State v. Credit Suisse Sec. (Usa) LLC, Index No: 100185/2013

• Decision Date: 17 July 2015
• Docket Number: Index No: 100185/2013
• Citation: 2015 NY Slip Op 32031 (U)
• Court: New York Supreme Court
• Parties: THE STATE OF NEW YORK EX. REL. THOMAS C. WILLCOX, Plaintiff, v. CREDIT SUISSE SECURITIES (USA) LLC, AS SUCCESSOR-IN-INTEREST TO DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION, MORGAN STANLEY, JP MORGAN CHASE & CO., AS SUCCESSOR-IN-INTEREST TO BEAR STEARNS & CO., INC., AND BANK OF AMERICA CORPORATION, AS SUCCESSOR-IN-INTEREST TO MERRILL LYNCH & CO., INC., Defendants.

2015 NY Slip Op 32031(U)

THE STATE OF NEW YORK EX. REL. THOMAS C. WILLCOX, Plaintiff,
v.
CREDIT SUISSE SECURITIES (USA) LLC, AS SUCCESSOR-IN-INTEREST
TO DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION,
MORGAN STANLEY, JP MORGAN CHASE & CO.,
AS SUCCESSOR-IN-INTEREST TO BEAR STEARNS & CO., INC.,
AND BANK OF AMERICA CORPORATION, AS SUCCESSOR-IN-INTEREST
TO MERRILL LYNCH & CO., INC., Defendants.

Index No: 100185/2013

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: PART 19

FILED: July 22, 2015
July 17, 2015

DECISION/ORDER
MOT. SEQ. 002, 003 AND 005

Recitation, as required by CPLR § 2219(a), of the papers considered in the review of (i) Defendants' motion to dismiss the amended complaint (Mot. Seq. 002); (ii) Plaintiff-Relator's motion for leave to file a second amended complaint (Mot. Seq. 003); and (iii) Plaintiff-Relator's motion for leave to file a third amended complaint (Mot. Seq. 005).

Papers	Numbered
Motion Seq. 002; Defendants' Notice of Motion, Affirmation, Exhibits, Memorandum of Law, and; Compendium of Unreported Cases	1
Plaintiff's Opposition with Exhibits	2
Defendants' Reply Affirmation, Affidavit, Reply Memorandum of Law, and; Compendium of Unreported Cases	3
Motion Seq. 003; Plaintiff's Notice of Motion, Affidavit, Exhibits, Memorandum of Law	1
Defendants' Memorandum of Law in Opposition	2
Plaintiff's Reply	3
Motion Seq. 005; Plaintiff's Notice of Motion, Affidavit, Exhibits, Memorandum of Law, and	1
Compendium of Unreported Cases; Defendants' Memorandum of Law in Opposition	2
Plaintiff's Reply Memorandum of Law	3

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The court renders this decision and order after consideration of the papers submitted and oral argument on three motions: (i) Defendants' motion to dismiss the amended complaint (Mot. Seq. 002); (ii) Plaintiff-Relator's ("Relator") motion for leave to file a second amended complaint (Mot. Seq. 003); and (iii) Relator's motion for leave to file a third amended complaint (Mot. Seq. 005).

Brief History

Relator Thomas C. Willcox, Esq. brings the instant qui tam action under the New York False Claims Act ("NY FCA") against Defendants, banks with principal places of business in New York, who are the successors-in-interest to the banks that filed the tax returns at issue in this proceeding.

In 2003, Relator represented PSINet Liquidating, LLC ("Liquidating") in federal actions PSINet Liquidating LLC. v. Bear Stearns & Co., Inc., 02 CIV.6691 GBD, 2003 WL 367863 (S.D.N.Y. Feb. 19, 2003) aff'd sub nom. PSINet Liquidating LLC v. Bear Stearns & Co., 357 F3d 263 (2d Cir. 2004) ("PSINet I") and in Psinet Liquidating LLC v. Bear, Stearns Intl. Ltd., 03 CIV.24 DLC, 2003 WL 21511936 (S.D.N.Y. July 1, 2003) aff'd sub nom. PSINet Liquidating LLC v. Bear Stearns & Co., 357 F.3d 263 (2d Cir. 2004) ("PSINet II"). In both cases, Liquidating alleged that the discounted security notes they sold to Defendants in two 1999 transactions were "sham[s]," because instead of reselling the notes to various external purchasers, the Defendants re-sold the notes to their UK-affiliates. See PSINet 1, at *1 (July 1999 transaction); PSINET II, at *3 (November 1999 transaction). Liquidating claimed that under this setup, the discounted notes were loans, not securities, and as such, the discount they gave the Defendants in the transactions violated New York's statutory cap on loan brokerage fees. See PSINet 1, at *1 (referring to General Obligations Law § 5-531); PSINET II, at *1. The district court dismissed both cases, finding that the notes were securities, not loans. See PSINet 1, at *6; PSINET II, at *4. On appeal, the Second Circuit consolidated the cases and affirmed the dismissal. See PSINet Liquidating LLC v. Bear Stearns & Co., 357 F.3d 263, 265 (2d Cir. 2004).

Liquidating later brought a similar action in New York state court which was dismissed on res judicata grounds. See PSINet Liquidating LLC v. Bear Stearns & Co., et al., Index No. 602267/2003 (Sup. Ct. Sept. 8, 2004).

In the present action, Relator alleges that Defendants conspired to and knowingly failed to report the revenue they earned from the July and November 1999 transactions on their 1999

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New York State tax returns. Relator seeks judgment in his favor, on behalf of New York State, for the amount of Defendants' alleged unpaid 1999 New York State income taxes, which Relator believes is over $1,000,000. As a qui tam plaintiff, Relator would be entitled to a reward of up to twenty-five percent of the total recovery.¹ See New York State Fin. Law § 190(6)(a).

The Instant Motions

Defendants move to dismiss the amended complaint pursuant to CPLR §§ 3211(a)(1), (5), and (7). Relator subsequently moved for leave to file a second and third amended complaint. The court will first address the motion to dismiss.

To prevail on a motion to dismiss, it must be shown that no cause of action exists. Guggenheimer v. Ginzburg, 401 N.Y.S.2d 182, 185 (1977). Factual ambiguity is resolved by affording the pleading a "liberal construction" and the benefit of every possible favorable inference." Leon v. Martinez, 614 N.Y.S.2d 972, 974 (1994). "On a motion to dismiss a cause of action pursuant to CPLR 3211(a)(5) on the ground that it is barred by the statute of limitations, a defendant bears the initial burden of establishing, prima facie, that the time in which to sue has expired. In considering the motion, a court must take the allegations in the complaint as true and resolve all inferences in favor of the plaintiff." Benn v. Benn, 82 A.D.3d 548, 548 (1st Dep't 2011) (internal citations omitted). Applying that standard here, the motion is granted and the court dismisses the complaint as time-barred.

One may be liable under the New York False Claims Act on a number of grounds, including where he "knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the state or a local government" (New York State Fin. Law § 189(1)(g)), or conspires to violate same (State Fin. Law §...