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Estate of Schneider Sauter v. Citigroup Inc.

United States District Court, S.D. New York

May 27, 2015

CITIGROUP INC., et al., Defendants.


LORNA G. SCHOFIELD, District Judge:

Defendants Citigroup Inc., Grupo Financiero Banamex, S.A. de C.V., Banco Nacional de Mexico, S.A. and Banamex USA move (1) to vacate Plaintiff’s dismissal without prejudice and to dismiss with prejudice all claims asserted in the Amended Complaint and (2) for sanctions against Plaintiff and its counsel under 28 U.S.C. § 1927 and the Court’s inherent powers. For the reasons below, Defendants’ motion is denied.


Plaintiff, the purported Estate of Hans Jorg Schneider Sauter, commenced this action through its counsel, Bart S. Fisher. By Fisher’s own account, litigation “had not been a major focus of [his] practice.” Plaintiff sought to recover funds allegedly deposited in Banco Nacional de Mexico S.A. (“Banamex”), a Mexican bank, by the late Schneider Sauter, a Mexican-Swiss national. Plaintiff asserted that “Banamex owes” it these funds.

The initial Complaint filed July 29, 2014, alleged four causes of action against Banamex, Citigroup Inc. (“Citigroup”) and Banamex USA, involving (1) fraudulent conversion that justifies piercing the corporate veil; (2) a claim under the Alien Tort Claims Act; (3) a claim under the Expedited Funds Availability Act; and (4) a claim for enforcement of money judgments under New York law. On August 27, 2014, Plaintiff, through its counsel, Fisher, filed an Amended Complaint, which added a new Defendant, Grupo Financiero Banamex, S.A. de C.V., new factual allegations and a new cause of action asserted under the Racketeer Influenced and Corrupt Organization Act (“RICO”).

On October 15, 2014, Defendants’ counsel wrote to Fisher, asserting that the Amended Complaint did not comply with Federal Rule of Civil Procedure 11 because, among other things, (1) the estate did not have the capacity to sue; (2) subject matter jurisdiction was lacking because there was not complete diversity of citizenship; (3) personal jurisdiction was lacking over three Defendants; (4) the legal claims were substantively defective; and (5) Plaintiff’s attempt to end-run ongoing judicial proceedings that Plaintiff had initiated in Mexico to seek essentially the same relief sought here violated principles of international comity, forum non conveniens and the act of state doctrine. Defendants’ letter cited relevant authorities and requested that Plaintiff withdraw the Amended Complaint. Defendants’ counsel followed up with a second letter on October 21, 2014, reiterating that the Amended Complaint failed to satisfy Rule 11.

Upon receiving Defendants’ letter, Plaintiff’s counsel, Fisher, conducted additional research on the viability of Plaintiff’s claims and consulted with “experienced litigators.” Fisher concluded that some claims should be withdrawn and others modified. He engaged the services of attorney Susan Burke to assist him with this case.

On October 25, 2014, Fisher, on behalf of Plaintiff, filed a pre-motion letter seeking leave to file a proposed Second Amended Complaint (“SAC”). Plaintiff’s letter stated that, if the Court granted leave to amend, it “would have no objection to the Court vacating the October 29, 2014, response date” for Defendants to respond to the Amended Complaint and “setting a new time for a response by the Defendants.” On October 26, 2014, Defendants responded to Plaintiff’s letter, arguing that Plaintiff should be required to make a formal motion to amend a second time and that Defendants should be permitted to oppose that motion, and requesting that Defendants’ time to file their motion to dismiss Plaintiff’s Amended Complaint be suspended. Plaintiff was ordered to file any motion to amend by November 10, 2014. The October 29, 2014, deadline for Defendants’ response to the Amended Complaint remained in place.

On October 28, 2014, Fisher wrote to Defendants’ counsel, defending the Amended Complaint and expressing no intention to file an SAC. In the letter, Fisher stated that the “Complaint more than meets the standards of pleading in federal courts” and that there is “more than enough controlling legal authority to support the pleadings as filed.” Fisher further stated that the cases cited by Defendants “are clearly distinguishable from this case.” On October 29, 2014, Defendants timely responded to the Amended Complaint with a motion to dismiss. Defendants’ motion made substantially similar arguments to those raised in their letters to Plaintiff and included five supporting declarations. A supporting declaration from a criminal lawyer at Banamex stated that Mexico’s Office of the Attorney General had issued an order prohibiting Banamex from taking any action with respect to Schneider Sauter’s accounts during the pendency of the Attorney General’s ongoing investigation into Schneider Sauter’s estate. Banamex’s attorney in Mexico City provided a declaration regarding ongoing litigation and administrative proceedings in Mexico, commenced before this action, concerning Plaintiff’s entitlement to the funds at issue.

Defendants expended over 800 hours preparing their motion papers; this time included travel to Mexico City to investigate the factual allegations in the Amended Complaint. Defendants engaged a third-party vendor to translate into English for its counsel’s review more than 700 pages of Spanish-language documents, primarily legal documents filed in various pending Mexican judicial and administrative proceedings. Defendants also involved Mexican counsel in the preparation of the motion.

On November 10, 2014, Plaintiff, through Fisher, timely filed a motion seeking leave to file a proposed SAC, and attached it as an exhibit. The proposed SAC was a complete rewrite of the previous Complaints. It dropped all three foreign Defendants over whom Defendants argued the Court lacked personal jurisdiction, including Banamex, leaving Citigroup as the only remaining Defendant. The proposed SAC also jettisoned all four claims asserted in the Amended Complaint and instead replaced them with five new claims against Citigroup for (1) fraud; (2) breach of statutory banking duties; (3) negligence for violating purported duties Citigroup “owe[d] . . . to its depositories”; (4) negligent hiring and supervision; and (5) accounting and the imposition of a constructive trust.

In support of these new claims, the proposed SAC asserted new factual allegations at odds with those made in the prior complaints. Where the Amended Complaint attributed almost all of the purportedly wrongful acts to Banamex, the proposed SAC now attributed this conduct to Citigroup. For instance, the Amended Complaint at paragraph 34 asserted:

Judge Navarro Hernandez [in Mexico’s probate court] has issued 13 orders to Banamex between March 4, 2013, and April 7, 2014, to turn over funds from Schneider Sauter’s accounts and give information about those accounts to the Schneider Sauter Estate. Banamex has defied and disregarded all of them, and has responded by ...

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