LITIGATION | CASES TO WATCH
ing that it had overreached in its
demand for $2.6 billion in lost
revenues.
RESTRUCTURING
ABN Amro Bank NV et al. v.
MBIA Inc.
Bank policyholders of the
monoline insurer MBIA are
trying to get the insurer’s 2009
restructuring declared invalid—and get the billions they
claim they are owed.
For the Plaintiffs:
Kasowitz Benson Torres &
Friedman
For the Defendant:
Sullivan & Cromwell
AFTEr 2008’S GLOBAL FI-
nancial crisis, MBIA Inc. tried to
cut its losses by dividing the com-
pany in two. Now 11 banks, which
all hold MBIA mortgage-backed
securities insurance policies, are
suing the monoline insurer to
undo the split. The suit is one of
the biggest fraudulent convey-
ance claims stemming from the
subprime meltdown, and could
result in a rare reversal of a state
court–approved restructuring.
And the case is approaching trial.
The dispute goes back to the
beginning of 2009, when MBIA
had a troubled mortgage-backed
securities insurance business and
a financially healthy muni bond
insurance unit. That February,
MBIA decided to quarantine
$5.4 billion in solvent assets into
a subsidiary that would only pay
out claims to the muni bond in-
surance policyholders, in a move
to keep the riskier, structured fi-
nance products side from bring-
this case, the state insurance su-
perintendent who approved the
asset transfer. (Eric Dinallo was
the superintendent at the time;
he is now a partner at Debevoise
& Plimpton.)
The banks claim that they were left
holding the bag for MBIA’s subprime losses
after it spun off its healthy assets.
ing down the whole company.
The subsidiary, now known as
National Public Finance Guaran-
tee Corporation, was created in
an out-of-court restructuring.
The 11 banks filed suit in New
York state court in Manhattan in
May 2009. The plaintiffs, mostly
Wall Street banks that had pur-
chased insurance policies on
mortgage securities portfolios
with the monoline insurer, claim
that MBIA violated insurance
laws by not consulting them about
the restructuring, which unfairly
left them holding the bag on sub-
prime losses.
“MBIA had essentially shrunk
the pool of payout-able funds to
pay out to policyholders who had
purchased insurance on mortgage-
backed securities,” says robert
Hockett, a professor of financial
and business law at Cornell Law
School. “The banks were worried
that the risk was increased that
MBIA wouldn’t be able to pay out
their claims should they arise.”
MBIA responded to the banks’
suit by filing a motion to dismiss,
which the state court judge de-
nied. MBIA appealed. In January
2011, New York’s state appellate
court reversed. The court ruled
that the banks were limited to
challenging the restructuring via
an Article 78 proceeding, a fo-
rum for contesting the activities
of an administrative agency—in
light to a parallel Article 78 pro-
ceeding against Dinallo. In that
case the bank policyholders allege
that MBIA gave the state insur-
ance department inaccurate data
on its financial condition and ex-
posure to losses. They also claim
that Dinallo unlawfully approved
a restructuring plan that favored
one set of policyholders over an-
other, which MBIA has denied.
That case is scheduled to go to
trial early next year.
