15‐1387‐cv
IKB Deutsche Industriebank AG v. McGraw Hill Financial Inc., et al.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY
ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE
OF APPELLATE PROCEDURE 32.1 AND THIS COURTʹS LOCAL RULE 32.1.1. WHEN CITING A
SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE
FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION ʺSUMMARY ORDERʺ). A
PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED
BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second
Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in
the City of New York, on the 18th day of December, two thousand fifteen.
PRESENT: ROBERT D. SACK,
DENNY CHIN,
RAYMOND J. LOHIER, JR.,
Circuit Judges.
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IKB DEUTSCHE INDUSTRIEBANK AG,
Plaintiff‐Appellant,
v. 15‐1387‐cv
McGRAW HILL FINANCIAL, INC., FKA The McGraw‐
Hill Companies, Inc., DBA Standard & Poorʹs Ratings
Services, STANDARD & POORʹS FINANCIAL
SERVICES LLC,
Defendants‐Appellees. *
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The Clerk of Court is directed to amend the caption as shown above.
*
FOR PLAINTIFF‐APPELLANT: KATHLEEN M. SULLIVAN, Daniel L.
Brockett, Jeremy D. Andersen, Quinn Emanuel
Urquhart & Sullivan, LLP, New York, NY, and
Los Angeles, CA, and David H. Wollmuth,
William A. Maher, Thomas P. Ogden, Jeffrey
Coviello, Ryan A. Kane, Wollmuth Maher &
Deutsch LLP, New York, NY.
FOR DEFENDANTS‐APPELLEES: FLOYD ABRAMS, Jason M. Hall, Krista
Friedrich, Roxana Labatt, Cahill Gordon &
Reindel LLP, New York, NY.
Appeal from the United States District Court for the Southern District of
New York (Rakoff, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED.
Plaintiff‐appellant IKB Deutsche Industriebank AG (ʺIKBʺ), a German
commercial bank, sued defendants‐appellees McGraw Hill Financial, Inc. and its wholly
owned subsidiary, Standard & Poorʹs Financial Services (together, ʺS&Pʺ) for fraud,
negligent misrepresentation, and civil conspiracy to commit fraud in relation to credit
ratings issued by S&P with respect to a structured investment vehicle called
ʺRhinebridge.ʺ IKB appeals from a final judgment entered on March 31, 2015 granting
S&Pʹs motion to dismiss the complaint as time‐barred under New Yorkʹs borrowing
statute and German law. We assume the partiesʹ familiarity with the facts, procedural
history, and issues on appeal.
According to the complaint, Rhinebridge was designed to earn a profit by
issuing debt securities and investing the proceeds in income‐producing assets,
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including mortgage‐backed securities. Rhinebridge was managed by an IKB subsidiary,
which hired S&P not merely to rate the instrumentʹs creditworthiness, but also to help
create and operate it. S&P received triple its customary fees for performing those
additional services, with a portion of its compensation contingent on Rhinebridge
receiving high credit ratings. That arrangement placed S&P in the unusual position of
rating an instrument of its own design, with resulting economic incentives to issue
favorable ratings.
Rhinebridge launched in June 2007, at which point S&P issued high
ratings for the instrumentʹs overall structure and several of its debt securities. IKB
immediately invested $149 million in debt securities. Over the next two months, S&P
reaffirmed its high ratings despite mounting concerns regarding the value of mortgage‐
backed securities, and IKB invested an additional $425 million. In September 2007,
however, S&P placed Rhinebridge on ʺwatch negative.ʺ By October 2007, Rhinebridge
had defaulted and its notes were downgraded to ʺjunkʺ status, resulting in hundreds of
millions of dollars in losses to IKB and several other institutional investors, including
King County, Washington.
