Articles Posted in Professional Malpractice & Ethics

by
The district court dismissed a suit brought by Sanderson, individually and on behalf of all others similarly situated, alleging that auditors (defendants) committed securities fraud by falsely representing that they performed their audits of Advanced Battery Technologies in accordance with professional standards and that the company’s filings accurately reflected its financial condition from the 2007 through the 2010 fiscal years. The court found that the complaint failed adequately to plead scienter as required by the Private Securities Litigation Reform Act of 1995, 15 U.S.C. 78u‐4. Sanderson sought to correct these deficiencies by moving to file an amended complaint. The court denied the motion, concluding that even the new allegations failed to “rise to the level of recklessness.” The Second Circuit affirmed, finding that the factual allegations did not give rise to a strong inference of either fraudulent intent or conscious recklessness, rather than mere negligence. View "In re: Advanced Battery Techs., Inc." on Justia Law

by
Plaintiffs, Joint Official Liquidators of the SPhinX Funds, filed suit against defendants, alleging that defendants aided and abetted fraud and breached their fiduciary duty to Refco, the brokerage and financial services firm that entered bankruptcy in 2005, and whose demise led to the bankruptcies of SPhinX and its investment manager, PlusFunds. The court concluded that the claims against defendants were properly dismissed for failure of the Amended Complaint to contain sufficient allegations that defendants had actual knowledge of Refco's fraud and breach of fiduciary duty. The district court did not abuse its discretion by dismissing the claims without leave to amend where amendment could not cure the absence of factual allegations as to actual knowledge on the part of defendants sufficient to state a claim against them for aiding and abetting Refco's fraud and breach of fiduciary duty. Accordingly, the court affirmed the judgment of the district court and denied the request for leave to amend the Amended Complaint. View "Krys v. Pigott" on Justia Law

by
Starr, AIG's former principal shareholder, filed suit against the FRBNY for breach of fiduciary duty in its rescue of AIG during the fall 2008 financial crisis. The district court dismissed Starr's claims and Starr appealed. The suit challenged the extraordinary measures taken by FRBNY to rescue AIG from bankruptcy at the height of the direst financial crisis in modern times. In light of the direct conflict these measures created between the private duties imposed by Delaware fiduciary duty law and the public duties imposed by FRBNY's governing statutes and regulations, the court held that, in this suit, state fiduciary duty law was preempted by federal common law. Accordingly, the court affirmed the judgment of the district court. View "Starr Int'l Co. v. Federal Reserve Bank of New York" on Justia Law

by
This case arose when plaintiff filed an employment discrimination suit against his employer, Wal-mart. Plaintiff's attorney represented to the court that plaintiff had pled a gender discrimination claim when he had not. The district court subsequently reprimanded the attorney and imposed Rule 11 sanctions on her. The attorney appealed. The court concluded that the district court did not apply the correct legal standard where the district court's analysis indicated that it was applying an objective reasonableness test. Under the proper standard, pursuant to In re Pennie & Edmonds LLP, sua sponte sanctions should issue only upon a finding of subjective bad faith. Accordingly, the court reversed and vacated the district court's judgment. View "Muhammad v. Wal-Mart Stores East, L.P." on Justia Law

by
These appeals arose out of LJL's exercise of its contractual option to purchase Pitcairn's ownership stake in a jointly owned high-rise luxury residential building in New York City, after which the parties pursued an arbitration to determine the value of the property. Both parties subsequently appealed from the district court's judgment. In LJL's appeal, the court agreed with its contention that the arbitrator's exclusion of Pitcairn's hearsay exhibits was within the arbitrator's authorized discretion and, therefore, vacated the district court's order overturning the arbitrator's determination of the Stated Value. The court agreed with the district court's conclusion that the arbitrator acted in accordance with the terms of the arbitration agreement in refusing to determine the Purchase Price and, therefore, remanded with instructions to confirm the arbitration award in its entirety. In Pitcairn's appeal, the court found no error in the district court's dismissal of Pitcairn's claims for breach of fiduciary duties and breach of the covenant of good faith and fair dealing. Accordingly, the court affirmed the judgment. View "LJL 33rd Street Associates, LLC v. Pitcairn Properties Inc." on Justia Law

