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July 2013: AIG Freed from Edge Act Jurisdiction Hook

July 2013

On April 19, 2013, the United States Court of Appeals for the Second Circuit ruled that a lawsuit by American International Group (“AIG”) against Bank of America and its affiliates was improperly removed from New York state court pursuant to the federal Edge Act, 12 U.S.C. § 632, which confers federal jurisdiction over certain disputes involving federally chartered banks and arising out of foreign or territorial banking transactions. AIG had sued the banks for over $10 billion, alleging misrepresentations in the offering materials that AIG relied upon to purchase residential mortgage-backed securities (“RMBS”). Only 27 of the almost two million loans at issue in the case originated in Guam and other U.S. territories.

Quinn Emanuel attorneys successfully argued on behalf of AIG that the Edge Act does not confer jurisdiction over RMBS claims where the underlying territorial mortgages were not themselves transactions “of” a federally chartered bank (in this case, Bank of America N.A.). The Second Circuit, reversing former Judge Barbara Jones of the Southern District of New York, held that, “in order for [the Edge Act’s] grant of federal jurisdiction and removability to apply, the suit must have a federally chartered corporation as a party, and the suit must arise out of an offshore banking or financial transaction of that federally chartered corporation.” Am. Int’l Grp. v. Bank of Am., 712 F.3d 775 (2d Cir. Apr. 19, 2013). The court of appeals remanded the case to the Southern District of New York to determine whether the case should return to New York state court.

The decision already has had a significant effect on other cases in which defendant banks sought to remove RMBS cases to federal court. For example, on May 17, 2013, in Dexia v. Bear Stearns, a Southern District of New York judge voided his prior summary judgment on an RMBS case that had been removed under the Edge Act, ruling that the AIG decision showed jurisdiction to have been improper. The decision opened: “Those who don’t believe in ghosts have never been in court, where legal claims are regularly seen rising from the grave.”