A New York appellate court agreed to let MBIA (MBI) go forward with a case in which the bond insurer claims Morgan Stanley (MS) fraudulently represented the quality of residential mortgage-backed securities, causing MBIA to end up on the hook for those  assets when the housing market collapsed. The bond insurer claims Morgan Stanley misrepresented the quality of the mortgages that the firm ended up insuring as part of an RMBS securitization. In court records, MBIA accuses Morgan Stanley of misrepresenting the quality of the underlying mortgages by providing the insurer with false or incomplete information on loan tapes and schedules. MBIA initially filed suit, accusing Morgan Stanley of fraudulent inducement and breach of contract. The bond insurer also claimed Saxon, the servicer involved in the deals, violated terms of the servicing agreement and was unjustly enriched. Morgan Stanley asked the Supreme Court of the State of New York County of Westchester to throw out claims against the bank on the  grounds that MBIA did not put forth a proper fraud claim. Morgan Stanley also claimed the factual allegations failed to show the defendants acted with evil motive or wanton disregard. The Supreme Court of the State of New York County of Westchester held  that MBIA's claim against Morgan Stanley will go forward, so a trial court can work through the facts of the case. Morgan Stanley declined to comment on the decision Friday. "We are pleased that the court has allowed our fraud and contract claims to move forward against Morgan Stanley," MBIA said in a statement. "The decision continues and reinforces the string of favorable rulings in our RMBS litigations against Bank of America (BAC), Countrywide, Credit Suisse (CS), GMAC Mortgage and Residential Funding Co." Write to Kerri Panchuk.