CCM Rochester, Inc. v. Federated Investors, Inc.

Filing 98

OPINION & ORDER re: 76 MOTION for Summary Judgment filed by Federated Investors, Inc. For the foregoing reasons, Federated's motion for summary judgment is GRANTED in its entirety. The Clerk of Court is respectfully directed to terminate Dkt. No. 76 and close this case. (Signed by Judge Valerie E. Caproni on 2/10/2017) (cla)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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CCM ROCHESTER, INC.,
:
:
Plaintiff,
:
:
-against:
:
FEDERATED INVESTORS, INC.,
:
:
Defendant. :
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #:
DATE FILED: 2/10/2017

14-CV-3600 (VEC)
OPINION & ORDER

VALERIE CAPRONI, United States District Judge:
Plaintiff CCM Rochester, Inc., a registered investment advisor formerly known as Clover
Capital Management, Inc. (“CCM” or “Clover”), sued Defendant Federated Investors, Inc.
(“Federated”), for damages arising out of Federated’s acquisition of Clover. Plaintiff claims that
Federated fraudulently induced Clover into the acquisition contract and that Federated breached
the implied covenant of good faith and fair dealing. Federated moves for summary judgment on
both claims. Defendant’s Motion for Summary Judgment, Dkt. 76. For the reasons discussed
below, the Motion is GRANTED in its entirety.

FACTUAL AND PROCEDURAL BACKGROUND
Clover issued a request for proposal (“RFP”) “seeking a strategic partner with an
extensive distribution network and the marketing capabilities necessary” to grow Clover’s
investment business. SOF ¶¶ 38, 677.1 Federated responded to the RFP with a proposal to

1

This Court uses the following abbreviations herein: Defendant Federated Investors, Inc.’s (1) Reply to
Plaintiff CCM Rochester, Inc.’s Responses to Federated’s Rule 56.1 Statement; and (2) Responses and Objections to
CCM’s Counterstatement of Facts (“SOF”), Dkt. 95; Declaration of Michael Jones (“Jones Decl.”), Dkt. 90;
Plaintiff’s Memorandum of Law in Opposition to Defendant’s Motion for Summary Judgment (“Opp. Br.”), Dkt.

acquire 100% of Clover’s assets. Fed. Ex. 6 (“RFP Response”) at 6. According to Plaintiff, in
the negotiations leading to Clover’s acquisition (the “Acquisition”), “Federated emphasized its
distribution capabilities and represented to Clover, among other things, that Federated intended
to apply its resources to significantly and rapidly expand Clover’s assets under management.”
Jones Decl. ¶ 4. Plaintiff also asserts that Federated represented that it “intended to use its
‘powerful distribution platform’ to sell Clover Investment Products and ‘fuel the growth’ of
Clover’s investment management franchise.” Opp. Br. at 13 (citing SOF ¶¶ 335, 575).
Federated disputes Plaintiff’s characterization of Federated’s purported representations and
admits only that the RFP Response stated that: Federated “brings a powerful distribution
platform on which to sell CCM managed products” and “plan[s] on distributing CCM managed
products through all of our existing channels”; one of Federated’s “primary goals” was to
“[e]stablish a growth platform for the combined business; and [s]ell CCM products through our
distribution platform”; and that “Federated can provide resources in a variety of ways—all of
which provide leverage and opportunity to CCM by: . . Applying the resources of Federated to
fuel the growth of CCM’s business.” SOF ¶¶ 676, 678 (citing RFP Response).2

88; CCM Rochester, Inc.’s Responses to Federated Investors, Inc.’s Rule 56.1 Statement and Counterstatement of
Facts (“Clover SOF”), Dkt. 89; Complaint (“Compl.”), Dkt. 2; Exhibits to Defendant Federated Investors, Inc.’s
Local Civil Rule 56.1 Statement of Material Undisputed Facts in Support of its Motion for Summary Judgment
(“Fed. Ex. __”), Dkts. 82–86; Exhibits to Declaration of James D’Elicio in Opposition to Federated Investors, Inc.’s
Motion for Summary Judgment (“Clover Ex. __”), Dkt. 91; Declaration of Thomas Territ in Support of Motion to
Preclude Certain Opinions Proffered by Plaintiff (“Territ Decl.”), Dkt. 48; Memorandum of Law in Support of
Defendant Federated Investors, Inc.’s Motion for Summary Judgment (“Opening Br.”), Dkt. 77; Defendant
Federated Investors, Inc.’s Reply Brief in Support of its Motion for Summary Judgment (“Reply Br.”), Dkt. 92.
2

Other than the RFP Response, the parties have submitted no other document reflecting any representation
that Federated made during the run up to the Acquisition relating to its plans for distributing Clover products.
SOF ¶ 76.

