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Merrill Lynch & Co. v. Allegheny Energy, Inc.

Merrill Lynch & Co. v. Allegheny Energy, Inc.

United States Court of Appeals for the Second Circuit

October 30, 2006, Argued; August 31, 2007, Decided

Docket No. 05-5129-cv

Opinion

 [*175]  CARDAMONE, Circuit Judge:

Allegheny Energy, Inc. (Allegheny, defendant or appellant) and its wholly-owned subsidiary Allegheny Energy Supply Company, LLC (Supply) appeal from a judgment of the United States  [**2] District Court for the Southern District of New York (Baer, J.) entered August 26, 2005 awarding Merrill Lynch & Co. Inc., Merrill Lynch & Capital Services, Inc., and ML IBK Positions, Inc. (collectively Merrill Lynch or plaintiff) $ 158 million on its contract claim against Allegheny and dismissing Allegheny's counterclaims.

The case arises out of Allegheny's acquisition of Global Energy Markets (GEM), an energy commodities trading business owned by Merrill Lynch, for the sum of $ 490 million plus a two percent interest in Supply. Market conditions spiraled downwards after the fall of Enron in 2001. In 2002 when Allegheny failed to perform its contractual commitment to contribute certain assets to Supply, Merrill Lynch exercised its right to sell back its interest in Supply at an agreed price of $ 115 million. Litigation ensued when Allegheny questioned the accuracy of Merrill Lynch's representations to it with respect to GEM, and refused to honor Merrill Lynch's right to sell its interest in Supply back to Allegheny.

Some facts critical to the sale of GEM were peculiarly within the knowledge of Merrill Lynch and not disclosed by it to Allegheny. The lack of that information may have  [**3] played a part in defendant's decision to purchase GEM. But, not knowing the undisclosed facts means Allegheny could not accurately assess its decision. As Alexander Pope succinctly said "What can we reason, but from what we know?" Alexander Pope, An Essay on Man: Epistle I--Of the Nature and State of Man with Respect to the Universe, in 40 The Harvard Classics, 418 (Charles W. Eliot ed., 1910). For that reason this judgment must be reversed in part.

BACKGROUND and FACTS

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500 F.3d 171 *; 2007 U.S. App. LEXIS 20928 **

Merrill Lynch & Co. Inc., Merrill Lynch & Capital Services, Inc., ML IBK Positions, Inc., Plaintiffs-Counter-Defendants-Appellees, v. Allegheny Energy, Inc., Allegheny Energy Supply Company, LLC, Defendants-Counterclaimant-Appellants.

Prior History:  [**1] Allegheny Energy, Inc. and Allegheny Energy Supply Company, LLC appeal the judgment entered August 26, 2005 in the United States District Court for the Southern District of New York (Baer, J.) awarding Merrill Lynch & Co. Inc., Merrill Lynch & Capital Services, Inc., and ML IBK Positions, Inc. $ 158 million on its contract claim and dismissing appellant's counterclaims.

Merrill Lynch & Co. v. Allegheny Energy, Inc., 2005 U.S. Dist. LEXIS 6073 (S.D.N.Y., Apr. 12, 2005)Merrill Lynch & Co. v. Allegheny Energy, Inc., 2005 U.S. Dist. LEXIS 14216 (S.D.N.Y., July 18, 2005)Merrill Lynch & Co. v. Allegheny Energy, Inc., 382 F. Supp. 2d 411, 2003 U.S. Dist. LEXIS 21122 (S.D.N.Y., 2003)

Disposition: Affirmed in part, reversed in part, and remanded.

CORE TERMS

district court, warranties, counterclaim, misrepresentations, damages, parties, fraudulent inducement, summary judgment, breached, contract claim, contractual, diversity, Energy, fraud claim, arbitration, breach of warranty, assessing, promise, trading, seller's, induced, joined, true value, omissions, joinder, cases, right to a jury trial, express warranty, purchase price, trial court

Civil Procedure, Appeals, Standards of Review, De Novo Review, Summary Judgment, Appellate Review, Standards of Review, Clearly Erroneous Review, Questions of Fact & Law, Subject Matter Jurisdiction, Supplemental Jurisdiction, General Overview, Jurisdiction, Diversity Jurisdiction, Citizenship, Parties, Joinder of Parties, Evidence, Burdens of Proof, Clear & Convincing Proof, Torts, Fraud & Misrepresentation, Actual Fraud, Elements, Business & Corporate Compliance, Contracts Law, Types of Contracts, Express Warranties, Remedies, Contracts Law, Breach, Breach of Contract Actions, Remedies, Standards of Performance, Substantial Performance, Entitlement as Matter of Law, Trials, Jury Trials, Right to Jury Trial, Contract Conditions & Provisions, Waivers