23 12 2014

Morgan Stanley v. IDT Corp.

Davis Polk Achieves Victory for Morgan Stanley in Lawsuit by IDT Corp. Alleging Tortious Interference and Fraud


the New York Supreme Court for New York County (Commercial Division) dismissed all of the claims remaining against Morgan Stanley in a case commenced by IDT Corporation over ten years ago asserting hundreds of millions of dollars of damages. Morgan Stanley’s motion for summary judgment was granted from the bench after nearly two hours of oral argument. The case stems from a memorandum of understanding signed between Telefónica Internacional, S.A. and IDT Corporation on August 11, 1999, pursuant to which IDT was going to purchase capacity and equity on Telefónica’s undersea fiber optic cable network called SAm-1. Final contracts were never signed, and IDT sued Telefónica for breach of contract in an arbitration that ran from 2001 through 2003. During the arbitration, IDT served Morgan Stanley, Telefónica’s investment banker on the deal, with a subpoena duces tecum, and Morgan Stanley made a limited production in response. Ultimately, the Arbitration Panel found that Telefónica had repudiated the contract as of October 2000 and issued an award to IDT. Unsatisfied with the size of the award, in 2004, IDT sued Morgan Stanley, Telefónica’s investment adviser, asserting claims for tortious interference, breach of fiduciary duty, misappropriation of confidential information, and unjust enrichment (the “original claims”). IDT later amended its complaint to add claims for fraudulent misrepresentation and fraudulent concealment based on Morgan Stanley’s failure to produce two so-called “smoking gun” documents in response to the arbitration subpoena. According to IDT, had Morgan Stanley produced those documents, the size of the arbitration award would have been exponentially larger. In a significant victory back in 2009, the Court of Appeals dismissed IDT’s original claims. Following that dismissal, IDT twice tried to replead its original claims under the guise of fraud, but the Court granted Morgan Stanley’s motion to dismiss the second amendment complaint and then later denied IDT’s motion to amend the complaint a third time. Both of these decisions were affirmed by the Appellate Division. With only the arbitration subpoena-related fraud claims left in the case, Morgan Stanley sought discovery of IDT’s arbitration counsel so that it could determine whether the IDT’s attorneys had actually relied on the alleged misrepresentation regarding Morgan Stanley’s production, and what, if anything, they would have done differently in the arbitration had the two “smoking gun” documents been produced. IDT asserted privilege, blocking discovery on those issues, and represented to the IAS Court and the First Department that it did not intend to rely on privileged evidence to prove its case. Discovery closed, and Morgan Stanley moved for summary judgment. The motion argued that fraud claims failed for lack of causation, lack of actual or justifiable reliance, and lack of cognizable damages. The court granted Morgan Stanley’s motion finding that IDT had failed to adduce any evidence of both actual and justifiable reliance. The court also found that Morgan Stanley’s statements to IDT regarding it compliance with the arbitration subpoena were not misrepresentations. The court did not reach Morgan Stanley’s other arguments. The Davis Polk litigation team included partner Benjamin S. Kaminetzky (Picture) (who argued the motion) and associates Alicia Llosa Chang, Jonathan K. Chang, Nicholas N. George, William D. Pollak, Alan J. Tabak, Kelly L. McNamee and William Lawrence. All members of the Davis Polk team are based in the New York and Menlo Park offices. Plaintiff IDT Corporation was represented by Boies, Schiller & Flexner LLP. Involved fees earner: Benjamin Kaminetzky - Davis Polk & Wardwell; Alicia Llosa Chang - Davis Polk & Wardwell; Jonathan Chang - Davis Polk & Wardwell; Nicholas George - Davis Polk & Wardwell; William Pollak - Davis Polk & Wardwell; Alan Tabak - Davis Polk & Wardwell; Kelly McNamee - Davis Polk & Wardwell; William Lawrence - Davis Polk & Wardwell;

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