Preview
FILED: NEW YORK COUNTY CLERK 03/27/2024 11:53 AM INDEX NO. 653964/2012
NYSCEF DOC. NO. 527 RECEIVED NYSCEF: 03/27/2024
EXHIBIT G
NO. 653122
INDEX NO.
INDEX /2011
653964/2012 1
FILED: NEW YORK COUNTY CLERK 03/27/2024 11:53 AM
NYSCEF
NYSCEF DOC. NO.
. 527
4 RECEIVED NYSCEF: 03/05/2014
RECEIVED NYSCEF: 03/27/2024
SEPR È COURT OF THE STATE OF NEW YORK - NEW YORK COUNTY
PRESENT: MARCY S. FRIEDMAN PART 60
Justice
IKB DEUTSCHE INDUSTRIEBANK AG and INDEX NO. 653122/2011
IKB INTERNATIONAL S.A. in LlQUIDATION
Plaintiffs, MOTION DATE
-against-
MOTION SEQ. NOs. 001
CREDIT SUISSE SECURITIES (USA) LLC (F/K/A
CREDIT SUISSE FIRST BOSTON LLC), CREDIT
SUISSE HOLDINGS (USA), INC. (F/K/A CREDIT
SUISSE FIRST BOSTON, INC.), CREDIT SUISSE
(USA), INC. (F/K/A CREDIT SUISSE FIRST
BOSTON (USA), INC.), CREDIT SUISSE FIRST
BOSTON MORTGAGE ACCEPTANCE CORP.,
;.·. CREDIT SUISSE FINANCIAL CORP. (F/K/A
CREDIT SUISSE FIRST BOSTON FINANCIAL
CORP.), CREDIT SUISSE FIRST BOSTON
MORTGAGE SECURITIES CORP., CREDIT
SUISSE MANAGEMENT LLC (F/K/A CREDIT
SUISSE FIRST BOSTON MANAGEMENT LLC),
z ASSET BACKED SECURITIES CORP., and DLJ
MORTGAGE CAPITAL, INC.,
M O
-a Defendants.
O u.
l-
H
The following papers, numbered 1 to were read on this motion to dismiss.
Notice of Motion/ Order to Show Cause - Affidavits - Exhibits ... No (s).
m Answering Affidavits - Exhibits No (s).
CC
>. Replying Affidavits No (s).
-1
Cross-Motion: j Yes j No
Defendants'
motion to dismiss is decided in accordance with the attached decision/order,
Q. dated March 3, 2014.
1. Check one: ................................ CASE DISPOSED NON-FINAL DISPOSITION
2. Check as appropriate:.....Motion is: GRANTED DENIED GRANTED IN PART OTHER
o
3. Check if appropriate:.................... SETTLE ORDER SUBMIT ORDER
DO NOT POST FIDUCIARY APPOINTMENT .. REFERENCE
FILED: NEW YORK COUNTY CLERK 03/27/2024 11:53 AM INDEX NO. 653964/2012
NYSCEF DOC. NO. 527 RECEIVED NYSCEF: 03/27/2024
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK: IAS PART 60
PRESENT: Hon. Marcy S. Friedman, JSC
x
IKB DEUTSCHE INDUSTRIEBANK AG and
IKB INTERNATIONAL S.A. in LIQUIDATION, Index No. 653122/2011
Plaintiffs,
- against -
CREDIT SUISSE SECURITIES (USA) LLC (F/K/A
CREDIT SUISSE FIRST BOSTON LLC), CREDIT
SUISSE HOLDINGS (USA), INC. (F/K/A CREDIT
SUISSE FIRST BOSTON, INC.), CREDIT SUISSE
(USA), INC. (F/K/A CREDIT SUISSE FIRST BOSTON
(USA), INC.), CREDIT SUISSE FIRST BOSTON
MORTGAGE ACCEPTANCE CORP., CREDIT SUISSE
FINANCIAL CORP. (F/K/A CREDIT SUISSE FIRST
BOSTON FINANCIAL CORP.), CREDIT SUISSE FIRST
BOSTON MORTGAGE SECURITIES CORP., CREDIT
SUISSE MANAGEMENT LLC (F/K/A CREDIT SUISSE
FIRST BOSTON MANAGEMENT LLC), ASSET
BACKED SECURITIES CORP., AND DLJ MORTGAGE
CAPITAL, INC.,
Defendants.
x
plaintiffs'
This fraud action arises out of the IKB purchase of residential mortgage
backed securities (RMBS) Certificates from the Credit Suisse defendants. Defendants move to
dismiss the Consolidated Complaint (Complaint), pursuant to CPLR 3211 (a) (5) and (7), on the
grounds that it is barred by the statute of limitations and fails to state a cause of action.
