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“JUST SAY NO”—when they offer you “cash for keys….”
December 2, 2009 · Leave a Comment
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A case to watch 09-cv-8784 S.D.N.Y.: Deutsche Bank, AG v Bank of America; Complaint Showing that there’s No Honor Among Thieves (aka–in the absence of Fresh Carrion, The Vultures are starting to Feed on Each Other!)
November 30, 2009 · 4 Comments
Printable version attached:
DEUTSCHE BANK, AG, Plaintiff, v. BANK OF AMERICA, N.A. Defendant
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
DEUTSCHE BANK, AG,
Plaintiff,
v.
BANK OF AMERICA, N.A.
Defendant.
Civil Action No.: 09-cv-9784(RWS) ECF Case
COMPLAINT
Plaintiff Deutsche Bank AG (“DB”), by and through its attorneys, Williams & Connolly
LLP, as and for its Complaint against Defendant Bank of America, N.A. (“BOA”), as successor
in interest to LaSalle Bank, National Association, alleges as follows:
NATURE OF CASE
1. This is an action for (1) damages for breach of contract resulting from BOA’s
failure to secure and safeguard over $1.25 billion worth of cash and mortgage loans that it was
contractually obligated to secure on behalf of DB and (2) contractual indemnity for the losses
caused by BOA’s negligent performance of its duties to DB.
2. On December 13, 2007, DB invested $750 million in asset-backed commercial
paper (“ABCP”) issued by a special purpose entity called Ocala Funding, LLC (“Ocala”). On
June 30, 2008, DB increased this investment by approximately $450 million to a total
investment in Ocala’s ABCP of approximately $1.2 billion. On June 30, 2008, BNP Paribas
Bank (“BNP,” and collectively with DB the “Secured Parties”) also invested approximately
$481 million in the ABCP issued by Ocala. DB’s investment in Ocala was to be renewed on a
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monthly basis, and Ocala was required to maintain at least $1.25 billion in cash and collateral
as security against its obligations to DB.
3. Ocala was established for the sole purpose of providing funding for mortgage
loans originated by Taylor, Bean & Whitaker Mortgage Corp. (“TBW”). Mortgages purchased
by Ocala were required to conform to the requirements of, and were intended to be sold to, the
Federal Home Loan Mortgage Corporation (“Freddie Mac”), a government-sponsored entity
that is implicitly backed by the full faith and credit of the United States government.
4. Ocala’s ABCP was structured to minimize risks to DB’s investment. Robust
contractual mechanisms existed to ensure that DB’s investment would be protected from credit
risk, market risk, interest rate risk, the risk of bankruptcy by TBW, and the counterparty risk
associated with dealing with TBW as originator of the mortgages. In that regard, BOA
assumed the responsibility to act as trustee, collateral agent, custodian, and depositary agent on
behalf of the ABCP holders, including DB.
5. One vital mechanism protecting DB against risk was the requirement that DB’s
investment be at all times over-collateralized by a combination of cash and “dry” mortgages
purchased by Ocala. “Dry” mortgages are mortgages that have been reviewed by the lender
and are actually in the lender’s possession at the time the mortgage loan is acquired by the
lender. By contrast, “wet” funding of mortgages is riskier from the lender’s perspective
because financing is provided to a borrower before the mortgage note has been received and
reviewed by the lender (i.e., when the ink on the mortgage note is still “wet”). The lender
providing wet funding for TBW was Colonial Bank (“Colonial”). In making its investment in
Ocala on June 30, 2008, DB insisted that its investment be used only for dry mortgages.
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6. DB’s investment was further protected by the requirement that Ocala purchase
only mortgages that satisfied the requirements of Freddie Mac, and DB obtained assurances
from Freddie Mac that Freddie Mac would purchase mortgages held by Ocala in the event
TBW became ineligible to sell mortgages to Freddie Mac itself. In short, DB’s investment was
required at all times to be secured by a combination of cash and dry mortgages that readily
could be sold to Freddie Mac.
7. A number of protections existed to ensure the reliability of the collateral
securing DB’s investment. First, Ocala was permitted to purchase only fully-documented and
executed mortgages that were in the possession of a collateral agent representing the Secured Parties.
8. Second, the only purpose for which Ocala could use the funds invested by DB
(other than to repay DB or to cover other specified expenses) was to purchase such mortgages.
Any proceeds garnered from the subsequent sale of such mortgages were subject to the same limitation.
9. Third, the Ocala facility could continue operating only so long as the borrowing
base of cash and mortgages allocated to DB as collateral totaled at least $1.25 billion (the
“Borrowing Base Condition”). If the Borrowing Base Condition was not satisfied, the trustee
would trip this “circuit breaker” to suspend any further outflow of cash and to prevent the
automatic monthly renewal of DB’s investment.
10. These carefully crafted safeguards protecting DB’s investment from risk were
only as reliable as the gatekeeper who administered them. To ensure that Ocala complied with
these measures, DB relied on a credit-worthy trustee/custodian/collateral and depositary agent
to serve as the gatekeeper that would at all times control: (1) the flow of mortgages into and out
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of Ocala; (2) the mortgages and cash that were to be held to secure DB’s investment; and (3) all
accounts in which Ocala’s funds were to be held or to which they were to be distributed.
11. BOA, as successor-in-interest to LaSalle Bank, N.A., assumed this gatekeeper
role. By way of a series of contracts that governed the existence and activities of Ocala, BOA
accepted the responsibility to enforce the provisions that had been designed to protect DB’s
investment. BOA represented that it would perform its duties with due care, and was obligated
by the contracts to do so. It was BOA’s charge to ensure that Ocala at all times retained cash
and mortgages totaling at least $1.25 billion to secure DB’s investment (“DB Collateral”).
12. DB trusted that BOA, one of the nation’s largest and most well-known financial
institutions, would perform the gatekeeper function reasonably and responsibly. DB’s
confidence was echoed by Moody’s Investors Service, which, in assigning Ocala an investment
grade rating, emphasized the importance of BOA’s role and stated that risk to DB and other
noteholders was “mitigated by the resources, capability and credit strength of BOA as the
trustee, collateral agent, depositary and custodian to provide critical program support services,
including: certifying the borrowing base and checking the delinquency triggers before the
issuance of Ocala’s ABCP; checking in the loan files and creating a collateral transmittal
report; and managing the orderly wind-down of the program.” Moody’s ABCP Market Review
(July 13, 2009).
13. As it turned out, the faith of DB and other investors was misplaced. In myriad
ways, BOA failed to carry out its various duties designed to protect DB’s investment, and these
failures substantially damaged Ocala and DB’s investment.
14. First, BOA transferred funds out of the Ocala accounts for unauthorized
purposes. Ocala was permitted to purchase only dry mortgages, so the only legitimate transfers
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to purchase mortgages for Ocala were those made to an account specified on a bailee letter
from the lender who provided the wet funding for the mortgage. Because Colonial was the
source of wet funding for TBW, BOA knew that there was only one such account—Account
No. 8026069354 held at Colonial called the Investor Funding Account (the “Colonial IFA”)—
into which Ocala funds could be transferred to purchase mortgages for Ocala. BOA
nonetheless transferred hundreds of millions of dollars of DB’s investment to other accounts
with no connection to Ocala’s purchase of mortgages. Further, notwithstanding the express
prohibition on Ocala’s purchase of wet mortgages, BOA nonetheless transferred more than $1.7
billion to a TBW account that BOA knew was used for wet funding of mortgages. Finally,
even when BOA transferred funds to the Colonial IFA, the size of the transfers, contrary to the
requirements of the Ocala transaction documents, usually bore no relationship at all to the value
of mortgages that BOA understood were to be purchased by Ocala.
15. Second, BOA failed to track and document properly the purchase and sale of
mortgages as would be required for it to report accurately and protect adequately the Secured
Parties’ beneficial interest in the mortgages. As late as July 2009, BOA represented to DB that
BOA had control of mortgages valued at over one billion dollars securing DB’s investment. In
August 2009, following the bankruptcy of TBW, it was revealed that with respect to the great
majority of those mortgages, BOA either never had control of them in the first place or already
had sold them to Freddie Mac.
16. Third, BOA breached its express obligation to be able at all times to report to
Ocala and its investors the status of mortgages held by BOA for the benefit of the investors.
Not only did BOA breach this duty, it actually reported on a daily basis to DB that BOA was
holding certain loans as security for DB’s investment when, in reality, these loans already had
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been sold to third parties. These misrepresentations led DB to believe that its investment was
at all times secured by $1.25 billion of collateral and hid the fact that an event of default
already had occurred under the Ocala facility documents that would have given DB the right to
accelerate the repayment of DB’s investment.
17. Fourth, BOA knew or should have known that the Borrowing Base Condition
was not satisfied for many months prior to the ultimate shut-down of the Ocala facility in
August 2009. Yet, during that period BOA repeatedly certified and/or confirmed that the
Borrowing Base Condition was satisfied. As a result, DB’s investment continued to roll over
on a monthly basis, and BOA continued to transfer funds out of Ocala that would have been
frozen had BOA correctly reported that the Borrowing Base Condition was not satisfied.
18. Fifth, BOA failed to segregate and account for the cash and collateral securing
DB’s investment. The Ocala transaction documents required that funds invested by DB and
BNP and all mortgages purchased with such funds were to be accounted for separately to
protect DB’s and BNP’s security interests in their respective investments. BOA nonetheless
regularly commingled the funds and failed to segregate effectively the parties’ collateral. As a
result, BOA has been unable to allocate between DB and BNP what cash and collateral remains
in the Ocala accounts at BOA.
19. In short, BOA had the responsibility for (1) taking possession of mortgages,
checking them for completeness and compliance with the Ocala requirements, (2) paying for
fully-documented and executed mortgages by sending the appropriate amount to the Colonial
IFA, (3) preventing the transfer of Ocala funds for any purpose beyond what was contractually
specified, (4) ensuring that mortgages thus purchased remained within BOA’s control and/or
subject to a BOA lien until BOA obtained payment for such mortgages from a third party, (5)
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reporting accurately to DB the status of the collateral, (6) properly segregating the collateral
securing DB’s and BNP’s respective investments, and (7) renewing those investments on a
monthly basis only if the borrowing base fully secured those investments. BOA failed to
comply with its contractual obligation to perform these tasks and to do so with due care.
20. Instead, BOA’s breaches of its contractual obligations and negligent acts and
omissions were the direct and proximate cause of the loss of DB’s investment in Ocala. On
August 20, 2009, based upon an event of default, the Ocala ABCP held by DB totaling
$1,201,785,714 became immediately due and payable. As a direct result of BOA’s contractual
breaches, Ocala was unable to pay this amount and failed to pay this amount to DB. This
Complaint seeks to remedy that wrong.
PARTIES
21. Deutsche Bank is a bank organized under the laws of the Federal Republic of
Germany with a branch at 60 Wall Street, New York, New York 10005.
22. Bank of America is a bank organized under the laws of the State of North
Carolina with a branch a 9 West 57th Street, New York, New York 10019. Bank of America is
successor in interest to LaSalle Bank, National Association, and assumed, by operation of law,
all of the liabilities and obligations of LaSalle Bank, National Association. BOA has done and
is doing business in the State of New York.
JURISDICTION
23. Personal jurisdiction over the defendant is proper in this Court because Bank of
America conducts business in New York and has agreed in Section 10.09 of the Second
Amended and Restated Security Agreement to irrevocably and unconditionally submit itself to
the jurisdiction of this Court.
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24. This Court has diversity jurisdiction pursuant to 28 U.S.C. § 1332(a) as the
controversy is between a citizen of a State and a citizen of a foreign state and Plaintiff seeks
damages in an amount well in excess of $75,000.
25. Venue is proper under 28 U.S.C. § 1391(a), as BOA is a corporation subject to
personal jurisdiction in this District, and therefore is deemed a resident of this District pursuant
to 28 U.S.C. § 1391(a).
26. Venue in this district is also proper because BOA consented to the jurisdiction
of this Court pursuant to Section 10.09 of the Second Amended and Restated Security
Agreement, which provides:
EACH PARTY HERETO HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK AND OF ANY NEW YORK STATE COURT SITTING IN
NEW YORK CITY FOR PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO
THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH
PARTY HERETO HEREBY CONSENTS TO PROCESS BEING
SERVED IN ANY SUIT, ACTION OR PROCEEDING WITH
RESPECT TO THIS AGREEMENT, OR ANY DOCUMENT
DELIVERED PURSUANT HERETO BY THE MAILING OF A
COPY THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, RETURN RECEIPT REQUESTED, TO ITS
RESPECTIVE ADDRESS SPECIFIED AT THE TIME FOR
NOTICES UNDER THIS AGREEMENT OR TO ANY OTHER
ADDRESS OF WHICH IT SHALL HAVE GIVEN WRITTEN OR
ELECTRONIC NOTICE TO THE OTHER PARTIES. THE
FOREGOING SHALL NOT LIMIT THE ABILITY OF ANY
PARTY HERETO TO BRING SUIT IN THE COURTS OF ANY JURISDICTION.
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Section 17 of the Series 2008-1 Depositary Agreement contains a substantially similar forum
selection provision.
FACTUAL ALEGATIONS
I. Introduction
27. Prior to filing for protection under Chapter 11 of the United States Bankruptcy
Code on August 25, 2009, TBW had been the 12th-largest mortgage originator in the U.S. and
third largest source for FHA loans, and had originated thousands of residential mortgages each
year. As of August 4, 2009, TBW was servicing more than 400,000 mortgages with unpaid
principal balances in excess of $80 billion.
