Negrete et al v. Citibank, N.A.

Filing 75

OPINION: Upon the conclusions set forth above, the motion of the Defendant to dismiss the Complaint is granted in part and denied in part, without leave to amend, and the cross-motion of the Plaintiffs for partial summary judgment for breach of contract is denied. (Signed by Judge Robert W. Sweet on 2/24/2017) (jwh)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

----------------------------------------x
EDUARDO NEGRETE AND GERVASIO NEGRETE,
Plaintiffs,

15 Ci v . 7250
OPIN I ON

-agains tCITIBANK , N. A. ,
Defendant.

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

Attorneys for Plaintiffs
LIDDLE & ROBINSON, LLP
800 Third Avenue
New York, NY 10022
By:
Blaine H. Bartnick, Esq.
James W. Halter, Esq.
Read K. Mccaffrey, Esq.
Atoosa Esmaili, Esq.

Attorneys for Defendant

GOODWIN PROCTER, LLP
The New York Times Building
620 Eighth Avenue
New York , NY 10018-1405
By: Marshall H. Fishman, Esq.
Samuel J. Rubin, Esq.

!

r.r .a ,
.[ l

"'· •»-' ;

Sweet, D.J.

Defendant Citibank, N. A.

("Ci ti" 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
1

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:
scienter;

( 1) with particularity under Rule 9 (b) ;

( 2)

(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

~AC

on June 20, 2016.

The FAC

included over 35 specific allegations of breaches and fraudulent
conduct.

The claims were fraud,

and breach of contract.

fraudulent misrepresentations,

The Defendant's motions to dismiss and

2

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

3

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.
~~

83-92.

FAC at

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.

4

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.
Statement at

~~

4-7.

Plaintiffs' 56.1

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.
at

~

Plaintiffs' 56.1 Statement

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.
Statement at

~~

12-14.

Plaintiffs' 56.1

Plaintiff Gervasio Negrete entered into

Amendment No. 1 to the 2010 ISDA with Defendant on May 17, 2013.
Plaintiffs' 56.1 Statement at

~

15.

5

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.
Statement at

~

Plaintiffs' 56.l

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."
Ex. A at 28 of 77

Slipp Deel.,

(Part 5 (1) (a)) and Ex. B at 41 of 83 ( Part

5 (c) (1)).

Howev er, 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.

6

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."
at 28-29 of 77
5 (c) (2)

Slipp Deel., Ex. A

(Part 5(1) (b)) and Ex.Bat 41 of 83 (Part

(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

Defendants' 56.1 Counterstatement at

~

~

19;

19.

While Plaintiffs assert that the total value of the FX
trades was approximately $15 billion per year, Defendant
disputes that Piaintiffs have not supported this estimate with
any admissible evidence.

Plaintiffs' 56.1 Statement at

Defendants' 56.1 Counterstatement at

7

~

20.

~

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
Counterstatement at

~

21.

~

21; Defendants' 56.1

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.
Statement at

~

Plaintiffs' 56.1

23; Defendants' 56.1 Counterstatement at

8

~

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

Counterstatement at

~

~

24; Defendants' 56.1

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.
Counterstatement at

~

Defendants' 56.1

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, or 'pips,' away from the price confirmed with the

9

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 Deel., Ex. 1 a t ! 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 Deel. , Ex .

1 at !! 9(c) (i) and 13 and Ex. 2 ("DOJ Required Disclosure")).

10

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 .
Deel. , Ex. 1 at 9 (c) (iii)).

,,

(Halter

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

~

28 .

Plaintiff asserts that Citibank "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 :
clients '

(1)

limit orders would be filled at a time later than when

the Firm could have obtained currency in the market at the limit

11

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 [Citi] 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 obtain 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."
Deel. Ex. 2.

Halter

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.
Counterstatement at

~

Defendants' 56.1

29.

Plaintiffs assert that the practices described in
paragraph 29 of their Rule 56.1 Statement were done with respect
to at least some of Plaintiffs' orders pursuant to the ISDAs
without their knowledge, including Plaintiff Gervasio Negrete's
September 14, 2011 EURUSD trade instruction described in
paragraph 16 of his declaration and the Plaintiffs' November 15,

12

2011 AUDUSD trade instruction described in paragraph 17 of
Gervasio Negrete 's declaration.

Negrete Dee l.

at~~

15-17.

Defendant disputes whether this assertion is supported by
admissible evidence, describes a breach of the ISDAs, and
whether it is consistent with the Court's May 19, 2016 opinion ,
which concluded that the parties had a counterparty relationship
as principals -- not fiduciaries.
Counterstatement at

~

Defendants'

56.1

30.

