Mbia Inc. · NYSE:MBI
Mbia — Investor Presentation (January 2013)
102 slides from Mbia's investor presentation, Jan 9, 2013
Slide 1: MBIA Presentation on Motions for Summary Judgment on Successor Liability Based on De Facto Merger
FILED: NEW YORK COUNTY CLERK 01/09/2013 INDEX NO. 602825/2008 NYSCEF DOC. NO. 4029 RECEIVED NYSCEF: 01/09/2013 MBIA Presentation on The Parties’ Motions for Summary Judgment on Successor Liability Based on De Facto Merger (Motion Sequence Nos. 60-61) MBIA Insurance Corp. v. Countrywide Home Loans, I
Slide 2: Roadmap Of Argument
Roadmap Of Argument TOPIC Overview: Bank Of America “Integrates” And “Combines” Countrywide’s Productive Assets And Operations Into Itself Bank Of America’s De Facto Merger With Countrywide Under New York Law Choice Of Law: New York Law Controls The De Facto Merger Claim Even If Delaware Law Did Con
Slide 3: Overview: Bank Of America Integrates And Combines Countrywide's Productive Assets
Overview: Bank Of America “Integrates” And “Combines” Countrywide’s Productive Assets And Operations Into Itself 3
Slide 4: BAC Cannot Avoid Countrywide's Liabilities Through Abuse Of The Corporate Form
BAC Cannot Avoid Countrywide’s Liabilities Through Abuse Of The Corporate Form • MBIA’s successor liability claim seeks to redress an extreme abuse of corporate form– where BAC attempted to gain the economic benefits of acquiring all of Countrywide’s operating assets, free of the corresponding liabi
Slide 5: BAC Is No Mere Shareholder; It Merged Countrywide's Business Into Its Own
BAC Is No Mere “Shareholder”; It Merged Countrywide’s Business Into Its Own And Is Liable As A Successor • BAC is not just a “shareholder” of Countrywide, as it argued to the Court at the outset of the case. See BAC Reply Mem. I.S.O. Mot. To. Dismiss, Nov. 13, 2009, at 7 (“Although there was an actu
Slide 6: BAC Intended To Assume Countrywide's Liabilities
BAC Intended To Assume Countrywide’s Liabilities, And Is Thus Liable As Successor On That Basis As Well • BAC’s intent to assume Countrywide’s liabilities was acknowledged internally prior to the merger with Countrywide: – Per Bank of America’s CFO, Joe Price, the day before the Red Oak Merger: BAC
Slide 7: BAC's Integration Plan Was To Merge The Two Businesses, Avoiding Contingent Liabilities
BAC’s Integration Plan Was To Merge The Two Businesses, While Avoiding Countrywide’s Contingent Liabilities • BAC sought to structure the acquisition of Countrywide and integrate Countrywide’s businesses into its own, while attempting to avoid assuming Countrywide’s contingent liabilities: – BAC pla
Slide 8: BAC's Senior Management Confirmed The Goal Of The Integration Plan
BAC’s Senior Management Confirmed The Goal Of The Integration Plan • Then-CEO Ken Lewis described BAC’s purchase of Countrywide as a “onetime opportunity to acquire the best mortgage platform in the business at a time when the value is very attractive,” and BAC valued Countrywide’s “product expertis
Slide 9: BAC Contests Successor Liability As A Litigation Strategy
BAC Contests Successor Liability As A Litigation Strategy • BAC knows it is responsible for Countrywide’s liabilities, and it knows the financial markets expect it to assume those liabilities: – “We have resolved many Countrywide mortgage-related matters, established large reserves to address these
Slide 10: BAC's De Facto Merger With Countrywide Under New York Law
BAC’s De Facto Merger With Countrywide Under New York Law 10
Slide 11: Bank of America Achieved The Same Result Of A Classic De Jure Merger
Bank of America Achieved The Same Result Of A Classic De Jure Merger By Integrating Countrywide’s Operations Into Its Own • “Under New York law, there are at least three ways in which a corporation can acquire the business of another: The purchaser can buy the seller’s capital stock, it can buy the
Slide 12: De Facto Merger Is An Equitable Doctrine That Looks Past Mere Form
De Facto Merger Is An Equitable Doctrine That Looks Past Mere Form To The Substance Of The Transactions • The purpose of the de facto merger doctrine is to prevent abuse of the corporate form to avoid liabilities. • “This doctrine is applied when the acquiring corporation has not purchased another c
Slide 13: Fraud Is Not An Element Of De Facto Merger
