Mayagüez S.A. v. Citigroup, Inc.
| Decision Date | 27 March 2018 |
| Docket Number | 16 Civ. 6788 (PGG) |
| Parties | MAYAGÜEZ S.A., Plaintiff, v. CITIGROUP, INC. and CITIBANK, N.A., Defendants. |
| Court | U.S. District Court — Southern District of New York |
In this action, Plaintiff Mayagüez, S.A., alleges claims under Colombian and New York law against Defendants Citigroup, Inc. and Citibank, N.A. Plaintiff's claims arise out of Defendants' alleged misrepresentations and omissions in connection with a series of "exotic" hedging transactions that they promoted and entered into with Plaintiff. Mayagüez alleges that as a result of these hedging transactions, it suffered losses of $64 million. The Amended Complaint alleges claims under the Colombian Civil and Commercial Codes, unconscionability under New York law, and pleads - in the alternative as to the Colombian claims - fraudulent concealment and inducement, negligent misrepresentation, promissory estoppel, and unjust enrichment under New York law.
Defendants have moved to dismiss the Amended Complaint pursuant to Fed. R. Civ. P. 12(b)(6). Defendants contend that Plaintiff's claims must be determined under New York law, pursuant to a choice of law provision contained in an agreement that governs the parties' transactions. (Def. Br. (Dkt. No. 22) at 43-45) Defendants further contend that Plaintiff's New York claims fail for a multitude of reasons, including a failure to plead facts demonstrating - as to the fraud-based claims - justifiable reliance, an actionable misstatement or omission, or scienter (id. at 25-38); as to negligent misrepresentation - a special relationship (id. at 38-39); and as to unjust enrichment and promissory estoppel - justification for setting aside the applicable written agreement. (Id. at 39-43) As to Plaintiff's unconscionability claim, Defendants argue that (1) in cases involving commercial transactions between corporations, New York courts presume a lack of unconscionability; and (2) the agreement at issue has been found not unconscionable by other courts. (Id. at 43-45) Finally, Defendants contend that Plaintiff's claims under Colombian law must be dismissed because the parties' agreement provides that New York law will govern. (Id. at 20-25)
The Court concludes that the choice of law provision in the parties' agreement is limited to contract-based claims, and does not address Plaintiff's tort and other non-contractual claims. Because Defendants' motion to dismiss the Amended Complaint's tort and other non-contractual claims is premised on the notion that New York law governs - as a result of the choice of law provision - the motion to dismiss will be denied as to the tort and other non-contractual claims.
However, Plaintiff's unconscionability claim is contract-based and is subject to the choice of law provision. The Court further concludes that Plaintiff fails to state a claim for unconscionability under New York law. Accordingly, Defendants' motion to dismiss will be granted as to the Amended Complaint's Eleventh Cause of Action for unconscionability, but will otherwise be denied.
Plaintiff Mayagüez is a Colombian sugar producer and refiner. (Am. Cmplt. (Dkt. No. 15) ¶ 12) Defendant Citigroup is a multinational banking and financial services corporation incorporated in Delaware, and Defendant Citibank is a national banking association chartered under the laws of the United States. (Id. ¶¶ 13-14) Non-party Citibank, S.A. ("Citibank Colombia") is Citibank's Colombian subsidiary. (Id. ¶ 39)
Mayagüez sells sugar in Colombia and abroad, including in the United States. (Id. ¶ 19) Because Mayagüez's operations are in Colombia, most of its expenses are paid in Colombian pesos. (Id. ¶ 20) When Mayagüez sells sugar abroad, however, it always receives payment in U.S. dollars. (Id. ¶ 21) Mayagüez exports approximately 20% of its sugar production. (Id. ¶ 24)
In order to hedge for the risk of fluctuations in the peso/dollar exchange rate, Mayagüez has entered into currency forward contracts2 since 2006. (Id. ¶ 36) Between 2006 and 2013, Mayagüez primarily hedged through "plain vanilla" currency forward contracts offered by the Colombian government. (Id. ¶ 38) In this type of currency forward contract, Mayagüez and the Government entity would agree to exchange pesos and dollars at a specific exchange rate (the "strike price") on a specific date in the future. For example, if Mayagüezwished to lock in an exchange rate of 2,000 pesos to one dollar, it could enter into a currency forward contract with the Colombian government in which the parties agreed that the government would purchase a set amount of dollars from Mayagüez six months in the future at an exchange rate of 2,000 pesos to one dollar. Without this currency forward agreement, if the Colombian peso appreciated in six months, Mayagüez would receive fewer pesos in exchange for the dollars it received from selling sugar abroad. Accordingly, this type of currency forward contract protected Mayagüez from the risk of the peso appreciating.
Before 2014, Mayagüez only hedged through "plain vanilla" forward contracts that were offered by the Colombian government and other Colombian private financial institutions, including Citibank Colombia. (Id. ¶ 39) The claims in this case arise from Plaintiff's decision - in late 2013 - to enter into more "exotic" hedging transactions with Defendants. The parties agree that the 2014 and 2015 transactions they entered into are governed by the International Swaps and Derivatives Association, Inc. ("ISDA") Master Agreement (the "ISDA Master Agreement") that Mayagüez entered into with Citibank on July 28, 2009. (Id. ¶¶ 8, 124 n.12; Def. Br. (Dkt. No. 22) at 45)3
In 2012, Citigroup, Citibank, and Citibank Colombia promoted to Mayagüez a different type of currency forward contract - a "limited compensation collar" - which Plaintiff refers to as Currency Trades. (Id. ¶ 49) This was an "exotic" financial product with which Mayagüez was unfamiliar. (Id. ¶ 62) Defendants represented that this hedging product wasspecially tailored to Mayagüez's specific needs. (Id. ¶ 63) The Amended Complaint describes the Currency Trades as follows:
Mayagüez alleges that Citigroup made a number of false and misleading statements to Mayagüez to induce it to enter into the November 2013 Currency Trade. These false and misleading statements included the following:
The Amended Complaint further alleges that Citigroup's statements were misleading because they did not disclose "the unlimited exposure Mayagüez would suffer byentering into the Currency Trades," and that "Mayagüez would have to make unlimited payments to Citigroup if the [Colombian peso] lost value against the [U.S. dollar]." (Id. ¶¶ 83- 84).
In November 2013, Citibank Colombia and Mayagüez entered into the first "Currency Trade." (Id. ¶ 100; see also Hakki Decl., Ex. C (Dkt. No. 23-4) (November 2013 Trade Confirmation))4 Under the terms of this transaction, Mayagüez purchased a series of calls from Citibank Colombia, and Citibank Colombia purchased a series of puts from Mayagüez. The puts and calls were European-style5 and had expiration dates in intervals of about a month each. The term of the transaction was 22 months - from January 2014 to October 2015. The strike price of these options was at an exchange rate of 2,020 pesos for one U.S. dollar - a higher strike price than the "plain vanilla" currency forward contracts being offered at that time6 - and the notional value was $2 million.7
In this transaction, Mayagüez and Citibank Colombia did not actually exchange U.S. dollars for Colombian pesos on the expiration dates. Instead, the parties would makepayments to each other in pesos based on the difference between the actual exchange rate and the strike price. For example, if the actual exchange rate was 2,010, Citibank Colombia would pay Mayagüez the notional value multiplied by the difference between the strike price and the actual exchange rate - in this example, 20 million pesos. Conversely, if the strike price were 2,030, Mayagüez would have to pay Citibank Colombia the notional value multiplied by the difference between the actual exchange rate and the strike price - in this example, also 20 million pesos. However, the total amount of...
To continue reading
Request your trial