market injury has been alleged. Indeed, there is no allegation
that the Brokers enjoyed any monopsony power whatsoever with
respect to the secondary market for CMOs.
The LAB's reliance upon Three Crown, 817 F. Supp. at 1033, is
misplaced. In Three Crown, plaintiffs who had substantial
"short" positions in two-year Treasury notes brought suit,
alleging inter alia that the defendants in that action
conspired in violation of the Sherman Act to "squeeze" the
secondary and financing markets for those notes. The defendants
in that case held significant "long" positions in two-year
Treasury notes, and purportedly manipulated the supply and
circulation of those notes to their benefit. See id. at 1037.
Even a cursory glance at Three Crown reveals the marked
differences between that case and the case at bar. In that case,
the injuries allegedly suffered by plaintiffs and those inflicted
upon the relevant market were one in the same, in that
restrictions on the supply and circulation of Treasury notes
forced investors to pay artificially inflated prices for those
notes. The injuries suffered by the Three Crown plaintiffs had
their genesis in the very same anticompetitive "squeeze" that
allegedly injured other "short" investors. See id. at 1048 n.
36. As explained above, however, in this case there is a critical
disjunction between the injuries suffered by the Funds and the
injuries to the relevant market, and there is no satisfactory
allegation whatsoever that the Brokers' collusion itself caused
injuries to other investors or to the relevant market.*fn11
Reid Brothers Logging Co. v. Ketchikan Pulp Co.,
699 F.2d 1292 (9th Cir. 1983), is similarly inapposite. In Reid Brothers
Logging, the defendants conspired to dominate all segments of
the Alaskan timber industry, in part by refusing to compete as
between themselves for timber sales — thus allowing the
defendants to recover a greater profit spread in spite of a
chronic shortage of timber — and by frustrating the efforts of
others to enter the Alaskan timber market. See id. at 1297-98.
While the anticompetitive scheme engaged in by the defendants in
Reid Brothers Logging did involve collusive bidding practices,
see id., this is where any similarity to the instant case ends.
In that case, plaintiffs asserted, and the court found, direct
anticompetitive effects within the relevant market. The bidding
conspiracy, as well as the collusive approach to purchasing
timber, frustrated competition and resulted in harm to the
plaintiff — a logging company rendered captive to the plaintiffs,
and upon which an unlawful flat rate, multi-year logging contract
was imposed due to defendants' illegal control of the Alaskan
timber industry. See id. at 1300-01. Unlike the instant action,
there was no disjunction between the injuries suffered by the
plaintiff and the injuries to the relevant market. Indeed, in
that case the former flowed directly from the latter.
As the Honorable Richard J. Cardamone observed in Capital
Imaging Assocs., 996 F.2d at 537, "[a]ntitrust law is not
intended to be as available as an over-the-counter cold remedy,
because were its heavy power brought into play too readily it
would not safeguard competition, but destroy it." Id. at 539.
Given the relevant market asserted in the Complaint and the
absence of any plausibly asserted connection between that market
and the Brokers' collusive behavior, the LAB's Complaint appears
to suffer from a philosophical infirmity that further amendment
could not cure.
In this case, the LAB seeks redress of its private grievances
with the Brokers under the aegis of the Sherman Act, despite the
absence of any cognizable link between those grievances and the
market injuries alleged. As was observed in Granite II,
however, such grievances are more appropriately raised in the
context of the LAB's contract claims against the Brokers. See
17 F. Supp.2d at 298. "`The cornerstone of [antitrust] law is
competition. Congress'[s] intent in passing the Sherman Act was
not to subject all business and commercial torts to the scrutiny
of federal [antitrust] law.'" Telectronics Proprietary, Ltd. v.
Medtronic, Inc., 687 F. Supp. 832, 837 (S.D.N.Y. 1988) (quoting
Falstaff Brewing Co. v. Stroh Brewery Co., 628 F. Supp. 822, 826
(N.D.Cal. 1986)). Furthermore, "[t]he Sherman Act is neither a
lowest-responsible-bidder statute nor a panacea for all business
affronts which seem to fit nowhere else." Scranton Constr. Co.
v. Litton Indus. Leasing Corp., 494 F.2d 778, 783 (5th Cir.
1974), quoted in Sitkin Smelting & Ref., 575 F.2d at 448.
