Negrete et al v. Citibank, N.A.

Filing 49

OPINION re: 30 CROSS MOTION for Partial Summary Judgment, filed by Eduardo Negrete, Gervasio Negrete, 13 MOTION to Dismiss, filed by Citibank, N.A. Upon the conclusions set forth above, the motion of the Defendant to d ismiss the Complaint is granted without prejudice and with leave to amend, and the cross - motion of the Plaintiffs for partial summary judgment for breach of contract is denied. (As further set forth in this Order.) (Signed by Judge Robert W. Sweet on 5/19/2016) (spo)

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DOCUMENT
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ELECTRONICALLY FILED 1
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USDCSDNY
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

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DOC#:~-r=--hrl+~r-­

DATEFILED:

EDUARDO NEGRETE AND GERVASIO NEGRETE,
Plaintiffs,
-against-

15 Civ. 7250
OPINION

CITIBANK, N .A.,
Defendant.

----------------------------------------x
A P P E A RA N C E S:

Attorneys for Plaintiffs
LIDDLE & ROBINSON, LLP
800 Third Avenue
New York, NY 100 22
By:
Blaine H. Bortnick, Esq.
James W. Halter, Esq.
Read K. Mccaffrey, Esq.
Atoosa Esmaili, Esq.

Attorneys for Defenda nt

FRESHFIELDS BROCKHAUS DERINGER US LLP
601 Lexington Avenue
New York, NY 100 22
By : Marshall H. Fishman , Esq.
Samuel J. Rubin, Esq.
Elana S. Bildner, Esq.

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 Complaint (the "Complaint" or
"Compl.")

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, and the cross -motion of the Negretes for partial
summary judgment is denied.

Prior Proceedings

The Plaintiffs filed their complaint on September 16,
2015 that alleged the Negretes are Mexican citizens who signed
International Swaps and Derivatives Association ("ISDA") Master
Agreements with Citi in order to execute foreign exchange ("FX")
transactions through Citi (Compl . at

~

5, 6).

The Complaint alleged a course of conduct over 27
years, involving millions of dollars, and thousands of
1

transactions approximating $15 billion a year (Compl. at ! 813). The complaint alleged that in the course of these
transactions, the Defendant maintained an undisclosed 1 to 3
basis point mark-up which resulted trades not being executed and
misrepresented the reason that the trades were not executed
(Compl. at ! 14-24).

In May 2015 , the Defendant disclosed to its customers
certain practices which the Plaintiffs estimate produced a $20
million profit for Citi and caused the Plaintiffs to lo se the
opportunity to profit (Compl . at ! 25 - 31).

The Complaint also alleged co llatera l was
miscalculated causing order cancellations damaging the
Plaintiffs (Compl. at

~

31-65).

The Complaint alleged six causes of action:
arising out of the undisclosed markups

(1)

fraud

(Compl. at ! 66-72),

(2)

breach of contract arising out of the undisclosed markups
(Compl . a t ! 73-79),

(3) breach of contract arising out of a

cancelled order (Compl. a t ! 80-86) ,

(4) negligence arising out

of the cancelled order (Compl. a t ! 87-9 1),

(5) breach of

contract arising out of "numerous" margin calls (Compl . at !

2

92 -

100), and (6) negligence arising out of "numerous" margin calls
(Compl. at

~

101-105).

The motion of Citi and the Negretes' cross-motion for
partial summary judgment on their second cause of action were
heard and marked fully submitted on January 28, 2015.

The Facts

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

The Negretes are Mexican citizens who maintained
several bank accounts with Citi. Plaintiffs entered into an ISDA
Agreement with Defendant on October 30, 2007

(" 2 007 ISDA Master

Agreement") together with its amendments (the "2007 ISDA''),
which governed a number of Foreign Exchange ("FX") and other
derivative transactions on behalf of Plaintiffs. Citi refers to
the terms of the 2 007 ISDA for the contents thereof.

3

Plaintiffs entered into a Schedule to the 2007 ISDA
Master Agreement with Defendant dated October 30 , 2007.
Plaintiffs entered into a Security Agreement to the 2007 ISDA
Master Agreement with Defendant dated October 30, 200 7.
Plaintiffs entered into an Addendum to the Security Agreement to
the 2007 ISDA Master Agreement with Defendant dated October 30 ,
2007 . Plaintiffs entered into Amendment No. 1 to the 2007 ISDA
Master Agreement with Defendant dated December 5 , 2008 .

(Halter

Deel. Ex. 3 at 45-48 of 77). Plaintiffs entered into Amendment
No. 2 to the 2007 ISDA Master Agreement with Defendant dated
December 5, 2008 . Plaintiffs en ter ed into Amendment No. 3 to the
200 7 ISDA Master Agreement with Defendant dated March 5 , 2014.
Plaintiffs and Partizan S.A. de CV entered into a Credit Support
Annex to the 2007 ISDA Master Agreement with Defendant dated
March 5, 2014.

Plaintiff Gervasio Negrete entered into an ISDA Master
Agreement with Defendant dated August 13, 2010 ("2010 ISDA
Master Agreement"), entered into a Schedule to the 2010 ISDA
Master Agreement with Defendant dated August 13, 2010, and
entered into a Credit Support Annex to the 2010 ISDA Master
Agreement with Defendant dated August 13, 2010. He entered into
Amendment No. 1 to the 2010 ISDA Master Agreement with Defendant

4

dated May 17, 2013 . Plaintiff Gervasio Negrete and Partizan S.A.
de CV entered into a Credit Support Annex to the 2010 ISDA
Master Agreement with Defendant dated May 17, 2013.

The ISDA Agreements were not alone full agreements for
any Foreign Exchange trade. While the ISDAs would govern certain
elements of all trades between the parties, Plaintiffs and
Defendant would still need to negotiate the essential terms of
each individual trade. "The parties [Plaintiffs and Defendant].
agree[d ] that with respect to each Transaction [purs uant to
the ISDAs] a legally binding agreement
moment that the parties .

. exist [ed] from the

agreed on the essential terms of

such Transaction" including§ l(c)) that "All Transactions are
entered into in reliance on the fact that this Master Agreement
and all Confirmations form a single agreement between the
parties (collectively referred to as this 'Agreement'), and the
parties would not otherwise enter into any Transactions."
(Halter Deel. Ex. 3 at 28 of 77, Ex. 4 at 41 of 83 . )

Plaintiffs and Defendant engaged in many individual
transactions, though neither party quantified the exact number .
Plaintiffs allege that sometimes the parties engaged in as many
as 10 to 15 transactions per day.

5

(Compl.

at~

12.) However,

Defendant notes that the ISDAs do not indicate or bind the
parties to any specific number of transactions.

