Couldock & Bohan v. Societe Generale Sec. Corp.
| Decision Date | 29 March 2000 |
| Docket Number | No. 3:97 CV 0274 GLG.,3:97 CV 0274 GLG. |
| Citation | 93 F.Supp.2d 220 |
| Court | Connecticut Supreme Court |
| Parties | COULDOCK & BOHAN, INC. and William Scalzi, Plaintiffs, v. SOCIÉTÉ GENERALE SECURITIES CORPORATION, Defendant. |
Michael G. Considine, Catherine Dugan O'Connor, Day, Berry & Howard, Stamford, CT, for Plaintiffs.
Curtis E. Pew, Charles M. Davidson, Duane, Morris & Hecksher, New York City, Stephen L Ratner, Steven Haber, Rosenman & Colin, New York City, Richard J. Tucker, Duane, Morris & Heckscher, Wilmington, DE, Louis J. Bonsangue, Jacobi, Kappel & Case, Milford, CT, for Defendant.
Plaintiffs Couldock & Bohan, Inc. ("CBI") and William Scalzi brought this action claiming breach of contract, violation of the Connecticut Unfair Trade Practices Act ("CUTPA"), and various tort causes of action against Defendant Société Generale Securities Corporation ("SG"), invoking the Court's diversity jurisdiction pursuant to 28 U.S.C. § 1332. Defendant now moves for summary judgment on all Counts [Doc. No. 31]. For the reasons set out below, the Court GRANTS summary judgment in favor of Defendant as to all counts.
Plaintiffs' claims arise from Defendant's termination of the parties' clearing agreement without notice. Defendant maintains that the clearing agreement, the contract which governed the parties' clearing arrangement, was void for illegality because neither CBI, a broker-dealer1 trading a variety of non-equity securities, nor Scalzi, CBI's chief shareholder and president, were registered with the Securities Exchange Commission ("SEC") or the Connecticut State Commissioner of Banking, nor were they members of the National Association of Securities Dealers ("NASD"),2 and thus they were in violation of federal and/or state securities laws.
After a thorough review of the record, drawing all inferences in favor of the non-moving party, the Court determines the relevant facts to be as follows. Plaintiff CBI is a Connecticut corporation which, from 1988 until May 1996, was in the business of arranging purchases and sales of non-equity securities, including money market instruments3 and government bonds. Plaintiff William Scalzi is the chief shareholder and president of CBI. Defendant SG is a New York corporation and a registered broker-dealer that served as a clearing broker4 for its customers and for other broker-dealers.
On May 26, 1992, Plaintiff CBI and Defendant entered into a clearing agreement under which Defendant agreed to clear CBI's money market instrument trades by acting as principal5 in CBI's clearing transactions. The clearing agreement is evidenced by a one-page document which was apparently patterned after a nearly identical letter agreement dated June 11, 1991 between CBI and Swiss Bank Corporation Investment Banking, Inc. ("SBCI"), an entity which provided clearing services for Plaintiff prior to May, 1992. At that time, SBCI exited the clearing business and Defendant acquired its clearing services operations. Plaintiff claims that in soliciting its business, Defendant promised to provide clearing services on the same terms as SBCI had, and that Defendant represented that it would not terminate the parties' clearing arrangement without ninety days notice. The terms of the clearing agreement required CBI to have a buyer and seller for each trade, with both sides of the transaction occurring simultaneously. The agreement prohibited CBI from holding any overnight positions and provided that Defendant would charge a flat fee for each side of the trade "whether the clearance is physical or through DTC."6 Plaintiff was required to transmit completed trade details via fax to Defendant for clearing. CBI also agreed to compensate Defendant for "[a]ny interest loss due to [CBI's] error or omission (such as not having correct denominations available for delivery) ...."
In addition to the clearing agreement, Defendant and CBI entered into at least fourteen separate agreements (the "principal letters") with CBI's trading counter-parties. In each of the principal letters, Defendant, CBI, and the trading counter-party agreed that Defendant would act as principal on CBI's behalf to clear CBI's trades with that particular counterparty. The principal letters provided for a trading procedure in which the counterparty would notify Defendant of each transaction, Defendant would confirm the trade with CBI, and Defendant would either approve or "dk"7 the transaction. CBI agreed to reimburse the counterparty for any losses incurred as a result of Defendant not approving a trade. The principal letters further provided that the agreement would remain in force "unless terminated in writing by either [sic] party."
