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Keywords

lawsuitsettlementplaintifflitigationdiscoverysummary judgment
contractplaintifflitigationsummary judgment

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Cresswell v. Sullivan & Cromwell, 922 F.2d 60

Facts

The case arose from a previous lawsuit (Cresswell I) where investors claimed that Prudential–Bache Securities engaged in misleading marketing practices related to financial instruments known as 'Spreads.' After settling that case, the investors alleged that Sullivan & Cromwell, representing Bache, fraudulently withheld documents during discovery that could have led to a higher settlement. The plaintiffs contended that the nondisclosure of these documents resulted in their acceptance of a lower settlement amount.

This case has its roots in Bache's 1981–1982 offering in Europe of certain financial instruments (the 'Spreads') based on the price differential between two types of futures contracts. Many of the facts are undisputed. In October 1982, this price differential widened beyond its historical norms and caused holders of the Spreads, who included the present plaintiffs, to liquidate them at a loss.

Issue

Did the plaintiffs demonstrate justifiable reliance on the alleged fraudulent nondisclosure of documents by Sullivan & Cromwell during the prior litigation?

Did the plaintiffs demonstrate justifiable reliance on the alleged fraudulent nondisclosure of documents by Sullivan & Cromwell during the prior litigation?

Rule

A party must show justifiable reliance on a misrepresentation to establish a claim for fraud. If a party has the means to know the truth and fails to exercise ordinary intelligence, they cannot claim reliance on misrepresentations.

A party must show justifiable reliance on a misrepresentation to establish a claim for fraud. If a party has the means to know the truth and fails to exercise ordinary intelligence, they cannot claim reliance on misrepresentations.

Analysis

The court found that the plaintiffs had the means to ascertain the truth regarding the existence of the documents and the NYSE investigation but failed to take reasonable steps to do so. The plaintiffs were aware of communications between Bache and the NYSE and did not follow up on the existence of potentially relevant documents. Therefore, their reliance on Sullivan & Cromwell's nondisclosure was deemed unreasonable.

The court found that the plaintiffs had the means to ascertain the truth regarding the existence of the documents and the NYSE investigation but failed to take reasonable steps to do so. The plaintiffs were aware of communications between Bache and the NYSE and did not follow up on the existence of potentially relevant documents.

Conclusion

The court granted summary judgment in favor of Sullivan & Cromwell, concluding that the plaintiffs failed to establish reasonable reliance on the alleged nondisclosure.

The court granted summary judgment in favor of Sullivan & Cromwell, concluding that the plaintiffs failed to establish reasonable reliance on the alleged nondisclosure.

Who won?

Sullivan & Cromwell prevailed in the case because the court found that the plaintiffs could not demonstrate justifiable reliance on the nondisclosure of documents.

Sullivan & Cromwell prevailed in the case because the court found that the plaintiffs could not demonstrate justifiable reliance on the nondisclosure of documents.

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