Law Practice
Jul. 15, 2008
Los Angeles Judge Kicks Countrywide Claims to Delaware
Web Exclusive - U.S. District Judge Mariana Pfaelzer on Friday refused to allow a large part of the case against Countrywide Financial's former Board of Directors to proceed in her courtroom.
By Gabe Friedman
Daily Journal Staff Writer
LOS ANGELES - For a narrow window of time last week, it appeared possible that the plaintiffs' lawyers pursuing derivative claims against Countrywide Financial in Los Angeles federal court might be able to persuade a judge to let them proceed.
At a brief hearing Wednesday inside the marbled courtroom of U.S. District Judge Mariana Pfaelzer, the lawyers had asked to amend their complaint so they could pursue their most valuable claims. Pfaelzer's promise to issue rulings "right away" and move the case forward fueled their hope.
But on Friday, the judge issued a six-page order denying that request: Plaintiffs' lawyers suing Countrywide's former board of directors for selling the company too cheaply need to pursue those claims in another courtroom, she ruled.
"Plaintiffs have an upcoming opportunity to voice their position in front of the Delaware Court of Chancery," Pfaelzer wrote.
The ruling cuts off what plaintiffs' lawyers had seen as their strongest shot at recovering on the merger-related claims.
The suit in Los Angeles alleges that Bank of America's $2.8 billion deal to purchase Countrywide failed to value derivative claims that were pending against the giant home lender. They argued the derivative claims are worth hundreds of millions, if not billions, of dollars because they would recover that much money from Countrywide insiders who illegally sold stock.
A second lawsuit to block the merger has been pending in the Chancery Court of Delaware. But earlier this month, plaintiffs' lawyers in that case proposed a settlement that would recover no money for former Countrywide shareholders.
Stuart Grant, of Delaware's Grant & Eisenhofer, who represents shareholders in the derivative suit pending in front of Pfaelzer, lodged an objection to the Delaware settlement.
He called the settlement "extraordinarily broad." In fact, it would release Bank of America from liability on the merger-related claims and "eviscerate" his ability to sue, he said.
His arguments gained traction with Vice-Chancellor John Noble in the Chancery Court. Noble took the rare step of allowing Grant to obtain discovery in the Delaware case. But a hearing in that case is not scheduled until next fall, and it's still unclear if Noble will allow Grant to pursue the claims there.
"Somewhere, someplace we will be pursuing this claim, and we are not giving up," Grant said Friday.
Gabe Friedmann
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