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Loreley Financing (Jersey) No. 3 Ltd. v. Wells Fargo Securities, LLC

United States District Court, S.D. New York

March 10, 2017

WELLS FARGO SECURITIES, LLC, et al., Defendants.

          OPINION & ORDER


         Third-Party Defendant IKB Deutsche Industriebank AG (“IKB AG”) moves (1) to dismiss the Third-Party Complaint pursuant to Rule 12(b)(6), or, alternatively (2) for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. For the reasons set forth below, the motion to dismiss is denied, and the motion for summary judgment is denied without prejudice to renewal following supplemental briefing by the parties.

         I. Background

         A. Facts[1]

         The Court presumes the parties' familiarity with the underlying facts and procedural history of this case and offers only a short summary of each for the purposes of this motion. Plaintiffs - Loreley Financing (Jersey) Numbers 3, 5, 15, 28, and 30 Limited (the “Loreleys”) - are special-purpose investment entities that invested approximately $163 million in 2006 and 2007 in three collateralized debt obligations (the “CDOs”) known as Octans II CDO (“Octans”), Sagittarius CDO I (“Sagittarius”), and Longshore CDO Funding 2007-3 (“Longshore”). The three CDOs were created, marketed, and sold by Wachovia Capital Markets, LLC, Wachovia Bank, N.A., and non-party Wachovia Securities International Limited (collectively, “Wachovia”), which are predecessors in interest to Wells Fargo Securities, LLC and Wells Fargo Bank, N.A. (collectively, “Wells Fargo”). (FAC ¶¶ 20-21.) Structured Asset Investors LLC (“SAI”), which was affiliated with Wachovia, served as collateral manager for Sagittarius and Longshore (id. ¶ 23), and Harding Advisory LLC (“Harding”) served as collateral manager for Octans (id. ¶ 22). Between 2007 and 2008, all three CDOs went into default and failed to make payments to the Loreleys. (Id. ¶¶ 119, 163, 191.) In the underlying suit, the Loreleys allege that Wachovia and the collateral managers committed fraud or, in the alternative, aided and abetted fraud in connection with the three CDOs.

         According to the Third-Party Complaint filed by Wells Fargo and the collateral managers (hereinafter “WF/CM”), IKB AG and its wholly-owned subsidiary, IKB Credit Asset Management GmbH (“IKB CAM, ” and together with IKB AG, “IKB”), “created” the Loreleys as “purchase vehicles” for IKB's investments. (TPC ¶¶ 1, 21.) As such, the Loreleys “had no function other than to act as purchasers for IKB's off-balance-sheet investments.” (Id. ¶ 22.) Thus, IKB served as the Loreleys' investment advisors, negotiated the Loreleys' investments in the CDOs, made the decisions for the Loreleys to invest in the CDOs, and provided liquidity to the Loreleys to make investments in the CDOs. (TPC ¶¶ 1-4, 23-24, 27-28, 32, 34.) WF/CM alleges that in 2006 and 2007 IKB “abandoned performing even minimal due diligence in order to complete investments as quickly as possible” so that IKB could obtain securities arbitrage on its CDO investments, notwithstanding the obvious and significant risks associated with the Loreleys' investments consummated during that time, including the CDOs. (Id. ¶¶ 25, 37.)

         B. Procedural History

         On November 1, 2011, the Loreleys filed suit against WF/CM in New York State Supreme Court, New York County for fraud, aiding and abetting fraud, conspiracy to commit fraud, and rescission, among other things. (Doc. No. 1 ¶ 3.) On May 10, 2012, WF/CM removed the action to this Court pursuant to the Edge Act, 12 U.S.C. § 632, and on March 28, 2013, the Court granted WF/CM's motion to dismiss the case in its entirety with prejudice, Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, No. 12-cv-3723 (RJS), 2013 WL 1294668, at *1 (S.D.N.Y. Mar. 28, 2013). On July 24, 2015, the United States Court of Appeals for the Second Circuit reversed in part the Court's 2013 Opinion, vacated the judgment of dismissal as to the Loreleys, and remanded the case for further proceedings consistent with its opinion. Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d 160 (2d Cir. 2015). On August 17, 2015, the Court received the mandate from the Second Circuit (Doc. No. 74), and on September 11, 2015, the Loreleys filed their Amended Complaint (Doc. No. 84). On September 29, 2016, the Court granted WF/CM's motion to dismiss the Loreleys' claim for conspiracy to commit fraud but denied the motion with respect to the Loreleys' claims for rescission and aiding and abetting fraud. Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, No. 12-cv-3723 (RJS), 2016 WL 5719749 (S.D.N.Y. Sept. 29, 2016).[2] Although the Loreleys' suit remains pending, the Court issued an order on October 28, 2016 staying discovery while WF/CM awaits relevant discovery located abroad. (Doc. Nos. 183, 195.)

         On February 16, 2016, WF/CM filed the Third-Party Complaint against IKB. (Doc. No. 123.) On June 6, 2016, IKB filed the instant motions for dismissal and summary judgment, which were fully briefed on July 22, 2016. (Doc. Nos. 147, 161, 171.) IKB makes three arguments in its brief. First, IKB asserts that WF/CM's contribution claim should be dismissed because it impermissibly duplicates WF/CM's defense in the underlying action. (Mem. 16-20.) Second, IKB argues that the contribution claim should be dismissed because of WF/CM's failure to adequately allege tort liability on IKB's part, as required to sustain a contribution claim under New York law. (Mem. 13.) Third, IKB argues, in the alternative, that summary judgment should be granted based on the Loreleys' and IKB's February 27, 2012 agreement to “irrevocably release[] and waive[] any and all claims against each other.” (Mem. 20 (quoting Doc. No. 149-4 (the “Release”)) § 3.1).)

         On December 27, 2016, the Court, after having carefully reviewed the language of the Release, ordered IKB to file copies of various documents - including the Intercreditor and Asset Distribution Agreement, the Deutsche Confirmation, the Citibank Confirmation, the KfW Confirmation, and all other documents referenced in Section 3.2 of the Release - that had neither been produced to WF/CM nor filed on ECF. (Doc. No. 191.) IKB subsequently filed these documents, which collectively exceed 1, 600 pages, on January 6, 2017 and January 13, 2017. (Doc. Nos. 199, 201.)

         III. Motion to Dismiss

         A. Legal Standard

         To survive a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, a complaint must “provide the grounds upon which [the] claim rests.” ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007); see also Fed. R. Civ. P. 8(a)(2) (“A pleading that states a claim for relief must contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief . . . .”). To meet this standard, a plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In reviewing a Rule 12(b)(6) motion to dismiss, a court must accept as true all factual allegations in the complaint and draw all reasonable inferences in favor of the plaintiff. ATSI Commc'ns, 493 F.3d at 98. However, that tenet “is inapplicable to legal conclusions.” Iqbal, 556 U.S. at 678. Thus, a pleading that ...

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