UPDATE: MBIA To Appeal Denial Of Motion To Dismiss Lawsuit
February 17 2010 - 5:13PM
Dow Jones News
For the second time this month, bond insurer MBIA Inc. (MBI)
failed in a motion to have a lawsuit against it dismissed.
On Wednesday, Judge James A. Yates denied MBIA's motion to
dismiss a suit brought against it in New York state court by a
group of banks that are challenging MBIA's split into two insurers.
MBIA's split was approved by New York's insurance regulator.
In a statement, MBIA said it plans to appeal the decision. It
also said the presiding judge acknowledged that the appellate
division may disagree with his decision.
"As both MBIA and the New York State Insurance Department have
stated, this lawsuit is an improper collateral attack on the
Insurance Department's approval of our transformation, and the
currently pending Article 78 proceeding is the only appropriate
forum for challenging it," MBIA spokesman Kevin Brown said in an
email.
"We are confident that the Appellate Division will reach the
same conclusion and reverse today's decision," Brown said. "We
expect to ultimately prevail in this and any other litigation
challenging our transformation."
The banks have also brought a so-called Article 78 proceeding to
challenge the insurance department's decision to allow MBIA's split
into two insurance companies. The banks argue the split removed
capital that would otherwise be available to pay claims on
securities they insured.
The banks include ABN Amro Bank NV, Canadian Imperial Bank of
Commerce (CM), Citibank (C), JP Morgan Chase Bank (JPM), and
several other large global banks.
All obtained financial guarantees from MBIA to cover losses in
structured securities such as collateralized debt obligations
backed by mortgage loans.
Last week, MBIA failed to win in its motion to dismiss a similar
suit brought against it in federal court. The attorney representing
plaintiffs in the federal suit said he will seek to begin discovery
soon.
Shares of MBIA closed up 1.2% at $5.11 on Wednesday.
-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141;
lavonne.kuykendall@dowjones.com
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