Bank of America 2015 Annual Report Download - page 201

Bank of America 2015 199
Bond Insurance Litigation
Ambac Countrywide Litigation
The Corporation, Countrywide and other Countrywide entities are
named as defendants in an action filed on September 29, 2010,
and as amended on May 28, 2013, by Ambac Assurance
Corporation and the Segregated Account of Ambac Assurance
Corporation (together, 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, relates to bond
insurance policies provided by Ambac on certain securitized pools
of second-lien (and in one pool, first-lien) HELOCs, first-lien
subprime home equity loans and fixed-rate second-lien mortgage
loans. Plaintiffs allege that they have paid claims as a result of
defaults in the underlying loans and assert that the Countrywide
defendants misrepresented the characteristics of the underlying
loans and breached certain contractual representations and
warranties regarding the underwriting and servicing of the loans.
Plaintiffs also allege that the Corporation is liable based on
successor liability theories. Damages claimed by Ambac are in
excess of $2.2 billion and include the amount of payments for
current and future claims it has paid or claims it will be obligated
to pay under the policies, increasing over time as it pays claims
under relevant policies, plus unspecified punitive damages.
On October 22, 2015, the New York Supreme Court granted in
part and denied in part Countrywide’s motion for summary
judgment and Ambac’s motion for partial summary judgment.
Among other things, the court granted summary judgment
dismissing Ambac’s claim for rescissory damages and denied
summary judgment regarding Ambac’s claims for fraud and breach
of the insurance agreements. The court also denied the
Corporation’s motion for summary judgment and granted in part
Ambac’s motion for partial summary judgment on Ambac’s
successor-liability claims with respect to a single element of its
de facto merger claim. The court denied summary judgment on
the other elements of Ambac’s de facto merger claim and the other
successor-liability claims. Ambac filed its notice of appeal on
October 27, 2015. The Corporation filed its notice of appeal on
November 16, 2015. Countrywide filed its notice of cross-appeal
on November 18, 2015.
On December 30, 2014, Ambac filed a second complaint in
the same New York Supreme Court against the same defendants,
entitled Ambac Assurance Corporation and The Segregated Account
of Ambac Assurance Corporation v. Countrywide Home Loans, Inc.,
et al., claiming fraudulent inducement against Countrywide, and
successor and vicarious liability against the Corporation relating
to eight partially Ambac-insured RMBS transactions that closed
between 2005 and 2007, all backed by negative amortization pay
option adjustable-rate mortgage (ARM) loans that were originated
in whole or in part by Countrywide. Seven of the eight
securitizations were issued and underwritten by non-parties to the
litigation. Ambac claims damages in excess of $600 million
consisting of all alleged past and future claims against its policies,
plus other unspecified compensatory and punitive damages.
Also on December 30, 2014, Ambac filed a third action in
Wisconsin Circuit Court, Dane County, against Countrywide Home
Loans, Inc., entitled The Segregated Account of Ambac Assurance
Corporation and Ambac Assurance Corporation v. Countrywide
Home Loans, Inc., claiming that Ambac was fraudulently induced
to insure portions of five securitizations issued and underwritten
in 2005 by a non-party that included Countrywide-originated first-
lien negative amortization pay option ARM loans. The complaint
seeks damages in excess of $350 million for all alleged past and
future Ambac insured claims payment obligations, plus other
unspecified compensatory and punitive damages. Countrywide
filed a motion to dismiss the complaint on February 20, 2015. On
July 2, 2015, the court dismissed the complaint for lack of personal
jurisdiction. Ambac appealed the dismissal to the Court of Appeals
of Wisconsin, District IV, on July 21, 2015. The appeal remains
under consideration.
On July 21, 2015, Ambac filed a fourth action in New York
Supreme Court against Countrywide Home Loans, Inc., entitled
Ambac Assurance Corporation and The Segregated Account of
Ambac Assurance Corporation v. Countrywide Home Loans, Inc.
asserting the same claims for fraudulent inducement that were
asserted in the Wisconsin complaint. Ambac simultaneously
moved to stay the action pending resolution of its appeal in the
Wisconsin action. Countrywide opposed the motion to stay and on
August 10, 2015, moved to dismiss the complaint. The court heard
argument on the motions on November 18, 2015. Both motions
remain under consideration.
Ambac First Franklin Litigation
On April 16, 2012, Ambac sued First Franklin Financial Corporation
(First Franklin), BANA, Merrill Lynch, Pierce, Fenner & Smith, Inc.
(MLPF&S), Merrill Lynch Mortgage Lending, Inc. (MLML), and Merrill
Lynch Mortgage Investors, Inc. (MLMI) in New York Supreme Court.
Ambac’s claims relate to guaranty insurance Ambac provided on
a First Franklin securitization (Franklin Mortgage Loan Trust, Series
2007-FFC). MLML sponsored and Ambac insured certain
certificates in the securitization. The complaint alleges that
defendants breached representations and warranties concerning,
among other things, First Franklin’s lending practices, the
characteristics of the underlying mortgage loans, the underwriting
guidelines followed in originating those loans, and the due
diligence conducted with respect to those loans. The complaint
asserts claims for fraudulent inducement, breach of contract,
indemnification and attorneys’ fees. Ambac also asserts breach
of contract claims against BANA based upon its servicing of the
loans in the securitization. The complaint alleges that Ambac has
paid hundreds of millions of dollars in claims and has accrued and
continues to accrue tens of millions of dollars in additional claims,
and Ambac seeks as damages the total claims it has paid and its
projected future claims payment obligations, as well as specific
performance of defendants’ contractual repurchase obligations.
On July 19, 2013, the court denied defendants’ motion to
dismiss Ambac’s contract and fraud causes of action but
dismissed Ambac’s indemnification cause of action. In addition,
the court denied defendants’ motion to dismiss Ambac’s claims
for attorneys’ fees and punitive damages. On September 17, 2015,
the court denied Ambac’s motion to strike defendants’ affirmative
defense of in pari delicto and granted Ambac’s motion to strike
defendants’ affirmative defense of unclean hands.