Accordingly, Count VI of the Complaint is dismissed.
New York's antitrust law, the Donnelly Act, is "modeled on the
Sherman Act and should be construed in light of federal
precedent," Kramer v. Pollock-Krasner Found., 890 F. Supp. 250,
254 (S.D.N.Y. 1995); see X.L.O. Concrete Corp. v. Rivergate
Corp., 83 N.Y.2d 513, 518, 611 N.Y.S.2d 786, 789,
634 N.E.2d 158, 161 (1994). The LAB's Donnelly Act claim in Count VII of the
Complaint is therefore dismissed as well.
III. The LAB Has Adequately Pleaded that the Brokers Breached
Contracts With the Funds to Provide Accurate Marks (Count
The LAB's Complaint contains a claim for breach of contract
that was not present in the First Amended Complaint, and
therefore not addressed in Granite II. Undergirding this claim,
according to the Complaint, are the Brokers' failures to abide by
the terms of contracts requiring the provisions of accurate marks
to the Funds.
The LAB contends that on October 28, 1992, Askin, on behalf of
both Granite Corp. and Granite Partners, sent letters (the
"October letter(s)") to each of the Brokers asking them to agree
that month-end "marks" — a broker-dealer's statement of the
current market value of a security — would henceforth be timely
and accurately provided. According to the Complaint, these marks
were requested by ACM or its predecessor, to be indicated on
"Month End Pricing" reports, and the Brokers were aware of the
importance of those marks to the Funds in "evaluating and
reporting on the overall portfolios of the Funds." Compl. ¶ 69.
Though the LAB's specific allegations concerning the Brokers'
provision of inaccurate marks differ depending on the specific
Brokers involved, the LAB's basic claim is that the Brokers
supplied the Funds with marks rather different than the Brokers'
actual valuations of the securities.
The Complaint alleges that on or about November 2, 1992, DLJ,
through Richard Whiting, accepted the terms of the October letter
in writing. As far as the other Brokers are concerned, however,
the Complaint is more circumspect. Merrill Lynch and Bear Stearns
are only alleged to have "communicated [their] . . . acceptance
of its terms." Compl. ¶ 73. Though Quartz was not formed as of
October, 1992, the
Complaint alleges that Quartz entered into the same agreement
with the Brokers at or about the time of its formation. See
Compl. ¶ 74.
While the Complaint does not specifically incorporate by
reference the October letters, or attach either copies of those
letters or any written acceptance, copies of the letters have
been submitted as exhibits to the Brokers' papers. (See de
Leeuw Decl. Ex. 6; Balber Aff. Ex. 8; Pietrzak Aff. Ex. B.)
Because the Complaint clearly identifies the October letters, and
the LAB has obviously relied upon their terms in bringing suit,
the Court will consider these exhibits on a 12(b)(6) motion. See
Granite II, 17 F. Supp.2d at 300.
The letters, which were sent by David Askin on
Whitehead/Sterling Advisors, L.P. stationary, request that the
Brokers agree to have mark sheets completed and returned by the
close of business on the second business day following the
month-end. The letters also state that the marks must be both
timely and accurate, and that the marks are critical to the
reporting of Fund performance. The letters request that the
Brokers acknowledge their agreement with their terms by signing
in a space provided. In the event that a Broker does not agree to
those terms, Askin writes, then the amount of business done with
that firm will be significantly reduced.
The Brokers have raised a panoply of grounds for dismissal of
this particular contract claim, asserting inter alia that the
LAB does not have standing to raise the claim, that the LAB has
not pleaded valid acceptance on the parts of Bear Stearns and
Merrill Lynch, and that any contract is invalid for want of
consideration. Both Merrill Lynch and Bear Stearns take the
position that the October letters' own terms require a written
acceptance, and that even if this were not the case New York's
statute of frauds would require one. DLJ has not attacked the
validity of its acceptance, as the Complaint alleges the letter
was signed by a DLJ representative.
A. The LAB's Standing
Since any standing infirmities would render the LAB's efforts
to recover for breach of contract fruitless, this issue is
The Brokers contend that because the October letter was sent by
Askin on behalf of ACM's predecessor in advising the Funds,
Whitehead/Sterling, the LAB does not have standing to enforce any
binding agreement between the Brokers and the investment advisor.
