On March 31, 2016, the First Department issued a decision in Aozora Bank, Ltd. v. Deutsche Bank Securities Inc., 2016 NY Slip Op. 02511, holding a fraud claim time-barred under the two-year discovery rule, explaining:
As this Court has held, [w]here the circumstances are such as to suggest to a person of ordinary intelligence the probability that he has been defrauded, a duty of inquiry arises, and if he omits that inquiry when it would have developed the truth, and shuts his eyes to the facts which call for investigation, knowledge of the fraud will be imputed to him. Thus, public reports and lawsuits of alleged fraud are sufficient to put a plaintiff on inquiry notice of fraud. Similarly, losses that a plaintiff sustains may put it on notice of possible fraud.
Accordingly, [the defendant] made a prima facie case that [the plaintiff] was on inquiry notice of its fraud claims before June 18, 2011 (that is, two years before it filed the summons with notice). The burden then shifted to [the plaintiff] to establish that, even if it had exercised reasonable diligence, it could not have discovered the basis for its claims before that date.
But [the plaintiff] failed to carry its burden, as there was a wealth of public information that should have put it on inquiry notice of the alleged fraud. First, in 2008, [the security in which the plaintiff had investment] was downgraded to junk status and plaintiff incurred substantial losses on its investment. Second, there was considerable publicity about the subprime mortgage crisis from news reports, investor lawsuits, and government investigations well before June 2011. Indeed, by April 2011, defendants had been sued multiple times in connection with RMBS and CDOs, including in connection with a Deutsche Bank CDO known as Gemstone, which plaintiff discusses in its complaint as involving wrongdoing by defendants “identical” to that involved with respect to [the security in which the plaintiff had investment].
Third, one of the most significant sources of public information putting plaintiff on notice of its fraud claims is the Senate Report and its associated emails, which actually form the centerpiece of plaintiff’s complaint. In fact, the Senate Report contains a 45-page section on [the defendant] entitled “Running the CDO Machine: Case Study of Deutsche Bank.” Taken with all the other information available in the public domain, the Senate Report is more than sufficient to have placed [the plaintiff] on inquiry notice of possible fraud by April 2011 at the latest. That [the security in which the plaintiff had investment] was not mentioned by name in the Senate Report does not change this result. [The plaintiff] had more than $430 million invested in [that] and other CDOs; it could have, and should have, considered whether [its investment’s] underlying assets fell within the Senate Report’s ambit.
(Internal quotations and citations omitted).