In Re: Refco Securities Litigation
1:07-md-01902
S.D.N.Y.Aug 7, 2013Background
- DPM and Robert Aaron moved for partial summary judgment on remaining claims in the Refco-related MDL and related Krys actions.
- Court had previously held, per R&Rs, that DPM did not breach the Service Agreement on wire transfers, investment of cash, or segregation reporting; Aaron’s fiduciary duties and vicarious liability remained contested.
- Plaintiffs allege SMFF’s excess cash was swept to unsegregated RCM accounts, risking loss in RCM bankruptcy, and seek $263 million plus interest and lost business damages.
- R&Rs also treated in pari delicto and adverse interest defenses, and analyzed whether the Preference Settlement was a superseding cause; plusfunds’ claims assigned to the SphinX Trust and potential NJ law issues.
- The Special Master ultimately recommends granting partial summary judgment on Counts I, V, VI, and VIII, while addressing other arguments at a high level.
- Liquidated damages clause does not cap non-operational damages; indemnity and other aspects may still be viable if the contract claims proceed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of the Service Agreement by DPM | DPM approved or caused cash sweeps and misreported status. | DPM did not transfer funds, had no authority to invest, and limited role. | DPM not liable; Count I grant to DPM is appropriate. |
| Breach of fiduciary duty by DPM and Aaron | DPM and Aaron breached duties to SMFF and PlusFunds based on discretionary control. | DPM had narrow duties; Aaron acted without knowledge of unprotected cash; exculpation provisions apply. | No triable issue; fiduciary duties not proven; Aaron’s actions protected by exculpation; DPM not liable. |
| Aiding and abetting breach of fiduciary duty | DPM and Aaron knowingly aided insiders by cash sweeps and misreporting. | No knowledge of wrongdoing; no substantial assistance; insufficiency on scienter. | Count VI should be dismissed absent knowledge; if knowledge exists, could raise fact issue. |
| Fraud/misrepresentation claim viability | DPM and Aaron knowingly misrepresented cash protections in offerings, financials, and risk reports. | No knowing misstatement; no intent to defraud given lack of knowledge about risk. | Count VIII should be granted; no triable issue on scienter. |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S. 1986) (summary judgment standard and burden-shifting)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (U.S. 1986) (material facts; reasonable jury could decide in plaintiff's favor)
- Cumberland Oil Corp. v. Thropp, 791 F.2d 1037 (2d Cir. 1985) (proximate cause; natural and probable consequences)
- Kirschner v. KPMG LLP, 15 N.Y.3d 446 (N.Y. 2010) (adverse interest exception; in pari delicto applicability to insiders)
- Fraternity Fund Ltd. v. Beacon Hill Asset Mgmt. LLC, 479 F. Supp. 2d 349 (S.D.N.Y. 2007) (fraud elements; scienter requirement; evidence standard)