On approx imately May 20 , 2015 , Citicorp, an affiliate
of Defendant, pled 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, 15 U.S.C.
agreement described the Defendants'

§

1. The plea

(including Citicorp's)

conduct , primarily relating to manipulation of the price for the
Euro-U.S . Dollar currency trade. The plea agreement with the
United States Department of Justice required Citicorp to make
certain disclosures to its FX customers (including Plaintiffs)
stating that certain conduct "was contrary to the Firm's
policies, unacceptable, and wrong." (Halter Deel., Ex 1 at

~~

9(c)(l), 13).

According to the Defendant, the Sherman Antitrust Act
violation at issue in the other case is not at issue in this
litigation, and in fact no antitrust claims have been advanced
here. Defendant claims that information in the plea agreement is
immaterial and has no nexus to the current litigation. Further,
according to the Defendant , any portion of the plea agreement

6

should not be considered here because the facts from that plea
are not pled properly in the Complaint.

Plaintiffs have cited several sections of the plea
agreement to support their claims for breach of contract, fraud,
and negligence, in particular, a section titled "Other Relevant
Conduc t," which includes 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, or 'pips,' 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
commun i cations , 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 nonpublic 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 Deel., Ex 1 a t ] 13.

The DOJ required that Cit i "implement .

. a

compliance program designed to prevent and detect" the conduct
described in Paragraph 4(g-i) of the p l ea agreement, which was
7

the primary focus of that case. Th ose paragraphs focused on
attempts to fix the price of the Euro-U.S. Dollar currency pair
trade. This conduct concerned using a private chat room (with
coded lan guage) to coordinate and manipulate behavior across
financial institutions, sometimes protecting one institutions'
open risk positions.

Part of the Citicorp's required disclosure based on
the plea agreement was that Citicorp:
without informing clients , worked limit orders at
levels (i.e., prices) better than the limit order
price so that we would earn a spread or markup in
connection with our execution of such orders . This
practice could have impacted clients in the following
ways: (1) clients' limit orders would be filled at a
time later than when the Firm could have obtained
currency in the market at the limit orders ' prices,
and (2) clients' limit orders would not be filled at
all, even though the Firm had or could have obtained
currency in the market at the limit orders' prices.
For example, if [Citicorp] accepted an order to
purchase 100 at a limit of 1.1200 EURUSD, we might
choose to try to purchase the currency at a EURUSD
rate of 1.1199 or better so that, when we sought in
turn to fill the client 's order at the order price
(i.e., 1.1200), we would make a spread or markup of 1
pip or better on the transaction. If the Firm were
unable to obta in the currency at the 1.1199 price, the
clients ' order may not be filled as a result of our
choice to make this spread or markup.
Plaintiffs' Rule 56.1 Statement
2.

8

~29;

Halter Deel., Ex

The Complaint does not include any particular trades
or specific instances in which the conduct in the above
paragraph took place.

Plaintiffs pointed out other conduct noted in the
mandatory disclosure, such as:

Citicorp

made decisions not to fill clients' limit orders at
all, or to fill them only in part, in order to profit
from a spread or markup in connection with [Citi's]
execution of such orders . For example, if [Citi]
accepted a limit order to purchase 100 at a EURUSD
rate of 1.1200, [Citi] would in certain instances only
partially fill the order (e.g., 70) even when [Citi]
had obtained (or might have been able to obtain) the
full 100 at a EURUSD rate of 1.1200, or better in the
marketplace. [Citi] did so because of other
anticipated client demand, liquidity, a decision by
the Firm to keep inventory at a more advantageous
price to the Firm, or for other reasons. In doing so,
[Citi] did not inform [its] clients as to [its]
reasons for not filling the entirety of their orders.
Plaintiffs' Rule 56.1 Statement ]31; Halter Deel., Ex 2.

The Applicable Standards

On a motion to dismiss pursuant to Rule 12(b) (6), all
factual allegations in the complaint are accepted as true, and
all inferences are drawn in favor of the pleader.

Mills v.

Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993).

A

complaint must contain "sufficient factual matter, accepted as
true, to 'state a claim to relief that is plausible on its
9

face."'

Ashcroft v. Iqbal,

Bell Atl. Corp. v. Twombly,

556 U.S. 662,

663 (2009)

(quoting

550 U.S. 544, 555, 127 S. Ct. 1955,

1964, 167 L. Ed. 2d 929 (2007)). A claim is facially plausible
when "the plaintiff pleads factual content that allows the court
to draw the reasonable inference that the defendant is liable
for the misconduct alleged."
Twombly,

550 U.S. at 556).

Iqbal,

556 U.S. at 663

(quoting

In other words, the factual

allegations must "possess enough heft to show that the pleader
is entitled to relief."

Twombly,

550 U.S. at 557

(internal

quotation marks omitted).

Additionally, while "a plaintiff may plead facts alleged
upon information and belief 'where the belief is based on
factual information that makes the inference of culpability
plausible,' such allegations must be 'accompanied by a statement
of the facts upon which the belief is founded.'"

Munoz-Nagel v.

Guess, Inc., No. 12-1312, 2013 WL 1809772, *3 (S.D.N.Y. Apr. 30,

2013)

(quoting Arista Records, LLC v. Doe 3,

604 F.3d 110, 120

(2d Cir. 2010)); Prince v. Madison Square Garden,
2d 372, 384

427 F. Supp.

(S.D.N.Y. 2006); Williams v. Calderoni, No. 11-3020,

2012 WL 691832, *7

(S.D.N.Y. Mar. 1, 2012)).

however, "must contain something more than

The pleadings,
. a statement of

facts that merely creates a suspicion [of] a legally cognizable

10

right of action."

Twombly,

550 U.S. at 555 (citation and

internal quotation omitted).

Allegations of fraud, must meet the heightened
pleading standard of Federal Rule of Civil Procedure 9(b), which
requires that the plaintiff "state with particularity the
circumstances constituting fraud." Fed. R. Civ. 9(b). Under Rule
9(b), the complaint must:

(i) "specify the statements that the

plaintiff contends were fraudulent,"

(ii) "identify the

speaker," (iii) "state where and when the statements were made,
and"

(iv) "explain why the statements were fraudulent." Lerner

v. Fleet Bank, N.A.,

459 F.3ed 273, 290 (2d Cir. 2006)

(quotations and citations omitted); Vista Food Exch . Inc. v.
Champion Foodservice, LLC, No. 14 Civ. 804, 2015 WL 5000863, at

*9 (S.D.N.Y. Aug. 18, 2015)

(same and further holding that "Rule

9(b) pleadings cannot be based on information and belief"
(citing Segal v. Gordon, 467 F.2d 602,

608

(2d Cir. 1972))).

