The New York State Court of Appeals, the highest court in New York, Thursday sided with an insurer in a decision that compels Bank of America (BOA) to turn over hundreds of communications the bank had with Countrywide Financial Corp. before the bank's acquisition of Countrywide in 2008.
The insurer, Manhattan-based Ambac Assurance Corp., which guaranteed payments on securities issued by Countrywide subsidiaries between 2004 and 2006, claimed in a lawsuit that Countrywide had purposely misrepresented its mortgage-backed securities.
Consequently, Ambac wanted to see just what Countrywide and BOA were talking about before their merger, arguing that attorney-client privilege should not protect communications that could show evidence of fraud.
On Thursday, the Court of Appeals ruled that attorney-client privilege does not protect the communications BOA and Countrywide and their attorneys had. The bank will now be compelled to surrender more than 300 communications that occurred up to six months prior to the deal.
According to the decision, the insurer claimed that “Bank of America withheld from disclosure would have revealed that the merging entities structured their transaction to conceal Countrywide's fraudulent dealings and leave potential victims without recourse,” and that “Bank of America’s response has been that there is no evidence of actual abuse.”
“But the potential for abuse is sufficiently great, and the accompanying benefits so few, that expansion is not warranted,” wrote Judge Eugene Pigott in the decision. “Bank of America's remaining counterarguments do not persuade us to the contrary.”
“But the potential for abuse is sufficiently great, and the accompanying benefits so few, that expansion is not warranted. Bank of America's remaining counterarguments do not persuade us to the contrary.”
New York State Court of Appeals
Pigott also stated in the decision that unless it deals with specific litigation matters, attorney-client privilege in New York generally is lost whenever third parties become part of the conversation. BOA had argued that attorney-client privilege should apply more broadly to any common legal interest, but the four-judge majority for whom Pigott wrote Thursday’s decision denied that argument.
The court’s decision is the latest in BOA’s continuing drama concerning the Countryside deal. Since taking over the company, the bank has hemorrhaged money to cover a seemingly unending string of legal problems related to Countrywide’s business practices. To date, BOA has had to pay more than $50 billion in connection to Countrywide, which it bought for $2.5 billion less than a decade ago.
One rare bright spot for BOA in the saga came at the end of May, when The U.S. Second Circuit Court of Appeals threw out a $1.27 billion penalty regarding the alleged misrepresentation of mortgage-backed securities sold by Countrywide to the GSEs through a program known as the High Speed Swim Lane (HSSL, commonly known as “Hustle”).
But even that victory came after years of litigation, and BOA’s Countrywide bills just keep mounting in the meantime.