Morgan Stanley, Deutsche Must Face Allstate Mortgage Suit

Morgan Stanley (MS), Deutsche Bank AG (DBK) and Bank of America Corp.’s Merrill Lynch unit lost a bid to dismiss lawsuits by Allstate Insurance Co. over losses on about $457 million in mortgage bonds.

Allstate sued the companies in 2011, claiming loans backing the securities were riskier than promised. New York State Justice Eileen Bransten said in decisions filed yesterday that the lawsuits could proceed while dismissing some claims.

In the case against Morgan Stanley, Bransten rejected an argument that the lender is shielded from liability because offering materials disclosed that representations about the loans were based on information from originators.

“Defendants may be liable for drafting and distributing statements they knew to be false, regardless of who they credit as the source of the information,” the judge said.

“Allstate is pleased the court rejected defendants’ motions to dismiss our fraud claims,” Maryellen Thielen, a spokeswoman for the insurer, said in a statement. “The court recognized that the claims are amply supported by the law and the facts. We look forward to proving our case in discovery and at trial.”

The company “will consider all options” on the dismissed claims, she said.

Morgan Stanley spokesman Mark Lake, Renee Calabro, a spokeswoman for Deutsche Bank, and Lawrence Grayson, a spokesman for Bank of America, declined to comment about the decision.

The cases are Allstate Insurance Co. v. Ace Securities Corp, 650431-2011, Allstate Insurance Co. v. Morgan Stanley 651840-2011, and Allstate Insurance Co. v. Merrill Lynch & Co., 650559-2011, New York State Supreme Court, New York County (Manhattan).

To contact the reporters on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net Chris Dolmetsch in New York State Supreme Court at cdolmetsch@bloomberg.net.

To contact the editor responsible for this story: Andrew Dunn at adunn8@bloomberg.net.

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