As the Second Circuit has recognized that the elements
of a fraud claim under New York law are "a material, false
representation, an intent to defraud thereby, and reasonable
reliance on the representation, causing damage to the

11

plaintiff." May Dept. Stores Co. v . International Leasing Corp .,
Inc ., 1 F.3d 1 38 , 1 (2d Cir. 1993).

Summary judgment is appropriate on l y where "there is
no genuine issue as to any material fact and . . . t h e moving
party is entitled to a judgment as a matter of law." Fed. R.
Civ. P. 56(c). A dispute is "genuine" if "the evidence is such
that a reasonable jury could return a verdict for the nonmoving
party." Anderson v. Liberty Lobby, Inc.,

477 U.S . 242, 248

(1986). The relevant inquiry on application for summary judgment
is "whether the evidence presents a suff icient disagreement to
require submission to a jury or whether it is so one -sided that
one party must prevail as a matter of law." Id. at 251-52 . A
court is not charged with weighing the evidence and determining
its truth, but with determining whether there is a genuine issue
for trial. Westinghouse Elec. Corp . v. N.Y. City Transit Auth.,
735 F. Supp. 1205, 1212 (S.D.N.Y. 1990)

(quoting Anderson , 477

U.S . at 249) . "[T]he mere existence of some alleged factual
dispute between the parties will not def eat an otherwise
properly supported motion for summary judgment; the requirement
is that there be no genuine issue of material fact." Anderson,
477 U.S. at 247 - 48

(emphasis in original).

12

The Fraud Claim {Claim I) Fails to Adequately Allege the
Particularity Required by Rule 9{b)

Plaintiffs have failed to plead with sufficient
particularity to survive a motion to dismiss under Rule 9(b).
Even if the conduct Citicorp admitted in its unrelated antitrust
settlement with the Department of Justice satisfies the elements
of common law fraud,

Plaintiffs here have not pled that they

suffered from this conduct with the required particularity to
satisfy Rule 9(b). For the reasons stated below, Plaintiffs have
failed to meet the Rule 9(b)

standard.

The Second Circuit has held that the particularity
requirement of Rule 9(b)

requires that "the complaint must

adequately specify the statements it claims were false or
misleading, give particulars as to the respect in which
plaintiffs contend the statements were fraudulent,

state when

and where the statements were made, and identify those
responsible for the statements." McLaughlin v. Anderson,

962

F.2d 187, 191 (2d Cir. 1992).

Here, the Complaint alleges that over an eight year
period:

(i) "[o]n numerous occasions, Plaintiffs noticed that

13

their instructions had not been executed even though the market
reached the appropriate threshold"

(Compl. at i

17);

(ii) "on

numerous," other "occasions, Plaintiffs noticed that only a
portion of their order had been executed such that only a lesser
amount of the currency was traded rather than the full amount
ordered" (id. at i

18);

(iii) after "each occasion"

(approximately 150 times) that "Plaintiffs called Citibank and
asked why their trades had not been executed as instructed" (id .
at i

19); and (iv) that "[e]ach time Plaintiffs called,"

Plaintiffs allegedly received the exact same response from an
unidentified speaker who allegedly said "that the market had not
reached the threshold of the order" (id. at i

20).

Plaintiffs claim that these statements satisfy the
Rule 9(b) bar because "where the alleged fraudulent scheme
involved numerous transactions that occurred over a long period
of time, courts have found it impractical to require the
plaintiff to plead the specifics with respect to each and every
instance of fraudulent conduct ." United States v. Wells Fargo
Bank, N . A., 972 F. Supp . 2d 593, 616 (S.D .N .Y. 2013) . Plaintiffs
argue it would be impractical and overly burdensome to require
them to plead each instance of the conduct alleged.

14

However, Plaintiffs here do not even provide one
example of the alleged conduct. The Court in Wells Fargo found
that Plaintiff (the Government) satisfied its burden because it
"provide [d] examples of specific false claims submitted to the
government pursuant to that scheme" and those examples "support
more generalized allegations of fraud only to the extent that
[they] are representative samples of the broader class of
claims ." Id.

(internal citations omitted) . Similarly, in Kester

v . Novartis Pharmaceuticals Corp ., 23 F. Supp. 3d 242 , 258
(S.D.N.Y. 2013) , the Court held Plaintiffs to a "high degree of
particularity" requiring the identification of "particular
claims that are allegedly false" to "weed [] out " plaintiffs who
are merely speculating that false claims might have been
submi tted." Id. at 256 -57. Plaintiffs fall short of this
requirement because the description of the conduct in their
Complaint is not sufficiently detailed and they have not alleged
even one particular example of the conduct alleged.

Generalized pleadings that allege misstatements took
place on " occasions " not only "lack sufficient specificity"
under Rule 9(b), but any argument that fraud claims exist which
fail to "allege even a time frame" "much less the other more
specific information" required by Rule 9(b) "would be

15

fruitless." G-I Hldgs., In c. v . Baron & Budd, 238 F. Supp. 2d
521 , 550 n.15, 552-53 (S.D.N.Y. 2002) .

Finally, Plaintiffs' reliance on the May 20 , 20 15
d is closure n ot i ce in the antitrust settlement does not rel i eve
them of their ob li gat i on to allege the existence of a material
misstatement or omiss i o n with particularity. See Estate of
Gottdi ener v . Sater , 35 F. Supp . 3d 386 , 398

(S . D. N. Y. 2014) . In

Gottdiener , The Honorable Lorna Schofield f ound that fraud

c l aims , although premised on a crimina l guilty plea, were
nevertheless insufficiently particu lariz ed because they failed
to detail how the defendant allegedly defrauded the plaintiffs.
Id. Th e court identified the following deficiencies:

"It does not allege, for any particular stock,
which of the Plaintiffs bought it, on what
date , what misr epresentat ions or omi ss i ons [t h e
broker ] made to induce that purchase, whether
that Plaintiff was fraudulently induced to
continue to hold that stock , or what
misstatement or omiss i on was made at the time."
Id .
"The Complaint uses the term 'Pl aintiffs ' or
' the Gottd i eners ' to refer to all four
Plaintiffs, but this device does not excuse the
required pleading." Id.
"T he Comp laint attaches the federal indictment
contain i ng the two counts to which [the broker]
pleaded guilty
. but neither document names

16

any of the Plaintiffs to connect them to [the
broker's] wrongdoing." Id.

