Second Circuit Finds CDO Investor To Be Third-Party Beneficiary Despite Contrary Language In Portfolio Management Agreement

On August 6, 2012, in Bayerische Landesbank v. Aladdin Capital Management LLC, 2012 WL 3156441, the Second Circuit held, on a motion to dismiss, that (i) provisions in a portfolio management agreement (“PMA”) in a CDO transaction allowed the investor to bring a breach of contract claim against the portfolio manager as an intended third-party beneficiary of the PMA notwithstanding a “no beneficiaries” clause, and (ii) alleged misrepresentations by the portfolio manager during the marketing of the transaction as to how it would manage portfolio were sufficient for the investor to bring an independent gross negligence cause of action.