On the first day of a trial in a lawsuit brought by banks to undo bond insurer MBIA Inc.’s split into two companies, the judge made clear she wanted the proceedings to focus on legal rather than factual issues.
Bond insurer MBIA experienced major losses on mortgage-backed securities following the housing bust and it petitioned the New York Insurance Department to allow it to split into two companies. One of the companies was to focus on insuring municipal bonds.
In February 2009, the NYID approved the transformation. In June 2009, several banks sued MBIA and the department, seeking to reverse the transformation and claiming the split reduced the value of their insurance.
For almost three years the Article 78 case has advanced through the depositions of witnesses, submission of relevant documents and other written material. This is one of two cases seeking to reverse the transformation.
Along with MBIA and its two subsidiaries, the NYID and Eric Dinallo, in his former capacity as department superintendent, are defendants.
On Monday the lead attorney for the plaintiffs Bank of America and Société Générale, Robert Giuffra Jr., told New York State Supreme Court Judge Barbara Kapnick that there were many “issues of fact” in the case. The quality of New York Insurance Department analyst Jack Buchmiller’s review of MBIA is an example of a relevant fact in the case, according to Giuffra. That the insurance department incorrectly believed that MBIA had passed a stress test is another issue of fact for the case, he said.
However, Kapnick was skeptical that there were many “issues of fact” in the case. Instead, she said most of what needed to be discussed were “issues of law.”
Giuffra urged Kapnick to go beyond the case’s extensive body of written documents and depositions to take in-person testimony that could be cross-examined.
Kapnick told the attorneys she wanted a “non-trial trial” based primarily on the existing collected evidence.
She called for Giuffra to make a one- or two-day presentation of his arguments. That would be followed by presentations by the two attorneys representing the defendants.
Marc Kasowitz, attorney with Kasowitz, Benson, Torres & Friedman LLP, is the lead attorney for MBIA, and David Holgado, a lawyer with the New York attorney general’s office, is the lead attorney for the insurance department and Dinallo.
There was disagreement among the attorneys as to whether the defendants’ lawyers should get twice as much time, since there were two branches of defendants. Kapnick did not make her view clear on the topic.
Giuffra is to start presenting his views at 10 a.m. on Tuesday.
Kapnick said that she wanted in-person testimony from Buchmiller and Dinallo, but that she was not sure if she wanted to have others called to testify.
Though in 2009 18 financial firms were plaintiffs in the case, just Bank of America and Société Générale remain.