Opinion
No. 03 Civ. 4556 (PKL).
March 2, 2005
ROBSON FERBER FROST CHAN ESSNER LLP New York, New York, Gregory D. Frost, Esq. Attorneys for Plaintiff.
DUVAL STACHENFELD LLP New York, New York, Allan N. Taffet, Esq. Attorneys for Defendant Credit Suisse First Boston LLC.
OPINION AND ORDER
Plaintiff Europacific Asset Management Corporation ("Europacific") brings this action against all named defendants for: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) tortious interference with contract; (4) breach of fiduciary duty; and, (5) breach of obligations to plaintiff as a third party beneficiary to contract. Plaintiff's claims arise out of a loan agreement with defendant Tradescape Corp. d/b/a/ Tradescape, Inc. and/or Tradescape.com, Inc. ("Tradescape") which sought to allocate a stock certificate representing 9,400,042 shares of common stock of E*Trade Group, Inc. (the "E*Trade Shares" or "Shares") as collateral. However, these Shares were maintained in a custodial account and were inaccessible, causing Tradescape to terminate the loan agreement. The details of this exchange are at the heart of the present controversy and are discussed in detail below.
Defendant Credit Suisse First Boston LLC ("CSFB"), successor by merger to named defendant Credit Suisse First Boston Corporation, herein moves this Court to dismiss plaintiff's amended complaint ("Complaint" or "Compl.") insofar as it alleges that CSFB: (1) breached the implied covenant of good faith and fair dealing inherent in its contract with co-defendant Tradescape; (2) breached Europacific's third party rights under the same contract; (3) tortiously interfered with Europacific's contract with defendant Tradescape; and, (4) breached its fiduciary duty to Europacific. CSFB asserts that plaintiff has failed to state a claim for which relief may be granted, pursuant to Federal Rule of Civil Procedure 12(b)(6).
BACKGROUND
The instant litigation arises out of the interaction between a contract between CSFB and Tradescape, which designated CSFB as the custodian of the E*Trade Shares that Tradescape deposited with CSFB subject to defendant Softbank Finance Corporation's ("Softbank") lien (the "Customer Agreement"), and several agreements purposed to create a loan between potential debtor Tradescape and plaintiff Europacific (the "Loan Agreement").I. The Parties
Plaintiff Europacific is a Republic of Panama corporation with its principal office located in Panama City, Republic of Panama. Defendant Tradescape is a Delaware corporation with an office in New York, New York. Defendant CSFB is a foreign corporation licensed to do business in New York State with an office in New York, New York. Defendant Softbank is a Japanese corporation doing business in New York State.
II. The Customer Agreement
On July 17, 2002, defendants Tradescape and CSFB entered into a Customer Agreement. This agreement allowed Tradescape to open a custodial account with CSFB wherein it deposited the E*Trade Shares. The Customer Agreement was specifically purposed to accommodate Tradescape's agreement with Softbank "to place the Shares with a custodian who shall be instructed not to permit the sale of any of the shares without the written consent of Softbank until certain conditions are satisfied." (Compl. Ex. D at 3d unnumbered paragraph.) In furtherance of this aim, the Customer Agreement restricted custodian CSFB's actions regarding the E*Trade Shares:
the Custodian shall not permit the sale or withdrawal of any Shares unless the Custodian receives notice from Tradescape, confirmed in writing by Softbank, that:
(a) Tradescape's unsecured Promissory Note dated August 7, 2000 for $10,000,000 and Secured Promissory Note date May 23, 2002 for $5,000,000 have been paid in full; or
(b) the proceeds from the sale or withdrawal of such Shares will be used to pay such unsecured Promissory Note or Secured Promissory Note.
(Id. ¶ 1.) The Customer Agreement allowed Tradescape some flexibility in managing its assets with CSFB, however, stating:
This Agreement shall cover individually and collectively all accounts which Tradescape may open or reopen with the Custodian, and shall inure to the benefit of its successors whether by merger, consolidation or otherwise, and assigns, and the Custodian may transfer the accounts of Tradescape to its successors and assigns, and this Agreement shall be binding upon the successors and assigns of Tradescape.
(Id. ¶ 9.) Paragraph twelve of the Customer Agreement made clear that the headings of the paragraphs described above are "for descriptive purposes only and shall not be deemed to modify or qualify any of the rights or obligations set forth in each such provision." (Id. ¶ 12.) Finally, the Customer Agreement stated that it "and its enforcement shall be governed by the laws of the State of New York." (Id. ¶ 15.)
III. The Loan Agreements
Plaintiff and defendant Tradescape entered into a series of transactions purporting to create a loan agreement wherein Europacific would loan Tradescape more than enough money to pay its debt to Softbank in order to free up the Shares. Europacific would then collect interest on this loan and the Shares would constitute collateral for the loan. The transactions are described in further detail below.
On November 6, 2002, Europacific sent Tradescape a loan commitment letter entitled "Loan against the Collateral of ET [E*Trade] stocks, 9,400,042 shares now at CSFB NY." (Compl. Ex. A.) The letter stated that Europacific would loan Tradescape $37,600,000 at 6.75% interest over four years with the E*Trade Shares as collateral. The closing time of the deal is listed as "[w]ithin 3 working days of receipt of the shares into our brokerage [account] in Miami." (Id.) Finally, Europacific stated that, "[a]t no extra cost at borrowers [ sic] request, we will issue a payment Guarantee letter favoring Soft Bank Japan to secure their payment from the loan proceeds at closing." (Id.)
