Key Points

  • The First Department dismissed IKB's appeal from the August 29, 2024 consent order dismissing its complaint against Morgan Stanley, holding that a party that requested the dismissal is not aggrieved by it.
  • The panel held that appealability goes to subject matter jurisdiction, which cannot be conferred by consent, so the order's grant of dismissal "without prejudice to the rights of any party to appeal" did not change the result.
  • The orders deciding four in limine motions were appealable because they limited the scope of issues to be tried, and the panel affirmed them as provident exercises of the trial court's discretion.
  • The affirmed orders confined trial evidence to misstatements about LTV, CLTV and owner occupancy for the 12 securitizations at issue and excluded certain expert testimony, certain Morgan Stanley conduct, and, in part, evidence of the February 2016 DOJ settlement.
  • The appeal from the order on postpurchase reviews was dismissed as abandoned, and the panel declined to consider arguments about expert Gary Shev because plaintiffs never appealed that order.

A New York appeals court ruled Tuesday that IKB International S.A. in Liquidation could not appeal the order that dismissed its fraud suit against Morgan Stanley, because IKB and its co-plaintiffs had asked the trial court to dismiss the case themselves. The ruling leaves that dismissal in place.

A five-judge panel of the Appellate Division, First Department, ruled unanimously in an unsigned decision. The panel, made up of Justices Webber, Kennedy, Gesmer, Michael and Chan, with Justice Webber presiding, also affirmed three pretrial orders by Justice Melissa A. Crane of State Supreme Court in New York County that had limited the evidence the plaintiffs could present at trial.

The decision addresses a route to appellate review that the plaintiffs had tried to keep open. After losing key evidentiary rulings, they consented to dismissal of their complaint under an order that preserved the right to appeal. The panel held that the consent order itself could not be appealed, though it reviewed the evidentiary rulings on separate appeals and upheld each of them.

"Plaintiffs may not appeal from the consent order as they are not aggrieved by that order," the panel wrote. "The order granted plaintiffs' request to dismiss the complaint," the court explained, citing CPLR 5511 and the Court of Appeals' 1986 decision in Pennsylvania General Insurance Co. v. Austin Powder Co.

The consent order, entered on or about Aug. 29, 2024, dismissed the complaint "without prejudice to the rights of any party to appeal." The panel held that the clause "does not change the analysis." The court reasoned that "appealability goes to the court's subject matter jurisdiction, which cannot be conferred by consent." For that point the panel cited the Court of Appeals' 1986 decision in People v. McDonald and its own 1989 decision in People v. Ainsworth.

The plaintiffs fared differently on their separate appeals from orders Justice Crane entered on or about Aug. 7, 2024. Those orders decided the defendants' motions in limine. The panel held the decisions resolving four of those motions appealable because, quoting its 2014 decision in Frankel v. Vernon & Ginsburg, they "did not merely determine the admissibility of evidence but also limited the scope of issues to be tried."

The panel tied those orders to an earlier ruling in the same litigation. In a 2024 decision, IKB International S.A. v. Morgan Stanley, the First Department had held that Supreme Court properly dismissed the fraud-based claims to the extent they rested on the plaintiffs' reliance on alleged misrepresentations about adherence to underwriting guidelines. The in limine motions, the panel wrote, "appropriately sought, among other things, to narrow the evidence in accordance with" that decision.

The suit concerns certificates from 12 securitizations. One of Justice Crane's orders barred evidence of alleged misstatements about collateral characteristics other than loan-to-value ratios, cumulative loan-to-value ratios and owner occupancy. The same order also excluded evidence of Morgan Stanley's alleged knowledge of defects in securities, loans or originators outside the 12 securitizations, along with certain expert testimony.

Two other orders reached evidence about Morgan Stanley itself. One excluded evidence of certain conduct by Morgan Stanley. The other granted in part a motion to keep out evidence about the February 2016 civil settlement between the U.S. Department of Justice and Morgan Stanley.

On the merits, the panel held that Supreme Court "providently limited the admissible evidence at trial." The fraud claims in the complaint, the court wrote, "relied on misstatements about loan-to-value ratios (LTV), cumulative loan-to-value ratios (CLTV), owner occupancy status (OO), and the now dismissed underwriting guidelines."

The other "collateral characteristics" the plaintiffs identified "were not alleged in the complaint nor were they part of summary judgment," the panel wrote, agreeing with Justice Crane that the plaintiffs had "charted [their] course." The panel held that the exclusions were proper because "placing that evidence before a fact-finder would have tended to prejudice defendants."

The plaintiffs lost two other points on procedural grounds. They had appealed a fourth Aug. 7, 2024 order, which excluded evidence of their own postpurchase reviews of the certificates, but raised no argument about it, and the panel dismissed that appeal as abandoned. They never appealed an Aug. 26, 2024 order excluding the testimony of one of their experts, Gary Shev, so the panel declined to consider their arguments about his testimony.

The panel also granted a separate motion to dismiss the appeal, docketed as M-6432, to the extent of dismissing the appeal from the consent order and disregarding the arguments about the Shev ruling. "We have considered plaintiffs' remaining contentions and find them unavailing," the court wrote.

Lawyers for IKB and the other plaintiffs included John J.D. McFerrin-Clancy of McFerrin-Clancy LLP. Morgan Stanley and the other defendants were represented by James P. Rouhandeh of Davis Polk & Wardwell LLP.

The decision leaves the August 2024 consent dismissal of the complaint undisturbed. The panel affirmed the three evidentiary orders with costs and dismissed the two failed appeals without costs. The decision, 2026 NY Slip Op 06064, remains uncorrected and subject to revision before publication in the Official Reports.