Court Opinion

ID: 2651071
Source: CourtListenerOpinion
Date Created: 2014-01-27 19:01:01.382672+00
Date Added: 2024-06-11T09:10:10.440560
License: Public Domain

13-1634-cv
Williams Trading LLC v. Wells Fargo Securities, LLC

                                 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 Courthouse, 40 Foley Square, in the City of New York, on the 27th day of
January, two thousand fourteen.

Present:
             ROBERT A. KATZMANN,
                        Chief Judge,
             RICHARD C. WESLEY,
             RAYMOND J. LOHIER, JR.,
                        Circuit Judges.

________________________________________________

WILLIAMS TRADING LLC,

             Plaintiff-Appellant,

                       v.                                           No. 13-1634-cv

WELLS FARGO SECURITIES, LLC,

         Defendant-Appellee.
________________________________________________

For Plaintiff-Appellant:                 JEFFREY M. NORTON, Newman Ferrara LLP, New York, NY

For Defendant-Appellee:                  DAVID C. BOHAN, Katten Muchin Rosenman LLP, Chicago, IL
                                         (Aharon S. Kaye, Katten Muchin Rosenman LLP, Chicago, IL,
                                         and Emily Stern, Katten Muchin Rosenman LLP, New York,
                                         NY, on the brief)
       Appeal from the United States District Court for the Southern District of New York
(Forrest, J.).

        ON CONSIDERATION WHEREOF, it is hereby ORDERED, ADJUDGED, and

DECREED that the judgment of the district court is AFFIRMED.

        Plaintiff-Appellant Williams Trading LLC (“Williams”) appeals from a judgment entered

on April 29, 2013 by the United States District Court for the Southern District of New York

(Forrest, J.), which dismissed Williams’s claims against Defendant-Appellee Wells Fargo

Securities, LLC (“Wells Fargo”) for breach of fiduciary duty, breach of contract, and other

related state-law causes of action, for failure to state a claim. Williams’s claims arise out of an

agreement whereby Williams was to refer clients to a newly created U.S. listed options trading

desk at Wells Fargo in exchange for a referral fee equal to a percentage of the desk’s net

revenues (the “Agreement”). Williams alleges that Wells Fargo used funds from that venture to

engage in proprietary trading—i.e., trading for the bank’s own account, rather than for clients.

On appeal, Williams argues that the district court erred in dismissing Williams’s claims for

breach of fiduciary duty and breach of contract. We assume the parties’ familiarity with the

underlying facts, procedural history, and issues presented for review.

        We review a district court’s grant of a motion to dismiss under Rule 12(b)(6) for failure

to state a claim de novo, “accepting all factual claims in the complaint as true, and drawing all

reasonable inferences in the plaintiff’s favor.” Famous Horse Inc. v. 5th Ave. Photo Inc., 624
F.3d 106, 108 (2d Cir. 2010). “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 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,

570 (2007)).

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       Turning first to Williams’s claim for breach of fiduciary duty, the elements of such a

claim are: “(i) the existence of a fiduciary duty; (ii) a knowing breach of that duty; and (iii)

damages resulting therefrom.” Johnson v. Nextel Commc’ns, Inc., 660 F.3d 131, 138 (2d Cir.

2011). With respect to the first element, “[a] fiduciary relationship exists under New York law

‘when one [person] is under a duty to act for or to give advice for the benefit of another upon

matters within the scope of the relation.’” Flickinger v. Harold C. Brown & Co., Inc., 947 F.2d
595, 599 (2d Cir. 1991) (quoting Mandelblatt v. Devon Stores, Inc., 521 N.Y.S.2d 672, 676

(App. Div. 1st Dep’t 1987) (second alteration in original).

       Williams first argues that Wells Fargo owed Williams fiduciary duties because the

Agreement created a joint venture. But among the requirements necessary to form a joint venture

under New York law are (1) that the parties’ agreement “evidence their intent to be joint

venturers,” (2) that each party “have some degree of joint control over the venture,” and (3) that

there be “a provision for the sharing of both profits and losses.” Dinaco, Inc. v. Time Warner,

Inc., 346 F.3d 64, 67-68 (2d Cir. 2003) (quoting Itel Containers Int’l Corp. v. Atlanttrafik

Express Serv. Ltd., 909 F.2d 698, 701 (2d Cir. 1990)). These elements are absent here. The

Agreement shows no intent to form a joint venture—to the contrary, it expressly provides that it

is not intended to form a “partnership” of any kind and that Wells Fargo’s relationship to

Williams is that of an “independent contractor.” The Agreement also gives Williams no right of

control over the new desk, and indeed, Williams affirmatively alleges that Wells Fargo quickly

cut Williams out of the desk’s decisionmaking processes altogether. Furthermore, while the

Agreement permits Williams to share in the new desk’s profits, it does not require Williams to

share in the risk of loss. Rather, the Agreement expressly provides that if the desk loses money,

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that loss will be borne by Wells Fargo alone. As the Appellate Division, Second Department has

explained, “[a]n individual who has no proprietary interest in a business except to share the

profits as compensation for services is not a joint venturer.” De Vito v. Pokoik, 540 N.Y.S.2d
858, 859 (App. Div. 2d Dep’t 1989).

