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Posted: November 14, 2015

No Assignment of Claims by Implication

On November 12, 2015, the First Department issued a decision in Sealink Funding Ltd. v. Morgan Stanley, 2015 NY Slip Op. 08113, holding that there is no assignment of claims by implication.

In Sealink Funding Ltd., the IAS court dismissed the plaintiffs’ claims in two actions for lack of standing, holding that while the plaintiff had purchased the securities that were the subject matter of the suit, it had not been assigned the right to bring tort claims relating to them under the law governing the assignments. The First Department affirmed. First, it agreed with the IAS court that as a matter of English law, which governed the assignments, the claims had not been assigned, explaining:

There is no express assignment of tort claims in the SPAs. Contrary to plaintiff’s contention, the above-cited language, present and future properties, revenues and rights of every description, reveals no identifiable intention to include tort claims. Moreover, UBS’s legal expert, Bankim Thanki, Q.C., opined that save perhaps in the most exceptional circumstances, an English court is very unlikely to find that an equitable assignment of a cause of action associated with an asset has taken place where there is a contract governing the transfer of that asset, and yet no words of that contract refer to claims, legal rights of action or sums of money recoverable or some similar language. Indeed, it is not credible that these sophisticated parties, represented by counsel, intended to transfer legal claims without expressly mentioning that intent in any of the hundreds of pages of their agreements. That the right to bring tort claims had been expressly conveyed in the 2004 Master Framework related to Phase 2 (the Irish SPVs’ transfer of the certificates to the Cayman SPVs) supports our conclusion that the omission of such claims from the Phase 3 SPAs was intentional.

(Internal quotations and citations omitted). Second, the court rejected the “plaintiff’s argument that” the court “should view the case in light of the ‘commercial context’ of the transaction and ‘business common sense,'” explaining:

Taking into account business common sense does not mean that one can rewrite the language which the parties have used in order to make the contract conform to business common sense. Further, in the above-cited Procter & Gamble, [2012] EWCA (Civ) 1413, at ¶ 22), a unanimous panel of the English Court of Appeal squarely rejected the “commercial context” argument of plaintiff’s expert. It is reasonable to conclude that, because the parties’ unambiguous Phase 3 agreements do not expressly transfer legal claims to plaintiff, the parties did not intend to transfer legal claims to plaintiff.

We reject plaintiff’s argument that an assignment can be implied on the ground that the possibility of suing defendants was foreseeable. Plaintiff cites an unrelated case indicating that investors were not yet on notice, for statute of limitations purposes, of RMBS fraud claims against Morgan Stanley in July 2008, one month after the Phase 3 assignment from the Cayman SPVs to plaintiff in this action. However, notice of a claim for New York statute of limitations purposes is not the same as an awareness that one might seek to pursue claims at some future time, which is all that foreseeability under English law requires. Plaintiff itself alleges that the Phase 3 transfers were part of a “bad bank” strategy intended to isolate the “toxic” RMBS at issue and that it is a “special purpose vehicle that was established to receive, hold, and manage toxic RMBS assets, including the Certificates.” Thus, plaintiff cannot credibly argue that it did not foresee that it might want to pursue claims in connection with the “toxic” certificates it purchased.

(Internal quotations and citations omitted). Third, the court for the same reasons rejected the plaintiff’s “implied assignment arguments,” holding that it would not “infer an assignment of legal claims based on the parties’ conduct.”

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