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WILLIAMS v. DEUTSCHE BANK SECURITIES

June 13, 2005.

THOMAS M. WILLIAMS, Plaintiff,
v.
DEUTSCHE BANK SECURITIES, INC., Defendant.



The opinion of the court was delivered by: GERARD E. LYNCH, District Judge

OPINION AND ORDER

Plaintiff Thomas M. Williams brings this action against Deutsche Bank Securities, Inc. ("DBSI"), a national securities brokerage company. Plaintiff alleges that defendant gave improper advice in recommending a forward sale transaction, and brings claims for breach of fiduciary duty, negligent misrepresentation, constructive fraud, and negligence. Plaintiff also brings a claim of unfair competition under the California Business and Professions Code § 17200. Defendant moves to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, for failure to state a claim upon which relief can be granted, arguing that the choice of law provision in the Forward Sale Contract governs, and that New York law precludes most of plaintiff's claims. Plaintiff moves for transfer of venue to the Northern District of California. For the reasons stated below, the motion to dismiss will be granted in part and denied in part, and the motion to transfer will be denied.

BACKGROUND

  The facts stated below are taken from plaintiff's complaint, the allegations of which must be accepted as true for purposes of this motion.

  Williams is an individual investor resident in California, who has a longstanding relationship with Deutsche Bank Alex.Brown ("DB Alex.Brown"), a division of DBSI, a national firm that does business in San Francisco. (Compl. ¶¶ 4, 5.) For many years prior to the transaction at issue, DB Alex.Brown advised Williams on financial and investment matters.*fn1

  Through various business transactions, Williams acquired a significant number of shares in Cisco Systems, Inc. ("Cisco"), which Williams deposited with DB Alex.Brown. (Compl. ¶ 6.) Based on advice from DB Alex.Brown, Williams borrowed against his Cisco shares, permitting him to obtain additional liquidity, but also subjecting him to margin calls upon a decline in the price of the Cisco shares. (Id.) By September 2002, the price of Cisco stock, which had once traded at $80 per share, had fallen to $10.58, triggering the margin calls and forcing Williams to provide cash to DB Alex.Brown to cover the margin loans taken against the Cisco shares. (Compl. ¶ 7.) Williams believed the stock was undervalued and did not want to sell his shares to raise cash. (Id.)

  In late September 2002, Williams sought to obtain liquidity to cover the margin calls, while maintaining his ability to benefit in the "upside" of Cisco stock, if the price were to increase again, as Williams believed it would. (Compl. ¶ 8.) John Maierhofer, an Investment Representative in DB Alex.Brown's San Francisco office, proposed a strategy known as a "Forward Sale Contract." (Id.) Williams asserts that DB Alex.Brown advised him that the Forward Sale Contract would allow him to meet his goals by means of a deposit of his shares, subject to a series of pledges and option transactions to be executed through a counterparty. (Id.) However, Williams alleges that DB Alex.Brown failed to explain that his participation in the "upside" potential of the Cisco shares was limited to only $2.12 per share, and that he would not benefit from any appreciation above $12.70 per share. (Compl. ¶¶ 10-11.)

  On September 30, 2002, Williams entered into a Forward Sale Contract with Deutsche Bank AG (Compl. ¶ 11; Schumacher Decl. Ex. A at 15), the parent company of DBSI, as counterparty. (D. Mem. 3 n. 2.) Williams also signed several other documents (including a Pledge and Security Annex and Account Control Agreement) that together with the Forward Sale Contract outlined the agreement between Williams and Deutsche Bank AG. (See Schumacher Decl. Exs. B, C.) These agreements contained descriptions of the transaction, disclaimers of various warranties, promises, and representations by Deutsche Bank AG, and a number of representations by Williams. The agreements also included a merger clause abrogating any prior oral or written agreements, a choice of law clause selecting New York law to govern the agreements, and a forum clause selecting New York as the forum of choice in disputes over the agreement. Williams alleges that DB Alex.Brown did not provide certain operative written documents sufficiently prior to the transaction so that he could understand the complicated terms. (Compl. ¶ 12.) A Confirmation Letter, dated October 1, 2002, clarifying some terms of the agreement, was also sent to Williams, but not until after the Forward Sale Contract was signed. (P. Mem. 20; Schumacher Decl. Ex. D at 1.)

  As a result of the Forward Sale Contract, Williams received proceeds equal to 87.40% of the Cisco share price of $10.58 (Compl. ¶ 11; Schumacher Decl. Ex. D at 2), totaling over $3.6 million. (Schumacher Decl. Ex. D at 2.) Subsequently, the price of the Cisco shares rose substantially, to over $20 a share.*fn2 (Compl. ¶ 14.) Williams asked DB Alex.Brown how he would be participating in the increased value of the Cisco shares that he had pledged under the Forward Sale Contract. Williams claims that it was only then that he learned for the first time that he would not share in any increase of the Cisco shares above $12.70 per share. (Compl. ¶ 13.)

  Williams consequently filed suit in California state court, charging Maierhofer and DB Alex.Brown/DBSI with various torts, including fraud, breach of fiduciary duty, and negligent misrepresentation. The California court stayed the action in deference to a suit in New York, based on the forum selection clause. Williams then filed this suit in this Court, against DBSI as the sole defendant, asserting the same claims.

  DISCUSSION

  I. Standard on Motion to Dismiss

  In the context of a motion to dismiss, the Court accepts "as true the facts alleged in the complaint," Jackson Nat'l Life Ins. Co. v. Merrill Lynch & Co., 32 F.3d 697, 699 (2d Cir. 1994), and may grant the motion only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Thomas v. City of New York, 143 F.3d 31, 36-37 (2d Cir. 1998) (internal citations omitted). The "issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir. 1996) (internal quotation marks and citations omitted). However, "[c]onclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss." Smith v. Local 819 I.B.T. Pension Plan, 291 F. 3d 236, 240 (2d Cir. 2002), quoting Gebhardt v. Allspect, Inc., 96 F. Supp. 2d 331, 333 (S.D.N.Y. 2000).

  All reasonable inferences are to be drawn in the plaintiff's favor, which often makes it "difficult to resolve [certain questions] as a matter of law." In re Independent Energy Holdings PLC, 154 F. Supp. 2d 741, 748 (S.D.N.Y. 2001). The task of a court in ruling on a 12(b)(6) motion is "merely to assess the legal feasibility of the complaint, not to assay the weight of the ...


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