The New York State Court of Appeals reinstated a $5 billion fraudulent conveyance and breach of contract lawsuit brought by bank policyholders against MBIA.

In the ruling Tuesday, the court found that the New York Insurance Department approved the restructuring of MBIA Insurance in 2009 without giving the policyholders any notice or opportunity to be heard.

The ruling also said the state Legislature did not intend for the New York insurance law to pre-empt the fraudulent conveyance and common-law claims asserted by the policyholders.

“Today’s decision is an important victory for all MBIA Insurance policyholders,” said Robert Giuffra, lead counsel for the policyholders and a partner with Sullivan & Cromwell. “The Court of Appeals has squarely rejected MBIA’s efforts to shut the courthouse door, in violation of basic principles of due process, and to shield MBIA’s unprecedented $5 billion fraudulent conveyance behind a secret administrative process.”

“The Court of Appeals has reinstated all of policyholders’ debtor and creditor law claims and our claims for breach of contract and for abuse of the corporate form,” he added. “Policyholders will now vigorously pursue our plenary DCL and common law claims alongside our Article 78 claims, and we’re confident that MBIA’s fraudulent restructuring will be reversed.”

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