Fraud Is Not An Element Of De Facto Merger • There are four separate doctrines upon which successor liability can be established, and fraud is an element of only one of those doctrines: – The purchasing corporation was a mere continuation of the selling corporation; – The purchasing corporation expr
Slide 14: New York Recognizes At Least Four Hallmarks Of De Facto Merger
New York Recognizes At Least Four “Hallmarks” Of De Facto Merger—All Of Which Are Present In This Case • The fundamental inquiry is whether the acquiring corporation has “effectively merged,” integrating its business with that of the seller. Fitzgerald, 286 A.D.2d at 574. • The non-exclusive “hallma
Slide 15: The Transactions At Issue Are The Very Paradigm Of A De Facto Merger
The Transactions At Issue Here Are The Very Paradigm Of A De Facto Merger • Bank of America did not acquire Countrywide “merely for the purpose of holding it as a subsidiary, but rather has effectively merged with” Countrywide–integrating its “core” businesses into Bank of America, while leaving beh
Slide 16: Continuity of Ownership
Continuity of Ownership 16
Slide 17: First, There Is Continuity Of Ownership Over The Transferred Business Assets
First, There Is Continuity Of Ownership Over The Transferred Business Assets And Subsidiaries • Continuity of ownership is established where the shareholders of the predecessor corporation become direct or indirect shareholders of the successor corporation. Van Nocker, 15 A.D.3d at 256. – The “essen
Slide 18: Asset Sale Approach Does Not Impact Continuity Of Ownership
Bank of America’s Use Of An Asset Sale Approach Does Not Impact Continuity Of Ownership • BAC is wrong that Van Nocker requires that continuity of ownership be shown by “proof that the asset seller gained an ownership interest in the asset purchaser through the asset sale.” BAC Mem. 35. • New York c
Slide 19: De Facto Merger Through Multiple Transactions Rather Than One
It Does Not Matter That Bank Of America Accomplished Its De Facto Merger Through Multiple Transactions Rather Than One • “[T]here is no requirement that all of the events that are necessary to a finding of de facto merger occur at the same time.” Arnold Graphics Indus. v. Ind. Agent Ctr., Inc., 775
Slide 20: Cessation of Ordinary Business Operations
Cessation of Ordinary Business Operations 20
Slide 21: Second, Countrywide Ceased Its Ordinary Business Operations
Second, Countrywide Ceased Its Ordinary Business Operations, Including Its Core Mortgage Origination And Servicing Operations Another “hallmark” indicating a de facto merger is “cessation of ordinary business and dissolution of the acquired corporation as soon as possible.” Fitzgerald, 286 A.0.2d at
Slide 22: BAC's Own Documents Confirm Countrywide No Longer Engaged In Mortgage Business
Bank of America’s Own Documents Confirm Countrywide Is No Longer Engaged In The Consolidated Mortgage Business • Bank of America’s own internal documentation confirmed that in 2009, following the Asset- Stripping Transactions, Countrywide Financial Corporation would not (1) originate loans, (2) brok
Slide 23: BAC Transferred Mortgage Servicing Business To Its Own Subsidiaries
Bank of America Transferred CFC’s and CHL’s Mortgage Servicing Business To Its Own Operating Subsidiaries • Through the July 2008 Transactions, CHL’s mortgage loan servicing business (CHLS), mortgage servicing rights, mortgage loan portfolio, and securities trading portfolio were all sold to Bank of
Slide 24: BAC Shut Down Or Merged Countrywide Securities Corporation's Operations
Bank of America Shut Down Or Merged Countrywide Securities Corporation’s Operations • CSC was deregistered as a securities broker-dealer, and the capital markets business was shut down or absorbed into BAC’s corresponding business. Oblak Ex. 212 (Legal Entities List, Oct. 31, 2008), at Row 64. Combi
Slide 25: BAC Transferred Substantially All Of CHL's Remaining Assets
Bank of America Transferred “Substantially All” Of CHL’s Remaining Assets And All Remaining Operating Assets On November 7, 2008 • On November 7, 2008, pursuant to an Asset Purchase Agreement, “substantially all” of CHL’s remaining assets, and all of CHL’s remaining operating assets, were sold to BA
Slide 26: BAC Transferred Substantially All Of CFC's Remaining Assets
