Compania Sud-Americana de Vapores v. IBJ Schroder Bank & Trust Co.

• Decision Date: 24 February 1992
• Docket Number: No. 90 Civ. 7220 (SWK).,90 Civ. 7220 (SWK).
• Citation: 785 F. Supp. 411
• Parties: COMPANIA SUD-AMERICANA de VAPORES, S.A., Plaintiff, v. IBJ SCHRODER BANK & TRUST COMPANY, Defendant.
• Court: U.S. District Court — Southern District of New York

785 F. Supp. 411

COMPANIA SUD-AMERICANA de VAPORES, S.A., Plaintiff, v. IBJ SCHRODER BANK & TRUST COMPANY, Defendant.

No. 90 Civ. 7220 (SWK).

United States District Court, S.D. New York.

February 24, 1992.

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Curtis, Mallet-Prevost, Colt & Mosle, New York City by Eliot Lauer, for plaintiff.

Winthrop, Stimson, Putnam & Roberts, New York City by Edwin J. Wesely and Frederick A. Brodie, for defendant.

MEMORANDUM OPINION AND ORDER

KRAM, District Judge.

In this case concerning foreign currency exchange transactions, plaintiff Compania Sud-Americana de Vapores ("CSAV") seeks to recover more than $1.5 million, claiming fraud, breach of fiduciary duty, breach of contract and violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c) against defendant IBJ Schroder Bank & Trust Company ("Schroder"). Presently, Schroder moves for an order, pursuant to Rule 56 of the Federal Rules of Civil Procedure, granting it summary judgment on the grounds that CSAV's four claims are defective as a matter of law.¹

I. Background

CSAV is a Chilean company engaged in shipping goods to North and South America, Northern and Southern Europe and Asia. Its 1989 assets were worth $500 million dollars. Schroder is a banking institution with its principal place of business in New York. For many years, Schroder was one of CSAV's leading U.S. banks providing CSAV with credit and deposit services. CSAV also conducted foreign currency transactions with Schroder for more than forty years. At least between 1984 and 1990, these transactions between the parties proceeded as follows:

(1) Upon receipt of foreign currencies² in payment for CSAV's shipping services, CSAV's European agents remitted the funds to local European banks ("correspondent banks") where Schroder maintained foreign currency accounts ("nostro accounts").

(2) The correspondent banks, upon crediting Schroder's "nostro accounts" with CSAV's foreign currencies, would notify Schroder of the remittance by means of an interbank telex called a "SWIFT."

(3) Upon receipt of the SWIFT, Schroder's back office would notify a Schroder foreign exchange trader who would determine the rate that would be applied to the conversion.

(4) After determining the exchange rate, an internal transaction ticket would be completed, and the foreign exchange trader would generally place a phone call to a designated person, usually Henrietta Suttie, the Chief Accountant in the Finance Department of Chilean Line, Inc. ("Chilean Line"), CSAV's wholly-owned New York subsidiary.³

(5) In the phone call to Chilean Line, the Schroder trader informed CSAV of the contract number, the amount of foreign currency involved, the exchange rate to be applied, the U.S. dollar amount to be credited, and the "maturity date" or "value date" on which the U.S. dollars would be received.

(6) After receiving the phone call from Schroder, Chilean Line would send the information about the transaction to CSAV's head office in Chile by telex.

(7) Schroder sent written confirmations of each foreign exchange transaction to both CSAV in Chile and Chilean Line in New York. These confirmations included the amount of foreign currency, the exchange rate, the U.S. dollar amount and the value date.

(8) When the conversion was completed, Schroder paid CSAV the U.S. dollar proceeds of these foreign currency exchange transactions by depositing the dollar proceeds into CSAV's demand deposit account ("DDA account") at Schroder in New York.

(9) CSAV routinely transferred those dollars out of its account at Schroder and into its operations account at Chase Manhattan Bank ("Chase"). CSAV directed Schroder to wire-transfer funds to Chase an average of once a day.

According to the complaint, between 1984 and 1990, 1,087 foreign currency transactions were executed by Schroder on CSAV's behalf. Complaint, at ¶ 23. These transactions continued until mid-1990. In June 1990, however, CSAV decided to ask other European and American banks for quotations on foreign currency exchanges. After discovering that other banks had superior exchange rates, and complaining to Schroder about its foreign currency exchange rates,⁴ CSAV took its foreign exchange business elsewhere, specifically to Deutsche Bank Hamburg, in July or August of 1990.

