Mandell Bhandari LLP, New York (Evan Mandel of counsel), for
Milbank, Tweed, Hadley & McCloy LLP, New York (Scott A.
Edelman of counsel), for respondent.
Acosta, P.J., Manzanet-Daniels, Gische, Kapnick, Kahn, JJ.
Supreme Court, New York County (Saliann Scarpulla, J.),
entered May 24, 2017, which, insofar as appealed from as
limited by the briefs, granted defendant's motion to
dismiss the fraud and negligent misrepresentation claims and
the breach of contract claim to the extent it seeks damages
above the amount allowed under the contractual limitation of
liability clause, and to strike plaintiff's jury demand,
unanimously affirmed, without costs.
a developer of intellectual property relating to
"spread" trading, a type of electronic securities
trading, entered into two agreements with defendant: an
Exclusive License Agreement (ELA) whereby it granted
defendant an exclusive license for its alternative trading
system (ATS) and a Consulting Services Agreement (CSA)
whereby it agreed to perform related consulting services. The
ELA required defendant to use commercially reasonable efforts
to develop and implement necessary software and systems, to
operate and market the ATS, and to launch the ATS by a
defined deadline. Defendant concedes, for purposes of this
motion, that it breached the ELA by not performing any of its
obligations. The contested issue at the heart of this appeal
is whether plaintiff's damages are limited by the
ELA's limitation of liability provision. Defendant is
willing to make full payment of any damages that would be due
under the limitation of liability provision. Plaintiff
contends, however, that it sufficiently alleged intentional
wrongdoing on defendant's part to render the limitation
of liability provision unenforceable.
complaint alleges that plaintiff designed the ATS to be
operated through a "dark pool, " a private exchange
where investors can make trades anonymously. It further
alleges that institutional investors would use the product
only if assured of total anonymity, because technologically
advanced high frequency traders (HFT) could exploit the
leakage of information from dark pools to execute
transactions nanoseconds ahead of investors' trades and
thereby siphon off the investors' anticipated profits.
Plaintiff alleges that it contracted with defendant because
of defendant's public statements about its scrupulous
maintenance of the anonymity of dark pools and its focus on
eliminating pre-trade information leakage - priorities that
defendant allegedly reiterated during the negotiations
leading up to the ELA and the CSA. Neither the ELA nor the
CSA refer to HFTs or dark pools, or otherwise expressly
contain these representations. Plaintiff claims that not only
did defendant fail to perform its obligations under the ELA,
but it also told plaintiff that it would perform only if
plaintiff either allowed defendant's HFTs to
"feast" on spread traders using the ATS or modified
the ATS so that HFTs could "prey on" other
customers. Plaintiff claims that defendant stood to earn
hundreds of millions of dollars by catering to HFTs.
limitation of liability provision in the ELA provides, in
pertinent part, that "neither party's total
liability under this agreement will exceed the total amounts
previously paid by [defendant] to [plaintiff] under this
agreement and the [CSA] prior to the date of the applicable
claim." The CSA contains a similar provision. The ELA
provides that "[t]he parties acknowledge that these
limitations of liability and exclusions of potential damages
were an essential element in setting consideration under this
agreement" (all caps deleted).
not error for Supreme Court to rule on the enforceabilty of
the liability limitation provision, although it is an
affirmative defense, on a motion to dismiss. In the ordinary
course of deciding motions, courts consider whether
documentary evidence establishes an asserted defense, in this
case a defense concerning the limitation of liability
provisions in the parties' contracts (see e.g. Zanett
Lombadier, Ltd v Maslow, 29 A.D.3d 495');">29 A.D.3d 495 [1st Dept 2006]).
York courts routinely enforce such liability-limitation
provisions, especially when negotiated by sophisticated
parties. The Court of Appeals has recognized that "[a]
limitation on liability provision ... represents the
parties' Agreement on the allocation of the risk of
economic loss in the event that the contemplated transaction
is not fully executed, which the courts should honor.
parties] may later regret their assumption of the risks of
non-performance in this manner, but the courts let them lie
on the bed they made"(Metropolitan Life Ins. Co. v
Noble Lowndes Intl., 84 N.Y.2d 430, 436 ).
such clauses are unenforceable when, "[i]n contravention
of acceptable notions of morality, the misconduct for which
it would grant immunity smacks of intentional wrongdoing.
This can be explicit, as when it is fraudulent, malicious or
prompted by the sinister intention of one acting in bad
faith. Or, when, as in gross negligence, it betokens a
reckless indifference to the rights of others, it may be
implicit" (Kalish-Jarcho, Inc. v City of New
York, 58 N.Y.2d 377, 384-85 ; see Abacus Fed.
Sav. Bank v ADT Sec. Servs., Inc., 18 N.Y.3d 675, 683
"type of intentional wrongdoing that could render a
limitation in [a contract] unenforceable is that which is
unrelated to any legitimate economic self-interest'"
(Devash LLC v German Am. Capital Corp., 104 A.D.3d
71, 77 [1st Dept 2013], lv denied 21 N.Y.3d 863');">21 N.Y.3d 863
; Meridian Capital Partners, Inc. v Fifth Ave.
58/59 Acquisition Co. LP, 60 A.D.3d 434');">60 A.D.3d 434 [1st Dept
2009]). Stated otherwise, a party can intentionally breach a
contract to advance a "legitimate economic
self-interest" and still rely on the contractual
limitation provision (Devash, 104 A.D.3d at 77).
contends that defendant's insistence that it allow the
ATS to be used for the benefit of HFTs impermissibly exceeded
the contemplated scope of the ELA and CSA. However, the ELA
gave defendant discretion to modify the ATS, and neither
agreement refers to "dark pools" or protection from
predatory HFTs. Thus, in demanding that plaintiff permit use
of the ATS by HFTs, defendant was not seeking any benefit
that was in conflict with what it was entitled to under the
agreement (see Banc of Am. Sec. LLC v Solow Bldg. Co. II,
L.L.C., 47 A.D.3d 239, 243 [1st Dept 2007], appeal
withdrawn 16 N.Y.3d 796');">16 N.Y.3d 796 ).
broad allegations that defendant insisted that plaintiff
undertake acts constituting securities fraud as a
precondition to defendant's performance under the
parties' contracts does not meet the heightened pleading
requirements for fraud (see CPLR 3016[b]; SNS
Bank v Citibank, 7 A.D.3d 352, 355 [1st Dept 2004]).
Although the allegations globally raise issues that have
recently come under legal scrutiny about how HFTs operate
within dark pools (see e.g., People v Barclays Capital
Inc., 47 Misc.3d 862');">47 Misc.3d 862 [Sup Ct, NY County 2015]; see
also Waggoner v Barclays PLC, (__ F.3d __, 2017 WL
5077355, 2017 U.S. App Lexis [2d Cir 2017]), the complaint is
devoid of specific factual instances of fraud by defendant
. Plaintiff also fails to provide any
explanation of how defendant's alleged acts actually
violate the securities laws. Without more, the factual
allegations in the complaint are insufficient to avoid ...