28. In order to originate mortgages in such volumes, TBW required access to
abundant and reliable financing. In or about April 2005, the Ocala facility was created by
Lehman Brothers, at the direction of TBW, to serve as a single-seller whole-loan mortgage
warehouse conduit for TBW. Ocala would issue and sell ABCP, the proceeds of which were to
be used to provide financing for fixed-rate Freddie Mac conforming mortgages originated by TBW.
29. On December 13, 2007, DB purchased $750 million of ABCP issued by Ocala
in the form of “Secured Liquidity Notes.”
30. Around six months later, on June 30, 2008, DB agreed to invest an additional
$450 million in Ocala’s ABCP. Following this additional investment, DB held Secured
Liquidity Notes with a face value of $1,201,785,714. Also on June 30, 2008, BNP purchased
Secured Liquidity Notes with a face value of $480,700,000.
31. Both DB and BNP renewed their investments in the Ocala ABCP on June 30, 2009.
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32. The Secured Liquidity Notes purchased by DB were designated “Series 2008-1”
(such notes are hereinafter referred to as “DB Secured Liquidity Notes”). The collateral
securing DB’s investment was also identified with the designation “Series 2008-1.”
33. The Secured Liquidity Notes purchased by BNP were designated “Series 2005-
1” (such notes are hereinafter referred to as “BNP Secured Liquidity Notes”). The collateral
securing BNP’s investment was also identified with the designation “Series 2005-1.”
34. The Secured Liquidity Notes, Ocala’s use of the funds provided to it thereby,
and other critical aspects of the Ocala facility were established and governed by a set of
agreements entered into on or about June 30, 2008 (“Ocala Agreements”). The Ocala
Agreements amended and restated the agreements that had governed the Ocala facility prior to
June 30, 2008.
35. The basic operation of the Ocala facility was fairly straightforward. Using the
funds that had been invested by DB, Ocala was to purchase dry mortgages from TBW. Any
mortgages thus acquired would constitute collateral securing DB’s investment. Ocala would
then sell the mortgages to Freddie Mac. The proceeds of such sales also constituted collateral
securing DB’s investment. As long as the Borrowing Base Condition was satisfied, the
proceeds of such sales could be used by Ocala to purchase additional mortgages from TBW,
and the cycle would begin anew.
36. A set of “Swap Agreements” served to transfer to TBW all market risk relating
to the mortgages purchased by Ocala. Whether mortgages were sold for more or less than
expected, under the Swap Agreements, it would have no ultimate consequence for the value of
the DB Collateral or DB’s return on its investment. The strict over-collateralization
requirements in conjunction with the Swap Agreements provided assurance that when DB
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redeemed the DB Secured Liquidity Notes, it would recover its entire $1.2 billion principal investment.
37. In short, as long as BOA performed its various roles under the Ocala
Agreements with appropriate care, DB’s principal investment was to be fully secured and
protected, and DB would receive the interest payments provided for in the Secured Liquidity Notes.
II. The Ocala Agreements
38. The Ocala Agreements executed on or about June 30, 2008 included the following:
a. The Second Amended and Restated Mortgage Loan Purchase and
Servicing Agreement (“MLPSA”) was entered into between Ocala, as Purchaser, and TBW, as
Seller and Servicer. DB was expressly designated as a third-party beneficiary of the MLPSA in
Section 12.15.
b. The Second Amended and Restated Security Agreement (“Security
Agreement”) was entered into between Ocala, as Issuer, and BOA, as Indenture Trustee and
Custodian. DB was expressly designated as a third-party beneficiary of the Security
Agreement in Section 10.18.
c. The Second Amended and Restated Custodial Agreement (“Custodial
Agreement”) was entered into among Ocala, as Issuer, TBW, as Seller and Servicer, and BOA,
as Custodian and Collateral Agent. DB was expressly designated as a third-party beneficiary of
the Custodial Agreement in Section 25. Furthermore BOA, as Custodial Agent, agreed to
indemnify DB against any losses that DB may sustain to the extent attributable to BOA’s
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“negligence, fraud, bad faith or willful misconduct” in the performance of its duties as
Custodial Agent. Custodial Agreement § 17.
d. The Second Amended and Restated Base Indenture (“Base Indenture”)
and the Series 2008-1 Supplement to the Base Indenture were entered into between Ocala, as
Issuer, and BOA, as Indenture Trustee and Paying Agent. DB was expressly designated as a
third-party beneficiary of the Base Indenture in Section 13.20.
e. The Series 2008-1 Depositary Agreement (“Depositary Agreement”)
was entered into between Ocala, as Issuer, and BOA, as Series 2008-1 Depositary. DB is a
third party beneficiary of the Depositary Agreement pursuant to an indemnification provision in
Section 8(g). Furthermore, the Indenture Trustee is a third-party beneficiary of the Depositary
Agreement that may enforce its provisions under Section 15. DB, as the beneficiary of the
Base Indenture, may enforce the rights of the Indenture Trustee under the Depositary
Agreement because BOA’s dual role as both Indenture Trustee and Depositary Agent creates,
with respect to the Depositary Agreement, a conflict of interest for BOA as Indenture Trustee.
III. Parties to the Ocala Agreements
39. The parties to the Ocala Agreements each performed multiple roles with respect to the Ocala facility.
40. DB, by virtue of its investment of $1.2 billion and acquisition of the DB Secured
Liquidity Notes, obtained rights and privileges under the Ocala Agreements as a “Noteholder,”
a “Series 2008-1 Senior Noteholder,” a “Required Senior Noteholder,” and a “Secured Party.”
41. DB also was a party to the Swap Agreements that served to relieve investors in
Ocala’s ABCP of market risk relating to the mortgages acquired by Ocala. Pursuant to those
agreements, DB held the roles of “Front Swap Counterparty” and “Back Swap Counterparty.”
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DB’s participation in these two agreements was part of an arrangement that served to transfer
all market risk regarding the value of mortgages from Ocala to DB, and then from DB to TBW.
42. Ocala primarily performed three roles.
a. As “Purchaser,” Ocala would buy from TBW mortgages that would then
be sold directly or indirectly to Freddie Mac.
b. As “Issuer,” Ocala issued ABCP, including the Secured Liquidity Notes.
c. As “Front Swap Counterparty,” Ocala was insulated against any market
risk. Ocala would not have to absorb various types of potential losses on the mortgages, and by
the same token, would not be able to retain potential profits on the mortgages.
43. TBW primarily performed three roles.
a. As “Seller,” TBW would originate mortgages and sell those mortgages to Ocala.
b. As “Servicer,” TBW serviced loans held by Ocala, performing such
functions as collecting monthly loan payments from mortgagees, handling mortgagees’ escrow
accounts, and paying taxes and insurance from such escrow accounts.
c. As “Back Swap Counterparty,” TBW took on all market risk related to
DB’s investment by agreeing to absorb various types of potential losses on the mortgages. By
the same token, TBW would receive any potential profits on the mortgages.
44. BOA assumed several pivotal roles through which BOA was to secure the DB
Collateral, as well as manage and oversee the accounts into which proceeds from the sales of
loans by Ocala were deposited and from which payments for the purchase of mortgages were drawn:
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a. As “Collateral Agent,” BOA assumed responsibility to hold for the
benefit of DB the security interest in mortgages purchased by Ocala using funds invested by
DB, among other responsibilities, and was authorized to serve as an agent of DB. As Collateral
Agent, BOA also held and controlled the funds generated by DB’s investment and the
subsequent sale of mortgages, and was permitted to transfer those funds only under certain
specified conditions and for limited purposes. See Security Agreement §§ 4.01-4.10, 5.01-5.07.
b. As “Custodian,” BOA assumed responsibility to review loan files before
they were purchased by Ocala to ensure they complied with the Ocala Agreements, among
other responsibilities, and was required to take possession of the mortgages and loan documents
acquired by Ocala and hold them for the benefit of the Collateral Agent as representative of
DB. See Custodial Agreement §§ 3, 20.
c. As “Indenture Trustee,” BOA assumed numerous responsibilities in
connection with the Ocala facility, including the establishment and maintenance of accounts
necessary to allocate and distribute interest payable to the Ocala investors. Base Indenture §
5.1; Base Indenture Supplement § 3.5(a), (b).
d. As “Depositary,” BOA was required, among other responsibilities, to roll
over the Secured Liquidity Notes on a monthly basis only after certifying that (i) it had all the
necessary information to certify the Borrowing Base Condition and (ii) the Borrowing Base
Condition was, in fact, satisfied.
e. As “Paying Agent,” BOA assumed responsibility to pay DB amounts
owed to it pursuant to the Ocala Agreements. Base Indenture Supplement §§ 3.3(b), (d); 3.4(b), (d).
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IV. Cash and Collateral Cycle
45. The Ocala Agreements and various bailee letters accompanying the transfer of
mortgages established a predictable cycle of cash and collateral through the Ocala facility.
46. TBW would originate a mortgage with wet funding provided by Colonial, i.e.,
TBW would transfer Colonial funds to the borrower at the closing while the loan documents
were still being signed.
47. In exchange for providing the funds for the closing, Colonial obtained a security
interest in the mortgage thus originated. Once closing was complete and the promissory note
and other loan documents had all been signed, the complete set of loan documents was
delivered to Colonial.
48. After receiving the loan documents, Colonial would then deliver the loan
documents to BOA as Custodian for Ocala accompanied by a bailee letter (“Colonial Bailee
Letter”) indicating that the loan documents were being transferred under bailment, subject to
Colonial’s security interest. The Colonial Bailee Letter provided that Colonial would release
its security interest in the loan documents upon payment of and confirmed receipt of a specified
“takeout amount” that represented Ocala’s purchase of the mortgages. The Colonial Bailee
Letter provided very precise instructions to BOA as to how payment was to be made, and
explicitly stated that Colonial’s security interest in the loan documents would be released only
if BOA made full payment “as set forth” in the Colonial Bailee Letter. The Colonial Bailee
Letters required that the necessary payment be transmitted to the Colonial IFA.
49. The Ocala Agreements required TBW to provide BOA with a Transfer
Supplement, which was a list of mortgages that TBW proposed that Ocala purchase on any given day.
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50. Within two business days of receipt of the loan documents (via the Colonial
Bailee Letter) for the mortgages listed on the applicable Transfer Supplement, BOA, as
Custodian, was required to review the loan documents and deliver a certificate to the Collateral
Agent (also BOA) certifying whether it had received all of the loan documents related to the
mortgage to be purchased and specifying any deficiencies in the loan documents.
51. Once BOA, as Custodian, confirmed that the loan documents were complete
(i.e., that the mortgages were now dry), BOA, as Collateral Agent, was to transmit to Colonial
the takeout amount, drawn on the appropriate sub-account of the Ocala collateral account
(“Collateral Account”) held at BOA—the sub-account either of DB (the “DB Sub-Account”
or BNP (the “BNP Sub-Account”).
52. BOA was permitted to transfer funds to Colonial only after it had confirmed that
BOA was in possession of all necessary loan documents such that once BOA paid the correct
take-out amount, it would become the owner of the mortgages for the benefit of Ocala.
53. Pursuant to the Colonial Bailee Letter, once BOA transmitted the correct takeout
amount to Colonial in accordance with the instructions in the Colonial Bailee Letter, Colonial’s
security interest in the loan documents would be released.
54. By operation of the Ocala Agreements, Ocala immediately pledged any
mortgage thus purchased, including the loan documents, to BOA as the Collateral Agent on
behalf of the appropriate Secured Party under the Security Agreement.
55. The Ocala facility was not permitted to hold mortgages and loan documents for
longer than sixty (60) days, and only 10% by value of the mortgages held by Ocala were
permitted to be held longer than thirty days. MLPSA, Ex. H. The expectation of all parties
was that shortly after purchasing a mortgage, Ocala would sell the mortgage to Freddie Mac.
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56. At the start of the sale process, BOA, as Collateral Agent, would deliver the loan
files to Colonial subject to a form of bailee letter required by the Custodial Agreement (“BOA
Bailee Letter”). Custodial Agreement, Ex. E. The BOA Bailee Letter specified that BOA
retained its security interest in the loan documents until payment was made pursuant to the
instructions in the letter. The BOA Bailee Letter required that, within fifteen days, Colonial, as
Freddie Mac’s agent, either return the mortgages or remit payment.
57. Freddie Mac could pay for the mortgages in two ways. First, if Freddie Mac
were simply purchasing the mortgage for its own account, it would pay with cash deposited
directly into the Ocala Collateral Account at BOA. Alternatively, if mortgages acquired by
Freddie Mac were part of a group of mortgages being bundled together as part of a
securitization, Freddie Mac would deliver a trust certificate to Bank of New York, the securities
clearing agent, who would transmit the proceeds of the sale of this certificate to Colonial,
which would then in turn transmit the proceeds to the Ocala Collateral Account.
58. BOA’s security interest in the mortgages was to be released only upon payment
by Colonial of the purchase price specified in the applicable BOA Bailee Letter.
59. The proceeds of the sale of the mortgage to Freddie Mac were then to be
deposited in the sub-account of the Ocala Collateral Account from which the funds to purchase
that mortgage originally had been drawn.
