863 F. Supp. 2d 288
S.D.N.Y.2012Background
- King County and ISL sue Rhinebridge’s SIV collapse in Oct. 2007 for consumer losses in private placements.
- Plaintiffs sue eight entities including S&P, Moody’s, Fitch, IKB, Morgan Stanley for negligence, negligent misrepresentation, breach of fiduciary duty, and aiding and abetting claims as amended in SAC.
- New York’s Martin Act preemption posture shifts: after Assured Guaranty II, plaintiffs amend to state negligence and related claims.
- Rhinebridge was an SIV that borrowed short-term funds to purchase long-term assets, heavily relying on top ratings from the Rating Agencies.
- Top Ratings were used by QIBs like King County and ISL to decide investments; the PAA conditioned notes on Top Ratings.
- MS and IKB allegedly designed and controlled Rhinebridge, including asset selection and capital structure; Rating Agencies allegedly aided in obtaining and maintaining Top Ratings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether negligence claims relate back and timeliness is proper | Negligence arose from the same conduct in original pleading; relates back with SAC allegations. | MS contends time-bar and lack of notice; IKB argues lack of leave to amend. | Negligence claim timely via relation back; leave to file SAC proper. |
| Whether negligence claims against all defendants survive | Negligence independent of misrepresentation; not duplicative and distinct from contract. | Economic loss doctrine bars pure economic negligence; duties insufficiently pled. | Negligence claims barred by economic loss doctrine; remaining arguments not reached. |
| Whether negligent misrepresentation claims survive given special relationship and economic loss doctrine | Rating Agencies had special relationship; reliance justified; disclosures do not bar action. | Ratings are opinions not actionable; complex relationships bar misrepresentation claims. | Negligent misrepresentation claims survive due to special relationship and actionable misrepresentation. |
| Whether breach of fiduciary duty claims survive and whether aiding and abetting claims follow | Rating Agencies/MS/IKB owed fiduciary duty via special relationship and control over Rhinebridge. | No fiduciary duty in this commercial context; disclaimers and attenuated relationship bar relief. | Breach of fiduciary duty claims dismissed; aiding and abetting claims likewise dismissed. |
Key Cases Cited
- Abu Dhabi Commercial Bank v. Morgan Stanley & Co. LLC, 651 F. Supp. 2d 155 (S.D.N.Y. 2009) (actionable misrepresentation of ratings; duty and reliance principles applied)
- Credit Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536 (N.Y. 1985) (special relationship privity-like test for duties)
- LaSalle Nat’l Bank v. Duff & Phelps Credit Rating Co., 951 F. Supp. 1071 (S.D.N.Y. 1996) (linking conduct and known investor privity in ratings cases)
- Hydro Investors, Inc. v. Trafalgar Power Inc., 227 F.3d 8 (2d Cir. 2000) (economic loss doctrine rationale and policy basis)
- Securities Investor Protection Corp. v. BDO Seidman, LLP, 222 F.3d 63 (2d Cir. 2000) (group pleading doctrine in fraud-related claims)