The People by Eric T. Schneiderman,, Respondent,v.Credit Suisse Securities (USA) LLC,, et al., Appellants.BriefN.Y.March 21, 2018 To be Argued by: Richard W. Clary (Time Requested: 30 Minutes) APL-2017-00056 New York County Clerk’s Index No. 451802/12 Court of Appeals of the State of New York PEOPLE OF THE STATE OF NEW YORK, BY ERIC T. SCHNEIDERMAN, ATTORNEY GENERAL OF THE STATE OF NEW YORK, Plaintiff-Respondent, -against- CREDIT SUISSE SECURITIES (USA) LLC, F/K/A “CREDIT SUISSE FIRST BOSTON LLC”, DLJ MORTGAGE CAPITAL, INC., CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORPORATION, ASSET BACKED SECURITIES CORPORATION AND CREDIT SUISSE MORTGAGE ACCEPTANCE CORPORATION, Defendants-Appellants. BRIEF FOR DEFENDANTS-APPELLANTS RICHARD W. CLARY MICHAEL T. REYNOLDS LAUREN A. MOSKOWITZ CRAVATH, SWAINE & MOORE LLP Attorneys for Defendants-Appellants Worldwide Plaza 825 Eighth Avenue New York, NY 10019 Tel.: (212) 474-1000 Fax: (212) 474-3700 Date Completed: May 30, 2017 CORPORATE DISCLOSURE STATEMENT Pursuant to 22 N.Y.C.R.R. § 500.1(f), Defendants-Appellants Credit Suisse Securities (USA) LLC, formerly known as “Credit Suisse First Boston LLC”; DLJ Mortgage Capital, Inc.; Credit Suisse First Boston Mortgage Securities Corp.; Asset Backed Securities Corporation; and Credit Suisse First Boston Mortgage Acceptance Corporation (sued herein as “Credit Suisse Mortgage Acceptance Corporation”), by their counsel, certify as follows: Defendant-Appellant Credit Suisse Securities (USA) LLC is a wholly owned subsidiary of Credit Suisse (USA), Inc. Credit Suisse Securities (USA) LLC has the following wholly owned subsidiaries: • Jericho Plaza Investor GP LLC • Mortgage Repurchase Agreement Financing Trust • Securities Repurchase Agreement Financing Trust • Special Situations Holdings, Inc. – Westbridge • Staghound Corporation • View Home, LLC Defendant-Appellant DLJ Mortgage Capital, Inc., is a wholly owned subsidiary of Credit Suisse (USA), Inc. DLJ Mortgage Capital, Inc., has the following wholly owned subsidiaries: ii • Column Financial, Inc. • 2002-NP14, LLC Defendant-Appellant Credit Suisse First Boston Mortgage Securities Corp. is a wholly owned subsidiary of Credit Suisse Management LLC, which is a wholly owned subsidiary of Credit Suisse (USA), Inc. Credit Suisse First Boston Mortgage Securities Corp. has no subsidiaries. Defendant-Appellant Asset Backed Securities Corporation is a wholly owned subsidiary of Collateralized Mortgage Securities Corporation. Collateralized Mortgage Securities Corporation is a wholly owned subsidiary of Credit Suisse Management LLC, which is a wholly owned subsidiary of Credit Suisse (USA), Inc. Asset Backed Securities Corporation has no subsidiaries. Defendant-Appellant Credit Suisse First Boston Mortgage Acceptance Corporation is a wholly owned subsidiary of Credit Suisse (USA), Inc. Credit Suisse First Boston Mortgage Acceptance Corporation has no subsidiaries. Credit Suisse (USA), Inc., is a wholly owned subsidiary of Credit Suisse Holdings (USA), Inc. Credit Suisse Holdings (USA), Inc., is a jointly owned subsidiary of (1) Credit Suisse Group AG, (2) Credit Suisse Group AG, Guernsey Branch, which is a branch of Credit Suisse Group AG, and (3) Credit Suisse AG. Credit Suisse AG is a wholly owned subsidiary of Credit Suisse Group AG. iii TABLE OF CONTENTS Page CORPORATE DISCLOSURE STATEMENT ............................................. i TABLE OF AUTHORITIES .......................................................................vi QUESTION PRESENTED ........................................................................ xii PRELIMINARY STATEMENT ................................................................... 1 STATEMENT OF THE CASE ..................................................................... 6 A. Statutory Background. .............................................................. 6 1. The Martin Act. ............................................................... 6 2. The Executive Law. ......................................................... 7 B. The New York Attorney General’s Lawsuit. ............................. 8 C. The Supreme Court’s Decision and Order. ................................ 9 D. The Divided First Department Decision and Order. ................ 11 E. Statement of Jurisdiction. ........................................................ 12 LEGAL STANDARD ................................................................................. 13 ARGUMENT.............................................................................................. 13 I. GAIDON II PROVIDES THE CONTROLLING LEGAL FRAMEWORK FOR ASSESSING THE APPLICABILITY OF CPLR § 214(2). ................................................................................. 15 A. Gaidon I: The Court of Appeals Holds that G.B.L. § 349 Permits Liability in Circumstances Common-Law Fraud Does Not. ......................................................................................... 16 iv B. Gaidon II: The Court of Appeals Rejects the Attorney General’s Argument that the Common-Law Fraud Limitation Period Should Apply in Spite of G.B.L. § 349’s Broader Liability. .................................................................... 18 C. The First Department’s Prior Approach to CPLR § 214(2), from Bronxville, Did Not Survive Gaidon II.................................... 21 D. Gaidon II Applies Regardless of the Plaintiff’s Identity and Regardless of the Statute at Issue. ........................................... 23 II. GAIDON II COMPELS THE APPLICATION OF CPLR § 214(2) TO THE MARTIN ACT BECAUSE, LIKE G.B.L. § 349, THE MARTIN ACT PERMITS LIABILITY TO BE IMPOSED WHERE THE COMMON LAW DOES NOT. ................................................ 24 A. Gaidon II Requires Application of CPLR § 214(2) to All Martin Act Claims and to Executive Law Claims Based on Martin Act Violations. ............................................................ 26 1. Just like G.B.L. § 349, the Martin Act does not require intent to defraud. ........................................................... 27 2. Just like G.B.L. § 349, the Martin Act broadly prohibits deceptive conduct not amounting to a common-law misrepresentation. ........................................................ 29 B. The Martin Act Dispenses with Additional Common-Law Elements Demonstrating that, Under Gaidon II, It Imposes Liability that Would Not Exist “But for” Statute. .................... 34 1. The Martin Act dispenses with the investor reliance required under the common law. ................................... 35 2. The Martin Act expands liability even further than G.B.L. § 349 by dispensing with the common-law damages element. ........................................................................ 37 C. The First Department’s Suggestion that Allegations Akin to Common-Law Fraud Can Permit the Attorney General to Sidestep the Gaidon II Analysis Was Error. ............................ 38 v D. As the Two Dissenting Justices Observed, the First Department Erred in Its Conclusion that a Comparison to Equitable Fraud Is Appropriate or Yields a Different Result from Gaidon II. ....... 42 III. THE ATTORNEY GENERAL’S EXECUTIVE LAW § 63(12) CLAIM IS TIME-BARRED UNDER GAIDON II FOR THE SAME REASONS AS THE MARTIN ACT, WHETHER OR NOT THIS COURT RECOGNIZES A “STANDALONE” CAUSE OF ACTION. .......................................................................................... 46 A. There Is a Division of Authority Over Whether Executive Law § 63(12) Can Support Standalone Liability. ............................ 46 B. Whether a “Standalone” or a “Look Through” Claim, the Attorney General’s Statutory-Based Executive Law § 63(12) Claim Here Is Subject to CPLR § 214(2) for the Same Reasons as the Martin Act and G.B.L. § 349. ....................................... 48 IV. STARE DECISIS AND SOUND POLICY SUPPORT APPLYING THE GAIDON II FRAMEWORK TO HOLD CPLR § 214(2) APPLIES TO THE STATUTORY CLAIMS HERE. ........................ 52 CONCLUSION .......................................................................................... 56 vi TABLE OF AUTHORITIES Page(s) Cases In re Am. Research Council, 10 N.Y.2d 108 (1961) ............................................................................ 55 Assured Guar. (UK) Ltd. v. J.P. Morgan Inv. Mgt. Inc., 18 N.Y.3d 341 (2011) ...................................................................... 27, 54 Baena v. Woori Bank, 515 F. Supp. 2d 414 (S.D.N.Y. 2007) .............................................. 27, 53 Brown v. Lockwood, 76 A.D.2d 721 (2d Dep’t 1980) ............................................................. 45 In re. Colo. State Christian Coll. of Church of Inner Power, Inc., 76 Misc. 2d 50 (Sup. Ct. N.Y. Cty. 1973) .............................................. 30 Duffy v. Horton Mem. Hosp., 66 N.Y.2d 473 (1985) ............................................................................ 54 Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553 (2009) ............................................................................ 25 Feldman v. Grant, 213 A.D.2d 340 (1st Dep’t 1995) ........................................................... 24 Fitzgerald v. Hudson Nat’l Golf Club, 11 A.D.3d 426 (2d Dep’t 2004) ............................................................. 36 Gaidon v. Guardian Life Ins. Co. of Am., 255 A.D.2d 101 (1st Dep’t 1998) ........................................................... 16 Gaidon v. Guardian Life Ins. Co. of Am., 272 A.D.2d 60 (1st Dep’t 2000) ............................................................. 18 Gaidon v. Guardian Life Ins. Co. of Am., 94 N.Y.2d 330 (1999) (“Gaidon I”) ............................................... passim Gaidon v. Guardian Life Ins. Co. of Am., 96 N.Y.2d 201 (2001) (“Gaidon II”) .............................................. passim vii Gen. Motors Acceptance Corp. v. Vucich, 15 A.D.3d 106 (3d Dep’t 2005) ............................................................. 24 Global Mins. & Metals Corp. v. Holme, 35 A.D.3d 93 (1st Dep’t 2006) ............................................................... 36 Gomez-Jimenez v. N.Y. Law Sch., 36 Misc. 3d 230 (Sup. Ct. N.Y. Cty. 2012) ............................................ 38 Matter of Gonkjur Assocs. v. Abrams, 88 A.D.2d 854 (1st Dep’t 1982) ............................................................. 54 Gray v. Toyota Motor Sales, U.S.A., Inc., 806 F. Supp. 2d 619 (E.D.N.Y. 2011) .................................................... 23 Great N. Ins. Co. v. Interior Const. Corp., 7 N.Y.3d 412 (2006) .............................................................................. 53 Grumman Allied Indus., Inc. v. Rohr Indus., Inc., 748 F.2d 729 (2d Cir. 1984) ................................................................... 33 Hammond v. Pennock, 61 N.Y. 145 (1874) ................................................................................ 44 Jones v. Bill, 10 N.Y.3d 550 (2008) ............................................................................ 13 Kramer v. W10Z/515 Real Estate Ltd. Partnership, 44 A.D.3d 457 (1st Dep’t 2007) ............................................................. 35 KSW Mech. Servs. v. Willis of N.Y., 63 A.D.3d 411 (1st Dep’t 2009) ............................................................. 36 Kuelling v. Roderick Lean Mfg. Co., 183 N.Y. 78 (1905) ................................................................................ 25 Marie v. Garrison, 13 Abb. N. Cas. 210 (Super. Ct. N.Y.C. 1883) ....................................... 43 MBIA Ins. Co. v. GMAC Mortg. LLC, 30 Misc. 3d 856 (Sup. Ct. N.Y. Cty. 2010) ............................................ 33 viii Mindel v. Phoenix Owners Corp., 17 A.D.3d 227 (1st Dep’t 2005) ............................................................. 24 Mobil Oil Corp. v. Joshi, 202 A.D.2d 318 (1st Dep’t 1994) ........................................................... 32 Moore v. Crawford, 130 U.S. 122 (1889) ............................................................................... 43 Motor Veh. Acc. Indem. Corp. v. Aetna Cas. & Sur. Co., 89 N.Y.2d 214 (1996) ...................................................................... 13, 52 Osberg v. Foot Locker, Inc., No. 07 Civ. 1358 (KBH), 2015 WL 5786523 (S.D.N.Y. Oct. 5, 2015) ........................................................... 43 Ottinger v. Civil Serv. Comm., 240 N.Y. 435 (1925) .............................................................................. 55 People ex rel. Cuomo v. Charles Schwab & Co., 109 A.D.3d 445 (1st Dep’t 2013) ..................................................... 32, 47 People ex. rel. Cuomo v. City Model & Talent Dev., Inc., 29 Misc. 3d 1205(A), (Sup. Ct. Suffolk Cty. Sept. 28, 2010) ................. 23 People ex rel. Cuomo v. Greenberg, 95 A.D.3d 474 (1st Dep’t 2012) ......................................................... 2, 31 People ex rel. Cuomo v. Merkin, 26 Misc. 3d 1237(A) (Sup. Ct. N.Y. Cty. 2010) ......................... 30, 49, 50 People ex rel. Schneiderman v. Barclays Capital Inc., 47 Misc. 3d 862 (Sup. Ct. 2015) .................................................... 4, 7, 33 People ex rel. Schneiderman v. Coll. Network, Inc., 53 Misc. 3d 1210(A) (Sup. Ct. Albany Cty. 2016) ................................. 47 People ex rel. Schneiderman v. One Source Networking, Inc., 125 A.D.3d 1354 (4th Dep’t 2015) ........................................................ 46 People ex rel. Schneiderman v. Trump Enterpreneur Initiative LLC, 137 A.D.3d 409 (1st Dep’t 2016) ........................................... 5, 11, 47, 49 ix People ex rel. Spitzer v. Frink Am., Inc., 2 A.D.3d 1379 (4th Dep’t 2003) ...................................................... 46, 47 People ex rel. Spitzer v. Gen. Elec. Co., Inc., 302 A.D.2d 314 (1st Dep’t 2003) ..................................................... 30, 50 People ex rel. Vacco v. World Interactive Gaming Corp., 185 Misc. 2d 852 (Sup. Ct. N.Y. Cty. 1999) ...................................... 7, 32 People of the State of New York v. The Trump Entrepreneur Initiative LLC, No. 451463/13, 2014 WL 5241483 (Sup. Ct. Oct. 8, 2014) ................... 47 People v. Ernst & Young LLP, 114 A.D.3d 569 (1st Dep’t 2014) ........................................................... 37 People v. Federated Radio Corp., 244 N.Y. 33 (1926) ...................................................................... 6, 29, 31 People v. Hobson, 39 N.Y.2d 479 (1976) ............................................................................ 53 People v. Lexington Sixty-First Assocs., 38 N.Y.2d 588 (1976) ............................................................................ 31 People v. Nationwide Asset Servs., Inc., 26 Misc. 3d 258 (Sup. Ct. Erie Cty. 2009) ............................................. 49 People v. Pharmacia Corp., 27 Misc. 3d 368 (Sup. Ct. Albany Cty. 2010) .............................. 7, 23, 49 People v. Photocolor Corp., 156 Misc. 47 (Sup. Ct. N.Y. Cty. 1935) ................................................. 