Phoenix Light SF Limited v. Merrill Lynch & Co, Inc., Index No. 653235/2013, 10/3/14 (Ramos, C.).

By John-Paul Yezzo | Staff Writer

Particularity in specific actions: CPLR § 3016(b); Fraud

Plaintiffs, purchasers of residential mortgage-backed securities (“RMBS”), initially filed a complaint that combined claims against several banks involved in dozens of unrelated RMBS transactions. The Court dismissed that complaint for failure to make specific allegations as to any of the particular transactions, and granted plaintiffs leave to re-plead separate claims against each bank. Plaintiffs’ amended complaint brought a cause of action against defendants for fraudulent RMBS transactions.

The Court dismissed plaintiffs’ amended complaint, finding plaintiffs failed to plead with the requisite specificity. The amended complaint did not contain allegations of defendants’ misstatements or omissions underlying the claims in reasonable detail as required by CPLR § 3016(b). Plaintiffs did not have details pertaining to these transactions, and admitted that they did not possess the actual offering documents relied upon in pursuing the RMBS transactions. The amended complaint was based on representations contained in documents, which post-dated the transactions at issue. Additionally, plaintiffs relied mostly on reports that were not tied to any specific securitization, industry publications that did not even reference defendants, and allegations regarding analyses offered by different investors in different securitizations. Plaintiffs argued that they made all purchases in reliance upon draft supplements that were materially identical to the final supplements. The Court rejected this argument, finding that compliance with CPLR § 3016(b) was a practical impossibility because plaintiffs’ claims relied on general due diligence of reports and publications that had no connection to defendants’ actions or to the loans underlying the transactions at issue. Plaintiffs admitted that they were unable to plead the particulars of the alleged fraud because they did not know what actually occurred. Instead, they intended to uncover the specific details of the fraud during discovery. This lack of specificity, the court held, did not satisfy the requirements of CPLR § 3016(b). Plaintiffs’ boilerplate allegations were without factual basis, merely speculative, and, therefore, insufficient. Plaintiffs must set forth specific facts that connect these generalized claims to the loan transactions at issue. Accordingly, the Court dismissed plaintiffs’ amended complaint with leave to re-plead.

Phoenix Light SF Limited v. Merrill Lynch & Co, Inc., Index No. 653235/2013, 10/3/14 (Ramos, C.).

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