1. News Articles
  2. Related News Articles
News Article Details

AIG Wins Bid for New Venue in Fraud Lawsuit Against Bank of America

Source: BestWire

Posted on 23 Apr 2013 by Neilson

Facebook LinkedIn Twitter Google

AIG-BofA suitAmerican International Group Inc. (AIG) has scored an early procedural victory in its lawsuit against Bank of America Corp., with a federal appeals court ruling that its mortgage fraud lawsuit should be heard in state court.

AIG's 2011 lawsuit against Bank of America had been on hold as the two sides fought over where the case should be heard. AIG sued Bank of America for $10 billion, alleging the bank knowingly engaged in misconduct when selling thousands of defective residential mortgages. Those mortgages, which backed securities, experienced "unprecedented" rates of defaults and foreclosures, which in turn affected the securities when the market collapsed in 2008, according to AIG's complaint (Best's News Service, Feb. 20, 2013).

In an April 19 decision, the U.S. Court of Appeals for the Second Circuit sided with AIG and remanded the case to a New York state trial court.

The Second Circuit's decision follows AIG's appeal of an earlier decision by a federal judge in Manhattan. The lower court said the case should proceed in federal court because it concerned questions of the Edge Act, a nearly century-old law that authorized the establishment of international banking and financial corporations under the supervision of the Federal Reserve.

However, the Second Circuit said the Edge Act should not apply in the case. The Second Circuit's decision partly hinged on the grammar of the statute.

Lawyers for Bank of America argued that AIG's reading of the statute would have required the law to be rewritten to obtain the meaning Congress intended. That argument failed to impress the three appellate judges who heard the case.

"The extent of rewriting needed to give it the meaning [AIG] argues is insignificant, appears merely to supply literally what is already implied, and has the merit of leading to a sensible understanding that furthers the statute's evident purposes," Judge Pierre N. Leval wrote on behalf of the court.

Now that the question of venue has been decided, the case will proceed in state court. It is not clear when the state proceedings will begin. Efforts to reach lawyers for AIG and Bank of America were not immediately successful.

In related litigation, Bank of America settled with the Federal Reserve of New York for an undisclosed amount. At issue in that case is who owns the right to sue over $18 billion in residential mortgage-backed securities that AIG bought, securities that led in part to AIG's 2008 liquidity crisis that sparked a federal government bailout.

When AIG faced the liquidity crisis, the U.S. government stepped in with a bailout that allowed AIG to transfer residential mortgage-backed securities with a face value of $39.3 billion to Maiden Lane II, a special purpose vehicle controlled by the Federal Reserve Bank of New York, for $20.8 billion.

Under the terms of its settlement with Bank of America, the New York Fed agreed not to sue on any of the tort claims that AIG seeks to advance, according to court papers.

On the afternoon of April 22, shares of AIG (NYSE: AIG) were trading at $38.61, down 0.69% from the previous closing price.