634 F. App'x 19
2d Cir.2015Background
- Rhinebridge was a structured investment vehicle (a CDO-like SPV) managed by an IKB subsidiary; S&P was hired not only to rate it but also to help design and operate it, receiving enhanced and partly contingent fees tied to high ratings.
- S&P issued high ratings for Rhinebridge at launch (June 2007) and reaffirmed them as IKB invested approximately $574 million, despite deteriorating mortgage-backed securities markets.
- Rhinebridge was placed on “watch negative” in September 2007 and defaulted by October 2007; its notes were downgraded to junk, producing substantial losses to IKB and other investors.
- In 2009 King County sued IKB and S&P alleging S&P fraudulently inflated ratings; King County’s complaint cited internal S&P messages and media reports suggesting conscious disregard of risk and S&P’s incentive structure.
- IKB sued S&P in May 2014 after entering a tolling agreement in May 2013; the district court dismissed the suit as time‑barred under New York’s borrowing statute applying German law (BGB §199/§195).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether IKB’s claims are timely under New York’s borrowing statute (i.e., timely under both NY and the law of the place of accrual) | IKB argued the German limitations period had not been triggered before the tolling agreement; thus its May 2014 suit was timely | S&P argued IKB acquired knowledge of the facts giving rise to a claim by 2009, so the three‑year German period lapsed by end of 2012, before the tolling agreement | Held: Borrowing statute applies; under German law the limitations period ran by Dec. 31, 2012, so the suit was untimely and dismissal affirmed |
| What triggers the German 3‑year limitations period (knowledge standard under BGB §199) | IKB contended the standard requires more than the ability to state a coherent claim and that mere public allegations did not suffice to trigger the period | S&P urged that knowledge exists when a plaintiff has factual circumstances giving a prospect of success or can formulate a coherent, viable claim | Held: Court adopts the parties’ expert consensus: German law is triggered when plaintiff has knowledge sufficient to assert a claim with a prospect of success (need not have conclusive proof) |
| Whether King County’s publicly available allegations provided the requisite knowledge to IKB | IKB argued King County’s complaint was speculative and did not supply facts showing culpability by S&P sufficient to trigger German limitations | S&P argued King County’s complaint and contemporaneous documents provided significant circumstantial evidence of S&P’s incentives and internal doubts, giving IKB a prospect of success by 2009 | Held: Court held those facts were sufficient to create a prospect of success and thus triggered the German limitations period by end of 2009 |
| Effect of the tolling agreement (May 2013) on timeliness | IKB relied on the May 2013 tolling agreement and May 2014 filing to save its claim | S&P argued the German limitations period had already expired before the tolling agreement, so tolling could not revive an already time‑barred claim | Held: Because the German limitation period expired Dec. 31, 2012, prior to the tolling agreement, the tolling agreement did not render the May 2014 filing timely |
Key Cases Cited
- Golden Pac. Bancorp v. F.D.I.C., 273 F.3d 509 (2d Cir.) (de novo review of dismissal as untimely and of foreign law determination)
- Curley v. AMR Corp., 153 F.3d 5 (2d Cir.) (standard for review of dismissal)
- Glob. Fin. Corp. v. Triarc Corp., 93 N.Y.2d 525 (N.Y.) (New York borrowing statute applies when cause accrues outside NY)
- GML, Inc. v. Cinque & Cinque, P.C., 9 N.Y.3d 949 (N.Y.) (when borrowing foreign limitations period, borrow its tolling rules)
- Smith Barney, Harris Upham & Co. v. Luckie, 85 N.Y.2d 193 (N.Y.) (foreign statute's extensions and tolls must be imported with the foreign period)