In W.R. Huff Asset Management Co. v. Deloitte & Touche LLP, the U.S. Court of Appeals for the Second Circuit held that an investment adviser lacked standing to sue for violations of federal securities laws on behalf of its clients. W.R. Huff Asset Management Co. (W.R. Huff), an adviser for institutional investors, brought suit against firms that provided underwriting, auditing, and legal services to Adelphia Communications Corporation (Adelphia), after Adelphia disclosed the existence of billions of dollars in debt that resulted in its dissolution in bankruptcy. W.R. Huff argued that its standing to sue on behalf of clients who had purchased securities sold by Adelphia was derived from its discretionary authority to make investment decisions for its clients and from a power-of–attorney in which its clients authorized W.R. Huff to bring the lawsuit.
The Second Circuit rejected W.R. Huff’s argument, finding that it failed to meet the “injury-in-fact” element of standing. The Second Circuit explained that “the minimum requirement for an injury-in-fact is that the plaintiff have legal title to, or a property interest in, the claim.” The court held that neither the power-of-attorney nor W.R. Huff’s authority to make decisions concerning litigation conferred legal title to or an ownership stake in the clients’ claims against firms that provided services to Adelphia.
The court noted that W.R. Huff also failed to establish standing under prudential exceptions to the injury-infact requirement, which allow standing “where the plaintiff can demonstrate (1) a close relationship to the injured party and (2) a barrier to the injured party’s ability to assert its own interests.” The court found that the clients who purchased Adelphia securities were not hindered from asserting their own interests and the investment adviserclient relationship was not the type of “close relationship” that warranted a departure from the standing rules.