Continental Casualty Co. v. Pricewaterhousecoopers, LLP

Read, J. (dissenting).

The issue on defendant PricewaterhouseCoopers, LLP’s (PwC) motion for summary judgment is whether plaintiffs, limited partners of Lipper Convertibles, LP (the fund), suffered any injuries as a result of PwC’s allegedly fraudulently inducing them to invest in the fund which were not derivative in nature—not whether plaintiffs have advanced the proper measure of damages for such direct injuries. Here, there is evidence in the record that plaintiffs suffered date-of-investment injuries unique to each of them. PwC has not shown otherwise, as it must to succeed in a motion for summary judgment to dismiss the complaint; all PwC attempted to demonstrate is that plaintiffs’ proposed method of calculating damages for their date-of-investment injuries, based on plaintiffs’ interpretation of our decision in Hotaling v Leach & Co. (247 NY 84 [1928]), encompasses after-date-of-investment losses for which the trustee in liquidation has sought recompense on behalf of the fund. Accordingly, I respectfully dissent.

First, the record is replete with evidence that the fund’s investment assets were spuriously inflated during the years when plaintiffs made individual cash contributions. This overvaluation was, of course, the fraud at the heart of all the litigation that followed upon the heels of its discovery in early 2002. Indeed, the fund’s principal trader ultimately pleaded *273guilty to criminal violations of federal securities laws for causing the value of the fund’s assets to be overstated by hundreds of millions of dollars.

Second, there is no dispute that each plaintiffs initial percentage ownership interest in the fund was calculated by taking the value of that plaintiffs cash contribution and dividing it by the total stated value of all existing limited partners’ capital accounts. As a matter of mathematics, since the stated value of the capital accounts of the existing limited partners was artificially inflated—and, again, it is undisputed that this was generally the case throughout the relevant time period—the relative percentage ownership interest of each plaintiffs investment in the fund was necessarily understated on the day it was made. Or, as plaintiffs’ expert put it, because of the overvaluation, plaintiffs

“ ‘overpaid’ for their limited partnership interests in the Fund at the time of their investment. On the date of purchase, each acquired a limited partnership interest that represented a smaller percentage of the total partners’ capital in the Fund than would have been expected had the Fund’s then-reported market value and value of partners’ capital been stated accurately.”

In light of this evidence, to succeed in a motion for summary judgment PwC would have to have shown that the values contemporaneously reported in the fund’s records were, in fact, appropriate at the specific point in time when these plaintiffs (or at least some of them) made cash contributions. PwC did not do this; therefore, PwC did not fulfill its initial burden to establish that plaintiffs could not prove unique date-of-investment injuries.

The parties concede that it is feasible for an expert to determine the true (or at least a more accurate) value for the fund’s investment assets at any moment in time from the beginning of 1996 through the end of 2001. Indeed, the majority, in common with PwC, faults plaintiffs for neglecting to “show[ ] the amount of the claimed overvaluation of the portfolio on the day of their respective investments” (majority op at 271). I agree that plaintiffs would have to do this at trial because, as the majority implicitly holds by distinguishing Hotaling, the proper measure of damages in this case for fraudulent inducement, if proven, would be the difference between what plaintiffs paid for

*274their partnership interest when they invested and the value of what they received at that time in exchange. I cannot agree, however, that, in order to avoid summary judgment, plaintiffs had to produce evidence of the amount of their damages for direct injuries whose existence PwC did not refute. As plaintiffs pointed out, even if the Court rejects Hotaling’s measure of damages under these facts, as it has, “[sjummary judgment does not require conclusive proof or quantification; it requires only sufficient evidence to create a genuine issue.” Here, absent the kind of showing that PwC did not make, there is, at a minimum, a genuine issue as to whether plaintiffs suffered date-of-investment injuries.

Judges Ciparick, Graffeo, Smith and Jones concur with Judge Pigott; Judge Read dissents in a separate opinion; Chief Judge Lippman taking no part.

Order affirmed, with costs.