Private-equity executive Lynn Tilton won a financial-crisis era lawsuit filed by MBIA Inc. (MBI) over a disputed bond deal.
In the decision filed Monday, U.S. Judge Robert W. Sweet for New York's Southern District called the flashy financier a "vigorous" and "authoritative" witness.
Bond insurer MBIA alleged in an April 2009 lawsuit that Ms. Tilton's Patriarch Partners VIII, LLC breached a contract by failing to get a slice of a collateralized debt obligation, or CDO, rated as investment grade.
Judge Sweet ruled that Patriarch Partners did not breach that contract with MBIA. The bond insurer had been seeking more than $100 million in damages, says Hillary Richard, a lawyer for Patriarch Partners.
The judge found that "it was unfair to blame Patriarch for market forces for which Patriarch had no control," Ms. Richard said.
"We are disappointed by the decision and are considering our options," a spokesman for MBIA said in a statement.
Thirteen witnesses presented evidence to Judge Sweet in the lawsuit. He praised Ms. Tilton's testimony in a section of the lawsuit on "witness credibility."
Ms. Tilton is a well-known Wall Street personality, with a penchant for brazen remarks and an eye-catching style uncommon in the financial industry.
"She was vigorous, authoritative, informed and almost entirely supported by documentary evidence," Judge Sweet wrote.
But he said that one part of Ms. Tilton's testimony "approached hyperbole and was unsupported by documentary evidence," referring to her claim that she planned to distribute among her employees any returns from a slice of a CDO.
He concluded: "Notwithstanding that fact, however, Tilton's recollection of events was clear and unshaken. She was an effective witness and in the main entirely credible."
The U.S. district judge also wrote in his ruling that Ms. Tilton is "reputed to have a personal net worth of over $1 billion."
A spokesman for Patriarch Partners declined to comment on Ms. Tilton's net worth.
The lawsuit filed by MBIA centered on a CDO named Zohar CDO 2003-1.
"Zohar" means "brightness" and is also the definitive work of Kabbalah. The bold name is indicative of the exuberant and aspirational titles bankers and collateral managers often assigned to CDOs before the financial crisis.
The lawsuit also mentions seven CDOs insured by MBIA, which received premiums for agreeing to pay investors the principal and interest on the investment if the CDO didn't make the payments. In 2002, MBIA executives' concerns mounted that the seven CDOs wouldn't be able to make the payments because the underlying assets were performing poorly.
Ms. Tilton and Patriarch Partners agreed to manage the CDOs, controlling what assets would go in and out of the entities. MBIA also agreed to insure Zohar I, a new CDO Patriarch Partners planned to issue. In the lawsuit, MBIA claimed Patriarch Partners violated an agreement to have a slice of Zohar rated investment grade by rating firms.
The judge ruled Monday that the slice--the B notes--couldn't have been rated investment grade.
A key witness for Patriarch Partners "established that, given the circumstances, the B Notes could not have received an investment-grade rating during the relevant period."
There was also a dispute about whether MBIA would rate a separate CDO issued by Patriarch Partners called Zohar III.
In an email sent to MBIA executives at 4:39 a.m. on Nov. 7, 2007, Ms. Tilton wrote: "MBIA caused Patriarch much pain when they walked from that commitment and that will not soon be forgotten. It is not befitting to come looking for free gifts from a lady and a firm that you rejected and treated so badly."
Write to Jeannette Neumann at email@example.com