Second Circuit Rejects Edge Act Jurisdiction in AIG RMBS Case

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On April 19, the Second Circuit ruled that a lawsuit brought by American International Group (AIG) against several Bank of America entities involving alleged fraud in connection with $28 billion in RMBS had been improperly removed from state to federal court. Judge Barbara Jones of the United States District Court for the Southern District of New York had denied AIG’s motion to remand the case to New York state court, finding removal proper under the Edge Act, a statute enacted in 1919 that provides for federal jurisdiction if two conditions are met: (1) an international banking and financial corporation organized under the laws of the United States (an Edge Act corporation) must be a party; and (2) the lawsuit must involve an offshore banking transaction. The district court found that these conditions had been met because one defendant – Bank of America, N.A. (BANA) – was an Edge Act corporation and because 27 of the 1.7 million residential mortgage loans underlying the RMBS at issue were secured by properties outside of the United States. The Second Circuit vacated and remanded the district court’s decision for further proceedings, allowing defendants to press their other ground for removal – “related to” bankruptcy jurisdiction – that was not addressed in this interlocutory appeal. It held that the Edge Act only provided jurisdiction where the Edge Act corporation has engaged in the relevant offshore banking transaction. Because BANA did not originate the 27 international mortgage loans, the Second Circuit found that the Edge Act’s requirements were not satisfied, and that federal jurisdiction under the Edge Act therefore did not exist. Opinion.

Published In: Business Torts Updates, Civil Procedure Updates, Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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