Plaintiff asserts that Citibank "made decisions not to
fill clients' limit orders at all, or to fill them on l y 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
1.1 2 00,

[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 ent iret y of
their orders ."

Halter Deel. Ex. 2 .

13

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

~

31.

Defendant further

disputes whether this statement is consistent with the Court's
May 19, 2016 opinion, which concluded that the parties had a
counterparty relationship as principals -- not fiduciaries.
Defendants' 56.1 Counterstatement at

~

31.

Plaintiff asserts that the practices described in
Paragraph 31 of the Rule 56.1 Statement of Material facts were
done with respect to some of the Plaintiffs' orders pursuant to
the ISDAs without their knowledge, including Plaintiff Gervasio
Negrete's September 14, 2011 EURUSD trade and the November 15,
2011 AUDUSD, both described in Gervasio Negrete's Declaration.
Negrete Deel. at

~~

13, 15-17.

Defendant disputes that this

statement is a vague conclusion that is not disputed by
admissible evidence and because the transactions mentioned in
the Negrete Declaration do not describe breaches of the ISDAs.
Defendants' 56.1 Counterstatement at

~

32.

Defendant further

disputes whether this statement is consistent with the Court's
May 19, 2016 opini o n, which concluded that the parties had a

14

counterparty relationship as principals -- not fiduciaries.
Defendants' 56.1 Counterstatement at

~

32.

Plaintiffs assert that on June 23, 2015, they met with
Rodrigo Curiel, their banker at Citibank, to discuss the DOJ
Required Disclosure.

Plaintiffs assert that during that

meeting, Mr. Curiel stated, in sum and substance, "I feel very
bad about lying to you two.

I was ordered by my superiors at

Citibank to add a markup to all of your orders.

I was also

instructed that I could not let you know about the markups.
That is why, when you complained about orders not being filled,
I had to come up with some excuses, without revealing the real
reason your orders were not filled as instructed."
Deel. at

~

12.

Negrete

Defendant disputes this statement because it is

inadmissible hearsay under Federal Rule of Evidence 805 and is
irrelevant to the breach of contract claim, which is the only
subject of the partial motion for summary judgment.
56.1 Counterstatement at

~

Defendants'

33.

Plaintiffs further assert that Mr. Curiel stated to
Plaintiffs on June 23, 2015, in sum and substance, that "on some
occasions, the traders that were acting on our FX instructions
had added an additional undisclosed markup, on top of the

15

undisclosed markup added by the desk and that the only way to
know exactly how much money Citibank had taken from us was to
request the following from Citibank: the Client Price , the
Trader Price, and the Sales Trader Price, and that the
difference between the t hree was how much Ci tibank took from
us ."

Negrete Deel. at

~

13.

Defendant d i sputes this statement

because it is inadmissib l e hearsay under Federa l Ru l e of
Evidence 805 and is irrelevant to the breach of contract claim ,
which i s the only subject of the partial motion for summary
judgment .

Defendants' 56 . 1 Counterstatement at

~

34 .

The Applicable Standards

On a motion to dismiss pursuant to Rule 12(b) (6) , a l l
factua l allegations in t he complaint are accepted as true , and
all inferences are drawn in favor of the p l eader .
Polar Molecular Corp ., 12 F . 3d 1170 , 1174

Mi l ls v.

(2d Cir . 1993).

A

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

Ashcroft v . Iqbal , 556 U.S. 662 , 663

(2009)

(quoting

Bell Atl . Corp . v. Twombly , 550 U.S. 544 , 555, 127 S . Ct. 1955 ,

1964 , 167 L. Ed . 2d 929 (2007)).

A claim i s facially plausible

when "the plaintiff pleads factual content that allows the court

16

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. 2 010)); Prince v. Madison Square Garden, 427 F. Supp.
2d 372, 384

(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
right of action."

Twombly,

550 U.S. at 555 (citation and

internal quotation omitted).

17

Allegations of fraud , must meet the heightened
pleading standard of Federal Rule of Civil Procedure 9(b) , which
requires that the plaintiff " state with part i cularity the
circumstances constituting fraud."
Rule 9(b), the comp l aint must :

Fed. R . Civ . 9(b).

Under

(i ) "specify the statements that

the plaintiff contends were fraudulent,"

(ii) "i dentify the

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

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

v . Fleet Bank, N . A. , 459 F . 3ed 273 , 290

Lerner

(2d Cir . 2006)

(quo tati ons and citations omitted) ; Vista Food Exch . In c . 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) p l eadings 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
plaintiff ."