The Complaint in this case has several of the same
deficiencies noted by the Court in Gottdiener. There are several
instances in which the Complaint does not distinguish between
the Plaintiffs (Compl.

at~

8), between the ISDAs

(id.

at~~

9-

11), and does not identify any particular trades at issue or how
the materiality of any misrepresentation would have caused
Plaintiffs to change their strategies (id. at

~~

12-13). As in

Gottdiener, the disclosure Plaintiffs rely upon to shore up
their pleading deficiencies does not connect any particular one
of Plaintiffs' thousands of trades to the alleged wrongdoing

(id. at

~~

25-29). Plaintiffs' allegation that they called

Defendant 150 times and spoke to an unidentified person does not
meet this burden (id. at

~

19).

Even if Plaintiffs could provide examples of the
alleged conduct and meet the particularity burden of Rule 9(b),
it has not been established that the failure to disclose a
markup constitutes a common law fraud claim. As counterparties
under the ISDAs, Citi was not prohibited from profiting on its
trading by way of a markup. The Complaint does not allege that
with respect to any of the thousands of unidentified trades,
17

Plaintiffs were overcharged, or that Plaintiffs did not receive
exactly what they bargained for. Citi is not required to advise
trading counterparties, to whom it owes no fidu ciary duty, how
it profits on a trade. See United States v. Bank of N.Y. Mellon,
941 F. Supp. 2d 438, 482-83 (S.D.N.Y. 2013)

(explaining that

"commercial merchants generally are under no obligation to
disclose their underlying costs or profits"); Sebastian Hldgs.,
Inc. v. Deutsche Bank AG, 78 A.D.3d 446 , 447

(1st Dep't 20 10)

("Plaintiff's alleged reliance on defendant's super i or knowledge
and expertise in connection with its foreign exchange trading
account ign ores the reality that the parties engaged in arm'slength transactions pursuant to contracts between sophisticated
business entities that do not give rise to fiduciary duties.").

Further, there is no authority supporting a common law
fraud claim for allegedly excessive broker markups even in the
broker-dealer context . Lehman Bros Comm. Corp. v . Minmetals
Int'l Non-Ferrous Metals Trading Co., 179 F. Supp. 2d 159, 1 67
(S.D.N.Y. 2001) ; see also Granite Partners, 58 F. Supp. 2d 228 ,
263 (S.D.N.Y. 1999). In Lehman, the Honorable John F. Keenan
granted summary judgment dismissing markup claims in the same
context alleged here: direct FX trading. The court rejected the
plaintiffs' argument "that New York law recognizes a markup

18

fraud claim under a general theo r y of fraud liabil i ty based on
omissions" re l y i ng upon the Gran i te Partners decision which
"clearly held otherwise . " Id.

The Complaint Does Not Adequately Plead Scienter

To state a fraud c l aim under New York law , "plaintiffs
must allege facts that give rise to a strong inference of
fraudulent intent . " Acito v. IMCERA Grp., Inc. , 47 F . 3d 47 , 52
(2d Cir . 1995). To estab l ish the requisite inference , a
plaintiff must plead facts that :

(i) " demonstrate the

defendant ' s motive and opportunity to commit or assist in the
fraud ," or (ii) "constitute strong circumstantial evidence of
the defendant ' s conscious misbehavior or recklessness . "
Matsumura v . Benihana Nat ' l Corp. , 542 F . Supp. 2d 245 , 255

(S . D.N.Y . 2008)

(cit i ng In re Parmalat Secs. Litig. , 501 F .

Supp . 2d 560 , 573 (S . D. N.Y . 2007)).

While Plaintiffs allege a genera l ized profit motive
(Compl. at

~~

15-16), it does not create the requisite "strong

inference " of fraudulent intent . See , e.g ., Chill v . G.E. Co. ,
101 F.3d 263 , 268

(2d Cir. 1996)

("[t]he motive to maintain the

appearance of corporate profitability , or of the success of an

19

investment, will naturally involve benefit to a corporation , but
does not entail concrete benefits" sufficient to support a
strong inference of fraudulent intent); Friedman v . Ariz . World
Nurseries Ltd . P' ship , 730 F. Supp. 521, 532

(S .D.N.Y. 1990)

(concluding it "would defy common sense" to find that the
"scienter analysis would be satisfied merely by alleg in g the
receipt of normal compensation for professional services
rendered, because to do so wou l d effectively abolish t h e
requirement, as against profess i ona l defendants in a securities
fraud action, of p l eading facts which support a strong inference
o f sc ient e r"), aff ' d , 927 F. 2 d 594

(2d Cir . 1991).

Plaintiffs a lle ge that De f endant failed to execute
transacti o ns " for the sole reason that i t was not going to
realize a profit ." (Comp l. at <][ 23 .) But "[c]ourts have
repeatedly rejected conc lus ory allegations regarding the
mot ivati o n to earn unspecified fees as a basis for inferring
scienter. " In re Citigroup Auction Rate Sec . Litig ., 7 00 F.
Supp . 2d 294 , 305 (S.D.N.Y . 2009) ; Deutsche Zentral Genossenchaftsbank AG v. HSBC N . A . Holdings, Inc., No . 1 2 Civ .
4025 (AT) , 2013 WL 6667601 , at *19 (S.D.N.Y. Dec . 1 7 , 2013)
("T he complaint does not ascribe to the HSBC Defendants any
particular motive f or making these fraudulent representa t ions

20

beyond a general profit motive common to all corporations, which
does not suffice." (citing Novak v. Kasaks, 216 F.3d 300, 307
(2d Cir. 2000)) . Plaintiffs' claim for scienter must be
dismissed for the same deficiencies.

Here, the Complaint does not allege "conscious
misbehavior or recklessness" by any individual at Citibank with
whom Plaintiffs spoke. Plaintiffs have cited portions of
Citigroup's May 20 , 2015 disclosure notice, such as: "[W]ithout
informing clients, worked limit orders at levels (i.e., prices)
better than the limit order price so that we would earn a spread
or markup in connection with our execution of such orders."
(Plaintiffs' Rule 56.1 Statement

~29;

Halter Deel., Ex 2.)

However, these sections of the disclosure notice lack factual
allegations that link the disclosure notice to Plaintiffs' FX
trading. Further, the disclosure notice did not explicitly state
that Defendant's FX trading practices were "wrongful practices."
Without concrete factual allegations of motive or conscious
misbehavior, the Complaint fails under Rules 9(b) and 12(b) (6)
See, e.g.,

Thomas v. JPMorgan Chase & Co., 811 F. Supp.2d 781,

799 (S.D.N.Y. 2011)

("Plaintiffs fail to allege facts that show

that 'defendants had both motive and opportunity to commit

21

fraud ' or to point to any ' strong circumstantial evidence of
consc i ous misbehavior .' ") .

