Commercial Division Blog

Posted: July 5, 2015 / Categories Commercial, Fraud/Misrepresentation, Statute of Limitations/Laches

Fraud Claim Accrues at Time of Transaction, Not When Losses Subsequently Are Realized

On June 17, 2015, Justice Friedman of the New York County Commercial Division issued a decision in Commerzbank AG London Branch v. UBS AG, 2015 NY Slip Op. 31051(U), dismissing fraud claims as time-barred.

In Commerzbank AG London Branch, the plaintiff brought claims relating to its purchase "of residential mortgage backed securities certificates (RMBS)." The defendants moved to dismiss the plaintiff's fraud claims as time-barred. The trial court granted the motion, explaining:

CPLR 213(8) provides that the time within which a fraud action must be commenced shall be the greater of six years from the date the cause of action accrued or two years from the time the plaintiff discovered the fraud, or could with reasonable diligence have discovered it. Here, the fraud accrued at the time of the purchase of the certificates. As the latest purchase occurred more than six years prior to the commencement of the action, the action is barred under the accrual standard. As this court has repeatedly held in determining motions to dismiss RMBS actions based on the bar of the statute of limitations, the action therefore will not be timely unless it survives under the two-year discovery rule.

In so holding, the court rejects plaintiff's claim that the causes of action accrued not at the time of purchase of the certificates but at the time the certificates began to sustain actual losses. Plaintiff correctly contends that a tort cause of action cannot accrue until an injury is sustained, and that accrual occurs when the claim becomes enforceable, i.e., when all elements of the tort can be truthfully alleged in a complaint.

Plaintiff, however, advances the further argument that the fraud causes of action at issue did not accrue until loss causation began - an event which, according to plaintiff, did not occur until the certificates began to sustain losses in 2008, when the inadequate credit cushions protecting the Certificates from principal losses began to erode and their credit ratings collapsed to junk."

This argument is both novel and unpersuasive. It is unsupported by legal authority and, indeed, has not been raised in opposition to any of the numerous motions before this court to dismiss RMBS actions on statute of limitations grounds. Plaintiff fails to cite any case that holds that a fraud claim accrues at the time that post-investment losses are sustained. Appellate authority expressly holds, to the contrary, that the claim accrues on the date of purchase of the securities - i.e., the date the plaintiff completed the act that the alleged fraudulent statements had induced.

(Internal quotations and citations omitted) (emphasis added). This decision announces a clear rule that makes sense. That said, there is something to the plaintiff's argument that a claim does not accrue until there are damages. After all, damages are an element of a fraud claim.