May Dept. Stores Co. v . International Leasing

Corp ., Inc.,

1 F.3d 138, 1 (2d Ci r . 1993).

18

Summary judgment is appropriate only where "there is
no genuine issue as to any material fact and ... the moving
party is entitled to a judgment as a matter of law."
Civ . P. 56(c).

Fed. R.

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, In c ., 477 U.S. 242, 248

(1986) .

The relevant inquiry on application for summary

judgment is "whether the evidence presents a sufficient
disagreement to require submission to a jury or whether it is so
one-sided that one party must prevail as a matter of law."
at 251 - 52.

A

Id.

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 wi ll not defeat
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).

The Motion to Dismiss the Fraud Claim and Claim for Fraudulent
Misrepresentations (Claims I and II) Regarding Markups Is
Granted Because Plaintiffs Fail to Adequately Allege the
Particularity Required by Rule 9(b)

19

The fraud claims in the previous Complaint were
dismissed because Plaintiffs failed to plead with sufficient
particularity to survive a motion to dismiss under Rule 9(b).
While in the original Complaint Plaintiff did not include any
instances of the fraudulent conduct, the FAC includes over 35
examples of the allegedly fraudulent conduct.

However,

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, the Defendant's motion to dismiss
is granted.

As discussed in the Court's May 19, 2016 opinion, 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).

Plaintiffs' argue that they have cured the
deficiencies with Rule 9(b) by alleging over 35 specific
instances of allegedly fraudulent conduct.

20

However, Plaintiffs

fraud allegations fail because Plaintiffs "still have not linked
the alleged fraudulent statements to particular Directors. Rule
9(b) is not satisfied where the complaint vaguely attributes the
alleged fraudulent statements to defendants."

Mills v. Polar

Molecular Corp ., 12 F.3d at 1175 (internal citations omitted).

Her e , Plaintiffs vague ly link allegedly fraudulent statements to
an "unknown Citibank employee" in each of their examples of the
fraudulent conduct.

While "courts have f ound it impractical to

require the plaintiff to plead the specifics with respect to
each and every instance of fraudulent conduct" when it takes
place thousands of times over a multi-year period (United States
v. Wells Fargo Bank, N.A.,

972 F.Supp.2d 593, 616 (S.D .N.Y.

2013) ) , likewise Plaintiffs must "identify those responsible for
the statements."

McLaughlin v. Anderson, 962 F. 2d at 191.

Here, Plaintiffs do not meet the particularity requirements of
Rule 9(b) because they fail to identify the alleged Citibank
employees who made these allegedly fraudulent statements.

Even if these allegations about unknown Citibank
employees were sufficient, Plaintiffs failed to address the
holding that even if there were adequate examples of fraudulent
conduct , failure to disclose a markup, without more, does not
const itut e a common law fraud claim.

21

Negrete v. Citibank , 187

F.Supp.3d 454, 464

(S.D.N.Y . 2016).

As counterparties under the

ISDAs, Citi was not prohibited from profiting on its trading by
way of a markup.

The FAC does not allege that with respect to

any of the trades, Plaintiffs were overcharged, or that
Plaintiffs did not receive exactly what they bargained for.

The

issue raised with respect to markups is that Defendant did not
provide Plaintiff with the best available price.

However,

Defendant had no fiduciary obligation to provide Plaintiffs with
best execution because the Negretes were not a client; Citibank
and the Negretes were both principals.
F.3d 1183 , 1186 n.4

Geman v. S.E.C. , 334

(10th Cir. 2003).

As noted in the May 19, 2016 opinion, Citibank is not
required to advise trading counterparties, to whom it owes no
fiduciary 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 2010)

("Plaintiff 's alleged reliance on defendant's

superior knowledge and expertise in connection with its foreign
exchange trading account ign ores the reality that the parties
engaged in arm's-length transactions pursuant to contracts

22

between sophisticated business entities that do not g i ve rise to
fiduc i ary duties. " ) .

Further , there is no authority supporting a corrunon l aw
fraud c l aim for al l eged l y excess i ve broker markups even in the
broker - dea l er context.

Lehman Bros Comm . Corp . v . Mi nmeta l s

Int ' l Non-Ferrous Metals Trading Co ., 179 F . Supp . 2d 159 , 167
(S . D.N.Y. 2001) ; see also Granite Partners , 58 F . Supp . 2d 228 ,
263

(S . D. N.Y . 1 999).

