FKSA Obtains Dismissal of Claim that Bank Owed Duty to Put Holder

January 21, 2014

Friedman Kaplan successfully defended a money center bank in an action brought by a purchaser of put options on a health products company. The plaintiff sued our client alleging that, acting in concert with two other major banks, it had aided and abetted a pyramid scheme by the company by providing a line of credit that prevented its stock from collapsing.

In an opinion dated January 21, 2014, Judge Louis L. Stanton of the U.S. District Court for the Southern District of New York dismissed the claims in their entirety. Describing the claims as "inherently implausible," Judge Stanton found that our client and the company's other lenders owed the plaintiff no duty to refrain from extending the line of credit before he purchased his put options. Judge Stanton further ruled that, by taking a short position in the company based on his opinion that it was a pyramid scheme, the plaintiff could not impose on the company's lenders, including our client, a duty to terminate their credit line, stating "one who knowingly and voluntarily risks danger cannot recover for the resulting injury."

Friedman Kaplan partners Eric Seiler, Andrew W. Goldwater, and Jason C. Rubinstein represented the bank.