SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK

MBIA INSURANCE CORPORATION,

Plaintiff,

-against-

COUNTRYWIDE HOME LOANS, INC., COUNTRYWIDE SECURITIES CORP., COUNTRYWIDE FINANCIAL CORP., COUNTRYWIDE HOME LOANS SERVICING, L.P., and BANK OF AMERICA CORP.,

Defendants.

Index No. 602825/2008

IAS Part 3 (Bransten, J.)

DEFENDANT BANK OF AMERICA CORPORATION’S MEMORANDUM

OF LAW IN SUPPORT OF ITS MOTION TO SEVER THE SUCCESSOR LIABILITY CLAIM AND FOR A LIMITED STAY TO SEQUENCE SUCCESSOR LIABILITY

DEPOSITIONS AND EXPERT DISCOVERY

O’MELVENY & MYERS LLP 7 Times Square New York, New York 10036 Telephone: (212) 326-2000 Facsimile: (212) 326-2061

May 13, 2011 Attorneys for Defendant Bank of America Corporation

FILED: NEW YORK COUNTY CLERK 05/13/2011 INDEX NO. 602825/2008

NYSCEF DOC. NO. 574 RECEIVED NYSCEF: 05/13/2011

TABLE OF CONTENTS

Page

-i-

PRELIMINARY STATEMENT ................................................................................................... 1

BACKGROUND ........................................................................................................................... 5

MBIA’s Primary-Liability Claims Against Countrywide...................................... 5

Discovery on the Claims Against Countrywide..................................................... 6

MBIA’s Claim Against BAC................................................................................. 9

Discovery on MBIA’s Successor-Liability Claims ............................................. 11

There is No Significant Overlap between the Facts Supporting MBIA’s Primary-Claims and its Successor-Claim ............................................................ 12

BAC’s Sequencing Proposal................................................................................ 13

ARGUMENT............................................................................................................................... 14

I. SEVERING AND STAYING THE VICARIOUS-LIABILITY CLAIM AGAINST BAC ADVANCES CPLR 603’S PURPOSE.................................... 15

A. Severing the Successor-Liability Claim and Sequencing Discovery Would Promote Judicial Efficiency. ........................................................ 15

B. MBIA’s Claims Against Countrywide Implicate Distinct Factual and Legal Issues from Its Claim Against BAC........................................ 17

C. Sequencing Successor-Liability Proceedings Would Prevent Significant Waste and Facilitate a Prompt Primary-Liability Trial. ........ 20

D. Severance Would Prevent Prejudice to BAC........................................... 22

II. SEVERING THE SUCCESSOR-LIABILITY CLAIM AND PHASING DISCOVERY WOULD NOT UNDULY DELAY TRIAL OF THAT CLAIM................................................................................................................. 24

CONCLUSION............................................................................................................................ 25

TABLE OF AUTHORITIES

Page

-ii-

CASES Amcan Holdings, Inc. v. Torys LLP, 821 N.Y.S.2d 162 (1st Dep’t 2006) ............................................................................... 21, 24 Amato v. City of Saratoga Springs,

170 F.3d 311 (2d Cir 1999)....................................................................................... 15–16, 23 Bernstein v. Silverman, 644 N.Y.S.2d 235, 235 (1st Dep’t 1996) ....................................................................... 21, 24 Busch v. City of New York, No. 00 Civ 5211(SJ), 2002 WL 31051589 (E.D.N.Y. Sept. 9, 2002) ................................. 15 Cestone v. General Cigar Holdings, Inc.,

No. 00CIV3686RCCDF, 2002 WL 424654 (S.D.N.Y. Mar. 18, 2002) ............................... 24 Corporan v. Binghamton,

No. 05-CV-1340, 2006 WL 2970495 (N.D.N.Y. Oct. 16, 2006) ......................................... 18 Deagle v. New York,

No 90-Civ-8203 (LJF), 1991 WL 267765 (S.D.N.Y Dec. 4, 1991) ..................................... 16 Flynn v. Royal Development Co.,

265 A.D. 592 (3d Dept. 1943) .............................................................................................. 15 Hal Leonard Publishing Corp. v. Future Generations, Inc.,

Nos. 93 Civ 5290 (JSM), 1994 WL 163987 (S.D.N.Y. Apr. 22, 1994) ......................... 18, 23 Landsman v. Village of Hancock,

296 A.D.2d 728 (3d Dept. 2002) ........................................................................ 15, 16, 22, 23 Maine State Retirement System v. Countrywide Financial Corp.,

Case No. 2:10-CV-0302 MRP (MANx), 2011 WL 1765509 (C.D. Cal. Apr. 20, 2011) ............................................................................................................................... 18

Mandeville v. Quinstar Corp., 109 F. App’x 191 (10th Cir. 2004) ....................................................................................... 17

Masi v. City of New York, No. 98 Civ. 6802 (MBM), 1999 WL 688453 (S.D.N.Y. Sept 2, 1999).................... 16, 22, 23

In re McKesson HBOC, Inc. Securities Litig., 126 F. Supp. 2d 1248 (N.D. Cal. 2000) ................................................................................ 18

Mercado v. City of New York, 25 A.D.2d 75 (1st Dept. 1966).............................................................................................. 14

Mirabella v. Banco Industrial de la Republica Argentina, 29 A.D.2d 940 (1st Dept. 1968)............................................................................................ 15

Morris v. Northrop Grunman Corp., 37 F. Supp. 2d 556 (S.D.N.Y. 1999)..................................................................................... 22

In re New York State Silicone Breast Implant Litig., 171 Misc. 2d 980 (N.Y. Sup. Ct. 1997) .......................................................................... 14–15

Plainview Water District v. Exxon Mobil Corp., 66 A.D.3d 754 (2d Cir. 2009) ............................................................................................... 14

TABLE OF AUTHORITIES (continued)

Page

-iii-

Reading Industries, Inc. v. Kennecott Copper Corp., 61 F.R.D. 662 (S.D.N.Y. 1974) ................................................................................ 18, 22–23

Ricciuti v. New York City Transit Authority, 796 F. Supp. 84 (S.D.N.Y 1992)............................................................................... 14, 16, 22

Ropfogel v. Wise, 112 F.R.D. 414 (S.D.N.Y. 1986) .................................................................................... 22, 24

Ross v. DESA Holdings Corp., C.A. No. 05C-05-013 MMJ, 2008 WL 4899226 (Del. Super. Ct. Sept. 30, 2008) ..................................................................................................................................... 18

Sunnyside Development Co. v. Opsys Ltd., No. C 05-00553 MHP, 2006 U.S. Dist. LEXIS 95 (N.D. Cal. Jan. 4, 2006)........................ 16

Wallace v. Crisman, 173 A.D.2d 322 (1st Dept. 1991).................................................................................... 15, 16

Wechsler v. Hunt Health System Ltd., No. 94 Civ. 8294 (PKL), 2003 WL 21878815 (S.D.N.Y. Aug. 8, 2003) ............................. 16

RULES CPLR § 2201......................................................................................................................... 14, 25 CPLR § 603........................................................................................................................... 14, 25

PRELIMINARY STATEMENT1

Courts frequently sever and stay contingent vicarious-liability claims to promote judicial

efficiency and prevent prejudice and confusion. The sole claim against BAC here is that it is the

alleged successor to potential liability on MBIA’s primary claims against Countrywide. The

factual basis for that successor claim arises out of several complex multi-billion dollar

transactions that occurred in mid- to late-2008 and 2009, long after the 2004–2007 transactions

at issue in MBIA’s claims against Countrywide. The legal basis for the successor claim—the

murky de facto merger doctrine—is likewise divorced from the more conventional tort and

contract claims at issue in MBIA’s primary claims against Countrywide. The successor-liability

fact and expert witnesses will largely have nothing to say on the primary claims, and vice-versa.

