Dec. 24 (Bloomberg) -- James Chanos’s Kynikos Associates LP and Daniel Loeb’s Third Point LLC won dismissal from an $8 billion lawsuit accusing the two hedge funds of spreading negative information to drive down Fairfax Financial Holdings Ltd.’s stock price.
New Jersey Superior Court Judge Stephan C. Hansbury in Morristown granted their requests yesterday, saying they couldn’t be sued in New Jersey. Hansbury also dismissed Institutional Credit Partners LLC. All three firms are based in New York. In addition to Chanos and Loeb, also dropped from the suit were Jeffrey Perry, an analyst at Third Point, and William Gahan, who was an analyst at ICP.
In September, Hansbury dismissed billionaire Steven A. Cohen and his Stamford, Connecticut-based SAC Capital Advisors LP from the case.
“One must establish that the defendants purposely availed themselves of the State of New Jersey and that the alleged improper conduct was expected or intended to be felt within the State of New Jersey,” Hansbury wrote. He said Fairfax didn’t do that.
Fairfax, a Toronto-based insurer, sued the hedge funds in 2006, alleging they acted to harm the company because they were betting its stock price would decline. The hedge funds named in the suit have denied Fairfax’s accusations.
“We thought Fairfax was engaged in some pretty blatant forum shopping and it took a while but the judge saw through it,” Bill Carmody, a lawyer for Third Point at Susman Godfrey LLP in New York, said in a phone interview.
“We are gratified by the court’s decision, but otherwise have no comment,” Chanos said in an e-mail.
Michael Bowe, a lawyer for Fairfax, said in an e-mail that the dismissal of its claims against the funds was “entirely incorrect.” He said the evidence shows that “these parties engaged in a vicious and unrelenting attack” on Fairfax.
Fairfax plans to appeal the judge’s decision, said Bowe, who is a partner at Kasowitz Benson Torres & Friedman LLP in New York.
Fairfax said the funds coaxed John Gwynn, a former insurance analyst at Morgan Keegan & Co. in Memphis, Tennessee, into giving them his negative Fairfax reports before they were published. It also said they hired an outside analyst, Spyro Contogouris, to spread false Fairfax information.
Morgan Keegan, a unit of Birmingham, Alabama-based bank company Regions Financial Corp., fired Gwynn in 2008 for disclosing research on Fairfax to selected clients before publication. He has since died.
Defendants still named in the case include Morgan Keegan and hedge fund Exis Capital Management Inc.
The case is Fairfax Financial Holdings Ltd. v. SAC Capital Management LLC, L-2032-06, Superior Court of New Jersey, Morris County (Morristown).
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