On September 16, 2009, LLF prevailed on a motion to dismiss a lawsuit for allegedly excessive margin calls brought by a hedge fund against its former prime broker. See Duration Municipal Fund, L.P. v. J.P. Morgan Securities Inc. The plaintiffs alleged that the broker breached its implied duty of good faith when allegedly excessive margin calls were issued on financing and derivatives contracts between affiliates of the brokerage firm and the plaintiff. The affiliates were not sued in the case. Justice Bernard Fried, of the New York Supreme Court in Manhattan, held that the prime broker's agreement with the plaintiff did not encompass any duties relating to the margin calls and the implied duty of good faith could not be used to impose such duties on the broker.
The Next Wave: Developments in Credit Default Swap Litigation, by LLF Counsel Alan H. Scheiner, appears in the May/June 2009 issue of Business Law Today, Volume 18, Number 5, a publication of the American Bar Association. The article describes recent developments in litigation concerning CDS contracts, the credit derivatives largely responsible for the near collapse of AIG. CDS contracts represent a $54 trillion market and are likely to generate a new wave of litigation in the near future. The article examines judicial decisions concerning margin call disputes and credit event definitions, among other issues. A reprint of the article is available for download with the permission of the ABA.
On March 31, 2009, LLF obtained the dismissal of a federal court complaint for aiding and abetting fraud, commercial bad faith, and other claims alleging that the defendant failed to protect the plaintiff against a fraud by a third party. See Musalli Factory for Gold & Jewellry v. JPMorgan Chase Bank, N.A., et al., 1:08-cv--1720-LAP. The U.S. District Court for the Southern District of New York agreed with LLF that the bank could not be held liable for the fraud, which was perpetrated by a bank customer who pretended to be running an investment program for the plaintiff, who was not a bank customer. Among other things, the Court held that the allegations in the complaint failed to support the required strong inference that any bank employee had actual knowledge of the fraud.
LLF prevailed on behalf of its client, a national bank, in an appeal to the Appellate Division, First Department, in which the court upheld the trial court's grant of summary judgment to the bank, dismissing plaintiffs' action under the UCC and theories of fraud and commercial bad faith. Andre Romanelli, Inc., et al. v. Citibank, N.A., et al., Index No. 109293/05.
LLF prevailed in defending an appeal to the U.S. District Court for the Western District of New York from a U.S. Bankruptcy Court order concerning an adversary proceeding in the Adelphia bankruptcy, HSBC Bank USA, National Association v. Adelphia Communications Corp., et al., 07-CV-553A. The bankruptcy court had granted a motion for summary judgment by LLF's client, a national bank, to dismiss a fraudulent conveyance claim brought by the Adelphia Unsecured Creditor's Committee. The District Court agreed with LLF that the claim was barred under the doctrines of ratification, res judicata, and judicial estoppel, because of Adelphia's prior consent to the challenged transactions in a different, prior proceeding. A copy of the U.S. District Court's decision is available here.
On March 20, 2009, LLF Counsel Alan H. Scheiner served on the faculty of the Pace Law School Symposium: Real Property, Mortgages and the Economy: A Call for Ethics and Reform. Alan spoke on state subprime lending statutes and federal preemption, including a discussion of the Federal Reserve's newest amendments to Regulation Z under the Truth in Lending Act. For an introduction to these topics, see the abstract of Alan's forthcoming Pace Law Review article, State Subprime Lending Litigation and Federal Preemption: Toward a National Standard, and his article Federal Preemption of State Subprime Lending Laws, NYLJ (April 22, 2008).
Levi Lubarsky & Feigenbaum llp