In a peculiar turn of events, Countrywide Financial has attempted to address the recently-filed lawsuit against it by Greenwich Financial Services with an age-old strategy of conflict resolution: just ask nicely.
As reported by Reuters, Countrywide attorney John Beisner, from the law firm O’Melveny & Myers LLP, has sent a letter to counsel for hedge fund Greenwich Financial Services asking it to withdraw its recently-filed action to require Countrywide (now BofA) to repurchase hundreds of thousands of mortgages. The action asserts that investors would be improperly required to bear the cost of the loan modifications Countrywide agreed to under its settlement with attorneys general from more than a dozen states (see prior postings detailing this saga here).
According to Reuters, which reports that it has obtained a copy of the letter, Beisner informed Greenwich counsel Grais & Ellsworth LLP that Greenwich “lacks standing to sue” under contract provisions limiting the right to sue, including by requiring that 25 percent of bondholders request such litigation. Beisner also points out that there is “no class action exception to its very clear requirements, and class action procedures do not excuse litigants from satisfying contractual requirements.” Beisner thus encourages Greenwich to withdraw the suit, adding that “[w]hatever may be motivating the lawsuit, your legal theory is wrong; Countrywide has authority to make the planned modification, and it intends to do so.”
If Countrywide believes that Greenwich lacks standing, it would ordinarily file a motion to dismiss (or demurrer) advancing this argument and requesting that the court dismiss the action. It is unclear whether this letter serves a strategic purpose with respect to the pending lawsuit, or is merely a publicity ploy that enables Countrywide to get its views on the lawsuit into the public domain prior to having to file such a motion. Either way, the letter is unlikely to have any impact on Greenwich’s desire to pursue its claims, unless the letter also contains an overture for settlement discussions. In fact, I view the letter as a sign that Countrywide is nervous about the lawsuit, and is trying to nip it in the bud before adverse legal or public relations consequences manifest themselves. Indeed, the suit threatens to throw a wrench in the loan modification process, not just for Countrywide, but also with respect to larger, government-sponsored workout plans. We will continue to follow this entertaining legal saga as it unfolds.
[I have not yet been able to track down a copy of the letter, but check back later in the week for an update. If anyone has seen a copy, please let me know – IMG]