Credit Suisse sought to dismiss the action arguing that the Bankers Life failed to state a claim for common law fraud. Specifically, Credit Suisse argued that Bankers Life had failed to identify: (1) any actionable misstatement or omission; (2) any knowledge on the part of Credit Suisse that any statement or omission it had made was false or misleading; (3) any intent on the part of Credit Suisse to both make the false or misleading statement or omission and have Bankers Life rely upon it; or (4) actual reliance on the part of Bankers Life.
The court disagreed. First, it ruled that Bankers Life has identified several actionable misstatements or omissions. For example, in the Second Amended Complaint, Bankers Life alleged that Credit Suisse omitted accurate information about the bonds’ credit ratings from the Prospectus and Prospectus Supplement. Bankers Life also alleged that Credit Suisse failed to disclose to Bankers Life fraudulent mortgages underlying the bonds and falsely represented to Bankers Life that it would cure any discovered breaches.
Second, the court ruled that Bankers Life adequately alleged that “[Credit Suisse] ha[d] actual knowledge of the presence of default and fraudulent mortgages based upon various submissions of claims to Triad.” According to the court, Bankers Life explained with the requisite particularity that Credit Suisse should have known that the representations and omissions were false and misleading based on “the numerous submissions of claims to Triad.”
Third, the court ruled that Bankers Life adequately pled that Credit Suisse intended that it rely on the false and misleading statements and omissions by alleging that Credit Suisse “purposely lowered criteria and standards, or turned a blind eye to it, in order to keep selling profitable certificates.” Finally, the court ruled that Bankers Life adequately alleged that its reliance on such statements and omissions caused it injury. Accordingly, the court ruled that Bankers Life satisfied the pleading requirements for its common law fraud claim against Credit Suisse. The court then noted that it had previously denied motions to dismiss Bankers Life’s other causes of action – misrepresentation, breach of fiduciary duty and breach of contract – and that nothing had happened to change its opinion on those claims.
The court also denied Triad’s and Bank of New York’s motions to dismiss. With respect to Triad, the court ruled that the complaint adequately alleged that Bankers Life was a third party beneficiary under the bond policy and, therefore, can bring claims under that policy. The court also ruled that the fraud exclusion in the policy created an affirmative defense only. Accordingly, the court ruled that allegations of fraud in other parts of the complaint do not prevent Bankers Life from asserting claims under the policy.
With respect to Bank of New York, the court rejected its claim that it could not be sued because it was a successor in interest to the original indenture trustee. The court also rejected Bank of New York’s arguments that Bankers Life had failed to acquire 25% of certificate holders’ approval before bringing an action and that Bankers Life has not adequately pled that the Bank of New York breached any of its obligations under the indenture trust agreement. Finally, the court rejected Bank of America’s claim that Bankers Life’s civil conspiracy claim was improperly pled, pointing out that Bankers Life pled each of the four required allegations for such claim.