27 People v. Wells Fargo Ins. Servs. Inc., 18 Misc. 3d 1117(A) (Sup. Ct. N.Y. Cty. Jan. 14, 2008) ........................ 42 Roni LLC v. Arfa, 74 A.D.3d 442 (1st Dep’t 2010) ............................................................. 43 Russo v. Mass. Mut. Life Ins. Co., 274 A.D.2d 878 (3d Dep’t 2000) ........................................................... 18 x Shareholder Rep. Servs. LLC v. Sandoz Inc., 46 Misc. 3d 1228(A) (Sup. Ct. N.Y. Cty. 2015) ..................................... 43 State ex rel. Lefkowitz v. Interstate Tractor Trailer Training, Inc., 66 Misc. 2d 678 (Sup. Ct. N.Y. Cty. 1971) ............................................ 50 State v. Bronxville Glen I Assocs., 181 A.D.2d 516 (1st Dep’t 1992) ................................................. 4, 11, 22 State v. Cortelle Corp., 38 N.Y.2d 83 (1975) .................................................................. 46, 47, 51 State v. Daicel Chem. Indus., Ltd., 42 A.D.3d 301 (1st Dep’t 2007) ........................................... 10, 12, 48, 51 State v. McLeod, 12 Misc. 3d 1157(A) (Sup. Ct. N.Y. Cty. 2006) ............................... 50, 51 State v. Rachmani Corp., 71 N.Y.2d 718 (1988) ............................................................ 2, 27, 32, 50 Stutman v. Chem. Bank, 95 N.Y.2d 24 (2000) .............................................................................. 35 Zanett Lombardier, Ltd. v. Maslow, 29 A.D.3d 495 (1st Dep’t 2006) ............................................................. 42 Statutes & Rules CPLR § 214(2)..................................................................................... passim CPLR § 213 ......................................................................................... passim Executive Law § 63(12) ....................................................................... passim Martin Act ........................................................................................... passim Other Authorities Defending Corporations & Individuals in Government Investigations § 12:11 (Daniel J. Fetterman & Mark P. Goodman eds., 2014) ................ 2 The Honorable Thomas A. Dickerson, 4D Commercial Litigation in New York State Courts § 111:4 (Robert L. Haig ed., 4d ed. 2016) ......... 38 xi Lee S. Kreindler et al., New York Law of Torts § 1:70 (2014) ..................... 31 Ambrose V. McCall, Comments on the Martin Act, 3 Brook. L. Rev. 190 (1933) ............................................................................................... 4 Charles H. Mills, Fraudulent Practices in Respect to Securities and Commodities with Special Reference to the Martin Act (1925) ................ 6 New York State Legislative Annual (1965) .................................................. 50 Orestes J. Mihaly & David J. Kaufmann, General Business Law Act 23-A, in 19 McKinney’s Consolidated Laws of New York Annotated (1996) ..................................................................................... 4 Geoffrey W. Parnass, Securities Regulations in New York, 211 N.Y.L.J. (Apr. 4, 1994) ....................................................................... 6, 28 1 William W. Kerr & Orlando F. Bump, A Treatise on the Law of Fraud & Mistake (1872) ........................................................................ 44 1 Joseph Story, Commentaries on Equity Jurisprudence § 191 (6th ed. 1853) ..................................................................................................... 44 26 Williston on Contracts § 69:2 (4th ed.)................................................... 43 xii QUESTION PRESENTED Whether an action brought by the Attorney General under the Martin Act and Executive Law § 63(12)—statutes that allow the Attorney General to impose liability for statements and omissions that would not qualify as “misrepresentations” at common law, and without proving reliance, intent or damages—is subject to the three-year limitations period for liabilities “imposed by statute”, CPLR § 214(2), under this Court’s holding in Gaidon v. Guardian Life Ins. Co. of Am., 96 N.Y.2d 201 (2001), rather than the six-year limitations period for common-law fraud claims, CPLR § 213(8), or CPLR § 213(1)? Answer Below: The Appellate Division, First Department, majority decided that Martin Act and Executive Law § 63(12) claims are subject, respectively, to CPLR § 213(8) and CPLR § 213(1). (A. 2-8.)1 Two Justices in dissent would have held that CPLR § 214(2) applies. (A. 9-A.22.) 1 Citations to the appendix are to “A. __” and citations to the addendum are to “Add. __”. The question presented was raised by Credit Suisse in the Supreme Court, in its briefs on appeal and its motion for leave to appeal, and thus was preserved for review. (See, e.g, A.1, 92-93, 99-103, 154-63, 170-216.) Credit Suisse2 respectfully requests reversal of the Decision and Order of the Appellate Division, First Department, dated December 13, 2016 (“Decision”), in which a divided panel (three-to-two) affirmed the Supreme Court’s denial of Credit Suisse’s motion to dismiss the Complaint as time-barred under the three-year limitations period under CPLR § 214(2). PRELIMINARY STATEMENT This appeal presents the legal question of which limitations period applies to claims created by the Martin Act and Executive Law § 63(12) that impose liability far beyond the liability available at common law. Long-standing Court of Appeals’ precedent provides the answer: the Attorney General’s Martin Act and Executive Law § 63(12) claims are subject to CPLR § 214(2)’s three-year limitations period for “an action to recover upon a liability, penalty or forfeiture created or imposed by statute”. See Gaidon v. Guardian Life Ins. Co. of Am., 96 N.Y.2d 201, 209 (2001) (“Gaidon II”). In Gaidon II, this Court set out the controlling test for interpreting CPLR § 214(2), and applying that test, unanimously held that G.B.L. § 349 claims are subject to CPLR § 214(2)’s three-year statutory limitations period. Id. at 209-10. This Court fully appreciated that “General Business Law § 349 may cover 2 Credit Suisse Securities (USA) LLC, f/k/a “Credit Suisse First Boston LLC”, DLJ Mortgage Capital, Inc., Credit Suisse First Boston Mortgage Securities Corporation, Asset Backed Securities Corporation and Credit Suisse Mortgage Acceptance Corporation (collectively, “Credit Suisse”). 2 conduct ‘akin’ to common-law fraud” but determined that because G.B.L. § 349 “encompasses a far greater range of claims” than were “legally cognizable before its enactment”, that statute is subject to CPLR § 214(2), not to the six-year period for common-law fraud under CPLR § 213(8). Gaidon II, 96 N.Y.2d at 209. This Court’s holding from Gaidon II is on all fours here. The elements of a Martin Act claim and of an Executive Law § 63(12) claim—whether based on Martin Act violations or as a standalone claim (if such a claim exists)— are identical in all relevant respects to G.B.L. § 349, in that these statutory causes of action enable the Attorney General to secure a liability verdict without proving the common-law fraud elements of scienter, reliance or damages. See, e.g., Defending Corporations & Individuals in Government Investigations § 12:11 (Daniel J. Fetterman & Mark P. Goodman eds., 2014) (“The common law fraud elements of scienter, reliance and damages are not required in order to demonstrate a violation of the Martin Act.”) (Add. 16-17); People ex rel. Cuomo v. Greenberg, 95 A.D.3d 474, 482-483 (1st Dep’t 2012) (“Executive Law § 63(12) includes ‘virtually identical language’ to the Martin Act” (citing State v. Rachmani Corp., 71 N.Y.2d 718, 721 n.1 (1988)), aff’d, 21 N.Y.3d 439 (2013).3 G.B.L. § 349 has another key commonality with statutory liability under the Martin Act and 3 Brief for the Attorney General of the State of New York as Amicus Curiae, Barron v. Igolnikov, (2d Cir. Aug. 13, 2010) (No. 10-1387), 2010 WL 3300648, at *4 (“In a civil claim under the Martin Act, the Attorney General need not prove traditional common-law fraud elements such as scienter or reliance.”) (collecting cases). 3 Executive Law § 63(12): instead of requiring the traditional “misrepresentation” associated with a common-law fraud claim, the Martin Act, Executive Law § 63(12) and G.B.L. § 349 codify the less-burdensome standard for “statutory fraud”—the tendency or capacity to deceive test. This lower statutory bar for the kind of conduct that can lead to liability results in each of these statutes proscribing “a significantly wider range of deceptive business practices” than were actionable at common law. See Gaidon II, 96 N.Y.2d at 209. (See infra Part II.A-II.B, III.) These elemental similarities mean that—as the Attorney General previously advocated in this Court—G.B.L. § 349, the Executive Law and Martin Act should each be subject to the same statute of limitations. See Br. of N.Y. St. Att’y Gen. as Amicus Curiae, Gaidon II, 96 N.Y.2d 201 (2001), 2001 WL 34903800, at *8 (arguing that G.B.L. § 349 should be subject to the same “statute of limitations [as] in actions for investor fraud under the Martin Act, which like Executive Law § 63(12) and GBL § 349 does not require proof of fraudulent intent or reliance”). Gaidon II’s holding that G.B.L. § 349 is subject to CPLR § 214(2) compels the conclusion that the Martin Act and Executive Law claims at issue here are likewise subject to this three-year statutory limitations period. Applying CPLR § 214(2) here follows not only doctrinally from Gaidon II, but logically. New York’s Legislature specifically enacted the Martin Act to respond to difficulty in making out common-law claims concerning 4 the sale of securities. See, e.g., Ambrose V. McCall, Comments on the Martin Act, 3 Brook. L. Rev. 190, 193 (1933) (explaining that animating the Martin Act’s passage was that “only in rare cases” could “the intentional misrepresentation of existing facts” necessary for the “common law action of fraud and deceit” be proven) (Add. 20); Orestes J. Mihaly & David J. Kaufmann, General Business Law Act 23-A, in 19 McKinney’s Consolidated Laws of New York Annotated 8, 32 (1996) (explaining that the Martin Act was “an intentional grant to the Attorney General of substantially greater powers than an ordinary plaintiff suing under common law principles would have” (emphasis added)) (Add. 33). The range of conduct recognized as covered by the Martin Act has continued to broaden over the past 96 years. See, e.g., People ex rel. Schneiderman v. Barclays Capital Inc., 47 Misc. 3d 862, 869 (Sup. Ct. 2015) (discussing “the Martin Act’s exceedingly broad scope and its limited elements” and observing that “[t]he Martin Act is not a narrow statute. Rather, the Court of Appeals has long held that the Martin Act should be liberally construed to give effect to its remedial purpose . . . .”). Thus, it is clear—after nearly a century of liberal construction—that the Martin Act does much more than “merely codify or implement an existing common-law liability”. Gaidon II, 96 N.Y.2d at 209. The First Department majority below nonetheless decided to “adhere” to two of its prior decisions. (A. 5-6) (relying on State v. Bronxville Glen I 5 Assocs., 181 A.D.2d 516 (1st Dep’t 1992); People ex rel. Schneiderman v. Trump Enterpreneur Initiative LLC, 137 A.D.3d 409 (1st Dep’t 2016) (“Trump”)). But, as Presiding Justice Friedman and Justice Andrias recognized, Bronxville and Trump are contrary to “Gaidon II, which remains the controlling precedent”. (A. 16-17, 20-21.) Bronxville, which predated Gaidon II by almost a decade, employed an approach to CPLR § 214(2) that is diametrically opposed to what this Court prescribed in Gaidon II. (See infra Part I.C.) The error in Trump, which itself overrules another First Department decision (Charles Schwab), was the conclusion that equitable fraud is the correct comparison and that a standalone Executive Law § 63(12) claim merely codifies the elements of equitable fraud. Trump, 137 A.D.3d at 418. Both prongs of that analysis are wrong. (See infra Part II.D.) Under Gaidon II, it is clear that the Martin Act and statutory-based Executive Law § 63(12) claims sweepingly expand the Attorney General’s power to impose liability where liability would not exist, whether measured against the baseline of equitable fraud or common-law fraud. 96 N.Y.2d at 209-10. Perhaps the clearest refutation of the idea that the Martin Act and Executive Law merely “codify” common-law fraud or equitable fraud claims is the Attorney General’s deliberate decision not to bring any such claim against Credit Suisse. CPLR § 214(2)’s three-year limitations period applies, and the Attorney General’s Complaint should be dismissed, in full, as untimely. 6 STATEMENT OF THE CASE A. Statutory Background. 1. The Martin Act. The Martin Act was enacted in 1921. See McCall, supra, at 195. In the absence of federal regulation (i.e., before Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934), New York legislators wanted to enable the Attorney General to impose liability for a far wider range of conduct than that proscribed by common-law fraud. See id. at 193-95. When Carl Sherman became Attorney General in 1923, he lobbied for the interpretation adopted by the Court of Appeals in People v. Federated Radio Corp., 244 N.Y. 33 (1926), that his office could secure relief under the Martin Act without needing to prove scienter. Geoffrey W. Parnass, Securities Regulations in New York, 211 N.Y.L.J. at 26 (Apr. 4, 1994). Motivating his effort was the fact that “fraudulent intent usually could not be established”. Id. In fact, under the Martin Act, “in many cases, an injunction sought in the name of the People would be granted, where upon the same state of facts the court [would deny] the purchaser relief against his vendor”. Charles H. Mills, Fraudulent Practices in Respect to Securities and Commodities with Special Reference to the Martin Act, 247 (1925) (Add. 26); see also McCall, supra, at 198 (remarking, in 1933, that “if the Attorney General were limited in his enforcement of the [Martin] Act to cases 7 of intentional fraud the result of such interpretation would, in effect, place him in the position of a plaintiff in the common law action of fraud and deceit” (emphasis added)). The range of conduct recognized as covered by the Martin Act has continued to expand. Reflecting the sweeping nature of the Martin Act today, courts understand “the Court of Appeals’ guidance on the Martin Act to be that doubts in favor of the Martin Act’s applicability should be resolved in the NYAG’s favor”. Barclays, 47 Misc. 3d at 871 (“In other words, if it is a close call, the Martin Act should be held to apply.”). As discussed below, the Attorney General can impose liability under the Martin Act without proving most—arguably any— of the elements of common-law fraud. 