In re The Bank of New York Mellon (New York)

Under New York law, a trustee may exercise discretion to settle claims on behalf of its trust so long as it does so reasonably and in good faith. In this case, the Bank of New York Mellon reached an $8.5 billion settlement on behalf of owners of mortgage-backed securities who suffered losses during the financial crisis. A group of objectors opposed the settlement, arguing that the bank had acted unreasonably and in bad faith, in particular by releasing claims related to loan servicers’ failure to repurchase modified loans. We argued that the bank properly exercised its discretion when it decided that the claims were weak and that pursuing them would not have improved the settlement. The appellate court agreed, finding that the bank relied on sophisticated and experienced lawyers who reached reasonable judgments that were not made in bad faith. The court therefore affirmed the lower court’s approval of the settlement—currently the largest private settlement ever reached.