Arco Capital Corporations Ltd. v. Deutsche Bank AG
949 F. Supp. 2d 532
S.D.N.Y.2013Background
- Arco filed a 2012 complaint alleging §10(b) securities fraud and breach of contract arising from Deutsche Bank's management of the CRAFT EM CLO 2006-1, a synthetic CLO involving CDS.
- The transaction funded notes in two offerings (First Offering 2006 and Second Offering 2007) with Class E, F, and G tranches, maturing in 2012, through an Indenture with HSBC as Trustee in New York.
- Gramercy purchased notes on Arco's behalf in 2006-2007 and later transferred them to Arco; Gramercy executed Note Subscription Agreements with the Issuer, designating Deutsche Bank as a third-party beneficiary.
- CDS agreements tied reference obligations to the Reference Portfolio; Deutsche Bank controlled selection of obligations and defined eligibility criteria for inclusion.
- An Upsize in January 2007 expanded the Reference Portfolio from $500 million to $1 billion and broadened the definition of Reference Obligations.
- The E&Y certifications were required as a condition precedent to Credit Event Payments; Arco alleged the certifications and Moody's mapping were defective and that Deutsche Bank misreported ratings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Timeliness of Arco's §10(b) claim | Arco argues repose begins later, within discovery window. | Deutsche Bank contends the five-year repose started at purchase and expired before filing. | §10(b) claim time-barred; untimely under §1658(b). |
| Whether §10(b) survives Morrison's transactional test | Argues irrevocable liability occurred in the United States, making the transaction domestic. | Contends asserted nexus is insufficient to show a domestic transaction under Morrison. | §10(b) survives Morrison; allegations support domestic transaction via New York‑based consummation. |
| Whether the court should exercise supplemental jurisdiction over the contract claim | Arco seeks pendent jurisdiction for its breach of contract claim. | With federal claims dismissed, supplemental jurisdiction should be declined. | Declined; no supplemental jurisdiction over the NY contract claim. |
Key Cases Cited
- Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (U.S. 2010) (adopts transactional test for extraterritorial reach of §10(b))
- Absolute Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60 (2d Cir. 2012) (irrevocable liability or transfer of title standard for domestic transactions)
- Arnold v. KPMG LLP, 334 Fed.Appx. 349 (2d Cir. 2009) (transaction date as starting point for statute of repose in securities claims)
- Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350 (U.S. 1991) (statute of repose concept in securities actions)
- City of Pontiac General Employees’ Retirement System v. MBIA, Inc., 637 F.3d 169 (2d Cir. 2011) (discovery rule for §1658(b) purposes)
- Merck & Co. v. Reynolds, 130 S. Ct. 1774 (U.S. 2010) (discovery and scienter considerations for §1658(b))