BAC, nor NB Holdings is a successor to Countrywide Financial Corp or CW Home Loans Inc.

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BAC AND NB’S MEMO ISO MTD 2:10-CV-07275 MRP (MANx)

SETH ARONSON (S.B. #100153) [email protected] MATTHEW W. CLOSE (S.B. #188570) [email protected] O’MELVENY & MYERS LLP 400 South Hope Street Los Angeles, CA 90071-2899 Telephone: (213) 430-6000 Facsimile: (213) 430-6407

JONATHAN ROSENBERG (admitted pro hac vice) [email protected] WILLIAM J. SUSHON (admitted pro hac vice) [email protected] O’MELVENY & MYERS LLP 7 Times Square New York, NY 10036 Telephone: (212) 326-2000 Facsimile: (212) 326-2061

Attorneys for Defendants Bank of America Corporation and NB Holdings Corporation

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

STICHTING PENSIOENFONDS ABP,

Plaintiff,

v.

COUNTRYWIDE FINANCIAL CORPORATION, et al.,

Defendants.

Case No. 2:10-CV-07275 MRP (MANx)

BANK OF AMERICA CORPORATION AND NB HOLDINGS CORPORATION’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF THEIR MOTION TO DISMISS THE FIRST AMENDED COMPLAINT

Hearing Date: June 27, 2011 Time: 11:00 a.m. Judge: Hon. Mariana R. Pfaelzer Courtroom: 12

Case 2:10-cv-07275-MRP -MAN Document 91-1 Filed 03/25/11 Page 1 of 21 Page ID #:2353

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TABLE OF CONTENTS

Page

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I. INTRODUCTION........................................................................................... 1

II. STATEMENT OF FACTS.............................................................................. 3

III. ARGUMENT .................................................................................................. 5

A. The Successor Liability Claim Against BAC Should Be Dismissed Because ABP Has Not Alleged Facts Sufficient to Establish a De Facto Merger ................................................................ 5

1. Delaware Law Applies to Any Effort to Disregard CFC’s Corporate Form........................................................................... 5

2. The “De Facto” Merger Doctrine Does Not Apply ................... 8

a. The FAC Fails to Allege a De Facto Merger................... 8

b. The New York MBIA Case Should Not Be Followed.........................................................................12

B. The FAC’s Allegations Against NB Are Deficient ............................14

IV. CONCLUSION .............................................................................................15


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TABLE OF AUTHORITIES

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CASES

Argent Classic Convertible Arbitrage Fund L.P. v. Countrywide Financial Corp., No. CV 07-07097 MRP (MANx) (C.D. Cal.) .............................................passim

Ashcroft v. Iqbal, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009) ........................................................14

Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007) .................................15

Binder v. Bristol-Myers Squibb, Co., 184 F. Supp. 2d 762 (N.D. Ill. 2001)..........................................................8, 9, 13

Booking v. General Star Management Co., 254 F.3d 414 (2d Cir. 2001) ...............................................................................12

Bryant, Griffith & Brunson, Inc. v. General Newspapers, Inc., 178 A. 645 (Del. Super. 1935) ...........................................................................14

Case Financial, Inc. v. Alden, No. Civ. A. 1184-VCP, 2009 WL 2581873 (Del. Ch. Aug. 21, 2009) ....................................................................................................10

Chan v. Society Expeditions, Inc., 123 F.3d 1287 (9th Cir. 1997) .............................................................................. 6

Coleman v. Corning Glass Works, 619 F. Supp. 950 (W.D.N.Y. 1985) ...................................................................11

In re Countrywide Corp. Shareholders Litigation, Consolidated C.A. No. 3464-VCN, 2009 WL 846019 (Del. Ch. Mar. 31, 2009) ....................................................................................................13

Fletcher v. Atex, Inc., 68 F.3d 1451 (2d Cir. 1995) ...............................................................................11

Fountain v. Colonial Chevrolet Co., C.A. Nos. 86C-JA-117, 85C-DE-88, 1988 WL 40019 (Del. Super. Apr. 13, 1988)...............................................................................................10, 11


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TABLE OF AUTHORITIES (continued)

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Huynh v. Chase Manhattan Bank, 465 F.3d 992 (9th Cir. 2006) ................................................................................ 6

Kalb, Voorhis & Co. v. American Financial Corp., 8 F.3d 130 (2d Cir. 1993) ...................................................................................12

Kamen v. Kemper Financial Services, Inc., 500 U.S. 90, 111 S. Ct. 1711, 114 L. Ed. 2d 152 (1991) ..................................... 6

LaSalle National Bank v. Vitro S.A., 85 F. Supp. 2d 857 (N.D. Ill. 2000)....................................................................12

Lewis v. Ward, 852 A.2d 896 (Del. 2004)...................................................................................13

In re Lindsay, 59 F.3d 942 (9th Cir. 1995) .................................................................................. 5

