Williams v Citigroup, Inc.
Annotate this CaseDecided on June 19, 2012
Supreme Court, New York County
Linda Grant Williams, Plaintiff,
against
Citigroup, Inc., CITIGROUP GLOBAL MARKETS, INC., JP MORGAN CHASE, INC., GOLDMAN SACHS & CO., and DOES 1-20, Defendants.
650481/2010
For Plaintiff:
Browne George Ross LLP
2121 Avenue of the Stars
Los Angeles, CA
(Michael A. Bowse)
Berns Weiss LLP
20700 Ventura Boulevard
Woodland Hills, CA
(Lee A. Weiss)
For Defendants:
Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, New York
(Carmine D. Boccuzzi, Jr., Kerrin T. Klein)
Bernard J. Fried, J.
This motion to dismiss the first amended complaint (the complaint) arises in an action whereby plaintiff Linda Grant Williams (Williams) seeks treble damages and injunctive relief under the Donnelly Act (General Business Law § 340, et seq.), as well as damages for tortious
interference with both contract and prospective economic relations, against defendants Citigroup, [*2]Inc. (Citigroup), Citigroup Global Markets, Inc. (CGM), JP Morgan Securities, Inc., JP Morgan Chase & Co., Goldman Sachs & Co., and Does 1-20.
Williams is an attorney specializing in structured finance. She is a former partner of two major law firms, where she represented defendant CGM in connection with its underwriting of airline special facility (ASF) municipal bonds, which are issued to airlines by municipalities for the purpose of construction and renovation of airports. The other defendants, or their subsidiaries, also allegedly underwrite ASF bonds.
Williams developed and later patented a structure (the structure) for issuing ASF bonds that she marketed to CGM and other underwriters, while she was a partner at the law firm Pillsbury Winthrop Shaw Pittman LLP. Williams alleges that the structure, if utilized by defendants, would significantly lower the interest rates on ASF bonds, resulting in savings to airlines and consumers. The structure calls for the formation of a bankruptcy-remote entity that would issue the ASF bonds, with a credit enhancement, resulting in lower rates because the enhanced credit of the entity, rather than that of the bankruptcy-prone airlines would determine the interest rate.
The complaint alleges that plaintiff's proposal to use the structure for ASF bonds was initially received with interest by the people she worked with at CGM, as well as several other underwriters, but that Citibank and CGM conspired with the other named defendants, and others, to block the use of the structure, and to pressure two law firms not to continue her employment.
The complaint alleges that the reason Citigroup and CGM wanted to block the use of the
structure was that it would negatively impact other lines of business within Citigroup and CGM that involve trading and the issuance of derivatives linked to the ASF bonds, that benefit from the high rate of interest and volatility of ASF bonds.
The complaint alleges that defendants conspired to terminate or reassign every person in their organizations who had responded positively to the structure, and threatened at least one named smaller investment bank with economic reprisals if it utilized the structure. It further alleges that the named defendants successfully pressured Banc of America Securities, Inc. to terminate its license of the structure, and persuaded the Port Authority of New York and New Jersey to withdraw its approval "in concept" of the structure for use at La Guardia Airport. It also alleges that defendants erected barriers against the use of the structure by causing lengthy no-call periods to be inserted in ASF bonds they underwrote.
Defendants move to dismiss on the grounds of issue preclusion, both res judicata and collateral estoppel, that the complaint fails to state a cause of action, because the elements of a Donnelly Act cause of action are not sufficiently pleaded, and that plaintiff lacks antitrust standing and has not pleaded an antitrust injury. Defendants also move to dismiss plaintiff's tortious interference causes of action as insufficiently pleaded. The motion is granted and the complaint is dismissed pursuant to CPLR 3211 (a) (7), for failure to state a cause of action.
Williams initially brought this action in federal court, and included claims for relief under the Sherman Act, as well as the current claims, which were included in that action as pendant claims. The federal district court granted defendants' motion to dismiss for failure to state a claim upon which relief may be granted, on the ground that Williams had not sufficiently alleged the existence of an agreement, and held further that it therefore did not reach defendants' argument that Williams [*3]lacked antitrust standing (see Williams v Citigroup, Inc., 2009 WL 3682536, * 3 , 2009 US Dist Lexis 105864 * 10 (SD NY 2009]). Applying the plausibility standard required in federal court for motions addressed to the sufficiency of the pleadings, the district court held that Williams had not sufficiently pleaded facts to support her allegations of a conspiracy. First, the court held that Williams had named only Citigroup and CGM as conspirators, but had described a large number of unnamed conspirators, listed as "Doe" defendants in the caption. The court held that a corporation cannot conspire with its subsidiary as a matter of law for the purposes of the Sherman Act, and that Williams did not allege with sufficient particularity "in what manner Defendants acted in concert with any of these unnamed co-conspirators" (id.).