In Lehman , the Honorable John F. Keenan

granted surrunary judgment dismiss i ng markup claims in the same
context al l eged here : d i rect FX trading.

The court rejected the

plaintiffs ' argument " that New York law recognizes a markup
fraud c l aim under a genera l theory of fraud liability based on
omissions " relying upon the Granite Partners decision which
"c l early he l d otherwise. "

Id .

The Motion to Dismiss the Fraud Claims is Granted Because the
FAC Does Not Adequately Plead Scienter

For the same reasons art i culated in the Court ' s May
19 , 2016 opinion , Plaintiffs failed to p l ead scienter in the
FAC .

23

To state a fraud claim under New York law, "plaintiffs
must allege facts that give rise to a strong inference of
fraudulent intent."
(2d Cir. 1995).

Acito v. IMCERA Grp., Inc.,

47 F.3d 47, 52

To establish that 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.,

(S.D.N.Y. 2008)

542 F. Supp. 2d 245, 255

(citing In re Parmalat Secs. Litig., 501 F.

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

In the FAC, Plaintiffs slightly change the allegation
of scienter from a generalized profit motive to Defendant's
knowledge that "it was taking a markup but intentionally failed
to disclose this fact to Plaintiffs."

FAC at ] 151.

Further,

Plaintiffs allege scienter because Defendant made intentional
misrepresentations "to induce Plaintiffs to continue to engage
in business with Citibank and to cover-up the fact that Citibank
had taken unauthorized markups on every one of Plaintiffs' FX
trades."

FAC at ] 29.

However, these claims fall short of

scienter because as the Court explained in the May 19, 2 016
opinion:

"there is no authority supporting a common law fraud

24

claim for a l legedly excessive broker markups even in the broker
dea l er context ."

Negrete v. Citibank , 187 F.Supp.3d at 464.

While Plaintiffs point to an alleged party admission
by Rodrigo Curiel, Plaintiffs ' banker at Citibank , regarding his
l ying about adding markups to Plaintiffs '

FX trades

(FAC at

~

28) , this claim is insuffic i ent for scienter since the
allegation does not amount to fraud .

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. 17, 2013)
("The complaint does not ascribe to the HSBC Defendants any
particular motive for making these fraudulent representations
beyond a general profit motive common to all corporations , which
does not suffice . "
(2d Cir. 2000)).

(citing Novak v. Kasaks , 216 F . 3d 300 , 307
Plaintiffs ' claim for scienter is dismissed

for the same deficiencies.

The Motion to Dismiss the Fraud Claims is Dismissed Because the
FAC Fails To Allege Reasonable Reliance

New York law requires that Pla i ntiffs alleging common
law fraud establish reasonable rel i ance on a material
misrepresentation .

For the same reasons articulated in the May

19 , 2016 opinion, Plaintiffs fail to establish reasonable
25

reliance , and their fraud claims are dismissed.

In "assessing

the reasonableness of a plaintiff ' s alleged reliance, we
consider the entire context of the transaction, including
factors such as its comp l exity 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 1 89 , 195 (2d Cir . 2003).

Courts impose enhanced duties on sophisticated parties
before deeming their reliance reasonable.

That is , "where

parties have access to information that could expose a
misrepresentation , courts wil l not find their reliance
sufficiently justifiable to merit legal protection. "
Giannacopoulos v. Credit Suisse, 37 F . Supp. 2d 626,

633

(S.D.N.Y . 1999).

In this case , the 2010 ISDA Agreement explicitly
disclaims any reliance upon Citi . It provides "(l) No Rel i ance.
Plaintiff is acting for its own account , and it has made its own
independent decisions to enter into that Transaction and as to
whether that Transaction is appropr i ate or proper for it based
upon its own judgment and upon advice from such advisors as it
has deemed necessary."

26

These types of contract provis i ons disclaimi ng
reliance have been found enforceable under New York State law.
" It is wel l settled that cla i ms for fraud and negligent
misrepresentat i on are barred where the party asserting the claim
contractually agreed not to rely on t h e other party ' s
representation. " JPMorgan Chase Bank, N . A . v . Controladora
Comercial Mexicana S . A . B . De C. V ., 29 Misc . 3d 1227(A) ,

N. Y. S . 2d 241 at *7

(Sup . Ct . N.Y . Cty. 20 1 0)

920

(citing Republic

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

F. App ' x 15 (2d Cir . 2001)) .

Therefore , Plainti f fs'

4

fraud claim

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 .

For the reasons

stated , Plaintiffs have not demonstrated reliance for their
fraud claims for markups and they are dismissed.

