On June 2, 2015, the United States Court of Appeals for the Fifth Circuit affirmed the dismissal of a RICO case against Morgan Stanley Real Estate Advisor (“MSREA”) and its related entity PPF Safeguard, LLC, (“PPF”) by former minority shareholders in a self-storage company, Safeguard LLC, that is now wholly owned by PPF. The plaintiffs had alleged that the Morgan Stanley entities had engaged in a criminal conspiracy to defraud them out of their six-percent interest in Safeguard by allegedly not actively pursuing an insurance litigation on Safeguard’s behalf (the proceeds of which the plaintiffs alleged would have come to them), and by exercising PPF’s contractual right to buy out plaintiffs’ interest in Safeguard.
The Fifth Circuit held that the plaintiffs were collaterally estopped from alleging that they had suffered any damages as a result of the buy-out because, in a prior proceeding, they had agreed to a stipulated judgment which had adjudged that MSREA’s invocation of the buy-out procedure “was proper” and the purchase price had been “appropriately” set. The Court thus held that the plaintiffs had been fully compensated for their interest in Safeguard, as well as any interest they may have had in the insurance litigation, and thus could allege no damages. Because the plaintiffs had suffered no harm, the Court dismissed the complaint for lack of standing.
The decision is a significant victory for MSREA and PPF because it releases any cloud over their full ownership of Safeguard, and puts an end to a long-running series of lawsuits pursuant to which the plaintiffs’ were seeking more than $100 million in damages