On November 15, 2002, Tradescape and Europacific executed three separate contractual documents which together purported to create the Loan Agreement wherein Tradescape would borrow $37,600,000 from lender Europacific, using the E*Trade Shares as collateral. The three agreements are discussed in turn.
A. The Promissory Note
On November 15, 2002, Tradescape and Europacific entered into a Promissory Note Agreement (the "Promissory Note"). Tradescape agreed to pay Europacific $37,600,000 "or at least 80% of the market value of the collateral upon receipt, with interest." (Compl. Ex. B at 1st unnumbered paragraph.) The Promissory Note stated that "Borrower [Tradescape] has granted Bank [Europacific] a security interest in the collateral described in the Loan Documents." (Id. at 2d unnumbered paragraph.) The Promissory Note also provided for a revolving line of credit advances, whereby Tradescape could "borrow, repay and reborrow, and Bank may advance and readvance under this Note . . . so long as the total principal balance outstanding under this Note at any one time does not exceed the greater of US$37,600,000 or 80% of the market value of the collateral." (Id. at 2.) The parties created a termination provision in the Promissory Note which, in bold print, stated, "[i]n the event that CSFB fails to deliver the ETRADE share certificates representing 9,400,000 [ sic] shares then either party can terminate the SECURITY Agreement and Demand Promissory Note and neither party will have any liability under those agreements." (Id. at 3.) Regarding remedies available to Europacific should Tradescape default, the Promissory Note specified that, "Bank may at any time thereafter [default] . . . [f]orclose its security interest or lien against Borrower's accounts without notice." (Id. at 3.)
B. The Security Agreement
Also on November 15, 2002, Tradescape and Europacific entered into a Security Agreement which mirrored in some respects the Promissory Note. The Security Agreement referenced the Promissory Note and stated that, "[f]or value received and to secure payment and performance of the Promissory Note executed by Debtor [Tradescape] . . . [d]ebtor hereby grants to Bank a continuing security interest in and lien upon the following [collateral]," consisting of 51% of Tradescape's common stocks as well as the E*Trade Shares held in the custodial CSFB account, which, pursuant to the Security Agreement, were "to be held in and credited to" Europacific's brokerage account with CSFB. (Compl. Ex. C at 1.) The collateral also consisted of "all dividends, stock rights, subscription rights, warrants, stock splits that arise from ownership of said stock from the date of execution of this agreement." (Id. at 1-2.) The Security Agreement specifically acknowledged that "the shares are currently subject to SOFTBANK security agreement [the Customer Agreement]." (Id. at 2.) However, the Security Agreement also guaranteed that "Debtor has good and marketable title to Collateral," and contained the same termination clause as the Promissory Note, absent the bold print. (Id. at 2, 8.) Regarding perfection of Europacific's right to the Collateral, the Security Agreement promised that "[u]pon Bank's request, Debtor will . . . otherwise do or cause to be done all other acts and things as may be necessary to make the sale of the Collateral valid, binding and in compliance with applicable law." (Id. at 3-4.) Europacific's remedies if Tradescape defaulted included, inter alia, (1) that "all of the Obligations shall be immediately due and payable, without notice"; (2) "to take immediate possession of Collateral"; (3) "to require Debtor to assemble the Collateral and make it available to Bank"; and, (4) to "transfer into Bank's name . . . all or any part of the Collateral." (Id. at 6.) Finally, the Security Agreement plainly stated that it controlled over any conflicting documents, including the November 6, 2002 loan commitment letter, discussed above. (Id. at 7 ("If any terms of this Security Agreement conflict with the terms of any commitment letter or loan proposal, the terms of this Security Agreement shall control.").)
C. The Irrevocable Stock or Bond Power Agreement
The final agreement Tradescape and Europacific entered into on November 15, 2002 purported to grant Europacific irrevocable stock power over the E*Trade Shares ("Stock Power Agreement"). (Compl. Ex. F.) The Stock Power Agreement expressly stated that, "for value received, the undersigned does hereby sell, assign and transfer to" Europacific's CSFB account "9,400,042 shares of the stock of" E*Trade. (Id.) This agreement is signed by Omar Amanat, President of Tradescape.
IV. Post-Loan Agreement Events
Plaintiff Europacific alleges that, after the Loan Agreement was executed, the Stock Power Agreement was delivered to CSFB by Amanat on behalf of Tradescape. (Id. ¶ 14.) On November 25, 2002, Europacific contacted Amanat to "take the necessary steps to complete the transaction." (Id. ¶ 15.) In order to do so, Europacific requested the name of the "contact person to be notified on behalf of Soft Bank" (Id. Ex. G.) However, in a responding electronic correspondence on November 27, 2002, Tradescape informed Europacific that CSFB would not release the shares because of the restrictions in the Customer Agreement and, thus, the Loan Agreement "which was never fully implemented is terminated. Softbank is refusing to move the shares." (Id. Ex. G.)
Despite Tradescape's termination of the Loan Agreement, Europacific contacted CSFB twice attempting to persuade it to release the shares. On January 9, 2003, plaintiff's counsel contacted defendant CSFB's counsel by letter, advising him that "[p]aragraph 9 of Customer Agreement authorizes [CSFB] to transfer Tradescape's accounts to Tradescape's successors and assigns. . . . Thus, the Shares may be transferred to any assign of Tradescape (such as Europacific), and the Customer Agreement will be binding on any such assign of Tradescape." (Id. Ex. I.) Again, on January 23, 2003, plaintiff's counsel contacted CSFB's counsel by letter demanding that Europacific be provided with e-mail correspondence wherein Tradescape allegedly instructed CSFB not to transfer the E*Trade shares, as well as the contact information for Softbank. (Id. Ex. J.) Europacific accused CSFB of acting in bad faith in "delay[ing] in transferring the Shares and providing the basic information requested by Europacific." (Id.)
