Credit Suisse Group AG (CSGN) must face claims for certain damages in Assured Guaranty Ltd. (AGO)’s lawsuit over the quality of loans in a pool of mortgages it insured, a New York appeals court ruled.
Assured Guaranty sued Credit Suisse’s DLJ Mortgage Capital Inc. unit in New York State Supreme Court in Manhattan in 2011, accusing the company of misrepresenting the quality of loans in six mortgage-backed securities transactions it guaranteed.
Justice Shirley Werner Kornreich in 2012 dismissed Assured Guaranty’s demands for rescissory and consequential damages. The judge said the insurer’s remedies for a breach of the pooling and servicing agreements governing the trusts that issued the securities do not include such damages.
A five-judge appellate panel in Manhattan today reinstated the claims, saying Assured Guaranty can recover rescissory and consequential damages because it wasn’t a signatory to the pooling and servicing agreements.
The agreements were “the result of negotiations between sophisticated business entities,” the court said. Omitting Assured Guaranty as a party “can only be construed” as intentionally excluding it from the agreements’ terms, the court said.
Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated.
In her 2012 decision, Kornreich said Assured Guaranty could seek only a substitution or repurchase of a specific loan or another remedy.
Drew Benson, a spokesman for Zurich-based Credit Suisse, declined to comment on the ruling. Philippe Selendy, an attorney with Quinn Emanuel Urquhart & Sullivan LLP representing Hamilton, Bermuda-based Assured Guaranty, didn’t immediately respond to messages.
The case is Assured Guaranty Municipal Corp. v. DLJ Mortgage Capital Inc, 652837-2011, New York state Supreme Court (Manhattan).
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