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Aurelius Capital and related organizations filed a Class Action Complaint against MBIA, et al., on March 11, 2009: Download Aurelius Capital v. MBIA.Complaint (S.D.N.Y. Case No. 1:09.cv.2242, Filed March 11, 2009). Filed on behalf of investors holding "obligations for which MBIA Insurance issued financial guaranty insurance other than United States municipal/government bond securities," id., the Complaint was based on MBIA restructuring its failing Bond Insurance obligations. Once a large Bond Insurance Company, MBIA moved beyond issuing Bond Insurance for "munis" or local government agencies authorized to issue bonds, to issuing guarantees or Credit Insurance for Derivatives. The Aurelius Complaint contained a Claim alleging that MBIA acted in Bad Faith by making a separate corporation, National Public Finance Guarantee Corporation, to assume its obligations on Bond Insurance which it had issued to munis, while MBIA Insurance Corporation assumed the MBIA guarantees on Derivatives -- with far fewer assets with which to pay off the guarantees.
On February 11, 2010, eleven (11) months to the day after the Class Action Complaint stating an alleged Claim for Bad Faith, among others, was filed by Aurelius, et al., the United States District Judge issued an Order Denying MBIA's Motion to Dismiss and Declining to Abstain: Download Aurelius Capital v. MBIA.Order Denying Motion to Dismiss and Declining to Abstain (S.D.N.Y. Case No. 1:09.cv.2242, Opinion Filed February 11, 2010).
The Class Action Bad Faith Claim will continue against MBIA in the Aurelius lawsuit, along with the other claims alleged against MBIA in that case.
A separate lawsuit was filed against MBIA in New York State Supreme Court in May, 2009, also as a result of the MBIA restructuring. Eighteen (18) "financial institutions" including Bank of America, UBS, and JP Morgan Chase reportedly filed a common Complaint containing alleged causes of action which apparently included alleged Fraud, and Bad Faith. On February 17, 2010 New York State Supreme Court Justice James Yates reportedly denied MBIA's Motion to Dismiss in that case, as well. A search online through the New York State Courts web site has failed to produce a copy of this lawsuit or holding as of the time of this post. However, it is reported on by Floyd Norris, "High & Low Finance/Equality at Issue For MBIA" p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Friday, February 19, 2010) and by Patricia Hurtado, "MBIA Loses Bid to Toss Bank of America 'Split' Suit (Update 3)" (Bloomberg.com, Wednesday, February 17, 2010).
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