Dantas v. Citibank N.A. ( 2019 )

18-2043-cv
Dantas v. Citibank N.A.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT.
CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS
PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE
PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A
SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST
CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH
THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER
MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the
8th day of July, two thousand nineteen.
PRESENT: JON O. NEWMAN,
PETER W. HALL,
DENNY CHIN,
----------------------------------------------------------------------
DANIEL VALENTE DANTAS, DORIO FERMAN,
OPPORTUNITY FUND, OPPORTUNITY GESTAO DE
INVESTIMENTOS E RECURSOS LTDA, OPPORTUNITY
DISTRIBUIDORA DE TITULOS E VALORES
MOBILIARIOS LTDA, OPPORTUNITY HDF
PARTICIPACOES S.A., FKA BANCO OPPORTUNITY S.A.,
OPPORTUNITY ASSET MANAGEMENT INC.,
OPPORTUNITY ASSET MANAGEMENT LTDA.,
OPPORTUNITY ASSET ADMINISTRADORA DE
RECURSOS DE TERCEIROS LTDA, OPPORTUNITY
GESTORA DE RECURSOS LTDA., OPPORTUNITY
LOGICA RIO CONSULTORIA E PARTICIPACOES LTDA.,
FKA OPPORTUNITY LOGICA RIO GESTORA DE
RECURSOS LTDA., OPPORTUNITY EQUITY PARTNERS
ADMINISTRADORA DE RECURSOS LTDA., OPP I
FUNDO DE INVESTIMENTO EM ACOES
INVESTIMENTO NO EXTERIOR, LUXOR FUNDO DE
INVESTIMENTO MULTIMERCADO, INTERNATIONAL
MARKET INVESTMENTS N.V.,
Plaintiffs - Appellants,
v. No. 18-2043-cv
1
CITIGROUP, INC., BANCO CITIBANK S/A,
INTERNATIONAL EQUITY INVESTMENTS, INC.,
CITIGROUP VENTURE CAPITAL INTERNATIONAL
BRAZIL, L.P., CITIGROUP VENTURE CAPITAL
INTERNATIONAL BRAZIL, LLC, CITIBANK N.A.,
Defendants - Appellees.
----------------------------------------------------------------------
FOR APPELLANTS: PHILIP C. KOROLOGOS (Eric J. Brenner, on the
brief), Boies Schiller Flexner LLP, New York,
NY.
FOR APPELLEES: CARMINE D. BOCCUZZI, JR. (Ryan S. Redway,
on the brief), Cleary Gottlieb Steen & Hamilton
LLP, New York, NY.
Appeal from a judgment of the United States District Court for the Southern District
of New York (Stein, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,
AND DECREED that the judgment of the District Court is AFFIRMED.
Daniel Valente Dantas, Dorio Ferman, and various entities in the Opportunity family
of companies (collectively, “Appellants”) appeal from a judgment of the United States
District Court for the Southern District of New York (Stein, J.) entered on June 18, 2018,
dismissing the complaint and denying the motion to amend the complaint. Appellants
brought this action against Citibank and some of its affiliates and subsidiaries (collectively,
“Citibank”) claiming that a 2008 settlement agreement between the parties was obtained
through duress by Citibank and that Appellants are therefore entitled to damages. Dantas
additionally sued Citibank for malicious prosecution and conspiracy to engage in malicious
prosecution, alleging that Citibank triggered his unfounded prosecution for financial crimes
in Brazil. The District Court dismissed the complaint pursuant to Fed. R. Civ. P. 12(b)(6).
2
We assume the parties’ familiarity with the facts, record of prior proceedings, and arguments
on appeal, which we reference only as necessary to explain our decision to affirm.
I.
The following facts are drawn from the allegations in the complaint, which we
assume to be true. See Faber v. Metro. Life Ins. Co., 648 F.3d 98, 104 (2d Cir. 2011). In the
1990s, Dantas, the founder of Opportunity, established a joint venture aimed at obtaining
control positions in Brazil’s infrastructure sector. Citibank, a group of Brazilian government
pension funds, and others invested in the joint venture. The pension fund investors
eventually turned against Dantas and Opportunity, working with competitors in the
telecommunications market and corrupt Brazilian government officials in the PT Party to
discredit Opportunity and Dantas.
When the Brazilian government, which was fearful that Dantas would expose its
illegal practices, brought false criminal charges against Dantas in 2004, Citibank switched
sides to avoid scandal. Citibank sued Opportunity and Dantas in the Southern District of
New York, alleging breach of fiduciary duties. See Complaint, Int’l Equity Invs., Inc. v.
