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Herzfeld v. JPMorgan Chase Bank

December 15, 2008

ERIK HERZFELD, PLAINTIFF,
v.
JPMORGAN CHASE BANK, N.A., DEFENDANT.



The opinion of the court was delivered by: Denise Cote, District Judge

OPINION & ORDER

This diversity action concerns an ill-fated offer of employment made by defendant JPMorgan Chase Bank, N.A. ("JPMC") to plaintiff Erik Herzfeld ("Herzfeld") in February 2005. JPMC has moved for summary judgment on Herzfeld's sole claim, fraudulent inducement. JPMC's motion for summary judgment is granted.

BACKGROUND

The following facts are undisputed or taken in the light most favorable to the plaintiff. From 2001 to 2005, Herzfeld worked for JPMC in the area of foreign exchange ("FX") options trading, first in Tokyo and later in Singapore. In early February 2005, he received and decided to accept a time-sensitive offer from Bank of America ("BofA") to create an FX correlations trading business based in New York. The offer included a first year compensation guarantee consisting of a base salary and bonus of one million dollars, as well as a guaranteed base salary for a second year. When Herzfeld informed JPMC of the BofA offer and of his intention to resign, his superiors in Asia sent him to New York to meet with Patrik Edsparr ("Edsparr"), the head of JPMC's global proprietary positioning business ("PPB").*fn1 At the time, JPMC had been losing several high-level executives to BofA.

In New York, Herzfeld met with Edsparr and with five or six other members of the PPB team individually over a period of several hours on February 17. During his meeting with Herzfeld, Edsparr discussed the possibility of building an FX correlations trading business within the PPB group. Herzfeld told Edsparr that he was confident he could build such a business and that, in time, it could generate twenty to thirty million dollars a year. That same day, Herzfeld was also interviewed over the telephone by Derek Kaufman ("Kaufman"), a managing director who, as Herzfeld understood, worked closely with Edsparr but was away from New York at the time.

The next afternoon, Edsparr met with Herzfeld once more and offered him the opportunity to create an FX correlations business within JPMC's PPB group in New York. The employment offer came with no guarantees. According to Herzfeld, however, Edsparr did tell him he would have a "brighter future" in JPMC's PPB group than at BofA, and that "over time" he would be better compensated. Herzfeld decided to accept JPMC's offer and to decline the offer from BofA. He began his new position in the PPB group on May 2, 2005.

Herzfeld's endeavor to build an FX correlations business in the PPB group did not go well. In his new position, Herzfeld reported directly to Kaufman, who, in turn, reported directly to Edsparr. Herzfeld was provided with capital for trading, and with at least some resources for hiring junior traders. Herzfeld, however, ended the year 2005 with a loss of about $1.5 million,*fn2 and by October 2006, his losses totaled about $12 million. With Edsparr's authorization, Kaufman ultimately told Herzfeld in late October that he should begin looking for another job. By December 2006, Herzfeld had stopped coming into work, but JPMC kept him on the payroll through January 2007, thus allowing some of Herzfeld's stock awards to vest.

Herzfeld then commenced this lawsuit. In it, he does not challenge the termination of his employment at JPMC. Rather, Herzfeld alleges only that he was fraudulently induced into accepting JPMC's employment offer in 2005, because he "walked into a different job" than the one that had been presented to him on February 18, 2005. Following the close of discovery, JPMC has moved for summary judgment on Herzfeld's sole claim of fraudulent inducement.

DISCUSSION

Summary judgment may not be granted unless all of the submissions taken together "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). The moving party bears the burden of demonstrating the absence of a material factual question, and in making this determination the court must view all facts in the light most favorable to the non-moving party. Sista v. CDC Ixis N. Am., Inc., 445 F.3d 161, 169 (2d Cir. 2006).

The parties agree that New York law governs their dispute. "In New York a plaintiff alleging fraud must show by clear and convincing evidence that the defendant knowingly or recklessly misrepresented a material fact, intending to induce the plaintiff's reliance, and that the plaintiff relied on the misrepresentation and suffered damages as a result." Merrill Lynch & Co. v. Allegheny Energy, Inc., 500 F.3d 171, 181 (2d Cir. 2007). Where a party "seeks to show fraud by omission, it must prove additionally that the [defendant] had a duty to disclose the concealed fact." Id.

Herzfeld asserts that JPMC made three material misrepresentations, each intended to induce Herzfeld to decline his BofA offer and accept JPMC's offer, and upon which Herzfeld relied to his detriment. Herzfeld alleges Edsparr told him: (1) that Edsparr would be Herzfeld's boss; (2) that Herzfeld would have the authority to hire three full-time, experienced traders for his new business; and (3) that Edsparr had been planning to create an FX correlations business in the PPB group.

I. Edsparr as Herzfeld's Boss

Herzfeld testified at his deposition that Edsparr told him he would be Herzfeld's "boss" in the new PPB position. Herzfeld now points to that statement in support of his fraudulent inducement claim, asserting in his affidavit that, "Based upon my experience at JPMC, as well as my understanding of the term, this meant that Edsparr would oversee my business and that I would report directly to him."*fn3 ...


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