In a recent opinion in the long-running legal battle between MBIA and Bank of America Corp. ("BOA"), the New York State Supreme Court refused to grant summary judgment to BOA in response to MBIA's "de facto merger" claim against BOA. In its de facto merger claim, MBIA alleged that BOA is liable for the obligations of Countrywide Financial, which BOA acquired, through a wholly-owned subsidiary, in July 2008. The de facto merger claim is analyzed under a "successor liability" theory of liability, and, under New York law, such a merger occurs "when the acquiring corporation has not purchased another corporation merely for the purpose of holding it as a subsidiary, but rather has effectively merged with the acquired corporation." Here, MBIA's claim stems from Countrywide's 2008 merger with and into the BOA subsidiary and Countrywide and its subsidiaries' later sale of assets to BOA and several of its subsidiaries. According to the Court, a plaintiff alleging de facto merger must prove, among other things, that there is "continuity of ownership" between the acquired entity and the acquiring entity. In seeking summary judgment on the continuity of ownership element, BOA relied on cases purportedly standing for the proposition that only stock-for-assets transactions (i.e., where the selling entity receives stock of the buyer in exchange for seller's assets) meet the requirement for showing continuity of ownership. The court rejected that argument, however, holding that a stock-for-stock transaction followed by an asset purchase (the type of transaction involved in this case) could meet the requisite continuity-of-ownership standard in a de facto merger. To hold otherwise, according to the Court, would exalt form over substance.

MBIA Insurance Corporation v. Countrywide Home Loans, Inc., et al., --- N.Y.S.2d ----, 2013 WL 1845525 (N.Y. Sup. Apr. 29, 2013).