CSFB's counsel responded by letter on February 5, 2003, stating that CSFB was precluded from transferring the E*Trade Shares to Europacific's account pursuant to paragraph one of the Customer Agreement. (Id. Ex. K.) CSFB also declined to provide Europacific with contact information for Softbank because that information involved another current accountholder, and could not be provided "in the absence of appropriate direction or approval." (Id.) CSFB expressed surprise "that Europacific did not obtain any contact information for Softbank in connection with the negotiation of its purported agreement with Tradescape." (Id.) Finally, CSFB took exception to Europacific's allegation that CSFB acted in bad faith, instead insisting that CSFB had, at all times, "acted in good faith in connection with [Europacific's] requests." (Id.)
Apparently, at some time after these communications, in connection with another agreement or agreements with another party similar to the Loan Agreement, CSFB transferred the Shares "allowing Defendant Credit Suisse to obtain the benefit of Plaintiff's bargain." (Compl. ¶ 21.) The Complaint does not further flesh out this assertion.
DISCUSSION
CSFB claims that plaintiff has failed to state a claim for which relief can be granted, pursuant to Federal Rule of Civil Procedure 12(b)(6), against CSFB because CSFB acted at all times in accordance with the Customer Agreement. CSFB claims that plaintiff has not pled any facts (1) establishing a breach of the underlying Loan Agreement; (2) demonstrating that Softbank gave written confirmation allowing the transfer of the E*Trade Shares; (3) that CSFB acted illegally or fraudulently so as to overcome its economic justification defense; or, (4) evidencing a fiduciary relationship between CSFB and Europacific. Plaintiff's failure in this regard, CSFB contends, is fatal to plaintiff's Complaint against CSFB. The legal standard for this motion and plaintiff's four claims against CSFB are discussed, in turn, below.
I. Motion to Dismiss Standard
When determining whether plaintiff's claim should be dismissed on motion for failure to state a claim for which relief may be granted, the court "must accept as true all of the factual allegations set out, draw inferences from those allegations in the light most favorable to plaintiff, and construe the complaint liberally." Gregory v. Daly, 243 F.3d 687, 691 (2d Cir. 2001) (quoting Tarshis v. Riese Org., 211 F.3d 30, 35 (2d Cir. 2000)); see also Hosp. Bldg. Co. v. Trs. of Rex Hosp., 425 U.S. 738, 740 (1976); Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Walker v. City of New York, 974 F.2d 293, 298 (2d Cir. 1992), cert. denied, 507 U.S. 961 and 507 U.S. 972 (1993));Dubin v. E.F. Hutton Group Inc., 695 F. Supp. 138, 140 n. 1 (S.D.N.Y. 1988). Thus, "[t]he issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); see also Hamilton Chapter of Alpha Delta Phi, Inc. v. Hamilton College, 128 F.3d 59, 62-63 (2d Cir. 1997). Plaintiff's Complaint should not be dismissed in this instance "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief."Conley, 355 U.S. at 45-46; see also Lipsky v. Commonwealth United Corp., 551 F.2d 887, 894-95 (2d Cir. 1976). However, plaintiff's Complaint "must contain allegations concerning each of the material elements necessary to sustain recovery under a viable legal theory." Huntington Dental Med. Co. v. Minnesota Mining Mfg. Co., No. 95 Civ. 10959, 1998 WL 60954, at *3 (S.D.N.Y. Feb. 13, 1998). Accordingly, the factual allegations set forth in the Complaint and repeated above do not constitute findings of fact by the Court, but rather are presumed to be true for the purpose of deciding the motion to dismiss. See Emergent Capital Inv. Mgmt. v. Stonepath Group, Inc., 165 F. Supp. 2d 615, 625 (S.D.N.Y. 2001). When making this determination, the court may consider:
the factual allegations in [the] complaint . . ., documents attached to the complaint as an exhibit or incorporated in it by reference . . ., matters of which judicial notice may be taken . . ., or documents . . . of which plaintiff had knowledge and relied on in bringing suit.Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993); see also Fed.R.Civ.P. 10(c) ("A copy of any written instrument which is an exhibit to a pleading is part thereof for all purposes."); Chambers v. Time Warner, Inc., 282 F.3d 147, 152-53 (2d Cir. 2002); Gregory, 243 F.3d at 691.
The decision of whether to hold an oral hearing regarding a motion to dismiss lies in the sound discretion of the district court. Greene v. WCI Holdings Corp., 136 F.3d 313, 316 (2d Cir. 1998). If the district court decides to dismiss any claims, that dismissal is generally considered a judgment on the merits, unless dismissed for "curable defect."Criales v. Am. Airlines, Inc., 105 F.3d 93, 98 (2d Cir. 1997). The Second Circuit reviews a district court's determination of whether a motion to dismiss should be granted de novo. Chance v. Armstrong, 143 F.3d 698, 701 (2d Cir. 1998) (citing Sykes v. James, 13 F.3d 515, 518-19 (2d Cir. 1993)). With this legal parameter in mind, the Court turns to plaintiff's four claims against CSFB.