Bank of America Transferred “Substantially All” Of CFC’s Remaining Assets And All Remaining Operating Assets On November 7, 2008 • On November 7, 2008, pursuant to an Stock Purchase Agreement, “substantially all” of CFC’s remaining assets and all of CFC’s remaining operating assets and subsidiaries,
Slide 27: The CFC And CHL Orphan Entities Are Mere Shells
The CFC And CHL “Orphan” Entities Are Mere Shells, And Were Not Retained To Conduct Ongoing Operations • Bank of America kept CFC and CHL as “orphan” legal entities “[t]o avoid any potential legal ramifications.” Rosenberg Ex. 4 (Legal Entity Planning Spreadsheet). – “CFC and many of its subs contin
Slide 28: CFC And CHL Shells Retained Only Bad Or Toxic Assets
The CFC And CHL Shell Entities Were “Shorn” Of Assets, And Retained Only “Bad” Or “Toxic” Assets And Massive Contingent Liabilities • Bank of America transferred: (i) all of CFC’s and CHL’s assets, except for “bad” or “toxic” assets that “could not” be moved; (ii) a minor subsidiary BAC intended to
Slide 29: Ofcharsky's Testimony Confirms CFC And CHL Left With Toxic Assets
Edward Ofcharsky’s Testimony Confirms He Meant What He Wrote— CFC And CHL Were Left With “Bad” Or “Toxic” Assets Ed Ofcharsky, the change manager who oversaw the Red Oak Merger and the November 2008 Transactions, explained what he meant when he described the assets left behind at CFC and CHL as “tox
Slide 30: In A Few Short Months, Countrywide Was A Shell Of Its Former Self
The Result: In Just A Few Short Months, Countrywide Was A Shell Of Its Former Self ($ in Millions) $180,000 $172,076 $160,000 $140,000 The total assets for CFC Consolidated decreased from $172.1 billion as of June 30, 2008 $120,000 The total assets for CHL to only $20.4 billion as of November 30, 20
Slide 31: Countrywide's Massive Contingent Liabilities Exceeded Its Assets
Countrywide’s Massive Contingent Liabilities Exceeded Its Assets • The magnitude of the litigation settlements since the Asset-Stripping Transactions illustrates just how inadequate CFC’s and CHL’s left-behind assets were to address Countrywide’s mounting contingent liabilities. – Properly adjusted,
Slide 32: Any One Expected Liability Would Have Wiped Out CHL's Equity
Even Before The November 2008 Transactions, Any One Of Countrywide’s Expected Liabilities Would Have Wiped Out CHL’s Equity CHL Equity and Incremental Liabilities ($. in millions tax-effected) $600 CHL Book R&W sus Equity at Monoline Default 7/31/08 Adj June 2008 BAC Board Report —_ Adjustments Adju
Slide 33: Countrywide Left With No Operating Assets And Massive Operating Losses
Countrywide Was Left With No Operating Assets, And Incurred Massive Operating Losses Without A Viable Revenue Source • Because Countrywide was left with “no operations that by themselves are economically viable,” and was put into “wind down” mode, it was unable to generate any meaningful revenues th
Slide 34: Countrywide Incapable Of Conducting Wind-Down Except Through BAC
Countrywide Is “Incapable” Of Conducting Its “Wind-Down” Activities Except Through Bank of America • Formal dissolution of the predecessor is not required: “[s]o long as the acquired corporation is shorn of its assets and has become, in essence, a shell, legal dissolution is not necessary before a f
Slide 35: BAC Approval Required Before Countrywide Can Repurchase A Mortgage Loan
Bank of America Approval Is Required Before Countrywide Can Repurchase A Countrywide Mortgage Loan • Bank of America’s approval is required before a Countrywide-originated mortgage loan can be repurchased: – Shareef Abdou, Senior Vice President, Senior Group Operations Manager, testified that “it ha
Slide 36: BAC Sets Monthly Dollar Limit And Controls Funding For Repurchases
Bank of America Sets A Monthly Dollar Limit And Controls Funding For Repurchases Of Countrywide Originated Loans • Bank of America sets a monthly limit on the dollar amount of Countrywide repurchases that can be approved, and only Bank of America’s Repurchase Oversight Group (“ROG”) can approve addi
Slide 37: Interest Income From Toxic Assets Insufficient To Cover Legal Fees
Countrywide’s Interest Income From Left-Behind Toxic Assets Is Not A Business Operation, And Is Insufficient To Even Cover Legal Fees CHL Legal Fees v. Net Interest Income For the Quarters Ended Between March 31, 2009 and December 31, 2011 | @Legal Fees @ Net Interest Income 3/31/09 6/30/09 9/30/09