2. The Executive Law. In prohibiting “repeated fraudulent or illegal acts”, New York Executive Law § 63(12) usually operates as a derivative, or “look through”, statute, affording the Attorney General injunctive relief, restitution or damages after it establishes liability pursuant to a separate statutory or common-law cause of action. See, e.g., People v. Pharmacia Corp., 27 Misc. 3d 368, 373 (Sup. Ct. Albany Cty. 2010) (explaining that the “Executive Law § 63 (12) applies to fraudulent conduct actionable at common law, as well as to conduct for which liability arises solely from statute”); People ex rel. Vacco v. World Interactive 8 Gaming Corp., 185 Misc. 2d 852, 865 (Sup. Ct. N.Y. Cty. 1999) (finding respondents “liable under Executive Law § 63(12) for their state and federal law violations”). Here, the Attorney General seeks to use alleged violations of the Martin Act as the basis for the “fraudulent or illegal acts” underlying its Executive Law § 63(12) cause of action. (A. 73.) In its briefing to the First Department the Attorney General took the position that it also seeks to pursue an independent or standalone violation of Executive Law § 63(12). New York courts are divided over whether the Attorney General may pursue a standalone claim under the Executive Law, or must instead always pair it with another cause of action (whether statutory or common-law). (See infra Part III.A.) B. The New York Attorney General’s Lawsuit. The Attorney General filed its Complaint on November 20, 2012, alleging that Credit Suisse’s issuance of residential mortgage-backed securities (“RMBS”) in 2006 and 2007 violated the Martin Act and that such violations were “repeated fraudulent or illegal acts” that entitle the Attorney General to relief under Executive Law § 63(12). (A. 73, 75.) The Martin Act and Executive Law § 63(12) claims are the only causes of action asserted in the Complaint. At no time has the Attorney General 9 ever asserted—or claimed to be asserting—a common-law fraud cause of action (or an equitable fraud claim). Here, Credit Suisse and the Attorney General entered into a tolling agreement effective as of March 8, 2012. (A. 79-81.) All of the RMBS at issue in the Complaint were issued prior to 2008 (A. 48), which is more than three years before the effective date of the 2012 tolling agreement between the parties. Accordingly, there is also no dispute that if CPLR § 214(2) applies, that three-year limitations period bars the Attorney General’s suit in its entirety. (See A. 26-27). C. The Supreme Court’s Decision and Order. Credit Suisse moved to dismiss the Attorney General’s Complaint on April 1, 2013, asserting, in relevant part, that CPLR § 214(2)’s three-year statute of limitations applies to the statutory claims at issue. (A. 76-78, 93.) Based on Gaidon II, Credit Suisse argued that “the NYAG’s claims under the Martin Act and Executive Law § 63(12), although ‘akin’ to common-law fraud, are substantively different from claims cognizable at common law and would not exist but for those statutes”. (A. 100.) The motion was argued before Justice Marcy S. Friedman. (A. 170.) On December 24, 2014, the Supreme Court denied Credit Suisse’s motion to dismiss. (A. 40.) The Supreme Court did not dispute Credit Suisse’s position that “two of the ‘hallmark’ elements of common-law fraud—namely, scienter and 10 reliance” are unnecessary to impose liability under the Martin Act and Executive Law § 63(12). (A. 30.) The Supreme Court also agreed with Credit Suisse that this Court in Gaidon II (and the First Department in Daicel) had examined “the divergence between the elements of proof of the common-law claim and the statutory claim” in holding that CPLR § 214(2) applied to G.B.L. § 349. (A. 31-32 (discussing State v. Daicel Chem. Indus., Ltd., 42 A.D.3d 301, 303 (1st Dep’t 2007)).) Nonetheless, the Supreme Court denied Credit Suisse’s motion to dismiss under CPLR § 214(2) on two bases. First, the Supreme Court ruled that a “close reading” of Gaidon II revealed that “a divergence in the elements of proof is but one factor that must be considered in determining whether liability was created by statute, not the sine qua non of such determination”. (A. 32) It based this conclusion on this Court’s observation in Gaidon II that, in addition to lacking scienter, G.B.L. § 349 “‘encompasses a significantly wider range of deceptive business practices that were never previously condemned by decisional law’”. (A. 31 (quoting Gaidon II, 96 N.Y.2d at 210). Second, the Supreme Court suggested that even if the Martin Act did “create[] a new liability” under CPLR § 214(2), the fact that some of the Attorney General’s allegations resemble those in common-law fraud cases brought by private RMBS investors would allow it to sidestep the three-year statute of limitations in this case. (See A. 33-34.) In other 11 words, the Supreme Court concluded that the Attorney General can include factual allegations it need not and will not prove—instead relying on the lesser elemental showing needed for a Martin Act or Executive Law claim—and thereby benefit from the six-year common-law limitations period. D. The Divided First Department Decision and Order. On December 13, 2016, the First Department panel divided three-to-two, and affirmed the Supreme Court. The majority “adhere[d]” to two prior First Department decisions (A. 6), while the dissent concluded that those cases—and the majority’s holding—conflict with recent controlling Court of Appeals authority, (A. 15, 21). The majority concluded that a six-year statute of limitations applies to the Attorney General’s claims. For the Martin Act claim, the majority held that the statute of limitations “‘is six years pursuant to CPLR 213(8)’”, which applies to a common-law fraud claim. (A. 5 (quoting Bronxville, 181 A.D.2d at 516).) For the Executive Law § 63(12) claim, the majority “noted that the language of § 63(12) parallels the language of the Martin Act”. (A. 6.) The court then concluded that the Executive Law § 63(12) claim “‘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’”. (Id. (quoting Trump, 137 A.D.3d at 418).) 12 Justice Andrias, joined by Presiding Justice Friedman, dissented. Following Gaidon II and other precedent, the dissent would have held that the Martin Act and Executive Law § 63(12) claims “fall within the category of claims that would not exist but for the statutes, creating a new basis for liability, and the three year statute of limitations of CPLR 214(2) applies”. (A. 11 (citing Gaidon II, 96 N.Y.2d at 208-09, and Daicel, 42 A.D.3d at 303).) The dissent explained that, “unlike an action for common-law fraud . . . to state a claim . . . the Attorney General does not have to allege scienter or intentional fraud, or reliance”. (A. 13-14 (citations omitted).) The dissent noted that equitable fraud similarly requires proof of reliance. (A. 15.) Thus, the dissent concluded that a three-year limitations period should apply because “the Attorney General is seeking relief under a broader definition of fraud created by the statutes”, the Martin Act and Executive Law § 63(12). (A. 22.) E. Statement of Jurisdiction. This Court has jurisdiction pursuant to CPLR § 5602(b)(1) because the appeal is taken by permission of the Appellate Division, First Department, from a non-final order of the Appellate Division not appealable as of right in an action originating in the Supreme Court, New York County. The Appellate Division Decision, dated December 13, 2016, affirmed the Supreme Court order denying Defendants-Appellants’ motion to dismiss the Complaint as time-barred. 13 (A. 2.) On March 21, 2017, the Appellate Division granted Defendant-Appellants’ motion for leave to appeal to this Court from the Decision. (A. 1.) LEGAL STANDARD The question of which statute of limitations applies (i.e., whether CPLR § 214(2) or CPLR § 213) is “a question of pure statutory interpretation, meriting de novo review”. Jones v. Bill, 10 N.Y.3d 550, 553 (2008). ARGUMENT Neither the Martin Act nor the Executive Law specifies a limitations period. (A. 9, 26.) Thus, this action is governed by one of two potential CPLR provisions: either CPLR § 213, which applies a six-year limitations period to “an action based upon fraud” (§ 213(8)) or as a residual provision (§ 213(1)), or CPLR § 214(2), which applies a three-year limitations period to “an action to recover upon a liability, penalty or forfeiture created or imposed by statute”. The parties agree that if CPLR § 214(2)’s three-year limitations period applies, the Attorney General’s entire Complaint is time-barred. In Gaidon II, this Court explained how to determine whether CPLR § 214(2) or CPLR § 213 applies to a given statutory claim. CPLR § 213, this Court held, applies to statutory claims that “‘merely codify or implement an existing common-law liability’”. Gaidon II, 96 N.Y.2d at 209 (quoting Motor Veh. Acc. Indem. Corp. v. Aetna Cas. & Sur. Co., 89 N.Y.2d 214, 220-21 (1996)). By 14 contrast, CPLR § 214(2) applies to statutory claims that impose liability “which, although akin to common-law causes, would not exist but for the statute”. Id. (emphasis in original). (See infra Part I.) Gaidon II held that CPLR § 214(2) applies to G.B.L. § 349 based on two factors, both of which are also applicable to the Martin Act and Executive Law § 63(12) claims: (1) the absence of intent among G.B.L. § 349’s elements and (2) G.B.L. § 349’s broader definition of falsity relative to common-law fraud. (See infra Part II.A.) The Martin Act’s reach is also broader than common-law fraud in ways the Gaidon II Court did not need to discuss. In particular, a common-law fraud claim requires any plaintiff to also establish investor reliance and damages—two additional elements that the Attorney General need not prove here. (See infra Part II.B.) Accordingly, there can be no dispute that the Martin Act—and any derivative Executive Law § 63(12) claim—impose liability that “would not exist but for the statute[s]”. Gaidon II, 96 N.Y.2d at 209. This conclusion holds even if this Court decides to compare the statutes to equitable fraud or if this Court determines that Executive Law § 63(12) permits liability on a standalone, as opposed to solely a derivative, basis. (See infra Part II.D, III.) Gaidon II is a long-standing precedent of statutory interpretation that should be upheld as a matter of stare decisis, and its interpretation of CPLR § 214(2) strikes a fair balance between liability and repose. (See infra Part IV.) 15 I. GAIDON II PROVIDES THE CONTROLLING LEGAL FRAMEWORK FOR ASSESSING THE APPLICABILITY OF CPLR § 214(2). To understand the Gaidon II framework, and why it is controlling on the statute of limitations issue here, it is necessary to consider this Court’s earlier decision in the same case, Gaidon v. Guardian Life Ins. Co. of America, 94 N.Y.2d 330 (1999) (“Gaidon I”). In Gaidon I, this Court sided with the New York Attorney General to hold that a plaintiff can make out a claim under G.B.L. § 349 even though that same set of facts is non-actionable under common-law fraud. (See infra Part I.A.) When that case returned here in Gaidon II, this Court explained—this time rejecting the Attorney General’s argument—that the broader liability that G.B.L. § 349 unlocked meant this statute is subject to the three-year limitations period for an “action to recover upon a liability, penalty or forfeiture created or imposed by statute”. CPLR § 214(2). (See infra Part I.B.) In so doing, Gaidon II clarified that CPLR § 214(2) applies even to those statutory claims that are “akin” to common-law claims, thereby sweeping away the First Department’s prior approach where CPLR § 214(2) only applied if it were impossible to compare the common-law and statutory cause of action. (See infra Part I.C.) Since this Court decided Gaidon II, courts across New York have applied its straightforward test to determine whether statutory claims—asserted by private plaintiffs or the 16 Attorney General—are subject to CPLR § 214(2), guided by whether or not those statutes authorize new “liability”. (See infra Part I.D.) A. Gaidon I: The Court of Appeals Holds that G.B.L. § 349 Permits Liability in Circumstances Common-Law Fraud Does Not. Gaidon I involved claims based on “vanishing premium” insurance policies. 94 N.Y.2d at 338. The insurers’ sales agents had used marketing illustrations that visually represented to the plaintiffs that they would be required to pay premiums out-of-pocket for only eight years, a time after which the policies’ dividends would supposedly be large enough to cover the premium cost. Id. at 339. The marketing materials also included disclaimers about the illustrations. Id. The Gaidon plaintiffs asserted a common-law fraudulent inducement claim and a separate claim under G.B.L. § 349 claiming that the dividend projections used in the sales pitches’ illustrations were unrealistic. Id. at 344. In Gaidon I, the Supreme Court dismissed both sets of claims and the First Department affirmed. See id. at 340 (citing Gaidon v. Guardian Life Ins. Co. of Am., 255 A.D.2d 101, 101-02 (1st Dep’t 1998)). The First Department’s basis for dismissing the claims was two-fold: (i) the absence of reasonable reliance and (ii) “the absence of any deceptive or misleading practice”. Gaidon, 255 A.D.2d at 101-02. In its amicus brief to the Court of Appeals in Gaidon I, the Attorney General asserted that the Supreme Court and the First Department’s “interpretation of section 349 was too restrictive” and would undercut the State’s 17 ability to redress “practices that do not rise to the level of common-law fraud”. Gaidon I, 94 N.Y.2d at 344-45. Specifically, the Attorney General argued that “the Appellate Division seems to have mistakenly engrafted the traditional elements of common law fraud onto claims under § 349, including in particular that parties need to prove [individual] reliance in order to prevail under § 349”. Amicus Curiae Br. of Att’y Gen. of St. of N.Y., Gaidon I, 94 N.Y.2d 330 (1999), 1999 WL 33660089, at *5 (emphasis added). The Attorney General maintained that the courts should have adhered to the “broad definition of fraud and deception” under the statute. Id. In so doing, it conceded that the “meaning of deceptive practices under the GBL is accorded parallel construction to that of fraud under Executive Law § 63(12)” and explained that the “interpretation of fraud and deception under both statutes has always been broad, going well beyond that found in the common law”. Id. at *5-6 (emphasis added). Agreeing with the Attorney General’s position concerning the broader scope of liability for G.B.L. § 349 than for common-law fraud, this Court upheld the dismissal of the common-law fraud claims, Gaidon I, 94 N.Y.2d at 349-50, but reinstated the G.B.L. § 349 claims, id. at 348. Gaidon I explained that “General Business Law § 349 contemplates actionable conduct that does not necessarily rise to the level of fraud”. Gaidon I, 94 N.Y.2d at 343. This Court held that “[a]lthough General Business Law § 349 claims have been aptly characterized as 18 similar to fraud claims, they are critically different in ways illustrated by the cases at bar”. Id. (internal citation omitted). Therefore, even though the facts at issue were insufficient to support liability under common-law fraud (because of the presence of the disclaimers), those identical facts did support statutory liability under G.B.L. § 349. See id. at 349-50. B. Gaidon