Nor will the successor-liability issue even become ripe unless and until MBIA succeeds on its

complex primary claims that involve millions of pages of documents, more than 100 fact

witnesses, voluminous non-party discovery, and difficult legal issues that this Court has already

acknowledged will likely have to be resolved by the First Department before trial even can

proceed. Moreover, identical successor-liability claims are pending before this Court in three

other monoline carriers’ cases against Countrywide and BAC.2

1 We abbreviate Bank of America Corporation as “BAC”; Countrywide Financial Corporation as “CFC”;

Countrywide Home Loans, Inc. as “CHL”; Countrywide Home Loans Servicing, L.P. as “CHLS”; Countrywide Securities Corporation as “CSC”; and CFC, CHL, CHLS and CSC, collectively as “Countrywide.” The term “Securitizations” refers to the fifteen securitizations listed in Amended Complaint Paragraph 29: CWABS 2004-1; CWABS 2004-P; CWHEQ 2005-A; CWHEQ 2005-E; CWHEQ 2005-I; CWHEQ 2005-M; CWHEQ 2006-E; CWHEQ 2006-G; CWHEQ 2006-S8; CWHEQ 2006-S9; CWHEW 2006-S10; CWHEQ 2007-E; CWHEQ 2007-S1; CWHEQ 2007-S2; and CWHEQ 2007-S3. Unless otherwise noted, this memorandum omits all internal citations, brackets and quotation marks from quotations and all emphasis is added. Exhibit references are to the Exhibits to the May 13, 2011 Affirmation of Jonathan Rosenberg, Esq. (“Rosenberg Aff.”).

2 Ambac Assurance Corp., et al. v. Countrywide Home Loans, Inc. et al., Index No. 651612/2010 (N.Y. Sup. Ct.); Financial Guaranty Insurance Co. v. Countrywide Home Loans, et al., Index No. 650736/2009 (N.Y. Sup. Ct.); Syncora Guarantee Inc. v. Countrywide Home Loans, Inc, et al., Index No. 650736/2009 (N.Y. Sup. Ct.).

2

Under these circumstances, BAC respectfully submits that this Court should sever the

successor-liability claim and stay successor-liability fact and expert depositions so that they are

sequenced to begin after this Court determines on summary judgment that the factual and legal

record on the primary claims merits a trial. In fact, that is the type of approach taken by the

monoline-plaintiff in Syncora Guarantee Inc. v. Countrywide Home Loans, Inc. et al., Index No.

650042/09E (N.Y. Sup. Ct.), who has stipulated to stay all successor proceedings against BAC

until after the primary claims against Countrywide are resolved. Adopting a similar approach

here would promote judicial efficiency and prevent prejudice in at least five ways.

First, it would prevent wasteful, unnecessary litigation. Any deposition discovery or trial

of the claim against BAC would be an utter waste if the Countrywide entities were to prevail.

And that waste would be significant. MBIA has so far identified 17 BAC witnesses whom it

seeks to depose on successor liability, and it has reserved its right to seek more. On top of that,

MBIA will also likely seek non-party discovery and has told BAC’s counsel to “assume” that

MBIA will offer expert testimony, even though MBIA has not even identified any topics for such

testimony. The parties would then have to brief and argue summary judgment on MBIA’s novel

de facto merger theory and possibly prepare for a trial, all of which would be unnecessary if

MBIA fails to prove its primary-liability claims against Countrywide.

Second, none of the successor-liability evidence is relevant to MBIA’s claims against

Countrywide. MBIA’s primary-liability claims against Countrywide stem from mortgage

securitization transactions that occurred between 2004 and 2007, involving the mortgage loans’

compliance with certain contractual representations and MBIA’s obligation to conduct due

diligence before agreeing to provide credit-enhancement insurance. The claim against BAC, in

contrast, concerns complex corporate transactions in 2008 and 2009, including the July 2008

3

merger of CFC into a BAC subsidiary and the November 2008 asset sale between CFC and BAC

involving billions of dollars in assets and consideration. Because the two sets of claims arise

from completely different facts, they necessarily implicate different witnesses and documents.

This is confirmed by the depositions that MBIA has requested and conducted to date:

• There is no overlap between the 17 BAC witnesses MBIA first identified on April 14, 2011, and the 86 primary-liability witnesses that MBIA also identified.

• Only one of the 17 BAC witnesses that MBIA identified as a successor-liability witness was previously employed by Countrywide, and there is no evidence that he was involved in the underlying mortgage securitization transactions.

• None of the 61 Countrywide witnesses deposed to date has provided any substantive testimony regarding the successor-liability claim. To the extent the Countrywide witnesses’ testimony has tangentially touched on successor liability issues, it has concerned former Countrywide employees’ current employment and current job responsibilities and Countrywide’s employees’ involvement in helping to integrate the companies’ functions following the transaction. BAC has no objection to MBIA’s continuing to ask such questions of former Countrywide employees.

• Only 2 of the 17 BAC witnesses potentially have any information relevant to the

primary-liability claims, and even then, only on MBIA’s repurchase requests, because those two Bank of America, N.A. (“BANA”) employees provided consulting services to CHL to help process repurchase requests. BAC does not seek to stay their depositions.

Third, severing and sequencing the successor-liability claim would focus discovery and

further this litigation’s progress. Even without the successor-liability claim, the work required to

prepare the primary-liability claims for trial is staggering. MBIA and Countrywide have

represented that they will together depose an additional 67 party-witnesses on the primary-

liability claims. And there is much more discovery on those claims to come, including MBIA’s

recent requests for commissions to subpoena documents from non-party witnesses all over the

country for detailed employment and income information. On top of this, MBIA and

Countrywide must conduct expert discovery on the 14 subject areas that MBIA and Countrywide

have identified, including sampling, underwriting, servicing, appraisal, conflicts of interest, due

4

diligence and regulatory compliance. Removing successor-liability fact and expert depositions

from that schedule would significantly enhance the chances of timely completing primary claim

discovery by the Court’s November 18, 2011 deadline. At the same time, BAC’s proposal would

not unduly delay any successor-liability trial. BAC’s sensible sequencing proposal entails

successor-liability depositions beginning after any of MBIA’s primary-liability claims were to

survive summary judgment. The parties could then conduct successor-liability fact and expert

depositions while appeals from the primary-liability summary judgment motions would be

pending. (As this Court observed at the April 7, 2011 hearing, the losing party—no matter who

it is—will undoubtedly appeal from the summary judgment rulings, requiring the Court to

postpone trial on those claims). This schedule would facilitate having any successor-liability

claim trial-ready by the time the primary-liability claims were finally determined.

Fourth, granting BAC’s motion would provide efficiencies not only in this case, but also

in the three other monoline insurance cases pending in this Court.3 The plaintiffs in those cases,

Syncora, Ambac and FGIC, have asserted, virtually word-for-word, the same successor-liability

claim against BAC. They will therefore be reviewing the same BAC documents, deposing the

same BAC witnesses, briefing the same summary judgment issues, and seeking to hold BAC

liable on the exact same factual and legal basis as MBIA. Severing MBIA’s successor-liability

claim, and deferring fact and expert discovery on it, would allow the plaintiffs in those cases

time to review BAC’s document production and enable the Court to coordinate (and possibly

consolidate) discovery and other proceedings among the four monoline carriers’ identical

successor-liability claims. The result would be that each BAC witness would have to sit for only

3 BAC intends to move to consolidate the successor-liability claims in these four cases.

5

one deposition (not four), the Court would have to conduct only one trial (not four), and BAC

and the parties would avoid the intolerable risk of inconsistent judgments.

