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Merrill Lynch building, NY. REUTERS Keith Bedford_Small

2nd Circuit upholds dismissal of lawsuits over Merrill

12/4/2012 COMMENTS (0)

By Nate Raymond

NEW YORK, Dec 4 (Reuters) - A U.S. appeals court on Tuesday upheld the dismissal of two lawsuits aiming to force Bank of America Corp to sue former Merrill Lynch & Co executives and directors over losses on mortgages and other risky debt.

The 2nd U.S. Circuit Court of Appeals affirmed rulings last year by U.S. District Judge Jed Rakoff in Manhattan dismissing the lawsuits, which were filed by onetime Merrill shareholders.

"We see no error in those rulings," the three-judge panel wrote in an unsigned opinion.

Bank of America announced it would acquire Merrill Lynch in September 2008, at the height of the financial crisis. But shareholder lawsuits soon mounted over losses Merrill had incurred and $5.8 billion of bonuses its executives agreed to pay employees.

The two lawsuits in Tuesday's ruling arose from losses Merrill incurred on investments in collateralized debt obligations and other mortgage-backed securities before the Bank of America acquisition. Merrill incurred a $15.84 billion quarterly loss following the merger announcement. Both cases were filed shortly after the merger was announced.

Rakoff dismissed the two lawsuits in March 2011. He said that one of the plaintiffs, S. Leonard Sollins, had failed to make a required demand on the bank's board of directors before filing the lawsuit.

The other plaintiff, N.A. Lambrecht, who had made three demands on the board, wasn't able to establish the board should have sued former Merrill officers and directors over the losses, according to Rakoff.

The 2nd Circuit agreed, saying Sollins's arguments were "misplaced." Rakoff was well within his discretion to also conclude Lambrecht had "failed to demonstrate that the board either acted in bad faith or conducted an unreasonable investigation."

The panel included Circuit Judges Dennis Jacobs, Robert Katzmann and Debra Livingston.

The bank agreed in September to a $2.43 billion settlement of a shareholder class action arising out of claims it hid information from its investors when it bought Merrill. Bank of America separately has agreed to a proposed $20 million settlement in a separate derivative lawsuit that also was filed by bank shareholders.

Bill Halldin, a Bank of America spokesman, declined to comment on the 2nd Circuit ruling.

Lawyers for the plaintiffs and the former Merrill directors and officers did not immediately return requests for comments.

The cases in the 2nd U.S. Circuit Court of Appeals are Lambrecht v. O'Neal, No. 11-1285, and Sollins v. O'Neal, No. 11-1589.

For Lambrecht: Jonathan Cuneo, Cuneo Gilbert & Laduca.

For Sollins: David Brower, Brower Piven.

For Stanley O'Neal, et al: Jay Kasner, Skadden, Arps, Slate, Meagher & Flom.

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