A New York Supreme Court judge has ruled in favor of MBIA, allowing the bond insurer to gain more footing in its suit against Bank of America's Countrywide.
This week's ruling by New York Supreme Court Justice Eileen Bransten said MBIA doesn't have to establish the direct connection between Countrywide's alleged misrepresentations and MBIA's claims payments. The judgment said that MBIA need only to establish that a loan breached reps or warranty in a way that materially affects the bond insurer's interests.
MBIA initially filed suit against Countrywide on September 30, 2008. In the lawsuit, the bond insurer claimed that that the defendant fraudulently induced it to guarantee MBS.
The lawsuit also charged Countrywide with a breach of the reps and warranties of the transaction documents. The three-year-old lawsuit seeks compensation for $1.4 billion of losses that MBIA said it incurred.
Countrywide opposed the accusation and argued that MBIA would have to first establish that the insurance payouts were directly linked to the alleged misrepresentations and not caused by other factors, including the economic downturn of 2007.
Interestingly a parallel case also developing this week is Aurelius Capital Management going after MBIA on the grounds of fraud.
Aurelius disclosed a letter from counsel to MBIA, Kasowitz, Benson, Torres & Friedman, and the response by Aurelius’s counsel.
In the MBIA letter, the bond insurer's legal counsel demanded that Aurelius cease to publicly express its views about MBIA’s insolvency and fraud, which build the foundation for the pending class action suit brought by Aurelius against MBIA and its affiliates.
In a press release today, Aurelius said that the suit seeks to undo the 2009 transaction that split MBIA into a “good insurer” and a “bad insurer” and removed billions of dollars of assets from MBIA to the detriment of its policyholders and for the benefit of the executives, stockholders and bondholders of its parent.
According to the plaintiff, the Kasowitz letter demonstrates that the MBIA seeks "to avoid contradiction by a knowledgeable and large policyholder, this time through intimidation."
“In our experience, the first resort of wrongdoers is to fight transparency and censor their critics," according to the press statement. "Three years ago, MBIA procured – in our view fraudulently – regulatory permission for its split-up in a secret process that relied heavily on inputs from MBIA and its advisors. MBIA was thus free to procure regulatory approval based on what has since proven to be false inputs without fear of correction by its policyholders."