On May 2, the First Circuit granted subject matter jurisdiction to a Massachusetts judge in a suit against Moody's Corp. ("Moody's") in which the Federal Home Loan Bank of Boston ("FHLB") alleges that Moody's negligently misrepresented mortgage-backed securities ratings. The FHLB purchased more than $5.9 billion worth of mortgage-backed securities based on Moody's favorable ratings, and these toxic holdings plummeted in value during the crash, to the bank's considerable detriment. Moody's was temporarily released from these claims when U.S. District Judge George A. O'Toole was persuaded by its counsel that he didn't have jurisdiction based upon the Supreme Court's decision in Daimler AG v. Bauman; however, the First Circuit determined that because the case involved claims brought under federal law, the case was subject to federal jurisdiction regardless of the state in which the alleged wrongdoing took place.
The First Circuit addressed both personal and subject matter jurisdiction in its decision on Monday, both of which it determined had bearing on this case. With respect to personal jurisdiction, Judge O'Toole initially determined that because Moody's operated primarily within the State of New York, the District Court in Massachusetts lacked standing to hear the case. On this question, the First Circuit determined that throwing the case out on these grounds was improper, remanding the case to the District Court to determine whether or not the case should be heard in New York rather than Massachusetts.
The Massachusetts Court's initial determination hinged on personal jurisdiction within the context of the Daimler decision. This Supreme Court ruling dealt with an attempt to sue Daimler in California over alleged wrongdoing in Argentina, which the Supreme Court determined did not fall within the purview of the Court on jurisdictional grounds. This case is distinguishable for a number of reasons, prominently among which is the absence of international questions of jurisdiction, and the conferral of subject matter jurisdiction due to the federal claims on which the case was brought effectively revived this large scale suit against the ratings agency.
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