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Investor Steering Committee Letter to Judge Kapnick

Investor Steering Committee Letter to Judge Kapnick

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Published by Isaac Gradman
Letter from Attorney David Reilly, on behalf of Steering Committee of intervenors in BNYM settlement proposal, to Judge Kapnick, advocating abandoning Article 77 format and broadening scope of discovery.
Letter from Attorney David Reilly, on behalf of Steering Committee of intervenors in BNYM settlement proposal, to Judge Kapnick, advocating abandoning Article 77 format and broadening scope of discovery.

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Published by: Isaac Gradman on Mar 28, 2012
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09/25/2013

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REILLY
POZNERLLP
A
ITIGATION 
&TRIAL
PRACTICE
March
16, 
2012
Via 
E-
Filing
and
Hand
elivery
The
Honorable
Barbara
R. 
apnick
Supreme 
Court
of
he
State
of
New
ork
60
entre
Street
New
ork,
New
ork10007
Re:
In
re the
Application
of
he 
Bank
of
New 
ork Mellon
(Index
No.
51786/2011)
Dear 
ustice
Kapnick:
Daniel
M.
eilly
Tel:
303-
893
-6100
dreilly@,rolaw.com
We
rite 
on
behalf
of
he
Steering
Committee formed
o
organize
the
now
more
han
125
entities
that
have
ntervened
as
espondentsor
objectors
in 
this
action
(
Intervenors
")1
and
n
response
tothe
March
12
etter 
submitted
by 
The
Bank
of 
New
ork
Mellon
(
BNYM
"). 
The
Steering
Committee
s
comprised
of
eilly
Pozner 
LLP,
rais
&Ellsworth
LLP,
eller
Rohrback
LLP,
nd
Miller
& 
rubel
.C.2
Transparency 
concerning
the
settlement
is
critical.
The 
ettlement
impacts
530
rusts
that
have
claims
for
damages
hat
approach
or
exceed
$100
illion. 
BNYM
roposes
to
settle
all
claims
across 
all 
the
trusts
for
$8.5
illion.
Similarly,
because under
he
settlement
agreement
the
allocationwill
not
be
determined
untilafter
udicial
approval,
no
ntervenor
currently
knows
how
much
of
he
settlement
proceeds
t
might
eceive. 
The
espective roles
played 
by
BNYM,
the
Institutional
Investors,
and 
Bank
of merica
nthe
settlementnegotiationsare likewiseunclear.
Whether
BNYM
laced 
its
own 
nterest
in
protecting
itself
from
iability
above
he
interests
of
he 
certificateholders
is
a 
uestion
of 
act 
that
must
be
xplored.
Transparency
s
particularly
important here
since
no
awsuit
was
ver
filed 
on 
he 
claims
BNYM
eeks
to 
settle,
resulting
in
a
ack
of 
actual
and 
egal
development.
BNYM
ncorrectly
claims
that
there
is
only
one
ssue
that
the
Court
must
esolve,
and
asks
the
Court 
o
enter
a
cheduling
order.
BNYM's
etter
does
ot
include
important
information 
that
is
necessary
to
inform
the
Court's understanding
of
he
nature
of
his
proceeding
~
We
ave
ttached
a
comprehensive
ist
of
he
Intervenors,
as
of
he 
date
the 
case
was
remanded
by 
he
Southern 
istrict
of
New 
ork, 
o
this
letter.
z
The
teering 
Committee
s
authorized to
speak
on
behalf
of
he
Intervenors
except
or
the 
DelawareDepartment 
of
ustice;
the 
New
ork
State 
Office
of
he
Attorney General;
the
Federal
Housing
Finance
Agency;
he National 
Credit 
Union
Administration
Board;
he
Maine 
tate
Retirement
System;
ension
Trust
Fund
or
OperatingEngineers;
Vermont
Pension Investment
Committee; and
he
Washington
State
Plumbing
and
ipefitting
Pension
Trust,unless
the
foregoing
Intervenors
authorize
the
Steering
Committee
o
speak 
on
heir
behalf 
with
respect
to
a
articular issue.
642406
1900
SIXTEENTH
STREET
SUITE1700
DENVER
COLORADO
80202 
rxoxs
30393
100 
Fnx
303 93
110www.rplaw.com
 
