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MAHMOUD FUSTOK v. CONTICOMMODITY SERVS.

June 13, 1985

MAHMOUD FUSTOK, Plaintiff, against CONTICOMMODITY SERVICES, INC., CONTICAPITAL MANAGEMENT, INC., CONTINENTAL GRAIN COMPANY, WALTER M. GOLDSCHMIDT, NORTON WALTUCH, TOM WALDECK and IVAN AUER, Defendant


The opinion of the court was delivered by: LASKER

LASKER, D.J.

In an earlier opinion, defendants' motion for summary judgment to dismiss the original complaint was denied due to the presence of triable issues of fact. See Fustok v. ContiCommodity Services, Inc., 577 F. Supp. 852, 854-59 (S.D.N.Y. 1984). Plaintiff has since amended his complaint by adding to the unauthorized trading and conversion claims against the defendants (amended claims 1-3, hereinafter referred to as the "original claims") claims based, inter alia, upon the fraudulent allocation of various silver contracts to plaintiff's commodity trading account (amended claims 4-23). See id., 103 F.R.D. 601, 602 (S.D.N.Y. 1984).

Defendants now move, pursuant to Federal Rules of Civil Procedure 11, 37 and 56(g), and the inherent power of this Court, to dismiss the complaint and to obtain an award of attorney's fees and costs on the ground that newly discovered evidence establishes that plaintiff has perjured himself in this action. In the alternative, defendants urge that we reconsider the earlier decision denying their motion for summary judgment. Plaintiff contends that the motion is groundless and that he should be awarded attorney's fees and costs for defending the motion. For the reasons set forth below, that portion of defendants' motion seeking to dismiss the original claims is granted and the remaining portions of the motion is denied.

 I.

 The facts giving rise to this action are set forth in detail in the earlier opinion. See id., 577 F. Supp. at 853-55. Mahmoud Fustok, a citizen of Saudi Arabia has brought this action for more than $50 million in damages allegedly arising out of the collapse of the market for silver in the Spring of 1980. In June of 1978, Fustok executed a mandate authorizing Advicorp Advisory and Financial Corporation, S.A. ("Advicorp"), a Swiss investment advisory company established by, among others, Antoine Asfour, to direct the investment of funds which were held in Fustok's account at Banque Populaire Suisse ("BPS"). See id. at 854. In August of 1979 Fustok instructed Advicorp to purchase silver for his BPS account. Fustok asserts that he limited Advicorp's authority to the purchasing of only $30 to $40 million of physical silver, as opposed to futures contracts. See id. at 854-55, 857. *fn1"

 To accomplish its task, Advicorp arranged for Fustok to sign, at its request, papers establishing an account in his own name with defendant ContiCommodity Services, Inc. ("Conti"), a registered commodities broker. The account is known as the "055 account." See id. at 854 & n.5. *fn2" There is no dispute that trading activity in the 055 account involved trading of futures exceeding the $30 to $40 million of physical silver purchases which Fustok allegedly authorized. Tens of millions of dollars of silver futures contracts were purchased for the 055 account, and on March 26, 1980 the account held open futures contracts and silver depositary receipts representing more than five million ounces of silver at a time when the market price for silver was in excess of fifteen dollars per ounce. See id. at 854; In re Hunt, CFTC Docket No. 85-12, Complaint at P108 (C.F.T.C. Feb. 28, 1985) (complaint of the United States Commodities Futures Trading Commission).

 Fustok has asserted throughout this litigation that the 055 trades were unauthorized both because he did not authorize trading in the 055 account and because he authorized Advicorp to make only $30 to $40 million of physical silver purchases. The earlier opinion concluded, after drawing all reasonable inferences in favor of Fustok, that a question of fact existed as to whether the defendants, who at that time consisted of Conti and a number of its officers, were aware of limits on Advicorp's authority to buy silver and chose to ignore them and of the extent of Advicorp's authority. See Fustok v. ContiCommodity Services, Inc., supra, 577 F. Supp. at 857-58. Underlying that conclusion was the fact that while the parties agreed that Fustok authorized Advicorp to purchase $30 to $40 million worth of silver, they disputed the scope of Advicorp's authority to purchase silver for Fustok, and the degree of the defendants' knowledge. See id. at 854, 857.

