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Allied Irish Banks, P.L.C. v. Bank of America

July 12, 2012

ALLIED IRISH BANKS, P.L.C. PLAINTIFF,
v.
BANK OF AMERICA, N.A. AND CITIBANK, N.A., DEFENDANTS



The opinion of the court was delivered by: Gabriel W. Gorenstein, United States Magistrate Judge

OPINION AND ORDER

Allied Irish Banks, p.l.c. ("AIB") brought this suit against Citibank, N.A. ("Citibank") and Bank of America, N.A. seeking damages arising out of a rogue trading scheme perpetrated by one of AIB's traders, John Rusnak. The scheme is alleged to have resulted in $691 million in losses to AIB. Bank of America, N.A. is no longer a party to the action. Citibank now moves to strike AIB's demand for trial by jury.*fn1 For the reasons discussed below, Citibank's motion is granted.*fn2

I. BACKGROUND

In its Amended Complaint, AIB alleges six claims for relief against Citibank and Bank of America, N.A.: (1) fraud and fraudulent concealment, see Amended Complaint, filed Oct. 22, 2009 (Docket # 119) ("Compl.") ¶¶ 244-255; (2) aiding and abetting fraud, see id. ¶¶ 256-260; (3) aiding and abetting breach of fiduciary duty and duty of loyalty, see id. ¶¶ 261-266; (4) rescission and restitution for lack of authority and lack of consideration, see id. ¶¶ 267-270; (5) money had and received, see id. ¶¶ 271-274; and (6) unjust enrichment, see id. ¶¶ 275-278. The claim identified as "aiding and abetting breach of fiduciary duty and duty of loyalty" was dismissed prior to the filing of the Amended Complaint, see Allied Irish Banks, P.L.C. v. Bank of America, N.A, 2006 WL 278138, at *12-13 (S.D.N.Y. Feb. 2, 2006), though AIB included it in the Amended Complaint to "preserve its rights, including its rights on appeal," Compl. at 46 n.1. The remaining claims other than the first two claims are equitable in nature and AIB has conceded that it has no right to a jury with respect to these claims. See Opp. Mem. of Law at 38. Thus, the question of the availability of a jury is limited to AIB's claims of fraud and fraudulent concealment, and aiding and abetting fraud.

According to AIB's complaint, John Rusnak was hired as a foreign exchange trader at Allfirst Bank ("Allfirst"), a former subsidiary of AIB, in 1993. Compl. ¶¶ 1, 41. He was hired to trade "foreign exchange for Allfirst's own account," -- that is, "proprietary" trading. Id. ¶ 41. There are three general types of foreign exchange transactions. See id. ¶ 23. Spot transactions "involve the purchase of one currency with another currency, and are settled within two business days of the trade." Id. ¶ 24. Forward transactions are similar to spot transactions, except that they settle at some point in the future. Id. ¶ 25. Foreign exchange options give the purchaser the right, but not the obligation, to buy or sell currency at a specified price on or before a specified date in the future. Id. ¶ 26. In exchange for this right, the option purchaser pays the option seller an up-front payment, called a "premium." Id.

On March 28, 2000, Citibank and Allfirst entered into an International Foreign Exchange Master Agreement (IFEMA). See The 1997 International Foreign Exchange Master Agreement, dated Mar. 28, 2000 (annexed as Ex. F to Lasker Decl.) ("IFEMA"). The IFEMA is a form master agreement that was drafted by the Financial Markets Lawyers Group and adopted by the Foreign Exchange Committee ("FX Committee"). See Gross Decl. ¶ 1; Marjorie E. Gross, Standard FX Forms Help Documentation Task, Futures and Derivatives Law Report, Dec. 1996 ("Standard FX Forms") (annexed as Ex. 3 to Lang Decl.) at 14-15. Citibank was a member of the FX Committee during the period relevant to this lawsuit. Gross Decl. ¶¶ 2-3. It is undisputed that the IFEMA covers spot transactions and forward transactions. The FX Committee published two other form agreements: the International Currency Options Market Master Agreement (ICOM) and the Foreign Exchange and Options Master Agreement (FEOMA). See Standard FX Forms at 14-15; Gross Decl. ¶¶ 4-5. Unlike the IFEMA, the ICOM and FEOMA agreements include provisions specifically directed to the treatment of option transactions. See Gross Decl. ¶¶ 20, 21, 24, 28.

