Plaintiff Lauro Rezende ("Plaintiff" or "Rezende") commenced this action on November 12, 2009, when he filed a complaint against Citigroup Global Markets, Inc. ("Citigroup"), alleging that CGMI improperly blocked his access to brokerage accounts that he controlled. In his complaint, Rezende alleged causes of action for conversion and violation of his rights of privacy; he also requested equitable relief in the form of a declaratory judgment. On December 29, 2009, CGMI filed its answer to Rezende's complaint, and, asserting its status as a neutral stakeholder of the accounts, interplead Rezende, Companhia Siderurgica Nacional ("CSN"), a Brazilian mining company, and International Investment Fund ("IIF"), a Belize company, any of whom Citigroup believed may be the rightful owner of the holdings in the accounts that were frozen. On February 5, 2010, CSN and IIF jointly answered Citigroup's counterclaim for interpleader, and at the same time, brought cross-claims against Rezende; the latter were amended on April 27, 2010. In the cross-claims, CSN and IIF asserted causes of action against Rezende for conversion, fraud, and tortious interference with contract, and also requested equitable relief in the form of declaratory judgment against Rezende and a constructive trust in their favor.
On September 30, 2010, Citigroup submitted its fully-briefed motion seeking discharge as the interpleader stakeholder, and seeking summary judgment on the claims that Rezende alleged in the Complaint. For the reasons that follow, Citigroup's motion is hereby granted.
A. The Citigroup Accounts
Rezende is a citizen of Brazil, where he resides. Rezende was an employee of CSN from late 1996 through June 2002, and from June 2002 to June 23, 2005, during which time he was CSN's Chief Financial Officer. In the 1990s, CSN acquired a block of shares of M.R.S. Logistica S.A. ("MRS"), a Brazilian railroad company, and in 1999, decided to create a subsidiary to hold some of those shares, so that it could continue to acquire shares of MRS without running afoul of potential share ownership restrictions imposed by the Brazilian National Transportation Agency. Amended Crossclaims at ¶ 15. In order to effect the transfer, CSN's general counsel, Claudio de Azeredo Santos ("Santos") instructed the company's outside counsel in Brazil to form a company in Belize, who, in turn, contacted a Panamanian law firm licensed to act as a registered agent and incorporate international businesses in Belize. The Panamanian firm incorporated IIF as a Belize company on November 29, 1999, and the certificate of incorporation, two bearer share certificates, and other founding documents were sent to CSN.
Between December 3, 1999 and September 24, 2000, the newly-formed IIF bought 10,253,703 shares of MRS from CSN. The parties agree that the purpose of the transfer was to allow CSN to continue to acquire shares of MRS. CSN was party to a shareholder agreement that required it to purchase additional MRS shares from when offered by its shareholders, but by 1999, it was nearing the cap on the amount of MRS shares that it could legally own. The parties agree that Rezende paid $200,000 from his own funds toward's IIF's purchase of MRS shares and CSN financed the balance of IIF's purchase. IIF then repaid CSN for the purchase loans with funds originating from Rezende's compensation. On this basis, Rezende claims to be the owner of IIF.
On May 11, 2005, MRS announced that it would start paying dividends. On May 16, 2005, Rezende opened a bank account in the name of IIF (the "IIF Account") at Citigroup in New York, signed the account opening documents, and designated himself the sole authorized signatory. He provided IIF's legal address in Belize, but gave a New York mailing address for correspondence related to the account. From 2005 to 2008, MRS transferred dividends totaling in excess of $14 million*fn1 to the IIF Account upon written instructions given by Rezende. IIF and CSN claim to have had no knowledge of these deposits or of the IIF account that Rezende opened at Citigroup, and believed that MRS held and would continue to hold any dividends for IIF's benefit. Manning Aff. Ex. BB 3 at ¶ 5 ("Lazcano Aff."). On September 11, 2006, Rezende transferred $3,300,000 from the IIF Account to another Citigroup account that he had established in the name of Rubi Company Ltd. (the "Rubi Account"). On March 6, 2007, Rezende transferred $1,700,000 from the IIF Account to a third account at Citigroup that he had established, this time in the name of Hago Overseas Inc. (the "Hago Account") (the three accounts discussed in this paragraph are hereinafter referred to collectively as "the Accounts").
