Judge allows Chicago pension fund to argue that banks failed in their duty.
Bank of America Corp. and U.S. Bancorp must face some claims in a lawsuit brought by a pension fund that contends the banks failed in their responsibilities to protect mortgage-bond investors.
U.S. District Judge Katherine Forrest in New York ruled Friday that the Policemen's Annuity and Benefit Fund of the City of Chicago can pursue some of the allegations made in its suit, although she dismissed other claims against the banks.
The pension fund sued the banks over their role as trustees for pools of mortgage loans bundled into securities and sold to investors, arguing that they caused investors to lose millions of dollars.
The banks disregarded their job of ensuring that there were no missing or defective documents for the mortgages, and that defective loans were removed from the mortgage pools, the pension fund said in its complaint.
Forrest said the fund could pursue allegations on behalf of investors in five of the 41 trusts at issue in the complaint. The judge dismissed breach-of-contract claims related to reviewing mortgage files and pursuing loan repurchase rights.
The claims related to providing notice of deficient files can proceed, she said.
Tom Joyce, a spokesman for Minneapolis-based U.S. Bancorp, said the bank wasn't the original trustee for the trusts involved in the case and was not the trustee at the time the pension fund held any interest in the trusts. Forrest said in her decision that it's plausible that the bank assumed liabilities when it became trustee.
"We have no liability as successor trustee and intend to promptly seek dismissal of all remaining claims," Joyce said in a statement.
Lawrence Grayson, a spokesman for Charlotte, N.C.-based Bank of America, declined to comment on the ruling. Max Schwartz, an attorney representing the Chicago police pension fund, didn't immediately respond to an e-mail seeking comment on the ruling.