Looks like NatWest's cross-complaint against Farallon's fund managers may 
hold up at the pleading stage.? See below. 

-----Original Message----- 
From:?? Bhalla, Sabina 
Sent:?? Friday, September 22, 2000 12:03 PM 
To:???? Howard, Steve 
Subject:??????? Farallon Demurrer hearing 

This morning I attended the hearing on Cross-Defendants demurrer to Natwest's 
Cross-Complaint.? The judge permitted extensive oral argument from Bruce 
MacLoed representing Farallon and Oaktree, and Jim Wines representing 
Natwest.? 

Judge Berle was extremely active in asking questions to each party.? He was 
primarily concerned with the relationship between the fund managers and 
Oaktree and Farallon, and whether that was a fiduciary relationship, and if 
so, what level of fiduciary duty was owed (he seemed inclined to leave this 
issue for summary judgment).? The Cross-Defendants argued that if this suit 
was to go forward, it would create a disincentive for fund managers to report 
fraud, since the? fund managers may ultimately be personally liable.? 

Judge Berle asked Natwest if this was more of an affirmative defense instead 
of a cross claim, which was being used to diminish Plaintiffs complaint.? 
Natwest stated that the fiduciaries were liable for not investigating.? 
Farallon/Oaktree admitted that it has imputed any negligence and actual 
knowledge from the fund managers to itself, and that Defendants are entitled 
to an offset.? Interestingly, Plaintiffs stated that the fund managers were 
damaged themselves, since they did not receive a bonus etc.?? 

The Judge seemed inclined to permit a demurrer to the contribution cause of 
action, since Natwest did not really defend that cause of action separate 
from the indemnity action.? 

Natwest pointed to a case Platt v. Coldwell Banker 217 Cal. App.3d 1439, 
which Natwest claimed, allows the fund managers to be sued independently.? A 
cross action is permitted if the Plaintiffs could have brought the same 
claims against the fund managers, and Natwest argued that the Plaintiffs 
could have brought such a claim.? Finally, Natwest said it would be 
prejudiced if it could not "point the finger" at the highly paid investement 
manager.? According to the Platt case, a nonparty witness is very different 
than a potential indemnitor who is sitting at the table at trial.?? 

??? 
The judge said his ruling would occur before Oct. 10.? Legg Mason 
Cross-Defendants have until that time to file a response to the 
cross-complaint (that was what the ex parte application was about).

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