Preview
FILED: NEW YORK COUNTY CLERK 11/28/2012 INDEX NO. 602825/2008
NYSCEF DOC. NO. 3645 RECEIVED NYSCEF: 11/28/2012
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
MBIA INSURANCE CORPORATION, Index No.: 08/602825
IAS Part: 3 (Bransten, J.)
Plaintiff,
PLAINTIFF’S REPLY
-against- MEMORANDUM OF LAW IN
FURTHER SUPPORT OF MOTION
COUNTRYWIDE HOME LOANS, INC., FOR SUMMARY JUDGMENT ON
COUNTRYWIDE SECURITIES CORP., SUCCESSOR LIABILITY BASED ON
COUNTRYWIDE FINANCIAL CORP., DE FACTO MERGER AND
COUNTRYWIDE HOME LOANS ASSUMPTION OF LIABILITIES
SERVICING, L.P., and BANK OF
AMERICA CORP. (Motion Sequence No. 61)
Defendants.
QUINN EMANUEL URQUHART &
SULLIVAN, LLP
Peter E. Calamari
Philippe Z. Selendy
Daniel P. Cunningham
Jonathan B. Oblak
Sanford I. Weisburst
Manisha M. Sheth
Renée B. Bea
51 Madison Avenue, 22nd Floor
New York, New York 10010
Tel: 212-849-7000
Facsimile: 212-849-7100
November 27, 2012 Attorneys for Plaintiff MBIA Insurance
Corporation
MBIA v. Countrywide Home Loans, et al. Index No. 602825/2008
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TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT .....................................................................................................1
ARGUMENT ...................................................................................................................................2
I. NEW YORK LAW APPLIES TO MBIA’S DE FACTO MERGER CLAIM ....................2
A. There Is No Conflict Between New York Law, On The One Hand, And
North Carolina Or Delaware Law, On The Other Hand ..........................................3
B. New York’s Stronger Interests Mandate The Application Of New York
Law ..........................................................................................................................5
II. THE AMOUNT BAC PAID IN CONNECTION WITH THE ASSET-
STRIPPING TRANSACTIONS IS NOT RELEVANT TO THE DOCTRINES
OF DE FACTO MERGER AND IMPLIED ASSUMPTION OF LIABILITIES ...............6
III. THE UNDISPUTED FACTS ESTABLISH ALL OF THE “HALLMARKS” OF
A DE FACTO MERGER UNDER NEW YORK LAW....................................................10
A. There Is Continuity Of Ownership Over The Transferred Business Assets
And Subsidiaries ....................................................................................................11
B. Countrywide Ceased Its Ordinary Business Operations ........................................12
C. BAC Continues Countrywide’s Business Operations Using Countrywide’s
Former Assets, Employees, And Physical Locations ............................................15
D. BAC Assumed The Liabilities Necessary To Continue Countrywide’s
Business Operations .................................................................... ..........................17
IV. AT BEST, BAC’S ERRONEOUS DELAWARE STANDARD RAISES
DISPUTED ISSUES OF FACT THAT PRECLUDE SUMMARY JUDGMENT ...........18
V. BAC IS INDEPENDENTLY LIABLE AS COUNTRYWIDE’S SUCCESSOR
BECAUSE BAC ASSUMED COUNTRYWIDE’S LIABILITIES ..................................21
A. Assumption Of Liabilities Does Not Require Reliance .........................................22
B. BAC’s Self Serving Disclaimers Cannot Extinguish MBIA’s Rights ...................23
VI. MBIA IS ENTITLED TO PURSUE THE FRAUD DOCTRINE AT TRIAL ..................24
CONCLUSION ..............................................................................................................................26
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TABLE OF AUTHORITIES
Page
Cases
Alcott v. Hyman, P.R.M., Inc.,
208 A.2d 501 (Del. 1965) ........................................................................................................19
In Re Alleged PCB Pollution,
712 F. Supp. 1010 (D. Mass. 1989) .........................................................................................17
Arnold Graphics Indus., Inc. v. Indep. Agent Ctr., Inc.,
775 F.2d 38 (2d Cir. 1985).......................................................................................................12
Asarco LLC v. Americas Mining Corp.,
396 B.R. 278 (S.D. Tex. 2008) ............................................................................................8, 21
At Last Sportswear, Inc. v. Newport News,
No. 602208/2009, 2010 WL 4053105 (Sup. Ct. N.Y. Cnty., Oct. 5, 2010) ..................7, 11, 23
AT & S Transp., LLC v. Odyssey Logistics & Tech. Corp.,
22 A.D.3d 750 (2d Dep’t 2005) ...........................................................................................4, 11
Bradley v. Condon,
217 N.Y.S.2d 821 (Sup. Ct. Suffolk Cty. 1961) ......................................................................25
In re Broadstripe, LLC,
444 B.R. 51 (D. Del. 2010) ......................................................................................................19
Cargo Partner AG v. Albatrans Inc.,
352 F.3d 41 (2d Cir. 2003).................................................................................................4, 7, 8
Certain Underwriters at Lloyd’s, London v. Foster Wheeler Corp.,
36 A.D.3d 17 (1st Dep’t 2006) ..................................................................................................3
China Res. Prods. (U.S.A.) Ltd. v. Fayda Int’l Inc.,
856 F. Supp. 856 (D. Del. 1994) ..............................................................................................21
Christie v. Delta Trading Corp.,
No. 601195/105, 2007 WL 2691976 (N.Y. Sup. Ct. 2007) .....................................................12
City of N.Y. v. Pfizer & Co.,
260 A.D.2d 174 (1st Dep’t 1999) ............................................................................................11
Colon v. Multi-Pak Corp.,
477 F. Supp. 2d 620 (S.D.N.Y. 2007)........................................................................................6
Cooney v. Osgood Mach., Inc.,
81 N.Y.2d 66 (1993) ..................................................................................................................5
Cyr v. B. Offen & Co., Inc.,
501 F.2d 1145 (1st Cir. 1974) ..................................................................................................23
ii
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DaSilva v. C & E Ventures, Inc.,
83 A.D.3d 551 (1st Dep’t 2011) ................................................................................................5
Drug, Inc. v. Hunt,
35 Del. 339 (1933) .....................................................................................................................5
Elmer v. Tenneco Resins, Inc.,
698 F. Supp. 535 (D. Del. 1988) ................................................................................................4
Farmers Prod. Credit Ass’n of Middletown v. Taub,
504 N.Y.S.2d 448 (S.D.N.Y. July 19, 2010) ...........................................................................25
Fidanque v. Am. Marcaibo Co.,
92 A.2d 311 (Del. Ch. 1952)............................................................................................4, 5, 18
Fin. One Pub. Co. Ltd. v. Lehman Bros. Special Fin., Inc.,
414 F.3d 325 (2d Cir. 2005).......................................................................................................5
Fischer v. Prodigi, Inc.,
No. 603891/2006, 2007 WL 2815494 (Sup. Ct. N.Y. Cnty. July 23, 2007) .........................4, 6
Fitzgerald v. Fahnestock & Co.,
286 A.D.2d 573 (1st Dep’t 2001) ..............................................................3, 4, 5, 10, 11, 12, 14
In re Fruehauf Trailer Corp.,
444 F.3d 203 (3d Cir. 2006).....................................................................................................20
Grant-Howard Assocs. v. Gen. Housewares Corp.,
63 N.Y.2d 291 (1984) ..............................................................................................................10
Hayden Capital USA, LLC v. Northstar Agri Industries, LLC,
No. 11 Civ. 594, 2012 WL 1449257 (S.D.N.Y. April 23, 2012) ...........................................5, 6
Haywin Textile Prod., Inc. v. Int’l Fin. Inv.,
No. 00 Civ. 8633, 2001 WL 984721 (S.D.N.Y. Aug. 24, 2001) .......................................23, 24
Kidz Cloz, Inc. v. Officially for Kids, Inc.,
No. 00 CIV 6270, 2002 WL 1586877 (S.D.N.Y. July 17, 2002) ............................................23
K.T. v. Dash,
37 A.D.3d 107 (1st Dep’t 2006) ............................................................................................3, 5