Slide 38: Continuity of Management, Personnel, Physical Location, Assets, and Operations
Continuity of Management, Personnel, Physical Location, Assets, and General Business Operations 38
Slide 39: Third, BAC Continues Countrywide's Business Operations Using Transferred Assets
Third, Bank of America Continues Countrywide’s Business Operations Using The Transferred Assets • A third hallmark here of de facto merger is the continuation of the predecessor’s business operations—as evidenced by a continuity of management, personnel, physical location, assets, and general busine
Slide 40: BAC's Integration Plan: Combine Core Countrywide Businesses With BAC Operations
Bank of America’s Integration Plan: Combine Core Countrywide Businesses With Bank Of America Operations Prior to the announcement of the planned Red Oak Merger in January 2008, CFC was a holding company whose subsidiaries, including CHL and CSC, were primarily engaged in mortgage origination and ser
Slide 41: Integration Was A Core Objective Of The Integration Plan
Integration of Countrywide’s Operations Into BAC’s Operations Was A “Core Objective” Of The Integration Plan Bea Ex. 61 (BAC/Countrywide Transition Mortgage Lending Deployment Presentation, May 20, 2009) at BACMBIA-C0000101513. • Bank of America-Countrywide Transition Executive Mary Kanaga testified
Slide 42: Combined Mortgage Operations Are Run Through Bank of America
The Combined Mortgage Operations Are Run Through Bank of America, And Not Through Countrywide Following the July and November 2008 Transactions, all Countrywide primary businesses were ultimately integrated into Bank of America, shuttered (CSC) or sold off. None of Countrywide’s primary businesses r
Slide 43: BAC Integrated Or Discontinued Countrywide's Banking, Insurance And Capital Markets
BAC Has Integrated And/Or Discontinued Countrywide’s Banking, Insurance And Capital Markets Business Banking and Insurance: • CFC’s banking subsidiary, Countrywide Bank, was merged into BANA along with its deposits and customer base, a few months after it was sold to BAC by CFC. Oblak Ex. 50 (Pro Fo
Slide 44: Bank of America's Mortgage Banking Income Skyrockets While Countrywide's Disappears
Integration Impact: Bank of America’s Mortgage Banking Income Skyrockets While Countrywide’s “Core” Source Of Income Disappears Bank of America Corporation and CFC Consolidated Mortgage Banking Income For the Quarters Ended Between March 31, 2006 and March 31, 2010 ($ In Millions) $3,500 Bank of Ame
Slide 45: BAC Continues To Operate The Combined Business, Benefiting From Revenues
Bank of America Continues To Operate The Combined Business, Benefiting From The Associated Revenues • Barbara Desoer, then Head of Global Technology and Operations, told BAC’s Board of Directors that acquiring all of CFC’s loan business and combining it into one BAC entity would give BAC “a leading
Slide 46: Immaterial That BAC Varied Some Origination Practices
It Is Immaterial That BAC Varied Some of Countrywide’s Origination Practices Following Integration • BAC’s assertion that the resulting business was not identical to Countrywide’s business is not dispositive: “[T]he de facto merger test requires continuity of general business operations, not complet
Slide 47: BAC's Semantic Attempt To Distinguish The Combined Business Is Belied By Evidence
BAC’s Semantic Attempt To Distinguish The Combined Business From Countrywide’s Business Is Belied By The Evidence • First, BAC achieved its dramatic gains in market position and mortgage revenues by integrating Countrywide’s mortgage operations into its own. Oblak Ex. 96 (B. Moynihan Dep. Tr., May 2
Slide 48: BAC Hired Thousands Of Former Countrywide Employees
Bank of America Hired Thousands Of Former Countrywide Employees That Were “Critical” To Continuing Operations • BAC hired at least 19,300 former Countrywide employees to continue and expand the combined Countrywide-Bank of America business operations, including several senior managers who remain emp
Slide 49: Bank of America Hired Former Countrywide Senior Executives