V. BOA’s Breach of Its Contractual Duties
60. BOA—like all of the parties to the Ocala Agreements—understood and agreed
that the primary “purpose” of the Security Agreement, as clearly stated in its Recitals, was
“securing and providing for the repayment of all amounts at any time and from time to time
owing by the Issuer to each [Secured Party].” Indeed, the entire Ocala facility was directed at
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only two purposes: to provide liquidity for TBW to originate mortgages and to protect the
Secured Parties’ investment.
61. BOA’s responsibilities and duties under the Ocala Agreements were likewise
intended to provide multiple layers of protection to preserve the Secured Parties’ investment.
BOA was required to carry out these responsibilities and duties with appropriate care, and each
one of the Ocala Agreements provided that BOA could be liable in the event it performed those
duties negligently.
62. With respect to virtually every key contractual duty required of it under the
Ocala Agreements, BOA failed to act with appropriate care. BOA’s negligence subverted the
key protections upon which DB depended. BOA’s breaches of its contractual duties and
negligence in performing those duties caused DB’s investment in Ocala to become severely
under-collateralized and directly has resulted in Ocala being unable to pay amounts owed to
DB under the DB Secured Liquidity Notes.
A. Improper Transfer of Funds from the Collateral Account
63. To protect the funds in the Collateral Account and DB Sub-Account that
ultimately would be used to repay the approximate $1.2 billion in principal invested by DB, the
Ocala Agreements imposed very strict and very clear restrictions on the purposes for which the
funds could be used.
64. Section 8.28 of the Base Indenture permitted funds invested by DB to be used
for two, and only two, purposes:
Section 8.28 Use of Proceeds of Notes. The
Issuer shall use the proceeds of Notes solely for
one or more of the following purposes: (a) to pay
the Issuer’s Obligations when due, in accordance
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with the Security Agreement; and (b) to acquire
Mortgage Loans from the Seller.
65. Control of all of the funds invested by DB was entrusted to BOA, as Collateral
Agent. Section 5.01 of the Security Agreement provides that BOA as Collateral Agent was
required to maintain “a special purpose trust account in the name of and under the control of,
the Collection Agent on behalf of the Secured Parties (said account being herein called the
“Collateral Account” . . .) and sub-accounts thereof for each of the Series 2005-1 Purchased
Assets and the Series 2008-1 Purchased Assets.”
66. Section 5.01 of the Security Agreement further provides that BOA, as Collateral
Agent, “shall have complete dominion and control over the Collateral Account and the Issuer
hereby agrees that only the Collateral Agent may make withdrawals from the Collateral Account.”
67. Section 5.03 of the Security Agreement authorizes BOA to make withdrawals or
transfers from the Collateral Account and/or DB and BNP Sub-Accounts only for certain
enumerated purposes. The only permitted transfers out of the Collateral Account and/or the
DB and BNP Sub-Accounts for purposes other than the purchase of mortgages were limited
transfers to Ocala swap transaction participants and the holders of Ocala ABCP and
subordinated notes in accordance with the Ocala Agreements. The only legitimate transfer out
of the Collateral Account and/or the DB and BNP Sub-Accounts to third parties other than
those swap transaction participants and the holders of Ocala ABCP and subordinated notes was
for the purchase of dry mortgages.
68. BOA knew that the only manner in which dry mortgages could be purchased
from TBW was through payments to the Colonial IFA. BOA knew this because all mortgages
TBW delivered to BOA as Custodian for review and potential purchase by Ocala were
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accompanied by Colonial Bailee Letters specifying that payment for the mortgages had to be
directed to the Colonial IFA, and that only payment to that exact account would result in the
release of Colonial’s security interest in the mortgages.
69. Despite this knowledge, since June 30, 2008, BOA nonetheless transferred more
than $3.7 billion from the Collateral Account and/or the DB and BNP Sub-Accounts to
accounts that had no legitimate basis for receiving such funds under the Security Agreement
and that were not related to the purchase of dry mortgages for Ocala. These improper transfers included:
a. Approximately $1.7 billion to TBW Account No. 722347.2 (the “Wet
Funding Account”) held at BOA that was used to provide wet funding for mortgages.
b. Approximately $837 million to a “FHLMC P&I Custodial Account,” an
account to accumulate principal and interest for loans serviced by TBW for Freddie Mac;
c. Approximately $675 million to a “Custodial Funds Clearing Account,”
an account for the initial deposit of funds relating to mortgages serviced by TBW;
d. Approximately $445 million to a “Colonial Master Account,” an account
to fund loans made to settlement agents (i.e., the title company or attorney closing the loan for TBW);
e. Approximately $58 million to a “Colonial Operating Account,” an
account to fund TBW’s operating expenses; and
f. Approximately $2.5 million to an “ITF Henley Holdings Account,” an
account to accumulate principal and interest relating to loans serviced for Henley Holdings LLC.
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70. These unauthorized transfers began on July 1, 2008, the day after the Ocala
Agreements became effective, and continued through August 2009.
71. Moreover, between June 30, 2008 and August 4, 2009, BOA transferred over $1
billion to Colonial and other banks in numerous transfers of whole/round number amounts that
bore no relation to any purchase of mortgages. Whole/round number transfers to purchase
mortgages would be highly unusual because the aggregation of individual mortgages
themselves would not typically be expected to result in whole/round number amounts.
72. Furthermore, the payments made by BOA to the Colonial IFA on a daily basis
bore no relationship to the value of the mortgages being purchased. On average, BOA, on
behalf of Ocala, would receive approximately $40-50 million of mortgages for purchase each
day. In order to pay for those mortgages, BOA was required to pay an amount equal to the face
value of the mortgages to the Colonial IFA.
73. On some days, BOA failed to transmit the funds to the Colonial IFA necessary
to complete the purchase of those mortgages. For example, on February 27, 2009, BOA
transmitted only $8.8 million to Colonial despite the fact that BOA’s records indicated that
$54.5 million in mortgages were acquired from Colonial that day for the benefit of DB. By
failing to transmit payment for the mortgages, BOA prevented Ocala from perfecting the
security interests in those mortgages that was intended to serve as the primary collateral for
DB’s investment. BOA nonetheless represented in daily reports to DB that the security
interests had been perfected by accounting for the mortgages as collateral securing DB’s investment.
74. On other days, BOA transmitted far more money to the Colonial IFA than was
warranted to purchase the mortgages that BOA’s records indicate were acquired by BOA for
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the benefit of Ocala. For example, on May 29, 2009, BOA transmitted the large sum of $690
million to the Colonial IFA, despite the fact that BOA’s own records indicate that only $36.7
million in mortgages were acquired from Colonial that day for the benefit of Ocala. By
conducting such transfers, BOA permitted the funds invested by DB to be transferred out of
Ocala without obtaining mortgages in return.
75. Prior to June 30, 2008, the agreements governing Ocala permitted it to purchase
wet mortgages, and, prior to June 30, 2008, BOA regularly transferred Ocala funds to the Wet
Funding Account to purchase wet mortgages.
76. The Ocala Agreements that became effective on June 30, 2008, however,
prohibited the purchase of wet mortgages and, therefore, prohibited the transfer of Ocala funds
to the Wet Funding Account. After June 30, 2008, BOA disregarded this requirement and
nonetheless continued to transfer Ocala funds to the Wet Funding Account in contravention of
the Ocala Agreements. In fact, on July 1, 2008, the day after the Ocala Agreements became
effective, BOA transferred $63,939,570 from the DB Sub-Account to the Wet Funding
Account.
77. The transfer of funds by BOA out of the Collateral Account and/or DB and BNP
Sub-Accounts to accounts that BOA knew or should have known had no permissible purpose,
and to the Colonial IFA in amounts that bore no relationship to the value of mortgages
supposedly being purchased, was a direct cause of the loss of the DB Collateral and, therefore,
the loss of a substantial portion of DB’s investment in Ocala.
78. Under the Security Agreement, BOA was not authorized to release any Ocala
funds for the purchase of mortgages unless the Borrowing Base Condition was satisfied. From
June 30, 2008 through August 2009, BOA regularly breached its obligation to ensure that no
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funds were transferred from the Ocala Collateral Account or the DB or BNP Sub-Accounts
when the Borrowing Base Condition was not satisfied. BOA’s transfer of Ocala funds out of
the Collateral Account the DB or BNP Sub-Accounts in contravention of this obligation
directly and proximately caused the loss of a substantial portion of DB’s investment in Ocala.
B. BOA’s Misrepresentations of the State of DB Collateral
79. As both Custodian and Collateral Agent, BOA was required to know at all times
which mortgages it physically held at its facility, which mortgages had been delivered under
the required BOA Bailee Letter and which mortgages had been purchased by third parties.
80. During the summer of 2008, DB requested that BOA provide it with a daily list
of the mortgage loans and cash held by BOA as DB Collateral, so that DB would know on a
daily basis that its investment was secured by $1.25 billion of collateral in accordance with the
Ocala Agreements.
81. BOA was required under the Custodial Agreement to have such information
readily available. Section 9.1 of the Custodial Agreement required BOA to be able to provide
to Ocala, upon one business day’s notice, a list of all mortgages held for the benefit of DB,
including all mortgages “paid off, repurchased, sold or otherwise released by [BOA].”
Custodial Agreement § 9.1. In other words, BOA was required to be able to tell Ocala and its
investors at any given time the status of the mortgages held by BOA as collateral for the benefit of investors.
82. In connection with its duties under the Custodial Agreement, BOA agreed to
provide DB with a daily report of all such mortgage loans (the “BOA Loan Reports”), and
began transmitting these reports to DB in September 2008. The BOA Loan Reports listed each
mortgage loan held by BOA for the benefit of DB, and noted whether the loan was either still
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in the physical possession of BOA or out to a prospective third party purchaser pursuant to a
BOA Bailee Letter. Having assumed this additional daily reporting obligation, BOA was
required to perform it in a non-negligent manner.
83. In August 2009, after TBW collapsed, DB discovered that the BOA Loan
Reports were false. For example, the August 12, 2009 BOA Loan Report showed that there
was approximately $1,160,530,265 in mortgages securing DB’s investment. BOA’s own
internal information, however, shows that at least $470 million of these mortgages already had
been delivered and sold to Freddie Mac at least two weeks prior to the date of the BOA Loan
Report and so could not have constituted collateral securing DB’s investment. Further, on
information and belief, as of August 12, 2009, there were virtually no mortgages held by BOA
to secure DB’s investment.
84. This false reporting of the state of the collateral securing DB’s investment began
almost a year prior to TBW’s collapse. For example, on September 15, 2008, the date on
which BOA delivered the first BOA Loan Report, BOA represented that the amount of
mortgages securing DB’s investment was approximately $1,147,268,192. BOA’s own internal
information, however, shows that only about half of these mortgages totaling about $538
million were either still on hand or had not been delivered and/or sold to Freddie Mac.
85. On information and belief, hundreds (and potentially all) of the BOA Loan
Reports delivered by BOA to DB during the period between September 15, 2008 and August 4,
2009 were similarly false.
86. Had BOA properly reported the amount of mortgages securing DB’s investment,
DB would have known of the under-collateralization of its investment, and could have
prevented the loss of its investment.
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C. BOA’s Failure to Secure the Mortgages
87. As both Custodian and Collateral Agent, BOA was responsible for maintaining
custody and control of the mortgages that secured DB’s investment.
88. In August 2009, however, after TBW and Colonial collapsed, DB discovered
that BOA did not have ownership, possession, or control of virtually any of the mortgages that
were listed on the BOA Loan Reports.
89. BOA has been unable to produce the mortgages that it represented to DB as
being held by BOA on behalf of DB. Moreover, BOA has been unable to account for where
the mortgages are or even to establish that the mortgages were ever purchased by Ocala.
90. BOA’s inability to produce or account for the mortgages that were supposed to
be the collateral for DB’s investment stems from, among other things, BOA’s failure to keep
records concerning the purchase and sale of mortgages on behalf of Ocala.
91. With respect to the purchase of mortgages, BOA failed to maintain the internal
documentation necessary to establish Ocala’s ownership of purchased mortgages. BOA
recently admitted to DB that it failed to maintain loan level detail with respect to the mortgages
it purchased. As such, BOA has been unable to prove with specificity that it paid for any
particular mortgage or that it was paid by third parties for particular mortgages.
92. BOA also failed to obtain documentation from third parties necessary to
establish Ocala’s purchase and ownership of mortgages. BOA failed to obtain letters from
Colonial confirming Colonial’s release of its security interest with respect to particular
mortgages for which BOA transmitted payment to Colonial.
93. BOA’s failure to obtain such documentation was particularly egregious because
BOA was fully aware that Colonial was TBW’s and/or Freddie Mac’s agent with respect to the
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sale of mortgages by Ocala to Freddie Mac. BOA, therefore, would have to transfer mortgages
back to Colonial (as Freddie Mac’s agent) pursuant to a BOA Bailee Letter after having
purchased the mortgages from Colonial (as TBW’s agent). The possibility existed that once
BOA transferred the mortgages to Colonial, Colonial could assert ownership of the mortgages
and refuse to either return the mortgages or remit payment received from Freddie Mac for the
mortgages unless BOA could prove that Colonial’s security interest had been released. This
made it even more critical that BOA document that it properly had taken the steps necessary to
release Colonial’s security interest in the mortgages, and that Colonial had in fact released that interest.
