Opinion
23-CV-01501 (JGLC)(SN)
06-27-2024
DENIS KHOKHLOV, Plaintiff, v. EUROCLEAR SA/NV, Defendant.
HONORABLE JESSICA G.L. CLARKE, JUDGE
REPORT AND RECOMMENDATION
SARAH NETBURN, UNITED STATES MAGISTRATE JUDGE.
Denis Khokhlov (“Plaintiff”), proceeding pro se, has sued Euroclear SA/NV (“Defendant”) for: (1) negligence, (2) violation of the Alien Tort Statute, and (3) violation of the Due Process Clause of the Fourteenth Amendment. Defendant moves to dismiss Plaintiff's complaint pursuant to Rule 12(b). Plaintiff opposes Defendant's motion and asks for leave to add Euroclear Bank SA/NA, Defendant's subsidiary, to his complaint pursuant to Rule 15(a)(2). Plaintiff also asks for the Court to award him judgment pursuant to Rule 12(c). I recommend that the Court grant Defendant's motion to dismiss and deny Plaintiff's motions for leave to amend and for the Court to award judgment.
FACTUAL BACKGROUND
Plaintiff is a Russian citizen who invests in securities. ECF No. 1, Complaint (“Compl.”), ¶¶ 2, 21. Following Russia's invasion of Ukraine in February 2022, Defendant, a Belgian corporation, suspended transactions from Russia's National Settlement Depository (“NSD”). Id. at ¶ 20. Plaintiff alleges that Defendant's decision to suspend operations with NSD prevented him from accessing or transferring his securities for three months. Plaintiff claims this unlawfully deprived him of his property and caused him emotional distress during wartime. Id. at ¶¶ 23, 26, 27.
PROCEDURAL BACKGROUND
When Plaintiff filed his complaint, he asserted only one state law negligence claim brought under diversity jurisdiction. Id. at ¶¶ 1, 4. In his complaint, Plaintiff identified himself as “a domiciliary of Moscow, the Russian Federation” and identified Defendant as an “International Central Securities Depositary registered in Belgium.” Id. at ¶¶ 2, 3. The Court observed that because “Plaintiff does not allege that he is a citizen of New York and Euroclear is a business registered in Belgium, it appears that he fails to properly allege diversity jurisdiction.” ECF No. 6, at 4. The Court therefore ordered Plaintiff to show cause “why this action should not be dismissed for lack of subject matter jurisdiction.” Id. Plaintiff responded to that Order by adding claims under the Alien Tort Statute and the Due Process Clause of the Fourteenth Amendment, thereby asserting federal question jurisdiction. Additionally, Plaintiff re-asserted diversity jurisdiction. ECF Nos. 7, 8. In response, the Court ordered Plaintiff to serve Defendant. ECF No. 9. Plaintiff served Defendant by mailing the summons and complaint to the Superintendent of New York's Department of Financial Services. ECF No. 12. Defendant, however, is not registered with the Department of Financial Services. ECF No. 17, Declaration of Anouk Gauthier (“Gauthier Decl.”), ¶ 7.
The Court may consider subsequent filings to supplement a pro se plaintiff's complaint, where appropriate. See, e.g., Kashelkar v. United States Gov't, No. 24-cv-2722 (LTS), 2024 WL 2802716, n.1 (S.D.N.Y. May 31, 2024). Accordingly, the Court interprets Plaintiff's submissions at ECF Nos. 7 and 8 as supplements to his complaint. Defendant appears to interpret the same in its motion to dismiss briefs.
Instead of answering Plaintiff's complaint, Defendant moved to dismiss the complaint. ECF No. 16. Plaintiff did not timely oppose the motion, and the Court ordered Plaintiff to show cause why Defendant's motion should not be deemed unopposed. ECF No. 20. Plaintiff then filed an opposition to Defendant's motion and simultaneously asked the Court to award him judgment pursuant to Rule 12(c). ECF Nos. 21, 22. Defendant replied, and Plaintiff filed a sur-reply without leave of the Court. The day after filing a sur-reply, Plaintiff requested leave to add Euroclear Bank, Defendant's subsidiary, as a defendant, pursuant to Rule 15(a)(2). ECF No. 24.
