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Bankruptcy Trust of Sillam v. Refco Group

July 28, 2006


The opinion of the court was delivered by: Gerard E. Lynch, District Judge.


On November 4, 2005, plaintiffs filed the above-captioned action against thirty-nine defendants in New York state court. On November 29, 2005, the action was removed to federal court and referred to this Court as related to In re Refco, Inc. Securities Litigation, 05 Civ. 8626. Defendants Phillip R. Bennett and Refco Group Holdings, Inc. ("RGHI," and together with Bennett, the "Bennett Defendants"), and Thomas H. Lee Partners, L.P. ("THLP"), Thomas H. Lee Equity Fund V, L.P. ("Fund V"), Thomas H. Lee, Scott A. Schoen, Scott L. Jaeckel, David V. Harkins, Leo R. Breitman, Ronald L. O'Kelley, and Nathan Gantcher (collectively the "Outside Directors," and together with THLP and Fund V, the "THLP Defendants") now move to dismiss plaintiffs' complaint. For the following reasons, defendants' motions will be granted.


I. Plaintiffs' Allegations

On a motion to dismiss, the Court must accept as true the facts alleged in plaintiffs' complaint. Jackson Nat'l Life Ins. Co. v. Merrill, Lynch & Co., 32 F.3d 697, 699-700 (2d Cir. 1994). In the instant matter, plaintiffs allege that the following events give rise to their claims.

On September 1, 1997, Sillam entered into a contract with Refco Overseas Limited, through its agent and director Halim Saad, pursuant to which Sillam would introduce the Refco Group*fn1 to Imad Lahoud of Investment Management Services ("IMS") (the "1997 Contract"). (Compl. ¶ 21.) The introduction occurred at a business lunch and meeting in Lahoud's office on the same day the contract was made. (Id. ¶ 20.)

During the two years following the introduction, IMS and Refco SA, a French affiliate of the Refco Group, developed a significant business relationship that eventually resulted in the formation of a venture between various entities controlled by Lahoud and various Refco affiliates. (Id. ¶¶ 22-39.) Sillam was not informed of these business dealings between Lahoud and the Refco Group, and instead learned about the venture through the media. (Id. ¶ 41.) Once he learned of the venture, Sillam contacted Saad at Refco Overseas Limited to inquire "how he could be set aside from the negotiations between Imad Lahoud and the Refco Group while he was entitled to commissions on relevant operations completed by IMS and its successors." (Id. ¶ 42.) Saad responded that the purported 1997 Contract was "null and void." (Id. ¶ 43.)

Based on Saad's response, Sillam realized that the Refco Group was not going to fulfill its obligations under the 1997 Contract. (Id. ¶ 44.) Therefore, on October 16, 2000, and pursuant to French procedure, Sillam formally summoned Lahoud to explain the relationship between IMS, its successors, and the Refco Group, and the extent of Sillam's rights under the 1997 Contract. (Id. ¶ 45.) Lahoud responded on November 10, 2000, stating that all of the activity between Lahoud and Refco-related entities occurred as a result of Sillam's introduction, and that therefore Sillam was entitled to payment under the 1997 Contract.

On November 6, 2000, Sillam wrote to defendant Bennett, who referred Sillam's complaints to "general counsel"*fn2 for review. (Id. Ex. G.) On November 10, Sillam forwarded to Bennett a copy of Lahoud's response, which, plaintiffs claim, "strongly supported and evidenced . . . Sillam's rights to commissions" under the 1997 contract. (Id. ¶ 48.)

Two weeks later, Refco SA and SNC Refco Securities entered into a merger agreement whereby SNC Refco Securities agreed to merge into Refco SA. (Id. ¶ 49.) Sillam alleges that this merger was effected to frustrate his claims, that it "made it hard and problematic to accurately calculate the amount of the commission payable to [him]" (id. ¶ 59), and that it resulted in a breach of contract (id. ¶ 111).*fn3

In December 2000, Sillam was contacted by Dennis Klejna, general counsel for Refco Group Ltd, LLC, who requested that Sillam meet with representatives from the French affiliate of the Refco Group to discuss a settlement of Sillam's claims relating to the 1997 contract. (Id. ¶ 50.) On December 21, 2000, Sillam met with counsel for the Refco Group, thinking that the purpose of the meeting was to engage in good faith settlement discussions. (Id. ¶ 54.) However, plaintiffs allege that the Refco Group did not make any serious offers of settlement at the meeting, and instead used the meeting to obtain information regarding Sillam's potential claims and Sillam's knowledge of certain criminal proceedings pending against the Refco Group. (Id. ¶¶ 54-56.) Following this meeting, on January 10, 2001, Refco Overseas Limited sent a letter to Sillam rejecting all claims under the 1997 contract. (Id. ¶ 60, Id. Ex. K.) Later in January, the Refco Group offered Sillam a $50,000 settlement, which he rejected as "frivolous." (Id. ¶ 61.)

Based on the foregoing allegations, the present complaint asserts four causes of action. Count One (fraud) alleges that the Refco Group and Saad committed fraud through various misrepresentations in connection with the formation of the 1997 Contract, and that "[j]ustice requires that Refco Group, Phillip Bennett and Halim Saad be held accountable for the Refco Group's fraud." (Id. ¶ 97.) Count Two (fraudulent misrepresentation) alleges that the Refco Group organized the merger between Refco SA and SNC Refco Securities to defraud Sillam, and that the Refco Group made false representations to Sillam to induce him to engage in the December 21, 2000, settlement conference. (Id. ¶ 103.) Count Three (tortious interference with contract) alleges that the 1997 Contract was a valid contract between Sillam and Refco Overseas Limited and Refco SA, and that Refco Group Limited interfered with the 1997 contract by effecting the merger between Refco SA and SNC Refco Securities and intentionally causing the breach. (Id. ¶ 112.) Count Four (unjust enrichment) alleges that defendants Refco Group Ltd LLC, Refco LLC, and Refco Overseas Ltd were enriched at Sillam's expense due to Sillam's introduction of Lahoud to the Refco Group, which resulted in significant benefit to the Refco Group. (Id. ¶¶ 119-139.) On each count, plaintiffs request $80 million in compensatory damages, and three times that amount in punitive damages. On Count Three for tortious interference with contract, plaintiffs additionally claim damages resulting from "intense emotional distress" in the amount of $70 million. (Id. ¶ 116.)*fn4

II. Procedural History

This is not the first action plaintiffs have filed in connection with the events described above. On September 8, 2004, Sillam filed a pro se action against Refco Group Ltd, LLC and Phillip Bennett in New York state court ("Sillam I"). (Pierce Decl. Ex. B, Doc. #48 [hereinafter Sillam I Compl.].) On October 12, 2004, Bennett removed Sillam I to the Southern District of New York. (See 04 Civ. 8009 (BSJ), Doc. #1.) Two weeks earlier, on September 28, 2004, Sillam learned that due to an order of a French court in connection with French bankruptcy proceedings, he no longer had the capacity to sue on his own behalf in any legal action for pecuniary losses. ...

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