Furthermore, DLJ remonstrates that the existence of specific
advisory agreements governing the relationships between the Funds
and the advisor make clear that any agreement to provide marks
would have been between the advisor and the Brokers alone.
While under New York law only a party to a contract can
typically bring suit to recover for its breach, one can certainly
enforce a contract entered by an authorized agent. See Merrick
v. New York Subways Adver., Co., 14 Misc.2d 456, 459,
178 N.Y.S.2d 814, 818 (Sup.Ct. 1958) ("[I]t is elementary that one
may sue upon a contract made for him by his agent.") (citing 2
Williston on Contracts 1038 ¶ 352 (rev. ed. 1936)); 2A
N YJur.2d, Agency §§ 103 et seq. (1998).
Under New York law a third party is also allowed to enforce a
contract if that party is an intended beneficiary of the
contract. See Flickinger v. Harold C. Brown & Co.,
947 F.2d 595, 600 (2d Cir. 1991). The general test for third-party
beneficiary status, as adopted by New York from the Restatement
(Second) of Contracts is as follows:
(1) Unless otherwise agreed between promisor and
promisee, a beneficiary of a promise is an intended
beneficiary if recognition of a right to performance
in the beneficiary is appropriate to effectuate the
intention of the parties and either (a) the
performance of the promise will satisfy an obligation
of the promisee
to pay money to the beneficiary; or (b) the
circumstances indicate that the promisee intends to
give the beneficiary the benefits of the promised
Restatement (Second) of Contracts § 302 (1981); see Fourth Ocean
Putnam Corp. v. Interstate Wrecking Co., 66 N.Y.2d 38, 44-45,
495 N.Y.S.2d 1, 5, 485 N.E.2d 208, 212 (1985) (adopting
Restatement position). When determining the intentions of the
contracting parties, the intention of the promisee is of primary
importance. See Drake v. Drake, 89 A.D.2d 207, 209,
455 N.Y.S.2d 420, 422 (4th Dep't 1982). Where the obligation to
perform to the third-party beneficiary is not expressly stated in
the contract at issue, a court "may look to surrounding
circumstances to determine whether the contracting parties
intended to benefit a third party." United Int'l Holdings, Inc.
v. The Wharf (Holdings) Ltd., 988 F. Supp. 367, 371 (S.D.N Y
1997) (citations omitted); see Trans-Orient Marine Corp. v. Star
Trading & Marine, Inc., 925 F.2d 566, 573 (2d Cir. 1991);
Septembertide Publ'g, B.V. v. Stein & Day, Inc., 884 F.2d 675,
679 (2d Cir. 1989).
While the Complaint does not specifically refer to
Whitehead/Sterling by name, it does state that Askin sent the
October letters "on behalf of" Granite Corp. and Granite
Partners, Compl. ¶ 70, and that the "same contractual
arrangement" was entered by Quartz at the time of its formation.
The Complaint also states that, "from September 1991 to December
1992, Askin was employed by the former investment advisor for
Partners and Corp." Compl. ¶ 18.
At this stage in the litigation, there is little reason to
question the LAB's standing to seek enforcement of any contract
formed pursuant to Askin's October 28, 1992 letters or any
similar letters. The LAB's Complaint, while sparse, characterizes
the contract as one between the Brokers and the Funds. The
letters specifically indicate that the provision of marks is for
the Funds' direct benefit, and their language could support the
proposition that Askin was operating as an agent of the Funds —
which is not at all surprising given the Funds' reliance on Askin
and the successive investment advisors for the selection and
purchase of securities. The letter's language is particularly
revealing in this regard:
As the Granite Funds continue to grow, so does our
commitment to provide accurate and timely information
to our investors. A critical component of this
commitment is our ability to report our performance
as soon after the end of each month as possible. This
is where Bear Stearns comes in.
An important part of the service you provide the
Granite Funds is the monthly marks on the bonds in
our portfolios. These marks must be timely as well as
accurate. . . .
Therefore, effective with the October 1992 month-end,
we would like Bear Stearns to have our mark sheets
completely filled-out and returned to us by the close
of business on the second business day following the
month-end. . . .
Our business operates in a very competitive
marketplace, just as yours does. The failure to
provide our clients with the highest quality service
costs us customers, just as surely as does poor
portfolio performance. . . .
(de Leeuw Decl. Ex. 6.)