Syncora Guarantee Inc. v. Alinda Capital Partners LLC
| Decision Date | 14 February 2017 |
| Docket Number | Index No. 651258/2012 |
| Citation | 2017 NY Slip Op 30288 (U) |
| Parties | SYNCORA GUARANTEE INC., Plaintiff, v. ALINDA CAPITAL PARTNERS LLC, AMERICAN ROADS LLC, MACQUARIE SECURITIES (USA) INC., and JOHN S. LAXMI, Defendants. |
| Court | New York Supreme Court |
In this action for, inter alia, fraud and negligent misrepresentation, Syncora Guarantee Inc. ("Syncora" or "plaintiff"), alleges that Macquarie Capital (USA) Inc. (f/k/a Macquarie Securities (USA) Inc.) ("Macquarie" or "defendant") knowingly misled plaintiff into insuring financing for certain toll road properties through misrepresentations about future traffic projections. Defendant seeks to dismiss plaintiff's amended complaint ("Compl.") pursuant to CPLR §§ 3211(a)(1) and (a)(7) (mot. seq. 006). Plaintiff opposes.
Syncora "is a monoline financial guaranty insurance provider that provides credit enhancement for the obligations of debt issuers worldwide." Compl. ¶18. In exchange for issuing an insurance policy, Syncora receives premiums from the issuer of the obligation. Id. ¶19. In determining whether to issue a policy in any given case, Syncora would consider a number of factors including the credit strength of the issuer, sources of income, type of issue and the available revenue sources and expected revenue amounts. Id. Additionally, Syncora would rely upon information from the structuring banks and issuers in assessing the structure of the proposed debt obligation and the nature and credit quality of the underlying assets. Id. ¶20.
In or around November 2005, Macquarie approached Syncora proposing that Syncora insure a proposed bond issuance in connection with the acquisition and refinancing of regional toll road assets and provide credit protection on interest rate hedging swaps that Macquarie planned to enter into in connection with the bonds. Id. ¶21. Macquarie is a part of the corporate advisory arm of the Macquarie Group. Id. ¶22. In 2006, Macquarie purchased five toll roads through Macquarie Small Cap Roads LLC, which eventually came to be known as American Roads. Id. ¶¶23, 27. Macquarie eventually sold American Roads to Alinda Capital Partners LLC ("Alinda"), a third party investment firm. Id. ¶39.
In order to assure Syncora that American Roads toll assets would provide adequate debt service, Macquarie "procured traffic and revenue forecast reports from its traffic advisor, Maunsell, for each of the facilities in the American Roads' portfolio." Id. ¶32. These projections allegedly showed that the portfolio wouldexperience increased revenue based upon a projected increase in the amount of traffic on these roads. Id. ¶4. Macquarie also retained Wilbur Smith as an additional consultant in order to perform an audit of Maunsell's work.
Plaintiff asserts that the projections Macquarie provided were grossly misleading and based upon manipulated data in order to misrepresent American Roads revenues to ensure its coverage. Relying on these projections, Syncora issued financial guaranty insurance policies on the bonds, with the bondholders as the ultimate beneficiaries. Id. ¶¶45-46. Additionally, Syncora entered into two financial guaranty insurance policies with Citibank, N.A., insuring American Roads payments on two interest-rate hedging swaps, with Syncora guaranteeing the fixed payments owed by American Roads to its swap counterparty. Id. ¶47.
Relevant to this motion, Syncora collected premiums on this policy from December 2006 through March 2013. See Coyle Aff., Ex. 2, Ex. B. Macquarie contends that Syncora was made aware of the alleged misrepresentation when an article published in The Monthly in July 2007 wrote "about another commentator's 'disquiet at Macquarie's practice of paying [Maunsell] success fees', quoting a former Macquarie employee as describing the practice as 'ridiculous.'" Coyle Aff., Ex. 2, No. 8. Macquarie also alleges that Syncora became aware that Macquarie had made false representations in connection with the policy in mid-2009 and continued to receive nearly $10 million worth of premium payments until March 2013. SeeCoyle Aff., Ex. 3, No. 1; Coyle Aff., Ex. 2, Ex. B. According to Macquarie, Syncora learned of the alleged misrepresentation as late as mid-2009 and yet still continued to collect premiums through March 2013.
