In motion sequence 001, the defendants Citigroup, Inc., Citigroup Global Markets, Inc., Citigroup Mortgage Loan Trust, Inc., and Citigroup Global Markets Realty Corp. (collectively, Citigroup) move pursuant to CPLR 3211(a)(5) and (7) to dismiss the plaintiffs Deutsche Zentral-Genossenschaftsbank AG, New York Branch d/b/a DZ Bank AG, New York Branch, and DG Holding Trust's (Deutsche) complaint in its entirety.

This action arises out of a real estate mortgage backed securities (RMBS) transaction between Deutsche and Citigroup, whereby Deutsche purchased over $362 million of mortgage loan pass through certificates (the Certificates) in 17 RMBS securitizations sold or marketed by Citigroup.

The facts recited within this decision pertain only to the issue of the timeliness of Deutsche's claims.

Deutsche commenced this action seeking damages for Citigroup's alleged fraud and misrepresentations of the "credit quality and characteristics" of the securitized loans. Deutsche alleges that it relied upon Citigroup's representations in purchasing the Certificates, which diminished.

Citigroup moved to dismiss Deutsche's complaint arguing that Deutsche's claims are time barred under the German statute of limitations (SOL) and that the complaint fails to state a claim.

As a threshold issue, this Court must determine if the application of the German SOL is appropriate. Generally, "[w]hen an alleged injury is purely economic, the place of injury usually is where the plaintiff resides and sustains the economic impact of the loss" (Global Fin. Corp. v Triarc Corp., 93 NY2d 525, 529 [1999]).

Deutsche contends that the impact of the losses were sustained in New York and that its New York branch is a separate financial base from its headquarters in Germany. Therefore, Deutsche argues that the New York SOL is the appropriate standard.

However, it is well established under New York law that "a branch/agency is nothing more than a stall in the money market bazaar of international banking in New York" (Matter of Liquidation of New York Agency and Other Assets of Bank of Credit and Commerce Intern., S.A., 90 NY2d 410, 422 [1997]). "A branch or agency of a bank is not a separate entity (id.). It has no separate capital, but rather has the entire worldwide capital of the foreign bank behind its transactions and its lending limits" (id.).

Furthermore, Deutsche does not dispute that it is incorporated in Germany, that it keeps its consolidated financials in Germany, and that its losses from these transactions were reported in Germany. As a result, this Court finds that the impact of the losses were sustained in Germany, invoking the application of CPLR 202 (the NY Borrowing Statute).

Pursuant to the NY Borrowing Statute, "[w]hen a nonresident sues on a claim accruing outside New York, CPLR 202 requires the claim to be timely under the limitation periods of both New York and the jurisdiction where the claim accrued" (Global Fin. Corp. v Triarc Corp., 93 NY2d 525, 528 [1999]).

Having ruled that the application of the German SOL is appropriate, this Court must now determine if Deutsche's claims are time barred under both the New York and the German SOL. [*2]Neither party argues that the claims are time barred under New York law.

Both parties have submitted expert reports opining on the application of the German SOL for claims sounding in fraud under German law.

Deutsche's expert, Heinz-Peter Mansel (Mansel) and Citigroup's expert, Wulf Goette (Goette), both agree that the triggering of the German SOL is governed by § 199 (1) of the German Civil Code, which provides that the SOL for claims for fraud is three years from the end of the calendar year in which: "1) the claim arose, and 2) the creditor obtains knowledge of the circumstances giving rise to its claim and of the identity of the defendant or would have obtained this knowledge if not for gross negligence" (Goette ¶ 9; Mansel, ¶ 5)

It is undisputed that, under German law, "a claim for securities fraud arises at the time the security was purchased" (Goette ¶ 10; Mansel, ¶ 7). Therefore, the latest date the claim could have accrued in this case is June 25, 2007, when the last security was purchased (Complaint,¶ 45).

However, the German SOL is not triggered until the creditor has sufficient knowledge of the claim. It is not required that "every detail be known and every litigation risk to be excluded" (Mansel, ¶ 12). Rather, knowledge is present when the "plaintiff is aware of the actionable statement, its own reliance on the actionable statement, and the fact that it may have suffered damage from such reliance" (Goette, ¶ 10).

Deutsche filed its summons with notice on December 28, 2012.^[FN1] Thus, its claims will be time barred if Citigroup can demonstrate that Deutsche knew about the fraud or could have discovered the fraud absent gross negligence, prior to the end of 2009.

It is undisputed that Citigroup was not specifically identified in any public news reports or articles as having committed fraudulent conduct in relation to RMBS during the relevant time period.

Mansel opines that the German SOL is triggered "only when [Deutsche] knows - or would know but for gross negligence - sufficient facts to file a claim against [Citigroup], without further investigation" (Mansel, ¶ 18).

Thus, "a plaintiff only acts with gross negligence when, given the circumstances, refraining from investigation would make almost no sense" and "[e]ven then, he is only required to make [*3]simple requests that do not involve appreciable effort" (id.).Mansel argues that the publicly available information related to RMBS fraud was not enough to trigger the German SOL because Deutsche did not have any information that specifically identified any wrongdoing by Citigroup.

Furthermore, Mansel contends that "[a] plaintiff does not have a general secondary duty to actively monitor or investigate news or media reports, particularly those in other countries" (Mansel, ¶ 21).

As a result, Deutsche argues that it could not have been grossly negligent in failing to discover Citigroup's fraudulent conduct earlier because it did not have sufficient knowledge to file a claim. "Sufficient knowledge only exists when the damaged person, in view of all facts known to him, can be required to lodge an action against a specific person" (Mansel, ¶ 6).

