Dismissal of $123 Million CDO Lawsuit
June 24, 2015
Cleary Gottlieb won a motion to dismiss on behalf of clients, Barclays Bank and Barclays Capital, on June 24 on claims arising out of a foreign bank’s investment in collateralized debt obligations. Plaintiff, Aozora Bank, filed suit against certain banks and collateral managers, including Barclays, claiming it was misled into investing $123 million in 5 different CDOs that later failed. Specifically, Aozora alleged that the banks and collateral managers misrepresented the credit ratings of the CDOs and the selection process for the CDOs’ collateral. Justice Lawrence Marks of the New York County Supreme Court dismissed the lawsuit, finding that all of Aozora’s claims were time-barred under New York’s statute of limitations. In particular, Justice Marks held that Aozora was on inquiry notice of its fraud claims more than two years before it commenced suit and failed to explain why it could not have discovered the alleged fraud with reasonable diligence. Justice Marks likewise dismissed Aozora’s non-fraud claims, including claims for breach of the implied covenant of good faith and fair dealing, tortious interference with contract and unjust enrichment, as time-barred, finding that those claims accrued at the time of investment, which was outside the relevant three- and six-year statutes of limitations.