Fifth, although the efficiencies discussed above amply support severing and sequencing

MBIA’s successor-liability claim, if this case were tried to a jury (and MBIA has not responded

to defendants’ query as to whether it is seeking a jury trial on its primary and successor-liability

claims), BAC respectfully submits that severance would minimize the risk of prejudice and juror

confusion. Trying the primary-liability claims together with the entirely separate successor-

liability claim threatens to confuse jurors, who may believe (erroneously) that BAC was

somehow involved in the underlying events, and may erroneously consider evidence regarding

successor liability on the primary claims, and vice-versa. The potential for confusion and

attendant prejudice is even more acute, because some of the Countrywide defendants now

operate under Bank of America trade names.

BACKGROUND

MBIA’s Primary-Liability Claims Against Countrywide

MBIA’s claims against Countrywide stem from 15 residential mortgage-backed

securitizations that closed between September 29, 2004, and May 31, 2007. (Am. Compl. ¶¶ 1,

29, 73.) These were collateralized by mortgage pools bundling hundreds of thousands of

residential mortgage loans CHL originated and purchased. (Id. ¶¶ 29–30.) The principal and

interest payments for the pooled loans provided the cash flow to pay obligations under the notes.

(Id. ¶ 31.) MBIA provided insurance policies for each Securitization, unconditionally

guaranteeing payments to the Securitization’s investors. MBIA alleges that between 2004 and

2007, Countrywide fraudulently induced MBIA to insure the Securitizations and that

Countrywide breached the representations and warranties in the transaction documents. (Id. ¶

105.)

6

The Amended Complaint asserts claims (i) against CFC, CHL and CSC for fraud; (ii)

against CHL and CHLS for allegedly breaching the transaction documents’ representations and

warranties, breach by CHL of the obligation to repurchase defective loans and by CHLS of the

obligation to service the loans; and (iii) against CHL and CHLS under the implied covenant of

good faith and fair dealing.4 These claims will turn on (i) CHL and CHLS’s representations and

statements to MBIA concerning the Securitizations between 2004 and 2007 and (ii) CHL and

CHLS’s performance of their obligations under the transaction documents.

Discovery on the Claims against Countrywide

MBIA’s claims against Countrywide implicate complex legal and factual issues and

require broad fact and expert discovery concerning, among other things:

• the 15 Securitizations and underwriting, servicing and performance of the more than 360,000 mortgage loans underlying those Securitizations;

• MBIA’s due diligence concerning each Securitization;

• Countrywide’s alleged representations and warranties in the Securitizations’ transaction documents and other alleged statements made before January 2008 that allegedly induced MBIA to insure the Securitizations;5

• Countrywide’s alleged public statements regarding its underwriting, origination and servicing practices;

• MBIA’s decision to bid and issue insurance policies for the Securitizations, including MBIA’s risk models and predicted default rates for the Securitizations, MBIA’s analysis of the due diligence materials received from Countrywide and Countrywide’s SEC filings and public statements;6

4 (Am. Compl. ¶¶ 32–45, 133. 164–72, 173–77, 181–90, 192–95, 197–99.) The Amended Complaint also

asserted a negligent misrepresentation claim against CFC, CHL and CSC. The Court dismissed this claim in its April 27, 2009 Decision and Order. (See Decision & Order at 10, MBIA Ins. Corp. v. Countrywide Home Loans, Inc., Index No. 602825/08 (N.Y. Sup. Ct. Apr. 27, 2009) (Ex. 1).)

5 (Am. Compl. ¶¶ 139, 142–49, 157, 167–68.) 6 (See Letter from A. Hemani to M. Sheth at 2 (Dec. 1, 2010) (discussing Countrywide’s request for information

concerning MBIA’s risk models, the bidding process and due diligence for the Securitizations) (Ex. 4).)

7

• MBIA’s reliance on Countrywide in entering the Insurance Agreements and whether that reliance was justifiable in view of MBIA’s knowledge and experience as a sophisticated issuer of financial guaranty insurance for structured finance products;7

• MBIA’s performance of its obligations under the Insurance Agreements and policies;

• MBIA’s basis for making repurchase requests under the transaction documents; and

• MBIA’s alleged damages, efforts (if any) to mitigate those damages, and whether and to what extent MBIA’s alleged damages were caused by intervening events (such as the residential real estate collapse) rather than Countrywide’s alleged conduct.

MBIA has acknowledged that these claims will require complex and voluminous proof at trial.8

Discovery to date has borne out the breadth and complexity of MBIA’s claims against

Countrywide. MBIA and Countrywide have engaged in extensive paper discovery:

• Countrywide has produced more than 109 million pages of documents from more than 93 custodians, including loan origination files for more than 365,000 mortgage loans, more than a million pages of documents produced to the SEC; documents concerning Countrywide’s settlement with various state attorneys general; underwriter approval matrices; policies and procedures for loan servicing and origination; documents concerning the underwriting and servicing of mortgage loans and the Securitizations’ creation; and information regarding the mortgage loans’ performance and payment histories.

• MBIA has produced 941,000 pages of documents from 74 custodians.

• MBIA and Countrywide have propounded 167 and 138 interrogatories, respectively, and 60 and 52 requests for admission, respectively.9

• Countrywide has agreed to review for production over 550,000 documents from six additional custodians.10

Deposition discovery on MBIA’s primary claims is also extensive. MBIA and

Countrywide have conducted 61 depositions to date, ten of which lasted multiple days, and are

7 (See July 8, 2009 Order at 11–12, (denying Countrywide’s motion to dismiss for failure to plead justifiable

reliance) (Ex. 3).) 8 (See Mem. of Law in Supp. of Pl.’s Mot. in Limine Regarding Sampling at 4–5 (Apr. 30, 2010) (setting forth 18

different fact issues that MBIA’s primary-liability claims implicate) (Ex. 2).) 9 (See Rosenberg Aff. ¶ 6.)

8

scheduled to depose scores of additional witnesses.11 After the Court suggested during the April

7, 2011 hearing that the parties confer on scheduling, MBIA identified 50 additional

Countrywide deponents on its primary-liability claims.12 Many of these depositions are already

scheduled to last multiple days.13 Countrywide anticipates that it will take another 27

depositions, for a total of at least 67 total primary-liability depositions yet to come.14 And that

does not include MBIA’s non-party discovery, which itself promises to be massive. In fact,

MBIA recently asked the Court to issue commissions for documents relating to 1,300 loans.15

Expert discovery likewise will be significant. It will require MBIA and Countrywide to

exchange opening, rebuttal and sur-rebuttal reports concerning 14 discrete topics, including

underwriting, due diligence, mortgage securitization, servicing, regulatory compliance, causation

and damages.16 And then the parties will have to depose each expert. MBIA concedes that

expert discovery on its primary-liability claims will entail months of work.

At the April 27 status conference, the Court instructed the parties to conclude all this

discovery—fact and expert—by November 18, 2011.17

10 (See Apr. 27, 2011 Hr’g Tr. at 7:8–19 (discussing MBIA’s request for the production of documents from ten

additional Countrywide custodians) (Ex. 5).) 11 (See Apr. 27, 2011 Hr’g Tr. at 40:20–41:7 (discussing number and length of depositions to date); Letter from

M. Sheth to S. Concannon and W. Sushon at 4 (Apr. 14, 2011) (discussing depositions for 68 potential Countrywide witnesses) (Ex. 6).)

12 (See Letter from M. Sheth to S. Concannon and W. Sushon at 4 (Apr. 14, 2011) (Ex. 6).) 13 (See Apr. 27, 2011 Hr’g Tr. at 40:20–41:7 (discussing number and length of depositions to date).) 14 (See Letter from S. Concannon to M. Sheth at 3 (Apr. 14, 2011) (Ex. 7).) 15 (See Apr. 27, 2011 Hr’g Tr. at 42:5–9, 47:13.) 16 (See Letter from M. Sheth to S. Concannon and W. Sushon at 4 (Apr. 14, 2011) (Ex. 6); Letter from S.