Maine State Retirement System v. Countrywide Financial Corp., Case No. 10-cv-00302-MRP-MANx (C.D. Cal. Nov. 4, 2010)........................... 3

MBIA Insurance Corp. v. Countrywide Home Loans, Inc., Index No. 602825/08 (Sup. Ct., N.Y. Co. Apr. 27, 2010) .....................12, 13, 14

In re McKesson HBOC, Inc. Securities Litigation, 126 F. Supp. 2d 1248 (N.D. Cal. 2000)..................................................6, 8, 9, 13

Powerup of Southeast Louisiana, Inc. v. Powerup U.S.A., Inc., No. 94-1441, 1994 WL 543631 (E.D. La. Oct. 5, 1994) ..................................... 7

In re Syntex Corp. Securities Litigation, 95 F.3d 922, 926 (9th Cir. 1996) .......................................................................... 3

United States v. Bestfoods, 524 U.S. 51, 118 S. Ct. 1876, 141 L. Ed. 2d. 43 (1998) ...................................... 5

United States v. Kimbell Foods, Inc., 440 U.S. 715, 99 S. Ct. 1448, 59 L. Ed. 2d 711 (1979) ....................................... 6


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TABLE OF AUTHORITIES (continued)

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U.S. Fidelity & Guaranty Co. v. Petroleo Brasileiro S.A.-Petrobras, No. 98 Civ. 3099 (THK), 2005 WL 289575 (S.D.N.Y. Feb. 4, 2005).......................................................................................................13

STATUTES

15 U.S.C. § 78aa ........................................................................................................ 5

REGULATIONS

17 C.F.R. § 210.3A-02.............................................................................................10

OTHER AUTHORITIES

ACCOUNTING STANDARDS CODIFICATION, Topic 810 Consolidation, 810-10-15-10 ( Fin. Accounting Standards Bd. 2009).......................................10

RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 302 (1971) .............................6, 7

RODMAN WARD, JR., ET AL., FOLK ON DELAWARE GENERAL

CORPORATION LAW § 251.4 (4th ed. 2001) .......................................................... 8

15 WILLIAM MEADE FLETCHER ET AL., FLETCHER CYCLOPEDIA OF THE

LAW OF PRIVATE CORPORATIONS § 7124 (perm. ed., rev. vol. 1990) ................11


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Defendants Bank of America Corporation (“BAC”) and NB Holdings

Corporation (“NB”) have joined in the Countrywide Defendants’ motion to dismiss

the First Amended Complaint (“FAC”).1 BAC and NB write separately here to

address Plaintiff’s attempt to hold them liable as successors to Countrywide

Financial Corporation (“CFC”) and Countrywide Home Loans, Inc. (“CHL”),

respectively.

I. INTRODUCTION

The complaint in this case includes another flawed attempt to hold BAC

responsible for its Countrywide subsidiary’s liabilities, solely because BAC

acquired that subsidiary in a forward-triangular merger, well-recognized as

legitimate under Delaware law, thereafter engaged in transactions with that

subsidiary in exchange for valuable consideration, and conducted standard

integration activities. But this complaint, like another against BAC that this Court

dismissed, Argent Classic Convertible Arbitrage Fund L.P. v. Countrywide

Financial Corp., No. CV 07-07097 MRP (MANx) (C.D. Cal.), fails to allege the

elements of a de facto merger necessary to overcome the bedrock rule that a parent

corporation is not liable for its subsidiary’s conduct.2 In Argent, as here, the

plaintiff argued that BAC was liable as successor for CFC’s alleged pre-acquisition

securities-law violations. The FAC here relies on the same theory and many of the

same allegations that this Court rejected in Argent—namely, that BAC de facto

merged with CFC because, among other things, (i) BAC acquired CFC through a

merger with a BAC subsidiary; (ii) that subsidiary transferred CFC assets to BAC;

1 Concurrent with filing this motion, BAC and NB filed a separate Joinder in the Countrywide Defendants’ Motion to Dismiss the First Amended Complaint, which was filed March 25, 2011. Exhibit references are to the Exhibits to the March 25, 2011 Declaration of Matthew W. Close in Support of Defendants’ Request for Judicial Notice in Support of Their Motion to Dismiss the First Amended Complaint and are cited as “Ex. __.” 2 See Omnibus Order, Argent Classic Convertible Arbitrage Fund, L.P., Case No. CV 07-07097 MRP (MANx) (C.D. Cal. Mar. 19, 2009) (“Argent, slip op.”) (Ex. 1).


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and (iii) BAC implicitly assumed all of CFC’s liabilities by allegedly expressly

agreeing to undertake certain specific CFC liabilities.3

This Court dismissed Argent’s claim against BAC with prejudice under the

longstanding rule that “a parent does not assume an acquired subsidiary’s pre-

acquisition liabilities.”4 Even assuming the “broadest possible set of exceptions” to

this longstanding rule, the Court held that the complaint failed to state a claim

against BAC because:

the complaint did not allege that BAC and CFC had “acted in bad faith to prejudice Countrywide’s creditors”;

BAC did not expressly or implicitly assume liability for CFC’s alleged pre-acquisition securities-law violations; and

there was no “suggest[ion] that [BAC] has de facto merged with Countrywide.”

