Appellate Division of the Supreme Court of the State of New York

New York Appellate Court Affirms Motion to Dismiss RMBS Complaint Against Morgan Stanley

On January 12, 2016, the Appellate Division, First Department, of the New York State Supreme Court affirmed a trial court order granting Morgan Stanley’s motion to dismiss claims brought by Dexia SA’s subsidiary FSA Asset Management LLC (“FSAM”). Plaintiffs asserted fraud claims against Defendants based on allegations that Defendants knowingly misrepresented the quality of more than $626 million in RMBS sold by Morgan Stanley to Plaintiffs in 2006 and 2007.  The Court’s ruling rested on a recent New York Court of Appeals decision holding that the right to assert a fraud claim related to a contract or note does not automatically transfer with the respective contract or note, and that there must be some language to evince that intent and transfer such rights.  Specifically, the Court found that FSAM’s agreement to deliver “all right, title and interest” in the RMBS to the Dexia Plaintiffs did not transfer the right to bring fraud claims.  The Court also concluded that FSAM could not establish damages because it received from the Dexia Plaintiffs the same amount it originally paid for the securities. Opinion.

New York Appellate Court Dismisses MBIA v. Merrill

On February 1, 2011, the Appellate Division of the Supreme Court of the State of New York dismissed MBIA Insurance Corp’s claim for breach of contract against Merrill Lynch concerning 11 credit default swap contracts on four CDOs whose collateral consisted largely of RMBS. MBIA alleged that it was induced to provide credit protection on the CDOs based on misrepresentations as to the quality of the CDOs’ collateral, the degree of credit protection on the insured tranches, the credit ratings of the insured tranches, and the default rates for comparable CDOs. MBIA originally brought a variety of claims sounding in fraud, negligent misrepresentation, breach of contract, and a breach of the covenant of good faith and fair dealing, and sought rescission of the CDS contracts and money damages. The trail court dismissed all but the breach of contract claim, which the Appellate Division has now unanimously dismissed on appeal. First Department Decision. New York County Supreme Court Decision.