II. Plaintiff's Claims Against CSFB
CSFB avers that plaintiff's Complaint against CSFB should be dismissed for failure to state a claim insofar as it alleges that CSFB, (1) breached the implied covenant of good faith and fair dealing inherent in its contract with co-defendant Tradescape; (2) breached Europacific's third party rights under the same contract; (3) tortiously interfered with Europacific's contract with defendant Tradescape; and, (4) breached its fiduciary duty to Europacific. The parties agree that plaintiff's claims are governed by New York law. (See Defendant CSFB's Reply Memorandum of Law in Support of its Motion to Dismiss the Amended Complaint ("Def.'s Reply") at 7.)
A. The Claims Collectively
The Court finds that all of plaintiff's claims require a threshold determination of whether CSFB acted appropriately under the Customer Agreement in refusing to transfer the Shares to Europacific's account, as outlined more fully below.
1. Implied Covenant of Good Faith and Fair Dealing in the Customer Agreement
Plaintiff alleges that, because Tradescape assigned to Europacific its rights under the Customer Agreement and to the E*Trade Shares via the Irrevocable Stock Power Agreement, CSFB's failure to transfer the shares was a breach of its obligations to plaintiff as Tradescape's successor to these rights. Plaintiff also alleges that CSFB's post-transaction transfer of the Shares to another party constituted a breach of plaintiff's rights. Thus, plaintiff claims, CSFB breached its implied covenant of good faith and fair dealing to Europacific as assignee under the Customer Agreement. CSFB counters that it acted in all times in accordance with paragraph one of the Customer Agreement which forbid it to transfer the Shares without Softbank's written confirmation.
In New York, "implicit in all contracts is a covenant of good faith and fair dealing in the course of contract performance,"Dalton v. Educ. Testing Serv., 663 N.E.2d 289, 292, 87 N.Y.2d 384, 389 (1995), "unless there is an inconsistency between the covenant and the other terms of the contractual relationship."Readco, Inc. v. Marine Midland Bank, 81 F.3d 295, 300 (2d Cir. 1996). "The covenant includes `any promises which a reasonable person in the position of the promisee would be justified in understanding were included.'" Times Mirror Magazines, Inc. v. Field Stream Licenses Co., 294 F.3d 383, 394 (2d Cir. 2002) (quoting Dalton, 336 N.E.2d at 291, 87 N.Y.2d at 389)). Generally, the covenant warrants that no party to the contract will do anything to "`hinder or obstruct'" the contract's performance. Wolff Munier, Inc. v. The Whiting-Turner Contracting Co., 946 F.2d 1003, 1007 (2d Cir. 1991) (quotingQuaker-Empire Constr. Co. v. D.A. Collins Constr. Co., 452 N.Y.S.2d 692, 694, 88 A.D.2d 1043, 1044 (N.Y.App.Div. 1982)). The covenant, however, is limited and "defined by the parties' intent and reasonable expectations in entering the contract."Cross Cross Props. Ltd. v. Everett Allied Co., 886 F.2d 497, 502 (2d Cir. 1989). Therefore, "`no obligation can be implied that would be inconsistent with other terms of the contractual relationship.'" Times Mirror, 294 F.3d at 394 (quotingDalton, 336 N.E.2d at 292, 87 N.Y.2d at 389)). Further, the covenant only exists where there is an underlying contract and the covenant is purposed to aid and further the terms of the parties' agreement. Murphy v. Am. Home Prods. Corp., 448 N.E.2d 86, 91, 58 N.Y.2d 293, 304-05 (1983). Under either of plaintiff's theories for relief, CSFB must have defied the terms of the Customer Agreement in order to have breached this covenant. If CSFB's initial refusal to transfer the Shares was justified under the Customer Agreement then it did not breach as to Europacific when it refused to transfer the Shares; nor did it breach when it ultimately did transfer the Shares to another party because at that point Europacific assignment had been terminated by Tradescape. Plaintiff offers no other factual allegation which would indicate CSFB breached the Customer Agreement. Therefore, taking plaintiff's factual pleadings as true, in order to have breached this covenant, CSFB could not have been complying with the terms of the Customer Agreement.
2. Breach of Plaintiff's Third Party Rights Under the Customer Agreement
Plaintiff contends that, as assignee of Tradescape's rights to the Shares, it is "an expressly intended third-party beneficiary of the Customer Agreement." (Compl. ¶ 37.) As such, plaintiff contends that CSFB's failure to transfer the Shares and its release of the Shares to another party after the assignment constituted a breach of plaintiff's third party rights under the Customer Agreement. CSFB contends that plaintiff is mistaken on the law in that the parties' intent to benefit a third party must be apparent on the face of the agreement. In the alternative, CSFB argues that it did not breach the Customer Agreement as to any beneficiary because it did not receive written confirmation from Softbank allowing CSFB to release the Shares.
