Credit Suisse Wins Martin Act Litigation on Appeal

On June 12, 2018, the New York State Court of Appeals ruled in favor of Cravath client Credit Suisse in dismissing the Martin Act claim filed by the New York Attorney General relating to all residential mortgage‑backed securities (“RMBS”) sponsored by Credit Suisse in 2006 and 2007—about $40 billion worth of securities in total.

In December 2014, the New York Supreme Court denied Credit Suisse’s motion to dismiss the complaint for failure to timely commence suit under a three‑year statute of limitations period, finding that a six‑year limitations period applied. Credit Suisse filed an interlocutory appeal of the decision to the New York Appellate Division, First Department. The First Department affirmed the lower court in a split decision (3-2) in December 2016, and granted Credit Suisse leave to appeal to the New York Court of Appeals.

The state’s highest court agreed with Credit Suisse that the Martin Act (an investor protection statute which the NYAG argues is essentially a strict liability statute) is governed by a three‑year limitation period, not the six‑year period the NYAG has always argued should apply, and therefore dismissed the Martin Act claim with prejudice. This is significant not only for the Credit Suisse case, but for future NYAG proceedings in the investment industry generally.

The Cravath team included partners Richard W. Clary, who argued the appeal before the New York State Court of Appeals in March 2018, Michael T. Reynolds and Lauren A. Moskowitz, and associates Alexander V. Maugeri and Winnifred A. Lewis. The case is People of the State of New York v. Credit Suisse Securities (USA) LLC et al., No. 451802/2012 (N.Y. Sup.).