Bank of America Hired Former Countrywide Senior Executives • Bank of America retained many senior managers following announcement of the Red Oak Merger, including: Jack Shackett (Chief Operations Officer) Laura Milleman (Chief Accounting Officer) Kevin Bartlett (Chief Investment Officer ) Joshua Adl
Slide 50: BAC Operates Combined Business At Former Countrywide Locations
Bank of America Operates The Combined Business At Former Countrywide Locations, Including Countrywide’s Former Headquarters • Bank of America Home Loans now operates out of CFC’s and CHL’s former headquarters in Calabasas, California. Oblak Ex. 12 (J. Price Talking Points for Countrywide Update Pres
Slide 51: BAC's Holding Company Structure Is No Defense
BAC’s Holding Company Structure Is No Defense To De Facto Merger Liability • BAC admits that Countrywide’s mortgage operations were continued at Bank of America. BAC Mem. 41-42. • BAC argues, contrary to NY law, that BAC’s holding company structure precludes a de facto merger because BAC continues t
Slide 52: BAC Does Not Distinguish Between Legal Entities In Operating The Business
Bank of America Does Not Distinguish Between Legal Entities In Operating The Combined Business Operations • Not even the executives running the combined business operations at Bank of America distinguish between legal entities in how they operate the combined mortgage operations, or any of Bank of A
Slide 53: Assumption Of Liabilities Ordinarily Necessary For Uninterrupted Continuation
Assumption Of Liabilities Ordinarily Necessary For The Uninterrupted Continuation Of The Business 53
Slide 54: Fourth, BAC Assumed The Liabilities Necessary To Continue Countrywide's Business
Fourth, Bank of America Assumed The Liabilities Necessary Fourth, To Continue Countrywide’s Business Operations • This factor looks at whether the successor assumed the liabilities that would ordinarily be necessary to continue the predecessor’s business operations without interruption: “The proper
Slide 55: BAC Assumed Numerous Debts And Liabilities Necessary To Continue Operations
Bank of America Assumed Numerous Debts And Liabilities Necessary To Continue Countrywide’s Business Operations • Bank of America assumed $15.5 billion of CFC’s and CHL’s public debt, which was necessary to continue funding the combined mortgage business operations at competitive rates and to preserv
Slide 56: BAC Assumed Leases And Third-Party Contracts
Bank of America Assumed Leases And Third-Party Contracts Necessary To Countrywide’s Business Operations • BAC assumed all leases and third-party contracts necessary to the “mortgage operations of CFC” in connection with the November 2008 Transactions: Oblak Ex. 48 (Asset Purchase Agreement, Nov. 7,
Slide 57: There Is No Fair Value Defense To Successor Liability
There Is No “Fair Value” Defense To Successor Liability Based On De Facto Merger • Bank of America’s fixation on the $45 billion in consideration paid in exchange for all of Countrywide’s operating assets, as an accounting matter, misses the equitable purpose of successor liability. See BAC Mem. 2,
Slide 58: Choice Of Law: New York Law Controls The De Facto Merger Claim
Choice Of Law: New York Law Controls The De Facto Merger Claim 58
Slide 59: New York De Facto Merger Law Applies In This Case
New York De Facto Merger Law Applies In This Case • Under New York choice of law rules, the parties’ principal places of business inform the relevant jurisdictions, which in this case are New York (MBIA’s headquarters) and North Carolina (BAC’s headquarters). • There is no conflict between New York
Slide 60: New York Choice Of Law Looks First At Whether There Is A Genuine Conflict
New York Choice Of Law Looks First At Whether There Is A Genuine Conflict, And Second At States’ Interests Only If There Is A Conflict • New York choice of law rules govern because the suit was filed in New York. See Tanges v. Heidelberg N. Am., Inc., 93 N.Y.2d 48, 54 (1999) (“Because New York is th
Slide 61: North Carolina Law Is The Only Plausible Alternative
If This Court Were To Consider Any Other State Law, North Carolina Law Is The Only Plausible Alternative • Under New York’s choice of law rules, courts view the state of a company’s principal place of business as more important than its state of incorporation. Lloyd’s, London v. Foster Wheeler Corp.