2

In 2008, the parties executed the Asset Purchase Agreement (“APA”), pursuant to which
Federated acquired substantially all of Clover’s assets (the “Acquisition”). SOF ¶ 78; Fed. Ex.
12. In exchange, Federated paid Clover $30 million at the time of the closing and agreed to
make contingent payments (“Earnout Payments”) over five years (“Earnout Period”), provided
that the growth in Clover’s revenue was greater than a certain amount. Fed. Ex. 12 at 32;
SOF ¶ 104, 539.3 The APA did not require Federated to use particular levels of marketing or
sales support for Clover products, nor did it guarantee that Clover would receive Earnout
Payments at all, let alone Earnout Payments equivalent to the maximum available under the
APA. SOF ¶¶ 93–94.4 The Earnout Period started on December 1, 2008, and concluded on
December 1, 2013. SOF ¶ 88.
Following the acquisition, in March 2009, Federated created two mutual funds: Federated
Clover Large Value Fund (“Clover Value”) and Federated Clover Small Value Fund (“Clover
Small Cap”). Territ Decl. ¶ 4; SOF ¶¶ 721, 724. Federated also offered other mutual funds on
its sales platform, such as the Federated Strategic Value Dividend Fund (“Strategic Value”).
SOF ¶ 735. Although Clover Value and Strategic Value “compete in the same [investment]
space,” the two funds reflect different fund profiles and investment options: Strategic Value
invests in “high dividend yielding stocks of companies with dividend growth potential” whereas

3

Plaintiff asserts that Federated paid Clover $1.88 in Earnout Payments for every dollar of incremental
revenue Federated raised for Clover products during the Earnout Period. Federated does not dispute CCM’s
arithmetic but notes that the comparison of the amount of Earnout Payments to incremental revenue growth during
the Earnout Period is meaningless; Federated asserts that its economic interests were aligned with Clover’s because
it continues to benefit from the Acquisition long after the Earnout Payments have ceased. Reply Br. at 4–5.

4
The maximum amount of Earnout Payments available under the APA was approximately $55 million.
SOF ¶ 121.

3

Clover Value invests in companies that have capital appreciation potential, without regard to
dividend yield. SOF ¶¶ 554–558, 736–38, 742; Clover Ex. 61.
The undisputed record reflects that during the Earnout Period, Federated created
marketing materials and presentations for the Clover funds, SOF ¶¶ 344–366; promoted the
Clover funds on its websites and through the media, SOF ¶¶ 367–404; promoted the Clover
funds to its internal sales force through presentations at its National, Regional, and Mid-Year
Sales Conferences, SOF ¶¶ 267–88, 295–97; and responded to inquiries regarding the Clover
funds by current and potential clients, SOF ¶¶ 405–408. Although Plaintiff admits these
marketing activities occurred, Plaintiff contends that Federated intentionally and in bad faith
delayed distributing Clover Value.5
In support of its assertion that Federated delayed distributing Clover Value, Plaintiff
offers several emails from Federated directors and members of Federated’s Clover sales team,
including a 2012 email from Stephen Carl, Federated Clover’s Chief Operations Officer, noting
that Clover Value had not been “taken to market . . . yet,” Clover Ex. 43. Plaintiff also cites a
2013 email from Peter Smith, a portfolio manager for Clover products, seeking comments “to
begin positioning the Clover Value fund,” Clover Ex. 61; and a 2014 email from Mr. Smith
stating that “the Clover Value fund is getting teed up to be emphasized by the sales force for the
second half of this year . . . all are on board to ramp up our efforts,” Clover Ex. 64. Federated
disputes Plaintiff’s evidence and theory of delay.

5

At Federated and herein, the terms “sales” and “distribution” are used interchangeably. See SOF ¶ 772.