94. On information and belief, Colonial, and/or the Federal Deposit Insurance
Corporation (“FDIC”) acting as receiver for Colonial, asserts that mortgages for which BOA
claimed to have paid Colonial, and in which BOA claimed to hold a security interest on behalf
of DB, in fact, belonged to Colonial. Colonial, and/or the FDIC acting as receiver for Colonial,
contend that BOA never remitted payment to Colonial as required in the Colonial Bailee
Letters pursuant to which the mortgages had initially been transferred by Colonial to BOA.
95. BOA also failed to maintain proper documentation and to track mortgages over
which it had asserted control and that it subsequently released to prospective third-party purchasers.
96. Pursuant to Section 8 of the Custodial Agreement, BOA as Custodian was
authorized to release mortgages to prospective third-party purchasers only if BOA
accompanied delivery of the mortgage with a BOA Bailee Letter to be executed by the
purchaser. BOA was further required to collect all transmittal letters executed by prospective
third-party purchasers.
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97. The contractually-required form of the BOA Bailee Letter was set forth in
Exhibit E to the Custodial Agreement, and provided that the third-party purchaser either return
the mortgage or remit the sales proceeds within fifteen days from the date of the letter. Section
8 of the Custodial Agreement further required that if a prospective third-party purchaser to
whom BOA as Custodian delivered mortgages for review did not proceed with the proposed
purchase, the mortgages were to be returned promptly to BOA as Custodian.
98. BOA as Custodian and Collateral Agent failed to ensure that third-party
purchasers to whom it had transmitted loans for purchase complied with the fifteen-day time
period. On information and belief, BOA failed even to collect executed copies of transmittal
letters. The failure of BOA as Custodian and Collateral Agent to promptly recover the
mortgages from third-party purchasers after the fifteen-day time period had passed was a
breach of BOA’s contractual duties and duty of due care and violated customary standards
applicable to an entity charged with maintaining continuous custody and control of mortgages.
99. BOA further breached its duties as Custodian and Collateral Agent by failing to
keep track of the Ocala mortgages that were being sold to Freddie Mac. In connection with
those sales, Freddie Mac required that BOA submit a specific form of release known as Form
996E, which contained a list of the mortgages to be sold to Freddie Mac. In contravention of
its contractual duties, BOA failed to keep track of or verify when these Form 996Es were being
submitted to Freddie Mac and which Ocala mortgages were to be sold to Freddie Mac.
100. In dereliction of its responsibilities as Custodian and Collateral Agent, BOA
regularly made no effort to recover mortgages worth hundreds of millions of dollars delivered
to prospective third-party purchasers for review, even after sixty days or more had elapsed
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without the prospective purchasers remitting payment or returning the mortgages as required by
the BOA Bailee Letters.
101. By August 12, 2009, BOA had allowed approximately $158 million of
mortgages delivered by it to prospective third-party purchasers to remain outstanding for more
than sixty days, notwithstanding the fifteen-day limit set forth in the BOA Bailee Letters.
When Colonial went into FDIC receivership, it was too late for BOA to recover the mortgages.
102. As Custodian and Collateral Agent, BOA’s negligent failure to maintain custody
and control of Mortgages in accordance with the Ocala Agreements, the contractually required
BOA Bailee Letters, and customary standards caused the loss of the DB Collateral and,
therefore, the loss of a substantial portion of DB’s investment.
D. BOA’s False Certifications of the Borrowing Base Condition
103. BOA also failed to properly carry out another of its key responsibilities—the
responsibility to review, certify, and/or confirm that the Borrowing Base Condition was met. If
BOA had correctly calculated the Borrowing Base Condition, it would have been required to
take actions that effectively would have shut down the Ocala facility and prevented any further
depletion of the DB Collateral.
104. The Borrowing Base Condition was a built-in “circuit breaker” that was
designed to prevent further deterioration of the cash and collateral in the event that the cash and
collateral securing DB’s investment declined to the point that repayment of DB’s principal was at risk.
105. The Borrowing Base Condition was a calculation that essentially measured the
indebtedness of Ocala (primarily consisting of its obligations to noteholders) against its assets
(primarily consisting of cash and mortgages). This would reveal whether the DB Secured
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Liquidity Notes were adequately secured in accordance with the Ocala Agreements. If DB’s
investment was not so secured, then the facility would be in violation of the Borrowing Base
Condition, and this would trigger two important consequences: (1) the Secured Liquidity Notes
would not be rolled over, but instead would become immediately due and payable, and/or (2)
no new purchases of mortgages would be permitted, thus halting Ocala’s outlay of further cash,
unless and until the Borrowing Base Condition was again satisfied.
106. It was BOA’s contractual responsibility to ensure that the Borrowing Base
Condition was satisfied before permitting the Secured Liquidity Notes to be rolled over or
permitting Ocala to transfer funds for the purpose of purchasing additional mortgages.
107. Pursuant to Section 4(d) of the Depositary Agreement, BOA as Depositary was
precluded from issuing or delivering any Secured Liquidity Notes unless it received from Ocala
a completed certificate demonstrating that the Borrowing Base Condition was met, and then
BOA “upon review, determined that it can (and it does) certify as to [satisfaction of the
Borrowing Base Condition]” The Secured Liquidity Notes had a thirty day maturity. Thus,
each month BOA had the obligation to review and certify a calculation establishing whether the
DB Secured Liquidity Notes were secured by $1.25 billion of collateral.
108. As BOA acknowledged orally to DB and in a letter to BNP dated March 27,
2009, BOA’s duty to certify whether the Borrowing Base Condition was met pursuant to
Section 4(d) of the Depositary Agreement “play[ed] an important role in mitigating the risks”
that the Secured Parties “would otherwise incur.”
109. Furthermore, pursuant to Sections 5.03(a) and (b) of the Security Agreement,
BOA as Collateral Agent was precluded from transferring or withdrawing funds from the
Collateral Account and/or the DB and BNP Sub-Accounts for the purpose of enabling Ocala to
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purchase additional mortgages from TBW unless the Borrowing Base Condition was met.
Thus, on every occasion BOA transferred funds to pay for Ocala’s acquisition of new
mortgages, BOA was required first to confirm whether the DB Secured Liquidity Notes were fully secured.
110. BOA regularly certified and/or confirmed that the Borrowing Base Condition
was met when, based on BOA’s own information, BOA knew or should have known that, in
fact, the Borrowing Base Condition was far from satisfied. The key to the Borrowing Base
Condition was determining whether Ocala actually held $1.25 billion in cash and mortgages
securing the DB Secured Liquidity Notes. This was a determination that only BOA could make
because only BOA knew what mortgages it held in its vault and which mortgages already had
been sold to Freddie Mac. BOA knew what mortgages had been sold to Freddie Mac because,
as a condition of each sale to Freddie Mac, BOA was required to execute a Freddie Mac Form
996E that served as a release of the security interest in the Ocala mortgages to be sold to Freddie Mac.
111. On information and belief, from June 30, 2008, through August 4, 2009, BOA,
on hundreds of occasions, either falsely certified or failed in its contractual duty to confirm that
the Borrowing Base Condition was satisfied.
112. BOA has failed to provide DB with the vast majority of Borrowing Base
Condition certificates. The few certificates that BOA provided are clearly and demonstrably
false showing that DB’s investment was severely under-collateralized:
a. On May 20, 2009, BOA certified that it held mortgages worth
$1,134,028,581 as DB Collateral. In reality, on May 20, 2009, BOA knew or should have
known that it held or had a lien on approximately $547 million in mortgages as DB Collateral.
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b. On June 20, 2009, BOA certified that it held mortgages worth
$1,208,009,892 as DB Collateral. In reality, on June 20, 2009, BOA knew or should have
known that it held or had a lien on approximately $440 million in mortgages as DB Collateral.
c. On June 30, 2009, BOA certified that it held mortgages worth
$1,226,886,314 as DB Collateral. In reality, on June 30, 2009, BOA knew or should have
known that it held or had a lien on approximately $468 million in mortgages as DB Collateral.
d. On July 20, 2009, BOA certified that it held mortgages worth $1,216,398,908
as DB Collateral. In reality, on July 20, 2009, BOA knew or should have known that it held or
had a lien on approximately $476 million in mortgages as DB Collateral.
113. On information and belief, between June 30, 2008 and August 4, 2009, BOA
falsely certified that the Borrowing Base Condition was satisfied at least thirteen times when, in
fact, the Borrowing Base Condition was not satisfied.
114. Had BOA acted with due care in reviewing the Borrowing Base Condition,
BOA would have known that it could not certify and/or confirm that the Borrowing Base
Condition had been met. By operation of the Ocala Agreements, the “circuit breaker” then
would have tripped, shutting down further financing and further purchases of mortgages and
minimizing losses to the collateral. BOA’s failure to perform its obligations with respect to
reviewing, certifying, and confirming the Borrowing Base Condition prevented those
safeguards from taking effect, resulting in the loss of a substantial portion of DB’s investment.
E. BOA’s Failure to Segregate Loans and Proceeds
115. The Ocala Agreements required that DB’s investment and BNP’s investment be
kept separate. This was necessary to ensure that the cash and collateral separately securing the
DB and BNP Secured Liquidity Notes would be identifiable. If cash and collateral were not
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carefully and accurately identified and segregated, it would be difficult or impossible to know
which Secured Party had a secured interest in any particular cash or collateral, and the
possibility of competing claims could arise.
116. The Security Agreement contained provisions that, if adhered to, would preclude
any chance of such confusion or commingling of funds. Pursuant to Section 5.01 of the
Security Agreement, BOA as Collateral Agent was required to maintain two distinct sub-
accounts of the Collateral Account; one relating to the Series 2005-1 Collateral (the BNP Sub-
Account) and the other relating to the Series 2008-1 Collateral (the DB Sub-Account).
117. Careful segregation by BOA of cash and collateral was essential not only to
identifying each Secured Party’s individual security interests, but also to key operational
aspects of the Ocala facility.
118. For example, most of the authorized purposes for which funds could be
transferred out of the Collateral Account pursuant to Section 5.03 of the Security Agreement
make reference to the specific DB and BNP Sub-Account from which funds can be drawn to
make such payment.
119. Most critically, Section 5.03 required that only funds from the DB Sub-Account
be used to fund the purchase of Series 2008-1 Mortgage Loans, and, similarly, that only funds
from the BNP Sub-Account be used to fund the purchase of Series 2005-1 Mortgage Loans.
120. Thus, as a practical matter it was also necessary for BOA as Collateral Agent,
Indenture Trustee, and Custodian to track whether mortgages being purchased correlated to
Series 2005-1 or Series 2008-1, because BOA had to ensure that funds were withdrawn from
the appropriate DB or BNP Sub-Account to purchase any given loan, and that the proceeds
from the sale of such a loan were deposited in the appropriate DB and BNP Sub-Account.
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121. BOA acted in disregard of its contractual duty to maintain the DB and BNP Sub-
Accounts separately, and to withdraw from and deposit into the DB and BNP Sub-Accounts the
appropriate funds. On information and belief, BOA did not just commingle the accounts—it
made no meaningful attempt to segregate either mortgages purchased or the proceeds from sale of mortgages.
122. BOA’s failure to segregate appropriately the mortgages and funds became
evident after an event of default under the Base Indenture was declared in August 2009. At that
time, BOA had not allocated between the DB and BNP Sub-Accounts what few mortgages and
funds remained in its possession. BOA’s initial effort at allocation—a simple 50/50 split of
mortgages and funds between the two accounts (disregarding that DB’s investment was more
than twice the size of BNP’s investment) revealed the extent to which BOA had disregarded its
duties to keep loans and mortgages properly segregated. BOA quickly withdrew that arbitrary
allocation. To date, BOA has been unable or unwilling to make a proper allocation of the
mortgages and funds.
123. As a result of BOA’s failure to properly segregate the mortgages and funds,
BOA has impaired DB’s security interest in the mortgages and funds that should have properly
been segregated into the DB Sub-Account. BOA’s continuing delay in allocating the
mortgages and funds has caused and continues to cause damage to DB.
VI. BOA’s Failure to Pay Amounts Due under the Secured Liquidity Notes
Following Ocala Default
124. On or about August 4, 2009, the FHA announced that it had disqualified TBW
from making FHA-insured loans, stating that TBW had failed to submit a required financial
report and to disclose certain irregular transactions that raised concerns of fraud. Shortly
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thereafter, Freddie Mac and the Government National Mortgage Association terminated TBW
as a servicer of their mortgages and barred TBW from selling mortgages to them.
125. On August 4, 2009, the New York Times reported that the FBI and the Special
Inspector General of the Treasury Department’s Troubled Asset Relief Program had raided
Colonial and TBW.
126. On information and belief, on August 6, 2009, BOA requested that Colonial
return all of the loans held by Colonial pursuant to the BOA Bailee Letters. The vast majority
of these loans had been out to Colonial on BOA Bailee Letters for more than 60 days, grossly
exceeding the fifteen-day limitation set forth in the BOA Bailee Letter.
127. On August 7, 2009, Colonial BancGroup disclosed that it was the target of a
criminal investigation by the U.S. Department of Justice relating to its mortgage lending unit
and related accounting irregularities, and that it might be placed under receivership.
128. On August 10, 2009, BOA as Indenture Trustee declared an indenture event of
default stating that the notes were due and payable because of TBW’s loss of approved seller status.
129. On August 14, 2009, Colonial was closed by the Alabama State Banking
Department, and the FDIC was named Receiver.
130. On August 20, 2009, the outstanding DB Secured Liquidity Notes in the amount
of $1,201,785,714 held by DB became immediately due and payable. Ocala has failed to pay
this amount.
