Commonwealth of Pennsylvania Public School Employees' Retirement System,, et al., Plaintiffs, Commerzbank AG,, Appellant,v.Morgan Stanley & Co., Incorporated, et al., Respondents, et al., Defendants.

Brief

N.Y.November 17, 2014

1000007_1 To be Argued by: Joseph D. Daley (Time Requested: 30 Minutes) NO. CTQ-2014-00008 Court of Appeals of the State of New York ← ♦ → COMMONWEALTH OF PENNSYLVANIA PUBLIC SCHOOL EMPLOYEES’ RETIREMENT SYSTEM, together and on behalf of all others similarly situated, et al., Plaintiffs, COMMERZBANK AG, together and on behalf of all others similarly situated, Plaintiff-Appellant, vs. MORGAN STANLEY & CO., INCORPORATED, et al., Defendants-Respondents. ON CERTIFIED QUESTIONS FROM THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT No. 13-2095-cv(L) BRIEF FOR PLAINTIFF-APPELLANT ROBBINS GELLER RUDMAN & DOWD LLP JOSEPH D. DALEY DANIEL S. DROSMAN LUKE O. BROOKS 655 West Broadway, Suite 1900 San Diego, CA 92101-3301 Telephone: 619/231-1058 619/231-7423 (fax) Attorneys for Plaintiff-Appellant Commerzbank AG Dated: January 21, 2015 1000007_1 CORPORATE DISCLOSURE STATEMENT Plaintiff-Appellant Commerzbank AG is a stock corporation established under German law, but there exists no publicly held corporation holding 10% or more of its stock. TABLE OF CONTENTS Page - i - 1000007_1 I. PRELIMINARY STATEMENT ..................................................................... 1 II. QUESTIONS CERTIFIED FOR REVIEW .................................................... 3 III. JURISDICTIONAL STATEMENT ................................................................ 3 IV. FACTUAL AND PROCEDURAL BACKGROUND .................................... 5 A. The Underlying Facts ............................................................................ 5 1. A Short Primer on SIVs in General and the Rated Notes Here in Particular ........................................................................ 5 2. The Fraudulent Ratings Assigned to the Rated Notes ................ 6 3. The Cheyne SIV Collapses in Late 2007 .................................. 10 4. Morgan Stanley’s Role in the Fraud ......................................... 10 5. Commerzbank’s Acquisition of Rated Notes: Three Declarations Recount the Unbroken Chain from DAF to Dresdner to Commerzbank ....................................................... 13 B. The Proceedings Below ....................................................................... 16 1. The District Court ..................................................................... 16 a. The Court Denies Commerzbank’s Standing as to Certain Rated Notes ........................................................ 17 b. The District Court Rejects Fraud Claims Against Morgan Stanley ............................................................... 18 c. The District Court’s Denial of Reconsideration ............. 20 2. The Second Circuit Court of Appeals ....................................... 23 Page - ii - 1000007_1 a. Commerzbank’s Right to Sue Under New York Law ................................................................................. 24 b. Morgan Stanley’s Liability for Fraud Under New York Law ........................................................................ 26 V. SUMMARY OF ARGUMENT ..................................................................... 28 VI. ARGUMENT ................................................................................................. 31 A. Commerzbank Has Standing to Sue on the DAF Notes ..................... 31 1. No Magic Words Were Required to Transfer DAF’s Entire Interest in the Rated Notes – Which by Definition Includes Any Related Tort Claims – to Dresdner ..................... 31 2. There Has Been a Marked Trend in New York Law Adopting Principles of the Free Assignability of All Claims ....................................................................................... 39 B. A Reasonable Trier of Fact Could Find Morgan Stanley Liable for Fraud Based on the Evidence Adduced ......................................... 49 1. Morgan Stanley Is Liable for the Fraudulent Ratings and Related Materials, as Well as for Its Omissions ....................... 52 a. Morgan Stanley Is Liable for Its Direct Role in Constructing the Fraudulent Ratings and Causing Them to Be Communicated to Investors ........................ 52 b. Morgan Stanley Is Liable for Its Fraudulent Omissions Given Its Superior Knowledge of Facts Not Readily Available to Plaintiff .................................. 57 2. Alternatively, Morgan Stanley Is Liable for Its Knowing Participation in a Scheme to Defraud ....................................... 60 Page - iii - 1000007_1 3. The New York Appellate Division Decisions Flagged by the Second Circuit that Seem to Require Specific Misstatements Attributed to Defendants Before Fraud Will Attach Were Decided Narrowly on Unique Facts ............ 63 VII. CONCLUSION .............................................................................................. 69 TABLE OF AUTHORITIES Page - iv - 1000007_1 CASES Aini v. Sun Taiyang Co., 964 F. Supp. 762 (S.D.N.Y. 1997) ..................................................................... 33 Allstate Ins. Co. v. Countrywide Fin. Corp., 824 F. Supp. 2d 1164 (C.D. Cal. 2011) ........................................................ 52, 53 Banque Arabe Et Internationale D’Investissement v. Maryland Nat’l Bank, 57 F.3d 146 (2d Cir. 1995) ..........................................................................passim Brandoff v. Empire Blue Cross & Blue Shield, 707 N.Y.S.2d 291 (Civ. Ct. 1999) ...................................................................... 32 Coastal Commercial Corp. v. Samuel Kosoff & Sons, Inc., 199 N.Y.S.2d 852 (App. Div. 1960) ................................................................... 33 CPC Int’l Inc. v. McKesson Corp., 70 N.Y.2d 268 (1987) ....................................................................... 60, 61, 62, 63 Danna v. Malco Realty, Inc., 857 N.Y.S.2d 688 (App. Div. 2008) ....................................................... 60, 61, 62 Dillon v. Morano, 497 F.3d 247 (2d Cir. 2007) ............................................................................... 61 Ellington Credit Fund, LTD. v. Select Portfolio Servicing, Inc., 837 F. Supp. 2d 162 (S.D.N.Y. 2011) ................................................................ 59 Eurycleia Partners, LP v. Seward & Kissel, LLP, 849 N.Y.S.2d 510 (App. Div. 2007) ................................................. 63, 64, 65, 66 Fox v. Hirschfeld, 142 N.Y.S. 261 (1st Dep’t 1913) ...................................................... 46, 47, 48, 49 Gingold v. State Farm Ins. Co., 642 N.Y.S.2d 812 (Civ. Ct. 1996) ................................................................ 33, 40 Page - v - 1000007_1 Griffey v. New York Cent. Ins. Co., 100 N.Y. 417 (1885) ........................................................................................... 32 In re Estate of Boissevain, 40 Misc. 2d 237 (N.Y. Sur. Ct. 1963)................................................................. 33 In re Fitch, Inc., 330 F.3d 104 (2d Cir. 2003) ........................................................................passim Int’l Design Concepts, LLC v. Saks, Inc., 486 F. Supp. 2d 229 (S.D.N.Y. 2007) .........................................................passim Leon v. Martinez, 84 N.Y.2d 83 (1994) ..................................................................................... 32, 40 Mateo v. Senterfitt, 918 N.Y.S.2d 438 (App. Div. 2011) ................................................. 63, 66, 67, 68 MBIA Ins. Corp. v Countrywide Home Loans, Inc., 87 A.D.3d 287 (N.Y. App. Div. 2011) ......................................................... 52, 65 Metro. Life Ins. Co. v. Morgan Stanley, No. 651360/2012, 2013 N.Y. Misc. LEXIS 3056 (N.Y. Sup. Ct. July 8, 2013) ........................................................................passim Pa. Pub. Sch. Emps. Ret. Sys. v. Morgan Stanley & Co., 772 F.3d 111 (2d Cir. 2014) ........................................................................passim Premium Mortg. Corp. v. Equifax, Inc., 583 F.3d 103 (2d Cir. 2009) ............................................................................... 49 Pro Bono Invs., Inc. v. Gerry, No. 03 Civ. 4347 (JGK), 2008 U.S. Dist. LEXIS 87450 (S.D.N.Y. Oct. 28, 2008) .................................................................................... 40 Swersky v. Dreyer & Traub, 643 N.Y.S.2d 33 (App. Div. 1996) ............................................................... 58, 65 Page - vi - 1000007_1 Williams v. Sidley Austin Brown & Wood, L.L.P., 832 N.Y.S.2d 9 (App. Div. 2007) ....................................................................... 59 STATUTES, RULES AND REGULATIONS 28 U.S.C. §1291 ..................................................................................................................... 4 §1332(a)(3) ........................................................................................................... 4 New York Court of Appeals Rules §500.27 .................................................................................................................. 4 Federal Rules of Civil Procedure Rule 17(a)(3) ................................................................................................passim Rule 54(b) ............................................................................................................. 4 United States District Court, Second Circuit Local Rules §27.2 ...................................................................................................................... 4 17 C.F.R. §270.2a-7 ...................................................................................................... 14, 15 New York Code - General Obligations §13-101 ............................................................................................................... 39 §13-105 ............................................................................................................... 40 SECONDARY AUTHORITIES 60A N.Y. Jur. 2d Fraud and Deceit (2014) §124 ..................................................................................................................... 52 Black’s Law Dictionary (6th ed. 1990) .................................................................... 34 - 1 - 1000007_1 I. PRELIMINARY STATEMENT The underlying action, initially brought as a putative class action, charges several financial-industry players with fraud and fraud-related claims in connection with the sale of a multi-billion-dollar “structured investment vehicle” (“SIV”) composed of asset-backed securities. Defendants-Respondents are Morgan Stanley & Co. Inc. and Morgan Stanley & Co. International Ltd. (“Morgan Stanley”); Standard & Poor’s Ratings Services and The McGraw-Hill Companies, Inc. (“S&P”); and Moody’s Investors Service, Inc. and subsidiary Moody’s Investors Service Ltd. (“Moody’s”) (together with S&P, the “Rating Agencies”). As will be explained more fully infra, the action’s remaining plaintiff (and Appellant here) is German bank Commerzbank AG (“Commerzbank”). The SIV at this litigation’s center (“Cheyne SIV,” or “Cheyne”) issued several categories of rated investment notes (“Rated Notes,” or “Notes”) for sale in several debt offerings that took place between October 2004 to October 2007. Because of their complex structure SIV notes are unmarketable without high credit ratings; thus, notes offered to SIV investors typically must receive ratings from “rating agencies” as a condition precedent to their issuance and ultimate purchase. Credit-rating agencies (like defendants Moody’s and S&P here) evaluate debt offerings based on information - 2 - 1000007_1 regarding the issuer’s assets, and assign ratings that ostensibly inform potential creditors/investors about the issuer’s creditworthiness. Due to the defendants’ efforts, the Rated Notes boasted high marks. Morgan Stanley insinuated itself into the rating process, and included the ratings in the Cheyne SIV’s “Information Memoranda” and other selling documents that it distributed to potential investors before and during the selling period. In truth, however, the Cheyne SIV was larded with risky, poor-quality securities. The sterling ratings were false and misleading because the models, data, and assumptions used were unreasonable, false, and based upon pure guesswork. Defendants possessed specific information that a materially large number of assets underlying the Cheyne SIV were in fact far riskier than represented, making the Rated Notes much more likely to default than their high ratings conveyed. Despite the foregoing, beginning in 2004 and continuing into 2007, defendants distributed selling documents emphasizing the Notes’ ostensible top ratings and reassuring investors that the entire structure was rated “Triple A.” The Cheyne SIV collapsed in summer 2007, however, as the actual quality and value of the subprime mortgages that secured the Rated Notes began to be publicly revealed. In fall 2007, the Cheyne SIV declared bankruptcy. - 3 - 1000007_1 Plaintiff-Appellant is Commerzbank, an investor in the Cheyne SIV that claims fraud-related injuries by dint of (i) its own purchases of the Rated Notes, as well as (ii) its complete ownership of additional Rated Notes following its 2009 acquisition of Dresdner Bank AG (“Dresdner”), which had purchased those same Notes from the Allianz Dresdner Daily Asset Fund (“DAF”) in fall 2007. II. QUESTIONS CERTIFIED FOR REVIEW 1. Based on the declarations and documentary evidence presented by Commerzbank, could a reasonable trier of fact find that DAF validly assigned its right to sue for common law fraud to Dresdner in connection with its sale of Cheyne SIV notes? 