II: The Court of Appeals Rejects the Attorney General’s Argument that the Common-Law Fraud Limitation Period Should Apply in Spite of G.B.L. § 349’s Broader Liability. After this Court held that the G.B.L. § 349 claims in Gaidon I stated a valid claim, the courts below took up the issue of which statute of limitations applied. The First Department and the Third Department (in what would be a consolidated appeal to this Court in Gaidon II) held that CPLR § 214(2)’s three-year limitations period applied. See, e.g., Russo v. Mass. Mut. Life Ins. Co., 274 A.D.2d 878, 879 (3d Dep’t 2000) (holding that “there can be no doubt that General Business Law § 349 is a creature of statute (see Gaidon I, 94 N.Y.2d at 343) and that the three-year limitations period set forth in CPLR 214(2) applies to a cause of action predicated thereon”); Gaidon v. Guardian Life Ins. Co. of Am., 272 A.D.2d 60, 61 (1st Dep’t 2000) (agreeing that “the three-year limitations period of CPLR 214(2) applies” to G.B.L. § 349). When the case returned to the Court of Appeals (Gaidon II), the Attorney General appeared as amicus again, this time to advocate against the 19 First Department and Third Department’s holding that the shorter limitations period of CPLR § 214(2) applied to G.B.L. § 349. Noting that the Martin Act had been the model for G.B.L. § 349, the Attorney General argued that: “[b]ecause GBL § 349 simply expands on liability for fraud existing at common law, rather than creating an entirely new liability by statutory fiat, the three-year limitations period of CPLR 214(2) does not apply.” Br. of N.Y. St. Att’y Gen. as Amicus Curiae, Gaidon II, 96 N.Y.2d 201, 2001 WL 34903800, at *5 (emphasis added). Acknowledging that there could be “no doubt” that the requirement to establish liability under G.B.L. § 349 was less than what would be required to establish liability for common-law fraud, id. at *5, the Attorney General nonetheless argued to this Court that the same six-year statute of limitations should apply to that statutory claim, id. at *4. Its rationale was that “at its core, General Business Law § 349[] merely codifies and affords new remedies for what in essence is a common-law fraud claim”. Gaidon II, 96 N.Y.2d at 208 (emphasis added). From the Attorney General’s perspective: “The Court’s distinction [in Gaidon I] between common law and statutory fraud claims [was] thus relevant only for purposes of delineating the respective elements of proof for each cause of action; it [was] not controlling for purposes of a statute of limitations analysis. Rather, in determining which limitations period applies to a GBL 349 claim, it is the fundamental similarity between the two claims that is dispositive. See Gaidon I, N.Y.2d at 343 (GBL § 349 claims ‘have been aptly characterized as similar to fraud claims’).” Br. of N.Y. St. Att’y Gen. as Amicus Curiae, Gaidon II, 96 N.Y.2d 201, 2001 WL 34903800, at *11-12 (emphasis added). 20 This Court, in Gaidon II, expressly rejected the Attorney General’s invitation to determine the applicable limitations period based on “fundamental similarity between the two claims”, id. at *12, (as opposed to differences in “the respective elements of proof for each cause of action”, id. at *11)—flatly stating, “We disagree”, Gaidon II, 96 N.Y.2d at 208-10. Focusing instead on the elemental differences of proof between the statutory and common-law claims, this Court held that CPLR § 214(2)’s three-year period is the appropriate statute of limitations for claims brought under G.B.L. § 349. Id. at 208-10. In rejecting the Attorney General’s approach rooted in abstract similarities, this Court distinguished between statutes that “merely codify or implement an existing common-law liability”, id. at 209, which are not subject to CPLR § 214(2), and those that impose liability that, “although akin to common-law causes, would not exist but for the statute”, which are subject to CPLR § 214(2), id. (emphasis in original). Gaidon II held that claims brought pursuant to G.B.L. § 349 fit within the latter category of those subject to CPLR § 214(2) based on the “substantive differences between the claims under General Business Law § 349 . . . and common-law fraud”. Gaidon II, 96 N.Y.2d at 209. This Court identified two such substantive differences. First, “the absence of scienter . . . distinguishes violation of G.B.L. § 349 from common-law fraud”. Id. at 209-10. Second, “the misrepresentations” at issue “did not rise to the level necessary to establish a 21 common-law fraud claim” but nevertheless could be unlawfully “deceptive[]” under G.B.L. § 349. Id. at 209. Based on these two differences, this Court held that G.B.L. § 349 “encompasses a far greater range of claims that were never legally cognizable before its enactment”. Id. To illustrate the real-world impact of the breadth of G.B.L. § 349’s standard of liability, this Court invoked its prior decision in Gaidon I, which had found the same allegations to be insufficient to support a common-law fraud claim but sufficient to support a claim under G.B.L. § 349. See id. (“The substantive differences between the claims under General Business Law § 349 here and common-law fraud were most pointedly demonstrated by our disposition of those respective causes of action in Gaidon I.”). In other words, the fact that G.B.L. § 349 permitted liability under circumstances where common-law fraud would not, meant that the statutory limitations period under CPLR § 214(2) had to apply. C. The First Department’s Prior Approach to CPLR § 214(2), from Bronxville, Did Not Survive Gaidon II. Prior to this Court’s Gaidon II decision, the First Department applied a very different test under CPLR § 214(2). Bronxville limited CPLR § 214(2) to statutes that were not similar to common-law claims. See Bronxville, 181 A.D.2d at 516 (holding that CPLR § 214(2) only applies “if the statute establishes a unique species of liability entirely unknown at common law” (emphasis added)). Relying 22 on this “entirely unknown” standard, the First Department in Bronxville held that the six-year period under CPLR § 213(8) applied to the Martin Act “even though the Martin Act may expand the definition of fraud so as to create new liability in some instances”. Id. (emphasis added). The Attorney General cited Bronxville in its unsuccessful Gaidon II amicus brief to urge the application of the six-year period for G.B.L. § 349, contending that CPLR § 214(2) only applied to statutes with “no corollary” at common law—or which failed to share a common “essence” with common-law claims.4 As the two dissenting Justices below appreciated, Bronxville’s approach (and thus its result for the Martin Act) did not survive Gaidon II. “[U]nder Gaidon II, it is not sufficient for a statutory claim to be merely ‘recognized’ in case law for the common-law statute of limitations to be applied. Rather, Gaidon II requires a more searching analysis and reaffirms that a statutory claim ‘akin to’ but sufficiently different from a common law claim is governed by CPLR 214(2)’s three year statute of limitations.” (A. 16-17). 4 See Br. of N.Y. St. Att’y Gen. as Amicus Curiae, Gaidon II, 96 N.Y.2d 201, 2001 WL 34903800, at *11 n.1 (arguing that CPLR § 214(2) applied only to “statutory causes of action which have no corollary in common law” (emphasis added)); id. at *15-16 (arguing that “because the essence of any deceptive practices claims is fraud and deceit, the most appropriate and analogous statute of limitations is CPLR § 213(8)” (emphasis added)). 23 D. Gaidon II Applies Regardless of the Plaintiff’s Identity and Regardless of the Statute at Issue. In the years since Gaidon II, courts consistently have held that this Court’s guidance about how to interpret CPLR § 214(2) governs regardless of whether the suit is brought by a private plaintiff (as in Gaidon) or by the Attorney General. See, e.g., Pharmacia Corp., 27 Misc. 3d at 373 (stating “that the State’s GBL § 349 claim is governed by a three-year statute of limitations”); People ex. rel. Cuomo v. City Model & Talent Dev., Inc., 29 Misc. 3d 1205(A), at *3 (Sup. Ct. Suffolk Cty. Sept. 28, 2010) (rejecting “petitioner’s blanket claim that enforcement proceedings brought by the Attorney General under [G.B.L.] § 349 [and] Executive Law § 63(12) . . . are governed by the six-year residual statute of limitations”, and instead applying CPLR § 214(2)). Similarly, state and federal courts in New York have recognized that Gaidon II’s holding is not limited to the statute involved there (G.B.L. § 349) but rather that, in Gaidon II, this Court set out the test to be applied anytime the question whether a statutory claim is subject to CPLR § 214(2) arises. See, e.g., Gray v. Toyota Motor Sales, U.S.A., Inc., 806 F. Supp. 2d 619, 626 (E.D.N.Y. 2011) (applying Gaidon II to determine the statute of limitations under the Franchised Motor Vehicle Dealer Act, N.Y. Veh. & Traf. Law § 466); Mindel v. Phoenix Owners Corp., 17 A.D.3d 227, 228 (1st Dep’t 2005) (applying Gaidon II to determine the statute of limitations under Administrative Code of City 24 of N.Y. § 27-860); Gen. Motors Acceptance Corp. v. Vucich, 15 A.D.3d 106, 108- 09 (3d Dep’t 2005) (applying Gaidon II to determine the statute of limitations for a breach of peace claim under UCC former 9-503). II. GAIDON II COMPELS THE APPLICATION OF CPLR § 214(2) TO THE MARTIN ACT BECAUSE, LIKE G.B.L. § 349, THE MARTIN ACT PERMITS LIABILITY TO BE IMPOSED WHERE THE COMMON LAW DOES NOT. Gaidon II is directly controlling of the issue on appeal—whether CPLR § 214(2) applies to the Attorney General’s Martin Act claim. As the Attorney General represented to the Court of Appeals in Gaidon II, G.B.L. § 349 (at issue in Gaidon II) and the Martin Act (at issue here) are closely similar, and the Martin Act served as the model for G.B.L. § 349. See Br. of N.Y. St. Att’y Gen. as Amicus Curiae, Gaidon II, 96 N.Y.2d 201, 2001 WL 34903800, at *6. G.B.L. § 349 and the Martin Act both enable the Attorney General to impose liability for a far greater range of conduct than common-law fraud. At common law, an action for fraud requires proof of four elements: “(1) misrepresentation of a material fact, (2) scienter, (3) justifiable reliance, and (4) injury or damages”. Feldman v. Grant, 213 A.D.2d 340, 341 (1st Dep’t 1995); see also Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009) (same). The “absence of any of [these elements] is fatal to a recovery” at common law. Kuelling v. Roderick Lean Mfg. Co., 183 N.Y. 78, 85 (1905) (emphasis added). The Attorney General can impose liability under the 25 Martin Act—and derivative Executive Law § 63(12) claims—in situations in which none of these four elements is present. Undeniably, these are not statutes that “merely codify or implement an existing common-law liability”, Gaidon II, 96 N.Y. at 209; rather, they create liability that “would not exist but for statute”, id., such that CPLR § 214(2) must apply. (See infra Part II.A-II.B.) Instead of applying Gaidon II—and engaging with the fact that the Martin Act and Executive Law § 63(12) permit new liability to be imposed in the same ways as G.B.L. § 349—the First Department majority sidestepped Gaidon II in two ways. First, the majority improperly decided that allegations the Attorney General need not have made and will never have to prove, enable the Attorney General to rely on the six-year statute of limitations here. (A. 8.) In other words—by making allegations that look similar enough to common-law fraud—the majority would allow the Attorney General to plead itself around the otherwise applicable three-year statute of limitations under CPLR § 214(2), despite being able to impose liability against Credit Suisse at trial without proving virtually any of the elements of common-law fraud. (See infra Part II.C.) Second, the majority decided that Executive Law § 63(12) does not create any new liability relative to an equitable fraud claim. This conclusion is not only incorrect, but remarkable. The majority failed to so much as acknowledge Credit Suisse’s and the dissenting Justices’ observations that equitable fraud has several additional 26 elements that the Attorney General need not establish here. (E.g., A. 13-15; A. 161-62.) (See infra Part II.D.) A. Gaidon II Requires Application of CPLR § 214(2) to All Martin Act Claims and to Executive Law Claims Based on Martin Act Violations. This Court in Gaidon II held two elemental differences to be dispositive in establishing that G.B.L. § 349 reaches a far greater range of claims than cognizable at common law. These twin pillars of that decision apply equally to the Martin Act (and to any Executive Law § 63(12) claim based on Martin Act violations). First, as with G.B.L. § 349, the Martin Act does not require intent to defraud. (See infra Part II.A.1.) Second, as with G.B.L. § 349, the Martin Act broadly prohibits deceptive conduct not rising to the level of a common-law misrepresentation. (See infra Part II.A.2.) Moreover, as discussed below, the Martin Act and G.B.L. § 349 depart from common-law fraud in another key respect relevant under the Gaidon II framework: the elimination of the reliance element. (See infra Part II.B.1.) And, Martin Act liability is broader still because, as interpreted by the First Department, unlike both common-law fraud and G.B.L. § 349, there is no need for the Attorney General to demonstrate that investors suffered an actual injury or sustained damages. (See infra Part II.B.2.) 27 1. Just like G.B.L. § 349, the Martin Act does not require intent to defraud. The first pillar of this Court’s decision in Gaidon II was “the absence of scienter that distinguishes a violation of section 349 from common-law fraud”. Gaidon II, 96 N.Y.2d at 209-10. As noted by this Court, the Attorney General appearing as amicus conceded that G.B.L. § 349 had “eliminat[ed] the scienter requirement”, which was a “substantive deviation from common-law fraud”. Id. at 208. The absence of scienter alone is significant to the CPLR § 214(2) analysis. See, e.g., Baena v. Woori Bank, 515 F. Supp. 2d 414, 423 (S.D.N.Y. 2007) (applying CPLR § 214(2) to a statutory claim because it permitted aiding and abetting liability without proof of scienter whereas New York common law “does not recognize a claim for ‘negligent fraud’ but rather requires that a party to have aided and abetted a fraud have actual knowledge of the fraud”). The Martin Act, like G.B.L. § 349, deviates from common-law fraud by not requiring proof that the defendant acted with the intent to defraud. “[T]he Attorney General ‘need not allege or prove either scienter or intentional fraud’ in a civil enforcement action under the Martin Act.” Assured Guar. (UK) Ltd. v. J.P. Morgan Inv. Mgt. Inc., 18 N.Y.3d 341, 350 (2011) (quoting Rachmani Corp., 71 N.Y.2d at 725 n.6 (1988)); see also People v. Photocolor Corp., 156 Misc. 47, 53 (Sup. Ct. N.Y. Cty. 1935) (“[L]ack of scienter will not relieve [promoters] from liability in an action brought under the Martin Act.”). 