Bank Leumi USA v. Ehrlich
| Decision Date | 23 March 2015 |
| Docket Number | No. 12–cv–4423 AJN.,12–cv–4423 AJN. |
| Citation | 98 F.Supp.3d 637 |
| Parties | BANK LEUMI USA, Plaintiff, v. David EHRLICH, et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
James Ancone, Mark Hanchet, Mayer Brown LLP, New York, NY, for Plaintiff.
Jose Raul Alcantar Villagran, Ropes & Gray LLP, New York, NY, for Defendants.
On June 5, 2012, Plaintiff Bank Leumi USA (“BLUSA”) filed this action seeking a declaration that: (1) the contractual limitation on BLUSA's liability with respect to the brokerage accounts of David Ehrlich, Enrique Ehrlich, Sara Goldstein, and Angela Tykocki (the “Defendants”) is valid and enforceable; (2) that BLUSA is not liable in contract or tort for the losses Defendants suffered after their purchase of bonds issued by Kaupthing Bank (the “Bonds”); and (3) that BLUSA has no obligation to refund the amounts Defendants paid to purchase the Bonds. Compl. ¶¶ 55–64. After significant procedural delays, the Defendants filed an amended answer and counterclaim on April 18, 2014 stating, inter alia, that this Court lacks jurisdiction over BLUSA's claim and that venue is inappropriate in the Southern District of New York. See Am. Answer & Countercl. ¶¶ 65–68 (“AAC”). In the alternative, if this Court does in fact have jurisdiction and venue is appropriate, Defendants bring a number of counterclaims, including a private cause of action under the Investment Advisors Act (“IAA”), id. ¶¶ 195–203, breach of fiduciary duty, id. ¶¶ 204–209, negligence, id. ¶¶ 210–213, and breach of contract. Id. ¶¶ 214–219.
The parties now each move for summary judgment under Rule 56 of the Federal Rules of Civil Procedure. See Dkt. Nos. 82, 88. Defendants' motion contends that this Court lacks jurisdiction over them, that venue is inappropriate, and further asks that the Court invoke the doctrine of forum non conveniens. Plaintiff moves for summary judgment on their proposed declaratory judgment and also on each of the Defendants' counterclaims. For the reasons below, the Defendants' motion is DENIED and BLUSA's motion is GRANTED.
This case primarily concerns a number of brokerage accounts the Defendants opened with BLUSA in 2002 and the ensuing losses Defendants experienced through trades made in those accounts. BLUSA is a full-service commercial bank offering both U.S.-based and international private banking services. See Dkt. No. 92 (“Second Ancone Declaration”), Ex. T ¶¶ 2–3. BLUSA is headquartered in, and organized under the laws of, New York. Id. ¶¶ 5, 8. BLUSA is owned almost entirely by the Bank Leumi Israel Corporation (“BLIC”), which is also organized under New York law. Id. BLIC is, in turn, owned by Bank Leumi le-Israel B.M., which is organized under the laws of Israel. Id. ¶ 10.
On September 17, 2002, Defendants applied to open three brokerage accounts (the “Accounts”) with BLUSA. See Second Ancone Decl., Exs. A, B, C; see also Dkt. No. 84 (“Bittker Declaration”), Exs. A, B, C. Defendants, who are all Uruguayan citizens, visited the Bank Leumi (Latin America) S.A. (“BLLA”) offices in Montevideo, Uruguay in order to fill out their applications. See Dkt. No. 10 (“Defendants' Declaration”) ¶ 14. Like BLUSA, BLLA is a subsidiary of Bank Leumi le-Israel B.M. and, although BLLA is not itself able to open BLUSA international accounts, clients can apply for BLUSA accounts at BLLA offices. Second Ancone Decl., Ex. T ¶¶ 11, 12, 23.
At the BLLA offices in Montevideo, the Defendants each completed and signed a BLUSA “International Account Application” (the “Applications”), which, inter alia, stated that the signatories “confirm[ed] receiving a copy of, and agreeing to, the International Account Terms.” Second Ancone Decl., Exs. A, B, C. These International Account Terms (the “Terms”) included several provisions which constitute the primary areas of dispute in this case. First, the Terms defined the “Agreement” between BLUSA and Defendants as being comprised of the “Account Application and these International Account Terms including any Optional Provisions selected by you on the Account Application.” Second Ancone Decl., Ex. D at 1 (“IAT”). Second, the Terms included a forum selection clause stating as follows.
