Bank of America 2012 Annual Report Download - page 229

Bank of America 2012 227
caused the loans to default. On January 3, 2012, the court issued
an order that granted in part and denied in part MBIA’s motion.
The court ruled that under New York insurance law, MBIA does not
need to prove a causal link between Countrywide’s alleged
misrepresentations and the payments made pursuant to the
policies. The court also held that plaintiff could recover “rescissory
damages” (the amounts it has been required to pay pursuant to
the policies less premiums received) on such claims, but must
prove that it was damaged as a direct result of Countrywide’s
alleged material misrepresentations. The court denied the motion
in its entirety on the issue of the interpretation of the “materially
and adversely affects” language. On January 25, 2012,
Countrywide appealed the court’s decision and order to the extent
it granted MBIA’s motion. On February 6, 2012, MBIA filed a cross-
appeal of the court’s decision and order to the extent it denied
MBIA’s motion.
On September 19, 2012, Countrywide moved for summary
judgment on MBIA’s fraud, indemnification and punitive damages
claims and for partial summary judgment on MBIA’s breach of
contract claim. On that same date, MBIA moved for summary
judgment on its insurance breach and repurchase breach claims.
The court heard oral argument on the motions on December 12
and 13, 2012.
On September 28, 2012, the Corporation moved for summary
judgment with respect to MBIA’s successor liability claims. On the
same day, MBIA moved for summary judgment in its favor with
respect to such claims. The motions were argued to the court on
January 9 and 10, 2013.
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., filed on July 10, 2009, is pending in California Superior
Court, Los Angeles County. MBIA purports to bring this action as
subrogee to the note holders for certain securitized pools of HELOC
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 staying the case until August 2011. On
August 18, 2011, the court ordered a partial lifting of the stay to
permit certain limited discovery to proceed. The stay otherwise
remains in effect.
FIRREA and False Claims Act Litigation
On February 24, 2012, Edward O’Donnell filed a sealed qui tam
complaint against the Corporation, individually, and as successor
to Countrywide, Countrywide Home Loans, Inc. (CHL), and Full
Spectrum Lending. On October 24, 2012, the U.S. DOJ filed a
complaint-in-intervention to join the matter, adding BANA,
Countrywide and CHL as defendants. The action is entitled United
States of America, ex rel, Edward O’Donnell, appearing Qui Tam v.
Bank of America Corp et al., and was filed in the U.S. District Court
for the Southern District of New York. The complaint-in-intervention
asserts certain fraud claims in connection with the sale of loans
to FNMA and FHLMC by a Countrywide business division known
as Full Spectrum Lending and by the Corporation and BANA from
2006 continuing through 2009 and also asserts successor liability
against the Corporation and BANA. Plaintiff seeks, among other
relief, civil penalties pursuant to the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (FIRREA) and treble
damages pursuant to the False Claims Act. On January 11, 2013,
the government filed an amended complaint which added
Countrywide Bank, FSB and a former officer of the Corporation as
defendants.
Fontainebleau Las Vegas Litigation
On June 9, 2009, Fontainebleau Las Vegas, LLC (FBLV), then a
Chapter 11 debtor-in-possession, commenced an adversary
proceeding entitled Fontainebleau Las Vegas, LLC v. Bank of
America, N.A., Merrill Lynch Capital Corporation, et al. (FBLV action)
against a group of lenders, including BANA and Merrill Lynch Capital
Corporation (MLCC). The action was originally filed in the U.S.
Bankruptcy Court, Southern District of Florida, but was transferred
to the U.S. District Court for the Southern District of Florida. The
complaint alleges, among other things, that defendants breached
an agreement to lend their respective committed amounts under
an $800 million revolving loan facility, of which BANA and MLCC
had each committed $100 million, in connection with the
construction of a resort and casino development. The complaint
seeks damages in excess of $3 billion and a “turnover” order
under Section 542 of the Bankruptcy Code requiring the lenders
to fund their respective commitments. On May 10, 2012, the
revolving lender group and the trustee agreed to settle all
outstanding issues (including the original breach of commitment
claims), and the settlement was approved by the court on June
12, 2012; the Corporation’s share of this settlement was not
material to the Corporation’s results of operations.
On June 9, 2009, a related lawsuit, Avenue CLO Fund Ltd., et
al. v. Bank of America, N.A., Merrill Lynch Capital Corporation, et al.
(the Avenue action), was filed in the U.S. District Court for the
District of Nevada by certain project lenders. On September 21,
2009, another related lawsuit, ACP Master, Ltd., et al. v. Bank of
America, N.A., Merrill Lynch Capital Corporation, et al. (the ACP
action), was filed in the U.S. District Court for the Southern District
of New York by the purported successors-in-interest to certain
project lenders. These two actions were subsequently transferred
by the U.S. Judicial Panel on Multidistrict Litigation (JPML) to the
U.S. District Court for the Southern District of Florida for
coordinated pretrial proceedings with the FBLV action. Plaintiffs in
the Avenue and ACP actions (the Term Lenders) repeat FBLV’s
allegations that BANA, MLCC and the other defendants breached
their revolving loan facility commitments to FBLV. In addition, they
allege that BANA breached its duties as disbursement agent under
a separate agreement governing the disbursement of loaned funds
to FBLV. The Term Lenders seek unspecified money damages on
their claims.
On May 28, 2010, the district court in the Avenue action and
the ACP action granted defendants’ motion to dismiss the revolving
loan facility commitment claims, but denied BANA’s motion to
dismiss the disbursement agent claims. On January 13, 2011,
the district court granted the Term Lenders’ motion for entry of a
partial final judgment on their revolving loan facility commitment
claims. By decision dated February 20, 2013, the U.S. Court of
Appeals for the 11th Circuit affirmed the dismissal, holding that
the Term Lenders lacked standing to enforce the lending
commitments.