Duration Mun. Fund, L.P. v J.P. Morgan Sec. Inc.

[*1] Duration Mun. Fund, L.P. v J.P. Morgan Sec. Inc. 2009 NY Slip Op 51962(U) [25 Misc 3d 1203(A)] Decided on September 16, 2009 Supreme Court, New York County Fried, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on September 16, 2009
Supreme Court, New York County

Duration Municipal Fund, L.P. and Duration Municipal Offshore Fund, Ltd., Plaintiffs,

against

J.P. Morgan Securities Inc., Defendant.



603486-2008



FOR PLAINTIFFS:

Friedman Kaplan Seiler &

Adelman LLP

1633 Broadway

New York, NY 10019

(Eric Seiler, Esq.

Anne E. Beaumont, Esq.

Scott Berman, Esq.

Philip A. Wellner, Esq. )

FOR DEFENDANT:

Levi Lubarsky & Feigenbaum LLP

1185 Avenue of the Americas, 17th Floor

New York, NY 10036

(Howard B. Levi, Esq.

Alan H. Scheiner, Esq.)

Bernard J. Fried, J.

Before me is a motion to dismiss the complaint pursuant to CPLR 3211(a)(1),(2) and (7) brought by Defendant J.P. Morgan Securities Inc. ("JPMSI"). Plaintiffs Duration Municipal Fund, L.P. ("Duration Municipal") and Duration Municipal Offshore Fund, Ltd. ("Duration Offshore"), (together, "Duration") brought this action on November 26, 2008, alleging a breach of the implied covenant of good faith and fair dealing by JPMSI due to improper margin calls [*2]under the Prime Broker Agreement ("Agreement" - cited to as "PBA").

Duration's complaint alleges that on February 27, 28 and 29 of 2008, JPMSI issued a series of unfair margin calls, resulting in the liquidation of Duration's portfolio. The complaint further alleges that these margin calls breached an implied duty of good faith and fair dealing under the PBA. Duration seeks damages for losses resulting from the bad faith margin calls.

JPMSI asks me to dismiss the complaint in its entirety for numerous reasons: (1) Plaintiff's claim arising from the securities lending margin calls should be dismissed because it is governed by the Global Master Securities Lending Agreement ("GMSLA"), to which JPMSI is not a party and which provides for exclusive jurisdiction in England; (2) Plaintiff's claim arising from margin calls under swap transactions should be dismissed because they are governed by the ISDA Master Agreement ("Swap Agreement") to which JPMSI is not a party, and under which JPMSI argues that Duration did not invoke the dispute resolution clause; (3) Plaintiff's claim arising from margin calls under futures contracts should be dismissed because JPMSI is not a party to the Client Agreement ("Futures Agreement"), which governs such transactions; (4) The portion of the claim regarding U.S. Treasury securities should be dismissed because Duration failed to allege any mispricing of these margin calls; (5) The breach of the implied covenant of good faith and fair dealing, i.e. the breach of contract claim, must fail because it does not specify breach of a particular contractual provision; and (6) Duration is barred from recovering consequential damages under the PBA.

Plaintiffs Duration Municipal and Duration Offshore are a pair of hedge funds under common management. Duration Municipal was launched in 2003 and Duration Offshore followed in 2005. The funds' primary function was to profit from inefficiencies in the municipal bond market. Duration Municipal first entered into a Prime Broker Agreement with J.P. Morgan Chase & Co. Incorporated on April 9, 2003. This was supplanted on April 25, 2005, by the current Prime Broker Agreement between Duration Municipal and JPMSI. A virtually identical agreement was entered into between Duration Offshore and JPMSI on May 27, 2005.[FN1]

According to the agreement, JPMSI agreed to "settle transactions executed through brokers selected by [Duration]" and to "open one or more accounts for [Duration] in connection with the provision of such services, which may include the making of a margin loan." (Heitsenrether Aff., Ex. A at JPM 001). JPMSI would thus settle Duration's fixed-income securities trades. As part of the prime brokerage package, the parties further agreed that JPMSI may "extend a credit facility provided that [Duration] will at all times maintain in, and upon written or oral demand furnish to, the Accounts assets of the types and in the amounts required by [JPMSI] in light of outstanding Liabilities with [JPMSI] including, without limitation, Margin." (emphasis in original) (Id. Ex. A at JPM 002-003.) This gave Duration access to different financing options, including tender option bond ("TOB") trusts, repurchase agreements ("repos") and securities lending arrangements with various J.P. Morgan entities ("J.P. Morgan Companies").

