(CN) – A New York appeals court dismissed a challenge to the 2009 restructuring of MBIA Insurance brought by 20 powerful financial institutions, including Barclay’s Bank and JPMorgan Chase.
MBIA announced in 2008 that would split into two companies: one to insure structured financial products, and another to insure municipal bonds and other public finance securities.
The superintendent of the New York State Insurance Department approved the restructuring, but the move came under fire from 20 MBIA policyholders, including lead plaintiff ABM AMRO Bank.
The banks and financial services claimed that the restructuring constituted a fraudulent conveyance that would leave MBIA Insurance without sufficient capital to cover their claims. They also sued for breach of contract, unjust enrichment and violation of the Debtor and Creditor Law.
The trial court denied MBIA’s motion to dismiss the lawsuit, but the Manhattan-based first department appellate court reversed the decision.
“Plaintiffs do not claim that MBIA Insurance has failed to make any payment due under the policies, but instead that the company has frustrated an implicit purpose of obtaining the policies, namely ‘to enhance the value and credit rating’ of the covered structured financial products,” Justice David Friedman wrote in the court’s majority opinion. “However, since this alleged purpose is nowhere reflected in the policies, it cannot serve as the basis of a claim for breach of contract.”
Friedman added that the banks’ proper avenue of relief is an Article 78 proceeding, which the plaintiffs’ have also commenced.
Two other justices on the bench concurred with Friedman’s opinion. Justice Sheila Abdus-Salaam wrote a dissenting opinion, joined by the panel’s fifth member, Justice Peter Tom.
“It does not follow, as the majority posits, that because the superintendent’s determination about the restructuring was comprehensive, this action is an impermissible collateral attack on that determination, when plaintiffs have alleged, for example, that MBIA Inc.’s loss estimates on debt obligations, relied upon by the superintendent, were unreliable and grossly inaccurate,” Abdus-Salaam wrote.