(Adds Iowa attorney general, Moody's comments)
By Jonathan Stempel
NEW YORK, June 3 Standard & Poor's suffered a
defeat on Tuesday in litigation accusing it of issuing
misleading credit ratings prior to the 2008 financial crisis, as
a federal judge ruled that lawsuits by 16 U.S. states and
Washington, D.C. belong in state courts, not federal court.
The decision by U.S. District Judge Jesse Furman in
Manhattan may raise the McGraw Hill Financial Inc
unit's costs to defend itself and exposes it to a greater risk
of multiple judgments, conflicting rulings and higher legal
In their lawsuits, the states accused S&P of fraudulently
representing that its ratings on structured finance securities
were objective and not tainted by conflicts of interest.
Many of the challenged ratings were for collateralized debt
obligations and other mortgage-backed securities whose value
plunged during the nation's housing and credit crises.
"At bottom, the disputes in these cases are disputes arising
under state law that belong in state courts," Furman wrote in
his 52-page decision. "Congress has not authorized federal
courts to hear such cases."
Furman did not decide the merits of the ratings claims, but
said state courts can address the states' primary goal of
"securing an honest marketplace" for consumers and businesses.
S&P spokesman Edward Sweeney said: "We are committed to
fully defending against these meritless claims upon their remand
to the state courts."
Most of the lawsuits were filed in February 2013, when the
U.S. Department of Justice sued S&P for $5 billion in a
California federal court. That lawsuit remains pending.
STATES ARE PLEASED
The decision means Arizona, Arkansas, Colorado, Delaware,
Idaho, Indiana, Iowa, Maine, Mississippi, Missouri, New Jersey,
North Carolina, Pennsylvania, South Carolina, Tennessee and
Washington may pursue claims in their courts that S&P violated
state consumer protection and deceptive trade practice laws.
Furman said his reasoning applies to claims by Washington,
D.C., which did not formally ask to move its case.
"The states are extremely pleased with today's ruling," said
Olha Rybakoff, senior counsel for Tennessee, which led the
states in the litigation.
Iowa Attorney General Tom Miller in a statement said he and
his counterparts "will move quickly to advance these cases."
Mississippi's lawsuit also named S&P rival Moody's Investors
Service, a unit of Moody's Corp, as a defendant, and
Furman moved that case back to state court.
The judge dismissed S&P's lawsuits seeking to halt civil
enforcement actions by South Carolina and Tennessee.
Moody's spokesman Michael Adler declined to comment.
Furman ruled almost one year after the U.S. Judicial Panel
on Multidistrict Litigation consolidated the state cases, hoping
to promote efficiency.
The judge acknowledged trying big cases in a single federal
court can accomplish that, but said state courts "have devised
creative means to coordinate among themselves when appropriate."
The case is In re: Standard & Poor's Rating Agency
Litigation, U.S. District Court, Southern District of New York,
(Reporting by Jonathan Stempel in New York; Additional
reporting by Aruna Viswanatha in Washington, D.C.; Editing by