Bayerische Landesbank, New York Branch v. Aladdin Capital Management LLC
692 F.3d 42
| 2d Cir. | 2012Background
- Bayerische invested $60 million in the Aladdin CDO II, a synthetic CDO funded by a CDS with Goldman Sachs as co-issuer and GSCM as protection buyer.
- Aladdin served as Portfolio Manager under a PMA between the Issuers and Aladdin; Noteholders were not parties to the PMA.
- The PMA and related Indentures govern obligations to manage the Reference Portfolio and protect Noteholders from losses.
- Aladdin allegedly managed the Reference Portfolio in a grossly negligent manner, causing the CDO to incur Credit Events and Bayerische’s total loss.
- District court dismissed the Amended Complaint as to third-party beneficiary and tort claims, prompting appeal.
- Court analyzes whether Noteholders are intended third-party beneficiaries and whether a tort duty runs from Aladdin to Noteholders.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Noteholders are intended third-party beneficiaries of the PMA | Noteholders benefit from PMA provisions beyond those expressly named | Section 29 excludes beneficiaries except Swap Counterparty | Ambiguous; contract read as plausibly benefiting Noteholders |
| Whether a tort duty to Noteholders exists independent of the contract | Aladdin owed a duty to manage for Noteholders’ benefit, causing gross negligence | No independent tort duty; claim duplicative of contract claim | Yes; plausible independent duty arising from relationship and contract terms |
| Whether Bayerische has stated a claim for gross negligence | Aladdin’s below-market spreads and mismanagement show reckless disregard | Investing in complex risk could be bad but not gross negligence | Plausible gross negligence based on specific trading decisions and failure to mitigate risk |
| Whether jurisdiction/diversity supports the case | Diversity exists between German aliens and U.S. citizens | Diversity analysis pre-2012 statute applies; Aladdin may be an alien | Court holds diversity exists under pre-2012 statute; action is within its jurisdiction |
Key Cases Cited
- Levin v. Tiber Holding Corp., 277 F.3d 243 (2d Cir. 2002) (third-party beneficiary analysis; intent to benefit must be clear)
- Premium Mortgage Corp. v. Equifax, Inc., 583 F.3d 103 (2d Cir. 2009) (intent to benefit third party must be explicit enough to infer duty)
- Morse/Diesel, Inc. v. Trinity Indus., Inc., 859 F.2d 242 (2d Cir. 1988) (no implied third-party beneficiary where contracts negate such intent)
- JA Apparel Corp. v. Abboud, 568 F.3d 390 (2d Cir. 2009) (contractual ambiguity; reading in light of entire agreement)
- Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of N.Y., 375 F.3d 168 (2d Cir. 2004) (ambiguous contracts may warrant extrinsic evidence at pleading stage)
- Credit Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536 (N.Y. Ct. App. 1985) (negligent misrepresentation framework for non-privy third parties)
- Glanzer v. Shepard, 233 N.Y. 236 (N.Y. 1922) (classic basis for privity-based duty; informs third-party liability)
- Ultramares Corp. v. Touche, 255 N.Y. 170 (N.Y. 1931) (established near-privity standard for economic loss to third parties)
- Franceskin v. Credit Suisse, 214 F.3d 253 (2d Cir. 2000) (domestic corporation with foreign principal place of business; diversity)