NEW YORK (Reuters) – Bank of America Corp and Societe Generale on Tuesday will begin opening arguments in a New York State courtroom to overturn the 2009 restructuring of bond insurer MBIA Inc.
The banks are the only two plaintiffs remaining of 18 that sued MBIA and then-New York state Insurance Commissioner Eric Dinallo in 2009. They will try to convince a judge that the state insurance department abused its discretion when it approved MBIA's restructuring.
The reorganization segregated MBIA's troubled structured-finance business from its traditional bond business. The banks claim $5 billion was siphoned from the structured-finance unit, at the expense of entities that had insured securities with MBIA.
The two sides have been arguing over whether a full-blown trial is necessary. In court on Monday, attorney Robert Giuffra, who represents the banks, repeated his argument that disputed issues of fact warrant a trial. He said the approval was based on misrepresentations by MBIA.
Lawyers for Armonk, New York-based MBIA and the insurance department say the judge is entitled to rely on the record. If she finds any issue of fact, she can try that issue, said MBIA counsel Marc Kasowitz.
State Supreme Court Judge Barbara Kapnick, who has likened the non-jury case to a "glorified oral argument" with some witnesses, again rejected Giuffra's request for a full trial.
The judge said she wants two witnesses to testify: Dinallo, now a partner at law firm Debevoise & Plimpton, and Jack Buchmiller, an insurance department analyst who reviewed the restructuring.
She said she would decide later whether additional witnesses were warranted. She said she had reviewed reports from experts but wasn't clear how much weight to give them. She did not rule on what from the experts would be allowed.
"Start by presenting to me your case, based on the record that we already have, as to why you think the determination by the insurance department was arbitrary and capricious," Kapnick told Giuffra on Monday.
However she rules, Kapnick expects the decision to be appealed. "I'm sure this is going to end up in the Appellate Division and the Court of Appeals no matter what I do," she said.
The case is expected to last up to four weeks.
The case is ABN Amro Bank NV et al v. Dinallo, New York State Supreme Court, New York County, No. 601846/2009.
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