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Negrete v. Citibank, N.A.

United States District Court, S.D. New York

February 24, 2017

EDUARDO NEGRETE AND GERVASIO NEGRETE, Plaintiffs,
v.
CITIBANK, N.A., Defendant.

          Attorneys for Plaintiffs LIDDLE & ROBINSON, LLP By: Blaine H. Bortnick, Esq., James W. Halter, Esq., Read K. McCaffrey, Esq., Atoosa Esmaili, Esq.

          Attorneys for Defendant GOODWIN PROCTER, LLP By: Marshall H. Fishman, Esq. Samuel J. Rubin, Esq.

          OPINION

          Robert W. Sweet, D.J.

         Defendant Citibank, N.A. ("Citi" or "Defendant") has moved pursuant to Federal Rules of Civil Procedure 8(a), 9(b) and 12(b)(6) to dismiss the amended complaint (the "First Amended Complaint" or "FAC") filed by Eduardo Negrete and Gervasio Negrete (the "Negretes" or "Plaintiffs"). The Plaintiffs have cross-moved pursuant to Federal Rule of Civil Procedure 56 for partial summary judgment for breach of contract. Upon the facts and conclusions set forth below, the motion of Citi to dismiss is granted in part and denied in part, and the cross-motion of the Negretes for partial summary judgment is denied.

         Prior Proceedings

         The Plaintiffs filed their complaint (the "Complaint" or "Compl.") on September 16, 2015. The Complaint alleged that Citibank defrauded the Negretes and breached certain contracts that were memorialized by International Swaps and Derivatives Association ("ISDA") Master Agreements for foreign exchange ("FX") transactions. (Compl. at ¶ 5, 6). The Complaint alleged millions of dollars in lost profits because Defendant had charged undisclosed markups for certain transactions with the Plaintiffs.

         The Complaint was dismissed, and Plaintiffs' motion for partial summary judgment was denied in a May 19, 2016 opinion. That Court dismissed the fraud claims because they failed to plead: (1) with particularity under Rule 9(b); (2) scienter; (3) reasonable reliance; and (4) loss causation. The breach of contract claims for markups were dismissed because they failed to plead the essential terms of the alleged agreement between the parties, and there were no individual transactions pled in the Complaint. The claims for breach of contract for inappropriate margin calls were dismissed because the damages sought were lost profits, and lost profits were excluded under the terms of the ISDAs. The partial summary judgment motion for markups was dismissed for the same reasons as the breach of contract claim. The complaint was dismissed in its entirety with leave to replead.

         Plaintiff filed the FAC on June 20, 2016. The FAC included over 35 specific allegations of breaches and fraudulent conduct. The claims were fraud, fraudulent misrepresentations, and breach of contract. The Defendant's motions to dismiss and the Plaintiffs' cross-motion for partial summary judgment were both filed on July 27, 2016. Defendant's motion and the Plaintiffs' cross-motion for partial summary judgment were both heard and marked fully submitted on October 27, 2016.

         The Facts

         The parties have established certain allegations pled in the FAC as well as statements of fact pursuant to Federal Rule of Civil Procedure 56.1.

         The Allegations in the FAC

         The allegations in the FAC describe over 35 different transactions demonstrating allegedly fraudulent conduct, which are also in breach of the ISDAs. These allegations include markups and claims that Defendant failed to execute certain trades. Plaintiffs provided 22 examples of markups in which Defendant traded with Plaintiffs for the exact price at which they agreed even though Defendant could have obtained a better price. FAC at ¶¶ 35-56. Further, Plaintiffs allege that on at least five occasions, Defendant did not execute on certain trades even though the market reached the threshold of Plaintiffs' limit orders. FAC at ¶¶ 71-75.

         On another 10 occasions, Plaintiffs allege that Defendant only partially executed certain trades, even though the market reached the threshold of Plaintiffs' orders. FAC at ¶¶ 83-92. One example is that Plaintiffs placed an order for $10, 000, 000 of Mexican Pesos at a certain level, but Defendant only filled $1, 000, 000 of the trade. FAC at ¶ 87. For nine of the 10 trades that were partially executed, the damages alleged are the markup between the agreed price and the best available price. FAC at ¶¶ 83-92. However, one trade alleges damages because Plaintiffs were forced to complete the trade at a less advantageous price than the agreed upon price in order to complete the partially executed transaction. FAC at ¶ 83.

