Appellants’ Brief Filed in New York Court of Appeals in Case Alleging Fraudulent Restructuring by MBIA

On March 16, 2011, plaintiffs in ABN Amro Bank, et al. v. MBIA Inc., et al. filed their opening brief in the New York Court of Appeals. Plaintiffs are appealing the 3-to-2 decision of an intermediate appellate court dismissing their suit challenging the “fraudulent restructuring” of monoline insurer MBIA. The case, brought by a group of banks that are beneficiaries of MBIA’s structured finance-related policies, claims that MBIA transferred $5 billion in assets from MBIA Insurance Corporation (a failing subsidiary) to MBIA Illinois (a stronger subsidiary). The move, which occurred in February 2009, was approved by the then-New York Superintendent of Insurance. The plaintiffs’ complaint alleges that the restructuring rendered MBIA Insurance insolvent, was intended to defraud creditors, and was an abuse of corporate form. On appeal, plaintiffs argue that the intermediate appellate court’s holding that their complaint was an improper collateral attack on the Superintendent’s regulatory approval is wrong because they had no opportunity to be heard before the Superintendent gave the approval, because New York insurance law does not bar their claims under the Debtor and Creditor Law, and because the intermediate appellate court improperly shifted the burden to plaintiffs in considering MBIA’s motion to dismiss. Brief.

New York Appellate Court Dismisses MBIA v. Merrill

On February 1, 2011, the Appellate Division of the Supreme Court of the State of New York dismissed MBIA Insurance Corp’s claim for breach of contract against Merrill Lynch concerning 11 credit default swap contracts on four CDOs whose collateral consisted largely of RMBS. MBIA alleged that it was induced to provide credit protection on the CDOs based on misrepresentations as to the quality of the CDOs’ collateral, the degree of credit protection on the insured tranches, the credit ratings of the insured tranches, and the default rates for comparable CDOs. MBIA originally brought a variety of claims sounding in fraud, negligent misrepresentation, breach of contract, and a breach of the covenant of good faith and fair dealing, and sought rescission of the CDS contracts and money damages. The trail court dismissed all but the breach of contract claim, which the Appellate Division has now unanimously dismissed on appeal. First Department Decision. New York County Supreme Court Decision.