131. On August 24, 2009, TBW filed for relief pursuant to Chapter 11 of the United
State Bankruptcy Code in the United States Bankruptcy Court for the Northern District of
Florida.
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132. To date, BOA has failed to recover any DB Collateral and to pay the amounts
due to DB under the DB Secured Liquidity Notes.
COUNT I
BREACH OF CONTRACT (SECURITY AGREEMENT)
133. Plaintiff repeats and realleges each and every allegation above as if fully set
forth herein.
134. DB was expressly designated as a third-party beneficiary of the Security
Agreement. Security Agreement §§ 10.08, 10.18.
135. BOA understood that a primary “purpose” of the Security Agreement was
“securing and providing for the repayment of all amounts at any time and from time to time
owing by the Issuer to each [Secured Party].” Security Agreement at 1.
136. The Security Agreement created a continuing security interest in the Collateral
in favor of BOA for the benefit of the Secured Parties. Security Agreement, Sched. III, § 1.
The Security Agreement provided that BOA, as Collateral Agent, was an agent of each of the
Secured Parties. Id.
137. BOA was required to exercise due care in performing its duties under the
Security Agreement. If BOA failed to perform those duties and/or was negligent in performing
those duties, the Security Agreement provides that BOA would be liable to DB for resulting
damages.
a. Pursuant to Section 4.10 of the Security Agreement, BOA is liable for
negligent actions taken or omitted to be taken by it relative to the DB Collateral.
Case 1:09-cv-09784-UA Document 1 Filed 11/25/2009 Page 35 of 44
36
b. Pursuant to Section 8.01 of the Security Agreement, BOA is liable for
actions taken or omitted to be taken by it as Collateral Agent that are negligent, fraudulent, in
bad faith, or that constitute willful misconduct.
138. BOA breached its duties under the Security Agreement and was negligent in
performing those duties, including by:
a. Failing to ensure that the security interest it held on behalf of the Secured
Parties was perfected by obtaining written confirmation from Colonial that it had released any
security interest in mortgages for which BOA paid Colonial; and
b. Failing to keep accurate and adequately detailed records sufficient to
permit BOA to establish and prove with specificity the security interest it held on behalf of the
Secured Parties.
139. BOA violated the Security Agreement by transferring funds out of the Collateral
Account and/or the DB and BNP Sub-Accounts to accounts and for purposes not specifically
permitted by the relevant provisions of the Security Agreement, including by:
a. Pursuant to Section 8.28 of the Base Indenture, BOA was aware that
Ocala was prohibited from using the proceeds of the Secured Liquidity Notes for any reason
other than (a) to pay obligations owed by Ocala under the Security Agreement to security
holders and (b) to acquire dry mortgages from TBW.
b. BOA was permitted to transfer funds only for the purposes established in
Sections 5.03(a) and (b) of the Security Agreement. The sole purpose for which funds could be
transferred (other than in connection with the internal operation of the facility) was for the
purchase of dry mortgages. BOA was aware that dry mortgages could be purchased only by
transfer of funds to the Colonial IFA Account.
Case 1:09-cv-09784-UA Document 1 Filed 11/25/2009 Page 36 of 44
37
c. BOA transferred hundreds of millions of dollars to accounts that BOA
knew or should have known were unrelated to any of the purposes enumerated in Sections
5.03(a) and (b) of the Security Agreement. Every transfer by BOA of funds out of the
Collateral Account and/or the DB and BNP Sub-Accounts to such accounts violated Sections
5.03(a) and (b) of the Security Agreement.
d. BOA transferred more than $1.7 billion to the Wet Funding Account for
the purchase of wet mortgages when BOA knew that the Ocala Agreements prohibited the
purchase of wet mortgages.
140. BOA violated Sections 5.03(a) and (b) of the Security Agreement by
transferring funds out of the Collateral Account and/or the DB and BNP Sub-Accounts when
BOA knew or should have known that the Borrowing Base Condition was not satisfied and that
funds in the Collateral Account and/or the DB and BNP Sub-Accounts could therefore not be
used to purchase mortgages.
141. BOA violated Sections 5.01 and 5.03 of the Security Agreement by failing to
properly segregate mortgages it purchased and funds it received from the sale of such
mortgages as between the DB Sub-Account and the BNP Sub-Account.
142. As a result of its contractual breaches, BOA directly and proximately caused the
loss of a substantial portion of the cash and mortgages from which Ocala was required to repay
the DB Secured Liquidity Notes, and to which DB would have had recourse in the event of a
failure by Ocala to repay the DB Secured Liquidity Notes.
Case 1:09-cv-09784-UA Document 1 Filed 11/25/2009 Page 37 of 44
38
COUNT II
BREACH OF CONTRACT (DEPOSITARY AGREEMENT)
143. Plaintiff repeats and realleges each and every allegation above as if fully set
forth herein.
144. Pursuant to Section 8(g) of the Depositary Agreement, DB is a third party
beneficiary of the Depositary Agreement. Section 8(g) specifically provides DB the right to be
indemnified for losses to Ocala caused by BOA’s negligence under the Depositary Agreement.
145. Furthermore, Section 15 of the Depositary Agreement provides that the
Indenture Trustee is a third-party beneficiary of the Depositary Agreement that may enforce its
provisions. The Indenture Trustee is obligated to act for the benefit of the Secured Parties, but
BOA, as Indenture Trustee, is incapable of doing so here due to the fact that BOA has a conflict
and cannot sue itself. Because BOA faces an irreconcilable conflict rendering it unable to carry
out its duty as Indenture Trustee, DB, as the beneficiary of the Base Indenture, is entitled to
assert the Indenture Trustee’s rights under Section 15 directly against BOA as Depositary.
146. BOA was required to exercise due care in performing its duties under the
Depositary Agreement. If BOA was negligent in performing those duties, the Depositary
Agreement provides that BOA would be liable to DB for resulting damages.
a. Pursuant to Section 8(d) of the Depositary Agreement, BOA is liable for
actions taken or omitted to be taken by it as Depositary that are negligent, fraudulent, in bad
faith, or that constitute willful misconduct.
b. Pursuant to Section 8(d) of the Depositary Agreement, BOA must
indemnify DB against any losses sustained by the Issuer attributable to BOA’s negligence,
fraud, bad faith, or willful misconduct in the performance of its duties.
Case 1:09-cv-09784-UA Document 1 Filed 11/25/2009 Page 38 of 44
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c. Pursuant to Section 11(d) of the Depositary Agreement, BOA is liable
for errors in judgment made by in good faith by a responsible officer if BOA was negligent in
ascertaining the pertinent facts or in making such judgment based on available facts.
147. BOA breached its duties under the Depositary Agreement and was negligent in
performing those duties, including by:
a. Falsely certifying on a monthly basis that the Borrowing Base Condition
was satisfied pursuant to Section 4(d) of the Depositary Agreement when BOA knew or should
have known that the Borrowing Base Condition had not been satisfied.
b. Improperly issuing on a monthly basis new Secured Liquidity Notes
pursuant to Section 4(d) of the Depositary Agreement when BOA knew or should have known
that the Borrowing Base Condition had not been satisfied.
148. As a result of its contractual breaches, BOA directly and proximately caused the
loss of a substantial portion of the cash and mortgages from which Ocala was required to repay
the DB Secured Liquidity Notes, and to which DB would have had recourse in the event of a
failure by Ocala to repay the DB Secured Liquidity Notes.
COUNT III
BREACH OF CONTRACT (CUSTODIAL AGREEMENT)
149. Plaintiff repeats and realleges each and every allegation above as if fully set
forth herein.
150. The Custodial Agreement provides that DB is entitled to the rights and benefits
of the Custodial Agreement and may enforce the provisions of the Custodial Agreement as if it
were a party. Custodial Agreement § 25.
Case 1:09-cv-09784-UA Document 1 Filed 11/25/2009 Page 39 of 44
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151. BOA was required to exercise due care in performing its duties under the
Custodial Agreement. If BOA failed to perform those duties and/or was negligent in
performing those duties, the Custodial Agreement provides that BOA would be liable to DB for
resulting damages.
a. Pursuant to Section 19(c) of the Custodial Agreement, BOA is liable for
actions taken or omitted to be taken by it as Custodian that are negligent, fraudulent, in bad
faith, or that constitute willful misconduct.
b. Pursuant to Section 17 of the Custodial Agreement, BOA must
indemnify DB as a Secured Party against any losses sustained by Ocala attributable to the
Custodian’s negligence, fraud, bad faith, or willful misconduct in the performance of its duties
as Custodian.
c. Pursuant to Section 6(b)(i) of the Custodial Agreement, BOA was
required to maintain continuous custody and control of the Mortgages on behalf of Ocala
subject to the security interest of the Collateral Agent in accordance with customary standards
for such custody, and was liable for any loss resulting from the Custodian’s negligence or misconduct.
152. BOA violated Section 8 of the Custodial Agreement by either releasing
Mortgages to third-party purchasers without transmittal letters in the form specified by Exhibit
E to the Custodial Agreement and/or by failing to collect from the third-parties the executed
transmittal letters.
153. BOA violated Section 8 of the Custodial Agreement by failing to ensure that
prospective third-party purchasers to whom it had transmitted loans for purchase either returned
Case 1:09-cv-09784-UA Document 1 Filed 11/25/2009 Page 40 of 44
41
the mortgages or remitted payment for the mortgages within the fifteen day time period set
forth in the required transmittal letters.
154. BOA breached its duties under the Custodial Agreement and was negligent in
performing those duties, including by:
a. Failing to obtain and/or keep records adequate to identify the mortgages
purchased by Ocala and held by BOA;
b. Failing to obtain and/or keep records adequate to demonstrate that
Colonial had released its security interest in mortgages for which BOA transferred payment to
Colonial and of which BOA took possession on behalf of Ocala;
c. Failing to ensure that with respect to mortgages released by BOA to
third-party purchasers as bailees, BOA recovered either the mortgage or the proceeds from the
sale of the mortgage; and
d. Misrepresenting to DB on a daily basis that BOA had custody and
control of DB Collateral over which it knew or should have known it did not have custody or control.
155. BOA negligently performed the daily reporting obligation it expressly undertook
to provide in connection with its performance under the Custodial Agreement.
156. As a result of its contractual breaches, BOA directly and proximately caused the
loss of a substantial portion of the cash and mortgages from which Ocala was required to repay
the DB Secured Liquidity Notes, and to which DB would have had recourse in the event of a
failure by Ocala to repay the DB Secured Liquidity Notes.
Case 1:09-cv-09784-UA Document 1 Filed 11/25/2009 Page 41 of 44
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COUNT IV
INDEMNIFICATION
157. Plaintiff repeats and realleges each and every allegation above as if fully set forth herein.
158. Pursuant to Section 8(g) of the Depositary Agreement, Section 17 of the
Custodial Agreement, and Section 8.05 of the Security Agreement, BOA must indemnify DB
against any losses attributable to the BOA’s negligence, fraud, bad faith, or willful misconduct
in the performance of its duties.
159. BOA was negligent in performing its duties as Depositary, Custodian and
Collateral Agent, including by:
a. Falsely certifying on a monthly basis that the Borrowing Base Condition
was satisfied pursuant to Section 4(d) of the Depositary Agreement when BOA knew or should
have known that the Borrowing Base Condition had not been satisfied.
b. Improperly issuing on a monthly basis new Secured Liquidity Notes
pursuant to Section 4(d) of the Depositary Agreement when BOA knew or should have known
that the Borrowing Base Condition had not been satisfied.
c. Failing to obtain and/or keep records adequate to identify the mortgages
purchased by Ocala and held by BOA as Custodian;
d. Failing to obtain and/or keep records adequate to demonstrate that
Colonial had released its security interest in mortgages for which BOA transferred payment to
Colonial and of which BOA took possession on behalf of Ocala;
Case 1:09-cv-09784-UA Document 1 Filed 11/25/2009 Page 42 of 44
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e. Failing to ensure that with respect to mortgages released by BOA to
third-party purchasers as bailees, BOA either recovered the mortgage or the proceeds from the
sale of the mortgage; and
f. Providing false reports to DB indicating that BOA had custody and
control of DB Collateral over which it knew or should have known it did not have custody or control.
160. As a result of its negligence, BOA directly and proximately caused the loss of a
substantial portion of the cash and mortgages from which Ocala was required to repay the DB
Secured Liquidity Notes, and to which DB would have had recourse in the event of a failure by
Ocala to repay the DB Secured Liquidity Notes.
161. BOA is required to indemnify DB for this loss and has failed to do so.
Case 1:09-cv-09784-UA Document 1 Filed 11/25/2009 Page 43 of 44
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RELIEF REQUESTED
Wherefore, Plaintiff prays for relief and judgment as follows:
a. An award of compensatory damages and other damages available by law
in an amount to be proved at trial, plus pre-judgment interest as permitted by law;
b. An award of Plaintiff’s attorneys’ fees, costs and other expenses; and
c. Such other and further relief as is just and proper.
