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 The supporters urged the judge overseeing the deal to reject AIG's
efforts to delay its approval, according to documents submitted to
the court late on Friday.
Bank of America agreed to the settlement in June 2011 to resolve
claims by investors who had bought $174 billion of mortgage-backed
securities issued by Countrywide Financial before the U.S. housing
crisis. The investors said Countrywide, acquired by Bank of America
in 2008, misrepresented the quality of the underlying home
mortgages, which went sour in the crisis.
AIG, one of the investors in the mortgage securities, objected to
the deal, saying there was no evidence it provided adequate
compensation for losses.
Justice Barbara Kapnick in New York state court approved the
settlement on January 31, but four days later AIG asked a new judge
overseeing the case to delay the decision, saying Kapnick had left
issues unresolved.
The new judge, Justice Saliann Scarpulla, has called a hearing
Wednesday to hear arguments on AIG's request.
"The court should not permit AIG to nullify the judgment and hold
the entire settlement hostage indefinitely," supporters of the deal
said in their court filing. Kapnick overruled AIG on the unresolved
issues, they said.
AIG is seeking to delay the settlement as leverage against Bank of
America in another case, the supporters said. In that case, AIG sued
Bank of America over $10 billion of securities fraud claims in
August 2011, the same day it intervened to object to the $8.5
billion settlement.
In a reply filed with the court on Tuesday, AIG's lawyers said
Kapnick had "refused to give any weight" to the idea that AIG was
objecting "merely" as a way to benefit its securities fraud claim.
Scarpulla should delay approval of the settlement until investors
like AIG can find out how the money will be allocated, the reply
said.
CONSIDERING WHETHER TO GRANT AIG'S REQUEST
Scarpulla must decide whether to grant AIG's request to further
delay Kapnick's judgment or enter the judgment into the court record
and leave AIG to appeal if it chooses.
If Scarpulla grants AIG's request, AIG should be required to post $1
million a day that the delay is costing other investors, supporters
of the deal said.
Twenty-two institutional investors, including BlackRock <BLK.N>Inc,
Allianz SE's Pimco, <ALVG.DE> and Metlife Inc, <MET.N>, and Bank of
New York Mellon <BK.N>, the trustee for the securities, agreed to
the settlement with Bank of America.
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In her ruling on January 31, Kapnick said Bank of New York Mellon
was concerned that Countrywide would be unable to pay a future
judgment that even approached $8.5 billion, and thought it was
reasonable to lock in a one-time payment.
Kapnick made one exception in her ruling, withholding her approval
from settlement of claims relating to certain loans that had been
modified. Bank of New York Mellon should not have settled claims
related to mortgages that had been modified without investigating
their potential worth, she said.
In its latest court filing, Bank of New York Mellon said it would do
nothing about those claims until the settlement is finally approved.
"There is no decision to be made, by anyone, about any action to
take with respect to these claims until it is determined whether the
settlement agreement is finally approved and appeals are exhausted,"
the bank and investor group said.
In its reply Tuesday, AIG disagreed, saying the court should
withhold final judgment until the parties resolve the claims related
to loan modifications and determine how the settlement will be
allocated.
Separately on Tuesday, AIG asked a state appeals court for more time
to submit briefs in its appeal of Kapnick's decision to hear the
case without a jury. The appeals court is not expected to rule on
that request until next month at the earliest.
The case is In re: The Bank of New York Mellon, New York State
Supreme Court, New York County, No. 651786/2011.
(Reporting by Karen Freifeld; editing by
Cynthia Osterman)
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