Ordinarily, there’s not much reason to get excited about a state intermediate appeals court upholding a procedural ruling by a trial court judge. But in the litigation between bond insurers and mortgage-backed securities issuers, decisions are not only magnified by the tens of billions of dollars at stake, but also by the paucity of precedent. Almost every ruling is groundbreaking, which means that decisions have an impact far beyond a single case.
With that in mind, there are two reasons why a ruling Thursday by the New York Appellate Division, First Department, is a setback for Bank of America: timing and authority.
Without much comment, the state appeals court affirmed two rulings by New York State Supreme Court Justice Eileen Bransten, who last fall denied motions by Bank of America to sever and consolidate successor liability claims against the bank in four bond insurer cases against Countrywide. “The court properly exercised its discretion in denying defendant’s motion to sever plaintiffs’ successor liability claims from the primary claims and to consolidate them, for purposes of discovery, in a single action,” the appellate decision said. “The successor liability actions are at completely different stages of discovery, and consolidation would result in undue delay.”
Countrywide Home Loans, Inc.,et al., Defendants, Bank of America Corp., Defendant-Appellant.
Syncora Guarantee, Inc., Plaintiff-Respondent,
v
Countrywide Home Loans, Inc.,et al., Defendants, Bank of America Corp., Defendant-Appellant.
O’Melveny & Myers LLP, New York (Jonathan Rosenberg of counsel), for appellant. Patterson Belknap Webb & Tyler LLP, New York (Robert P. LoBue of counsel), for Ambac Assurance Corp. and The Segregated Account of Ambac Assurance Corporation, respondents. Quinn Emanuel Urquhart & Sullivan, LLP, New York (Peter E. Calamari of counsel), for MBIA Insurance Corporation, respondent. Kutak Rock LLP, New York (Robert A. Jaffe of counsel), for Financial Guaranty Insurance Co., respondent. Allegaert Berger & Vogel LLP, New York (David A. Berger of counsel), for Syncora Guarantee, Inc., respondent.
Orders, Supreme Court, New York County (Eileen Bransten, J.), entered October 31, 2011 and November 2, 2011, which, among other things, denied defendant Bank of America Corp.’s motions to sever and consolidate plaintiffs’ successor liability claims for purposes of discovery, and held in abeyance defendant’s motion to consolidate the successor liability claims for purposes of trial, unanimously affirmed, with costs.
This is a consolidated appeal involving four related but separate claims by monoline insurers for primary liability against the Countrywide defendants in connection with financial guarantee insurance covering mortgage-backed securities. The actions also involve successor liability against defendant Bank of America. The court properly exercised its discretion in denying defendant’s motion to sever plaintiffs’ successor liability claims from the primary claims and to consolidate them, for purposes of discovery, in a single action. The successor liability actions are at completely different stages of discovery, and consolidation would result in undue delay (see Barnes v Cathers & Dembrosky, 5 AD3d 122 [2004]).
M-664 –Syncora Guarantee Inc. v Countrywide Home Loans, Inc., et al. and Bank of America Corp.
M-665 –MBIA Insurance Corporation v Countrywide Home Loans, Inc., et al. and Bank of America Corp.
M-745 –MBIA Insurance Corporation, et al. v Countrywide Home Loans, Inc., [*2]et al. and Bank of America Corp.
Motions to supplement the record on appeal (M-664, M-665) granted; cross motion to strike the supplemental record and reply brief, or for leave to supplement the record in the event the motion (M-665) is granted (M-745), granted to the extent of granting leave to supplement the record.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
* Syncora can pursue claims based on entire loan pool
* Insurer need not show breaches of individual loans
NEW YORK, March 28 (Reuters) – JPMorgan Chase & Co (JPM.N) could be forced to repurchase thousands of home equity loans, after a judge ruled in favor of a bond insurer that argued it could build its case based on a sampling of loans.
The ruling against EMC Mortgage Corp, once a unit of Bear Stearns Cos, comes amid many lawsuits seeking to force banks to buy back tens of billions of dollars of mortgage and other home loans that went sour. JPMorgan bought Bear Stearns in 2008.
You may read the court Order below:
SYNCORA GUARANTEE INC., f/k/a XL Capital Assurance Inc.,
v. EMC MORTGAGE CORP.,
No. 09 Civ. 3106 (PAC).
USDC, S.D. New York.
March 25, 2011.
OPINION & ORDER
HONORABLE PAUL A. CROTTY, United States District Judge.
This breach of contract lawsuit arises out of a securitization transaction (“Transaction”), involving 9,871 Home Equity Line of Credit (“HELOC”) residential mortgage loans, which were purchased and used as collateral for the issuance of $666 million in publicly offered securities (“Notes”). (Mem. in Supp. Mot. to Am. 3). Defendant EMC Mortgage Corp. (“EMC”) aggregated the HELOCs, sold the loan pool to the entity that issued the Notes, and contracted with Plaintiff Syncora Guarantee Inc., formerly known as XL Capital Assurance Inc., (“Syncora”) to provide a financial-guaranty insurance policy protecting the investors in the Note. (Id.) Syncora claims that EMC breached its representations regarding 85% of the loan pool. It now moves for partial summary judgment or, alternatively, a ruling in limine, that it was not required to comply with a repurchase protocol as the exclusive remedy for all such claims. The Court GRANTS the motion for partial summary judgment on the grounds that, in light of the broad rights and remedies for which Syncora contracted, any such remedial limitation would have to be expressly stated.
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