In early June 2008, CSN contemplated a transaction that would have involved the transfer of the MRS shares held by IIF. Accordingly, Lazcano, believing that MRS held the dividends for IIF's benefit, contacted MRS about the balance of the dividend payments owed to IIF. MRS informed Lazcano that it had been instructed to pay the dividends into an account at Smith Barney (then a division of Citigroup) and had done so over the course of three years. MRS provided Lazcano with copies of the written transfer instructions signed by Rezende. Lazcano immediately contacted Citigroup and asked it to block the account and to track the movement of funds through the account. He also notified MRS that IIF had not authorized the payment instructions, and asked MRS not to make any further dividend payments to the IIF Account, and to contact Citigroup to request that it freeze the IIF account.
On June 11, 2008, MRS asked Citigroup to freeze the IIF Account and the Hago Accounts. MRS said, "The reason for this request is because we believe the funds in the accounts have been obtained fraudulently," noting that a significant portion of the funds in the accounts were dividends paid on shares of MRS stock that had gone missing in 2005 and were replaced by newly issued shares. Schwed Aff., Ex. K. Also on June 11, 2008, the directors of IIF faxed a letter to Citigroup requesting that it block all transfers from the IIF account. Schwed Aff., Ex. L. At about the same time, Citigroup received a faxed letter from Rezende claiming to be the legitimate owner of IIF and to possess all original documentation and proof of his ownership. Schwed Aff., Ex. M. Rezende demanded that Citigroup transfer all the funds out of the IIF Account to an account at the Safra National Bank. Id. Faced with these competing demands to ownership, Citigroup froze all three Accounts.
On June 16, 2008, IIF commenced in action again st Rezende in New York State Supreme Court, seeking attachment of the Accounts. Rezende immediately agreed to a stipulation restraining the Citigroup accounts pending the outcome of IIF's motion for an attachment, pursuant to which the Supreme Court entered an injunction barring transfer of the funds in the Accounts. By order dated June 9, 2009, the state court granted Rezende's motion to dismiss on grounds of forum non conveniens and directed that its injunction would remain in effect for 10 days from the date of the order.
On June 11, 2009, while the state court injunction was still in effect, IIF and CSN commenced an action against Rezende in the Supreme Court of Belize, seeking a declaration of their exclusive rights to all funds in and passing through the IIF Account, and declaring Rezende's lack of right to any such funds. Schwed. Aff., Ex. O. The Supreme Court of Belize immediately issued an order (the "Belize Injunction") enjoining and restraining Rezende and Citigroup from transferring, pledging, or otherwise disposing of the Funds in the Accounts. A copy of that order was mailed to Citigroup in New York. Id. On October 28, 2010, counsel for Rezende informed me that the Belize court had dissolved the injunction, concluding that it had no jurisdiction over an in personam action against Rezende. See Patterson Letter of October 28, 2010.
On November 4, 2009, Rezende sent another letter to Citigroup to request that it release the funds in the Accounts. Schwed Aff., Ex. R. After Citigroup refused, Rezende served Citigroup with the Complaint in this action on November 17, 2009, claiming total and exclusive rights to own and control the funds. In the Complaint, Rezende sought a declaratory judgment declaring that the Belize Court has no jurisdiction over the accounts and that Citigroup's restraint of the funds in the Accounts was unlawful, and also asserted causes of action for conversion and violation of privacy. Citigroup filed its Answer on December 29, 2009, and at the same time, filed its Counter-Claim in Interpleader against Rezende, CSN, and IIF. IIF and CSN filed their Answer to the Interpleader on December 29, 2009, along with cross-claims against Rezende. Rezende immediately moved to dismiss the cross-claims and sought summary judgment dismissing the interpleader on the grounds that Citigroup had unclean hands and was guilty of laches. I dismissed Rezende's motion for summary judgment and on July 1, 2010, ordered Citigroup to deposit the contested funds with the Clerk of Court. Citigroup deposited $12,652,550.34 ...