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Stichting Pensioenfonds ABP v. Credit Suisse Grp. AG - 2012 NY Slip Op 52433(U), 38 Misc. 3d 1214(A), 966 N.Y.S.2d 349 (Sup. Ct.)

Rule:

A claim of negligent misrepresentation requires (1) the existence of a special or privity-like relationship imposing a duty on the defendant to impart correct information to the plaintiff; (2) that the information was incorrect; and (3) reasonable reliance on the information. A duty to impart correct information is imposed only on those persons who possess unique or specialized expertise, or who are in a special position of confidence and trust with the injured party.

Facts:

Plaintiff Stichting Pensioenfonds ABP (ABP) alleges a set of fraudulent misstatements in the offering documents. ABP is a Dutch pension fund for public employees which purchased shares of Residential Mortgage-Backed Securities (RMBS), known as the Certificates. Defendants are Credit Suisse Group AG, a Swiss company, and many of its subsidiaries (collectively, Credit Suisse), and many individuals who served as officers and directors of these entities. Credit Suisse, through its various subsidiaries, originated mortgage loans or acquired those loans from a third-party originator. It then selected mortgages and placed them into Issuing Trusts, which issued Certificates to investors through an underwriter. These Certificates were sold pursuant to a shelf registration statement, a prospectus which applied to several Issuing Trusts, and a prospectus supplement for each individual security offering (collectively, the Offering Documents). The Individual Defendants each signed at least one of these registration statements. ABP alleges that it relied on these Offering Documents in purchasing the Certificates. Since the financial crisis of 2007-2008, the Certificates have been downgraded to below investment grade by the ratings agencies and declined dramatically in value on the secondary market. ABP brought claims of fraud, fraudulent inducement, aiding and abetting fraud, and negligent misrepresentation against the defendants. ABP alleged a set of fraudulent misstatements in the Offering Documents. Most importantly, ABP claimed that the Credit Suisse originators utterly abandoned the underwriting standards described in the Offering Documents, in a systematic way that goes beyond simply allowing a few low quality loans into the securitization pool. It alleged that Credit Suisse knowingly reported false owner occupancy percentages, appraisal amounts, and loan-to-value (LTV) ratios in the Offering Documents. ABP also alleges that the original high credit ratings assigned to the Certificates by the ratings agencies and reported in the Offering Documents were undeserved because they were based on incorrect data. Credit Suisse filed a motion to dismiss.

Issue:

Should the court grant defendant investment company's motion to dismiss plaintiff pension fund investor's claim for negligent misrepresentation?

Answer:

Yes

Conclusion:

The Court dismissed plaintiff ABP's claims of negligent misrepresentation and punitive damages. The Court considered the three requirements for a claim of negligent misrepresentation. For example, there was no special relationship between Credit Suisse and ABP, such that Credit Suisse held a particular position of trust and confidence. The transactions at issue in this case were arm's length interactions between two sophisticated entities and did not create any duty which might support a claim of negligent misrepresentation. Next, the Court held that punitive damages were not warranted because the facts in the complaint did not support a claim that defendant Credit Suisse's alleged fraud was aimed at the public generally, as opposed to a relatively small set of sophisticated investors, nor did they support the claim that Credit Suisse demonstrated such wanton dishonesty as to imply a criminal indifference to civil obligation. The Court denied Credit Suisse's motion to dismiss on all other claims. ABP adequately alleged each of the five elements in its fraud claim, including scienter, which meant that the defendant knowingly made false statements with the intent to deceive. The misstatements in the Offering Documents induced ABP to enter into the purchase agreement with Credit Suisse Securities, thus satisfying the elements of a fraudulent inducement claim.

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