Trial Practice Update


Two recent decisions in MBIA Insurance Corp. v. Countrywide Home Loans , Inc., No. 602825/08 (N.Y. Sup. Ct. Dec. 22, 2010), one of the most closely-followed residential mortgage-backed securities (“RMBS”) cases in the country, involved significant trial-related issues. In the suit, MBIA alleges that Countrywide fraudulently induced it to insure $21 billion dollars’ worth of RMBS by falsely representing that Countrywide originated the loans in strict compliance with its underwriting standards and guidelines, when in fact it knowingly and routinely approved borrowers who could not afford to repay the loans, committed fraud in loan applications, or otherwise did not satisfy the basic risk criteria for prudent and responsible lending that it claimed to use.

First, Justice Eileen Bransten of the New York Supreme Court, ruled in limine that MBIA could use statistical sampling of the loan pools to prove its claims of fraud and breach of contract. In so doing, the court effectively freed the plaintiff from proving its case on a loan-by-loan basis. Doing so would have been impossible because more than 360,000 loans are at issue. The court instead approved a methodology allowing the plaintiff to sample 400 loans from each of 15 securitizations. The ruling granted MBIA a “powerful tool” for establishing its claims, allowing it to bypass the “costly and time consuming process” of proceeding on a loan-by-loan basis. See, John Carney, Bank of America Loses Key Battle in Mortgage Fraud Fight, CNBC, Dec. 23, 2010, In granting MBIA’s motion, the court rejected the defendants’ contention that the motion was premature because discovery had not yet closed. It held that New York law permits parties to motion in limine “as their litigation strategy dictates.”

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