Concannon to M. Sheth at 3 (Apr. 14, 2011) (Ex. 7).) 17 (Apr. 27, 2011 Hr’g Tr. at 42:5–9, 47:13.)

9

MBIA’s Claim Against BAC

BAC entered the picture only after the Securitizations and insurance transactions were

complete. On January 11, 2008, CFC executed an Agreement and Plan of Merger by and

between Countrywide Financial Corporation, Bank of America Corporation and Red Oak

Corporation (the “Merger Agreement”), in which CFC agreed to merge with and into Red Oak, a

BAC subsidiary (the “Merger”).18 That Merger closed on July 1, 2008 (more than a year after

the last Securitization closed).19 Following the Merger, Red Oak was renamed Countrywide

Financial Corporation, as the Merger Agreement required.20 To this day, CFC remains a

separate, wholly-owned subsidiary of BAC; CHL and CSC remain subsidiaries of CFC; and

CHLS is an indirect BAC subsidiary.21

MBIA did not assert a claim against BAC until late August 2009, nearly one year after

bringing its claims against Countrywide. The Amended Complaint’s sole claim against BAC

rests on entirely separate allegations. MBIA does not allege that BAC made any fraudulent

representations or was party to any agreement with MBIA concerning the 15 Securitizations at

issue in this case. Rather, the Amended Complaint alleges that BAC is “vicariously liable for the

conduct of the Countrywide Defendants” as “a successor-in-interest to the Countrywide

Defendants.” (Am. Compl. ¶ 13.) The Amended Complaint bases this conclusion on the

following allegations:

• Countrywide’s July 1, 2008 Merger with and into a BAC subsidiary (Id. ¶ 202);

18 (BAC, Current Report (Form 8-K) (Jan. 11, 2008) (Ex. 8).) 19 (BAC, Current Report (Form 8-K), Exhibit 99.1 (July 1, 2008) (Ex. 9).) 20 (Countrywide Fin. Corp., Quarterly Report (Form 10-Q) at 5 (Aug. 11, 2008) (“Countrywide 10-Q”) (Ex. 10);

BAC, Registration Statement (Form S-4) at 59 (May 28, 2008) (“BAC S-4”) (Ex. 11).) 21 (BAC, Annual Report (Form 10-K), Exhibit 99.1 (Feb. 25, 2011) (Ex. 12).)

10

• A subsequent BAC–Countrywide transaction, in which “[s]ubstantially all of Countrywide’s assets were transferred to Bank of America . . . ‘in connection with Countrywide’s integration with Bank of America’s other businesses and operations,’ along with certain of Countrywide’s debt securities and related guarantees” (Id. ¶ 126);

• Countrywide’s suspension, following the November 7, 2008 transaction, of “filings to the SEC, which are now submitted as part of Bank of America’s filings” (Id. ¶ 204);

• BAC’s April 27, 2009 announcement that “the Countrywide brand has been retired” and that “Bank of America will operate its home loan and mortgage business through a new division named Bank of America Home Loans, which ‘represents the combined operations of Bank of America’s mortgage and home equity business and Countrywide Home Loans’ ” (Id. ¶¶ 123, 203);

• Bank of America’s alleged payment “to restructure certain of Countrywide’s home loans on its behalf, including settling predatory-lending lawsuits brought by state attorneys general” (Id. ¶ 127); and

• Statements by BAC spokespersons and executives that MBIA contends suggest that BAC assumed Countrywide’s obligations (Id. ¶¶ 120–22, 125, 128–30).

The plaintiffs in Ambac Assurance Corp., et al. v. Countrywide Home Loans, Inc. et al.,

Index No. 651612/2010 (N.Y. Sup. Ct.); Financial Guaranty Insurance Co. v. Countrywide

Home Loans, et al., Index No. 650736/2009 (N.Y. Sup. Ct.); and Syncora Guarantee Inc. v.

Countrywide Home Loans, Inc, et al., Index No. 650736/2009 (N.Y. Sup. Ct.), also assert

successor-liability claims against BAC that are indistinguishable from MBIA’s claim here.

Those complaints use virtually identical language to allege the same de facto merger theory

based on the same BAC-Countrywide transactions and the same statements from BAC

representatives.22

22 (See Compl. ¶¶ 169-74, Ambac Assurance Corp., v. Countrywide Home Loans, Inc. et al., Index No.

651612/2010 (N.Y. Sup. Ct.) (Ex. 13); Am. Compl. ¶¶ 300-13, Financial Guaranty Ins. Co. v. Countrywide Home Loans, et al., Index No. 650736/2009 (N.Y. Sup. Ct.) (Ex. 14); Am. Compl. ¶¶ 136-46, Syncora Guarantee Inc. v. Countrywide Home Loans, Inc., Index No. 650736/2009 (May 6, 2010 (Ex. 15).)

11

Discovery on MBIA’s Successor-Liability Claim

In accordance with the Court’s December 9, 2009 ruling and August 13, 2010 Order,

BAC has provided MBIA with broad paper discovery regarding the successor-liability claim. In

addition to answering 18 interrogatories and 15 requests for admission, BAC has produced more

than 99,000 documents (more than 380,000 pages) from 51 custodians using search terms on

which BAC and MBIA agreed.23 BAC’s production includes:

• transaction documents for CFC’s Merger with and into Red Oak, a wholly-owned BAC subsidiary (the “Merger”) and related transactions;

• documents concerning the ongoing business operations of Countrywide post-Merger;

• documents concerning the alleged continuity of management, personnel and physical location of the Countrywide entities following the acquisition;

• documents sufficient to show which Countrywide assets were sold to BAC and BAC-legacy subsidiaries, and the consideration provided for those asset sales;

• documents concerning whether and to what extent BAC assumed Countrywide’s debts or liabilities; and

• documents concerning the securitizations and trusts at issue in this litigation.24

BAC recently agreed to produce documents from two additional custodians, for a total of 53.25

There is No Significant Overlap between the Facts Supporting MBIA’s Primary-Claims and its Successor-Claim None the 61 witnesses deposed to date has provided any substantive testimony regarding

the successor-liability claims. While MBIA has asserted that former Countrywide employees’

testimony concerning their employment at BAC warrants denying severance, such testimony has

23 (See Rosenberg Aff. ¶ 17.) 24 (See Rosenberg Aff. ¶ 17.) 25 (See Apr. 27, 2011 Hr’g Tr. at 14:17–19 (Ex. 5).)

12

been narrowly limited in scope. Such questioning would continue unabated under the relief

BAC is seeking.

Even though MBIA noticed its first Countrywide deposition more than six months ago on

October 19, 2010, and the original January 28, 2011 deadline for the parties to complete fact

depositions has passed,26 MBIA did not even suggest what successor-liability depositions it

needs until after the Court recommended during the April 5, 2011 hearing that the parties confer

on the discovery they intend to take. On April 14, 2011, MBIA provided a “preliminary” list of

17 BAC witnesses, reserving its right to “supplement” the list with additional deponents.27 Of

those 17, only Debra Minton and Shane Sands, two BANA employees who have provided

consulting services to CHIL to assist with the repurchase process, potentially have any

substantive knowledge concerning the primary-liability issues, i.e., Countrywide’s responses to

MBIA’s repurchases. MBIA has not suggested that any of the remaining 15 BAC witnesses had

any material involvement with the Securitizations or loans at issue in the primary-liability

claims.28

And the work involved in successor-liability discovery is not limited to those 17

witnesses (and likely others that MBIA would likely seek to “supplement”). MBIA would

doubtless seek to depose numerous non-parties who are not among the 17 witnesses listed.