The Motion to Dismiss the Fraud Claims is Granted Because the
FAC Does Not Allege Loss Causation

27

The doctrine of loss causation applies to common law
fraud claims such as the ones brought by Plaintiffs here as well
as the more common loss causation claims in securities fraud
cases.

969 F.

Bank of Am., N.A. v. Bear Stearns Asset Mgmt.,

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
Dex ia SA/ NV v. Bear, Stearns &

turned out to be a losing one."
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 FAC alleges that "Plaintiffs do not currently know
how much they were damaged from Citibank extracting the
undisclosed markups from them, but they estimate that it is at
least $30 million, or perhaps far more."

(FAC

at~

100.)

This

formulation of Plaintiffs' damages noticeably does not
characterize the issue with markups as lost profits; in the
original Complaint, Plaintiffs did characterize the same damages
as lost profits.

Plaintiffs re-phrased their damages because

this Court determined that Plaintiffs were not eligible for lost
profit damages in the May 19, 2016 opinion.

28

However,

"extracting the undisclosed markups" is merely a new formulation
of the same concept of lost profits.

Plaintiffs argue they are

entitled to the profits they would have obtained if Defendant
provided best execution at better prices.

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."
Highland Capital Mgmt., L.P. v. Schneider,

357

(S.D.N.Y. 2008)

Inc.,

533 F. Supp. 2d 345,

(quoting Lama Holding Co. v. Smith Barney

88 N.Y.2d 413, 421

(1996)).

The damages alleged here are

precisely the profits they would have made were it not for the
allegedly fraudulent markup.

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 still no direct damages alleged and no damages directly

29

resulted from the wrong.

Plaintiffs were required to allege the

out -of-pocket 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.").

In the FAC, Plaintiffs allege damages for one
partially executed trade at which Plaintiffs had to cover the
unfilled portion of their trade at a worse price.
characterized as out of pocket damages .

This could be

Plaintiffs allege

damages both for the markup, which is not compensable, and for
"the loss Plaintiffs suffered from having to buy and sell their
positions at prices worse than those that were contractually
agreed."

FAC at i i 153, 159.

Plaintiffs allege that on

February 1, 2013 Eduardo Negrete placed a limit order with an
unknown person at Citibank to sell AU$10,000,000 at 1.0425 or
better.

FAC at i

1 .0 426 t hat day,

83 .

Even though the currency pair reached

.0 00 1 better than the agreed upon price,

30

Plaintiffs allege that Defendant only sold AU$2,000,000 at
1.0425.

FAC at

~

83.

Plaintiffs allege that Eduardo Negrete

then needed to sell the remaining AU$8,000,000 in his position
at a lower price of 1.0417 because Citibank had not filled this
portion of the trade.

FAC at

~

83.

Plaintiffs in this February 1, 2013 trade allege that
they suffered damages not for lost profits, but for the
difference between the contract price and where they had to
cover the trade because of Citibank's alleged fraud.

However,

Plaintiffs are also required to show loss causation, which is
"'the causal link between the alleged misconduct and the
economic harm ultimately suffered by the plaintiff.'" Lentell v.
Merrill Lynch & Co., 396 F.3d 161, 172 (2d Cir.2005)

(quoting

Emergent Capital Inv. Mgmt., LLC v. Stonepath Group, Inc.,

343

F.3d 189, 197 (2d Cir. 2003)); see also Glidepath Holding B.V.
v. Spherion Corp., 590 F.Supp.2d 435, 457

(S.D.N.Y. 2007).

While Plaintiffs were required to plead this causal link, they
did not tie an allegedly fraudulent statement for this February
1, 2013 trade to the cause of their loss.

To plead loss causation, "'a plaintiff must allege .
. that the subject of the fraudulent statement or omission was

31

the cause of the actual loss suffered .' " Lentell , 396 F.3d at
173 (quoting Suez Equity Investors, L . P. v. Toronto-Dominion
Bank , 250 F.3d 87 , 95 (2d Cir . 2001)) .

However, Plaintiffs do

not allege that Defendant misrepresented why they could not
complete the full amount of the trade in this instance .
Instead , Plaintiffs al l ege that Defendant did not complete the
full transaction because of a hidden pro f it motive .

This hidden

motive does not show " the economic harm that [Plaintiffs]
suffered occurred as a resu l t of the al l eged
misrepresentations . "

Citibank, N . A. v. K- H Corp . , 968 F . 2d

1489 , 1495 (2d Cir . 1992) .