Ladjevardian v. Laidlaw-Coggeshall, Inc.,
431 F. Supp. 834 (S.D.N.Y. 1977).......................................................................................8, 22
Lattimore & Assocs., LLC v. Steaksauce, Inc.,
No. 10 CVS 14744, 2012 WL 1925729 (N.C. Sup. Ct. May 25, 2012) ........................................3
Lippe v. Bairnco Corp.,
249 F. Supp. 2d 357 (S.D.N.Y. 2003)......................................................................................21
Magnolia’s at Bethany, LLC v. Artesian Consulting Eng’rs,
No. S11 C-04-013, 2011 WL 4826106 (Del. Super. Ct. Sept. 19, 2011) ........................4, 5, 18
iii
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In re Matter of N.Y.C. Asbestos Litig. (“Van Nocker”),
15 A.D.3d 254 (1st Dep’t 2005) ....................................................................................7, 11, 12
McDarren v. Marvel Entm’t Grp., Inc.,
1995 WL 214482 (S.D.N.Y. 1995) ..........................................................................................18
Metzger v. Dell Pub. Co.,
136 N.Y.S.2d 888 (Sup. Ct. 1955) ...........................................................................................25
Miller v. Forge Mench P’ship Ltd.,
2005 WL 267551 (S.D.N.Y. 2005) ................................................................................7, 15, 17
Moriarty v. LSC Ill.s Corp.,
No. 98c 1997, 1999 WL 1270711 (N.D.Ill. 1999) ...................................................................23
N. Am. Catholic Ed. Programming Found. v. Gheewalla,
930 A.2d 92 (Sup. Ct. Del. 2007) ............................................................................................19
Nettis v. Levitt,
241 F.3d 186 (2d Cir. 2001)...............................................................................................11, 15
New York v. Westwood-Squibb Pharm. Co.,
62 F. Supp. 2d 1035 (W.D.N.Y. 1999) ....................................................................................12
Peltz v. Hatten,
279 B.R. 710 (D. Del. 2002) ....................................................................................................20
Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Secs., LLC,
446 F. Supp. 2d 163 (S.D.N.Y. 2006)........................................................................................6
Pryor Cashman Sherman & Flynn, LLP v. Tractmanager, Inc.,
No. 603515/05, 2007 N.Y. (U) (Sup. Ct. N.Y. Cnty. May 18, 2007)........................................6
Ripley v. Int’l Rys. of Cent. Am.,
8 A.D.2d at 310 (1st Dep’t 1959), aff’d, 8 N.Y.2d 430 (1960) ..............................................24
Schumacher v. Richards Shear Co.,
59 N.Y.2d 239 (1983) ................................................................................................................4
Silverman Partners LP v. Verox Grp.,
No. 08 CIV 3103 (HB), 2010 WL 2899438 (S.D.N.Y. July 19, 2010) ...................................25
SNS Bank, N.V. v. Citibank, N.A.,
7 A.D.3d 352 (1st Dep’t 2004) ..................................................................................................3
Sweatland v. Park Corp.,
181 A.D.2d 243 (4th Dep’t 1992) ........................................................................................6, 11
Time Warne Cable Inc. v. Networks Group, LLC,
No. 09 Civ. 10059, 2010 WL 3563111 (S.D.N.Y. Sept. 9, 2010) ...........................................15
Trustees of Hamilton Coll. v. Cunningham,
418 N.Y.S.2d 251 (1979) ...................................................................................................21, 25
iv
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Wensing v. Paris Indus.-New York,
158 A.D.2d 164 (3d Dep’t 1990) .............................................................................................23
Xperex Corp. v. Viasystems Tech. Corp., LLC.,
No. 20582-NC, 2004 WL 3053649 (Del. Ch. July 22, 2004) ................................................4, 5
Statutes
6 Del. C. § 1304(b) ........................................................................................................................21
Debtor and Creditor Law § 276 .....................................................................................................25
Del. Gen. Corp. L. § 271(a) ...........................................................................................................19
N.Y. Bus. Corp. L. § 717 ...............................................................................................................19
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Plaintiff MBIA Insurance Corporation (“MBIA” or “Plaintiff”) respectfully submits this
reply in further support of MBIA’s motion pursuant to CPLR 3212(e) for summary judgment
that Defendant Bank of America Corporation (“BAC”) is liable as a successor for the liabilities
of Countrywide Financial Corporation (“CFC”), Countrywide Home Loans (“CHL”),
Countrywide Securities Corporation (“CSC”), and Countrywide Home Loans Servicing, LP
(“CHLS”) (collectively, the “Countrywide Defendants”).
PRELIMINARY STATEMENT1
The transactions at issue here are the very paradigm of a de facto merger. But for BAC,
“[t]o see what is in front of one’s nose needs a constant struggle.”2 BAC focuses only on the
(supposed) $45 billion sticker price paid by BAC for all of Countrywide’s operating assets, to the
exclusion of any other facts. For BAC, ignorance of those facts “is strength.”3 Well-settled
doctrines of successor liability, however, take a more holistic view of transactions. As relevant
here, the de facto merger doctrine looks past the mere accounting treatment of transactions and
asks whether the transactions in issue are in substance, even if not in form, a merger. And the
implied assumption of liabilities doctrine examines the asset purchaser’s intent vis-à-vis the asset
seller’s liabilities and whether any consideration paid to the seller remained available to satisfy
the seller’s creditors.
Viewing the $45 billion sticker price in the broader context of the facts makes clear that,
regardless of how the Asset-Stripping Transactions were treated as a technical accounting matter
at a snapshot moment in time, the practical implications of the transaction were that all of
Countrywide’s operating assets were transferred to BAC and its non-CFC subsidiaries, and the
consideration received by Countrywide did not remain available to pay creditors other than those
that BAC favored, leaving remaining Countrywide creditors facing wind-down shell entities.
1
“SUF ¶ __” refers to MBIA’s Rule 19-a Statement of Undisputed Facts; “Oblak Ex.” to the Exhibits to the
Affirmations of Jonathan B. Oblak, filed on September 28, 2012 and concurrently herewith; “CUF ¶ __” to MBIA’s
Rule 19-a Responses and Counterstatement of Facts; “Bea Ex.” to the Exhibits to the Affirmation of Renee B. Bea,
filed on November 7, 2012; and “Rosenberg Ex.” to the Exhibits to the Affirmations of Jonathan Rosenberg, filed on
September 28, 2012 and November 7, 2012.
2
George Orwell, In Front of Your Nose (1945).
3
BAC Mem. 49 (citing George Orwell, Nineteen Eighty-Four 6 (1949)).
1
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BAC also errs in arguing that a single fact—BAC’s state of incorporation—dictates the
law that applies to MBIA’s de facto merger claim. But that fact is not dispositive, and indeed it is
peripheral to the choice-of-law inquiry. Numerous other factors, such as where the underlying
fraud occurred and where a key perpetrator of fraud and asset seller (CHL) was incorporated,
point overwhelmingly to New York law to govern the claim. Even if Delaware law applied, BAC
misunderstands its content and relies on an outlier decision by a California judge.
MBIA begins by reiterating why New York law applies to MBIA’s de facto merger claim,
and why BAC’s effort to have Delaware law applied is erroneous. See Point I, infra. MBIA then
explains that BAC’s single-minded focus on the technical accounting value paid to Countrywide
during the Asset-Stripping Transactions is legally and factually irrelevant to the de facto merger
and the implied assumption of liabilities doctrines. See Point II, infra. MBIA next explains that
the undisputed facts satisfy New York law on de facto merger and warrant summary judgment in
MBIA’s favor, see Point III, infra, and that, even under BAC’s misguided view of Delaware law,
factual disputes preclude granting summary judgment in BAC’s favor, see Point IV, infra.
