Feb. 7 (Bloomberg) -- New Century Financial Corp., the biggest subprime lender in bankruptcy, must face a five-year-old lawsuit overseen by a Texas judge who says the company and its lawyers deceived him in the case worth as much as $580 million.

U.S. Bankruptcy Court Judge Kevin Carey in Wilmington, Delaware, yesterday said he would allow Positive Software Solutions Inc. to try to revive a copyright lawsuit against New Century before U.S. District Judge David C. Godbey in Dallas. In October, Godbey ordered two New Century Attorneys, Barry C. Barnett and Ophelia F. Camina, to explain why they shouldn't be disciplined for their actions in that case.

``New Century did exactly the opposite of what it represented,'' Godbey said in a 2004 ruling in which he found that the mortgage lender violated a protective order in the Positive Software case.

This is the second time New Century officials have been accused of deceiving a court representative. Bankruptcy court examiner Michael Missal claimed in a report made public last month that the company misled him during an investigation requested by Carey into New Century's use of escrowed funds.

Positive Software submitted a $580 million bankruptcy claim against New Century related to the lawsuit. The software company accused New Century in the Texas case of failing to pay licensing fees for loan-application software.

`Preposterous' Allegations

Camina called Positive's allegations ``preposterous.'' ``We absolutely deny unequivocally Positive's claims and we fully expect to be vindicated,'' Camina said yesterday in a phone interview.

Barnett declined to comment, referring questions to Susman partner Eric J. Mayer, who didn't return calls for comment.

New Century attorney Russell C. Silberglied told Carey that the company expects to prevail when it returns to Texas to face Godbey. Company attorney Suzzanne Uhland declined to comment after the hearing.

The assets of Positive Software were purchased by Chelmsford, Massachusetts-based Aspect Software Inc. in 2004 while the lawsuit against New Century was being litigated. Aspect didn't buy Positive's stock or the company's name and isn't involved the lawsuit, Aspect's attorney, Douglas Vincent, said in a phone interview.

25 Lawsuits

Before New Century filed for bankruptcy last year, state regulators revoked its lending licenses, federal officials started two investigations and shareholders filed more than 25 lawsuits claiming securities violations, according to court papers.

The company filed a bankruptcy liquidation plan that doesn't say how much money creditors will be repaid. Unsecured creditors, those without any collateral backing their claims, are owed about $7.4 billion, the company estimates.

New Century initially won an arbitration ruling against Positive Software over the copyright claims. Godbey threw out that decision in a ruling that was critical of the company and its lawyers. Godbey's ruling was later sent back to him by an appeals court for reconsideration.

In the 2004 ruling that was later overturned, Godbey accused New Century and its lawyers of violating a protective order he issued in the case. Company lawyers had been ordered to take control of all copies of the loan software in dispute to prevent New Century employees from using it, according to court records.

`Duty of Candor'

Godbey found company lawyers allowed New Century to continue using the software. ``That is wholly inconsistent with a lawyer's duty of candor toward the court.''

Because New Century filed for bankruptcy, Positive Software was unable to ask Godbey to rule in its favor on the original copyright claims without permission from Carey, the judge overseeing the lender's Chapter 11 case.

The bankruptcy case is In re New Century TRS Holdings Inc., 07-10416, U.S. Bankruptcy Court, District of Delaware (Wilmington). The case against the lawyers is In re. Barry C. Barnett, 07-00093, U.S. District Court, District of Texas (Dallas). The case against New Century is Positive Software v. New Century Mortgage, 03-00257, U.S. District Court, District of Texas (Dallas).

To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net.

Last Updated: February 7, 2008 18:43 EST