Citigroup argues that Deutsche was grossly negligent in failing to obtain sufficient knowledge to commence litigation prior to 2009.

Goette contends that Deutsche's claims were time barred on the basis that the German SOL was triggered in 2007 because Deutsche had a statutory obligation under German law to monitor its investments and investigate potential claims as a sophisticated investor with a substantial amount, $362 million, invested in RMBS. Pursuant to § 18 and 21(1) of the German Banking Act (GBA), "a German financial institution entering into securitization-transactions exceeding in the aggregate �,000 or 10% of its share capital has an obligation to monitor on an ongoing basis its investments" (Goette Aff., ¶ 19). In addition, § 76(1) and 91(2) of the German Stock Corporation Act (GSCA), provides that the executive board of a stock corporation "must take appropriate surveillance measures as to its major investments and with regard to its high-risk business activities" (id.).

Goette concludes that Deutsche was grossly negligent in its failure to investigate further, considering Deutsche's statutory obligations in conjunction with the publicly available news reports related to the sub-prime mortgage crisis, the bankruptcy of loan originators, and the bailout of financial institutions as a result of their sub-prime mortgage exposure, including German banks IKB AG and Sachsen LB.

Mansel does not dispute Deutsche's statutory obligations pursuant to the GBA and the GSCA, but argues that those obligations are not considered when determining if the German SOL has been triggered, maintaining that there is no general duty to investigate.

However, in a German case cited by Mansel involving a stock purchase transaction, the court seemingly contradicts Mansel's argument (Buergel Aff., Exhibit HH). The facts of that case are summarized herein.

During the period of February to July 2000 plaintiff investor purchased shares from the defendant corporation. In October 2001, the Solicitor's Office in Munich commenced a criminal proceeding against the corporate defendant's chairman and vice-chairman for price manipulations. In November 2001, widespread public newspaper and magazine articles were published about this event. In April 2003, the criminal proceeding concluded resulting in fines to the individual defendants.

In December 2005, the plaintiff commenced an action to recover its damages arguing that it was unable to commence the action earlier because of the "confusing legal situation" (id. at 3 of 5).

The defendants countered that the plaintiff's claims were time barred because it had sufficient knowledge to pursue its claims as of the publication of the articles, which occurred in November 2001. The German court then provided the plaintiff an opportunity to demonstrate that it was unaware or that it was not grossly negligent in failing to uncover the knowledge, which it was unable to do.The German court, imputing the knowledge of the news reports to the plaintiff, concluded that the plaintiff had sufficient knowledge in 2001 to take action against the defendants, holding that its claims were time barred.

In rendering its decision, the German court opined that "[i]t is generally irrelevant whether [the creditor] correctly assesses the known facts from the legal perspective...so that the limitations period generally also starts, even if [the creditor] believes on the basis of the facts that [it] does not have a claim" (id. at p. 3). Furthermore, the German court ruled that the crux of the German SOL analysis is not whether or not a legal claim for damages is justified, but rather, if there is knowledge of the occurrence of damages and the identity of those who are potentially liable (id.). It even held that the plaintiff should have filed, at the very least, a declaratory judgment action to preserve its claim (id. at 2).

In addition, Citigroup contends public information to the effect that Ameriquest Mortgage Company (Ameriquest) was involved in a $325 million settlement related to lending practices, was disclosed in the offering materials (Buergel Aff., Ex. K). Furthermore, Citigroup announced a multi-billion dollar loss stemming from its sub-prime mortgage exposure (id. at Ex. QQ).

Deutsche has alleged that in 2008, the Office of the Comptroller of the Currency (the OCC) released a report (the OCC Report) identifying the sub-prime mortgage originators with the highest foreclosure rates for loans originated between 2005 to 2007 (Complaint, ¶ 161). Many of the originators for the RMBS at issue in this action were identified in that OCC Report, including Ameriquest Mortgage Company, Argent Mortgage Company, and Wells Fargo Bank, amongst others (id. at ¶ 162).

The offering materials, allegedly reviewed by and relied [*4]upon by Deutsche, clearly identify as depositor, seller, and/or sponsor, several of the same originators cited by the OCC on the first page of the document.

If Deutsche was already under an existing obligation to closely monitor its investments under German statutes, then it is clear to Goette, that Deutsche was grossly negligent in its failure to investigate further in 2007 when there were clear indicators that RMBS investments were experiencing a downturn.

"[A] plaintiff only acts with gross negligence when, given the circumstances, refraining from investigation would make almost no sense" (Mansel, ¶ 18). "Grossly negligent ignorance requires that the circumstances giving rise to the claim must have suggested themselves to the creditor" (Mansel, ¶ 16).

It is unclear to this Court how Deutsche can argue that it did not have sufficient knowledge after the release of the OCC Report in 2008 to investigate and uncover the numerous deficiencies related to its RMBS investments.

However, it must be noted that Goette and Mansel disagree as to the controlling authority under German law, case law or legal commentaries, and have different interpretations of what triggers the German SOL. Based on the evidentiary record, this Court finds that a hearing with expert testimony is required on the appropriate application of German law in these circumstances to resolve these issues and the underlying claims alleged in the complaint.

Accordingly, it is

ORDERED that the defendants motion to dismiss is held in abeyance pending a hearing on the issue of the application of the German statute of limitations, and it is further

ORDERED that the parties contact the Clerk of Part 53 at their earliest convenience to schedule a hearing on or before October 31, 2014.

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J.S.C.