BACKGROUND/THE COMPLAINT
Unless otherwise indicated, the following facts are pleaded in the Complaint. Plaintiff
IKB Deutsche Industriebank AG (IKB Germany) is a commercial bank incorporated in
Germany. Plaintiff IKB International S.A. in Liquidation (IKB International) is a commercial
bank in liquidation, with a main office in Luxembourg. (Compl. ¶¶ 28-29.)
FILED: NEW YORK COUNTY CLERK 03/27/2024 11:53 AM INDEX NO. 653964/2012
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Defendant redit Suisse Holdings (USA), Inc. (f/k/a Credit Suisse First Boston Inc.) (CS
Holdings) is a financial holding company. It is the sole owner of Credit Suisse (USA), Inc.
(f/k/a Credit Suisse First Boston [USA], Inc.) (CS USA), Credit Suisse Management LLC (CS
Management), and Credit Suisse First Boston Mortgage Acceptance Corp. (CS Mortgage
Acceptance). (Compl. ¶ 30.) CS USA is the sole owner of Asset Backed Securities Corp.
(ABSC) and Credit Suisse Securities (USA), LLC (f/k/a Credit Suisse First Boston LLC) (CS
Securities). (Compl. ¶¶ 31, 38.) CS Management is the sole owner of Credit Suisse First Boston
Mortgage Securities Corp. (CS Mortgage Securities). (Compl. ¶ 32.) Defendants were an
integrated group of affiliates, with most of them sharing the same directors, officers and other
high level employees. (Compl.¶¶ 52-53.)
Between June 2005 and January 2007, IKB International purchased $97,435,00 in RMBS
offerings.¹
(the "Certificates") from CS Securities in eleven By contract dated November 20,
'
The offerings were as follows:
Offering Tranche Purchase Price Date
HEAT 2005-5 2A3 5,000,000.00 6/22/2005
HEAT 2005-8 M5 10,000,000.00 10/5/2005
HEAT 2005-9 M7 1,250,000.00 10/27/2005
HEAT 2006-1 M7 4,750,000.00 12/5/2005
HEAT 2006-2 M4 6,000,000.00 1/18/2006
HEAT 2006-4 M4 7,000,000.00 3/30/2006
ABSHE 2006-HE5 M4 2,000,000.00 6/26/2006
" "
M5 2,500,000.00 6/26/2006
" "
M7 2,000,000.00 6/26/2006
HEMT 2006-4 M1 6,000,000.00 7/26/2006
" "
M2 6,000,000.00 7/26/2006
CSAB 2006-3 M1 18,935,000.00 10/20/2006
CSAB 2006-4 M1A 11,000,000.00 11/14/2006
CSMC 2007-1 1A6A 15,000,000.00 1/23/2007
(Compl. ¶¶ 1, 42.)
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2008, IKB International sold the Certificates to IKB Germany. (Compl. ¶ 41.) IKB
International is an indirect wholly-owned subsidiary of IKB Germany. (Miranne Aff., Exh. 19.)
In an RMBS securitization, an investment bank typically pools thousands of residential
mortgages in a trust, which issues securities in the form of certificates to investors. The
certificates entitle the holders to a portion of the monthly revenue stream produced by principal
and interest payments made by the mortgage borrowers. (Compl. ¶ 43.) The process begins
when a lending institution makes a home loan, secured by a mortgage, to a borrower. The
"originator," "sponsor,"
lender, also known as the typically sells such loans, in bulk, to the an
affiliate of the investment bank initiating the securitization. The sponsor (or the originator if
"depositor,"
there is no sponsor) then sells the loans to a typically also an affiliate of the same
"deposits"
investment bank. The depositor all of the loans into the trust. (Compl. ¶¶ 44, 49.)
"tranches,"
The trust then issues certificates of varying seniority, called which entitle the
certificate-holder to receive a portion of the principal and interest paid by the borrowers pursuant
to the mortgages. (Compl. ¶ 50.) The certificates are ultimately allocated to one or more
underwriters for sale to investors. (Compl. ¶ 51.)
In this case, the originators included defendants DLJ Mortgage Capital, Inc. (DLJ) and
Credit Suisse Financial Corp. (CS Financial), which shared officers, directors, and high level
employees with the remaining defendants. (Compl. ¶¶ 52, 60.) DLJ originated loans for several
of the securitizations, including CSAB 2006-03, CSAB 2006-04, and CSMC 2007-01. (Compl.