Under New York law, a non-signatory to the contract is considered a third party beneficiary only where (1) no other party can recover under the contract in the event of breach; or, (2) on its face, the contract shows an intent to benefit a third party and grant that party enforcement rights. See Restatement (Second) of Contracts § 302 (1981); Mortise v. United States, 102 F.3d 693, 697 (2d Cir. 1996); Hylte Bruk Aktiebolag v. Babcock Wilcox Co., 399 F.2d 289, 292 (2d Cir. 1968); In re Gulf Oil/Cities Serv. Tender Offer Litig., 725 F. Supp. 712, 733 (S.D.N.Y. 1989) ("Although a third party need not be specifically mentioned in the contract before third-party beneficiary status is found, New York law requires that the parties' intent to benefit a third party must be shown on the face of the agreement."); New York State Energy Research Dev. Auth. v. Nuclear Fuel Servs., Inc., 561 F. Supp. 954, 979 (W.D.N.Y. 1983); Fourth Ocean Putnam Corp. v. Interstate Wrecking Co., Inc., 485 N.E.2d 208, 212-13, 66 N.Y.2d 38, 44-45 (1985); Artwear, Inc. v. Hughes, 615 N.Y.S.2d 689, 692, 202 A.D.2d 76, 81-82 (N.Y.App.Div. 1994). Absent any facts to this effect, plaintiff may, at best, be deemed an incidental beneficiary with no enforceable rights under the Customer Agreement. See, e.g., McPheeters v. McGinn, Smith Co., Inc., 953 F.2d 771, 773 (2d Cir. 1992). However, regardless of whether plaintiff was a third party beneficiary, in order for CSFB to be liable to any beneficiary it must have breached the underlying agreement. On plaintiff's pleadings, this breach could only have occurred if CSFB wrongfully withheld the E*Trade Shares from plaintiff.
3. Tortious Interference With the Loan Agreement
Plaintiff alleges that CSFB knew of the Loan Agreement and, through its refusal to release the shares, "intentionally, wrongfully, maliciously and unlawfully interfered with said agreements without justification." (Compl. ¶ 27.) CSFB contends that a claim of tortious interference cannot lie because Tradescape did not breach the Loan Agreement by terminating the transaction. Plaintiff counters that breach is not necessary because Tradescape's termination of the Loan Agreement was caused by CSFB's actions. (Plaintiff's Memorandum of Law in Opposition to Defendant CSFB's Motion to Dismiss ("Pl.'s Mem.") at 13 ("It is a well settled principal that one cannot seek to be excused from liability through their own wrongdoing.") (citing, inter alia, Curial v. Capolino, 883 F. Supp. 941, 950 (S.D.N.Y. 1995).) In the alternative, CSFB argues that it was economically justified in refusing to transfer the Shares.
In New York State, in order to recover for tortious interference with a contract, "a complainant must prove the existence of a valid contract between plaintiff and a third party, the defendants' knowledge of that contract, and defendants' improper intentional interference with its performance." Enercomp, Inc. v. McCorhill Publ'g, Inc., 873 F.2d 536, 541 (2d Cir. 1989); see, e.g., Catizone v. Memry Corp., 897 F. Supp. 732, 738-39 (S.D.N.Y. 1995); Foster v. Churchill, 665 N.E.2d 153, 156, 87 N.Y.2d 744, 749-50 (1996);William Kaufman Org., Ltd. v. Graham James L.L.P., 703 N.Y.S.2d 439, 442, 269 A.D.2d 171, 173 (N.Y.App.Div. 2000);see also Int'l Minerals Res., S.A. v. Pappas, 96 F.3d 586, 595 (2d Cir. 1996) (citing, inter alia, Kronos, Inc. v. AVX Corp., 612 N.E.2d 289, 29281 N.Y.2d 90, 94 (1993), as stating New York State law's four elements for tortious interference with contract). It is also generally required that the underlying contract be breached. See Dix v. City of New York, No. 01 Civ. 6186, 2002 U.S. Dist. LEXIS 18262, at *35-36 (S.D.N.Y. Sept. 30, 2002); Jack L. Inselman Co. v. FNB Fin. Co., 364 N.E.2d 1119, 1120, 41 N.Y.2d 1078, 1080 (1977); Winicki v. City of Olean, 611 N.Y.S.2d 379, 380, 203 A.D.2d 893, 894 (N.Y.App. Div. 1994). However, it is unclear in the present instance, where the contract contained a termination clause, that CSFB would be liable for tortious interference if it wrongfully induced Tradescape to invoke the termination clause. Compare Int'l Minerals, 96 F.3d at 595 (stating as an element under New York State law "defendant's intentional inducement of the third party to breach or otherwise render performance [of the underlying contract] impossible") (emphasis added), and Leber Assocs., LLC v. The Entm't Group Fund, Inc., No. 00 Civ. 3759, 2003 WL 21750211, at *18 (S.D.N.Y. July 29, 2003) ("Improper intentional interference is generally evidenced by a tortfeasor inducing or otherwise causing [a] third person not to perform his contractual obligations to plaintiff."), with CIBC Bank and Trust Co. Ltd. v. Banco Central de Brasil, 886 F. Supp. 1105, 1119 (S.D.N.Y. 1995) (holding, after an examination of conflicting precedents that, under New York State law, breach of the underlying contract is a necessary element of tortious interference with contract). However, the Court need not fully examine this sticking point at this inchoate stage as, in either case, CSFB must have acted wrongfully to be found to have tortiously interfered with the Loan Agreement. See Jews for Jesus, Inc. v. Jewish Cmty. Relations Council of N.Y., 968 F.2d 286, 292 (2d Cir. 1992) (citing, inter alia, Restatement (Second) of Torts § 767 (1979)); Enercomp, 873 F.2d at 542 ("[I]mplicit in tort is the notion of some wrongful or improper conduct."). If CSFB was acting in accordance with the Customer Agreement, which effectively would tie its hands, when it refused to release the Shares, CSFB would not have been acting wrongfully or improperly.See Heath-Chem Corp. v. Baker, 915 F.2d 805, 809 (2d Cir. 1990) ("[T]o be actionable, the interference must be intentional and not incidental to some other lawful purpose") (citing Alvord Swift v. Stewart M. Muller Constr. Co., 385 N.E.2d 1238, 1241, 46 N.Y.2d 276, 281 (1978)).
