* Judge says California case takes precedence
* Judge questions actions by NY Fed, Maiden Lane vehicle
By Jonathan Stempel
NEW YORK, Feb 26 A federal judge has put American International Group Inc's dispute with a financial crisis-era bailout vehicle on hold, while another court addresses the insurer's separate $10 billion lawsuit against Bank of America Corp over defective mortgages.
But in rejecting AIG's effort to litigate quickly against the Maiden Lane II vehicle created by the Federal Reserve Bank of New York, U.S. District Judge Lewis Kaplan said that "on the face of it" some of the New York Fed's and Maiden Lane's actions "perhaps are unattractive and, indeed, wrongful."
The dispute concerns whether AIG transferred $18 billion of litigation claims to Maiden Lane, which the New York Fed created in December 2008 to buy residential mortgage securities from AIG as part of that company's rescue three months earlier.
AIG said such a transfer would block its efforts to recoup losses from banks. On Jan. 11, it sued for a court declaration that it had not transferred those claims, including more than $7 billion in the Bank of America case.
That case had been filed in August 2011 and accuses the second-largest U.S. bank of having misrepresented the quality of more than $28 billion of securities that AIG bought.
It is being handled in Los Angeles federal court, where Bank of America is arguing that Maiden Lane, not AIG, should be making the claims.
In seeking to halt the New York case, Maiden Lane accused AIG of trying an "end run" around the California case and that Bank of America is best able to challenge AIG's ability to sue.
Kaplan concluded that it remained best to let the California case take its course.
"Given the availability of that course of action, there is no justification for a wasteful, unseemly, and unnecessary contest between sister courts over where the controversy should proceed at this time," he wrote.
But he said the New York Fed's support of Bank of America's argument that AIG had assigned some claims to Maiden Lane appeared to "circumvent" its choice-of-court agreement with AIG. The judge said that, if the New York Fed or Maiden Lane were to raise such claims, they would have to do so in New York.
"On the face of it, the actions of the FRBNY and its instrumentality, Maiden Lane II, perhaps are unattractive and, indeed, wrongful," Kaplan wrote.
An AIG spokesman was not immediately available for comment. Jack Gutt, a New York Fed spokesman, declined to comment.
AIG's bailout eventually totaled $182.3 billion. The bailout was fully paid off last year.
The cases are American International Group Inc et al v. Maiden Lane II LLC, U.S. District Court, Southern District of New York, No. 13-00951; American International Group Inc et al v. Bank of America Corp et al, U.S. District Court, Central District of California, No. 11-10549.