The district court also dismissed the pendant claims, and denied leave to replead, although plaintiff had not specifically requested leave to replead. The Second Circuit affirmed the dismissal of the Sherman Act claims, but vacated that part of the memorandum and order by which the district court retained jurisdiction over the pendant claims and had denied leave to replead. The Second Circuit opinion states, as pertinent:
If, on remand, the district court is again presented with the discretionary decision whether to decline supplemental jurisdiction over the state law claims, it must balance the traditional values of judicial economy, convenience, fairness, and comity in exercising its discretion. The district court's assessment of these factors should, in our view, involve consideration of the pleading standard that a New York court would apply in evaluating the sufficiency of Williams's complaint. It appears to us that this standard is more lenient than the "plausibility" standard applicable in federal courts ..., and at the very least that New York's state courts have not yet adopted the [plausibility] pleading standard with respect to claims under the Donnelly Act. To the extent that Williams would have a better chance of pleading viable state law claims under the standard that New York's courts have chosen, we question whether the values of fairness and comity would be served by preventing her from pursuing those claims in that forum [internal quotation marks, brackets and citations omitted]
(Williams v Citigroup Inc., 659 F 3d 208, 215, n4 [2d Cir 2011]).
Thereafter, Williams filed a voluntary notice of dismissal of the federal action.
Williams now asserts the formerly pendant claims in this action. The complaint contains three causes of action. The first cause of action seeks relief under the Donnelly Act. The second cause of action is for tortious interference with contract, based upon defendants' alleged insistence that two law firms that employed Williams not renew her employment contract if they wanted to continue receiving work from CGM. The third cause of action is for tortious interference with prospective economic relations, based upon Williams's claim that she lost substantial licensing revenues and legal fees as a result of defendants' concerted actions in blocking the use of the structure, and pressuring two law firms to terminate her services.
Defendants move to dismiss the complaint on the ground of res judicata and collateral estoppel, and for failure to state a cause of action. Defendants also argue that Williams lacks antitrust standing (see generally Continental Guest Servs. Corp. v International Bus Servs., Inc., 92 AD3d 570, 571-572 [1st Dept 2012]).
The threshold issue is whether the complaint sufficiently states a cause of action under the Donnelly Act, applying the liberal pleading standards of New York law. Defendants argue that the [*4]federal district court dismissal of the Sherman Act claims is preclusive of this action under the theories of both res judicata and collateral estoppel. Defendants rely upon Discon, Inc. v NYNEX Corp. (2000 WL 33312196, * 3, 2000 NY Misc Lexis 525 [Sup Ct, Erie County, 2000]), as support for its argument that the district court's dismissal is preclusive. That case, however, involved the granting by the federal court of summary judgment rather than a dismissal on the pleadings, and is therefore inapposite.
Because the Second Circuit vacated the district court's findings on the Donnelly Act claims, there is no issue preclusion. There is no identity of issue on whether the pleadings are sufficiently stated, because, as the Second Circuit noted, New York law applies a more lenient standard in motions addressed to the sufficiency of the pleadings. It is therefore necessary to determine the sufficiency of the complaint on a clean slate. To state a Donnelly Act cause of action
a party must allege a conspiracy or a reciprocal relationship between two or more legal or economic entities, identify the relevant market affected, describe the nature and effect of the alleged conspiracy and the manner in which the economic impact of that conspiracy restrains trade in the market
(Shaw v Club Mgrs. Assn. of America, Inc., 84 AD3d 928, 929 [2d Dept 2011]).
The complaint sufficiently alleges "a conspiracy or a reciprocal relationship" (id.) among defendants to block the use of the structure in ASF underwriting to satisfy the lenient standards of New York law, pursuant to which
the court must accept all of the allegations in the complaint as true, and, drawing all inferences from those allegations in the light most favorable to the plaintiff, determine whether a cognizable cause of action can be discerned therein, not whether one has been properly stated [citations omitted]
(MatlinPatterson ATA Holdings LLC v Federal Express Corp., 87 AD3d 836, 839, [1st Dept 2011]).
The complaint defines the relevant market as
the market for originating and refinancing ASF Bond issuances for the purpose of financing and refinancing the construction and renovation of air cargo and passenger terminals at major airports in the United States
(Complaint, ¶ 38). It alleges that Citigroup and CGM control 73% of the relevant market, and that the other named defendants regularly act as co-lead underwriters. The complaint alleges that in 2010, the relevant market comprised $1.1 billion in underwritten ASF bonds.
