Veleron Holding, B.V. v. Stanley

• Decision Date: 22 July 2015
• Docket Number: No. 12 Civ. 5966(CM).,12 Civ. 5966(CM).
• Citation: 117 F.Supp.3d 404
• Parties: VELERON HOLDING, B.V., Plaintiff, v. Morgan STANLEY; Morgan Stanley Capital Services, Inc.; Morgan Stanley & Co., Inc.; and Morgan Stanley & Co., Defendants.
• Court: U.S. District Court — Southern District of New York

117 F.Supp.3d 404

VELERON HOLDING, B.V., Plaintiff,

v.Morgan STANLEY; Morgan Stanley Capital Services, Inc.; Morgan Stanley & Co., Inc.; and Morgan Stanley & Co., Defendants.

No. 12 Civ. 5966(CM).

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

Signed July 22, 2015.

Filed July 23, 2015.

Aaron Harvey Marks, Marc E. Kasowitz, Ronald Robert Rossi, Emilie Beth Cooper, Kasowitz, Benson, Torres & Friedman, LLP, New York, NY, Andrew R. Mac, Epam USA PLLC, Washington, DC, Ely Goldin, Fox Rothschild LLP, Blue Bell, PA, Ernest Edward Badway, William Christian Moffitt, Fox Rothschild, Attorneys at Law, New York, NY, for Plaintiff.

Christopher Louis Garcia, Jonathan D. Polkes, Paul Ivor Dutka, Amanda Lynn Burns, Weil, Gotshal & Manges LLP, New York, NY, for Defendants.

MEMORANDUM DECISION AND ORDER DENYING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT AND DENYING MOTIONS TO EXCLUDE TESTIMONY WITHOUT PREJUDICE TO APPROPRIATELY TIMED IN LIMINE APPLICATIONS

McMAHON, District Judge.

Plaintiff Veleron Holding, B.V. ("Veleron") brings this lawsuit against Morgan Stanley, Morgan Stanley Capital Services, Inc., Morgan Stanley & Co., and Morgan Stanley & Co., Inc. (collectively "Morgan Stanley" or "Defendants") alleging that Morgan Stanley violated § 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission ("SEC") Rule 10b5. Presently before the Court are Docket # 249, Morgan Stanley's motion for summary judgment and Docket 241 and 245, Morgan Stanley's motions to exclude the opinions of two of Veleron's expert witnesses.

A little over a year ago, when deciding Morgan Stanley's last motion for summary judgment, I wrote the following words:

Discovery has been taking place in this Court since I decided the motions to dismiss last May. Without going into detail here, suffice it to say that enough has been disclosed to this Court to convince me that Morgan Stanley is unlikely to prevail should it ever make a motion for summary judgment dismissing Veleron's securities fraud claim on the merits. Evidence has turned up during discovery that, if credited by a trier of fact, would tend to support a claim that traders at Morgan Stanley shorted Magna stock while in possession of material, non-public information. There is also evidence (consisting of both party admissions and expert testimony) that this trading depressed the price of Magna's stock just prior to the ABB.

After a full review of the record submitted by the parties and the arguments they have briefed, my instincts are for the most part confirmed; while Veleron's market manipulation claim must be dismissed, its insider trading claim is very much alive. Morgan Stanley's motion for summary judgment is therefore GRANTED in part and DENIED in part. Its companion motions to exclude the opinion testimony of Sanjay Unni and Robert M. MacLaverty are DENIED.

BACKGROUND

Basic Element and Russian Machines Invest in Magna.

Plaintiff Veleron is a "B.V.," or Dutch limited liability company. (Def. 56.1 ¶ 7.) Veleron was formed as a special purpose vehicle ("SPV") to facilitate an investment by Russian Machines ("RM")—an entity organized under the laws of Russia (Def. 56.1 ¶ 6; Pl. 56.1 ¶ 6.)—in non-party Magna International, Inc. ("Magna"), a Canadian auto parts manufacturer with a global footprint. (Def. 56.1 ¶ 5.) RM is the sole shareholder of Veleron. (Def. 56.1 ¶ 8; Compl. ¶ 16.) RM is ultimately controlled by Basic Element, another company organized under the laws of Russia. (Def. 56.1 ¶ 2; Pl. Resp. to Def. 56.1 ¶ 2.) Basic Element, in turn, is owned entirely by an individual, Oleg Deripaska. (Compl. ¶ 32.)

In May 2007, it was announced that RM would make a strategic investment in Magna, whose shares are traded on the New York Stock Exchange ("NYSE") and the Toronto Stock Exchange. (Pl. Counter 56.1 ¶¶ 3–4; Def. 56.1 ¶ 5; Pl. 56.1 ¶ 1.) RM intended to finance the acquisition primarily through a loan of approximately $1.2 billion, to be obtained by Veleron from BNP Paribas, which formerly was a defendant in this action. (Def. 56.1 ¶ 10; Pl. 56.1 ¶ 8.)¹ RM provided additional equity, so that the total value of the investment was approximately $1.54 billion. (Pl. 56.1 ¶¶ 1, 9.) With these funds, Veleron purchased 20 million shares of Magna, or approximately one fifth of the company's outstanding stock. Veleron's Magna shares were pledged as security for the loan. (Def. 56.1 ¶¶ 11–12; Pl. 56.1 ¶ 9–10.)²

The loan from BNP to Veleron was memorialized in two agreements.