The FAC suffers from the same defects and should likewise be dismissed.

ABP has attempted to obfuscate the facts by omitting its previous allegation

regarding the mechanics of CFC’s forward-triangular merger with a wholly-owned

subsidiary of BAC. (See Complaint (“Compl.”) ¶ 23 (“[O]n July 1, 2008,

Defendant CFC completed a merger with Red Oak Corporation . . . , a wholly-

owned subsidiary of Bank of America.”).) But this Court can and should take

judicial notice of the January 11, 2008 merger agreement, which makes this fact

plain. Argent, slip op. at 1 n.1 (Ex. 1 at 3). Thus, this Court’s ruling in Argent and

the rule “deeply ingrained” in American jurisprudence still control, and the

acquiring BAC subsidiary (Red Oak Merger Corporation (“Red Oak”), which was

subsequently renamed Countrywide Financial Corporation) still maintains its

independent corporate existence and remains solely responsible for CFC’s alleged

pre-acquisition actions. As in Argent, ABP’s bid to impose liability on BAC fails

3 (Compare FAC ¶¶ 223–36 with Argent, slip op. at 7–9.) 4 Argent, slip op. at 7 (Ex. 1 at 9).


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because the FAC does not allege facts sufficient to invoke the de facto merger

exception to this well-established rule.

The FAC should also be dismissed as to NB because it contains only a single

conclusory allegation that NB is a successor to Countrywide Home Loans, Inc.

(“CHL”). The FAC merely alleges that NB purchased certain CHL assets and that

NB was created to facilitate BAC’s acquisition of CFC. But this is not sufficient to

establish that NB de facto merged with CHL, or any other entity. Accordingly, the

FAC should also be dismissed as to NB.

II. STATEMENT OF FACTS5

The FAC alleges that BAC acquired CFC in a merger that closed on July 1,

2008 (FAC ¶ 223), but omits how that transaction came to pass. That transaction

occurred under a January 11, 2008 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. After the July 1, 2008 closing, Red Oak was

renamed Countrywide Financial Corporation, as the merger agreement required.

(Countrywide Fin. Corp., Quarterly Report (Form 10-Q) at 5 (Aug. 11, 2008)

(“Countrywide 10-Q”) (Ex. 2 at 26); BAC, Registration Statement (Form S-4) at 59

5 To avoid repetition, BAC incorporates by reference the facts in the Factual Background section of the Countrywide Defendants’ Memorandum of Points and Authorities in Support of Motion to Dismiss the First Amended Complaint, which was filed March 25, 2011. BAC’s supplemental facts are drawn from (i) the FAC, and (ii) BAC’s and Countrywide’s SEC filings, including the Merger Agreement, which was attached as Appendix A to BAC’s May 28, 2008 Form S-4 Registration Statement (Ex. 4). “When deciding a motion to dismiss, a court may consider the complaint and ‘documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading.’” In re Syntex Corp. Sec. Litig., 95 F.3d 922, 926 (9th Cir. 1996). And as this Court recently recognized, it may “take judicial notice of public documents filed with the Securities and Exchange Commission.” See Order re: Mot. to Dismiss Am. Class Action Consol. Compl. at 1 n.1, Maine State Ret. Sys. v. Countrywide Fin. Corp., Case No. 10-cv-00302-MRP-MANx (C.D. Cal. Nov. 4, 2010) (Pfaelzer, J.) (Ex. 3 at 1). Here, the FAC references both the merger between CFC and Red Oak and the asset transfer between CFC and BAC, and so the content of BAC’s public filings, whose authenticity cannot be questioned, are alleged in the FAC.


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(May 28, 2008) (“BAC S-4”) (Ex. 4 at 291); Argent, slip op. at 1 n.1. (Ex. 1 at 3).)

To this day, CFC remains a separate, wholly-owned subsidiary of BAC. The

FAC’s claims concern alleged misconduct by CFC and its subsidiaries in mortgage-

backed-securities offerings that occurred between January 25, 2005, and

November 29, 2007, long before CFC merged into BAC’s subsidiary.

The FAC nevertheless alleges that BAC “de facto merged with CFC.” It

bases this conclusion on the following allegations:

“CFC’s former website now redirects to Bank of America’s website” (FAC ¶ 227);

BAC “has . . . taken responsibility for the pre-merger liabilities of CFC, CHL, CSC and CCM,” including restructuring loans and reaching settlement agreements and paying to resolve other litigation arising from misconduct such as predatory lending allegedly committed by CFC (FAC ¶ 230);

A BAC-Countrywide transaction after the July 2008 forward-triangular merger: “On November 7, 2008, CFC transferred substantially all of its assets to [BAC]” (FAC ¶ 225);

“CFC ceased filing its own financial statements in November 2008, and its assets and liabilities are now instead included in [BAC’s] financial statements” (FAC ¶ 225);

“Many former Countrywide locations, employees, assets, and business operations now continue under the Bank of America Home Loans brand” (FAC ¶ 226; see also id. ¶ 228 (alleging that Countrywide Bank accounts converted to Bank of America accounts)); and

BAC’s Form 10-K lists CCM and CSC as BAC subsidiaries (FAC ¶ 226).