Opportunity Equity Partners, Ltd., No. 05-cv-2745 (S.D.N.Y.) (“IEII litigation”). Opportunity
counterclaimed, alleging, inter alia, that Citibank breached its fiduciary duties. Opportunity
also made allegations about the corruption of President Luiz Inácio Lula da Silva’s regime,
deepening the PT Party’s hostility towards Opportunity and Dantas. Meanwhile, in Brazil,
Citibank worked with PT Party members, the pension funds, and their allies at Brasil
Telecom to intensify the media campaign against Dantas, Ferman, and Opportunity.
Seeking to “keep up the pressure” and “influence the course of events in the judiciary,”
Citigroup’s “Task Force” arranged for the payment of journalists to write “hundreds of
3
negative articles” about Opportunity such as false reports of mismanagement at Brasil
Telecom during the period Opportunity controlled the company. C. App. 37–38. Further,
Citigroup and its governmental allies manipulated a Brazilian congressional report so that it
recommended research on a possible indictment of Dantas and falsely accused Dantas of
improperly paying large sums to influence government officials in the Mensalão corruption
scandal.
In 2007, Opportunity further angered the PT Party by standing in the way of a
merger between two telecommunications companies that would benefit a major PT
contributor. For various reasons, the merger would not go through until Opportunity
agreed to give up its claims against Citibank. Dantas received a number of implicit and
explicit threats from PT and government representatives, including “that he should not
make himself an obstacle to the will of the government,” “that there is no way to withstand
the force of the state,” and that “representatives of the regime would be willing to imprison
him based on manufactured evidence.” Id. at 54–55, 64–65. He also received threats from
Citibank’s lead negotiator in the merger transaction who warned Opportunity “that the
government would take charge and force Opportunity to grant Citibank a release” and that
Dantas “could hide but not escape.” Id. at 60, 62. Citibank’s strategy was to “mak[e]
additional concessions from Opportunity the price for closing a transaction that the PT
Party and its benefactors desperately wanted” and thereby “gain[] the full coercive power of
the regime to force” the releases. Id. at 63. Under the escalating pressure, in April 2008,
Dantas, Ferman, and Opportunity signed a Comprehensive Settlement and Release
Agreement (“Settlement Agreement”) with Citibank, which included a mutual release of
claims and put an end to the IEII litigation. Id. at 69.
4
Factions in the PT Party nevertheless viewed Dantas and his colleagues as a
“continuing threat” because “they knew too much about the regime’s corrupt activities.” Id.
at 71. A few months after the Settlement Agreement was signed, Dantas was arrested by the
Brazilian authorities based on false accusations of bribery, financial crimes, and money
laundering. The charges of financial wrongdoing were based in part on the false report
manufactured by Citibank and its allies regarding Dantas’s involvement in the Mensalão
scandal. After Dantas, Ferman, and their colleagues were released from custody thanks to
the Brazilian Supreme Court, “Citibank’s co-conspirators” provided fresh information about
alleged wrongdoing by Opportunity. Id. at 78. The criminal charges were ultimately
dismissed in full.
II.
“We review de novo a grant of a motion to dismiss pursuant to Rule 12(b)(6), accepting
the complaint’s factual allegations as true and drawing all reasonable inferences in the
plaintiff’s favor.” Marcel Fashions Grp., Inc. v. Lucky Brand Dungarees, Inc., 898 F.3d 232, 236
(2d Cir. 2018) (internal quotation marks omitted). We also review de novo a district court’s
interpretation of a contract. Lee v. BSB Greenwich Mortgage Ltd. P’ship, 267 F.3d 172, 178 (2d
Cir. 2001).
III.
Applying New York law pursuant to the Settlement Agreement’s choice-of-law
provision, the District Court determined that Appellants released all of their claims in the
Settlement Agreement and that the Settlement Agreement was enforceable regardless of
Citibank’s conduct because Appellants ratified it. We address the duress and malicious
prosecution claims in turn.
5
A. Duress
The complaint asserts two duress claims: one under Brazilian law and one, in the
alternative, under New York law.1 We assume without deciding that New York law
recognizes duress as a cause of action sounding in tort.2
Appellants argue, first, that the release provision is unenforceable as to their duress
claims because “a release cannot prevent challenges to the circumstances under which it was
obtained.” Appellant Br. 32. Appellants’ challenge to the enforceability of the release fails
because Appellants have ratified the Settlement Agreement. Under New York law, because
contracts executed under duress are voidable rather than void, “a plaintiff cannot claim that
he or she was compelled to execute an agreement under duress while simultaneously
accepting the benefits of the agreement.” Allen v. Riese Org., Inc., 106 A.D.3d 514, 517 (1st
Dep’t 2013); accord VKK Corp. v. Nat’l Football League, 244 F.3d 114, 122–23 (2d Cir. 2001).
