Kirschner v. Bennett
892 F. Supp. 2d 534
S.D.N.Y.2012Background
- This Court adopts Special Master Capra’s Report and Recommendation denying Grant Thornton’s motion for summary judgment.
- The dispute centers on choice-of-law governing an aiding-and-abetting fraud claim brought by the Trustee on FX Customers’ deposits.
- FX Customers deposited funds in offshore Refco Capital Markets (RCM), Bermuda-based, not subject to U.S. securities laws.
- RCM was part of the Refco fraud, which was largely conducted and centralized in New York.
- A Bermuda-law duty to disclose hopeless insolvency was contested; Bermuda law may or may not recognize such a duty.
- New York law was found to govern the primary violation and to have greater interest than Bermuda under interests analysis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| What law governs the FX Customers’ claims | New York has the greater interest | Bermuda law governs or limits any duty | New York law applies |
| Whether Bermuda recognizes a duty to disclose hopeless insolvency | Bermuda analogs do not create the NY-like duty | Bermuda would impose different or no such duty | Bermuda does not recognize the duty; NY duty applies for conflict |
| Locus of the tort and choice-of-law impact | New York is the focal point due to Refco fraud origin | Origin could be Bermuda or offshore entity | New York has the greater interest; NY law governs |
Key Cases Cited
- Capital Management Select Fund Ltd v. Bennett, 680 F.3d 214 (2d Cir.2012) (RCM not bound by U.S. broker-dealer rules; rehypothecation context)
- Kirschner v. Bennett, 648 F.Supp.2d 525 (S.D.N.Y.2009) (primary violation analysis in aiding-and-abetting fraud)
- Thomas H. Lee Equity Fund V, L.P. v. Mayer Brown, Rowe & Maw LLP, 612 F.Supp.2d 267 (S.D.N.Y.2009) (choice of law; NY as forum for substantial activity in fraud)
- Padula v. Lilarn Props. Corp., 84 N.Y.2d 519 (N.Y.1984) (conduct-regulating vs loss-allocating rules; situs of tort guidance)
- St. Louis & S.F. Ry. Co. v. Johnston, 133 U.S. 566 (1889) (historical context for conflicts semantics (insolvency/disclosure))
- Cooney v. Osgood Mach., 81 N.Y.2d 66 (1993) (conduct-regulating rule analysis in NY choice of law)
- White Plains Coat & Apron Co., Inc. v. Cintas Corp., 460 F.3d 281 (2d Cir.2006) (interests analysis framework for NY choice of law)
- Szur v. United States, 289 F.3d 200 (2d Cir.2002) (relevant to fiduciary-like duties and disclosure)