Slide 62: New York And North Carolina Apply The Same De Facto Merger Test
New York And North Carolina Apply The Same De Facto Merger Test New York North Carolina “[C]ontinuity of ownership.” “[C]ontinuity of shareholders achieved by paying for the acquired assets via transfer, to the seller’s shareholders, of shares in the purchasing corporation.” “[C]essation of ordinary
Slide 63: BAC Wrong That North Carolina Applies More Stringent Continuity Standard
BAC Is Wrong To Contend That North Carolina Applies A More Stringent Continuity Of Ownership Standard • There is no conflict between New York and North Carolina de facto merger law, and therefore New York law applies. BAC concedes that the factors are the same, but incorrectly argues that applicatio
Slide 64: BAC Seeks To Exploit Delaware's Less Developed Law As A Conflict
BAC Seeks To Exploit Delaware’s Less Developed Law As A Conflict, But New York And Delaware Protect The Same Interests • By contrast to the well-settled New York law that BAC seeks to avoid, Delaware law is sparse and unsettled, with only limited authority addressing de facto merger in the creditor
Slide 65: No Conflict: New York And Delaware Agree Purpose Is To Protect Creditors
There Is No Genuine Conflict Because Both New York And Delaware Agree The Purpose Of The Doctrine Is To Protect Third-Party Creditors • New York and Delaware do not conflict because they protect the same fundamental policy interest and applying New York law “would not threaten the policy underlying”
Slide 66: No Conflict: New York And Delaware Provide Similar Remedies
There Is No Genuine Conflict Because Both New York And Delaware Provide Similar Remedies To Aggrieved Creditors • New York and Delaware do not conflict because they provide similar remedies. See Engel v. Clapper, 14 A.D.3d 855, 856-57 (3d Dep’t 2005) (no conflict because Quebec’s no-fault statute an
Slide 67: BAC Relies Upon An Erroneous California Decision
BAC Attempts To Manufacture A Conflict By Relying Upon An Erroneous California Decision, And Not Delaware Law • Bank of America fails to offer this Court the proper standard under Delaware law, and instead attempts to manufacture a conflict of law by pointing to a California judge’s erroneous interp
Slide 68: The Maine Decision Erroneously Applies Shareholder Law To Creditor Claims
The Maine Decision Erroneously Applies Law Developed In The Shareholder Context To Creditor Claims • The Maine decision fails to recognize that the shareholder context involves very different concerns from those presented by the creditor context, as here: – In the shareholder context, the injury all
Slide 69: Even If There Is A Conflict, New York Has The Strongest Interest
Even If This Court Concludes There Is A Conflict Between New York And Delaware, New York Has The Strongest Interest • In conducting an interest analysis, New York courts give “effect to the law of the jurisdiction which, because of its relationship or contact with the occurrence or the parties, has
Slide 70: Location Of Injury And Misconduct Point To New York Law
Location Of The Injury And The Alleged Misconduct Control, And These Interests Point To New York Law • First, because the torts alleged by MBIA occurred in New York and most importantly, injured a New York corporation, New York has the strongest interest in ensuring that a source remains to pay for
Slide 71: New York Insurance Law Governs Liability
New York Also Has The Strongest Interest Because Its Insurance Law Governs Liability • Second, because this case arises in the insurance context, New York has a particularly strong interest in ensuring that a source remains from which MBIA, the victim of Countrywide’s malfeasance, can recover. See C
Slide 72: BAC And Countrywide Availed Themselves Of New York Law
New York’s Interest Also Strongest Because BAC and Countrywide Availed Themselves Of New York Law In Transactions At Issue • Third, BAC and the Countrywide Defendants have voluntarily availed themselves of New York law when entering into contracts, including those at issue in this case. • New York l
Slide 73: Countrywide Has Significant Contacts With New York
New York Also Has The Strongest Interest Because Countrywide Has Significant Contacts With New York • Fourth, although BAC contends that Countrywide’s parent company, CFC, is incorporated in Delaware, the weight of CFC’s contacts favor the application of New York law. – In 2005-2007, the principal c
Slide 74: The Internal Affairs Doctrine Does Not Apply
The Internal Affairs Doctrine Does Not Apply • The Court of Appeals of New York does not agree with BAC: “We reject any automatic application of the so-called ‘internal affairs’ choice-of-law rule.” Greenspan v. Lindley, 36 N.Y.2d 473, 478 (1975). • This doctrine does not apply where third party int
Slide 75: Internal Affairs Doctrine Rejected Where Claimants Injured By Out-Of-State Transfer
