INTL FCStone Markets, LLC v. Intercambio Mexicano de Comercio S.A. de C.V.
Filing
104
ORDER AND OPINION GRANTING PLAINTIFF'S MOTION TO DISMISS COUNTERCLAIM AND DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT re: 92 MOTION to Dismiss Counterclaim. filed by INTL FCStone Markets, LLC, 94 MOTION for Summar y Judgment Dismissing Plaintiff's Claim and Awarding Sum-Certain $359,000 on Defendant's Counterclaim. filed by Intercambio Mexicano de Comercio S.A. de C.V. Plaintiff's motion to dismiss Defendant's counterclaim is granted, and Defendant's motion for summary judgment as to Plaintiff's claim and its own counterclaim is denied. The parties shall appear for a status conference, as scheduled, on January 20, 2023, at 10:00 a.m. The Clerk of the Court shall terminate ECF Nos. 92, 94. SO ORDERED. (Signed by Judge Alvin K. Hellerstein on 6/14/22) (yv)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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X
:
INTL FCSTONE MARKETS, LLC,
:
:
:
Plaintiff, :
-against:
:
INTERCAMBIO MEXICANO DE COMERCIO :
S.A. DE C.V.,
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Defendant. :
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ORDER AND OPINION
GRANTING PLAINTIFF’S
MOTION TO DISMISS
COUNTERCLAIM AND
DENYING DEFENDANT’S
MOTION FOR SUMMARY
JUDGMENT
18 Civ. 1004 (AKH)
ALVIN K. HELLERSTEIN, U.S.D.J.:
Plaintiff INTL FCStone Markets LLC, (“Plaintiff”), a financial services firm,
brings this suit for breach of contract against its former client, Defendant Intercambio Mexicano
de Comercio S.A. de C.V. (“Defendant”), alleging that Defendant breached the terms of their
trading agreement by failing to pay margin calls. (ECF No. 68). Defendant asserts a
counterclaim for breach of contract, alleging that notwithstanding its failure to pay margin calls,
that Plaintiff also breached the terms of their agreement by failing to specify an Early
Termination Date for closing Defendant’s trading account; Defendant seeks damages for the
allegedly wrongful liquidation of its account. (ECF No. 84).
Before me now is Plaintiff’s motion to dismiss Defendant’s counterclaim (ECF
No. 92), and Defendant’s cross-motion for summary judgment on both Plaintiff’s claim and its
counterclaim and requests a sum-certain in the amount of $359,000 (ECF No. 94). For reasons
provided below, Plaintiff’s motion is granted, and Defendant’s motion is denied.
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BACKGROUND
The facts underlying this dispute have been set forth in detail in prior orders, see
ECF Nos. 34, 65, 79. I summarize only the facts necessary to resolve the instant disputes.
Plaintiff, a financial services firm, and Defendant entered into a Terms of
Business Agreement (the “Agreement”) on October 24, 2017. See Second Amended Complaint
(“SAC”) ¶ 9, ECF No. 68; Amended Answer ¶ 9, ECF No. 84; SAC, Exhibit A (“Ex. A”), ECF
No. 68-1 (copy of the Agreement (the “Agreement”)). Pursuant to the Agreement, Plaintiff
agreed to provide trading services relating to swap and over-the-counter derivatives, and
Defendant agreed to pay the amounts that were due. SAC ¶ 10, Answer ¶ 10. Margin calls had
to be satisfied no later than 12:00 noon New York time on the next business day following the
margin call. Agreement ¶¶ 2.3, 2.4. The Agreement further provided remedies in the event of a
party’s failure to pay:
Upon an Event of Default, [including failure to pay,] the Performing Party may do one or
more of the following with respect to the Defaulting Party:
(a) Withhold or suspend all payments to the Defaulting Party required hereunder; and
(b) Upon written notice to the Defaulting Party, which notice shall be given not less than
two Business Days and shall not exceed thirty (30) Business Days’ prior to the Early
Termination Date, designate in such written notice an Early Termination Date with
respect to any or all Transactions outstanding at the time immediately preceding the
Early Termination Date . . . . Neither Party shall have any obligation with respect to a
Terminated Transaction other than an obligation to pay a Net Settlement Amount if
applicable.
