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BofA May Get To Move Its $8.5 Billion Settlement Back To State Court

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(JONATHAN STEMPEL, Reuters) - An appeals court on Tuesday granted an appeal of a controversial ruling that moved consideration of Bank of America Corp's $8.5 billion settlement over mortgage debt to federal court.

The 2nd U.S. Circuit Court of Appeals in New York said it plans to rule within a 60-day period on whether U.S. District Judge William Pauley in Manhattan correctly took the case from a New York state court.

It asked the parties to address several issues, including whether the settlement qualified as a "mass action" allowing federal court review.

"We have jurisdiction to determine our jurisdiction," the 2nd Circuit said in a two-page order.

The settlement announced in June was intended to resolve claims by investors in 530 mortgage securitization trusts with $174 billion of unpaid principal that the home loans underlying their investments were toxic or underwritten poorly.

Bank of New York Mellon Corp as trustee negotiated the accord with 22 institutional investors including BlackRock Inc and MetLife Inc, and sought approval in a New York state court.

But other investors that were not part of the talks but would be bound by the outcome, including a group called Walnut Place, complained that the $8.5 billion payout was too low.

Moving the case to federal court could make it easier for these investors to back out, or negotiate higher payouts.

In taking jurisdiction, Pauley on October 19 said the case implicated "paramount federal interests" such as the integrity of nationally chartered banks and the vitality of financial markets.

Bank of America had intended the accord to address much of its remaining legal liability from its 2008 purchase of the mortgage lender Countrywide Financial Corp.

The 2nd Circuit also granted the Charlotte, North Carolina-based bank's request to file papers supporting requests for an appeal.

The cases are Bank of New York Mellon v. Walnut Place LLC et al, 2nd U.S. Circuit Court of Appeals, Nos. 11-4554 and 11-4571.

(Reporting by Jonathan Stempel in New York; Editing by Tim Dobbyn)

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