A federal judge has revived a lawsuit that alleged JPMorgan Chase misrepresented the quality of loans that backed securities sold to Belgian bank Dexia, National Mortgage News reported May 20.
Dexia accused JPMorgan Chase and two firms it bought during the mortgage meltdown — Bear Stearns and Washington Mutual — of taking shortcuts in the origination and securitization of mortgages that underpinned 51 securities offerings from 2005-07. Dexia alleges that it lost hundreds of millions of dollars on $1.6 billion in residential mortgage-backed securities.
JPMorgan Chase denied the allegations and had successfully petitioned the courts to move the case out of state court and into federal court. And in April, Judge Jed Rakoff narrowed the lawsuit considerably and basically gutted Dexia’s case, National Mortgage News reported.
However, a subsequent ruling by the U.S. Court of Appeals for the 2nd Circuit convinced Rakoff that he lacked jurisdiction over the case, National Mortgage News reported. Although 18 of the loans that underpinned the securities at issue were on properties in the Virgin Islands, two domestic subsidiaries of JPMorgan Chase handled the deals at issue — a circumstance that limited the court's jurisdiction under a U.S. law that governs offshore transactions, Rakoff ruled.
“Accordingly, because JPMorgan Chase Bank did not itself engage in the foreign banking transactions on the basis of which the defendants sought removal, the court cannot exercise jurisdiction over this issue under U.S. law,” Rakoff wrote in his opinion, which vacated his April ruling, National Mortgage News reported.
As a result, the lawsuit will return to a New York State trial court, where it initially was filed last year.