For the reasons stated above , the fraud c l aims stated
in Claims I and II are dismissed .
plead :

These claims all failed to

( 1) with particularity under Rule 9 (b) ;

( 2) scienter;

( 3)

reasonab l e reliance ; and (4) causation .

The Motion to Dismiss the Breach of Contract Claim for
Undisclosed Markups (Claim III) Is Granted In Part for Failure
to Adequately Plead Damages, and is Denied in Part for Claims
Covering Unexecuted Trades that Allege Real Damages

Plaintiffs cla i m breach of contract for undisclosed
markups of trades by the Defendant.

All claims related to

markups are dismissed ; however any claims unexecuted or
32

partially executed claims for which Plaintiffs can prove they
covered at a worse price and suffered actual damages survive.

To state a claim for breach of contract, Plaintiffs
must plead " (1) an agreement,
plaintiff,

(2) adequate performance by the

(3) breach by the defendant, and (4) damages."

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

Cir. 2011).

632 F.3d 793 , 799 (2d

In this case , Plaintiffs argue that they had valid

contracts for certain FX trades; that Plaintiffs fully
performed; that Defendants breached by adding markups, not
executing certain trades, and partially executing certain
trades; and that as a result of this breach, Plaintiffs suffered
damages to be determined at trial.

First, the Plaintiffs had a valid agreement with
Defendant for more than 35 trades described in the FAC.

The

ISDAs are not a comp leted agreement until the parties agree on
the essential terms of each individual transaction.

The ISDAs

stated, "The parties hereto agree that with respect to each
Transaction hereunder a legally binding agreement sha ll ex ist
from the moment that the parties hereto agree on the essential
terms of such Transaction, which the parties anticipate will
occur by telephone."

Slipp Deel., Ex. A at 28 of 77

33

(Part

5 (1) (a)) and Ex. B at 41 of 83 (Part 5 (c) (1)).

Under this

provision, there was a legally binding agreement as soon as the
parties agreed to the essential terms of each transaction over
the telephone.

Defendant argues that there would be no agreement
until Defendant sent Plaintiffs a confirmation and Plaintiffs
executed the confirmation or requested any changes within three
business days, yet Plaintiffs do not plead that there were
confirmations for any of these transactions.
A at 28-29 of 77
5 (c) (2).

Slipp Deel., Ex.

(Part 5 (1) (b)) and Ex. B at 41 of 83

(Part

Defendant argues that without the confirmation that

there was no agreement.

These portions of the ISDAs are in

tension creating some ambiguity about the appropriate
interpretation of the ISDAs regarding when there was a legally
binding contract.

"In interpreting a contract, the intent of

the parties governs" and that intent is ascertained by "the
plain meaning of the language employed in the agreements."
Crane Co. v. Coltec Industries, Inc.,

1999)

(internal citations omitted).

171 F.3d 733, 737

(2d Cir.

While confirmations are

required under the ISDAs, the plain language of the contract
states that a "legally binding agreement shall exist from the
moment that the parties hereto agree on the essential terms"

34

likely over the telephone .

Slipp Deel. , Ex . A at 28 of 77

5 (1) (a)) and Ex . B at 41 of 83 (Part 5 (c) ( 1 )).
dispos i tive of the part i es '

(Part

This language is

intent that there would be a legally

binding agreement once the parties agreed to the essential terms
over the telephone since the parties only called it a lega l ly
binding agreement in that section and not in the section about
confirmations .

While the fraud claims failed for lack of
particularity in the pleadings under Rule 9(b) , "there is no
requirement in the Federal Rules of Civil Procedure that the
details of a breach of contract claim be pleaded with
particularity.

Instead , the short , plain notice rule of Fed . R.

Ci v . P . 8 applies."
Networks,

Inc . ,

Contractual Obligation Prods.,

No . 04 Civ . 2867

at *6 (S . D. N. Y. Mar . 31 , 2006).

(BSJ)

LLC.

V . AMC

(HBP), 2006 WL 6217754 ,

While Pl aintiffs did not plead

the fraud claims with particularity, Plaintiffs have pled
sufficient existence of contracts for breach claims.

Second , Defendant does not dispute that Plaintiffs
adequately performed under the contracts.

35

Third, the FAC alleges that Defendant breached over 35
specific transactions to which the parties agreed over the
telephone (as well as other alleged transactions)
dispute whether there was a breach in this case.

The parties
For the

reasons stated in the fraud analysis, markups did not breach
these agreements.

Defendant was under no obligation to of fer

best execution to Plaintiffs and was only obligated to trade at
the agreed upon price.

