Bank of America 2010 Annual Report Download - page 206

securities. Plaintiffs claim that MLPFS and MLI did not adequately disclose the
credit quality and other risks of the CDO securities and underlying collateral.
The complaint alleges claims for fraud, negligent misrepresentation, breach
of the implied covenant of good faith and fair dealing and breach of contract
and seeks rescission and unspecified compensatory and punitive damages,
among other relief. On April 9, 2010, the court granted defendants’ motion to
dismiss as to the fraud, negligent misrepresentation, breach of the implied
covenant of good faith and fair dealing and rescission claims, as well as a
portion of the breach of contract claim. Plaintiffs have appealed the dismissal
of their claims and MLI has cross-appealed the denial of its motion to dismiss
the breach of contract claim in its entirety. On February 1, 2011, the appellate
court dismissed the case against MLI in its entirety. MBIA has filed a request
to appeal the appellate court’s decision to the New York State Court of
Appeals and has requested permission from the trial court to file an amended
complaint.
Merrill Lynch Acquisition-related Matters
Since January 2009, the Corporation and certain of its current and former
officers and directors, among others, have been named as defendants in a
variety of actions filed in state and federal courts relating to the Corporation’s
acquisition of Merrill Lynch (the Acquisition). These acquisition-related cases
consist of securities actions, derivative actions and actions under ERISA. The
claims in these actions generally concern (i) the Acquisition; (ii) the financial
condition and 2008 fourth-quarter losses experienced by the Corporation and
Merrill Lynch; (iii) due diligence conducted in connection with the Acquisition;
(iv) the Corporation’s agreement that Merrill Lynch could pay up to $5.8 billion
in bonus payments to Merrill Lynch employees; (v) the Corporation’s discus-
sions with government officials in December 2008 regarding the Corpora-
tion’s consideration of invoking the material adverse change clause in the
Acquisition agreement and the possibility of obtaining government assistance
in completing the Acquisition; and/or (vi) alleged material misrepresentations
and/or material omissions in the proxy statement and related materials for
the Acquisition.
Securities Actions
Plaintiffs in the putative securities class actions in the In re Bank of America
Securities, Derivative and Employment Retirement Income Security Act
(ERISA) Litigation (Securities Plaintiffs) represent all (i) purchasers of the
Corporation’s common and preferred securities between September 15,
2008 and January 21, 2009; (ii) holders of the Corporation’s common stock
or Series B Preferred Stock as of October 10, 2008; and (iii) purchasers of the
Corporation’s common stock issued in the offering that occurred on or about
October 7, 2008. During the purported class period, the Corporation had
between 4,560,112,687 and 5,017,579,321 common shares outstanding
and the price of those securities declined from $33.74 on September 12,
2008 to $6.68 on January 21, 2009. Securities Plaintiffs claim violations of
Sections 10(b), 14(a) and 20(a) of the Securities Exchange Act of 1934, and
SEC rules promulgated thereunder. Securities Plaintiffs’ amended complaint
also alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of
1933 related to an offering of the Corporation’s common stock that occurred
on or about October 7, 2008, and names BAS and MLPFS, among others, as
defendants on the Section 11 and 12(a)(2) claims. The Corporation and its co-
defendants filed motions to dismiss, which the court granted in part by
dismissing certain of the Securities Plaintiffs’ claims under Section 10(b)
of the Securities Exchange Act of 1934. Securities Plaintiffs have filed a
second amended complaint which seeks to replead some of the dismissed
claims as well as add claims under Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 on behalf of holders of certain debt, preferred secu-
rities and option securities. The Corporation and its co-defendants have filed a
motion to dismiss the second amended complaint’s new and amended
allegations, which remains pending. Securities Plaintiffs seek unspecified
monetary damages, legal costs and attorneys’ fees.
Several individual plaintiffs have opted to pursue claims apart from the In
re Bank of America Securities, Derivative, and Employment Retirement In-
come Security Act (ERISA) Litigation and, accordingly, have initiated individual
actions relying on substantially the same facts and claims as the Securities
Plaintiffs in the U.S. District Court for the Southern District of New York.
On January 13, 2010, the Corporation, Merrill Lynch and certain of the
Corporation’s current and former officers and directors were named in a
purported class action filed in the U.S. District Court for the Southern District
of New York entitled Dornfest v. Bank of America Corp., et al. The action is
purportedly brought on behalf of investors in Corporation option contracts
between September 15, 2008 and January 22, 2009 and alleges that during
the class period approximately 9.5 million Corporation call option contracts
and approximately eight million Corporation put option contracts were already
traded on seven of the Options Clearing Corporation exchanges. The com-
plaint alleges that defendants violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and SEC rules promulgated thereunder.
On April 9, 2010, the court consolidated this action with the consolidated
securities action in the In re Bank of America Securities, Derivative and
Employment Retirement Income Security Act (ERISA) Litigation,andruled
that the plaintiffs may pursue the action as an individual action. Plaintiffs seek
unspecified monetary damages, legal costs and attorneys’ fees.
Derivative Actions
Several of the derivative actions related to the Acquisition that were pending in
the Delaware Court of Chancery were consolidated under the caption In re
Bank of America Corporation Stockholder Derivative Litigation. In addition, the
MDL ordered the transfer of actions related to the Acquisition that had been
pending in various federal courts to the U.S. District Court for the Southern
District of New York for coordinated or consolidated pretrial proceedings.
These actions have been separately consolidated and are now pending under
the caption In re Bank of America Securities, Derivative, and Employment
Retirement Income Security Act (ERISA) Litigation.
On October 9, 2009, plaintiffs in the derivative actions in the In re Bank of
America Securities, Derivative and Employment Retirement Income Security
Act (ERISA) Litigation (the Derivative Plaintiffs) filed a consolidated amended
derivative and class action complaint. The amended complaint names as
defendants certain of the Corporation’s current and former directors, officers
and financial advisors, and certain of Merrill Lynch’s current and former
directors and officers. The Corporation is named as a nominal defendant with
respect to the derivative claims. The amended complaint asserts claims for,
among other things: (i) violation of federal securities laws; (ii) breach of
fiduciary duties; (iii) the return of incentive compensation that is alleged to be
inappropriate in view of the work performed and the results achieved by
certain of the defendants; and (iv) contribution in connection with the Corpo-
ration’s exposure to significant liability under state and federal law. The
amended complaint seeks unspecified monetary damages, equitable reme-
dies and other relief. On February 8, 2010, the Derivative Plaintiffs voluntarily
dismissed their claims against each of the former Merrill Lynch officers and
directors without prejudice. The Corporation and its co-defendants filed mo-
tions to dismiss, which were granted in part on August 27, 2010. On Octo-
ber 18, 2010, the Corporation and its co-defendants answered the remaining
allegations asserted by the Derivative Plaintiffs.
On February 17, 2010, an alleged shareholder of the Corporation filed a
purported derivative action, entitled Bahnmaier v. Lewis, et al., in the U.S. Dis-
trict Court for the Southern District of New York. The complaint names as
defendants certain of the Corporation’s current and former directors and
officers, and one of Merrill Lynch’s former officers. The complaint alleges,
among other things, that the individual defendants breached their fiduciary
204 Bank of America 2010