Bank of America 2010 Annual Report Download - page 204

of credit and fixed-rate second-lien mortgage loans. Plaintiffs in these cases
generally allege that they have paid claims as a result of defaults in the
underlying loans and assert that these defaults are the result of improper
underwriting by the defendants.
MBIA
The Corporation, CFC and various other Countrywide entities are named as
defendants in two actions filed by MBIA Insurance Corporation (MBIA). The
first action, MBIA Insurance Corporation, Inc. v. Countrywide Home Loans, et
al., is pending in New York Supreme Court, New York County. In April 2010, the
court granted in part and denied in part the Countrywide defendants’ motion
to dismiss and denied the Corporation’s motion to dismiss. The parties have
filed cross-appeals from this order. On December 22, 2010, the court issued
an order on MBIA’s motion for use of sampling at trial, in which the court held
that MBIA may attempt to prove its breach of contract and fraudulent induce-
ment claims through examination of statistically significant samples of the
securitizations at issue. In its order, the court did not endorse any of MBIA’s
specific sampling proposals and stated that defendants have “significant
valid challenges” to MBIA’s methodology that they may present at trial,
together with defendants’ own views and evidence.
The second MBIA action, MBIA Insurance Corporation, Inc. v. Bank of
America Corporation, Countrywide Financial Corporation, Countrywide Home
Loans, Inc., Countrywide Securities Corporation, et al., is pending in the
Superior Court of the State of California, County of Los Angeles. MBIA
purports to bring this action as subrogee to the note holders for certain
securitized pools of home equity lines of credit and fixed-rate second-lien
mortgage loans and seeks unspecified damages and declaratory relief. On
May 17, 2010, the court dismissed the claims against the Countrywide
defendants with leave to amend, but denied the request to dismiss MBIA’s
successor liability claims against the Corporation. On June 21, 2010, MBIA
filed an amended complaint re-asserting its previously dismissed claims
against the Countrywide defendants, re-asserting the successor liability claim
against the Corporation and adding Countrywide Capital Markets, LLC as a
defendant. The Countrywide defendants filed a demurrer to the amended
complaint, but the court declined to rule on the demurrer and instead entered
an order which stays this case until August 1, 2011.
Syncora
The Corporation, CFC and various other Countrywide entities are named as
defendants in an action filed by Syncora Guarantee Inc. (Syncora) entitled
Syncora Guarantee Inc. v. Countrywide Home Loans, Inc., et al. This action,
currently pending in New York Supreme Court, New York County, relates to
bond insurance policies provided by Syncora on certain securitized pools of
home equity lines of credit. In March 2010, the court issued an order that
granted in part and denied in part the Countrywide defendants’ motion to
dismiss. Syncora and the Countrywide defendants have filed cross-appeals
from this order. In May 2010, Syncora amended its complaint. Defendants
filed an answer to Syncora’s amended complaint on July 9, 2010, as well as a
counterclaim for breach of contract and declaratory judgment. The parties
have agreed to stay the counterclaim until August 15, 2011.
FGIC
The Corporation, CFC and various other Countrywide entities are named as
defendants in an action filed by Financial Guaranty Insurance Company (FGIC)
entitled Financial Guaranty Insurance Co. v. Countrywide Home Loans, Inc.
This action, currently pending in New York Supreme Court, New York County,
relates to bond insurance policies provided by FGIC on certain securitized
pools of home equity lines of credit and fixed-rate second-lien mortgage loans.
In June 2010, the court entered an order that granted in part and denied in
part the Countrywide defendants’ motion to dismiss. FGIC and the
Countrywide defendants have filed cross-appeals from this order. Defendants
filed an answer to FGIC’s amended complaint on July 19, 2010. On March 24,
2010, CFC and certain other Countrywide entities filed a separate but related
action against FGIC in New York Supreme Court seeking monetary damages of
at least $100 million against FGIC in connection with FGIC’s failure to pay
claims under certain bond insurance policies.
Ambac
The Corporation, CFC and various other Countrywide entities are named as
defendants in an action filed by Ambac Assurance Corporation (Ambac)
entitled Ambac Assurance Corporation and The Segregated Account of Ambac
Assurance Corporation v. Countrywide Home Loans, Inc., et al. This action,
currently pending in New York Supreme Court, New York County, relates to
bond insurance policies provided by Ambac on certain securitized pools of
home equity lines of credit and fixed-rate second-lien mortgage loans. On
December 10, 2010, defendants filed answers to the complaint.
Countrywide Equity and Debt Securities Matters
Certain New York state and municipal pension funds have commenced liti-
gation in the U.S. District Court for the Central District of California, entitled In
re Countrywide Financial Corporation Securities Litigation, against CFC, cer-
tain other Countrywide entities and several former CFC officers and directors.
This action alleges violations of the antifraud provisions of the Securities
Exchange Act of 1934 and Sections 11 and 12 of the Securities Act of 1933.
Plaintiffs claim losses in excess of $25.0 billion that plaintiffs allegedly
experienced on certain CFC equity and debt securities. Plaintiffs also assert
additional claims against BAS, MLPFS and other underwriter defendants
under Sections 11 and 12 of the Securities Act of 1933. Plaintiffs’ allege
that CFC made false and misleading statements in certain SEC filings and
elsewhere concerning the nature and quality of its loan underwriting practices
and its financial results. On April 2, 2010, the parties reached an agreement
in principle to settle this action for $624 million in exchange for a dismissal of
all claims with prejudice. On August 2, 2010, the court preliminarily approved
the settlement. On December 1, 2010, CFC and the plaintiffs agreed to
amend the settlement to allow CFC to use up to $22.5 million of the settle-
ment funds for a two-year period following final approval of the settlement to
resolve any claims asserted by investors who chose to exclude themselves
from the class. On January 7, 2011, the court preliminarily approved this
amendment. The settlement remains subject to final court approval.
Interchange and Related Litigation
A group of merchants have filed a series of putative class actions and
individual actions with regard to interchange fees associated with Visa and
MasterCard payment card transactions. These actions, which have been
consolidated in the U.S. District Court for the Eastern District of New York
under the caption In Re Payment Card Interchange Fee and Merchant Dis-
count Anti-Trust Litigation (Interchange), name Visa, MasterCard and several
banks and bank holding companies, including the Corporation, as defendants.
Plaintiffs allege that the defendants conspired to fix the level of default
interchange rates, which represent the fee an issuing bank charges an
acquiring bank on every transaction. Plaintiffs also challenge as unreason-
able restraints of trade under Section 1 of the Sherman Act certain rules of
Visa and MasterCard related to merchant acceptance of payment cards at the
point of sale. Plaintiffs seek unspecified damages and injunctive relief based
on their assertion that interchange would be lower or eliminated absent the
alleged conduct. On January 8, 2008, the court granted defendants’ motion
to dismiss all claims for pre-2004 damages. Motions to dismiss the remain-
der of the complaint and plaintiffs’ motion for class certification are pending.
In addition, plaintiffs filed supplemental complaints against certain de-
fendants, including the Corporation, relating to initial public offerings (the
202 Bank of America 2010