American International Group Inc. said a ruling in its lawsuit against Bank of America Corp.’s Countrywide unit over losses from residential mortgage-backed securities preserves its $10 billion damage claim.
U.S. District Judge Mariana Pfaelzer in Los Angeles yesterday dismissed AIG’s federal law claims because they were filed too late, more than three years after the bonds were first sold. The judge also said some state-law claims by AIG units in Arizona, California, Texas and Tennessee were time barred.
“The ruling allows AIG’s common law fraud claims, which total more than $10 billion, to proceed,” James Ankner, a spokesman for New York-based AIG, said today in a statement. “The claims that were dismissed amounted to $40 million, less than one half of one percent of AIG’s total claim.”
The claims against Countrywide are part of a complaint AIG filed in New York state court last year, alleging the insurer was the victim of a “massive fraud.” The claims against Countrywide were moved to federal court in Los Angeles, where Pfaelzer is presiding over a group of consolidated lawsuits by investors in Countrywide’s mortgage-backed securities.
Lawrence Grayson, a spokesman for Bank of America, declined to comment on Pfaelzer’s ruling and on AIG’s assertion that the ruling leaves the $10 billion damages claim intact.
AIG alleges it was misled into believing that loans underlying its investment were issued according to certain underwriting guidelines that in fact had been “long abandoned,” according to the complaint. The only measure of whether a loan would be approved was whether it could be packaged into bonds and sold to investors such as AIG, the company said.
AIG to Proceed
The insurer said that it wasn’t surprised that Pfaelzer had barred its federal claims because she had previously rejected similar securities-law claims by other investors in Countrywide’s mortgage-backed securities for the same reason. Some of those rulings are now being appealed before the U.S. Court of Appeals in San Francisco.
The judge said in the ruling that she only asked AIG and Countrywide to address the timeliness of AIG’s claims, with all additional grounds for dismissal to be taken up later.
Pfaelzer agreed with AIG that its subsidiaries that are incorporated in Delaware and have principal places of business in New York should be treated as residents of New York, which allows them to take advantage of that state’s six-year statute of limitations.
“At this stage the court accepts, as it must, plaintiffs’ allegations regarding their principal places of business,” Pfaelzer said. “The court will revisit this issue at summary judgment should the factual record warrant it.”
AIG’s claims against Charlotte, North Carolina-based Bank of America and Merrill Lynch, which were part of the original suit, are in federal court in New York.
The case is AIG v. Countrywide, 11-10549, U.S. District Court, Central District of California (Los Angeles).