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MANELA v. GARANTIA BANKING LTD.

September 18, 1996

NAHUM MANELA, Plaintiff, against GARANTIA BANKING LIMITED, and GARANTIA, INC., Defendants.


The opinion of the court was delivered by: KAPLAN

 LEWIS A. KAPLAN, District Judge.

 Plaintiff, Nahum Manela, a wealthy Brazilian businessman, has brought suit in this Court against defendants Garantia, Inc. ("GI") and Garantia Banking, Ltd. ("GBL") -- a Delaware corporation having its principal place of business in New York City and a Bahamian company having its principal place of business in Sao Paolo, Brazil, respectively -- asserting claims for over $ 20 million in damages he allegedly sustained as a result of securities fraud, breach of contract, and other allegedly actionable conduct by defendants. The case is now before the Court on defendants' motion to dismiss on the ground of forum non conveniens.1

 Facts

 Parties

 Plaintiff, Nahum Manela, is chairman of the board of DeMillus, a large Brazilian manufacturer of women's undergarments. Defendants, GI and GBL, both are affiliates of Banco de Investimentos Garantia, S.A. ("BIG"), Brazil's largest investment bank. GBL, which has no employees or office of its own, is a wholly-owned subsidiary of BIG and pays BIG an annual fee for the services of some 25 BIG employees in Sao Paulo who conduct an investment banking business with GBL's clients, who predominantly are Brazilian. (Figueiredo Aff. P 2) GI is an indirect wholly-owned subsidiary of BIG and a registered broker-dealer under the Securities Exchange Act of 1934. As noted, it is a Delaware corporation with its principal place of business in New York City.

 The Events at Issue

 In August 1994, plaintiff met Marcello Stallone at a party at plaintiff' home in Rio de Janeiro. Stallone identified himself to plaintiff as a trader for "Garantia" and suggested that plaintiff consider opening a margin account with Garantia for the purpose of trading in Brady bonds. *fn2" Stallone was employed by GI and worked at GI's New York headquarters.

 Not long after his conversation with Stallone, plaintiff opened an account with GBL by transferring to GBL a pre-existing investment that he held in Brady bonds with a face value of $ 16 million and signing a Deposit Account Application. *fn3" Plaintiff's daughter, Rosane Manela, and his niece, Eva Goldman, signed the Account Application as "Joint Account Holders." During the fall of 1994, plaintiff deposited over $ 58 million in cash into his GBL account for the purchase of Brady bonds. In addition, plaintiff borrowed against the bonds themselves and other collateral on deposit with GBL to purchase more Brady bonds. By January 3, 1995, plaintiff held Brady bonds with a face value of approximately $ 330 million and a market value of approximately $ 175 million.

 The funds that plaintiff borrowed from GBL to effect these transactions apparently were to be borrowed pursuant to a loan agreement between plaintiff and GBL. *fn4" GBL lent plaintiff money on a number of occasions, sending plaintiff loan documentation for his signature on each occasion, which plaintiff apparently never signed. (Figueiredo Aff. P 11) The first loan agreement prepared by GBL provided that if the ratio of the value of the loan to the market value of the collateral exceeded 80 percent, plaintiff would post additional collateral or prepay part of the loan until the ratio was reduced to 70 percent. (Cpt P 15) The term of the loan was for one month, although plaintiff contends that the parties intended that the loan would be renewed monthly, allowing plaintiff to hold the bonds until their maturity in 2014. (Cpt P 18) Such monthly renewals apparently took place through January 1995. Moreover, plaintiff contends that the loan agreement was altered in December 1994 to provide that plaintiff would be required to post additional collateral or prepay part of the loan only if the value of the loan exceeded 85 percent of the market value of the collateral. (Cpt P 21)

 Although plaintiff never signed a loan agreement, he appears to be relying on its terms in the present action. Some of the more salient terms for purposes of defendants' motion bear mention. The agreement, written in English, provided that (i) it would be governed by the laws of the State of New York (N. Manela Aff., Ex. A § 12), (ii) the borrower consented to suit in the courts of the State of New York and in the Southern District of New York (id, § 13), and (iii) the loan was payable to GBL's account at Norwest Bank International in New York City (id, § 5).

 The fact that plaintiff apparently never signed a loan agreement with GBL is only one of the unusual facets of his relationship with his bankers. Plaintiff claims that, although his deposit account and the loan were held by GBL, he was instructed to contact Stallone at GI in New York whenever he wished to make a transaction or wanted information regarding his account. (Manela Aff. PP 10-12) Plaintiff contends that he never instructed anyone other than Stallone to make transactions for his account. Defendants, on the other hand, contend that Manela's principal contact was Luiz Savio Viegas Barros, a BIG employee who served as plaintiff's "relationship manager" with GBL. *fn5" (Figueiredo Aff. PP 3 & 9) Defendants contend further that plaintiff routinely telephoned BIG traders directly to authorize transactions on his account without contacting Barros or Stallone. (Id, P 7). It is clear, at the very least, that although plaintiff did not initial the Deposit Account Application where indicated to authorize GBL to accept "verbal" instructions, *fn6" transactions routinely were carried out at plaintiff's behest on the basis of his oral instructions. (E.g., N. Manela Aff. P 12; Figueiredo Aff. P 7)

 The crux of this dispute involves transactions made on January 11 and 12, 1995. At about 8:00 a.m. on January 11, 1995, plaintiff says that his vacation in Florida was interrupted by a telephone call from Stallone. Stallone informed plaintiff that the market value of his Brady bonds had declined to the point that the collateral for his loan no longer was sufficient and that plaintiff would have to make a deposit as a prepayment of a portion of the loan or Stallone would sell a portion of plaintiff's bonds to make such a prepayment. Plaintiff claims that he told Stallone that he did not believe the value of his bonds had declined enough to require a margin call and that he did not authorize Stallone to sell the bonds to meet the margin call. (Cpt P 22; N. Manela Aff. P 21)

