Real Estate Finance

Allstate Insurance Company v. Credit Suisse Securities (USA), LLC

Court: Supreme Court, New York County
Index #: 650547/2011
Citation: 2014 N.Y. Slip Op. 50106(U)
Plaintiff: Allstate Insurance Company, Allstate Life Insurance Company, Allstate Bank (F/K/A Allstate Federal Savings Bank), and Kennett Capital Inc.
Defendant: Credit Suisse Securities (USA) LLC, Credit Suisse First Boston Mortgage Securities Corporation, Credit Suisse Financial Corporation, Asset Backed Securities Corporation, and DLJ Mortgage Capital, Inc.

Facts: Plaintiffs are pursuing a cause of action against the Defendants, alleging fraud, fraudulent inducement and negligent misrepresentation over the sale of Residential Mortgage-Backed Securities (RMBS) by the Defendant to the Plaintiffs. Plaintiffs are alleging that the Defendants made false representations that the mortgage loans were originated in accordance with sound underwriting guidelines. Plaintiffs are also alleging that the Defendants misrepresented specific risk metrics that were material to assessing the riskiness of the mortgage loans, including metrics regarding owner-occupancy levels, loan-to-value ratios, sufficiency of the borrowers' income, credit ratings, and credit enhancements relating to the Certificates. The Defendants are moving to dismiss the complaint on the grounds that the complaint is barred by the statute of limitations and fails to state a cause of action.

Holding:The Court denied the Defendants motion to dismiss on statute of limitation grounds on Plaintiffs' complaints related to the HEMT 2005-5, A1A Certificates. In regard to cases filed in the same time line when similar actions were filed by the Defendants against other financial institutions that offered RMBS, the Court said that the issue of timeliness cannot be resolved. As to the HEMT 2005-5, A1A Certificates, the Court declined as a matter of law that publicly available information was sufficient to afford Plaintiffs notice or knowledge of Defendants' misconduct, misrepresentations or intent to defraud with respect to particular loan pools at issue. With respect to Defendants' defense of failure to state a claim, the Court analyzed the various components of the complaint, citing persuasive authority, stating that the allegations of the Plaintiffs' complaint are sufficient. The complaint alleged a material misrepresentation of fact, knowledge of falsity and intent to induce justifiable reliance by the Defendants, sufficient to permit a reasonable inference of alleged misconduct. Lastly, the Court said that the complaint contains some rational basis for inferring that the alleged misrepresentation was knowingly made, thus satisfying the requirement to satisfy the scienter element of the complaint.

Submitted: Michelle Maratto Itkowitz, Esq ,

Precis: Faisal Sheikh