However,
breaches:

Plaintiffs allege two other types of

(1 ) failure to execute a trade when the market price

matched the contract price; and (2) partial execution of trades.
Unlike the context of markups, these are valid examples of
breach of the ISDAs combined with the alleged instructions over
the phone on specific dates for specific trades.
Ex. A at 28 of 77
5 (c) (1)).

Slipp Deel.,

(Part 5 (1) (a)) and Ex. B at 41 of 83

(Part

The ISDAs state that the parties had a "legally

binding agreement .

. from the moment that the parties hereto

agree on the essential terms of such Transaction, which the
parties anticipate will occur by telephone."

Id.

Plaintiffs

allege that these agreements over the phone did exist and that
Defendant breached these agreements by not executing at the

36

contract price.

These trades do not suffer from the same best

execution issue as the markup trades.

Finally, Plaintiffs must allege valid damages.

The

2010 ISDA limited damages by stating that "[n] o party shall be
required to pay or be liable t o the other party for any
consequential, indirect or punitive damages, opportunity costs
or lost profits."

Slipp Deel., Ex. Bat 42 of 83 (Part S(g)).

Even if the markup c laims stated a valid theory of breach, they
would still fail because they do not claim valid damages.

As

discussed in the fraud section, any damages measured as the
difference between the contract price and the markup price would
be a form of lost profits, which are explicitly prohibited under
the 2010 I SDA .

Slipp Deel., Ex . Bat 42 of 83 (Part S(g)).

Similarly, this limitation of liability provision in the 2010
ISDA applies to some of the alleged damages f or the unexecuted
or partially executed trades.

Plaintiffs allege that they lost

the opportun i ty to profit and suffered an unkn own additional
risk from these unexecuted and partially executed trades .

Any

claims for lost profits from markups or lost opport unities to
profit from unexecuted or partially executed trades are
dismissed.

Damage from Plaintiffs having taken on unknown risk

is not compensable under the ISDAs, as it is a form of indirect

37

damage to the Plaintiff.

Slipp Deel., Ex. Bat 42 of 83 (Part

5 ( g)) .

However, this limitation of liability provision does
not cover the claims for the alleged February 1, 2013 partially
executed trade described in the fraud claim section.

The

difference between this one trade and the others is that as a
result of Defendant's alleged conduct, Plaintiffs were forced to
cover the unexecuted portion of the trade at a worse price than
the contract price.

This is an out of pocket loss, which is

compensable as damages under the ISDAs in contrast to the lost
profits alleged in all other transactions.

For the reasons stated above, the breach of contract
claim for undisclosed markups, unexecuted trades, and partially
executed trades for lost profits and unknown risks in Claim III
are dismissed, but all claims for covering trades at a worse
price than the contract price are compensable.

The Motion to Dismiss the Breach of Contract Claim for
Cancellation of Trades Based on Erroneous Margin Calls (Claim
IV) Is Granted for Failure to Use the Required Dispute
Resolution Mechanism

38

Claim IV alleges that as a result of "numerous" margin
calls by Defendant, including specific examples, Defendant
breached the ISDAs by inappropriately cance ling Plaintiffs' FX
orders resulting in damages of over $1,000,000.

FAC at

~

104.

For the reasons that follow, the claims for erroneous margin
cal ls are dismissed.

Plaintiffs raise either one or two specific examples
of margin calls that caused actual damages, including a December
2 , 2014 margin call that resulted in $700 ,0 00 in damages, and
li kely the same margin call required Gervasio Negrete to "close
an open forward position on December 12, 2014 and, thus, has
forced to buy €5 ,0 00 ,0 00 Eur os against the Mexican Peso
resulting on a direct loss of US $403,177."

FAC

at~~

134, 144.

However, the examp l e regarding the $403,177 loss is not pled
with sufficient detail to know what it refers to.

First, in the May 19, 2016 op ini on , this Court already
dismissed the claims related to the $700,000 loss associated
with the December 2 , 2014 margin call.

Plaintiffs cannot

reframe the same loss as no longer being lost profits.

The

opinion dismissed these l osses as lost profits because
Plaintiffs described their loss in the original complaint as

39

lost profits when they pled that if the trade had been executed
as instructed, "[I]t would have resulted in at least $700,000 in
profit to Plaintiffs."

Compl. at

~

58.

However as noted above

in the fraud and breach of contract sections for markups in this
opinion , lost profits are explicitly prohibited from the 2010
ISDA.

Slipp Deel., Ex. Bat 42 of 83 (Part 5(g)).

