Court Applies California Common Law To New York Rating Agencies

In another auction rate securities (ARS) case, The Anschutz Corporation (TAC) brought suit against several rating agencies alleging negligent misrepresentation. The Anschutz Corp. v. Merrill Lynch & Co., Fed. Sec. L. Rep. (CCH) P96,258 (N.D. Cal. March 27, 2011). District Judge Susan Illston’s opinion is interesting because she tackles the question of whether California or New York law should apply. Moreover, her decision to apply California law may influence plaintiffs’ attorneys to file their cases here.

The plaintiff argued that California law should apply because the plaintiff’s agent had purchased the ARS in California and California has a significant interest in having its laws applied. The rating agencies argued that New York law should apply because they are located in New York and they disseminated their ratings from New York. Judge Illston suggested that the rating agencies favored New York law because they believed that the Martin Act preempts common law negligent misrepresentation claims.

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