* Judge says S&P took too long to move 2010 state case
* U.S. sued S&P for $5 bln; many other states also sued
By Jonathan Stempel and Aruna Viswanatha
April 25 A federal judge handed a legal defeat
to Standard & Poor's, ruling that a lawsuit in which Connecticut
accused it of fraudulently inflating credit ratings to win
business should be moved back to the state court where it began.
In a decision late Wednesday, U.S. District Judge Stefan
Underhill in Bridgeport, Connecticut, said S&P and its parent,
McGraw-Hill Cos, waited too long to move the March 2010
lawsuit by Connecticut Attorney General George Jepsen to federal
court from state court. He did not rule on the case's merits.
The decision came two days after the largest U.S. credit
rating agency asked a federal judge in Los Angeles to dismiss
the U.S. Department of Justice's $5 billion civil fraud lawsuit
filed in February over its ratings.
In that case, the government said S&P knowingly inflated
ratings of risky mortgages and other securities, fueling demand
from investors who believed the ratings were objective and
helping trigger the 2008 financial crisis.
S&P had been seeking to move lawsuits by 15 U.S. states and
the District of Columbia to federal court. On May 30 it is
expected to ask the U.S. Judicial Panel on Multidistrict
Litigation to consolidate litigation before a single federal
Combining the cases could streamline the litigation, avoid
conflicting rulings, and help S&P obtain better results than if
it were forced to defend against claims under state consumer
laws, where burdens of proof can be lower.
Underhill rejected the argument by S&P and its lawyers,
including First Amendment specialist Floyd Abrams, that the Feb.
5, 2013, filing of 13 of the other lawsuits entitled the rating
agency to a new 30-day clock to move Connecticut's lawsuit.
"Although it may be tempting to find federal jurisdiction
every time a multibillion-dollar case with national implications
arrives at the doorstep, succumbing to that temptation is barred
by the careful limits Congress has placed on the jurisdictional
reach of federal courts," Underhill wrote.
In a statement, Jepsen said he was pleased with the decision
and was "prepared to litigate the matter in Connecticut Superior
Court, where it belongs."
S&P spokeswoman Catherine Mathis said, "The timeliness
grounds for the ruling do not apply to the more recently filed
actions by other state attorneys general."
Before S&P sought to move it, the Connecticut case had not
been expected to be ready for trial until roughly late 2014.
The Department of Justice lawsuit is the first major federal
action against a credit rating agency since the financial
A hearing is set for May 20 before U.S. District Judge David
Carter in Los Angeles. S&P's main rivals, Moody's Corp's
Moody's Investors Service and Fimalac SA's Fitch
Ratings, were not sued by the federal government.
In afternoon trading, shares of New York-based McGraw-Hill
were down 1 cent at $51.80 on the New York Stock Exchange.
The case is Connecticut v. McGraw-Hill Cos et al, U.S.
District Court, District of Connecticut, No. 13-00311.