Id. ¶ 5.1. The Agreement defined “Early Termination Date” as “a date for termination of the
Agreement and all the Parties’ obligations under the same, other than the obligations set forth in
Sections 5.3 (Net Settlement Amount) and 5.4 (Setoff) of the Agreement.” Id. Ex. A:
Definitions. Net Settlement Amount was defined as “the single liquidated amount payable by
one Party to the other, following the occurrence or designation of an Early Termination Date,
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after netting [relevant costs, damages, and unpaid amounts].” Id. Ex. A: Definitions. As to Net
Settlement Amount, Section 5.3 provided, in relevant part:
Upon the occurrence or designation of an Early Termination Date pursuant to Section
5.1(b), the Performing Party shall compute and shall notify the Defaulting Party of the
Net Settlement Amount.
Id. ¶ 5.3.
On December 11, 2017, Plaintiff emailed Defendant a margin call for
$408,980.74 and stated that the margin call had been outstanding for 4 days. SAC ¶ 24; SAC,
Exhibit D, ECF No. 68-4; Answer ¶ 24. Defendant paid $50,000 by wire on December 11, 2017.
SAC, Exhibit E, ECF No. 68-5.
On December 12, 2017, Plaintiff emailed Defendant a written Notice of Failure to
Pay, stating that “an Event of Default exist[ed] due to a failure to make a payment of
$346,275.50, pursuant to Article 2.4 of the [Agreement].” See SAC, Exhibits E, ECF No. 68-5,
Exhibit F, ECF No. 68-6. The Notice further stated that “if payment [wa]s not made
immediately an Early Termination Date [would] be designated with respect to any and all
Transaction outstanding pursuant to Article 5.1(b) of the TOB and the account [would] be
liquidated.” Exhibit F. Defendant claims not to have received the Notice and did not pay the
margin call. SAC ¶¶31–32; Amended Answer ¶¶ 31–32. Plaintiff followed with additional
margin calls, but Defendant did not respond, and on December 22, 2017, Defendant’s positions
were liquidated by virtue of stop orders.
On December 29, 2017, Plaintiff emailed a “Second Notice of Net Settlement
Amount,” advising Defendant that, pursuant to Article 5.3 of the Agreement, $494,500.50, was
due and payable in full by January 2, 2018. SAC ¶¶ 51–53; SAC, Exhibit H, ECF No. 68-8.
Plaintiff’s notice showed the details resulting in that amount.
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Defendant did not pay and objected to Plaintiff’s liquidations of Defendant’s
positions. SAC ¶¶ 54–55; Amended Answer ¶¶ 54–55. Plaintiff filed this lawsuit for breach of
contract and seeks damages to recover the amount owing.
Defendant’s Counterclaim
Defendant admits the Agreement, denies breach, and counterclaims for breach of
contract, citing Plaintiff’s failure to specify an Early Termination Date prior to liquidating
Defendant’s account. Amended Answer ¶¶ 67–69. I previously dismissed Defendant’s
counterclaim, with leave to amend, based on its failure plausibly to allege damages caused by
Plaintiff’s alleged breach. See ECF No. 79.
In its amended counterclaim, Defendant alleges two theories of damages. First,
Defendant claims damages in the amount of $359,000, the sum of payments that Defendant made
to Plaintiff, between November 10 and December 13, 2017, to satisfy margin calls. See
Amended Answer ¶¶ 77–84. Defendant alleges that it would have been able to withdraw these
funds when its positions later increased to a value that exceeded $359,000 had Plaintiff not
liquidated Defendant’s account. Id. ¶¶ 78, 80, 82.
Second, Defendant claims damages in the amount of $1,400,000, based on lost
profits associated with Defendant’s futures positions in cocoa, also liquidated by Plaintiff. Id.
