* Judge must approve $8.5 bln settlement
* Denies motion by AIG to convert to broader case
By Karen Freifeld
NEW YORK, April 24 A New York judge on Tuesday
rejected an effort by AIG Inc and other objectors to
Bank of America Corp's proposed $8.5 billion mortgage
bond settlement to convert the case to a proceeding that may
have widened its scope.
New York state Supreme Court Justice Barbara Kapnick, who
must decide whether to approve the settlement, denied the motion
by AIG and other groups of investors to turn the limited
proceeding known as an Article 77 into a broader inquiry known
as a plenary action.
Kapnick said at a hearing on Tuesday that she could
accomplish what was necessary under the Article 77.
"I really think I have a lot of discretion," she said.
An Article 77 is a special proceeding, limited in scope,
that generally is used in run-of-the-mill trust matters.
Objectors to the settlement wanted to transform the case into a
plenary action for a full hearing.
The settlement would resolve claims from investors in
mortgage bonds issued by Countrywide Financial Corp, which was
purchased in 2008 by Bank of America.
BlackRock Inc, MetLife Inc and Allianz SE's
Pacific Investment Management Co are among 22
institutional investors who agreed to the accord. Other
investors have complained the payout is too low.
Kathy Patrick, an attorney for the institutional investors,
viewed the judge's decision as a positive step.
"She confirmed the trustee was entitled to proceed under
Article 77, which is a summary, expedited form of proceeding,"
Patrick said after the hearing.
John Moon, an attorney for entities known as Triaxx, which
hold unpaid principal of over $2 billion in notes, was not
dissuaded by the judge's decision to reject the motion he joined
"Whether it's an Article 77 or a plenary action," said Moon,
"I view it as winning the battle because the judge implied there
would be adequate disclosure of the facts surrounding the
Kevin Heine, a spokesman for Bank of New York Mellon,
The judge asked the parties to work out proposals for
providing documents. Objectors to the proposed settlement want
wide discovery, while the trustee wants less.
"Everybody's going to get part of what they want," Kapnick
Kapnick also heard arguments on whether to allow the
attorneys general of New York and Delaware to intervene in the
case. She made no decision on that.
American International Group Inc, which has said Bank of
America is "drastically underpaying," is one of two big
objectors to the settlement. Baupost Group, a Boston-based hedge
fund run by Seth Klarman, operating under the name Walnut Place
LLC, is the other. A handful of Federal Home Loan Banks are
among those seeking broader scrutiny of the deal.
BNY Mellon, acting as trustee for the investors, has said it
decided the settlement was in the best interest of the trusts.
It believes the judge's approval should be based on whether the
trustee's decision was within its reasonable discretion.
The case is In the application of the Bank of New York
Mellon, 651786-2011, New York state Supreme Court (New York