¶¶ 34, 115.) CS Financial originated loans for several securitizations, including CSAB 2006-3,
CSAB 2006-4, and CSMC 2007-1 (Compl. ¶¶ 33, 115.) Other loans were originated by
non-
parties Wells Fargo Bank, N.A. (Wells Fargo), Finance Americas LLC (Finance Americas),
Aames Capital Corporation (Ames), AEGIS Mortgage Corporation (Aegis), Option One
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Mortgage Corporation (Option WMC Mortgage Corporation (WMC), American Home
One),
Mortgage Corporation (American Countrywide Home Loans, Inc. (Countrywide) and
Home),
Fremont Investment and Loan (Fremont) (Compl. ¶¶ 115, 121.)
DLJ also served as the sponsor for a number of the offerings. The remaining
securitizations did not have sponsors. (Compl. 34, 61.) Credit Suisse First Boston Mortgage
¶¶
Securities Corp. (CS Mortgage) served as the depositor for all the securitizations except HEAT
2005-9, for which CS Mortgage Acceptance served as the depositor, and ABSHE 2006-HE5, for
which ABSC served as the depositor. (Compl. ¶ 62.) CS Securities was the underwriter of all
of the offerings. (Compl. ¶¶ 58, 65.)
"issuers"
The sponsor and depositor are considered the of the securities. (Compl. ¶ 44.)
They perform a due diligence review of the loan files associated with the pool of mortgages and,
based on the results of the review, determine which loans to include in the mortgage pool for
each securitization. They also prepare Offering Documents, including prospectuses and
prospectus supplements, which make representations to investors concerning the loan-to-value
(LTV) and combined loan-to-value (CLTV) ratios of the mortgages, the owner occupancy status,
adherence to underwriting guidelines, and the fact that notes and mortgages are assigned to the
trust. (Compl. ¶¶ 46-48, 64.) Here, the issuer defendants were responsible for the Offering
Documents and were allegedly assisted in their preparation by the underwriter defendant.
(Compl. ¶¶ 10, 20, 35-37, 63-64, 67-68, 167.)
Plaintiffs contend that the Offering Documents materially misrepresented a variety of
facts to the loans. based on their of 3300 loans (or 275-
pertaining First, sampling approximately
367 loans per trust) using an Automated Valuation Model (AVM), plaintiffs allege that the
Offering Documents understated the LTV ratios by more than 10% for approximately 26%-32%
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of the sampled loans in each of the securitizations, and that the actual weighted average LTV
ratios were between 5.8% and 10.2% higher than reported. (Compl. ¶¶ 4, 82-86.) Plaintiffs
further allege that the LTV ratios were calculated based upon deliberately inflated appraisals,
and that the Offering Documents understated the percentage of loans with LTV ratios over
100%, that in all but one of the securitizations there were no such loans. (Compl.
representing
¶¶ 75-79, 87.)
Second, plaintiffs allege that the Offering Documents misrepresented the owner
occupancy rates of the mortgaged properties. Specifically, the Offering Documents set forth
rates for the securitizations ranging from approximately 66% to 95%. Plaintiffs allege, based on
their loan sampling, that these rates were overstated by between 8.8% and 18.2%. (Compl. ¶¶ 4,
93-100.)
Third, plaintiffs allege that the Offering Documents contained false representations that
the loans either conformed to the underwriting guidelines of the originators, or qualified for
plaintiffs'
inclusion in the pool due to certain compensating factors. (Compl. ¶ 7.) However,
third-party due diligence provider Clayton Services Inc. (Clayton) determined that 32% of the
Credit Suisse loans that it reviewed during the period from 2006 to 2007 did not meet the
"waived"
guidelines or qualify under an exception. Defendants nevertheless allegedly into the
pool 33% of those nonconforming loans. (Compl. ¶¶ 102-110, 116-19.)
According to the Complaint, a number of the originators, including Option One, Wells
Fargo and Fremont, later faced public and private lawsuits and investigations through which it
was determined that they engaged in the wholesale abandonment of underwriting standards,
borrowers'
extending loans regardless of the ability to repay and sometimes even falsifying
credit-related documentation. (Compl. ¶¶ 123-37.)
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the Documents represented that the notes and mortgages underlying the
Finally, Offering
securitizations would be transferred to a trust as of the date of issuance of the Certificates.
