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SNS Bank v. Citibank

Appellate Division of the Supreme Court of New York, First Department
May 13, 2004
7 A.D.3d 352 (N.Y. App. Div. 2004)

Summary

finding issuer of notes did not owe fiduciary duty to plaintiff because their relationship as debtor and note-holding creditor was purely contractual

Summary of this case from M&T Bank Corp. v. LaSalle Bank Nat'l Ass'n

Opinion

3629.

Decided May 13, 2004.

Order, Supreme Court, New York County (Helen E. Freedman, J.), entered on or about August 6, 2003, which dismissed the amended complaint, unanimously affirmed, with costs.

McElroy, Deutsch Mulvaney, LLP, New York (Ronald J. Riccio of counsel), for appellant.

Jones Day, New York (Jayant W. Tambe of counsel), for respondents.

Before: Tom, J.P., Andrias, Sullivan, Ellerin, Williams, JJ.


Personal jurisdiction was never acquired over the directors of defendant Captiva Finance, a Cayman Islands corporation ( see CPLR 302[a][1]). These directors reside variously in the Caymans, Bermuda, England and Luxembourg, and all except two of them submitted affidavits stating that they conducted their directorial duties outside the State of New York. As for the two directors who attended a Captiva board meeting in New York in December 2000, there was no "substantial nexus between the business transacted [here] and the cause of action" sued upon ( Richbell Info. Servs. v. Jupiter Partners, 309 A.D.2d 288, 308), inasmuch as the complaint is directed at omissions from a 1996 offering memorandum and the replacement of the financial manager in 1999.

The IAS court properly exercised its discretion in denying plaintiff's request for jurisdictional discovery. Plaintiff's affidavit in opposition to defendants' motion to dismiss did not request such discovery ( see CPLR 3211[d]), and plaintiff failed to offer "some tangible evidence which would constitute a 'sufficient start' in showing that jurisdiction could exist, thereby demonstrating that its assertion that a jurisdictional predicate exists is not frivolous" ( Mandel v. Busch Entertainment Corp., 215 A.D.2d 455). The fact that Captiva has submitted to the jurisdiction of the New York courts does not mean that its directors have done so ( see e.g. Baran Computer Servs. v. First Bank of Maury County, 143 A.D.2d 63, 64).

Plaintiff claims that Captiva breached its fiduciary duty by permitting Citibank to become financial manager in the summer of 1999 and failing to properly monitor or fire Citibank thereafter. The first step in any choice-of-law analysis is to determine if there is actually a conflict between the laws of the competing jurisdictions ( Matter of Allstate Ins. Co. [Stolarz], 81 N.Y.2d 219, 223). If there is none, then the law of the forum state where the action is being tried should apply ( Excess Ins. Co. v. Factory Mut. Ins. Co., 2 A.D.3d 150, 151). Under New York law, Captiva would not owe plaintiff a fiduciary duty because the relationship between them is one of debtor and note-holding creditor ( see Fallon v. Wall St. Clearing Co., 182 A.D.2d 245, 250; Banco Espirito Santo de Investimento v. Citibank, 2003 US Dist LEXIS 23062, *50 [SD NY]), which is purely contractual ( see Marine Midland Bank v. Yoruk, 242 A.D.2d 932). Even under the law of the Caymans, where Captiva was incorporated, it is unrefuted that Captiva would owe no fiduciary duty to plaintiff.

Plaintiff's claim that Captiva breached the subscription agreement by failing to create and maintain a structure in which a financial manager independent of Citibank would serve, subject to the oversight of independent Captiva directors and an independent administrative agent and administrative committee, was properly dismissed. Plaintiff concedes that no specific provision of the subscription agreement or the offering memorandum (which the subscription agreement incorporates by reference) created such a duty. In light of the merger clause in the subscription agreement, the obligations plaintiff seeks to impose should not be added to the parties' contract ( see e.g. Goldfeld v. Mattoon Communications Corp., 99 A.D.2d 711, 712, appeal dismissed 62 N.Y.2d 802).

To be sure, a merger clause does not prevent a court from inferring a covenant of good faith and fair dealing ( see Havel v. Kelsey-Hayes Co., 83 A.D.2d 380, 384). However, such an obligation can only be found where the implied term is consistent with other terms in the contract ( see Murphy v. American Home Prods. Corp., 58 N.Y.2d 293, 304). The offering memorandum specifically stated that Citibank was the administrative agent, that two of the three members of the administrative committee were Citibank employees (and the third was of counsel to a firm that provided a significant amount of legal services to Citibank), and that Captiva could fire the financial manager at any time. Hence, it would be contrary to the explicit terms of the parties' contract to infer an obligation on Captiva's part to guarantee an independent financial manager, administrative agent and administrative committee. Although it would not be contrary to the offering memorandum to infer an obligation that the Captiva directors be independent, such a promise is not "'so interwoven in the whole writing' of a contract as to be necessary for the effectuation of the purposes of the contract" ( M/A-COM Sec. Corp. v. Galesi, 904 F.2d 134, 136 [2d Cir]).

Counts IV and V (breach of the administration agreement and the financial management agreement by Citibank) were properly dismissed because plaintiff is not an intended third-party beneficiary of either contract ( see e.g. State of Cal. Pub. Employees' Retirement Sys. v. Shearman Sterling, 95 N.Y.2d 427, 434-435; Banco Espirito Santo, 2003 US Dist LEXIS 23062, at *29). Furthermore, plaintiff's claim that Citibank breached the financial management agreement by making improper, imprudent, and unsuitable investments would be barred by that contract's exculpatory clause ( see e.g. Retty Fin. v. Morgan Stanley Dean Witter Co., 293 A.D.2d 341). Even on a motion to dismiss, a court need not accept as true conclusory allegations that a defendant was grossly negligent or acted willfully, in bad faith or with reckless disregard of its duties ( see e.g. Perl v. Smith Barney Inc., 230 A.D.2d 664, 665, lv denied 89 N.Y.2d 803).