MBIA continues by showing that the separate doctrine of implied assumption of liabilities (as to
which BAC concedes New York law applies) is satisfied on the undisputed facts here. See Point
V, infra. Finally, MBIA explains that, while it has not pursued the fraud theory of successor
liability at the summary-judgment stage given disputes of fact on its elements, MBIA is entitled
to pursue that theory at trial if necessary. See Point VI, infra.
ARGUMENT
I. NEW YORK LAW APPLIES TO MBIA’S DE FACTO MERGER CLAIM
In this case, New York law clearly controls because: (i) North Carolina law, which (unlike
Delaware) is the leading alternative to New York law, does not conflict with New York law;
(ii) even if Delaware law were the alternative, there is no conflict between New York and Delaware
law; and (iii) even if there were a conflict between New York and Delaware law, New York applies
an interest analysis that overwhelmingly favors the application of New York law in this case.
2
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BAC argues (BAC Oppn. 11-12, 15-16), contrary to New York’s choice-of-law principles,
that any analysis should begin and end with BAC’s state of incorporation (apparently because
BAC believes it will fare better if this Court adopts the erroneous interpretation of Delaware law
promulgated by a lone California judge). New York rejects such a rigid approach, and instead
follows a more flexible one that looks at all the relevant interests—an approach particularly
appropriate here because de facto merger is an equitable doctrine.
A. There Is No Conflict Between New York Law, On The One Hand, And North
Carolina Or Delaware Law, On The Other Hand
In New York, the “first step in choice of law analysis is determining whether an actual
conflict exists between the jurisdictions involved.” K.T. v. Dash, 37 A.D.3d 107, 111 (1st Dep’t
2006). If no conflict exists, “then the law of the forum state where the action is being tried
should apply.” SNS Bank, N.V. v. Citibank, N.A., 7 A.D.3d 352, 354 (1st Dep’t 2004). BAC
argues that there is a conflict between New York and Delaware law only as to the de facto
merger doctrine. BAC Oppn. 8-18; BAC Mem. 43 n.135 (conceding absence of conflict between
New York and Delaware on the implied assumption of liabilities doctrine).
North Carolina law is the more appropriate alternative (than Delaware law) to New York
law because North Carolina is BAC’s principal place of business and Delaware is merely its
place of incorporation. See MBIA Oppn. 12-13; Certain Underwriters at Lloyd’s, London v.
Foster Wheeler Corp., 36 A.D.3d 17, 25 (1st Dep’t 2006) (“the [law of the] state of the principal
place of business takes precedence over state of incorporation”). There is no conflict between
New York and North Carolina law, and consequently, New York law applies. Compare Fitzgerald
v. Fahnestock & Co., 286 A.D.2d 573, 575 (1st Dep’t 2001), with Lattimore & Assocs., LLC v.
Steaksauce, Inc., No. 10 CVS 14744, 2012 WL 1925729, at *11 (N.C. Sup. Ct. May 25, 2012).
Even if Delaware (rather than North Carolina) law were the appropriate alternative to
New York, New York law still would govern because there is no conflict between New York and
Delaware law. See MBIA Mem. 18-20; MBIA Oppn. 14-15.
First, New York and Delaware law both recognize successor liability and recognize the
de facto merger doctrine as one branch of such liability. See Fischer v. Prodigi, Inc., No.
3
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603891/2006, 2007 WL 2815494 (Sup. Ct. N.Y. Cnty. July 23, 2007) (applying New York law
because “[t]he laws of Delaware and New York are substantially the same on the issue of successor
liability”) (citations omitted); Cargo Partner AG v. Albatrans Inc., 352 F.3d 41, 45 (2d Cir. 2003)
(citing Schumacher v. Richards Shear Co., 59 N.Y.2d 239, 245 (1983)) (recognizing de facto merger
exception); Fitzgerald, 286 A.D.2d at 574 (same); accord Elmer v. Tenneco Resins, Inc., 698 F.
Supp. 535, 540 (D. Del. 1988) (same); Magnolia’s at Bethany, LLC v. Artesian Consulting Eng’rs,
No. S11 C-04-013, 2011 WL 4826106, at *3 (Del. Super. Ct. Sept. 19, 2011) (same).
Second, New York and Delaware law are also the same concerning the fundamental
elements of the de facto merger doctrine, namely that the doctrine applies where the transactions
at issue are in substance, even if not in form, a merger. Compare, e.g., AT & S Transp., LLC v.
Odyssey Logistics & Tech. Corp., 22 A.D.3d 750, 752 (2d Dep’t 2005) (the de facto merger
“factors are analyzed in a flexible manner that disregards mere questions of form and asks
whether, in substance, it was the intent of the successor to absorb and continue the operation of
the predecessor”); with Fidanque v. Am. Marcaibo Co., 92 A.2d 311, 315-16 (Del. Ch. 1952)
(“Whether a particular transaction is in reality a merger or otherwise depends to a great extent on
the circumstances surrounding each particular case and in determining the question all the
elements of the transaction must be considered.”); Xperex Corp. v. Viasystems Tech. Corp., LLC,
No. 20582-NC, 2004 WL 3053649, at *2 (Del. Ch. July 22, 2004) (“[T]his Court is one of equity
and will not allow sham transactions to achieve mischief.”). Both jurisdictions also agree that
any analysis of whether a de facto merger occurred requires application of a flexible standard
that looks at the particular facts and circumstances of each case. Id.
To be sure, New York law is relatively more developed than Delaware law concerning
the de facto merger doctrine insofar as New York courts have articulated a non-exclusive set of
“hallmarks” to aid in analyzing whether a de facto merger has occurred.4 Compare, Fitzgerald,
4
The law on de facto merger in the creditor context is much less developed in Delaware as compared to New
York. MBIA Oppn. 15-16. A review of the scant authority in Delaware shows that the factors considered by Delaware
courts vary depending on the facts and circumstances of each case. See, e.g., Xperex Corp. v. Viasystems Tech. Corp.,
LLC., No. 20582-NC, 2004 WL 3053649, at *2 (Del. Ch. July 22, 2004) (noting that “Drug, Inc. v. Hunt [35 Del. 339
(1933)]… did not set forth the only circumstances in which a Delaware corporation will be considered the successor of
another corporate entity.”); Magnolia’s at Bethany, LLC v. Artesian Consulting Eng’rs, No. S11 C-04-013-ESB, 2011
4
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286 A.D.2d at 574; with, Fidanque, 92 A.2d at 316. But New York’s greater development of the
law does not create an actual conflict, especially because New York and Delaware law are in
accord on the more general doctrinal issues that both have addressed. K.T., 37 A.D.3d at 112
(applying forum state law where application “would not threaten the policy underlying” foreign
jurisdiction’s law). Moreover, when the Delaware cases that considered the de facto merger
doctrine in the context of shareholder appraisal rights are properly put to one side, any
differences between Delaware and New York law do not present a genuine conflict because
those differences would not have a significant possible effect on the outcome. Fin. One Pub. Co.
Ltd. v. Lehman Bros. Special Fin., Inc., 414 F.3d 325, 331 (2d Cir. 2005).
B. New York’s Stronger Interests Mandate The Application Of New York Law
Even if this Court determined that there were a conflict between New York and Delaware
law as to the de facto merger doctrine, New York law rejects the rigid approach BAC would
have this Court take to analyzing which state’s law applies. BAC asks (BAC Oppn. 11-14) that
this Court look no further than BAC’s state of incorporation. Where a genuine conflict exists,
however, New York’s choice-of-law framework applies an “interest analysis” to give “effect to
the law of the jurisdiction which, because of its relationship or contact with the occurrence or the
parties, has the greatest concern with the specific issues in the litigation.” Cooney v. Osgood
Mach., Inc., 81 N.Y.2d 66, 72 (1993); see also DaSilva v. C & E Ventures, Inc., 83 A.D.3d 551,
553 (1st Dep’t 2011) (“the law of the situs of the injury applies”).5 New York’s interest analysis
is a flexible approach that takes into account all relevant contacts including the location of the
tort and injury (here, New York), the plaintiff’s domicile (New York), and the underlying claims
at issue (New York). Id.; MBIA Mem. 22-26; MBIA Oppn. 18-21.
