• No Duplication of Claims, Reasonable Reliance Determination Benefitted by Discovery, Jury Waiver Provision Valid: Ambac Assur. Corp. v. DLJ Mtge. Capital, Inc.
  • November 3, 2011
  • Law Firm: Farrell Fritz P.C. - Uniondale Office
  • In an October 7, 2011 decision by Justice Kornreich, the court granted plaintiffs’ motion for leave to reargue; denied defendants’ motion to dismiss plaintiff’s fraudulent inducement claim; and granted defendants’ motion to strike plaintiff’s demand for a jury trial. Plaintiff’s motion to reargue followed an order dismissing its fraudulent inducement claim and striking its demand for jury trial. The action arose out of the securitization of a pool of over two thousand second lien, residential mortgage loans, which had been transferred to a trust.  Plaintiff entered a contract with DLJ Mortgage Capital, Inc, the sponsor of the transaction, whereby it issued a policy guaranteeing certain payments of the securities. Defendant Credit Suisse Securities (USA), LLC served as the underwriter.

    The court held that the First Department’s recent decision in MBIA Ins. Corp. v. Countrywide required the granting of plaintiffs’ motion to reargue. There, the First Department established that a fraudulent inducement claim is not duplicative of a breach of contract claim solely because “some of the allegedly false representations are also contained in the agreements as warranties and form the basis of the breach of contract claim.”

    The court denied defendant’s motion to dismiss the fraudulent inducement claim, holding that although plaintiffs’ reliance on Credit Suisse’s allegedly fraudulent misrepresentations was most likely unreasonable as a matter of law, determining reasonable reliance requires a fact-intensive inquiry that “would benefit from a complete record created after the parties’ discovery.”  As to plaintiffs’ demand for a jury trial, the court found that jury wavier provision in the Insurance and Indemnity agreement between plaintiffs and DLJ was controlling. The court held that the provision was broad enough to cover the fraudulent inducement claim and plaintiffs did not expressly challenge it. Further, because their fraudulent inducement claim depended, in part, on the warranties contained in the agreement, the court held that plaintiffs had effectively affirmed its validity.

    Ambac Assur. Corp. v DLJ Mtge. Capital, Inc., Sup Ct, New York County, October 7, 2011,Kornreich, J, Index No. 600070/10.