fraud claim

Summary Judgment Denied in Monoline Insurer Lawsuit Against J.P. Morgan

On June 6, 2016, Justice Alan D. Scheinkman of the New York Supreme Court for Westchester County denied J.P. Morgan’s motion for summary judgment on MBIA’s fraudulent concealment claim. The court had previously granted summary judgment in favor of J.P. Morgan on MBIA’s fraud claim, but permitted MBIA to amend its complaint to add a fraudulent concealment claim that J.P. Morgan failed to disclose complete and accurate third-party due diligence results regarding the collateral underlying the securitization. First, Scheinkman rejected J.P. Morgan’s argument that it did not owe MBIA an affirmative duty to disclose the results of the due diligence review. The Court held that the bid letter between J.P. Morgan and MBIA evinced a contractual relationship between the parties, and that even in the absence of such a relationship, J.P. Morgan was acting as an agent for the deal’s sponsor, who was obligated to share the due diligence results with MBIA.  Second, Scheinkman held that issues of fact precluded summary judgment on actual reliance, because withholding, disguising the significance, and delivering an altered version of due diligence results may have thwarted MBIA’s ability to protect itself.  Last, the Court held that whether MBIA justifiably relied on J.P. Morgan’s failure to disclose the due diligence results is a question for the jury.  Decision & Order.

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 Preserves MBIA’s Fraud Claim in RMBS Suit Against Countrywide

On June 30, 2011, a New York appellate court affirmed the denial of Countrywide Home Loans, Inc.’s and certain of its affiliates’ (“Countrywide”) motion to dismiss MBIA, Inc’s (“MBIA”) claim that it had been fraudulently induced to insure 15 Countrywide RMBS securitizations. The court held that MBIA’s fraudulent inducement claim was not duplicative of its contract claims and that the fraudulent inducement claim adequately alleged misstatements of fact that could be argued to have caused MBIA’s losses. The court, however, sustained the dismissal of MBIA’s negligent misrepresentation claim, holding that an arm’s length business transaction does not create the special relationship of trust or confidence required to establish such a claim. The court also dismissed MBIA’s claim for breach of the implied duty of good faith and fair dealing, holding that the claim was duplicative of MBIA’s breach of contract claim. Decision.

Orrick Obtains Dismissal of Ambac’s Fraud Claim Against Credit Suisse

Ambac Assurance Corp. v. DLJ Mortgage Capital, Inc./ Credit Suisse, No. 600070/2010 (Sup. Ct. N.Y. Apr. 7, 2011) (Kornreich, J.)

Justice Shirley Kornreich of the Supreme Court of the State of New York dismissed Ambac Assurance Corp.’s claim that it was fraudulently induced to insure a Credit Suisse RMBS issuance. Among other things, the Court found that an allegedly fraudulent representation that the loans at issue conformed to underwriting guidelines was not actionable because Ambac had access to all relevant information and failed to investigate, and because Ambac failed to obtain a contractual representation or warranty. Other aspects of the fraud claim were dismissed as duplicative of Ambac’s contract claim, which alleges that certain loans did not meet applicable representations and warranties. Orrick represents Credit Suisse in this matter. Decision.