A lawsuit brought by the state of Illinois against the McGraw-Hill Cos. and its Standard & Poor’s unit over allegedly misleading ratings given to residential mortgage-backed securities was halted by a U.S. judge.
U.S. District Judge Matthew Kennelly in Chicago today stopped progress on the case filed last year by Illinois Attorney General Lisa Madigan, pending determination on whether it will be consolidated with similar cases filed by other states for pretrial proceedings.
“I’m going to grant the motion to stay,” Kennelly told attorneys for both sides in court, granting the companies’ request. The judge also directed the parties to submit papers addressing whether the case should be sent back to the state court where it was filed. The judge said he would rule on May 15.
Madigan sued S&P 14 months ago, alleging that it ignored the risks posed by the securities, and chose to curry favor with its clients, thus contributing to the 2008 U.S. economic downturn.
The businesses have denied the allegations, calling the cases a “hindsight-infused attempt by the states to lay blame with S&P for failing to predict the financial crisis.”
S&P lawyers moved more than a dozen of the cases to federal courts and followed with requests for court-ordered stays while their petition for consolidation is pending before a federal judicial panel.
“Litigating the state actions separately would involve the wholly inefficient exercise of virtually identical” motions and disputes in each of the various courts, defense lawyers argued in court papers.
Madigan’s office on March 13 asked Kennelly to return the case to Illinois’ Cook County Circuit Court in Chicago, where it was filed, arguing that only state laws are at issue and that the defense decision to remove it to federal court this month was untimely.
The Illinois suit survived one state court test when Judge Mary Anne Mason last year denied a defense motion to dismiss it. She rejected the company’s contention that its rating opinions are protected by the constitutional guarantee of free speech.
McGraw-Hill and Standard & Poor’s Financial Services LLC must file their opposition to the state’s remand request by April 10, Kennelly said. Illinois’s reply is due by April 24.
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