Morgan Stanley & Co. v. Peak Ridge Master SPC Ltd.
930 F. Supp. 2d 532
S.D.N.Y.2013Background
- Peak Ridge held a natural gas trading account with Morgan Stanley as FCM from Oct 2009 to Jun 2010; margins were increased multiple times as market risk rose.
- In June 2010, Morgan Stanley notified a 6:1 margin requirement; Peak Ridge fell to 5.3:1 by close of Jun 9, 2010.
- Morgan Stanley declared an event of default on Jun 10 and terminated Peak Ridge’s account access on Jun 11; Morgan Stanley liquidated assets and sold them to MSCG by Jun 23, 2010.
- Peak Ridge counterclaimed that Morgan Stanley breached the Customer Agreement by seizing an compliant account and that MSCG’s sale conferred unjust enrichment.
- Morgan Stanley moved to dismiss Peak Ridge’s amended counterclaims under Rule 12(b)(6); the court granted in part and denied in part.
- The court held Peak Ridge’s breach-of-contract claim survives only to the extent it alleges lack of commercial reasonableness in liquidation and non-arms-length sale to MSCG; the unjust enrichment claim is dismissed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a margin call was required before an event of default | Peak Ridge argues a margin call was required prior to default | Morgan Stanley contends no margin call is needed once margin was conveyed or where agreement permits remedies without notice | No margin call required; contract unambiguously allows default remedies without prior notice. |
| Whether Morgan Stanley acted in a commercially reasonable manner in liquidation | Peak Ridge asserts liquidation was self-serving and not commercially reasonable | Morgan Stanley may liquidate to protect itself; not required to maximize Peak Ridge’s value | Peak Ridge’s claim survives to the extent it pleads lack of commercial reasonableness in liquidation and sale to MSCG. |
| Whether the unjust enrichment claim is precluded by the contract | Peak Ridge argues non-contractual recovery against MSCG is viable | Contract governs subject matter; unjust enrichment barred | Unjust enrichment claim is dismissed; contract governs the sale, precluding quasi-contract recovery. |
Key Cases Cited
- Sayers v. Rochester Tel. Corp., 7 F.3d 1091 (2d Cir.1993) (interpretation of contract language in context of entire agreement)
- Readco, Inc. v. Marine Midland Bank, 81 F.3d 295 (2d Cir.1996) (contractual ambiguity resolved by integrated text; commercial reasonableness standard)
- Bailey v. Fish & Neave, 8 N.Y.3d 523 (N.Y. 2007) (unambiguous contract interpreted by its language; extrinsic evidence limited)
- American Home Prod. Corp. v. Liberty Mut. Ins. Co., 748 F.2d 765 (2d Cir.1984) (contract interpretation and extrinsic evidence considerations)
- Lucente v. International Bus. Machines Corp., 310 F.3d 243 (2d Cir.2002) (damages measured from date of breach; no hindsight damages)