4

Plaintiff asserts that Federated “affirmatively and aggressively steered investors seeking
large cap value investment products away from [] Clover Value to Strategic Value.” Opp. Br. at
2. In marshalling its evidence, Plaintiff relies primarily on two incidents as proof of bad faith: a
disagreement over the strategy to use in pitching business to a particular University client (the
“University Client”) and Federated’s refusal to agree to a reduced fee requested by MassMutual,
a large institutional client.6
In the fall of 2009, the University Client advised Federated that it was interested in
moving its account to “a different large cap value mandate.” Clover Ex. E (“Heaton Tr.”) at
41:1–9. Federated salespersons on the account initially proposed that the University Client
consider Clover or MDT fund.7 SOF ¶¶ 833–36. A Federated director, Ms. Cathie Applegate,
informed the Federated salespersons that Strategic Value might be attractive to the University
Client, Clover Exs. 7–8, Fed. Ex. N-2 (“Applegate Tr.”) at 154:18–155:15 (discussing Clover
Ex. 8), and that the Chief Investment Officer, Mr. Stephen Auth, and the Client Portfolio

6

In its opposition brief, Plaintiff also cited the following as examples of “how Federated aggressively sought
to steer large cap value opportunities to Strategic Value”: (1) an employee told Mr. Carl of three instances in
addition to the incident involving the University Client in which Federated pushed Strategic Value, not Clover
Value, in response to an RFP, Clover Ex. B (“Carl 30(b)(6) Tr.”) at 151:3–12; and (2) Federated conducted an
“intensive marketing and distribution campaign on behalf [of] Strategic Value,” Clover SOF ¶ 892, but not Clover
Value, even though Clover Value outperformed Strategic Value during the relevant time period, Opp. Br. at 10–11.
Although this evidence was neither cited nor argued in Plaintiff’s brief, Plaintiff’s Rule 56.1 Statement
included the following evidence under the heading “Federated Steered Clients Away from Clover Products and
Toward Strategic Value:” an email from Mr. Smith complaining about “the sales force[’s] ‘sole focus’ [] on the
Strategic Value product,” Clover Ex. 27; an email referencing the creation of “more and more [Strategic Value]
pieces, while . . . they can’t handle more Clover pieces,” Clover Ex. 60; an email stating that “‘the market stinks’ is
not an answer” to “why we are raising 3 million a day in strat value and only 3 million a week in clover,” Clover Ex.
4; an email stating that “the more you only point clients at Clover the less they can see more Federated product that
might cause them not to choose Clover,” Clover Ex. 22; and that there was no “Top Product Campaign” for Clover
products but that there was one for Strategic Value, SOF ¶¶ 820–23. See Clover SOF ¶¶ 808–09, 811, 814–15, 820,
823. Plaintiff makes no arguments regarding this evidence, and, in any event, it does not tend to demonstrate
fraudulent intent or bad faith, which, for the reasons discussed herein, is fatal to Plaintiff’s claims.

7

MDT is another investment strategy offered by Federated.

5

Manager did not want Strategic Value to be pitched as the last spot to the University, Clover Ex.
15. Ultimately, Federated pitched Clover Value as Federated’s top choice for the University
Client, Clover Ex. 21, SOF ¶ 864, and the University Client moved its account to Clover Value.
SOF ¶ 445.
The second incident on which Plaintiff relies to prove bad faith involved MassMutual, a
large institutional customer. In May 2009, MassMutual approached Clover with an opportunity
to manage one of MassMutual’s small cap funds, SOF ¶ 865, but it proposed a fee that was lower
than Federated’s usual rate and that was lower than the fee Clover had previously received from
MassMutual. SOF ¶¶ 650–51, 869; Carl 30(b)(6) Tr. at 183:2–16. Federated made MassMutual
a counter-offer on the fee proposal, which MassMutual rejected. SOF ¶¶ 652–54. Although
Plaintiff asserts, ipse dixit, that Federated “routinely granted comparable discounts to its own
institutional clients,” Opp. Br. at 11, Plaintiff does not provide any evidence to support that
assertion.8
Ultimately, during the Earnout Period, Federated’s gross sales of Clover Value and
Clover Small Cap were approximately $364 million and $677 million, respectively, totaling over
$1 billion in gross sales.9 SOF ¶ 465. In total, Federated’s gross sales of Clover mutual funds,

8
Plaintiff cites deposition testimony from the Federated director authorized to grant fee discounts stating that
the director’s “guess” was that he did grant fee discounts for other opportunities in 2009. Clover Ex. D (“Fisher
Tr.”) at 101:4–10. Even if Federated did grant fee discounts for other opportunities, Plaintiff adduces no evidence
that any of Federated’s prior discounts was a comparable fee discount for a comparable client.
9

Plaintiff asserts that “gross sales” is misleading because it omits redemptions, but Plaintiff otherwise does
not dispute these figures.

