Blackstone Wins Unanimous Appellate Victory in Alleged $50 Billion Action Brought by Kentucky Attorney General

Wyatt and co-counsel secured a significant appellate win on behalf of The Blackstone Group and Blackstone Alternative Asset Management (BAAM), when a panel of the Kentucky Court of Appeals unanimously held that the Kentucky attorney general should never have been permitted to intervene in and revive a $50 billion purported derivative action in which the original plaintiffs were found to lack constitutional standing by the Kentucky Supreme Court in July 2020. The decision marks Wyatt’s second victory in the Kentucky Court of Appeals in connection with this lawsuit.

In December 2017, a group of eight individual Kentucky public pension members purportedly suing derivatively on behalf of the Kentucky Retirement Systems (now KPPA) and Kentucky taxpayers first filed suit in Franklin Circuit Court. The suit alleged that BAAM and two other alternative asset managers, breached their fiduciary duties to KRS/KPPA by unlawfully selling them unsuitably risky and expensive custom hedge funds in August 2011. The original complaint also alleged a civil conspiracy among the investment managers and a number of KRS/KPPA trustees, officers and advisors to hide the inappropriate nature of the funds from the Kentucky public. The plaintiffs sought $50 billion in damages, an amount equivalent to the entire KRS/KPPA funding deficit accrued over more than two decades, and more than 100 times the amount that KRS/KPPA invested with BAAM. Over the course of the investment, BAAM achieved a net return of 6.5% and returned $158 million in net profits to KRS/KPPA. Before filing this complaint, the plaintiffs contacted the then-attorney general of Kentucky, who declined to join the suit.

In 2019, after BAAM and others appealed the decision of the trial court to allow the case to proceed despite the plaintiffs’ lack of standing, the Kentucky Court of Appeals issued a writ of prohibition and held that the trial court was acting outside its jurisdiction to hear the case because the derivative plaintiffs lacked standing under the Kentucky constitution. The plaintiffs appealed to the Kentucky Supreme Court which, in July 2020, agreed with BAAM’s position on the plaintiffs’ lack of standing, and remanded the case to the circuit court with direction to dismiss the complaint.

However, in December 2020, the trial court disobeyed the Kentucky Supreme Court’s mandate to dismiss the case and allowed newly-elected Kentucky Attorney General Daniel Cameron to intervene as a new plaintiff on behalf of the Commonwealth of Kentucky. BAAM and certain other defendants filed cross-appeals to the Kentucky Court of Appeals, arguing that the circuit court lacked authority to permit the attorney general to intervene or to do anything at all other than dismiss the case per the state supreme court’s ruling.

In its opinion on April 14, the Kentucky Court of Appeals unanimously adopted BAAM’s position and held that “the [circuit] court’s authority is only broad enough to carry out the specific direction” issued by the Kentucky Supreme Court, and efforts to circumvent that order through the filing of additional motions in the trial court were “simply impermissible.” As such, “the trial court exceeded its authority when it entertained various motions to amend and to intervene, and more specifically by permitting the [Attorney General] to intervene.” The Kentucky Court of Appeals accordingly affirmed only the trial court’s dismissal of the original complaint, and vacated all trial orders issued after the mandate including, but not limited to, the December 2020 order allowing the Kentucky attorney general to intervene.

The Wyatt team includes litigation partners Don Kelly and Jordan White.