Manhattan Supreme Court Justice Charles Ramos declined to postpone issuing a decision on a motion to dismiss a fraud action against Swiss bank UBS over its sale of residential mortgage-backed securities despite a pending appeal in a separate case on similar issues.
In Sealink Funding v. UBS, 653102/2012, plaintiff’s attorneys requested July 3 that Ramos stay proceedings, including any rulings, until the Appellate Division, First Department, had its say in Sealink Funding v. Morgan Stanley, 650196/2012.
Both actions relate to alleged misrepresentations by the banks in their sale of RMBS and feature similar defense arguments that Sealink, a special purpose vehicle established in Ireland, has no standing to pursue tort claims.
In April, Justice Eileen Bransten dismissed the Sealink v. Morgan Stanley action based on lack of standing. Sealink, represented by Bernstein Litowitz Berger & Grossmann, filed a notice of appeal to the First Department; the appellate brief will be filed in the next month.
Attorneys at Labaton Sucharow, representing Sealink in the action against UBS, argued for a stay in their case based on this development, arguing it would “conserve judicial resources and avoid the unnecessary risk of inconsistent rulings.”
“Sealink submits that the more efficient course is for this court to stay this action and defer ruling on the motion to dismiss until the First Department or the Court of Appeals has reviewed the Morgan Stanley decision and ruled on the threshold issue of standing,” Joel Bernstein and David Goldsmith, partners at Labaton Sucharow, argued in motion papers.
As his July 9 decision demonstrates, Ramos did not wait for appellate review of his colleague’s ruling before issuing his dismissal on the threshold issue of lack of standing. In an email to CLI Friday, Goldstein said the judge “did not address” the motion to stay.
While not unusual, the circumstance is yet another reminder of the overlapping issues and frequent appeals of RMBS claims in the Commercial Division.
For instance, in two separate but similar actions Sealink has brought against Deutsche Bank and Citigroup that also involve the lack of standing defense, presiding Justice Marcy Friedman ordered a stay pending the outcome of the appeal in Morgan Stanley.
At any rate, Ramos’ decision came out the same way as Bransten’s ruling. It noted that “a recent decision addressed this very issue, in a case nearly identical to the instant action, and found that the definition of the term ‘assets’ did not include assignment of tort claims.”
Ramos held that Sealink, which had purchased $158 million in RMBS certificates via a chain of transactions, lacked standing to sue because the agreements governing the transfer of certificates from a Cayman Islands special purpose vehicle to Sealink neither expressly nor implicitly assigned tort claims that would enable Sealink to maintain a lawsuit under English law.
“In a complex transaction such as this, in which the parties are sophisticated and represented by counsel, the failure to make any reference to such claims indicates that the parties did not intend to include them in the assignment,” the judge wrote.
Goldstein said he planned to appeal the decision.
Jay Kasner and Christopher Malloy, partners at Skadden, Arps, Slate, Meagher & Flom, represent UBS. They could not be reached for comment Friday.