Kramer Levin Wins Dismissal of MBS Lawsuit for JPMorgan Chase

In a major victory in the first bank against bank lawsuit arising out of the financial crisis, Kramer Levin won dismissal of all claims in a federal court fraud and breach of fiduciary duty lawsuit brought by Bank of America against JPMC’s Bear Stearns Asset Management ("BSAM") unit. The case arose out of a $4 billion CDO transaction that closed in late May 2007, as the financial markets were beginning to show signs of distress. Bank of America underwrote and marketed the deal. BSAM was the collateral manager and two BSAM hedge funds provided the initial CDO collateral. Bank of America alleged that BSAM improperly concealed mounting redemptions and the likely collapse of these two hedge funds, and that it lost $3 billion on the deal.

After three years of discovery and 42 depositions, including five experts, Kramer Levin simultaneously moved for summary judgment on all claims and to exclude BOA’s damages expert, Dr. Mukesh Bajaj, under Daubert. Partners Barry H. Berke and Eric A. Tirschwell argued the motions to Southern District of New York Judge Alison Nathan in July 2013. On September 3, 2013, Judge Nathan issued a lengthy ruling granting both the summary judgment and Daubert motions in their entirety. She adopted Kramer Levin’s argument that BOA’s expert’s damages methodology was “unreliable and inadmissible” and that he “effectively stacked the deck in favor of finding steep losses.” She further found that “no rational juror could conclude that the undisclosed information was basic to the transaction” and BSAM therefore had no duty to disclose the developments at the Funds. And she agreed that the governing contract precluded any finding of a fiduciary duty.

Kramer Levin’s involvement in the case started in the fall of 2007, when the firm was retained to defend Bear Stearns in connection with a criminal investigation out of the U.S. Attorney’s Office for the Eastern District of New York. Kramer Levin ultimately persuaded the government not to bring criminal charges against the company.

In addition to Litigation partners Barry H. Berke and Eric A. Tirschwell, the Kramer Levin team included Litigation partner Kerri Ann Law and special counsel Marjorie E. Sheldon, and associates Jason M. Moff, Joshua Glick, Leah B. Grossi, Laura S. Milano, and Philip Ellenbogen.