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Morgan Stanley fights $1.45-billion award

NEW YORK - Morgan Stanley is set on trying to overturn the $1.45-billion award it has to pay financier Ronald Perelman, but the risks of challenging the verdict could force a settlement, experts say.

Perelman, chairman of cosmetics giant Revlon Inc., was awarded $604.3-million in compensation and $850-million in punitive damages against the investment bank for the way it acted when Perelman sold his camping gear company to the bank's client, Sunbeam Corp., in 1998.

A West Palm Beach jury found that Perelman relied on representations by Morgan Stanley going into the sale, for which he received $1.5-billion including Sunbeam stock. Shortly afterward, an accounting fraud at the appliancemaker was exposed and the value of Perelman's investment plummeted. Sunbeam sought bankruptcy protection in 2001.

The hefty punitive award was to punish the bank for its misconduct in defrauding Perelman. That the bank was complicit in the fraud was presented by Circuit Judge Elizabeth Maass to the jury as fact without argument, as a sanction for Morgan Stanley's continued failure to provide documents in the litigation. This action by the judge will form part of the bank's appeal.

In a strongly worded statement after Wednesday's verdict, Morgan Stanley said the damages award was legally deficient "and a byproduct of the unprecedented and highly prejudicial rulings imposed by the judge throughout the trial."

Reiterating on Monday the company's intention to appeal, a Morgan Stanley spokesman declined to comment on any settlement. Similarly, a spokeswoman for Perelman said she had no comment on whether any settlement approaches had been made or were likely.

However, legal experts say the parties in the case are likely to settle. While the substantial majority of court decisions on liability and compensation aren't overturned, such a result for the large punitive award is something both sides should be considering, according to professor John Coffee at Columbia Law School.

"Both sides have to be risk-averse here - the punitive damages vastly exceed any insurance cover the bank is likely to be able to get. And for Perelman, it's really just the additional gravy or whipped cream, and could easily be downsized or even wiped out entirely on appeal," he said.

A further financial disincentive for Morgan Stanley is the fact that it will have to post a bond of more than the $1.45-billion award as a prerequisite of any appeal. Under Florida law, the amount of the bond has to be the amount of the judgment plus two years' interest, said Gerald Richman, partner of Florida firm Richman Greer Weil Brumbaugh Mirabito & Christensen.

Meanwhile, the appeal process could grind on for years - Maass is scheduled to hear posttrial motions, such as Morgan Stanley's requests for a mistrial and reductions in both awards, on June 20.

If, as expected, these motions are denied, briefs on the appeal probably won't be completed and filed until year-end, and Florida's 3rd District Court of Appeal is unlikely to hear an appeal until next spring, Richman said. After that, a ruling by the appellate court could take anywhere from months to a year or more, he added.

[Last modified May 24, 2005, 03:00:27]