         The Statements of Material Facts Pursuant to Rule 56.1

         The facts relating to the cross motion for summary judgment are set forth in the Plaintiffs' Statement pursuant to Local Rule 56.1, and the Defendant's Counterstatement-in Opposition to Plaintiffs' Rule 56.1 Statement and are not in dispute except as noted below.

         Plaintiffs Eduardo and Gervasio Negrete are Mexican citizens, who maintained several bank accounts with Defendant Citibank. Plaintiffs' 56.1 Statement at ¶¶ 1-3. The parties entered into an ISDA Master Agreement on October 30, 2007 (the "2007 ISDA"), as well as a Schedule to that Agreement, a Security Agreement, and an addendum to the Security Agreement, which were all dated October 30, 2007. Plaintiffs' 56.1 Statement at ¶¶ 4-7. The parties entered into Amendment No. 1 to the 2007 ISDA on December 5, 2008, Amendment No. 2 on December 5, 2008, and Amendment No. 3 on March 5, 2014. Plaintiffs' 56.1 Statement at ¶¶ 8-10. Plaintiffs and Partizan S.A. de CV entered into a Credit Support Annex to the 2007 ISDA with Defendant dated March 5, 2014. Plaintiffs' 56.1 Statement at ¶ 11.

         Plaintiff Gervasio Negrete entered into an ISDA Master Agreement with Defendant dated August 13, 2010 (the "2010 ISDA"), as well as a Schedule to that Agreement and a Credit Support Annex, both dated August 13, 2010. Plaintiffs' 56.1 Statement at ¶¶ 12-14. Plaintiff Gervasio Negrete entered into Amendment No. 1 to the 2010 ISDA with Defendant on May 17, 2013. Plaintiffs' 56.1 Statement at ¶ 15. Plaintiff Gervasio Negrete and Partizan S.A. de CV entered into a Credit Support Annex to the 2010 ISDA with Defendant on May 17, 2013. Plaintiffs' 56.1 Statement at ¶ 16.

         The parties dispute when a contract was formed. Plaintiffs assert that the ISDAs state: "The parties hereto agree that with respect to each Transaction hereunder a legally binding agreement shall exist from the moment that the parties hereto agree on the essential terms of such Transaction, which the parties anticipate will occur by telephone." Slipp Decl., Ex. A at 28 of 77 (Part 5(1)(a)) and Ex. B at 41 of 83 (Part 5(c)(1)).

         However, Defendant asserts that the ISDAs also state: "For each Transaction Party A [Defendant] and Party B [Plaintiffs] agree to enter into hereunder, Party A shall promptly send to Party B a Confirmation setting forth the terms of such Transaction. Party B shall execute and return the Confirmation to Party A or request correction of any error within three Business Days of receipt except in the case of Transactions covered by Part 6, in which case the Confirmations will be deemed to be correct unless Party B notifies Party A or an error within three Business Days of receipt. Failure of Party B to respond within such period shall not affect the validity or enforceability of such Transaction and shall be deemed to be an affirmation of such terms." Slipp Decl., Ex. A at 28-29 of 77 (Part 5(1)(b)) and Ex. B at 41 of 83 (Part 5(c)(2) (there is one difference between the two ISDAs for this passage, which is that Ex. B allows for a period of ten days for the exception of transactions covered by Part 6 and Ex. A only allows for three days for the same transactions. The text from Ex. A is quoted above.)).

         While Plaintiffs assert that pursuant to the ISDAs, Plaintiffs instructed Citibank to execute thousands of transactions, sometimes as many as 10-15 per day, Defendant disputes that Plaintiffs have not supported these estimates with any admissible evidence relating to the total number and frequency of trades. Plaintiffs' 56.1 Statement at ¶ 19; Defendants' 56.1 Counterstatement at ¶ 19.