On any given day, Duration Funds could receive up to three sets of margin calls from JPMorgan entities. The calls would be for Duration's swap book, futures, "clearing risk" and repo exposures, and their securities lending book. The different entities would lend Duration an amount of cash equal to the current market value of the bonds minus a "haircut." When the prices fluctuated, [*3]either side could be required to deliver additional collateral to the other party. JPMSI and Duration allegedly used J.J. Kenny prices to value the municipal bonds on a daily basis.

In late February, 2008, there was a significant dip in the municipal bond market. On February 27, 2008, JPMSI issued margin calls to Duration totaling more than $80 million dollars on their swaps, U.S. Treasury repo, securities lending and futures accounts. The valuation of the bonds was significantly lower than J.J. Kenny prices. Duration believed the valuation was made in error and alerted JPMSI via telephone and email that it disputed the margin calls and the valuations. The complaint alleges that JPMSI was unresponsive to Duration's concerns and that one JPMSI representative allegedly threatened to liquidate Duration's book at the lower valuations if the margin calls were not met. Duration proceeded to liquidate some of their portfolio in order to meet the calls and also to reduce the amount of margin owed by shrinking their books with JPMSI. The bonds were sold in a depressed market, which simultaneously caused Duration to undo successful hedging transactions.

The following day, February 28, 2008, Duration once again received margin calls on the same books from JPMSI totaling around $36.5 million. The pricing was once again significantly lower than J.J. Kenny prices, with a total difference in valuation of almost $80 million dollars. JPMSI representatives were uncommunicative. The funds sold approximately $700 million in bonds that day in order to meet the margin calls. Additionally, Duration liquidated all of their Treasury securities because JPMSI said it would no longer guarantee their financing. Altogether, Duration's net assets had dropped by 30% in two days.

On February 29, 2008, JPMSI issued margin calls of almost $60 million on the remaining accounts. The valuation was once again below J.J. Kenny prices. Duration liquidated around $552 million in municipal bonds that day. Their free cash was drained and their net assets were less than half of what they had been at the beginning of the week. Duration had further arranged to shift financing to another broker-dealer, but decided they could not wait for settlement the following week and sold the bonds on February 29 in same-day settlements for less money.

Duration further alleges that JPMSI unreasonably refused consent on a restructuring deal Duration had arranged with a major restructuring firm because JPMSI would not accept any new counterparties. JPMSI allegedly also failed to deliver bonds in a timely manner, creating a further dip in the prices at which purchasers would buy Duration's securities. Ultimately, the funds lost more than $120 million due to the distressed sale of bonds.

Based on these allegations, Duration claims a breach of the implied covenant of good faith and fair dealing by JPMSI under the Prime Broker Agreement. Specifically, Duration claims that JPMSI acted in bad faith by 1) valuing Duration's securities improperly; 2) making and enforcing a series of damaging margin calls based on those improper valuations; 3) threatening to liquidate Duration's portfolios if Plaintiffs didn't comply; and 4) frustrating Duration's attempts to minimize their damages.

It is well-known, that "[o]n a pre-answer motion to dismiss brought pursuant to CPLR 3211(a)(7), the complaint must be liberally construed, the allegations therein taken as true, and all reasonable inferences must be resolved in plaintiff's favor." Gorelik v. Mount Sinai Hosp. Center, 19 AD3d 319, 319 (1st Dept. 2005). "Dismissal pursuant to CPLR 3211(a)(1) is warranted only if the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law." Ladenburg Thalmann & Co. v. Tim's Amusements, Inc., 275 AD2d 243, 246 (1st [*4]Dept. 2000). Defendant JPMSI seeks dismissal of the complaint in part for legal insufficiency and further by submitting documentary evidence that conclusively establishes a defense to Duration's claim. JPMSI has submitted the Affidavit of Teresa Heitsenrether, a Managing Director of JPMSI, as a means of introducing the contracts necessary to support dismissal under CPLR 3211(a)(1). As such, the Affidavit of Teresa Heitsenrether can properly be considered documentary evidence on this motion under CPLR 3211(a)(1). American Indus. Contracting Co. v. Travelers Indem. Co., 42 NY2d 1041, 1043 (submitting affidavits for purposes of introducing documentary evidence is proper on a motion to dismiss under CPLR 3211(a)(1)).

