Structured Capital Solutions, LLC v. Commerzbank AG

• Decision Date: 17 April 2016
• Docket Number: 15 Civ. 905 (JSR)
• Citation: 177 F.Supp.3d 816
• Parties: Structured Capital Solutions, LLC, Plaintiff, v. Commerzbank AG, New York Branch, Defendant.
• Court: U.S. District Court — Southern District of New York

177 F.Supp.3d 816

Structured Capital Solutions, LLC, Plaintiff,

v.Commerzbank AG, New York Branch, Defendant.

15 Civ. 905 (JSR)

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

Signed April 17, 2016

Felipe Sebastian Bohnet-Gomez, Zerbe, Fingeret, Frank & Jadav, P.C., Washington, DC, Jefferson H. Read, John H. Dies, Matthew T. Noll, Zerbe, Fingeret, Frank & Jadav, Houston, TX, for Plaintiff Structured Capital Solutions, LLC.

C. William Phillips, Philip Alexander Irwin, Bruce Oliver Corey, Jr., Jonathan David Cohen, Corey Covington & Burling LLP, New York, NY, for Defendant Commerzbank AG, New York Branch.

OPINION AND ORDER

JED S. RAKOFF, UNITED STATES DISTRICT JUDGE.

In this action, plaintiff, which develops and markets proprietary structured finance transaction strategies, seeks to recover damages that it alleges it suffered as a result of defendant's utilization of one such strategy in violation of an agreement between the parties. In particular, plaintiff Structured Capital Solutions, LLC (“SCS”) seeks to recover damages for breach of contract, unjust enrichment, misappropriation of trade secrets, and fraud. Before the Court is the motion of defendant Commerzbank AG, New York Branch (“Commerzbank”) for summary judgment on all claims. For the reasons explained below, the Court grants summary judgment to defendant on plaintiff's unjust enrichment, misappropriation of trade secrets, and fraud claims, but denies summary judgment on plaintiff's breach of contract claim.

SCS is a “structured finance advisory and arranging boutique operating in the U.S., U.K., and in Europe.” Pl.'s Local Rule 56.1 Statement of Material Facts (“Pl.'s Stmt.”) ¶ 140, ECF No. 49.¹ Defendant Commerzbank is a branch of Commerzbank AG, a banking and financial services company located in Frankfurt, Germany. See id. ¶ 141. Since 2009, SCS has been marketing what it describes as the “deferred asset delivery” transaction (the “DAD Transaction”) to large financial institutions such as Commerzbank. See Def.'s Statement of Undisputed Material Facts Pursuant to Local Rule 56.1 (“Def.'s Stmt.”) ¶¶ 1, 9, ECF No. 40. The DAD Transaction is a multi-step transaction designed to create a tax-related benefit utilizing net operating losses or capital losses. See id. ¶ 5. The party receiving the benefits from the transaction is the “principal” in the transaction, while the counterparty that earns a fee for facilitating the transaction is the “accommodation party.” Id. The DAD Transaction proceeds in three steps:

On Day 1, the party receiving the tax, accounting, and/or regulatory capital benefits of the transaction (the “principal”) receives assets from the counterparty in exchange for a relatively small amount of cash and a promise to deliver additional “suitable property” in the future. The principal's tax basis in the assets at the time of the exchange is the amount of cash it paid, which is significantly less than the fair market value of the assets....

The principal then uses a mark-to-market or similar technique to recognize a taxable gain equal to the difference between the assets' low tax basis and fair market value. Once the gain is recognized, the tax basis in the assets increases to the assets' fair market value....

Finally, after some delay, the principal delivers other “suitable property” to the counterparty. Due to rules governing the taxation of barter transactions, the effect of the delayed delivery is to increase the principal's basis in the assets it acquired on Day 1 above their fair market value by the amount of suitable property that was delivered....

Id. ¶ 7.

Prior to disclosing the DAD Transaction (also referred to herein as the “DAD Information” or the “DAD Technology”) to Commerzbank in early 2013, SCS had disclosed it to nonparty Société Générale in May 2011 pursuant to a confidentiality agreement. See id. ¶¶ 19–22. In September 2012—before the formation of the relevant business relationship between plaintiff and defendant—Société Générale “pitched” Commerzbank on participating in a DAD Transaction, with Société Générale acting as the principal and Commerzbank as the accommodation party. See id. ¶¶ 45, 48–50. At the meeting, Société Générale—without mentioning that the idea for the DAD Transaction originated with SCS or even mentioning SCS at all—disclosed the DAD Transaction to Commerzbank based on an oral assurance from Commerzbank that it would execute a non-disclosure agreement with Société Générale. See id. ¶¶ 50–51. Commerzbank subsequently executed the contemplated non-disclosure agreement with Société Générale on September 5, 2012. See id. ¶ 52.

