Rochdale Council and leader Colin Lambert are being sued for libel over remarks made after last year's jailing of a child sex grooming ring.
After the case, the council's Labour leader said the borough was the "wrong place" to put vulnerable youngsters in private care.
But two local care companies claim they lost business worth more than £400,000 from eight local authorities.
The council has said it would defend the action.
Law firm Manleys, acting for Meadows Care Ltd and Pathfinders Childcare Ltd, has filed a joint writ with the High Court which alleges that the councillor's comments also damaged the reputation of both companies.
It is claimed two county councils - Lancashire and North Yorkshire - and six metropolitan boroughs - Calderdale, Doncaster, Ealing, Kirklees, Rotherham and St Helens - stopped placing youngsters with the care firms in Rochdale as a result of Mr Lambert's remarks.
The writ alleges Meadows lost £260,000 as a result of the remarks while Pathfinder is said to have lost £156,000.
Speaking on Mr Lambert's behalf, Linda Fisher, deputy chief executive at Rochdale Borough Council said: "The council is taking the matter seriously and the action will be defended."
Nine men were convicted last May for the illegal grooming of under age girls for sex in Rochdale borough.