JPMSI argues, under CPLR 3211(a)(7), that Duration's claim for breach of the implied covenant fails because the Prime Broker Agreement does not govern the margin calls at the heart of the alleged breach of contract. Defendant argues the claim is insufficient because Duration fails to point to a contractual obligation on behalf of JPMSI to value margin under the securities, swaps and futures transactions. JPMSI bolsters their argument by submitting documentary evidence, under CPLR 3211(a)(1), which they argue conclusively defeats the breach of the implied covenant of good faith and fair dealing claim under the Prime Broker Agreement.

Drawing all inferences in favor of Duration and taking all allegations in the Complaint to be true, as discussed below, I conclude that the claimed breach of the implied covenant of good faith and fair dealing cannot stand. First, there is no contractual obligation under the PBA between Duration and JPMSI regarding the margin calls. Secondly, the Customer Documents, submitted by JPMSI, conclusively show that they, as opposed to the PBA, explicitly govern the means of valuing margin under the disputed transactions. Thus, there are established contractual obligations regarding the disputed margin calls, but under separate agreements to which Defendant JPMSI is not a party. The PBA on its own is insufficient to support a claim for breach of the implied covenant of good faith and fair dealing, since there are specific provisions elsewhere governing the transactions at the heart of this dispute. The following is a breakdown of the contracts in existence between Duration, JPMSI and other J.P. Morgan Companies.

The Prime Broker Agreement first established the contractual relationship between Duration and JPMSI in 2003. JPMSI agreed to "settle transactions executed through brokers selected by [Duration]" and to "open one or more accounts for [Duration] in connection with the provision of such services, which may include the making of a margin loan."(Heitsenrether Aff., Ex. A at JPM 001). JPMSI would thus settle Duration's fixed-income securities trades. As part of the Prime Brokerage Agreement, the parties further agreed that JPMSI may "extend a credit facility provided that [Duration] will at all times maintain in, and upon written or oral demand furnish to, the Accounts assets of the types and in the amounts required by [JPMSI] in light of outstanding Liabilities with [JPMSI] including, without limitation, Margin." (emphasis in original)(Id. Ex. A at JPM 002-003). This gave Duration access to different financing options, including tender option bond ("TOB") trusts, i.e. swaps, repurchase agreements ("repos") and securities lending arrangements with various J.P. Morgan entities ("J.P. Morgan Companies"). These financing options included the various transactions alleged in Duration's complaint.

Margin call valuation mechanisms on specific transactions are not established in the PBA. As regards margin, the Prime Broker Agreement only establishes general margin requirements as a percentage of the net asset value of the assets in the Duration funds, plus additional amounts as needed to cover the "clearing exposure" of JPMSI in the settlement of Duration's transactions with [*5]third parties. Duration's complaint, however, does not allege breach of this type of margin call. The only other financing referenced to in the PBA by JPMSI is an "overnight reverse repurchase agreement." (Id. Ex. A at JPM 003).

One of the primary roles of the PBA, as argued by Plaintiffs, was to arrange access to financing options. These financing options and their margin mechanisms, however, are not detailed in the PBA. Rather, the PBA defines an exhaustive list of additional transactional agreements, the "Customer Documents," which includes the PBA itself as well as any "transaction (including an agreement with respect to any such transaction)." (Id. Ex. A at JPM 016). Included by name in this list are all the transactions Duration claims were mishandled: securities lending transactions, swap transactions, futures transactions and repo transactions. The inclusion of this section clearly envisioned that a more complete set of contracts would be entered into in the future, as did occur.

Indeed, on March, 24, 2006, Duration entered into the Global Master Securities Lending Agreement, later amended on January 28, 2008. The GMSLA is a contract governing securities lending, except as "as notified by the Relevant Party to the other Party in writing prior to the execution." (Id. Ex. C at JPM 085). The agreement was signed by JPMorgan Chase Bank, N.A. and Duration. (Id. Ex. C at JPM 086). The GMSLA created a relationship between the signatories for the purpose of securities lending transactions.[FN2] This includes the securities lending books upon which margin calls were made on February 27-29, 2008. Unlike the Prime Broker Agreement, the GMSLA establishes written responsibility for margin calls relating to Duration's securities lending. With regard to the market valuation of securities for purposes of margin calls, the GMSLA states that "Market Value shall be determined in good faith by [JPMorgan Chase Bank, N.A.] based on generally acceptable market practices and pricing sources." ( Id. Ex. C at JPM 097).

