An Assignment of a Note, Which Was Silent About Whether the Assignment of the Right to Bring a Tort Action Was Included, Did Not, Under New York Law, Include the Right to Bring a Tort Action

The Court of Appeals, in a full-fledged opinion by Judge Stein, determined the assignment of a note, which was silent about whether the assignment included the right to bring a tort action, did not include such a right. Therefore the Second Circuit’s certified question whether the assignee of the note had standing to sue Morgan Stanley for fraud was answered in the negative. The case arose out of the collapse in value of sub-prime residential mortgage-backed securities. The court explained the relevant New York law:

To be sure, fraud claims are freely assignable in New York … . It has long been held, however, that the right to assert a fraud claim related to a contract or note does not automatically transfer with the respective contract or note … . Thus, where an assignment of fraud or other tort claims is intended in conjunction with the conveyance of a contract or note, there must be some language — although no specific words are required — that evinces that intent and effectuates the transfer of such rights … . Without a valid assignment, “only the . . . assignor may rescind or sue for damages for fraud and deceit” because “the representations were made to it and it alone had the right to rely upon them” … . Commonwealth of Pa. Pub. Sch. Employees’ Retirement Sys. v Morgan Stanley & Co., Inc., 2015 NY Slip Op 05591, CtApp 6-30-15