NU Online News Service, Feb. 3, 3:23 p.m.EST

Bank of America cannot be held liable to Allstate InsuranceCompany over residential mortgage-backed securities purchased byAllstate from Countrywide Financial Corporation.

Allstate has alleged that Countrywide and a number of formerofficers and directors are liable for misrepresentations regardingthe quality of about $700 million in RMBS that Allstate purchasedfrom Countrywide between 2005 and 2007.

The case before Judge Mariana R. Pfaelzer, in the United StatesDistrict Court, Central District of California, concerned the issueof whether Bank of America, which acquired Countrywide in July2008, should remain in the case.

Allstate had argued that a series of transactions that sawCountrywide's assets merged into Bank of America “make the Bank ofAmerica defendants liable under successor and vicarious liabilitytheories.” The insurer also argued that a series of transactions inthe deal made up either an actual or constructive fraudulenttransfer.

The decision explains, “Actual fraudulent transfer occurs whenthe transferor acts with the 'actual intent to hinder, delay ordefraud any creditor.' …Constructive fraudulent transfer occurswhen the transferor does not receive 'reasonably equivalent value'in exchange for the transaction and the transferor is insolvent atthe time of the transaction or knows that it will shortly becomeinsolvent.”

Pfaelzer finds, “Allstate has pleaded no facts from which thecourt could infer that the compensation in the…transactions was notreasonably equivalent. Neither has Allstate pleaded any facts fromwhich the court could infer that the transactions were designed todisadvantage creditors.”

Regarding Allstate's argument that Bank of America should beliable under successor liability, the decision states, “Anexception to the well-settled rule against successor liability istriggered with the 'purchaser expressly or implicitly agrees toassume liability. Nothing in the [amended complaint] indicates thatBank of America has expressly or implicitly agreed to assumeCountrywide's RMBS liability.”

Lawrence Grayson, a Bank of America spokesman, says, “We arepleased with the court's ruling.”

Maryellen Thielen, a spokes person for Allstate, says, As aninitial matter, it should be kept clear what today's decision doesnot do. It does not affect Allstate's claim that it wasdefrauded by Countrywide. That claim was upheld by the samecourt in October, and we look forward to moving ahead withdiscovery and resolution on the merits.

“Even if it is upheld on appeal, today's decision only affectedwhether 'Bank of America,' in addition to 'Countrywide,' will haveto pay should Allstate's claim reach judgment in its favor.”

Thielen adds, ”We respectfully disagree with the court'sopinion. In October, the court broke with others that havereviewed this issue, on far less detailed pleadings than Allstateprovided, and stated that Allstate must include additionalallegations in its complaint regarding Bank of America's intent tohinder creditors in order to hold Bank of America liable for theCountrywide's prior bad acts.

“The Amended Complaint attempted to establish—before discovery,and thus necessarily based only on what information Bank of Americahas allowed to become public—that Bank of America acted withfraudulent intent when it stripped Countrywide of all of itsoperating assets at the same time it was known that Countrywide wasfacing massive liabilities for its role in the mortgagemeltdown.

“Allstate believes that the larger context in which the assettransfers took place itself helps makes it a more than plausibleinference that Bank of America was trying to use these complextransfers to unfairly shield itself from Countrywide'sliabilities. We are disappointed that the court did not agree.We further note recent posturing that Bank of America may placeCountrywide into bankruptcy proceedings, and welcome theindependent assessment a bankruptcy court would apply to Bank ofAmerica's asset-stripping successor liability.”

Allstate filed a series of suits against financial firmsthroughout 2011 regarding mortgage-backed securities. Defendantsinclude Goldman Sachs, Citigroup, Deutsche Bank, JP Morgan, MorganStanley and Credit Suisse.