Dated: November 25, 2009
WILLIAMS & CONNOLLY LLP
By:
William E. McDaniels
Stephen D. Andrews
Stephen P. Sorensen
Daniel M. Dockery
Katherine O’Connor (KL-0902)
725 Twelfth Street, N.W.
Washington, DC 20005
Telephone: (202) 434-5000
Facsimile: (202) 434-5029
ssorensen@wc.com
sandrews@wc.com
ddockery@wc.com
Attorneys for Plaintiff Deutsche Bank, AG
Case 1:09-cv-09784-UA Document 1 Filed 11/25/2009 Page 44 of 44
Categories: Uncategorized
Tagged: angry investors, Bank of America, Deutsche Bank, failure to transfer funds, fraudulent accounting, Ocala Agreements, securitized mortgages, Southern District of New York, United States District Court
Exploring the Writ of Quo Warranto, Ninth Amendment (Legacy of Barnett v. Obama)
November 30, 2009 · Leave a Comment
Before Dr. Orly Taitz and I parted company on November 4, 2009, we were discussing the possibility of filing a Petition for Writ of Quo Warranto in the District of Columbia. There are many reasons why such a Petition should be tried, but laying the groundwork for invalidating Barack Obama’s actions as President is the primary one. The proposed Copenhagen climate accords and treaty could well be, as Lord Monckton and many others have suggested, the death knell of national identity and freedom in America, and with America goes the rest of the world. As a good friend writes from Texas,
America is a nation of Koolaid drinking fools and morons. Republicans rejected Ron Paul and the Constitution. That tells me that the GOP base is just as delusional as the Democratic base. Americans consistently vote away their liberty to any socialist or statist, regardless of political party. They are so morally and intellectually weak that they have totally succumbed to enslavement and a police state. At least Obama is waking up the living dead. In that respect, his election was a wake-up call for those among us who even care.
I don’t know about the “Koolaid drinking” element of this generalization, but it is very true that the slide into ignominy is moving very quickly in this Country. I support anyone who is willing to pursue quo warranto in rational, carefully thought out, and well-planned constitutional litigation. The writ of quo warranto in the hands of the people is or should be, as the papers drafted in Barnett v. Obama advocated, critical to the maintenance of democracy in the United States. Dr. Orly Taitz has shown that she is unwilling and unable to do what is necessary. Who will stand up to the plate and hit the ball? Plaintiffs’ Sur-Reply 10-01-09; Flast v Cohen Doc 69 Response to Motion to Dismiss 09-21-09.doc”
Categories: Uncategorized
Why Tierra Limpia and Deo Vindice Supported Constitutional Eligibility Litigation
November 30, 2009 · 2 Comments
The Tierra Limpia Trust and Deo Vindice exist to advocate and support the restoration of an economy based on hard capital investment and productivity rather than soft credit debt and monetary inflation.
In the last quarter of the 20th century, after two full centuries of incredible economic and political achievement, the United States of America effectively died as an Industrial power and ceased producing new wealth. The successive monetary policies of the Carter, Reagan, Bush, Clinton, Bush, and Obama administrations have sought to camouflage this reality by replacing productivity with inflationary extensions of ersatz credit, based on nothing more than the “full faith and credit” of the United States government. It is a tribute to the prestige accumulated by American Government and Industry over the previous two centuries that the “full faith and credit” cushioned the American people from the massive exportation of U.S. productivity to Japan, Korea, China, India, and to a lesser degree, Latin America, but the effective financial “pyramid” or Ponzi scheme was doomed to failure.
That failure finally crystallized and became embedded in cement during the administration of George W. Bush, when one final explosion of inflationary credit fueled one final decade of consumerist splurging based on one sole economic indicator alone: home constructions and home sales. Previously underdeveloped areas from the Florida Gulf Coast along the US 19-US 90 Corridors from Naples and Pinellas (St. Petersburg) to Pensacola, to every last unconstructed acre of Orange, Riverside, San Diego, and San Bernardino Counties in California and Colin, Montgomery, and Williamson Counties in Texas were filled by 2005-2006 with excess construction of apartment complexes, modest homes, and even mass produced “McMansions”—the demand for which was only created by extensions of credit unthinkable in a stable or governmentally unsubsidized “free capitalistic” economy. There was no new American capital except for credit, and the home construction boom of the first decade of the new millennium was farcical for its transparent pointlessness. The politicians and bankers simply sought to pad a few more “fat” years onto the lean and muscular monuments of American achievement, the machinery of which ground to a halt just in time for the bicentennial.
One of the inventions of the last quarter of the 20th century was the derivative security, which permitted investment bankers and stockbrokers to continue peddling stocks and bonds to the drunken, gambling, “casino” society of the 1980s and ‘90s, and thus permitted the Dow Jones Industrial Average and NASDAQ to continue to rise when new issues based on new industrial innovation or productive strategies of any kind were simply unthinkable.
The cynic would say that capitalism had reached its apogee, and the only “innovators” were those last capitalists whom Lenin had predicted would sell the rope to the communists with which to hang the last capitalists. And those “last capitalists” were the investment bankers and lawyers who formulated the derivatives, whose purpose was, essentially, to act as the noose around the neck of capitalism which would strangle private property and bourgeois freedom, and snap the neck of all the productive energy or initiative that remained in the American population.
So derivative securities were invented to convert ersatz credit into asset-backed securities—reclassifying debt with majestic Orwellian inverted newspeak as wealth, and denigrating all capital accumulations as takeover targets to be leveraged and “bought out.” Excessive credit would rapidly absorb all remaining equity in the bankrupt capitalist world, and communism or some state-controlled form of corporate socialism would emerge from the wreckage. That is the world we live in now.
When first introduced to her, after learning of her one-woman crusade, we supported the efforts of Dr. Orly Taitz to void the election of 2008 as procured by fraud and the inauguration of January 20, 2009, as carried out under false pretenses. Because this political position may have at first appeared to some to have nothing to do with our primary mission of restoring integrity to the financial system, and in the process saving people’s homes and property from wrongful foreclosure, a few words of explanation at this time would appear to be necessary.
Anyone who knows the history of the words “Deo Vindice” know that no nation can long survive on credit unsupported by commercial viable production of capital, but at this point in history, the United States has been operating without any net production of capital for at least thirty years.
Deo Vindice and the Tierra Limpia Trust exist to advance and support the proposition that hard capital monetary policy stands as the rock solid foundation of freedom and liberty on the one hand, and the rational guarantor of justice and fairness on the other. We believe that many artificial differences between left and right in this country would be erased by the “old time religion” of genuine capitalism based on production of wealth rather than pure consumption. In fact, all good things flow from rational economics, and rational economics can only arise in a productive environment. For example, many on the so-called “left” believe that we are destroying the economy by reckless, irresponsible growth and use of resources.
Restoration of a substantive-based economy released from formal (and in fact governmentally monopolistic/despotic) restraints on creation of “money” and “creditworthiness” [based in large part on contributions of income to Social Security and through the income tax] will curb irrational growth based on frivolous extensions of credit for environmentally unsound projects. If we restore responsibility and self-reliance—people will not use their land or resources wastefully. There will be fewer or no cancerous growths of cardboard-cracker-box communities in Florida or Southeast-Texas & Louisiana swamps, North, Central, and West Texas grasslands, and the deserts of California, Arizona, and Nevada if there are no idiotic extensions of credit to “develop” them—and indeed, most recent economic “growth” and “business activity” in the U.S. can be traced to irresponsible building in such environmentally disadvantaged places. Hard money capitalists do not waste their hard capital—they do the best “cost-benefit” analyses possible and build and develop only where they can maximize the natural advantage of population and landscape. It is the U.S. Government which has fomented all these potentially disastrous, wasteful, and indeed ecologically unsound economic growth spurts in bad places—which are “bad” in so many different ways.
And it was for all these reasons of opposing economic recklessness spurred on by “incentive-based socialism” that Deo Vindice and Tierra Limpia briefly joined together with Dr. Orly Taitz and her “Defend our Freedoms Foundation” to attempt to remove, if we could, the de facto President Barack Hussein Obama.
Senator Barack Obama, even during the campaign of 2008, advocated the creation of an “Urban Development Bank” and it was at that moment that I knew this man was a terrible threat to the country.
Since taking office, the de facto President has accelerated spending to an incredible/unbelievable degree. This level of governmental interference and involvement in the economy has simply reached intolerable levels, barely six months after the inauguration of the “Brave New World” on January 20, 2009.
Dr. Orly Taitz, as an attorney, and her “Defend our Freedoms Foundation” appeared to want to take the lead in the fight against Obama. Orly sought my assistance and I, since late May/early June 2009, committed myself and the resources of Tierra Limpia/Deo Vindice to Orly’s crusade against the illegitimate and unconstitutional Presidency of Barack Obama, and Orly promised in turn expressly committed her status and standing as well her amazing courtroom presence and presentation to the cause of mortgage redemption and property vindication. We have now parted ways because Dr. Orly Taitz has reneged on her promises, and has in fact turned against us. The reasons for this sad turn of events are multifarious and complex, more personal than really political, and reflect the tragedy of human life that we are “human, all too human.” But Dr. Taitz has revealed some very strange and negative personality traits in her handling of all this—an irrational and vengeful side of herself which I suppose I saw all along, but in my infatuation with her qualities, willfully chose to ignore. Orly Taitz’ energy is a great asset, but she has neither the common sense nor the education nor the professional skills nor the self-discipline to make a major political or legal crusade work.
None of this actually changes the reality of why I believed in her, and why I continue to believe in the goals that we worked for. I would still like to find a backer willing to implement my own strategies of litigation against the de facto President, which would doubtless involve turning towards Washington D.C., and a Petition for Writ of Quo Warranto in the District of Columbia, as Leo Donofrio has consistently advocated, and as Orly and I discussed before our final “separation” on Wednesday, November 4, 2009, a perfidious day which will live in infamy along with December 7, 1941, at least in my own life and mind.
None of my basic purposes or programs have changed: I urge every reader to continually study and try to understand the complex relationship between politics, political-monetary policy and the current mortgage crisis. Current “soft credit” monetary policy is socialistic and therefore utterly incompatible with the traditional “Common Law” foundations of the economy in which “Fiat Money” (money created, just as God created light at the beginning of time [compare Genesis I in Jerome's Vulgate Bible "Fiat Lux"], from nothing). Barack Obama is the extremist of all extremists in the soft-money credit department.
Obama’s administration is struggling to uphold the rot of the soft-credit economy he inherited from an allegedly “Conservative Republican” President—a “Conservative Republican” who shunned all notions of true capitalism, individual responsibility, or adherence to the constitution. George W. Bush presided over a despicable decline in our Country’s moral fibre and economic integrity, but Barack Hussein Obama has taken office with the apparent intention and purpose of putting our beloved country “out of its misery”—the hard way….
What is the relevance of Obama’s birth certificate to monetary policy? Well, I personally despise Obama’s arrogance, repeatedly demonstrated lack of candor, and I submit that his unwillingness to disclose the true details concerning his birth arouse reasonable suspicions in many reasonable people, whether or not they actually evidence and bespeak technical constitutional ineligibility by reason of birth, to start off with. Such technical ineligibility might constitute a minor and possibly trivial reason to remove Obama compared to the character flaws, which his behavior unequivocally attests, regardless of the true facts of his birth.
If you or I were Obama, and you or I had been born in a foreign land, you or I should and (I hope!) would admit it and suggest that all Americans (even the Native Americans, if you trace them back far enough) eventually came from somewhere else, and that you or I should be deemed qualified based on our honesty, integrity and ability to do the job, and (again I hope!) that we would candidly but directly ask the people of the United States to accept one of us or both of us as an exception to the rule, or else to repeal the rule by Constitutional Amendment: “because it would be better to save the whole constitution regarding the will of the people and democratic elections by breaking a single clause, than to sabotage the constitution as a whole by obeying a single clause.”
But the truth is that Barack Obama has none of these qualities or qualifications, nor does he have the integrity or humility to speak the truth and be judged upon it. OBAMA’S REJECTION AND SUPPRESSION OF ALL QUESTIONS, his unwillingness to answer doubts about himself, his identity, his qualifications, or even his positions on the issues bespeaks an unconscionable arrogance utterly unacceptable in a democratic society. Even some supporters recognize and admit that Barack Obama’s attitude towards campaign promises is that it is laughable to expect a candidate to keep his word once elected.
More sinister it is, more damning we at Deo Vindice find it and charge that it is, that in the course of trying to verify Barack Hussein Obama’s identity, Dr. Orly Taitz has discovered and now presented to the United States District Court for the Central District of California some substantial and extensive evidence that Barack Hussein Obama and Michelle Obama have maintained dozens, perhaps hundreds, of apparently fictitious addresses throughout the United States associated with several dozen apparently fictitious social security numbers, and many fictitious employment positions. In other words, their entire lives appear to be tangled webs of bizarre and unfathomable lies.
His missing original birth certificate, the possibility that Barack Obama was born in Kenya or is otherwise classifiable as a foreign citizen residing illegally in the territory of the United States, pales in comparison with the notion that, prior to ascending to the Presidency, Barack Hussein Obama engaged in a pattern of consistent criminal conduct with regard to his identity which defies imagination.
We at Deo Vindice supported Dr. Orly Taitz’ litigation to prove that Barack Hussein Obama has engaged in, and in fact obtained the Presidency of the United States, through an unparalleled pattern of racketeering and related criminal conduct, and thereby inflicted irreparable injury on the United States and its people, and that he has nearly snuffed out the Constitution, not just in regard to his election, but every policy which he has pursued and implemented since his election.
His apparent crimes of manipulation of identity and social security numbers and employment bepeak all of the flaws and internal inconsistencies of the Federal Reserve—IRS—Social Security—Welfare-based economy. The manipulation of social security numbers is a crime unfathomable to any economy which was not based on redistribution of wealth. The tax and credit-based economy uses these identity numbers as measures or indices of wealth, but it is false wealth and false integrity to participate in a system which directly and proportionally punishes increasingly large accumulations of capital and ultimately seeks to destroy such accumulations, especially when coupled with private property.
