By Joseph Ax

A U.S. judge on Friday narrowed Mashreq PSC's claims in a lawsuit that alleged ING Groep NV lost more than $40 million of the Dubai bank's money by investing it in "toxic" securities.

U.S. District Judge Lorna Schofield denied ING's bid to dismiss the complaint in its entirety, ruling that Mashreq's breach of contract claim should stand.

However, she dismissed the bank's breach of fiduciary duty and fraud claims as duplicative of the contract claim. As a result, she said, Mashreq cannot pursue punitive damages in addition to the $43 million it claims it is owed, as New York law does not generally allow for punitive damages on a breach of contract claim.

"Mashreq's claim for breach of contract is plausible based on the facts alleged, and there is nothing in the plain language of the agreement or the revised guidelines that negates this plausibility as a matter of law," Schofield wrote.

A spokesman and a lawyer for Netherlands-based ING did not immediately respond to a call for comment on Friday evening.

Mashreq's attorney, Azra Mehdi, said the bank was pleased that its "primary claim" was preserved.

"We're very happy that Judge Schofield felt that our claims were timely and meritorious," she said. "We're looking forward to continuing on."

The lawsuit alleged that ING put more than two-thirds of a $108 million investment into "toxic, illiquid structured securities" in 2007 and hid the move in part by mixing the loans in reports with more reputable securities.

Mashreq said it had lost at least $60 million at one point before recouping some of it through its own efforts.

The case is MashreqBank PSC v ING Group NV, U.S. District Court, Southern District of New York, No. 13-2318.

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