The first, a "Credit Agreement" between Veleron (as "Borrower") and BNP (as "Agent"), was ratified on September 20, 2007. (Polkes Decl. Ex. 8; Cooper Decl. Ex. 7.) Pursuant to the Credit Agreement, Veleron was obligated to pay, "All Advances and other amounts outstanding under the Credit Facility including unpaid principal, interest and fees ... on the Maturity Date." (Credit Agreement § 5.2.) Further, the Credit Agreement required Veleron to maintain an adequate "coverage ratio"-the ratio of the value of the Magna shares serving as collateral to the outstanding loan balance. (Credit Agreement §§ 1.1(32), 7.5(1).) If the coverage ratio fell below a certain minimum value, Veleron was required to post cash collateral sufficient to restore the coverage ratio no later than two days after BNP presented it with a written demand. (Credit Agreement § 7.5(1).) If the coverage ratio fell further, BNP had the right to make an accelerated margin call, thereby requiring Veleron to post sufficient cash collateral to restore the coverage ratio within one day. (Credit Agreement § 7.6.)

The Credit Agreement specified certain events of default, including: if "The Borrower fails to make when due ... any payment of principal or margin required to be made by the Borrower ..." (Credit Agreement § 10.1(1).) Upon an event of default, the Credit Agreement allowed BNP to deliver to Veleron a written notice stating BNP's intentions to exercise its rights under the agreement. (Credit Agreement § 10.2(1).) Those rights included the rights to "declare that the Credit facility has expired," and to "declare the entire principal amount of all Advances outstanding, all unpaid accrued interest and all fees and other amounts ... immediately due and payable ...." i.e., to accelerate the loan. (Credit Agreement § 10.2(1)(a)-(b).)

BNP and Veleron executed the Credit Agreement on September 20, 2007. The Credit Agreement provided that it was made "Between VELERON ... as Borrower and EACH OF THE FINANCIAL INSTITUTIONS AND OTHER ENTITIES FROM TIME TO TIME PARTIES HERETO as Lenders and BNP Paribas SA as Agent." (Def. 56.1 ¶ 14; Cooper Dec. Ex. 7 at 1.) No other Lenders were ever added to the Credit Agreement, so the only Lender was BNP.

The second agreement was a "Pledge and Security Agreement" between Veleron (as "Pledgor") and BNP Paribas (as "Agent"), also executed on September 20, 2007. (Cooper Decl. Ex. 8.), by which Veleron granted BNP a security interest in the 20 million Magna shares to collateralize the $1.2 billion loan. (Pledge Agreement § 2.)

Under both the Credit Agreement and the Pledge Agreement, BNP was required to declare an event of default before any liquidation of the pledged collateral. (Cooper Dec. Ex. 7 §§ 1.1(99), 10.2(1)(b); Cooper Dec. Ex. 8 §§ 2.2, 4.4.)

Both agreements preserved BNP's rights and remedies against Veleron to the fullest extent of the law. Thus, the Credit Agreement provided that BNP's remedies upon an event of default were "cumulative and ... in addition to and not in substitution for any rights or remedies provided by law or equity." (Cooper Dec. Ex. 7 §§ 11.1, 11.3.) So too, BNP's "rights, remedies and powers under th[e] Pledge and Security Agreement or hereafter existing at law or in equity or by statute shall be cumulative and nonexclusive of any other rights, remedies and powers which [BNP] may have under any other agreement, including the other Loan Documents ..." (Cooper Dec. Ex. 8 § 4.5.)

The Credit Agreement also contained a confidentiality provision, binding BNP "to keep confidential any information obtained in relation to the [Credit] Agreement .." (Cooper Dec. Ex. 7 § 14.12.) (Emphasis added). That "confidentiality obligation ... d[id] not extend to," inter alia, "disclosure by the Agent [ (BNP) ] necessary for discharging its responsibilities under the Agreement, subject to recipients of such information signing a confidentiality and non-disclosure agreement for the benefit of [Veleron] and in form and substance reasonably satisfactory to [Veleron] in advance of receiving such information. " (Id. § 14.12(a), (c) (emphasis added).)

Magna publicly disclosed the fact of the Credit Agreement and its terms in a Schedule 13D filing on October 1, 2007. (Def. 56.1 ¶ 13.) The confidentiality provision was not among the key terms discussed in the text of the 13D; but the Credit Agreement was attached in its entirety as Exhibit B to the filing, so the provision was a matter of public record from and after October 1, 2007. (See http://www.sec.gov/Archives/edgar/data/749098/000119312507210928/dsc13d.htm).

Morgan Stanley Enters into an Agency Disposal Agreement

On January 31, 2008, Morgan Stanley entered into an "Agency Disposal Agreement" ("ADA") with BNP. Pursuant to the ADA, Morgan Stanley agreed "to act as [BNP's] agent in respect of the disposal of part or all of the [Pledged Collateral of the Loan] ..." if Veleron defaulted and BNP decided to sell the Magna stock it was holding as collateral. (Cooper Dec. Ex. 10 § 1, Whereas clause (D).) The proceeds of any disposal conducted under the agreement were to be applied to discharge Veleron's obligations to BNP pursuant to the Credit Agreement. (Cooper Dec. Ex. 10 § 2, Whereas clause (C).)

The ADA stated that Morgan Stanley, "in providing investment banking services to the Client in connection with any Disposal or the Disposal Programme (including and pursuant to the terms of this Agreement) ... is acting as an independent contractor and not as a fiduciary and [BNP] does not intend ...