| Financial Structures Ltd. v UBS AG |
| 2010 NY Slip Op 07113 [77 AD3d 417] |
| October 7, 2010 |
| Appellate Division, First Department |
| Financial Structures Limited et al., Respondents, v UBS AG et al.,Appellants. |
—[*1] Sonnenschein Nath & Rosenthal LLP, New York (Richard M. Zuckerman of counsel), forrespondents.
Order, Supreme Court, New York County (Barbara R. Kapnick, J.), entered November 9, 2009,which, to the extent appealed from, denied defendants' motion seeking to dismiss the first and secondcauses of action and related injunctive relief, unanimously modified, on the law, the motion granted withrespect to dismissal of the first cause of action and all claims for injunctive relief, and otherwiseaffirmed, without costs.
The alleged oral side agreement was capable of full performance within one year, and thus was notbarred by the statute of frauds (see General Obligations Law § 5-701 [a] [1]). Thewritten agreement to which this side agreement was inextricably tied set forth several methods by whichthe maturity date could be accelerated within the first year of the transaction without a breach by anyparty to the agreement. For example, an optional redemption upon the occurrence of a withholding taxevent, in which a change in the tax laws could require the withholding of taxes from payments on theunderlying junior notes, resulting in the payments received on the underlying junior notes beinginsufficient to cover the payments due on the senior notes, would trigger acceleration, requiring fullrepayment of all principal and interest due on the senior notes, and completion of full performanceunder the agreement possibly as early as 10 months after the closing date. The fact that full performancewithin one year was unlikely or improbable does not make the agreement subject to the statute offrauds (see Cron v Hargro Fabrics, 91 NY2d 362, 366 [1998]), for the statute encompassesonly those agreements which, by their terms, "have absolutely no possibility in fact and law of fullperformance within one year" (D & N Boening v Kirsch Beverages, 63 NY2d 449, 454[1984]; see also North Shore Bottling Co. v Schmidt & Sons, 22 NY2d 171, 175-176[1968]). The contingencies at issue here may or may not have happened within one year, clearly takingthe subject agreement out of the statute of frauds (see id. at 177; see also Lichtman vEstrin, 282 AD2d 326, 328 [2001]; Nakamura v Fujii, 253 AD2d 387, 389 [1998];Metro-Goldwyn-Mayer v Scheider, 43 AD2d 922, 923 [1974]).
Contrary to defendants' contention, the methods of acceleration that would not constitute a breachwould not frustrate the agreement's purpose so as to render it no performance at all (compare Solomon v Urban Dental Mgt.,Inc., 39 AD3d 529, 531 [2007]; Cohen v Bartgis Bros. [*2]Co., 264 App Div 260 [1942], affd 289 NY 846 [1943]),but rather would simply shorten the period of time that noteholders would earn interest on their notesand thereby "advance[ ] the period of fulfillment" (Blake v Voigt, 134 NY 69, 73 [1892]).Defendants' argument that the options for acceleration depend on the occurrence of events orcontingencies outside the parties' control is equally unavailing, for this circumstance does not remove anagreement from the purview of the statute of frauds (see e.g. Lichtman, 282 AD2d at 328;Nakamura, 253 AD2d at 389; Metro-Goldwyn-Mayer, 43 AD2d at 923).
We agree with the motion court that the fraud cause of action was not conclusively barred by theapplicable two-year statute of limitations (see CPLR 213 [8]) because the parties' competingfactual contentions render it impossible to determine, at this stage of the proceedings, when plaintiffsfirst became—or should have become—aware of the alleged fraud (see Saphir Intl., SA v UBS PaineWebberInc., 25 AD3d 315 [2006]; Ghandour v Shearson Lehman Bros., 213 AD2d 304,305-306 [1995], lv denied 86 NY2d 710 [1995]). The mere fact that plaintiffs were aware ofthe general market deterioration beginning in 2002 or 2003 does not equate to notice of a potentialfraud, nor would it necessarily cause a reasonably diligent plaintiff to suspect fraud so as to give causefor further investigation (see CSAM Capital,Inc. v Lauder, 67 AD3d 149, 155-156 [2009]).
The motion court erred, however, in failing to dismiss the fraud cause of action as duplicative of thebreach-of-contract cause of action, inasmuch as it is based on the same facts that underlie the contractcause of action, is not collateral to the contract, and does not seek damages that would not berecoverable under a contract measure of damages (see J.E. Morgan Knitting Mills v ReevesBros., 243 AD2d 422 [1997]). The essence of the fraudulent inducement cause of action is thatdefendants allegedly misrepresented to plaintiffs their intentions with respect to the manner in which theywould manage the underlying assets, and thus plaintiffs allege a misrepresentation of future intent ratherthan a misrepresentation of present fact, which is not sustainable as a cause of action separate frombreach of contract (see Metropolitan Transp. Auth. v Triumph Adv. Prods., 116 AD2d 526,527-528 [1986]).
Finally, in light of plaintiffs' separate settlement with the noteholders in mitigation of their damageshere, their requests to enjoin defendants from acting with any objective other than to increase ormaintain the quality of the assets underlying the notes should be dismissed as moot.
We have considered defendants' remaining contentions and find them unavailing.Concur—Andrias, J.P., Friedman, Renwick, Richter and Manzanet-Daniels, JJ.