In re Platinum-Beechwood Litigation

Background

Melanie L. Cyganowski, as equity receiver for several Platinum Partners entities, brought a nineteen-count action against numerous defendants, including PB Investment Holdings Ltd. (PBIHL), the successor in interest to Beechwood Bermuda Investment Holdings Ltd. The court had previously dismissed the claims against PBIHL for violating the Racketeer Influenced and Corrupt Organizations Act, conspiring to violate that Act, and violating Securities and Exchange Commission Rule 10b-5. The remaining claims against PBIHL alleged aiding and abetting fraud and aiding and abetting a breach of fiduciary duty.

The dispute concerned March 2016 transactions involving Platinum Partners Credit Opportunities Master Fund, Senior Health Insurance Company of Pennsylvania, and Beechwood entities. As part of those transactions, the fund directed SHIP to send approximately $26.6 million to BAM Administrative Services LLC as agent for several entities, including BBIHL, PBIHL’s predecessor. The Receiver alleged that BBIHL received $2,111,222.22 from this disbursement.

Legal standard and claims

Under Federal Rule of Civil Procedure 56, the court must grant summary judgment when there is no genuine dispute about a material fact and the moving party is entitled to judgment as a matter of law. A genuine dispute exists when the evidence could allow a reasonable factfinder to rule for the nonmoving party.

Under the New York law applied by the court, aiding and abetting fraud requires proof of a fraud, the defendant’s knowledge of it, and substantial assistance that advanced the fraud. Aiding and abetting a breach of fiduciary duty requires, among other things, that the defendant knowingly induced or participated in the breach. Because the Receiver alleged that the same conduct constituted both underlying violations, the court analyzed the claims together except where noted.

Court’s analysis

The Receiver claimed that Mark Nordlicht and the Platinum portfolio manager committed the primary fraud and fiduciary-duty breach against the Platinum master fund by forcing it to enter the March 2016 transactions. The court stated that the undisputed evidence identified only one PBIHL-related act: BBIHL’s receipt of $2,111,222.22 after SHIP sold its Northstar debt interests to the Platinum master fund.

The court rejected the argument that this receipt constituted substantial assistance. It explained that substantial assistance requires a causal connection: the alleged aider’s conduct must proximately cause the harm supporting the primary liability. The alleged injuries were that the Platinum master fund overpaid SHIP for the Northstar debt and that SHIP’s security interests were attached to the fund’s and its subsidiaries’ assets through the note issuance. Those injuries were caused by the note issuance and debt-assignment transactions, not by the later transfer of part of the proceeds from SHIP to BBIHL.

The court therefore concluded that BBIHL did not substantially assist the alleged fraud or breach of fiduciary duty. Because this conclusion resolved the motion, the court did not decide whether the primary fraud or breach of fiduciary duty occurred, whether BBIHL had actual knowledge of either violation, or whether the doctrines of in pari delicto and the Wagoner rule barred the Receiver’s claims.

Disposition

Judge Jed S. Rakoff granted summary judgment in favor of PBIHL on both aiding-and-abetting claims and dismissed the First Amended Complaint against PBIHL with prejudice. The court directed the Clerk to close docket entry 513 in case number 18-cv-12018. Other listed summary-judgment motions were held in abeyance because the parties represented that they had reached an agreement in principle to settle the claims involving those motions.