MINPECO, SA v. Hunt

• Decision Date: 03 May 1988
• Docket Number: No. 81 Civ. 7619 (MEL).,81 Civ. 7619 (MEL).
• Citation: 686 F. Supp. 420
• Parties: MINPECO, S.A., Plaintiff, v. Nelson Bunker HUNT, Lamar Hunt, William Herbert Hunt, International Metals Investment Co., Ltd., Sheik Mohammed Aboud Al-Amoudi, Sheik Ali Bin Mussalem, Naji Robert Nahas, Gilion Financial, Inc., Advicorp Advisory and Financial Corporation, S.A., and Mahmoud Fustok, Defendants.
• Court: U.S. District Court — Southern District of New York

686 F. Supp. 420

MINPECO, S.A., Plaintiff, v. Nelson Bunker HUNT, Lamar Hunt, William Herbert Hunt, International Metals Investment Co., Ltd., Sheik Mohammed Aboud Al-Amoudi, Sheik Ali Bin Mussalem, Naji Robert Nahas, Gilion Financial, Inc., Advicorp Advisory and Financial Corporation, S.A., and Mahmoud Fustok, Defendants.

No. 81 Civ. 7619 (MEL).

United States District Court, S.D. New York.

May 3, 1988.

Cole Corette & Abrutyn, Washington, D.C. (Mark A. Cymrot, Thomas O. Gorman, Pedro R. Pierluisi, Kathleen Milton, of counsel), Grand & Ostrow, New York City, for plaintiff Minpeco, S.A.

Kaye, Scholer, Fierman, Hays & Handler, New York City (Aaron Rubinstein, Paul J. Curran, Stanley D. Robinson, Michael Malina, of counsel), Gardere & Wynne, Dallas, Tex. (Robert E. Wolin, of counsel), for defendants Nelson Bunker Hunt, William Herbert Hunt and Lamar Hunt.

Curtis, Mallet-Provost, Colt & Mosle, New York City (Herbert Stoller, Turner P. Smith, of counsel), for defendant Mahmoud Fustok.

LASKER, District Judge.

This motion arises from the damages decision issued in this action on December 22, 1987, Minpeco, S.A. v. ContiCommodity Services, Inc., 676 F.Supp. 486 (S.D.N.Y. 1987).¹ That determination 1) eliminated a portion of Minpeco's lost profits claim and 2) concluded that it was Minpeco's burden to offset its claim of actual damages by the "measure of the increase in value which accrued to its own physical silver holdings ... as a result of defendants' allegedly manipulative behavior," 676 F.Supp. at 490. While it was concluded that "Minpeco's damage calculations must account for the profits as well as the losses which it experienced as a result of defendants' manipulative behavior," it was noted that "it is premature without full briefing by the parties to determine the exact contours of the appropriate offsets which must be applied to Minpeco's various out-of-pocket damage claims." Id. at 490 n. 13.

After the December 22 opinion was filed, Minpeco directed its accounting firm, Grant Thornton, to prepare a revised damage estimate to reflect both the lower lost profit claim and the offset to Minpeco's actual damages claim mandated by the December 22 opinion. The first Grant Thornton report, issued in March 1987, had calculated damages at between $225,204,693.65 and $252,724,693.65, depending on the "plateau" price—the alleged competitive price of silver—assumed. The revised Grant Thornton report, issued in January 1988, taking into account the reduced lost profits claim and the gains as well as the losses Minpeco experienced through its silver futures activities and its physical silver holdings, calculates damages at between $149,728,929.72 and $172,548,956.11, depending on the plateau price.

Defendants now argue that the revised Grant Thornton report is insufficient to sustain Minpeco's burden of proof with regard to the appropriate offset to Minpeco's claim for actual damages. Hence, they move again to dismiss Minpeco's damage claim in its entirety, or, in the alternative, for a ruling in limine precluding proof of certain components of its damage claim.² Defendants first argue that because Minpeco has only calculated its offset from August 1979 through March 1980, whereas the price of silver did not fall back to the $6 level—which Minpeco alleges to be silver's natural, competitive price—until June 1982, Minpeco has failed to meet its burden to calculate its offset and the case should be dismissed. Defendants next contend that even if the case is not dismissed, certain damage claims which are asserted for the first time in the revised Grant Thornton report should be precluded. Third, defendants assert that Minpeco should be precluded from asserting a damage claim for $48 million dollars to cover the interest payments resulting from loans required to close Minpeco's silver futures and forward positions in 1979-1980.