¶¶ 85–97. Defendant alleges that, as a buyer and seller of cocoa, it invested in the futures
markets for cocoa (for 2000 metric tons) as a hedge against price variations, and also to ensure
that it would have available quantities of cocoa at a cost that permitted profitable sales to its
customers. Id. ¶¶ 87, 95. Defendant alleges that “[i]n 2017/2018 [it] purchased, and in 2018
received invoices, from its vendors” for purchases of cocoa “at what [D]efendant calculated as
an average purchase price of USD $2,580 per metric ton[.]” Id. ¶ 89. Defendant alleges that it
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intended to maintain its futures positions (characterized as its “policy”) until the positions
exceeded the calculated contractual purchase price, which occurred sometime in mid-April 2018,
and at which point, Defendant alleges it would have sold its positions. Id. ¶¶ 90–92. However,
because Plaintiff terminated Defendant’s account and liquidated those positions when the price
was below the calculated contractual purchase price ($1880 per metric ton), Defendant claims
lost profits in the amount of $1,400,000 (($2850 - $1880 per metric ton) x 2000 metric tons).
¶¶ 95, 97.
Plaintiff moves to dismiss Defendant’s counterclaim, arguing that Defendant still
fails plausibly to allege damages caused by Plaintiff’s failure to specify an Early Termination
Date. Defendant cross-moves for summary judgment on Plaintiff’s claim and its counterclaim
and seeks an award of a sum certain in the amount of $359,000.
DISCUSSION
I. Legal Standard
Fed. R. Civ. P. 13 governs counterclaims. A motion to dismiss a counterclaim is
evaluated under the same standard as a motion to dismiss a claim in the complaint. See GEOMC
Co., 918 F.3d at 101 (finding that district courts may evaluate the legal sufficiency of a
counterclaim properly challenged in a Rule 12(b)(6) motion).
When considering a motion to dismiss, a court accepts as true all well-pleaded
factual allegations and draws all reasonable inference in favor of the non-moving party. See Trs.
of the Upstate N.Y. Eng’rs Pension Fund v. Ivy Asset Mgmt., 843 F.3d 561, 566 (2016).
However, it gives “no effect to legal conclusions couched as factual allegations.” Stadnick v.
Vivint Solar, Inc., 861 F.3d 31, 35 (2d Cir. 2017). To withstand a motion to dismiss, a pleading
“must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is
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plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570, (2007)). “Threadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.” Id. A counterclaim is facially
plausible when “the [counterclaimant] pleads factual content that allows the court to draw the
reasonable inference that the [original claimant] is liable for the misconduct alleged.” Iqbal, 556
U.S. at 663 (quoting Twombly, 550 U.S. at 556). In other words, the factual allegations must
“possess enough heft to show the pleader is entitled to relief.” Twombly, 550 U.S. at 557
(cleaned up). “In determining the adequacy of the [counterclaim], the court may consider any
written instrument attached to the [Answer or counterclaim] as an exhibit or incorporated in the
complaint by reference, as well as documents upon which the [Answer or counterclaim] relies
and which are integral . . . .” Subaru Distribs. Corp. v. Subaru of Am., Inc., 425 F.3d 119, 122
(2d Cir. 2005); Axiom Inv. Advisors, LLC v. Deutsche Bank AG, 234 F. Supp. 3d 526, 532–33
(S.D.N.Y. 2017).
Summary judgment is appropriate when there is “no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a);
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A genuine issue of material fact exists “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 court must “view the evidence
in the light most favorable to the party opposing summary judgment[,] . . . draw all reasonable
inferences in favor of that party, and . . . eschew credibility assessments.” Amnesty Am. V. Town
of West Hartford, 361 F.3d 113, 122 (2d Cir. 2004). However, the nonmovant may not rely on
conclusory allegations or unsubstantiated speculation to defeat the summary judgment motion.
Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir. 1998).