WL 4826106, at *3 (Del. Super. Ct. Sept. 19, 2011) (rejecting the notion that fraud is required to show de facto merger,
and identifying three factors to create a de facto merger: (1) the transfer of all of the seller’s assets; (2) payment in stock
to the seller’s shareholders; and, (3) the predecessor’s agreement to assume the debts and liabilities of the seller.).
At
best, Maine (the erroneous decision by a California judge upon which BAC relies) represents “other” factors that might
be considered under Delaware law in connection with analysis of a de facto merger claim. See Hayden Capital USA,
LLC v.Northstar Agri Industries,LLC, No. 11 Civ. 594, 2012 WL 1449257, at *4 (S.D.N.Y. April 23, 2012).
However, as MBIA previously explained (MBIA Oppn. 16-18), those additional factors are not applicable in the
context of creditor claims like those at issue here.
5
Hayden’s application of the law of the state of incorporation is distinguishable because in that case contacts with
New York were otherwise “non-existent” and the parties did not raise the principal place of business as an alternative
jurisdiction for choice of law purposes.
See Hayden Capital, 2012 WL 1449257, at *7.
5
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New York law is favored where, as here, the torts and injury alleged occurred in New
York. See Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Secs., LLC, 446 F.
Supp. 2d 163, 192 (S.D.N.Y. 2006); Colon v. Multi-Pak Corp., 477 F. Supp. 2d 620, 625-626
(S.D.N.Y. 2007); Pryor Cashman Sherman & Flynn, LLP v. Tractmanager, Inc., No. 603515/05,
2007 N.Y. Slip Op. 31332(U), at *10 (Sup. Ct. N.Y. Cnty. May 18, 2007) (“A corporation suffers its
injury where its principal place of business is located because that is where its damages are felt.”).
Indeed, courts have applied this principle in the specific context of successor liability to protect a
New York resident plaintiff from a situation where it would suffer injury if prevented from
holding a successor corporation liable. See Fischer, 2007 WL 2815494, at *5-6 (New York has
strong interest in protecting its resident where successor corporation transferred all the operating
assets out of the predecessor corporation rendering itinsolvent); Sweatland v. Park Corp., 181
A.D.2d 243, 246 (4th Dep’t 1992) (tort creditors “need protection against attempts by ongoing
businesses to avoid liability through transfer of their operations to another legal entity.”).
Accordingly, because the contacts in this case overwhelmingly favor New York (MBIA Mem.
22-26; MBIA Oppn. 18-21), New York law applies.
II. THE AMOUNT BAC PAID IN CONNECTION WITH THE ASSET-STRIPPING
TRANSACTIONS IS NOT RELEVANT TO THE DOCTRINES OF DE FACTO
MERGER AND IMPLIED ASSUMPTION OF LIABILITIES
BAC’s fixation on the consideration paid in exchange for all of Countrywide’s operating
assets misses the equitable purpose of successor liability. The amount BAC paid does not negate a
finding of successor liability because: (i) it is legally irrelevant to the question of successor liability;
and it is also factually irrelevant because (ii) Countrywide’s remaining creditors were prejudiced by
the Asset-Stripping Transactions; (iii) the cursory process by which the Asset-Stripping Transactions
were approved was dominated by BAC, in that the transactions were not arms’-length nor was there
independent director review; and (iv) the $45 billion was exchanged among commonly controlled
companies within the BAC enterprise, and was used to a significant extent to pay or assume
liabilities to creditors favored by BAC (including BAC’s non-CFC subsidiaries).
First, the adequacy as an accounting matter of the consideration paid in a sale of assets is
6
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not relevant to the inquiry of whether a de facto merger or assumption of liabilities occurred
under New York law. See, e.g., In re Matter of N.Y.C. Asbestos Litig. (“Van Nocker”), 15 A.D.3d
254, 256-57 (1st Dep’t 2005) (identifying four “hallmarks” of a de facto merger that do not include
adequacy of consideration); Cargo Partner, 352 F.3d at 46 (same). BAC’s assertion that successor
liability cannot be shown where a purchaser pays “fair value” (BAC Oppn. 5-8), like its prior attempt
to impose a fraud requirement (BAC Mem. 18-20), conflates the de facto merger doctrine with
fraudulent conveyance law, which is a separate and distinct basis for imposing liability on a
purchaser of assets. Miller v. Forge Mench P’ship Ltd., 2005 WL 267551, at *12 (S.D.N.Y. 2005).
In a constructive fraudulent conveyance analysis, the fundamental issue is whether the seller
received adequate consideration for the assets transferred. In contrast, the de facto merger
doctrine is not concerned with how much the seller was paid for transferred assets, but rather,
whether the seller’s shareholders retain an ownership interest in the assets sold following a
transaction that involved the transfer of an ongoing business. Cargo Partner, 352 F.3d at 47 (the
“essence” of a de facto merger is that the purchaser and seller “become owners together of what
formerly belonged to each”); At Last Sportswear, Inc. v. Newport News, No. 602208/2009, 2010
WL 4053105, at *4 (Sup. Ct. N.Y. Cnty., Oct. 5, 2010) (“The fact that the seller’s owners retain their
interest in supposedly sold assets (through their ownership interest in the purchaser) is the
‘substance’ which makes the transaction inequitable;” finding not dispositive that a “transaction was
structured as an asset purchase for cash”) (internal citations omitted).
Similarly, the question of whether a purchaser expressly or impliedly assumes the
predecessor’s liabilities depends on whether the circumstances “indicate an intention on the part
of the buyer to pay the debts of the seller.” Ladjevardian v. Laidlaw-Coggeshall, Inc., 431 F.
Supp. 834, 839 (S.D.N.Y. 1977). The consideration paid does not conclude an analysis of “the
effect of the transfer upon creditors of the predecessor corporation,” id. at 839-40, because the
relevant question is whether such consideration remains available to creditors after the
transactions are completed—and here itdid not (see below and Point V infra). Therefore, the
amount BAC paid for Countrywide’s assets is simply irrelevant as a legal matter to whether
7
MBIA v. Countrywide Home Loans, et al. Index No. 602825/2008
Page 8 of 26
BAC is liable as Countrywide’s successor.
Second, even as a factual matter, the $45 billion figure says nothing about the effect of
the asset transfers on Countrywide’s remaining creditors or whether any of that consideration
remained available to pay contingent creditors like MBIA. In this case, Countrywide’s
contingent creditors were indisputably harmed. MBIA Oppn. 5-7, 41. Any amounts actually
paid to CFC and CHL were not available as a resource for satisfying Countrywide’s debts
generally, but instead were immediately paid out to BAC-preferred creditors or to capitalize
entities BAC intended to take over. SUF ¶¶ 256-265; CUF ¶¶ 78-99. The only assets left behind
at CFC and CHL were “toxic” and illiquid assets that were plainly insufficient to satisfy
expected contingent liabilities. SUF ¶¶ 47, 111-112, 126-127; CUF ¶¶ 113, 116-121. The Asset-
Stripping Transactions put Countrywide into “wind-down” mode and left CFC, CHL, and CSC
without viable business operations such that creditors cannot look to future business revenues to
satisfy claims. SUF ¶¶ 168-176, 246-255; CUF ¶¶ 114-121. Under these facts, any amounts
paid were not available “as a resource for satisfying the seller’s debts,” Cargo Partner, 352 F.3d
at 45, but rather were immediately distributed pursuant to BAC’s plan, for BAC’s benefit.
