Ex-Countrywide shareholders: Public policy dictates we can sue Mozilo
In 2008, plaintiffs’ lawyers were so close to lassoing onetime Countrywide chairman Angelo Mozilo in a derivative suit that they could practically smell his aftershave. The housing market had crashed, new details of Countrywide’s dubious underwriting were emerging every day and the mortgage lender’s shares had plummeted from $45 to $5. Shareholders in a consolidated derivative suit before U.S. District Judge Mariana Pfaelzer had survived a motion to dismiss their claims against Countrywide’s directors and officers and were headed into discovery.
You know what happened next: Bank of America acquired what remained of Countrywide. And that was the end of the derivative suit against the Countrywide board, according to a December 2008 ruling by Pfaelzer, who found that the old Countrywide shareholders didn’t have standing to sue because the stock-for-stock BofA deal extinguished their stock ownership.
On Thursday, more than four years after their suit was tossed, shareholders filed a brief at the Delaware Supreme Court, arguing that public policy, as well as dicta in a March 2011 ruling by this same court, demands accountability for shareholders damaged by the likes of the Countrywide board. Directors whose misconduct has pushed their companies into fire-sale mergers shouldn’t be permitted to shed liability by dint of those mergers, argue shareholder lawyers from Bernstein Litowitz Berger & Grossman, Grant & Eisenhofer and Wolf Popper.