The
Honorable
Barbara
R.
apniek
March
16,
2012
Page
2
and
isputes
that
have
already
arisen
between
he
parties.
We
nderstand
that
the
Court
would
prefer
todefer
any
engthy
discussion
of
hese
issues
for the
conference
call
that
is
scheduled
for
Monday
and
the
status
conference
in
April.
We
herefore
provide
this
brief
summary
of
he
primary
issues
which
will
be
presentedtothe
Court
or
resolution.
1.
Article
77
s
an
improper
framework
or
this
action..
Under
hesecircumstances,
Article
77
s
not
an
appropriate
framework
or
resolution
of
his
action
nor
n
which
o grant
BNYM
he
relief
t
seeks.
There
has
ever
been
a
ase
in
which
Article
77
was
sed
simultaneously
to
adjudicate
disputes
regarding
hundreds
of
rusts
in
a
ingle,
expedited
special
proceeding.
The
mere
act that
BNYM
as
chosen
Article
77
n
an
ffort
toobtain rapid
udicial
approval
andimmunity
without
transparency
does
not
mean
hat
a
pecial
proceeding
is
appropriate forthe
complex
acts
and
ssues
presentedin
this
case.
See
Maggi
.
Maggi,
187
A.D.2d 722,
722
2d
Dep't
1992)
(
the
instant
proceeding
is
beyond
he
scope
of
CPLR
rticle
77
").
Converting
the
action
to
a
lenary
proceeding
is
within
this
Court's
power.
Id.;
CPLR
§
103(c).
Moreover,
he
Second
Circuit
did
not as
BNYM
laims)
confirm[]
he
propriety
of
Article
77
n
this
context."
(March 12
etter
at
2).
To
he
contrary,
he
Second
Circuit
expressly
acknowledged
that
"whether
a
New
ork
court
is
able
and
willing
to grant the
relief
ought
in
this
case
is
an
ssue
forthe
New
ork
ourts."
BlackRock
in.
Mgmt.
nc.
v.
Segregated
Account
ofAmbacAssurance
Corp.,
2012
WL
11401,
t
*3
2d
Cir.
Feb.
27,
012).
The
ntervenors
respectfully
requestpermission
to
brief
hequestion
of
hether
the
Court
hould convert
this
Article
77
roceeding
into
a
lenary
action.
2.
Scope
of
iscovery.
BNYM
ssertsthat
the
soleissue
to
be
decided
is
"whether
he
Trustee's decision to
settle
was
ithinthe
bounds
of
easonable
exercise
of
iscretion"
and
hat
discovery
should
be
imited
to
that single
issue.
(March 12
etterat 2).
That
tatement
latly
contradicts
BNYM's
wn
roposed
Final
Order
and
Judgment.
Among
ther
things,
BNYM
seeks
an
Order:
(1)
pproving
the
terms
of
he
settlement;
(2)
tating
that
the settlement"is the
result
of
actual
and
egalinvestigation
by
he
Trustee
";
3)
tating.
that
BNYM
appropriatelyevaluated the
terms,
benefits
and
consequences
of
he
Settlement
and
he
strengths
andweakness
of
he
claims
";
4)
tating
that
the
negotiation
of
hesettlement
was
arm's
ength
";
5)
tating
that
BNYM
cted
in
good
aith;
(6)
njoining
all
certificateholders
from
bringing
an
actionagainst
Bank
of
merica
and
/or
Countrywide
or
the
settled
claims;
and
7)
njoining
all
certificatehalders
from
bringing
an
action
against
BNYM
or
ts
settlement-
related
conduct.
The
scope
of
isclosure
allowed
under
CPLR
31
(a)
s
to
be
interpreted
liberally
to
require disclosure,
upon
equest,
of
ny
acts
bearing
on
he
controversy
which
ill
assist
preparation for
rial
by
harpening
the
issues
and
reducingdelay
and
prolixity."
Allen
v,
Crowell
-
Collier
Pub.
Co.,
21N.Y.2d 403,
06
1968).
Because
BNYM
lleges
(and
seeks
an
Order
inding)
hat
t
actedin
"good
aith,"
that
thesettlement
negotiations
were"arm's
-length,"that
the settlement
was
the
result
of
actual
and
egal investigation
by
he Trustee,"
and
hat
BNYM
appropriately evaluated the
terms,
benefits
and
consequences
of
he
Settlement
and
he
strengths
andweakness
of
he claims," theIntervenors
are
entitled
todiscovery
into
these
issues.
642406
 