Third, that the amount collectively paid for Countrywide’s assets may have represented
fair value for accounting purposes does not mean the process by which the transactions were
planned and executed was fair. The manner in which the Asset-Stri
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FILED: NEW YORK COUNTY CLERK 11/28/2012 INDEX NO. 602825/2008 NYSCEF DOC. NO. 3645 RECEIVED NYSCEF: 11/28/2012 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK MBIA INSURANCE CORPORATION, Index No.: 08/602825 IAS Part: 3 (Bransten, J.) Plaintiff, PLAINTIFF’S REPLY -against- MEMORANDUM OF LAW IN FURTHER SUPPORT OF MOTION COUNTRYWIDE HOME LOANS, INC., FOR SUMMARY JUDGMENT ON COUNTRYWIDE SECURITIES CORP., SUCCESSOR LIABILITY BASED ON COUNTRYWIDE FINANCIAL CORP., DE FACTO MERGER AND COUNTRYWIDE HOME LOANS ASSUMPTION OF LIABILITIES SERVICING, L.P., and BANK OF AMERICA CORP. (Motion Sequence No. 61) Defendants. QUINN EMANUEL URQUHART & SULLIVAN, LLP Peter E. Calamari Philippe Z. Selendy Daniel P. Cunningham Jonathan B. Oblak Sanford I. Weisburst Manisha M. Sheth Renée B. Bea 51 Madison Avenue, 22nd Floor New York, New York 10010 Tel: 212-849-7000 Facsimile: 212-849-7100 November 27, 2012 Attorneys for Plaintiff MBIA Insurance Corporation MBIA v. Countrywide Home Loans, et al. Index No. 602825/2008 Page i of v TABLE OF CONTENTS Page PRELIMINARY STATEMENT .....................................................................................................1 ARGUMENT ...................................................................................................................................2 I. NEW YORK LAW APPLIES TO MBIA’S DE FACTO MERGER CLAIM ....................2 A. There Is No Conflict Between New York Law, On The One Hand, And North Carolina Or Delaware Law, On The Other Hand ..........................................3 B. New York’s Stronger Interests Mandate The Application Of New York Law ..........................................................................................................................5 II. THE AMOUNT BAC PAID IN CONNECTION WITH THE ASSET- STRIPPING TRANSACTIONS IS NOT RELEVANT TO THE DOCTRINES OF DE FACTO MERGER AND IMPLIED ASSUMPTION OF LIABILITIES ...............6 III. THE UNDISPUTED FACTS ESTABLISH ALL OF THE “HALLMARKS” OF A DE FACTO MERGER UNDER NEW YORK LAW....................................................10 A. There Is Continuity Of Ownership Over The Transferred Business Assets And Subsidiaries ....................................................................................................11 B. Countrywide Ceased Its Ordinary Business Operations ........................................12 C. BAC Continues Countrywide’s Business Operations Using Countrywide’s Former Assets, Employees, And Physical Locations ............................................15 D. BAC Assumed The Liabilities Necessary To Continue Countrywide’s Business Operations .................................................................... ..........................17 IV. AT BEST, BAC’S ERRONEOUS DELAWARE STANDARD RAISES DISPUTED ISSUES OF FACT THAT PRECLUDE SUMMARY JUDGMENT ...........18 V. BAC IS INDEPENDENTLY LIABLE AS COUNTRYWIDE’S SUCCESSOR BECAUSE BAC ASSUMED COUNTRYWIDE’S LIABILITIES ..................................21 A. Assumption Of Liabilities Does Not Require Reliance .........................................22 B. BAC’s Self Serving Disclaimers Cannot Extinguish MBIA’s Rights ...................23 VI. MBIA IS ENTITLED TO PURSUE THE FRAUD DOCTRINE AT TRIAL ..................24 CONCLUSION ..............................................................................................................................26 i MBIA v. Countrywide Home Loans, et al. Index No. 602825/2008 Page ii of v TABLE OF AUTHORITIES Page Cases Alcott v. Hyman, P.R.M., Inc., 208 A.2d 501 (Del. 1965) ........................................................................................................19 In Re Alleged PCB Pollution, 712 F. Supp. 1010 (D. Mass. 1989) .........................................................................................17 Arnold Graphics Indus., Inc. v. Indep. Agent Ctr., Inc., 775 F.2d 38 (2d Cir. 1985).......................................................................................................12 Asarco LLC v. Americas Mining Corp., 396 B.R. 278 (S.D. Tex. 2008) ............................................................................................8, 21 At Last Sportswear, Inc. v. Newport News, No. 602208/2009, 2010 WL 4053105 (Sup. Ct. N.Y. Cnty., Oct. 5, 2010) ..................7, 11, 23 AT & S Transp., LLC v. Odyssey Logistics & Tech. Corp., 22 A.D.3d 750 (2d Dep’t 2005) ...........................................................................................4, 11 Bradley v. Condon, 217 N.Y.S.2d 821 (Sup. Ct. Suffolk Cty. 1961) ......................................................................25 In re Broadstripe, LLC, 444 B.R. 51 (D. Del. 2010) ......................................................................................................19 Cargo Partner AG v. Albatrans Inc., 352 F.3d 41 (2d Cir. 2003).................................................................................................4, 7, 8 Certain Underwriters at Lloyd’s, London v. Foster Wheeler Corp., 36 A.D.3d 17 (1st Dep’t 2006) ..................................................................................................3 China Res. Prods. (U.S.A.) Ltd. v. Fayda Int’l Inc., 856 F. Supp. 856 (D. Del. 1994) ..............................................................................................21 Christie v. Delta Trading Corp., No. 601195/105, 2007 WL 2691976 (N.Y. Sup. Ct. 2007) .....................................................12 City of N.Y. v. Pfizer & Co., 260 A.D.2d 174 (1st Dep’t 1999) ............................................................................................11 Colon v. Multi-Pak Corp., 477 F. Supp. 2d 620 (S.D.N.Y. 2007)........................................................................................6 Cooney v. Osgood Mach., Inc., 81 N.Y.2d 66 (1993) ..................................................................................................................5 Cyr v. B. Offen & Co., Inc., 501 F.2d 1145 (1st Cir. 1974) ..................................................................................................23 ii MBIA v. Countrywide Home Loans, et al. Index No. 602825/2008 Page iii of v DaSilva v. C & E Ventures, Inc., 83 A.D.3d 551 (1st Dep’t 2011) ................................................................................................5 Drug, Inc. v. Hunt, 35 Del. 339 (1933) .....................................................................................................................5 Elmer v. Tenneco Resins, Inc., 698 F. Supp. 535 (D. Del. 1988) ................................................................................................4 Farmers Prod. Credit Ass’n of Middletown v. Taub, 504 N.Y.S.2d 448 (S.D.N.Y. July 19, 2010) ...........................................................................25 Fidanque v. Am. Marcaibo Co., 92 A.2d 311 (Del. Ch. 1952)............................................................................................4, 5, 18 Fin. One Pub. Co. Ltd. v. Lehman Bros. Special Fin., Inc., 414 F.3d 325 (2d Cir. 2005).......................................................................................................5 Fischer v. Prodigi, Inc., No. 603891/2006, 2007 WL 2815494 (Sup. Ct. N.Y. Cnty. July 23, 2007) .........................4, 6 Fitzgerald v. Fahnestock & Co., 286 A.D.2d 573 (1st Dep’t 2001) ..............................................................3, 4, 5, 10, 11, 12, 14 In re Fruehauf Trailer Corp., 444 F.3d 203 (3d Cir. 2006).....................................................................................................20 Grant-Howard Assocs. v. Gen. Housewares Corp., 63 N.Y.2d 291 (1984) ..............................................................................................................10 Hayden Capital USA, LLC v. Northstar Agri Industries, LLC, No. 11 Civ. 594, 2012 WL 1449257 (S.D.N.Y. April 23, 2012) ...........................................5, 6 Haywin Textile Prod., Inc. v. Int’l Fin. Inv., No. 00 Civ. 8633, 2001 WL 984721 (S.D.N.Y. Aug. 24, 2001) .......................................23, 24 Kidz Cloz, Inc. v. Officially