People Ex Rel. Schneiderman v. Credit Suisse Securities (USA) LLC
145 A.D.3d 533
| N.Y. App. Div. | 2016Background
- Attorney General Schneiderman sued Credit Suisse in Nov. 2012 alleging securities fraud under the Martin Act (Gen. Bus. Law art. 23-A) and persistent fraud under Exec. Law § 63(12) based on conduct in 2006–2007 RMBS offerings.
- AG alleges Credit Suisse misrepresented its due diligence, quality-control efforts, and influence over originators while securitizing poor-quality loans.
- Parties executed a tolling agreement in March 2012 covering potential claims; tolling began March 8, 2012 and ran three years from execution.
- Credit Suisse moved to dismiss under CPLR 3211(a)(5) as time‑barred; the motion court denied dismissal.
- The Appellate Division affirmed, holding the AG’s Martin Act and § 63(12) claims are subject to six‑year statutes of limitations rather than the three‑year period urged by defendants.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicable limitations period for Martin Act claim | Six-year period (CPLR 213(8)) because investor‑fraud liability pre‑existed the statute | Three‑year period (CPLR 214(2)) because the statutory claim creates liability that would not exist but for the statute | Six years applies; Martin Act investor‑fraud claims governed by CPLR 213(8) |
| Applicable limitations period for Exec. Law § 63(12) claim | Six‑year period (CPLR 213(1)) because § 63(12) targets traditional fraud and affords AG equitable remedies for pre‑existing wrongs | Three‑year period (CPLR 214(2)) because § 63(12) reaches a broader, statutory species of fraud not requiring common‑law elements | Six years applies; § 63(12) claim subject to CPLR 213(1) |
| Whether § 63(12) creates new liability beyond common law | AG: § 63(12) parallels Martin Act and targets longstanding equitable fraud principles | Defendants: § 63(12) and Martin Act reach conduct that would not be actionable at common law (no scienter/reliance), so they create statutory liability | Court: § 63(12) parallels Martin Act and does not create liability nonexistent at common law for equitable relief; governed by six‑year period |
| Sufficiency of complaint to invoke common‑law fraud elements | AG: complaint pleads classic investor‑fraud scheme with scienter, reliance and damages sufficient to invoke common‑law tort | Defendants: complaint pleads statutory violations without scienter or reliance; claims would not exist at common law | Court: complaint alleges elements of common‑law investor fraud; therefore six‑year limitations applies |
Key Cases Cited
- State of New York v Bronxville Glen I Assoc., 181 A.D.2d 516 (1st Dep’t 1992) (held Martin Act investor‑fraud claims governed by six‑year limitations)
- Matter of People v Trump Entrepreneur Initiative LLC, 137 A.D.3d 409 (1st Dep’t 2016) (concluded § 63(12) fraud claim subject to six‑year limitations because it parallels Martin Act and long‑recognized equitable fraud)
- State of New York v Cortelle Corp., 38 N.Y.2d 83 (1975) (applied six‑year period where AG alleged traditional common‑law promissory fraud)
- Gaidon v Guardian Life Ins. Co. of Am., 96 N.Y.2d 201 (2001) (applied CPLR 214(2) where statutory consumer‑protection claim reached conduct not actionable at common law)
- Aetna Life & Cas. Co. v Nelson, 67 N.Y.2d 169 (1986) (describing when CPLR 214(2) applies to statutory causes of action)
- People v Federated Radio Corp., 244 N.Y. 33 (1926) (equitable fraud principles and reliance requirement discussion)
- Lama Holding Co. v Smith Barney Inc., 88 N.Y.2d 413 (1996) (elements of common‑law fraud contrasted with statutory fraud remedies)