HSH NORDBANK AG, Respondent-Appellant, v UBS AG et al., Appellants-Respondents.
First Department
March 27, 2012
95 A.D.3d 185 | 941 N.Y.S.2d 59
Paul, Hastings, Janofsky & Walker LLP, New York City (Barry G. Sher, James R. Bliss, James B. Worthington and Kevin P. Broughel of counsel), for appellants-respondents.
Quinn Emanuel Urquhart & Sullivan, LLP, New York City (Philippe Z. Selendy, Peter E. Calamari, Sandford I. Weisburst and Isaac Nesser of counsel), for respondent-appellant.
OPINION OF THE COURT
Friedman, J.
The primary question on this appeal is whether plaintiff HSH Nordbank AG (HSH), a German commercial bank, has stated a cause of action for fraud against defendants UBS AG and UBS Securities LLC (collectively, UBS), an investment bank. The dispute arises from what was essentially a credit default swap transaction, in which, to simplify, HSH, in exchange for a stream of premium payments, assumed the risk of the first half billion dollars of losses on a $3 billion portfolio of securities related to the United States real estate market (the reference pool). In sum and substance, HSH alleges that UBS induced it to enter into the transaction by misrepresenting the risk involved and the manner in which UBS intended to manage the composition of the reference pool.
For a number of reasons, we find that the fraud claim must be dismissed as legally insufficient pursuant to
The relevant facts are alleged in the amended complaint and established by the undisputed documentary evidence. In March 2002, UBS entered into a financial transaction known as a collateralized debt obligation (CDO) with HSH's predecessor-in-interest, Landesbank Schleswig-Holstein, a German bank with reported assets of €140 billion as of December 31, 2001.1 As a result of this highly complex transaction, HSH was to receive (indirectly) a stream of premium payments from UBS and, in exchange, to assume a portion of the risk of defaults in the reference pool, a $3 billion securities portfolio assembled by UBS, comprised predominantly of assets linked to the United States real estate market (for example, mortgage-backed securities and instruments issued by real estate investment trusts).
The CDO was structured around a special-purpose entity formed by UBS, North Street Referenced Linked Notes, 2002-4 Limited (NS4), which entered into a credit default swap with UBS on the closing date. In a credit default swap, the "protection buyer" pays a periodic fee (resembling an insurance premium) to the "protection seller" to cover the credit risk on an underlying security or group of securities. The protection seller becomes obligated to compensate the protection buyer if a "credit event," usually defined as a payment default, a credit rating downgrade, or other credit-related loss of value, occurs with respect to an underlying security. While a credit default swap is in some respects analogous to an insurance policy (with the protection seller corresponding to the insurer and the protection buyer to the insured), it differs from conventional insurance in that the protection buyer need not own the underly
Under the credit default swap at issue here, NS4, as protection seller, in exchange for UBS's agreement to pay premiums, agreed to make certain payments to UBS, as protection buyer, upon the occurrence of defined adverse "credit events" affecting securities in the aforementioned reference pool. While the securities in the reference pool were required to meet certain ratings specifications, UBS selected the initial securities for the pool, and also had the right to substitute assets in and out of the pool during the life of the credit default swap, within defined parameters and through the use of internal procedures specified in a reference pool side agreement between UBS and HSH.2 The governing documents required that by March 2004, 70% of the reference pool would be comprised of asset-backed securities, real estate investment trust assets, and commercial mortgage-backed securities.
