Merrill Lynch Capital Markets AG v. Controladora Comercial Mexicana S.A.B. DE C.V.
| Decision Date | 16 March 2010 |
| Docket Number | Index 603215/08 |
| Citation | 2010 NY Slip Op 34124 (U) |
| Parties | MERRILL LYNCH CAPITAL MARKETS AG and MERRILL LYNCH CAPITAL SERVICES, INC., Plaintiffs, v. CONTROLADORA COMERCIAL MEXICANA SA..B. DEC.V, Defendant. |
| Court | New York Supreme Court |
Unpublished Opinion
Motion Date: 10/14/09
This is an action for breach of contract. Beginning in 2001 defendant Controladora Comercial Mexicana S.A.B. De C.V. ("CCM"), Mexico's largest retailer, entered into numerous commercial transactions with plaintiffs Merrill Lynch Capital Markets AG ("MLCM") and Merrill Lynch Capital Services, Inc. ("MLCS" and, collectively with MLCM, "Merrill"), known as foreign exchange and interest rate derivatives. CCM also periodically entered into such transactions with several other financial institutions, including Barclays Bank PLC ("Barclays"), Goldman Sachs Paris Inc. et Cie ("GS Paris") and JPMorgan Chase Bank, N.A. ("JPMorgan"), in order to hedge its exposure to fluctuations in the U.S. dollar/Mexican peso exchange rate.
In October 2008, following a precipitous drop in the value of the Mexican peso in relation to the U.S. dollar, CCM lost money on those transactions, and defaulted in making certain payments to Merrill and the other derivatives dealers. At issue in this action are over 20 separate such foreign exchange or interest rate derivatives transactions entered into between COM and Merrill.
In early November 2008, at the same time this action was filed Barclays, JPMorgan and J. Aron & Company, as assignee of GS Paris, which all had separate, outstanding derivatives transactions with CCM, each filed related breach of contract actions against CCM in this court: Barclays Bank PLC v Controladora Comercial Mexicana S.A.B. De C. V., Index No. 603233/08; J. Aron & Company v Controladora Comercial Mexicana S.A.B. De C.V., Index No. 603225/08 and JPMorgan Chase Bank, N.A. v Controladora Comercial Mexicana S.A.B. De C.V., Index No. 603215/08 (the "Related Actions"). The Related Actions are almost identical to the instant action. Like the complaint in the instant action, the Related Actions' complaints solely assert causes of action for breach of contract. In CCM's answers to the Related Actions' complaints, CCM interposes exactly the same affirmative defenses and counterclaims.
Merrill now moves, pursuant to CPLR 3212, for an order granting it summary judgment awarding (1) $170, 943, 078.00 to MLCM plus Default Interest at the London Interbank Offered Rate plus 1.50% per annum (the "Merrill Funding Rate") plus 1% per annum; (2) $276, 182, 403.94 to MLCS, plus Default Interest at the Merrill Funding Rate plus 1 % per annum; and (3) Merrill's attorneys' fees and costs. Plaintiffs in the Related Actions have also moved for summary judgment.
For the reasons set forth below, Merrill's motion for summary judgment is granted. The motions for summary judgment in the Related Actions are also granted. The decisions granting such motions are filed separately under each index number in the Related Actions.
The following facts are derived from the amended complaint; the second amended answer and counterclaims; the affidavit of Gustavo Campomanes, CCM's former Treasurer and the person directly in charge of CCM's operations to hedge its currency risks; and the affidavit of Pankaj Jhamb Merrill's managing director in charge of Merrill's global rates and currency business.
CCM is a Mexican corporation based in Mexico City. CCM operates approximately 200 general merchandise and grocery stores and 70 restaurants in Mexico (Campomanes Aff, ¶ 3; Second Amended Counterclaims, ¶ 11)- CCM is one of Mexico's largest retailers, and is a competitor of U.S. discount stores such as Wal-Mart Stores, Inc. (Second Amended Counterclaims, ¶ 11).
