Milbank has secured victory on behalf of Putnam Investment Company LLC (“Putnam”) in a three-and-a-half-week virtual trial before the Honorable Lewis J. Liman in the US District Court for the Southern District of New York. Judge Liman’s 221-page decision and order brings to an end an eight-year litigation arising out of a $1.5 billion collateralized debt obligation known as the Pyxis CDO.
In October 2012, Plaintiff Financial Guaranty Insurance Company (“FGIC”) asserted fraud and negligence claims against Putnam arising out of its role as collateral manager of Pyxis. FGIC had previously insured the $900 million super senior tranche of Pyxis and claimed that it was exposed to hundreds of millions of dollars in losses when Pyxis failed in the wake of the 2007 financial crisis
The District Court twice dismissed FGIC’s complaint for failure to plead loss causation. In 2015, the Second Circuit reinstated the complaint, holding that FGIC had adequately alleged loss causation and directing the parties to discovery. The parties thereafter engaged in exhaustive fact and expert discovery, followed by summary judgment and Daubert briefing.
Trial was originally scheduled for April 27, 2020 but was adjourned due to the COVID-19 pandemic and rescheduled for a virtual bench trial that began on July 6, 2020. The trial ended on July 30, 2020.
On August 27, 2020, Judge Liman ruled for Putnam on all counts, holding that Putnam “clearly prevailed on all of the elements of FGIC’s claims.” Specifically, the Court held that FGIC had failed to demonstrate that Putman made a material misrepresentation of fact, that Putnam owed FGIC any fiduciary obligations, or that FGIC reasonably relied on allegedly false statements by Putnam. The Court also held that FGIC had failed to establish transaction or loss causation. The Court found each of Putnam’s witnesses to have been credible and, in contrast, found several of FGIC’s witnesses lacking in credibility as to a number of important underlying events.
The Putnam matter was one of the first remote bench trials, if not the first, conducted in the US in complex commercial litigation. All participants – counsel, witnesses and judge – participated virtually through a Zoom platform operated by Trial Graphics. Direct testimony was in the form of witness declaration, while cross examination occurred remotely. Counsel presented exhibits electronically over the Zoom platform, which allowed witnesses and exhibits to be shown simultaneously on a split screen. The parties also conducted openings and summation over video. The trial required a great deal of coordination among counsel, witnesses, court reporters and the bench. Members of the public could dial into and listen to the proceedings.
This marks the second trial victory this month on behalf of this client. On August 7, 2020, Milbank secured a win for Great-West, the parent company of Putnam, in a consolidated excessive fee class action in the US District Court for the District of Colorado after an 11-day bench trial held in January 2020. The Court ruled in favor of Great-West, bringing the four-year suit to a close.
The Milbank team representing Putnam was led by Litigation partners Thomas Arena, Sean Murphy, and Robert Hora and included Litigation associates Samantha Lovin, Allison Markowitz, Kingdar Prussien, Lacey Reimer and Brendan Walden.