6

other Clover products, and Clover’s sub-advising arrangements exceeded $2 billion. SOF ¶ 477.
Federated paid a total of $18,462,305 in Earnout Payments to Clover. SOF ¶ 540.
In 2014, Plaintiff initiated this litigation against Federated, alleging fraudulent
inducement and breach of an implied duty of good faith and fair dealing.10 Plaintiff contends
that by representing to Clover that it intended to use its “powerful distribution platform” to sell
Clover products and “fuel the growth” of Clover’s business, Federated fraudulently induced
Clover to enter into the APA and to accept much of the consideration in the form of future
payments that were dependent upon Clover’s post-Acquisition growth. Compl. ¶¶ 117–21.
Plaintiff also asserts that Federated’s conduct with respect to the Clover products depressed the
Earnout Payments, thereby breaching Federated’s duty of good faith and fair dealing. Compl. ¶¶
128–35. Federated moves for summary judgment on both claims.

DISCUSSION
Summary judgment is appropriate when “the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.
R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). “A genuine
dispute exists when the evidence is such that, if the party against whom summary judgment is
sought is given the benefit of all permissible inferences and all credibility assessments, a rational
factfinder could resolve all material factual issues in favor of that party.” Sec. & Exch. Comm'n

10
On November 25, 2014, this Court dismissed Plaintiff’s claim for breach of contract to use best efforts.
Nov. 25, 2014, Op. & Order, Dkt. 21.

7

v. Sourlis, No. 14-2301-CV(L), 2016 WL 7093927, at *2 (2d Cir. Dec. 6, 2016) (citing Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).
The non-moving party, however, “must do more than simply show that there is some
metaphysical doubt as to the material facts” and “may not rely on conclusory allegations or
unsubstantiated speculation.” Jeffreys v. City of New York, 426 F.3d 549, 554 (2d Cir. 2005)
(citations and internal quotation marks omitted). Rather, the nonmoving party must come
forward with “specific facts showing that there is a genuine issue for trial.” Weinstock v.
Columbia Univ., 224 F.3d 33, 41 (2d Cir. 2000) (quoting Anderson, 477 U.S. at 256).
“Summary judgment is appropriate when there can be but one reasonable conclusion as to the
verdict, i.e., it is quite clear what the truth is, and no rational factfinder could find in favor of the
nonmovant.” Sourlis, 2016 WL 7093927, at *2 (citations and internal quotation marks omitted).
I.

Fraudulent Inducement

Plaintiff claims that Federated fraudulently induced it to enter into the APA through
Federated’s purported misrepresentation that it “intended to apply its resources to significantly
and rapidly expand Clover’s assets under management.” Jones Decl. ¶ 4. To prove fraudulent
inducement under New York law, the plaintiff must establish by clear and convincing evidence
“(i) a material misrepresentation of a presently existing or past fact; (ii) an intent to deceive; (iii)
reasonable reliance on the misrepresentation by appellants; and (iv) resulting damages.” Ipcon
Collections LLC v. Costco Wholesale Corp., 698 F.3d 58, 62 (2d Cir. 2012) (citation omitted);
see also Hindsight Sols., LLC v. Citigroup Inc., 53 F. Supp. 3d 747, 772 (S.D.N.Y. 2014) (citing
Crigger v. Fahnestock & Co., 443 F.3d 230, 234 (2d Cir. 2006)). Federated argues that
summary judgment on the fraudulent inducement claim must be granted because there is no

