## Facts

- Daisy Systems Corporation sought to acquire Cadnetix and hired Bear, Stearns & Co., Inc. to advise on the transaction and assist with financing.
- After Cadnetix rejected an initial proposal, Bear Stearns recommended a hostile tender-offer strategy; Daisy’s board approved, and the engagement was amended to make Bear Stearns dealer manager and to assist in securing financing.
- Bear Stearns issued multiple “highly confident” letters stating confidence that Daisy could obtain the financing needed for the tender offers and related transaction steps.
- Daisy increased its offer, and Bear Stearns committed to provide substantial transaction financing.
- As market conditions shifted, Bear Stearns internally raised concerns about the availability of bank financing for hostile deals in Daisy’s industry.
- Cadnetix later agreed to an uncontested merger; Bear Stearns became Daisy’s exclusive agent to secure required financing.
- Bear Stearns later committed some financing and internally approved additional bridge financing, but the trustee alleged Bear Stearns provided inaccurate or incomplete information about the financing status.
- Daisy’s financial condition deteriorated and it entered involuntary Chapter 11 bankruptcy.
- The Chapter 11 trustee sued Bear Stearns for breach of fiduciary duty, professional negligence, and negligent misrepresentation, alleging Bear Stearns’s conduct regarding financing contributed to Daisy’s bankruptcy.

## Issues

1. Whether Bear Stearns owed Daisy a fiduciary duty based on its role as financial adviser, dealer manager, and exclusive financing agent in the acquisition.
2. Whether the trustee produced evidence sufficient to create a triable issue that Bear Stearns committed professional negligence and proximately caused Daisy’s losses.
3. Whether the “highly confident” letters and financing-status communications constituted actionable negligent misrepresentation.
4. Whether summary judgment for Bear Stearns was proper on these claims.

## Decision

- The Ninth Circuit affirmed summary judgment for Bear Stearns.
- The court rejected the trustee’s theory that the investment-banker/client relationship in this setting created a broad fiduciary duty.
- The court held the trustee failed to raise a triable issue on professional negligence, including standard of care and causation.
- The court held the trustee failed to establish actionable negligent misrepresentation, treating the “highly confident” letters as non-guarantees and finding inadequate proof of causation.

## Legal Principles

- An investment bank is not automatically a fiduciary to a corporate client in merger or acquisition work; a fiduciary duty requires a showing of a special relationship marked by control, discretion, or extraordinary dependence beyond an arm’s-length advisory engagement.
- Contractual undertakings and professional services may create duties of reasonable care, but those duties do not convert the adviser into a general fiduciary absent additional indicia of discretionary control.
- Negligent misrepresentation generally requires a false statement of existing material fact; forward-looking opinions, predictions, or non-guarantee expressions of confidence are less likely to be actionable without specific circumstances showing falsity as to present fact.
- For negligence-based tort claims, the plaintiff must present non-speculative evidence of proximate causation; market forces and financing conditions may defeat causation where the alleged misconduct cannot be linked to an obtainable alternative outcome.

## Conclusion

The Ninth Circuit upheld judgment for Bear Stearns, ruling that the record did not support imposing a broad fiduciary duty on the investment bank and did not present triable issues that Bear Stearns’s advisory work or “highly confident” financing communications constituted negligence or negligent misrepresentation causing Daisy’s bankruptcy.


In re Daisy Sys. Corp., 97 F.3d 1171 (9th Cir. 1996)