28 There can be no dispute that the omission from the Martin Act of the requirement to prove intent broadens liability in significant ways. In fact, as discussed above, elimination of an intent requirement was one of the animating purposes of the Martin Act, which was specifically designed to expand the Attorney General’s power to reach beyond the ordinary common-law fraud claims that could be brought by a civil plaintiff. See, e.g., Parnass, supra, at 26; McCall, supra, at 198. The absence from the Martin Act of a requirement to prove intent will have a significant practical impact on the Attorney General’s case here. The Attorney General has repeatedly acknowledged it is under no obligation to establish that Credit Suisse committed any intentional wrong to establish Martin Act liability here. (E.g., A. 137.) The Supreme Court likewise has made clear that it will not require the Attorney General to establish that Credit Suisse intentionally committed any fraud. (A. 34.) Accordingly, the Martin Act claim—and derivative Executive Law § 63(12) claim—like the G.B.L. § 349 claim at issue in Gaidon II, sweeps much more broadly than common-law fraud. 29 2. Just like G.B.L. § 349, the Martin Act broadly prohibits deceptive conduct not amounting to a common-law misrepresentation. As the Court of Appeals has held, G.B.L. § 349’s “tendency” or “capacity to mislead or deceive” standard—the second pillar of Gaidon II—sets a much lower bar than the standard imposed in common-law fraud for what constitutes actionable “falsity”. See Gaidon II, 96 N.Y.2d at 209 (holding that common-law fraud and G.B.L. § 349 had “substantive differences” because, among other things, “the misrepresentations . . . did not rise to the level necessary to establish a common-law fraud claim” but could be unlawfully “deceptive[]” under G.B.L. § 349); Gaidon I, 94 N.Y.2d at 348 (“A practice may carry the capacity to mislead or deceive a reasonable person but not be fraudulent. That distinction separates plaintiffs’ fraud claims from their section 349 claims.”). The Martin Act likewise encompasses a far greater range of liability than does the common law. In Federated Radio, this Court upheld an injunction pursuant to the Martin Act on the sale of securities even though the sale did “not connote what is commonly known as actual or intentional or legal fraud, i.e., false representations knowingly made”. 244 N.Y. at 41. The Court of Appeals arrived at this holding after articulating and applying a broad “tendency to deceive” formulation of statutory fraud: 30 “In a broad sense, the term [fraud] includes all deceitful practices contrary to the plain rules of common honesty. . . . The words ‘fraud’ and ‘fraudulent practice’ in this connection, should, therefore, be given a wide meaning, so as to include all acts, although not originating in any actual evil design or contrivance to perpetrate fraud or injury upon others, which do by their tendency to deceive or mislead the purchasing public come within the purpose of the law.” Id. at 38-39 (emphasis added). As the Attorney General has correctly represented to this Court in the past, this “tendency to deceive” formulation under the Martin Act is the same standard under G.B.L. § 349 and Executive Law § 63(12). Amicus Curiae Br. of Att’y Gen. of St. of N.Y., Gaidon I, 94 N.Y.2d 330 (1999), 1999 WL 33660089, at *6 (“In the more than 70 years since [the Court of Appeals] defined statutory fraud in Federated Radio, courts at all levels have followed this broad view of what constitutes fraudulent and deceptive conduct under Executive Law § 63(12) and GBL § 349.”); see, e.g., People ex rel. Cuomo v. Merkin, 26 Misc. 3d 1237(A), at *7 (Sup. Ct. N.Y. Cty. 2010) (holding that “the test for fraud” under the Martin Act and Executive Law § 63(12) “is whether the acts have the capacity or tendency to deceive, or create[] an atmosphere conducive to fraud” (citing People ex rel. Spitzer v. Gen. Elec. Co., Inc., 302 A.D.2d 314, 314 (1st Dep’t 2003)); In re. Colo. State Christian Coll. of Church of Inner Power, Inc., 76 Misc. 2d 50, 56 (Sup. Ct. N.Y. Cty. 1973) (explaining that since this Court’s Federated Radio decision, the tendency or “capacity to deceive” test “has been consistently applied by the courts 31 of [New York] to ‘fraud’ under the Martin Act and under subdivision 12 of Section 63 of the Executive Law”).5 Replacing the standard for what type of conduct will amount to a common-law “misrepresentation” with this expansive “capacity” or “tendency to deceive” test applicable to Martin Act claims confers the Attorney General with broad authority to impose liability in situations where a common-law claim would fail. Two examples from the Attorney General’s case here illustrate just how dramatically the Martin Act’s tendency to deceive standard expands liability. First, in contrast to the common law, the Martin Act permits liability for “omissions” even where there is no duty to speak. It is hornbook law in New York that at common law “non-disclosure is not actionable, unless there is a duty to speak”. Lee S. Kreindler et al., New York Law of Torts § 1:70 (2014) (“A duty to speak is only recognized under certain conditions, such as (i) when there is a fiduciary or confidential relationship between the parties, or (ii) when one has 5 See also People v. Lexington Sixty-First Assocs., 38 N.Y.2d 588, 595 (1976) (stating that the Martin Act, in prohibiting “fraud” and “fraudulent practices”, touches “all deceitful practices contrary to the plain rules of common honesty, including all acts . . . which do tend to deceive or mislead the purchasing public” (emphasis added) (citing Federated Radio, 244 N.Y. at 38-39)); Greenberg, 95 A.D.3d at 482-83 (“Fraud under the Martin Act includes all deceitful practices contrary to the plain rules of common honesty and all acts tending to deceive or mislead the public . . . . Executive Law § 63 (12) includes virtually identical language . . . . Both statutes have been liberally construed to ‘defeat all unsubstantial and visionary schemes . . . whereby the public is fraudulently exploited’.” (quoting Federated Radio, 244 N.Y. at 38) (other internal quotations and citations omitted)), aff’d, 21 N.Y.3d 439 (2013). 32 superior knowledge in a transaction, or (iii) to prevent unjust enrichment.”); see also Mobil Oil Corp. v. Joshi, 202 A.D.2d 318, 318 (1st Dep’t 1994) (complaint failed “to set forth the essential elements required to sustain an action for fraud and deceit” based on “mere silence” because of the absence of “an agreement providing for a relationship of trust, or special circumstances indicating the same”). The Martin Act does not require the Attorney General to establish circumstances giving rise to a duty to speak in order to impose liability for omissions. See, e.g., Rachmani Corp., 71 N.Y.2d at 725 (explaining that “the Attorney-General’s [Martin Act] claim is founded entirely on defendants’ failure to make reference to [a] fact” which “there was no statutory requirement” for them to disclose); People ex rel. Cuomo v. Charles Schwab & Co., 109 A.D.3d 445, 448 (1st Dep’t 2013) (concluding that, because under the Martin Act “the word ‘fraud’ is broadly defined so as to embrace even acts which ‘tend to deceive or mislead’”, a claim based on a failure to disclose a detail about the securities offered was actionable (citation omitted)); World Interactive, 185 Misc. 2d at 864 (deeming it well settled that, under the Martin Act, “fraud exists not only where there has been an affirmative misstatement of a material fact, but also where there has been an omission of a material fact”). This easing of the burden to establish liability for omissions has practical consequences for the Attorney General’s case against 33 Credit Suisse since, ordinarily, “the requisite ‘special relationship’ does not exist between sophisticated commercial entities that enter into an agreement through an arm’s length business transaction” such as with RMBS. MBIA Ins. Co. v. GMAC Mortg. LLC, 30 Misc. 3d 856, 863-64 (Sup. Ct. N.Y. Cty. 2010); see also Grumman Allied Indus., Inc. v. Rohr Indus., Inc., 748 F.2d 729, 738-39 (2d Cir. 1984) (holding no “duty to disclose” under New York law in context of “ordinary arms-length business relationship”). Second, because of the Martin Act’s expansive definition of what can be actionable, liability has been based on statements or omissions not tied to any specific investment decision. In Barclays, the court rejected defendants’ argument “that the Martin Act is inapplicable to the allegations asserted by the NYAG . . . because the NYAG does not allege any misrepresentations relating to the sale of any particular security”. Barclays, 47 Misc. 3d at 869. This is the kind of broad liability that the Attorney General seeks to use here. When Credit Suisse contended below that the Complaint failed to state a claim because it lacks any allegations tying representations in marketing materials to any “specific securities transaction”, the Attorney General took the position that, “under the Martin Act ‘[a] false representation may be illegal regardless of whether issuance, distribution, exchange, sale, negotiation or purchase resulted’”. (A. 143 (internal citations omitted).) 34 These examples are just some of the myriad ways in which the tendency to deceive test permits the Attorney General to seek to impose liability under the Martin Act—and any derivative Executive Law § 63(12) claim—for “a significantly wider range” of practices than those condemned by the common law. See Gaidon II, 96 N.Y.2d at 210. B. The Martin Act Dispenses with Additional Common-Law Elements Demonstrating that, Under Gaidon II, It Imposes Liability that Would Not Exist “But for” Statute. In Gaidon II, this Court found dispositive that G.B.L. § 349 and common-law fraud are substantively different with respect to two elements: (1) G.B.L. § 349 reaches unintentional conduct; and (2) G.B.L. § 349 employs a broader “tendency to deceive” standard for misrepresentations. See Gaidon II, 96 N.Y.2d at 209-10. Accordingly, it did not need to discuss the other differences that may exist between a statute and common-law fraud. There is no doubt that Gaidon II is controlling here because, like G.B.L. § 349, the Martin Act broadly prohibits unintentional conduct and deceptive conduct not amounting to common-law fraud. (See supra Part II.A.) But the Martin Act presents an even stronger case for application of CPLR § 214(2) because the Martin Act is broader than common-law fraud in at least two additional ways, which this Court did not find necessary to reach in 35 Gaidon II. First, the Martin Act does not require proof of investor reliance. Second, proof of damages is not required for Martin Act claims. 1. The Martin Act dispenses with the investor reliance required under the common law. Liability under the Martin Act—and any Executive Law claim based on Martin Act violations—does not require reliance, which is “an essential element of common-law fraud”. Kramer v. W10Z/515 Real Estate Ltd. Partnership, 44 A.D.3d 457, 460 (1st Dep’t 2007), rev’d on other grounds sub nom. Kerusa Co. v. W10Z/515 Real Estate Ltd. Partnership, 12 N.Y.3d 236 (2009). This is another commonality between the reduced standard of proof for G.B.L. § 349 (at issue in Gaidon II) and the statutory claims asserted against Credit Suisse here. See, e.g., Stutman v. Chem. Bank, 95 N.Y.2d 24, 29 (2000) (holding that “reliance is not an element of a section 349 claim”).6 Here, the Attorney General does not dispute—indeed, it trumpets— that it need not and will not prove reliance by the investor-purchasers on whose behalf it purports to seek relief to establish liability for its Martin Act and derivative Executive Law § 63(12) claims. (See A. 134, 137, 144; Add. 3-4 6 This Court did not discuss the absence of reliance for a G.B.L. § 349 claim in its Gaidon II opinion, after concluding that the absence of scienter and the tendency to deceive test were sufficient differences to require application of CPLR § 214(2)’s three-year limitations period. See Gaidon II, 96 N.Y.2d at 208. The Defendant-Appellant in Gaidon II had briefed, however, that CPLR § 214(2) should apply to G.B.L. § 349 because of “its lack of fault and reliance requirements and its lower standard of material misrepresentation compared with that of common-law fraud claims”. Add. 12-13 (emphasis added). 36 (refusing to provide certain discovery on the basis that investor reliance is “not relevant to the present action”).) This additional divergence of the statutory claims from common-law fraud, beyond the factors this Court discussed in Gaidon II, further compels application of CPLR § 214(2). The elimination of the element that individual investors relied on the alleged misstatements or omissions the Attorney General asserts has important consequences. Often the lack of “reliance” is an obstacle to establishing liability for common-law fraud, especially when claims are based on the investment decisions of sophisticated investors, as is the case with RMBS. For example, in a common-law fraud action, “New York law imposes an affirmative duty on sophisticated investors to protect themselves from misrepresentations . . . by investigating the details of the transaction”. Global Mins. & Metals Corp. v. Holme, 35 A.D.3d 93, 100 (1st Dep’t 2006). Moreover, as the dissenters observed below (A. 12), common-law fraud claims will fail when reliance has been limited to a particular document (as in the case of a merger clause) or when reliance otherwise has been disclaimed. See, e.g., KSW Mech. Servs. v. Willis of N.Y., 63 A.D.3d 411, 412 (1st Dep’t 2009) (deeming the common-law fraud claims “not viable for lack of reasonable reliance as a matter of law in light of the manual’s disclaimers stating that it provides an overview and that the policies alone govern coverage”); Fitzgerald v. Hudson Nat’l Golf Club, 11 A.D.3d 426, 37 428 (2d Dep’t 2004) (holding that “the plaintiff’s reliance on these oral representations was unreasonable in light of the fact that the offering summary clearly stated that the plaintiff could not rely on any oral representation”); see also A. 15-16 (dissenters below describing the “clear warnings” against reliance in Credit Suisse’s marketing materials). 