In further support of the Court's determination that this is the appropriate threshold determination, see id. (stating that, "under some circumstances a contract whose performance involves or induces the breach of another agreement with a third party may be unenforceable on the ground of public policy") (citations omitted). If the Loan Agreement invoked paragraph one of the Customer Agreement then CSFB would have to breach the Customer Agreement to comply with plaintiff's demand to release the Shares. If this is the case, the Loan Agreement may be unenforceable as a matter of public policy, extinguishing plaintiff's tortious interference with contract claim against CSFB. See id.
4. Breach of Fiduciary Duty to Europacific as Assignee
Plaintiff complains that defendant CSFB breached its fiduciary duty to Europacific when it knowingly "failed and refused to transfer the Shares as directed" in accordance with the Loan Agreement. (Compl. ¶ 33.) Europacific bases this claim on its status as assignee of Tradescape's rights under the Customer Agreement. Plaintiff asserts that, because it stepped into Tradescape's shoes, see Furlong v. Shalala, 156 F.3d 384, 392 (2d Cir. 1998), CSFB owed it a fiduciary duty. CSFB asserts that it did not have a "relationship of trust or confidence with Europacific" because CSFB was not a signatory to the Loan Agreement. (Def.'s Mem. at 19.) Moreover, CSFB claims that, even if Europacific was a proper assignee to Tradescape's rights under the Customer Agreement, that does not a fiduciary relationship make. Instead, CSFB avers that, as a matter of law, fiduciary relationships require more than merely a duty to carry out contractual obligations.
To establish a breach of fiduciary duty, plaintiff must plead that, (1) a fiduciary duty was breached; (2) CSFB knowingly aided the breach; and, (3) damages resulted from the breach. See Whitney v. Citibank, N.A., 782 F.2d 1106, 1115 (2d Cir. 1986). As a predicate consideration, finding a breach of fiduciary duty requires finding that a fiduciary relationship existed between the parties. See Flickering v. Harold C. Brown Co., Inc., 947 F.2d 595, 599 (2d Cir. 1991); Whitney, 782 F.2d at 1115. Fiduciary relationships exist where the fiduciary "occup[ied] a position of trust or special confidence with regard to [the plaintiff] that imposed obligations beyond the express agreements" in the contract. Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 20 (2d Cir. 1996). Thus, defendant CSFB must have been required to do more than carry out its obligations under the Customer Agreement in order to be deemed a fiduciary. See id. This is due to the tenet that, where parties are of equal sophistication in negotiating a contract, a fiduciary relationship does not arise. See Mia Shoes, Inc. v. Republic Factors Corp., No. 96 Civ. 7974, 1997 U.S. Dist LEXIS 12571, at *5-6 (S.D.N.Y. Aug. 20, 1997). More fundamental for this Court's purposes is the observation that CSFB could not have breached any fiduciary duty to anyone under the Customer Agreement if it was acting at all times in accordance with its terms when it refused to issue the shares.
In conclusion, each claim against CSFB in plaintiff's Complaint requires this Court to determine whether CSFB acted in accordance with the terms of the Customer Agreement when it refused to transfer the E*Trade Shares into Europacific's account. This requires that the Court determine whether CSFB's actions regarding the Loan Agreement were governed by paragraph one or paragraph nine of the Customer Agreement. The Court now turns to this dispositive question.
B. CSFB's Obligations Under the Customer Agreement With Respect to the Loan Agreement
Plaintiff Europacific alleges that CSFB violated its duties under the Customer Agreement when it failed to transfer the E*Trade Shares into Europacific's account pursuant to Tradescape's request that CSFB do so. Europacific claims that, under paragraph nine of the Customer Agreement, Tradescape was allowed to transfer its accounts "to its successors and assigns" so long as the assign was bound by the Customer Agreement. (Compl. Ex. D at 3.) Europacific argues that the Loan Agreement merely assigned to Europacific Tradescape's rights to the E*Trade Shares, subject to the terms of the Customer Agreement. To this end, Europacific argues that the language in its January 23, 2003 letter to CSFB's counsel confirmed that plaintiff intended that the transferred E*Trade Shares would be subject to Softbank's lien. Thus, plaintiff concludes that the Loan Agreement did not implicate paragraph one of the Customer Agreement, which required CSFB to obtain Softbank's written approval prior to transferring the Shares.
Assuming arguendo that paragraph one applied to the Loan Agreement, plaintiff argues that CSFB did not need Softbank's approval to transfer the Shares because plaintiff was willing to satisfy the underlying lien. The Court finds this argument irrelevant to the instant discussion, however, because, as CSFB correctly points out, under no provision of the Customer Agreement was CSFB permitted to evaluate a potential transferee or buyer's ability to pay the lien. That evaluation was solely the province of Softbank.
Defendant CSFB, conversely, contends that the Loan Agreement implicated paragraph one of the Customer Agreement. In essence, because the Loan Agreement required CSFB to transfer the E*Trade Shares into Europacific's account, CSFB argues that it was not a mere assignment, but rather constituted a withdrawal of shares. Paragraph one required CSFB to receive Softbank's written approval prior to allowing the Shares to be sold or withdrawn, approval which was never received or given. For this reason, CSFB claims that it did not breach its obligations and duties under the Customer Agreement to either Tradescape or, arguendo, Europacific. Further, CSFB asserts that, if found to have tortiously interfered with the Loan Agreement, it was economically justified in its actions in that it only acted in its own economic interest, and did not act maliciously, fraudulently, or illegally.