(Compl. Plaintiffs allege that an investigation of publicly filed satisfactions and
¶¶ 143-44.)
assignments revealed that "a substantial of the sampled mortgages and notes were not
majority
Trusts."
and/or transferred to the RMBS (Compl. ¶¶ 146-147.) Only 6.4% of the
properly timely
358 sampled satisfactions listed the trust or trustee as the satisfying party, and not a single
assignment of the 990 that were reviewed had been executed as of the trust's closing date.
(Compl. ¶¶ 148-155.) Further, in reviewing publicly filed records of foreclosure proceedings,
plaintiffs claim to have found one note that should have been transferred to a trust upon closing,
but that was unendorsed. (Compl. ¶ 157.) Plaintiffs allege that the failure to transfer the
practice"
instruments was an "industry-wide business intended to save the time and expense of
effectuating physical delivery. (Compl. ¶ 158.)
The Complaint alleges that defendants knew of the defects in the loans and the
underwriting process through their own due diligence efforts, and those of their due diligence
defendants'
provider Clayton. (Compl. ¶¶ 101-105.) Plaintiffs contend that knowledge is also
defendants'
inferable from substantial involvement in the securitization process, including
origination of some of the loans included in the mortgage pools, as well as the facts that all of
the high level executives of the issuer defendants were also high ranking employees of the
underwriter defendant, and that the originator defendants shared high ranking employees with
defendants'
other defendants. (Compl. ¶¶ 195, 198.) In addition, the Complaint pleads practice
of negotiating with the originators for discounts of the purchase price for nonconforming loans,
rather than requiring the originators to repurchase the loans. (Compl. ¶ 108.) Defendants also
6
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knew of the failure to transfer the notes and mortgages, as evidenced by CS Financial's
allegedly
practice of satisfactions without transferring the instruments to a trust. (Compl. ¶ 160.)
issuing
Plaintiffs claim that in reliance on the representations in the Offering Documents, they
paid a price for the Certificates that was much higher than what they were worth. The market
value of the Certificates declined, and the vast majority were downgraded to junk status. In
addition, "[t]he failure to transfer the notes and mortgages to the Trusts made foreclosures more
possible)."
difficult and expensive to effectuate (if they were even (Compl. ¶¶ 172-174.)
This action was commenced by a summons with notice on November 10, 2011 and the
Consolidated Complaint was filed on July 2, 2012. The Complaint sets forth four causes of
action: common law fraud (Compl. fraudulent concealment (Compl. 183-
(1) ¶¶ 175-82); (2) ¶¶
92); (3) aiding and abetting fraud (as against DLJ, CS Securities, CS USA, CS Financial and CS
Management only) (Compl. ¶¶ 193-99); and, in the alternative, (4) negligent misrepresentation.
(Compl. ¶¶ 200-209.) The prayer for relief seeks punitive damages in connection with
plaintiffs'
fraud claims.
DISCUSSION
Defendants move to dismiss the claims as time-barred under German law. Defendants
also argue that plaintiffs have not pled scienter, justifiable reliance, or loss causation, and have
not alleged material misrepresentations with respect to the underwriting guidelines, LTV ratios,
owner occupancy statistics, or transfer of title. Defendants further assert that plaintiffs have not
pled the special relationship or duty required to state claims for fraudulent concealment or
negligent misrepresentation, or particularized their aiding and abetting claim. Finally,
defendants assert that the plea for punitive damages fails because plaintiffs have not identified a
public wrong.
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Statute of Limitations
It is undisputed that both plaintiffs are non-residents and that their cause of action
accrued outside New York. New York's borrowing statute, CPLR 202, thus "requires the cause
of action to be timely under the limitation periods of both New York and the jurisdiction where
accrued."
the cause of action (Global Fin. Corp. v Triarc Corp., 93 NY2d 525, 528 [1999].) It is
plaintiffs'
also undisputed that claims are timely under New York's six year statute of limitations
for fraud. The parties disagree as to whether the cause of action accrued in Germany, and is
therefore subject to Germany's three year statute of limitations, or whether it accrued in
Luxembourg, which has a thirty year statute of limitations.