In 2009, King County sued both IKB and S&P in federal court, alleging ‐‐
among other things ‐‐ that S&P had fraudulently inflated its Rhinebridge ratings. See JA
119. To support that claim, King Countyʹs complaint cited a range of publicly available
documents, including: 1) an instant message conversation between two S&P analysts
concerning the companyʹs rating of a financial instrument similar to Rhinebridge, which
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stated that the ʺmodel def[initely] does not capture half of the ris[k],ʺ and that an
instrument ʺcould be structured by cows and we would rate itʺ; 2) a 2006 email sent by
an S&P analyst stating that ratings agencies were creating ʺan even bigger monster ‐‐
the CDO market,ʺ and adding, ʺ[l]etʹs hope we are all wealthy and retired by the time
this house of cards faltersʺ;1 and 3) a pair of 2008 Bloomberg articles that quoted former
S&P managing directors as stating, regarding the companyʹs rating of financial
instruments that invested in mortgage‐backed securities, ʺI knew it was wrong at the
time,ʺ and ʺ[S&P] thought they had discovered a machine for making money that
would spread the risks so far that nobody would ever get hurt.ʺ JA 146‐47. King
County also cited S&Pʹs compensation scheme for Rhinebridge, which created a
financial incentive for high ratings, as additional support for its fraud claim. JA 127,
132.
IKB entered into a statute of limitations tolling agreement with S&P on
May 10, 2013, and filed this action on May 12, 2014. The district court dismissed the suit
as untimely under Germanyʹs statute of limitations, which applies here under New
Yorkʹs borrowing statute. This Court reviews de novo both a district courtʹs decision to
dismiss a complaint as untimely and a district courtʹs determination of foreign law.
Golden Pac. Bancorp v. F.D.I.C., 273 F.3d 509, 515 (2d Cir. 2001); Curley v. AMR Corp., 153
F.3d 5, 11 (2d Cir. 1998).
1 Special purpose vehicles like Rhinebridge are essentially CDOs (collateralized
debt obligations).
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New Yorkʹs borrowing statute requires a non‐resident plaintiff to file a
claim within the shorter of either: 1) the New York statute of limitations; or 2) the
statute of limitations in the jurisdiction in which the claim accrued. N.Y. C.P.L.R. § 202;
Glob. Fin. Corp. v. Triarc Corp., 93 N.Y.2d 525, 528 (1999) (ʺWhen a nonresident sues on a
cause of action accruing outside New York, CPLR 202 requires the cause of action to be
timely under the limitation periods of both New York and the jurisdiction where the
cause of action accrued. This prevents nonresidents from shopping in New York for a
favorable Statute of Limitations.ʺ (footnote omitted)). When borrowing a foreign
jurisdictionʹs statute of limitations, the tolling provisions and trigger rules are also
borrowed. GML, Inc. v. Cinque & Cinque, P.C., 9 N.Y.3d 949, 951 (2007); Smith Barney,
Harris Upham & Co. v. Luckie, 85 N.Y.2d 193, 207 (1995) (ʺIn borrowing the foreign
statute, all the extensions and tolls applied in the foreign state must be imported with
the foreign statutory period, so that the entire foreign statute of limitations . . . applies,
and not merely its period.ʺ (internal quotation marks and alterations omitted)).
Under New York law, IKBʹs claim accrued in Germany. See Glob. Fin.
Corp., 93 N.Y.2d at 529 (ʺWhen an alleged injury is purely economic, the place of injury
usually is where the plaintiff resides and sustains the economic impact of the loss.ʺ).
The parties agree that the relevant provision of German law is Section 195 of the
German Civil Code, which has a three‐year limitations period. That period begins to
run at the end of the calendar year in which 1) the claim arose and 2) the plaintiff either
has knowledge of the circumstances giving rise to the claim and the identity of the
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defendant, or would have had such knowledge but for gross negligence. Bürgerliches
Gesetzbuch [BGB] [Civil Code], § 199.
The partiesʹ experts agree that, under German law, a plaintiff has
knowledge of the circumstances giving rise to the claim when she obtains knowledge of
the facts necessary to commence an action in Germany with an ʺexpectation of successʺ
or ʺsome prospect of success,ʺ though not without risk and even if the prospects of
success are uncertain. JA 383, 1019‐20. To satisfy this standard, a plaintiff need not
know all the relevant details or have conclusive proof available; knowledge of the
factual circumstances underlying the claim is sufficient. See, e.g., Bundesgerichtshof
[BGH] [Federal Court of Justice] Feb. 26, 2013, Neue Juristische Wochenschrift [NJW]
1801, 2013.