"Under New York law `the initial interpretation of a contract is a matter of law for the court to decide,'" Fleet Capital Corp. v. Yamaha Motor Corp., U.S.A., No. 01 Civ. 1047, 2002 U.S. Dist. LEXIS 18115, at *62-63 (S.D.N.Y. Sept. 25, 2002) (quotingAlexander Alexander Servs., Inc. v. These Certain Underwriters at Lloyd's, 136 F.3d 82, 86 (2d Cir. 1998)). Absent ambiguity in the contract, the Court will not look to extrinsic evidence, but rather will interpret the contract on its face, giving the words their ordinary meaning. See Kinek v. Paramount Communications, Inc., 22 F.3d 503, 509 (2d Cir. 1994). The question of ambiguity is a question of law to be decided by the Court. See Collins v. Harrison-Bode, 303 F.3d 429, 433 (2d Cir. 2002); Readco, 81 F.3d at 299; Fleet Capital, 2002 U.S. Dist. LEXIS 18115, at *62-63 (quoting Alexander Alexander, 136 F.3d at 86) ("Under New York law `the initial interpretation of a contract is a matter of law for the court to decide.' . . . `Included in this initial interpretation is the threshold question of whether the terms of the contract are ambiguous.'")). The Court should find a contract unambiguous where an examination of the "entire integrated agreement" reveals "a definite meaning" and the Court finds "no reasonable basis exists for a difference of opinion about that meaning." Fleet Capital, 2002 U.S. Dist. LEXIS 18115, at *62-63 (internal citations and quotations omitted). Further, the Court should look, not only to the sum of the contract, but also to its parts. Sure-Trip, Inc. v. Westinghouse Eng'g, 47 F.3d 526, 533 (2d Cir. 1995) (When interpreting the contract, "[n]ot only should the entire contract be considered, but its parts must be reconciled. . . .").
The Court finds that both the Customer Agreement and the collective documents constituting the Loan Agreement are unambiguous entire integrations of the respective parties' intentions. There is no evidence that these documents were intended to be anything other than final transcriptions of the parties' intended obligations, rights, and duties. Further, the relevant portions of the Customer Agreement and Loan Agreement are unambiguous on their face, readily allowing the Court to plainly read and determine their meaning. It is of note that neither Europacific nor CSFB disputed the meaning of the contracts; instead only disputing the proper application of one contract to the other.
Because the Court finds, as a matter of law, that the agreements are unambiguous entire integrations, the Court does not consider the November 6, 2002 loan commitment letter (Compl. Ex. A), the e-mail communications (id. at Exs. G, H), nor the letter correspondences between the parties (id. at Exs. I, J, K) insofar as the parties offer them to prove their intent pursuant to the Customer Agreement and Loan Agreement. See Kinek, 22 F.3d at 509; Roberts v. Consol. Rail Corp., 893 F.2d 21, 24 (2d Cir. 1989) ("Absent an ambiguity in a written contract, courts will not look to the underlying intent of the parties in executing the contract."). However, the Court does consider the above exhibits for all other purposes as required pursuant to the standard of review for motions to dismiss as discussed, supra, Discussion Part I.
Giving the terms of both contracts their ordinary meaning, the Court further finds that the Loan Agreement constituted a "sale or withdrawal of shares" as contemplated under paragraph one of the Customer Agreement, and not a mere assignment or transfer under paragraph nine. Plaintiff asserts that the Loan Agreement was a simple assignment of Tradescape's rights to the E*Trade Shares to Europacific. This, plaintiff claims, put it in Tradescape's shoes, therefore allowing the Shares to be transferred to plaintiff's account subject to the Softbank lien. This argument is unavailing, however, when the Court reads the Loan Agreement as a whole and reconciles its parts. See Sure-Trip, 47 F.3d at 533; Compl. Ex. B at 2 (stating that the loan documents create the entire credit facility).
It is true that the language of the Promissory Note could be read to evidence an assignment of rights subject to Softbank's lien. The Promissory Note stated that Tradescape would pay Europacific $37,600,000 or "at least 80% of the market value of the collateral." (Compl. Ex. B.) This statement, alone, does not evidence that Tradescape would be required to pay 80% of the Shares themselves, just 80% of their value. CSFB claims that the termination clauses in both the Promissory Note and the Security Agreement prove that Tradescape and Europacific contemplated that Softbank's approval was necessary in order to complete the Loan Agreement transaction. However, the Court does not read the termination clauses so narrowly. Instead, the Court makes the reasonable inference in favor of plaintiff that the parties contemplated only that the delivery of the Shares was required to complete the transaction and, if that delivery was frustrated for any reason, so too would the purpose of the Loan Agreement be frustrated. See Hosp. Bldg., 425 U.S. at 740; Conley, 355 U.S. at 46; Dubin, 695 F. Supp. at 140 n. 1. Also in favor of plaintiff's position is the fact that the Security Agreement explicitly acknowledged that the E*Trade Shares were subject to Softbank's lien (Compl. Ex. C at 2), and required Tradescape to "take such other actions as might be requested for the perfection, continuation and assignment, in whole or in part, of the security interests granted" pursuant to the Security Agreement (id. at 3).