At the time of the September 2012 meeting, Société Générale already had a separate DAD Transaction in the works with a hedge fund, in which the hedge fund would serve as the accommodation party. See id. ¶ 53. In October 2012, Société Générale proposed that Commerzbank serve as the accommodation party instead, and Commerzbank agreed. See id. ¶¶ 55–57. The parties worked on this transaction (the “2013 Transaction”) in the fall of 2012 and, by January 8, 2013, Commerzbank had obtained the necessary internal approvals for the transaction from its “Kredit Komitee” in Germany and its Board. See id. ¶¶ 58, 62–64. While the closing of the transaction was delayed until April 23, 2013, see id. ¶ 66, “no significant changes were made” to the 2013 Transaction after January 8, 2013, and “no further internal approvals were sought or obtained,” see id. ¶ 65.

While Commerzbank was pursuing a DAD Transaction with Société Générale in late 2012, it was also exploring obtaining proprietary information from SCS. To this end, an introductory meeting was held between the parties on October 16, 2012 at Commerzbank's London offices. See Pl.'s Stmt. ¶ 142. The parties met again in New York on November 9, 2012 for an initial pitch meeting regarding SCS's services (though they dispute whether the DAD Transaction was discussed). See id. ¶ 143. After the November 9 meeting, the parties began drafting and negotiating the agreement that would govern SCS's disclosure of proprietary information to Commerzbank. See id. ¶ 144. On or about January 18, 2013—after Commerzbank's 2013 Transaction with Société Générale had been finalized in significant part—the parties executed an Information Use and Disclosure Agreement (the “IUDA”). See Def.'s Stmt. ¶ 73. Among other things, the IUDA provided that its purpose was to “enable [Commerzbank] to evaluate, and potentially execute transactions (together with substantially similar transactions ... a ‘Transaction’) described (a) in a summary presentation (‘Presentation’) entitled ‘Asset Acquisition Structures' that SCS will provide [Commerzbank] ... and (b) in additional confidential information SCS will provide [Commerzbank] regarding and expanding upon such Presentation.” Decl. of William Donohue dated Sept. 4, 2015 (“Donohue Decl. dated Sept. 4, 2015”), Ex. 9 (the “IUDA”), § 1, ECF No. 43–9. The IUDA further provided that Commerzbank “cannot use any Confidential Information or proceed with, or participate in, a Transaction unless [Commerzbank] has entered into a Fee Agreement with SCS.” Id. § 6. The parties also agreed that the IUDA would be governed by New York law and, where applicable, federal law. See id. § 16.

As contemplated by Section 1 of the IUDA, SCS emailed Commerzbank a PowerPoint presentation (the “January 2013 Presentation”) disclosing the DAD Transaction on January 29, 2013. See Def.'s Stmt. ¶ 81. This disclosure included additional and different information that was not included in SCS's disclosures to Société Générale. See Pl.'s Stmt. ¶ 237. A little over a week later, on February 6, 2013, SCS met with Commerzbank to discuss the January 2013 Presentation and to answer Commerzbank's questions regarding the DAD Transaction. See id. ¶ 235.

About a year later, in February 2014, Commerzbank executed another DAD Transaction with Société Générale (the “2014 Transaction”), the goal of which was to preserve net operating losses at Hypothekenbank Frankfurt AG (“HFNY”), a Commerzbank AG subsidiary. See Def.'s Stmt. ¶ 131. At the time of the transaction, HFNY's closure was imminent and Commerzbank was on the verge of losing its ability to utilize $900 million in net operating losses at HFNY. See Pl.'s Stmt. ¶¶ 213–14. To avoid that result, Commerzbank, acting as the principal in the transaction, moved approximately $140 million of HFNY's tax losses to a special-purpose vehicle. See Def.'s Stmt. ¶¶ 132–34. Commerzbank did not enter into a fee agreement with SCS prior to executing either the 2013 Transaction or the 2014 Transaction. See Pl.'s Stmt. ¶¶ 211–12. This litigation ensued.

Under Rule 56(a) of the Federal Rules of Civil Procedure, summary judgment is warranted when the “movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). In considering a motion for summary judgment, the Court must “construe all the evidence in the light most favorable to the nonmoving party, drawing all inferences and resolving all ambiguities in its favor.” Amidon v. Student Ass'n of State Univ. of New York at Albany, 508 F.3d 94, 98 (2d Cir.2007).

Beginning with plaintiff's breach of contract claim, SCS argues that Commerzbank breached Sections 3, 6, and 7 of the IUDA.² Section 6—on which the parties focus the majority of their attention—purports to obligate Commerzbank to enter into a fee agreement with plaintiff prior to effecting any transaction involving the DAD Information. In relevant part, it provides:

[Commerzbank] undertakes to enter into a written fee agreement with SCS (“Fee Agreement”) prior to it effecting any Transaction for itself or on behalf of an unrelated party. Such fee agreement will be negotiated in good faith and contain a market based fee arrangement which will provide for fee(s) to be paid to SCS by [Commerzbank] upon [Commerzbank] entering into a Transaction. For the avoidance of doubt, [Co

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