The Complaint Fails To Allege Reasonable Reliance

New York l aw requires that Plaintiffs a l leging common
law fraud establish reasonable re l iance on a material
misrepresentation. I n "assessing the reasonableness of a
plaint i ff ' s alleged reliance , we consider the ent i re context of
the transaction , including factors such as i ts complexity and
magnitude, the sophistication of the parties , and the content of
any agreements between them ." Emergent Capital Inv. Mgmt ., LLC
v . Stonepath Grp ., Inc ., 343 F. 3d 189 , 195 (2d Cir . 2003) .

Courts impose enhanced duties on sophisticated parties
before deeming their re l iance reasonab l e . Courts recognize " an
enhanced duty to obtain available information material to
investment decisions , "

(In re Livent , Inc . Noteho l ders Sec .

Litig. , 151 F . Supp . 2d 37 1, 439 (S . D. N. Y. 2001)) and they have
required a plaintiff to "show that he or she has made an
independent inquiry into all available information . " Emergent
Capital , 165 F. Supp . 2d at 623 . That is , "where parties have
access to information that could expose a mi srepresentation ,

22

courts will n ot find their reliance suff i cient l y justifiable to
merit legal protection." Giannacopoulos v . Credit Su i sse , 37 F .
Supp . 2d 626 , 633 (S.D.N.Y. 1999) .

In this case , the 2010 ISDA Agreement exp li citly
disc l aims any reliance upon Citi . It provides "(1) No Reliance .
Plaintiff is acting for its own account, and it has made its own
independent decisions to enter into that Transacti on and as to
whether that Transaction is appropriate or proper for it based
upon its own judgment and upon adv i ce from such advisors as it
has deemed necessary."

Th ese types of contract provis i ons d i sclaiming
reliance have been found enforceable under New York State l aw .
"It is wel l settled that claims for fraud and negligent
misrepresentation are barred where the party asserting the cla im
contractually agreed not to rely on the other party's
representation." JPMorgan Chase Bank , N.A . v . Controladora
Comercial Mexicana S . A . B . De C. V. , 29 Misc. 3d 1227(A), 920
N. Y. S . 2d 241 at *7

(Sup . Ct . N. Y. Cty . 2010)

(citing Republic

Nat 'l Bank v . Hales, 75 F Supp . 2d 300 (S .D. N. Y. 1999), aff ' d , 4

F . App ' x 15 (2d Cir. 2001)) . Therefore, Plaintiffs fraud claim

23

fails for lack of reliance because they explicitly disclaimed
reliance in an enforceable provision of the ISDAs.

Further, Plaintiffs were a sophisticated counterparty
with access to vast amounts of information about the FX markets,
which contradicts their claim of reliance. As part of
Plaintiffs' billion dollar FX trading, Plaintiffs followed their
FX positions in real-time with up-to-the-second access to market
information (Compl. at

~~

17-19). As such, Plaintiffs had no

right to rely upon the alleged unspecified statements that the
market had not reached the threshold of the Order

(~

20). See

Wang v. Bear Stearns Cos LLC, 14 F. Supp. 3d 537, 546-47

(S.D.N.Y. 2014)

(finding that the billionaire plaintiffs were

financially sophisticated, "given their business experience and
wealth," and therefore discounting claimed reliance on
information provided) .

Plaintiffs also failed to allege any statements by the
Defendant on which they relied. Plaintiffs' allegation of
reliance merely asserted conclusory statements such as:
"Plaintiffs relied upon Citibank's representation in making
their trade instructions to Citibank." (Compl. at

~

70).

Plaintiffs allege that they spoke to unidentified Citibank

24

employees who made alleged misstatements at unidentified times.
However, these allegations do not state sufficient detail to
form the basis of reliance to survive a motion to dismiss .
Sazerac Co . v. Falk, 861 F. Supp. 253, 260

(S.D.N.Y. 1994)

("the

Complaint fails to articulate either when or to whom such
representations were made, nor does it identify meetings or
negotiations tying the Defendants to the alleged
misrepresentations to [the plaintiff] or [a minority shareholder
of defendant allegedly implicated in the fraud].").

For the reasons stated above, the fraud claim (Claim
I) is dismissed for failure to plead reliance .

The Complaint Does Not Allege Loss Causation

The doctrine of loss causation applies to common law
fraud claims such as the brought by Plaintiffs here as well as
the more common loss causation claims in securities fraud cases.
Bank of Am., N.A . v. Bear Stearns Asset Mgmt.,

969 F. Supp. 2d

339 , 346 (S.D.N.Y. 2013). Therefore, a plaintiff "must plead
facts that indicate that the information concealed by the
defendant['s] misrepresentations was the reason the transaction
turned out to be a losing one. " Dex ia SA/ NV v. Bear, Stearns &

25

Co., Inc.,

929 F. Supp. 2d 231, 243 (S.D.N.Y. 2013). However,

Plaintiffs have not alleged that they suffered any actual
damages and that any part of their losses were caused by
Defendants' purported misconduct.

The Complaint alleges that "[a]s a result of Citibank's
fraud,

Plaintiffs have been damaged in an amount to be

determined at trial but at least equal to the amount of profit
Citibank made from the undisclosed markups and the amount of
profit Plaintiffs failed to realize from unexecuted and
partially executed trades."

(Compl.

at~

72.) This request for

relief does not allege a category, or proportion, of Plaintiffs'
c laimed losses that are linked to any alleged
misrepresentations. This type of pleading deficiency has been
rejected by this Court. See Dexia, 929 F. Supp. 2d at 243
prove loss causation,

("To

[a plaintiff] must plead facts that

indicate that the information concealed by the defendant's
misrepresentations was 'the reason the transaction turned out to
be a losing one"')

(quoting First Nationwide Bank v. Gelt

Funding Corp., 27 F.3d 763, 769 (2d Cir. 1994)).

As the Supreme Court stated in Twombly, "something
beyond the mere possibility of loss causation must be

26

." Twombly, 550 U.S. at 557-58. Here, the Complaint

alleged.

does not identify any loss caused by anything Cit i did or failed
to do.

Although the Plaintiffs seek to re-characterize their
damages claims for "l ost profits" and "lost opportunity to
profit" as actual damages, in reality, the comp laint only seeks
lost profits.

See Compl. at

~

71-72, p. 1 3 at A (Prayer for

Relief) .

The Complaint pleads that:

(i) "Plaintiffs lost the

opportunity to profit from unexecuted or partially executed
trades;" (ii) "Plaintiffs were not able to profit based on
hundreds of unexecuted trades;" and (iii)

Plaintiffs are

entitled to damages in "the amount of profit Plaintiffs failed
to realize from unexecuted and partially executed trades."
(Compl.

at~~

32 , 71, 72.)

