We now have another preliminary result. In a 17-page decision handed down Monday, New York state supreme court justice Shirley Kornreich refused to dismiss MBIA’s case claiming that Credit Suisse fraudulently induced it to insure payments on $900 million in securitized residential mortgages. (As we’ve previously reported, Justice Kornreich is overseeing Ambac’s very similar case against Credit Suisse, which also features the same plaintiffs’ and defense counsel; the judge hasn’t ruled on Credit Suisse’s pending motion to dismiss the Ambac suit.)
MBIA’s suit against Credit Suisse, which makes claims of fraudulent inducement and breach of representations and warranties, alleges that Credit Suisse mischaracterized the loans it provided as collateral for the mortgage-backed securities MBIA insured. In the bank’s motion to dismiss, its lawyers from Orrick, Herrington & Sutcliffe argued (as they did in a similar motion to dismiss the Ambac suit), that MBIA, as a sophisticated party, should have conducted more of its own due diligence to determine the quality of the loans. But Justice Kornreich, citing other precedents, rejected those arguments.
“[In] the complex and fact-insensitive context in which this case arises, the court cannot hold as a matter of law that MBIA was obligated to perform due diligence beyond that which it pursued in extracting various representations and warranties from Credit Suisse,” she wrote.
The judge did grant Credit Suisse’s motion to dismiss MBIA’s claim that the bank breached the implied duty of good faith and fair dealing. She also granted Credit Suisse’s motion to strike MBIA’s request for a jury trial.
MBIA, which (like Ambac) is represented by Patterson, Belknap, Webb & Tyler, issued us the following statement: “We are pleased that the court has rejected Credit Suisse’s motion to dismiss and allowed MBIA to pursue all remedies pertaining to its fraudulent inducement and breach of contract claims. Importantly, the judge recognized the validity of MBIA’s position that even sophisticated entities are not impervious to and may justifiably rely on fraudulent statements made by counterparties such as Credit Suisse. MBIA has been substantially harmed by Credit Suisse and we will continue to aggressively pursue our remedies.”
Credit Suisse, which is represented by Orrick, Herrington & Sutcliffe, declined to comment.