/~~
~~'a
~
The
Honorable
Barbara
R.
Kapnick
March
16,
2012
.~Page
3
Discovery
was
nitiated
while
this
action
was
roceeding in
federal
court.
The
ollowing
are
the
principal
discovery
disputes
identified
by
he
parties:
A.
Settlement
communications.
One
of
he
key
ategories
of
nformation theIntervenors
need
o evaluate the
proposed
settlement
is
the
documents and
communications
hat
were
exchanged
between and
among
BNYM,
he
Institutional.
Investors,
and
Bank
of
America
during
the
negotiation
of
he
proposed
ettlement
agreement.
The
ntervenors
and
he
Court
cannot
easonably
evaluate the process
by
which
he
settlement
was
eached or
whether
BNYM
acted
inaccordwith
its
duties
without
knowing what
ccurredduring
the
negotiation
of
he
settlement.
See
NYP
oldings
.
McClier
Corp.,
836
N.Y.S.2d
494
table),
14
Misc.
3d
1232(A),
t
*4
N.Y.
up.
t.
2007)
settlement.
egotiations
discoverable
because
hereasonableness
of
he
settlement
was
t
issue).
BNYM
as
efused to
produce
any
ettlement
communications,
ncluding
on
he
grounds
hat
it
shares
a
"common
nterest" privilege
with
the
Institutional
Investors,
and
even,
fter
the
settlement
was
eached,with
Bank
of
America.
BNYM
wes
uties
to
all
certificateholders
equally,
and
he
Intervenors
plan
to
move
o
compel
production
of
he
settlement
communications
and documents
exchangedbetween
BNYM,
he
Institutional
Investors,
and
Bank
of
America.
The
ntervenors
seek,
at
aminimum,
he
same
level
of
nformation
about
he
settlement negotiations
that
the
Institutional
Investors
have.
BNYM
lso
asserts
the
attorney-
client
privilege
with
respect
to
communicationsbetween
it
and
ts
counsel
in
connection with the
settlementnegotiations.
The
ntervenors
plan
to
move
to
compel
roduction
of
uch communications
on
he
grounds
of
he
fiduciary
exception
to
the
attorney-
client
privilege.
See,
.g.,
Hoopes
.
Carota,
531
N.Y.S.2d
407
3d
Dep't
1988)
(applying
the
fiduciary
exception
to
find
that
a
eneficiary
can
iscover otherwise
privileged
communications between
ts
fiduciary
and
heir
counsel).
B.
Loan
iles.
The
laims
BNYM
eeks
to resolve
through
he
proposed
settlement
fundamentally
depend
upon
whether
he
loans
inthe
530
Countrywide
rusts
conformed
o
the
representations
and
warranties
that
Countrywide
made
about
them. While
he
subject
loan
files
should
be
vailable
from
xisting
electronically-
storedrecords,
BNYM
dmits
that
it
did
not review
even
one
of
hese
loan
files
before
entering
into
the
proposed
settlement.
There
s
substantial
evidence
(including
evidence
from
he
Institutional
Investors)
hat
the
quality
of
he
Countrywide
oans
was
ar
worse
than
he
assumptions
hat
BNYM
nd
ts
experts
made
in
negotiating
the
proposed
settlement.
The
ntervenors
have
proposed
o
review
a
elatively
small
sample
of
oan
files
in
order
to
evaluatethereasonableness
of
he
settlement
amount.
Loan
sampling
s
a
enerally
accepted
methodology
or
developingevidence
of
iability
and
damages
in
this
context.
MBIA
ns.
Corp.
.
Countrywide
Home
oans,
nc.,
et
al.,
No.
02825/08
N.Y.
Sup.
t.
Dec.
22,
2010).
Nonetheless,
BNYM
nd
Bank
of
America
have
refused
to
produce
any
loan
iles,
and have
argued
hat
loan
files
are
irrelevant
to
the
proceedings
before
this
Court.
The
Intervenors intend
to
move
o
compel
roduction
of
sample
of
he
loan
files.
642406

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