Granite Partners, L.P. v. Bear, Stearns & Co., No. 96 Civ. 7874(RWS).

CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
Writing for the CourtSweet
Citation58 F.Supp.2d 228
Docket NumberNo. 96 Civ. 7874(RWS).
Decision Date26 July 1999
PartiesGRANITE PARTNERS, L.P., Granite Corporation and Quartz Hedge Fund, by and through the Litigation Advisory Board of Granite Partners, L.P., Granite Corporation and Quartz Hedge Fund, Plaintiffs, v. BEAR, STEARNS & CO. INC., Bear, Stearns Capital Markets Inc., Howard Rubin, Donaldson, Lufkin & Jenrette Securities Corporation, Elizabeth Comerford and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Defendants.
58 F.Supp.2d 228
GRANITE PARTNERS, L.P., Granite Corporation and Quartz Hedge Fund, by and through the Litigation Advisory Board of Granite Partners, L.P., Granite Corporation and Quartz Hedge Fund, Plaintiffs,
v.
BEAR, STEARNS & CO. INC., Bear, Stearns Capital Markets Inc., Howard Rubin, Donaldson, Lufkin & Jenrette Securities Corporation, Elizabeth Comerford and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Defendants.
No. 96 Civ. 7874(RWS).
United States District Court, S.D. New York.
July 26, 1999.

Page 229

COPYRIGHT MATERIAL OMITTED

Page 230

COPYRIGHT MATERIAL OMITTED

Page 231

COPYRIGHT MATERIAL OMITTED

Page 232

Friedman Kaplan & Seiler, New York, NY (Eric Seiler, Robert J. Lack, Katherine L. Pringle, Lee D. Sossen, of Counsel), Berlack, Israels & Liberman, New York, NY (Steven E. Greenbaum, Edward S. Weisfelner, Scott M. Berman, of counsel), for Plaintiffs.

Fried, Frank, Harris, Shriver & Jacobson, New York, NY (David M. Morris, Albert Shemmy Mishaan, Michael B. deLeeuw, Douglas J. Cardoni, of counsel), for Bear Stearns & Co. Inc., Bear Stearns Capital Markets Inc. and Howard Rubin.

Morgan, Lewis & Bockius, New York, NY (Gary G. Staab, Catherine A. Ludden, Scott S. Balber, of counsel), for Donaldson, Lufkin & Jenrette Securities Corp. and Elizabeth Comerford.

Brown & Wood, New York, NY (A. Robert Pietrzak, Andrew W. Stern, Madeleine J. Dowling, Jonathan J. Brennan, of counsel), for Merrill Lynch, Pierce, Fenner & Smith Inc.

OPINION

SWEET, District Judge.


Defendants Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Elizabeth Comerford ("Comerford"), Bear,

Page 233

Stearns & Co. Inc., Bear, Stearns Capital Markets Inc. (collectively, "Bear Stearns"), Howard Rubin ("Rubin"), and Merrill Lynch, Pierce, Fenner & Smith Inc. ("Merrill Lynch") (together with DLJ, Comerford, Bear Stearns, and Rubin, the "Brokers") have moved for partial dismissal of the Second Amended Complaint ("Complaint") in this action pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted and for failure to plead fraud with particularity. Specifically, the Brokers move to dismiss the following claims: (1) breach of contract (Count III); (2) common law fraud (Counts IV and V); (3) violations of the Sherman and Donnelly Acts (Counts VI and VII); and (7) tortious interference with contracts (Counts XI and XII).

The Brokers have also moved to dismiss Counts XIII through XXI of the Second Amended Complaint, which have been reasserted merely for the purposes of plaintiffs' contemplated appeal. Plaintiffs have agreed, both in their papers and in correspondence to the Court, (see Letter from Seiler to Judge Sweet of 10/16/98, at 2), that these counts are deficient under the logic of Granite Partners, L.P. v. Bear, Stearns & Co., 17 F.Supp.2d 275 (S.D.N.Y. 1998) ("Granite II"), and that they should therefore be summarily dismissed.

For the reasons set forth below, the Brokers' motions will be granted in part and denied in part.

Parties

Plaintiff Granite Partners, L.P. ("Granite Partners"), a Delaware limited partnership, was established in January 1990 as an investment fund to invest primarily in mortgage-related securities on behalf of individuals and entities subject to United States taxation.

Plaintiff Granite Corporation ("Granite Corp."), a Cayman Islands corporation, was organized in January 1990 to invest primarily in mortgage-related securities on behalf of offshore investors and domestic tax-exempt entities, including foundations and pension funds.

Plaintiff Quartz Hedge Fund ("Quartz") (collectively with Granite Partners and Granite Corp., the "Funds"), a Cayman Islands corporation, was established in January 1994 as a vehicle to invest primarily in mortgage-related securities on behalf of offshore investors and others exempt from United States taxation.

