Opinion ID: 2481918
Heading Depth: 1
Heading Rank: 2

Heading: The Instant Actions

Text: At the end of 2003, plaintiffs commenced these three separate actions against PwC. Each action asserted claims of fraud, aiding and abetting fraud, aiding and abetting breach of fiduciary duty, negligent misrepresentation, and negligence. For their fraud cause of action, plaintiffs allege that PwC induced them to invest in the Fund through the year-end statements, as well as monthly reports, without having employed the proper auditing methods necessary to ensure that the financial statements were accurate. PwC moved, pursuant to CPLR 3211, to dismiss the fraud claim, arguing that plaintiffs had pleaded no injury distinct from the injury attributed to the Fund as a whole, which was the subject of the Trustee action that had been brought on behalf of, and would inure to the benefit of, all injured limited partners. PwC argued that plaintiffs' action should be dismissed because it alleged only a derivative injury or, alternatively, should be stayed pending resolution of the Trustee's action. Plaintiffs responded by asserting that their claim was distinct from the Trustee's claim because they were seeking damages predicated on fraud in the inducementthat they had been fraudulently induced to rely on PwC's audits when they made their initial investment in the Fund and thus sustained injury on the very day of their purchase. They contrasted this injury with the damages the Trustee sought to recover, which included recovery for excessive management and incentive fees the Fund had paid as a result of the overvaluation. Supreme Court denied, in part, PwC's motion to dismiss. As relevant to this appeal, the court held that to the extent that Plaintiffs assert direct claims, such as fraud in the inducement of their initial investment in the Partnership, they are not derivative and the court therefore declines to dismiss them. ( Jones v PricewaterhouseCoopers LLP, 2004 NY Slip Op 51789[U], .) Discovery ensued. Each party presented an expert to address the extent of any distinct, nonderivative injury plaintiffs may have suffered. At the conclusion of discovery, PwC moved for summary judgment asserting, once again, that plaintiffs could not come forward with proof that they suffered an injury distinct from that suffered by the Fund, which damages were being pursued by the Trustee on behalf of plaintiffs and all other limited partners. In support of the motion, PwC submitted the affidavit of an expert economist who opined that all of the damages articulated by plaintiffs were derivative as they consisted only of plaintiffs' pro rata share, as limited partners, of the Fund's losses arising from (1) net income loss, (2) overpayments of general partner fees, and (3) overpayments of capital to withdrawn limited partners. In opposition, plaintiffs submitted the affidavit of their own accounting expert, who argued that because the Fund had been overvalued at the time of the plaintiffs' investment, the damages plaintiffs suffered should be calculated as the difference between their initial investments and the amount they actually recovered through withdrawals or distributions from the Fund, plus an appropriate amount of prejudgment interest. The expert concluded that the total shortfall among all the plaintiffs was approximately $35 million and claimed that plaintiffs would recover far less from the Fund in the then-pending liquidation proceeding. Supreme Court granted PwC's motion for summary judgment finding that plaintiffs failed to present evidence of a direct injury, noting that plaintiffs had shown only derivative injuries. The court held that PwC had made a prima facie showing that plaintiffs' claims all state derivative claims that all limited partners share equally proportionate with their investments in the Funds . . . [and] none of the [plaintiffs'] claimed direct injuries are independent of any alleged injury to the Partnerships. (2007 NY Slip Op 33619[U], .) Addressing plaintiffs' evidence, the court held that plaintiffs failed to carry their burden to respond to PwC's prima facie showing with competent evidence: [D]iscovery is now closed and plaintiffs fail to produce any evidence to support their claim that they suffered a direct injury at the time of their investments that is distinct from the injury to the Partnerships. . . In short, the only loss plaintiffs can demonstrate is the diminution in value of their investment in the Partnerships, stemming from the Partnerships' overpayments and trading losses. Thus, the nature of the injury is derivative. As plaintiffs fail to rebut PWC's prima facie showing, the court is constrained to grant PWC's motions for summary judgment dismissing the complaints. ( Id. at -7.) The Appellate Division affirmed (57 AD3d 411 [2008]). This Court granted plaintiffs leave to appeal (13 NY3d 707 [2009]) and we now affirm.