However, these alleged damages are all barred from
recovery. This is because New York follows the "'out-of-pocket'
rule, which limits the damages for fraud .
pecuniary loss,

[and as such,]

to actual

'there can be no recovery of

profits which would have been realized in the absence of fraud."

27

Highland Capital Mgmt., L.P. v. Schneider, 533 F. Supp. 2 d 345,
357

(S.D.N.Y. 2008)

Inc.,

(quoting Lama Holding Co. v. Smith Barney

88 N.Y.2d 413, 421 (1996)).

Courts have dismissed fraud claims where, as here,
lost profits are the only damages sought, rather than the
"actual pecuniary loss sustained as the direct result of the
wrong." See, e.g., Highland, 533 F. Supp. 2d at 357

(where

plaintiff "cannot allege any injury recoverable under a fraud
claim" its "cause of action is dismissed"). In this case, there
are no direct damages alleged and no damages directly resulted
from the wrong. Plaintiffs were required to allege the out-ofpocket losses they had suffered and how they were linked to
alleged misrepresentations, which Plaintiffs have failed to
plead. Spencer Trask Software & Info. Servs. LLC v. Rpost Int'l
Ltd., 383 F. Supp. 2d 428, 455 (S.D.N.Y. 2003)

("At a minimum,

the plaintiffs must make factual allegations describing the
pecuniary or out-of-pocket loss sustained as a result of the
defendants' alleged misrepresentations in order to maintain a
claim for damages based upon fraud, and the plaintiffs in this
case have failed to do so.").

28

For the reasons stated above , t he fraud c l a i m stated
in Claim I is dismissed. Th i s claim f a il ed to p l ead :
particularity under Ru l e 9 (b) ;

(2) sc i enter ;

(3)

(1) wi th

r easonable

reliance ; and (4) causat i on .

The Breach of Contract Claim for Undisclosed Markups (Claim II)
Fails to Adequately Plead the Provision Breached

Plain t iffs bring three breach o f contract c l aims for
breaches o f the ISDA Agreements . Cla i m II , which is based on
undis c losed markups by the Defendant is dismissed becaus e it
fails to adequate l y plead the provision of the contract that was
breached .

To state a cla i m for breac h of cont r act , Pl a in tiffs
must p l ead " ( l ) an agreement ,
plaintiff ,

(2) adequate pe r for mance by th e

(3) breach by the defendant , a n d

(4) damages ."

Fischer & Mande ll , LLP v . Citibank , N.A. , 632 F. 3d 793 , 799

(2d

Cir . 2 0 1 1) . On the other hand , " A brea c h of contract c l aim wil l
be d i smi ssed , how e ver , as being too vague and indefinite , where
the plaintiff fa il s to a l lege , i n nonconclusory fashion , the
essential terms of the part i es ' purported contract , i n c l ud i ng
the specif i c provis i ons of the contract upon which liability is

29

predicated." Highlands Ins. Co. v. PRG Brokerage, Inc., No. 01
Civ. 2272

(GBD), 2004 WL 35439, at *8

(S.D.N.Y. Jan.

(quoting Sud v. Sud, 2 11 A.D.2d 423, 424

6, 2004)

(1st Dep't 1995).

Plaintiff cites a Northern District of Texas case for
the proposition that a plaintiff need not plead any specific
provision breached in a contract claim. Ricupito v.

Indianapolis

Life Ins. Co., No. 09-CV-2389-B, 2010 WL 3855293, at *6 (N.D.
Tex. Sept. 30, 2010). However, that minority position has not
been adopted by courts in the Second Circuit, which have held
that plaintiffs must at le ast allege which agreement was
breached and the relevant breached provisions of that contract.
Wolff v. Rare Medium, Inc., 210 F. Supp. 2d 490, 494
2002)

(S.D.N.Y.

("a plaintiff must identify the specific provision of the

contract that was breached as a result of the acts at issue"),
aff'd,

65 F. App'x. 736 (2d Cir. 2003).

This Court has found that a plaintiff does not meet
the Twombly-Iqbal standard and must be dismissed when "the
Complaint does not specify which clause of the Agreement
Defendant is alleged to have breached" Swan Media Group, Inc. v.
Staub, 841 F.Supp. 2d 804 , 807

(S.D.N.Y. 2002) ; see also Spinelli

v. Nat'l Football League, 96 F.Supp.3d 81, 131 (S.D.N.Y. 2013).

30

Here, the ISDAs are not a completed agreement until
the parties agree on the essential terms of each individual
transaction. Halter Deel. Ex. 3 at 28 of 77 and Ex. 4 at 41 of
83. For Claim II there is no dispute that Plaintiffs have not
identified even one example of a transaction in which Defendant
charged a markup and have submitted no information about
specific trade confirmations with the required essential terms
which have been violated. These deficiencies bar the claims.
Wo lff v. Rare Medium, Inc., 210 F. Supp. 2d 490, 494

(S.D.N.Y.

2002). While Plaintiffs make a conclusory allegation that they
called De fendant to contest issues with markups

(Compl. at

~~

19-20), this allegation lacks sufficient factual detail and the
existence of a particular contract term to survive a motion to
dismiss. Barclays Bank Me x ico, S.A. v. URBI,
1212(A), 975 N.Y.S.2d 707

40 Misc. 3d

(Sup. Ct. N.Y. Cty. 2013).

For the reasons stated above, the breach of contract
claim for undisclosed markups in Claim II is dismissed. This
claim failed to plead the essential terms of the alleged
agreement between the parties and which provisions, if any, were
breached.

31

Breach of Contract for Cancellation of the €5,000,000 Order
Based on an Erroneous Margin Call (Claim III) Is Dismissed for
Failure to Adequately Allege Damages

Claim III alleges that as a result of the December 2 ,
2014 margin call, Defendant breached the ISDAs by
inappropriately canceling Plaintiffs' FX order for €5,000 , 000
from the last week of November 2014 .

To state a valid claim for breach, Plaintiffs must
allege valid damages.

Fischer & Mandell, LLP v. Citibank, N.A .,

63 2 F . 3d at 799 (2d Cir . 2011) . For Claim III , Plaintiffs seek
"actual damages" for "losses and l ost profits resulting from "
the unexecuted trade .

(Compl . page 13,

~

B . ) However, lost

profits are explicitly prohibited from the 2010 ISDA, which
provides "[ n]o party shall be required to pay or be liable to
the other party for any consequential , indirect or punitive
damages , opportunity costs or lost profits ." In this case, there
are no losses alleged other than lost profits. Further, the 2010
ISDA specifically contemplates that it will control "all
Transactions entered into (whether before or after this
Agreement is entered into)."

