A state judge Friday threw out a majority of the claims against Merrill Lynch & Co. in a lawsuit by the bond insurer MBIA Inc. over credit default swaps related to about $5.7 billion in collateralized debt obligations.
In an order Friday, New York State Supreme Court Justice Bernard Fried in Manhattan dismissed five of six claims, including claims of fraud and negligent misrepresentation, against Merrill, a unit of Bank of America Corp. The judge allowed a breach of contract claim to proceed.
The judge said MBIA and its LaCrosse Financial Products LLC affiliate "specifically stated that they were able to evaluate the validity of the CDOs, and were specifically warned that the transaction was appropriate only for sophisticated investors."
In a lawsuit filed last May, MBIA alleged Merrill attempted to offload billions of dollars in deteriorating U.S. subprime mortgages and other collateral from its books by packaging them as CDOs or hedging their exposure through swaps with insurers.