Due to quirks of timing and judicial assignment, Assured Guaranty Municipal Corp.'s lawsuit against Flagstar Bancorp Inc. turned into one of the most high-profile cases in the sprawling litigation over mortgage-backed securities. Now it's come to a somewhat anticlimactic end.
In a statement issued on Friday, Flagstar announced that it would pay $105 million to Assured to settle claims stemming from a 2011 lawsuit. Bond insurer Assured had accused MBS issuer Flagstar of misrepresenting the value and quality of $900 million in mortgage-backed securities.
Assured and its lawyers at Susman Godfrey won an important verdict, when Southern District Judge Jed Rakoff concluded a bench trial by ordering Flagstar to pay $90 million in damages plus interest and attorney fees.
In his Feb. 5 decision, Rakoff wrote that he found credible testimony offered by an expert witness for Assured Guaranty who looked at 800 mortgage loans securitized by Flagstar and found that 606 of them were "materially defective" (NYLJ, Feb. 11). Flagstar breached its obligation to repurchase defective loans under the warranties it gave to Assured Guaranty, he said.
Because the case was the first involving a monoline insurer against an MBS issuer to go to trial, it had been considered an important bellwether and had been closely watched by financial services litigators.
Flagstar and its attorneys at Arnold & Porter seemed to be intent on continuing the fight, filing an appeal in April with the U.S. Court of Appeals for the Second Circuit and hiring appellate heavyweight Miguel Estrada of Gibson, Dunn & Crutcher. Flagstar then changed course, agreeing to pay a settlement fee that was close to the figured ordered by Rakoff.
"This agreement with Assured represents a favorable resolution of Flagstar's last remaining significant legacy legal matter," Flagstar CEO Alessandro DiNello said in a statement. As part of the agreement, Flagstar will drop its appeal and will assume responsibility for future claims associated with the two securitization trusts in question.
Jacob Buchdahl, a Susman Godfrey partner who represented Assured, told Law Journal affiliate The Litigation Daily that he was pleased Flagstar not only agreed to pay the settlement amount but agreed to take responsibility for future claims that might be made on the policy.
"In my view, the settlement amount reflects both parties' understanding as to what would have happened on appeal," said Buchdahl.
Flagstar's attorneys, Gibson Dunn partner Estrada and Arnold & Porter partner Veronica Rendon, did not respond to requests for comment.
The case is Assured Guaranty Municipal v. Flagstar Bank, 11 Civ. 2375.
@|Victor Li, a reporter for The Litigation Daily, an affiliate, can be contacted at firstname.lastname@example.org.