32

Contractual limitation of liability provisions such as
these are enforceable. See, e . g. , Deutsche Lufthansa AG v .
Boeing Co., No. 06 Civ . 7667
(S.D . N. Y. Feb. 2, 2007)

(LBS) , 2007 WL 403301, at *2

("The New York Court of Appeals has held

that a limitation on liability provision in a contract
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."
(alteration omitted and quoting Metro. Life Ins. Co. v . Nobel
Lowndes Int'l Inc.,

84 N.Y . 2d 430 , 435 , 618 N.Y.S.2d 882, 885

(1994))); Great Earth Int'l Franchising Corp . v . Milks Dev. , 311
F. Supp. 2 d 419 , 434

(S.D.N.Y. 2004)

("the clause clearly

evidences an intention to limit plaintiff's liability for lost
profits.") .

Therefore, the limitation of liability provision of
the 2010 ISDA precludes exactly the losses that Plaintiffs seek
and is fully enforceab l e.

Plaintiffs also allege that had the December 2014
Order "been executed on December 17, 2014, it would have
resulted in at least $700,000 in profit to Plaintiffs ." Compl .
at

~~

58, 84 . While the Complaint does not describe how

33

Plaintiffs ca l culated this figure,

it surely is a measure of

l ost profits -- which is prohib i ted under the limitations of
liability provision of the 2010 ISDA .

Plaintiffs claim that this damages limitation
provision is only in the 20 1 0 ISDA, not the 2007 ISDA .

However,

the December 2 , 2014 margin call was governed by the 20 1 0 ISDA.
Further, Pl aintiffs argue that the 2010 ISDA only app li ed to
Gervasio Negrete and not Eduardo Negrete , who never signed the
2010 ISDA . This argument is unavai l ing since the December 2 ,
2014 margin call was governed by the 2010 ISDA.

For the reasons stated above , the breach of contract
cla i m for the December 2014 margin call and cancellation of the
€5 , 000 , 000 order in Claim III is d i smi ssed for failure to plead
any valid damages .

The Breach of Contract Claim for Erroneous Margin Calls (Claim
V) Fails to Adequately Plead the Provision Breached

Claim V alleged that Defendant calculated and
initiated incorrect marg i n calls on " numerous" occasions . Like
in Claim II , these claims lack the specificity about the

34

provisions of the contract about margin calls that were violated
to survive the motion to dismiss. Highlands Ins. Co. v. PRG
Brokerage, Inc., No. 01 Civ. 2272 (GBD), 2004 WL 35439, at *8
(S.D.N.Y. Jan. 6, 2004)

("A breach of contract claim will be

dismissed, however, as being too vague and indefinite, where the
plaintiff fails to allege, in nonconclusory fashion, the
essential terms of the parties' purported contract"). In this
claim, the Complaint fails to plead basic facts about which
provisions these margin calls violated. With the exception of
several margin calls in December 2014, most of these "numerous"
margin calls do not include the dates on which they allegedly
occurred.

Further, Plaintiffs failed to use the required dispute
resolution provision to contest margin calls under the ISDAs,
which invalidates the claims of invalid margin calls. Such
dispute resolution provisions for ISDAs have been held
enforceable. VCG Special Opportunities Master Fund Ltd. v.
Citibank, N.A., No. 08 Civ. 1563 (BSJ), 2009 WL 311362, at *2
(S.D.N.Y. Jan. 29, 2009). The ISDAs here state that a party
disputing "the Value of any Transfer of Eligible Credit Support
or Posted Credit Support must notify the other party by the
close of business on the Local Business Day following the date

35

on which the demand is made . "

(ISDA Amendment No . 3 , p . 3 ,

~5 . )

In this case , Pl aintiffs did not al l ege that they contested
these disputed margin calls by the following business day using
the required dispute resolut i on procedure . Therefore , Claim V
for inappropriate margin calls is dismissed.

The Allegations of Breach of the Covenant of Good Faith and Fair
Dealing Are Dismissed

In the sections of the Complaint regarding each of the
three breach of contract c l aims , Plaintiffs also alleged that
Citibank breached the implied covenant of good faith and fair
dealing .

(Compl . at

~~

78 , 85 , 99). In New York , this covenant

applies to all contracts . Chase Manhattan Bank v. Keystone
Distribs. Inc ., 873 F . Supp . 808 , 815 (S . D. N. Y. 1994) . These
implied covenants may be subject to dismissal if they are based
on the same facts and express contract prov i s i ons as a
substantive claim. Ret . Bd . Of Policemen ' s Annuity & Ben . Fund
of City of Chicago v . Bank of New York Mellon , No. 1 1 Ci v . 5459
(WHP) , 2014 WL 3858469, at *3 (S . D.N . Y. Ju l y 30, 2014). However ,
"a party may be in breach of its implied duty of good faith and
fair dealing even if it is not in breach of its express

36

contractual obligations." Chase Manhattan Bank, 873 F.Supp. at
815 .

An implied covenant does not independently create
addit i onal duties extraneous to the parties' agreements . See,
e.g. , Broder v. Cablevision Sys . Corp ., 418 F.3d 187, 198-99 (2d
Cir . 2 0 05)

("The implied covenant can only impose an obligation

consistent with other mutually agreed upon terms in the
contract . It does not add to the contract a substantive
provision not included by the parties") .

Here , the breach of the implied covenant of good faith
and fair dealing claim (Compl . at

~~

78, 85, 99) , relies on no

facts distinct from the breach of contract claims

(see id. at

~~

73 , 80 , 92) . An implied covenant claim "will not stand if it is
duplicative of a breach of contract claim" and , accordingly , in
this case there is no additional contract claim under the
implied covenant of good faith and fair dealing that survives
the motion to dismiss . See, e . g. , Harris v. Provident Life &
Accident Ins.,

310 F.3d 73, 81 (2d Cir . 2002)

("New York law

. does not recognize a separate cause of act i on for breach of
the implied covenant of good faith and fair dealing when a

37

breach of contract c l aim , based upon the same facts , is also
pled ." ) .

The motion to dismiss the claims for the implied
covenant of good faith and fair dealing with respect to the
Second, Third , and Fifth Claims is granted on the basis of the
authorities set forth above.

The Claims for Negligence (Claims IV and VI) Are Dismissed for
Failure to Adequately Allege an Independent Duty

In addition to the breach of contract claims for
impermissible margin calls

(Claims III and V),

Plaintiffs bring

two claims for negligence for the same impermissible margin
calls. For the reasons described be l ow, these claims are also
dismissed.