“[W]hen a party accepts the benefits of a contract and fails to act promptly to repudiate it,”
the party ratifies the contract. Allen, 106 A.D.3d at 517; accord Nelson v. Lattner Enters. of N.Y.,
108 A.D.3d 970, 972 (3d Dep’t 2013). Appellants effectively concede that they have ratified
1
Because Appellants challenge neither the District Court’s application of New York law nor the
validity of the Settlement Agreement’s choice-of-law provision, we apply New York law. See City of
Syracuse v. Onondaga County, 464 F.3d 297, 308 (2d Cir. 2006) (“Issues not sufficiently argued in the
briefs are considered waived and normally will not be addressed on appeal.” (internal quotation
marks omitted)); C. App. 123 (Settlement Agreement § 7.10). Appellants concede that the choice of
law does not affect the outcome of this appeal.
2
New York law appears to be unsettled with respect to whether duress may be asserted not only as
an equitable defense but also as a tort claim. Compare Bank Leumi Trust Co. of N.Y. v. D’Evori Int’l,
Inc., 163 A.D.2d 26, 31 (1st Dep’t 1990) (“[W]e do not believe that the doctrine of economic duress,
which is traditionally used as a defense to an action, has any place in a cause of action seeking money
damages.”), and Nice v. Combustion Eng’g, Inc., 193 A.D.2d 1088, 1089 (4th Dep’t 1993) (“There is no
substantive cause of action for duress . . .”), with Ressis v. Mactye, 108 A.D.2d 960, 961 (3d Dep’t
1985) (treating duress as a “cause[] of action known to law”), and Ippisch v. Moricz-Smith, 1 Misc. 2d
120, 124 (Sup. Ct. 1955) (same).
6
the Settlement Agreement, insisting that they have a “right to keep any benefits and the
certainty of the settlement while pursuing additional damages.” See Appellant Br. 3.
Appellants take the position that ratification does not apply to their duress claims
because they seek damages rather than rescission. Appellants press an analogy to the fraud
context, where “a plaintiff has a choice of remedies. On the one hand, such a plaintiff can
opt to ratify the settlement and sue for damages. Or the plaintiff can sue for rescission.”
Appellant Br. 44. Appellants’ analogy misses the mark. The fraudulent inducement cases
cited by Appellants stand for the proposition that a party who has been fraudulently induced
to settle a claim may bring an action to recover fraud damages without repudiating the
settlement. See, e.g., Turkish v. Kasenetz, 27 F.3d 23, 28 (2d Cir. 1994). The fraud claims in the
cases on which Appellants rely were independent of the underlying wrong that was the
subject of the fraudulently induced settlement and were thus outside the scope of any
release. See, e.g., Slotkin v. Citizens Cas. Co. of N.Y., 614 F.2d 301, 312 (2d Cir. 1979). New
York law does not permit a plaintiff to circumvent a release agreement by using a released
fraud claim to attack the validity of the release and then assert that very fraud claim for
damages. See Centro Empresarial Cempresa S.A. v. Am. Movil, S.A.B. de C.V., 952 N.E.2d 995,
1000 (N.Y. 2011) (explaining that “a party that releases a fraud claim may later challenge that
release as fraudulently induced only if it can identify a separate fraud from the subject of the
release” and noting that “[w]ere this not the case, no party could ever settle a fraud claim
with any finality”). More to the point, there is a crucial difference between a claim for
fraudulent inducement and a claim for duress. A fraudulent inducement claim, unlike a
duress claim, is typically unforeseen at the time of entering an agreement. Here, by contrast,
Appellants were well aware of the events giving rise to the instant duress claim at the time
7
they entered the Settlement Agreement. Indeed, Appellants would not have a duress claim
but for the subjective experience of feeling pressure as a result of the pre-Settlement events
detailed in the complaint. Appellants’ analogy to the fraudulent inducement context thus
fails to support their argument that the release agreement is unenforceable as to the duress
claims. Because Appellants have ratified the Settlement Agreement and insist on their right
to retain its benefits, the release is enforceable. See Allen, 106 A.D.3d at 517.3
The question, then, is whether the duress claims are released under the terms of the
Settlement Agreement. Section 2.1(b) of the Settlement Agreement releases “any Cause of
Action for any acts or omissions prior to the date of this Agreement, that arises from, is
based on or relates to” several listed items, including the facts and circumstances at issue in
the IEII litigation. C. App. 110 (Settlement Agreement § 2.1(b)). A carve-out provision
entitled “Claims Not Included” provides, however, that the release “shall not be interpreted
to include, the release of any Cause of Action . . . arising out of or for breach of this
Agreement.” Id. at 111 (Settlement Agreement § 2.1(c)(ii)).