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II. Analysis
A. Motion to Dismiss Defendant’s Counterclaim
A claim for breach of contract under New York law requires allegations of: (1) an
agreement, (2) adequate performance by one party, (3) breach by the other party, and (4)
resulting damages. See Fischer & Mandell, LLP v. Citibank, N.A., 632 F.3d 793, 799 (2d Cir.
2011) (cleaned up); Berman v. Sugo LLC, 580 F. Supp. 2d 191, 202 (S.D.N.Y. 2008); see also
McCormick v. Favreau, 82 A.D. 3d 1537, 1541 (N.Y. App. Div. 2011); accord. Twinkle Play
Corp. v. Alimar Props., Ltd., No. 2018-10896, 186 A.D.3d 1447, N.Y. App. Div. LEXIS 5008, at
*1 (N.Y. App. Div. 2d Dep’t Sept. 16, 2020).
As I indicated in my prior Order, ECF No. 79, in order to proceed on its
counterclaim, Defendant must allege damages plausibly caused by Plaintiff’s breach. Despite
having had multiple opportunities, Defendant has failed to do so.
In its Amended Answer, Defendant asserts two theories for damages. Neither is
plausible. As to Defendant’s claim for damages in the amount of $359,000, this sum is based on
various payments that Defendant made to satisfy margin calls, occurring between November 10
and December 13, 2017. Defendant concedes that that these payments covered its own
indebtedness to Plaintiff but nevertheless claims that it is entitled to have these funds returned
because Defendant could have withdrawn these funds when the balance on its account became
positive, in excess of $359,000. This theory fails for two reasons. First, Defendant fails to
explain why it would be entitled to recover payments properly made to Plaintiff. Second,
Defendant fails to explain how Plaintiff’s alleged breach caused these damages. The termination
of Defendant’s account was triggered by Defendant’s failure to meet its obligations under the
Agreement, and the liquidation of Defendant’s account was based on stop orders, triggered by
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falling prices in its positions. As stated in my prior order, ECF No. 79, if Plaintiff had left
Defendant’s account open, the value of Defendant’s positions would have declined even further.
Defendant does not allege that its positions would have become positive within the two- to
thirty-day window for setting an Early Termination Date, and in fact, does not allege any date on
which its positions would have become positive. Because Defendant offers no facts suggesting
that it would have been able to withdraw the $359,000, and critically, nowhere explains how
Plaintiff’s failure to specify an Early Termination Date actually or proximately caused
Defendant’s claimed losses, Defendant fails plausibly to allege damages in the amount of
$359,000.
As to Defendant’s alleged lost profits of $1,400,000 associated with its futures
positions in cocoa, this claim also fails for two reasons. First, Defendant fails plausibly to allege
that the lost profits were actually or proximately caused by Plaintiff’s breach. While the
liquidation of its account occurred after Plaintiff’s alleged breach, Plaintiff’s breach did not
cause the liquidation. The liquidation resulted from Defendant’s own breach—its failure to pay
margin calls. Moreover, Defendant does not allege that if an Early Termination Date had been
specified, it would have paid the amounts owing. Thus, Plaintiff’s intervening breach, if any, did
not break the chain of causation.
In addition, Defendant fails plausibly to allege that it is entitled to receive lost
profits. Lost profits are consequential damages—those that are not “the direct and immediate
fruits of the contract,” but rather losses on “collateral business arrangements.” See Mufg Union
Bank, N.A. v. Axos Bank, 196 A.D.3d 442, 443–444 (1st Dept. 2021) (citations omitted). To
recover such profits, “a plaintiff must establish that such damages were actually caused by the
breach, that the particular damages were fairly within the contemplation of the parties to the
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contract at the time it was made and that the alleged loss is capable of proof with reasonable
certainty.” Awards.com v. Kinko’s Inc., 42 AD3d 178, 178, (2007) (quotations and citations
omitted).
