Commercial Division Justice Eileen Bransten recently concluded that plaintiff bondholders lacked standing to bring fraud claims against the bond obligor and trustee after having sold their interests in the bonds. One William St. Capital Mgmt. L.P. v. U.S. Educ. Loan Tr. IV, LLC, No. 652274/2012, 2017 BL 1700030 (Sup. Ct. N.Y. Co. May 16, 2017), involved a group of investment firms that purchased $10 million in notes backed by government-guaranteed student loans from the U.S. Education Loan Trust IV (“ELT”). The notes were part of a larger $30 million package.
Justice Shirley Kornreich recently issued one of the few New York state court decisions that address the Computer Fraud and Abuse Act (“CFAA”). Spec Simple, Inc. v. Designer Pages Online LLC, No. 651860/2015, 2017 BL 160865 (N.Y. Sup. Ct. May 10, 2017). The CFAA criminalizes both accessing a computer without authorization and exceeding authorized access and thereby obtaining information from any protected computer. Id. at *3 (citing 18 U.S.C. § 1030(a)(2)(C)). The CFAA also provides a civil cause of action to any person who suffers damage or loss because of a violation of the CFAA. Id. at *4 (citing 18 U.S.C. § 1030(g)). As discussed below, the decision provides a helpful look into the interpretation of CFAA claims in the future.
Fraud and Fraudulent Conveyance Claims for $686 Million Allowed To Proceed Against Hedge Fund in Long-Running Dispute over Failed Securitization
On March 13, 2017, Justice Marcy Friedman of the New York Commercial Division denied a motion for summary judgment seeking to dismiss claims of fraud, breach of the covenant of good faith and fair dealing, and fraudulent conveyance brought against a hedge fund, Highland Capital Management, and related entities. The case, UBS Securities LLC v. Highland Capital Management, No. 6500097/09, 2017 BL 98450 (Sup. Ct. Mar. 13, 2017), is a long running dispute arising from a failed securitization of collateralized loan obligations (CLOs) and credit default swaps (CDS) that dates to the early days of the Great Recession. The denial of summary judgment means that the next step in this eight-year long saga will be a jury trial where $686 million in damages will be at stake.
In a pair of recent decisions, Justices Shirley W. Kornreich and Lawrence K. Marks of the Commercial Division ruled that creditors could proceed on their fraudulent conveyance claims seeking reversal of asset transfers made by debtors under New York’s Debtor and Creditor Law (“DCL”). The decisions highlight two basic theories of fraudulent conveyance claims permitted by the DCL: intentional fraud claims, which require a showing that the debtor made the transfer with the intent defrauding its creditor, and constructive fraud claims, which do not require a showing of fraudulent intent.