In cases involving purely economic loss, "the place of injury usually is where the
loss."
plaintiff resides and sustains the economic impact of the (Global Fin. Corp., 93 NY2d at
529; Portfolio Recovery Assocs., LLC v King, 14 NY3d 410, 416 [2010], rear.g denied 15 NY3d
833.) It has been held, however, that a court "can properly consider all relevant factors in
Preview
FILED: NEW YORK COUNTY CLERK 03/27/2024 11:53 AM INDEX NO. 653964/2012 NYSCEF DOC. NO. 527 RECEIVED NYSCEF: 03/27/2024 EXHIBIT G NO. 653122 INDEX NO. INDEX /2011 653964/2012 1 FILED: NEW YORK COUNTY CLERK 03/27/2024 11:53 AM NYSCEF NYSCEF DOC. NO. . 527 4 RECEIVED NYSCEF: 03/05/2014 RECEIVED NYSCEF: 03/27/2024 SEPR È COURT OF THE STATE OF NEW YORK - NEW YORK COUNTY PRESENT: MARCY S. FRIEDMAN PART 60 Justice IKB DEUTSCHE INDUSTRIEBANK AG and INDEX NO. 653122/2011 IKB INTERNATIONAL S.A. in LlQUIDATION Plaintiffs, MOTION DATE -against- MOTION SEQ. NOs. 001 CREDIT SUISSE SECURITIES (USA) LLC (F/K/A CREDIT SUISSE FIRST BOSTON LLC), CREDIT SUISSE HOLDINGS (USA), INC. (F/K/A CREDIT SUISSE FIRST BOSTON, INC.), CREDIT SUISSE (USA), INC. (F/K/A CREDIT SUISSE FIRST BOSTON (USA), INC.), CREDIT SUISSE FIRST BOSTON MORTGAGE ACCEPTANCE CORP., ;.·. CREDIT SUISSE FINANCIAL CORP. (F/K/A CREDIT SUISSE FIRST BOSTON FINANCIAL CORP.), CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP., CREDIT SUISSE MANAGEMENT LLC (F/K/A CREDIT SUISSE FIRST BOSTON MANAGEMENT LLC), z ASSET BACKED SECURITIES CORP., and DLJ MORTGAGE CAPITAL, INC., M O -a Defendants. O u. l- H The following papers, numbered 1 to were read on this motion to dismiss. Notice of Motion/ Order to Show Cause - Affidavits - Exhibits ... No (s). m Answering Affidavits - Exhibits No (s). CC >. Replying Affidavits No (s). -1 Cross-Motion: j Yes j No Defendants' motion to dismiss is decided in accordance with the attached decision/order, Q. dated March 3, 2014. 1. Check one: ................................ CASE DISPOSED NON-FINAL DISPOSITION 2. Check as appropriate:.....Motion is: GRANTED DENIED GRANTED IN PART OTHER o 3. Check if appropriate:.................... SETTLE ORDER SUBMIT ORDER DO NOT POST FIDUCIARY APPOINTMENT .. REFERENCE FILED: NEW YORK COUNTY CLERK 03/27/2024 11:53 AM INDEX NO. 653964/2012 NYSCEF DOC. NO. 527 RECEIVED NYSCEF: 03/27/2024 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: IAS PART 60 PRESENT: Hon. Marcy S. Friedman, JSC x IKB DEUTSCHE INDUSTRIEBANK AG and IKB INTERNATIONAL S.A. in LIQUIDATION, Index No. 653122/2011 Plaintiffs, - against - CREDIT SUISSE SECURITIES (USA) LLC (F/K/A CREDIT SUISSE FIRST BOSTON LLC), CREDIT SUISSE HOLDINGS (USA), INC. (F/K/A CREDIT SUISSE FIRST BOSTON, INC.), CREDIT SUISSE (USA), INC. (F/K/A CREDIT SUISSE FIRST BOSTON (USA), INC.), CREDIT SUISSE FIRST BOSTON MORTGAGE ACCEPTANCE CORP., CREDIT SUISSE FINANCIAL CORP. (F/K/A CREDIT SUISSE FIRST BOSTON FINANCIAL CORP.), CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP., CREDIT SUISSE MANAGEMENT LLC (F/K/A CREDIT SUISSE FIRST BOSTON MANAGEMENT LLC), ASSET BACKED SECURITIES CORP., AND DLJ MORTGAGE CAPITAL, INC., Defendants. x plaintiffs' This fraud action arises out of the IKB purchase of residential mortgage backed securities (RMBS) Certificates from the Credit Suisse defendants. Defendants move to dismiss the Consolidated Complaint (Complaint), pursuant to CPLR 3211 (a) (5) and (7), on the grounds that it is barred by the statute of limitations and fails to state a cause of action. BACKGROUND/THE COMPLAINT Unless otherwise indicated, the following facts are pleaded in the Complaint. Plaintiff IKB Deutsche Industriebank AG (IKB Germany) is a commercial bank incorporated in Germany. Plaintiff IKB International S.A. in Liquidation (IKB International) is a commercial bank in liquidation, with a main office in Luxembourg. (Compl. ¶¶ 28-29.) FILED: NEW YORK COUNTY CLERK 03/27/2024 11:53 AM INDEX NO. 653964/2012 NYSCEF DOC. NO. 527 RECEIVED NYSCEF: 03/27/2024 Defendant redit Suisse Holdings (USA), Inc. (f/k/a Credit Suisse First Boston Inc.) (CS Holdings) is a financial holding company. It is the sole owner of Credit Suisse (USA), Inc. (f/k/a Credit Suisse First Boston [USA], Inc.) (CS USA), Credit Suisse Management LLC (CS Management), and Credit Suisse First Boston Mortgage Acceptance Corp. (CS Mortgage Acceptance). (Compl. ¶ 30.) CS USA is the sole owner of Asset Backed Securities Corp. (ABSC) and Credit Suisse Securities (USA), LLC (f/k/a Credit Suisse First Boston LLC) (CS Securities). (Compl. ¶¶ 31, 38.) CS Management is the sole owner of Credit Suisse First Boston Mortgage Securities Corp. (CS Mortgage Securities). (Compl. ¶ 32.) Defendants were an integrated group of affiliates, with most of them sharing the same directors, officers and other high level employees. (Compl.