Further, not only does the GMSLA cover the mechanisms for margin calls, it does so to the exclusion of all other agreements. Section 28.1 states that "[t]his Agreement constitutes the entire agreement and understanding of the Parties with respect to its subject matter and supersedes all oral communications and prior writings with respect thereto." ( Id. Ex. C at JPM 084). Finally, the GMSLA includes a forum selection clause, Section 24.2, stating that England has exclusive jurisdiction over any disputes arising out of or in connection with the agreement. (Id. Ex. C at JPM 084). The GMSLA makes no mention of JPMSI nor is JPMSI a signatory to the agreement.

Duration Municipal also entered into the Swap Agreement with JPMorgan Chase Bank on November 12, 2003. As with the GMSLA, there is no mention of JPMSI nor is Defendant a signatory. The most current version is dated, August 30, 2007. Duration Offshore first entered into an identical agreement on May 27, 2005. (Def. Mot. to Dismiss Opening Br. at 8). The Swap Agreements create the terms by which JPMorgan Chase Bank and Duration entered into swap transactions and, like the GMSLA, includes an "Entire Agreement" clause, which states that the agreement supersedes any prior writing or oral agreement on the subject matter. (Id. Ex. E. at JPM 161).

As to the margin call mechanisms, Paragraph 4(c) of the Swap Agreement's Credit Support [*6]Annex states that "all calculations of Value and Exposure will be made by the Valuation Agent as of the Valuation Time" (Id. Ex. E at JPM 180). Paragraph 5 then states that any disputes over the calculation of margin calls are subject to a dispute resolution mechanism between the parties. (Id. Ex. E at JPM 181). The clause describes the timing for triggering the dispute resolution clause as well as the means of valuing the swaps in dispute. ( Id. Ex. E at JPM 191).

Duration additionally entered into a Futures Agreement with J.P. Morgan Futures Inc. ("JPMFI") on March 28, 2003. The Futures Agreement authorized JPMFI to conduct futures transactions on behalf of Duration. Section 1 of the Futures Agreement states: "Client authorizes JPMFI to purchase and sell on behalf of Client, futures contracts, options on futures contracts, securities futures contracts or any other contracts or instruments in which JPMFI has notified Client that JPMFI is prepared to conduct business." (Id. Ex. G at Sec. 1, p. 2). These cover the futures transactions under dispute in Plaintiffs' complaint. Section 7 of the agreement defines the margin requirement, "all as required by JPMFI in its sole and absolute discretion." (emphasis added) (Id. Ex. G at Sec. 7, p. 5). This is bolstered by Section 15, which states that this agreement will supersede prior writings and govern the subject matter. (Id. Ex. G at Sec. 15, p. 7). The Futures Agreement contains its own Event of Default Clause, which authorizes JPMFI to liquidate the portfolio in the event of a default, including failure to meet a margin call. (Id. Ex. G at Sec. 9, p. 5)

Finally, Duration Municipal and JPMSI entered into a Master Repurchase Agreement ("Repo Agreement") on April 2, 2003. Duration Offshore entered into an identical agreement on April 25, 2005. This is the only other agreement, besides the PBA, to which JPMSI is a signatory, and the only type of transaction that JPMSI directly acknowledges in the Prime Broker Agreement. Once again, this agreement contains both a "Margin Maintenance Clause" and an "Entire Agreement Clause". (Id. Ex. H at Secs. 4, 14). However, since the complaint contains no allegations of improper valuations of these transactions, this agreement need not be considered.

Plaintiffs Duration claim that JPMSI breached their implied duty of good faith and fair dealing without specifying breach of any particular provision of the Prime Broker Agreement. Duration relies on JPMSI's contractual right to liquidate their portfolio in the event of default, including the nonpayment of margin. Duration argues that by making a series of improper margin calls and enforcing those calls under threats to liquidate Duration's portfolio, JPMSI deprived Duration of the benefits of the Prime Broker Agreement.

New York courts have repeatedly affirmed that a party may be in breach of an implied duty of good faith and fair dealing, even if it is not in breach of its express contractual obligations, when it exercises a contractual right as part of a scheme to realize gains that the contract implicitly denied or to deprive the other party of the fruit of its bargain. See Dalton v. Educ. Testing Serv., 87 NY2d 384, 389 (1995); Outback/Empire I, Ltd. P'ship v. Kamitis, Inc., 35 AD3d 563, 563 (2d Dept.2006); Richbell Info. Servs., Inc. v. Jupiter Partners, L.P., 309 AD2d 288, 302-03 (1st Dept.2003).

