$805 Million "Holder" Action Against Citigroup Dismissed

Paul, Weiss secured the dismissal with prejudice of an action in which entities controlled by a wealthy investor and his spouse sought to recover $805 million in alleged losses on their investments in Citigroup common stock. According to the complaint, plaintiffs developed a plan to sell their Citigroup shares in May 2007, when the actual value of the stock was allegedly $51.59 per share. Plaintiffs, however, allegedly decided not to proceed with the sale based on supposed misrepresentations that primarily concerned the value of Citigroup assets related to subprime mortgages. Plaintiffs asserted that they in fact sold their shares in 2009 at a price of $3.09 per share.

Plaintiffs brought common-law claims for negligent misrepresentation and fraud against Citigroup and related defendants based on the theory that plaintiffs had refrained from selling their shares in alleged reliance on defendants' representations. (Such claims are often described as "holder" claims.) Plaintiffs sought damages based on the amount they would have received in a hypothetical sale of their Citigroup shares at the time they were allegedly dissuaded from selling those shares.

Judge Sidney H. Stein of the United States District Court for the Southern District of New York dismissed the complaint with prejudice for failure to state a claim. AHW Inv. P'ship v. Citigroup, Inc., No. 10 Civ. 9646 (SHS) (S.D.N.Y. Oct. 30, 2013), Judge Stein rejected plaintiffs' request that he apply the substantive law of Florida, where the underlying investors live and where certain of the plaintiff entities are located. In agreement with Citigroup's position, he instead applied the substantive law of New York, where the alleged misconduct occurred. Judge Stein dismissed the claim for negligent misrepresentation on the ground that plaintiffs had failed to plead a "special relationship" between themselves and Citigroup, as required by New York law. Judge Stein also dismissed plaintiffs' fraud claim. Judge Stein read the decision of the New York Appellate Division, First Department, in Starr Foundation v. American International Group, Inc., 901 N.Y.S.2d 246 (App. Div. 1st Dep't 2010), to bar claims for "undeterminable and speculative" damages based on a hypothetical sale of securities that did not actually occur.

In a lead article concerning the decision in The American Lawyer's "Litigation Daily," plaintiffs' counsel announced that they will appeal and will seek certification to the New York Court of Appeals of a question concerning the viability of holder claims under New York law.

The Paul, Weiss team includes litigation partners Brad Karp, Walter Rieman, and Susanna Buergel.