At the same time that UBS and NS4 entered into the credit default swap, HSH purchased $500 million of notes (divided into four classes) issued by NS4 (the NS4 notes).3 Two classes of NS4 notes subordinate to HSH's notes, with aggregate face value of $74 million, were purchased by UBS. This use of multiple classes of debt obligations, or "credit tranches," is a standard feature of CDOs, with senior classes afforded greater security, but lower interest rates, than junior classes. In the NS4 transaction, the interest payments on the notes issued by NS4 were to be funded by the cash flows from UBS's premium
The contractual documents governing this heavily negotiated transaction, and the offering circular (i.e., prospectus) for the NS4 notes, are replete with detailed disclosures of the considerable risks involved and of the conflicts of interest arising from UBS's multiple roles (to be more fully discussed below). In addition, the documents contain disclaimers establishing that, not only were UBS and HSH dealing with each other at arm's length, but that HSH was not entering into the deal in reliance on any advice from UBS. In particular, section 2.06 (i) (x) of the indenture pursuant to which the notes were issued provides that each holder of notes, "by its purchase thereof, will be deemed to have represented and agreed" to terms including the following:
"[The noteholder] acknowledges and agrees that: (A) none of [UBS] or [its] affiliates is acting as a fiduciary or financial or investment advisor for it; (B) it is not relying (for purposes of making any investment decision or otherwise) upon any advice, counsel or representations (whether written or oral) of [UBS] or any of [its] affiliates; and (C) it has consulted with its own legal, regulatory, tax, business, investment, financial, accounting and other advisors to the extent it has deemed necessary and has made its own investment decisions based upon its own judgment and upon any advice from such advisors as it has deemed necessary and not upon any view expressed by [UBS]."
Similarly, the offering circular for the notes contained the following warning (among many others) in capitalized letters: "IN MAKING AN INVESTMENT DECISION, INVESTORS MUST
In addition, as one would expect in a transaction of this kind, the offering circular warned: "No dealer, salesman or other person has been authorized to give any information or to make any representations other than those contained in this Offering Circular and if given or made such other information or representations must not be relied upon as having been authorized by [NS4] or [UBS]."
It is undisputed that, for the first six years of the NS4 structure's operation, no credit events occurred in the reference pool, and that HSH therefore collected the full amount of interest due on its notes, without diminution, during that period. In 2008, however, with the collapse of the United States real estate market and the onset of the global financial crisis, credit events in the reference pool began to occur in abundance. The amended complaint alleges that credit events in the reference pool have accumulated to such an extent that "HSH has experienced a near-total loss of its $500 million investment." This change of fortune led HSH to commence this action.
In lieu of answering, UBS moved to dismiss the complaint pursuant to
All of the misrepresentations alleged in the amended complaint in support of the fraud claim ultimately relate to the level of risk attached to the securities in the reference pool, on which hinged the likelihood of credit events occurring that would reduce or eliminate the return on HSH's notes. As previously noted, the governing documents required UBS to select securities for the reference pool that met specified credit rating standards (for example, the minimum rating for a security in the reference pool was BBB, and the reference pool as a whole was required to have an average rating exceeding BBB+). Notably, the fraud claim is not based on an allegation that UBS did not intend to abide by the contractual standards for ratings of
"[t]he systematic selection and substitution of credits which had the requisite credit rating, but traded at wide spreads (i.e., were higher risk) for that rating. This 'ratings lag' reflects the market's understanding, evidenced by the lower value of the security, of a deterioration in credit quality in advance of ratings agency downgrades" (emphasis added).
As shown by the phrases emphasized in the above quotation from the amended complaint, by HSH's own account, the potential for a discrepancy between a security's credit rating and its actual risk was understood in the relevant marketplace at the time. In other words, the unreliability of credit ratings was sufficiently well known that securities often traded at a discount to the price their credit rating (if accurate) would have warranted. At bottom, HSH is complaining that UBS—which HSH agreed was not acting as its advisor or fiduciary in this matter—induced it to enter into a deal that would enable UBS to exploit, at HSH's expense, a feature of the relevant securities market that was common knowledge among participants in that market. This does not constitute a legally sufficient cause of action for fraud, certainly not when pleaded by a sophisticated business entity that disclaimed reliance on the party it now accuses of fraud.
