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QUESTION OF FACT WHETHER BANK OF AMERICA’S PURCHASE OF THE ASSETS OF COUNTRYWIDE WAS A DE FACTO MERGER ALLOWING THE INSURER OF RESIDENTIAL MORTGAGE-BACKED SECURITIES ISSUED BY COUNTRYWIDE TO SUE BANK OF AMERICA.

The First Department determined questions of fact precluded summary judgment in this action by Ambac, an insurer of residential mortgage-backed securities issued by defendant Countrywide, against defendants Countrywide and Bank of America (BAC). BAC purchased the assets of Countrywide. Ambac argued there was a de facto merger of Countrywide and Bank of America such that Countrywide shareholders became shareholders of BAC, allowing Ambac to sue BAC:

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“[C]ontinuity of ownership is the touchstone of the [de facto merger] concept and thus a necessary predicate to a finding of a de facto merger” … . Continuity of ownership “exists where the shareholders of the predecessor corporation become direct or indirect shareholders of the successor corporation as the result of the successor’s purchase of the predecessor’s assets, as occurs in a stock-for-assets transaction” … . “Stated otherwise, continuity of ownership describes a situation where the parties to the transaction become owners together of what formerly belonged to each” … . * * *

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We agree with BAC that there can be no continuity of ownership where the asset seller receives fair value consideration for its assets… . Although BAC maintains that it paid fair value for Countrywide’s assets, Ambac points to evidence showing that large amounts of money Countrywide received in the asset sale were then cycled back to BAC and its subsidiaries. Thus, issues of fact exist as to whether the transactions were coordinated with the goal of combining BAC’s and Countrywide’s mortgage businesses while avoiding Countrywide’s liabilities so as to benefit Countrywide’s former shareholders at the expense of its creditors. Ambac Assur. Corp. v Countrywide Home Loans, Inc., 2017 NY Slip Op 03886, 1st Dept 5-16-17

 

CORPORATION LAW (DE FACTO MERGER, QUESTION OF FACT WHETHER BANK OF AMERICA’S PURCHASE OF THE ASSETS OF COUNTRYWIDE WAS A DE FACTO MERGER ALLOWING THE INSURER OF RESIDENTIAL MORTGAGE-BACKED SECURITIES ISSUED BY COUNTRYWIDE TO SUE BANK OF AMERICA)/SECURITIES (RESIDENTIAL MORTGAGE-BACKED SECURITIES, QUESTION OF FACT WHETHER BANK OF AMERICA’S PURCHASE OF THE ASSETS OF COUNTRYWIDE WAS A DE FACTO MERGER ALLOWING THE INSURER OF RESIDENTIAL MORTGAGE-BACKED SECURITIES ISSUED BY COUNTRYWIDE TO SUE BANK OF AMERICA)/INSURANCE LAW (RESIDENTIAL MORTGAGE-BACKED SECURITIES, QUESTION OF FACT WHETHER BANK OF AMERICA’S PURCHASE OF THE ASSETS OF COUNTRYWIDE WAS A DE FACTO MERGER ALLOWING THE INSURER OF RESIDENTIAL MORTGAGE-BACKED SECURITIES ISSUED BY COUNTRYWIDE TO SUE BANK OF AMERICA)/RESIDENTIAL MORTGAGE-BACKED SECURITIES  (DE FACTO MERGER, QUESTION OF FACT WHETHER BANK OF AMERICA’S PURCHASE OF THE ASSETS OF COUNTRYWIDE WAS A DE FACTO MERGER ALLOWING THE INSURER OF RESIDENTIAL MORTGAGE-BACKED SECURITIES ISSUED BY COUNTRYWIDE TO SUE BANK OF AMERICA)/DE FACTO MERGER (CORPORATION LAW, QUESTION OF FACT WHETHER BANK OF AMERICA’S PURCHASE OF THE ASSETS OF COUNTRYWIDE WAS A DE FACTO MERGER ALLOWING THE INSURER OF RESIDENTIAL MORTGAGE-BACKED SECURITIES ISSUED BY COUNTRYWIDE TO SUE BANK OF AMERICA)/DEBTOR-CREDITOR (DE FACTO MERGER, QUESTION OF FACT WHETHER BANK OF AMERICA’S PURCHASE OF THE ASSETS OF COUNTRYWIDE WAS A DE FACTO MERGER ALLOWING THE INSURER OF RESIDENTIAL MORTGAGE-BACKED SECURITIES ISSUED BY COUNTRYWIDE TO SUE BANK OF AMERICA)

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