(Updates with Bank of America spokeswoman in sixth paragraph.)
Oct. 24 (Bloomberg) -- Allstate Corp. can’t pursue federal securities law claims against Countrywide Financial Corp, the home lender acquired by Bank of America Corp., over $700 million in downgraded residential mortgage-backed securities
U.S. District Judge Mariana Pfaelzer in Los Angeles said the federal claims were barred because Allstate’s investments weren’t among the Countrywide securities that were bought by the plaintiffs who brought the first lawsuits over the downgraded bonds in 2007 and 2008. Only federal claims over securities bought by the earlier plaintiffs fell within the statute of repose, she said.
The judge said in her Oct. 21 decision that Allstate can pursue state-law claims that Countrywide committed fraud by not telling investors that mortgages packaged in the securities allegedly didn’t meet the home lender’s underwriting standards. Pfaelzer let Allstate restate additional state-law claims she said hadn’t been adequately argued.
“Allstate is pleased the court recognized Allstate’s allegations of fraud with respect to hundreds of millions of dollars of RMBS purchases and rejected defendants’ motions to dismiss our fraud claims,” Maryellen Thielen, a spokeswoman for Northbrook, Illinois-based Allstate, said in an e-mailed statement.
Allstate will consider all options regarding the dismissed claims, including amending the complaint and appealing the decision, Thielen said.
Shirley Norton, a spokeswoman for Charlotte, North Carolina-based Bank of America, said the bank had no comment.
Pfaelzer also granted Bank of America’s request to be dismissed from the lawsuit. In April, the judge granted the same request in another case in which Allstate was initially a plaintiff, dismissing so-called successor liability claims against Bank of America by Countrywide mortgage-backed securities investors.
Countrywide, based in Calabasas, California, was once the biggest U.S. residential lender, originating or purchasing about $1.4 trillion in mortgages from 2005 to 2007. The bulk of them were sold to investors as mortgage-backed securities. Bank of America acquired Countrywide in 2008.
Allstate sued Bank of America and Countrywide in federal court in New York in December, after Pfaelzer had trimmed the Los Angeles federal case to a narrow group of securities that had been part of the first lawsuits and that didn’t include Allstate’s investments.
A federal judge in New York in June sent the case to Los Angeles, where Pfaelzer has been handling consolidated Countrywide securities cases since 2007.
The case is Allstate v. Countrywide, 11-5236, U.S. District Court, Central District of California (Los Angeles).
--Editors: Peter Blumberg, Glenn Holdcraft
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