It may be that HSH was poorly advised to purchase the NS4 notes, given that the standards for securities in the reference pool were stated in terms of often unreliable credit ratings. Under the disclaimers set forth in the extensively negotiated governing documents, however, HSH had no right to look to UBS for advice concerning the suitability of the deal for HSH.5
Hence, HSH cannot predicate a fraud claim upon the allegation that UBS disingenuously recommended that HSH enter into a transaction that, while favorable to UBS, was disadvantageous to HSH (see MBIA Ins. Corp. v Merrill Lynch, 81 AD3d 419, 419 [2011] [dismissing fraud claim by a "sophisticated business entit(y)" that had agreed to disclaimers "providing that (it) would not rely on defendants' advice, that it had the capacity to evaluate the transactions, and that it understood and accepted the risks"]; Chase Manhattan Bank v New Hampshire Ins. Co., 304 AD2d 423, 424 [2003], lv denied 100 NY2d 509 [2003] [fraud claim was barred by plaintiff's disclaimer "indicat(ing) that it would make its own investigation of the risks involved"]; Longo v Butler Equities II, 278 AD2d 97, 97 [2000] [plaintiff could not claim reliance where documentary evidence established that "he had accepted the risk of a speculative investment based on his independent investigation and without reliance on any representations" by defendants]).
As HSH stipulated that it was dealing with UBS at arm's length, the applicable rule, stated by the Court of Appeals, is as follows:
"If the facts represented are not matters peculiarly within the party's knowledge, and the other party has the means available to him of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations" (Centro Empresarial Cempresa S.A. v América Móvil, S.A.B. de C.V., 17 NY3d 269, 278-279 [2011] [internal quotation marks and brackets omitted]; see also Danann Realty Corp. v Harris, 5 NY2d 317, 322 [1959] [same]; Schumaker v Mather, 133 NY 590, 596 [1892] [same]).
Consistent with the foregoing, this Court has held that, "[a]s a matter of law, a sophisticated plaintiff cannot establish that it
The principle that sophisticated parties have "a duty to exercise ordinary diligence and conduct an independent appraisal of the risk they [are] assuming" (Abrahami v UPC Constr. Co., 224 AD2d 231, 234 [1996]; see also Granite Partners, L.P. v Bear, Stearns & Co. Inc., 58 F Supp 2d 228, 259 [SD NY 1999]) has particular application where, as here, the true nature of the risk being assumed could have been ascertained from reviewing market data or other publicly available information (see Havell Capital Enhanced Mun. Income Fund, L.P. v Citibank, N.A., 84 AD3d 588, 589 [2011] ["(t)he fraudulent inducement claim was deficient for lack of justifiable reliance, since (the sophisticated) plaintiff . . . had access to the relevant market information"]; Alpha GmbH & Co. Schiffsbesitz KG v BIP Indus. Co., 25 AD3d 344, 345 [2006], lv dismissed 7 NY3d 741 [2006] [fraud claim could not be predicated on concealment of "matters of public record that . . . could have (been) discovered by the exercise of ordinary diligence"]; National Union Fire Ins. Co. of Pittsburgh, Pa. v Red Apple Group, 273 AD2d 140, 141 [2000] [to same effect as Alpha GmbH]; see also Granite Partners, 58 F Supp 2d at 260 [under New York law, investment funds' reliance on brokers' alleged misrepresentations concerning the value of the funds' holdings was unjustifiable as a matter of law where the pleadings established that the funds failed to discharge "their obligations to independently value their portfolios" and "to conduct their own due diligence"]).
