A federal judge in Los Angeles ruled Tuesday that a shareholder lawsuit against executives and officers at Countrywide Financial Corp. (CFC) can continue to trial, an outcome that many in the industry see as potential precedent for future litigation. The plaintiffs in the case, including numerous pension funds that have seen their investment in the Calabasas-based lender go sour amidst the housing crisis, alleged that insider trading and a lack of corporate oversight by the company’s directors caused Countrywide’s collapse and subsequent agreement to be acquired by Bank of America Corp. (BAC) for $4 billion. In a 61-page ruling issued Tuesday, Judge Mariana R. Pfaelzer of Federal District Court in Los Angeles said that the plaintiffs in the case presented a “cogent and compelling inference” that Countrywide’s directors had misled the public and investors. “It defies reason, given the entirety of the allegations, that [Countrywide’s directors] could be blind to widespread deviations from the underwriting policies and standards being committed by employees at all levels,” she wrote. The lead plaintiffs in the putative class action case — called a derivative shareholder suit, because shareholders are suing the company’s directors personally on behalf of the company — include the Arkansas Teacher Retirement System, the Fire & Police Pension Association of Colorado and the Public Employees Retirement System of Mississippi. Both the New York Times and Business Week reported Thursday morning that plaintiff’s attorneys will seek to expedite a trial ahead of the expected completion of a BofA/Countrywide merger, although HW’s sources suggest that it’s possible for Countrywide to seek an appeal to the Federal ruling. One legal expert, who asked not to be named, said that Countrywide could ask Pfaelzer to certify an appeal to the state’s Ninth Circuit Court of Appeals. “This could go straight up to the Ninth Circuit, given how important the case is and its implications for the larger industry,” said the source. Countrywide officials did not immediately respond to a request for comment. Fourteen current and former directors at the company are named in the suit, which alleges that they bilked investors while raiding the company for their own benefit, while creating a culture that led the company’s to take on undue riskin underwriting bad mortgages. Countrywide CEO Angelo Mozilo, in particular, has taken plenty of heat for so-called 10b5-1 stock distribution plan — an executive stock distribution program that paid him $474 million over three years, according to the New York Times. Mozilo amended the program to speed up his distributions just as the housing crisis was gaining momentum. Disclosure: The author was long CFC, and held no other positions in publicly-traded companies mentioned, when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.