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Panel Reinstates Failed Hedge Fund's Claim Against J.P. Morgan Chase
New York Law Journal
November 06, 2009
A lawsuit by Amaranth , the largest hedge fund ever to fail, against J.P. Morgan Chase & Co., the financial services firm that Amaranth blamed in part for its downfall, will go forward, following the New York Appellate Division, First Department's reinstatement yesterday of the fund's claim for tortious interference.
Amaranth, the $9.2 billion hedge fund that collapsed in 2006, alleged among other things that J.P. Morgan, the fund's prime broker, breached its contract by refusing to release money from its margin account, which prevented Amaranth from making multi-billion-dollar trades with Goldman Sachs and the Citadel Investment Group that would have substantially reduced the fund's exposure. Amaranth also alleged that two J.P. Morgan executives called Citadel and told executives that "Amaranth is not as solvent as they are telling you they are." The broken deals allegedly cost Amaranth more than $1 billion.
On Thursday, the First Department panel ruled that Manhattan Supreme Court Justice Richard B. Lowe (see profile) wrongly applied a one-year statute of limitations to the tortious interference claim, which stemmed from the executives' phone call. "The three-year statute…applies when the gravamen of a complaint is economic injury, rather than merely reputational harm," Justice James M. Catterson (see profile) wrote for the unanimous panel.
However, the 18-page order proved only a Solomonic victory for Amaranth, as the First Department threw out the fund's breach of contract claim, which had survived J.P. Morgan's earlier motion for dismissal. The case is Amaranth v. J.P. Morgan Chase, 603756/07.
