First Department Finds Lower Court Applied Wrong State’s Law to Statute of Limitations and Standing

In a Decision, dated March 30, 2023, in MLRN LLC v. U.S. Bank, NA, 2023 NY Slip Op 01748, the First Department, among other things, (1) reversed the lower court’s denial of defendant’s motion to dismiss causes of action for certain breaches holding that the court should not have found that the claims accrued in New York and were timely under New York’s six-year statute of limitations and (2) reversed the lower court’s granting of plaintiff’s motion for summary judgment finding that court should have applied New York’s choice of law. The Court explained:

In contract cases involving a purely economic injury, accrual is determined by the "place of injury," which usually is determined by applying the "plaintiff-residence" rule; this rule asks where the plaintiff resides and where it feels the economic impact of the loss (see Deutsche Bank Natl. Trust Co. v Barclays Bank PLC, 34 NY3d 327, 335-339 [2019]; Global Fin. Corp. v Triarc Corp., 93 NY2d 525, 528-529 [1999], affd 93 NY2d 525 [1999]). Applying the rule here, the relevant injury to the certificate holders from the alleged breaches was sustained where the certificate holders received the underpaid waterfall distributions on the certificates — that is, a location other than New York. Nevertheless, while the claims did not accrue in New York, there are issues of fact as to whether the place of injury with respect to 52 of the 57 certificates, which plaintiff acquired from HBKMF, was Texas, which has a four-year limitations period, or whether it was the Cayman Islands[*2], which has a six-year period.

Even if the claims accrued in the Cayman Islands, the repurchase-related claims on the 38 HBKMF certificates should be dismissed. These claims are time-barred under the Cayman Island's six-year limitations period for contract claims, which runs from the time of breach with no class-action tolling. As to the claims regarding the five other certificates included in various collateralized debt obligations (CDO) held by California-based CDO trustee BNYMT, those claims accrued in California, which has a four-year limitation period and does not recognize class-action cross-jurisdictional tolling (see Clemens v DaimlerChrysler Corp., 534 F3d 1017, 1025 [9th Cir 2008]). As a result, the claims on those five certificates are also time-barred and should be dismissed.

Further, plaintiff has not established, as a matter of law, standing to pursue claims on all 122 certificates at issue. Although we have stated that matters of procedure are governed by the law of the forum state and that standing is a procedural matter (see Royal Park Invs. SA/NV v Morgan Stanley, 165 AD3d 460, 461-462 [1st Dept 2018], lv denied 32 NY3d 1143 [2019]), that rule is not applicable here as the relevant issue is not procedural. Rather, the substantive issue here is which law applies to plaintiff's ownership of the certificates and associated claims. This issue may not be properly resolved by applying the forum law. Instead, the issue is properly resolved by applying New York's choice-of-law rules, which for contractual choice-of-law disputes applies a "center of gravity" or "grouping of contacts" approach that determines the state with the most significant relationship to the relevant contract. We reject defendant's argument that the record demonstrates that the relevant contracts were made in Texas and under Texas contract law. The record evidence is not conclusive as to the place of contracting and center of gravity with respect to the 122 certificates (see Zurich Ins. Co. v Shearson Lehman Hutton, 84 NY2d 309, 317 [1994]). Thus, it is premature to rule on summary judgment with respect to the plaintiff's ownership of the claims and the related standing to assert them.

The arguments defendant made in Commerzbank AG v U.S. Bank Natl. Assn. (457 F Supp 3d 233 [SD NY 2020]) do not judicially estop it from arguing that New York is not the center of gravity here on the issue of ownership. There the defendant admitted that the relevant transactions transferring the certificates occurred at a clearing house (DTC) that was a New York entity (457 F Supp 3d at 242-243). The court in Commerzbank also concluded that Ohio choice of law rules applied (id.). This case involves New York choice of law and different facts. Here, there is no conclusive evidence as to where the transactions occurred.

Contact our attorneys at commercialdivisionblog@schlamstone.com if you or a client have questions regarding which state’s law applies and whether a claim is time-barred.