Justice Dianne Renwick
Basis Yield Alpha Fund (Basis) accused Goldman Sachs of creating, marketing and selling the Point Pleasant and Timberwolf collateralized debt obligations (CDOs)—based on securities selected for their poor quality and likelihood of failure, many from Goldman’s own inventory—in 2007 to reduce it’s risk from subprime mortgage-linked securities by betting against them. Supreme court denied Goldman’s motion to compel arbitration as well as its motion to dismiss causes of action alleging fraud, negligent misrepresentation, unjust enrichment and rescission. Despite concluding that supreme court should have dismissed causes of action for negligent misrepresentation, unjust enrichment and rescission, First Department affirmed denial of Goldman’s motions to compel arbitration and to dismiss the fraud related claims. Disclaimers and disclosures in offering circulars for the subject CDOs did not preclude Basis’s claim of justifiable reliance on Goldman’s misrepresentations and omissions. Moreover, Basis’s fraud claims sufficiently alleged Goldman’s internal valuation of the securities, its access to private information about the deteriorating credit quality of subprime mortgages, and that Goldman’s interests were not aligned with Basis’s interests.
