110 A.D.3d 32
N.Y. App. Div.2013Background
- Aetna alleges Lehman Brothers entities substituted Ballantyne Re subprime securities for high-grade assets in Aetna’s trust to help LBHI's finances in 2008.
- The trust arrangement required Lehman Re and trustee Bank One Trust to manage assets as specified, with allowed replacements only if qualified.
- Appalachian Asset Management was allegedly given trading authority over the trust assets under a longstanding investment advisory agreement.
- On Sept. 9, 2008, Appalachian allegedly arranged removal of $48.65 million of CARAT high-grade securities and substituted Ballantyne Re notes backed by subprime loans.
- Ballantyne Re securities were illiquid and misvalued; Aetna later liquidated Ballantyne assets for far less than substituted value, after Lehman’s collapse.
- Plaintiff asserts fiduciary, negligence, recklessness, and CUTPA claims against Appalachian and individual Lehman/LBHI actors; several motions to dismiss were decided.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CUTPA applies to the substitution transaction | Aetna contends CUTPA covers the alleged unscrupulous substitution. | Defendants argue securities transactions fall under CUSA, not CUTPA, per Russell v. Dean Witter. | CUTPA may apply; not dismissed at this stage. |
| Whether Appalachian owed a fiduciary duty to Aetna | Allegations show Appalachian assumed Lehman Re’s duties under the trust arrangement. | Appalachian had no fiduciary duty to Aetna; any duty lay with Lehman Re. | Fiduciary duty plausibly pleaded; Appalachian may have assumed Lehman Re’s duties. |
| Whether aiding and abetting a fiduciary breach lies against defendants | Individual defendants knew of the substitution and aided the breach. | Questions remain as to whether assistance was substantial; limited direct involvement asserted. | Aiding-and-abetting theory survives as to individuals. |
| Whether a duty of care and negligence claims are stated against the individual defendants | Allegations show a duty owed by Appalachian (and agents) to manage assets prudently. | No duty owed by Appalachian to Aetna; no negligent breach alleged. | Negligence claims against individual defendants survive. |
| Whether recklessness claims survive and summary judgment is premature for Garg | Substitution involved willful, extreme disregard for risk; recklessness supported. | Statement of Garg’s role warrants summary judgment or dismissal if unsupported. | Recklessness pleaded; Garg's summary-judgment motion premature. |
Key Cases Cited
- Russell v. Dean Witter Reynolds, Inc., 510 A.2d 972 (Conn. 1986) (CUTPA does not apply to securities purchase/sale absent misinvestment context)
- Hi-Ho Tower, Inc. v. Com-Tronics, Inc., 255 Conn. 20 (2000) (fiduciary relationship defined by trust and superior knowledge)
- Alaimo v. Royer, 188 Conn. 36 (1982) (fiduciary duties can arise where trust is placed in a party)
- Cohen v. Roll-A-Cover, LLC, 131 Conn. App. 443 (2011) (corporate officer can be liable for CUTPA when directly tortiously engaged)
- Hartford Elec. Supply Co. v. Allen-Bradley Co., Inc., 250 Conn. 334 (1999) (unfairness standard and public policy under CUTPA)
- Neuhaus v. DeCholnoky, 280 Conn. 190 (2006) (duty analysis for foreseeability and public policy)