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Morgan Stanley Gets Big Win

Morgan Stanley received some good news today: A Florida appeals court overturned a $1.57 billion award against the investment bank for defrauding billionaire investor Ron Perelman by concealing material information from him in the course of handling the sale of his company.  (Summary of earlier case available here.) But what was most memorable about the Morgan Stanley case wasn't the underlying allegations but, rather, the company's (and its law firm, Kirkland Ellis') obstruction of discovery by failing to comply with the plaintiff's discovery requests for past e-mail that eventually lead the trial judge to declare a partial default judgement and instruct the jury to simply assume that Morgan Stanley had "engaged in massive fraud."

The appeals court decision did not address whether the trial judge's issuance of a partial default, but instead, found that the plaintiffs had failed to prove damages. The court held that under Florida law, plaintiffs were entitled to the benefit of the bargain or the difference between the represented value of the stock and its actual value on the date of transaction. Plaintiffs' expert, however, failed to account for the actual value of the stock, thus giving the plaintiffs a better deal than they would have attained even if Morgan Stanley's representations had been true. And because plaintiffs did not quantify compensatory damages, the court found that the claims for punitive damages could not stand either. Thus, the court reversed the verdict and remanded the case to the lower court with instructions to enter judgment for Morgan Stanley. 

Judge Farmer dissented. Farmer reasoned that failure to show the stock's actual value was not fatal because plaintiff's theory of damages was that Morgan Stanley's misrepresentations had essentially rendered the stock worthless, thereby obviating the need to prove actual value. 

Was the appellate court's reasoning regarding damages correct -- or was this just an end run to reverse the trial court's partial default against Morgan Stanley for discovery violations? After all,  even if damages were inappropriately calculated (which, from my quick read, seems to be a fair assessment), the more appropriate remedy would be a remand or a new trial, with instructions to recalculate damages, rather than an out and out judgment for Morgan Stanley. One thing is sure, however: With the loss of a judgment of this magnitude, plaintiffs won't let the case end here, but will seek review before the Florida Supreme Court.

Posted by Carolyn Elefant on March 21, 2007 at 07:48 PM | Permalink | Comments (1)


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