In a case of first impression, Judge Brodie of the Eastern District of New York granted summary judgment in favor of client U.S. Trust on all of the plaintiff’s claims and struck the plaintiff’s declaration under the “sham affidavit rule.” U.S. Trust managed the plaintiff’s account on a discretionary basis under Reg 9, and also extended several credit facilities to plaintiff, with the discretionary investment account serving as collateral. The plaintiff was both an aggressive investor and an aggressive borrower, and when the financial crisis hit and stock prices plummeted, the loans exceeded the value of the collateral. In order to meet collateral calls, the plaintiff’s account was liquidated, with substantial losses, which he sought to recover from U.S. Trust.

The plaintiff argued that as a discretionary investment manager, U.S. Trust, owed him various fiduciary duties, including duties that existed outside the contract documents. Judge Brodie rejected the plaintiff’s arguments in their entirety. She held that U.S. Trust as the manager of a discretionary account owed no fiduciary or tort duties outside the scope of the written contract documents, that the lender relationship coupled with the account management relationship did not give rise to fiduciary duties, that U.S. Trust owed no duties under the N.Y. Prudent Investor Act, and that U.S. Trust was not a “professional advisor” and thus not subject to an elevated standard of care under tort law. Not only was this a resounding victory for U.S. Trust, but the decision also creates very favorable new law for U.S. Trust’s business model and operations. Partner Elaine McChesney was assisted by associate Tabitha Bartholomew and Cathy Deyo, paralegal specialist.