HSH alleges that, as a German regional bank, it had "little relevant experience in synthetic CDOs based upon U.S. real estate assets." Assuming this allegation is true, a relative lack of expertise in transactions of this kind would not have given HSH any right to expect UBS to act as its advisor in the deal or to bring to HSH's attention relevant information that HSH could have obtained through its own efforts (see Societe Nationale D’Exploitation Industrielle Des Tabacs Et Allumettes v Salomon Bros. Intl., 268 AD2d 373, 374 [2000], lv denied 95 NY2d 762 [2000] [no duty to disclose arose "by reason of a claimed disparity in (the) parties' knowledge respecting the risks of the subject transaction," where plaintiff was "a sophisticated institutional investor"]). Again, it cannot be overemphasized that HSH agreed that it was purchasing the NS4 notes
Moreover, nowhere does the amended complaint allege that HSH, in the course of the "several months of due diligence" it allegedly conducted, ever asked UBS—which, after all, was acting as a salesman, not as HSH's advisor—to produce any alternative analysis of the transaction in its possession. A response to such a request falsely denying that UBS possessed any analysis materially different from those already disclosed arguably would have been fraudulent (cf. Littman v Magee, 54 AD3d 14, 18-19 [2008]; but see Centro Empresarial, 17 NY3d at 278 [noting that Littman "misapprehend(ed) our case law" in certain respects]). But no such false denial is alleged; HSH simply assumes that, in the absence of a request, UBS was obligated to disclose its internal analyses of the deal.8 In the context of arm's length dealing between sophisticated parties, however,
UBS had no obligation to disclose internal analyses for which HSH made no request (see Ventur Group, 68 AD3d at 639 [dismissing fraud claim where, after plaintiff acquired a company "without asking to see any employment contracts or speaking to . . . a 'key employee,'" the employee resigned, taking clients with him; "(h)aving failed to make any effort to verify (defendant's) representations concerning her client relationships and (the employee's) role in the business, plaintiff cannot demonstrate justifiable reliance on the misrepresentations"]; Graham Packaging Co., L.P. v Owens-Illinois, Inc., 67 AD3d 465 [2009] [affirming the dismissal of a fraud counterclaim based on the alleged concealment of plaintiff's "own valuation of its anticipated claims against defendants" because "defendants, sophisticated entities represented by counsel, should have at least inquired about such valuation" in negotiating the settlement agreement they sought to avoid]; Permasteelisa, S.p.A. v Lincolnshire Mgt., Inc., 16 AD3d 352 [2005] [affirming dismissal of fraud claim where "plaintiff neglected to seek examination of the books and records of the company it was acquiring, relying on an unaudited financial statement that allegedly proved inaccurate"]; Stuart Lipsky, P.C. v Price, 215 AD2d 102, 103 [1995] [affirming dismissal of fraud claim where plaintiff purchased law practice "rely(ing) solely upon the alleged oral representations without any effort to verify that information via financial statements"]; Rodas v Manitaras, 159 AD2d 341, 342 [1990] ["In entering into the contract, with the assistance of counsel and without conducting an examination of the books and records, plaintiffs clearly assumed the risk that the documentation might not support the $20,000 weekly income that was represented to them"]).9
HSH alleges that UBS represented that the NS4 notes would be a relatively low-risk investment.10 As a matter of law, however, HSH could not justifiably rely on UBS's alleged characterizations of the risk level of the notes, none of which are found in the offering circular or in the operative contractual documents. As previously noted, HSH expressly disclaimed any reliance upon representations by UBS, whether written or oral, to assess the risk of the transaction, and represented that, in purchasing the notes, it was relying only on its own judgment and on the views of any advisors of its own choosing whom it had seen fit to consult. In addition, the offering circular for the notes cautioned HSH that it "must rely on [its] own examination of . . . the terms of the offering, including the merits and risks involved," and that "any information or . . . representations other than those contained in this Offering Circular . . . must not be relied upon as having been authorized by [NS4] or [UBS]."
Moreover, the offering circular contained extensive disclosures about the highly-leveraged—and hence inherently risky—nature of the investment. For example, the circular contained the following warnings, among others:
"[T]he obligation of [NS4] to make payments to [UBS] under the Credit Swap [in the event of credit events in the reference pool] creates significantly leveraged exposure to the credit of a number of Reference Entities [i.e., issuers of securities in the reference pool]" (emphasis added). - "If [NS4] is obligated to make any Credit Protection Payment to [UBS], . . . the Principal Balance of each Class of Notes will be reduced by the amount of such Credit Protection Payment . . . Accordingly, Noteholders may lose amounts invested in the Notes . . . or fail to realize expected returns. [UBS] shall owe no fiduciary duties to [NS4], the Noteholders or any other party" (emphasis added).
