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GFI Brokers, LLC v. Santana

August 6, 2008

GFI BROKERS, LLC, PLAINTIFF,
v.
JOHN P. SANTANA, DEFENDANT.
GFI BROKERS, LLC, PLAINTIFF,
v.
OFIR ELIAS FILHO A/K/A OFIR ELIAS, TRADITION BRASIL CONSULTORIA EMPRESARIAL, LTDA D/B/A TRADITION BRAZIL, DEFENDANTS.



The opinion of the court was delivered by: Gerard E. Lynch, District Judge

OPINION AND ORDER

These consolidated actions concern an employment contract between plaintiff GFI Brokers, LLC, and defendant John P. Santana. GFI alleges that Santana breached his obligations by quitting his job with GFI and starting work for defendant Tradition Brazil, and that Tradition Brazil and defendant Ofir Elias tortiously interfered with the contract. GFI moves for partial summary judgment that Santana is liable for the breach and that a liquidated damages provision in the contract is enforceable. Defendant Santana cross-moves for partial summary judgment that the liquidated damages provision is not enforceable. Defendants Tradition Brazil and Elias cross-move for partial summary judgment that the liquidated damages provision is not enforceable and not applicable to them. For the following reasons, GFI's motion is granted in part and denied in part, Santana's motion is denied in its entirety, and Tradition Brazil and Elias's motion is granted in part and denied in part.

BACKGROUND

Plaintiff GFI Brokers, LLC ("GFI"), is a broker of financial products, earning commissions for facilitating trades among its large financial institution customers. (Brown Aff. ¶ 3.) Starting in 2003, GFI employed defendant Santana in brokering currency options for its customers. (Id. ¶ 6; Carty Aff. Ex. J at 76-77.) Santana at that time had twenty years' experience working in emerging markets products at four different firms. (Carty Aff. in Opp'n Ex. E ¶ 3.) Santana worked in GFI's New York office, though his focus was on emerging markets, particularly Brazil. (Brown Aff. ¶ 4.) Santana is fluent in Portuguese, and he regularly traveled to Brazil to meet with and solicit customers. (Id. ¶ 7; Carnevale Decl. Ex. 8 at 153-59.)

From 2003 to 2005, Santana worked for GFI without a written agreement, but on or about October 15, 2005, he entered into a written contract (the "Agreement") under which he agreed to work exclusively for GFI until October 15, 2007. (Brown Aff. Ex. A ¶¶ 1, 2(A).) The Agreement restricts Santana's ability to solicit GFI customers or work for GFI competitors, during the term of the Agreement and for four months afterward. (Id. ¶ 5(E).)

In particular, the Agreement provides that Santana is to refrain "directly or indirectly":

(i) from accepting business from, doing business with, inducing or soliciting any GFI Customers to whom [Santana] rendered any services during the course of [Santana's] employment with GFI under this Agreement . . . to do business with [Santana], or with any other person or entity, in competition with the type of services performed by [Santana] for GFI [and];

(ii) from having any interest in or association with any brokerage business competitive with any business of GFI . . . in which [Santana] performed brokerage services as an employee of GFI . . . , whether as a shareholder, director, officer, employee, partner, proprietor, joint venturer, consultant or otherwise, anywhere within 50 miles of any GFI office in which [Santana] provided services to GFI. (Id.) Should Santana breach either the first clause (the "Non-Solicitation Clause") or the second (the "Non-Competition Clause"), the Agreement provides for "liquidated damages," calculated as the greater of: the product of (x) the monthly average of [Santana's] Net Revenues for the twelve (12)-month period immediately preceding the termination of [Santana's] employment with GFI . . . , and (y) the number of months remaining unfulfilled under this Agreement and the term of any prohibition contained in [the Non-Solicitation Clause and the Non-Competition Clause] or the Net Revenues earned by [Santana] or by [Santana's] new employer as a result of [Santana's] efforts during the same time period described above.

(Id. ¶ 5(F)(ii).) The Agreement is governed by New York law. (Id. ¶ 10.)

Prior to the expiration of the Agreement, on or about May 22, 2006, Santana informed GFI that he was resigning. (Carnevale Decl. Ex. 3 at 151.) Shortly thereafter, in August 2006, Santana started work in Sao Paulo, Brazil, as a consultant for Tradition Brazil. (Carty Aff. in Opp'n Ex. A at 66.) Tradition Brazil is owned and controlled by Tradition NA, a competitor of GFI based in New York City. (Pl. R. 56.1 Statement ¶¶ 7-8.) Pursuant to an agreement with Tradition NA, Tradition Brazil provides, "on an exclusive basis" to Tradition NA, "certain consultancy and marketing services . . . in Brazil." (Carnevale Decl. Ex. 13 ¶ 1.1.)

Santana's job at Tradition Brazil is to broker non-deliverable forwards ("NDFs"), which are currency-based financial products similar to the currency options he was brokering at GFI. (Pl. R. 56.1 Statement ¶¶ 62-63.) While there are technical differences between options and NDFs, both are means of trading in foreign currencies. (Id. ¶¶ 63-65.) While working for Tradition Brazil, Santana has solicited business from and brokered NDF transactions on behalf of traders at financial institutions that he was responsible for servicing while employed by GFI. (see id. ¶¶ 67-70; Carnevale Decl. Ex. 24-25.)

