Morgan Stanley wins reversal of $1.58-billion jury award

From Reuters

Morgan Stanley won a major victory Wednesday when a divided Florida state appeals court threw out a $1.58-billion award to billionaire Ronald Perelman over his 1998 sale of camping equipment company Coleman Co. to Sunbeam Corp.

Perelman had accused Morgan Stanley of fraud in helping Sunbeam, an appliance maker, hide its shaky finances while arranging the $1.5-billion Coleman purchase.

A jury had ruled in the financier’s favor in May 2005 after trial Judge Elizabeth Maass, fed up with Morgan Stanley’s failure to produce e-mails, ordered it to assume that the investment bank and Sunbeam conspired to defraud Perelman.

Coleman had received 14.1 million Sunbeam shares in the transaction. The stock became worthless after Sunbeam fired Chief Executive Al Dunlap and admitted that it had inflated sales to prop up earnings. Sunbeam went bankrupt in February 2001.


In a 2-1 decision, Florida’s 4th District Court of Appeal in West Palm Beach said Perelman failed to show he was damaged because he did not demonstrate what Sunbeam shares would have been worth had there been no fraud.

“Because there was no proof presented at trial on the correct measure of damages, the trial court should have granted Morgan Stanley’s motion for directed verdict,” or a decision by the trial judge in its favor, appeals court Judge Carole Taylor wrote for the majority.

The Palm Beach County trial jury had awarded Perelman $1.45 billion, including $604 million of compensatory damages and $850 million of punitive damages. The total rose to $1.58 billion with interest. Perelman had sued for $2.7 billion.

“To a certain extent, caveat emptor reigns,” said James Ellman, president of Seacliff Capital, a San Francisco hedge fund that owns Morgan Stanley shares. “Courts seem to be saying investment banks’ level of due diligence to protect investors is reasonably lower than many might have thought.”

Christine Taylor, a Perelman spokeswoman, called Wednesday’s ruling a temporary setback. She said Perelman plans to seek a rehearing and if necessary appeal to the Florida Supreme Court.

David Sidwell, Morgan Stanley’s chief financial officer, said, “This is clearly a victory.”

Perelman’s investment vehicle, MacAndrews & Forbes Holdings Inc., controls cosmetics maker Revlon Inc., of which Perelman is chairman. Forbes magazine has estimated the 64-year-old’s net worth at $7 billion.