District Court of Ohio Denies Motion to Dismiss Claims for Negligent Misrepresentation and Violation of Ohio Blue Sky Laws
In one of the first decisions involving claims against a ratings agency after the latest international credit crisis, the District Court of Ohio denied Moody's Investor Services' motion to dismiss negligent misrepresentation and Ohio Blue Sky securities law claims filed by purchasers of notes issued by National Century Financial Enterprises, Inc. ("NCFE"). NCFE was the largest provider of healthcare financing, and Moody's rated several billion dollars of NCFE notes with its highest (AAA) rating. In 2002, NCFE was exposed as a fraud and Ponzi scheme, causing noteholders to lose billions of dollars. On behalf of its client Lloyds TSB, Kasowitz sued (among others) Fitch and Moody's, reaching an agreement in principle to settle its claims against Fitch prior to the Court's decision on the rating agencies' motions to dismiss. The Court declined to adopt Moody's arguments that the First Amendment and the Credit Rating Agency Reform Act of 2006 precluded Lloyds' state law claims. Kasowitz partners Cindy Caranella Kelly and James J. Stricker and Associate Sarah Gibbs Leivick represent Lloyds in this action.