The Funds bring this action by and through the Litigation Advisory Board (the "LAB"), which was given the exclusive authority on behalf of and in the name of the Funds' estates to commence, prosecute, settle, or otherwise resolve all unresolved claims and causes of action of the Funds' estates by order of the United States Bankruptcy Court for the Southern District of New York.

DLJ, Bear Stearns, and Merrill Lynch, all Delaware corporations with their principal places of business in New York City, are broker-dealers that transacted business with the Funds.

Comerford, a resident of New York, was at all relevant times a senior vice president of DLJ.

Rubin, a resident of New Jersey, was at all relevant times a senior managing director and the head CMO trader at Bear Stearns.

Relevant Nonparties

David J. Askin ("Askin") is a resident of New Jersey.

At all times relevant to this action, nonparty Askin Capital Management, L.P. ("ACM"), a Delaware limited partnership, was a registered investment advisor, whose principal place of business was New York City. ACM was formed in January 1993 by Askin. Askin also served as ACM's president, chief executive officer, and chief financial officer. ACM became the investment advisor to both Granite Corp. and Granite Partners (and Granite Partners' sole general partner) on or about

Page 234

January 26, 1993. ACM has been the investment advisor to Quartz since its formation.

Prior Proceedings

The facts and prior proceedings in this action are set forth in prior opinions of this Court, familiarity with which is assumed. See Granite II, 17 F.Supp.2d at 275; Granite Partners v. Bear, Stearns & Co., 184 F.R.D. 49 (S.D.N.Y.1999).

On April 7, 1994, the Funds filed petitions for relief under chapter 11 of the United States Bankruptcy Code. The chapter 11 trustee for the Funds (the "Trustee") initially filed this action in the United States Bankruptcy Court for the Southern District of New York on September 12, 1996. The case was referred to this Court on October 18, 1996. On consent, this Court withdrew the reference from the Bankruptcy Court on December 3, 1996.

On January 27, 1997, the Trustee submitted a Third Amended Joint Plan of Liquidation for the Funds (the "Plan"). Following the Bankruptcy Court's confirmation of the chapter 11 Plan on March 2, 1997, this action has been pursued by the LAB, appointed pursuant to the Liquidation Plan.

The LAB filed its First Amended Complaint in this action on August 4, 1997, naming, in addition to Bear Stearns, Rubin, DLJ, Comerford, and Merrill Lynch as defendants.

In its First Amended Complaint, the LAB asserted the following claims: breach of contract, inducing and participating in breach of fiduciary duty, tortious interference with contracts, rescission of unauthorized trades, breach of duty, conversion, federal and state antitrust violations, prima facie tort, common law fraud, negligent and innocent misrepresentation, breach of express warranty, unjust enrichment, objection to claims and interest, and equitable subordination.

On August 25, 1998, the lion's share of the LAB's claims were dismissed in Granite II, 17 F.Supp.2d at 275. That decision granted the LAB leave to replead.

On October 16, 1998, the LAB filed the Complaint that is the subject of the Brokers' current motions to dismiss. Oral argument was heard on the instant motions on April 29, 1999, at which time the motions were deemed fully submitted. Additional materials were received from the parties through June 2, 1999.

Facts

In considering a motion to dismiss, the facts alleged in the complaint are presumed to be true and all factual inferences must be drawn in the plaintiff's favor. See Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir.1993); Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir.1989); Dwyer v. Regan, 777 F.2d 825, 828-29 (2d Cir.1985), modified by, 793 F.2d 457 (2d Cir.1986). Accordingly, the factual allegations considered here and set forth below are taken primarily from the LAB's Complaint and do not constitute findings of fact by the Court. They are presumed to be true only for the purpose of deciding the present motions.

Though the LAB's Complaint differs in significant respects from its First Amended Complaint, the basic facts remain the same. As was explained in more detail in Granite II, this case arises out of the collapse in early 1994 of the Funds that were managed by Askin and ACM. The Funds invested primarily in collateralized mortgage obligations ("CMOs") created by the Brokers and other broker-dealers. As the Complaint states, "CMOs are securities created from and collateralized by mortgage-backed securities formed from pools of residential mortgages or securities backed by such mortgages." Compl. ¶ 26. ACM, through its president, Askin, purchased the securities for the Funds. The advisory and fiduciary relationships between ACM, or its predecessors, and the Funds were governed by investment advisory agreements. Because CMOs of the type purchased by the Funds vary in their sensitivity to interest rate fluctuations, and

Page 235

the Funds themselves had distinct investment strategies, ACM's selection of the Funds' securities was critical.

Askin and ACM, the Funds' investment advisor, had fiduciary and contractual obligations to the Funds to make investments with due care and in accordance with the Funds' stated investment objectives. Askin and ACM, however, did not fulfil those obligations, and repeatedly breached their fiduciary and contractual duties. As a result, the Funds acquired portfolios that were full of bullish CMOs, esoteric and highly "toxic" CMOs, and otherwise inappropriate securities. When short-term interest rates rose in early 1994, these securities radically eroded in value.

