It’s alive! Dexia’s $775 mln MBS case vs JPMorgan back from the dead
Here is how U.S. Senior District Judge Jed Rakoff led off his blockbuster ruling Friday in Dexia’s mortgage-backed securities case against Bear Stearns successor JPMorgan Chase: “Those who don’t believe in ghosts have never been in court, where legal claims are regularly seen rising from the grave. This is a case in point.” Is it ever! Rakoff’s resurrection and remand of Dexia’s $775 million suit merits its own chapter in the annals of zombie litigation.
You may recall that little more than a month ago, the judge issued one of his famous bottom-line orders, granting JPMorgan’s motion for summary judgment on all but five of the 65 certificates for which Dexia’s lawyers at Bernstein, Litowitz, Berger & Grossman had asserted securities fraud claims. At the time, JPMorgan’s lawyers at Cravath, Swaine & Moore publicly estimated that Dexia’s potential losses on its remaining claims were about $5.7 million, down $769 million from the Franco-Belgian bank’s original claims. In typical fashion, Rakoff said he would issue an opinion explaining his reasoning in due time. But before he did, the 2nd Circuit Court of Appeals ruled that the heretofore obscure Edge Act, which involves international transactions and federally chartered institutions, did not justify federal court jurisdiction in AIG’s case against Bank of America. JPMorgan had cited the Edge Act in removing Dexia’s case from New York State Supreme Court, and Rakoff had denied remand partly on Edge Act grounds. So on April 22, the judge docketed a sua sponte order directing the parties to brief whether the 2nd Circuit’s ruling in the AIG case meant that Dexia’s suit should be remanded to state court, and, if so, whether his summary judgment decision should be vacated