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VARABIEV v. BANK LEUMI LE ISRAEL

April 28, 2004.

ELIZABETH VARABIEV, Plaintiff
v.
BANK LEUMI LE ISRAEL (SWITZERLAND), MEIR GROSS and ERNST IMFELD, Defendants



The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge

OPINION AND ORDER

I. INTRODUCTION

  Plaintiff Elizabeth Varabiev filed a Complaint on May 1, 2003 against Bank Leumi Le Israel (the "Bank"), Meir Gross and Ernst Imfeld, seeking damages for alleged violations of U.S. securities laws and for injuries at common law.*fn1 Defendants now move to dismiss the Complaint with prejudice.

 II. THE COMPLAINT

  Varabiev alleges the following facts, all of which are deemed true for the purposes of this motion. The Bank is a Swiss banking corporation, and at various times has employed both Gross and Imfeld.*fn2 Plaintiff alleges that the Bank itself is not "registered or authorized to do business in the United States, or any state thereof, as a bank, an investment adviser, a stock broker or a dealer," although its parent corporation, Bank Leumi Le Israel BM (the "Parent Bank") "has a registered agency and a subsidiary banking corporation operating in New York."*fn3 Plaintiff further alleges that Imfeld, after being hired by the Bank around 1985 as an account manager, "quickly gained a false reputation as an investment wizard," engaging in many fraudulent practices, including "unauthorized transfers between accounts or to himself and other third parties, unjustified high volume trading (`churning'), and dubious unauthorized trading and management of clients' accounts."*fn4

  In 1999, Varabiev met Imfeld and agreed to transfer her investments and savings to his management, after Imfeld assured her "he could earn more money for her at a much lower risk by investing in time deposits including high yield bonds and CDs."*fn5 Varabiev agreed to transfer her holdings on the conditions that "(a) her current stock holdings would be sold immediately, (b) that the funds in her account would not be invested in any stock or other speculative instruments and (c) that they be held by the Bank, who would use its expertise to find the best time deposits and other risk free interest bearing investments for Plaintiffs money."*fn6 On January 30, 2000, Varabiev executed a number of agreements with the Bank, setting certain conditions on the use of her assets, and on February 17, 2000, she transferred her holdings to the Bank.*fn7 Plaintiff also instructed the Bank by telephone to place her money in low-risk investments, and never instructed or authorized the Bank to purchase stock or other securities on her behalf, or to place her account in margin.*fn8

  Despite Varabiev's instructions, the Bank used the proceeds from sales of her stock to purchase other stocks, and the Bank purchased additional shares on margin for Varabiev's account, leaving her with a negative cash balance by March 2000.*fn9 The Bank periodically made other transactions on Varabiev's account, and the net value of the account continued to diminish.*fn10 In January 2001, the Bank discovered that "Imfeld had fraudulently managed accounts under his supervision, embezzling funds of customers, defrauding them of their assets and handling their accounts as if they were his own," and Swiss authorities initiated a criminal investigation against Imfeld and the Bank for those activities.*fn11 Plaintiff alleges that, in January 2001, after investigating the status of her account with the help of friends who were "more knowledgeable regarding investments and trading," "[f]or the first time she realized, to her utter shock and dismay, what had transpired in the year or so since her account had been opened."*fn12

  On March 12, 2001, Varabiev instructed Gross, the general manager of the Bank, to close her account immediately and "reimburse her for all the funds and stocks she transferred thereto."*fn13 The Bank did not comply with Varabiev's demands, and on April 12, 2001, sent her a margin call notice, informing her that it would cease making monthly payments to her, and demanding that she deposit an additional $60,000 into her account.*fn14 Plaintiff alleges that the defendants actually damaged her-in the amount of $1,000,000, based on the expected value of her investments and additional damage deriving from the fact that "the Bank's misconduct deprived Plaintiff of the ability to concentrate on her long term career and business goals by forcing her to apply her time and energy to her everyday expenses, which were supposed to be covered by the interest from her account with the Bank."*fn15

  The Complaint articulates the following ten causes of action: three claims of securities fraud (two of which are asserted against all three defendants, and one against Imfeld and the Bank) based on the use of manipulative and deceptive devices under the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j; two claims of common law fraud against all defendants; a claim of breach of fiduciary duty against the Bank and Imfeld; a claim for breach of contract against the Bank; a claim for rescission under the Exchange Act, 15 U.S.C. § 78o(a)(1); a claim for negligence against all defendants; and a claim for unjust enrichment against the Bank.*fn16 III. LEGAL STANDARD

  When considering a motion to dismiss for improper venue pursuant to Rule 12(b)(3) the facts alleged in the complaint as true and draw all reasonable inferences in the plaintiffs favor.*fn17 In making such a determination, courts may consider materials outside of the pleadings.*fn18

  Plaintiff bears the burden of proving that venue is proper.*fn19 When a plaintiff brings suit in a forum other than the one designated by a forum selection clause, the plaintiff must make a strong showing in order to overcome the presumption of enforceability of the clause.*fn20 Failure to meet this preliminary burden may foreclose suit in the venue of plaintiff's choice.*fn21 In most instances, when a forum selection clause employs "mandatory venue language . . . the clause will be enforced."*fn22 However, forum selection clauses "are subject to judicial scrutiny for fundamental fairness."*fn23 A forum selection clause is unreasonable if: "(1) [its] incorporation into the agreement was the result of fraud or overreaching; (2) if the complaining party `will for all practical purposes be deprived of his day in court' due to the grave inconvenience or unfairness of the selected forum; (3) if the fundamental unfairness of the chosen law may deprive the plaintiff of a remedy; or (4) if the clauses contravene a strong public policy of the forum state."*fn24

 IV. DISCUSSION

  The Bank and Meir Gross argue that the Complaint should be dismissed with prejudice, and offer a number of grounds for dismissal.*fn25 Because the Complaint is in fact fatally flawed and must be dismissed, it is unnecessary to consider each and every one of Defendants' numerous arguments. I will, however, ...


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