AIG Loses Bid to Move $10B Suit Against BofA
A federal judge rejected American International Group Inc's request to move its $10 billion mortgage fraud lawsuit against Bank of America Corp back to a New York state court, where AIG believed the case belonged.
U.S. District Judge Barbara Jones in Manhattan accepted Bank of America's argument that some home loans underlying the 349 residential mortgage-backed securities that AIG said it bought allowed a federal court to assert jurisdiction. The bank had cited a 1919 federal law governing international banking.
AIG had argued that its fraud and other claims under state law predominated, and that the complexity of the case warranted having a New York state court apply New York law.
In its August 8 lawsuit, AIG had accused Bank of America of engineering a "massive" fraud. It said the bank and its Countrywide and Merrill Lynch units misrepresented the quality of more than $28 billion of securities it bought, and lied to credit rating agencies about the underlying loans.
Bank of America hopes to combine the AIG case with Countrywide litigation before U.S. District Judge Mariana Pfaelzer in Los Angeles, who has issued favorable rulings for the Charlotte, North Carolina-based bank.
Jones has not decided whether to give the AIG case to Pfaelzer, or on Bank of America's request to oust AIG's law firm because one partner who worked on the case previously defended Merrill against similar charges.
Bank of America spokesman Lawrence Grayson and AIG spokesman Mark Herr declined to comment. Based in New York, AIG is an insurer that has received $182.3 billion of federal bailouts and remains largely owned by taxpayers.
The lawsuit is separate from Bank of America's proposed $8.5 billion settlement with investors such as BlackRock Inc and Allianz SE's Pimco covering Countrywide mortgage pools with $174 billion of unpaid principal balances.
Jones' colleague William Pauley said on Wednesday that this accord should be considered in federal court, as some investors unhappy with the terms had wanted, rather than state court, where it could have won approval as soon as next month.
That accord was intended to resolve much litigation over the bank's disastrous 2008 purchase of Countrywide, and Pauley's decision adds uncertainty over the timing and scope of any resolution.
Bank of America stock has lost about half its value this year.
The case is American International Group Inc et al v. Bank of America Corp et al, U.S. District Court, Southern District of New York, No. 11-06212.
(Reporting by Jonathan Stempel in New York, Additional reporting by Grant McCool in New York; Editing by Gerald E. McCormick and Lisa Von Ahn)