It is our understanding of the fiat-money and non-capitalist but purely credit-based economic system and its relation to wealth and private property which has created Deo Vindice and Tierra Limpia and which impels them to specific action against mortgage fraud, and to general action against the fraudulent economy, which is so plainly the home and playground of Barack H. Obama.
Because only Dr. Orly Taitz appeared to have the courage and perseverance to expose the details behind Barack Obama’s career of lies and deception, we supported her litigation efforts with our labor, and we urged anyone who supported our program [namely our primary mission to redeem ownership and control property for the people from the government-sponsored banks and to destroy the false-money/house-of-credit cards economy once and for all] to support her.
We can no longer support Dr. Taitz because she has broken faith with us. She is engaged in the most absurd defamatory tactics and antics for the most absurd reasons. She is, I have discovered, largely and destructive controlled and manipulated in her actions and decisions by her dependence on her husband Yosef Taitz, who appears from what Orly says to be the very lowest and most degenerate kind of man. Orly took care that over five months of association I never met him, but his role in the demise of our cooperation was extremely clear. Orly’s energy and passion—so good, with such potential to be great. Orly’s aim and organization—disastrous. I had put a great deal of hope and aspiration in and relating to my alliance with her, but all these things are over now. She will not represent the Wells Fargo Class Action or any other mortgage litigation. She is actively trying to sabotage these causes by personal, vindictive attacks on me.
I can only reiterate that I am very, very interested in exploring the jurisprudence of quo warranto against Barack Obama, and would happily engage in dialogue with anyone interested in launching another round of litigation in Washington, D.C., either an army of pro se petitioners or a class represented by COMPETENT counsel.
Categories: Uncategorized
Imponderable Stones for Princeton University, Princeton NJ (CELIV, November 15, 2009))
November 25, 2009 · Leave a Comment
Using the quotation below as a jumping off point, tell us about an event or experience that helped you define one of your values or changed how you approach the world:
”Some questions cannot be answered./ They become familiar weights in the hand,/ Round stones pulled from the pocket, unyielding and cool.”1
- Jane Hirshfield, poet, Princeton Class of 1973
“Woman in Red Coat” from Of Gravity and Angels (Middletown, CT: Wesleyan University Press, 1988). ©1988 Jane Hirshfield. Reprinted by permission of Jane Hirshfield.
Imponderable Stones I have Cast into the Rhine (or Lake Travis)
What is right and what is wrong? What is good and what is evil? What is true and what is false? These are three of the imponderable cold pebbles I carry in my pocket. They are not small stones at all, depending on the day or the week or other goings-on in my life they seem more-or-less heavy but they never manage to rip through my clothes showing an easy answer, either. I do not even know what color they are. They just weigh down my pants while I’m walking through the woods, as really large collection of rocks did which I carried back from Glacier National Park in Montana a couple of weeks ago.
As I have been writing my college applications, I have repeatedly been confronted with defining myself and explaining who I am and why, aside from my grades and the academic skills which they may or may not prove I possess, why I should be admitted to the community of the learned, the few, the happy few, the band of brothers and sisters who attend really good colleges like Princeton for example.
(With all due apologies for butchering lines from Henry V, Act III, Scene 1).
What I have come up with is that there is nothing more unique about my life experience and background than the divorce proceedings between my parents which was not so much an event as a torturous process that started when I was barely three and ended, not with a bang but an imperceptible whimper, not by a final judgment but by simple exhaustion, when I was 15-16. I’m not sure anyone knew when it all ended. It just kind of stopped and my parents aren’t fighting anymore. They aren’t back together or anything. They just aren’t fighting and they can talk on the telephone and occasionally meet for lunch (without any lawyers or police being present!) and some uninformed observers might even mistake my parents for truly civilized human beings.
But throughout most of my conscious existence they spent a lot of time fighting and apparently made some small points in legal history relating to the relationship between family law and the bill of rights, family law and judicial immunity, child custody (that would be me!) and freedom of speech. I have been so privileged to have parents who cared about me enough to spend several successive 4-year college tuitions on trying to do what was best for me. And so, from my parents, in addition to all else they have taught me, and they’ve admittedly taught me a lot, I have also acquired a fairly uniquely bi-polar perspective on what is good and what is evil, what is right and what is wrong, what is true and what is false.
My conclusions are fairly simple and provide, I think, an easy formula or recipe to apply to the world stage: “right” is whatever prevents conflict and maintains peace, so conflict is always “wrong” except when fighting a war is the only possible road to honor and integrity, to the perfection of truth, justice, and the American way. The distinction is obvious, isn’t it? Peace is always “good” and war is always “evil” except when staying at peace permits our enemies to remilitarize the Rhineland (just to pick a wild example from 20th century history) and start up the Krupp Factories in the Ruhr again (even though during my lifetime the only products I ever see on store shelves are Coffee Makers and grinders and I really don’t see why we shouldn’t allow those to be mass-produced in times of war or peace).
Because, you see, when our enemies don’t seem to be doing anything, what they are really doing is preparing for war, in particular for a war of annihilation, because unconditional surrender is the only possible or acceptably just end to unjust war. And so, whenever we are in a truly just war, as against the Nazis (or the Confederates), the only just possibility is complete and absolute conquest, unconditional surrender, and the wall-to-wall destruction of the infrastructure of conquered lands.
So “good and evil” and “right and wrong” are relatively easy questions, but how about truth and falsehood? I have easy answers for those questions, too: “truth” is whatever you can get 7-12 people in a jury room to agree to, or a majority in Congress to vote to support; “false” is whatever our enemies believe.
Let me give you some “family law” or “domestic relations” examples of just how simple all of this is, and I’m happy to say that these stories have NO direct parallels in my family (that I know of) or my parents’ divorce, at all. (Now, remember, I’m writing from Texas so I won’t tell you what I’ve learned about love and sex, because that’s slightly more confusing: you see, here in Texas lots of our neighbors believe that God loves us all and that’s why we’re going to burn in Hell, you see, and further and additionally is that sex is the most awful, filthy thing on earth and for that very reason you should save it to share only with someone you love. I’m so happy to have grown up in Texas!)
From time immemorial, we all know as a matter of elementary “kinship” and morality that “Love” is good and “incest” is evil. As I may have mentioned elsewhere in this application, among my favorite music are the operas of Richard Wagner. Without any doubt, the grandest of all grand operas is Der Ring des Niebelung, a four part composition which only the strongest ubermenschen among opera-goers can manage to see within a single week. There is a love story and family history in Der Ring: Siegmund and Sieglinde are twin children of the King of the Gods, Wotan, who are separated from each other in childhood (they aren’t his children by his wife Freia, the goddess of marriage, they are “love children” by some “other woman” who’s really not part of the story at all). As a young girl, Sieglinde is married to a fairly unpleasant Bourgeois-Republican type of fellow by the name of Hunding, but at least they (like Wotan and his wife) have no children. One night a stranger shows up at the Hunding-Sieglinde home (which has a large Ash tree growing in the middle of an otherwise spotless household living room). Hunding is out and the stranger starts talking with Sieglinde. He’s young, tired, needs a drink, and soon realizes that Sieglinde is his sister and he is her brother and so they run away into the woods and conceive their own love-child named Siegfried. Loving his children very much, Wotan, pressured by his wife Freia (goddess of marriage), kills his son Siegmund while another of his (Wotan’s) love children Brunhilde (the most beautiful and valliant of the Valkyries) takes Sieglinde off to a safe place in the woods where Siegfried can be born, Sieglinde can die in childbirth, and give her son and his inheritance (a sword and some magical armor) to a dwarf who hasn’t much clue what to do with any of it. Wotan, ever the loving father, is angry that Brunhilde first protected Siegmund and then hid Sieglinde, but since this is his favorite love child he puts her to sleep on a rock surrounded by magic fire where she can only be awakened by a hero who knows no fear. This so far is only the story of ONE NIGHT out of the four comprising Der Ring des Niebelung.
In the next night, Siegfried is an adolescent who tries to figure out about life and love and finally meets his aunt (mother’s half-sister) Brunhilde and falls in love with her. He does this after proving to everyone in his world, including not only the opera audience but a dragon on his second career (he used to be an upscale-Home-building Giant), the dwarves and his father Wotan, that he is indeed the boy-hero who knew no fear predicted by German Folk-mythology. So in short, the product of incest, rather than being disfigured by genetic inbreeding, turns out to be the greatest hero known in history.
All of this is relevant to family law, domestic relations generally, and my parents’ divorce in particular, of course, because Wagner’s operas so clearly illustrate the lines between good and evil, right and wrong, truth and falsehood: they are essentially non-existent, and all depend upon perspective.
Love is great, but there was no greater love than the incestuous, illegal, and possibly genetically inadvisable love of Siegmund and Sieglinde. Family is great, but usually totally dysfunction, and that’s why Wotan and Freia, on the one hand, and Hunding and Sieglinde, on the other, are such completely lousy couples, while the law breakers—Siegmund and Sieglinde, on the one hand, and Siegfried and Brunhilde on the other, made (at least for two of the operas) such great love stories. Now never mind that in the final opera, Brunhilde arranges for Siegfried to be murdered by treachery and then, feeling so sorry about it all, immolates herself on Siegfried’s funeral pyre, or that this fire reaches up to Wotan’s Castle Valhalla where it presumably kills him and all the other gods, thereby bringing the “Ring” cycle to a “happy” ending because the Rhinegold was finally returned to nature—never mind all this because I wouldn’t finish telling the story until I had graduated college and finished law/med/graduate school (not one but ALL of them) if I tried to keep on writing.
So what I have learned about the imponderable stones is that “every thing that exists, comes to an end” and that anyone who believes firmly in good and evil, right and wrong, or truth and falsehood is either likely to spend 12 years in pointless litigation or to be burned up in a castle set on fire by the funeral pyre of one’s own children. And that is what I learned in life about unanswerable questions raised by my parents’ divorce.
Charles Edward Andrew Lincoln, IV (Submitted with Application to Princeton, November 15, 2009)
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Urban Lights at Los Angeles County Museum of Art—Charlie Lincoln IV and III
November 25, 2009 · Leave a Comment
Two Lamp-Post-Leaning Lincolns at LACMA by LA BREA in Los Angeles
After Sunset, around 6:45 PM, on Tuesday November 24, 2009—a great day in LA….
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CEL IV and CEL III at LACMA 11-24-09
November 25, 2009 · Leave a Comment
I've been waiting for this visit for so many years....
Ever since I attended High School in Los Angeles, back when Ronald Reagan was Governor of California, I have loved the Los Angeles County Museum of Art and the Getty Villa, which opened my last year. Since Charlie was born in Palm Beach, Florida, on the day hurricane Andrew blew through on the night of August 23-24, 1992, well, his mother and I haven’t spent a lot of time together, and that’s been one of the saddest aspects of my life, especially since she and I used to have so much fun together in Area Codes 213 and 310…. So many times I’ve walked around LACMA or the Museum of Natural History and the La Brea Tar Pits or the Getty Villa or the Santa Monica Pier or the Third Street Promenade or Westwood and wished my son were with me, and finally, today, he flew in from Austin, arriving at noon, and we spent the day beginning to make up for some lost time….
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Den Xero (“I do not know”) by Charlie (CEL IV) November 18, 2009
November 21, 2009 · Leave a Comment
French novelist Anatole France wrote: “An education isn’t how much you have committed to memory, or even how much you know. It’s being able to differentiate between what you do know and what you don’t.” What don’t you know?
DEN XERO
I choose to write on what I do not know, because that is the broadest of the three optional topics. What don’t know? I for sure don’t know the answer to the second question, because for every good bit of advice I’ve ever been given, there’s at least one and sometimes three alternative pieces of advice which compete with that one good bit of advice.
In fact, I love collecting contradictory, equal but opposite aphorisms, for example: “look before you leap” vs. “he who hesitates is lost”. Such pairings are almost as good as oxymoronica such as “the greater degree of civilization, the greater degree of degeneration,” “military intelligence,” and “Microsoft Works.” (I’m an Apple fan, myself…)
But what I don’t know is what I know, because I don’t know how you can be certain of anything. Epistemology is for that reason, to me, probably the greatest of all sciences, and the least certain and conclusive.
Hermeneutics is the study of secret meanings, but if the meanings are secret, how can you prove that your hermeneutic analysis is accurate? Just for example, Freudian and Jungian psychology are two of the most commonly used species of hermeneutic analyses, but they come o opposite conclusions. Freudian psychology says (construed very grossly) that our individual psyches all evolve individually due to the micro-environment in which we are born, the details of our upbringing, but from these micro-environments we each develop into certain personality types which conform to gross patterns of behavior which we might call “archetypes”—such as the Oedipus complex, which if you think about it is really, pretty definitely, in plain, ordinary colloquial English—really “gross.”
Jungian psychology posits as its own very general and non-specific hypothesis that it is not the micro-environment of individual development but the library of universal archetypes which shape us, and each individual is kind of a grab bag of different personality archetypes which coincide in a distinctive manner (in each individual) that shapes the individual’s life-pattern as a microcosm of society. How do I know the little that I know about Freudian and Jungian psychology? I know the little bit that I know because I have read a little bit, which is more than some people my age may have read, but I won’t be sure how right or wrong my conclusions about Freud’s or Jung’s writings are until I’ve read a little bit more.