While the

FAC now does not characterize these same damages as lost
profits, "A party [] cannot advance one version of the facts in
its pleadings, conclude that its interests would be better
served by a different version, and amend its pleadings to
incorporate that version .
(2d Cir. 1984).

,,

U.S.

v . McKean,

738 F.2d 26 , 31

The cla im for $700,000 in lost profits for the

December 2 , 2014 margin ca ll is again dismissed under both the
breach of contract and fraud claim because lost profits are
impermissible damages under the 2010 ISDA.

Second , Plaintiffs allege a direct loss of $403,177 on
December 12, 2014 as a result of a margin call, which required
Gervasio Negrete to " close an open forward position" forcing him
"to buy €5 ,00 0 , 000 Euros against the Mexican Peso."
144.

FAC at

Plaintiffs failed to plead which margin call this was

associated with and whether they disputed the margin call.
at

~~

~

116-125.

Plaintiffs were required to dispute any

40

FAC

erroneous margin ca ll s within the required one bus in ess day
window .

Sl i pp Deel., Ex. A, at 58 of 77

(requiring that a party

d is puting the calcu l ation of a margin call " wil l notify the
other party and the Va lua tion Agent .

. not later than the

close of business on the Local Business Day .

." ) .

Since

Plaintiffs failed to plead that they contested these margin
calls within the required window , the breach of contract c laim
(Claim IV)

is dismissed.

The Motion to Dismiss the Fraud Claim for Erroneous Margin Calls
(Claim V) Is Granted as Duplicative of the Breach of Contract
Claims for Margin Calls (Claim IV)

In Claim V,

Plaintiffs allege fraud for the same

margin calls alleged in Claim IV.

These claims are also

dismissed because the conduct alleged in the fraud claim is
duplicative of the conduct dismissed in the breach of contract
claim.

The Second Circuit has held , "To maintain a cla i m of
fraud [based on a breach of contract ], a plaintiff must either :
(i) demonstrate a legal duty separate from the duty to perform
under the contract, or (ii) demonstrate a fraudulent
misrepresentation collateral or extraneous to the contract , or
(iii)

seek special damages that are caused by the
41

misrepresentation and unrecoverable as contract damages."
Bridgestone/ Firestone, Inc. v . Recovery Credit Servs ., Inc ., 98
F.3d 13, 20 (2d Cir. 1996).

Here, the fraud claims for

erroneous margin calls are based on the breach of the ISDA
contracts and the way that they require Plaintiffs to maintain
certain collateral levels and Defendant's allegedly erroneous
margin calls.

However, Plaintiffs fail to meet the

Bridgestone/ Firestone test because the fraud claim does not
establish a separate legal duty, a misrepresentation extraneous
to the contract, or special damages .

Id .

While there could be

some special damages suffered as a result of the alleged fraud
surrounding the erroneous margin calls , Pl aintiffs only pled
damages for:

"As result of Citibank's fraud,

Plaintiffs have

been damaged in an amount to be determined at trial."
182.

FAC at

~

Therefore, the fraud claim for erroneous margin calls is

dismissed.

The Motion to Dismiss the Breach of the Covenant of Good Faith
and Fair Dealing Allegations Is Granted

Plaintiffs alleged that Citibank breached the implied
covenant of good faith and fair dealing, however these claims
are dismissed for the same reasons articulated in the May 19,
2016 opinion because there are no additional claims of
42

violations of the covenant of good faith and fair dea l ing in the
FAC .

As the Court ruled in the May 19 , 2016 opinion , an implied

covenant claim "wil l not stand i f it is duplicative of a breach
of contract cla i m."
310 F.3d 73 , 81

Harris v . Provident Life & Accident Ins . ,

(2d Cir. 2002) .

In this case t h ere is no claim

under the implied covenant of good faith and fair dealing that
survives the motion to dismiss because there are no facts
distinct from the breach of contract claim as discussed further
in the May 19 , 2016 opinion.

The Cross-Motion for Partial Summary Judgment is Denied

The Plaintiffs have sought part i al summary judgment on
their claim for breach of contract for the undisclosed markups.
As discussed in the May 19 , 2016 opinion , Plaintiffs seek to
rely on Defendant ' s admissions in the unrelated antitrust plea
agreement and required disclosures as proof of liability under
the breach of contract claim for markups .

This contention has

been rejected as set forth in the above section dismissing
Claims I and II.

Partial summary judgment on these claims is

denied .

43

Conclusion

Upon the conclusions set forth above , the motion of
the Defendant to dismiss the Complaint is granted in part and
denied in part , without l eave 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
February
201 7

?f-

/

SWEET
U . S.D.J.

44