- "Under the Credit Swap, [NS4] may be obliged to make Credit Protection Payments to [UBS] as a result of Credit Events occurring in respect of the Reference Entities in the Reference Pool. While [NS4's] (and therefore the Noteholders') credit exposure is equal to the Maximum Amount [$574 million], the aggregate Notional Amount of the Reference Pool will initially be U.S.$3 billion. This leverage increases the risk of loss to [NS4] and, therefore, to the Noteholders" (emphasis added).
- "[H]olders of the Notes will be exposed to the credit of the Reference Entities to the full extent of their investment in the Notes and must rely solely on the proceeds of the Collateral pledged to secure, inter alia, each Class of Notes for the payment of the Principal Balance thereof and interest thereon" (emphasis added).
- "There is currently no market for the Notes. There can be no assurance that a secondary market for any of the Notes will develop, or, if a secondary market does develop, that it will provide the holders of the Notes with liquidity or that it will continue for the life of the Notes . . . Consequently, any purchaser of the Notes must be prepared to hold such Notes for an indefinite period of time" (emphasis added).
As previously discussed, the risk profile of the NS4 notes depended entirely upon the risk profile of the reference pool, the composition of which was determined by reference to credit
To permit HSH to sue UBS for fraud based on extracontractual representations concerning the risk level of the notes would "in effect condone [HSH's] own fraud in 'deliberately misrepresenting [its] true intention'" when it disclaimed reliance on any such representations at the time of contracting (Citibank v Plapinger, 66 NY2d 90, 95 [1985], quoting Danann, 5 NY2d at 323). Further, the substance of the relevant disclaimers and disclosures, far from being merely a "generalized boilerplate exclusion" of reliance on statements outside the transactional documents (id.), covers the subject matter of the alleged misrepresentation with sufficient specificity to bar the fraud claim.
"Since the plaintiff stipulated in the contract that it was not relying upon any representations 'as to the very matter as to which it now claims it was defrauded,' such specific disclaimer destroys the allegations in the plaintiff's complaint that the agreement was executed in reliance upon the defendant's . . . representations" (Mahn Real Estate Corp. v Shapolsky, 178 AD2d 383, 385-386 [1991], quoting Danann, 5 NY2d at 320).11
HSH also alleges, in vague and conclusory terms, that it was misled as to the "[p]ricing, valuation and subordination" of the NS4 notes. In other words, HSH claims that, given the actual likelihood of credit events in the reference pool, it paid too much for its notes and, in the long run, was unlikely to be protected from loss of principal by UBS's $74 million layer of subordinated notes (which bore losses first). This is just another way of saying that the credit ratings used as parameters for the composition of the reference pool were not reliable indicators of credit quality and understated the likelihood of credit events. Again, HSH disclaimed any right to rely on UBS for advice on these matters, as to which HSH could have conducted or obtained independent research, and the alleged misrepresentations are contradicted by the offering circular's risk disclosures and its warning that HSH "must rely on [its] own examination of . . . the merits and risks involved" (emphasis added). Moreover, in arm's length dealings between sophisticated parties, the seller is not obligated to disclose to the buyer its internal valuation of the item sold (see Granite Partners, 58 F Supp 2d at 261 [no claim for fraud was stated under New York law by allegations that brokers sold securities to investment funds "at prices well in excess of either the prices at which the (b)rokers had obtained those instruments or the values that the (b)rokers had themselves assigned to the securities"]).
Similarly, HSH complains that UBS marketed the NS4 notes to it "on the basis of ratings agency models" that UBS internally rejected. Specifically, while UBS allegedly
"encourage[d] HSH to evaluate the risk of loss on the basis of the ratings agency's historical default probabilities, UBS did not use that data to assess its own risk, calculate its profit and loss, or mark its books. Instead, UBS relied upon different internal models that used, among other data, market-implied default probabilities" (emphasis added).