DISCUSSION
I. Subject-Matter Jurisdiction
Plaintiff asserts subject-matter jurisdiction based on: (1) diversity jurisdiction; (2) federal question jurisdiction; and (3) the Alien Tort Statute's jurisdictional provision. Defendant argues that Plaintiff has failed to establish subject-matter jurisdiction under any theory. The Court “must verify the existence of subject-matter jurisdiction before proceeding to the merits.” Embiata v. Farmers Ins. Corp., 848 Fed.Appx. 27, 29 (2d Cir. 2021) (internal quotations omitted).
A. Diversity Jurisdiction
Diversity jurisdiction exists “where the matter in controversy exceeds the sum or value of $75,000,” and where the parties are either “citizens of different States” or “citizens of a State and citizens or subjects of a foreign state.” 28 U.S.C. § 1332(a). A corporation “shall be deemed to be a citizen of every State and foreign state by which it has been incorporated and of the State or foreign state where it has its principal place of business.” Id. at § 1332(c)(1). “[D]iversity is lacking within the meaning of these sections where the only parties are foreign entities.” Universal Licensing Corp. v. Paola del Lungo S.p.A., 293 F.3d 579, 581 (2d Cir. 2002).
Both parties are foreign. In Plaintiff's complaint, he describes himself as a “domiciliary of Moscow, the Russian Federation.” Compl., ¶ 2. In his opposition to Defendant's motion, Plaintiff adds that he “does not reside and does not claim residency in the United States.” ECF No. 21, Plaintiff's Opposition (“Pl. Opp.”) at 2. Defendant is incorporated and headquartered in Brussels, Belgium. Gauthier Decl., ¶ 4. Plaintiff does not dispute this; he characterizes himself as a foreign citizen and Defendant as a foreign corporation. ECF No. 7, Response to Order to Show Cause, ¶ 3. Because both parties are foreign, Plaintiff fails to establish diversity of citizenship.
Plaintiff points out that Euroclear Bank, Defendant's subsidiary, maintains an office in New York. This, however, does not affect Defendant's citizenship because only the sites of Defendant's incorporation and principal place of business are relevant. 28 U.S.C. § 1332(c)(1). Defendant is incorporated and headquartered in Belgium, and Plaintiff does not contend otherwise. The fact that Defendant's Belgium-based subsidiary maintains a New York office does not make Defendant - or Defendant's subsidiary - a New York citizen. See, e.g., Bayerische Landesbank v. Aladdin Capital Mgmt. LLC, 692 F.3d 42, 48-49 (2d Cir. 2012) (finding both a German bank and its New York branch foreign citizens for diversity purposes). Accordingly, I recommend that the Court find that Plaintiff has failed to establish diversity jurisdiction.
B. Federal Question Jurisdiction
Federal courts have subject-matter jurisdiction over “all civil actions arising under the Constitution, laws, or treaties of the United States.” 28 U.S.C.S. § 1331. To establish federal question jurisdiction, Plaintiff asserts that Defendant violated the Due Process Clause of the Fourteenth Amendment. As a claim arising under the Constitution, the Court has subject-matter jurisdiction over this claim.
