Judge halts class action in Countrywide merger

By Gina Keating

LOS ANGELES (Reuters) - A federal judge in Los Angeles on Friday halted class-action claims, which sought to stop a merger between Countrywide Financial Corp CFC.N and Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz), until similar litigation pending in a Delaware Chancery Court is resolved.

U.S. District Judge Mariana Pfaelzer also rejected a motion by the plaintiffs, led by the Arkansas Teacher Retirement System, to set up a trust to preserve separate shareholder derivative claims in the same lawsuit against Countrywide's directors and officers.

While stopping the class action claims over the merger, Pfaelzer ruled that the derivative claims, accusing the directors and officers of reaping hundreds of millions of dollars through alleged insider trading, could go forward in her court. A similar suit is pending in Los Angeles Superior Court but had been stayed until Pfaelzer's ruling.

The judge did not grant the speedy discovery that the plaintiffs had requested or rule on their request that she try the derivative claims before the $3.7 billion merger closes after June 30 -- an event they say would nullify the claims.

Neither Countrywide nor a plaintiffs' attorney could be reached for comment on the ruling.

The ruling marks a setback for the plaintiffs, who wanted the merger stopped until after the derivative claims against the directors and officers were resolved.

They contended that a win on those claims would have returned the allegedly ill-gotten gains to Countrywide, boosting the company's value and requiring a higher bid from Bank of America.

They claim Bank of America convinced the directors to approve the undervalued deal by offering them significant benefits, including indemnifying them from legal liability.