Appellants do not challenge the District Court’s conclusion that the duress claims fall
within Section 2.1(b). Appellants contend that the duress claims fall within the carve-out
provision because, contrary to the District Court’s conclusion, the duress claims “arise out
3
Appellants also argue that that the District Court improperly found ratification by delay because
Appellants alleged that the duress abated enough to allow them to bring this action only a few weeks
prior to filing the complaint. We need not decide whether Appellants’ delay was reasonable because
Appellants do not repudiate the Settlement Agreement even now, insisting that they need not do so.
See Appellant Br. 47. A party seeking to challenge the validity of an agreement based on duress has
an obligation to repudiate the agreement once the duress has ceased. See Sosnoff v. Carter, 165 A.D.2d
486, 492 (1st Dep’t 1991) (Although a party seeking to “disaffirm a contract made under duress
must act promptly to repudiate it,” a party has “no obligation to repudiate until the duress has
ceased.”).
8
of” the Settlement Agreement. We disagree. “To ‘arise out of’ means to originate from a
specified source, and generally indicates a causal connection.” Phillips v. Audio Active Ltd.,
494 F.3d 378, 389 (2d Cir. 2007) (internal quotation marks and citations omitted). We have
declined to interpret “the words ‘arise out of’ as encompassing all claims that have some
possible relationship with [a] contract, including claims that may only ‘relate to,’ be
‘associated with,’ or ‘arise in connection with’ the contract.” Id. That narrow interpretation
is appropriate here. As the District Court reasoned, under the canon against surplusage,
“arising out of” cannot be interpreted so broadly as to be synonymous with “based on” or
“relates to” because Section 2.1(b) of the Settlement Agreement releases certain claims “that
arise[] from, [are] based on or relate[] to” certain listed items. C. App. 110. To be sure, by
the same principle, “arising out of” cannot be interpreted so narrowly as to cover only claims
“for breach of” the Settlement Agreement.4 The District Court appropriately threaded this
needle by interpreting “arising out of” to cover both breach of contract actions and other
actions that require a court to interpret a contractual provision, such as a declaratory
judgment action. Sp. App. 11 n.8. Here, the duress claims do not concern the parties’
obligations under the Settlement Agreement and do not turn on interpretation of the
agreement’s terms. Further, the duress claims cannot be said to “originate from” the
Settlement Agreement, Phillips, 494 F.3d at 389, because they are based on events that
predated its execution. Thus, although the duress claims “relate to” and “arise in connection
with” the Settlement Agreement, they do not “arise out of” the Settlement Agreement.
4
We therefore do not predict that the New York Court of Appeals would in this context adopt as
state law the First Department’s view that whether an action “arises out of” an agreement is
“determined by whether the litigation is based upon a breach of the terms” of that agreement. Jerulee
Co. v. Sanchez, 43 A.D.3d 328, 329 (1st Dep’t 2007).
9
Appellants’ claim that the duress continued up to and included the moment of
execution of the Settlement Agreement does not mandate a contrary conclusion. Although
Appellants assert they felt the effects of Citibank’s allegedly coercive conduct at the time of
executing the Settlement Agreement, all of the alleged wrongful conduct ostensibly giving
rise to the duress claims had occurred before they entered the agreement.
Nor are we persuaded by Appellants’ argument that the duress claims “arise out of”
the Settlement Agreement because “it is the very validity of the Settlement that the Duress
Claims put at issue.” Appellant Br. 25. Appellants argue that the Settlement Agreement
“does not take away a party’s right to insist that the terms of the Settlement itself are
enforceable.” Id. Appellants are correct about that. Indeed, as Appellants recognize, the
validity of the release agreement would be subject to attack on duress grounds regardless of
any carve-out for claims “arising out of” the agreement. See id. at 26; Centro Empresarial, 952
N.E.2d at 1000 (stating that a release may be invalidated for any of “the traditional bases for
setting aside written agreements,” including duress). That the carve-out is unnecessary to
asserting a duress challenge undermines any inference that the parties intended the carve-out
to cover such a challenge. The issue is not whether the release agreement precludes the
assertion of a duress defense but whether it precludes the assertion of duress as a tortious cause
of action. Because Appellants’ duress claims fall within the release provision and do not fall
within the carve-out provision, those claims are released and were properly dismissed
pursuant to Rule 12(b)(6).
