Financial Structures Ltd. v. UBS AG

• Decision Date: 07 October 2010
• Parties: FINANCIAL STRUCTURES LIMITED, et al., Plaintiffs-Respondents, v. UBS AG, et al., Defendants-Appellants.
• Court: New York Supreme Court — Appellate Division

909 N.Y.S.2d 45

77 A.D.3d 417

FINANCIAL STRUCTURES LIMITED, et al., Plaintiffs-Respondents,

v.UBS AG, et al., Defendants-Appellants.

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

Oct. 7, 2010.

Paul, Hastings, Janofsky & Walker LLP, New York (James R. Bliss and Kevin P. Broughel of counsel), for appellants.

Sonnenschein Nath & Rosenthal LLP, New York (Richard M. Zuckerman of counsel), for respondents.

ANDRIAS, J.P., FREEDMAN, RENWICK, RICHTER, MANZANET-DANIELS, JJ.

Order, Supreme Court, New York County (Barbara R. Kapnick, J.), entered November 9, 2009, which, to the extent appealed from, denied defendants' motion seeking to dismiss thefirst and second causes of action and related injunctive relief, unanimously modified, on the law, the motion granted with respect to dismissal of the first cause of action and all claims for injunctive relief, and otherwise affirmed, without costs.

The alleged oral side agreement was capable of full performance within one year, and thus was not barred by the statute of frauds ( see General Obligations Law § 5-701[a][1] ). The written agreement to which this side agreement was inextricably tied set forth several methods by which the maturity date could be accelerated within the first year of the transaction without a breach by any party to the agreement. For example, an optional redemption upon the occurrence of a withholding tax event, in which a change in the tax laws could require the withholding of taxes from payments on the underlying junior notes, resulting in the payments received on the underlying junior notes being insufficient to cover the payments due on the senior notes, would trigger acceleration, requiring full repayment of all principal and interest due on the senior notes, and completion of full performanceunder the agreement possibly as early as 10 months after the closing date. The fact that full performance within one year was unlikely or improbable does not make the agreement subject to the statute of frauds ( see Cron v. Hargro Fabrics, 91 N.Y.2d 362, 366, 670 N.Y.S.2d 973, 694 N.E.2d 56 [1998] ), for the statute encompasses only those agreements which, by their terms, "have absolutely no possibility in fact and law of full performance within one year" ( D & N Boening v. Kirsch Beverages, 63 N.Y.2d 449, 454, 483 N.Y.S.2d 164, 472 N.E.2d 992 [1984]; see also North Shore Bottling Co. v. C. Schmidt & Sons, 22 N.Y.2d 171, 175-176, 292 N.Y.S.2d 86, 239 N.E.2d 189 [1968] ). The contingencies at issue here may or may not have happened within one year, clearly taking the subject agreement out of the statute of frauds ( see id. at 177, 292 N.Y.S.2d 86, 239 N.E.2d 189; see also Lichtman v. Estrin, 282 A.D.2d 326, 328, 723 N.Y.S.2d 185 [2001]; Nakamura v. Fujii, 253 A.D.2d 387, 389, 677 N.Y.S.2d 113 [1998]; Metro-Goldwyn-Mayer v. Scheider, 43 A.D.2d 922, 923, 352 N.Y.S.2d 205 [1974] ).

Contrary to defendants' contention, the methods of acceleration that would not constitute a breach would not frustrate the agreement's purpose so as to render it no performance at all ( compare Solomon v. Urban Dental Mgt., Inc., 39 A.D.3d 529, 531, 834 N.Y.S.2d 222 [2007]; Cohen v. Bartgis Bros. Co., 264 App.Div. 260, 35 N.Y.S.2d 206 [1942], affd. 289 N.Y. 846, 47 N.E.2d 443 [1943] ), but rather would simply shorten the period of time that noteholders would earn interest on their notes and thereby "advance[ ] the period of fulfillment" ( Blake v. Voight, 134 N.Y. 69, 73, 31 N.E. 256 [1892] ). Defendants' argument that the options for acceleration depend on the occurrence of events or contingencies outside the parties' control is equally unavailing, for this circumstance does not remove an agreement from the purviewof the statute of frauds ( see e.g. Lichtman, 282 A.D.2d at 328, 723 N.Y.S.2d 185; Nakamura, 253 A.D.2d at 389, 677 N.Y.S.2d 113; Metro-Goldwyn-Mayer, 43 A.D.2d at 923, 352 N.Y.S.2d 205).

We agree with the motion court that the fraud cause of action was not conclusively barred by the applicable two-year statute of limitations ( see CPLR 213[8] ) because the parties' competing factual contentions render it impossible to determine, at this stage of the proceedings, when plaintiffs first became-or should have become-aware of the alleged fraud ( see ...