Moreover, MBIA has not even made an effort to identify even broadly the subjects on which it

intends to use expert testimony for the successor-liability claim.

26 (See Apr. 5, 2011 Hr’g Tr. at 59:4–5 (discussing January 28, 2011 discovery deadline) (Ex. 18).) 27 (See Apr. 27, 2011 Hr’g Tr. at 7:8–19 (discussing MBIA’s request for the production of documents from ten

additional Countrywide custodians) (Ex. 5).) 28 (See Letter from M. Sheth to S. Concannon & W. Sushon (Apr. 14, 2011) (Ex. 6); Letter from M. Sheth to Hon.

E. Bransten (Apr. 27, 2011) (Ex. 20).)

13

BAC’s Sequencing Proposal

During the April 5, 2011 hearing, the Court suggested that the parties confer further on

whether to sever and stay discovery on the successor-liability claim specifically to address

concerns about: (i) avoiding the need to re-call primary-liability witnesses for testimony on

successor-liability issues and (ii) unduly delaying any successor-liability trial.29 BAC has

suggested a compromise sequencing proposal to address these considerations.

• To prevent delay and avoid inconvenience stemming from the need to re-open witnesses’ depositions, in the rare instances (if any) of factual overlap between the primary-liability and successor-liability claims, MBIA would be permitted to question current or former Countrywide employees who are being deposed primarily concerning the primary-liability claims about matters touching on successor liability. This would include situations in which MBIA seeks to ask former Countrywide employees who now work for legacy BAC entities about their post-transaction employment and responsibilities.

• MBIA can depose Debra Minton and Shane Sands, the two BANA employees on MBIA’s April 14, 2011 list who have provided consulting services to Countrywide on repurchase requests.

• The other 15 BAC witnesses on MBIA’s April 14, 2011 list and other proceedings concerning MBIA’s successor-liability claim would be sequenced to begin after the Court resolves summary judgment motions on MBIA’s primary-liability claims against Countrywide. The parties could then proceed with successor-liability deposition discovery while the inevitable appeals from summary judgment rulings are pending.

Trial on the successor-liability claim, if any, would proceed separately from trial on the primary-

liability claims against Countrywide, and only if MBIA were to prevail on one or more claims

against Countrywide (in whole or in part) after all appeals have been exhausted.

MBIA has rejected BAC’s proposal. In an April 27, 2011 letter to the Court, MBIA

asserted that witnesses’ overlapping knowledge would make phased discovery unworkable and

29 (Apr. 5, 2011 Hr’g Tr. at 65:13–66:3 (Ex. 18).)

14

any delay in the successor-liability trial would prejudice MBIA.30 As discussed below, BAC’s

proposal adequately addresses both concerns.

ARGUMENT

CPLR Section 603 grants the Court discretion to sever actions and proceed with one set

of claims before another to further convenience and avoid prejudice:

In furtherance of convenience or to avoid prejudice, the court may order a severance of claims, or may order a separate trial of any claim . . . . The court may order the trial of any claim or issue prior to the trial of the others.31

In exercising this discretion, the Court’s “major purpose [should be] . . . to avoid wasting judicial

resources.”32 A court may also order separate trials “to 1) avoid prejudice; 2) provide for

convenience; or 3) . . . be economical.”33 CPLR Section 2201 grants the complementary power

to stay severed claims to preserve judicial resources or advance efficiency or convenience.34

Severing the Amended Complaint’s successor-liability claim against BAC and

proceeding first with depositions and trial on MBIA’s claims against Countrywide would

conserve judicial resources, promote convenience and efficiency and avoid prejudice because:

30 (See Letter from M. Sheth to Hon. E. Bransten (Apr. 27, 2011) (Ex. 20).) 31 CPLR § 603; see Plainview Water Dist. v. Exxon Mobil Corp., 66 A.D.3d 754, 755 (2d Dep’t 2009) (“The

decision whether to conduct a bifurcated trial . . . rests within the discretion of the trial court.”). 32 105 N.Y. JURISPRUDENCE TRIAL § 208 (2d ed. 2010); see also Mercado v. City of New York, 25 A.D.2d 75, 76

(1st Dept. 1966) (observing that severing claims “is an accepted and useful practice” “[a]s a measure for relief from calendar congestion, as a means of lightening the burden of litigation and in the furtherance of the interests of justice in particular cases.”).

33 Ricciuti v. New York City Transit Auth., 796 F. Supp. 84, 86 (S.D.N.Y 1992) (applying analogous Federal Rule of Civil Procedure 42(b)).

34 See CPLR § 2201 (“Except where otherwise prescribed by law, the court in which an action is pending may grant a stay of proceedings in a proper case, upon such terms as may be just.”); see also In re New York State Silicone Breast Implant Litig., 171 Misc. 2d 980, 983 (Sup. Ct., N.Y. County 1997) (exercising “discretion to sever the plaintiffs’ claims . . . pursuant to CPLR § 603 and stay the litigation of [the second set of claims] pursuant to CPLR § 2201” to “further convenience”); see also Wallace v. Crisman, 173 A.D.2d 322, 322 (1st Dept. 1991) (affirming order severing and staying litigation of derivative claims pending outcome of plaintiff’s rescission claim because rescission claim could render derivative action moot).

15

• MBIA’s successor-liability claim requires MBIA first to prevail on its claims against Countrywide;

• the successor-liability claim involves factual and legal issues separate and distinct from MBIA’s claims against Countrywide;

• there is virtually no overlap between the witnesses that MBIA seeks to depose on primary and successor liability, and to the extent any overlap exists, BAC’s proposal would ensure that no witness needs to be re-deposed;

• the claims against Countrywide by themselves are massive and complex and will require enormous efforts from the Court and parties to resolve;

• absent severance, there is a serious risk of prejudice to BAC.

I. SEVERING AND STAYING THE VICARIOUS-LIABILITY CLAIM AGAINST BAC ADVANCES CPLR 603’S PURPOSE.

A. Severing the Successor-Liability Claim and Sequencing Discovery Would Promote Judicial Efficiency.

Severance is especially appropriate where, as here, resolving one set of claims could

eliminate the need to litigate another.35 Severing vicarious-liability claims promotes

convenience and conserves judicial resources because liability on an underlying claim is a

35 See Landsman v. Village of Hancock, 296 A.D.2d 728, 731 (3d Dept. 2002) (affirming severance of vicarious-

liability claims because adverse decision for plaintiff in first trial would render “a trial of the [second] cause of action . . . unnecessary”); Mirabella v. Banco Industrial de la Republica Argentina, 29 A.D.2d 940, 940 (1st Dept. 1968) (holding severance was appropriate where the “separate and prior trial” “if disposed of favorably to the defendant, would end this litigation”); Flynn v. Royal Dev. Co., 265 A.D. 592, 593 (3d Dept. 1943) (“Should it appear that the trial of the one issue if determined adversely to the plaintiffs, will end the litigation and render the trial of the merits unnecessary, there should be a separate trial.”); 105 N.Y. Jur 2d Trial § 208 (“[A] separate trial is appropriate . . . where resolution of the issue in favor of the party raising it would terminate the litigation and render a trial upon the remaining issues unnecessary.”); accord Amato v. City of Saratoga Springs, 170 F.3d 311, 316 (2d Cir 1999) (affirming severance order directing that “claims against [individual defendants] . . . be tried first, and that if the jury found liability on the part of the [individual defendants], trial against the City and the Police Department [for vicarious liability] would immediately commence . . . . because a trial against the City defendants would prove unnecessary if the jury found no liability against [the individual defendants]”); Wechsler v. Hunt Health Sys, Ltd., No. 94 Civ. 8294 (PKL), 2003 WL 21878815, at *9 (S.D.N.Y. Aug. 8, 2003) (holding severance of two sets of claims “would serve the interests of judicial economy and efficiency without prejudicing either party” where ruling in defendants’ favor on first set of claims would dispose of second set); Busch v. City of New York, No. 00 Civ 5211(SJ), 2002 WL 31051589, at *1, *3 (E.D.N.Y. Sept. 9, 2002) (affirming magistrate’s order that civil rights claims against individual defendants be tried first, followed by vicarious-liability claims only if the individual defendants were found liable); Masi v. New York, No. 98 Civ. 6802 (MBM), 1999 WL 688453, at *1–2 (S.D.N.Y. Sept 2, 1999) (granting motion to sever vicarious-liability claims and proceed first with litigation of underlying claims);

