Court backs AIG bid for new venue in big Bank of America fraud case

Fri Apr 19, 2013 3:20pm EDT
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By Jonathan Stempel

(Reuters) - American International Group Inc (AIG.N: Quote) won a legal victory over where a mortgage fraud lawsuit it brought against Bank of America Corp (BAC.N: Quote) should be heard, a two-year-old case that has largely been on hold because of the dispute over venue.

The 2nd U.S. Circuit Court of Appeals on Friday agreed with AIG that the case belongs in state court, not federal court as Bank of America preferred.

It threw out an October 2011 lower court ruling that had denied AIG's bid to move the case back to the New York state court where it had begun two months earlier.

Writing for a three-judge appeals court panel, U.S. Circuit Judge Pierre Leval rejected Bank of America's argument that the case belonged in federal court under the Edge Act, a 1919 law governing international banking.

"Removal from state to federal court was not authorized by the statute," he wrote.

AIG had sued Bank of America for $10 billion.

It accused the bank and its Countrywide and Merrill Lynch units of engineering a "massive" fraud by misrepresenting the quality of more than $28 billion of residential mortgage-backed securities in 349 trusts it bought, and lying to credit rating agencies about the underlying loans.

Shares of Bank of America plunged 20.3 percent on the day the lawsuit was announced. The case is part of AIG's effort to recover from activities that it says helped trigger its near collapse in 2008, leading to $182.3 billion of federal bailouts.   Continued...

The logo of American International Group (AIG) is seen at their offices in New York in this file photograph from September 18, 2008. REUTERS/Eric Thayer/Files