All Children's Hosp., Inc. v Citigroup Global Mkts., Inc.

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All Children's Hosp., Inc. v Citigroup Global Mkts., Inc. 2016 NY Slip Op 31626(U) August 24, 2016 Supreme Court, New York County Docket Number: 162155/2014 Judge: Jeffrey K. Oing Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various state and local government websites. These include the New York State Unified Court System's E-Courts Service, and the Bronx County Clerk's office. This opinion is uncorrected and not selected for official publication. [* 1] SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: COMMERCIAL PART 48 ---------------------~-------------~----x ALL CHILDREN'S HOSPITAL, INC., Plaintiff, Index No.: 162155/2014 -againstMot. Seq. Nos. 001 & 002 CITIGROUP GLOBAL MARKETS, INC., DECISION AND ORDER Defendant. ----------------------------------------x JEFFREY K. OING, J.: Relief Sought Mtn Seq. No. 001 Defendant, Citigroup Global Markets, Inc. ("Citigroup"), moves, pursuant to CPLR 3211 (a) [5] and [7] and CPLR ·3016(b), for an order dismissing the complaint on the ground that it is barred by the applicable statute of limitations, or that it fails to state a cause of action. Mtn Seq. No. 002 Plaintiff, All Children's Hospital, Inc. ("ACH"), moves for an order striking certain exhibits submitted in support of Citigroup's motion to dismiss. In the alternative, ACH seeks to convert Citigroup's motion to one for summary judgment and to permit the parties to engage in discovery. These two motions are consolidated for disposition. On October 9, 2015, this Court held oral argument on the instant motions (NYSCEF Doc. No. 72 ["Tr."]). 2 of 15 [* 2] Page 2 of Index No. 162155/2014 Mot. Seq. Nos. 001 & 002 14 Factual and Procedural Background ACH is a non-profit corporation that owns and operates the All Children's Hospital facility located in St. Petersberg, Florida. On September 18, 2007, ACH issued two series of bonds, totaling $92,200,000, as a means to provide additional funds to complete improvements for medical services. ACH contends that at Citigroup's recommendation the bonds it issued were in the form of auction-rate securities ("ARS") . 1 ACH claims. that Citigroup served as its advisor, underwriter, broker-dealer, and investment banker in connection with the September 2007 ARS bond issuance. The crux of ACH's complaint is that Citigroup failed to disclose that it was artificially propping up the ARS market through its support bids and that its artificial support bids were necessary to create the needed correlation between the rate ./ on ARS and the rate of a corresponding interest rate swap based on the London Interbank Offered Rate ("LIBOR"). Citigroup stopped arti~icially In early 2008, supporting the ARS market. As a result, the interest rates of ACH's ARS suffered and ACH ultimately refinanced the A-series ARS. ACH commenced this action asserting four causes of action: ) ... breach of fiduciary duty, fraud, breach of contract and breach of 1 The mechanics of the ARS investment vehicle is set forth in the October 9, 2015 transcript (Tr. at pp. 3-9). 3 of 15 [* 3] Page 3 of Index No. 162155/2014 Mot. Seq. Nos .. 001 & 002 14 : ( duty of good faith and fair dealing, and negligent and fraudulent misrepresentation. Citigroup moves to dismiss the complaint arguing, inter alia, that ACH's claims are barred by the applicable statute of limitations. Citigroup contends that under CPLR 202, NE?w_York's borrowing statute, ACH's claims Flo~ida's shorter limitations periods apply to (Tr. at pp. 10-11)_. Discussion Mtn Seq. No. 001 Under Florida claims for fraud and negligent la~, misrepresentation are all governed by a limitations period of four years from the time the facts giving rise to the cause of· action were discovered or should have been discovered with the exercise of due_ diligence (Fla. Stat. §§ 95. 