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Months after Countrywide Financial Corp. agreed to pay billions of dollars to settle claims by investors over its ill-fated mortgages, the lender is facing another round of securities litigation in Los Angeles. On Sept. 29, about a dozen lawyers filled a downtown courtroom in the first hearing of a new multidistrict litigation (MDL) proceeding against Countrywide filed on behalf of institutional investors that purchased its mortgage-backed securities. The U.S. Judicial Panel on Multidistrict Litigation coordinated eight cases before U.S. District Judge Mariana Pfaelzer, who oversaw a $601.5 million settlement involving investors who purchased Countrywide shares between 2004 and 2008. On Feb. 25, Pfaelzer approved that deal, the largest securities agreement, which includes a $24 million payment from KPMG, Countrywide’s former outside auditor. More than two dozen large institutional investors opted out of the settlement, however, among them the nation’s largest pension fund, California Public Employees’ Retirement Pension System (CalPERs), which, along with dozens of other institutional funds, filed a new suit against Countrywide on July 28. Funds representing the state of Michigan and the county of Fresno, Calif., filed separate suits, as did a foundation for a children’s hospital in Omaha, Neb. Countrywide had moved to include those opt-out cases in the MDL, but the panel rejected coordination because the plaintiffs are purchasers of the lender’s shares or bonds, not its mortgage-backed securities. On Oct. 4, at a separate hearing involving lawyers in the opt-out cases before her, Pfaelzer said she didn’t intend to start over and repeat the litigation that led to the $601.5 million settlement. “We’re talking about something that was the subject of extensive work and we’re not going to do every bit of that extensive work again. We’re not,” she said. Countrywide was the nation’s largest mortgage lender, originating more than $490 billion in housing loans in 2005. During the housing boom, the company engaged in riskier lending practices and sold those loans as mortgage-backed securities. Countrywide was sold to Bank of America Corp. in 2008. At the MDL hearing, Pfaelzer raised questions about the impact of an $8.5 billion settlement reached on June 29 between Bank of America and bondholders who had lost money on Countrywide’s bad mortgages. Countrywide’s attorney, Brian Pastuszenski, a partner at Boston’s Goodwin Proctor, said that the $8.5 billion settlement, if it gets approved, “will have the effect of off-setting and reducing any theoretical damages.” But plaintiffs’ attorney Timothy DeLange, a partner in the San Diego office of Bernstein Litowitz Berger & Grossman, said the settlement doesn’t have any impact on funds that sold their holdings. In addition to the litigation over Countrywide’s mortgage-backed securities, Bernstein Litowitz is handling the CalPERs opt-out suit against Countrywide, which includes dozens of other institutional investors such as T. Rowe Price Associates Inc. and BlackRock Investment Management LLC. The case is pending before Pfaelzer but was not part of the latest hearing. Blair Nicholas, a partner in the San Diego office of Bernstein Litowitz, and lead plaintiffs’ attorney in that case, did not respond to a request for comment. The CalPERs case is “sizeable,” and could end up being coordinated with the other opt-out cases, said Joseph Tabacco, a partner in the San Francisco office of Berman DeValerio, at the hearing. His firm is representing the Fresno and Michigan funds, which filed separate suits on Jan. 26 and Jan. 28, respectively. Both sides are set to propose a discovery plan later this month. At the hearing, Pfaelzer said she wasn’t interested in regurgitating the “huge amount of material” that surfaced in discovery as part of the $601.5 million settlement. “I want to get all three of these moving,” she said. “We’re not going to embark on a re-do.” Amanda Bronstad can be contacted at [email protected].

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