In 2012, Syncora filed a complaint alleging that Macquarie paid success fees to Maunsell regarding the future revenue projections on the toll roads. Syncora Guarantee Inc. v. Alinda Capital Partners LLC, No. 651258/2012 (Dkt. No. 5). Macquarie's motion to dismiss the complaint was denied. Syncora has collected $42 million in premiums since inception, $10 million after learning of Macquarie's alleged wrongdoing in 2009, $2.5 million worth of premium payments on the American Roads policy after the filing of the summons, and $600,000 four days after Syncora's complaint was filed. See Oral Argument Tr. 4-5. By 2013, American Roads filed for bankruptcy, allegedly based upon their inability to match the projections provided by Macquarie. As a result of this bankruptcy, Syncora is paying the outstanding bonds based upon its guaranty policies.
In March 2016, Syncora filed an amended complaint alleging fraud and negligent misrepresentation seeking rescissory, compensatory and punitive damages on the policy based upon the alleged misrepresentations made by Macquarie. See Compl., pp. 38-41. According to Macquarie, Syncora is estopped from claiming rescissory damages on the basis that after learning of the alleged misrepresentation,Syncora continued to receive premium payments on the policy thereby waiving their claim for damages.
On a motion to dismiss a complaint for failure to state a cause of action, all factual allegations must be accepted as truthful, the complaint must be construed in the light most favorable to plaintiffs, and plaintiffs must be given the benefit of all reasonable inferences. Allianz Underwriters Ins. Co. v. Landmark Ins. Co., 13 A.D.3d 172, 174 (1st Dept 2004). The court determines only whether the facts as alleged fit within any cognizable legal theory. Leon v. Martinez, 84 N.Y.2d 83, 87-88 (1994). The court must deny a motion to dismiss, "if, from the pleadings four corners, factual allegations are discerned which, taken together, manifest any cause of action cognizable at law." 511 West 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144, 152 (2002).
"[N]evertheless, allegations consisting of bare legal conclusions, as well as factual claims either inherently incredible or contradicted by documentary evidence, are not entitled to such consideration." Quatrochi v. Citibank, N.A., 210 A.D.2d 53, 53 (1st Dept 1994) (internal citation omitted).
On a motion to dismiss on the ground that defenses are founded upon documentary evidence, the evidence must be unambiguous, authentic, and undeniable. CPLR 3211(a)(1); Fountanetta v. Doe, 73 A.D.3d 78 (2d Dept 2010)."To succeed on a [CPLR 3211(a)(1)] motion ... a defendant must show that the documentary evidence upon which the motion is predicated resolves all factual issues as a matter of law and definitively disposes of the plaintiff's claim." Ozdemir v. Caithness Corp., 285 A.D.2d 961, 963 (2d Dept 2001), leave to appeal denied 97 N.Y.2d 605. Alternatively, "documentary evidence [must] utterly refute plaintiff's factual allegations, conclusively establishing a defense as a matter of law." Goshen v. Mutual Life Ins. Co. of New York, 98 N.Y.2d 314, 326 (2002).
Macquarie's motion to dismiss plaintiff's first and second causes of action for fraud and negligent misrepresentation is denied except for dismissing the claim for rescissory and punitive damages. Macquarie alleges that Syncora's admission that it accepted premium payments after learning of Macquarie's alleged misrepresentations precludes their fraud and negligent misrepresentation claims, as a matter of law.
National Grange Mut. Ins. Co., Inc. v. Judson Const., Inc., 931 F.Supp.2d 373, 382-83 (D. Conn. 2013) quoting GuideOne Specialty Mut. Ins. Co. v. Congregation Adas Yereim, 593 F.Supp.2d 471, 483 (E.D.N.Y. 2009); see also United States Life Ins. Co. in the Citv of N.Y. v. Blumenfeld, 92 A.D.3d 487 (1st Dept 2012) ("Blumenfeld I").
The First Department clearly holds that "an insurer's failure to rescind a policy promptly after obtaining sufficient knowledge of alleged misrepresentations by an insured constitutes ratification of the policy." Blumenfeld I, 92 A.D.3d at 488. "An insurer's attempt to reserve its rights while accepting premiums is unenforceable for lack of mutuality." Id. at 489; see also Continental Ins. Co. v. Helmsley Enters., 211 A.D.2d 589 (1st Dept 1995).
Accordingly, Syncora cannot seek rescissory damages to alleviate itself of the obligations under the insurance contract based upon the alleged wrongdoing of defendant when it was aware of the wrongdoing at the time that Syncora accepted and continued to derive benefit from the receipt of premiums under the policy. Syncora argues that Macquarie is not the insured, has no policy with Syncora, and has not paid any premiums to Syncora. Additionally, the beneficiary of the bonds was a trustee for the bondholders, and the beneficiary on the swap was the swap counterparty. Therefore, according to Syncora, even if the policy was ratifiedthrough Syncora's acceptance of payments after learning of the breach,...
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