¶¶ 52-53.) Between June 2005 and January 2007, IKB International purchased $97,435,00 in RMBS offerings.¹ (the "Certificates") from CS Securities in eleven By contract dated November 20, ' The offerings were as follows: Offering Tranche Purchase Price Date HEAT 2005-5 2A3 5,000,000.00 6/22/2005 HEAT 2005-8 M5 10,000,000.00 10/5/2005 HEAT 2005-9 M7 1,250,000.00 10/27/2005 HEAT 2006-1 M7 4,750,000.00 12/5/2005 HEAT 2006-2 M4 6,000,000.00 1/18/2006 HEAT 2006-4 M4 7,000,000.00 3/30/2006 ABSHE 2006-HE5 M4 2,000,000.00 6/26/2006 " " M5 2,500,000.00 6/26/2006 " " M7 2,000,000.00 6/26/2006 HEMT 2006-4 M1 6,000,000.00 7/26/2006 " " M2 6,000,000.00 7/26/2006 CSAB 2006-3 M1 18,935,000.00 10/20/2006 CSAB 2006-4 M1A 11,000,000.00 11/14/2006 CSMC 2007-1 1A6A 15,000,000.00 1/23/2007 (Compl. ¶¶ 1, 42.) 2 FILED: NEW YORK COUNTY CLERK 03/27/2024 11:53 AM INDEX NO. 653964/2012 NYSCEF DOC. NO. 527 RECEIVED NYSCEF: 03/27/2024 2008, IKB International sold the Certificates to IKB Germany. (Compl. ¶ 41.) IKB International is an indirect wholly-owned subsidiary of IKB Germany. (Miranne Aff., Exh. 19.) In an RMBS securitization, an investment bank typically pools thousands of residential mortgages in a trust, which issues securities in the form of certificates to investors. The certificates entitle the holders to a portion of the monthly revenue stream produced by principal and interest payments made by the mortgage borrowers. (Compl. ¶ 43.) The process begins when a lending institution makes a home loan, secured by a mortgage, to a borrower. The "originator," "sponsor," lender, also known as the typically sells such loans, in bulk, to the an affiliate of the investment bank initiating the securitization. The sponsor (or the originator if "depositor," there is no sponsor) then sells the loans to a typically also an affiliate of the same "deposits" investment bank. The depositor all of the loans into the trust. (Compl. ¶¶ 44, 49.) "tranches," The trust then issues certificates of varying seniority, called which entitle the certificate-holder to receive a portion of the principal and interest paid by the borrowers pursuant to the mortgages. (Compl. ¶ 50.) The certificates are ultimately allocated to one or more underwriters for sale to investors. (Compl. ¶ 51.) In this case, the originators included defendants DLJ Mortgage Capital, Inc. (DLJ) and Credit Suisse Financial Corp. (CS Financial), which shared officers, directors, and high level employees with the remaining defendants. (Compl. ¶¶ 52, 60.) DLJ originated loans for several of the securitizations, including CSAB 2006-03, CSAB 2006-04, and CSMC 2007-01. (Compl. ¶¶ 34, 115.) CS Financial originated loans for several securitizations, including CSAB 2006-3, CSAB 2006-4, and CSMC 2007-1 (Compl. ¶¶ 33, 115.) Other loans were originated by non- parties Wells Fargo Bank, N.A. (Wells Fargo), Finance Americas LLC (Finance Americas), Aames Capital Corporation (Ames), AEGIS Mortgage Corporation (Aegis), Option One 3 FILED: NEW YORK COUNTY CLERK 03/27/2024 11:53 AM INDEX NO. 653964/2012 NYSCEF DOC. NO. 527 RECEIVED NYSCEF: 03/27/2024 Mortgage Corporation (Option WMC Mortgage Corporation (WMC), American Home One), Mortgage Corporation (American Countrywide Home Loans, Inc. (Countrywide) and Home), Fremont Investment and Loan (Fremont) (Compl. ¶¶ 115, 121.) DLJ also served as the sponsor for a number of the offerings. The remaining securitizations did not have sponsors. (Compl. 