Compass Lexecon was retained by counsel for Bank of New York Mellon (“BNYM”) as Trustee to evaluate a proposed $8.5 billion settlement between 530 Trusts and Bank of America. The Trusts had purchased mortgage backed securities from Countrywide prior to its acquisition by Bank of America. After the securities performed worse than expected, a group of institutional investors and Bank of America, with assistance from BNYM, negotiated a proposed settlement whereby Bank of America would pay $8.5 billion to the Trusts as well as agree to certain servicing improvements and other remedies. The New York State Supreme Court was then asked to approve the settlement. Numerous investors in the 530 Trusts lodged objections claiming the settlement was unfair and that BNYM was conflicted and acted in bad faith in negotiating and agreeing to the settlement.
Compass Lexecon’s President Professor Daniel R. Fischel filed multiple reports and testified at the several months long hearing that the settlement was fair and reasonable. He showed that the lack of any conflict, the substantial uncertainty about the value of the claims, the questionable ability to recover in litigation given the substantial Countrywide bankruptcy risk, and the reaction of market participants to the proposed settlement supported its fairness. Compass Lexecon’s new affiliate, Professor Robert Daines, also testified. He explained among other things that the Trusts would be unlikely to recover from Bank of America on a successor liability or other theory if the settlement was rejected. Justice Barbara Kapnick found that BNYM acted in good faith and approved all aspects of the settlement except for the release of one claim. Justice Kapnick’s decision was appealed to the Appellate Division of the New York State Supreme Court. In a unanimous decision, the appellate court found that the Trustee did not abuse its discretion and approved the settlement in its entirety.
Professor Fischel was supported by a team in Compass Lexecon’s Chicago office which included Jerry Lumer, Jessica Mandel, Mike Keable, Kevin Hartt, Donnie Hong, and many others. The team worked closely with Matt Ingber and Chris Houpt of Mayer Brown LLP and Hector Gonzalez and Mauricio España of Dechert LLP who successfully represented BNYM.