For example, according to IKBʹs expert, the German Supreme Court
(ʺBGHʺ) has held that a plaintiff investor did not have sufficient knowledge to trigger
the statute of limitations against a defendant broker when the plaintiff was aware only
of investment losses that ‐‐ from the plaintiffʹs point of view ‐‐ could be attributed to
market conditions alone. JA 1022. In that case, the BGH held that a plaintiff must also
know facts that would allow him to conclude that the defendant was culpable in a way
that caused plaintiffʹs losses. Bundesgerichtshof [BGH] [Federal Court of Justice] July
13, 2010, [BKR] 421, 2010 (ʺ[T]he subjective preconditions of § 199 [BGB] Para 1 No. 2 at
most could exist if the Plaintiff, in addition to . . . [knowing the] circumstances allowing
him to conclude that the transactions brokered by [the defendant brokerʹs employer]
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were hopeless for him, also was aware . . . of circumstances from which it could be
concluded that the [broker] was participating conditionally and willfully in
[impermissible conduct].ʺ). This is consistent with how other American courts have
articulated the standard for triggering the German statute of limitations. See In re
Countrywide Fin. Corp. Mortgage‐Backed Sec. Litig., No. 2:11‐ML‐02265‐MRP, 2014 WL
3529686, at *5 (C.D. Cal. July 14, 2014) (ʺʹ[K]nowledgeʹ under German law exists when
the plaintiff possesses sufficient information to ʹformulate a consistent and coherent
statement of the claim.ʹ . . . A plaintiff need not possess evidence sufficient to sustain its
allegations, know every detail of its claim, or exclude every potential litigation risk.ʺ
(quoting Deutsche Zentral‐Genossenschaftsbank AG v. Bank of America Corp., No. 2:13‐CV‐
01118, slip op. at 8‐19 (C.D. Cal. June 18, 2014) (under seal))).2
Upon review of the record, we agree with the district court that the facts
available to IKB in 2009 ‐‐ including those cited in King Countyʹs complaint ‐‐ triggered
Germanyʹs three‐year limitations period because they created a sufficient ʺprospect of
successʺ for a fraud action against S&P. Contrary to IKBʹs argument on appeal, King
On appeal, IKB argues that the district court erred in holding that a plaintiff is
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charged with knowledge under German law as soon as the plaintiff is able to form a consistent
and coherent statement of the claim. It is clear, however, that the district court applied the
correct standard for triggering the German limitations period. The district court stated that
plaintiffs must have ʺsufficient knowledge to be able to assert a ʹviableʹ claim against the
defendantʺ which is ʺone that has a ʹprospect of success, if not without risk.ʹʺ JA 1887 (quoting
partiesʹ expert reports). It then elaborated on that standard in several respects, noting that a
plaintiff need not have ʺsufficiently certain evidence at hand in order to conduct a legal dispute
essentially without riskʺ and that ʺthe standard requires that the plaintiff possess sufficient
information to ʹbe able to formulate a consistent and coherent statement of the claim.ʹʺ Id. at
1888 (quoting partiesʹ expert reports).
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Countyʹs complaint contained more than unsubstantiated allegations. It documented
communications by several S&P employees that suggested a systemic and conscious
disregard of risk in rating financial instruments, like Rhinebridge, that invested in
mortgage‐backed securities. The complaint also described S&Pʹs role in designing
Rhinebridge and its clear economic incentive to rate the instrument highly. Those facts,
considered alongside Rhinebridgeʹs dramatic collapse, offered significant evidentiary
support for a fraud claim against S&P ‐‐ particularly because plaintiffs usually must rely
on such circumstantial evidence to establish fraudulent scienter.
Because IKB had ʺknowledge of the circumstances giving rise to the claim
and of the identity of the [defendant],ʺ § 199 BGB, by December 31, 2009, the three‐year
German limitations period expired on December 31, 2012, prior to the partiesʹ tolling
agreement. Therefore, IKBʹs complaint was untimely.
We have considered all of IKBʹs remaining arguments and find them to be
without merit. Accordingly, we AFFIRM the judgment of the district court.
FOR THE COURT:
Catherine OʹHagan Wolfe, Clerk
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