Power of Attorney Not Enough to Confer Standing to Sue, Second Circuit Rules in Adelphia Class Suit

Holding:

In this securities fraud suit, the U.S. Court of Appeals for the Second Circuit has ruled that an investment adviser with the authority to make investment decisions and power of attorney to sue but who has not been assigned the claim does not have constitutional standing to bring an action on behalf of clients under the federal securities laws. In so doing, the Second Circuit reversed the order of the U.S. District Court for the Southern District of New York that refused to dismiss for lack of standing a case brought by plaintiff-appellee W.R. Huff Asset Management Co. ("Huff") on behalf of investors in Adelphia Communications Corp. ("Adelphia") before the latter's collapse. Huff filed the case against a slew of firms that provided underwriting, auditing or legal services to Adelphia, alleging they were complicit with Adelphia's misleading statements and disclosures about its debt levels. In ordering remand, the Second Circuit held that Huff’s clients have not transferred ownership of, or title to, their claims to Huff, as required by court precedent.

Detailed Summary:

The issue in this appeal was whether an investment advisor that has (a) discretionary authority to make investment decisions for its clients, and (b) a power of attorney from its clients to bring this lawsuit, has constitutional standing to sue for violations of federal securities laws on behalf of its clients, who are the beneficial owners of the underlying securities, and not in its own name.

This issue arose after the district court (Lawrence M. McKenna, Judge) issued two orders, denying a motion to dismiss the complaint for lack of standing pursuant to Federal Rule of Civil Procedure 12(b)(1), and adhering…

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