for Kids, Inc., No. 00 CIV 6270, 2002 WL 1586877 (S.D.N.Y. July 17, 2002) ............................................23 K.T. v. Dash, 37 A.D.3d 107 (1st Dep’t 2006) ............................................................................................3, 5 Ladjevardian v. Laidlaw-Coggeshall, Inc., 431 F. Supp. 834 (S.D.N.Y. 1977).......................................................................................8, 22 Lattimore & Assocs., LLC v. Steaksauce, Inc., No. 10 CVS 14744, 2012 WL 1925729 (N.C. Sup. Ct. May 25, 2012) ........................................3 Lippe v. Bairnco Corp., 249 F. Supp. 2d 357 (S.D.N.Y. 2003)......................................................................................21 Magnolia’s at Bethany, LLC v. Artesian Consulting Eng’rs, No. S11 C-04-013, 2011 WL 4826106 (Del. Super. Ct. Sept. 19, 2011) ........................4, 5, 18 iii MBIA v. Countrywide Home Loans, et al. Index No. 602825/2008 Page iv of v In re Matter of N.Y.C. Asbestos Litig. (“Van Nocker”), 15 A.D.3d 254 (1st Dep’t 2005) ....................................................................................7, 11, 12 McDarren v. Marvel Entm’t Grp., Inc., 1995 WL 214482 (S.D.N.Y. 1995) ..........................................................................................18 Metzger v. Dell Pub. Co., 136 N.Y.S.2d 888 (Sup. Ct. 1955) ...........................................................................................25 Miller v. Forge Mench P’ship Ltd., 2005 WL 267551 (S.D.N.Y. 2005) ................................................................................7, 15, 17 Moriarty v. LSC Ill.s Corp., No. 98c 1997, 1999 WL 1270711 (N.D.Ill. 1999) ...................................................................23 N. Am. Catholic Ed. Programming Found. v. Gheewalla, 930 A.2d 92 (Sup. Ct. Del. 2007) ............................................................................................19 Nettis v. Levitt, 241 F.3d 186 (2d Cir. 2001)...............................................................................................11, 15 New York v. Westwood-Squibb Pharm. Co., 62 F. Supp. 2d 1035 (W.D.N.Y. 1999) ....................................................................................12 Peltz v. Hatten, 279 B.R. 710 (D. Del. 2002) ....................................................................................................20 Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Secs., LLC, 446 F. Supp. 2d 163 (S.D.N.Y. 2006)........................................................................................6 Pryor Cashman Sherman & Flynn, LLP v. Tractmanager, Inc., No. 603515/05, 2007 N.Y. (U) (Sup. Ct. N.Y. Cnty. May 18, 2007)........................................6 Ripley v. Int’l Rys. of Cent. Am., 8 A.D.2d at 310 (1st Dep’t 1959), aff’d, 8 N.Y.2d 430 (1960) ..............................................24 Schumacher v. Richards Shear Co., 59 N.Y.2d 239 (1983) ................................................................................................................4 Silverman Partners LP v. Verox Grp., No. 08 CIV 3103 (HB), 2010 WL 2899438 (S.D.N.Y. July 19, 2010) ...................................25 SNS Bank, N.V. v. Citibank, N.A., 7 A.D.3d 352 (1st Dep’t 2004) ..................................................................................................3 Sweatland v. Park Corp., 181 A.D.2d 243 (4th Dep’t 1992) ........................................................................................6, 11 Time Warne Cable Inc. v. Networks Group, LLC, No. 09 Civ. 10059, 2010 WL 3563111 (S.D.N.Y. Sept. 9, 2010) ...........................................15 Trustees of Hamilton Coll. v. Cunningham, 418 N.Y.S.2d 251 (1979) ...................................................................................................21, 25 iv MBIA v. Countrywide Home Loans, et al. Index No. 602825/2008 Page v of v Wensing v. Paris Indus.-New York, 158 A.D.2d 164 (3d Dep’t 1990) .............................................................................................23 Xperex Corp. v. Viasystems Tech. Corp., LLC., No. 20582-NC, 2004 WL 3053649 (Del. Ch. July 22, 2004) ................................................4, 5 Statutes 6 Del. C. § 1304(b) ........................................................................................................................21 Debtor and Creditor Law § 276 .....................................................................................................25 Del. Gen. Corp. L. § 271(a) ...........................................................................................................19 N.Y. Bus. Corp. L. § 717 ...............................................................................................................19 v MBIA v. Countrywide Home Loans, et al. Index No. 602825/2008 Page 1 of 26 Plaintiff MBIA Insurance Corporation (“MBIA” or “Plaintiff”) respectfully submits this reply in further support of MBIA’s motion pursuant to CPLR 3212(e) for summary judgment that Defendant Bank of America Corporation (“BAC”) is liable as a successor for the liabilities of Countrywide Financial Corporation (“CFC”), Countrywide Home Loans (“CHL”), Countrywide Securities Corporation (“CSC”), and Countrywide Home Loans Servicing, LP (“CHLS”) (collectively, the “Countrywide Defendants”). PRELIMINARY STATEMENT1 The transactions at issue here are the very paradigm of a de facto merger. But for BAC, “[t]o see what is in front of one’s nose needs a constant struggle.”2 BAC focuses only on the (supposed) $45 billion sticker price paid by BAC for all of Countrywide’s operating assets, to the exclusion of any other facts. For BAC, ignorance of those facts “is strength.”3 Well-settled doctrines of successor liability, however, take a more holistic view of transactions. As relevant here, the de facto merger doctrine looks past the mere accounting treatment of transactions and asks whether the transactions in issue are in substance, even if not in form, a merger. And the implied assumption of liabilities doctrine examines the asset purchaser’s intent vis-à-vis the asset seller’s liabilities and whether any consideration paid to the seller remained available to satisfy the seller’s creditors. Viewing the $45 billion sticker price in the broader context of the facts makes clear that, regardless of how the Asset-Stripping Transactions were treated as a technical accounting matter at a snapshot moment in time, the practical implications of the transaction were that all of Countrywide’s operating assets were transferred to BAC and its non-CFC subsidiaries, and the consideration received by Countrywide did not remain available to pay creditors other than those that BAC favored, leaving remaining Countrywide creditors facing wind-down shell entities. 1 “SUF ¶ __” refers to MBIA’s Rule 19-a Statement of Undisputed Facts; “Oblak Ex.” to the Exhibits to the Affirmations of Jonathan B. Oblak, filed on September 28, 2012 and concurrently herewith; “CUF ¶ __” to MBIA’s Rule 19-a Responses and Counterstatement of Facts; “Bea Ex.” to the Exhibits to the Affirmation of Renee B. Bea, filed on November 7, 2012; and “Rosenberg Ex.” to the Exhibits to the Affirmations of Jonathan Rosenberg, filed on September 28, 2012 and November 7, 2012. 2 George Orwell, In Front of Your Nose (1945). 3 BAC Mem. 49 (citing George Orwell, Nineteen Eighty-Four 6 (1949)). 