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May 2013: Structured Finance Victory for BlackRock

May 2013

The firm prevailed in a bench trial for BlackRock Institutional Trust Company, N.A. in a structured finance matter, winning the release of tens of millions of dollars in escrowed funds to certificate holders, including BlackRock, and blocking reformation of the deal documents governing three residential mortgage-backed securitizations issued by Impac Secured Assets Corporation. Impac alleged that the Pooling and Servicing Agreements (“PSAs”) for the three securitizations at issue omitted a paragraph that appeared in the Prospectus Supplements and that provided that upon the occurrence of a certain adverse event, payments would be distributed to certain classes of certificate holders pro rata. Without this provision, the PSAs provided that cash flows would continue to be distributed sequentially, so senior certificate holders, including BlackRock, would receive the lion’s share of funds.

Impac sought reformation of the PSAs on the ground that the missing paragraph had been omitted as a result of a “scrivener’s error” by its counsel. Quinn Emanuel prevailed at trial by persuading the court that there was no basis to reform the PSAs. Because the Trustee’s testimony showed that the Trustee itself did not have any intention regarding stay-sequential vs. pro rata distributions, Quinn Emanuel maintained, no matter what Impac or its lawyers intended, there could be no “mutual” mistake that could support the argument of scrivener’s error being advanced. Quinn Emanuel also convinced the court that BlackRock and other senior certificate holders were bona fide purchasers that had a right to rely on the PSAs (despite conflicting Prospectus Supplements that were available to them). The court adopted Quinn Emanuel’s proposed statement in full, finding reformation was unwarranted and ordering the release of tens of millions of dollars from escrow.