 In support of their earlier summary judgment motion, defendants relied upon testimony by Fustok and a number of documents to show that Fustok had in fact authorized trading in silver in excess of the $30 to $40 million figure and that this authorization was not limited to purchases of physical silver but also included trading in silver futures contracts. One group of documents of particular significance to defendants' position was a series of applications signed by Fustok for three letters of credit totaling $115 million which name Conti as a beneficiary. Two of the applications, representing a combined sum of $95 million, state that the letters of credit are for the purpose of buying silver futures contracts on the earlier motion. Fustok argued that the applications were irrelevant because they did not indicate that Fustok gave Advicorp, or anyone, the authority to trade the 055 account. In addition, Fustok testified at his June, 1982 deposition that these letters of credit had been intended to facilitate purchases of $30 to $40 million of physical silver. See, e.g., Fustok Deposition at 287-354. Because on a motion for summary judgment inferences are to be drawn and ambiguities resolved in favor of the party opposing the motion, defendants' motion was denied.

 II.

 Defendants now move to dismiss the complaint based upon newly-discovered documents not available to them at the time of their original summary judgment motion which, they assert, reveal that Fustok did authorize Advicorp to trade silver futures worth hundreds of millions of dollars. Defendants contend that the documents prove that Fustok has perjured himself in this action by claiming that he limited Advicorp's authority to purchasing only physical silver worth $30 to $40 million. The gravity of defendants' perjury charge and the implication of granting defendants summary judgment in an action of the scope of this one have led us to review closely the materials underlying defendants' original summary judgment motion as well as the documents presented in support of this motion.

 The most revealing document presented by the defendants on the current motion is a letter dated October 16, 1979 from Advicorp to Fustok detailing Fustok's position in the silver market as of that date (Exhibit A). The letter describes Fustok as the owner of silver futures contracts with a combined purchase price of nearly $325 million dollars, and includes a summary sheet showing Conti as the broker for more than 3,500 silver futures contracts purchased by Fustok. In addition, and of particular note, is the fact that the letter is counter signed by Fustok under the heading "Read and approved."

 The defendants contend that this letter, and a number of other documents discussed below, prove that Fustok testified falsely when he asserted that he never authorized Advicorp to purchase more than $30 to $40 million of physical silver. Fustok argues that the letter is dated one month before the 055 account was opened, that it does not authorize Advicorp to trade the 055 account, and that the issue relating to the scope of Advicorp's authorization to buy and sell silver on Fustok's behalf is a question of fact for a jury to decide. *fn3"

 We find that the October 16, 1979 letter from Advicorp to Fustok, which Fustok signed as read and approved, establishes as a matter of law that Fustok authorized Advicorp to trade silver futures contracts worth hundreds of millions of dollars, that he was aware of such authorization and that defendants are accordingly entitled to summary judgment dismissing the claims which allege unauthorized trading. The earlier opinion, in denying defendants' original summary judgment motion, accepted Fustok's argument that the defendants were aware that Fustok was not personally receiving Conti confirmation slips showing the magnitude of silver futures trading in the 055 account, and that defendants knew or had reason to know that Advicorp's trading was unauthorized. See Fustok v. ContiCommodity Services, Inc., supra, 577 F. Supp. at 857. *fn4" However, Fustok's signature on the Advicorp letter reveals that he was personally aware of his enormous stake in the silver market.

 It is not claimed that Fustok was not competent to sign Exhibit A. Accordingly his knowing execution of that exhibit renders him chargeable with knowledge of its contents and overcomes his argument that he limited Advicorp's authority to trade on his ...


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