In Plaintiff's opposition to Defendant's motion to dismiss, he seems to also suggests a claim under the Securities Exchange Act of 1934 in alternative attempt to establish federal question jurisdiction. But “it is axiomatic that the Complaint cannot be amended by the briefs in opposition to a motion to dismiss.” O'Brien v. Nat'l Prop. Analysts Partners, 719 F.Supp. 222, 229 (S.D.N.Y. 1989). Because Plaintiff made no mention of such a claim in his complaint or the supplements to his complaint, the Court should not consider it. Even if the Court does consider a Securities Exchange Act claim, Plaintiff has failed to sufficiently plead it. The elements include that the defendant: “(1) made a material misrepresentation or a material omission as to which he had a duty to speak, or used a fraudulent device; (2) with scienter; (3) in connection with the purchase or sale of securities.” Sec. Exch. Comm'n v. Monarch Funding Corp., 192 F.3d 295, 308 (2d Cir. 1999). Plaintiff does not allege that Defendant made any fraudulent representation or omission or that Defendant engaged in any deceptive practice. Rather, Plaintiff challenges a decision that Defendant openly made after he had purchased his securities.
C. Alien Tort Statute Jurisdiction
Plaintiff also asserts that Defendant violated the Alien Tort Statute (“ATS”), which provides that “district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.” 28 U.S.C. § 1350. Accordingly, the Court has subject-matter jurisdiction over Plaintiff's ATS claim.
II. Failure to State a Claim
A. Legal Standard
A complaint must be dismissed if it fails “to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). To state a legally sufficient claim, a complaint must plead “enough facts to state a claim for relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). In evaluating a complaint under this standard, a court must accept as true the well-pleaded factual allegations set forth in the complaint and draw all reasonable inferences in favor of the plaintiff. Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir. 1996). While the plausibility standard “does not require detailed factual allegations,” it “demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); see also Cantor Fitzgerald Inc. v. Lutnick, 313 F.3d 704, 709 (2d Cir. 2002) (stating that a court need not give “credence to [a] plaintiff's conclusory allegations”).
Where a plaintiff proceeds pro se, his complaint “must be held to less stringent standards than formal pleadings drafted by lawyers.” Erickson v. Pardus, 551 U.S. 89, 94 (2007) (quotation marks omitted) (quoting Estelle v. Gamble, 429 U.S. 97, 106 (1976)). When addressing a motion to dismiss, “courts must construe [a pro se complaint] broadly, and interpret [it] to raise the strongest arguments that [it] suggest[s].” Weixel v. Bd. of Educ. of City of New York, 287 F.3d 138, 145-46 (2d Cir. 2002).
B. Due Process Clause of the Fourteenth Amendment
Although the Court has subject-matter jurisdiction over Plaintiff's claim brought under the Due Process Clause of the Fourteenth Amendment, that claim nonetheless suffers from a fundamental defect: Plaintiff fails to allege any state action. The Due Process Clause provides: “nor shall any State deprive any person of life liberty, or property, without due process of law.” U.S. Const. amend. XIV, § 1 (emphasis added). The Clause only applies to state action:
Since the decision of this Court in the Civil Rights Cases, 109 U.S. 3 (1883), the principle has become firmly embedded in our constitutional law that the action inhibited by the first section of the Fourteenth Amendment is only such action as may fairly be said to be that of the States. That Amendment erects no shield against merely private conduct, however discriminatory or wrongful.Shelley v. Kraemer, 334 U.S. 1, 13 (1948); see also Cooper v. United States Postal Serv., 577 F.3d 479, 491 (2d Cir. 2009) (explaining that the Due Process Clause of the Fourteenth Amendment “applies only to state action”) (citing Jackson v. Metro. Edison Co., 419 U.S. 345, 349 (1974)).
Plaintiff asserts that Defendant's decision to suspend transactions with NSD deprived him of property without due process of law. But Defendant is a private entity. Based on both Plaintiff's allegations and Defendant's representations, there was no state action involved in Defendant's decision to suspend transactions with NSD. The Due Process Clause therefore does not apply to Defendant, and I recommend that the Court dismiss Plaintiff's Due Process claim.