8

evidence that Federated misrepresented its plans to market and promote Clover’s products or that
Plaintiff reasonably relied on any misrepresentation.11
Where, as here, the purported misrepresentation is a promise of future action, the plaintiff
must prove that the promise was made with an intent not to perform. Century Pac., Inc. v. Hilton
Hotels Corp., 528 F. Supp. 2d 206, 222 (S.D.N.Y. 2007) (“A present expression of the intent to
perform a future act is actionable as fraud only if actually made with a preconceived and
undisclosed intention of not performing it.”) (citations and internal marks omitted), aff’d, 354 F.
App’x 496 (2d Cir. 2009). To sustain a fraudulent inducement claim without direct evidence, the
plaintiff must provide “evidence of facts that support a strong inference that the defendants
possessed the requisite fraudulent intent.” Id. at 222–23 (internal quotation marks and citation
omitted).
Plaintiff’s only evidence of fraudulent intent is its assertion that Federated delayed
“fulfilling [its] promises” to distribute Clover’s products and grow Clover’s business “until late
into and after the Earnout Period.” Opp. Br. at 14. In particular, Plaintiff asserts that Federated
delayed its distribution of Clover Value.12 Plaintiff, for example, cites: an email from 2012, the
fourth year of the Earnout Period, stating that Clover Value had not been “taken . . . to market

11

Plaintiff opposes summary judgment on the grounds that “issues of motive and intent are usually
inappropriate for disposition on summary judgment.” Opp. Br. at 14 (quoting Litton Indus., Inc. v. Lehman Bros.
Kuhn Loeb Inc., 967 F.2d 742, 751 (2d Cir. 1992)). Although issues of intent are fact-based, to survive summary
judgment the plaintiff nevertheless must set forth “specific facts showing that there is a genuine issue for trial.”
Sista, 445 F.3d at 169. Merely stating that intent is a question of fact does not discharge the plaintiff’s burden at the
summary judgment stage.

12

Plaintiff’s evidence of Federated’s “delay” in distributing Clover products only concerns the distribution of
Clover Value, and not any other Clover product. Federated’s purported misrepresentation, however, is with respect
to Clover products generally, not Clover Value specifically. This, in and of itself, undercuts Plaintiff’s argument.
Nevertheless, because the fraudulent-inducement claim fails for the reasons discussed, this Court need not address
Plaintiff’s attempt to elide Clover Value with other Clover products.

9

yet,” Clover Ex. 43; a 2013 email discussing “begin[ning] the process of positioning the Clover
Value fund,” Clover Ex. 61; and a 2014 email stating that Clover Value was “getting teed up to
be emphasized by the sales force,” Clover Ex. 64. Relatedly, Plaintiff asserts that Federated was
financially incentivized to delay distribution of Clover “until as late as possible in the Earnout
Period,” because it was required to pay $1.88 to Clover for each additional $1 in revenue. Opp.
Br. at 14–15. Plaintiff argues that Federated’s “delay” is circumstantial evidence that Federated
never intended to make good on its marketing and distribution promises. Opp. Br. at 14.
Factual and logical problems pervade Plaintiff’s argument. The undisputed record
reflects that Federated sold Clover Value throughout the Earnout Period: for example, Federated
sold approximately $161 million of Clover Value in 2010, the second year of the Earnout Period.
SOF ¶ 465. Indeed, Federated’s gross sales of Clover Value in 2010 were greater than the
combined Clover Value gross sales for the last two years of the Earnout Period. SOF ¶ 465. As
a logical matter, even if this Court assumes that Federated did delay selling some Clover
products (or had a financial incentive to do so), Plaintiff fails to demonstrate that such postAcquisition delay is evidence that Federated had no intention of fulfilling its pre-Acquisition
promise to sell Clover’s products and grow Clover’s business. Plaintiff offers no evidence that
Federated had a fraudulent intent pre-Acquisition.
Perhaps to address this logical gap, Plaintiff cites Deem v. Lockheed Corp., No. 87 Civ.
7017 (JMC), 1991 U.S. Dist. LEXIS 13216 (S.D.N.Y. Sept. 25, 1991), for the proposition that
failure to honor a promise is circumstantial evidence that there was no intent to fulfill that
promise. Plaintiff, however, misreads Deem. In Deem, the district court found that the fact that
the defendants “failed to honor their promise” to pay a fee with respect to one account was
circumstantial evidence that the defendants did not intend to pay a fee with respect to a different
10

