A federal judge in Manhattan on Wednesday refused a request by trustee Bank of New York Mellon to remand to state court proceedings to confirm Bank of America’s $8.5 billion mortgage-backed securities settlement. Up until now, the approval proceedings had been governed by a New York trusts law called Article 77. Supporters of the settlement claimed the law allowed a judge to endorse the decision by BNY Mellon, the trustee for the MBS investors, to enter into the settlement. But Southern District Judge William Pauley III agreed with Grais & Ellsworth that the matter is a “mass action” under the Class Action Fairness Act, which needs to be heard in federal court. Grais represents investor entities called Walnut Place.

“The settlement agreement at issue here implicates core federal interests in the integrity of nationally chartered banks and the vitality of the national securities markets,” Judge Pauley wrote in Bank of New York Mellon v. Walnut Place LLC, 11-cv-05988. “A controversy touching these paramount federal interests should proceed in federal court. And Congress enacted CAFA to provide a federal forum for such cases.” Judge Pauley rejected as “form over substance” the contention that the case was not a mass action because it sought equitable rather than monetary relief. “If the court-ordered transfer of $8.5 billion does not constitute ‘monetary relief,’ it is difficult to imagine what does,” he wrote.

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