All I know for certain is that I’m fairly sure that both Freud and Jung, like me, wait for light, but beheld only obscurity, for brightness, but walked in darkness, and groped for the wall like the blind, groping as if they had no eyes, stumbling as noonday as in the night, and that their writings and brilliant insights will be no more, after a thousand years of history from now, than growling like bears or moaning like doves. (With all due apologies to the Prophet Isaiah, Chapter 59, Verses 9-11). After all, in their work they gave their heart to know wisdom, and to know madness and folly (they really did, they were after all mental health specialists, both Freud and Jung), and they perceived that this also is vexation of spirit: for in much wisdom is much grief, and he that increaseth knowledge increaseth sorrow. (With even more apologies to the Preacher, the son of David, king in Jerusalem, who wrote “Ecclesiastes” Chapter 1, verses 17-18.
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Tagged: archetypes, Den Xero, epistemology, Freud, I do not know, Jung, knowledge, psychology, Science
Continuous Incongruous Inconsistencies….
November 18, 2009 · Leave a Comment
My whole life has been full of continuous but incongruously consistent inconsistencies: Example: Since I was six and a half years old, one of my favorite places in the world has been Harvard Square, Harvard University, but I hate Elitist Socialists.
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Evolutionary History of Federal Nation-States, Charles Edward Lincoln, IV
November 18, 2009 · 2 Comments
Evolutionary History of Federal Nation-States:
A Proposed Program of Study in Economic & Political History
Charles Edward Lincoln, IV
November 17, 2009
It is my goal to have the broadest possible education in history. My purpose is to develop an understanding of the complex economic, political, and social hierarchies which have evolved between nation-states and the “superorganic” political conglomerates which evolve from compacts or agreements which create more-or-less unitary states out of many. In other words, I want to study how Virgilian salads become vast structures of long duration in history, E Pluribus Unum (Moretum 103: color est e pluribus unus).
In particular, I want to focus on the concept of Federalism. So many events in my life have focused my attention on this issue. First, my Anglo-American father took me around various historical sites on our vacation trips when I was growing up, museums and houses all over the Southern United States, Galveston, New Orleans, Vicksburg, Natchez, Biloxi, and Montgomery in particular where the “Confederates” were revered almost like semi-mythological heroes. My father told me that all of his ancestors (and therefore all of mine on his side) had fought for something called the “Confederacy”.
Even in elementary school in Texas, we learn and study about the Texas Revolution and how Texas had been a part of “The United States of Mexico,” then revolted against Mexico, become a separate individual “nation state”, and then joined the “United States of America” and then the “Confederate States of America” and then the “Federal” United States again. States were one thing, Countries were another. The difference between one and the other, however, is a “state of mind” regarding independence or interdependence which seems to change over time.
I was born in Palm Beach, Florida but lived most of my life growing up in Austin, Texas. I also learned there had once, very briefly, been a “Republic of West Florida” centered at Baton Rouge in what’s now Louisiana, north of New Orleans, and that was another state where I spent a lot of time when I was little. It turns out that that “Republic of West Florida” had the original “Lone Star” Flag which Texas ultimately took up as its own.
While I was in New Orleans I studied French at the Alliance Francaise and got to spend some time on a French Destroyer which was docked along the Mississippi River right by the part of the City called “the French Quarter.” I also learned, of course, by travel and in high school, that France is a country where something called the “European Union” is based in the city of Strasbourg, although there are other European Community Centers in Brussels, and that is a kind of Federal Union also, one whose character and strength is the subject of a great deal of political debate in Europe these days, as the relative strength of the “Union” over the “Member States” is tested in referendum after referendum, and some say that nationalism in Europe, even the separate structures and identities of countries such as England, its Queen, and distinctive court systems, are rapidly being “assimilated” into the standardized Federal “cookie cutter.” For example, until October of this year, 2009, the House of Lords was the court of last appeal in England. In October of this year, however, an English “Supreme Court” took the judicial role of the House of Lords away, even though the hereditary peerage was expelled from the House of Lords ten-twelve years ago by Prime Minister Tony Blair, who also jazzed up national anthems such as “God Save the Queen” and “Rule Britannia” into nearly unrecognizable pop tunes.
My mom went to school, and my dad used to spend and still spends a lot of time in California, and they have a flag there that says, “Bear Flag Republic.” And I’ve heard in the news over and over again that if California were a “country” by itself, it would have one of the world’s largest economies, and that there are more people in the State of California than in the whole “country” of Canada, which is also “Federal” in the sense of being composed of ten or eleven “provinces,” most of which are even bigger than Texas, which is almost a thousand miles from east (Beaumont) to west (El Paso) along a highway called “Interstate” 10. So the words State and Federal Nation kept cropping up in my life and education as something definitive, yet somehow very controversial, something that people had fought wars about and died for.
It also makes travel more interesting to try to understand how every place relates to every other place by ties of community, as defined by brand names, languages, and styles of construction with historical significance—French Colonial and “Confederate” in New Orleans, Spanish Colonial in San Antonio, El Paso, Albuquerque, Santa Fe, and Southern California.
But my mom was actually born in Greece, and she has this interesting passport which is marked “Demokratia Hellinika” on the one hand and “European Community” on the other. So Greece and France are part of a Federal Union, although they are still independent countries. The United Kingdom, Ireland, and Denmark have ties to the European Union, but each country negotiates its affiliations with the European Union in a different way, and so far there’s no generally accepted constitution for the European Union, so it’s not a real “Federal Republic” like the United States.
But inside the European Union there’s Germany, which is officially called the BundesRepublik Deutschland, which means the Federal Republic of Germany.
So I want to study history and try really and fully to understand “what exactly does Federalism mean? How does it work? What are the economic and social advantages or disadvantages to Federalism?”
I have not studied ancient history as much as I would like, but I know that the Delphic Amphictyony is probably the oldest and most famous “Confederation” of States in the Ancient World. The City States of Greece were viciously envious of each other, but when it came to fighting the Persians from the East or the Barbarians from the North, the Greek City States allied with one another and maintained their identity and culture against conquest and assimilation. The final loss of Greek independence to foreign conquest, first by Macedonia and then Rome, was more a case of the conquerors becoming increasingly Hellenized than the Greeks becoming Macedonian or Latinized.
But I want to start my study of Federalism with learning more about how the Delphic Amphictyony worked, because I know that the Founding Fathers of the United States of America, in particular James Madison, John Jay, and Alexander Hamilton, all wrote a great deal about Ancient Greek Federalism in their Federalist Papers written, basically, as advertising to the people of a new nation to persuade them to adopt a new, “Federalist” Constitution, in which the “several states” gave up a great deal of their identity to the “Federal” government, which was set up in three branches, an executive, legislative, and judicial branch, analogous in some regards to the “Etats-General” of pre-Revolutionary France, which consisted of “Lords Spiritual” (analogous to the Judiciary), “Lords Temporal” (analogous to the Executive), and the Bourgeois City-Dwellers and Land holders (analogous to the Congress, charged with legislating for the “general welfare”).
Also in the Federalist Papers, I recall reading about the Swiss Confederation and the Holy Roman Empire as examples of long-lived “federal” structures of various types, with extreme longevity in historical terms. The Act of Union of 1707 ended any possibility of real Federalism between England and Scotland, which became one single “Nation State”, although I understand that recently a Scottish Parliament has been resuscitated. The Act of Union of 1800 was not nearly so successful, as Ireland had always felt like a poor and unequal cousin in the British Family, whose people were historically oppressed and given essentially “second class” status by the ruling Anglo-Saxons of the larger island to the east.
Other “Federal” states include the old Soviet Union and its successor the “Commonwealth of Independent States.” The Austro-Hungarian “Dual Monarchy” had some Federalist characteristics related to the immense ethnic heterogeneity subsumed under the Hapsburg Crown. And as noted above, the longest-lived of all “Confederations” was probably the Holy Roman Empire, dating either from the time of the Emperors Charlemagne in 800 A.D. or Heinrich der Voegler, King of the Eastern Frankish Kingdom “Ostfrankenreichs” in 919-936 A.D..
I have become especially interested in German history over the past several years and I am intrigued to study in greater depth the nature of the Germany principalities and “German Federalism” over the past twelve hundred years. Obviously, the Electors of the Holy Roman Empire were very different from the Electors of the Presidents of the United States, but the onomastic equivalences or parallels merit structural analysis and comparison.
How did the “Federal structure” of the First “Thousand Year” Reich compare with the “Confederation of the Rhine” formed by Napoleon after the dissolution of the Holy Roman Empire? How did the Confederation of the Rhine compare with the post-Napoleonic German Confederation of 1815-1866? Even after German unification under the Prussian/Hohenzollern dynastic of the three Wilhelms, the Kingdoms of Prussian, Bavaria, Wurttemberg, and Saxony continued to coexist with the Duchies or “Grand Duchies” of Baden, Mecklenberg, and Oldenburg, and many smaller principalities, such as Ansbach, “margravates” and “counties”, such as along with several “Free Cities” such as Danzig.
In Unity there is strength, but there is also the struggle between centralized and decentralized power. In Mexico, Centralism has always predominated over Federalism, so that except for a few short-lived experiments such as were made in Yucatan in the 1830s-40s and again (under Maxmillian) in the 1860s, all real power in the “United States of Mexico” has been concentrated in Mexico City. Yucatan sought to join Texas in separating from Mexico as an independent Republic, but lacked the foreign backing of Great Britain, France, and the United States which insured the success of the Texan experiment.
Federal Nation States are often very large, such as the United States, the former Soviet Union, and Canada, but the Delphic Amphictyony and original Swiss Confederation of the Vier Wald Stetter (Four Forest Cantons) (and even the expanded Swiss Confederation of today) cover tiny areas by comparison.
Federalism is not unknown even to pre-State level societies. The Five Nations of the Iroquois of the Northeastern United States are credited by some as having served as a model for the United States Constitution, compare, for example, http://www.iroquoisdemocracy.pdx.edu/.
The Ancient Maya of Yucatan and Guatemala MAY have existed in some sort of “Confederate” association of cities, as indicated by hieroglyphic inscriptions at Copan in Honduras and a couple of other sites where multiple cities (usually a set of four, e.g. Palenque, Tikal, Copan, and El Peru) are listed together in sequence as reflecting the four corners of a culturally, socially, economically, and at least in some sense “politically” unified world, or “ecumene” (oikumene) possibly analogous to the cultural and religious union between the Greek City States. There is a hybrid Aztec-Maya word “multepal” “joint government” or “a pile of city states” used in some colonial period documents written in the Yucatec Maya language which has led some ethnohistorians to speak of the “League of Mayapan” which would have included city-states such as Izamal and Motul. And Mayapan itself as a center of centralized government may have been an heir to Chichen Itza, where processional scenes might be interpreted as reflecting “confederations” of chiefdoms or statelets coming together like Senators or delegates in one Federal capital city. Even earlier, north of the 20th parallel north latitute, ancient roads (sacbeob) linked Maya cities into political units of potentially federal character, such as Coba and Yaxuna, Izamal-Ake-Kantunil, Motul (Uci) and Cansahcab, and Uxmal, Nohpat, and Kabah.
I want to study the economic and socially centripetal forces which impel towards political union and then the counteraction centrifugal forces cause these unions to collapse. The American “Civil War” of 1861-1865 is doubtless one of the most interesting tests of the viability of Federal systems ever, and it is still worth asking whether the price of half-a-million war dead and the obliteration of the economy of one half of the states in the “Federal” union at that time was really worth the freeing of the American slaves, which in the British Empire was achieved 30 years before the American conflict by an act of Parliament with compensation to slaveholders and no significant violence, and which took place in Brazil 30 years AFTER the war of 1861-65 by an imperial decree which ultimately led to what is arguably the most racially harmonious and integrated society in the entire world which is the Brazil of today.
In the history of the world, it is possible that the Great Empires should be compared for greater or lesser degrees of “Federalism” and retained local autonomy as indicators (or predictors) of their success. The British Empire, as it existed from the time of Disraeli through Lord Mountbatten, certainly had “Federal” features to it, unifying the “Dominions” of Australia, Canada, Great Britain, India, and South Africa under the English Monarch in London, but India, South Africa, and even smaller subunits of the empire such as The Federation of Rhodesia & Nyasaland has short-lived “Federal” Integrity. British India was a multifaceted and complex kaleidoscope of unequal and incomparable political subunits more comparable and parallel to the Holy Roman Empire than to Australia, Canada, and the Union of South Africa, all of which consisted of a relatively small number of “states” or provinces of equivalent status, essentially subordinate to central power (although South Africa had the odd innovation of separating its three Branches of government into three capital cities, with its Parliament in Capetown, Cape Province, Judiciary in Bloemfontein, Orange Free State, and Executive or Administrative Capital in Pretoria in the Transvaal.
I believe that my focus on Federalism will permit me to study world history in a way that will uniquely provide me with the tools to address such political questions in the modern time as revenue sharing in the United States, the coalescence of economic, monetary, and political unities in NAFTA (Canada, Mexico, and the U.S.) the integration of the nation states of Europe into the European Union out of the European Community, the continued evolution of the former Soviet Block in general and Russia in particular, and even the prospect of “World Government” as exemplified in the United Nations, the World Trade Organization, the International Court of Justice and the I.C. of Human Rights, and even of relatively informal but regular international inter-governmental associations such as the G-7 and G-20. http://www.g20.org/about_what_is_g20.aspx.
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