11 ( 3) [ j] ; 95.031(2) [a]). The statute of limitations for breach of ' ' fiduciary duty is also fours years and commen,ces to run when the injury is sustained (Fla. s·tat. §§95.11(3)[p]; 95.031[1]). statute of limitations for ~re~ch The of contract and breach of the duty of good faith and fair dealing i~ five years and runs from the date of the alleged breach (Fla. Stat. § 95.11 (2) [b]). Florida's statute of limitations periods, therefore, are shorter than the applicable New York limitatiohs ·~- • w p~riocts· for ACH's claims • 4 of 15 (CPLR 213 (2) [breach of contract -- six year limitations period]; [* 4] Page 4 of Index No. 162155/2014 Mot. Seq. Nos. 001 & 002 213 (8) [fraud 14 six year limitations period]; IDT Corp. v Morgan Stanley Dean Witter & Co., 12 NY3d 132 [2009] [breach of fiduciary duty -- three or six year limitations period]; 14 Brucknei LLC v 14 Bruckner Blvd. Realty Corp., 78 AD3d 431 [1st Dept 2010] [negligent misrepresentation -- six year limitations period]) . CPLR 202 provides as follows: An action based upon a cause of action accruing without the state cannot be commenced after the expiration of the time limited by the laws of either the state or the place without the state where the cause of action accrued, except that where the cause of action accrued in favor of a resident of the state the time limited by the laws of the state shall apply. Here, ACH is a Florida non-profit corporation located in Florida, and it sustained alleged. economic' damages in Florida. Therefore, its claims accrued in Florida, and CPLR 202 requires. application of Florida's shorter limitations period to ACH's claims (Global Financial Corp. V Triarc Corporation, 93 NY2d 525 [1999] ["When an alleged injury is purely economic, the place of injury usually is where the plaintiff resides and sustains the economic impact of the loss"]). ACH, however, raised for the first time the argument that under the circumstances of this case there ~s no need to apply CPLR 202 and Florida 1 s shorter limitations period because the public policy for which New York's borrowing statute was creaied, 5 of 15 [* 5] ~ I Index No. 162155/2014 Mot. Seq. Nos. 001 & 002 I ' Page 5 of 14 I ' I i.e., _to prevent forum I shopping, ! is not implicated. Given that ACH raised this argument for the first time at the oral argument, this Court dir~cted counsel tJ.submit. supplemental briefs on the issue. I In its supplemental submission, ACH claims that because I section 5.lO(b) of the parties' broker-dealer agreement contains I a choice of forum provision directing that all litigation must be ~ . brought in New York ACH had n6 choice but to commence this action ' in New York. l As such, CPLR 202's public policy of preventing forum shopping is not an issu~ in this case. Section 5.lO(b) of the p~rties' broker-dealer agreement for choice of forum provides: The parties agree that all actions and proceedings arising out of this Brok~r-Dealer Agreement or any of the transactions contemplated hereby shall be brought in a New.York State Court or United States District Court, in e~ch case the County of New York and, in connection with any suchjaction or proceeding, submit to the j_urisdiction of, and venue in,. such County. l I (Ehrlich Affirm., 1/30/15, Ex: E). ACH's argument that the borrojing statute should not apply here I because ACH is clearly not forum shopping and thus New York's I I longer limitations period . app~ies is unavailing. The issue has I been decided (Insurance Compariy of North.America v ABB Power r Generation, Inc.) 91 NY2d 180 f [1997]). There, the Court of Appeals held: 6 of 15 \ [* 6] Page 6 of Index No. 162155/2014 Mot. Seq. Nos. 001 & 002 14 f CPLR 202 requires ·that a )court, when presented with a cause of action accruing :outside New York, should apply the limitation period of ;the foreign jurisdiction if it bars the claim. Only wh~re the cause of action accrues in favor of a New York resident is this rule rendered inapplicable. It matters not that jurisdiction is unobtainable over a defendant in the foreign jurisdiction or that the.parties have contracted to be venued in this State. (Id. at 187-188 [emphasis added]). li Accordingly, contrary to ACH's argument, regardless of the fact ! that New York is the contractually selected forum, under the I ' ! factual circumstances herein tPLR 202 applies, and, therefore, Florida's shorter limitations.period applies as well. . 