege circumstantial evidence of conscious misbehavior.”
Hagens Bergman’s Jason Zweig argued the appeal opposite George Garvey of Munger Tolles. The BofA defendants were also represented by Munger’s Marc Dworksy and by Luke Connelly of Winston & Strawn.