Judge denies AIG motion in BofA $8.5 billion settlement

Tue Apr 24, 2012 7:47pm EDT
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By Karen Freifeld

NEW YORK (Reuters) - A New York judge on Tuesday rejected an effort by AIG Inc (AIG.N: Quote) and other objectors to Bank of America Corp's (BAC.N: Quote) proposed $8.5 billion mortgage bond settlement to convert the case to a proceeding that may have widened its scope.

New York state Supreme Court Justice Barbara Kapnick, who must decide whether to approve the settlement, denied the motion by AIG and other groups of investors to turn the limited proceeding known as an Article 77 into a broader inquiry known as a plenary action.

Kapnick said at a hearing on Tuesday that she could accomplish what was necessary under the Article 77.

"I really think I have a lot of discretion," she said.

An Article 77 is a special proceeding, limited in scope, that generally is used in run-of-the-mill trust matters. Objectors to the settlement wanted to transform the case into a plenary action for a full hearing.

The settlement would resolve claims from investors in mortgage bonds issued by Countrywide Financial Corp, which was purchased in 2008 by Bank of America.

BlackRock Inc (BLK.N: Quote), MetLife Inc (MET.N: Quote) and Allianz SE's (ALVG.DE: Quote) Pacific Investment Management Co are among 22 institutional investors who agreed to the accord. Other investors have complained the payout is too low.

Kathy Patrick, an attorney for the institutional investors, viewed the judge's decision as a positive step.   Continued...