(cont’d)

16

prerequisite to vicarious liability. Thus, if the plaintiff fails to prove the underlying claim, there

would be no need to try the vicarious-liability claim.36 Applying this principle:

• the Third Department, in Landsman v. Village of Hancock, affirmed severance of a vicarious-liability claim against the village from direct-liability civil rights claims against individual officer defendants that would proceed first because if “a jury found no unconstitutional action by the [individual defendants], a trial of the [vicarious liability] cause of action would be unnecessary”;37

• the First Department, in Wallace v. Crisman, severed and stayed derivative claims pending resolution of plaintiff’s claims to rescind its share purchase because granting rescission would render the derivative claim moot for lack of standing;38 and

• the Southern District of New York, in Masi v. City of New York, severed and stayed vicarious-liability claims against the City pending resolution of the underlying claims against the individual defendant because “the potential expedition and economy from severance are obvious . . . If plaintiff fails to prove that [individual defendant] violated his rights, then there perforce is no occasion to determine whether” the City is vicariously liable for the violation.39

Similarly, in Mandeville v. Quinstar Corp., the United States Court of Appeals for the

Tenth Circuit affirmed an order severing litigation concerning a parent corporation’s vicarious

liability for its subsidiary’s actions under a veil-piercing theory.40 The court held that severance

“advanced judicial economy” because “a trial on the issue of piercing the corporate veil would

have been unnecessary absent a ruling in [plaintiff’s] favor on the breach of contract or Title VII

Deagle v. New York, No 90-Civ-8203 (LJF), 1991 WL 267765, at *1 (S.D.N.Y Dec. 4, 1991) (ordering vicarious-liability claims severed and adjudicated after underlying liability).

36 See, e.g., Landsman, 296 A.D.2d at 731 (holding severance of vicarious-liability claim was warranted because “[a] necessary threshold predicate to such a claim is that the officers’ actions were unconstitutional” because “in the event that a jury found no unconstitutional action by the officers, a trial of the [vicarious liability] cause of action would be unnecessary”); see also Sunnyside Dev. Co. v. Opsys Ltd., No. C 05-00553 MHP, 2006 U.S. Dist. LEXIS 95, at *13 (N.D. Cal. Jan. 4, 2006) (observing successor-liability claims were relevant “only . . . to the extent that plaintiff is unable to collect a judgment from [the primary defendant]”); Ricciuti, 796 F. Supp. at 85–86 (severing and staying discovery and trial on vicarious liability because “the potential benefit of avoiding a second trial, and of avoiding discovery . . . , outweighs the potential costs of conducting one large trial.”).

37 296 A.D.2d at 731. 38 173 A.D.2d at 322. 39 1999 WL 688453, at *1. 40 109 F. Appx. 191, 194 (10th Cir. 2004).

17

claim.” The court concluded that the vicarious-liability claim against the parent was “logically

separable” from the substantive claims against the subsidiary because “piercing the corporate

veil became relevant only when [plaintiff] was successful on one of the underlying claims.”41

MBIA has nevertheless argued that severance would delay trial of its primary-liability

claims.42 But the opposite is true. By removing from the congested schedule at least 15 (and

likely many more) successor-liability fact depositions, plus additional expert discovery and

successor-liability summary judgment motions, the Court would allow MBIA and Countrywide

to focus more efficiently on the primary-liability case and get to trial more quickly. Indeed, as

the Court recognized at the April 27 conference, MBIA itself is likely to need relief from the

schedule’s ambitious deadlines to conclude the discovery it is seeking.43

B. MBIA’s Claims Against Countrywide Implicate Distinct Factual and Legal Issues from Its Claim Against BAC.

The absence of any overlap between the Amended Complaint’s claims against

Countrywide (Causes of Action One through Six) and the claim against BAC (Cause of Action

Seven) is another “compelling reason” to sever the claims.44 As discussed in greater detail

above, the primary-liability claims and Countrywide’s defenses primarily concern (i) the facts

surrounding MBIA’s decision to insure the 15 Securitizations, all of which closed before January

41 Id. 42 (See Letter from M. Sheth to Hon. E. Bransten (Apr. 27, 2011) (Ex. 20).) 43 (Apr. 27, 2011 Hr’g Tr. at 44:1–2 (“[I]t wouldn’t surprise me if [MBIA’s counsel] come back and ask for more

time.”) (Ex. 5).) 44 Reading Indus., Inc. v. Kennecott Copper Corp., 61 F.R.D. 662, 664, 655 (S.D.N.Y. 1974) (“[A] separate trial

of Count II” warranted where “the Count II issues [were] significantly different from those of Counts I and III”); see also Wechsler, 2003 WL 21878815, at *7 (holding that fraudulent conveyance claim’s factual and legal issues distinct from contractual claim weighed in favor of bifurcation); Corporan v. Binghamton, No. 05-CV-1340, 2006 WL 2970495, at *4 (N.D.N.Y. Oct. 16, 2006) (“[W]hile there may be some overlap of witnesses called to testify . . . the vast majority of witnesses and documentary proof will differ among the groups of plaintiffs, depending on in which of the four transactions they were involved.”); Hal Leonard Publishing Corp. v. Future Generations, Inc., Nos. 93 Civ 5290 (JSM), 1994 WL 163987, at *2 (S.D.N.Y. Apr. 22, 1994) (holding that claims “prompt[ing] different lines of inquiry” favored separate trials).

18

2008; (ii) the performance and characteristics of the mortgage loans in the Securitizations;

(iii) CHL, CHLS and MBIA’s performance of their respective obligations under the transaction

documents for the Securitizations; and (iv) MBIA’s alleged damages. (See pp. 5–9, supra.) In

contrast, the Amended Complaint alleges that BAC is liable as Countrywide’s successor based

on complex transactions and events that post-date or are collateral to MBIA’s dealings with

Countrywide and the Securitizations at issue. (See pp. 9–11, supra.) The claim against BAC

will require proof of BAC’s alleged intent to harm CFC’s shareholders and creditors in

structuring its transactions with CFC45 and “[w]hether and to what extent Bank of America

assumed Countrywide’s debt and/or liability.”46 This necessarily will require testimony from

BAC witnesses and examination of BAC documents unrelated to the underlying MBIA–

Countrywide insurance transactions, to which BAC was not a party.

