BofA $8.5 billion deal returned to NY state court
By Karen Freifeld
(Reuters) - Bank of America Corp won a victory when a U.S. appeals court ruled that a proposed $8.5 billion settlement with investors in mortgage-backed securities should be reviewed in New York state court, not federal court.
Bank of America (BAC.N: Quote), the nation's second largest bank, is seeking to resolve liabilities from its purchase of Countrywide Financial Corp in 2008. The settlement has been viewed as a template for other banks to address claims by investors who bought risky pools of mortgages before the housing market collapsed.
The ruling by the 2nd U.S. Circuit Court of Appeals on Monday reverses an October decision by U.S. District Judge William Pauley who had taken the case from state court.
The decision "likely narrows the scope of review that the settlement will face, and increases the probability that it gets approved in the proposed $8.5b range," John McDonald, a bank analyst at Bernstein Research, said in a note to clients.
Returning the case to state court means it will be reviewed under a law that gives Bank of New York Mellon (BK.N: Quote), the trustee that negotiated the settlement, broad discretion in matters such as agreements with investors.
Chief Judge Dennis Jacobs of the 2nd Circuit wrote in the decision the case was being dismissed for lack of jurisdiction. He said it was up to the state court to confirm whether BNY Mellon had the authority to enter into the settlement, and acted reasonably and in good faith, as the trustee requested.
"Whether a New York court is able and willing to grant the relief sought in this case is an issue for the New York courts," Jacobs wrote.
Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, said in a statement the bank was pleased by the ruling. Continued...