I. Offset Question

In the revised Grant Thornton report, Minpeco calculates the offsetting benefits which it received from the alleged manipulation for the period from August 1979 to March 1980. Defendants point out, however, that the price of silver did not return to a $6 level until June 1982, and that Dr. Houthakker has stated that "the holding of large inventories by the Hunts distorted the price of refined silver for several years after 1980."³ Hence, defendants argue that under the December 22 opinion Minpeco is obligated to calculate its offsetting benefits through May 1982, and that Minpeco's damage claim should be dismissed in its entirety because of its failure to do so.

Minpeco responds that the period it chose for calculating the offset, August 1979 through March 1980, is reasonable and comports with the December 22 decision because it is the period during which Minpeco suffered the majority of its losses, and, more importantly, it was the period during which the defendants were allegedly actively manipulating the silver market —that is, the period during which silver prices were artificial. It is Minpeco's position, based on its expert's testimony, that after March 1980, silver prices, although higher than before the alleged conspiracy period, were competitive because they reflected information available to all in the marketplace.

To determine the length of the offset period, Minpeco asked Dr. Houthakker to determine when silver prices ceased to be artificial. Houthakker responded that in his opinion, based on various economic indicia, "the prices prevailing in the silver futures market beginning on approximately April 1, 1980 were competitive prices"⁴ because "the silver and silver futures markets were no longer being directly affected by the defendants' manipulative activities."⁵ Houthakker argues that the key factor accounting for the higher post-conspiracy prices was additional information about the market resulting from public knowledge of the conspiracy:

the post-manipulation silver price is a competitive price which reflects additional information regarding the structure of the silver market. Reflected in the price are such factors as fears of future manipulations, by either the defendants or others, and reports of the Hunts' holdings of physical silver. This information resulted in new estimates of the value of silver and silver futures and new competitive prices than those prevailing prior to June, 1979.⁶

Minpeco analogizes the appropriate offset period here to that used by the Court of Appeals for the First Circuit for disgorgement of profits in insider-trading cases under the securities laws. In SEC v. MacDonald, 699 F.2d 47, 52-55 (1st Cir.1983) (en banc), the First Circuit imposed a limitation on the disgorgement of damages: a defendant who has purchased stock based on inside information is required to disgorge only the profits representing the increased value of the shares at a reasonable time after public dissemination of the information. 699 F.2d at 53. The MacDonald court explained that:

when a fraudulent buyer has reached the point of his full gain from the fraud, viz., the market price a reasonable time after the undisclosed information has become public, any consequence of a subsequent decision, be it to sell or to retain the stock, is ... not causally related to the fraud.

Id. at 54. Accord, Donovan v. Bierwirth, 754 F.2d 1049, 1057 (2d Cir.1985) (citing cases); see also SEC v. Shapiro, 494 F.2d 1301, 1309 (2d Cir.1974) ("A violator of the securities laws should dissolve profits earned by trading on non-public information. Once public disclosure is made and all investors are trading on an equal footing, the violator should take the risks of the market himself").

Minpeco, analogizing to this rule of law, argues that

similarly, Minpeco's damages and offsets should be limited to the period in which defendants' manipulative activities caused the prices prevailing in the silver markets to be artificial. Once a new competitive price was established, defendants' manipulative actions cannot be said to have been the proximate cause of any subsequent gains or losses.⁷

As discussed above, although the December 22 decision held that Minpeco "must account for the profits as well as the losses which it experienced as a result of defendants' manipulative behavior," that decision also left open the question of "the exact contours of the appropriate offset." 676 F.Supp. at 490 n. 13. Here, it cannot be concluded that the limiting principle which Minpeco has applied to the offset is unacceptable as a matter of law. Minpeco's analogy to SEC v. MacDonald is sound, and its argument, based on Dr. Houthakker's affidavit, in support of the period chosen to calculate the offset is reasonable. Although after the end of the alleged conspiracy period the price of silver only gradually decreased to the $6 level, that fact does not automatically necessitate a finding that the alleged manipulation was the proximate cause of the above $6 silver prices which lingered after March 1980. Rather, a jury could reasonably conclude, as Minpeco argues,

that the post-March price was the product of the marketplace, including all information in the market at that time. Free trading among traders, with increased knowledge, including recognition of the large positions in the market, and its susceptibility to manipulation, led to the establishment of a new price level in the market.⁸

Accordingly, defendants' motion to dismiss Minpeco's damage claim for failure to establish its offset is denied.⁹

II. Preclusion of Certain Damage Claims

Defendants next argue that if Minpeco's damage claim is not dismissed in its entirety, three specific damage claims should be precluded: the first two are claims which allege losses sustained in connection with Minpeco's physical silver holdings, which defendants contend must be precluded because they involve claims of losses suffered after March 31, 1980, the conclusion of the offset period under Minpeco's theory; the third is a claim which alleges losses on...