I say air-tight because the opinion addressed each of BAC's arguments and dismissed them with faultless appeals to statutory language, case law and logic. BAC's strategy was to argue that an "arbitrary and capricious" standard of judicial review should not be applied to the decision by the New York Department of Financial Services (NYDFS) to approve the Transformation, but rather the court was obliged to apply a less onerous standard that looked to whether there were any factual errors or errors of law underpinning the NYDFS decision.
BAC understood that it could not win under the appropriate "arbitrary and capricious" standard of review, and so it tried inundate Justice Kapnick with as many alternative arguments and claims as could withstand the red-faced standard of legal argumentation. In many instances, BAC's arguments for a different standard of review were not grounded by any citations to statute and case law, or were cited to cases that were inapposite to the facts in the Article 78 hearing. Justice Kapnick simply pointed this out each and every time, and dismissed each of BAC's claims.
An example is BAC's claim that the stock redemption element of the Transformation should have been analyzed under New York insurance statutory law applicable to stock dividends, insofar as stock redemptions have a similar financial effect upon the issuer as a stock dividend. Except, as Justice Kapnick curtly pointed out, NY statutory insurance law applies a particular standard to stock dividends that it doesn't apply to stock redemptions. So, perhaps BAC might want to amend the statute given its particular insight, but the Court would decline the invitation. End of argument.
I say subtly in-your-face because of two portions of Justice Kapnick's opinion, in particular. Everyone knows that BAC's Article 78 case serves a dual purpose: i) try to invalidate the Transformation, and ii) generate leverage to negotiate a favorable settlement of MBIA's fraud and mbs putback action against BAC. Hence, here comes an interesting footnote to Justice Kapnick's opinion:
"The court notes at the outset, that after reviewing a voluminous number of Article 78 cases spanning many years, including, but not limited to those brought against the NYID, the Court is not aware of any Article 78 proceeding where the petitioners, who are seeking to overturn an agency's decision, were not the original applicants or otherwise parties to the proceeding at the agnecy level"
In other words, while clothed in a mild form of understatement, the Court is saying "we know why you, BAC, are here. We are not naive." Bob Ehrlichman, may he rest in peace, would have called this footnote a "modified, limited zinger".
The other modified, limited zinger that I would highlight is the following:
"During oral argument on May 18, 2012, Petitioners [BAC] handed up a case appendix entitled "Courts Have Long Held That Article 78 Petitions Should be Granted When an Agency Acts on Inaccurate or Incomplete Information." After reviewing the Appendix, the Court finds that none of the 14 cases cited provide a basis for this Court to annul the Approval Letter [approving the Transformation]".
In other words, the Court is essentially saying "here comes BAC with its best hope to argue that an "arbitrary and capricious" standard should not apply to approval of an agency decision when that decision is based upon inaccurate information, and it turns out that none of the cases BAC cites are worth the Court's consideration. Excuse me?"
And Sullivan & Cromwell (BAC counsel) charges how much an hour?
What may be lost in this long-awaited analysis of Justice Kapnick's Article 78 decision are the simultaneous goings-on in her other BAC proceeding of note, the Article 77 hearing to consider the approval of Bank of New York Mellon's decision as Trustee to approve BAC's settlement of over $100 billion in actual and potential mbs investor losses for $8.5 billion.
Filings in the Article 77 action are going to heat up, but I recommend that you read two important expert opinion filings already made by AIG as an objecting investor: Professor Tamar Frankel's opinion here and Professor Coates's opinion here. [Full disclosure: I took Professor's Frankel's Corporation Law class in law school in 1978. May she be a lesson to all of us in longevity and engagement!]
I have argued that BAC's Article 77 case is held hostage to MBIA's summary judgment motion regarding BAC successor liability here, and that BAC will likely lose on this motion here. Hence, BAC should be strongly motivated to settle its litigation with MBIA. Interestingly, the objecting mbs investors are off to a strong start with these expert opinion submissions, and BAC may not be out of harms' way even if it settles with MBIA before Justice Bransten issues her successor liability opinion.
[UPDATE: It is unusual to find a well-written article about a court opinion. Here is an excellent piece written about the decision.]
Double, Double, Toil and Trouble,
Fire burn, and caldron bubble.
Macbeth, Act IV, Scene 1
NB: this blog is not intended to be investment advice, and should not be relied upon by anyone to constitute investment advice. Investing is a tough game, and everyone must do and "own" their own work, because you will certainly own your investments.
Disclosure: long MBI. Follow me on twitter.