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Analysis: Bank of America Hit with $45 Million in Punitive Damages for Stay Violations

by Prof. Drew Dawson, ABI Resident Scholar

On March 23, 2017, Bankruptcy Judge Christopher Klein (C.D. Cal.) slapped Bank of America with $45 million in punitive damages for willful and repeated violations of the automatic stay, in addition to actual damages of slightly more than $1 million. Such a large punitive damage award was necessary, according to the court, because this tale was not one of low-level corporate incompetence but instead “one of corporate culture...driven by direction from senior management.” The court’s opinion opens with a reference to Franz Kafka as it begins to recount the nightmarish tale of Bank of America’s conduct toward a California couple over the course of nearly eight years. Click here to read the analysis. 

Puerto Rico's Major Bondholders Critical of Fiscal Turnaround Plan

Groups of Puerto Rico's creditors issued a rare joint letter late on Monday opposing a plan designed to steer the island out of financial crisis, stoking friction between the U.S. territory, its investors and the board tasked with managing its finances, Reuters reported yesterday. In a letter to the federally appointed oversight board, creditors with exposure to $12 billion in Puerto Rican debt said the turnaround plan, approved by the board on March 13, violates the Puerto Rico financial rescue law known as PROMESA by ignoring legal protections on some public debt. The letter was signed by holders of constitutionally guaranteed general obligation (GO) debt; a group holding junior COFINA debt backed by sales tax revenue; and Assured Guaranty Corp, which insures $3.4 billion of Puerto Rican bonds. Lawyers representing the UBS Family of Funds and the Puerto Rico Family of Funds said yesterday that their clients, who hold roughly $652 million in accreted value of COFINA bonds, "strongly share and support many of the objections and concerns" stated in the bondholders' letter to the oversight board. The plan “simply ignores one of the enumerated requirements that Congress imposed” under PROMESA, “namely, that it respect the relative lawful priorities” of debt, the letter said.

After Crippling Cost Overruns, Toshiba's Westinghouse Files for Bankruptcy

Toshiba Corp.’s U.S. nuclear unit Westinghouse filed for chapter 11 protection from creditors today, just three months after huge cost overruns were flagged, as the Japanese parent seeks to limit losses that threaten its future, Reuters reported. Bankruptcy will allow Pittsburgh-based Westinghouse, once central to Toshiba's diversification push, to renegotiate or even break its construction contracts, though the utilities that own the projects could seek damages. It could even pave the way for a sale of all or part of the business. For Toshiba, the aim is to fence off soaring liabilities and keep the group afloat. Toshiba said that Westinghouse-related liabilities totaled $9.8 billion as of December, making it one of the industry's most costly collapses to date; it had earlier estimated writedowns would swell to $6.3 billion.

Republicans Want Mnuchin to End “Too-Big-to-Fail” Designations for Nonbanks

Congressional Republicans yesterday made their case for Treasury Secretary Steven Mnuchin to end the practice of bringing nonbank financial institutions such as insurers under greater supervision if they’re deemed too-big-to-fail by the Financial Stability Oversight Council (FSOC), reported. In a letter, 10 of the 12 GOP members of the Senate Banking Committee told Mnuchin, who heads FSOC, that the council’s process for designating nonbanks systemically important financial institutions “lacks transparency and accountability, insufficiently tracks data, and does not have a consistent methodology for determinations.” The senators, including Committee Chairman Mike Crapo of Idaho, said they hope Munchin “will review the policies and procedures” for labeling nonbank SIFIs. The correspondence did not mention whether the Trump administration should drop its legal defense of FSOC in a federal court challenge of MetLife Inc.’s SIFI label. On the other side of the Capitol, Rep. Ann Wagner (R-Mo.), who heads the House Financial Services Subcommittee on Oversight and Investigations, told reporters Tuesday that ending nonbank designations “should be, at the very least, where we start” the process of changing FSOC practices.

Contractor Ocean RIG Files for Bankruptcy Protection in U.S.

Rig contractor Ocean RIG UDW Inc. filed for chapter 15 protection in a U.S. court amid a deep and prolonged downturn in the industry, Reuters reported yesterday. The Cyprus-based company, which had $3.25 billion in debt as of Dec. 31, filed for bankruptcy in the United States Bankruptcy Court for Southern District of New York on Monday. The company said on Tuesday it entered into an agreement with creditors representing over 72 percent of Ocean RIG's outstanding consolidated indebtedness for a financial restructuring. Ocean RIG's chief executive, George Economou, said last year that the company would consider alternatives, including a possible reorganization under U.S. bankruptcy laws.

Wells Fargo Strikes $110 Million Settlement Deal in Fake Accounts Cases

Wells Fargo & Co. has agreed to pay $110 million to settle a dozen class actions brought after the San Francisco bank disclosed that its employees had opened unauthorized accounts on behalf of about 2 million of its customers in order to meet sales quotas, The Recorder reported. “This agreement is another step in our journey to make things right with customers and rebuild trust,” said Wells Fargo CEO Tim Sloan. “We want to ensure that each customer impacted by our sales practices issue has every opportunity for remediation, and this agreement presents an additional option.” The settlement, announced yesterday, comes two days before the bank’s lawyers were set to argue before a federal judicial panel that the lawsuits should be coordinated before a single judge. Wells Fargo is represented by Munger, Tolles & Olson partners David Fry and Erin Cox. Read more

In related news, Evidence of racially discriminatory lending practices, a scandal involving millions of accounts unauthorized by customers and other improper procedures have hit Wells Fargo bank with a lower regulatory rating, USA Today reported today. From 2004 to 2008, the San Francisco-based banking giant "engaged in a pattern or practice of discrimination" while serving African-American and Hispanic homebuyers, the U.S. Office of the Comptroller of the Currency recounted in a report the bank made public yesterday. Following a referral to the U.S. Department of Justice, Wells Fargo in 2012 agreed to a consent order that provided $125 million in compensation to minority buyers the bank had steered into subprime mortgages that had higher fees than the loans received by many white buyers. Combined with other terms, the settlement totaled at least $175 million in all. Read more