Judge Denies AIG Request to Stay $8.5B MBS Settlement

, New York Law Journal


The judge who inherited the American International Group-led challenge to an $8.5 billion deal struck between Bank of America and investors of mortgage-backed securities refused to suspend her predecessor's ruling approving the settlement, saying she saw no need to do so.

In a lively court hearing Wednesday in the Commercial Division focused entirely on one procedural request by AIG's counsel, Justice Saliann Scarpulla (See Profile) said it was clear Justice Barbara Kapnick (See Profile) did not intend to further delay entry of judgment beyond a five-day stay issued merely out of "convenience" for out-of-state parties.

"I'm not her Appellate Division. All I can do is effectuate what she did," Scarpulla told the parties during a 45-minute hearing in In re Bank of New York Mellon, 651786/2011.

Kapnick, who was recently elevated to the Appellate Division, First Department, signed off on the majority of the settlement between 22 institutional investors and Bank of America, which acquired Countrywide Financial, the lender that issued the home mortgages which unraveled during the housing crisis.

AIG, an investor, opposed the settlement, arguing that the deal low-balled the actual value of losses suffered by certificate-holders and was the result of back-door negotiations that failed to account for the full spectrum of investors' losses.

Kapnick held in her Jan. 31 decision, issued after a nine-week Article 77 hearing, that the trustee representing the institutional investors, Bank of New York Mellon, did not abuse its discretion in entering into the 2011 deal, save for releasing up to $31 billion in loan modification claims without further investigating their potential worth.

AIG sought an indefinite stay of Kapnick's judgment, arguing that the loan modification exception left open certain issues that would be easier managed "under one tent" rather than go all the way up to appeal and back down again.

AIG is represented by Mark Zauderer of Flemming Zulack Williamson Zauderer; Daniel Reilly of Reilly Pozner; and Michael Rollin of Jones & Keller.

Mayer Brown and Dechert, counsel to Bank of New York Mellon, in addition to Gibbs & Brunn and Warner Partners, counsel to the institutional investors, argued that AIG's request was an attempt to hold the settlement "hostage" and extend the statutory period in which it must file notice of appeal.

"Of all the unusual procedural moves, we've never heard of this before. To stay entry of a judgment? That's something we've never heard of," Matthew Ingber, partner at Mayer Brown, told Scarpulla.

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