1 MBIA v. Countrywide Home Loans, et al. Index No. 602825/2008 Page 2 of 26 BAC also errs in arguing that a single fact—BAC’s state of incorporation—dictates the law that applies to MBIA’s de facto merger claim. But that fact is not dispositive, and indeed it is peripheral to the choice-of-law inquiry. Numerous other factors, such as where the underlying fraud occurred and where a key perpetrator of fraud and asset seller (CHL) was incorporated, point overwhelmingly to New York law to govern the claim. Even if Delaware law applied, BAC misunderstands its content and relies on an outlier decision by a California judge. MBIA begins by reiterating why New York law applies to MBIA’s de facto merger claim, and why BAC’s effort to have Delaware law applied is erroneous. See Point I, infra. MBIA then explains that BAC’s single-minded focus on the technical accounting value paid to Countrywide during the Asset-Stripping Transactions is legally and factually irrelevant to the de facto merger and the implied assumption of liabilities doctrines. See Point II, infra. MBIA next explains that the undisputed facts satisfy New York law on de facto merger and warrant summary judgment in MBIA’s favor, see Point III, infra, and that, even under BAC’s misguided view of Delaware law, factual disputes preclude granting summary judgment in BAC’s favor, see Point IV, infra. MBIA continues by showing that the separate doctrine of implied assumption of liabilities (as to which BAC concedes New York law applies) is satisfied on the undisputed facts here. See Point V, infra. Finally, MBIA explains that, while it has not pursued the fraud theory of successor liability at the summary-judgment stage given disputes of fact on its elements, MBIA is entitled to pursue that theory at trial if necessary. See Point VI, infra. ARGUMENT I. NEW YORK LAW APPLIES TO MBIA’S DE FACTO MERGER CLAIM In this case, New York law clearly controls because: (i) North Carolina law, which (unlike Delaware) is the leading alternative to New York law, does not conflict with New York law; (ii) even if Delaware law were the alternative, there is no conflict between New York and Delaware law; and (iii) even if there were a conflict between New York and Delaware law, New York applies an interest analysis that overwhelmingly favors the application of New York law in this case. 2 MBIA v. Countrywide Home Loans, et al. Index No. 602825/2008 Page 3 of 26 BAC argues (BAC Oppn. 11-12, 15-16), contrary to New York’s choice-of-law principles, that any analysis should begin and end with BAC’s state of incorporation (apparently because BAC believes it will fare better if this Court adopts the erroneous interpretation of Delaware law promulgated by a lone California judge). New York rejects such a rigid approach, and instead follows a more flexible one that looks at all the relevant interests—an approach particularly appropriate here because de facto merger is an equitable doctrine. A. There Is No Conflict Between New York Law, On The One Hand, And North Carolina Or Delaware Law, On The Other Hand In New York, the “first step in choice of law analysis is determining whether an actual conflict exists between the jurisdictions involved.” K.T. v. Dash, 37 A.D.3d 107, 111 (1st Dep’t 2006). If no conflict exists, “then the law of the forum state where the action is being tried should apply.” SNS Bank, N.V. v. Citibank, N.A., 7 A.D.3d 352, 354 (1st Dep’t 2004). BAC argues that there is a conflict between New York and Delaware law only as to the de facto merger doctrine. BAC Oppn. 8-18; BAC Mem. 43 n.135 (conceding absence of conflict between New York and Delaware on the implied assumption of liabilities doctrine). North Carolina law is the more appropriate alternative (than Delaware law) to New York law because North Carolina is BAC’s principal place of business and Delaware is merely its place of incorporation. See MBIA Oppn. 12-13; Certain Underwriters at Lloyd’s, London v. Foster Wheeler Corp., 36 A.D.3d 17, 25 (1st Dep’t 2006) (“the [law of the] state of the principal place of business takes precedence over state of incorporation”). There is no conflict between New York and North Carolina law, and consequently, New York law applies. Compare Fitzgerald v. Fahnestock & Co., 286 A.D.2d 573, 575 (1st Dep’t 2001), with Lattimore & Assocs., LLC v. Steaksauce, Inc., No. 10 CVS 14744, 2012 WL 1925729, at *11 (N.C. Sup. Ct. May 25, 2012). Even if Delaware (rather than North Carolina) law were the appropriate alternative to New York, New York law still would govern because there is no conflict between New York and Delaware law. See MBIA Mem. 18-20; MBIA Oppn. 14-15. First, New York and Delaware law both recognize successor liability and recognize the de facto merger doctrine as one branch of such liability. See Fischer v. Prodigi, Inc., No. 3 MBIA v. Countrywide Home Loans, et al. Index No. 602825/2008 Page 4 of 26 603891/2006, 2007 WL 2815494 (Sup. Ct. N.Y. Cnty. July 23, 2007) (applying New York law because “[t]he laws of Delaware and New York are substantially the same on the issue of successor liability”) (citations omitted); Cargo Partner AG v. Albatrans Inc., 352 F.3d 41, 45 (2d Cir. 2003) (citing Schumacher v. Richards Shear Co., 59 N.Y.2d 239, 245 (1983)) (recognizing de facto merger exception); Fitzgerald, 286 A.D.2d at 574 (same); accord Elmer v. Tenneco Resins, Inc., 698 F. Supp. 535, 540 (D. Del. 1988) (same); Magnolia’s at Bethany, LLC v. Artesian Consulting Eng’rs, No. S11 C-04-013, 2011 WL 4826106, at *3 (Del. Super. Ct. Sept. 19, 2011) (same). Second, New York and Delaware law are also the same concerning the fundamental elements of the de facto merger doctrine, namely that the doctrine applies where the transactions at issue are in substance, even if not in form, a merger. Compare, e.g., AT & S Transp., LLC v. Odyssey Logistics & Tech. Corp., 22 A.D.3d 750, 752 (2d Dep’t 2005) (the de facto merger “factors are analyzed in a flexible manner that disregards mere questions of form and asks whether, in substance, it was the intent of the successor to absorb and continue the operation of the predecessor”); with Fidanque v. Am. Marcaibo Co., 92 A.2d 311, 315-16 (Del. Ch. 1952) (“Whether a particular transaction is in reality a merger or otherwise depends to a great extent on the circumstances surrounding each particular case and in determining the question all the elements of the transaction must be considered.”); Xperex Corp. v. Viasystems Tech. Corp., LLC, No. 20582-NC, 2004 WL 3053649, at *2 (Del. Ch. July 22, 2004) (“[T]his Court is one of equity and will not allow sham transactions to achieve mischief.”). Both jurisdictions also agree that any analysis of whether a de facto merger occurred requires application of a flexible standard that looks at the particular facts and circumstances of each case. Id. To be sure, New York law is relatively more developed than Delaware law concerning the de facto merger doctrine insofar as New York courts have articulated a non-exclusive set of “hallmarks” to aid in analyzing whether a de facto merger has occurred.4 Compare, Fitzgerald, 4 The law on de facto merger in the creditor context is much less developed in Delaware as compared to New York. MBIA Oppn. 15-16. A review of the scant authority in Delaware shows that the factors considered by Delaware courts vary depending on the facts and circumstances of each case. See, e.g., Xperex Corp. v. Viasystems Tech. Corp., LLC., No. 20582-NC, 2004 WL 3053649, at *2 (Del. Ch. July 22, 2004) (noting that “Drug, Inc. v. Hunt [35 Del. 339 (1933)]… did not set forth the only circumstances in which a Delaware corporation will be considered the successor of another corporate entity.”); Magnolia’s at Bethany, LLC v. Artesian Consulting Eng’rs, No. S11 C-04-013-ESB, 2011 4 MBIA v. Countrywide Home Loans, et al. Index No. 602825/2008 Page 5 of 26 286 A.D.2d at 574; with, Fidanque, 92 A.2d at 316. But New York’s greater development of the law does not create an actual conflict, especially because New York and Delaware law are in accord on the more general doctrinal issues that both have addressed. K.T., 37 A.D.3d at 112 (applying forum state law where application “would not threaten the policy underlying” foreign jurisdiction’s law). Moreover, when the Delaware cases that considered the de facto merger doctrine in the context of shareholder appraisal rights are properly put to one side, any differences between Delaware and New York law do not present a genuine conflict because those differences would not have a significant possible effect on the outcome. Fin. One Pub. Co. Ltd. v. Lehman Bros. Special Fin., Inc., 414 F.3d 325, 331 (2d Cir. 2005). B. New York’s Stronger Interests Mandate The Application Of New York Law Even if this Court determined that there were a conflict between New York and Delaware law as to the de facto merger doctrine, New York law rejects the rigid approach BAC would have this Court take to analyzing which state’s law applies. BAC asks (BAC Oppn. 11-14) that this Court look no further than BAC’s state of incorporation. Where a genuine conflict exists, however, New York’s choice-of-law framework applies an “interest analysis” to give “effect to the law of the jurisdiction which, because of its relationship or contact with the occurrence or the parties, has the greatest concern with the specific issues in the litigation.” Cooney v. Osgood Mach., Inc., 