2. If the Court answers Question One affirmatively, based on the record established in the summary judgment proceedings in the district court, could a reasonable trier of fact find Morgan Stanley liable for fraud under New York law?1 III. JURISDICTIONAL STATEMENT The underlying putative class action asserted New York common law claims of, inter alia, fraud, negligent misrepresentation, and aiding and abetting against various 1 Should this Court agree that reasonable factfinders may find Morgan Stanley liable for fraud, a fortiori the Rating Agencies’ liability for aiding and abetting Morgan Stanley’s fraud should be reinstated; Commerzbank has already made that assertion in the Second Circuit briefing. - 4 - 1000007_1 defendants in connection with billions of dollars in securities transactions. The district court had jurisdiction pursuant to 28 U.S.C. §1332(a)(3). A234:¶29. The Second Circuit Court of Appeals had jurisdiction over the appeal from the district court’s final judgment (entered pursuant to Fed. R. Civ. P. 54(b)) under 28 U.S.C. §1291. Following briefing and argument, the Second Circuit issued its opinion affirming the district court in part. A184-A210; see also Pa. Pub. Sch. Emps. Ret. Sys. v. Morgan Stanley & Co., 772 F.3d 111 (2d Cir. 2014).2 In that opinion, the Second Circuit certified two questions to this Court pursuant to Second Circuit Local Rule §27.2. Id. at 124. This Court accepted the certified questions on November 20, 2104 (A211-A212), giving it jurisdiction under §500.27 of the New York Court of Appeals Rules of Practice. 2 Because the Second Circuit’s October 31, 2014 slip opinion reproduced in the Appendix contains an incorrect factual assertion that was later corrected after being brought to the court’s attention, this Brief will cite to the official, post-correction version of the opinion published in the Federal Reporter, 3d Series. - 5 - 1000007_1 IV. FACTUAL AND PROCEDURAL BACKGROUND A. The Underlying Facts 1. A Short Primer on SIVs in General and the Rated Notes Here in Particular This case involves the collapse of the Cheyne SIV, a structured investment vehicle that held asset-backed securities – many of them involving risky, nonprime mortgages. A222:¶1. SIVs issue short-term commercial paper and medium-term notes to finance the acquisition of long-term, fixed-income assets such as mortgage bonds and asset-backed securities, including residential mortgage-backed securities (“RMBS”). A47.3 Because of their complex structure, SIVs are virtually unmarketable without high credit ratings from rating agencies (A222:¶1); indeed, high ratings were a condition precedent to marketing the Rated Notes. A404-A407:¶28. Rating agencies like defendants Moody’s and S&P are “nationally recognized statistical rating organizations” or “NRSROs,” enjoying a special status created by the Securities and Exchange Commission. A49. 3 The Cheyne SIV issued several categories of notes: Senior Capital Notes (aka Commercial Paper (“CP”) and Medium Term Notes (“MTNs”)); Mezzanine Capital Notes (“MCNs”); Junior Capital Notes; and Combination Capital Notes, which contain a mix of the last two. A47-A48. - 6 - 1000007_1 Issuers ordinarily want their securities rated by NRSROs for two reasons: “First . . . a favorable rating . . . makes it easier to sell the security to investors, who rely upon [the rating agency’s] analysis and evaluation.” In re Fitch, Inc., 330 F.3d 104, 106 (2d Cir. 2003). Second, “a favorable rating carries with it a regulatory benefit as well,” as most regulated institutional investors are limited to investments in securities with NRSRO ratings. Id. 2. The Fraudulent Ratings Assigned to the Rated Notes Defendants marketed the Rated Notes as highly-rated and supposedly supported by “investment grade” collateral assets and reasonable assumptions. A224:¶6; A49- A50. The entire structure was (ostensibly) rated “AAA,” or risk-free. A223:¶3. In truth, Cheyne’s top-notch ratings were false and undeserved, for the assumptions underlying the ratings were untested and not backed by relevant data. A265:¶113. Defendants used models and assumptions based on outdated historical information preceding Year 2000 that was previously used to rate corporate bonds – but that had no relevance to rating the mortgage-backed assets in the Cheyne SIV. A265-A266:¶114. This information did not reflect the true state of the mortgage market during the relevant time period, because from the time period spanning 2001- 2005: (i) the percentage of “subprime” mortgage loans tripled; (ii) the combined loan- to-value ratio of loans in excess of 90% tripled; (iii) “limited documentation” loans (or - 7 - 1000007_1 “liar loans”) nearly quadrupled; (iv) “interest only” and “option” adjustable-rate mortgages quintupled; (v) “piggy back” or second-lien mortgages doubled; (vi) the amount of equity U.S. homeowners stripped out of their homes tripled; (vii) the volume of loans originated for “second homes” more than tripled; (viii) the percentage of loans including “silent seconds” experienced over a 16,000% increase; and (ix) the volume of nontraditional mortgages more than quintupled. Id. As the district court noted, plaintiffs’ evidence created an issue of fact as to whether the ratings were misleading when issued; that evidence included “expert testimony that the ratings were not justified by the underlying facts when they were issued; and . . . numerous statements from employees of the Rating Agencies describing how ratings should be calculated and the ways in which the Rating Agencies’ practices fell short of that standard.” A84 (footnote omitted). The evidence showed that the Rating Agencies did not believe the ratings when they issued them. Id. One Moody’s analyst explained that a “AAA” rating ordinarily describes underlying assets that “‘should survive the equivalent of the . . . Great Depression, . . . with no loss to Aaa holders.’” A85. And yet, Moody’s primary analyst on the Cheyne SIV, David Rosa, observed in a 2005 e-mail that there was “‘no actual data backing the current model assumptions’” on the Cheyne deal. Id. & - 8 - 1000007_1 n.144.4 Rosa also admitted that, although the Cheyne SIV contained a high percentage of RMBS, he had little knowledge of the United States RMBS market when he rated Cheyne. Id. & n.145. Additional statements from S&P personnel echo the wholesale abdication of proper rating practices in connection with the Cheyne SIV and with SIVs in general. S&P’s head quantitative analyst for structured finance conceded that the methodology used to rate the Cheyne SIV was “‘totally inappropriate.’” A86. Another S&P analyst, Shannon Mooney, conceded in an April 2007 instant-message chat that a model being used “‘does not capture half of the ris[k],’” to which her colleague replied that “‘we should not be rating it.’” Id. Yet another S&P employee wrote to a colleague in November 2005 after receiving an e-mail from Morgan Stanley asking to rate a deal while using an obsolete model, “‘Lord help our fucking scam . . . this has to be the stupidest place I have worked at.’” A87 n.149. “[A]s with Moody’s,” the district court observed, plaintiffs had offered “e-mails, deposition testimony, and internal memoranda in which S&P employees indicate concern with the paucity of data and the adequacy of the models used to rate Cheyne and SIVs in general.” A87. 4 Throughout this Brief, emphasis will be added and citations omitted unless otherwise noted. - 9 - 1000007_1 The Rating Agencies received a substantial success fee for helping Morgan Stanley launch the Cheyne SIV, as well as fees that increased in tandem with the SIV’s growth (A232:¶23); in fact, for rating the Cheyne SIV they received fees in excess of three times their normal fees. A224-A225:¶7; see also A95 (Moody’s analyst acknowledges ratings on CDOs and SIVs were “‘cash cows’”). It was a condition precedent to the offering of Senior and Mezzanine Notes that they receive superlative ratings. A404-A407:¶28. It was apparent from plaintiffs’ evidence, the district court observed, that “the Rating Agencies had incentives to issue top ratings, regardless of whether those ratings were supportable.” A94. If the Rating Agencies had not issued the top ratings that Morgan Stanley demanded, “Morgan Stanley could have taken its business elsewhere.” Id. Notably, the Ratings Agencies actually helped structure and monitor the Cheyne SIV and the issuance of Rated Notes. A275:¶138. By also assigning ratings to those products, the Rating Agencies were both grading their own work and grading the work of the banks that had paid them for the ratings – thus ensnaring themselves in disabling conflicts of interest. A225-A226:¶¶9-10. At bottom, noted the district court, there existed “evidence that the Rating Agencies compromised the quality of their ratings in pursuit of profits.” A95. - 10 - 1000007_1 3. The Cheyne SIV Collapses in Late 2007 By late-summer 2007, the truth about the dismal quality of the mortgages securing the Rated Notes began to be revealed. A227-A228:¶14. Because of its underlying assets’ low quality, the Cheyne SIV was unable to pay senior debt as it came due, and the entity collapsed. Id. On August 28, 2007, Cheyne breached its “Major Capital Loss Test,” thus triggering “enforcement” – an irreversible operating state requiring that a receiver be appointed to manage the Cheyne SIV in order to sell its assets and repay maturing liabilities. A50-A51. On August 29, 2007, The New York Times reported that S&P had “‘abruptly’” downgraded short-term notes issued by the Cheyne SIV, while noting that “‘[r]eports of the downgrade sent shockwaves through the commercial paper market late yesterday.’” A292:¶188. Cheyne was restructured and an auction process instituted, wiping out much of the value of the Senior Notes and wiping out all of the remaining value of the Capital Notes. A227-A228:¶14. Holders of Senior Notes recovered a fraction of their investments; the Capital Notes were worthless. Id. 4. Morgan Stanley’s Role in the Fraud Morgan Stanley acted as the Arranger and Placement Agent for the Rated Notes. A48. In those roles, Morgan Stanley was responsible for distributing to - 11 - 1000007_1 prospective investors Information Memoranda and other selling documents containing information regarding the Notes issued by the Cheyne SIV, including ratings assigned by the Rating Agencies, and the terms and conditions of the Notes’ purchase and sale. Id. In those documents, defendants emphasized the Notes’ ostensibly blue-ribbon ratings. A223:¶3. Morgan Stanley primed the pump, too. Even before the Cheyne SIV was launched, Morgan Stanley contacted potential investors and touted the supposedly top-notch nature of the Rated Notes. For example, on April 13, 2005, Morgan Stanley e-mailed plaintiff Abu Dhabi Commercial Bank, listing the “expected ratings from both Rating Agencies.” A114. It did so, even though Moody’s had not yet issued its preliminary ratings. A113. Similarly, in a November 1, 2004 e-mail to plaintiff Global Investment Services Ltd., Morgan Stanley said that it was bringing to market a new SIV that was expected to have high ratings from both Moody’s and S&P. A115 & n.252. But Morgan Stanley did more than arrange, tout, and place the doomed Notes; it engaged the Rating Agencies to rate them (A48-A49), and manipulated the modeling process to create the sterling ratings that it desired. A131. Morgan Stanley was a demanding taskmaster, ordering – and receiving – top ratings for the Cheyne SIV. The district court noted record evidence “indicating that - 12 - 1000007_1 Morgan Stanley pressured the Rating Agencies to issue ratings it did not believe were accurate.” A132. For example, in a July 22, 2004 e-mail to Morgan Stanley’s lead structurer Gregg Drennan, an S&P analyst involved in rating the Cheyne SIV informed him that S&P was only willing to assign a “BBB” rating to the MCNs. Id. & n.307. The next day, Drennan replied to both the analyst and the analyst’s boss, castigating what Morgan Stanley regarded as S&P’s “‘very inappropriate’” position. A132-A133. S&P caved to Morgan’s demand, ultimately assigning the same MCNs an “A” rating. A133. Drennan later boasted that Morgan’s efforts “‘[got] us the rating we wanted in the end.’” Id. The district court observed that the record contains additional “evidence suggesting that despite misgivings, Morgan Stanley manipulated the Cheyne SIV modeling process to create the ratings it desired.” A131. Morgan’s lead structurer Drennan wrote that Morgan Stanley had “‘develop[ed] a new model for the [Cheyne SIV] transaction’” and “‘adapt[ed] and creat[ed] a new form of SIV methodology that was presented to the rating agencies and the client for their approval.’” Id. Drennan also described Morgan Stanley as “‘pushing the envelope’” on SIVs. A132. - 13 - 1000007_1 5. Commerzbank’s Acquisition of Rated Notes: Three Declarations Recount the Unbroken Chain from DAF to Dresdner to Commerzbank Commerzbank sued on Rated Notes that it had acquired. A229:¶16(b). Some of them Commerzbank had purchased; others it acquired by merging with Dresdner in 2009, following Dresdner’s purchase of DAF’s Notes in 2007. A64. The latter transaction had totaled some $120 million, as DAF had purchased approximately $45 million of CP and $75 million of MTNs from Cheyne. A436:¶3. The Notes’ chain of succession from DAF to Commerzbank is recounted in several declarations; two of them, held the Second Circuit, had been improperly ignored by the district court in considering Commerzbank’s standing. Pennsylvania Public School, 772 F.3d at 122 (“The court should . . . have considered the new evidence proffered in the motion for reconsideration and ratification.”); see also id. at 123 (“The Williams and Shlissel declarations . . . are significantly more thorough with respect to the issue of transfer” of the Rated Notes.). One declaration was filed by Brian Shlissel, a Managing Director of Allianz Global Investors Fund Management LLC (“AGI”), and President and CEO of Allianz Global Investors Managed Accounts Trust (“AGIMAT”);5 notably, he had been serving in the latter capacity at the time of Dresdner’s 2007 purchase of the Notes 5 A436-A437:¶¶2-5. - 14 - 1000007_1 from DAF.6 Shlissel’s position at AGIMAT is notable, in that DAF was a series of the AGIMAT trust at the time, and operated as a money market fund for clients of the agency-lending business of Dresdner.7 As a money market fund, DAF was prohibited by the Investment Company Act of 1940’s Rule 2a-7 from holding securities that were not top-rated by an NRSRO.8 In October 2007, the Notes were downgraded to “Not Prime” – which meant that DAF was statutorily prohibited from holding them.9 As a result, Dresdner purchased the downgraded Notes from DAF for cash, at “par,” for an aggregate price of $121,078,069.10 Shlissel averred that neither DAF, nor AGI (which administered the trust under which DAF operated), “retained any claims, causes of action, or rights related to the Notes” in connection with their 2007 sale to Dresdner.11 Rather, all parties involved 6 A437:¶5. 