As previously discussed, the reference to "market-implied default probabilities" highlights HSH's failure to allege the misrepresentation of any existing fact that HSH could not have
Other misrepresentations by UBS alleged in the amended complaint concerned the performance of UBS's four earlier transactions similar in structure to the NS4 transaction. Here again, HSH does not allege that UBS misrepresented any existing fact or that it concealed any fact unavailable to HSH through the exercise of due diligence. Rather, HSH alleges that, as with the NS4 deal, UBS presented HSH with one analysis of the earlier transactions (one apparently based on the assumption of the reliability of credit ratings) while, internally, UBS used a different analysis of the deals under which the results were less favorable to the outside counterparties and more favorable to UBS. Notably, HSH does not allege that, as part of its due diligence, it made any request to examine UBS's records concerning the earlier transactions. Accordingly, for the reasons already discussed, the amended complaint's allegations of UBS's claims regarding the earlier transactions do not render the fraud claim viable.12
A substantial portion of the amended complaint is devoted to allegations that UBS misrepresented the manner in which it intended to carry out its role as manager of the reference pool, which involved selecting securities for the pool and substituting securities in and out of the pool. Although no such representations are set forth in the transactional documents, UBS allegedly told HSH that there would be an "alignment of interests" between the two parties, in that UBS's motivation was to establish a mechanism that would "allow it to hold stable assets for the long-term" while reducing its credit exposure to those assets for purposes of complying with internal guidelines. In fact, according to the amended complaint, UBS intended from the outset to use a number of trading strategies in managing the reference pool, and in otherwise dealing with securities in the pool, that would create a conflict of interest between itself and HSH.13 For two reasons, none of these allegations can support a cause of action for fraud as a matter of law.
First, the transactional documents expressly disclosed the potential for conflicts of interests between UBS and HSH to arise in the course of UBS's management of the reference pool and its other trading activities, and provided that HSH would have no claim against UBS arising from such conduct. For example, section 1.15 of the indenture provides:
"Conflicts of Interest. [UBS] and certain of its Affiliates are acting in a number of capacities in connection with the transactions contemplated herein and
Likewise, the offering circular set forth the following warning to HSH:
“Reference Entities may include entities to which [UBS] has, or does not have, credit exposure . . . [UBS] and its affiliates may deal in any Reference Obligation [i.e., security in the reference pool] . . . , and generally engage in any kind of commercial or investment banking or other business transactions with, any Reference Entity and may act with respect to such transactions in the same manner as . . . if . . . the Notes did not exist and without regard to whether any such action might have an adverse effect on the Reference Entity, [NS4] or the holders of the Notes” (emphasis added).
On the next page, the offering circular makes explicit that UBS has the right to deal as it sees fit with reference entities, “regardless of whether any such action might have an adverse effect (including, without limitation, any action which might constitute or give rise to a Credit Event) on any Reference Entity, or the position of any other party to the Transaction Documents or otherwise” (emphasis added).
In view of the specific and detailed disclosures and disclaimers set forth above, it was unjustifiable and unreasonable as a matter of law for HSH to place any reliance on UBS’s alleged extracontractual representations concerning a contemplated “alignment of interests” between the two parties, or concerning
Further, HSH’s allegations about “alignment of interests,” “trading strategy” and “motive and economic interest” concern, for the most part, UBS’s alleged misrepresentation either of its intention to breach its contractual obligations as manager of the reference pool or of the manner in which it intended to perform those obligations.14 As a matter of law, neither of these categories of alleged insincere promises can support a cause of action for fraud. A claim for fraudulent inducement of contract can be predicated upon an insincere promise of future performance only where the alleged false promise is collateral to the contract the parties executed; if the promise concerned the performance of the contract itself, the fraud claim is subject to dismissal as duplicative of the claim for breach of contract (see Havell Capital, 84 AD3d at 589 [affirming dismissal of fraud claim that “did not allege a breach of any duty collateral to or independent of the parties’ agreements” on the ground that it “was redundant of the contract claim”]; Mañas v VMS Assoc., LLC, 53 AD3d 451, 453-454 [2008]; cf. Deerfield Communications Corp. v Chesebrough-Ponds, Inc., 68 NY2d 954, 956 [1986] [sustaining fraud claim based on a “collateral” oral promise that was the inducement for the contract]).