The Internal Affairs Doctrine Should Also Be Rejected Where Claimants Would Be Injured By Transfer Of Assets Out Of State • New York courts have also expressly recognized the interest in protecting a New York resident plaintiff from a situation where it would suffer injury if prevented from holding
Slide 76: BAC Wrong On Restatement Section 302
Bank of America Is Wrong In Claiming Restatement Section 302 Calls For Application Of Delaware Law • Restatement Section 302(a), upon which Bank of America relies to invoke the “internal affairs” doctrine, actually makes clear that it only applies to matters “which involve primarily a corporation’s
Slide 77: Court Already Applied New York Law; BAC Abandoned Its Appeal
The Court Already Applied New York Law To MBIA’s De Facto Merger Claim, And BAC Abandoned Its Appeal On The Issue • BAC acknowledges that this Court already applied New York Law to MBIA’s de facto merger claim – BAC argued that Delaware law should apply in its responding papers in support of its Mot
Slide 78: Even If Delaware Law Did Control, BAC Would Be Liable
Even If Delaware Law Did Control, And It Does Not, Bank Of America Would Be Liable Under The Correct Delaware De Facto Merger Standard 78
Slide 79: Under The Proper Delaware Standard, MBIA Is Entitled To Summary Judgment
Under The Proper Delaware De Facto Merger Standard, MBIA Is Entitled To Summary Judgment On De Facto Merger • The proper analysis of whether a de facto merger occurred is articulated in recent Delaware decisions which follow Delaware’s first creditor case—Drug v. Hunt. • Drug v. Hunt identified fact
Slide 80: BAC Took Over All of Countrywide And Transferred All Transferable Assets
Bank of America Took Over All of Countrywide, And Transferred All Assets That It “Could” Transfer From Countrywide To Bank of America • Like the purchaser in Drug v. Hunt, Bank of America “took over all of the assets of [Countrywide], including its good will,” and then transferred all the assets of
Slide 81: BAC Paid Countrywide's Shareholders Directly In Stock
BAC Paid Countrywide’s Shareholders Directly In Stock • Also similar to what happened in Drug v. Hunt, in this case “all of the stockholders of [Countrywide] became stockholders of [BAC] in exchange for their stock in [CFC].” Drug, 35 Del. at 360. • The Delaware Chancery Court in Xperex rejected a f
Slide 82: BAC Intended To Assume Countrywide's Debts And Liabilities
BAC Intended To Assume Countrywide’s Debts And Liabilities • Subsequent Delaware precedent makes clear that the fact that the purchaser “did not agree to assume [the seller’s] liabilities” is not dispositive. See Xperex, 2004 WL 3053649, at *2; Drug, 35 Del. at 361-62. • The facts of this case, howe
Slide 83: BAC Pushes An Erroneous Standard Based On A California Decision
BAC Pushes An Erroneous Standard Based On A California Decision, But Even Under That Standard MBIA Is Entitled To Summary Judgment • Citing the Maine decision from California, BAC contends that under Delaware law the Court must examine four factors to determine whether a de facto merger has occurred
Slide 84: First, The Asset Sales Did Not Comply With Corporate Statutes
First, The Asset Sales Did Not Comply With Corporate Statutes • The asset sales did not comply with either the Delaware Asset Transfer Statute—Del. Gen. Corp. L. § 271(a) (relevant to CFC as a Delaware corporation) or New York’s standard for the duties of directors—N.Y. Bus. Corp. L. § 717 (relevant
Slide 85: Insolvency Of CHL And CFC Created Duties For Their Directors
The Insolvency, Or Near Insolvency, Of CHL And CFC Created Duties For Their Directors • BAC cannot establish compliance with the applicable statutes because CHL and CFC were insolvent or in the zone of insolvency. • As a result, BAC cannot show that the CFC and CHL directors satisfied their obligati
Slide 86: BAC Considered Putting Countrywide Into Bankruptcy Prior To Merger
Countrywide’s Financial State Was Tenuous Enough That BAC Considered Putting Countrywide Into Bankruptcy Prior To Merger • Just before the Red Oak Merger, BAC was concerned that CFC’s and CHL’s expected contingent liabilities exceeded their ability to pay for those contingencies. See Oblak Ex. 12 (J
Slide 87: Transactions Approved Without Meaningful Consideration By Boards
The Asset-Stripping Transactions Were Approved Without Any Meaningful Consideration By CFC’s Or CHL’s Boards • The multi-billion dollar July and November 2008 Transactions were approved by CFC’s and CHL’s boards of directors through written consents, without meetings or any apparent deliberations, o
Slide 88: CHL's Sole Director Approved The July 2008 Transactions
CHL’s Sole Director Approved The July 2008 Transactions & Transferred Away Billions Of Dollars Without Any Meaningful Review and Consideration • In late June 2008, all directors of CHL were removed except for Andrew Gissinger, who continued as the sole board member who approved the July 2008 Transac