The First Department recently confirmed the principle that a claim for breach of the implied covenant of good faith and fair dealing can stand on its own Maddaloni Jewelers, Inc. V. Rolex Watch U.S.A. Inc. 41 AD3d 269 (2007). In Maddaloni, the defendant sought summary judgment to dismiss the plaintiff's third amended complaint, which alleged a cause of action for breach of an implied duty of good faith and fair dealing but did not assert a cause of action for breach of contract.The Court sustained a cause of action for breach of an implied duty of good faith and fair dealing, holding that, although the parties' contract permitted the defendant to accept plaintiff's [*7]orders and time its deliveries at its "discretion," the plaintiff's allegations had "raise[d] a triable issue of fact as to whether [the defendant]'s discretion under the [contract] was exercised in bad faith." Id. at 270. See also Gross v. Empire Healthchoice, 16 Misc 3d 1112(A), 4 (Sup. Ct. NY County, 2007) (breach of implied covenant of good faith and fair dealing can stand alone where defendant has exercised its rights under the contract to deprive the other party of the fruits of its bargain, even if there is no alleged breach of contract).

The present case also alleges a breach of the implied covenant of good faith and fair dealing without alleging a breach of contract. However, it is distinguishable from these prior cases. A claim of implied duty of good faith and fair dealing cannot create new duties under a contract or substitute for an insufficient contract claim. Triton Partners LLC v. Prudential Sec. Inc., 301 AD2d 411, 411 (1st Dept.2003) It merely brings to light implicit duties to act in good faith already contained, although not necessarily specified in the contract. Clearly, in order for the implied duty of good faith and fair dealing to stand as a cause of action, there must be an underlying contractual obligation between the parties.

Here, however, there is no underlying obligation, explicit or implicit, under the Prime Broker Agreement for JPMSI to act with regards to the disputed margin calls. Moreover, there exists an express obligation with regards to such margin calls under other Customer Documents to which JPMSI is not a party. The implied covenant of good faith and fair dealing cannot create obligations for JPMSI under the PBA, especially when those obligations are set forth elsewhere in agreements between Duration and other J.P. Morgan Companies.

In Richbell, the Court refused to dismiss a cause of action for breach of implied covenant of good faith and fair dealing based on the allegation that defendant exercised contractual veto power "for an illegitimate purpose and in bad faith" as part of scheme to deprive plaintiffs of benefits of their joint venture. Unlike Richbell, the current allegations are outside the scope envisioned by the Prime Broker Agreement. Whereas Richbell and Maddaloni concerned the actual exercise of a contractual right, here, the complaint does not allege that JPMSI actually engaged in the financing transactions, or in the exercise of other contractual rights, but instead arranged access to other J.P. Morgan Companies. The Prime Broker Agreement is silent as to the alleged margin calls, and cannot therefore implicitly make JPMSI responsible beyond its role in opening accounts between Duration and the other J.P. Morgan Companies with respect to the margin calls. While Plaintiffs need not allege breach of a particular provision of the Prime Broker Agreement, there necessarily must be a contractual obligation. Plaintiffs base their claim on bad valuation of margin calls, yet JPMSI had no obligations under the Prime Broker Agreement with regards to the types of margin calls Duration claims were mishandled. Nowhere in the text of the Prime Broker Agreement does JPMSI obligate itself to calculate the margin calls on securities lending, swap and futures transactions.

Plaintiffs argue that JPMSI's right to liquidate their portfolios in the event of default on any margin calls with any J.P. Morgan company is a sufficient basis for their claim. They point to Section 13(a) of the PBA, the Events of Default section, as the underlying obligation requiring JPMSI to act in good faith. However, JPMSI was not contractually obligated to act with regards to the valuation of the margin calls in question. The role of the Prime Broker, as Duration's complaint alleges, was to put in place the financing options with other J.P. Morgan Companies. Agreeing to arrange access to the financing options between Duration and fellow JP Morgan Companies is not [*8]the same as having a duty regarding the valuation of the margin calls on those options.

The documentary evidence submitted by JPMSI further demonstrates that the Prime Broker Agreement does not support this claim. The contractual obligations to value margin, missing under the Prime Broker Agreement, are found in the subsequent Customer Documents. "Under New York law, all writings which form part of a single transaction and are designed to effectuate the same purpose [must be read together, even though they were executed on different dates and were not all between the same parties.'" TVT Revords v. The Island Def Jam Music Group, 412 F.3d 82,89 (2d. Cir. 2005). Reading the PBA in conjunction with the Customer Documents, it is clear that the disputed margin calls and their valuations are governed by provisions in the Customer Documents, as have been described.

