... One Federal Court Answers "no," Not in That Case. Court Dismisses Amended Complaint at Issue, With Prejudice.
In Allstate Insurance Co. v. Countrywide Financial Corp., 2012 WL 335730 (C.D. Cal. February 2, 2012), Download Allstate Insurance Co. v. Countrywide Fin. Corp. (C.D. Cal. Case No. 2.11CV05236, Order Filed February 2, 2012) PUBLIC ACCESS, a Federal Judge dismissed Fraud claims against Bank of America ("BOA") with prejudice. The Fraud claims were based on BOA's Merger and Acquisition activity and alleged vicarious liability for the Residential Mortgage-Backed Securities sales of Countrywide Financial Corporation.
Allstate filed this "securities action [over] residential mortgage-backed securities ('RMBS')" it purchased "in multiple offerings structured and sold by several of the defendants." The Defendants in that case included Bank of America, and they include Officers and Directors of Countrywide. More specifically, Allstate alleged misrepresentations by or on behalf of the Defendants "regarding the quality of Countrywide-issued [RMBS] that Allstate purchased between 2005 and 2007." Id. at *1.
Allstate alleged that when Bank of America bought Countrywide, BOA also bought liability in the event that Allstate recovers Damages in this lawsuit. Allstate alleged Causes of Action Nine, Ten and Eleven against BOA for "Successor and Vicarious Liability," "Intentional Fraudulent Conveyance," and "Constructive Fraudulent Conveyance," respectively. Id.
For reasons primarily related to Illinois law, the Federal Judge dismissed with prejudice Allstate's alleged claims of Fraudulent Transfer, whether "constructive fraudulent transfer" (id. at *5 - *7) or "actual fraudulent transfer" (id. at *8 - *10).
Next, citing a Third Circuit Court of Appeals decision, the Federal Judge in California dismissed with prejudice Allstate's alleged claim of "assumption of liabilities" by BOA of Countrywide's liabilities. Id. at *11.
The Federal Court then dismissed with prejudice any alleged claim by Allstate against BOA for "successor liability" as to Countrywide's alleged fraudulent activities. In reaching this decision, the Federal Court relied on Federal decisions from Illinois, California, and Delaware, and on Delaware State Court decisions, all applying Delaware law in this regard. Id. at *11 - * 13. Although the California Federal Court observed in this case that "Delaware law is clear that directors owe a fiduciary duty only to the corporation and its shareholders," and not to "a creditor such as Allstate at all," id. at *12 n.11, "[t]he Court need not address this issue" in this case, the Court ruled. Id.
Parties allegedly defrauded during the Great Financial Fiasco, including parties who allege that they were defrauded during the sale and origination of Residential Mortgage-Backed Securities, and their legal counsel, are provided by this opinion with a roadmap for alleging sustainable Fraud claims. Specifically, the Court's opinion in this case provides such a roadmap for parties and their counsel alleging claims against successor entities which may be held vicariously liable for those allegedly fraudulent RMBS activities, dependent upon the facts of each case.
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