These allegations closely track Argent’s asserted bases for successor liability

against BAC, which included that (i) CFC transferred “substantially all” of its

assets to BAC in November 2008; and (ii) BAC was “integrat[ing]” CFC’s business

and operations. Argent, slip op. at 8 (Ex. 1 at 10).

The FAC also names as a defendant NB, a wholly-owned BAC subsidiary.

But the FAC’s sole allegations concerning NB are that (i) NB was created for the


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sole purpose of facilitating the acquisition of CFC; and (ii) CHL sold substantially

all of its assets to NB on July 3, 2008. (FAC ¶¶ 21, 229.) The FAC contains no

allegation that NB de facto merged with any entity.

III. ARGUMENT

A. The Successor Liability Claim Against BAC Should Be Dismissed Because ABP Has Not Alleged Facts Sufficient to Establish a De Facto Merger.

It is an iron-clad principle of corporate law, “deeply ingrained in our

economic and legal systems,” that “a parent corporation . . . is not liable for the acts

of its subsidiaries.” United States v. Bestfoods, 524 U.S. 51, 61, 118 S. Ct. 1876,

1884, 141 L. Ed. 2d. 43, 56 (1998) (internal quotation marks omitted).6 CFC is a

wholly-owned BAC subsidiary. Thus, as this Court has previously recognized,

BAC cannot be liable for CFC’s pre-acquisition torts unless an exception to this

rule applies. See Argent, slip op. at 7 (Ex. 1 at 9). The FAC fails to allege facts that

would trigger any such exception.

1. Delaware Law Applies to Any Effort to Disregard CFC’s Corporate Form.

Delaware law governs ABP’s vicarious liability claims against BAC for

CFC’s alleged pre-merger misconduct. This Court has federal question jurisdiction

over this case because the FAC asserts claims under the Securities Exchange Act,

which gives rise to exclusive federal jurisdiction. See 15 U.S.C. § 78aa. Thus, “the

court should apply federal . . . choice of law rules.” In re Lindsay, 59 F.3d 942,

948 (9th Cir. 1995) (collecting cases). Because there is no federal common law of

successor liability, the question of whether BAC may be held liable as an alleged

successor to CFC requires application and incorporation of state law.7 See Kamen

6 Unless otherwise specified, all citations are omitted and all emphasis is added. 7 In Argent, this Court declined to opine on the choice of law question because the complaint there did “not explain on which transactions its allegations are based,” leaving BAC and the Court with “no notice as to which state’s law should govern.” Argent, slip op. at 8 n.6 (Ex. 1 at 10). The Court therefore analyzed Argent under “the broadest possible set of exceptions” and concluded that BAC could not be


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v. Kemper Fin. Servs., Inc., 500 U.S. 90, 98, 111 S. Ct. 1711, 1717, 114 L. Ed. 2d

152, 165 (1991) (“The presumption that state law should be incorporated into

federal common law is particularly strong in areas in which private parties have

entered legal relationships with the expectation that their rights and obligations

would be governed by state-law standards.”); see also United States v. Kimbell

Foods, Inc., 440 U.S. 715, 739–40, 99 S. Ct. 1448, 1464, 59 L. Ed. 2d 711, 730–31

(1979) (“In structuring financial transactions, businessmen depend on state

commercial law to provide the stability essential for reliable evaluation of the risks

involved. . . . [T]he prudent course is to adopt the readymade body of state law as

the federal rule of decision until Congress strikes a different accommodation.”).

Under the Restatement (Second) of Conflict of Laws—which guides federal

choice of law decisions, see Huynh v. Chase Manhattan Bank, 465 F.3d 992, 997

(9th Cir. 2006) (“Federal common law follows the approach outlined in the

Restatement (Second) of Conflict of Laws.”); Chan v. Soc’y Expeditions, Inc.,

123 F.3d 1287, 1297 (9th Cir. 1997) (same)—the Court must thus look to the law of

the state with the most significant relationship to the dispute. See RESTATEMENT

(SECOND) OF CONFLICT OF LAWS § 302(1) (1971) (“RESTATEMENT”). And in

determining the rights and liabilities of a corporation, the state of incorporation is

considered to have the most significant relationship, except in unusual

circumstances. Id. § 302(2) (“The local law of the state of incorporation will be

applied . . . except in the unusual case where, with respect to the particular issue,

some other state has a more significant relationship to the occurrence and the

parties.”). Consistent with the Restatement, the Court should apply the law of the

state of incorporation in an action seeking to disregard a defendant’s corporate

form, and that is the alleged successor’s state of incorporation. See In re McKesson

HBOC, Inc. Sec. Litig., 126 F. Supp. 2d 1248, 1276–77 (N.D. Cal. 2000) (applying liable as CFC’s successor under a de facto merger theory. Id. at 8 n.6, 9 (Ex. 1 at 10, 11).


