Gibbs & Bruns’ Kathy Patrick was interviewed by Reuters’ Karen Freifeld regarding her bond investor clients, recent cases, trends in securities litigation, and more.
Kathy recently secured an $8.5 billion settlement with Bank of America on behalf of 22 institutional investors, including BlackRock and PIMCO, in connection with 530 securitization pools that issued over $424 billion of Countrywide-issued mortgage-backed securities.
Q&A: Kathy Patrick on mortgage bonds, Libor and beauty pageants
By Karen Freifeld
(Reuters) – A partner at Gibbs & Bruns, a boutique firm in Houston, Kathy Patrick represents bond investors BlackRock, Pimco and Metlife in an $8.5 billion settlement with Bank of America over defective mortgage-backed securities.
Patrick graduated from the University of Texas in El Paso and Harvard Law School. She clerked briefly for Judge John Brown of the 5th U.S. Circuit Court of Appeals. Since then she has been in private practice and involved in high-stakes business litigation.
Reuters asked Patrick about her cases, trends in securities litigation and her days as a beauty queen. The questions and answers have been edited for brevity and clarity.
Reuters: How did a small firm in Texas get involved in a $100 billion mortgage-backed securities case?
Patrick: We have represented a number of these institutions for a couple of decades. They asked if we could help them put a bondholder group together. The fact that we have not represented banks and bring an outsider’s perspective to what can be viewed as an insider’s problem is seen by our clients as very beneficial.
Reuters: What do you mean by an “insider’s problem”?
Patrick: The securitization market was very cozy. It was big but it was closely held. They bought mortgages from one other, securitized them in each other’s structures. All inside baseball. Being outsiders, being pure trial lawyers, not a corporate firm, allows us to look at these contracts in a very unvarnished way.
Reuters: The Bank of America settlement has been tied up in court since June 2011. Did you expect approval to take so long?
Patrick: We actually did. We had established a year to 18 months. There was the removal to federal court in the middle. Without that, it’s on track. We did not anticipate the removal to federal court.
Reuters: What should we expect from the proceeding over the proposed settlement that starts May 30?
Patrick: A couple of our investors will testify and you’ll hear the experts. We expect to put on a very strong showing that the settlement is more than fair and highly beneficial. Our clients believe the settlement has the potential to reform the industry. The servicing improvements have already had a big impact.
Reuters: You’ve been trying to negotiate similar settlements with JPMorgan Chase & Co and other banks. Anything close?
Patrick: As is always true, we don’t comment on ongoing efforts that are non-public. Our clients continue to pursue large-scale relief for defective mortgages in RMBS trusts. We have notices outstanding to several banks and we continue to move forward to pursue those claims.
Reuters: The role of the trustee in the Bank of America settlement – Bank of New York Mellon – has come under attack. Are you using a similar model for other cases?
Patrick: We believe the attacks on BNY Mellon have been entirely unfair. They stepped forward to help investors at a time when no one was doing so. We hope the proceeding vindicates their judgment, and we continue to work constructively with other RMBS trustees to try to address these issues.
Reuters: You reached a $400 million settlement with Credit Suisse in March on behalf of bond investors in National Century Financial Enterprises.
Patrick: That was a 10-year-long case involving the failure of a healthcare receivable company in Dublin, Ohio. National Century was a harbinger of the problems that would later blossom in the mortgage-backed space. They were supposed to buy only certain types of accounts receivable and maintain them. Instead they deviated from underwriting guidelines. In total, we’ve recovered over $1 billion.
Reuters: What’s the next wave of litigation?
Patrick: Libor. It’s a pervasive financial instrument that impacts trillions of dollars of credit transactions around the world.
Reuters: What do you think of the jury system?
Patrick: Professor John Langbein at Yale takes the view civil discovery has eliminated the need for jury trials. The process of gathering and exposing the evidence to the other side used to happen in front of a jury. Now it happens in depositions and discovery. So parties are well informed and able to understand the strengths and weaknesses of a case. His thesis is that it’s a social good because it allows people to reach their own resolution. I think it works in a lot of cases – in others it doesn’t. You have to have the prospect of an impartial trial by fact finders in order for that process to work.
Reuters: Is the profession still dominated by men?
Patrick: I was just at a meeting in New York where there were 150 lawyers in the room and about seven were women. In my firm, half the partners are women and, for a long time, we had more female associates than male. In Texas, you see women in court all the time. I don’t see them as much in other places. I’m not quite sure why that is. It may be because I’m in litigation. Maybe there are women in New York firms but they don’t litigate.
Reuters: You were Miss New Mexico in 1980. You are surely one of the few securities law experts who has been a beauty queen.
Patrick: I was Miss Anthony, a small town on the border of Texas and New Mexico. The town entered me in the Miss New Mexico pageant. When I won the Miss New Mexico pageant, the Miss USA pageant took my title away because I lived in Texas, which was surprising because they knew I lived in Texas. The town got angry and hired a lawyer.
Reuters: What happened?
Patrick: We won and I went to the Miss USA pageant and, because of that, got to go to Korea for the Miss Universe pageant and got to go to law school.