A federal judge threw out federal securities law claims in Allstate Corp.'s fraud lawsuit against Bank of America Corp.'s Countrywide unit, though the suit can be revived in state court.  Apparently, Allstate waited too long to sue Countrywide over the debt - some $700 million of toxic mortgage debt - but the judge said the insurer may pursue state law claims.

"Allstate has pleaded that the defendants misrepresented the value and riskiness of the underlying loans and the collateral securing those loans," which it bought between 2005 and 2007, she wrote.  "If true, the RMBS may have been worth less than Allstate paid for them."

Pfaelzer, who oversees nationwide litigation over mortgage debt backed by loans from Countrywide, said Allstate could restate additional claims that it failed to argue properly.  She also dismissed Bank of America itself as a defendant. The judge has issued other rulings favorable to BofA, including last November when she cut the amount of securities at issue to $31 billion from $352 billion.  Not surprisingly, Bank of America has sought to move other litigation over Countrywide debt to her court. This included the Allstate case, which a Manhattan federal judge sent to Pfaelzer in June. Allstate has filed several lawsuits to recover losses on mortgage debt against lenders including Citigroup, Deutsche Bank and JPMorgan Chase.   [Reuters, 10/24/11]