Kapnick also declined to reverse the approval on the basis of errors, which MBIA admitted, in an "extreme stress test" projection submitted by MBIA to the Insurance Department.
She noted, first, that the Insurance Department was following its own usual practice of presuming that materials submitted to it were true, and that it is "not for this Court to disturb NYID practices absent a violation of law or regulation; nor is it this Court's role to promulgate new NYID policies or procedures."
She said that, while in some other cases, courts had overturned regulatory determinations because they relied on inaccurate information, those cases "do not stand for the broad proposition that all agency determinations must be annulled if based on inaccurate information, regardless of what that information is or what role it played in the decision making process.
"There is a difference between the instant situation where the NYID may have used incorrect numbers in hypothetical 'extreme stress' tests and a parole board having the wrong information about the number and types of crimes an inmate was convicted of when considering his or her parole application, because in the latter scenario there is an obvious 'likelihood that such error may have affected the board's decision to deny parole,'" she wrote as an example, citing Brazill v. New York State Bd. of Parole, 76 AD2d 864.
Kapnick further said that MBIA's failure to share an unfavorable analysis of its finances prepared in 2008 by Lehman Brothers was not a basis for granting the Article 78 petition, writing that the banks "fail to provide any legal authority to support their argument that this Court can annul the Department's decision based on claims that MBIA concealed or withheld potentially damaging information from the NYID."
The judge repeatedly emphasized that it is not her role to evaluate the merits of the Insurance Department's review process.
"The inquiry is not whether the result would have been different had the NYID hired certain experts or conducted the review on a different time line or with different resources," she said. "Absent statutes or regulations that prescribe the manner in which the NYID must review the applications it receives, this Court cannot say that it was arbitrary and capricious for the NYID not to have taken the course that Petitioners insist, after the fact, would have been more prudent."
Kasowitz said that "MBIA is very pleased with Justice Kapnick's decision, which was thorough and well-reasoned. The decision, which came after a month-long hearing in which there were literally thousands of pages of evidence and briefing, addressed all of the banks' arguments and rejected every one of them. It held, at the end of the day, that Superintendent Dinallo's approval of the transformation transaction was neither erroneous nor an abuse of discretion."
Bank of America and Societe Generale said in a written statement: "We continue to believe that MBIA wrongfully transferred $5 billion from its structured finance subsidiary, to the harm of its policyholders, which we intend to prove in the separate fraudulent conveyance litigation that is underway."
Giuffra said his clients planned to appeal.