A federal appeals court in Manhattan today ruled that the Edge Act, a 1919 law that regulates international banking, doesn’t give the federal court jurisdiction over AIG’s suit. New York-based AIG sued Bank of America in state court in 2011 over losses it claimed on mortgage bond investments.
Bank of America, based in Charlotte, North Carolina, had the case moved to federal court, and U.S. District Judge Barbara Jones denied AIG’s request to return it to state court. The U.S. Circuit Court of Appeals in Manhattan today vacated Jones’s ruling and returned the case to the federal district court for further action.
Jones, who has since left the bench for private practice, didn’t rule on Bank of America’s argument that the case should remain in federal court because it’s related to a bankruptcy proceeding, the appeals court said. Bank of America can raise that point in the lower court, it said.
Lawrence Grayson, a Bank of America spokesman, called the decision “a narrow procedural ruling that has no bearing on the merits of the case.”
“AIG is pleased that the Second Circuit found no merit to Bank of America’s tactical effort based on the Edge Act to remove AIG’s claims from AIG’s chosen jurisdiction in state court to federal court,” an AIG spokesman, Jon Diat, said in a statement.
AIG claims Bank of America and units including Countrywide Financial Corp. misrepresented the quality of 349 residential mortgage-backed securities in which AIG invested $28 billion. AIG claims it suffered heavy losses when the securities fell into default.
In December 2011, claims by AIG relating to mortgage-backed securities sold by Countrywide were transferred to a federal court in Los Angeles for pretrial proceedings. The rest of AIG’s claims remain in the New York litigation, which was the subject of the appeal decided today.
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