Assured Guaranty (UK) Ltd. v. J.P. Morgan Investment Management Inc.
915 N.Y.S.2d 7
N.Y. App. Div.2010Background
- Scottish Re (U.S.) Inc. ceded most of its 2004 term life reinsurance liabilities to Orkney Re II PLC to avoid higher reserves, funded by bonds and preferred shares.
- Plaintiff, a subsidiary of Assured Guaranty Ltd., was a third-party beneficiary of an investment management agreement (IMA) between Orkney and defendant, with discretionary investment authority over two accounts.
- Investment guidelines aimed for conservatively high safety of capital, allowing substantial holdings in ABS and MBS but with class limits tied to risk controls; defendant could tailor decisions per client.
- Plaintiff alleges defendant concealed risks of subprime/Alt-A MBS and continued to advise safety, despite August 2007 objections and knowledge of risks.
- Orkney amended the guidelines on September 24, 2007 to require investments only in cash, cash equivalents or government AAA obligations, triggering contractual objection rights.
- Plaintiff filed suit in December 2008 seeking, among others, breach of fiduciary duty and gross negligence; defendant moved to dismiss under CPLR 3211 on preemption and other grounds.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the Martin Act preempt common-law claims? | Martin Act does not preempt properly pleaded common-law claims when not solely based on statutory violations. | Martin Act preempts private common-law claims arising from facts that constitute a Martin Act violation. | No complete preemption; private common-law claims may proceed where not purely based on Martin Act grounds. |
| Are the fiduciary and gross-negligence claims precluded by a private right under the Martin Act? | Claims arise independently of the AG's enforcement and are not 'covered' by the Act. | Private common-law claims are barred where facts support a Martin Act violation. | Not precluded; Martin Act does not automatically bar these common-law claims. |
| Does the 90-day written objection requirement bar claims accrued before the notices? | Orkney's 2007 objections were effectively written and timely; claims before 90 days prior are barred. | Objections must be written and timely; August 2007 objection was not written until later. | 90-day written objection requirement is met; claims accrued before June 26, 2007 are barred. |
| Do the fiduciary and gross-negligence claims duplicate contract claims or violate the Delaware Insurance Code? | Tort claims are independent from contract and not barred by the Delaware code. | Some claims may be redundant or governed by the Delaware framework; the code limits permissible investments. | Tort claims are independent of contract; not barred by duplicative or Delaware code limitations. |
| Does the economic loss rule bar the tort claims here? | Professional duty exception allows tort recovery for investment-advisory duties. | Economic loss rule should bar pure economic losses in tort. | Economic loss rule does not bar these professional-duty tort claims; allowed under exception. |
Key Cases Cited
- Burns Jackson Miller Summit & Spitzer v Lindner, 59 NY2d 314 (NY 1983) (preemption requires express legislative intent to override common law)
- CPC Int’l v McKesson Corp., 70 NY2d 268 (NY 1987) (private action not allowed under Martin Act, but common-law claims may survive)
- Kerusa Co. LLC v W10Z/515 Real Estate Ltd. Partnership, 12 NY3d 236 (NY 2009) (private fraud claims not preempted when not solely based on Martin Act violations)
- Caboara v Babylon Cove Dev., LLC, 54 AD3d 79 (NY 2008) (no implied preemption of viable private actions where not solely Martin Act-based)
- Scalp & Blade v Advest, Inc., 281 AD2d 882 (NY 2001) (business pleading standards for Martin Act-related claims)
- Board of Mgrs. of Marke Gardens Condominium v 240/242 Franklin Ave., LLC, 71 AD3d 935 (NY 2010) (Martin Act preemption not automatic for otherwise viable private actions)
- Hydro Invs., Inc. v Trafalgar Power Inc., 227 F.3d 8 (2d Cir. 2000) (economic loss considerations in professional-duty contexts)