Governing Law; Jurisdiction; Service of Process—THIS AGREEMENT WILL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE UNITED STATES OF AMERICA. Any legal proceeding arising from or in any way related to this Agreement may be brought in, and you hereby consent to personal jurisdiction and venue or, any state or federal court located in New York County, New York, U.S.A. You hereby consent to the service of process in any such action, by mailing a copy of such process to you at your last known address shown on our records.”
Third, the Terms contained a provision disclaiming any obligation by BLUSA to provide the Defendants with investment advice. It stated, in relevant part:
These Applications, once completed, were sent to BLUSA in New York, which then opened the Accounts for Defendants. See Second Ancone Deck, Ex. T ¶¶ 11–12, 23–24. The Defendants used the Accounts through 2011. Id., Exs. H, I, J, K. During this time they purchased and sold at least $11 million worth of securities in at least fifty-nine different transactions. Id. One such transaction occurred on February 21, 2008, when Defendants signed order forms instructing BLUSA to purchase $750,000 worth of bonds issued by Kaupthing, an Icelandic bank. Id., Exs. F, G.1 That same day, BLUSA executed the orders in New York and purchased the Bonds at a total face value of $750,000. See Bittker Decl. ¶¶ 10–12, Ex. G at 1, Ex. H at 1. Approximately eight months later, on October 9, 2008, Kaupthing Bank defaulted on its debt, effectively rendering Defendants' bonds worthless. See Dkt. No. 83 (“First Ancone Declaration”) ¶ 118(1); Bittker Decl., ¶¶ 17–18, Ex. K at 3, Ex. L at 3.
The course of this litigation has been erratic. Several years after Kaupthing's default, counsel for Defendants sent BLUSA a letter asking that they reimburse Defendants for the purchase price of the Bonds plus interest. See Bittker Decl., Ex. M. The letter threatened legal action in Uruguay and BLUSA accordingly filed this action in the Southern District of New York seeking a declaration that it had no liability in tort or contract as to Defendants' purchase of the bonds. Id.
In July 2012, Defendants filed a motion to dismiss, arguing that this Court lacked personal jurisdiction over them, that venue was inappropriate in New York, and further that this Court posed a forum non conveniens for this dispute. See Dkt. No. 8. In February 2013, the Court denied Defendants' motion. See Dkt. No. 25 (the “Prior Order”). Shortly thereafter, Defendants' counsel sought to withdraw from the case. See Dkt. No. 30. The Court granted counsel's request and instructed the Defendants that they had 30 days to find new counsel, cautioning that failure to abide by the terms of the order could result in adverse action, including entry of default judgment. See Dkt. No. 31. In April 2013, the Defendants filed a declaration with the Court explaining that they were withdrawing from the action, reiterating their belief that the Court lacked jurisdiction over them and declaring their intention to pursue legal remedies in Uruguay. See Dkt. No. 33. In May 2013, the Court issued an order explaining to Defendants that their conduct put them at risk of a default judgment and offered them a final chance to present a defense.See Dkt. No. 34.
Defendants, initially, did not heed the Court's warning and on June 18, 2013, certificates of default were issued as to each Defendant by the Clerk of Court. See Dkt. Nos. 34–37. The next day, on June 19, 2013, BLUSA filed an order to show cause as to why Defendants should not have default judgment entered against them. See Dkt. No. 38. The Court set an August 7, 2013 hearing date and ordered Defendants to respond to the order by July 24, 2013. Id.
After several months of silence, the Defendants re-emerged. On July 22, 2013, two days before they were required to show cause, Defendants' present defense counsel entered a notice of appearance and explained that he intended to seek relief, pursuant to Rule 60(b), from the Court's Prior Order denying their motion to dismiss. See Dkt. No. 39. After the parties briefed the issue, the Court issued an order on February 18, 2014 denying Defendants' request for relief and their request for reconsideration of their motion to dismiss. See Dkt. No. 58. The Court did, however, deny BLUSA's requested default judgment, finding that the Defendants had “shown credible evidence of facts that would constitute a complete defense” regarding personal jurisdiction, provided they were able to demonstrate that the Terms did not govern the parties' agreement. Id.
Finally, on March 3, 2014, nearly two years after BLUSA first brought this action, Defendants filed an answer and counterclaim. See Dkt. No. 60. The parties then set a schedule for the case and commenced discovery. After further procedural back-and-forth, on June 20, 2014, the Court administratively denied BLUSA's motion to dismiss the Defendants' counterclaim and set a schedule for summary judgment. The parties now each move for summary judgment. For the reasons below, Defendants' motion is DENIED and BLUSA's motion is GRANTED.
Summary judgment is properly granted when, after reviewing the...
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