B. Malicious Prosecution
Appellants argue that the malicious prosecution claims are not released because they
accrued after the date of the Settlement Agreement. Regardless of Appellants’ accrual
10
argument, dismissal was proper under Fed. R. Civ. P. 12(b)(6) because the complaint fails to
state a claim for malicious prosecution. To survive a motion to dismiss under Rule 12(b)(6),
a complaint must “contain sufficient factual matter . . . to state a claim to relief that is
plausible on its face” and provide “more than a sheer possibility that a defendant has acted
unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal citation and quotation marks
omitted). To state a claim for the tort of malicious prosecution under New York State law, a
plaintiff must show, among other elements, “the initiation or continuation of a criminal
proceeding against plaintiff.” Murphy v. Lynn, 118 F.3d 938, 947 (2d Cir. 1997); accord Gill v.
City of New York, 146 A.D.3d 939, 941 (2d Dep’t 2017).
In order for a civilian defendant to be considered to have initiated the criminal
proceeding, it must be shown that defendant played an active role in the
prosecution, such as giving advice and encouragement or importuning the
authorities to act. The defendant must have affirmatively induced the officer
to act, such as taking an active part in the arrest and procuring it to be made
or showing active, officious and undue zeal, to the point where the officer is
not acting of his own volition.
Lupski v. County of Nassau, 32 A.D.3d 997, 998 (2d Dep’t 2006) (internal quotation marks and
citations omitted). A civilian defendant who “merely furnishes information to law
enforcement authorities who are then free to exercise their own independent judgment” is
not liable for malicious prosecution. Id.
The complaint contains few allegations relevant to establishing that Citibank initiated
the Brazilian government’s arrest and prosecution of Dantas. The most concrete allegation
linking the criminal proceeding to Citibank is the allegation that Citibank and its
governmental allies manipulated the Brazilian congressional report so that it falsely accused
Dantas of corrupting officials and recommended further research on a possible indictment
of Dantas. That false report, along with wrongful conduct by the PT regime and others in
11
the telecommunications industry as well as various sources of false evidence unrelated to the
Mensalão report, culminated in the arrests of and false charges against Dantas and his
colleagues.
The facts alleged fail to show that Citibank played the kind of “active role” in the
prosecution of Dantas that is required to support a malicious prosecution claim. Id.
Citibank arguably did not even “furnish[] information to law enforcement authorities” when
it manipulated the report given to the congressional committee of inquiry. Id. Opportunity
and Dantas admitted in the IEII litigation that the congressional committee “does not even
have the power to recommend an indictment in Brazil. That role is reserved for the Public
Prosecutor pursuant to express Constitutional rules. The [committee] may only recommend
that the Public Prosecutor investigate whether to recommend such an indictment.” J. App.
439.5 The facts alleged certainly do not establish that Citibank induced any law enforcement
officer to act “to the point where the officer [was] not acting of his own volition.” Lupski,
32 A.D.3d at 998. The mere fact that Citibank provided false information to the
government is insufficient to conclude that Citibank initiated the prosecution, given that
various other players, concerns, and sources of evidence contributed to the government’s
decision to prosecute Dantas. See Rothstein v. Carriere, 373 F.3d 275, 294 (2d Cir. 2004).
Because Citibank did not initiate a criminal proceeding against Dantas, Dantas fails to state a
claim for malicious prosecution.6 In any event, all of the actions Citibank allegedly took to
5
The complaint includes other allegations of information being provided to law enforcement, but
not by Citibank. See, e.g., C. App. 78 (alleging that “Citibank’s co-conspirators,” including Brasil
Telecom’s lawyers, provided information to the police about alleged wrongdoing at Brasil Telecom
when it was under Opportunity’s control).
6
Because Dantas fails to state a claim for malicious prosecution, he also fails to state a claim for
conspiracy to engage in malicious prosecution. See Thyroff v. Nationwide Mut. Ins. Co., No. 05-CV-
12
cause Dantas to be prosecuted occurred before the Settlement Agreement was executed.
Dantas’s malicious prosecution claims against Citibank therefore fall within the scope of the
release. C. App. 110 (Settlement Agreement § 2.1(b) (releasing “any Cause of Action for any
acts . . . prior to the date of this Agreement . . .”)).
IV.
We have considered all Appellants’ remaining arguments and have found in them no
basis for reversal. Accordingly, we AFFIRM the judgment of the District Court.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk of Court
6607T, 2006 WL 2827082, at *2 (W.D.N.Y 2006) (“To state a cause of action for conspiracy to
engage in malicious prosecution, the plaintiffs must establish the underlying elements of both a
conspiracy and a malicious prosecution.”); Cunningham v. Hagedorn, 72 A.D.2d 702, 704 (1st Dep’t
1979).
13