A New York state judge ruled that Bank of America Corp (NYSE: BAC) must defend a claim made by a unit of MBIA Inc (NYSE: MBI) against Countrywide Financial, a company which Bank of America purchased in 2008, according to a report from the Wall Street Journal.
The lawsuit was originally filed by MBIA against Countrywide in 2008, concerning 15 mortgage-backed securities that were backed by home equity lines of credit. MBIA provided billions of dollars of credit enhancements in the form of financial guarantees on the mortgage backed securities. The bond insurer alleged that Countrywide’s lending practices between 2004 and 2007 had changed the risk profile of its mortgage loan portfolio.
New York State Supreme Court Justice Eileen Bransten in Manhattan ordered Bank of America Corp to defend “successor and vicarious” liability claims, made against Countrywide Financial. In her ruling, Justice Bransten also dismissed negligent misrepresentation claims against Countrywide.
“This is a procedural ruling and not a ruling on the merits or facts of the case,” commented Shirley Norton, a Bank of America spokeswoman to the press. “We will continue to vigorously defend against the allegations.”
“We are pleased that the court has allowed our case to move forward against both Countrywide and Bank of America,” MBIA said in a statement. “Importantly, the judge recognized the validity of our position that there was a de facto merger between Countywide and Bank of America. MBIA has been substantially harmed by Countrywide and Bank of America and we will continue to pursue all available remedies.”
