A group of noteholders trying to recover roughly $1 billion from Bank of New York Mellon due to losses they suffered in the disastrous LyondellBasell leveraged buyout can proceed with their claims. On Tuesday New York State court judge Shirley Kornreich denied most of Bank of New York’s motion to dismiss, finding that the noteholders had sufficiently pled claims that BNY, as indenture trustee for the noteholders, had acted negligently and breached its obligations under the indenture at the time of the LBO. You can read Judge Kornreich’s ruling here.

The plaintiffs, led by an investment entity called Arrowgrass Master Fund Ltd., are represented by Marc Kasowitz of Kasowitz, Benson, Torres & Friedman, who is assisted by David Rosner and David Mark.

According to the complaint, which was filed in Sept. 2010, the plaintiffs hold notes issued by Basell in 2005, which at that time were subordinated to just $2 billion in senior debt. When Basell was bought by Lyondell Chemical Company in a 2007 LBO, an additional $20 billion in senior debt was piled onto the company. That crushing debt load forced LyondellBasell into bankruptcy less than two years later.

The plaintiffs allege that BNY violated the indenture at the time of the LBO, when it signed an agreement that subordinated the noteholders to the additional $20 billion of debt without getting their consent. BNY, represented by Paul, Weiss, Rifkind, Wharton & Garrison, argued in this motion to dismiss, that BNY had been released from the plaintiffs’ claims in a settlement the noteholders had struck with other creditors in the LyondellBasell bankruptcy proceedings. It also maintained that it was not obligated to get the noteholders’ consent. Judge Kornreich rejected both arguments. She did, however, dismiss the plaintiffs’ claims for breach of fiduciary duty.

Kasowitz said that the plaintiffs will still be able to recover their full damages under the surviving claims. He told us his firm currently represents investors holding roughly three-quarters of the $1.35 billion in notes that Basell issued, and that he expects more investors to join the action now. (Kasowitz’s clients bought their notes in the secondary market after they were issued.)

We reached out to Paul Weiss partner Leslie Fagan, who represents BNY, but didn’t hear back.

Editor’s note: An earlier version of this story incorrectly reported the date of Judge Kornreich’s ruling. It was Jan. 28, not Jan. 27. We regret the error.