C. Alien Tort Statute
Although the Court has subject-matter jurisdiction over Plaintiff's ATS claim, the claim suffers from a defect similar to Plaintiff's Due Process claim: as a foreign corporation, Defendant is immune from ATS liability. The Supreme Court has explicitly held that “absent further action from Congress, it would be inappropriate for courts to extend ATS liability to foreign corporations.” Jesner v. Arab Bank, PLC, 584 U.S. 241, 265 (2018); see also Kaplan v. Lebanese Canadian Bank, SAL, 999 F.3d 842, 847 (2d Cir. 2021) (explaining that in Jesner, “the Supreme Court ruled that the ATS does not authorize a tort action against a foreign corporation”). Further, under Second Circuit precedent, ATS liability does not extend to any corporation. Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111, 145 (2d Cir. 2010) (“Because corporate liability is not recognized as a specific, universal, and obligatory norm . . . it is not a rule of customary international law that we may apply under the ATS.”) (internal citations omitted). Accordingly, Defendant - a foreign corporation - cannot be sued under the ATS.
Plaintiff argues that the Court should not follow the Supreme Court's Jesner holding because Justice Sotomayor's dissent was “stronger, more rational, logical and argumentative than the majority opinion.” ECF No. 26, Plaintiff's Sur-reply (“Pl. Sur.”), at 2. But federal courts are “bound to follow an applicable holding of a majority of the Supreme Court.” Myrick v. Freuhauf Corp., 13 F.3d 1516, 1523 (11th Cir. 1994); see also Rivers v. Roadway Express, 511 U.S. 298, 312 (1994) (“It is this Court's responsibility to say what a statute means, and once the Court has spoken, it is the duty of other courts to respect that understanding of the governing rule of law.”). Plaintiff also posits that the “majority opinion consisted of 3 (three) justices, the other 2 (two) justices concurred but for different reasons and the remaining 4 (four) justices dissented.” Pl. Sur. at 1. This is incorrect. Five justices joined Parts I, II-B-1, and II-C of Justice
Kennedy's opinion in Jesner, making those sections binding law. The Supreme Court stated in Part II-B-1 that ATS liability does not extend to foreign corporations; this Court must follow that majority holding. I therefore recommend that the Court dismiss Plaintiff's ATS claim.
More generally, Plaintiff also argues that the Second Circuit Court of Appeals has already rejected all the arguments Defendant now makes in NML Capital, Ltd. v. Republic of Argentina, 699 F.3d 246 (2d Cir. 2012). That opinion addressed jurisdiction under the Foreign Sovereign Immunities Act, which is not at issue here. It did not address diversity or federal question jurisdiction, Due Process claims, or ATS claims. Additionally, neither that opinion nor the opinion it affirmed includes the quotes cited by Plaintiff. Accordingly, the Court finds NML Capital irrelevant.
III. Supplemental Jurisdiction
Because I recommend dismissing the claims through which Plaintiff could establish subject-matter jurisdiction, it is necessary to address whether the Court should exercise supplemental jurisdiction over Plaintiff's state law negligence claim. A district court may decline to exercise supplemental jurisdiction where “the district court has dismissed all claims over which it has original jurisdiction.” 28 U.S.C. § 1367(c)(3). “The question of whether to exercise supplemental jurisdiction following the pretrial disposal of the jurisdiction-conferring claim is addressed to the sound discretion of the district court. The exercise of such discretion requires consideration of ‘judicial economy, convenience, and fairness to litigants.'” Nat'l W estminster Bank, PLC v. Grant Prideco, Inc., 343 F.Supp.2d 256, 258 (quoting Ametex Fabrics, Inc. v. Just In Materials, Inc., 140 F.3d 101, 105) (2d Cir. 1998)).