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law of the state of alleged successor in interest to assess de facto merger claim); see

also Powerup of Southeast Louisiana, Inc. v. Powerup U.S.A., Inc., No. 94-1441,

1994 WL 543631, at *2 (E.D. La. Oct. 5, 1994) (applying law of parent’s state of

incorporation to veil-piercing claims because parent “is a Canadian corporation, and

if it has designed its structure according to the law under which it is incorporated,

this court should respect that expectation”).

As the comments to Section 302 note, the state of incorporation’s laws

should govern any matters “peculiar” to corporations. See RESTATEMENT § 302

cmt. a. Nothing is more peculiar to a corporation than questions arising from a

merger, a uniquely corporate transaction, or efforts to disregard the corporate form.

See Powerup, 1994 WL 543631, at *2 (“Section 302 addresses choice of law for

issues of liability that are unique to the corporate structure, such as those that would

pierce the corporate veil.”) Applying Section 302 to de facto merger claims is

therefore necessary to promote certainty, as it ensures that a single state’s law will

apply to any and all liability questions arising from a particular corporate

transaction or series of transactions or efforts to disregard the corporate form. See

RESTATEMENT § 302 cmt. e (“Application of the local law of the state of

incorporation will usually be supported by those choice-of-law factors favoring the

needs of the interstate and international systems, certainty, predictability and

uniformity of result, protection of the justified expectations of the parties and ease

in the application of the law to be applied. . . . In addition, many matters involving a

corporation cannot practicably be determined differently in different states.

Examples of such matters . . . include . . . mergers, consolidations, and

reorganizations . . . .”); see also id. (“[I]t would be impractical to have matters . . .

which involve a corporation’s organic structure . . . governed by different laws.”).

Were the law otherwise, it would throw corporate transactions into disarray, as no

acquirer would know which state’s law would govern its obligations as a target’s

alleged successor. Powerup, 1994 WL 543631, at *2 (“Concern for the


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expectations of parties and minimizing adverse consequences of multiple legal

standards argues strongly in favor of the law” of the alleged successor’s state of

incorporation).

Here, the FAC alleges a de facto merger between two Delaware

corporations—BAC and CFC—based predominantly on a July 1, 2008 forward

triangular merger and a November 7, 2008 asset transfer from CFC to BAC. (See

FAC ¶¶ 223–25.) More precisely, each of the three corporate entities involved in

the relevant transactions—pre-acquisition CFC, Red Oak (since renamed CFC), and

BAC—are (or were) Delaware corporations. (See BAC S-4 at A-1 (Ex. 4 at 335).)

Accordingly, Delaware law applies to ABP’s de facto merger claims.

2. The “De Facto” Merger Doctrine Does Not Apply.

a. The FAC Fails to Allege a De Facto Merger.

“Delaware courts have, except in very limited circumstances, rejected the

concept of de facto merger.” RODMAN WARD, JR., ET AL., FOLK ON DELAWARE

GENERAL CORPORATION LAW § 251.4 (4th ed. 2001). Delaware law recognizes a

de facto merger only where an asset sale (1) amounts to a merger between the

purchaser and the seller; and (2) was engineered to disadvantage shareholders or

creditors. McKesson, 126 F. Supp. 2d at 1277 (observing that the de facto merger

doctrine does not apply “unless the transaction has been structured to disadvantage

creditors or shareholders”) (applying Delaware law); Binder v. Bristol-Myers

Squibb, Co., 184 F. Supp. 2d 762, 769–70 (N.D. Ill. 2001) (“In only a few instances

involving sales of assets have Delaware courts applied the doctrine of de facto

merger and only then ‘for the protection of creditors or stockholders who have

suffered by reason of failure to comply with the statute governing such sales.’”)

(quoting Heilbrunn v. Sun Chem. Corp., 150 A.2d 755, 758 (Del. 1959)).

In a transparent attempt to avoid the basic principle of corporate law stated

by the U.S. Supreme Court in Bestfoods—that parents are not liable for their

subsidiaries’ liabilities (see p. 5, supra)—ABP omits from its allegation concerning


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BAC’s July 1, 2008 acquisition of CFC that this transaction was a forward

triangular merger in which CFC merged into a BAC subsidiary, Red Oak. (FAC ¶

223.) ABP focuses instead on a subsequent sale of assets by CFC to BAC in

November 2008. (See FAC ¶ 225.) But ABP omits to mention, as

contemporaneous public SEC filings make clear, that BAC acquired these assets

from CFC in exchange for valuable consideration totaling billions of dollars,

including the assumption of substantial liabilities and guarantees. (See BAC,

Current Report (Form 8-K) § 8.01 (Nov. 10, 2008) (Ex. 5 at 459).)