The Complaint alleges that the Brokers took advantage of ACM and Askin's shortcomings by recommending and selling to the Funds inappropriate and, at times, highly toxic CMOs. The Complaint also alleges that the Brokers deliberately supplied ACM and the Funds with erroneous "marks" purportedly...

To continue reading

Request your trial
53 practice notes
  • Zhao v. State University of N.Y., No. 04-CV-0210 JFB RML.
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • 9 Enero 2007
    ...there was no obligation to continue the at-will relationship in the first instance." Granite Partners, L.P. v. Bear, Stearns & Co. Inc., 58 F.Supp.2d 228, 254 (S.D.N.Y. 1999) (collecting cases); see also Stern v. Espeed, Inc., No. 06-CV-958, 2006 WL 2741635, at *2 (S.D.N.Y. Sept. 22, 2006) ......
  • FT Travel—N.Y., LLC v. Your Travel Ctr., Inc., Case No. CV 15–01065 MMM (MANx).
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
    • 26 Junio 2015
    ...party to whom the promise is made as consideration for the promise made to him.’ " Granite Partners, L.P. v. Bear, Stearns & Co., Inc., 58 F.Supp.2d 228, 252 (S.D.N.Y.1999) (quoting Weiner v. McGraw–Hill, Inc., 57 N.Y.2d 458, 464, 457 N.Y.S.2d 193, 443 N.E.2d 441 (1982) ).Defendants argue t......
  • Sec. Action, 08 Ci v. 2793. SRM Global Master Fund Ltd. (In re Bear Stearns Cos.), No. 08 MDL 1963.
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • 5 Febrero 2014
    ...specific action or inaction, and therefore must be pleaded with particularity. See, e.g., Granite Partners, L.P. v. Bear, Stearns & Co., 58 F.Supp.2d 228, 258 (S.D.N.Y.1999) (plaintiffs must plead “facts [that] underlie ... reliance”); Int'l Fund, 822 F.Supp.2d at 386–87 (S.D.N.Y.2011) (dis......
  • In re Marketxt Holdings Corp., Bankruptcy No. 04-12078 (ALG).
    • United States
    • United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York
    • 2 Marzo 2007
    ...cert. denied, 519 U.S. 1007, 117 S.Ct. 509, 136 L.Ed.2d 399 (1996); see also Granite Partners, L.P. v. Bear, Stearns & Co., Inc., 58 F.Supp.2d 228, 236 (S.D.N.Y.1999), citing Ryder Energy Distribution Corp. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 779 (2d Cir.1984), aff'd, 865 F.2d......
  • Request a trial to view additional results
53 cases
  • Zhao v. State University of N.Y., No. 04-CV-0210 JFB RML.
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Eastern District of New York)
    • 9 Enero 2007
    ...there was no obligation to continue the at-will relationship in the first instance." Granite Partners, L.P. v. Bear, Stearns & Co. Inc., 58 F.Supp.2d 228, 254 (S.D.N.Y. 1999) (collecting cases); see also Stern v. Espeed, Inc., No. 06-CV-958, 2006 WL 2741635, at *2 (S.D.N.Y. Sept. 22, 2006) ......
  • FT Travel—N.Y., LLC v. Your Travel Ctr., Inc., Case No. CV 15–01065 MMM (MANx).
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
    • 26 Junio 2015
    ...party to whom the promise is made as consideration for the promise made to him.’ " Granite Partners, L.P. v. Bear, Stearns & Co., Inc., 58 F.Supp.2d 228, 252 (S.D.N.Y.1999) (quoting Weiner v. McGraw–Hill, Inc., 57 N.Y.2d 458, 464, 457 N.Y.S.2d 193, 443 N.E.2d 441 (1982) ).Defendants argue t......
  • Sec. Action, 08 Ci v. 2793. SRM Global Master Fund Ltd. (In re Bear Stearns Cos.), No. 08 MDL 1963.
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • 5 Febrero 2014
    ...specific action or inaction, and therefore must be pleaded with particularity. See, e.g., Granite Partners, L.P. v. Bear, Stearns & Co., 58 F.Supp.2d 228, 258 (S.D.N.Y.1999) (plaintiffs must plead “facts [that] underlie ... reliance”); Int'l Fund, 822 F.Supp.2d at 386–87 (S.D.N.Y.2011) (dis......
  • In re Marketxt Holdings Corp., Bankruptcy No. 04-12078 (ALG).
    • United States
    • United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York
    • 2 Marzo 2007
    ...cert. denied, 519 U.S. 1007, 117 S.Ct. 509, 136 L.Ed.2d 399 (1996); see also Granite Partners, L.P. v. Bear, Stearns & Co., Inc., 58 F.Supp.2d 228, 236 (S.D.N.Y.1999), citing Ryder Energy Distribution Corp. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 779 (2d Cir.1984), aff'd, 865 F.2d......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT