San Francisco, July 14 (Bloomberg) -- Verizon Communications Inc. has failed to persuade a judge to dismiss most of a $4 billion lawsuit by NorthPoint Communications Group Inc. that accuses the largest U.S. local-telephone company of unfairly abandoning a takeover.

The California Superior Court judge rejected Verizon's bid to throw out claims of fraud and punitive damages totaling as much as $3 billion. NorthPoint sued Verizon in November 2000 after the New York-based phone company scrapped plans to acquire the high-speed Internet provider for an estimated $2.15 billion. NorthPoint filed for Chapter 11 bankruptcy weeks later.

The ruling late Friday by Judge James McBride clears the way for a California jury to begin hearing San Francisco-based NorthPoint's lawsuit on July 29.

``We are aggressively going to pursue the fraud claims,'' said Lynn Schoenmann, a Chapter 7 trustee managing NorthPoint's business on behalf of creditors. ``I think $4 billion is not out of the realm of possibility.''

``We continue to be confident that a jury will recognize that Verizon was entitled to withdraw from the merger agreement,'' said Verizon spokesman Robert Varettoni. ``This court ruling doesn't change that fact, which will ultimately defeat all of NorthPoint's claims.''

Even if McBride had ruled for Verizon Friday, the New York- based telephone company still would have faced a $1 billion damage claim by NorthPoint.

In its lawsuit, NorthPoint asks for $1 billion in actual damages, $1 billion for fraud, $1 billion for negligent misrepresentation, and an award of punitive damages that may bring its total claims to more than $4 billion.

Abandoned Takeover

Verizon has said NorthPoint's deteriorating business and finances gave it the right to abandon its August 2000 agreement to buy the Internet provider. NorthPoint reported third-quarter 2000 sales of $24 million, 20 percent less than first reported, as Internet companies and other customers failed to pay bills.

``The goal of NorthPoint's fraud claims is to make Verizon look bad in front of a jury and add the potential risk of punitive damages to the calculus of this case,'' Verizon said in a court filing last month.

In the lawsuit, NorthPoint says Verizon abandoned the takeover for reasons that had nothing to do with NorthPoint's finances, such as investor criticism. The agreement was supposed to help NorthPoint and Verizon together create a national Internet network using digital subscriber line, or DSL, technology.

Shares of NorthPoint, up more 320 percent in the past year, were unchanged Friday at 21 cents. Verizon shares fell $2.30 to $35.30.

Potential Windfall

NorthPoint filed for bankruptcy protection in January 2001 and sold its operations to AT&T Corp. the following March for $135 million.

U.S. Bankruptcy Judge Thomas Carlson in San Francisco converted NorthPoint's bankruptcy to a Chapter 7 liquidation in June 2001. The defunct Internet company still owes lenders $52 million, bondholders about $400 million, and other creditors about $100 million, according to Schoenmann.

Monarch Global Capital Associates LLC, a top NorthPoint bondholder, in October agreed to lend the company $7.5 million at zero interest to finance the fraud and breach of contract suit against Verizon. In return for the loan, Monarch would receive 5.5 percent of any settlement with Verizon or 6 percent of any judgment at trial.

Once Monarch and other creditors are fully paid, NorthPoint's shareholders would divide any money left over.