The critical and dispositive point is that there is no allegation that this

transaction was designed to disadvantage stockholders or creditors. Thus, as a

matter of Delaware law, the FAC’s de facto merger claim must be dismissed. See

McKesson, 126 F. Supp. 2d at 1277 (“reverse triangle merger” does not effect a

de facto merger unless structured to disadvantage creditors or shareholders); see

also Argent, slip op. at 8 (Ex. 1 at 10) (concluding that an allegation concerning the

same asset transfer—that BAC had “purchased, for consideration, ‘substantially all’

Countrywide assets”—was insufficient to impose successor liability on BAC).

Unable to allege any disadvantage to shareholders or creditors, ABP instead

attempts to dress up its successor liability claims with colorful quotes and

allegations concerning ordinary integration activities that follow any acquisition.

But these additions cannot salvage the FAC:

Rebranding: Retiring Countrywide’s brand and redirecting its website to

BAC’s site (FAC ¶¶ 226–28) does not amount to a de facto merger because such

superficial changes do not determine whether a de facto merger has occurred.

See Binder, 184 F. Supp. 2d at 771 (holding that Delaware law only recognizes a

de facto merger where a transaction is designed to disadvantage creditors and

involves “1) a transfer of all assets of the transferor corporation to the transferee

corporation, 2) payment made in stock directly to the shareholders of the transferor

corporation causing them to become shareholders in the transferee corporation, and


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3) an agreement for the transferee corporation to assume all the debts and liabilities

of the transferor corporation up until the time of merger”).

Using CFC Assets, Employees, Locations and Operations and Consolidating

Financial Results: Other events that necessarily follow from BAC’s acquisition of

CFC assets—such as converting Countrywide customer accounts to Bank of

America accounts—also fail to make out a de facto merger claim. See Fountain v.

Colonial Chevrolet Co., C.A. Nos. 86C-JA-117, 85C-DE-88, 1988 WL 40019, at

*7–8 (Del. Super. Apr. 13, 1988) (concluding that defendant was not liable as

successor where it stepped into asset seller’s shoes and continued its operations).

As this Court has recognized, such activities include BAC’s integration of CFC’s

former locations, employees, assets and business operations. Argent, slip op. at 8

(Ex. 1 at 10) (rejecting allegation that BAC “has begun ‘integrating’ some

Countrywide operations” as insufficient to impose successor liability). Similarly,

the FAC’s allegation that BAC consolidated CFC’s financial results into BAC’s

public filings (FAC ¶ 225) is irrelevant. BAC was required to include CFC’s

financial results as part of BAC’s consolidated financial statements once CFC

became a BAC subsidiary. See 17 C.F.R. § 210.3A-02(a) (“Generally, registrants

shall consolidate entities that are majority owned and shall not consolidate entities

that are not majority owned.”); ACCOUNTING STANDARDS CODIFICATION, Topic 810

Consolidation, 810-10-15-10(a) ( Fin. Accounting Standards Bd. 2009) (“All

majority-owned subsidiaries—all entities in which a parent has a controlling

financial interest—shall be consolidated.”). This provides no support for imposing

successor liability on BAC. See Case Fin., Inc. v. Alden, No. Civ. A. 1184-VCP,

2009 WL 2581873, at *4 (Del. Ch. Aug. 21, 2009) (holding parent corporation

filing “consolidated financial statements with the SEC, which include [subsidiary

corporation’s] results” did not satisfy Delaware law’s “substantial burden” for

disregarding the corporate form).


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Explicit Assumption of Certain Liabilities: The FAC alleges that BAC had

agreed to assume CFC’s liabilities for alleged predatory lending practices (which

BAC did not) by “pa[ying] to resolve litigation arising from such misconduct.”

(FAC ¶¶ 230-34.) Allegations that BAC settled certain CFC litigation or took on

other liabilities are inadequate to establish BAC’s vicarious liability. As this Court

recognized in dismissing Argent, merely undertaking to pay some of an acquired

subsidiary’s liabilities does not imply that the acquiring company will pay all the

subsidiary’s liabilities. Argent, slip op. at 8 (Ex. 1 at 10) (dismissing successor

liability claim because “[n]othing properly before the Court suggests that BofA has

done more than expressly assume some liabilities in consideration of the

acquisition” of CFC assets); Fountain, 1988 WL 40019, at *7–8 (holding that

payment of certain liabilities did not imply that successor would pay all of its

predecessor’s liabilities); see also 15 WILLIAM MEADE FLETCHER ET AL., FLETCHER

CYCLOPEDIA OF THE LAW OF PRIVATE CORPORATIONS § 7124 (perm. ed., rev. vol.

1990).

