United States District Court, S.D. New York
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.
W. Sweet, D.J.
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.
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
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
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,
parties have established certain allegations pled in the FAC
as well as statements of fact pursuant to Federal Rule of
Civil Procedure 56.1.
Allegations in the FAC
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
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 ¶
Statements of Material Facts Pursuant to Rule 56.1
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.
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.
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.
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
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
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.
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.
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.
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.
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.
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.
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.
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.
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 ...