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$1.58B Sunbeam verdict tossed

A Florida court says Morgan Stanley was punished unfairly for lost e-mails.

NEW YORK - Morgan Stanley Inc. won a reversal Wednesday of a $1.58-billion verdict handed to billionaire Ron Perelman for misleading him in a deal to sell Coleman Co. to Sunbeam Corp.

The Florida Court of Appeal in West Palm Beach ruled that the New York investment bank was punished unfairly for destroying e-mails involved in the transaction. The latest decision will be appealed in a case that could end up in the Florida Supreme Court.

Perelman, chairman of cosmetics giant Revlon Inc., accused Morgan Stanley of conspiring with client Sunbeam to mislead him about the company's financial health. Because of this, he sold camping supplies maker Coleman Co. to Sunbeam in 1998 - months before Sunbeam restated earnings and ahead of its 2001 bankruptcy.

After the 2-1 vote, Judge Carole Taylor wrote in her opinion that because there was no proof at trial of the correct measure of damages, the final judgment for compensatory damages should be reversed.

The original verdict on behalf of Perelman was seen as a major slam against Morgan Stanley's management, especially then-CEO Philip Purcell. Coupled with lackluster earnings and a sagging stock price, a shareholder revolt forced him out in June 2005 and replaced him with John Mack.

The new regime at Morgan Stanley immediately hired new lawyers to overturn the verdict. The company could free up some $360-million it set aside after the verdict that was earmarked to pay off a legal settlement.

"This is clearly a victory," said David Sidwell, Morgan Stanley's chief financial officer. "Obviously we have to go through it in detail and work it out, and obviously there are additional steps the other party could take."

Perelman said he was disappointed by the ruling but thinks he ultimately will prevail in a higher appeal.

In the 2005 trial, Perelman said he relied on Morgan Stanley's statements - and was fooled into a deal that allotted him Sunbeam shares as part of the Coleman sale.

Morgan Stanley maintained there was no criminal intent in destroying e-mails related to the deal because it was not known at the time they were written that the information was inaccurate. But the trial judge found Morgan Stanley to be at fault for not turning over the e-mails and instructed a jury to assume the firm was guilty of defrauding Perelman and Coleman.

Jurors awarded Perelman $604-million in actual damages and $850-million in punitive damages. An additional $123-million in interest was later added.

"The court focused on the damages, which allowed them to throw the judgment out," said Barry Cohen, a partner with Thorp Reed & Armstrong, which focuses on commercial and business litigation. "Certainly Morgan Stanley is very happy with that, but it didn't really address the legal issues. You can't read into this that it's okay to play fast and loose with e-mails."

[Last modified March 21, 2007, 22:26:03]