Financial Guaranty Insurance v. Putnam Advisory Co.
2015 U.S. App. LEXIS 6161
| 2d Cir. | 2015Background
- FGIC sues Putnam for fraud, negligent misrepresentation, and negligence over Pyxis CDO management.
- Putnam allegedly promised independent asset selection but allowed Magnetar to control collateral.
- Magnetar held short positions; Putnam allegedly concealed Magnetar’s influence.
- Pyxis suffered rapid default; FGIC insured $900 million under Pyxis Guaranty.
- District Court dismissed for lack of loss causation and lack of privity-like duty.
- Court vacates and remands for further proceedings with loss causation and duty issues in play.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to sue properly raised? | FGIC has injury in fact from Pyxis losses | Putnam argues lack of cognizable injury | Standing established at pleading stage |
| Loss causation required for fraud claim? | Loss causation sufficiently pleaded under rule 9(b) | Loss causation not adequately pleaded | Loss causation adequate under 9(b) pleading standards |
| Sufficiency of loss causation allegations | Allegations show Magnetar-driven losses contributed | Insufficient link to Pyxis losses | Plaintiff plausibly alleged loss causation at pleading stage |
| Actionable misrepresentation/omission | Putnam falsely claimed independence and fiduciary-like conduct | Disclaimers undermine reliance | Misrepresentation pleaded adequately under 9(b) |
| Negligent-misrepresentation/relationship duty | Bayerische Landesbank supports duty to FGIC | No privity-like relationship | Plausible special relationship under Bayerische v. Aladdin |
Key Cases Cited
- Crigger v. Fahnestock & Co., 443 F.3d 230 (2d Cir. 2006) (fraud elements and reliance basics applied)
- Wynn v. AC Rochester, 273 F.3d 153 (2d Cir. 2001) (precedent on reliance and fraud elements)
- Laub v. Faessel, 297 A.D.2d 28 (1st Dep’t 2002) (loss causation element definition and pleading standard)
- Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (2005) (loss causation pleading standard clarified (notice pleading))
- Emergent Capital Inv. Mgmt., LLC v. Stonepath Grp., Inc., 343 F.3d 189 (2d Cir. 2003) (loss causation proof not required at pleading stage)
- Len-tell v. Merrill Lynch & Co., 396 F.3d 161 (2d Cir. 2005) (loss causation defined as causal link between misrepresentation and economic harm)
- Bayerische Landesbank v. Aladdin Capital Mgmt. LLC, 692 F.3d 42 (2d Cir. 2012) (orbit of duty and third-party reliance in negligence claims)
- Suez Equity Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d 87 (2d Cir. 2001) (loss causation framework and proximate cause)