The instant action arises out of the above foreign currency exchange transactions. CSAV alleges that between January 1, 1984 and May 31, 1990, Schroder charged an exchange rate for the conversion of foreign currency into dollars that was "unreasonably and grossly in excess of the prevailing market rate of exchange at the time, and well in excess of rates and margins being charged by other banking institutions." Complaint, at ¶ 18. According to CSAV, between January 1, 1984 and May 31, 1990, Schroder executed 175 separate conversions of the Belgian franc into dollars,⁵ and the difference between the market rate and the rate charged by Schroder for this currency rose steadily throughout this period. For example, in 1984 Schroder charged an average of 1.35% above the New York Interbank rate (the "market rate" or "interbank rate"), the rate that applies between banks, for conversions of the Belgian franc. By 1990, the difference between the average Schroder rate and the market rate had escalated to 12.96%. Complaint, at ¶ 19. As a result, CSAV alleges common law fraud, breach of contract, breach of fiduciary duty and violations of civil RICO, 18 U.S.C. § 1962.

II. Standards for Summary Judgment

Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R.Civ.P. 56(c). In testing whether the movant has met this burden, the Court must resolve all ambiguities against the movant. Lopez v. S.B. Thomas, Inc., 831 F.2d 1184, 1187 (2d Cir.1987) (citing United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962)).

The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Adickes v. S.H. Kress and Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970). The movant may discharge this burden by demonstrating to the Court that there is an absence of evidence to support the nonmoving party's case on which that party would have the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986).⁶ The non-moving party then has the burden of coming forward with "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). The non-movant must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). Speculation, conclusory allegations and mere denials are not enough to raise genuine issues of fact. To avoid summary judgment, enough evidence must favor the non-moving party's case such that a jury could return a verdict in its favor. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986) (interpreting the "genuineness" requirement).

III. CSAV's Claims⁷

A. Common Law Fraud

The five elements of an action for common law fraud are "representation of material fact, falsity of that representation, scienter, reliance and damages." Mallis v. Bankers Trust Co., 615 F.2d 68, 80 (2d Cir.1980), cert. denied, 449 U.S. 1123, 101 S.Ct. 938, 67 L.Ed.2d 109 (1981); accord Jo Ann Homes at Bellmore, Inc. v. Dworetz, 25 N.Y.2d 112, 119, 302 N.Y.S.2d 799, 803, 250 N.E.2d 214, 217 (1969). CSAV contends that it has established these elements, and that Schroder's motion for summary judgment on its fraud claim must therefore be denied. The Court disagrees.

1. CSAV's Contentions

CSAV's basic contention is that it was fraudulent for Schroder to promise that it would give CSAV favorable exchange rates and then charge rates significantly above the prevailing market rate.

a. Elements of Common Law Fraud

(i) Schroder's Representations

Between 1979 and 1981, Geis had a series of "good will" meetings with Schroder's foreign exchange traders in New York. According to CSAV, Geis was told by Schroder's traders that "CSAV was considered a preferred client within the bank ... and that CSAV was given preferential treatment within the foreign exchange department." Geis Tr., at 48. The nature of the preferential treatment was that CSAV's foreign currency remittances "were given rates normally credited to larger amounts," Geis Tr., at 48, and the rate applied to CSAV's conversions was the "million dollar rate." Id. at 65-66. Geis was also told that the "million dollar rate" was Schroder's best rate for corporate accounts, and was at or near the interbank rate. Id. at 48, 65-66, 78, 93, 310-11, 378.

Based on this testimony and the affidavit of Claude Tygier, Schroder's chief foreign exchange trader from June 1979 through January 1984, CSAV asserts that Schroder made the following representations to CSAV: (a) that CSAV was a preferred customer, Geis Tr., at 45-48, 83-84; (b) that the manner in which Schroder converted foreign currencies for CSAV was "unique" and, unlike a trading relationship, was actually a currency management service, Affidavit of Claude Tygier ("Tygier Aff."), sworn to on October 31, 1991, at ¶¶ 3, 7; Hamway Tr., at 175-78; Exhibit "I" to DiNatale Affidavit ("DiNatale Aff."), sworn to on November 11, 1991; (c) that Schroder was obligated to provide CSAV with rates commensurate with CSAV's status as a preferred customer, Tygier Aff. at ¶¶ 3e, 4, 5; and (d) that the rates Schroder would apply to CSAV's conversions—variously referred to as the "million dollar rate," "spot rate," ...