By Karen Freifeld and Jonathan Stempel
NEW YORK, Jan 17 (Reuters) - The New York judge weighing approval of Bank of America Corp's $8.5 billion settlement with investors in mortgage securities was promoted on Friday, but is expected to rule on the controversial accord before she takes her new job.
Justice Barbara Kapnick of the New York State Supreme Court in Manhattan, who heard nine weeks of testimony about the fairness of one of the biggest settlements stemming from the 2008 financial crisis, was appointed to the state's Appellate Division, an intermediate appeals court, by Governor Andrew Cuomo.
Bank of America had agreed in June 2011 to the $8.5 billion settlement to resolve claims over roughly $174 billion of mortgage-backed securities issued by the former Countrywide Financial Corp, which the bank had bought three years earlier.
The settlement was intended to resolve much of the Charlotte, North Carolina-based bank's legal liability from Countrywide. It was backed by 22 institutional investors including BlackRock Inc, MetLife Inc and Allianz SE's Pacific Investment Management Co.
But investors led by American International Group Inc objected, saying there was no proof the payouts were fair, and that Bank of New York Mellon Corp failed to perform its duties as trustee during the negotiations.
Kapnick had overseen a so-called Article 77 proceeding, which ended on Nov. 21, to determine whether the settlement should be approved. She has yet to rule.
A staff member in Kapnick's chambers said in an interview after the promotion was announced that "the judge is going to be issuing that decision before she leaves."
David Bookstaver, a spokesman for the New York state court system, said it is unclear when the promotion will take effect, but that state law appeared to allow promomoted judges to decide cases they were already handling that were ready for rulings.
Kathy Patrick, a lawyer for the institutional investors, said: "New York law permits Judge Kapnick to rule on this matter, and we look forward to her decision."
Bank of America spokesman Lawrence Grayson declined to comment. A Bank of New York Mellon spokesman had no immediate comment. An AIG spokesman could not immediately be reached for comment.
Kapnick, 60, will fill a vacancy on the Appellate Division for the First Department, which encompasses Manhattan and the Bronx. Her promotion does not require voter or legislative approval.
The judge was elected to the Supreme Court, which in New York is a trial court, in 2001, and moved to its commercial division in 2008. She graduated from Barnard College in 1975 and Boston University School of Law in 1980.
Cuomo on Friday also appointed three trial judges - Colleen Duffy, Hector LaSalle and Joseph Maltese - to fill vacancies in the Appellate Division for the Second Department, which encompasses 10 counties in southeastern New York, including the other New York City boroughs and Long Island.
The case is In re: Bank of New York Mellon, New York State Supreme Court, New York County, No. 651786/2011.