7 A436:¶¶2-3. 8 A436:¶3. 9 A436-A437:¶4. 10 Id. 11 A437:¶5. - 15 - 1000007_1 had understood and believed that all claims, causes of action, et cetera, would “automatically be transferred” from DAF to Dresdner.12 DAF ceased operations, and then was terminated in January 2009. A437:¶6. Any residual interests, assets, or property of DAF reverted to AGIMAT. Id. “[F]or the avoidance of doubt,” both AGI and AGIMAT agreed that Commerzbank was authorized to pursue recovery “for its own benefit to recoup losses related to the Notes,” which losses had previously been “borne solely” by Dresdner’s Grand Cayman Branch. Id. Other declarations corroborate this chain of events. The “Reliance Declaration,” filed by plaintiffs while opposing defendants’ summary judgment motion, explains that Dresdner “purchased CP and MTNs at par” from DAF in October 2007, and that DAF subsequently was “wound down” in the latter half of 2008. A328-A329:¶8. Commerzbank acquired Dresdner in January 2009, merging it into Commerzbank in May 2009 under the German Transformation Act. Id. Under that Act, “all of Dresdner’s rights, obligations, and claims” arising out of Dresdner’s holding of the DAF Notes “now vest in Commerzbank.” Id. A third declaration, filed by Christopher Williams, Senior Counsel of Commerzbank’s New York Branch, echoes those same averments – including DAF’s 12 Id. - 16 - 1000007_1 money-market-fund status, its original purchase of Rated Notes, the October 2007 downgrade, and subsequent sale to Dresdner “at par” in accordance with Investment Act rules. A422-A423:¶¶1-4. At the time of the Notes’ purchase from DAF, Williams was serving as Senior Counsel to the Dresdner branch (Grand Cayman) that bought the Notes at par. A423-A424:¶5. Williams notes that because DAF suffered no loss from its sale of the Notes to Dresdner, it “had no reason to retain the litigation rights with respect to the Notes.” Id. Williams also notes his belief that, at the time of the deal, “it was understood and believed by all parties involved in the transaction that any and all claims, causes of action, rights, and/or obligations that might exist at the time of the sale . . . with respect to the Notes would automatically be transferred from DAF to the Dresdner Grand Cayman Branch along with the transfer of the Notes themselves.” Id. He further confirms that when Commerzbank merged Dresdner into itself under the German Transformation Act, “all of Dresdner’s assets, liabilities, rights and obligations passed automatically by operation of law to Commerzbank.” A424:¶7. B. The Proceedings Below 1. The District Court The district court issued several rulings in the underlying matter, including a class certification denial, a partial summary judgment grant in defendants’ favor, and a - 17 - 1000007_1 subsequent denial of plaintiffs’ motion for reconsideration.13 The latter two rulings are relevant to this Court’s disposition of the Certified Questions. a. The Court Denies Commerzbank’s Standing as to Certain Rated Notes In its Summary Judgment Opinion, the district court began its “standing” analysis of several plaintiffs by noting that an assignee holding legal title to an injured party’s claim has constitutional standing to pursue that claim. A61. New York law permits the free assignability of fraud claims, the court explained, and any acts or words showing an intention to transfer the chose in action would suffice. A61-A62. With that premise as a backdrop, the district court addressed Commerzbank’s standing as to certain Rated Notes. Commerzbank had sued both on Notes it had purchased for itself and on DAF’s investments in Cheyne. A64. Commerzbank did so because Dresdner had purchased its Notes from DAF in October 2007, and Commerzbank acquired Dresdner in May 2009. Id. In the district court’s eyes, however, this chain of succession was insufficient to confer standing upon Commerzbank as to the DAF-purchased Notes. A65. 13 The district court refused to grant summary judgment to the Rating Agencies on most of the fraud claims against them brought by various plaintiffs (A76-A130); in a companion holding, it held that plaintiffs had offered sufficient evidence from which a jury could infer that Morgan Stanley aided and abetted the fraud. A130-A133. - 18 - 1000007_1 The court conceded that Commerzbank had offered “evidence that it has acquired any potential rights of action possessed by Dresdner.” A64. That said, however, the court believed that Commerzbank had provided no evidence that DAF had assigned its rights of action to Dresdner. Id.14 The court was not persuaded by Commerzbank’s recitation in the Reliance Declaration that Dresdner had purchased the Notes “at par” from its “affiliate,” DAF, or Commerzbank’s confirmation that “it is authorized to pursue recovery” relating to the Notes, and had agreed “to be bound by any decisions or judgments in this action.” A328-A329:¶8. Concluding that Commerzbank lacked standing to sue on DAF’s Notes purchases, the district court dismissed those particular claims. A65. b. The District Court Rejects Fraud Claims Against Morgan Stanley Although the district court had previously upheld plaintiffs’ fraud claims against Morgan Stanley, in its Summary Judgment Opinion it dismissed them. A76. Its reasoning for the dismissal revolved around the theme of non-responsibility. 14 Moreover, although Commerzbank argued that its acquisition of the Notes meant that it became their record owner prior to bringing suit, the district court demanded New York state authority stating that “the record holder of a rated note may bring fraud claims on behalf of prior holders, even without an assignment.” A65 & n.75 (distinguishing federal law holding that record holders of securities are real parties in interest who may sue in their own names). - 19 - 1000007_1 The district court disagreed with plaintiffs that Morgan Stanley bore any responsibility for the false ratings it disseminated to investors. Although Morgan Stanley had put together the Information Memoranda containing the false ratings, and those memoranda (along with other marketing materials) were utilized to sell the Rated Notes (A279-A280:¶154), the court believed that “the ratings are attributable only to the Rating Agencies that issued them.” A74 (court’s emphasis). Indeed, allowed the court, even if Morgan Stanley had possessed “actual knowledge” that the ratings were false, it only aided and abetted the Rating Agencies’ fraud. Id. Although e-mail evidence showed Morgan Stanley taking credit for actually writing a “New Issue Report” containing false ratings, the court found the admission benign: “[T]he statement does not imply that Morgan Stanley . . . authored or assigned the ratings as opposed to the report.” A76 (court’s emphasis). Second, the district court absolved Morgan Stanley from its participation in the fraudulent scheme. A68-A72. The New York “scheme” cases plaintiffs had cited were inapposite, it said, because they (i) were decided at the pleading stage, and/or (ii) did not distinguish between outright fraud and mere aiding-and-abetting. A69-A72. That ruling hinged on plaintiffs’ failure to cite any New York cases in which a common law fraud claim “against a defendant who made no actionable misstatement survived summary judgment.” A70. - 20 - 1000007_1 Finally, the district court concluded that whether Morgan Stanley committed actionable fraudulent omissions was “irrelevant.” A72 n.96. The court thought that omissions could not constitute fraud absent a fiduciary relationship between the parties – and no such relationship existed here. Id. c. The District Court’s Denial of Reconsideration Several plaintiffs moved for reconsideration of the Summary Judgment Opinion. Among the movants were Commerzbank and “Butterfield”; similar to Commerzbank, the latter had been denied standing to sue on a Cheyne investment made by a money-market fund that was managed by Butterfield’s wholly-owned subsidiary. A63-A64. As described more fully supra at §IV.A.5., Commerzbank submitted several declarations explaining the chain of succession of the $120 million in Rated Notes that DAF had purchased from Cheyne. A422-A424:¶¶3-7 (Williams Declaration); A436- A437:¶¶2-6 (Shlissel Declaration). The declarations explained that DAF had re-sold the Notes in October 2007 to Dresdner’s Grand Cayman Branch for $121-plus million, representing the Notes’ amortized cost plus accrued interest.15 DAF thus 15 A422-A423:¶4; A436-A437:¶4. - 21 - 1000007_1 suffered no loss as a result of Dresdner’s purchase, and retained no claims or rights associated with the Notes.16 DAF ceased operations in August 2008. 17 Plaintiff Commerzbank then acquired Dresdner in January 2009, and all of Dresdner’s assets, liabilities, rights, and obligations were transferred to Commerzbank pursuant to the German Transformation Act – with Dresdner also ceasing to exist as a legal entity.18 Commerzbank even submitted a Rule 17(a)(3) “Notice of Ratification” attaching one of the two declarations, and stating that the Massachusetts business trust that had formerly included the DAF and the trust’s administrator both expressly ratified Commerzbank’s ability to pursue recovery related to the Notes.19 The district court remained unmoved. It brushed aside the declarations as “new evidence” not allowed on a motion for reconsideration. A148. Although the court acknowledged that it had imposed page limitations in connection with summary judgment, and that plaintiffs had sought – and been denied – leave to provide more-detailed declarations, it said that those limitations 16 A423-A424:¶5; A437:¶5. 17 A437:¶6. 18 A424:¶7. 19 A426-A438. - 22 - 1000007_1 meant that plaintiffs had “faced a series of tactical decisions” as to which declarations, evidence, et cetera, were most essential to their summary judgment opposition. A150. The court conceded, in connection with Butterfield’s motion for reconsideration, that it had overlooked Rule 17(a)(3)’s express allowance for “ratification” by the “‘real party in interest’” so long as it is done within “‘a reasonable time.’” A155. The court also rejected defendants’ argument that the money market fund could not ratify Butterfield’s claims because the fund had no losses and therefore lacked standing of its own; that argument amounted “to an assertion that there is no real party in interest.” A156 (court’s emphasis). “Such an outcome is untenable.” Id. Commerzbank was not as fortunate. The district court said Commerzbank’s ratification was untimely, because (unlike Butterfield) Commerzbank hadn’t filed one while opposing defendants’ summary judgment motion. A157. The ratification came too late. Id. Nor had the district court overlooked relevant case law, it said. Although plaintiffs had cited authorities holding that the transfer of “‘all assets’” encompassed all causes of action owned by the transferor, Commerzbank’s statement in the Reliance Declaration had not specified “‘all assets.’” A158. Rather, said the court, Commerzbank simply stated that Dresdner had purchased the Notes “‘at par from - 23 - 1000007_1 DAF, an affiliate of Dresdner.’” Id. That was insufficient to establish that DAF assigned tort rights to Dresdner. Id. So far as Commerzbank’s assertion that it had standing because DAF no longer existed, that argument failed, too: The district court thought that Commerzbank had provided “no evidence” that DAF’s sale of notes to Dresdner (i) was made in contemplation of its dissolution, or (ii) the terms were broad enough to include an assignment of tort claims. A159. In light of the foregoing, the district court denied Commerzbank’s reconsideration motion. Id. 2. The Second Circuit Court of Appeals Plaintiffs timely appealed the district court’s decisions to the Second Circuit Court of Appeals. Following briefing and oral argument, the Second Circuit issued a published opinion affirming in part the district court, but holding that the lower court had erred in refusing to consider Commerzbank’s proffered evidence regarding the fraud claim’s transfer from DAF to Dresdner to Commerzbank. Pennsylvania Public School, 772 F.3d 111.20 The Second Circuit certified the New York state-law 20 In holdings that are not relevant to the Certified Questions before this Court, the Second Circuit affirmed the district court’s dismissal of another plaintiff on diversity- destroying grounds (Pennsylvania Public School, 772 F.3d at 117-19), and held that the denial of class certification was within the district court’s discretion. Id. at 119- 21. - 24 - 1000007_1 ramifications of that question to this Court, as well as the related question of whether a reasonable jury could find, on the evidence adduced, that Morgan Stanley could be liable for fraud. Id. at 124. a. Commerzbank’s Right to Sue Under New York Law The Second Circuit agreed with plaintiffs’ arguments that the district court had abused its discretion in refusing to consider additional evidence of the purported transfer of DAF’s fraud claim, after limiting 15 separate plaintiffs to a single, three- page “‘reliance declaration.’” Pennsylvania Public School, 772 F.3d at 116. Not only had the district court given “no indication that the separate issue of a transfer of rights, or standing” might arise from that single declaration, noted the Second Circuit (id. at 122), but that document’s confines were a poor venue within which to explore the complex question of standing: [A]s our certification of this question indicates, the standing issue is sufficiently complicated that a single paragraph, or perhaps even the entire three pages, was unlikely to suffice to provide the detail needed for an informed decision. Id. What the district court had criticized as Commerzbank’s “‘tactical decision’” was actually “the result of being put in an impossible position by the district court.” Id. Thus, the district court should have considered the new evidence proffered in both the motion for reconsideration and the ratification attempt. Id.; see also id. at 123 (“it was - 25 - 1000007_1 not