In May 2021, the New York Supreme Court (Commercial Division) entered a directed verdict dismissing an alleged billion dollar claim against Milbank’s clients Stephen Evans-Freke and Auven Therapeutics Management, LLLP (“ATM”). On Defendants’ motion, the Court dismissed the action after Plaintiffs rested their case, finding that no reasonable factfinder could rule in favor of Plaintiffs based on the evidence presented.
The action was brought by five hedge funds managed now or previously associated with Texas-based hedge fund manager Highland Capital Management. The Plaintiffs had invested in notes that were secured by pharmaceutical products being developed by a private equity fund previously co-founded by Mr. Evans-Freke and John C. Mayo, Celtic Pharmaceutical Holdings, L.P. (“CPH”), which was managed by Celtic Pharma Management, L.P. (“CPM”). Plaintiffs’ investment was risky because the drugs were at relatively early stages of development, and the investment depended on the development of the drugs to the point where they could be sold. That risk was reflected in the 17% payment-in-kind interest rate on the notes. As the Trial Court explained, Plaintiffs’ investment was “essentially a gamble” on the success of the drugs. The drugs that secured the notes ultimately were unsuccessful and Plaintiffs lost their investment.
Plaintiffs filed a series of complaints asserting claims against individuals and entities that were not parties to or contractually liable on the notes, including Mr. Evans-Freke and ATM, the management company of a successful new private equity fund, Auven Therapeutics Holdings, L.P., which Mr. Evans-Freke co-founded with a different Managing General Partner, Dr. Peter B. Corr, who had no affiliation with CPH.
After hearing the evidence Plaintiffs presented, and Milbank’s cross-examination of Plaintiffs’ witnesses, the Trial Court dismissed the case, finding that “the concrete evidence presented is a far cry from [Plaintiffs’] description of this as a broad international sham or a bleed out.” For this and other reasons, the Trial Court found that there was no basis for holding ATM accountable for the notes issued by a subsidiary of CPH, a completely separate private equity fund, or for the alter ego theory asserted against Mr. Evans-Freke. The Trial Court dismissed Plaintiffs’ claims in their entirety.
After the Trial Court entered the directed verdict, one of the Plaintiffs appealed the Trial Court’s decision to New York’s Appellate Division, First Department. The appeal was heard by a panel of five Justices of the Appellate Division on April 26, 2022. On May 17, 2022, the Panel unanimously affirmed the Trial Court’s directed verdict decision dismissing all of Plaintiffs’ claims. Among other things, the Panel ruled that “Evans-Freke is not CPM’s alter ego” and “Auven is not CPM’s successor[-in-interest].”
“We are very pleased that the Appellate Division, like the Trial Court, recognized that our clients should not be held liable for a billion dollars of principal and interest on notes that they never guaranteed or intended to guarantee,” said special counsel Andrew Lichtenberg.
The team was led by Lead Trial Counsel and Milbank Chairman Scott A. Edelman, who also argued the appeal, with special counsel Andrew B. Lichtenberg and associates Joseph M. DaSilva, Lyndsey R. Pere and Mike Frieda and Shiva Mohan. Former associate Tess McLaughlin also provided advice.