by
Plaintiffs filed a putative class action seeking to hold ProShares liable for material omissions and misrepresentations in the prospectuses for certain exchange-traded funds (ETFs) under the Securities Act of 1933, 15 U.S.C. 77k and 77o. Plaintiffs alleged that registration of statements omitted the risk that the ETFs, when held for a period of greater than one day, could lose substantial value in a relatively brief period of time, particularly in periods of high volatility. The district court concluded that the disclosures at issue accurately conveyed the specific risk that plaintiffs asserted materialized. The court agreed with the district court's conclusion that the relevant prospectuses adequately warned the reasonable investor of the allegedly omitted risks. View "In Re: ProShares Trust Sec. Litig." on Justia Law

by
Plaintiffs, former Lehman employees, filed suit alleging that defendants, members of the Benefits Committee, and the company's Directors, breached their duties under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1001 et seq. In regards to plaintiffs' claims that the Benefits Committee Defendants breached their duty of prudence in managing the company's employee stock ownership plan (ESOP), the court concluded that plaintiffs have not rebutted the Moench v. Robertson presumption because they failed to allege facts sufficient to show that the Benefits Committee Defendants knew or should have known that Lehman was in a "dire situation" based on information that was publicly available during the class period. In regards to plaintiffs' claims that the Benefits Committee Defendants breached their duty of disclosure, the publicly-known information available to defendants did not give rise to an independent duty to investigate Lehman's SEC filings prior to incorporating their content into a summary plan description issued to plan-participants. The court affirmed the district court's dismissal of plaintiffs' remaining claims. View "In Re: Lehman Bros. ERISA Litig." on Justia Law

by
Plaintiff appealed from the district court's dismissal of his amended complaint, which alleged that FXDD engaged in dishonest and deceptive practices in managing its online foreign exchange trading platform in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. 1962(c), and New York General Business Law 349(h), and 350. Plaintiff also alleged breach of contract and of the implied covenant of good faith and fair dealing. The court concluded that, at this stage, some part of the underlying transaction occurred in New York State, giving plaintiff statutory standing to sue for deceptive practices and false advertising under sections 349 and 350; because the complaint alleged that FXDD failed to act in good faith and intentionally delayed trades or caused them to fail in order to enrich itself at the expense of its customers, these practices were incompatible with a promise to execute orders on a best-efforts basis and, therefore, the court vacated the dismissal of the breach of contract claim; and the court affirmed the judgment of the district court as to the RICO claim and the claim for breach of the implied covenant of good faith and fair dealing. View "Cruz v. FXDirectDealer, LLC" on Justia Law

by
Plaintiff appealed from the district court's judgment dismissing her claims against her ex-husband and his brother for failure to state a claim and untimeliness. Plaintiff alleged that, in representing a certain investment as worthless and concealing the $5.5 million received on its account, defendants conspired in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. 1962(d), committed common law fraud, and breached fiduciary duties, and that her ex-husband was unjustly enriched. The court held that the district court's reasons for dismissing the fraud-based claims were erroneous and that the district court erred in ruling on the existing record that the RICO, common law fraud, and breach of fiduciary duty claims were time-barred. The court sustained the dismissal of the unjust enrichment claim as untimely. Accordingly, the court affirmed in part and vacated and remanded in part. View "Cohen v. Cohen" on Justia Law

by
Saint Vincent's alleged that Morgan Stanley - the fiduciary manager of the fixed-income portfolio of Saint Vincent Catholic Medical Centers Retirement Plan - violated its fiduciary duties under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1001 et seq. Saint Vincent's alleged that Morgan Stanley disproportionately invested the portfolio's assets in mortgaged-backed securities, including the purportedly riskier subcategory of "nonagency" mortgage-backed securities, despite warning signs that these investments were unsound. Although Saint Vincent's, as the fiduciary administrator of an ERISA-governed plan, was in a position to plead its claims with greater factual detail than was typically accessible to plaintiffs prior to discovery, and although it received two opportunities to amend its complaint, the Amended Complaint failed to plead sufficient, nonconclusory factual allegations to show that Morgan Stanley failed to meet its fiduciary responsibilities under ERISA. Accordingly, the court affirmed the district court's dismissal of the Amended Complaint. View "Pension Benefit Guaranty Corp. v. Morgan Stanley Inv. Mgmt. Inc." on Justia Law