a permissible exercise of discretion not to consider the additional evidence submitted” by Commerzbank’s New York counsel and the CEO of the business trust (AGIMAT) under which DAF operated). That new evidence, noted the Second Circuit, was “significantly more thorough with respect to the issue of transfer.” Id. at 123. Among other things, the Williams and Shlissel declarations describe in more detail the circumstances surrounding DAF’s sale to related entity Dresdner, including the fact that DAF suffered no loss on the sale because Dresdner bought the already-downgraded securities at par, that neither DAF nor the company that administered its trust retained any claims or causes of action, and that all parties believed any claims would be automatically transferred under German law. Id. Those declarations, and other documentary evidence Commerzbank submitted, thus raised the question whether a reasonable trier of fact could find that DAF “validly assigned its right to sue for common law fraud to Dresdner in connection with its sale of Cheyne SIV notes.” Id.21 21 Presumably, the other “documentary evidence” noted by the Second Circuit (id.) included materials attached to the original Reliance Declaration that memorialized the effects of the Dresdner-Commerzbank merger (A345-A354), including the fact that under the German Transformation Act “all of Dresdner’s assets, liabilities, rights and obligations have passed to Commerzbank.” A353. - 26 - 1000007_1 The Second Circuit decided that it could not answer that question given the present state of New York case law: “We are not aware of any ‘controlling precedent of the Court of Appeals.’” Id. On the one hand, observed the Second Circuit, “specific incantations of ‘assignment’ are unnecessary to perfect a transfer.” Id. In addition, the Second Circuit had previously noted a “general trend” in New York courts toward “adopting principles of free assignability of claims, including those of fraud.” Id. On the other hand, there also existed what the Second Circuit called “a strain” of New York law treating tort and contractual claims in a particular instrument separately. Id. Given the lack of controlling precedent, concluded the Second Circuit, it is unclear whether the intent of parties to transfer a whole interest, combined with the absence of limiting language, suffices to transfer an assignor’s tort claims, or whether an additional, more specific statement of an intent to transfer tort claims is required. Id. Thus, “[w]e certify that issue to the New York Court of Appeals.” Id. b. Morgan Stanley’s Liability for Fraud Under New York Law The Second Circuit also believed that this Court’s input was required as to Morgan Stanley’s potential liability. “[I]n the event that the New York Court of Appeals allows Commerzbank’s claim to proceed, we further ask it to resolve . . . the question of Morgan Stanley’s potential liability on the present record.” Pennsylvania - 27 - 1000007_1 Public School, 772 F.3d at 123-24. Again, an apparent split in the state of New York law spurred the certification request. Although the district court had held that Morgan Stanley could not be directly liable for the fraudulent ratings, said the Second Circuit, that same court had acknowledged Morgan Stanley’s alleged role in the fraud: Indeed, in denying summary judgment on plaintiffs’ aiding-and-abetting fraud claim, the district court noted that appellants had presented some evidence that Morgan Stanley had “manipulated the Cheyne SIV modeling process to create the ratings it desired,” and had otherwise influenced the process beyond simply hiring the agencies. Id. at 124. That set of facts, said the Second Circuit, “would suffice under some New York decisions to impose liability” on parties “‘who make, authorize or cause a [fraudulent] representation to be made,’” id. (quoting Metro. Life Ins. Co. v. Morgan Stanley, No. 651360/2012, 2013 N.Y. Misc. LEXIS 3056, at *34 (N.Y. Sup. Ct. July 8, 2013)), while noting that that opinion had held that “Morgan Stanley could be held liable for false ratings it influenced with false statements and disseminated.” Id. Then again, observed the Second Circuit, other New York decisions relied upon by the district court “seem to foreclose suits against third parties” for another’s misrepresentations – “even where that party was alleged to have known about the misstatement.” Id. - 28 - 1000007_1 Just as with the assignment/standing issue, then, the Second Circuit asked this Court to opine upon an apparently unsettled question: whether, on the present summary judgment record, “a reasonable trier of fact could find Morgan Stanley liable for fraud under New York law.” Id. V. SUMMARY OF ARGUMENT Myriad record evidence establishes – or, at the very least, raises a triable issue of fact regarding – Commerzbank’s standing to sue on fraud claims associated with the Rated Notes that were initially purchased by DAF for more than their true value at the time. New York authorities, and case law interpreting them, hold that particular words of assignment are not necessary to effect valid assignments; rather, the assignor’s relinquishment of control over the whole interest suffices. Unless qualified in some manner, the assignment is deemed to be of one whole interest in the thing transferred. While abbreviated per district court order, plaintiffs’ Reliance Declaration nonetheless established the unqualified passage of control over the entirety of the DAF-purchased Notes from DAF to Dresdner to Commerzbank. With both DAF and Dresdner no longer in existence following the former’s post-sale wind-down and the latter’s complete merger into Commerzbank under the German Transformation Act, Commerzbank alone retained authority to sue on the Notes. - 29 - 1000007_1 That Declaration’s abbreviated exposition of a valid transfer was confirmed by a subsequent Rule 17(a)(3) ratification of Commerzbank’s ability to sue on the Notes, as well as two sworn declarations – one by a former executive at the Massachusetts business trust under which DAF operated at the time, and a second by an attorney who was, at the time, the Senior Counsel to the very Dresdner entity that had purchased the Notes from DAF for over $121 million. Both men declare, without reservation, that DAF retained no rights as to the Notes following their sale to Dresdner at par, and that all parties had intended that all claims, causes of action, rights/obligations existing at the time of sale, et cetera, be transferred from DAF to the purchaser along with the Notes. Those declarations are complemented by a letter from Dresdner to DAF in October 2007, confirming Dresdner’s purchase of the entirety of DAF’s Notes – and without even hinting at any qualification or reservation. Thus the totality of record evidence, while not necessarily pristine, nonetheless raises a triable issue of fact as to the valid assignment of tort claims associated with the Notes. As to the second certified question, the record raises a sufficient triable issue of fact as to Morgan Stanley’s potential liability for the Notes’ fraudulent ratings. Under New York law, defendants need not utter or take credit for fraudulent statements in order to be held liable for fraud; instead, under New York’s broad liability regime, defendants may be held liable for fraudulent misstatements by either making them, or - 30 - 1000007_1 authorizing them, or even simply causing them to be made. Thus, although Morgan Stanley never claimed/admitted authorship of the misleading ratings used to induce the Notes’ purchases by innocent investors, record evidence established that it was deeply involved in the entire process – pressuring the Rating Agencies to create the fraudulent ratings, putting together the misleading offering materials used to solicit buyers, and selling billions of dollars of the fraudulent Notes to hapless investors. In short, even without acknowledging having made the fraudulent ratings, Morgan Stanley authorized and caused the resultant false statements to be made – and so may be found liable for fraud by a jury of reasonable factfinders. Morgan Stanley is also liable for its knowing participation in the fraudulent scheme. The record evidence shows that Morgan Stanley designed, structured, maintained, and marketed the multi-billion-dollar fraudulent Cheyne SIV that was sold to investors. Morgan Stanley was deeply involved in the fraudulent ratings process, deliberately pressuring the Rating Agencies to assign inaccurate ratings that it knew were not justified by the available data; indeed, Morgan Stanley actually authored Moody’s ratings report, and revised S&P’s Pre-Sale Report before it was issued. Morgan Stanley then disseminated the false ratings to investors through Information Memoranda and other key documents, inducing them to part with billions of dollars for the fraudulent Notes. - 31 - 1000007_1 Finally, the record contains sufficient evidence raising a triable issue of fact as to Morgan Stanley’s liability for its fraudulent omissions in the offering documents that it used to sell the Notes. Morgan’s superior knowledge of the fraudulent ratings, and its subsequent concealment of their falsity from plaintiffs who were ill-equipped to discover the truth, combine to make Morgan Stanley liable for those omissions. VI. ARGUMENT A. Commerzbank Has Standing to Sue on the DAF Notes Given the record below and relevant case law, Commerzbank is the sole holder of any fraud-related claims against the defendants originally held by (the now- defunct) DAF, and passed to Dresdner in 2007 when DAF sold its Notes to Dresdner at full price without qualification or reservation; in turn, all of Dresdner’s assets, liabilities, rights, and obligations passed to Commerzbank in 2009 by operation of German law. 1. No Magic Words Were Required to Transfer DAF’s Entire Interest in the Rated Notes – Which by Definition Includes Any Related Tort Claims – to Dresdner A transfer of all assets bound up with the Notes sold by DAF to Dresdner for $121-plus million (and thence to Commerzbank following Dresdner’s acquisition) is “broad enough to encompass all causes of action owned by” the transferor. Int’l Design Concepts, LLC v. Saks, Inc., 486 F. Supp. 2d 229, 237 (S.D.N.Y. 2007); see - 32 - 1000007_1 also Brandoff v. Empire Blue Cross & Blue Shield, 707 N.Y.S.2d 291, 293 (Civ. Ct. 1999). This is particularly true where – as here – there exists no evidence of any qualification or limitation placed on DAF’s transfer of the entirety of its Notes to Dresdner. Cf. Int’l Design, 486 F. Supp. 2d at 236. The import of an unqualified transfer in the context of assignments is no recent legal concept; to the contrary, New York has held as much for well over a century. See, e.g., Griffey v. New York Cent. Ins. Co., 100 N.Y. 417, 422 (1885) (“An assignment is a transfer or setting over of property, or of some right or interest therein, from one person to another, and unless in some way qualified, it is properly the transfer of one whole interest in an estate, or chattel, or other thing.”). It is also notable that New York law does not require that DAF and Dresdner have set forth any magical recitation for a valid assignment of all rights and liabilities associated with the Notes. “No particular words are necessary to effect an assignment; it is only required that there be a perfected transaction between the assignor and assignee, intended by those parties to vest in the assignee a present right in the things assigned.” Leon v. Martinez, 84 N.Y.2d 83, 88 (1994); accord Brandoff, 707 N.Y.S.2d at 293; Int’l Design, 486 F. Supp. 2d at 234. Indeed, “the fact that the - 33 - 1000007_1 document in question fails to contain the word ‘assignment’ is of no consequence.” Gingold v. State Farm Ins. Co., 642 N.Y.S.2d 812, 814 (Civ. Ct. 1996).22 Rather, it is “the relinquishment of control over both the subject matter and the power to revoke the assignees’ authority which creates an assignment.” Id. Thus the Notes’ transfer from DAF to Dresdner – “‘unless in some way qualified’” – was “‘properly the transfer of one whole interest’” in the thing transferred. Int’l Design, 486 F. Supp. 2d at 236; see also Coastal Commercial Corp. v. Samuel Kosoff & Sons, Inc., 199 N.Y.S.2d 852, 855 (App. Div. 1960) (assignor is divested of all control “over the thing assigned”); Aini v. Sun Taiyang Co., 964 F. Supp. 762, 778 (S.D.N.Y. 1997) (“While New York law requires no special form or forms to effect an assignment, the present surrender of the putative assignor’s right, title and interest is essential to a valid assignment.”). The record here – even without the additional evidence contained in the Williams and Shlissel declarations that the Second Circuit held the district court should have considered – comports with these authorities. It shows that DAF relinquished all control over the Notes, selling to Dresdner “‘one whole interest’” in the Notes and thus all that the interest represented. Cf. Int’l 22 See also In re Estate of Boissevain, 40 Misc. 2d 237, 244 (N.Y. Sur. Ct. 1963) (“It is true that the word ‘assign’ was not used in the separation agreement, but the use of that particular word is not an essential of a valid assignment.”). - 34 - 1000007_1 Design, 486 F. Supp. 2d at 236. Indeed, DAF was forbidden from even holding onto the Notes. A436:¶3. In return for handing over the Notes, DAF received $121-plus million. A436:¶4; see also A328:¶8 (Reliance Declaration explains that Dresdner purchased the entirety of the Notes “at par” from DAF in October 2007). In other words, DAF’s sale of the Notes “at par” meant the transaction was at full face value, despite their downgraded status – making DAF whole; nothing of the Notes (or associated claims as to their actual value) remained for DAF’s purposes.23 And DAF itself was “wound down” after the sale, raising the commonsense inference that it (like Dresdner later) ceased to exist. A328:¶8. But the chain of custody didn’t stop there. Dresdner then merged into Commerzbank in 2009 under the German Transformation Act, and all of Dresdner’s assets, rights, and obligations passed to Commerzbank by operation of German law. A328-A329:¶8. Dresdner also “ceased to exist as a legal entity.” A329:¶8. With both DAF and Dresdner gone, any existing litigation claims associated with the Notes belonged to Commerzbank – just as plaintiffs’ Reliance Declaration confirmed. Id. (Commerzbank asserts that it is “authorized to pursue recovery related to” DAF’s Notes). 