Defendant cleared CBI's trades pursuant to the May 1992 clearing agreement and the principal letters from May, 1992 until April 30, 1996, at which time Defendant notified CBI that Connecticut State regulators had contacted Defendant with inquiries about CBI's trading activities. In particular, the state regulators were investigating CBI's registration status, since CBI had been listed for some years in Standard & Poor's Security Dealers of North America as a registered broker-dealer. Defendant informed Plaintiffs that there was a possibility that it might be required by federal and state securities laws to treat CBI as a customer rather than a registered broker-dealer. Such a change in status would require CBI to post margin on each purchase of non-exempted financial instruments.8 The parties do not dispute that Defendant cleared trades for CBI in both exempted and non-exempted securities.9
Defendant notified CBI by letter dated May 7, 1996 that "effectively immediately" CBI would be considered a customer and therefore would be required to post "proper customer margin" on all its transactions. In addition, the letter stated that "any activity in [CBI's] accounts must be booked as trades and not reflected as `receives' or `delivers.'" The next day, Defendant sent written notice to the counterparties that had executed principal letters terminating the principal letters "effective immediately."10
Plaintiffs claim that Defendant breached the clearing agreement by terminating the relationship without ninety days notice and by the sudden imposition of the customer margin requirement, thus making it impossible for CBI to continue doing business. Plaintiffs set forth six counts in their complaint. Plaintiff CBI asserts five counts claiming: (1) breach of contract with respect to the parties' clearing agreement; (2) breach of the implied covenant of good faith and fair dealing; (3) misrepresentation; (4) violation of Connecticut Unfair Trade Practices Act ("CUTPA"), Conn. Gen.Stat. § 42-110b(a); and (5) tortious interference with business relationships with its clients. In Count Six, Plaintiff Scalzi asserts a claim for tortious interference with his business relationship with CBI.
Defendant asserts in its defense that CBI's trading practices violated federal and state security laws, which mandated Defendant's refusal to treat CBI as a registered broker-dealer and necessitated the imposition of the customer margin requirement. Defendant denies that it terminated its clearing relationship with Plaintiffs, but instead claims that it merely imposed the customer margin requirement. Defendant further alleges that the clearing agreement was void due to illegality pursuant to Section 36b-29(h) of the Connecticut Uniform Securities Act ("CUSA"),11 because of Plaintiff's failure to register as a broker-dealer in the State of Connecticut. Defendant also denies liability for the tort claims asserted by Plaintiffs, and urges the Court to grant summary judgment in its favor due to the absence of any genuine issue of material facts.
Summary judgment is appropriate only when there is no genuine issue of material fact based on a review of the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits. Fed. R.Civ.P. 56(c). The moving party bears the burden of demonstrating the absence of a genuine issue of material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). There is no genuine issue of material fact if the evidence is such that no reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). When ruling on a summary judgment motion, a court must construe the facts in a light most favorable to the non-moving party and must resolve all ambiguities and draw all reasonable inferences against the moving party. Id. at 255, 106 S.Ct. 2505. If there is no genuine issue of material fact, the moving party is entitled to summary judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). As a federal court sitting in diversity jurisdiction, we apply state substantive law. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938). Applying Connecticut law to the undisputed facts establishes that Defendant is entitled to judgment as a matter of law on all counts.
In its first count, Plaintiff CBI12 asserts breach of contract, arguing that the sudden imposition of the customer margin requirement effectively terminated the parties' clearing relationship in violation of the ninety day notice term of the parties' agreement. As noted above, the clearing agreement was a one-page document which did not purport to represent the parties' complete and final agreement. Although the written agreement does not specify a notice period, Plaintiff claims that when Defendant solicited Plaintiff's clearing business in May of 1996, it orally promised at least ninety days notice prior to terminating the clearing arrangement.
Ordinarily, a disputed oral promise...
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