Case Studies

Epstein Becker Green Successfully Secures Dismissal of Complaint Alleging Breach of Fiduciary Duty

Epstein Becker Green attorneys successfully moved for dismissal of a complaint seeking more the $2.4 million arising from an alleged breach of contract and negligence against Epstein Becker Green client 1740 Advisers Inc. Plaintiffs were two limited-purpose mutual fund trusts and their investment advisor, Diversified Investment Advisors, Inc. Plaintiffs alleged that 1740 Advisers breached its contracts to act as subadvisor for the funds, and acted negligently, by making certain purchases and redemptions of Enron commercial paper during the fall of 2001, just prior to Enron's collapse. The redemptions, which were made just a few days before the maturity dates for the commercial paper, were later alleged by the Enron bankruptcy trustee to be avoidable as improper preferences under several sections of the Bankruptcy Code. Plaintiffs sued 1740 Advisers, after plaintiffs settled with the bankruptcy trustee following years of litigation, for the settlement amount plus attorneys' fees. 1740 Advisers moved to dismiss the complaint.

Epstein Becker Green prevailed with the arguments that the allegations in the complaint were too conclusory to state a claim for breach of contract as to the purchases of the Enron paper in light of 1740 Adviser's contractual discretion to invest on behalf of plaintiffs within specified parameters. As to the sales of the paper back to Enron on the eve of its collapse, Epstein Becker Green contended, and the Court agreed, that 1740 Advisers had discretion to make trades on behalf of Diversified and the funds, and nothing in the complaint showed that 1740 Advisers abused that discretion — even though other entities who sold paper back prior to maturity were ultimately denied summary judgment on their safe harbor claims. The negligence claim was also dismissed as duplicative of the contractual obligations.

The motion was prepared by Epstein Becker Green attorneys Kenneth J. Kelly and Aime Dempsey.