In fact, in a sworn affirmation, MBIA’s counsel represented that MBIA’s successor-

liability claim implicates factual issues that are irrelevant to its claims against Countrywide:

[T]he discovery at issue here serves an entirely different purpose than any discovery MBIA has sought from the other defendants. The purpose of this discovery is to determine whether Bank of America has . . . de facto merged with Countrywide or otherwise assumed liability for MBIA’s claims against Countrywide. These are issues that were not relevant to this action prior to August 2009 when Bank of America was named as a defendant.47

45 Maine State Ret. Sys. v. Countrywide Fin. Corp., Case No. 2:10-CV-0302 MRP (MANx), 2011 WL 1765509, at

*7 (C.D. Cal. Apr. 20, 2011) (“To state a successor-liability claim under the de facto merger doctrine, therefore, the complaint must allege that the sale was designed to disadvantage shareholders or creditors.”); In re McKesson HBOC, Inc. Sec. Litig., 126 F. Supp. 2d 1248, 1276–77 (N.D. Cal. 2000) (observing that the de facto merger doctrine does not apply “unless the transaction has been structured to disadvantage creditors or shareholders”) (applying Delaware law).

46 See, e.g., June 16, 2010 Hr’g Tr. at 4:16–17 (Ex. 16); see also Ross v. DESA Holdings Corp., C.A. No. 05C-05-013 MMJ, 2008 WL 4899226, at *4 (Del. Super. Ct. Sept. 30, 2008) (rejecting successor-liability for asset purchaser where plaintiff failed to show “(1) the buyer’s assumption of liability; (2) de facto merger or consolidation; (3) mere continuation of the predecessor under a different name; or (4) fraud”).

47 (Affirmation of Manisha M. Sheth in Supp. of Pl.’s Mot. to Compel Disc. from BAC ¶ 25 (Ex. 17).)

19

Discovery has graphically borne out the gulf between the two sets of claims. The 86

primary-liability witnesses are all current or former Countrywide employees who were allegedly

involved in structuring the Securitizations, MBIA’s due diligence concerning the Securitizations,

the negotiation and drafting of the transaction documents for the Securitizations, the origination

and servicing of the underlying mortgage loans and MBIA’s repurchase requests. In contrast, the

15 BAC successor-liability witnesses are BAC executives and employees involved in

Countrywide’s July 1, 2008 merger into a wholly-owned BAC subsidiary and certain subsequent

intra-corporate transactions (such as former BAC CEO Kenneth Lewis, former BAC Chief Risk

Officer Amy Brinkley, Bank of America Home Loans’ current President Barbara Desoer, nine

Senior Vice Presidents in Corporate Tax, Change Management, Operations, or Risk and

Compliance, and a few change management consultants and finance associates). None of the 15

BAC successor-liability witnesses was involved in the mortgage securitizations transactions

underlying MBIA’s claims against Countrywide.

While two additional BAC witnesses—Debra Minton and Shane Sands (BANA

employees who have provided consulting services to CHL to assist CHL in its repurchase

process)—may have knowledge concerning primary liability, their depositions would proceed,

even if the Court were to grant this motion. But forcing 15 other high-ranking BAC witnesses to

sit now for depositions that may never be necessary, solely because other witnesses (whom

MBIA will be permitted to depose in the primary-liability case) may have marginal overlapping

knowledge, would create dramatic inefficiencies for no material benefit. And the burden to BAC

of subjecting these witnesses to potentially unnecessary depositions is even greater not only

because they are some of the organization’s most senior officers and employees, but also because

they are subject to sitting for depositions regarding the exact same transactions and events for the

20

identical successor-liability claims of Syncora, FGIC and Ambac. Sequencing discovery will

help remedy this inefficiency.

To the extent any of the Countrywide primary-liability witnesses’ testimony touches on

successor-liability issues, the connection is likely to be tangential and the testimony limited. For

example, MBIA has obtained testimony from former Countrywide witnesses confirming that

they are now legacy BAC-subsidiary employees, comparing their current job duties to those they

had at Countrywide, and describing their role, if any, regarding the integration of operations

between CHL and BANA. BAC’s motion does not seek to block such questioning. In fact, BAC

has already disclosed this information in written discovery.48

C. Sequencing Successor-Liability Proceedings Would Prevent Significant Waste and Facilitate a Prompt Primary-Liability Trial.

It would be enormously burdensome, inefficient and costly if deposition discovery were

to proceed now on MBIA’s successor-liability claim. Adding successor-liability proceedings to

the mountain of work MBIA’s claims against Countrywide will already require is simply—as the

Court itself suggested—not realistic, given the November 18, 2011 discovery close date.49

BAC’s sequencing proposal, in contrast, would also allow the Court and the parties to focus

solely on the claims against Countrywide and getting those claims trial-ready. Consistent with

the Court’s August 13, 2010 order, BAC has produced voluminous documents and answered

lengthy interrogatories on successor-liability issues and transactions. (See p. 11, supra.) If

Countrywide were ultimately found liable, MBIA and BAC could proceed smoothly to

depositions and move to an efficient and manageable trial on just successor liability.

48 (See Rosenberg Aff. ¶ 18.) 49 (Apr. 27, 2011 Hr’g Tr. at 44:1–2 (“[I]t wouldn’t surprise me if you, [MBIA’s counsel] come back and ask for

more time.”) (Ex. 5).)

21

Severing and sequencing successor-liability depositions would advance judicial economy

not only in this case, but also in the three other monoline cases before this Court. All four cases

advance the same de facto merger liability theory based on the same transactions and the same

statements.50 The First Department has recognized that in these circumstances, discovery should

proceed in one consolidated action that results in one trial.51 This avoids having each witness sit

for multiple depositions where one would suffice, preserves scarce judicial resources by avoiding

multiple trials, and avoids inconsistent verdicts on identical claims.52 For this reason, too,

severance and stay would promote judicial economy.

D. Severance Would Prevent Prejudice to BAC.

The efficiencies that would flow from severing MBIA’s successor-liability claim are

alone sufficiently compelling to warrant granting this motion. But the motion should also be

granted to avoid juror confusion and attendant prejudice to BAC. As with its failure to identify

successor-liability expert witnesses or even subject areas for such expert testimony, MBIA also

has refused to respond to BAC’s queries as to whether MBIA will seek a jury trial on the

50 (See Am. Compl. ¶¶ 119-31; Compl. ¶¶ 169-74, Ambac Assurance Corp., et al. v. Countrywide Home Loans,

Inc. et al., Index No. 651612/2010 (N.Y. Sup. Ct.) (Sept. 28, 2010) (Ex. 13); Am. Compl. ¶¶ 300-13, Financial Guaranty Insurance Co. v. Countrywide Home Loans, et al., Index No. 650736/2009 (N.Y. Sup. Ct.) (Apr. 30, 2010) (Ex. 14); Am. Compl. ¶¶ 136-46, Syncora Guarantee Inc. v. Countrywide Home Loans, Inc, et al., Index No. 650736/2009 (N.Y. Sup. Ct.) (May 6, 2010 (Ex. 15).)

51 Amcan Holdings, Inc. v. Torys LLP, 821 N.Y.S.2d 162, 165 (1st Dep’t 2006) (reversing as abuse of discretion denial of motion to consolidate because “the parties to each action possess knowledge and information, including documents, relevant to the claims in the other. Potential witnesses and evidence will be similar in both actions . . . There also exist questions of law and fact common to both actions. . . . Consolidation is generally favored by the courts in the interest of judicial economy and ease of decisionmaking.”).

52 See Bernstein v. Silverman, 644 N.Y.S.2d 235, 235 (1st Dep’t 1996) (reversing denial of consolidation motion where two actions “both ar[o]se from the [same event], the same witnesses will be required in both actions, and there is a possibility that injustice would result from inconsistent results in the two actions.”); Kondratick v. Orthodox Church in America, 2009 N.Y. Misc. LEXIS 5174, at **5-6 (N.Y. Sup. Ct. May 1, 2009) (“In the instant case, given the allegations contained in the various claims and counterclaims in each action, it appears that similar, if not identical, relevant admissible evidence will be utilized in both actions. Although the actions are not identical, there are some common questions of law and fact, which a provident use of scarce judicial resources would warrant the granting of consolidation for the purposes of a joint trial.”).