34, 61.) Credit Suisse First Boston Mortgage ¶¶ Securities Corp. (CS Mortgage) served as the depositor for all the securitizations except HEAT 2005-9, for which CS Mortgage Acceptance served as the depositor, and ABSHE 2006-HE5, for which ABSC served as the depositor. (Compl. ¶ 62.) CS Securities was the underwriter of all of the offerings. (Compl. ¶¶ 58, 65.) "issuers" The sponsor and depositor are considered the of the securities. (Compl. ¶ 44.) They perform a due diligence review of the loan files associated with the pool of mortgages and, based on the results of the review, determine which loans to include in the mortgage pool for each securitization. They also prepare Offering Documents, including prospectuses and prospectus supplements, which make representations to investors concerning the loan-to-value (LTV) and combined loan-to-value (CLTV) ratios of the mortgages, the owner occupancy status, adherence to underwriting guidelines, and the fact that notes and mortgages are assigned to the trust. (Compl. ¶¶ 46-48, 64.) Here, the issuer defendants were responsible for the Offering Documents and were allegedly assisted in their preparation by the underwriter defendant. (Compl. ¶¶ 10, 20, 35-37, 63-64, 67-68, 167.) Plaintiffs contend that the Offering Documents materially misrepresented a variety of facts to the loans. based on their of 3300 loans (or 275- pertaining First, sampling approximately 367 loans per trust) using an Automated Valuation Model (AVM), plaintiffs allege that the Offering Documents understated the LTV ratios by more than 10% for approximately 26%-32% 4 FILED: NEW YORK COUNTY CLERK 03/27/2024 11:53 AM INDEX NO. 653964/2012 NYSCEF DOC. NO. 527 RECEIVED NYSCEF: 03/27/2024 of the sampled loans in each of the securitizations, and that the actual weighted average LTV ratios were between 5.8% and 10.2% higher than reported. (Compl. ¶¶ 4, 82-86.) Plaintiffs further allege that the LTV ratios were calculated based upon deliberately inflated appraisals, and that the Offering Documents understated the percentage of loans with LTV ratios over 100%, that in all but one of the securitizations there were no such loans. (Compl. representing ¶¶ 75-79, 87.) Second, plaintiffs allege that the Offering Documents misrepresented the owner occupancy rates of the mortgaged properties. Specifically, the Offering Documents set forth rates for the securitizations ranging from approximately 66% to 95%. Plaintiffs allege, based on their loan sampling, that these rates were overstated by between 8.8% and 18.2%. (Compl. ¶¶ 4, 93-100.) Third, plaintiffs allege that the Offering Documents contained false representations that the loans either conformed to the underwriting guidelines of the originators, or qualified for plaintiffs' inclusion in the pool due to certain compensating factors. (Compl. ¶ 7.) However, third-party due diligence provider Clayton Services Inc. (Clayton) determined that 32% of the Credit Suisse loans that it reviewed during the period from 2006 to 2007 did not meet the "waived" guidelines or qualify under an exception. Defendants nevertheless allegedly into the pool 33% of those nonconforming loans. (Compl. ¶¶ 102-110, 116-19.) According to the Complaint, a number of the originators, including Option One, Wells Fargo and Fremont, later faced public and private lawsuits and investigations through which it was determined that they engaged in the wholesale abandonment of underwriting standards, borrowers' extending loans regardless of the ability to repay and sometimes even falsifying credit-related documentation. (Compl. ¶¶ 123-37.) 5 FILED: NEW YORK COUNTY CLERK 03/27/2024 11:53 AM INDEX NO. 653964/2012 NYSCEF DOC. NO. 527 RECEIVED NYSCEF: 03/27/2024 the Documents represented that the notes and mortgages underlying the Finally, Offering securitizations would be transferred to a trust as of the date of issuance of the Certificates. (Compl. Plaintiffs allege that an investigation of publicly filed satisfactions and ¶¶ 143-44.) assignments revealed that "a substantial of the sampled mortgages and notes were not majority Trusts." and/or transferred to the RMBS (Compl. ¶¶ 146-147.) Only 6.4% of the properly timely 358 sampled satisfactions listed the trust or trustee as the satisfying party, and not a single assignment of the 990 that were reviewed had been executed as of the trust's closing date. (Compl. ¶¶ 148-155.) Further, in reviewing publicly filed records of foreclosure proceedings, plaintiffs claim to have found one note that should have been transferred to a trust upon closing, but that was unendorsed. (Compl. ¶ 157.) Plaintiffs allege that the failure to transfer the practice" instruments