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Deutsche Bank Wins First Department Appeal in CDO Suit

The Appellate Division of the New York Supreme Court, First Department unanimously affirmed the dismissal by the Commercial Division's Justice Jeffrey Oing of Aozora Bank, Ltd.'s claims against Paul, Weiss clients Deutsche Bank Securities Inc. and Deutsche Bank AG, as well as Justice Oing's denial of Aozora's motion for leave to amend.

In December 2006, Aozora invested $30 million in a CDO that Deutsche Bank arranged and managed. More than six years later, Aozora brought suit, alleging that Deutsche Bank had deliberately collateralized the CDO with RMBS that it believed were likely to decline in value. On Deutsche Bank's motion to dismiss, Justice Oing dismissed all of Aozora's claims - for fraud, aiding and abetting fraud, breach of the implied covenant of good faith and fair dealing, negligent misrepresentation and unjust enrichment - as time-barred under New York's two-year discovery rule. Justice Oing held that Aozora was on inquiry notice of its claims more than two years before bringing suit. Justice Oing also denied Aozora's motion for leave to amend.

In unanimously affirming the IAS Court's decisions, Justices Rolando Acosta, Dianne Renwick, Richard Andrias and Karla Moskowitz confirmed that Aozora had been on inquiry notice more than two years prior to bringing suit based on public reports of alleged fraud - including, in particular, the U.S. Senate's April 2011 report about alleged misconduct related to CDOs and RMBS - the filing of similar lawsuits by other investors and the CDO's decline in value. The First Department further held that in light of the extensive public record giving rise to inquiry notice, Aozora had failed to carry its burden to show that it could not have discovered the alleged fraud with reasonable diligence, and that an amended complaint could not cure the statute of limitations defects in the original complaint.

The Paul, Weiss team included litigation partners Christopher Boehning and Jessica Carey, who argued the motion to dismiss in the Commercial Division and the First Department appeal.

March 31, 2016

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