23 “Par” in this sense means the equality between the security’s face value and its actual selling value. Black’s Law Dictionary 1111 (6th ed. 1990). - 35 - 1000007_1 Although the foregoing abbreviated description of the Notes’ chain of succession seems sufficient to raise at least a triable issue of fact as to Commerzbank’s standing to sue on the risky, overvalued Notes that it owned at the lawsuit’s commencement, there is more record evidence: the Williams and Shlissel declarations, along with plaintiffs’ Rule 17(a)(3) ratification and an October 8, 2007 letter from Dresdner to DAF memorializing the sale, together confirm and flesh out that description by explaining with even more detail that the entirety of the Notes passed from DAF to Dresdner without any qualification: • DAF was legally prevented by the Investment Company Act of 1940 from holding onto the downgraded Notes; • because DAF sold the entirety of the downgraded Notes to Dresdner at “par” for an aggregate price of $121,078,069, (i) DAF suffered no loss from its Notes purchases, and (ii) any losses associated with the downgraded Notes were then borne solely by Dresdner; • neither DAF nor AGI (the entity administering the trust under which DAF operated) retained any claims, causes of action, or rights related to the downgraded Notes once they were sold; instead, all parties understood they would be transferred to Dresdner; • DAF ceased operations after the last of the sale of its securities, and was terminated in January 2009; • any of DAF’s residual interests, assets, or property reverted to AGIMAT – and both AGI and AGIMAT later ratified that Commerzbank was authorized to pursue recovery “for its own benefit to recoup losses related to the Notes”; and - 36 - 1000007_1 • Dresdner wrote to DAF on October 8, 2007, confirming that it had “agreed to purchase” by 2:00 p.m. the following day “each of the Cheyne Holdings in the Fund for cash . . . at a purchase price equal to the amortized cost of each such Cheyne Holding” including accrued interest; notably, the letter contained no qualification of any interest or rights retained by DAF. See A421-A438 (ratification and declarations); A419-A420 (10/8/07 letter and attachment listing $121 million in Cheyne Holdings).24 In the district court, defendants tried to chip away at the Shlissel and Williams declarations, charging that they were based on speculation and lacked personal knowledge. Should defendants attempt that gambit in this Court, even a cursory look at the declarations demonstrates the flimsiness of those charges. Shlissel is not speculating about the events in question; to the contrary, he explains that “[a]t the time” of Dresdner’s purchase of the Notes at par from DAF, “I was President and Chief Executive Officer of AGIMAT.” A437:¶5. (AGIMAT, 24 The AGI/AGIMAT ratification of Commerzbank’s rights to any claims associated with the Notes that plaintiffs filed in September 2012 was reasonable and proper under the circumstances. The relevant federal rule requires only that ratification occur within “a reasonable time” after an objection. Fed. R. Civ. P. 17(a)(3). Given the litigation’s progression and the district court’s rulings on what filings it was willing to consider, the ratification was made within a reasonable time of plaintiffs’ realization that the court was demanding much more evidence of the Notes’ succession. The Second Circuit never ruled on the correctness of the district court’s refusal to allow that ratification. Pennsylvania Public School, 772 F.3d at 122 n.5 (“[W]e decline to reach it in light of our certification of the ultimate issue of standing.”). - 37 - 1000007_1 recall, was the Massachusetts business trust under which DAF operated. A436:¶2.) Shlissel avers that “it was understood and believed by all parties” to the transaction that “any and all claims, causes of action, rights, and/or obligations” would automatically be transferred from DAF to Dresdner, along with the Notes themselves.25 Notably, “[a]ny residual interests, assets, or property belonging to DAF reverted to AGIMAT upon DAF’s termination” in early 2009.26 Given Shlissel’s position at the time, and the relationship between DAF and AGIMAT, surely he can attest to what the parties “understood and believed.” Likewise, Commerzbank (NY) Director and Senior Counsel Williams proffers much more than speculation. Like Shlissel, “[a]t the time” of Dresdner’s purchase of the Notes from DAF, Williams was in a position to know what was sold and purchased in the transaction: He was serving as Senior Counsel to, among others, the very Dresdner branch that purchased the Notes from DAF for over $121 million.27 Williams declares his belief that the parties understood that all claims, causes of action, et cetera, existing at the time of the sale “would automatically be transferred from DAF” to Dresdner, and that the full transfer was “further evidenced by the fact 25 A437:¶5. 26 A437:¶6. 27 A422-A424:¶¶4-5. - 38 - 1000007_1 that the losses sustained” as a result of the Notes’ decline in value “were borne solely” by Dresdner.28 As the purchasing entity’s Senior Counsel at the time, surely Williams is qualified to declare, “[b]ased upon my personal knowledge” (along with his review of Dresdner Advisors’ records, “the evidence adduced in this action,” and his tenure at “the Dresdner New York Branch, the Dresdner Grand Cayman Branch, and Dresdner Advisors”), just what occurred during the sale of the Notes.29 Even the Second Circuit recognized that the two declarations “were a far more thorough explanation of how DAF was unable, and could not have intended, to retain any interest in the notes, including a right to sue.” Pennsylvania Public School, 772 F.3d at 117; see also id. at 123 (the declarations “are significantly more thorough with respect to the issue of transfer”). The record evidence thus comports with New York precedent and the authorities following it. Cf. Int’l Design, 486 F. Supp. 2d at 236-37 (an unqualified transfer of property is “‘properly the transfer of one whole interest’” in the thing transferred, and is “broad enough to encompass all causes of action owned by” the transferor). 28 A423-A424:¶5. 29 A424-A425. - 39 - 1000007_1 2. There Has Been a Marked Trend in New York Law Adopting Principles of the Free Assignability of All Claims It appears true, as the Second Circuit noted, that there is no controlling precedent from this Court on the precise certified question – i.e., whether the intent of the parties to transfer “a whole interest, combined with the absence of limiting language,” suffices to transfer the assignor’s tort claims. Pennsylvania Public School, 772 F.3d at 123. It is also true, as the Second Circuit observed, that despite the absence of that controlling precedent, there exists “a general trend in New York toward adopting principles of free assignability of claims, including those of fraud.” Id.; see also Banque Arabe Et Internationale D’Investissement v. Maryland Nat’l Bank, 57 F.3d 146, 153 (2d Cir. 1995) (noting New York’s general trend toward adopting principles of free assignability of claims, “including those of fraud”); see also N.Y. Gen. Oblig. Law §13-101 (New York legislature mandates, with certain exceptions not applicable here, that “[a]ny claim or demand can be transferred” between parties).30 When such a transfer occurs, “the transfer thereof passes an 30 The inapplicable exceptions include (i) the transfer of “damages for a personal injury,” (ii) a grant or a claim of real property – either of which has been made void by state statute, and (iii) when a transfer is “expressly forbidden” by statute or would contravene public policy. See N.Y. Gen. Oblig. Law §13-101(1.-3.). - 40 - 1000007_1 interest, which the transferee may enforce by an action or special proceeding . . . in his own name, as the transferrer might have done.” N.Y. Gen. Oblig. Law §13-105. New York case law (and that of other courts applying it) reflects this general trend towards free assignability of claims – whether arising in contract, tort, or some other area of law. See, e.g., Banque Arabe, 57 F.3d at 151 (assignment transferred “all of BAII’s rights to Banque Arabe, tort as well as contract”); Int’l Design, 486 F. Supp. 2d at 236 (“[n]o specific language is required in order to transfer a tort cause of action”); Leon, 84 N.Y.2d at 88 (instrument “was intended by all parties to effectuate a present assignment to plaintiffs of interests in the future settlement”); Gingold, 642 N.Y.S.2d at 814 (document’s failure “to contain the word ‘assignment’ is of no consequence”; insurance authorizations entitled assignee doctor to recover for medical services rendered to assignors); Pro Bono Invs., Inc. v. Gerry, No. 03 Civ. 4347 (JGK), 2008 U.S. Dist. LEXIS 87450, at *51 (S.D.N.Y. Oct. 28, 2008) (transfer of all assets using unqualified language “was broad enough to encompass causes of action”). Int’l Design and Banque Arabe are particularly apposite here, for in dealing with the assignment of claims including those for fraud, they explore the axioms that: (i) express assignment language is not required to transfer a tort claim; and (ii) the circumstances surrounding the transfer matter greatly. - 41 - 1000007_1 In Int’l Design, putative assignee/plaintiff International Design Concepts, L.L.C. (“IDC”) sued Saks Inc. and Saks Fifth Avenue, Inc. (together, “Saks”) for various New York law claims, including common law fraud, over allegedly tortious actions Saks had taken in connection with its business dealings with original assignor Apparel Group International (“Apparel Group”). Int’l Design, 486 F. Supp. 2d at 233. IDC’s status as assignee/plaintiff was, like Commerzbank’s here, the result of a slightly convoluted journey. Under a licensing agreement between Apparel Group and Oscar de la Renta, Ltd. (“Oscar”), Apparel Group had been permitted to sell to Saks various products bearing the Oscar trademark – but Saks then allegedly imposed certain improper chargebacks and took illegitimate vendor markdowns. Id. Apparel Group subsequently defaulted on the licensing agreement’s licensing provisions, had its license canceled by Oscar, and closed its business. Id. Following that closure Apparel Group transferred “‘all [of its] assets’” to HSBC Bank in repayment for a $754,023.77 debt; that same day, IDC acquired from HSBC all of those assets in return for a payment of $751,896.14. Id. IDC then sued Saks on various claims relating to the latter’s dealings with Apparel Group, including breach of contract and common law fraud. Id. Among its arguments for a dismissal of the various claims, Saks contended that all tort claims against it should be dismissed “because those claims were not validly assigned from [Apparel Group] to IDC.” Id. at 234. - 42 - 1000007_1 The district court rejected that argument, even though from the opinion’s exposition it is clear that the specific terms “tort claims” or “fraud claims” were not included in the original agreement between Apparel Group and HSBC, or the subsequent agreement between HSBC and IDC. Instead, the court noted the following points that together convinced it that IDC was the valid assignee of Apparel Group’s tort claims: • With limited exceptions not applicable there, “New York permits the assignment of tort claims.” Id. at 236. • Although an assignment of all contractual rights does not necessarily include all tort claims, whether they are encompassed within the assignment is a matter of contract interpretation. Id. • Although the words in the assignment “are of paramount importance,” no special language is required in order to transfer a tort cause of action; rather, “‘[a]ny act or words’” showing an intention of transferring the action suffice. Id. • New York has a “‘general trend . . . toward adopting principles of free assignability of claims, including those of fraud.’” Id. (quoting Banque Arabe approvingly). • The “language of the assignment clauses at issue and the surrounding circumstances” favored the conclusion that the tort causes of action were transferred “from [Apparel Group] to HSBC and then from HSBC to IDC.” Id. at 237; see also id. (noting Apparel Group’s assignment of all assets “‘without limitation’” and HSBC’s receipt of “‘all rights of possession in and to the Collateral’”) (court’s emphasis). - 43 - 1000007_1 • The assignment of “‘all assets of [Apparel Group]’ is broad enough to encompass all causes of action owned by [Apparel Group].” Id.31 Banque Arabe contains similar rationales in finding a valid assignment of the tort claims there between the American subsidiary (“BAII”) of a foreign parent bank (“Banque Arabe”). 57 F.3d 146. Although a May 31, 1990 assignment between the parent and subsidiary had “clearly transferred BAII’s rights and interests” in a real- estate “Participation Agreement” gone sour – “and therefore any claims grounded in contract” – the assignment “did not make an explicit assignment of BAII’s claims in tort.” Id. at 151. Despite that omission, the Second Circuit concluded that the assignment had transferred all of BAII’s rights to Banque Arabe, both in “tort as well as contract.” Id.; see also id. at 153 (because assignment was effective, Banque Arabe “is the real party in interest”). The Second Circuit panel’s reasoning, similar to that demonstrated by the Int’l Design court 12 years later, utilized several familiar axioms: • After acknowledging that under New York law the assignment of contract claims does not automatically bring along tort claims, the court also noted that “New York law does not require specific boilerplate language to accomplish the transfer of causes of action sounding in tort.” Id. • Rather, any act or words that show an intent to transfer the chose in action to the assignee “‘are sufficient.’” Id. at 151-52. 