Duration further argues that the PBA governed conduct between the parties as opposed to the Customer Documents, which are merely "ancillary" and "technical" agreements. (Plf. Mem. at 1-2, 4.; Trans. 45-46). While the Prime Broker Agreement sets forth obligations between Duration and JPMSI, it does not govern the mispriced margin calls. The Prime Broker Agreement is silent with regards to the specifics of these transactions; however, the GMSLA, Swap Agreement and Futures Agreement each create an explicit relationship between Duration and the respective J.P Morgan entity. Furthermore, the Prime Broker Agreement specifically envisions future Customer Documents governing specific transactions. (Heitsenrether Aff., Ex. A at JPM 016). When the agreements are read together, it becomes clear that under the Prime Broker Agreement, JPMSI was not expected to value the margin calls in dispute. Rather, it was the J.P. Morgan Companies, who were parties, to the Customer Documents who were expected to play that role.

Securities lending transactions are another one of the financing options that Duration employed. The Prime Broker Agreement on its face provides no mechanism for these transactions to occur, and yet it does envision a Customer Document that would govern the substance of these transactions. The GMSLA, entered into between Duration and JPMorgan Chase Bank, N.A. is the resulting Customer Document. Unlike the Prime Broker Agreement, the GMSLA sets out the manner and means for securities lending transactions between the two parties. Specifically, Appendix 1 Section 1.4 of the GMSLA defines the securities lending margin calls under dispute.

JPMSI's role as Prime Broker in arranging Duration's access to this contract does not make JPMSI a party to the GMSLA, nor does it create a contractual obligation under the Prime Broker Agreement with regards to securities lending. JPMSI is never mentioned in the text of the agreement, nor is it a party to the agreement. Further, the GMSLA openly establishes its exclusivity over the subject matter of securities lending transactions through the "Entire Agreement" clause. (Id. Ex. C at JPM 084). Thus, any dispute arising out of securities lending transactions is between Duration and JPMorgan Chase Bank, N.A., and subject to the jurisdiction of the courts of England.

With regards to the swap transactions, Duration entered into the "Swap Agreement" with JPMorgan Chase Bank. Once again, JPMSI is not a party to this agreement, nor is it mentioned in the text. As with securities lending, the swap transactions are mentioned in the Prime Broker Agreement merely in the context of Customer Documents. Instead, these transactions are governed by a lengthy Swap Agreement, which includes detailed provisions regarding swap transaction margin calls and contains an Entire Agreement clause to the exclusion of any other agreements on the subject matter. As such, there is no duty by JPSMI under the Prime Broker Agreement to act with [*9]regards to swap transaction margin calls.[FN3]

Finally, Duration and JPMFI entered into a Futures Agreement whose subject matter includes margin calls made on futures transactions. Like the GMSLA and the Swap Agreement, the Futures Agreement contained both an Entire Agreement clause and a margin call mechanism specifically related to futures transactions. JPMFI is given "sole discretion" to decide how to value the margin under the Futures Agreement. JPMSI is not a party to the Futures Agreement, nor does the Prime Broker Agreement contemplate how to value margin calls on futures transactions.

In conclusion, the Prime Broker Agreement falls short in providing Duration a claim for breach of the implied covenant of good faith and fair dealing. Not only are there separate agreements which on their face govern the transactions in dispute, but the PBA itself contains no contractual obligation, implicitly or explicitly, on behalf of JPMSI to act at all with regards to margin calls on Duration's securities lending, swaps and futures transactions. Also, Duration's claims regarding U.S. Treasury bonds contain no allegations of any their mispricing. In light of this decision, there is no need for me to reach Defendant's additional argument as to damages.

Accordingly, it is

ORDERED that the motion to dismiss is granted.

Dated:

ENTER

_______________________________

J.S.C.

Footnotes

Footnote 1:

For purposes of this motion, the two Prime Broker Agreements shall be treated as one document.

Footnote 2:

Section 1.1 of the GMSLA describes a securities lending transaction: "From time to time the parties may enter into transactions in which [Duration] will transfer to [the Bank] securities and financial instruments ("Securities") against the transfer of Collateral with a simultaneous agreement by [the Bank] to transfer to [Duration] Securities equivalent to such Securities on a fixed date or on demand against the transfer to [the Bank] by [Duration] of assets equivalent to such Collateral." ( Id. at JPM 061)

Footnote 3:

Defendant points out that such a duty found under the Swap Agreement would be governed by the Swap Agreement's dispute resolution mechanism, however I need not reach whether the dispute resolution mechanism was triggered by Duration.