         While Plaintiffs assert that the total value of the FX trades was approximately $15 billion per year, Defendant disputes that Plaintiffs have not supported this estimate with any admissible evidence. Plaintiffs' 56.1 Statement at ¶ 20; Defendants' 56.1 Counterstatement at ¶ 20.

         Plaintiffs assert that the ISDAs do not reference any markup or commission on the FX trades, however Defendant disputes this characterization and refers to the ISDA Agreements for the context and complete content of their terms. Plaintiffs' 56.1 Statement at ¶ 21; Defendants' 56.1 Counterstatement at ¶ 21. Plaintiffs also assert that Defendant never informed Plaintiffs that it was "marking-up" Plaintiffs' trade instructions or that Defendant was taking any commission. Plaintiffs' 56.1 Statement at ¶ 22. However, Defendant disputes that these statements are supported by admissible evidence and further asserts that Plaintiffs were aware Defendant was not transacting free of charge and that Defendant would try to make a profit on trades. Defendants' 56.1 Counterstatement at ¶ 22.

         Plaintiffs assert that Defendant never told Plaintiffs that Defendant would only execute their transactions if it could achieve a markup, ' however Defendant disputes this statement because it is not supported by admissible evidence and because Defendant asserts that Plaintiffs were aware that Defendant would try to make a profit on the trades. Plaintiffs' 56.1 Statement at ¶ 23; Defendants' 56.1 Counterstatement at ¶ 23.

         Plaintiffs assert that they performed all of their obligations under the ISDA Agreements, however Defendant disputes that there is any evidentiary support for this position. Plaintiffs' 56.1 Statement at ¶ 24; Defendants' 56.1 Counterstatement at ¶ 24.

         Plaintiffs assert that on approximately May 20, 2015, Citicorp, an affiliate of Defendant, agreed to plead guilty to one count of conspiring to rig bids in the FX Spot Market between December 2007 and January 2013 in violation of the Sherman Antitrust Act. Plaintiffs' 56.1 Statement at ¶ 25. Defendant disputes that this fact is material because the violation in that case is not at issue in this case and there are no antitrust claims in this case. Defendants' 56.1 Counterstatement at ¶ 25.

         Plaintiffs assert that this plea agreement stated that Citicorp "through its currency traders and sales staff, also engaged in other currency trading and sales practices in conducting FX Spot Market transactions with customers via telephone, email, and/or electronic chat, to wit: (i) intentionally working customers' limit orders one or more levels, orApips, ' away from the price confirmed with the customer; (ii) including sales markup, through the use of live hand signals or undisclosed prior internal arrangements or communications, to prices given to customers that communicated with sales staff on open phone lines; (iii) accepting limit orders from customers and then informing those customers that their orders could not be filled, in whole or in part, when in fact the defendant was able to fill the order but decided not to do so because the defendant expected it would be more profitable not to do so; and (iv) disclosing non-public information regarding the identity and trading activity of the defendant's customers to other banks or other market participants, in order to generate revenue for the defendant at the expense of its customers." Halter Decl., Ex. 1 at ¶ 13. However, Defendant disputes this statement because it is immaterial and misleading in that it suggests a nexus with this case despite the fact that Plaintiffs have not shown the relevance or connection between this statement and this case. Defendants' 56.1 Counterstatement at ¶ 26.

         Plaintiffs assert that the United States Department of Justice ("DOJ") required that Citibank disclose the conduct described in paragraph 26 to its customers. (Halter Decl., Ex. 1 at ¶¶ 9(c)(i) and 13 and Ex. 2 ("DOJ Required Disclosure")). Defendant disputes that this statement is material and asserts that the statement is misleading in that it suggests a nexus with the instant case, when the statement is not relevant to the present facts. Defendants' 56.1 Counterstatement at ¶ 27.

         Plaintiff asserts that the DOJ also required that, "The defendant shall implement and shall continue to implement a compliance program designed to prevent and detect the conduct set forth in Paragraph 4 (g)-(i) above and, absent appropriate disclosure, the conduct in Paragraph 13 below . . . ." (Halter Decl., Ex. 1 at 9(c)(iii)). Defendant disputes that this statement is material and asserts that the statement is misleading in that it suggests a nexus with the ...


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