2. The Martin Act expands liability even further than G.B.L. § 349 by dispensing with the common-law damages element. The Attorney General also seeks to impose liability under the Martin Act without proof of damages, which is another essential element of common-law fraud. In People v. Ernst & Young LLP, 114 A.D.3d 569, 570 (1st Dep’t 2014), the First Department decided that the Attorney General can obtain monetary relief through disgorgement of profits pursuant to the Martin Act and Executive Law § 63(12) even when it will not or cannot prove “injury to the public or consumers as a result of defendant’s [actions]”. As a consequence, in its case against Credit Suisse, the Attorney General seeks to establish a claim under the Martin Act even as to investors without investment losses that suffered no damages. See id. at 569 (holding that disgorgement is available “notwithstanding the absence of loss to individuals or independent claims for restitution”). This interpretation of the Martin Act provides even more support for application of CPLR § 214(2)’s three-year statute of limitations. Elimination of the damages element required to establish common-law fraud renders the 38 Martin Act broader than G.B.L. § 349, which does require the plaintiff to establish that the “deceptive acts or practices ‘resulted in actual injury to the plaintiff’”. Gomez-Jimenez v. N.Y. Law Sch., 36 Misc. 3d 230, 237 (Sup. Ct. N.Y. Cty. 2012) (citations omitted) (brackets omitted); see also The Honorable Thomas A. Dickerson, 4D Commercial Litigation in New York State Courts § 111:4 (Robert L. Haig ed., 4d ed. 2016) (“Stating a cause of action for a violation of GBL § 349 is fairly straightforward and should identify the misconduct which is deceptive and materially misleading to a reasonable consumer . . . and which causes actual damages . . . .”). * * * * Given that this Court expressly has held that claims under G.B.L. § 349 are subject to the three-year statute of limitations due to the absence of scienter and of a traditional “misrepresentation” alone, there can be no question that claims under the Martin Act, which dispenses with two other common-law elements—“reliance” and “damages”—must likewise be subject to CPLR § 214(2)’s three-year limitations period. C. The First Department’s Suggestion that Allegations Akin to Common-Law Fraud Can Permit the Attorney General to Sidestep the Gaidon II Analysis Was Error. As the dissent below explained, “the Attorney General is seeking relief under a broader definition of fraud created by the statutes” such that 39 Credit Suisse’s “motion to dismiss the Martin Act and Executive Law § 63(12) claims as time barred under CPLR 214(2) should be granted”. (A. 22.) The majority’s only substantive rejoinder7 was its assertion that the Complaint “sets forth the elements of common-law fraud, including scienter, or intent, reliance, and damages”. (A. 8.) Based on this assertion, the majority reasoned that the statutory claims thus “seek to impose liability on Credit Suisse based on the classic, longstanding common-law tort of investor fraud, thus invoking a six-year statute of limitations”. (Id.) This position—an “allegations-only” approach, divorced from the actual elements of the asserted claims—cannot be squared with Gaidon II or CPLR § 214(2). By the CPLR’s express terms, the three-year statutory limitations period applies to claims that seek “to recover upon a liability . . . created or imposed by statute”. CPLR § 214(2) (emphasis added). Controlling authority from this Court holds that CPLR § 214(2) applies “where liability ‘would not exist but for a statute’”. Gaidon II, 96 N.Y.2d at 208 (emphasis added). In answering that question, a court must ask whether the statute “contemplates actionable conduct that does not necessarily rise to the level of fraud”. Id. at 209 (quoting Gaidon I, 94 N.Y.2d at 343) (emphasis added). That is why this Court framed its 7 As explained above, the majority simply adhered to its own Bronxville and Trump decisions, rather than actually grappling with this Court’s Gaidon II decision. 40 CPLR § 214(2) inquiry in Gaidon II as whether “the proof” required for the statutory claim would also establish a common-law fraud claim. Id. at 208-09. The majority’s focus below on allegations without regard to whether those allegations concerned elements of the actual statutory claims asserted, if adopted by this Court, would deny any force to the Legislature’s judgment in CPLR § 214(2) that statutory liability ought to have a shorter limitations period: any litigant could simply plead around the three-year statutory period by including allegations extraneous to the elements of proof—allegations which it could and would freely abandon when seeking to impose liability at trial. Such pleadings gamesmanship should not be encouraged. There is no doubt here that the allegations on which the majority relied are extraneous. The Attorney General has been clear in its Supreme Court and First Department briefing that it need not offer proof of investor reliance or establish any intentional misdeeds to succeed in imposing liability against Credit Suisse pursuant to its statutory claims. Indeed, the Attorney General has objected in the Supreme Court to any discovery on scienter or reliance, explicitly on the ground that “reliance by RMBS investors and Credit Suisse’s state of mind are not elements of either a Martin Act or an Executive Law 63(12) claim”. (Add. 7.) 41 Consistent with the lesser threshold under the statutory claims asserted—and the Attorney General’s deliberate decision not to bring a common-law fraud claim—there never will be a judicial determination in this case as to whether the Attorney General could satisfy the exacting common-law fraud standard. No judge or jury will resolve whether Credit Suisse acted innocently or with “scienter”, whether investors “justifiably relied”, or whether other common-law elements, including a traditional “misrepresentation”, damages, or demonstration of a duty for omission liability, are satisfied. Irrespective of whether the Attorney General could prove common-law fraud—something Credit Suisse vigorously disputes—it is plain that it will not be necessary for the Attorney General to do so to impose liability on either its Martin Act or Executive Law claim. It was flatly incorrect for the majority below to suggest the Attorney General “seek[s] to impose liability on Credit Suisse based on the classic, longstanding common-law tort of investor fraud”. (A. 8 (brackets omitted).) The Attorney General unequivocally has taken the position that it need not and will not establish common-law fraud (or equitable fraud) to impose liability under the Martin Act or Executive Law § 63(12). Accordingly, CPLR § 214(2) governs under Gaidon II. This Court should reject the “allegations-only” approach that 42 focuses on what is alleged to the exclusion of what must be proven, an approach that is unsound and contrary to precedent.8 D. As the Two Dissenting Justices Observed, the First Department Erred in Its Conclusion that a Comparison to Equitable Fraud Is Appropriate or Yields a Different Result from Gaidon II. In the First Department, the Attorney General urged that both the Martin Act and Executive Law § 63(12) claims do no more than codify a claim for equitable fraud that it could bring without these statutes. This contention that these statutes fail to create new liability relative to equitable fraud is unsupportable for two reasons. First, equity is the wrong basis for comparison. In Gaidon II, the Attorney General in its amicus brief argued that “deceptive practices pursuant to G.B.L. § 349 are clearly equitable in nature, [such that they] could fit within the residual statute of limitations”. Br. of N.Y. St. Att’y Gen. as Amicus Curiae, Gaidon II, 96 N.Y.2d 201 (2001), 2001 WL 34903800, at *14. Declining the Attorney General’s argument to look to equity or to apply CPLR § 213(1), this Court instead based its holding as to CPLR § 214(2) solely on a comparison to 8 Credit Suisse denies that the Complaint alleges the “reliance” or “scienter” elements necessary for a common-law fraud claim. The Attorney General did not claim below (A. 133-34), and has never argued, that the Complaint pleads investor reliance. See, e.g., People v. Wells Fargo Ins. Servs. Inc., 18 Misc. 3d 1117(A), at *4 (Sup. Ct. N.Y. Cty. Jan. 14, 2008) (finding that a complaint that does not allege “any specific instance” of justifiable reliance does not state a cause of action for fraud). Further, “conclusory statement[s] of intent”—at most all that is alleged here—are insufficient. Zanett Lombardier, Ltd. v. Maslow, 29 A.D.3d 495, 495 (1st Dep’t 2006). 43 common-law fraud. See Gaidon II, 96 N.Y.2d at 209 (discussing the “substantive deviation[s] from common-law fraud”). This Court was right to do so, and should do so again here. Equitable fraud—also called constructive fraud9—is the wrong basis for comparison here (just as it was in Gaidon II). As reflected by the Attorney General’s own authority below, a claim for equitable fraud requires “a breach of legal or equitable duty, trust, or confidence” or circumstances by which “undue and unconscientious advantage is taken of another”. Moore v. Crawford, 130 U.S. 122, 128 (1889); see also Del Vecchio v. Nassau Cty., 118 A.D.2d 615, 617-18 (2d Dep’t 1986); Roni LLC v. Arfa, 74 A.D.3d 442, 444-45 (1st Dep’t 2010). This breach of a special relationship or situation of “unconscientious advantage” was what animated a court’s intervention in equity. By contrast, arm’s-length dealings by sophisticated investors in a securities market are not characterized by these equitable duties. See, e.g., Shareholder Rep. Servs. LLC v. Sandoz Inc., 46 Misc. 3d 1228(A), at *9 (Sup. Ct. N.Y. Cty. 2015) (noting “equitable fraud claims hinge upon the allegation that Defendant Sandoz Inc. owed the former shareholders a ‘heightened duty’”, but “the relationship pleaded by SRS is an arm’s length business relationship, which does not give rise to such a ‘heightened duty’”). Although Credit Suisse briefed this key difference below, the 9 See, e.g., Osberg v. Foot Locker, Inc., No. 07 Civ. 1358 (KBH), 2015 WL 5786523, at *34 (S.D.N.Y. Oct. 5, 2015); Marie v. Garrison, 13 Abb. N. Cas. 210, 283 (Super. Ct. N.Y.C. 1883); 26 Williston on Contracts § 69:2 (4th ed.). 44 majority failed to address it and simply adhered to Trump, in which this argument was not raised. Second, even if equitable fraud were the correct comparison, Gaidon II compels the same result: CPLR § 214(2) governs. The Martin Act and Executive Law § 63(12) permit liability in a broad swath of situations not actionable as equitable fraud. First and foremost, neither statutory claim requires proof of the signature “unconscientious advantage” element that justified the intervention of the court at equity. This is one significant way in which the statutes permit the Attorney General to impose liability that would not exist “but for” the statutes, even under equitable fraud. Additionally, equitable fraud—like common-law fraud—requires: (i) a “misrepresentation” (not merely acts or omissions that have the “capacity or tendency to deceive”), (ii) reliance, and (iii) injury. Each of these elements was well-documented before the enactment of the Martin Act in 1921. See, e.g., Hammond v. Pennock, 61 N.Y. 145, 152 (1874) (describing the touchstone for equitable rescission as “whether the fraudulent affirmation was upon a material point, and whether the injured party relied upon it”); see also 1 Joseph Story, Commentaries on Equity Jurisprudence § 191 (6th ed. 1853) (explaining that intervention of a Court of Equity requires a plaintiff to establish “the fact of misrepresentation” that “actually does mislead him”) (Add. 37); 1 William W. Kerr 45 & Orlando F. Bump, A Treatise on the Law of Fraud & Mistake 94 (1872) (detailing that a misrepresentation at equity requires that “a man has been misled thereby to his prejudice[] [because] [f]raud without damage is not sufficient to support an action or to be a ground for relief in equity”) (Add. 35). To impose liability for equitable fraud, it must be established that: “(1) [A] representation was made, (2) the representation dealt with a material fact, (3) the representation was false, (4) the representation was made with the intent to make the other party rely upon it, (5) the other party did, in fact, rely on the representation without knowledge of its falsity, (6) injury resulted and (7) the parties are in a fiduciary or confidential relationship.” Del Vecchio, 118 A.D.2d at 617-18. In taking issue with the majority’s decision to follow Trump instead of Gaidon II, the dissenters correctly explained that “[a]lthough equitable fraud does not require scienter, reliance is still an element”. (A. 15.) Quite simply, the majority below— like the Trump panel before it—failed to confront the fact that the elements of equitable fraud “are the same as those to recover for actual fraud” except that the “element of scienter . . . is dropped and is replaced by a requirement that the plaintiff prove the existence of a fiduciary or confidential relationship”. Brown v. Lockwood, 76 A.D.2d 721, 731 (2d Dep’t 1980) (emphasis added). Thus, just as with common-law fraud, the comparison between equitable fraud and the Martin Act and Executive Law § 63(12) reveals that these 46 statutes do much more than “merely codify or implement” equitable fraud. Gaidon II, 96 N.Y.2d at 209. CPLR § 214(2) thus applies. III. THE ATTORNEY GENERAL’S EXECUTIVE LAW § 63(12) CLAIM IS TIME-BARRED UNDER GAIDON II FOR THE SAME REASONS AS THE MARTIN ACT, WHETHER OR NOT THIS COURT RECOGNIZES A “STANDALONE” CAUSE OF ACTION. A. There Is a Division of Authority Over Whether Executive Law § 63(12) Can Support Standalone Liability. Ordinarily, the Attorney General uses Executive Law § 63(12) to piggyback on an external form of liability (whether statutory or common law). See, e.g., State v. Cortelle Corp., 38 N.Y.2d 83, 86-87 (1975) (analyzing an Executive Law § 63(12) claim based on “a common-law theory of promissory fraud”); People ex rel. Spitzer v. Frink Am., Inc., 2 A.D.3d 1379, 1380 (4th Dep’t 2003) (addressing an Executive Law claim based on violations of New York Labor Law §§ 191-c and 198). Here, the Attorney General pleaded Executive Law § 63(12) as a remedial mechanism based on the alleged Martin Act violations. (See A. 73.) In the Third and Fourth Departments, courts have held this is the only way the Executive Law can operate, as a kind of “look through” statute that unlocks remedies but cannot support standalone liability. See, e.g., People ex rel. Schneiderman v. One Source Networking, Inc., 125 A.D.3d 1354, 1355-56 (4th Dep’t 2015) (agreeing it would be error to find a defendant violated Executive Law 47 § 63(12) because that section is merely “a mechanism by which [the Attorney General] may show that injunctive relief and restitution are proper”); People ex rel. Spitzer v. Frink Am., Inc., 2 A.D.3d 1379, 1380 (4th Dep’t 2003) (“Section 63(12) does not create any new causes of action, but does provide the Attorney General with standing ‘to seek redress and additional remedies for recognized wrong’ based on the violation of other statutes”) (quoting Cortelle, 38 N.Y.2d at 85); People ex rel. Schneiderman v. Coll. Network, Inc., 53 Misc. 3d 1210(A), at *3 (Sup. Ct. Albany Cty. Aug. 19, 2016) (citing People ex rel. Cuomo v. Charles Schwab & Co., 109 A.D.3d 445, 449 (1st Dep’t 2013) for the proposition that Executive Law § 63(12) “does not create independent claims”).10 The First Department recently, in Trump, overruled its own prior Charles Schwab precedent. See Trump, 137 A.D.3d at 416 (overruling Charles Schwab). The four-Justice panel in Trump certified its decision for leave to appeal to the Court of Appeals, but that appeal was dismissed following a settlement.11 In this case, in the First Department, the Attorney General argued 10 The courts that have concluded there is no standalone claim read this Court’s Cortelle decision, which held that an Executive Law § 63(12) claim based on common-law fraud was subject to a six-year limitations period, to mean that the Executive Law must always operate in this fashion as a piggyback statute. See, e.g., People of the State of New York v. The Trump Entrepreneur Initiative LLC, No. 451463/13, 2014 WL 5241483, at *4 (Sup. Ct. Oct. 8, 2014), rev’d Trump, 137 A.D. 3d at 416. 