To recover for negligence "New York courts require a
plaintiff to show:

(1) that the defendant owed the plaintiff a

cognizable duty of care ,

(2) that the defendant breached that

duty , and (3) that the plaintiff suffered damages as a proximate
result of that breach." King v . Crossland Sav . Bank, 111 F . 3d
251 , 255

(2d Cir . 1997) . New Yotk courts have held that "a

38

simple breach of contrac t is not to be considered a tort unless
a legal duty independent of the contract itself has been
violated." Clark-Fitzpatrick, Inc. v. Long Island R. Co., 70
N.Y.2d 382 , 389, 516 N.E.2d 190 (1987). This independent legal
duty "must spring from circumstances extraneous to" the
contract.

Id.

The fourth and sixth claims for negligence (Compl. at
~~

87 - 91 , 101-105), plead that Defendant had four duties

separate and apart from the ISDAs that were breached as a result
of Defendant ' s negligence and caused damages. These duti es
included duties:

(1) to act on Plaintiffs' instructions to

execute certain trades;
information;

(2) to provide Plaintiffs with accurate

(3) to properly calculate collateral for margin

calls; and (4) to only make margin calls when appropriate.

However, all four of these duties emanated from the
ISDA agreements. These alleged duties are not distinct or
independent from the Complaint 's contract claims. ClarkFitzpatrick,

70 N.Y.2d at 389. In fact, these duties turn on

identical duties to "mo nitor the value of Plaintiffs' acc o unts
accurately and make margin calls only when appropriate" and
"properly calculate Plaintiffs' collateral and execute

39

appropriate margin calls." (Compare Compl. at
Compl.

at~~

~~

82 -86 with

87 - 91.) Here, the duties which Defendant allegedly

performed negligently are the same duties Plaintiffs claim
Defendant was contractually obligated to perform under the
ISDAs.

Plaintiffs argue that they were at an information
deficit to Defendants and therefore would not have had the
information necessary to know why Defendant incorrectly
calculated their collatera l for margin ca lls. However,
Plaintiffs do not dispute that they were notified of each margin
call and could have used the dispute resolution mechanism in the
ISDAs to cha ll enge any in correct margin ca ll.

(Compl . at

~~

87-

91 , 101 - 105 .) Plaintiffs also could have asked for more
information about how the margin calls were being calculated
within the one business day window as required by the contract .

In contexts such as these, "courts have found that in
actions involving the contractual duties of corporations and
financial institutions , a negligence action may not be
maintained and parties must proceed under a contract theory."
Deutsche Bank Se c ., Inc. v . Rhodes, 578 F. Supp . 2d 652,

(S . D. N. Y. 2 008)

670

(holding that "DBSI had no professional or

40

otherwise special relationship with Sagebrush such that a tortbased duty independent of the parties' contract arose ."
(internal citations omitted)); see also THC Holdings Corp . v .
Tishman, Nos. 93 Civ . 5393, 95 Civ. 4422

at * 4 (S . D. N. Y. June 9 , 1998)

(KMW), 1998 WL 305639,

(failing to find any tort-based

duty of care between investment bank and client) . As noted
above, there is no fiduciary or other special relationship
between the Negretes and Citibank , as is expressly noted in the
ISDAs, which further substantiates why the negligence claims
here fail.

Further , Plaintiffs ' negligence claims are foreclosed
under the economic loss doctrine, which precludes parties from
improperly attempting to convert contract claims to tort claims
seeking the same damages . Travelers Cas . and Sur . Co . v .
Dormitory Authority-State of New York , 734 F.Supp.2d 368 , 379

(S . D. N.Y. 2010). When Plaintiffs , as is the case here , allege
economic loss as an injury in a tort claim "the usual means of
redress is an action for breach of contract; a tort action for
economic loss will not lie." In re Adelphia Communications
Corp ., No. 02-41729 , 2007 WL 2403553 , at *9 (Bankr. S.D.N . Y.

Aug . 17, 2 007); see also BNP Paribas , 949 F. Supp . 2d 486 , 505
(S.D . N.Y . 2013) . The purpose of this economic loss rule is to

41

"keep contract law from drowning in a sea of tort and with this
goal in mind New York courts restrict plaintiffs wh o have
suffered economic loss, but not personal or property injury, to
an action for the benefits of their bargains." Manhattan
Motorcars , Inc. v . Automobili Lamborghini, S.p.A., 244 F.R.D.
204 , 220 (S.D.N.Y. 2007)

(quotation marks and citations

omitted) .

Plaintiffs argue that the damages for their negligence
claims are distinct from those of the contract claims. For
example , Plaintiffs closed positions they would have kept open
in order to cover the margin calls and Defendant cancelled
profitable trades as a result of the margin calls. However,
these are damages pled in the contract claims . For example,
Claim V for breach of con tra ct in

~

98 of the Complaint alleges

that "Citibank also breached the ISDA Agreements by cancelling
Plaintiffs '

instructions due to those erroneous margin calls."

The allegations about closing positions are not contained in a
section on negligence. Both

~

65 and page 13, which are the two

references to Plaintiffs suffering damages from closing
positions to cover margin cal ls, are not related to any
particular claim and likely were intended to apply to both the
breach of contract and negligence claims since they were in a

42

generic factual section on "Miscalculated Collateral," which is
the basis for both the contract and negligence claims. Th ere are
no alleged negligence damages that are distinct from the
contract claims .

For the reasons stated above , the negligence claims in
Claim IV and Cl aim VI are dismissed for failure to state an
independent legal duty and failure to plead sufficient damages
for negligence claims under the economic loss doctrine.
v.

T-Mobile USA, Inc., No. 14 Civ . 4965

at *4

(S . D. N. Y. Jan . 16, 2015)

Taylor

(LTS), 2015 WL 223782,

("Plaintiff's negligence claim is

barred by New York ' s economic -l oss doctrine, which recognizes
that any damages arising from the failure of the bargained-for
consideration to meet the expectations of . the parties are
recoverable in contract , not tort, unless a legal duty
independent of the contract itself has been vio lat ed")

(internal

citations omitted) .

The Cross-Motion for Partial Summary Judgment is Denied

The Plaintiffs have sought partial summary judgment on
their second claim for breach of contract for the undisclosed
markups . Plaintiffs seek to rely on Defendant's admissions in

43

the unrelated antitrust plea agreement and required disclosures
as proof of l iability under the breach of contract claim for
markups . This contention has been rejected as set forth in the
above section dismissing Claim II . Therefore, partial summary
judgment on the second c l aim is denied .

Conclusion

Upon the conclusions set forth above , the motion of
the Defendant to dismiss the Compla i nt is granted without
prejudice and with leave to amend, and the cross - motion of the
Plaintiffs for partial summary judgment for breach of contract
is denied.

It is so ordered .

New York, NY
May
2016

Ij,

ROBERT W. SWEET
U . S . D.J .

44