In its suit against Santana, GFI alleges that he breached his obligations under the Agreement by (1) quitting GFI before the end of the Agreement term, (2) soliciting GFI customers in contravention of the Non-Solicitation Clause, and (3) working for a GFI competitor in contravention of the Non-Competition Clause. (See Compl. in GFI Brokers v. Santana ("Santana Compl.") ¶ 1.) In its suit against Tradition Brazil and its CEO Elias, GFI alleges that the two tortiously interfered with the Agreement. (See Compl. in GFI Brokers v. Elias and Tradition Brazil ("Tradition Brazil Compl.") ¶ 1.) GFI moves for partial summary judgment that Santana breached the Agreement and that the liquidated damages provision is enforceable. (Pl. Mem. 1.) Santana opposes the motion, contending that he left GFI only after it had materially breached its obligations under the Agreement, that he has not solicited GFI's customers, and that his work for Tradition Brazil is not competitive with GFI. (Santana Opp'n 1-3.) Santana also moves for summary judgment that the liquidated damages provision is unenforceable as a matter of law. (Id. 2-3.) Tradition Brazil and Elias move separately for partial summary judgment that the liquidated damages provision is unenforceable and in any event not applicable to them. (Tradition Brazil Mem. 1.)

DISCUSSION

I. Summary Judgment Standard

Summary judgment is appropriate where the "pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). Rule 56 "mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The party moving for summary judgment bears the initial burden of explaining the basis for its motion and identifying those portions of the record which it believes "demonstrate the absence of a genuine issue of material fact." Id. at 323. The burden then shifts to the non-movant to produce evidence sufficient to create a genuine issue of material fact for trial. Fed. R. Civ. P. 56(e)(2). See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). Affidavits in support of or opposed to summary judgment must be based on "personal knowledge" and set forth "facts that would be admissible in evidence." Fed. R. Civ. P. 56(e)(1).

A court's responsibility is to determine if there is a genuine issue to be tried and not to resolve disputed issues of fact. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). An issue is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Shade v. Housing Auth. of City of New Haven, 251 F.3d 307, 314 (2d Cir. 2001). An issue is material if it "might affect the outcome of the suit under the governing law." Id. A court must draw all "justifiable inferences" in the non-movant's favor, and construe all of the facts in the light most favorable to the non-movant. Anderson, 477 U.S. at 255. However, the "mere existence of a scintilla of evidence in support of the [non-movant's] position will be insufficient" to withstand a motion for summary judgment. Id. at 252.

II. Term of Employment

GFI is entitled to summary judgment on Santana's breach of the term of his employment under the Agreement. Under New York law, an action for breach requires proof of "(1) a contract; (2) performance of the contract by one party; (3) breach by the other party; and (4) damages." First Investors Corp. v. Liberty Mut. Ins. Co., 152 F.3d 162, 168 (2d Cir. 1998). There is no dispute with regard to three of the four factors. A contract was formed between the parties, and that contract called for Santana to "provide full-time exclusive services to GFI as a broker" through October 15, 2007. Santana did not perform his obligation under the contract because he left GFI in May 2006. GFI searched for but was unable to find a replacement for Santana, a fact that caused damages because other brokers were forced to cover his customers, adversely affecting their ability to service their customers. (Brown Aff. ¶¶ 10, 13.)

The only dispute is with regard to the second element, whether GFI itself performed, or whether its non-performance freed Santana of his contractual obligations. Santana contends that he decided to leave GFI only after he learned that GFI plotted to steal his customers away from him in favor of other GFI brokers, reducing the compensation he earned. (Santana Opp'n 21.) Santana argues that this plot constitutes an anticipatory breach of GFI's "obligation of good faith and fair dealing." The obligation of good faith and fair dealing, implied in all contracts under New York law, "embraces a pledge that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." 511 West 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144, 153 (2002). A party commits an anticipatory breach when it "manifests an intent not to perform, either by words or by deeds." Aetna Cas. and Sur. Co. v. Aniero Concrete Co., Inc., 404 F.3d 566, 587 (2d Cir. 2005). Such intent is made manifest only by "definite and final communication of the intention to forego performance." Rachmani Corp. v. 9 East 96th Street Apartment Corp., 629 N.Y.S.2d 382, 385 (1st Dep't 1995). For a breach to excuse a party from further performance, it must be "material," meaning that the breach goes "to the root or essence of the agreement" and "defeats the object of the parties in entering into the contract." New Windsor Volunteer Ambulance Corps, Inc. v. Meyers, 442 F.3d 101, 117 (2d Cir. 2006). Thus, for GFI's actions to excuse Santana's non-performance, GFI must have made a "definite and final communication" of its intent to "destroy or injure" Santana's ability to "receive the fruits" of some essential aspect of the Agreement.

Santana has not raised a genuine issue as to whether GFI committed an anticipatory breach. Santana provides evidence that in 2005 GFI contemplated opening an office in Brazil (see Carty Aff. in Opp'n Ex. R at 15-16), that Santana expressed enthusiasm about the prospect of re-locating to Brazil (Carty Aff. in Opp'n Ex. E ΒΆ 14), but that GFI management had "reservations" about assigning Santana to Brazil (Carty Aff. in Opp'n Ex. R at 76-77). And Santana contends that in late 2005 and April 2006, GFI asked him to travel to Brazil to introduce some of his ...


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