I recommend that the Court decline to exercise supplemental jurisdiction over Plaintiff's negligence claim. Judicial economy and convenience both weigh towards declining to exercise supplemental jurisdiction. This case is at an early stage, and the parties have not yet exchanged any discovery. Additionally, the procedural history indicates that Plaintiff likely filed his Due Process and ATS claims in bad faith to circumvent the requirements of diversity jurisdiction. After the Court indicated that Plaintiff had likely failed to adequately plead diversity of citizenship, he added patently improper federal claims in an attempt to save his state law negligence claim. Exercising supplemental jurisdiction over Plaintiff's negligence claim would encourage litigants to tack on frivolous federal claims to evade the requirements of diversity jurisdiction. Accordingly, I recommend that the Court decline to exercise supplemental jurisdiction over Plaintiff's negligence claim and dismiss that claim for lack of subject-matter jurisdiction.
IV. Defendant's Remaining Arguments
Defendant makes several other arguments about the deficiencies in Plaintiff's complaint, including that: the Court lacks personal jurisdiction over Defendant; Plaintiff failed to properly serve Defendant; and Plaintiff otherwise fails to plead facts sufficient to allege any of his three claims. Because the Court should dismiss Plaintiff's claims for other reasons, I recommend that the Court decline to address Defendant's remaining arguments. If, however, the Court disagrees, I request that the Court recommit the matter to me to consider Defendant's personal jurisdiction, service, and other merits arguments.
LEAVE TO AMEND
Plaintiff requests leave to amend his complaint to add Euroclear Bank, Defendant's subsidiary, as a defendant. Rule 15(a)(2) requires that leave to amend be freely given when justice so requires. “However, in determining whether leave to amend should be granted, the district court has discretion to consider, inter alia, the apparent futility of amendment.” Grace v. Rosenstock, 228 F.3d 40, 53 (2d Cir. 2000) (internal citations and quotation marks omitted); Cancel v. New York City Hum. Res. Admin./Dep't of Soc. Servs., 527 Fed.Appx. 42, 44 (2d Cir. 2013) (“While district courts should generally not dismiss pro se claims without affording leave to amend, it need not do so when amendment would be futile.”).
Even construing Plaintiff's complaint liberally in light of his pro se status, Plaintiff's proposed amendment, and any other amendment, would be futile. Adding Euroclear Bank as a defendant would cure none of the complaint's fatal defects. Like Defendant, Euroclear Bank is incorporated and headquartered in Belgium, so Plaintiff still could not establish diversity jurisdiction. Gauthier Decl., ¶ 8. As a foreign corporation, Euroclear Bank is immune from ATS liability. As a private entity with no nexus to U.S. state action, Defendant cannot be held liable under the Due Process Clause. Additionally, no other amendment could cure the issues with Plaintiff's complaint because Plaintiff cannot change Defendant's citizenship, and as a foreign and private corporation, Defendant cannot be sued under the ATS or the Due Process Clause. I therefore recommend that the Court deny Plaintiff leave to amend.
CONCLUSION
I recommend that the Court dismiss Plaintiff's complaint in its entirety and deny Plaintiff's request for leave to amend. Because I recommend dismissing Plaintiff's complaint, I recommend denying Plaintiff's request for the Court to award him judgment.
NOTICE OF PROCEDURE FOR FILING OBJECTIONS TO THIS REPORT AND RECOMMENDATION
The parties shall have 14 days from the service of this Report and Recommendation to file written objections under 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure. See Fed.R.Civ.P. 6(a), 6(d). A party may respond to another party's objections within 14 days after being served with a copy. Fed.R.Civ.P. 72(b)(2); see Fed.R.Civ.P. 6(a), 6(d). These objections shall be filed with the Court and served on any opposing parties. See Fed.R.Civ.P. 72(b)(2). Courtesy copies shall be delivered to the Honorable Jessica G.L. Clarke if required by her Individual Rules and Practices. Any requests for an extension of time for filing objections must be addressed to Judge Clarke. See Fed.R.Civ.P. 6(b). The failure to file timely objections will waive those objections for purposes of appeal. See Thomas v. Arn, 474 U.S. 140 (1985); United States v. James, 712 F.3d 79, 105 (2d Cir. 2013).