was an "industry-wide business intended to save the time and expense of effectuating physical delivery. (Compl. ¶ 158.) The Complaint alleges that defendants knew of the defects in the loans and the underwriting process through their own due diligence efforts, and those of their due diligence defendants' provider Clayton. (Compl. ¶¶ 101-105.) Plaintiffs contend that knowledge is also defendants' inferable from substantial involvement in the securitization process, including origination of some of the loans included in the mortgage pools, as well as the facts that all of the high level executives of the issuer defendants were also high ranking employees of the underwriter defendant, and that the originator defendants shared high ranking employees with defendants' other defendants. (Compl. ¶¶ 195, 198.) In addition, the Complaint pleads practice of negotiating with the originators for discounts of the purchase price for nonconforming loans, rather than requiring the originators to repurchase the loans. (Compl. ¶ 108.) Defendants also 6 FILED: NEW YORK COUNTY CLERK 03/27/2024 11:53 AM INDEX NO. 653964/2012 NYSCEF DOC. NO. 527 RECEIVED NYSCEF: 03/27/2024 knew of the failure to transfer the notes and mortgages, as evidenced by CS Financial's allegedly practice of satisfactions without transferring the instruments to a trust. (Compl. ¶ 160.) issuing Plaintiffs claim that in reliance on the representations in the Offering Documents, they paid a price for the Certificates that was much higher than what they were worth. The market value of the Certificates declined, and the vast majority were downgraded to junk status. In addition, "[t]he failure to transfer the notes and mortgages to the Trusts made foreclosures more possible)." difficult and expensive to effectuate (if they were even (Compl. ¶¶ 172-174.) This action was commenced by a summons with notice on November 10, 2011 and the Consolidated Complaint was filed on July 2, 2012. The Complaint sets forth four causes of action: common law fraud (Compl. fraudulent concealment (Compl. 183- (1) ¶¶ 175-82); (2) ¶¶ 92); (3) aiding and abetting fraud (as against DLJ, CS Securities, CS USA, CS Financial and CS Management only) (Compl. ¶¶ 193-99); and, in the alternative, (4) negligent misrepresentation. (Compl. ¶¶ 200-209.) The prayer for relief seeks punitive damages in connection with plaintiffs' fraud claims. DISCUSSION Defendants move to dismiss the claims as time-barred under German law. Defendants also argue that plaintiffs have not pled scienter, justifiable reliance, or loss causation, and have not alleged material misrepresentations with respect to the underwriting guidelines, LTV ratios, owner occupancy statistics, or transfer of title. Defendants further assert that plaintiffs have not pled the special relationship or duty required to state claims for fraudulent concealment or negligent misrepresentation, or particularized their aiding and abetting claim. Finally, defendants assert that the plea for punitive damages fails because plaintiffs have not identified a public wrong. 7 FILED: NEW YORK COUNTY CLERK 03/27/2024 11:53 AM INDEX NO. 653964/2012 NYSCEF DOC. NO. 527 RECEIVED NYSCEF: 03/27/2024 Statute of Limitations It is undisputed that both plaintiffs are non-residents and that their cause of action accrued outside New York. New York's borrowing statute, CPLR 202, thus "requires the cause of action to be timely under the limitation periods of both New York and the jurisdiction where accrued." the cause of action (Global Fin. Corp. v Triarc Corp., 93 NY2d 525, 528 [1999].) It is plaintiffs' also undisputed that claims are timely under New York's six year statute of limitations for fraud. The parties disagree as to whether the cause of action accrued in Germany, and is therefore subject to Germany's three year statute of limitations, or whether it accrued in Luxembourg, which has a thirty year statute of limitations. In cases involving purely economic loss, "the place of injury usually is where the loss." plaintiff resides and sustains the economic impact of the (Global Fin. Corp., 93 NY2d at 529; Portfolio Recovery Assocs., LLC v King, 14 NY3d 410, 416 [2010], rear.g denied 15 NY3d 833.) It has been held, however, that a court "can properly consider all relevant factors in