81 N.Y.2d 66, 72 (1993); see also DaSilva v. C & E Ventures, Inc., 83 A.D.3d 551, 553 (1st Dep’t 2011) (“the law of the situs of the injury applies”).5 New York’s interest analysis is a flexible approach that takes into account all relevant contacts including the location of the tort and injury (here, New York), the plaintiff’s domicile (New York), and the underlying claims at issue (New York). Id.; MBIA Mem. 22-26; MBIA Oppn. 18-21. WL 4826106, at *3 (Del. Super. Ct. Sept. 19, 2011) (rejecting the notion that fraud is required to show de facto merger, and identifying three factors to create a de facto merger: (1) the transfer of all of the seller’s assets; (2) payment in stock to the seller’s shareholders; and, (3) the predecessor’s agreement to assume the debts and liabilities of the seller.). At best, Maine (the erroneous decision by a California judge upon which BAC relies) represents “other” factors that might be considered under Delaware law in connection with analysis of a de facto merger claim. See Hayden Capital USA, LLC v.Northstar Agri Industries,LLC, No. 11 Civ. 594, 2012 WL 1449257, at *4 (S.D.N.Y. April 23, 2012). However, as MBIA previously explained (MBIA Oppn. 16-18), those additional factors are not applicable in the context of creditor claims like those at issue here. 5 Hayden’s application of the law of the state of incorporation is distinguishable because in that case contacts with New York were otherwise “non-existent” and the parties did not raise the principal place of business as an alternative jurisdiction for choice of law purposes. See Hayden Capital, 2012 WL 1449257, at *7. 5 MBIA v. Countrywide Home Loans, et al. Index No. 602825/2008 Page 6 of 26 New York law is favored where, as here, the torts and injury alleged occurred in New York. See Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Secs., LLC, 446 F. Supp. 2d 163, 192 (S.D.N.Y. 2006); Colon v. Multi-Pak Corp., 477 F. Supp. 2d 620, 625-626 (S.D.N.Y. 2007); Pryor Cashman Sherman & Flynn, LLP v. Tractmanager, Inc., No. 603515/05, 2007 N.Y. Slip Op. 31332(U), at *10 (Sup. Ct. N.Y. Cnty. May 18, 2007) (“A corporation suffers its injury where its principal place of business is located because that is where its damages are felt.”). Indeed, courts have applied this principle in the specific context of successor liability to protect a New York resident plaintiff from a situation where it would suffer injury if prevented from holding a successor corporation liable. See Fischer, 2007 WL 2815494, at *5-6 (New York has strong interest in protecting its resident where successor corporation transferred all the operating assets out of the predecessor corporation rendering itinsolvent); Sweatland v. Park Corp., 181 A.D.2d 243, 246 (4th Dep’t 1992) (tort creditors “need protection against attempts by ongoing businesses to avoid liability through transfer of their operations to another legal entity.”). Accordingly, because the contacts in this case overwhelmingly favor New York (MBIA Mem. 22-26; MBIA Oppn. 18-21), New York law applies. II. THE AMOUNT BAC PAID IN CONNECTION WITH THE ASSET-STRIPPING TRANSACTIONS IS NOT RELEVANT TO THE DOCTRINES OF DE FACTO MERGER AND IMPLIED ASSUMPTION OF LIABILITIES BAC’s fixation on the consideration paid in exchange for all of Countrywide’s operating assets misses the equitable purpose of successor liability. The amount BAC paid does not negate a finding of successor liability because: (i) it is legally irrelevant to the question of successor liability; and it is also factually irrelevant because (ii) Countrywide’s remaining creditors were prejudiced by the Asset-Stripping Transactions; (iii) the cursory process by which the Asset-Stripping Transactions were approved was dominated by BAC, in that the transactions were not arms’-length nor was there independent director review; and (iv) the $45 billion was exchanged among commonly controlled companies within the BAC enterprise, and was used to a significant extent to pay or assume liabilities to creditors favored by BAC (including BAC’s non-CFC subsidiaries). First, the adequacy as an accounting matter of the consideration paid in a sale of assets is 6 MBIA v. Countrywide Home Loans, et al. Index No. 602825/2008 Page 7 of 26 not relevant to the inquiry of whether a de facto merger or assumption of liabilities occurred under New York law. See, e.g., In re Matter of N.Y.C. Asbestos Litig. (“Van Nocker”), 15 A.D.3d 254, 256-57 (1st Dep’t 2005) (identifying four “hallmarks” of a de facto merger that do not include adequacy of consideration); Cargo Partner, 352 F.3d at 46 (same). BAC’s assertion that successor liability cannot be shown where a purchaser pays “fair value” (BAC Oppn. 5-8), like its prior attempt to impose a fraud requirement (BAC Mem. 18-20), conflates the de facto merger doctrine with fraudulent conveyance law, which is a separate and distinct basis for imposing liability on a purchaser of assets. Miller v. Forge Mench P’ship Ltd., 2005 WL 267551, at *12 (S.D.N.Y. 2005). In a constructive fraudulent conveyance analysis, the fundamental issue is whether the seller received adequate consideration for the assets transferred. In contrast, the de facto merger doctrine is not concerned with how much the seller was paid for transferred assets, but rather, whether the seller’s shareholders retain an ownership interest in the assets sold following a transaction that involved the transfer of an ongoing business. Cargo Partner, 352 F.3d at 47 (the “essence” of a de facto merger is that the purchaser and seller “become owners together of what formerly belonged to each”); At Last Sportswear, Inc. v. Newport News, No. 602208/2009, 2010 WL 4053105, at *4 (Sup. Ct. N.Y. Cnty., Oct. 5, 2010) (“The fact that the seller’s owners retain their interest in supposedly sold assets (through their ownership interest in the purchaser) is the ‘substance’ which makes the transaction inequitable;” finding not dispositive that a “transaction was structured as an asset purchase for cash”) (internal citations omitted). Similarly, the question of whether a purchaser expressly or impliedly assumes the predecessor’s liabilities depends on whether the circumstances “indicate an intention on the part of the buyer to pay the debts of the seller.” Ladjevardian v. Laidlaw-Coggeshall, Inc., 431 F. Supp. 834, 839 (S.D.N.Y. 1977). The consideration paid does not conclude an analysis of “the effect of the transfer upon creditors of the predecessor corporation,” id. at 839-40, because the relevant question is whether such consideration remains available to creditors after the transactions are completed—and here itdid not (see below and Point V infra). Therefore, the amount BAC paid for Countrywide’s assets is simply irrelevant as a legal matter to whether 7 MBIA v. Countrywide Home Loans, et al. Index No. 602825/2008 Page 8 of 26 BAC is liable as Countrywide’s successor. Second, even as a factual matter, the $45 billion figure says nothing about the effect of the asset transfers on Countrywide’s remaining creditors or whether any of that consideration remained available to pay contingent creditors like MBIA. In this case, Countrywide’s contingent creditors were indisputably harmed. MBIA Oppn. 5-7, 41. Any amounts actually paid to CFC and CHL were not available as a resource for satisfying Countrywide’s debts generally, but instead were immediately paid out to BAC-preferred creditors or to capitalize entities BAC intended to take over. SUF ¶¶ 256-265; CUF ¶¶ 78-99. The only assets left behind at CFC and CHL were “toxic” and illiquid assets that were plainly insufficient to satisfy expected contingent liabilities. SUF ¶¶ 47, 111-112, 126-127; CUF ¶¶ 113, 116-121. The Asset- Stripping Transactions put Countrywide into “wind-down” mode and left CFC, CHL, and CSC without viable business operations such that creditors cannot look to future business revenues to satisfy claims. SUF ¶¶ 168-176, 246-255; CUF ¶¶ 114-121. Under these facts, any amounts paid were not available “as a resource for satisfying the seller’s debts,” Cargo Partner, 352 F.3d at 45, but rather were immediately distributed pursuant to BAC’s plan, for BAC’s benefit. Third, that the amount collectively paid for Countrywide’s assets may have represented fair value for accounting purposes does not mean the process by which the transactions were planned and executed was fair. The manner in which the Asset-Stri