The legitimacy of Bank of America's $8.5bn mortgage deal now may be decided in a federal court, rather than in New York State Supreme Court, where it's been for 2 months.  That would be a very big deal because it could upend the timetable of the deal.  Bank of America has so much riding on this deal, because it would go a long way to resolving much of the bank's remaining legal liability tied to its disastrous 2008 purchase of mortgage lender Countrywide Financial Corp.

Investors who oppose the deal, and are led by 11 entities sharing the name "Walnut Place," filed with U.S. District Court on Friday to have the case moved to federal court - on the basis that the size of the case qualifies as a "mass action," giving it federal courts jurisdiction. 

Bank of New York Mellon Corp., as trustee under 530 mortgage securitization trusts, had negotiated the $8.5bn accord with 22 institutional investors - including BlackRock and Allianz SE's Pimco, covering mortgages with a $174 billion unpaid principal balance.   The latest move displeased BNY Mellon, in addition to BofA, prompting a BNY Mellon spokesperson to say the effort by "a small number of objectors" to move the case "is unsupported by the law and will only serve to delay the resolution of the proceeding."  Another BNY spokesperson called the filing a "tactical maneuvering" that has no impact on the underlying merits of the settlement.

Unhappy investors had had until 8/30/11 to intervene in the case, ahead of a 11/17/11 court hearing to consider whether the accord is fair.  Friday's filing throws that timetable into uncertainty.  David Grais, a lawyer for Walnut Place and some other intervenors, did not immediately respond to an emailed request for comment.   For further details, go to:   [ThomsonReuters News & Insights, 8/26/11]

The state case is In re: The Bank of New York Mellon, New York State Supreme Court, New York County, No. 651786/2011.

The federal case is The Bank of New York Mellon et al v. Walnut Place LLC et al, U.S. District Court, Southern District of New York, No. 11-05988.

For Walnut Place: David Grais, Owen Cyrulnik and Leanne Wilson of Grais & Ellsworth.

For New York Mellon: Jason Kravitt, Hector Gonzalez and Matthew Ingber of Mayer Brown.

(Reporting by Jonathan Stempel and Alison Frankel)

[Thomson Reuters, 8/26/11]