NU Online News Service, Feb. 2, 2:17 p.m. EST
A New York appeals court has thrown out a suit from bond insurer MBIA against Merrill Lynch, saying that sophisticated business entities should have understood what they were getting into.
On Tuesday, the New York State Appellate Court in Manhattan rejected a suit from MBIA against Merrill Lynch that accused the bank of fraudulently representing $5.7 billion in risk debt that MBIA insured.
The court said that Armonk, N.Y.-based MBIA and co-defendant LaCrosse Financial Products were sophisticated business entities and had the capacity to research the products they were insuring. Their failure to properly evaluate the transactions was not the fault of Merrill and they understood and accept the risks.
The court said the MBIA could not claim breach of contact because there was no promise in the agreement. There was also nothing in the agreement promising credit quality.
According to reports, MBIA said it plans to appeal the decision.
The action is one of a number of suits MBIA has filed against banks that it sold bond insurance to covering mortgage backed securities that eventually defaulted in the face of the Great Recession of 2007.
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