Broker-Dealer Litigation - Greenberg Traurig LLP

F.3
Borsellino v. Putnam, 2011 WL 6090694 (Ill. App. 1st Dist. Dec. 2, 2011).
Plaintiff and defendant were business associates whose companies were members of an
Illinois limited liability company (the “LLC”). One of the companies owned by the defendant
was a broker-dealer that specialized in options trading. Plaintiff filed a derivative suit on behalf
of the LLC claiming that defendant and its respective companies used the LLC’s resources to
create a competing company run by defendant. Defendant’s broker-dealer was allegedly tasked
with providing broker-dealer services to this new company. Shortly after the suit was filed, the
parties entered a Settlement Agreement and Mutual Release (the “Release”). The Release
provided that plaintiff would not bring any claims against defendant in exchange for a payment
of $250,000. Soon after the Release was executed, plaintiff filed suit alleging that numerous
misrepresentations were made during the parties’ settlement negotiations. Plaintiff claimed that
he was entitled to monetary damages due to fraud committed by defendant. The court explained
that fraud in the inducement of a contract renders the contract void. Although the perpetrator of
the fraud cannot enforce it, the innocent party may either (1) rescind the contract, or (2) choose
to waive the defect, ratify the contract, and enforce it. However, under the facts of this case, the
court found that plaintiff ratified the Release even after learning of the alleged fraud. The court
explained that plaintiff’s retention of payment after discovering the fraudulent nature of the
release, and statements that he remained bound by the Release, were sufficient to uphold its
enforcement. Therefore, the language barring plaintiff from bringing claims against defendant
was upheld and the plaintiff’s claim was dismissed.
4. Breach of Fiduciary Duty and Other Common Law Claims
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Anwar v. Fairfield Greenwich Ltd., 2011 WL 5282684 (S.D.N.Y. Nov. 2, 2011).
Plaintiffs opened accounts with a broker-dealer firm that was later acquired by defendant.
Defendant recommended that plaintiffs invest in a feeder fund that in turn invested in Bernard L
Madoff Investor Securities, a now well-known Ponzi scheme. Plaintiffs filed suit against
defendant claiming, among other things, breach of fiduciary duty and negligent
misrepresentation. The breach of fiduciary duty claim was based on two separate theories:
(1) that the defendant failed to conduct due diligence prior to recommending the feeder fund and
(2) that defendant failed to monitor plaintiffs’ investments in the feeder fund. The court held that
defendant owed only a limited set of duties to plaintiffs because plaintiffs held nondiscretionary
accounts with defendant, but that even nondiscretionary broker-dealers have a duty to become
sufficiently informed before recommending investments. Because the lawsuit was part of
multidistrict litigation (“MDL”) the court looked to the fiduciary duty claims in defendant’s
other lawsuits. In another case against defendant the plaintiffs’ cause of action for breach of
fiduciary duty, similarly pled, defeated dismissal. In order to ensure uniformity among the
rulings in the MDL, the court held that plaintiffs sufficiently stated causes of action for breach of
fiduciary duty. The negligent misrepresentation claim was dismissed as being essentially
identical to plaintiffs’ fraud claim under Florida securities laws.
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