American International Group (AIG) won a request to return its $10 billion lawsuit against Bank of America (BAC) over mortgage securities to state court in New York.

A federal appeals court in Manhattan on Friday ruled that the Edge Act, a 1919 law that regulates international banking, doesn't give the federal court jurisdiction over AIG's suit. AIG sued Bank of America in state court over losses it claimed on mortgage bond investments.

Bank of America had the case moved to federal court and U.S. District Judge Barbara Jones, who left the court for private practice this year, denied AIG's request to return it to state court. The appeals court Friday vacated Jones's ruling and returned the case to the district court.

Jones didn't make a ruling on Bank of America's argument that the case should remain in federal court because it's related to a bankruptcy proceeding, the appeals court said. Bank of America can raise that point when the case is returned to the district court, the appeals court said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.