This Court recently applied the foregoing principle in the context of a securities-related dispute not unlike this one. In
“The motion court erred . . . in failing to dismiss the fraud cause of action as duplicative of the breach-of-contract cause of action, inasmuch as it is based on the same facts that underlie the contract cause of action, is not collateral to the contract, and does not seek damages that would not be recoverable under a contract measure of damages. The essence of the fraudulent inducement cause of action is that defendants allegedly misrepresented to plaintiffs their intentions with respect to the manner in which they would manage the underlying assets, and thus plaintiffs allege a misrepresentation of future intent rather than a misrepresentation of present fact, which is not sustainable as a cause of action separate from breach of contract” (id. at 419 [emphasis added and citations omitted]).
By no means do we suggest that UBS, if it engaged in the sharp dealing alleged by HSH, is to be commended; such practices are indeed troubling. Still, however much UBS’s alleged conduct leaves to be desired as a matter of business ethics, the undisputed documentary evidence and HSH’s own allegations eliminate, as a matter of law, any reasonable inference that HSH justifiably relied on the representations of which it now complains. To sustain HSH’s fraud cause of action, we would have to ignore the fact that the amended complaint—assuming the truth of its allegations—does not allege that UBS misrepresented any material existing fact as to which HSH could not have learned the truth had it conducted (or hired a consultant to conduct on its behalf) an independent appraisal of the risks of the NS4 transaction. We would also have to close our eyes to HSH’s sophistication; to HSH’s disclaimer of reliance on UBS for advice or on any extracontractual representations; to the detailed and specific disclosures of risk and conflict of interest in the transactional documents; to HSH’s ability to protect itself through the exercise of due diligence; and to the availability to HSH of appropriate relief (if any) under the rubric of its claim for breach of contract. Indeed, if we were to affirm the denial of the motion to dismiss this fraud claim, we would be judging the sufficiency of a claim asserted by a €140 billion commercial
Finally, we turn to HSH’s cross appeal. As should be evident from the foregoing discussion, the cause of action for negligent misrepresentation was correctly dismissed. The parties expressly agreed that they were dealing with each other at arm’s length, that UBS was not acting as HSH’s “financial or investment advisor,” and that HSH was “not relying (for purposes of making any investment decisions or otherwise) upon any advice, counsel or representations . . . of [UBS].” As a matter of law, therefore, HSH cannot allege that it had a “special relationship” with UBS upon which a negligent misrepresentation claim may be predicated (see ESE Funding SPC Ltd. v Morgan Stanley, 68 AD3d 676, 677 [2009]). The demand for punitive damages was also properly dismissed as HSH does not allege that UBS engaged in egregious conduct that was “part of a pattern of similar conduct directed at the public generally” (Rocanova v Equitable Life Assur. Socy. of U.S., 83 NY2d 603, 613 [1994]).
Accordingly, the orders of the Supreme Court, New York County (Richard B. Lowe, III, J.), entered October 1, 2009, and October 15, 2009, which, to the extent appealed from, denied defendants’ motion to dismiss the cause of action for fraud and granted defendants’ motion to dismiss the cause of action for negligent misrepresentation and the demand for punitive damages, should be modified, on the law, to grant the motion to dismiss the fraud cause of action, and otherwise affirmed, with costs to defendants.
Gonzalez, P.J., Moskowitz, Freedman and Román, JJ., concur.
Orders, Supreme Court, New York County, entered October 1, 2009 and October 15, 2009, modified, on the law, to grant the motion to dismiss the fraud cause of action, and otherwise affirmed, with costs to defendants.