1 Further, ACH's argument that ABB Power is distinguishable because it involved ~two ' ! conflicting provisions reg~rding two separate states' laws" (Supplemental Memorandum oE Law, 11/20/15 I [NYSCEF Doc. No. 66], at p. 10) is misplaced. I As in this case, ABB Power resolved the issue 6f "whether New York's borrowing statute applies to a cause .i in which all of the of~action l operative facts occur outsidef New York State but, pursuant to I agreement by the parties, must be [litigated] in New York" > (Insurance Company of North ~erica v ABB Power Generation, Inc., ! 91 NY2d at 183, supra). ! I t ACH also argues in its stpplemental submission that in addition to preventing forum ihopping the purpose of New York;s . I . I . borrowing statute is to goverr the conflicts of law rules for 7 of 15 [* 7] Page 7 of Index No. 162155/2014 Mot. Seq. Nos. 001 & 002 . statute of limitations purposes. 14 In making this argument, ACH J points to section 5.lO(a), which provides: ~ This Broker~oealer Agreement ,shall be governed by and construed in accordance Jith the laws of the State of New York applicable to adreements made and to be performed in said State, without giving effect to principles of choice of law or conflicts of law thereof. 1 Specifically, because the parties agreed in section 5.lO(a) to be i governed by New York law "without giving effect to principles of choice of law or conflicts of ,law", ACH argues that this language ' . demonstrates that the parties agreed to 1 including New York's limitations. ! procedur~l appl~ New York law only, law governing statute of As such, ACH contends that the borrowing statute does not apply here. ACH's a!gument unpersuasive. The principle is well .I . established t . that choice of law provisions concern substantiv~ law, while issues concerning I statutes of limitations are procedural (Portfolio Recovery t' I Associates, LLC v King, 14 NY3d 410 [2010]; see also Global I Financial Corp. v Triarc Corp6iation, 93 NY2d 525 [1999] I ["[T]here is a significant difference between a choice-of-law ! " question, which is a matter of common law, and [a] Statute of Limitations issue, whi~h is gbverned by particular terms of the ! CPLR"]). As such, ACH's argument that the parties choice of law provision contained in the brlker-dealer agreement applies to issues invol~ing 8 of 15 the approprilte statutes of limitations is [* 8] Page 8 of Index No. 162155/2014 Mot. Seq. Nos. 001 & 002 unavailing. 14 ~ Section 5.lO(a)'s choice of law provision concerns ! New York substantive law, and:does not specifically provide for r I the application of New York procedural law governing statute of limitations. l The question that remains is whether ACH's claims ' - ! are timely after applying New•York's borrowing statute. • • 1· Here, ACH filed a statement of claim with the I Industry Regula~ory September 30, 2013. Fin~ncial Authorityl("FINRA"I against Citigroup on Citigroup, however, obtained an order from the federal court in the SoutJern District of New York enjoining • r ACH's FINRA proceeding. Florida has I ~ statutory provision tolling the limitations period until any issue regarding the ! arbitrability of a dispute has been resolved (Fla. Stat. 95.05l[g]). § I Thus, the operative filing date for statute of ! ' limitations analysis is September 30, 2013, the date ACH filed • the statement of claim with FINRA, which Citigroup conceded at oral argument (Tr. at p. 10) ·I Simply stated, the issue ~s i whether ACH' s claims asserted,herein are timely as of September 30, 2013. ! Similar to New York's statute-of limitations, Florida's I I relevant statute is not triggered until ACH reasonably discovered l : its injury. \ . ACH argues that 6nder Florida law claims for fraud, fraudulent misrepresentation,!and negligent r not accrue until "the fapts f g~ving mi~representation rise to the cause of action 9 of 15 do [* 9] Page 9 of Index No. 162155/2014 Mot. Seq. Nos. 001 & 002 14 were discovered or should have 'been discovered with the exercise ' ' 1 of due diligence" (Fla. Stat.!