Financial Guaranty Insurance Company v. The Putnam Advisory Company, LLC

Background

Financial Guaranty Insurance Company (FGIC) sued The Putnam Advisory Company, LLC (Putnam), asserting fraud, negligent misrepresentation, and negligence. FGIC alleged that Putnam made material misstatements about the collateral in Pyxis ABS CDO 2006-1 and Putnam’s ability to select that collateral, causing FGIC to provide financial-guaranty insurance for the collateralized debt obligation.

Both parties moved for summary judgment in 2018. On September 10, 2019, the court granted in part and denied in part Putnam’s motion, denied FGIC’s motion, and set the remaining claims for trial. Putnam later sought permission to file a supplemental summary-judgment motion on the “narrow issue” of whether FGIC’s claims were barred by the statute of limitations.

Putnam’s statute-of-limitations argument

New York law generally required FGIC to bring its fraud and negligence claims within six years after they accrued. Putnam argued that FGIC filed the action on October 1, 2012, more than six years after FGIC became committed to the transaction on September 6, 2006. FGIC argued that the limitations period began when the contracts were executed and the Pyxis Guaranty was issued on October 3, 2006.

Reason for denying permission

The court denied Putnam’s request on procedural grounds for two reasons. First, it held that Putnam had waived the statute-of-limitations defense by failing to raise it in its two motions to dismiss or in its answer. Second, Putnam first raised the argument in summary-judgment briefing only in a footnote. The court stated that arguments raised only in footnotes are generally considered waived and declined to exercise its discretion to allow another dispositive motion.

Discussion of the merits

The court added that, even if it had allowed Putnam to file the supplemental motion, it would likely have denied that motion on the merits. The court explained that a fraudulent-inducement claim generally accrues when the plaintiff enters the contract or completes the act the alleged misstatements induced. Here, the court identified issuance of the Pyxis Guaranty on October 3, 2006, as the relevant act.

The court distinguished FGIC’s practical commitment to the transaction from its contractual commitment. According to the opinion, the transaction had an economic phase and a later documentation phase. By September 6, 2006, only the economic phase had been completed; FGIC had not yet completed the documentation phase or issued the Pyxis Guaranty. The court therefore stated that FGIC had not yet completed the act the alleged fraudulent statements sought to induce. The court also clarified that FGIC had not argued, and the court had not held, that FGIC became contractually committed before the guaranty was issued.

Disposition

The court denied Putnam’s request to file a supplemental summary-judgment motion. The denial was based on Putnam’s waiver of the defense and the court’s refusal to permit a successive dispositive motion. The court’s additional discussion of the likely merits was not the stated basis for the order.