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REY-WILLIS v. CITIBANK

July 22, 2003

HERNAN REY-WILLIS, PLAINTIFF, AGAINST CITIBANK, N.A., DEFENDANT


The opinion of the court was delivered by: Shira Scheindlin, District Judge

OPINION AND ORDER

Hernan Rey-Willis brings two causes of action against Citibank, N.A. ("Citibank") for damages caused by Citibank's actions in connection with the conversion of Rey-Willis' United States dollars to Argentinian pesos. Rey-Willis alleges that Citibank engaged in commercial bad faith when it influenced the adoption of the unconstitutional measures that led to the conversion of Rey-Willis' accounts. In addition, Rey-Willis claims that Citibank employed deceptive business practices by failing to disclose certain information before he transferred funds from New York to Argentina. Citibank now moves to dismiss the action for improper venue pursuant to Rule 12(b)(3) of the Federal Rules of Civil Procedure. In the alternative, Citibank moves to dismiss both causes of action for failure to state a claim pursuant to Rule 12(b)(6). For the reasons set forth below, Citibank's motion to dismiss is granted. [ Page 2]

I. THE COMPLAINT

A. The Parties*fn1

Rey-Willis is a citizen of Argentina and a resident of Buenos Aires. Complaint ("Compl.") ¶ 12. Citibank, a national banking association with its principal place of business in New York, New York, is the consumer and corporate banking arm of the financial services company Citigroup, Inc. Id. ¶¶ 13, 14. Citibank operates in over 40 countries, including Argentina ("the Argentina Branch"). Id. ¶ 15. The Argentina Branch is a branch of Citibank; it is not a subsidiary of Citibank. Id. ¶ 16.

B. The Accounts and Transfer

In 1994, Rey-Willis opened a savings account in the Argentina Branch. Id. ¶ 49. Approximately three years later, in 1997, Rey-Willis opened an account with Citibank in New York. Id. Rey-Willis has maintained his accounts with Citibank since opening them and has regularly transferred money between his New York account and his Argentina account. Id. ¶¶ 18, 19. Rey-Willis transferred U.S. dollars to the Argentina Branch account with the expectation that he would be able to withdraw that money in U.S. dollars or transfer the funds back to his U.S. account. Id. ¶ 20.

Banks in Argentina offer a choice of either a U.S. [ Page 3]

dollar account or an Argentinean peso account. Id. ¶ 21. U.S. dollar accounts offer a lower interest rate in recognition of the lower risk level presented by the currency. Id. Despite the lower interest rate, Rey-Willis chose a dollar account for the ease of transferring funds between his two Citibank accounts and the stability of U.S. currency. Id. ¶ 22.

In early October 2001, Argentina passed a law preventing the confiscation of deposits. Id. ¶¶ 26. Later that month, after the law was passed, Rey-Willis transferred $950,000 from his New York account to his savings account in Argentina. Id. ¶ 27. The money was invested in a fixed-term deposit ("CD") denominated in U.S. dollars for six months. Id. ¶ 27. The CD was to mature on April 2, 2002. Id. ¶ 28.

C. El Corralito and Citibank's Conversion

In November 2001, there was a run on the banks in Argentina, with investors withdrawing $1.8 billion in U.S. dollars. Id. ¶ 29. In response, the Argentinean government passed a series of executive orders in December 2001, known as "El Corralito." Id. ¶ 30. These orders included a temporary freeze on withdrawals that limited the weekly withdrawal amount. Id. In January 2002, the new Argentinean government devalued the peso and converted the dollar denominated bank deposits and loans into pesos ("pesofication") at a rate of 1.4 pesos to one U.S. dollar. Id. ¶ 31. [ Page 4]

In February 2002, Rey-Willis contacted the Argentina Branch, requesting that he receive the full amount of his CD on time and in the agreed upon currency. Id. ¶ 33. A few weeks later, Rey-Willis received a letter from the Argentina Branch stating that Citibank would not be able to satisfy his request due to the measures taken by the Argentinean government. Id. ¶ 34. In March, 2002, Rey-Willis received a written notice from the Argentina Branch that his $950,000 CD had been converted to pesos, and would be paid in 24 installments beginning September 2003, instead of April 2002 as originally agreed. Id. ¶¶ 35, 46. Rey-Willis never authorized Citibank to make these changes. Id. ¶ 46.

Initially, with the devaluation of the peso, Rey-Willis lost approximately 30 percent of the value of his deposit in the Argentina Branch. Id. ¶ 36. The peso has, however, continued to devalue, losing over 70 percent of its value. Id. ¶ 37. The exchange rate is currently 3.5 to 1. Id. ¶ 46. As a result of Citibank's refusal to return his U.S. dollars, Rey-Willis has lost approximately 60 percent of the value of his Argentina Branch account, approximately $500,000 plus interest. Id. ¶¶ 37, 46. In addition, Rey-Willis suffered the loss of use of his money due to the extended time frame for the pay out of the CD. Id. ¶ 46. Rey-Willis was never informed that he would be unable to transfer money between his accounts. Id. ¶ 47. [ Page 5]

In February 2002, the Argentinean Supreme Court held that the partial banking freeze was unconstitutional and has loosened the freeze for some accounts. Id. ¶ 38. However, account holders' funds remained returnable in pesofied installments over several years. Id. Then, in March, 2003, the Argentinean Supreme Court held that the pesofication of accounts was an unconstitutional violation of property rights. Id. ¶ 39. Citibank, however, has not rescinded its actions in the wake of the court's decision. Id.

D. Allegations of Wrongdoing

Rey-Willis alleges that Citibank influenced the Argentine government to pass the "El Corralito" orders through a scheme of lobbying and possible bribes by its New York employees. Id. ¶ 58. He has also alleged that Citibank had inside information that the Argentinean government was going to impose limits on bank withdrawals in Argentina. Id. ¶ 41. In fact, Citibank is being investigated for funneling billions of dollars out of Argentina to protect some of its bigger clients in the days prior to the country's financial crisis. Id. ¶ 42. Furthermore, Citibank has refused to honor the remaining, smaller dollar deposit accounts in Argentina, choosing instead to pesofy and freeze the accounts. Id. ¶ 43. Citibank also protected its larger clients by lobbying for, and succeeding in, allowing its "Global Securities" clients to maintain cash accounts when [ Page 6]

Argentinean authorities required all bank customers to close their savings accounts and transfer assets to new "special" accounts. Id. ¶ 44. Unlike Citibank, other banks in Argentina chose not to freeze and/or convert U.S. dollar accounts and suffered no penalties from that decision. Id. ¶ 45. In contrast, Citibank's action exploited an opportunity that inured to Citibank's economic benefit — resulting in harm to Rey-Willis and the unjust enrichment of Citibank.*fn2 Id.

E. The Claims

On March 20, 2003, Rey-Willis brought two causes of action against Citibank.*fn3 First, Rey-Willis alleges that Citibank engaged in commercial bad faith by influencing the Argentine government to pass the "El Corralito" orders and by protecting the accounts of some, but not all, of its customers when it transferred billions of dollars out of Argentina in the days leading up to the banking crisis. Id. ¶¶ 58, 59. Second, Rey-Willis contends that Citibank employed deceptive business [ Page 7]

practices by selling fixed term deposits with the knowledge that the Argentinean government was going to enact the "El Corralito" orders; Rey-Willis further contends that Citibank knew that the orders would adversely affect the funds he transferred to the Argentina Branch. Id. ΒΆΒΆ 66, 67. Rey-Willis asserts that Citibank's acts, or failure to act, took place in New York and constituted an unlawful deceptive act ...


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