31 The second assignment from HSBC to IDC was “similarly broad.” Id. In the present matter, there is no dispute that the transfer of the Notes from Dresdner to Commerzbank was all-encompassing under German law. - 44 - 1000007_1 • The assignment’s transfer of all of BAII’s rights in a described “transaction” was construed “to be broader than an interest in the contract” alone. Id. at 152. • The court recognized its holding was “also consistent with the general trend in New York toward adopting principles of free assignability of claims, including those of fraud.” Id. at 153. The rationales expressed in Int’l Design and Banque Arabe apply equally here, and counsel the same end result concerning an assignment of fraud claims. Despite there not being an explicit assignment of DAF’s common law fraud claims at the time of the Notes’ purchase by Dresdner, the “surrounding circumstances” and “act[s]” of the parties in completing the Notes’ sale suffice. Cf. Int’l Design, 486 F. Supp. 2d at 237; Banque Arabe, 57 F.3d at 151-52. To recap briefly: As recounted in the declarations that the Second Circuit held the district court should have considered, DAF no longer could hold onto the devalued Notes; indeed, it was legally forbidden from doing so under the Investment Company Act of 1940. A422:¶3; A436:¶3. DAF’s subsequent sale of the entirety of those downgraded Notes to Dresdner at a full, “par” price was the functional equivalent of the sale of “all assets” bundled up in the Notes – which sale necessarily carries with it all related causes of action. Cf. Int’l Design, 486 F. Supp. 2d at 233. Importantly, DAF retained no interest in the Notes following their sale; the purchase price at par reflected that. A423:¶5. - 45 - 1000007_1 Moreover, by recouping $121 million from the Notes’ sale to Dresdner, “DAF did not suffer a loss of any kind,” and thus “had no reason to retain the litigation rights with respect to the Notes.” A423-A424:¶5. Instead, any losses sustained as a result of the Notes’ decline in value “were borne solely” by Dresdner (A423:¶5) – and the totality of Dresdner’s “rights, obligations, and claims” arising out of or related to the Notes then vested in Commerzbank by operation of law under the German Transformation Act. A424:¶7. And a post-Complaint joint ratification under Rule 17(a)(3) by the Massachusetts business trust/investment company under which DAF operated at the time – i.e., AGIMAT – and the trust’s administrator – i.e., AGI – made clear that “neither AGIMAT nor AGI believed at any time that any claims, causes of action, or rights related to the Notes remained with DAF upon the sale at par of the Notes from DAF to Dresdner.” A428. In addition, “neither DAF, AGI, nor AGIMAT suffered any losses whatsoever in connection with their purchase of the Notes.” A430. Thus, “‘for the avoidance of doubt, AGI, and AGIMAT, hereby agree that Commerzbank is authorized to pursue recovery for its own benefit to recoup losses related to the Notes, which were borne solely by the Dresdner Grand Cayman Branch.’” A428 (quoting A437:¶6). - 46 - 1000007_1 Notably, both Int’l Design and Banque Arabe acknowledged Fox v. Hirschfeld, 142 N.Y.S. 261 (1st Dep’t 1913), the Appellate Division case that the Second Circuit had characterized as being in the “strain” of New York law “that treats tort and contractual claims in a particular instrument separately.” Pennsylvania Public School, 772 F.3d at 123 (noting Fox’s holding that assignment of all rights “‘in and to the within contract’” did not include the right to sue for fraud). But Fox gave those two courts little pause, and it should give this Court little pause, as well.32 In Fox, the plaintiff attempting to sue for damages on a real estate contract procured via fraudulent means was a husband who, prior to discovering the fraud, had gifted the property to his wife and executed an assignment of the contract in her favor. Fox, 142 N.Y.S. at 262. The relevant language in the assignment from the husband Henry Fox to his wife read as follows: 32 Citing Fox, the Int’l Design court noted that an assignment’s words “are of paramount importance” (486 F. Supp. 2d at 236), and went on to hold that both (i) the language of the assignment clauses at issue and (ii) the “surrounding circumstances” favored the transfer of the tort causes of action from Apparel Group to HSBC to IDC. Id. at 237. As shown supra, here there is no record evidence of any qualifying language accompanying the DAF-to-Dresdner sale, and the surrounding circumstances more than show the parties’ intention for a wholesale transfer of the Notes and all associated claims and liabilities. Similarly, while the Banque Arabe panel “assume[d]” that the rule in Fox “remains the law of New York” (57 F.3d at 151), it also acknowledged that “‘any act or words are sufficient which “show an intention of transferring the chose in action to the assignee,”’” and held that the assignment there was sufficiently broad as to include tort claims. Id. at 151-52. - 47 - 1000007_1 “For value received, I hereby sell, assign, transfer and set over unto Melinsa H. Fox, all my right, title and interest in and to the within contract.” Id. The lower court dismissed the complaint, reasoning that because Fox assigned the contract to his wife, he had sustained no damages; the cause of action, if any, “vested in his wife.” Id. In a 3-2 ruling, the Appellate Division reversed. Its reasoning revolved around the fact that the fraud had been perpetrated upon Fox, and he being the purchaser, if the premises were worth less than they would have been if as represented, he necessarily sustained damages; and, notwithstanding the fact that he had assigned the contract, and that the conveyance had been executed to his wife, the right to rescind the contract or to bring an action for fraud remained in him. Id. As to Fox’s wife, she “parted with no consideration” for the property, and received “all that the plaintiff assigned to her.” Id. at 264. With that said, allowed the court, “[t]he cause of action was, of course, assignable.” Id. Fox’s problem was that the express language of assignment “was not appropriate to assign a cause of action arising” not from the contract itself, but from the defendants’ fraudulent representations. Id. Even if it were binding upon this Court – which it is not –the Fox panel’s reasoning does not counsel a different result here. - 48 - 1000007_1 Fox was concerned with the plain language of the assignment, which on its face was limiting and qualifying. Id. at 262. There is no such limiting language in the record here, however; instead, there is (i) a letter memorializing the next day’s sale “at a purchase price equal to the amortized cost of each such Cheyne Holdings,” to be paid in cash (A419), as well as (ii) the subsequent sale of the entirety of the Notes. Cf. Int’l Design, 486 F. Supp. 2d at 237 (sale of “‘all assets of [Apparel Group]’ is broad enough to encompass all causes of action owned by [Apparel Group]”). Additional record material establishes – or, at the least, raises a triable issue – as to the fact that the transaction was understood to carry with it all rights, claims, and obligations associated with the Notes. E.g., A421-A438. In addition, Mrs. Fox parted with no consideration, and received exactly what Mr. Fox intended to convey to her – without him knowing at the time that the property was worth less than what he had paid for it. Fox, 142 N.Y.S. at 264. Here, in contrast, no one questions that Dresdner paid dearly for the downgraded Notes, handing over $121 million for securities worth much less than that – and all parties to the agreement knew that the Notes were overvalued at the time. See, e.g., A419 (Dresdner writes to DAF that “[a]s [DAF] and its Board of Trustees are aware, the Cheyne Holdings were downgraded . . . such that the Cheyne Holdings ceased to be ‘Eligible Securities’ as defined” by the Investment Company Act). - 49 - 1000007_1 Finally, even Fox concedes that a fraud cause of action “was, of course, assignable” (142 N.Y.S. at 264); subsequent decisions in the 100 years since have established that: (i) there is a trend toward the free assignability of claims (including fraud); and (ii) while the words of assignment matter – as was emphasized in Fox – in the absence of clear text a purported assignment’s parameters still may be set by exploring the parties’ actions and the transaction’s surrounding circumstances. When that exploration is done here, considering the totality of the circumstances at the time as well as utilizing myriad record evidence, there is at least a triable issue of fact raised as to whether Commerzbank is the rightful assignee of any tort causes of action originally retained by DAF in connection with its purchase of fraudulent, overvalued Notes. B. A Reasonable Trier of Fact Could Find Morgan Stanley Liable for Fraud Based on the Evidence Adduced To recover damages for fraud under New York law, a plaintiff must prove: “‘[1] a misrepresentation or a material omission of fact which was false and known to be false by defendant; [2] made for the purpose of inducing the other party to rely upon it; [3] justifiable reliance of the other party on the misrepresentation or material omission; and [4] injury.’” Premium Mortg. Corp. v. Equifax, Inc., 583 F.3d 103, 108 (2d Cir. 2009). The fraud-related question certified to this Court by the Second Circuit Court of Appeals concerns the first of the four elements – i.e., the issue - 50 - 1000007_1 whether reasonable factfinders could agree that the Notes’ fraudulent ratings may be attributed to Morgan Stanley in addition to the Rating Agencies.33 33 The remaining three elements are not in serious doubt – or, at the least, are shown by the record to involve triable issues of fact sufficient to go before a jury. As to Morgan Stanley’s intent-to-induce, the record is replete with evidence of its deliberate actions in constructing, touting, and distributing to investors like DAF and Commerzbank the all-important ratings (that it knew were false) in order to sell the Rated Notes. Supra §IV.A.4.; see also A133 (district court holds that jury could decide that “Morgan Stanley had actual knowledge that the Rating Agencies were assigning ratings they did not believe in” and that Morgan Stanley “actively encouraged” the Rating Agencies to “perpetrat[e] a fraud”). As to injury resulting from the fraud, the district court expressly found that “[i]n great detail, plaintiffs proffered factual evidence from which a jury could infer that their losses were a direct and foreseeable result of defendants’ false or misleading ratings.” A121; see also A129-A130 (“plaintiffs have provided sufficient evidence to raise a disputed issue of fact as to whether the Gyphon note-holding senior noteholders have suffered measurable economic losses”). And, although the district court never ruled upon DAF’s actual and justifiable reliance in connection with its Notes purchases due to the court’s threshold ruling regarding Commerzbank’s standing to assert claims on its Notes that originally were DAF’s, individual reliance never really was much of an issue below; indeed, the district court recognized as much while discussing plaintiffs’ reliance declarations in general: “I am not trying a case on summary judgment. I have to draw every inference in favor of the non-moving party if it swears under oath to reliance at least in part. . . . They say they relied, so they relied.” A324:10-15; see also A325:16-19 (“Call it the reliance declaration because that is pretty simple at this point, not trial, but summary judgment. They testified they relied. You know they relied.”). Deposition testimony further established that two of DAF’s “risk management team” were responsible for vetting DAF’s “eligible investments” (A216:16-A217:16), and that the team had approved the Cheyne SIV as such after reviewing its ratings. A217:4-12; see also A218:3-6 (“he looked up the ratings, S&P and Moody’s, and he reviewed the rating agency reports”). And given that the ratings were directly tied to their yield and because – as defendants’ expert conceded – all investors rely on yield when purchasing bonds (A214, miniscript page 63:2-7), it is axiomatic that plaintiffs relied on the ratings. - 51 - 1000007_1 Although the district court agreed that record evidence could support a jury finding that the Ratings Agencies had committed fraud – and that Morgan Stanley had knowingly aided and abetted that fraud – the court nonetheless concluded that Morgan Stanley itself could not have committed fraud. The court’s reasons were threefold: (i) Morgan Stanley was not responsible for the false ratings themselves; (ii) Morgan Stanley could not be liable for its participation in a scheme to defraud; and (iii) absent a fiduciary relationship with plaintiffs, Morgan’s omissions in connection with its fraud were irrelevant. A74; A68-A72. The Second Circuit never ruled upon the correctness of those conclusions, instead certifying to this Court the question whether, on the summary judgment record, a reasonable trier of fact could find Morgan Stanley liable for fraud under New York law. Pennsylvania Public School, 772 F.3d at 124. As set forth below, the answer to that question is a resounding “Yes.” In fact, there are several avenues by which Morgan Stanley – given New York precedent and numerous facts included in the summary judgment record – may be deemed liable for fraud. - 52 - 1000007_1 1. Morgan Stanley Is Liable for the Fraudulent Ratings and Related Materials, as Well as for Its Omissions a. Morgan Stanley Is Liable for Its Direct Role in Constructing the Fraudulent Ratings and Causing Them to Be Communicated to Investors Morgan Stanley cannot escape liability for the fraudulent ratings simply because of the happenstance that it avoided direct attribution for “making” them. Instead, under New York law a defendant may be liable for a fraudulent misstatement if it either makes, or “‘authorizes,’ or ‘causes’ a misrepresentation to be made.” Allstate Ins. Co. v. Countrywide Fin. Corp., 824 F. Supp. 2d 1164, 1186 (C.D. Cal. 2011) (applying New York law); see also Metro. Life, 2013 N.Y. Misc. LEXIS 3056, at *34 (“Common-law fraud claims may be asserted against parties who make, authorize, or cause a representation to be made.”); MBIA Ins. Corp. v Countrywide Home Loans, Inc., 87 A.D.3d 287, 294 (N.Y. App. Div. 2011) (upholding fraud claim against corporate defendant that “directed the activities” of other entities making misrepresentations); see also 60A N.Y. Jur. 2d Fraud and Deceit §124 (2014) (“It is not necessary that a false representation be made directly or personally in order to support an action for fraud. If one authorizes and causes a false representation to be made by another, it is the same as if he or she made it personally . . . .”). - 53 - 1000007_1 The disjunctive nature of New York’s tripartite fraud analysis thus disposes of any rigid requirement that Morgan Stanley have “made” the fraudulent ratings itself and have them specifically attributed to it in order to be held liable. To focus only on the fraudulent statement’s attributed authorship applies New York’s fraud law too narrowly: “New York has embraced a broader scheme of liability for those who make, authorize, or cause a misrepresentation to be made.” Allstate, 824 F. Supp. 2d at 1186; see also id. (contrasting the federal securities-fraud regime that focuses solely on the making of a falsehood with New York’s “more lenient” fraud standards). The Metro. Life decision is instructive. There, as here, Morgan Stanley was charged with New York common-law fraud in connection with the offering and sale of mortgage-related securities using fraudulent offering materials. 