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United States District Court, S.D. New York

April 28, 2004.


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



  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.


  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


  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, address the of improper venue and untimeliness, as these grounds do require dismissal.

 A. The Forum Selection Clause

  Defendants note that Varabiev "executed at least eight agreements containing forum selection clauses explicitly providing that Swiss law `exclusively governed' her relationship with the Bank and the `exclusive jurisdiction of lawsuits and any other kinds of legal proceedings' was in Switzerland."*fn26 "Foreign forum selection clauses are `prima facie valid and should be enforced unless enforcement is shown by the resisting party to be "unreasonable" under the circumstances.'"*fn27

  Varabiev admits that she executed a number of documents transferring authority to the Bank, and the Swiss forum selection clause appears in bold type directly before her signature line on at least five such documents.*fn28 Nonetheless, Varabiev contends that the forum selection clause cannot reasonably be enforced in this case.*fn29 She argues in turn that enforcement of the forum selection clauses would (1) unfairly reward defendants and (2) deprive Varabiev of her day in court.*fn30 Both arguments are unavailing.

  Varabiev's arguments in favor of rejecting the forum selection clause are nothing more than attempts to repudiate a bargained-for contractual obligation, and, absent exceptional circumstances, must be denied. A potential plaintiff's ability to choose a forum in which to bring her claim is part of the bundle of rights under her ownership when she enters contract negotiations, and the transfer of that right to the other party is a valuable consideration, in return for which the potential defendant offers valuable consideration of its own.*fn31 Although I am sympathetic to Varabiev's difficulties in litigating her claim in Switzerland, that difficulty is created by the agreements she signed with the Bank, whereby Varabiev, rather than the Bank, assumed the risk of traveling to a distant forum in the event of litigation. Varabiev voluntarily entered into these agreements and is bound by their terms.

  B. The Statute of Limitations

  In her complaint, Varabiev admits that she discovered the purportedly unauthorized activity in her bank account in January 2001, and sent a letter to the Bank demanding compensation on March 12, 2001.*fn32 Defendants contend that, under any construction of the relevant law, Varabiev's complaint was time-barred when she filed it on May 1, 2003.*fn33 Defendants are correct. Varabiev's discovery of the fraud triggered the running of the statute of limitations, which expired well before she filed her Complaint.

  The question of whether the one-year statute of limitations of Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson,*fn34 or the two-year statute of limitations under the Sarbanes-Oxley Acto of 2002,*fn35 applies to the Complaint need Complaint need not be decided here because, as discussed below, plaintiffs claims are barred under either limitations period.*fn36 Even assuming the Act was in force when Varabiev discovered the alleged wrongdoing, her claims would still have expired in early 2003, months before the Complaint was actually filed.

  Varabiev's argument that the issue of when she was placed on inquiry notice is best left for the trier of fact is unavailing, because she admits in her Complaint that she had actual knowledge of the fraud, automatically triggering the statute of limitations, no later than March 2001,*fn37 Similarly, because no amount of concealment on Defendants' part could have been effective after Varabiev actually discovered the alleged fraud, Varabiev's request for equitable tolling of the statute of limitations cannot be granted. Despite Varabiev's best efforts to distinguish her discovery of "Imfeld's fraud, which was discovered in January 2001, from Bank Leumi's fraud, which was not discovered by plaintiff until after October 2002," the fact remains that Varabiev knew of the alleged fraud perpetrated by Imfeld, an employee of the Bank, and even notified the Bank of that knowledge, on or before March 12, 2001.*fn38

  Although Varabiev now alleges additional facts purportedly showing that the Bank misled her and thereby delayed her prosecution of her claims against all defendants, the allegations made in her Complaint constitute judicial admissions by which she is bound.*fn39 No effort at clarification can erase the fact that Varabiev has admitted she had actual knowledge of the full extent of the alleged fraud no later than March 12, 2001. Varabiev's securities fraud claims are therefore time-barred and cannot be resurrected by any conceivable amendment of the Complaint.

  C. State Law Claims

  Where a complaint pleads both federal and common-law claims in federal court, "when the federal claims are dismissed before trial, `even though not insubstantial in a jurisdiction[al] sense, the state claims should be dismissed as well.'"*fn40 When all federal claims are dismissed at an early stage of a case, exercise of supplemental jurisdiction over remaining state law claims is usually inappropriate.*fn41


  For the reasons stated above, Varabiev's claims under the Exchange act are dismissed with prejudice. Because no federal causes of action remain, the Complaint is dismissed in its entirety.


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