Plaintiff's claims for breach of fiduciary duty against Citibank and the Citibank employees who were members of the administrative committee were properly dismissed because the parties merely had an arm's length business relationship ( see e.g. Ponte Sons v. American Fibers Intl., 222 A.D.2d 271, 272; Mid-Island Hosp. v. Empire Blue Cross Blue Shield, 276 F.3d 123, 130 [2d Cir], cert denied 537 U.S. 882). As in Societe Nationale d'Exploitation Industrielle des Tabacs et Allumettes v. Salomon Bros. Intl. ( 251 A.D.2d 137, 138, lv denied 95 N.Y.2d 762), plaintiff's "subjective claims of reliance on defendants' expertise" did not give rise to a "confidential relationship" whose "requisite high degree of dominance and reliance" was not in existence prior to the transaction giving rise to the alleged wrong.

Plaintiff's reliance on cases decided under the Investment Company Act of 1940 is unavailing. In the subscription agreement, plaintiff acknowledged that Captiva would not be registered as an investment company under that statute.

Defendants were not plaintiff's agents because plaintiff lacked the requisite control ( see e.g. Restatement [Second] of Agency § 2; Pan Am. World Airways v. Shulman Transp. Enters., 744 F.2d 293 [2d Cir]). Plaintiff's argument that Citibank admitted being a fiduciary is unavailing. The "use of the word 'fiduciary' . . . cannot alone establish fiduciary duties on the part of the named person or entity" ( Campbell v. Computer Task Group, 2001 US Dist LEXIS 9960, *12 [SD NY]). In any event, plaintiff cannot rely on the November 1995 brochure because it was superseded by the June 1996 offering memorandum.

Plaintiff's cause of action for misrepresentation is based on defendants' failure to disclose various items in the offering memorandum. However, an omission does not constitute fraud unless there is a fiduciary relationship between the parties ( see e.g. Elghanian v. Harvey, 249 A.D.2d 206). Furthermore, the amended complaint contains no factual (as opposed to conclusory) allegations that defendants acted with intent to defraud ( see e.g. Abelman v. Shoratlantic Dev. Co., 153 A.D.2d 821, 822; Empire of Am., Fed. Sav. Bank v. Andersen Co., 129 A.D.2d 990, 991).

Plaintiff's claim of unjust enrichment based on defendants' receipt of fees for services they allegedly did not perform was barred by the existence of valid and enforceable written contracts governing that subject matter ( see Clark-Fitzpatrick, Inc. v. Long Is. R.R. Co., 70 N.Y.2d 382, 388). Citibank's fees are set forth in the administration agreement and the financial management agreement, the administrative committee members' reimbursements are set forth in the administration agreement, and the payment of Captiva's expenses is set forth in the offering memorandum (which, in turn, summarized other agreements).

We have considered plaintiff's remaining arguments and find them unavailing.

THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.


Summaries of

SNS Bank v. Citibank

Appellate Division of the Supreme Court of New York, First Department
May 13, 2004
7 A.D.3d 352 (N.Y. App. Div. 2004)

finding issuer of notes did not owe fiduciary duty to plaintiff because their relationship as debtor and note-holding creditor was purely contractual

Summary of this case from M&T Bank Corp. v. LaSalle Bank Nat'l Ass'n

finding issuer of notes did not owe fiduciary duty to plaintiff because their relationship as debtor and note-holding creditor was purely contractual

Summary of this case from M&T Bank Corp. v. LaSalle Bank Nat'l Ass'n

affirming dismissal of breach of fiduciary duty claims where "the parties merely had an arm's length business relationship."

Summary of this case from Trianco v. Business

affirming dismissal of breach of fiduciary duty claim because "the parties merely had an arm's length business relationship"

Summary of this case from Zaidi v. JPMorgan Chase Bank

affirming dismissal of breach of fiduciary duty claim because "the parties merely had an arm's length business relationship"

Summary of this case from Ezeiruaku v. Am. Express Co.

affirming dismissal of conversion claim by customer against Citibank

Summary of this case from Cruz v. TD Bank, N.A.

affirming dismissal of claims that defendant made "improper, imprudent, and unsuitable investments" where, as here, they were barred by the exculpation provisions of the parties' contract

Summary of this case from Zutty v. Rye Select Broad Mkt. Prime Fund, L.P.

indicating that where merger clause exists, implied covenant obligation must be "`so interwoven in the whole writing of a contract as to be necessary for the effectuation of the purposes of the contract'"

Summary of this case from JPMorgan Chase Bank, N.A. v. IDW Grp., LLC

In SNS Bank, the Appellate Division, First Department held that a court need not consider conclusory allegations of willful conduct or bad faith in interpreting the applicability of an exculpatory clause (id. at 355).

Summary of this case from Tratado De Libre Comercio, LLC v. Splitcast Tech. LLC
Case details for

SNS Bank v. Citibank

Case Details

Full title:SNS BANK, N.V., Plaintiff-Appellant, v. CITIBANK, N.A., ET AL.…

Court:Appellate Division of the Supreme Court of New York, First Department

Date published: May 13, 2004

Citations

7 A.D.3d 352 (N.Y. App. Div. 2004)
777 N.Y.S.2d 62

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