Nor can Plaintiffs rely on loose public statements from BAC representatives

to establish a de facto merger. The statements that Plaintiff has highlighted are not

formal assumptions of liabilities. Instead, they are vague statements that “we’ll

clean it up” or “we’ll pay for the things Countrywide did.” (FAC ¶ 231.)

Statements of this sort cannot supply the basis for a de facto merger claim.

15 FLETCHER, supra, § 7124. Other statements on which Plaintiff relies include

vague allusions to combining Countrywide’s operations with BAC’s. (See FAC

¶ 224.) They are equally flawed as a basis for imposing successor liability.

See, e.g., Fletcher v. Atex, Inc., 68 F.3d 1451, 1460 (2d Cir. 1995) (rejecting

argument that loose statements in promotional pamphlets, informal statements in an

annual report, and other documents warranted disregarding a subsidiary’s corporate

form and holding parent liable); Coleman v. Corning Glass Works, 619 F. Supp.

950, 956 (W.D.N.Y. 1985) (“Although plaintiff has pointed to certain loose


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language in [Parent’s] Annual Reports about its ‘merger’ with [subsidiary], the

defendant has conclusively established that the merger referred to was actually

between [subsidiary] and [another subsidiary], one of [the Parent corporation’s]

wholly owned and separately incorporated subsidiaries.”); cf. LaSalle Nat’l Bank v.

Vitro, S.A., 85 F. Supp. 2d 857, 865–66 (N.D. Ill. 2000) (finding statements

regarding how a company portrays itself insufficient for personal jurisdiction).

Accordingly, the FAC fails to allege facts sufficient to establish BAC’s

liability as a successor to CFC.

b. The New York MBIA Case Should Not Be Followed.

ABP has apparently included these vicarious liability allegations in an effort

to fit this case within the New York trial court’s opinion in MBIA Insurance Corp.

v. Countrywide Home Loans, Inc., Index No. 602825/08 (Sup. Ct., N.Y. Co.

Apr. 27, 2010) (“MBIA, slip op.”) (Ex. 6), another case in which a plaintiff seeks to

hold BAC liable as CFC’s successor. (See FAC ¶ 236 (citing MBIA).) In that case,

the New York court erroneously concluded that the plaintiff had adequately alleged

a de facto merger between BAC and CFC. The MBIA court rejected this Court’s

well-reasoned Argent opinion, characterizing it as containing “little discussion” and

“offer[ing] nothing . . . to follow.” MBIA, slip op. at 11–12 (Ex. 6 at 656–57). The

MBIA decision is not controlling, however, and should not be followed for at least

two reasons.

First, the court in MBIA mistakenly applied New York law instead of

Delaware law, without any choice of law analysis or explanation.8 In so doing, it

8 A proper choice of law analysis under New York’s choice of law rules would have required dismissal of MBIA’s successor liability claims against BAC. This is because New York law could apply in MBIA only if there were not “an ‘actual conflict’ between the laws invoked by the parties.” Booking v. Gen. Star Mgmt. Co., 254 F.3d 414, 419 (2d Cir. 2001). If a conflict between New York law and Delaware law arose, then New York choice of law rules would require the MBIA court to apply Delaware law because it was BAC’s state of incorporation. See Kalb, Voorhis & Co. v. Am. Fin. Corp., 8 F.3d 130, 132 (2d Cir. 1993) (“The law of the state of incorporation determines when the corporate form will be


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viewed the July 1, 2008 forward triangular merger pejoratively,9 without taking into

account (i) established Delaware law recognizing forward triangular mergers as

commonplace and legitimate, Lewis v. Ward, 852 A.2d 896, 906 (Del. 2004)

(“[T]riangular mergers are common and have a myriad of legitimate

justifications.”), and (ii) the Delaware law cases refusing to apply the de facto

merger doctrine in the triangular merger and de jure merger context, McKesson,

126 F. Supp. 2d at 1276–77 (refusing to find de facto merger in triangular merger

transaction); Binder, 184 F. Supp. 2d at 769–70 (concluding that a triangular

merger did not result in de facto merger with acquirer’s parent). The New York

court likewise failed to consider the March 31, 2009 finding by the Delaware

Chancery Court that the consideration BAC paid in the July 1, 2008 merger was

fair. In re Countrywide Corp. S’holders Litig., Consolidated C.A. No. 3464-VCN,

2009 WL 846019, at *14 (Del. Ch. Mar. 31, 2009) (“[T]here is precious little doubt

that the consideration received by the Countrywide shareholders was anything other

than at least fair.”).