As an importer of goods priced in dollars, and a borrower of dollar-denominated debt used to finance its operations and growth, CCM is exposed in its business to fluctuations in the exchange rates between the Mexican peso and the U.S. dollar (Campomanes Aff, ¶ 4; Second Amended Counterclaims ¶¶ 1, 19)- In light of its exposure to changes in the peso/dollar exchange rate, CCM has, over the years, entered into numerous currency and other derivatives transactions, including swaps, forwards and options, with various financial institutions (Campomanes Aff, ¶ 6; Second Amended Counterclaims, ¶ 20). CCM also engaged in interest swap transactions designed to reduce debt service costs that are also part of its ordinary business operations (Campomanes Aff, ¶ 6).
CCM admits that it has engaged in such derivatives transactions "[s]ince the 1990's" to hedge its cross currency risks and to control its debt service costs (Second Amended Counterclaims, ¶ 2). The derivatives dealers CCM did business with included the plaintiffs in the four pending related actions - Merrill, Barclays, JPMorgan and GS Paris - and the pending actions involve a collection of derivatives transactions entered into between CCM and the derivatives dealers (Campomanes Aff, ¶¶ 7, 9). CCM dealt with the derivatives dealers over an extended period of time (id., ¶ 11)- CCM entered into derivatives transactions with Merrill beginning in 2002 (Jhamb Aff, ¶ 10).
Parties entering into foreign exchange or interest rate derivatives contracts typically use agreements based on the standard form Master Agreement and Credit Support Annex issued by the International Swaps and Derivatives Association, Inc. ("ISDA"), an organization that promulgates standard form agreements and ancillary documents widely employed in the derivatives market. These contracts contain a series of representations, and set forth terms governing the parties' derivatives transactions.
The parties then from time to time enter into derivatives transactions. Each. transaction is memorialized in a separate trade confirmation setting forth the specific terms of each particular transaction. Pursuant to the terms of the ISDA Master Agreement, the ISDA Agreements and the confirmations together form a single agreement (ISDA Master Agreement, § 1 [c]).
On June 24, 2004, MLCM and CCM signed a Master Agreement and Credit Support Annex, which were subsequently amended from time to time (Amended Complaint, ¶ 15; Jhamb Aff, If 11; see Ex 3). On February 3, 2006, MLCS and CCM signed a Master Agreement and Credit Support Annex (Amended Complaint, ¶ 16; Jhamb Aff, ¶ 16, see Ex 7). Campomanes (CCM's former Treasurer) signed these contracts and their attachments (collectively, the "ISDA Agreements") on behalf of CCM (Jhamb Aff, ¶¶ 12, 16; see Exs 3 and 7; Campomanes Aff, ¶ 19).
The ISDA Agreements contain "Additional Representations" which were added by the parties to the standard form, and which make clear that the parties operated at arm's length. For example, in Part 5 (2) (i) of the Schedule to each Master Agreement, CCM and Merrill represented that they were "entering into this Agreement, any Credit Support Document to which it is a party, each Transaction and any other documentation relating to this Agreement or any Transaction as principal (and not as agent or in any other capacity, fiduciary or otherwise)." Similarly, in Part 5 (2) (j) of the Schedule to each Master Agreement, CCM and Merrill represented their "Non-Reliance" on each other. All but one Transaction confirmation repeats this non-reliance representation (see Jhamb Aff, Ex 18). CCM also repeatedly confirmed in writing that Campomanes had authority to sign the ISDA Agreements and enter into derivatives transactions with Merrill on behalf of CCM (id., ¶¶ 13, 15, 18-19; see Exs 4-7).
The ISDA Agreements specifically provide that they are "governed by and construed in accordance with the laws of the State of New York without reference to choice of law doctrine" (ISDA Agreement, Schedule, Part 4 [h]).
From 2004 through the end of 2008, CCM entered into over 1, 000 foreign exchange or interest rate derivatives transactions with Merrill pursuant to the ISDA Agreements (Jhamb Aff, ¶ 21; see Ex 8). CCM made payments to or accepted payments from Merrill in connection with the parties' derivatives transactions (id., ¶ 22; see Ex 9). CCM also disclosed its derivatives transactions with Merrill and other financial institutions in CCM's regulatory filings (id., ¶ 23; see Exs 10-13).
On March 10, 2005, CCM sent Merrill a letter, known as a "Big Boy Letter," signed by Campomanes, in which CCM confirmed that it was a sophisticated party, fully understood the risks associated with its derivatives transactions and that those who had signed the transaction documentation were authorized to do so:
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