* AIG says misled over Countrywide securities
* California judge rules in $10 billion case
* Bank of America to defend against remaining claims
By Jonathan Stempel
May 7 American International Group Inc
may pursue a lawsuit accusing Bank of America Corp's
Countrywide unit of causing billions of dollars of losses by
fraudulently inducing it to buy risky residential
U.S. District Judge Mariana Pfaelzer in Los Angeles on
Monday said AIG could pursue claims that Countrywide falsely
represented in offering documents that it followed underwriting
guidelines, as part of a "company-wide culture of abandonment of
underwriting standards and wholesale use of 'exceptions.'"
Pfaelzer dismissed AIG claims related to alleged oral
misstatements and negligent misrepresentations. She also allowed
AIG to submit an amended complaint.
The case is part of overlapping litigation begun in 2011,
when AIG sued Bank of America for $10 billion over activities it
said helped trigger its near collapse in 2008 and subsequent
$182.3 billion federal bailout.
Bank of America has paid more than $40 billion to settle
legal, regulatory and borrower disputes tied to its purchases of
Countrywide Financial Corp in July 2008 and Merrill Lynch & Co
six months later.
On Monday, it reached a $1.6 billion cash settlement with
bond insurer MBIA Inc over Countrywide.
And on May 30 it will ask Justice Barbara Kapnick of the New
York State Supreme Court to approve an $8.5 billion settlement
with Countrywide investors, an accord that AIG also opposes.
In the $10 billion case, AIG accused Bank of America,
Countrywide and Merrill of a "massive" fraud by misrepresenting
the quality of more than $28 billion of RMBS it bought, and
lying to credit rating agencies about the underlying loans.
Pfaelzer handles a part of that case related to Countrywide,
and ruled even though New York-based AIG and Charlotte, North
Carolina-based Bank of America are battling over whether the
case belongs in federal court at all.
Last month, a federal appeals court in New York agreed with
AIG that the case should return to the state court where it
began, but gave Bank of America another chance to keep it in
A separate issue is whether AIG assigned its right to sue
over $7.3 billion of losses in the Bank of America case to
Maiden Lane II, a vehicle created by the Federal Reserve Bank of
New York to buy troubled RMBS from the insurer.
Pfaelzer said AIG may for now sue over RMBS sold to Maiden
Lane II, but that Bank of America may later renew its objection.
Bank of America spokesman Lawrence Grayson said the bank
believes it has strong defenses to the remaining claims.
AIG spokesman Jon Diat said: "As a result of the court's
decision, AIG is able to pursue its full damages claim against
Bank of America."
Pfaelzer oversees a variety of litigation over Countrywide.
Her approval is required for the bank's record $500 million
settlement, announced last month, with investors who also
claimed Countrywide misled them into buying risky mortgage debt.
The case is American International Group Inc et al v. Bank
of America Corp et al, U.S. District Court, Central District of
California, No. 11-10549.