The New York court also failed to acknowledge the $16.6 billion in value

that BAC provided “as part of the consideration” for substantially all of CFC’s

assets, and the case law holding that an asset sale for value cannot form the basis

disregarded and liability will be imposed on shareholders.”); U.S. Fid. & Guar. Co. v. Petroleo Brasileiro S.A.-Petrobras, No. 98 Civ. 3099 (THK), 2005 WL 289575, at *5 (S.D.N.Y. Feb. 4, 2005) (“The question of successor liability in this proceeding . . . should be governed by the law of . . . the jurisdiction of the relevant entities’ incorporation.”). Thus, in evaluating which law to apply to MBIA’s de facto merger claim, the court had two choices: (i) apply New York law because it was identical to Delaware law (in which case New York law would require a showing of intent to disadvantage CFC’s shareholders or creditors), or (ii) apply Delaware law because it differed from New York law in requiring an intent allegation and Delaware had a greater interest in the dispute. In either case, the MBIA court should have required an allegation that the asset transfer from CFC to BAC was engineered to harm CFC’s shareholders and creditors. 9 MBIA, slip op. at 13 (“Bank of America acquired Countrywide financial . . . through an all-stock transaction involving a Bank of America subsidiary that was created for the sole purpose of facilitating the acquisition of Countrywide.”).


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for a de facto merger claim. Bryant, Griffith & Brunson, Inc. v. Gen. Newspapers,

Inc., 178 A. 645, 648 (Del. Super. 1935) (holding that “[a] corporation buying the

property and assets of another corporation” is “not liable” for the seller’s debts).

Second, even apart from the choice of law issue, the MBIA claim should still

have been dismissed because the complaint failed to satisfy the other de facto

merger factors. For example, the court concluded that the plaintiff had adequately

alleged that BAC had assumed CFC’s “liabilities ordinarily necessary for the

uninterrupted continuation” of CFC’s business. MBIA, slip op. at 13–14 (Ex. 6

at 658–59). But this conclusion rested solely on an allegation that BAC had retired

the Countrywide brand and redirected Countrywide’s website to BAC’s website.

Id. at 14 (Ex. 6 at 658–59). Retiring brands and redirecting websites has nothing to

do with assuming day-to-day liabilities. As discussed above, these steps are merely

superficial changes attendant to integrating an acquired business. They provide no

basis for successor liability. See pp. 9–10, supra. If the rule were otherwise,

successor liability would be the norm rather than the rare exception. The New York

court’s conclusion that these allegations satisfied the de facto merger test, even

under New York law, was not correct.

B. The FAC’s Allegations Against NB Are Deficient.

The FAC should be dismissed as to NB. The FAC seeks to impose liability

on NB as CHL’s successor based solely on an allegation that NB acquired certain

unspecified CHL assets. (See FAC ¶¶ 21, 229.) As discussed above, and as this

Court made clear in Argent, merely purchasing assets from an affiliated corporation

does not impute liability to the acquiring company. See p. 9, supra; Argent, slip op.

at 7 (Ex. 1 at 9) (“[A] parent does not assume an acquired subsidiary’s

pre-acquisition liabilities, even if the parent purchases assets of the subsidiary”).

And the FAC’s unsupported conclusions that NB “is a successor to Defendants

CHL” or a “shell entit[y]” are inadequate to survive a motion to dismiss. Ashcroft

v. Iqbal, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868, 884 (2009) (“[t]hreadbare


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recitals of the elements of a cause of action, supported by mere conclusory

statements” cannot survive a motion to dismiss); Bell Atl. Corp. v. Twombly,

550 U.S. 544, 555, 127 S. Ct. 1955, 1965, 167 L. Ed. 2d 929, 940 (2007) (“[O]n a

motion to dismiss, courts are not bound to accept as true a legal conclusion couched

as a factual allegation.”).

IV. CONCLUSION

ABP concedes that after BAC acquired CFC, CFC continues to exist as a

separately-incorporated subsidiary. Thus, absent allegations that provide an

exception to the “deeply ingrained” legal doctrine prohibiting plaintiffs from

holding BAC liable for CFC’s pre-acquisition torts, BAC cannot be liable as CFC’s

successor. ABP relies on the same allegations that this Court has already rejected

in denying Argent’s bid to hold BAC liable for CFC’s alleged wrongdoing:

(i) CFC’s November 2008 asset transfer to BAC, (ii) BAC’s subsequent integration

of CFC personnel, assets, operations and financial results into BAC, and

(iii) BAC’s limited assumption of specific CFC liabilities. Thus, just as in Argent,

the FAC here fails to plead successor liability, and the claims against BAC should

be dismissed.


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As for NB, the FAC pleads nothing but a bald allegation that NB acquired

certain CHL assets. This claim is even weaker than the FAC’s allegations against

BAC, and it should therefore also be dismissed.

Dated: March 25, 2011

Respectfully submitted, SETH ARONSON JONATHAN ROSENBERG WILLIAM J. SUSHON MATTHEW W. CLOSE O’MELVENY & MYERS LLP

By: /s/ Matthew W. Close Matthew W. Close

Attorneys for Defendants Bank of America Corporation and NB Holdings Corporation


BAC, nor NB Holdings is a successor to Countrywide Financial Corp or CW Home Loans Inc.

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