The IFEMA signed by Citibank and Allfirst contained a jury waiver provision which states: "Waiver of Jury Trial. Each Party irrevocably waives any and all right to trial by jury in any Proceedings." See IFEMA at CITI-AIB 131 § 9.3 (underlining in original). "Proceedings," in turn, are defined as "any suit, action or other proceedings relating to the Agreement or any FX transaction." IFEMA at CITI-AIB 121. "FX Transaction" is an abbreviation for "foreign exchange transaction" and is defined as: any transaction between the Parties for the purchase by one Party of an agreed amount in one Currency against the sale by it to the other of an agreed amount in another Currency, both such amounts either being deliverable on the same Value Date or, if the Parties have so agreed in Part VI of the Schedule, being cash-settled in a single Currency, which is or shall become subject to the Agreement and in respect of which transaction the Parties have agreed (whether orally, electronically or in writing): the Currencies involved, the amounts of such currencies to be purchased and sold, which Party will purchase which Currency and the Value Date.

IFEMA at CITI-AIB 120.*fn3

To support its two fraud-related claims, AIB makes allegations regarding Citibank's alleged concealment of its foreign exchange website and Citibank's alleged corruption of the confirmation process. See Compl. ¶¶ 62-79, 84-101. AIB does not contend it has a right to a jury trial with respect to these claims, however. See Opp. Mem. of Law at 3 n.2. Accordingly, what remains are AIB's claims regarding what it terms "sham options" that Citibank transacted with Rusnak. See Compl. ¶¶ 102-222. AIB alleges that these sham options provided Rusnak with tens of millions of dollars that enabled him to continue his foreign exchange trading and damage AIB further. AIB identifies three different types of "sham options" that Citibank personnel allegedly engineered with Rusnak. First, it alleges that Citibank conducted four "disguised cash advances" with Rusnak totaling approximately $80 million. Id. ¶¶ 132-152. Second, it alleges that Citibank provided Rusnak with a "synthetic loan" in the amount of approximately $125 million. Id. ¶¶ 164-179. Third, it alleges that Citibank created certain "phony trades" to help Rusnak conceal his trading activity from Allfirst. Id. ¶¶ 199-222.

II. APPLICABLE LAW

"When asserted in federal court, the right to a jury trial is governed by federal law.

Although the right is fundamental and a presumption exists against its waiver, a contractual waiver is enforceable if it is made knowingly, intentionally, and voluntarily." Merrill Lynch & Co. v. Allegheny Energy, Inc., 500 F.3d 171, 188 (2d Cir. 2007) (citations omitted). In considering whether the waiver of a right to a jury trial was knowing and voluntary, courts must consider: "1) the negotiability of contract terms and negotiations between the parties concerning the waiver provision; 2) the conspicuousness of the waiver provision in the contract; 3) the relative bargaining power of the parties; and 4) the business acumen of the party opposing the waiver." Morgan Guar. Trust Co. of N.Y. v. Crane, 36 F. Supp. 2d 602, 603-04 (S.D.N.Y. 1999) (citing Sullivan v. Ajax Navigation Corp., 881 F. Supp. 906, 911 (S.D.N.Y. 1995)); accord Price v. Cushman & Wakefield, Inc., 808 F. Supp. 2d 670, 705 (S.D.N.Y. 2011). "The burden of proving that a waiver was knowing and intentional rests with the party attempting to enforce the purported waiver." Lehman Bros. Holdings Inc. v. Bethany Holdings Grp., LLC, 801 F. Supp. 2d 224, 229 (S.D.N.Y. 2011) (internal quotation marks and citation omitted). Although some courts state that jury waivers are construed narrowly, courts have not hesitated to enforce jury waivers as written. See, e.g., Wechsler v. Hunt Health Sys., Ltd., 2003 WL 21878815, at *6 (S.D.N.Y. Aug. 8, 2003) ("The language of enforceable waiver provisions must be construed literally.").

The parties make arguments regarding whether the definition of "FX Transaction" in IFEMA covers option contracts. It is not necessary to reach these arguments, however, because we conclude that the claims in this case "relat[e] to" spot and forward foreign exchange transactions, which AIB agrees are governed by the IFEMA. Also, because AIB does not dispute that it entered ...


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