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SEI Invs. Global Funds Servs. v. Citibank, N.A.

United States District Court, E.D. Pennsylvania

April 21, 2015

CITIBANK, N.A., Defendant





This action presents a dispute between an agent with authority to give trading instructions for an investment fund and a bank that served as custodian for the fund over the responsibility for certain trading losses that the fund suffered. The agent, Plaintiff SEI Investments Global Funds Services (" SEI" ), asserts that custodian bank, defendant Citibank, N.A., breached its contract in the way that it conducted certain trades and was also negligent with respect to those trades. SEI claims that it is entitled to restitution and indemnification for certain amounts it repaid the investment fund to compensate for the fund's losses on those trades. In its present Motion, Citibank argues that SEI has failed to state a claim upon which relief may be granted with respect to the breach of contract, unjust enrichment, and indemnity claims and that the negligence claim is barred by the " gist of the action" doctrine. For the reasons set forth below, Citibank's Motion will be granted in part: the negligence count and the indemnity count will be dismissed. The Motion will be denied as to the breach of contract count and the unjust enrichment count.


In or about October 2013, the Advisors' Inner Circle Fund II (" TAICF-II" ), entered into an investment advisory agreement with Kopernik Global Investors, LLC (" Kopernik" ) for Kopernik to provide investment advisory services with respect to the Kopernik Global All-Cap Fund (the " Fund" ). Compl. ¶ 5. TAICF-II also entered into an Amended and Restated Global Custodial Services Agreement (the " Agreement" ) with Citibank that governed, among other accounts, a custodial account maintained at Citibank for the Fund (the " Account" ). Id. ¶ 6. Pursuant to the Agreement, TAICF-II designated SEI as a party authorized to provide trading instructions to Citibank with respect to the Fund. Id. ¶ 10. In connection with its Agreement with the Fund, Citibank provided to SEI and the Fund a copy of its Global Custody Services Standards. Those standards provided, inter alia, that " [c]lients will be advised (usually within two business hours of receipt) if any instruction received prior to the published securities cut-off times, cannot be processed on the day of receipt due to the format received or incomplete or unauthenticated instructions." Id. ¶ 9.

One of the ways in which the parties agreed for SEI to communicate trading instructions to Citibank was through a trade communications system called Lightspeed TDMS. Lightspeed generated messages known as " SWIFT" messages. Id. ¶ 11. On November 5th, 2013, SEI created instructions to Citibank via SWIFT message to settle four securities trades for the Fund. Id. ¶ 12. For reasons not explained in the Complaint, however, SEI did not send the SWIFT message regarding the trades to Citibank at that time. Id. ¶ 14. One day later, on November 6th, 2013, SEI sent a SWIFT message to Citibank with instructions to cancel the four trades ordered in the November 5th SWIFT message that it had not sent. Id. ¶ 14. Each trade listed in the cancellation instructions was designated with its own trade number. Id. ¶ 16. Upon receipt of the message cancelling the trades that never had been made, Citibank took no action. Id. ¶ 19. Citibank did not contact SEI to inform it that Citibank had received instructions to cancel trades that it never had been instructed to make. Id. ¶ 18. Two days later, on November 8th, 2013, SEI sent a SWIFT message instructing Citibank to make four trades bearing the same trade numbers as those that had been listed in the November 6th cancellation instructions. Id. ¶ ¶ 16, 22. Upon receipt of the November 8th trading instructions, Citibank proceeded to execute the trades. Id. ¶ 20. Later on November 8th, SEI observed that the four trades had been made and instructed Citibank to cancel the four trades. Id. ¶ 23. Citibank executed the instruction to cancel the trades on the next business day, Monday, November 11th, 2013. Id. ¶ 24. The Fund suffered losses from the trades caused by changes in foreign exchange rates totaling $630,489.13. Id. ¶ 25. SEI subsequently reimbursed the Fund $530,489.13 plus interest for its losses and took an assignment of the Fund's claims with respect to losses in the four trades, including any rights the Fund might have against Citibank. Id. ¶ ¶ 27-28.


" To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell A. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). " A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. This 'does not impose a probability requirement at the pleading stage,' but instead 'simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of the necessary element.'" Great W. Mining & Mineral Co. v. Fox Rothschild, LLP, 615 F.3d 159, 177 (3d Cir. 2010) (quoting Twombly, 550 U.S. at 556). " In other words, 'there must be some showing sufficient to justify moving the case beyond the pleadings to the next stage of litigation.'" Id. (quoting Phillips v. County of Allegheny, 515 F.3d 224, 234-35 (3d Cir. 2008)). In determining the adequacy of a complaint, the Court must " accept all factual allegations as true [and] construe the complaint in the light most favorable to plaintiff." Warren Gen. Hosp. v. Amgen, Inc., 643 F.3d 77, 84 (3d Cir. 2011).


A. Breach of Contract

Citibank argues that Plaintiff's claim for breach of contract should be dismissed because the allegations of the Complaint demonstrate that it did not breach any duty. It contends that it followed SEI's directions, executing the trade instructions when they arrived on November 8th, 2013 and then executing the instruction to cancel the trades that it received later on November 8th on the next business day. At oral argument, Citibank pointed to several provisions in the Agreement that, it contends, set forth its obligations with respect to the trade and show that it fulfilled those obligations.

From a review of paragraph 6(A)(i) of the Agreement, which states that " the Custodian shall" " make payment for and/or receive any Securities" " only upon receipt of and in accordance with specific Instructions," Compl. Ex. A. ¶ 6(A)(i) (emphasis added), Citibank argues that it had a mandatory obligation to make the November 8th trades when it received appropriate instructions to do so. Thus, the trade was authorized under the contract and was not a breach of the Agreement. Citibank also looks to paragraph 5(ii) of the Agreement which provides that " [t]he Custodian is not responsible for errors or omissions made by the Client or resulting from fraud or the duplication of any instruction by the Client." Id. ¶ 5(ii). It contends that SEI erred when SEI first sent cancellation instructions and then sent instructions to make the trades, and that Citibank, under the terms of the Agreement, cannot be responsible for that error.

As for the previously received cancellation instructions, Citibank pointed to paragraph 5(iv) of the Agreement which provides that " [t]he Custodian may decide not to act on any Instruction where it reasonably doubts its contents . . . ." Id. ΒΆ 5(iv). Given the non-mandatory nature of this provision, Citibank argues that it had the discretion to act or not to act on the initial cancellation instructions ...

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