The complaint alleges the following adverse effects of the alleged restraint of trade in the relevant market: (1) increasing the cost of financing that the airlines have to pay, contributing significantly to the financial difficulties the airlines already face; (2) higher costs to airline customers in the form of higher fares; and (3) unnecessary costs incurred by municipalities, that would be obviated by use of the structure.
While Williams has sufficiently pleaded violations of the Donnelly Act by defendants, causing antitrust injuries at least to the municipalities and airlines that defendants serve as underwriters, she has no standing to assert the claims of the airlines and municipalities, and her damages are too remote "from the alleged injurious activity" to confer standing (Ho v Visa U.S.A., Inc., 16 AD3d 256, 257 [1st Dept 2005]). To have standing to plead a Donnelly Act claim, plaintiff must allege that she suffered an antitrust injury, which involves an injury to competition in the [*5]relevant market as a whole (see Global Reins. Corp. v U.S. Branch v Equitas Ltd., 18 NY3d 722 [2012]).
Plaintiff relies on the following statement of law that I made ina decision on a motion to dismiss the first complaint in Global Reinsurance, in support of her argument on the issue of standing: "[a]nd although plaintiff is not one of defendants' competitors, its particular injury can be viewed as a casualty of a market-wide injury caused by defendants' conduct ..." (Global Reinsurance Corporation-U.S. Branch v Equitas Ltd., 20 Misc 3d 1115 [A], 2008 NY Slip Op 51362b [U] [Sup Ct, NY County 2008]). There is nothing novel in this statement (see Blue Shield of Va. v McCready, 457 U.S. 465, 483-84 [1982]) (holding that non-competitor's injury was an antitrust injury as it was "inextricably intertwined with the injury the conspirators sought to inflict").
Plaintiff's reliance on this statement is unavailing because a plaintiff must still allege an antitrust injury in order to be entitled to damages, even if it is not a competitor. The plaintiff in Global Reinsurance was a customer that alleged that it
sustained antitrust injury because the quality of what it purchased, retrocessional coverage with the attendant claims-handling service, was adversely affected by an agreement eliminating competition over claims handling
(Global Reins. Corp.U.S. Branch v Equitas Ltd., 82 AD3d 26, 33 [1st Dept 2011]).
The Appellate Division reversed my dismissal of the complaint in Global
Reinsurance, holding that plaintiff "unquestionably alleges a worldwide market and we
agree with plaintiff that the allegations of market power are sufficient" (id. at 34), but the Court of Appeals reversed and dismissed the complaint, holding that, while the complaint adequately alleged the existence of a relevant market, it did not sufficiently allege that defendants exercised market power in the relevant market (Global Reins. Corp. v U.S. Branch v Equitas Ltd., 18 NY3d 722, 732 [2012]), noting further that the plaintiff had not demonstrated the requisite for antitrust injury in the relevant market, an "injury to competition" (id. at 735). The Court of Appeals also stated:
[p]laintiff was perhaps injured by an anticompetitive restraint in the Lloyd's market, but that is not a circumstance from which it is possible to conclude that there was some broader anticompetitive effect, or even a capacity to produce such an effect, in the relevant world market. It is market-wide effect that is crucial to an antitrust claim under the Sherman or Donnelly Act [citation omitted], not the existence of otherwise compensable individual injury
(id. at 733).
Thus, Williams must sufficiently allege an antitrust injury, and cannot rely solely on market-wide injury. The issues of antitrust injury and antitrust standing are paramount in this action. Williams lacks standing to assert the injuries allegedly suffered by the airlines and municipalities "that can be vindicated [either by such parties] and/or the Attorney General. This consideration diminishes the justification for allowing a more remote party such as [plaintiff] to perform the office of a private attorney general [internal citation and quotation marks omitted] (Continental Guest [*6]Servs. Corp. v International Bus Services, Inc., 92 AD3d at 572).
In order to establish standing and antitrust injury, plaintiff must demonstrate that her injury, loss of legal fees and potential licensing revenues, resulted from an injury to competition in the relevant market (Global Reinsurance, 18 NY3d at 734), and are "the type of loss that the claimed violations of the antitrust laws would be likely to cause" (Zenith Radio Corp. v Hazeltine Research, Inc., 395 US 100, 125 [1969]).