account. Deem, 1991 U.S. Dist. LEXIS 13216, at *16. Those facts do not exist in this case.
Here, Plaintiff’s theory is that Federated’s failure to honor its promise is circumstantial evidence
that it never intended to perform with respect to that same promise. Deem falls far short of
supporting Plaintiff’s argument that Federated’s alleged delay in selling Clover Value is “strong
circumstantial evidence” of Federated’s fraudulent intent.
Because Plaintiff has no evidence that at the time it was courting Clover, Federated did
not intend to sell Clover’s products or grow Clover’s business, no rational juror could find that
Federated possessed an intent to deceive. Therefore, this Court GRANTS Federated’s motion
for summary judgment as to the fraudulent inducement claim.13
II.

Breach of the Implied Duty of Good Faith and Fair Dealing

Plaintiff next claims that Federated breached its implied covenant to make reasonable,
good faith efforts to market and distribute Clover’s products. Federated moves for summary
judgment on this claim on the ground that Plaintiff has failed to adduce evidence of bad faith.
Under New York law, a covenant of good faith and fair dealing is implied in all contracts.
Sec. Plans, Inc. v. CUNA Mut. Ins. Soc’y, 769 F.3d 807, 817 (2d Cir. 2014). “Pursuant to this
principle, neither party shall do anything which will have the effect of destroying or injuring the
right of the other party to receive the fruits of the contract.” Id. (quoting Moran v. Erk, 11
N.Y.3d 452, 456 (2008)). The covenant does not, however, prohibit a party from acting in its
own interests in a way “that may incidentally lessen the other party’s expected benefit.” Id.
(internal quotation marks and citation omitted). Nor is it a mechanism to turn a dispute over the

13

In its briefing, Federated also argues that summary judgment should be granted in its favor because
Plaintiff failed to adduce any evidence that Plaintiff reasonably relied on any of Federated’s purported
misrepresentations. Opening Br. at 16. Because Plaintiff has no evidence of fraudulent intent, the Court need not
reach the question of reasonable reliance.

11

exercise of business judgment into a tort. See Interpublic Grp. of Cos. v. Fratarcangelo, No. 00Civ.-3323 SHS, 2002 WL 31682389, at *14 (S.D.N.Y. Nov. 26, 2002) (citing Travelers Int’l,
A.G. v. Trans World Airlines, Inc., 41 F.3d 1570, 1577 (2d Cir.1994)). Rather, the covenant is
“breached only in a narrow range of cases. A plaintiff must show substantially more than
evidence that the defendant’s actions were negligent or inept. The plaintiff must instead
demonstrate something more, such as that the defendant acted arbitrarily or irrationally in
exercising the discretion afforded to it under the contract.” Sec. Plans, Inc., 769 F.3d at 817–18
(internal marks and citation omitted).
As evidence of Federated’s bad faith, Plaintiff again cites to Federated’s alleged delay in
distributing Clover’s products “until as late in the Earnout Period as possible” and its financial
incentive to do so. Opp. Br. at 19–20. Plaintiff also asserts that Federated’s marketing and
distribution of Strategic Value drove down Clover’s Earnout Payments and that there is “a
question of fact” as to whether the impact of Strategic Value on the Earnout Payments “was
deliberate, not incidental.” Opp. Br. at 20. Lastly, Plaintiff cites two “specific instances of bad
faith conduct”: the University Client account and the MassMutual fees. Opp. Br. at 21.
Even if this Court accepts Plaintiff’s position on Federated’s financial incentives and
Plaintiff’s argument that Federated had a motive to harm Plaintiff, Plaintiff has presented no
evidence that tends to show that Federated acted on that motive by intentionally destroying or
attempting to destroy Plaintiff’s ability to maximize its Earnout Payments. Even if there was a
delay in Federated’s efforts to distribute Clover’s products, which Federated disputes, Plaintiff
fails to explain how that delay is evidence of arbitrary or irrational conduct. See Sec. Plans, Inc.,
769 F.3d at 817–18 (citations omitted); see also Wagner v. JP Morgan Chase Bank, No. 06 Civ.
3126(RJS), 2011 WL 856262, at *4 (S.D.N.Y. Mar. 9, 2011) (bad faith “standard is not satisfied
12

