AIG Is Cleared to Sue over BofA Mortgages

Source: Source: Dow Jones | Published on May 8, 2013

AIG sues Dellwood

AIG-BofA suitAmerican International Group Inc. has the right to sue Bank of America Corp. over more than $7 billion of mortgage- investment losses, a federal-court judge ruled on Monday.

The judge wrote that AIG didn't give up its right to pursue certain types of legal claims over the troubled securities when it unloaded the investments as part of its 2008 bailout.

AIG transferred the securities to a Federal Reserve Bank of New York vehicle called Maiden Lane II, and Bank of America argued AIG didn't have the standing to sue over the investments.

The ruling from the U.S. District Court for the Central District of California is the latest twist in a long-running battle between AIG and Bank of America.

The fight pertains to losses the insurer incurred after purchasing troubled mortgage bonds underwritten by Countrywide Financial Corp. and Merrill Lynch & Co., both of which are now part of Bank of America.

As part of Monday's ruling, U.S. District Judge Mariana Pfaelzer dismissed some of AIG's specific claims against the bank but left standing certain others.

For instance, she wrote that AIG's claims of "fraudulent inducement" adequately allege that documents related to the mortgage securities contained misstatements in some instances, but she dismissed a claim of "negligent misrepresentation."

"AIG is pleased by the court's decision and looks forward to proceeding to the merits of its case," a spokesman said Tuesday. "As a result of the court's decision, AIG is able to pursue its full damages claim against Bank of America."

A Bank of America spokesman said, "AIG has had a number of its claims dismissed, and we believe we have strong defenses to the remaining allegations."

A spokesman for the New York Fed, which isn't a party to the lawsuit, declined to comment beyond a statement it issued in March.

In March, the New York Fed said it had reached a settlement with Bank of America in connection with certain mortgage securities Maiden Lane II had purchased from AIG, under which the vehicle received total compensation of about $62 million and the entity released all claims it had against the bank related to the securities.

As part of the settlement, Maiden Lane II had agreed to state for the record that its intent at the time it purchased the securities from AIG was to assume all rights and privileges related to the investments.

The New York Fed statement added that "it is for the courts to determine whether AIG retains any potential tort claims related" to the securities.