* Lawsuit alleged First American independence compromised
* NY state appellate court says Cuomo can invoke state law
By Jonathan Stempel
NEW YORK, June 8 New York can proceed with a
lawsuit accusing title insurer First American Corp of colluding
with Washington Mutual Inc WAMUQ.PK to fraudulently inflate home
values, a state appeals court unanimously ruled on Tuesday.
Attorney General Andrew Cuomo had accused First American
and its eAppraiseIT unit in a November 2007 lawsuit of having
"caved" to pressure from Washington Mutual to use a list of
pre-approved appraisers who provided inflated appraisals, in an
effort to win more business.
First American defended itself against the lawsuit, among
the earliest by a U.S. regulator over the nation's housing
crisis, arguing that federal law barred New York from suing
under its own laws.
But a four-justice panel of the New York State Appellate
Division, which sits in Manhattan, rejected the Santa Ana,
California-based company's argument.
"Enjoining a real estate appraisal management company from
abdicating its publicly advertised role of providing unbiased
valuations" is not covered under federal law, Justice Luis
Gonzalez wrote for the court.
He said Cuomo may instead rely on state law to try to
recover for "misrepresentations and other deceptive conduct
allegedly perpetrated on the consuming public."
Washington Mutual was not a defendant in the case.
Lenders that use inflated appraisals can sometimes extend
larger home loans, and as a result collect higher fees. The
practice can also result in borrowers taking out larger loans
than they can afford.
Cuomo had argued that First American's lack of independence
was among the factors that caused the housing crisis. He sought to
end the alleged improper practices, recover ill-gotten profits,
restitution and other remedies.
First American on June 1 said it has split into two companies:
First American Financial Corp (FAF.N) and CoreLogic Inc (CLGX.N).
The eAppraiseIT unit is now part of CoreLogic, according to that
Santa Ana-based company's website.
An eAppraiseIT spokesman said: "We are disappointed and
disagree with the court's decision, and are considering our
options on appeal."
Regulators seized Seattle-based Washington Mutual in September
2008 after it had amassed about $176 billion of home equity,
adjustable-rate and subprime home loans on its books.
Washington Mutual remains by far the largest bank or thrift
to fail in U.S. history. JPMorgan Chase & Co (JPM.N) acquired
its banking operations, while the Washington Mutual holding
company filed for bankruptcy protection.
Cuomo, a Democrat, is the front-runner in the New York's 2010
The case is Cuomo v. First American Corp et al, New York
State Supreme Court, Appellate Division, First Department, No.
(Reporting by Jonathan Stempel; Additional reporting by
Paritosh Bansal; Editing by Phil Berlowitz)