* Scholar backs banks fighting MBIA restructuring
* MBIA confident Court of Appeals will affirm ruling
NEW YORK, April 26 (Reuters Legal) - A well-known legal
scholar on Tuesday called on New York state's highest court to
revive a $5 billion lawsuit brought by a group of banks
challenging the restructuring of bond insurer MBIA (MBI.N).
Arthur Miller, a professor at New York University School of
Law, joined Patrick J. Borchers, a professor at Creighton
University School of Law in Nebraska, in making the argument in
court papers filed with the New York Court of Appeals in
They said a state appeals panel decision in January
dismissing the case posed a "grave threat to the coherence and
fairness of New York law and is unconstitutional in its
In 2009, the New York State Insurance Department approved
MBIA's move to split its municipal bond business from its
structured-finance operations. As part of the restructuring, $5
billion in cash was moved from MBIA Insurance Corp into a new
entity called National Public Finance Guarantee Corp.
A coalition of banks, including UBS AG (UBS.N)UBSN.VX and
Bank of America Corp (BAC.N), sued MBIA, claiming the split had
stripped assets from MBIA Insurance Corp that could potentially
leave it unable to pay out insurance claims.
In January, a sharply divided appeals panel held that the
banks could not sue MBIA directly, but instead should challenge
the State Insurance Department under a separate proceeding
known as Article 78.
The banks are pursuing the Article 78 proceeding, but have
also asked the Court of Appeals to overturn the January
Miller's and Borchers' court filing on Tuesday was an
amicus brief in support of the banks' appeal. They argued that
the insurance superintendent's approval of the restructuring
was not a formal agency proceeding and it should not preclude
the banks from suing MBIA.
Upholding the January decision would mean that "thousands
upon thousands of informal determinations made by state
agencies would have binding effect in judicial proceedings,"
the brief said.
MBIA believes the Court of Appeals will affirm the January
ruling by the appeals panel, a spokesman for MBIA said. "None
of these proposed briefs adds anything new to the legal issues
before the Court of Appeals," he said.
The New York Civil Liberties Union, two nonprofit legal
service groups and a group of investment funds also submitted
amicus briefs supporting the banks.
In an interview, Robert J. Giuffra Jr. of Sullivan &
Cromwell, the lead attorney for the banks, said the amicus
briefs confirm that there is more at stake "than just between
the banks and MBIA." The issues affect all parties in New York
state who want to litigate cases that in "any way touch upon
government approval or review," he added.
The Court of Appeals is slated to hear arguments on May
Meanwhile, the Article 78 proceeding filed by the banks is
pending before Manhattan Supreme Court Justice Barbara
The case is ABN Amro Bank NV v. MBIA Inc., 601475-09.
(Reporting by Noeleen Walder of Reuters Legal; Editing by Gary