Editor: David Reiss
Brooklyn Law School

April 24, 2013

Supreme Court of New York County Rules Against Credit Suisse’s Motion to Dismiss MBS Investor Suit

By Brad Borden

In Stichting Pensioenfonds ABP v. Credit Suisse Group AG, 2012 WL 6929336 (N.Y.Sup. Nov. 30, 2012), the Supreme Court in New York County ruled that the lawsuit against Credit Suisse related to sales of MBS would proceed. The court denied Credit Suisse’s motion to dismiss with respect to (1) the statute of limitations, (2) fraud, (3) fraudulent inducement, and (4) officers and directors aiding and abetting fraud. The court granted the motion with respect to (1) negligent misrepresentation and (2) punitive damages.

With respect to the statute of limitations, the court held that a plaintiff must provide prompt notice under Dutch Law to sustain a claim, and whether the claim was prompt is within the competence and traditional purview of a jury. With respect to fraud, the court held that cure provisions (requiring Credit Suisse to replace bad mortgages in the securitization pool) in the offering documents did not change Credit Suisse’s representations about the process of selecting mortgages. It also held that the allegations about systematic underwriting failure are sufficient to state a claim and do not need to be accompanied by reference to specific loans. Allegations that Credit Suisse knew that many representations in its offering documents were false were also sufficient to state a claim. Finally, the plaintiff’s allegations of justifiable reliance on Credit Suisse’s representation and its losses are sufficient to state a claim.

With respect to fraudulent inducement, the court held that the offering documents are evidence extrinsic to the contracts and, drawing all reasonable inferences from the complaint, they induced the plaintiff to enter into a purchase agreement. The court also denied the motion to dismiss claims against individual officers and directors of Credit Suisse for aiding and abetting fraud. The complaint alleged that the individuals “directed, supervised and otherwise knew of the abandonment of underwriting practices and the utilization of improper appraisal methods; the inaccuracy of the ratings assigned by the ratings agencies; and the failure to convey to the Issuing Trusts legal title to the underlying mortgages.” The court held that those allegations were sufficient to provide the defendants “more than enough information regarding the claims against them to mount their defense.”

The court granted the motion to dismiss the negligent misrepresentation claim because the plaintiff failed to establish that Credit Suisse owed it a duty. The court also held that the plaintiff failed to establish that the fraud was aimed at the public generally, so punitive damages were not warranted.

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