by policies that are misguided or ignorant or even merely negligent” (internal quotation marks
and citation omitted)).
Plaintiff’s assertion that Federated’s distribution of Strategic Value was a “deliberate, not
incidental” act, Opp. Br. at 20, to drive down Earnout Payments is entirely speculative; Plaintiff
adduces no evidence tending to show that any decision to pitch Strategic Value, rather than
Clover Value, was made in bad faith. Plaintiff’s assertion that Federated generated sales for
Strategic Value despite Clover Value’s better market performance is unavailing: Plaintiff admits
that it understood that the “Federated sales and marketing team would continue to support all of
Federated’s products”—not just the Clover products. SOF ¶ 165. Plaintiff also cites Mr. Carl’s
30(b)(6) testimony that a Federated employee told him of three instances (in addition to the
situation with the University Client) in which Federated pushed Strategic Value, not Clover
Value, in response to an RFP, but that testimony is inadmissible hearsay. Even if it were not
hearsay, Plaintiff has presented no evidence that would support its argument that Federated chose
to pitch Strategic Value rather than Clover Value in bad faith.14
Plaintiff’s two examples of “specific instances of bad faith conduct,” Opp. Br. at 21, also
fail to show that Federated acted in bad faith. With respect to the University Client, although
Ms. Applegate and others may have thought that Strategic Value should have been pitched above
Clover Value, the undisputed record reflects that Federated ultimately pitched Clover Value first
in its recommendation to the University Client and that the University Client invested in Clover

14

Given the fact that Strategic Value focused on dividend paying companies and Clover Value did not, an
obvious neutral explanation for the evidence Plaintiff presents is that those customers were interested in income and
not just capital appreciation. That being the case, the fact, standing alone, that Federated pitched Strategic Value to
some customers rather than Clover Value does not satisfy Plaintiff’s obligation to come forward with evidence of
bad faith.

13

Value. Clover Ex. 21, SOF ¶¶ 864, 445. Plaintiff offers no evidence indicating that Ms.
Applegate’s opinion or her representation of Mr. Auth’s opinion was anything other than their
best business judgment about what fund would best serve the University Client’s needs.
Moreover, the undisputed fact that Federated ultimately pitched Clover Value first for that
account guts Plaintiff’s attempt to point to Federated’s handling of that account as evidence of
bad faith.15
MassMutual’s request for a reduced fee is similarly unavailing. Plaintiff argues that
Federated’s denial of MassMutual’s proposal was an “arbitrary refusal to permit Clover to
capitalize on opportunities to maximize its revenue growth.” Opp. Br. at 21. But Plaintiff fails
to adduce any evidence tending to show that Federated’s refusal to accept MassMutual’s fee
proposal was arbitrary or irrational. As Plaintiff admits, the proposed fee was lower than
Clover’s usual management fee. SOF ¶¶ 650–51, 869; Clover Ex. B at 183:2–16. The
undisputed record also reflects that Federated made MassMutual a counter-offer, which
MassMutual rejected. SOF ¶ 654. Missing from the record is any indication that Federated’s
negotiation of the proposed fee schedule was done in bad faith.
Plaintiff’s lack of any evidence of bad faith is fatal to its claim that Federated breached
the implied covenant of good faith and fair dealing. See Wagner, 2011 WL 856262, at *4
(collecting cases). Because no rational juror could find, based on the record in this case, that
Federated acted in bad faith, this Court GRANTS Federated’s motion for summary judgment on
Plaintiff’s claim of breach of the implied covenant of good faith and fair dealing.

15

In fact, Ms. Applegate explained that she thought that Strategic Value might be attractive to the University
Client because Strategic Value would have allowed the University Client to retain their same relationship manager
and “continuity in investment folks.” Applegate Tr. at 154:18–155:15.

14

CONCLUSION
For the foregoing reasons, Federated’s motion for summary judgment is GRANTED in
its entirety.16 The Clerk of Court is respectfully directed to terminate Dkt. No. 76 and close this
case.

SO ORDERED.

_________________________________
____________________________
_
VALERIE CAPRONI
CAPRONI
O
United States District Judge

Date: February 10, 2017
New York, New York

16

Federated also moved for summary judgment on the grounds that Plaintiff lacked evidence of causation or
damages. Because the Motion is granted for the reasons stated above, the Court needs not address the parties’
arguments on causation or damages.

15