Defendant fails plausibly to allege either that these damages were contemplated
by the parties or that the loss is capable of proof with reasonable certainty. Although Defendant
alleges that it held its futures positions as a matter of intent and policy, Defendant nowhere
alleges that it informed Plaintiff of this intent or policy, or that Plaintiff had knowledge of the
same. Therefore, Defendant has not alleged plausibly that these damages were “within the
contemplation of the parties,” such that the damages would have been foreseeable to Plaintiff,
and for which Plaintiff should now be liable.
In addition, Defendant fails plausibly to allege that these damages are “capable of
proof with reasonable certainty.” Defendant’s claim to lost profits rests on the unsupported
assumption that Plaintiff was required to keep Defendant’s account open, notwithstanding
Defendant’s failure to abide by the terms of the Agreement—i.e., its failure to pay margin calls.
See Amended Answer ¶ 71 (“[P]laintiff was not entitled to terminate or liquidate [D]efendant’s
account which thus remained open and in full force and effect.”). This assumption defies logic
and law. As noted above, Defendant does not allege that it would have paid the margin calls if
an Early Termination Date had been specified. Indeed, Defendant admits its breach. As a matter
of black letter contract law, a material breach by one party to a contract discharges the
contractual obligations of the nonbreaching party. See, e.g., Bear, Stearns Funding, Inc. v.
Interface Group-Nevada, Inc., 361 F. Supp. 2d 283, 291 (S.D.N.Y. 2005). Here, Defendant
failed to pay margin calls and thereby materially breached the Agreement. See Jafari v. Wally
Findlay Galleries, 741 F. Supp. 64, 67–68 (S.D.N.Y. 1990). While Plaintiff agreed to specify an
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Early Termination Date, nowhere did it agree that absent such a specification, it would hold
Defendant’s account open indefinitely, or even until mid-April 2018, when Defendant claims
that it would have been able to liquidate its futures positions at the calculated contractual
purchase price. Defendant’s claim that it would have been able to recover its calculated lost
profits is wholly speculative, and thus, implausible.
Accordingly, because Defendant fails plausibly to allege damages caused by
Plaintiff’s alleged breach, Defendant’s counterclaim is dismissed with prejudice.
B. Defendant’s Motion for Summary Judgment
Defendant moves for summary judgment as to both Plaintiff’s breach of contract
claim and its counterclaim. Because I grant Plaintiff’s motion to dismiss the counterclaim,
Defendant’s motion for summary judgment on its counterclaim necessarily fails. Accordingly, I
address only Defendant’s motion for summary judgment on Plaintiff’s claim and hold that
Defendant is not entitled to summary judgment on Plaintiff’s claim.
Defendant argues that it is entitled to summary judgment because Plaintiff
subsequently breached the Agreement when it failed to specify an Early Termination Date.
However, as I have explained previously, see ECF No. 79, Plaintiff’s breach did not—and could
not—excuse Defendant’s prior breach. Defendant was obligated to pay the margin calls and
failed to do so. Whether Plaintiff’s failure to specify an Early Termination Date also caused
Defendant to suffer damages does not negate the validity of Plaintiff’s claim nor vitiate
Plaintiff’s right to recover the monies caused by Defendant’s breach. At most, Plaintiff’s
subsequent breach, if any, would reduce the amount Plaintiff would be entitled to recover. It
would not—absent a showing that Defendant’s damages were in excess of Plaintiff’s damages
(which Defendant fails plausibly to allege)—prevent Plaintiff from recovering some or all of its
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alleged damages. Accordingly, Defendant’s motion for summary judgment on Plaintiff’s claim
is denied.
CONCLUSION
For the reasons discussed, Plaintiff’s motion to dismiss Defendant’s counterclaim
is granted, and Defendant’s motion for summary judgment as to Plaintiff’s claim and its own
counterclaim is denied. The parties shall appear for a status conference, as scheduled, on
January 20, 2023, at 10:00 a.m. The Clerk of the Court shall terminate ECF Nos. 92, 94.
SO ORDERED.
Dated:
June 14, 2022
New York, New York
____/s/ Alvin K. Hellertstein____
ALVIN K. HELLERSTEIN
United States District Judge
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