2013 N.Y. Misc. LEXIS 3056, at *3-*9. There, as here, Morgan Stanley allegedly influenced Moody’s and S&P to obtain inflated investment-grade ratings, and pushed them to use outdated rating methods despite knowing that would result in inflated ratings. Id. at *11-*12. And there, as here, Morgan Stanley insisted that it bore no responsibility for the resulting falsehoods. Id. at *33. The New York state court rejected Morgan Stanley’s attempts to distance itself from the false ratings. It noted that making a falsehood was only one avenue to reaching common-law fraud under New York law; “authoriz[ing]” or “caus[ing] a - 54 - 1000007_1 representation to be made” were additional triggers for fraud liability. Id. at *34. Thus, Morgan Stanley “may be held liable for drafting and distributing statements they knew to be false, regardless of who they credit as the source of the information, such as the originators of the loans, or for acting as an insider with respect to the alleged fraudulent scheme.” Id. at *34-*35. Morgan Stanley’s heavy-handed influence on the rating agencies also helped create fraud liability, in the New York state court’s eyes: For the same reason, Morgan Stanley can be held liable for promoting the Certificates based upon the high ratings from the credit rating agencies if, as alleged, they knew the ratings were based on false information provided to the agencies, and they engaged in pressuring and manipulating the agencies into using outdated ratings models. Id. at *35. The record here similarly shows Morgan Stanley’s fingerprints all over the misleading ratings and the selling documents used to induce investors to purchase the Notes. For instance, Morgan Stanley acted as the Arranger and Placement Agent for the Rated Notes. A48. In those roles, Morgan Stanley distributed to prospective investors Information Memoranda and other selling documents containing information regarding the Notes issued by the Cheyne SIV, including the false ratings, and the terms and conditions of the Notes’ purchase and sale. Id. - 55 - 1000007_1 Morgan Stanley also reached out and deliberately whetted investors’ appetites for the fraudulent Notes even before the Cheyne SIV launched, contacting potential investors and touting the supposedly sterling nature of the Rated Notes. For example, on April 13, 2005, Morgan Stanley e-mailed plaintiff Abu Dhabi Commercial Bank, listing the “expected ratings from both Rating Agencies.” A114. It did so, even though Moody’s had not yet issued its preliminary ratings. A113. Similarly, in a November 1, 2004 e-mail to plaintiff Global Investment Services Ltd., Morgan Stanley said that it was bringing to market a new SIV that was expected to have high ratings from both Moody’s and S&P. A115 & n.252. But Morgan Stanley did more than arrange, tout, and place the Notes; the record shows that Morgan Stanley actually inserted itself into, and manipulated, the modeling process to ensure that the (false) ratings that it demanded were given. A131. The district court noted record evidence “indicating that Morgan Stanley pressured the Rating Agencies to issue ratings it did not believe were accurate.” A132. For example, in a July 22, 2004 e-mail to Morgan Stanley’s lead structurer, an S&P analyst involved in rating the Cheyne SIV informed him that S&P was only willing to assign a “BBB” rating to the MCNs. Id. & n.307. The next day, the Morgan Stanley structurer replied to both the analyst and the analyst’s boss, castigating what Morgan Stanley regarded as S&P’s “‘very inappropriate’” position. A132-A133. - 56 - 1000007_1 S&P then caved to Morgan’s demand, ultimately assigning the same MCNs an “A” rating. A133. That structurer later boasted that Morgan’s efforts “‘[got] us the rating we wanted in the end.’” Id. Elsewhere in the record, evidence showed that S&P employees received directions from Morgan Stanley to utilize obsolete rating models for a particular deal – and they were none too happy about it: “‘Lord help our fucking scam . . . this has to be the stupidest place I have worked at.’” A87 n.149 (November 23, 2005 e-mail). This was no isolated example, as the district court noted: “as with Moody’s” plaintiffs had offered “e-mails, deposition testimony, and internal memoranda in which S&P employees indicate concern with the paucity of data and the adequacy of the models used to rate Cheyne and SIVs in general.” A87. The district court conceded that Morgan Stanley had insinuated itself into the rating process in order to ensure the process yielded the high ratings needed to market the Cheyne SIV. It expressly found that the record contained additional “evidence suggesting that despite misgivings, Morgan Stanley manipulated the Cheyne SIV modeling process to create the ratings it desired.” A131. And the court noted that Morgan Stanley’s lead structurer Drennan wrote that Morgan Stanley had “‘develop[ed] a new model for the [Cheyne SIV] transaction’” and “‘adapt[ed] and creat[ed] a new form of SIV methodology that was presented to the rating agencies - 57 - 1000007_1 and the client for their approval.’” Id. Drennan also described Morgan Stanley as “‘pushing the envelope’” on SIVs. A132. In light of the foregoing record facts and New York’s tripartite analysis of fraud liability, a reasonable trier of fact would have no trouble concluding that Morgan Stanley may be held liable for fraud in connection with the fraudulent ratings. b. Morgan Stanley Is Liable for Its Fraudulent Omissions Given Its Superior Knowledge of Facts Not Readily Available to Plaintiff Another avenue of liability for Morgan Stanley lies in the omissions riddling the offering materials it disseminated to investors in order to sell the Rated Notes. As described more fully supra, Morgan Stanley knew – but failed to disclose in the offering documents – that the structured-finance assets held by the Cheyne SIV had inflated ratings and were riskier than represented. Although the Notes were supposedly supported by investment-grade collateral assets and reasonable assumptions making the Notes deserving of their AAA, risk-free rating, in truth the gold-standard ratings were false and undeserved. In the offering materials it drafted and disseminated, Morgan Stanley thus omitted that the assumptions underlying the ratings were untested, and not backed by relevant data. See, e.g., A84 (district court accepts as creating an issue of fact “expert testimony that the ratings were not justified by the underlying facts when issued”). Morgan Stanley omitted that the models used - 58 - 1000007_1 were based on outdated, historical data that did not reflect the true state of the mortgage market at the time. See, e.g., A85 (district court notes record evidence that “there was ‘no actual data backing the current model assumptions’ on the Cheyne deal”). And Morgan Stanley omitted that the firm itself was deeply involved in the (false) rating process, hectoring the Rating Agencies to affix underserved ratings on the Notes. See, e.g., A131 (district court acknowledges record evidence that “Morgan Stanley manipulated the Cheyne SIV modeling process to create the ratings it desired”); A133 (district court holds that jury could decide that “Morgan Stanley had actual knowledge that the Rating Agencies were assigning ratings they did not believe in” and that Morgan Stanley “actively encouraged” the Rating Agencies to “perpetrat[e] a fraud”). In short, Morgan Stanley’s omissions led Notes purchasers to believe that Cheyne was an exceptionally strong obligor supported by a healthy portfolio of high-quality assets and robust structural protections – when none of that was true. These knowing omissions make Morgan Stanley liable for fraud under New York’s “special facts” doctrine. Cf. Swersky v. Dreyer & Traub, 643 N.Y.S.2d 33, 37 (App. Div. 1996) (despite defendant’s lack of fiduciary duty to disclose certain information based upon arm’s length transaction, fraudulent concealment claim should have been sustained given facts supporting special facts doctrine). Under that - 59 - 1000007_1 doctrine, the lack of a fiduciary relationship between the parties is of no moment; rather, “[u]nder New York law, a duty to disclose material facts arises . . . where one party possesses superior knowledge, not readily available to the other, and knows that the other is acting on the basis of mistaken knowledge.” Ellington Credit Fund, LTD. v. Select Portfolio Servicing, Inc., 837 F. Supp. 2d 162, 201 (S.D.N.Y. 2011); see also Williams v. Sidley Austin Brown & Wood, L.L.P., 832 N.Y.S.2d 9, 11 (App. Div. 2007) (“[a]lthough there are no allegations of any affirmative misrepresentations by [defendant] itself, and no fiduciary relationship . . . fraud is sufficiently stated” by allegations of special knowledge or information “not attainable by plaintiff”). Here, the record demonstrates that Morgan Stanley possessed superior knowledge that was not available to the investor plaintiffs – and knew that they would act accordingly. See, e.g., A131 (in upholding aiding-and-abetting liability against Morgan Stanley, district court finds sufficient evidence that the firm “had actual knowledge” of the Rating Agencies’ fraud); A132 (district court notes “evidence provided by plaintiffs indicating that Morgan Stanley pressured the Rating Agencies to issue ratings it did not believe were accurate”); A99 (district court notes that “each plaintiff lacked access to all the information available to the Rating Agencies”); A97 n.185 (e-mail from Morgan Stanley employee to Cheyne and others at Morgan Stanley, conceding that “‘[d]isclosure [for SIVs] is significantly less . . . than [in] a - 60 - 1000007_1 typical CDO as many of the specific details are contained in the operating manual which is not made public’”). In light of the foregoing, a jury easily could find Morgan Stanley liable for fraudulent omissions. At the least, a triable issue of fact is raised as to that form of liability. 2. Alternatively, Morgan Stanley Is Liable for Its Knowing Participation in a Scheme to Defraud It is well-settled New York law that, even in the absence of making a fraudulent statement, a defendant’s liability for fraud may be premised on knowing participation in a scheme to defraud. CPC Int’l Inc. v. McKesson Corp., 70 N.Y.2d 268, 286 (1987) (reinstating common-law fraud claims against Morgan Stanley and other defendants because complaint “describes a scheme – involving all the defendants – devised and executed for the specific purpose of defrauding the prospective purchaser”). Notably, that fraud liability may lie even if the knowing participation in the scheme “does not by itself suffice to constitute the fraud.” Danna v. Malco Realty, Inc., 857 N.Y.S.2d 688, 689 (App. Div. 2008). As illustrated supra, the evidence in this case establishes Morgan Stanley’s wholesale participation in a fraudulent scheme. The evidence shows that Morgan Stanley designed, structured, maintained, and marketed/sold the fraudulent Cheyne SIV to hapless investors. Morgan Stanley deliberately pressured the Rating Agencies - 61 - 1000007_1 to assign inaccurate ratings that were not justified by the available data. And Morgan Stanley created and disseminated the false ratings through Information Memoranda and other key documents; indeed, Morgan Stanley actually authored Moody’s ratings report, and revised S&P’s Pre-Sale Report before it was issued. In short, because Morgan Stanley was responsible for the fraudulent Cheyne SIV from cradle to grave, it may be held liable for the overall scheme. Cf. CPC Int’l, 70 N.Y.2d at 286 (upholding allegations describing “a scheme . . . devised and executed for the specific purpose of defrauding the prospective purchaser by selling it the Mueller stock for more than it was worth”).34 In their responsive briefing, defendants will likely level the same attacks against CPC Int’l and Danna that they did below – to wit, that the two cases stand merely for the proposition that under “scheme” liability non-speaking defendants are liable only for aiding and abetting a principal’s fraud. They were wrong then, and they will be wrong in front of this Court. 34 It matters not for the purpose of the certified question that this Court in CPC Int’l was addressing fraudulent-scheme allegations at the pleading stage, where a complaint is “[g]iven its ‘most favorable intendment.’” Id. On summary judgment a court similarly must “view[] the record in the light most favorable to the non-moving party” while resolving “‘all ambiguities and draw[ing] all permissible inferences in favor of the non-moving party.’” Dillon v. Morano, 497 F.3d 247, 251 (2d Cir. 2007). - 62 - 1000007_1 Danna never mentions “aiding and abetting.” Instead, while citing CPC Int’l, it notes that “[l]iability for fraud may be premised on knowing participation in a scheme to defraud.” Danna, 857 N.Y.S.2d at 689. The “scheme” in Danna apparently involved the appellant “acting in concert” with other defendants and taking “advantage of a fiduciary relationship” with the plaintiffs (id.); the court makes no distinction between speaking or non-speaking defendants. Id. True, CPC Int’l does mention aiding and abetting – but only in distinguishing it from the scheme liability there. 