§ 95.031(2) [a]). ACH argues that its claiJs did not accrue until it discovered that Citigroup's rlpresentations regarding the \ correlation between ARS ratesjand LIBOR were false and . manufactured by Citigroup's own rate rigging. l In that regard, ~ ACH' s Chief Financial Officer/ Nancy Templin, provides: l ACH did not have actual knowledge that [Citigroup's] support bidding practices artificially impacted and' overstated the correlation coefficient between the variable leg of the swapjand the auction rate securities rates until October 2012 after reviewing several hundred thousandlauction results and Citi's specific auctions. 1 r (Templin Aff. 2/27/15, ~ 4). j To begin, Citigroup maintains that the latest ACH's claims accrued is February 12, 2008 support bids. lhen Citigroup stopped placing ACH's accrual lrgument fails to include its breach ' . r, l of fiduciary duty or breach of contract claims. . As such, given j that the record indicates that the accrual date of ! tho~e two claims is February 12, 2008, and September 30, 2013 is the l measuring date, applying the ~pplicable Florida limitations period, those two claims werelnot timely interposed and are time I r barred. I As for ACH's fraud-based causes of action, Citigroup argues that ACH's claim to have only discovered any alleged fraud in 10 of 15 [* 10] Page 10 of Index No. 162155/2014 Mot. Seq. Nos. 001 & 002 14 tC itigroup exp 1 ains th a t on Fe b ruary · · . ~ October 2012 is implausible. I 11, 2008, as the financial crisis deepened, many ARS brokeri I dealers, including Citigroup, lstopped placing support bids in certain ARS auctions. As a result, auctions throughout the ARS ~ l In the wake of this mass withdrawal of support market failed. I ' bidding by the broker-dealers)1 numerous ARS investors and ' issuers, si~ilar I to ACH, filed actions in early I 2~08 against the broker-dealers, including Citigroup, alleging similar claims to those asserted by ACH in thisjaction. Citigroup refers to these actions filed app~oximately f~om March 2008 through May 2008 in - ! federal courts throughout thelcountry (Def's Moving Mem. of Law, 'f- p. 10, fn 7). Citigroup also points out that several states, including New York, announced investigations into broker-dealer bidding practices, as did the 1United States Securities and I Exchange Commission ("SEC"). (Ehrlich Affirm., 1/30/15, Exs. Q and ! R). In August 2008, Citigroup entered into a settlement with the SEC pursuant to which it agreld to repurchase approximately $7.5 ' ~ billion of ARS and to pay certain civil fines. Citigroup points l out that the SEC issued a press release announcing the l ~- settlement, which was also reported in the media (see Ehrlich ~ Affirm., 1/30/15, Exs. S, T, U, V, W)., '' Given the breadth of theJalarming information coricerning the1 ARS market in the public domain, beginning in February 2008 when 11 of 15 [* 11] 1 I Index No. 162155/2014 Mot. Seq. Nos. 001 & 002 Page 11 of 14 Citigroup ceased making its aitificial bids in the ARS auctions, . I and the government led investigations, ACH fails to demonstrate I that through the exercise of ieasonable diligence it would not I have discovered the basis for/its claims prior to October 2012 (see CIFG Assurance North America, Inc. v Credit Suisse Securities (USA) LLC, 128 AD3d 607 [1st Dept 2015]). Even giving r ACH the benefit of the date wnen the SEC announced its settlement . ! with Citigroup in August 2000; ACH's claims are still untimely ! under Florida's four year statute of limitations when measured " I , against September 30, 2013. J l Nonetheless, ACH argues that because of Citigroup's own failures to disclose materiallinformation and material ! misrepresentations to ACH Citigroup is equitably estopped from r . I asserting any statutes of limitation as a defense. I is unavailing. Under This argument Flo~ida;law, in order for the doctrine of I equitable estoppel to bar the1assertion of a statute of ' limitations defense, the plaibtiff "must have known about the ' ! . existence of the cause of action before the limitations period e~pired and must have been in1uced to forebear from filing suit" ~ j (Ryan v Gonzalez, 921 So.2d 572 [2005]). Here, ACH does not j claim that it wa~ aware that it had a cause of action before the limitations period expired. ' I In fact, ACH cannot even make this i claim given its position that it did not know that the ARS market 12 of 15 [* 12] Page 12 of Index No. 162155/2014 Mot. Seq. Nos. 001 & 002 was in a downward spiral. 