Judge: Bank of America Can Fend Off V.I. Public Finance Authority Claims of Negligence In Bond Offering
U.S. District Judge Curtis Gomez
CHARLOTTE AMALIE – Three Bank of America units can fend off negligence claims over bad tax advice the bank and Buchanan Ingersoll & Rooney PC allegedly gave on a $219 million Virgin Islands bond offering, but two BOA affiliates must face related claims, a federal judge ruled Thursday.
U.S. District Judge Curtis Gomez said in an order that Bank of America Corp., Bank of America Securities LLC and Merrill Lynch Pierce Fenner & Smith Inc. have met their burden to dismiss the Virgin Islands Public Finance Authority’s negligence claim over the bond offering.
Gomez also released Bank of America Corp. from claims for breach of contract and fiduciary duty, but he refused to do the same for Band of America Securities, LLC and Merrill Lynch.
A memorandum opinion explaining the decision is still to come, the judge said.
The order does not address the Virgin Islands government’s claims against Buchanan Ingersoll for legal malpractice, negligence, breach of contract and breach of fiduciary duty.
The Virgin Islands government and its finance authority said in their October 2014 complaint that Buchanan Ingersoll and Bank of America told them the 2006 bond offering would be tax-exempt.
An Internal Revenue Service investigation, however, later determined that $80 million of the 2006 bonds sold by the Virgin Islands were not tax-exempt because the territory had cash surpluses between 2003 and 2005 that should have been used to pay down debt from a 1999 bond offering.
According to the complaint, Bank of America was partly to blame for that problem because it failed to produce a cash flow analysis that would have enabled the territorial government to assess its ability to redeem the 1999 bonds.
The Virgin Islands paid $13.6 million to resolve the IRS’ investigation, and it now wants compensatory damages, punitive damages and other fees.
The Bank of America defendants said in January that all claims against them should be dismissed because they had no duty or ability to dispense legal advice. They also said that Bank of America Corp., the parent company of the other two bank affiliates named in the suit, should be excused from the litigation because the complaint didn’t explain why it should be held liable for the alleged wrongdoing of a subsidiary in this context.
The V.I. Public Finance Authority hit back in March, arguing that the bank was wrongly trying to pin all liability on Buchanan Ingersoll instead of taking responsibility for the important role it played as the authority’s financial adviser.
The authority added that Bank of America Corp. was “a necessary party to this action” because it was the surviving legal entity after a complex series of mergers.
David Stone of Stone & Magnanini LLP, an attorney for the Public Finance Authority, said that his client was pleased with the result of Gomez’s decision. The authority always believed that its strongest claims were for breach of contract and fiduciary duty, and it doesn’t expect that Bank of America Corp.’s exit from the suit will have much practical effect, he said. Ultimately, Stone said, the judge should recognize that Bank of America had a fiduciary duty to the territory.
“This is a situation where Bank of America was intimately, on a daily basis, involved in the finances of the Virgin Islands,” he said.
A representative for Bank of America declined to comment today.
Representatives of the Virgin Islands government and Buchanan Ingersoll did not immediately respond to requests for comment.
The Virgin Islands Public Finance Authority is represented by David Scott Chase, David Butler Harrison, David Smart Stone, and Robert Anthony Magnanini of Stone & Magnanini LLP, John E. Tober of The Tober Law Group and Samuel H. Hall Jr., and Marie E. Thomas-Griffith of Hall & Griffith PC.
The Virgin Islands government is represented by Carol Thomas-Jacobs, Aquannette Y. Chinnery, and Tamika Archer of the Virgin Islands Department of Justice.
Buchanan Ingersoll is represented by Courtney A. Solomon, Douglas J. Pepe and Jeffrey H. Zaiger of Joseph Hage Aaronson LLC and Pamela L. Colon.
The case is Virgin Islands Public Finance Authority et al. v. Buchanan Ingersoll & Rooney PC et al., case number 3:14-cv-00083, in the U.S. District Court for the District of the Virgin Islands.