22

successor claim.53 But if the successor claim were tried to a jury (and BAC does not concede

that it should be), there would be a substantial risk that absent severance, jurors would have

difficulty segregating the evidence offered against Countrywide from that offered against BAC

and that “[t]he potential inferences or conclusions that the jury may draw from the different

claims” could unfairly prejudice BAC.54 While this Court need not resolve the judge/jury issue

to decide this motion, the existence of a substantial risk of prejudice to BAC provides an

additional reason to sever the successor-liability claim.

Courts frequently order separate trials to prevent “the danger of contaminating the minds

of jurors with evidence that is applicable to some defendants but not to others.”55 For example,

in Landsman v. Village of Hancock, the Third Department held that severing direct liability

claims against individual officer defendants from vicarious-liability claims against the village

was appropriate to avoid “potential prejudice” from evidence that “plaintiff intended to

introduce” that was relevant to vicarious liability but “unrelated to his personal claim” against

the individual defendants.56 Likewise, in Amato v. City of Saratoga Springs, the Second Circuit

held that concerns about potential prejudice from plaintiff “introduc[ing] evidence in support of

53 (See Rosenberg Aff. ¶ 20.) 54 Morris v. Northrop Grunman Corp., 37 F. Supp. 2d 556, 581 (S.D.N.Y. 1999) (holding that potential prejudice

and juror confusion merited severing claims); see also Masi v. City of New York, No. 98 Civ. 6802 (MBM), 1999 WL 688453, at *1 (S.D.N.Y. Sept. 2, 1999) (holding “potential prejudice . . . from having the jury listen to a parade of horrors, if such there be, relating to other [claims], and the potential confusion” sufficient to justify granting motion to sever claims”); Ropfogel v. Wise, 112 F.R.D. 414, 416 (S.D.N.Y. 1986) (observing that the “spillover effect” of fraud claims against one defendant and the relationship between the defendants “almost certainly, in a joint trial, would tend to inflame and unfairly prejudice a jury against [defendant] and give the plaintiff an unfair and unjust advantage”).

55 Ricciuti, 796 F. Supp. at 86; see also Landsman, 296 A.D.2d at 731 (holding preventing possible prejudice to one set of defendants from jury hearing evidence of other defendants’ bad acts was sufficient reason to sever claims); Reading Indus., 61 F.R.D. at 665 (holding that “inherent likelihood of prejudice” in trying complex claims together with different evidence and elements, which would require “an enormously complex charge at the end of trial,” mandated severing claims); Masi, 1999 WL 688453, at *1 (granting motion to sever to prevent prejudice and juror confusion); accord Hal Leonard, 1994 WL 163987, at *4 (“[T]he risk of juror confusion in a case presenting several complex claims . . . is itself a reason to order separate trials.”).

23

his claim against the City that would likely be either inadmissible as against [individual

defendants] or prejudicial to [them]” was a legitimate basis for trying the claims separately.57

MBIA’s claims against Countrywide implicate multiple counts and arise from a series of

complex residential mortgage-backed securities transactions. The risk of juror confusion and

prejudice to BAC is even greater here, because certain Countrywide Defendants currently

operate under BAC trade names—for example, Countrywide Home Loans Servicing L.P. has

been renamed “BAC Home Loan Servicing, L.P.” (Am. Compl. ¶ 11.) It would come as no

surprise if MBIA attempted to exploit that fact, potentially misleading jurors into believing that

BAC was involved in the alleged conduct giving rise to Countrywide’s alleged primary liability.

Jurors may have difficulty distinguishing between direct and vicarious liability and hold BAC

directly liable for Countrywide’s alleged conduct, rather than considering only the requirements

for successor liability. A joint trial of the Countrywide and BAC claims would therefore require

frequent instructions from the Court cautioning the jury about which evidence is admissible

against which defendant.58 As the Southern District of New York warned in Ropfogel v. Wise,

this is a blueprint for unfair prejudice and juror confusion:

[A] joint trial of the separate and distinct claims . . . [presents] an overwhelming danger of unfair prejudice . . . and confusion of the issues. Substantial trial disruption would result from the necessity for continuous instructions to the jury on the separate consideration of the voluminous prospective evidence as offered against only one party and not the other; this would require a feat of mental

56 296 A.D.2d at 731. 57 170 F.3d at 316. 58 Cestone v. Gen’l Cigar Holdings, Inc., No. 00CIV3686RCCDF, 2002 WL 424654, at *3 (S.D.N.Y. Mar. 18,

2002) (observing that a combined trial would require “the Court to constantly caution the jury to not consider evidence that is irrelevant or inadmissible against a particular Defendant”).

24

exclusion of insurmountable proportions on the part of a jury, truly assuring a descent into the Serbonian Bog.59

Thus, conducting “two shorter trials will be more efficient and less expensive [and prejudicial]

than one long, combined trial in which the Court must constantly caution the jury not to consider

evidence that is irrelevant or inadmissible against a particular defendant.”60 Severing and

sequencing the successor-liability claim would also prevent prejudice to BAC resulting from the

risk of inconsistent adjudications by permitting the Court to consolidate this action with the other

three identical monoline cases.61

II. SEVERING THE SUCCESSOR-LIABILITY CLAIM AND PHASING DISCOVERY WOULD NOT UNDULY DELAY TRIAL OF THAT CLAIM.

MBIA cannot credibly complain that BAC’s severance and sequencing proposal would

unduly delay the successor-liability trial. Under that proposal, BAC would still produce

additional documents by June 17, 2011. MBIA would then be able to review documents and

written discovery to prepare for successor-liability depositions while the primary-liability claims

proceed. If any of those primary-liability claims were to survive summary judgment, MBIA

would then be in a position promptly to begin depositions on the successor-liability claim while

the inevitable appeals from the summary judgment rulings are pending.62 That sequencing

would ensure only a modest delay in successor-liability depositions, such that BAC witnesses

would be as well-versed as they are today about the BAC-Countrywide transactions at issue. By

the time that MBIA and Countrywide would be trying the primary-liability claims, successor-

59 112 F.R.D. at 416 & n.1 (explaining that the “Serbonian Bog” is “[w]here Armies whole have sunk”). 60 Cestone, 2002 WL 42454, at *3 (granting motion to sever); Rogfopel, 112 F.R.D. at 416 (ordering separate trial

to prevent prejudice and jury confusion). 61 See Bernstein, 644 N.Y.S.2d at 235; Amcan Holdings, 821 N.Y.S.2d at 165. 62 (Apr. 27, 2011 Hr’g Tr. at 38:6–39:2 (observing that a trial date could not be set until after the Court decides

summary judgment and the Appellate Division decides any appeals of that decision) (Ex. 5).)

25

liability depositions could be completed or substantially completed, facilitating successor-

liability trial, if necessary, soon after the final resolution of Countrywide’s liability to MBIA.

CONCLUSION

Judicial economy and preventing prejudice to BAC favor severing MBIA’s claim against

BAC and proceeding first with depositions, expert discovery and trial on the claims against

Countrywide. The Court therefore should exercise its discretion under CPLR 603 to sever the

claim against BAC and CPLR 2201 to sequence further discovery and pretrial proceedings on the

claim against BAC until after summary judgment motions concerning the claims against

Countrywide are adjudicated.

Dated: New York, New York May 13, 2011

O’MELVENY & MYERS LLP

By: /s/ Jonathan Rosenberg Bradley J. Butwin

Jonathan Rosenberg William J. Sushon Asher L. Rivner

7 Times Square New York, New York 10036 Telephone: (212) 326-2000 Facsimile: (212) 326-2061 Attorneys for Defendant Bank of America Corporation