Listen up, everyone who has objected to Bank of America's proposed $8.5 billion settlement with Countrywide mortgage-backed securities investors. A hearing Thursday before Manhattan State Supreme Court Justice Barbara Kapnick may determine whether you have any hope of recovering on your breach-of-contract put-back claims if the proposed settlement -- now at the U.S. Court of Appeals for the Second Circuit in a jurisdictional detour -- falls apart.

Lawyers for BofA, Countrywide, and Bank of New York Mellon, the Countrywide MBS trustee, will ask Kapnick to dismiss a suit by Walnut Place, the group of anonymous Countrywide MBS investors represented by Grais & Ellsworth. Walnut Place has become known as the leading objector to BofA's proposed $8.5 billion settlement, but before Grais & Ellsworth disrupted the bank's carefully orchestrated plan to get the deal approved via a New York state-court Article 77 proceeding, the investor group sued Countrywide and BNY Mellon for breaching the pooling and servicing agreements governing two Countrywide MBS trusts.

BofA and BNY Mellon originally moved to dismiss the Walnut Place suit back in May, before the banks announced they'd reached a deal with an institutional investor group represented by Gibbs & Bruns to settle put-back claims in 530 Countrywide MBS trusts, including those at issue in the Walnut suit. Grais & Ellsworth filed Walnut's response immediately after the $8.5 billion deal was announced, making news with a footnote that presaged its objection to the proposed settlement. ("Walnut Place strenuously objects to any purported 'settlement' made behind its back of claims that Walnut Place has been actively litigating in this court for several months," the footnote said.)

But the really important filing in the Walnut case came from the banks on July 29, after it had become clear that the proposed global settlement was running into a serious traffic jam of objections. In a reply to Walnut's response, BofA counsel at Wachtell, Lipton, Rosen & Katz and Countrywide lawyers at Goodwin Procter argued that Walnut has no claim because the Countrywide MBS trustee acted on its behalf in reaching the proposed $8.5 billion settlement. Remember: Under the pooling and servicing agreements governing Countrywide MBS trusts, investors may only bring a suit if they have served a demand notice on the securitization trustee, BNY Mellon, and the trustee has refused to take action on their behalf. In the July 29 brief, the banks asserted that Walnut's suit cannot survive because BNY Mellon did act after receiving a demand notice.

"Far from 'declining to act at all,' the trustee has acted decisively by settling, among other things, the precise claims brought by Walnut Place here," the banks' brief said. "That it has done so underscores Walnut Place's complete failure -- indeed, inability -- to plead refusal of its demand." Walnut admitted, according to the banks, that BNY Mellon, as trustee, told Walnut it needed time to evaluate Walnut's allegations when the investors' asserted that underlying mortgage loans were deficient. "The trustee was true to its word," the brief said. "It needed more time to evaluate this complex matter. It took that time, and then, after thorough examination, it acted decisively, as the Article 77 proceeding resoundingly shows. The trustee indisputably did not refuse Walnut Place's demand. This case must accordingly be dismissed."

Spin out the banks' argument, and you see why, if it's successful, it could decimate future put-back suits by Countrywide MBS investors. All noteholders signed pooling and servicing agreements similar to those governing the trusts in which Walnut Place holds the requisite voting rights. Under those agreements, Countrywide MBS investors must serve a demand notice on BNY Mellon before bringing suit, and must be able to show that the trustee failed to act. If the banks are right, and the proposed $8.5 billion settlement shows that the trustee acted in a timely fashion to protect investors' rights, all subsequent investor suits could be barred.

In a litigation that's more complicated than a London roundabout, with unexpected turns every time there's a development, Kapnick's Walnut Place ruling could lead to a dead end for Countrywide MBS investors. Or, if Walnut gets past the banks' motion to dismiss, it could offer investors who don't like the proposed settlement alternative avenues to put-back recovery. Either way, this is a case Countrywide MBS noteholders should be watching.

I left requests for comment with a BofA spokesman and David Grais and Owen Cyrulnik of Grais & Ellsworth but didn't hear back.

(Reporting by Alison Frankel)