The Court cannot read such statements in a vacuum, however, and must read the Loan Agreement as a whole to determine whether the E*Trade Shares were to be sold or withdrawn rather than merely transferred and assigned. See Commander Oil Corp. v. Advance Food Serv. Equip., 991 F.2d 49, 52-53 (2d Cir. 1993) ("`Where several instruments constitute part of the same transaction, they must be interpreted together.'") (quoting BWA Corp. v. Alltrans Express U.S.A., Inc., 493 N.Y.S.2d 1, 3, 112 A.D.2d 850, 852 (N.Y.App.Div. 1985)). In reading the documents together, the Court finds that the plain language of the Loan Agreement demonstrates that this transaction constituted a sale or withdrawal under paragraph one of the Customer Agreement. To support this conclusion, the Court points first to the Security Agreement's definition of the collateral for the loan. The Security Agreement stated that the E*Trade Shares as collateral were "to be held in and credited to" Europacific's brokerage account with CSFB. (Compl. Ex. C at 1 (emphasis added).) Under paragraph nine of the Customer Agreement, CSFB is only allowed to "transfer the accounts of Tradescape to its successors and assigns." (Id. Ex. D ¶ 9.) The Court finds an inherent and logical difference between transferring an account in name and transferring the contents of an account to be held in and credited to a completely different account. This differentiation is further supported by the language of paragraph one of the Customer Agreement which prohibits CSFB from allowing the Shares to be withdrawn from Tradescape's custodial account absent Softbank's written confirmation. (Id. ¶ 1.) In order for another's account to hold and be credited with the Shares, it appears to the Court axiomatic that the Shares would necessarily have to be withdrawn from Tradescape's account. If there was no distinction between transferring the account in name and transferring the contents of the account into another's account, paragraph one's prohibition on withdrawing the Shares would be rendered substantially moot. As paragraph one outlines the main purpose of the Customer Agreement, the Court is unwilling to read the Customer Agreement as frustrating its own purpose.
However, if this arguably semantic argument is unsatisfying, there are other statements in the Security Agreement which evidence that the Loan Agreement sought to sell or withdraw the Shares. The Security Agreement required Tradescape to "otherwise do or cause to be done all other acts and things as may be necessary to make the sale of the Collateral valid, binding and in compliance with applicable law." (Id. Ex. C at 4 (emphasis added).) Also, the Security Agreement provided Europacific with remedies in the event that Tradescape defaulted on the loan. These remedies ignore Softbank's lien in its entirety, instead bestowing Europacific with full ownership rights to the Shares. Europacific could, inter alia, (1) remove the collateral from any premises where it may be situated; (2) render the collateral unusable; and, (3) dispose of the collateral at either a private or public sale. (Id. at 6.) Further, the remedies section was entitled "Remedies on Default (Including Power of Sale)," and, unlike the Customer Agreement, the Security Agreement did not have a clause stating that the titles of the contract paragraphs were for descriptive purposes only.
Finally, the Court finds plaintiff's argument that the Irrevocable Stock Power Agreement merely assigned to Europacific Tradescape's rights to the E*Trade Shares subject to Softbank's lien entirely unpersuasive. (See id. Ex. F.) The Stock Power Agreement plainly states that, "for value received, the undersigned [Tradescape] does hereby sell, assign and transfer to" Europacific's brokerage account with CSFB, "9,400,042 shares of the stock of E-Trade." (Id. (emphasis added).) Though plaintiff's opposition papers completely ignore the "sell" language in the Stock Power Agreement, the Court cannot. Nor is the Stock Power Agreement in conflict with the Security Agreement which controls (see id. Ex. C at 7); rather, this "sell" language comports with the Security Agreement's requirement that Tradescape perfect the sale of the collateral, that Europacific will have ownership rights in the event of default, and that the shares be held in and credited to Europacific's account (see id. at 1, 4, 6).
Thus, according to the terms of the Loan Agreement, CSFB was to withdraw the Shares from Tradescape's custodial account and deposit them into Europacific's brokerage account. The Loan Agreement required CSFB to do that which was expressly prohibited by the Customer Agreement. It is of no moment that the Shares were to be shuttled between these accounts within the same bank, as plaintiff contends. Paragraph one of the Customer agreement makes no such distinction; rather, it flatly prohibits CSFB from permitting the Shares withdrawal absent Softbank's confirmation that the terms of its lien had been or would be satisfied. The parties do not contest that Softbank never gave the required confirmation, a finding that is supported by plaintiff's pleading. Amanat's November 27, 2002 email to Europacific makes this conclusion plain, stating that "Softbank is refusing to move the shares." (Id. Ex. G.)
In conclusion, the Court finds, as a matter of law, CSFB was acting at all relevant times in accordance with the Customer Agreement and could not deposit the E*Trade Shares in plaintiff's account. Paragraph one of the Customer Agreement controlled the Loan Agreement, not paragraph nine. It is of no consequence whether CSFB properly released the Shares to another party after refusing to release the Shares to plaintiff because CSFB had no power to release the Shares to plaintiff at the time requested. Plaintiff pleads no other fact to support its claims against CSFB, specifically, that CSFB (1) breached the implied covenant of good faith and fair dealing inherent in its contract with co-defendant Tradescape; (2) breached Europacific's third party rights under the same contract; (3) tortiously interfered with Europacific's contract with defendant Tradescape; and, (4) breached its fiduciary duty to Europacific. Without the underlying wrongdoing, plaintiff has no claim against CSFB.
Therefore, this Court hereby GRANTS defendant CSFB's motion to dismiss all claims against it pursuant to Federal Rule of Civil Procedure 12(b)(6). Plaintiff Europacific's claims against CSFB, the second, third, fourth, and fifth counts in the Complaint, are hereby DISMISSED WITH PREJUDICE.
SO ORDERED.