Commercial Division Blog

Posted: December 19, 2016 / Categories Commercial, Fraud/Misrepresentation

AG's Statutory Fraud Claims Relating to RMBS Sales Timely

On December 13, 2016, the First Department issued a decision in People v. Credit Suisse Sec. (USA) LLC, 2016 NY Slip Op. 08339, holding that the Attorney General's statutory fraud claims against an RMBS issuer were timely, explaining:

General Business Law § 353(1) states, "Whenever the attorney general shall believe . . . that any person . . . has engaged in . . . fraudulent practices, he may bring an action . . . to enjoin such person . . . from continuing such fraudulent practices." Moreover, section 353(3) provides, "Upon a showing by the attorney general that a fraudulent practice . . . has occurred, he may include . . . an application to direct restitution of any moneys or property obtained . . . by any such fraudulent practice."

In turn, Executive Law § 63(12) states, in relevant part, "Whenever any person shall engage in repeated fraudulent or illegal acts or otherwise demonstrate persistent fraud or illegality in the carrying on . . . of business, the attorney general may apply . . . for an order enjoining the continuance of such business activity or of any fraudulent or illegal acts, [and] directing restitution and damages."

As originally enacted, however, § 63(12) provided no definition of the term "fraud". Rather, the section's definition of that term was added in 1965 (see L 1956, ch 666, § 1) — specifically, "any device, scheme or artifice to defraud and any deception, misrepresentation, concealment, suspension, false pretense, [or] false promise."

As this Court previously held in State of New York v Bronxville Glen I Assoc., the statute of limitations for an action brought by the Attorney General under the Martin Act alleging investor fraud is six years pursuant to CPLR 213(8), and not three years pursuant to CPLR 214. More recently in Matter of People v Trump Entrepreneur Initiative LLC (Trump) we analyzed the issue of the statute of limitations for claims brought under Executive Law § 63(12). In conducting this analysis, we first noted that the language of § 63(12) parallels the language of the Martin Act. Additionally, we noted, section 63(12) did not make unlawful the alleged fraudulent practices, but only provided standing in the Attorney-General to seek redress and additional remedies for recognized wrongs which pre-existed the statute. We further found that section 63(12) does not encompass a significantly wider range of fraudulent activities than were legally cognizable before the section's enactment. Thus, we concluded, the Attorney General's fraud claim under Executive Law § 63(12) is subject to the residual six-year statute of limitations in CPLR 213(1) because the section does not create any liability nonexistent at common law, at least under the court's equitable powers.

We adhere to that determination here. The conduct targeted under § 63(12) parallels the conduct covered under the Martin Act's definition of fraud in that both the Martin Act and § 63(12) target wrongs that existed before the statutes' enactment, as opposed to targeting wrongs that were not legally cognizable before enactment. Accordingly, § 63(12) is not subject to the three-year statute of limitations under CPLR 214.

The dissent maintains that the complaint is based on statutory violations encompassing a larger range of claims than were legally cognizable before § 63(12)'s enactment. But, as noted above, and as we noted in Trump, the conduct at issue in this action was, in fact, always subject to granting of relief under the courts' equitable powers.

Further, CPLR 213(1), rather than CPLR 214(2), is applicable to an Executive Law § 63(12) claim based on a scheme to obtain ownership of distressed properties by means of fraudulent misrepresentations.

(Internal quotations and citations omitted).