While damages are an essential element of most claims, a plaintiff need not prove damages in order to survive summary judgment.
While damages are an essential element of most claims, a plaintiff need not prove damages in order to survive summary judgment. In summarizing a 2013 Opinion (SOLA 2013-21) by the Second Circuit involving this very same case, we began: “Believe it or not, this litigation arises out of a fraudulent scheme engaged in by ‘pump-and-dump’ broker-dealer A.R. Baron back in 1992 through 1996. This is just one slice of the entire action, which remains alive -- an appeal by a dozen individual investors (Fezzani or Appellants) involving a group of appellees, principally Isaac R. Dweck. The manipulative activities effectuated in the IPOs underwritten by Baron involved, in part, parking securities in the accounts of trusted customers, such as Defendant-Appellee Dweck. Mr. Dweck also loaned monies to Baron that permitted the broker-dealer to prolong its frauds.”
That Opinion held that the federal securities claims could not go forward, but it did leave Appellants with state-law claims of civil conspiracy and aiding and abetting fraud. The case was delayed a year and a half in returning to the District Court by a petition for rehearing, which the Second Circuit ultimately denied. Back in District Court, the trial judge once again dismissed the case, when the experts could not agree whether there were damages. Regarding Plaintiffs’ securities that remained within A.R. Baron, what the Court calls the “First Type Baron Securities,” the experts both estimated losses of approximately $6.5 million. As to the “Second Type,” however -- those that were transferred to third parties – “[t]he experts diverged....”
In part, the problem was the age of the activities, so the experts did not have reliable pricing data from outside trading records. The District Court threw up its hands and “concluded that Plaintiffs had failed to establish damages, an essential element of Plaintiffs’ claims.” Once again, Appellants turned to the Second Circuit and a victory of sorts emerges. First, the Second Circuit faults the District Court for granting summary judgment, when a factual dispute remains “whether potentially realized profits based on sales of Second Type Baron Securities were in fact attributable to Baron’s fraudulent scheme.” The District Court made no ruling on this issue, so summary judgment should have been precluded.
Next and “more importantly,” the Court states, the District Court misapplied the U.S. Supreme Court’s decision in Celotex Corp. v. Catrett. Plaintiffs’ theory of damages “demonstrates potential holes,” the Court allows, but Celotex permits a dismissal, based on a lack of damages, only when Defendants can demonstrate “a complete failure of proof concerning an essential element of [the] case.... Celotex does not require Plaintiffs to prove damages to survive summary judgment.” The judgment below must be vacated and the matter “remanded for [yet] further proceedings.”
(ed: *Among the many complications a case of this age must present relate to the preservation of books and records. Defendants asked, by way of cross-appeal, for “spoliation sanctions,” accusing Plaintiffs of failing to preserve certain records. The Court kicks that back to the District Court, as it has issued no ruling on that question. **In addition to the summaries we mentioned above, SOLA Editors have covered three earlier decisions by the District Court in this case, at SOLAs 2004-16, 2005-12 and 2008-39.) (SOLA Ref. No. 2019-46-08)
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