40 Misc. 3d 643
N.Y. Sup. Ct.2013Background
- MBIA filed suit in 2008 against Countrywide defendants for fraudulent inducement and warranties breach in securitizations; amended complaint added MBIA's successor liability claim against BAC based on 2008 transactions.
- MBIA asserts two successor-liability theories: de facto merger and implied assumption of liabilities.
- Key 2008 transactions include the Red Oak merger (July 1, 2008) where CFG merged into Red Oak (subsidiary of BAC), followed by July 1–3 asset transfers to BAC entities.
- November 7, 2008 asset purchase and stock purchase agreements transferred substantial CFG/CHL assets to BAC entities, with assets then funneled to Bank of America, N.A. (BANA) and servicing entities.
- MBIA contends these transactions were part of a pre-existing Integration Plan to absorb Countrywide assets into BAC; BAC disputes this characterization and argues asset transfers were separate.
- Court denies both parties’ motions for summary judgment on MBIA’s de facto merger claim and also denies MBIA’s implied-assumption claim, finding factual disputes preclude resolution.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether NY law governs de facto merger analysis. | MBIA favors NY law for choice of law. | BAC argues Delaware law applies. | New York law applies. |
| Whether there was continuity of ownership (de facto merger hallmarks). | MBIA argues joint view of Red Oak plus July/Nov 2008 transactions shows ownership continuity. | BAC contends no continuity from asset purchases. | Fact issues preclude summary judgment on ownership continuity. |
| Whether cessation of ordinary business occurred (de facto merger hallmark). | MBIA contends CFG/CHL became shells with assets/liabilities; cessation supports merger. | BAC argues assets remained substantial; no shell status. | Fact questions remain; no summary judgment for either side. |
| Whether continuity of management/personnel/location/assets occurred. | MBIA asserts post-transaction control/management remained with BAC or integrated into BAC. | BAC contends reorganized structure preserved separate management. | Disputed facts; management continuity not resolved at summary judgment. |
| Whether the successor expressly or impliedly assumed liabilities. | MBIA asserts implied assumption through post-transaction conduct and liability exposure. | BAC emphasizes express disclaimers and lack of clear implied assumption. | Issues of fact preclude summary judgment on implied-assumption liability. |
Key Cases Cited
- Cargo Partner AG v. Albatrans, Inc., 352 F.3d 41 (2d Cir. 2003) (de facto merger framework and hallmarks; substance over form)
- Fitzgerald v. Fahnestock & Co., 286 AD2d 573 (1st Dept 2001) (four hallmarks; continuity essential; flexible analysis)
- Arnold Graphics Indus., Inc. v Independent Agent Ctr., Inc., 775 F.2d 38 (2d Cir 1985) (ownership continuity can exist with stock-for-assets and subsequent asset transfers)
- Matter of New York City Asbestos Litig., 15 AD3d 254 (1st Dept 2005) (defines hallmarks and requires substance over form; continuity and cessation emphasized)
- AT&S Transp., LLC v Odyssey Logistics & Tech. Corp., 22 AD3d 750 (2d Dept 2005) (flexible approach to de facto merger; focus on successor’s intent to absorb)
- Schumacher v. Richards Shear Co., 59 NY2d 239 (1983) (general rule of successor liability and exceptions)