Plaintiff has failed to meet these two requirements. Her alleged loss of revenue is not caused by any injury to competition in the market for AFS bonds. She is not a competitor in that market. Rather she is a vendor of services and a potential licensor of intellectual property to competitors in that market. Her injuries are too remote (see Ho v Visa U.S.A., Inc., 16 AD3d 256, supra). Also, the loss of revenues by such a vendor are not the type of loss that "violations of the antitrust laws would be likely to cause."
Defendants correctly argue that plaintiff's tortious interference with contract cause of action is insufficiently pleaded because she has not alleged that either law firm was induced actually to breach any contract it had with her. "In order for the plaintiff to have a cause of action for tortious interference of contract, it is axiomatic that there must be a breach of that contract by the other party [citation omitted]" (Jack L. Inselman & Co. v FNB Fin. Co., 41 NY2d 1078, 1080 [1977]).
Plaintiff's contention that her terminations constituted a breach of the implied duty of good faith and fair dealing is unavailing. The amended complaint does not plead a breach of the implied duty of good faith and fair dealing, which is raised for the first time in plaintiff's reply submissions. Therefore, whether her former employers breached that implied covenant is not material. Plaintiff has not sufficiently alleged that either of her former employers breached any term of their respective contracts with her. The Greenberg firm was under no duty to renew her annual contract. Plaintiff has not sufficiently pleaded that the Pillsbury firm breached any provision of her partnership agreement. "Since no underlying breach has been asserted, [the tortious interference claim] cannot be maintained" (Luxus Aviation, LLC v Kerwin Media LLC, 91 AD3d 569, 572 [1st Dept 2012]).
To state a claim for tortious interference with business relations, a plaintiff must adequately allege that:
(a) the plaintiff had business relations with a third party; (b) the defendant interfered with those business relations; (c) the defendant acted with the sole purpose of harming the plaintiff or by using unlawful means; and (d) there was resulting injury to the business relationship [citation omitted]
(Thome v Alexander & Louisa Calder Foundation, 70 AD3d 88, 108 [1st Dept 2009]).
Plaintiff has sufficiently alleged all of the elements except for the third. Plaintiff has not sufficiently alleged that defendants "acted for a wrongful purpose or used dishonest, unfair, or improper means" (id.)," which requires a showing that the conducted amounted to a crime or an independent tort, or was intended solely to inflict intentional harm on the plaintiff (see id.).
"Threatening to take one's business elsewhere cannot itself constitute extreme economic pressure that would satisfy the wrongful means standard" (Valley Lane Industries Co. v Victoria's [*7]Secret Direct Brand Management, L.L.C., 455 Fed Appx 102, 107 [2d Cir 2012]).
Because "the facts alleged in the complaint establish that the defendants' actions were motivated, at least in part, by economic self interest, ... they cannot be characterized as solely malicious, [therefore] the plaintiffs had to allege facts demonstrating that the means employed by the defendants were wrongful [citation omitted]" (Out of Box Promotions, LLC v Koschitzki, 55 AD3d 575, 577 [2d Dept 2008]).
There is no allegation of the type of "wrongful means" that has been held sufficient, including " physical violence, fraud or misrepresentation, civil suits and criminal prosecutions'" (see Friedman v Coldwater Creek, Inc., 321 Fed.Appx. 58, 60 [2d Cir 2009], quoting Guard-Life Corp. v S. Parker Hardware Mfg. Corp., 50 NY2d 183 [1980]).
Plaintiff argues that what defendants did constitutes extreme economic pressure, which can constitute wrongful means, citing Friedman v Coldwater Creek, Inc. (551 F Supp 2d 164, 172 [SD NY 2008]), which states that the "New York Court of Appeals recognized that extreme and unfair economic pressure may constitute wrongful means without rising to the level of an independent tort," citing Carvel v Noonan (3 NY3d at 192-193). In Carvel, however, the majority decision specifically held that "[w]hile economic pressure brought to bear by one contracting party on the other may, on rare occasions, be tortious [citation omitted], it cannot constitute the tort of interference with economic relations" (3 NY3d at 192).
Accordingly, it is
ORDERED that the motion of defendants Citigroup, Inc., Citigroup Global Markets, Inc., JP Morgan Securities, Inc., JP Morgan Chase, Inc., and Goldman Sachs & Co. to dismiss the first amended complaint for failure to state a cause of action (CPLR 3211 [a] [7]), is granted; and it is further
ORDERED that the action is dismissed with costs and disbursements to defendants, as taxed by the Clerk; and it is further
ORDERED that the Clerk shall order judgment accordingly.
Dated:
E N T E R
_____________________________________________
J. S. C.
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