 Stallone called plaintiff back an hour later to inform plaintiff that he had sold bonds from plaintiff's account with a face value of $ 45 million at an average price of 35.5 cents for approximately $ 16 million. *fn7" (Cpt P 23; N. Manela Aff. P 21) Plaintiff says that Stallone called plaintiff again, at 9:00 a.m. the next morning, and informed him that the bonds' price had increased to 40.5 cents. (Cpt P 24; N. Manela Aff. P 22) As a result, the collateral plaintiff had posted had risen in value enough that GBL was willing to allow plaintiff to restore his position. (Id.) Plaintiff says that he instructed Stallone to purchase bonds with a face amount of $ 40 million. (Id.) Stallone made the purchase, but at a price of 43.25 cents. (Cpt P 24) Plaintiff now alleges that the buyer of his bonds on January 11 at a price of 35.5 cents in fact was GBL itself and that the next day Stallone sold him back the same bonds that GBL had purchased, but at a price of 43.25 cents. (Cpt P 25) Plaintiff further alleges that (i) the price of the bonds had never declined to the point that a margin call was warranted under the terms of his loan agreement with GBL (cpt P 23), (ii) Stallone knew that the price of the bonds was rising when he sold plaintiff's bonds on January 11 (id., at P 27; N. Manela Aff. P 21), and (iii) the opening bid and offer on the bonds on January 12 were 41.5 and 41.75 cents, respectively, and therefore below the 43.25 cents price at which Stallone purchased bonds for plaintiff's account (cpt P 24). In short, plaintiff alleges that GBL profited at his expense from short-term volatility in the price of the bonds.

 Plaintiff's suspicion that the margin call had not been warranted deepened, he says, when it took a week for him to receive written confirmation of the January 11 sale of his bonds. Up until that time, plaintiff says, written confirmation of his transactions always had been issued on the day after the transaction took place. (Cpt P 26) After receiving the confirmation on January 18, plaintiff expressed his growing suspicion in a fax to Barros and another individual working for GBL at BIG's Sao Paolo office. In the fax, dated January 19, 1995, plaintiff requested proof that the value of the loan had exceeded 85 percent of the value of the collateral he had posted due to a decline in the price of the bonds. Plaintiff says that instead of receiving a response from GBL employees in Sao Paolo, he received a fax from Stallone in New York. (Cpt P 27; N. Manela Aff. P 23 & Ex. F)

 Unsatisfied, plaintiff faxed a letter to GBL's president, Claudio Haddad, demanding that the January 11 sale of his bonds be rescinded. (Cpt P 28) Plaintiff says that Haddad responded by fax on February 2, 1995. Haddad apparently contended that the January 11 sale of plaintiff's bonds was effected with plaintiff's consent. (Cpt P 29; see also Figueiredo Aff. P 16) Moreover, plaintiff contends that Haddad told plaintiff that if he did not, by the next day, repay the full outstanding amount of the loan, approximately $ 100 million, or designate another bank that would be willing to assume the loan, GBL would liquidate plaintiff's position. (Cpt P 29) In fact, plaintiff says that he later learned that GBL had effected a partial pre-payment of plaintiff's loan the day before Haddad's fax without informing plaintiff. (Id.)

 On February 8, 1995, a meeting was held at BIG's Sao Paolo headquarters concerning plaintiff's complaints. Plaintiff attended with his Brazilian counsel, Sergio Eskanazi Pernidji. GBL was represented by Haddad. Reynaldo Figueiredo, head of BIG's private banking group, and Mario Cesare de Andrade, who is described by plaintiff as a partner in BIG and by Figueiredo as an attorney employed by BIG, attended for BIG. Interestingly, Stallone from GI's New York office attended the meeting, while Barros, plaintiff's Sao Paolo-based "relationship manager," did not. *fn8" (N. Manela Aff. P 24; Figueiredo Aff. P 17) Plaintiff contends that Haddad took a hard line at the meeting, insisting that GBL would not rescind the January 11 sale and that, unless plaintiff released all claims he might have against GBL arising out of the January 11 sale, GBL would cancel the loan and sell the collateral. (Cpt P 30) Plaintiff says that he refused to release any such claims. (Id)

 Figueiredo says that, during February 1995, GBL sent plaintiff documents setting forth proposed new loan terms. The proposed new loan agreement apparently indicated that it was to be governed by Bahamian law and enforceable in the courts of the Commonwealth of the Bahamas. Plaintiff apparently never executed these documents. (Figueiredo Aff. P 18)

 Finally, plaintiff claims that on March 8, 1995, he received a fax from GBL warning that GBL would sell his bonds and pay off the loan by March 15, 1995, unless plaintiff paid the loan before that date. Plaintiff contends that, despite setting a March 15, 1995 deadline, GBL sold $ 65 million in face amount of his bonds between March 8 and March 10, without plaintiff's consent. Plaintiff ultimately transferred his remaining $ 225 million in face amount of bonds to Morgan Stanley, which then liquidated $ 71 million in face amount of the bonds because it was unwilling to finance plaintiff's position to the extent that GBL had. (Cpt PP 31-33)

 At some point after the February 8, 1995 meeting, a wrinkle that is significant for purposes of the present motion was added to the facts of this case. Stallone left the employ of GI and is believed to be working in Rio de Janeiro for a financial concern unrelated to the parties to this litigation. (Ehrensperger Aff. P 4) Less significantly, de ...


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