11 The Trump appeal would have presented both the issue of whether a standalone Executive Law § 63(12) claim is permitted and, if so, whether CPLR § 214(2) applies. 48 that it is asserting a standalone Executive Law § 63(12) claim and that Trump applies. (Add. 9.) As described below (see Part III.B), for purposes of this appeal, this Court does not need to decide whether Charles Schwab, One Source and Frink on the one hand, or Trump on the other, are correct about the potential for standalone liability under the Executive Law. Either way, CPLR § 214(2) applies to the claim asserted here. B. Whether a “Standalone” or a “Look Through” Claim, the Attorney General’s Statutory-Based Executive Law § 63(12) Claim Here Is Subject to CPLR § 214(2) for the Same Reasons as the Martin Act and G.B.L. § 349. Here, the Attorney General’s Executive Law § 63(12) claim is time- barred whether it “looks through” to the alleged Martin Act liability, or can be considered a standalone claim. The only form of external liability on which the Attorney General’s Executive Law claim is based is the Martin Act. (See A. 73 (“The acts and practices alleged herein constitute conduct proscribed by § 63(12) of the Executive Law, in that Defendants engaged in repeated fraudulent or illegal acts (in violation of, inter alia, the Martin Act)”).) Thus, since—as demonstrated above—the Martin Act’s expanded liability is subject to CPLR § 214(2), any “look through” Executive Law § 63(12) claim is as well. See, e.g., Daicel, 42 A.D.3d at 303 (holding that the Attorney General’s Executive Law § 63(12) claim there was 49 subject to CPLR § 214(2) because it was based on violations of antitrust laws, including New York’s Donnelly Act); Pharmacia, 27 Misc. 3d at 373 (because the State “seeks to establish a liability that arises solely from statute . . . Plaintiff’s Executive Law § 63(12) claim is governed by the three-year limitations period set forth in CPLR 214(2)”). To the extent this Court were to decide (or assume without deciding) that a standalone Executive Law § 63(12) claim is viable, however, the result is the same: CPLR § 214(2) applies. This is because in those instances where standalone Executive Law § 63(12) claims have been allowed, such claims always are understood to dispense with the same three elements of common-law fraud that G.B.L. § 349 and the Martin Act each eliminated—“scienter”, a traditional “misrepresentation”, and “reliance”. See, e.g., Trump, 137 A.D.3d at 416 (concluding that a claim “under § 63(12) may be established without proof of scienter or reliance, . . . indicat[ing] that the Attorney General may rely on § 63(12) for a cause of action and need not limit itself to claims for common-law fraud only”); People v. Nationwide Asset Servs., Inc., 26 Misc. 3d 258, 280 (Sup. Ct. Erie Cty. 2009) (recognizing that Executive Law § 63(12) “eliminates the necessity for proof of an intent to defraud”; adopts the tendency or capacity to deceive standard; and that “traditional concepts of actual, reasonable and detrimental reliance” are inapplicable) (brackets omitted); Merkin, 26 Misc. 3d 1237(A), at *7 50 (explaining that the Executive Law and Martin Act both adopt the “capacity or tendency to deceive” test, “eliminat[e] the necessity for proof of an intent to defraud” and that “reliance need not be shown”). Simply put, “[t]he definition of ‘fraud’ as contained in subdivision 12 of section 63 of the Executive Law is equivalent to that contained in Section 352 of the General Business Law [i.e., the Martin Act].” State ex rel. Lefkowitz v. Interstate Tractor Trailer Training, Inc., 66 Misc. 2d 678, 682 (Sup. Ct. N.Y. Cty. 1971).12 Indeed, any standalone Executive Law § 63(12) claim is so closely similar to the Martin Act that—at the Attorney General’s urging—courts treat them interchangeably for liability purposes. E.g., State v. McLeod, 12 Misc. 3d 1157(A), *14 (Sup. Ct. N.Y. Cty. 2006) (stating that “the State argues for summary judgment on the Executive Law claim because the elements of a claim under § 63(12) are virtually identical to those under the Martin Act . . . .”) (internal quotations omitted); Merkin, 26 Misc. 3d 1237(A), at *7 (holding that both the Martin Act and Executive Law § 63(12) claims stated a claim because “[l]ike the Martin Act . . . the repeated fraudulent practices targeted by [Executive Law 12 See also Rachmani Corp., 71 N.Y.2d 718, 721 n.1 (1988) (noting that Executive Law § 63(12) includes “virtually identical language” relative to the Martin Act); New York State Legislative Annual 30 (1965) (explaining that Executive Law § 63(12) was written “to equate the meaning of the words ‘fraud’ and ‘fraudulent’ . . . with the provisions of the Martin Act” (quoting Memorandum of State Attorney General)) (Add. 28); People ex rel. Spitzer v. Gen. Elec. Co., 302 A.D.2d 314, 314 (1st Dep’t 2003) (explaining that “[u]nder section 63(12), the test for fraud is whether the targeted act has the capacity or tendency to deceive, or creates an atmosphere conducive to fraud”). 51 § 63(12)] do not need to constitute fraud in the classic common-law sense”). The only difference in proof between a standalone Executive Law claim (if cognizable) and a Martin Act claim is “the requirement [under the Executive Law] that the offending behavior be repeated or persistent or affect more than one person”. McLeod, 12 Misc. 3d 1157(A), at *14. Importantly, even the majority below agreed that “[t]he conduct targeted under § 63(12) parallels the conduct covered under the Martin Act’s definition of fraud”. (A. 6.) Given their equivalent liability standard that significantly departs from common-law fraud and from equitable fraud, for the same reasons that CPLR § 214(2) applies to the Martin Act, CPLR § 214(2) likewise applies to any cognizable standalone Executive Law § 63(12) claim.13 13 An Executive Law § 63(12) claim could still be subject to the six-year limitations period when the Attorney General elects to use that statute to pursue remedies for solely common-law violations, where the Attorney General must prove all the elements of the common law; for example, if the Attorney General seeks to base liability on common-law fraud. Compare Cortelle, 38 N.Y.2d at 86-89 (limitations period for Executive Law § 63(12) claim based on promissory fraud was six years under CPLR § 213), with Daicel, 42 A.D. 3d at 303 (limitations period for Executive Law § 63(12) claim based on statutory liability was three years under CPLR § 214(2)). But that is not the case here, whether the Attorney General is arguing the Executive Law § 63(12) claim is derivative (based on multiple violations of the Martin Act) or is a standalone claim; in either scenario the Attorney General has made clear it will not have to prove all the elements of common-law fraud (or equitable fraud). 52 IV. STARE DECISIS AND SOUND POLICY SUPPORT APPLYING THE GAIDON II FRAMEWORK TO HOLD CPLR § 214(2) APPLIES TO THE STATUTORY CLAIMS HERE. Precedent and policy each support applying the Gaidon II framework so as to harmonize the limitations period applicable to Martin Act, Executive Law § 63(12) and G.B.L. § 349 claims: three statutes that courts and the Attorney General recognize were models for one another. See Br. of N.Y. St. Att’y Gen. as Amicus Curiae, Gaidon II, 96 N.Y.2d 201 (2001), 2001 WL 34903800, at *6. Although it draws from this Court’s prior interpretations of CPLR § 214(2), e.g., Motor Veh. Acc. Indem. Corp., 89 N.Y.2d at 220-21, Gaidon II was significant in clarifying the scope of this statutory limitations period: “As the New York Court of Appeals explained, claims which, although provided for in a statute, merely codify or implement an existing common-law liability, [ ] are not governed by CPLR § 214(2) but by the Statute of Limitations applicable to their common-law sources. Gaidon II, 96 N.Y.2d at 209-10. In contrast, section 214(2) applies to ‘claims which, although akin to common-law causes, would not exist but for the statute’. Id. at 209.” Gristede’s Foods, Inc. v. Unkechaunge Nation, 532 F. Supp. 2d 439, 452 (E.D.N.Y. 2007) (citations omitted). After Gaidon II, it was clear that courts should not try to divine the “essence” of claims or base their CPLR § 214(2) decision on abstract similarities between the statutory and common-law fraud claims at issue. Today, it is clear that “where a claim is ‘akin to a common-law claim, or even has a commonality of elements with a common law claim[], yet would not exist but for the statute,’ the three-year 53 period set forth in CPLR § 214(2) governs”. Baena, 515 F. Supp. 2d at 423 (emphasis added). That approach has governed in New York for at least 16 years and, as this Court has held, “[u]nder the doctrine of stare decisis, we do not lightly depart from our precedents, particularly those involving . . . statutory interpretation . . . .” Great N. Ins. Co. v. Interior Const. Corp., 7 N.Y.3d 412, 420 (2006). Court of Appeals’ “[p]recedents involving statutory interpretation are entitled to great stability”. People v. Hobson, 39 N.Y.2d 479 (1976). First, when interpreting a statute “courts are interpreting legislative intention and a sequential contradiction is a grossly [arrogated] legislative power”. Id. at 489. Second, if precedent has “‘misinterpreted’ the legislative intention, the Legislature’s competency to correct the ‘misinterpretation’ is readily at hand”. Id. The New York Legislature has not taken any steps to overrule the elemental approach clarified in Gaidon II. This is unsurprising since Gaidon II reflects the quid pro quo the Legislature reasonably can be understood to have wanted when it enacted CPLR § 214(2). When a statutory cause of action merely codifies a pre-existing common-law claim, it makes sense that legislators would not change the limitations analysis that historically governed. By contrast, where the Legislature (as with the Martin Act) specifically acts to grant a plaintiff a broader range of potential liability by eliminating common-law elements—creating 54 an easier case for a plaintiff to prove—it makes sense that this would be balanced with the repose considerations associated with shorter time periods in which to bring the easier suit. See Duffy v. Horton Mem. Hosp., 66 N.Y.2d 473, 476 (1985) (“We have emphasized that the primary purpose of a limitations period is fairness to a defendant.”). Finally, faithful application of this Court’s CPLR § 214(2) precedent to the Martin Act and Executive Law § 63(12) claims is fully consistent with the Attorney General’s legitimate securities enforcement prerogatives. The Martin Act provides the Attorney General with “‘exceedingly broad’—indeed ‘inquisitorial’”—statutory powers that allow it to act at the first sign of perceived misconduct. Matter of Gonkjur Assocs. v. Abrams, 88 A.D.2d 854, 855 (1st Dep’t 1982); see also Assured, 18 N.Y.3d at 349-50 (noting that the Martin Act allows the Attorney General to “interven[e] at the first indication of possible securities fraud”). Once the Attorney General decides to initiate an investigation, its tools are equally potent. First, the Attorney General may conduct confidential investigations into suspected misconduct by “issu[ing] subpoenas for . . . documents” for hearings “conducted by the Attorney General at his office”. 55 Kaufmann, supra, at 36.14 Second, “the Attorney-General ‘almost upon mere request may have an examination before trial of parties or of witnesses’ in a Martin Act investigation”. In re Am. Research Council, 10 N.Y.2d 108, 111 (1961) (“The power of the Attorney-General under the Martin Act is exceedingly broad”) (citing Ottinger v. Civil Serv. Comm., 240 N.Y. 435, 439 (1925)). Here, on June 5, 2008—more than four years before it filed its Complaint against Credit Suisse—the Attorney General’s office publicly announced that it had “been conducting an investigation into all aspects of the mortgage industry for more than a year, including lenders, securitizers, [and] due diligence providers”. (A. 82-83.) After the Attorney General investigates and brings suit, it then has the unparalleled power to impose liability without having to establish essentially any of the traditional common-law fraud elements. (See supra Part II-III.) Surely then, with its possession under the Martin Act of “the broadest and most easily triggered investigative and prosecutorial powers of any securities regulator, state or federal”, Kaufmann, supra, at 9 (emphasis added), the Attorney General can vigorously protect New York’s securities markets within the limitations period the Legislature prescribed in CPLR § 214(2). 14 During any such investigation—as it did here with Credit Suisse—the Attorney General can also enter into tolling agreements to provide it with additional time in which to bring suit. CONCLUSION For the foregoing reasons, the First Department's Decision and Order should be reversed and judgment entered in favor of Credit Suisse because the Attorney General's claims are time-barred in their entirety under CPLR § 214(2). May 30,2017 Respectfully submitted, CRA VA TH, SWAINE & MOORE LLP, By _ fL.;_A.. f) v._) · _ Richard W. Clary Michael T. Reynolds Lauren A. Moskowitz Members of the Firm Attorneys for Defendants-Appellants Credit Suisse Securities (USA) LLC, DU Mortgage Capital, Inc., Credit Suisse First Boston Mortgage Securities Corporation, Asset Backed Securities Corporation and Credit Suisse First Boston Mortgage Acceptance Cmporation (sued herein as "Credit Suisse Mortgage Acceptance C01poration ") Worldwide Plaza 56 825 Eighth A venue New York, NY 10019 Tel.: (212) 474-1000 Fax: (212) 474-3700 NEW YORK STATE COURT OF APPEALS CERTIFICATE OF COMPLIANCE I hereby certify pursuant to 22 N.Y.C.R.R. § 500.13(c) that the foregoing brief was prepared on a computer using Microsoft Word. Type. A proportionally spaced typeface was used, as follows: Name of typeface: Times New Roman Point size: 14 (body); 12 (footnotes) Line spacing: Double (body); single (footnotes) Word Count. The total number of words in this brief, inclusive of point headings and footnotes and exclusive of pages containing the table of contents, table of authorities, proof of service, certificate of compliance, corporate disclosure statement, question presented, or any authorized addendum, is 13,960 words. Dated: May 30, 2017 57 ADDENDUM TABLE OF CONTENTS Page Plaintiff’s Responses and Objections to Defendants’ First Set of Interrogatories, Dated June 25, 2015 (Excerpt) ................ ADD-1 Letter from Assistant Attorney General Veronica V. Montenegro to Lauren A. Moskowitz, Cravath, Swaine & Moore LLP, Dated October 16, 2015 ................... ADD-6 Letter from Deputy Solicitor General Steven C. Wu to Hon. Susanna Molina Rojas, Clerk of the Court, Appellate Division, First Department, Dated March 2, 2016 (Excerpt) .................................................. ADD-9 Reply Brief of Defendant-Appellant The Guardian Life Insurance Company of America, Gaidon v. Guardian Life Ins. Co. of Am., 96 N.Y.2d 201 (2001) (Excerpt) . ADD-11 Defending Corporations & Individuals in Government Investigations § 12:11 (Daniel J. Fetterman & Mark P. Goodman eds., 2014) ........................................................ ADD-15 Ambrose V. McCall, Comments on the Martin Act, 3 Brook. L. Rev. 190 (1933) (Excerpt) ................................................................... ADD-18 Charles H. Mills, Fraudulent Practices in Respect to Securities and Commodities with Special Reference to the Martin Act (1925) (Excerpt) .................................................. ADD-25 New York State Legislative Annual (1965) (Excerpt) .................................................. ADD-27 ii Orestes J. Mihaly & David J. Kaufmann, General Business Law Act 23-A, in 19 McKinney’s Consolidated Laws of New York Annotated (1996) (Excerpt) ............ ADD-30 1 William W. Kerr & Orlando F. Bump, A Treatise on the Law of Fraud & Mistake (1872) (Excerpt) ....................................... ADD-34 1 Joseph Story, Commentaries on Equity Jurisprudence § 191 (6th ed. 1853) ......... ADD-36 ADD-1 PLAINTIFF’S RESPONSES AND OBJECTIONS TO DEFENDANTS’ FIRST SET OF INTERROGATORIES, DATED JUNE 25, 2015 (EXCERPT) [ADD-1–ADD-5] ADD-2 ADD-3 ADD-4 ADD-5 ADD-6 LETTER FROM ASSISTANT ATTORNEY GENERAL VERONICA V. MONTENEGRO TO LAUREN A. MOSKOWITZ, CRAVATH, SWAINE & MOORE LLP, DATED OCTOBER 16, 2015 [ADD-6–ADD-8] ADD-7 ADD-8 ADD-9 •· LEITER FROM DEPUTY SOLICITOR GENERAL STEVEN C. WU TO HON. SUSANNA MOLINA ROJAS, CLERK OF THE COURT, APPELLATE DIVISION, FIRST DEPARTMENT, DATED MARCH 2, 2016 (EXCERPT) [ADD-9-ADD-10] ~,;( EtHl' T. Sl'I INI:Il>l HM.\N ·\I I' >11!\.1 \ ~ ol 'II I{ II lion. Susanna Molina Rojas . Clerk of the Court 9- 01 J~:.}. ~ 11\ n= ( )1- NF\X' Y~ )I~ I< t ) 1·1· 1\ ·1- l ll I ll F A 1'1 ( lR Nl· Y ( ; FN I· RAI :vi arch 2. 2016 Appellate Division. First .Judicial Department 27 Madison A venue NcwYork.NY 10010 Dear Ms. Rojas. lht\11 \1\\ I l . I 1:-:l>t·H\X\ ,, l l' ~ ll hIll llt ( ;F~Ht·\1 I submit this h.:th:r to provide supplemental authority rclc\·am to the Court' s L' ( Hbidcr;ll inn or the pending appeal in the above-captioned ~.:~tsc. curn:ntly caknuared li.lr tht: April .:20 16 tcrm. ( )n Man.:h I . .:w 16. this ( 'nun hdd in P"ople ex rd ,\'dmL'iderman ,._ lhe li'ump 1:'!11repreneur lnilialive LLC. Index No. 451463/ IJ. 2016 N.Y. Slip Op. 01430 (Mar. I. 2016). that the six-yl!ar statutt: or limitations of C.P.L.R. 213( I). rather than the three-year statute of limitations of C.P.L.R. 214(2). applies to fraud claims brought by the Attorney General undcr l : x~.:wt iv ~..: Law ~ 63( 12). In so holding. the Court cxpressly wcognizt:d that ··the languag<: or ~ 63( I 2) paralle ls the language or th~ i'vlartin Act:· and favorably cited to its t:arlicr precedent applying a six-year statute of limitations 10 Martin ;\ct claims. see S1a1e (~/ .\'e1r rork r. Bronxville Glen 1 Assoc .. 181 A.D.2d 516 (I st Dep 't 1992). The so le question raised in this appeal is whether the · Attorney General's fraud claims under the Martin Act are su~jcct to the six-year statute of limitations of C.J>. L. R. 21 :l( l) or thc three-year statute of limitations or C.P.LR. 2 I 4(2). 'lh tmp conclusJvcly resolves this question in favor of a six-year statute of limitations. • I l lo t Re:-,pc~.:trul l y ) our~. -~ 1 - __..-/ . ~ AY'~-- _)TJ-: VE N C Wl ' Dcput) Solicitor Uen<:ral steven. wu,,~~ag.n)' .gov (:: 12) 416-63 12 _,, . · 1'11' 1 "~ Ct:: Ric.:hard W. Clary. 1:...-;q. :v1ichacl T. Reynolds. Esq. l .aurcn /\. Moskowit:t_ Esq. Omid II. Nasah. l ·:sq. Cravalh. Swaine & Moore I.LP Worldwide Plaza R25 Eighth !\venue New York. NY 10019 ( 111) 4 7 4- I 000 I ADD-10 I . lflorneys fhr /)efi:ndants -Appe/lanfs ADD-11 REPLY BRIEF OF DEFENDANT-APPELLANT THE GUARDIAN LIFE INSURANCE COMPANY OF AMERICA, GAIDON v. GUARDIAN LIFE INS. CO. OF AM., 96 N.Y.2D 201 (2001) (EXCERPT) [ADD-11–ADD-14] ADD-12 ADD-13 ADD-14 IAoo-1sl DEFENDING CORPORATIONS & INDIVIDUALS IN GOVERNMENT INVESTIGATIONS§ 12:11 (DANIEL J. FETIERMAN & MARK P. GOODMAN EDS., 2014) [ADD-15-ADD-17] Defending Corporations and Individuals in Government Investigations Met 4141432555 Daniel J. Fetterman & Mark P. Goodman Editors 2014-2015 Edition J :WAtNE& MOORE LL Ci\~VA!!'o~LOWIOE P~ 825 E.IGt-nH AVENU .IAN 0 I ?0\5 LIBRARY For Cusromer Assistance Call 1-800-328-4880 I ADD-161 § 12:10 DEFENDING CoRPORATIONS AND INDIVIDUAI.S entry of a permanent inj unction.8 However, it is exceptionally rare for the Attorney General to refuse an individual access to counsel during an interview, and highly unlikely that a person would be deemed uncooperative merely for seeking legal repre- sentation, or would be denied permission to enter into a joint defense agreement. 1 § 12:11 The Martin Act-Element8 of a Martin Act violation Nearly all criminal statutes are strictly construed, but the pro- visions of the Martin Act are broadly interpreted because the law is deemed to be remedial in nature and was written in order to combat a form of crime-financial fraud-which is constantly evolving through changing business practices and n ew technologies. 1 Thus, the "fraud" that is prohibited by the Martin Act is actually broader than the common law definition of fraud. ln fact, the only elements in a Martin Act violation, assuming that there is jurisdiction in the State of New York and that the conduct was engaged in to induce or promote the purchase or sale of a security, are: (1) a misrepresentation or omission that is (2) material.2 The common law fraud elements of scienter, reli- ance and damages are not required in order to demonstrate a 11N.Y. Gen. Bus. Law§ 353. TAnello and Morvillo. Securities, Investigations and Prosecutions Under the Martin Act, N.Y. L.J . (Apr. 1, 2003), available at http://www.maglaw.com/pu blis:ationsld ata/000251 _reslid=sa..Jile l/07004030007Moodllo.ndf. fSect.ion 12:11] 1Cavazos and Miller, Lhnitat:ions in Sentencing Under State Criminal Securities Fraud Statutes, N.Y. L.J ., October 29, 2009, available at http://www. stoptoc.com/assetslhtmldocuments/NYLJ%2010-29-09%20Miller-Martin%20Act %2Qcl.pd!. See also People v. Federated Radio Corporation, 244 N.Y. 33, 38-39 (1926) ("In a broad sense, the term (fraudulent practice] includes ali deceiLful practices contrary to the plain rules of common honesty. The purpose of the law is to prevent all kinds of fraud in COlUlection with the sale of securities and com- modities R1ld to defea t all unsubstantial and visionary schemes in relation thereto whereby the public is fraudulently exploited. The words 'fraud' and 'fraudulent practice,' in this connection should, therefore. be given a wide mean- ing so as to include all ac1:9, although not originating in any actual evil design or contrivance to perpetrate fraud or injury upon others, which do by their ten- dency to deceive or mislead the purcbasing public come within the purpose of the law."). 2See People ex rei. Vacco v, World Interactive Gaming Corp., 714 N.Y.S.2d 844, 853 (Sup. Ct. N.Y. County 1999) ("I t is well settled that fraud exists not only where there b.as been an affirmative misstatement of a material fact, but also where there has been an omission of a material fact."); Stoto v. Raehmani, 71 N.Y.2d 718, 725-26 (1988) (holding that misrepresentetiona and omissions 654 ADD-17 ADD-18 AMBROSE V. MCCALL, COMMENTS ON THE MARTIN ACT, 3 BROOK. L. REV. 190 (1933) (EXCERPT) [ADD-18–ADD-24] ADD-19 ADD-20 ADD-21 ADD-22 ADD-23 I ADD-241 COMMENTS ON THE MARTIN ACT 203 the price of gold, mining stocks, now occupy the center of the stage. It is a recognized fact that the Martin Act .now enjoys universal respect, and there has never been the slightest effort on the p::trt of organized security dealers or recognized stock exchanges to o~ pose either the Act or its enforcement. It has never been ch::trged with hindering legitimate business or driving business from the state. As evidence of the power and scope of the Martin Act in its present form, and as an indication of its ability to cope with the stock fraud evil in the protection of the interests of the people of the state, it is only necessary to note that in the years 1931 to 1933 Attorney General John J. Bennett, Jr. enjoined two thousand six hundred and eighty-two individuals and corporations from the sale of securities for wrongdoing; indicted ninety-three, and convicted :fifty-nine. During that period of time it is estimated that many millions of dollars were saved to the people of the state through the timely intervention of the Attorney General. These astonishing results during three years of the worst de- pression the country has ever known, with the sale of securities at its lowest ebb, afford the best evidence of the wisdom of the Legis- lature in enacting the Martin Act in its present amended form, and the most powerful argument for a continuation of its vigorous ad- ministration. I cannot close this article without an e.xpression of appreciation to Professor James L. Murphy, of the Brooklyn Law School of St .. Lawrence University, without whose patience and assistance it might never have been written. Ambrose V. McCall. NEw YoRK CrrY. I ADD-251 CHARLES H. MILLS, FRAUDULENT PRACTICES IN RESPECT TO SECURITIES AND COMMODITIES WITH SPECIAL REFERENCE TO THE MARTIN ACT (1925) (EXCERPT) [ADD-25-ADD-26] Fraudulent Practices lN llES:PECT TO SECURITIES AND COMMODITIES· WITH SPECIAL fiEFETil:o'KCB TO THE MARTIN ACT BY CHARLES H. MILLS 01" TilE ALDA)r any other title or appellation which connotes status as an attorney-at-law- ", the Court held that the action by the At.torney General was not authorized by existing Judiciary Law § 476-a. Under the Penal Law and the Judiciary Law there are numerous acts short · of the actual rendition of legal services which are either expressly forbidden or are traditionally embraced by the general term of "unlawful practice of the law", e.g., holding o neseii out as an attorney, solicitation of legal business on behalf of an attorney, purchasing claims (champerty), sharing of compensation with an attorney, business corporations, furnishing attorneys or counsel to the public, advertising the availability of quickie mail-order divorces for foreign attorneys, etc. Under the above Appellate Division decision neither the. Attorney ·General nor bar associations (whose authority is only co-extensive with that Qf the Attorney General, u.nder subdivision 2 of § 476-a) c:an move to enjoin any o£ these unlawful practices because they fall short of the actual rendition of legal services. Our courts have long recognized that the civil remedy of injunction provided by § 476-a "is in no wise inconsistent or in conflict with the longstanding penal statutes on the subject (Penal Law§§ 270, 271, 277, 280) for it is an additional and summary means effectually to control the mischief in the public interest and such power accords witl1 the public policy of the st:lte- " (Iu fl! Eptcr, 17!! Misc. 907, 36 N. Y. S. 2d 952, 953; People v. Loman, 277 N. Y. 368, 382, 383). The amendment also eliminates the need to show a "g-eneral course of conduct"-a burden of proof so onerous as to pra.ctically nullify the effectiveness 31 ADD-30 ORESTES J. MIHALY & DAVID J. KAUFMANN, GENERAL BUSINESS LAW ACT 23-A, IN 19 MCKINNEY’S CONSOLIDATED LAWS OF NEW YORK ANNOTATED (1996) (EXCERPT) [ADD-30– ADD-33] ADD-31 ADD-32 ADD-33 I ADD-341 1 WILLIAM W. KERR & ORLANDO F. BUMP, A TREATISE ON THE LAW OF FRAUD & MISTAKE (1872) (EXCERPT) [ADD-34-ADD-35] A TREATISE ON TIIE L.-\ W OF FRAUD AND ~1ISTAICE. BY WILLIA)! \VILI.JIAl\fSOX KERR, WITH NOTES TO A~IERIC.AN C1SES, BY 0 R LA K D 0 F. B G.\[ P, NE\V YORK: BAKER, VOORII I~ & CO., PUTILISHERS, 66 XA.SS.AU STREE'l'. I ADD-351 94 !IISREPRESE:\TA.TIOX. :Misrepresentation, ho"We,-er, goes for nothing either a t law or in equity unless a man bas been mb1ed then~by to his p reju- dice. ':· Fmud without dn.nmgc is not sufficient to suppor t an a<·tion or to be a. g1'01mcl for relief in eq nity.1 B ut i t is enough if the repre~cntation operates to the Jll'cjm1icc of a. man to a ver.r small ex:tent.2 Fraud gives a C'an~e of action if it leads to any sort uf (lamage.8 Dnt jn unler that a false repre::.enta- tion should giYe a c:lll-.e of action the damage must lJe the jm- mecliatc and not the remote cause of the rcprc;:;cntation.4 lli:;t'CJH'cscntation mn.'• cnn-;i:-,t as well in tllC coneealmcnt of what i:, true a:=; jn the as,.;ertion of what is fal·e.~ If a mnn <·onceals a fact tltat is nu1.teri:1l to the trau~:1ctiou) ]mowing tl1at tLe other pmty act3 on the presumption that no "'urh fact exists, it is ns much a fraud as if the existence of sueh fact were exJHCf':,lJ denied or the re•erse of it expre::,sly :-tatcd.6 f Con- cealment to Le of any aYail whatev-er. either at law or in equity, must be Jdu8 dctnslomw~ contraetui. There must be the sup- 1 Polhill v. Waltt>r. 3 n. « Ad. 114; Felhw•>S ''· Lord Gwydyl', l ~hu. 1)3, l R. & .M 83. :-ce Flint L'. Woodin, 9 Ha 618: Smitl1 , .. Kay, 7 H. L. 75fl. 2 C'allman ,._ ll••mcr: 18 Y cs. 1 U. S•·c J1o'l~ ''· Est:ttcs Invt:.>stment Co., L. R. :3 :Eq. 13(i. 1 Smith t•. Kny, 7 II. L. 7:10, 7i 5. 4 Bnrrv ,._ f'ro~ske'', 2 .T. & H . 1. ' 1 app t• LPe, 3 i3. & P. ;nl ; Cen- tral T!ailw:w Co. of Y uezu,..J:t 1•. 1\'i-ch, L. lt. 2 .\j>p. Ca. 114; Uukes v. Tur- qu md, ib :::.!13. 0 L'uuyers t'. Enuis, 2 Ma;:s. (Amer.) 236. * F3rrn.r 1'. Alston, 1 Dcv. 6!1: Tlle ·v. Gra~. 11 ·n. 61:J: Young"'- Burn- J>:l"'l, 1 Frecm. C'h 241; (lurk r. White, 12 Prt. 118; Garrow r. Dav-i~, 15 How. ~72: _\ bb<>y 1·. Dewey, 2:S Penn. 413; :i\Iorgan t'. Bliss, 2 ) l ass. 112; Fuller r. llngdt'n, 25 :Me. 243. The true mul.;ure of damages is the di:fftrence between the actn!ll v-al ue of t11e prop::>l'ty anCntul. Rawley r. WootlrutT. 2 Lans. 410. If n mnn i:;. procured to do au act C>cn through 1i'au•l. yet I he act will llc >aliol if 1t wu-. such as the law wonlrl hnvc compelled him to perform. • Young- 1. Dump·:-~, 1 Frecm. Cb. 24:1. t R ,wdon r, Dlalcllfonl, 1 S-•mlt~ Ch. 344; T rigg r. Read,:; IIumpl-... :;·;!l; Scott t'. Bamer, 2 Laus. JOi; Smith "· Click, 4 llumph. l SG; Pren· ti~s c. R uss, 16 Me. 30. I ADD-361 1 JOSEPH STORY, COMMENTARIES ON EQUITY JURISPRUDENCE§ 191 (6TH ED.1853) [ADD-36- ADD-38] / COMMENTARIES Olf EQUITY JURISPRUDEN.CE, AS ADXIMlSTEBBD IN ENGLAND AND AMERICA. Br JOSEPH STORY, LL.D. --O:Kll OF TIES ..,.8'nClta OF TlDS RJ"BZKS OOVBT OF TDlC ~ ~ AJIJ> D.crB I'BOnra&OB o• LAW m RAllY'.utl> 'OlrtVBJI8aT, ~ o.IL •• :m. ergo ex peztibuajaria, quidqald aa' ex fpe& re, aut ex .mw1, aat ex majore, ua.l.D.«ovo, DUci 'ridcbitur1 a«endore, atqao oLi«ro, pertontaDdo uuamq~~Amque partem jurle, oponcblt.'' - Cso. Do Invon'- IJI>. t, cap. 2:1. SIXTH EDITION. IN TWO VOLUHES. VOLUME. I. BOSTON: LITTLE. BROWN .AND COMPANY. 1853. ADD-37 ADD-38