Bank of America has been besieged by mortgage-backed securities lawsuits, spooking investors who fear the bank’s liability from its Countrywide Financial unit will continue to balloon and overwhelm the bank. The day American International Group sued Bank of America last week for $10 billion, shares of the nation’s biggest bank tumbled by 20%.
But this week Bank of America scored an important legal victory when the U.S. Judicial Panel on Multidistrict Litigation combined a bunch of mortgage-related lawsuits that had been filed against Countrywide and assigned them to a federal judge in Los Angeles.
Judge Mariana Pfaelzer has appeared to be sympathetic to Bank of America, previously throwing out some claims in another case against the bank. She has limited claims against Countrywide filed by investors who she felt could not properly show they had been injured and whose claims she deemed exceeded the statute of limitations. More important, Judge Pfaelzer has sided with Bank of America by dismissing it from a lawsuit involving Countrywide, saying the bank could not be held liable for rotten securities issued by Countrywide, which Bank of America purchased in 2008.
Plaintiff lawyers who had sued Bank of America desperately did not want their lawsuits consolidated in front of Judge Pfaelzer. But the panel found that “centralization of the eight Countrywide MBS cases in the Central District of California will serve the convenience of the parties and witnesses and promote the just and efficient conduct of this litigation by avoiding duplicative discovery and other pretrial proceedings oncomplex common factual issues.” The panel also liked that the cases would end up in front of a single judge who “familiarity with the issues in this litigation.”
It’s now clear that Bank of America CEO Brian Moynihan’s strategy to attempt to settle mortgage-related lawsuits has made the bank a fat target, encouraging plaintiff lawyers and institutional investors to sue the bank more and more. Last week Moynihan seemed to be getting the message, saying about the flock of litigants “we’ll see them in court.” It's too late to discourage the mounting legal claims and Bank of America's stock was trading down another 5% on Tuesday. But at least Moynihan will get to see many of his adversaries in front of Judge Pfaelzer.