14 Nor can it make the claim that it was l ' induced by Citigroup in any way to forebear from commencing an f action. f Lastly, ACH asserts that rits claims are not time-barred because the applicable limitations periods were subject to the I ' tolling doctrine found in American Pipe & Construction Co. v I Utah, 414 US 538 [1974]. . Under the American Pipe doctrine, the I statute of limitations is tolled for putative class members · • f during the p~nden~y of a clas~ action suit. ACH asserts that it ! was a putative class member ot Mayor and City Council of Baltimore, Maryland v Citigroup, Inc., 2010 U.S. Dist. LEXIS I I 13193 [SDNY 2010]). In Mayor and City Council of Baltimore v Citigroup, the ! issuers of ARS filed a class action complaint against various ARS f broker-dealers alleging that aefendants acted collectively to t withdraw suppor't for the ARS market in violation of, Section .1 of the Sherman Act, 15 U.S.C. that class action. The I § 1. ! \ Mayor~and Citigroup was a defendant in City Council of Baltimore case l was dismissed on January 26, 2010, prior to ruling on class ' certification and the plaintiffs appealed. , The Second Circuit f denied the appeal on March 5,12013 (Mayor and City Council of f Baltimore, Maryland v Citigroup, Inc., 709 F3d 129 [2d Cir. March 5, 2013]). ACH claims, under American Pipe doctrine, ACH's 13 of 15 [* 13] Page 13 of Index No. 162155/2014 Mot. Seq. ·Nos. 001 & 002 14 ! ~ t i claims against; Ci ti group were '~tolled from September 4 ,. 2008 to 1 March 26, 2013 when the Second Circuit denied the appeal. f . . . i Contrary to ACH's argumedt, the statut~ of limitations . . . I applicable to ACH's causes oflaction are not entitled to tolling ! under the American Pipe doctrfne. . The claim asserted in Mayor ~ .. and City Council of Baltimore; Maryland v Citigroup, Inc. et al . .~ was an antitrust claim under Section 1 of the Sherman Act (15 I U.S.C. § 1) ) . (2010 U.S. Dist. LEXIS 13193). The Florida courts apply American Pipe to requirJ "that the claims in the later J . action be the same as those alleged in the earlier action" l .; (Hromyak v Tyco Int'l Ltd., 942· So.2d 1022 [Fla. Dist. Ct. ipp. 2006J). As such, the claim alserted in the federal district I court class action is clearlyjnot the . s~me as. the claims being I asserted here, namely, for fraud and breach of contract. i . . Based on the .foiegoing, AcH's claims are ·barred by the I I 'limit~tions~ applicable Florida statute of Mtn Seq. Np. 002 ACH argues th~t certain Citigroup exhibits should be ~re in~ppropriate stricken because such exhibiti for this Court ! to take judicial notice of onia pre-answer motion to dismiss. I r The motion to strike is denied . ~ . I' This Court referred to the dates cert~in lawsuits were I commenced and news articles became available in the public domain ' 114 of 15 J [* 14] Page 14 of Index No. 162155/2014· Mot. Seq. Nos. 001 & 002 14 ! to determine whether ACH was on inquiry notice for statute of f limitations purposes only (see ~ CIFG Assurance North America, ' Inc. v Credit Suisse Securiti~s (USA) LLC, 128 AD3d 607, supra). I . · · Such evidence was not relie d upon to cha 1 lenge t h e complaint's j factual allegations as ACH coJtends. ~ .~ Accordingly, it is herebY, I ORDERED that defendant's }motion to dismiss is granted and 1 the complaint, is hereby . dismi~sed on the ground that.the claims r are time-barred; and it is further • I ORDERED that plaintiff's ~otion to strike is denied, . I This memorandum opinion constitutes the decision and order of the Court. I ·Lh----- Dated: HON. JEFFREY K. OING, J.S.C. I' 15 of 15

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