70 N.Y.2d at 285 (“[w]e disagree” with the Appellate Division’s determination that Morgan Stanley and other defendants can only “be held liable for aiding and abetting their principal[’s]” commission of fraud). While in CPC Int’l Morgan Stanley may have made at least one attributed misstatement having to do with its belief that an offering memorandum contained accurate information (id.), the CPC Int’l Court focused on Morgan Stanley’s participation in the overall scheme – not its words. The key misstatements there concerned “fictitious [financial] projections” prepared by several individuals, which “Morgan Stanley [then] knowingly incorporated” into selling materials (id. at 274), along with contractual warranties given by co-defendant McKesson in a purchase-and-sale agreement. Id. at 285-86. Whether the defrauded plaintiff reasonably relied upon the (i) false projections or, “on the other hand,” (ii) the contractual warranties, was of no moment - 63 - 1000007_1 to this Court: together, the allegations described a scheme “involving all the defendants – devised and executed for the specific purpose of defrauding the prospective purchaser” by selling stock for more than it was worth. Id. Similar hands-on involvement by Morgan Stanley is alleged here and supported by myriad record evidence, with the ultimate aim accomplished – i.e., selling the fraudulent Cheyne SIV to unknowing investors for billions of dollars. Thus, a triable issue as to Morgan Stanley’s liability for participation in the fraudulent scheme is easily raised. 3. The New York Appellate Division Decisions Flagged by the Second Circuit that Seem to Require Specific Misstatements Attributed to Defendants Before Fraud Will Attach Were Decided Narrowly on Unique Facts The Second Circuit flagged two opinions relied upon by the district court that, it mused, “seem to foreclose suits against third parties based on the misrepresentations of another.” Pennsylvania Public School, 772 F.3d at 124 (citing Mateo v. Senterfitt, 918 N.Y.S.2d 438, 440 (App. Div. 2011) and Eurycleia Partners, LP v. Seward & Kissel, LLP, 849 N.Y.S.2d 510, 512 (App. Div. 2007)). Both Appellate Division decisions are easily distinguishable, however – in addition to not binding this Court – and so do not foreclose Morgan Stanley’s liability for fraud on the record facts. The Eurycleia litigation involved a hedge fund fraud and the plaintiffs’ attempts to recover from the fund’s outside professionals, including its legal counsel (“S & K”) - 64 - 1000007_1 and its designated auditor (“TBS”). 849 N.Y.S.2d at 511. The alleged fraud centered around misstatements in the fund’s offering memorandum concerning its supposed “investment strategy.” Id. at 512.35 The Eurycleia panel rejected plaintiffs’ attempts to hold the law firm liable for fraud, focusing on the contents of the alleged misstatements. It noted that the plaintiffs complained “solely about the representations made by the fund” about “its investment plans, its auditor, and the financial documents” that it would later provide to investors. Id. at 512. Those particular statements were distinct from those made by the law firm, however: As disclosed in the offering memorandum, S & K’s legal advice to the fund was solely related to the fund’s formation and to tax law, and plaintiffs do not challenge either the propriety of the fund’s formation or the tax advice. Id. Given the disconnect between what the law firm actually stated and what plaintiffs specified was the fraud’s gravamen, it is little wonder that the Eurycleia panel concluded that plaintiffs failed to allege that S & K had made any representations to them, “fraudulent or otherwise.” Id. 35 The plaintiffs also alleged additional related claims such as conspiracy to commit fraud, negligent misrepresentation, et cetera. Eurycleia, 849 N.Y.S.2d at 511. The Eurycleia panel’s disposition of those claims is not relevant to the second certified question here. - 65 - 1000007_1 Relevant to the second certified question facing this Court, the Eurycleia panel never considered whether, in addition to liability for the making of a false statement, defendants also may be held liable for fraud for either authorizing or causing fraudulent statements to be made. Cf. MBIA Ins. Corp., 87 A.D.3d at 294; see also supra §IV.A.4. (Morgan Stanley deeply involved in the fraudulent ratings’ creation and dissemination). Nor did the panel rule upon whether S & K might have potential liability for its participation in a fraudulent scheme, as argued against Morgan Stanley here supra §VI.B.2. – although, to be fair, given the fact pattern recited in the Eurycleia opinion, it appears doubtful that the law firm would have been held liable under that alternative avenue. The Eurycleia panel did consider whether S & K might be held liable for fraudulent omissions – but shot down that possibility by pointing out that the law firm had no fiduciary relationship with the plaintiffs. 849 N.Y.S.2d at 512. Even then, however, the panel never discussed the “‘special facts’ doctrine” exception to that requirement (cf. Swersky, 643 N.Y.S.2d at 37), and Commerzbank explains supra at §VI.B.1.b. how, despite the lack of fiduciary relationship between itself and Morgan Stanley, the special facts doctrine provides an additional avenue of liability for the - 66 - 1000007_1 latter’s fraudulent omissions in the offering materials used to solicit the Notes’ purchases.36 The Appellate Division’s no-fraud holding in Mateo is similarly unremarkable and distinguishable, in light of the unique facts presented to the panel there. As in Eurycleia, the Mateo plaintiffs attempted to hold a law firm responsible for a fraud perpetrated by the law firm’s client. Mateo, 918 N.Y.S.2d at 440. They alleged that the firm “aided its client, [Henry] Vargas, in selling [third-party defendant] Skyllas an interest in a real estate company that Vargas did not possess.” Id.37 The Appellate Division reversed the lower court’s denial of the law firm’s 36 The Eurycleia plaintiffs fared no better with their allegations against outside auditor TBS. They alleged that TBS knew that the memorandum falsely stated it had been appointed as the fund’s auditor, and despite knowing that investors would rely upon that assurance, took no steps to correct the misstatement. Eurycleia, 849 N.Y.S.2d at 512. The panel disposed of that allegation in short order, noting that plaintiffs nonetheless failed to allege that: (i) TBS made any misrepresentations of material fact in the memorandum; (ii) played any role in the memorandum’s preparation; or (iii) acted with any intent to defraud. Id. Moreover, absent any fiduciary relationship with the plaintiffs, TBS was not required to correct a misstatement it did not make. Id. at 512-13. Each of these considerations are inapposite here, where the record shows that Morgan Stanley deliberately insinuated itself into the fraudulent Notes rating process, and then authored, compiled, and distributed the misleading offering materials to hapless investors with the ultimate aim of inducing them to buy the fraudulent Notes. 37 The Mateo plaintiffs were litigating fraud and negligent misrepresentation claims against the law firm “as assignees of third-party defendant Peter Skyllas.” 918 N.Y.S.2d at 439. As with the Eurycleia matter, it is the Mateo panel’s “fraud” holdings that are relevant to the certified question here. - 67 - 1000007_1 motion to dismiss, holding that the fraud allegations “fail[] to state with particularity any knowing or reckless misrepresentation of a material fact by [the law firm].” Id. at 440. Indeed, the alleged misrepresentations either (i) were attributable only to Vargas, or (ii) were nonactionable statements of future intention. Id. To the extent that plaintiffs alleged the law firm “made” the misstatements by incorporating its client’s misrepresentations into documents the firm had drafted, said the panel, plaintiffs were alleging mere aiding-and-abetting. Id. (And even that charge failed, held the panel, for the plaintiffs failed to plead the defendant’s actual knowledge. Id.) With that narrow analysis, the Appellate Division again focused solely on the making of a fraudulent statement; it never reached the equally valid avenues of liability satisfied under New York precedent by allegations showing a defendant authorized or caused a misrepresentation to be made by another. See id. Nor did the panel address additional avenues of fraud liability under New York law – namely, scheme liability and liability for deliberate omissions by an entity with superior knowledge that it knows the victims do not possess. See supra, §§VI.B.1. & VI.B.2. The remainder of the Mateo panel’s reasoning, wound up in facts unique to that case, drive home the conclusion that Mateo’s narrow holding does not foreclose Morgan Stanley’s liability here. - 68 - 1000007_1 The Mateo complaint failed to adequately allege that the law firm “reasonably could and should have foreseen” that a class of persons like the plaintiffs “would act in reliance on the alleged misrepresentations.” 918 N.Y.S.2d at 440; see also id. (complaint fails to explain why anyone “other than Skyllas would rely” on the alleged misstatements). Here, in contrast, the entire point of Morgan Stanley’s actions was that investors would bite and spend billions of dollars on the fraudulent Notes. Nor had the Mateo plaintiffs been able to adequately allege scienter: “[N]owhere does [the complaint] allege that defendant [law firm] knew or should have known . . . that Vargas’s representations were in fact false.” Id. Here, in stark contrast, Morgan Stanley’s outright knowledge of the Rated Notes’ underlying falsehoods is palpable. A133 (district court holds evidence may allow jury to conclude that “Morgan Stanley had actual knowledge that the Rating Agencies were assigning ratings they did not believe in,” and that Morgan Stanley “actively encouraged” the Rating Agencies to “perpetrat[e] a fraud”). And finally, the Mateo plaintiffs were unable to plead that the law firm’s supposed misrepresentations had somehow caused their losses; indeed, “at least three events occurred between the alleged misrepresentations and plaintiffs’ loan to Skyllas,” and those events “constitute superseding causes that broke the chain of causation.” 918 N.Y.S.2d at 441. There were no such superseding causes here, as the - 69 - 1000007_1 direct cause of Commerzbank’s losses was the false and misleading Notes that Morgan Stanley helped construct, compile, and market to investors. VII. CONCLUSION Both questions certified to this Court by the United States Court of Appeals for the Second Circuit should be answered in the affirmative. The full-price transfer from DAF to Dresdner of its entire interest in the downgraded Notes, unaccompanied by any limiting language, sufficed to transfer tort claims associated with those Notes. In addition, the summary judgment record is replete with evidence sufficient to raise a triable issue of Morgan Stanley’s liability under several New York fraud theories, warranting presentment to a reasonable trier of fact. DATED: January 21, 2015 Respectfully submitted, ROBBINS GELLER RUDMAN & DOWD LLP JOSEPH D. DALEY DANIEL S. DROSMAN LUKE O. BROOKS JOSEPH D. DALEY 655 West Broadway, Suite 1900 San Diego, CA 92101-3301 Telephone: 619/231-1058 619/231-7423 (fax) - 70 - 1000007_1 Attorneys for Plaintiff-Appellant Commerzbank AG 1000007_1 DECLARATION OF SERVICE I, the undersigned, declare: 1. That declarant is and was, at all times herein mentioned, a citizen of the United States and employed in the City and County of San Diego, over the age of 18 years, and not a party to or interested party in the within action; that declarant’s business address is 655 W. Broadway, Suite 1900, San Diego, California 92101. 2. On January 21, 2015, a digital version of the foregoing document: BRIEF FOR PLAINTIFF-APPELLANT was submited to the Clerk of the Court for the State of New York, Court of Appeals by using the Court of Appeals Public Access and Search System. 3. On the same date, declarant filed one original and nine copies of BRIEF FOR PLAINTIFF-APPELLANT with the Clerk of the Court by placing in a sealed package with the fees thereon fully prepaid and depositing at a designated pick-up location for U.P.S. in San Diego, California. 3. Declarant further certifies that service of the foregoing document was made by depositing three true copies thereof in a United States mailbox, or dispatched it to a third-party commercial carrier for delivery within three calendar days, in San Diego, California in a sealed envelope with postage thereon fully prepaid and addressed to the parties listed on the attached Service List. I declare under penalty of perjury that the foregoing is true and correct. Executed on January 21, 2015, at San Diego, California. JANA P. KUSY Service List - 1/20/2015 Page 1 of 2 (08-0168) MORGAN STANLEY SIV Counsel for Defendant(s) Dean Ringel Floyd Abrams Jason M. Hall 80 Pine Street New York, NY 10005-1702 212/701-3000 212/269-5420(Fax) Cahill Gordon & Reindel LLP James P. Rouhandeh William R. Miller Jr. Andrew D. Schlichter 450 Lexington Avenue New York, NY 10017 212/450-4000 212/701-5800(Fax) Davis Polk & Wardwell LLP Mark A. Kirsch Christopher M. Joralemon Lawrence Jay Zweifach 200 Park Avenue 47th Floor New York, NY 10166-0193 212/351-4000 212/351-4035(Fax) Gibson, Dunn & Crutcher LLP Joshua M. Rubins James J. Coster Aaron M. Zeisler 230 Park Avenue, 11th Floor New York, NY 10169 212/818-9200 212/818-9606(Fax) Satterlee Stephens Burke & Burke LLP Counsel for Plaintiff(s) Marc I. Gross Tamar A. Weinrib 600 Third Avenue New York, NY 10016 212/661-1100 212/661-8665(Fax) Pomerantz LLP Samuel H. Rudman 58 South Service Road, Suite 200 Melville, NY 11747 631/367-7100 631/367-1173(Fax) Robbins Geller Rudman & Dowd LLP Service List - 1/20/2015 Page 2 of 2 (08-0168) MORGAN STANLEY SIV Michael J. Dowd Daniel S. Drosman Luke O. Brooks 655 West Broadway, Suite 1900 San Diego, CA 92101 619/231-1058 619/231-7423(Fax) Robbins Geller Rudman & Dowd LLP Jason C. Davis Post Montgomery Center One Montgomery Street, Suite 1800 San Francisco, CA 94104 415/288-4545 415/288-4534(Fax) Robbins Geller Rudman & Dowd LLP