Aig Fin. Prods. Corp. v. ICP Asset Mgmt., LLC

• Decision Date: 09 July 2013
• Citation: 108 A.D.3d 444,2013 N.Y. Slip Op. 05177,969 N.Y.S.2d 449
• Parties: AIG FINANCIAL PRODUCTS CORP., Plaintiff–Respondent, v. ICP ASSET MANAGEMENT, LLC, et al., Defendants–Appellants, ICP Strategic Credit Income Fund, Ltd., et al., Defendants.
• Court: New York Supreme Court — Appellate Division

108 A.D.3d 444

969 N.Y.S.2d 449

2013 N.Y. Slip Op. 05177

AIG FINANCIAL PRODUCTS CORP., Plaintiff–Respondent,

v. ICP ASSET MANAGEMENT, LLC, et al., Defendants–Appellants,ICP Strategic Credit Income Fund, Ltd., et al., Defendants.

Supreme Court, Appellate Division, First Department, New York.

July 9, 2013.

Akin Gump Strauss Hauer & Feld LLP, New York (David M. Zensky of counsel), for Moore Capital Management, LP and Seychelles Ltd., appellants.

Quinn Emanuel Urquhart & Sullivan, LLP, New York (Jonathan E. Pickhardt of counsel), for respondent.

GONZALEZ, P.J., MAZZARELLI, MOSKOWITZ, RENWICK, MANZANET–DANIELS, JJ.

Order, Supreme Court, New York County (Jeffrey K. Oing, J.), entered August 8, 2012, which, insofar as appealed from, denied the motion of defendants Moore and Seychelles to dismiss the cause of action against them for aiding and abetting fraud, unanimously affirmed, with costs. Appeal by ICP Asset Management LLC, ICP Securities LLC, and Institutional Credit Partners LLC from the aforesaid order unanimously withdrawn in accordance with the stipulation of the parties dated April 2, 2013.

Defendants Moore Capital Management, LP and Seychelles Ltd. (Moore) contend that plaintiff AIG Financial Products Corp. (AIG) failed to allege sufficient facts to establish a cause of action for aiding and abetting fraud. According to the first amended complaint, the underlying fraud was committed by the ICP defendants (ICP) when they entered into an arrangement with Moore to secure from it residential mortgage backed securities pursuant to a forward purchasing agreement. AIG, which had issued credit default swaps in connection with the collateralized debt obligations (CDOs) that those residential mortgage backed securities were associated with, claims that the forward purchasing agreement between ICP, the collateral manager for the CDOs, and Moore, was purposely structured to deplete the CDOs' assets by setting the price for the mortgage backed securities at a level much higher than that justified by the deteriorating market for those products at the time in question, 2007 and 2008. Plaintiff asserts that ICP was required, pursuant to the indentures governing the CDOs, to obtain its consent before purchasing new collateral, and that it was defrauded when ICP failed to obtain such authorization before entering into the forward purchasing agreement.

With respect to Moore, the first amended complaint specifically alleges that it was privy to the indentures, and thus knew of AIG's veto power over transactions such as the forward purchase agreement. Further, AIG alleged various facts intended to suggest that the forward purchase agreement was designed to defraud AIG. For example, it asserted that the CDOs themselves,which were the actual parties in interest to the forward purchase agreement, were not made signatories to the agreement. In addition, AIG alleged that the forward purchase agreement made little economic sense for the CDOs, since it promised to purchase mortgage backed securities from Moore at prices not commensurate with the foundering market for those products. The first amended complaint alleges that Moore did not obtain the securities in question independently, but rather that ICP “arranged for them to be acquired” by Moore. AIG further avers in the first amended complaint that Moore realized a large windfall as a result of its transactions with ICP. Finally, AIG alleges that Moore participated in “swapping” with TOP certain mortgage backed securities in place of securities with respect to which AIG did exercise its right to veto, as a way of quashing AIG's approval rights under the indenture agreements. While this allegation does not appear in the first amended complaint itself, it is apparent from papers submitted by the parties in connection with a related SEC enforcement action, which papers were considered by the motion court for purposes of amplifying the first amended complaint.

Moore asserts that the first amended complaint fails because it does not allege that Moore had actual knowledge of the facts supporting each and every element of the fraud cause of action against ICP. It claims that, at best, the first amended complaint alleges that Moore had constructive knowledge of the facts, which it correctly notes is insufficient on an aiding and abetting claim ( see CRT Invs., Ltd. v. BDO Seidman, LLP, 85 A.D.3d 470, 472, 925 N.Y.S.2d 439 [1st Dept. 2011] ). Moore further argues that AIG did...