Slide 89: CHL's Board Approved The November 2008 Transactions Without Consideration
CHL’s Board Of Directors Also Approved The November 2008 Transactions Without Any Meaningful Consideration • Similarly, there is no evidence that the CHL directors who replaced Mr. Gissinger by the time of the November 2008 Transactions, Jack Schakett and Kevin Bartlett, considered any information p
Slide 90: CFC's Board Approved The Asset-Stripping Transactions Without Consideration
CFC’s Board Of Directors Approved The Asset-Stripping Transactions Without Any Meaningful Consideration • CFC’s directors were similarly unable to recall any information considered or steps taken in connection with approving the November 2008 Transactions, despite the fact that these transactions in
Slide 91: BAC-Dominated Boards Did Not Negotiate The Transaction Terms
The BAC- BAC-Dominated Countrywide Boards Did Not Negotiate The Terms Of The Asset- Asset-Stripping Transactions On Countrywide’s Behalf • Andrew Gissinger, CHL’s only remaining Director after BAC terminated the others, testified that he did not recall negotiating the terms of the transactions on CH
Slide 92: CFC Board's Failure Does Not Satisfy Delaware Section 271
The CFC Board’s Failure To Do Anything Does Not Satisfy Delaware Section 271 • In order to establish whether the approval by CFC’s board of the Stock Purchase Agreement and the November 2008 Transactions complied with the Delaware asset transfer statute (Section 271(a)), BAC must affirmatively prove
Slide 93: CHL Board's Failure Does Not Satisfy New York Section 717
The CHL’s Board’s Failure To Do Anything Does Not Satisfy New York Business Corporations Law Section 717 • Under New York law, BAC must show under N.Y. Bus. Corp. L. § 717 that each of CHL’s directors indisputably “perform[ed] his duties as a director . . . in good faith and with that degree of care
Slide 94: Second, Countrywide Was Left Unable To Pay Contingent Creditors
Second, Despite The Consideration Bank of America Paid, Countrywide Was Left Unable To Pay Contingent Creditors • Creditors were indisputably harmed by the Asset-Stripping Transactions, supporting a finding of de facto merger under even BAC’s erroneous Delaware standard. • The consideration Bank of
Slide 95: Insider Transactions Approved Through A Process Unfair To Creditors
The Asset-Stripping Transactions Were Insider Transactions Approved Through A Process That Was Unfair To Creditors • The process by which the transactions were planned and executed was unfair from a legal perspective, regardless of whether there was fair value for technical accounting purposes. – Th
Slide 96: BAC Designed The Transactions To Disadvantage Creditors
Bank of America Designed The Asset-Stripping Transactions To Disadvantage Creditors • Indeed, a primary goal behind the structure of the Asset-Stripping Transactions was to minimize the risk of Countrywide’s remaining “liabilities” and “contingent liabilities” to BAC and its non-CFC subsidiaries, us
Slide 97: Consideration Stayed With Bank of America Or Benefited It
The Consideration Paid Either Stayed With Bank of America Or Was Directed To Uses Beneficial To Bank of America • The consideration either never left the Bank of America enterprise or it was paid out to creditors that would benefit BAC’s interests–made possible by the fact the transactions were done
Slide 98: Third, BAC Intentionally Disadvantaged Creditors
Third, BAC Intentionally Disadvantaged Creditors • The facts also show that BAC intentionally disadvantaged Countrywide’s contingent creditors known and anticipated at the time of the Asset-Stripping Transactions. • Whether the Asset-Stripping Transactions were designed with an intent to hinder, del
Slide 99: Multiple Badges Of Fraud Show Intent To Hinder, Delay, Or Defraud Creditors
The Evidence Establishes Multiple “Badges Of Fraud” That Show Bank of America’s Intent To Hinder, Delay, or Defraud Creditors • Numerous badges of fraud are present, supporting an inference that the Asset-Stripping Transactions were intentionally designed to disadvantage and defraud creditors: – (i)
Slide 100: BAC Cannot Show Adequate Consideration; Not Arms-Length Or Good Faith
Fourth, BAC Cannot Show Adequate Consideration Because The Asset- Stripping Transactions Were Not At Arms-Length Or In Good Faith • Courts applying Delaware law regarding the adequacy of consideration look not only at whether technical accounting fair value was paid but also at whether there was an
Slide 101: Conclusion
Conclusion 101
Slide 102: Conclusion
Conclusion • Bank of America planned and executed the full “integration” and “combination” of Countrywide’s productive assets and business operations into its own businesses. • As a result, Bank of America de facto merged with Countrywide, leaving CFC and CHL behind as “orphans” to act as “filters”