       Williams also argues that it was owed fiduciary duties because Wells Fargo maintained

control over the new desk’s profits, a portion of which (measured by reference to the desk’s net

revenues) was owed to Williams as its referral fee. Williams contends that this control over the

parties’ joint funds placed Wells Fargo in a position of trust and confidence analogous to an

investment adviser who invests funds on a client’s behalf. See Bullmore v. Ernst & Young

Cayman Islands, 846 N.Y.S.2d 145, 148 (App. Div. 1st Dep’t 2007) (noting that such advisers

owe fiduciary duties). This argument, however, rests on a faulty premise—namely, that the

desk’s profits were owned in part by Williams. In fact, because the desk was wholly owned and

operated by Wells Fargo, the desk’s profits belonged solely to Wells Fargo. Nothing in the

Agreement gave Williams any security interest or other entitlement to the desk’s profits

themselves. Wells Fargo was not required to pay Williams’s fee out of the desk’s profits, and

conversely, Williams would not have been limited to those profits if it sought to recover unpaid

fees. Wells Fargo thus was investing its own funds, entirely unlike a fiduciary exercising control

over the funds of another.

       As to its claim for breach of contract, Williams points to two provisions of the

Agreement that supposedly prohibited proprietary trading by Wells Fargo. First, Williams points

to paragraph 14, which Williams contends incorporated an internal Wells Fargo policy manual

that in turn prohibits proprietary trading by client-facing desks like the one contemplated by the

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Agreement. Paragraph 14, however, is merely a non-disparagement clause, which by its plain

terms simply prohibits each party from “mak[ing] any misrepresentations regarding the other or

its brokerage services that are false or misleading or in any way inconsistent with the written

materials provided to it by the other.” J.A. 82. Even if Wells Fargo’s internal policy manual

prohibits proprietary trading by the new desk, paragraph 14 does not incorporate that manual

wholesale into the Agreement.

       Second, Williams points to paragraph 2, which defines the “Net Revenues” upon which

Williams’s referral fee is based. In particular, Williams points to a sentence that excludes from

Net Revenues “any profit generated by a proprietary trading desk of Wells Fargo as a result of

trading in U.S. listed options.” J.A. 74. Williams asserts that it is “inconceivable that [the parties]

would at once exclude proprietary trading profits and simultaneously allow proprietary trading to

take place.” Appellant’s Br. at 37. This argument fails on multiple levels. To begin with, this

provision excludes from Net Revenues only those profits “generated by a proprietary trading

desk of Wells Fargo”—i.e., desks separate and distinct from the U.S. listed options trading desk

created in connection with the Agreement. Moreover, paragraph 2 by its terms determines only

how Williams’s referral fee is calculated, and does not purport to govern the new desk’s trading

activities, including whether or not it could engage in proprietary trading. It is well established

that “courts may not by construction add or excise terms, nor distort the meaning of those used

and thereby make a new contract for the parties under the guise of interpreting the writing.”

Vermont Teddy Bear Co. v. 538 Madison Realty Co., 807 N.E.2d 876, 879 (N.Y. 2004) (quoting

Reiss v. Fin. Performance Corp., 764 N.E.2d 958, 961 (N.Y. 2001)).

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        Finally, Williams argues that the district court’s rulings on Williams’s breach of fiduciary

duty and breach of contract claims are in conflict. According to Williams, if the Agreement gave

Wells Fargo unfettered discretion to use desk funds for proprietary trading, then Wells Fargo

must have had a fiduciary duty to use that discretion responsibly; conversely, if Wells Fargo had

no such duty, then the Agreement must have prohibited proprietary trading. But this argument

again incorrectly assumes that the new desk’s funds were owned jointly rather than by Wells

Fargo alone. No fiduciary duty arises from Wells Fargo’s control over its own funds. And to the

extent Williams now believes that the lack of fiduciary duties exposed Williams to an

unacceptable risk that Wells Fargo would engage in perilous proprietary trading, that position is

not embodied in the parties’ unambiguous written agreement. “Under New York law, . . . a court

must enforce [a contractual term’s] plain meaning, ‘[r]ather than rewrite an unambiguous

agreement.” Krumme v. WestPoint Stevens Inc., 238 F.3d 133, 139 (2d Cir. 2000) (quoting

American Express Bank Ltd. v. Uniroyal, 562 N.Y.S.2d 613, 614 (App. Div. 1st 1990)) (final

alteration original).

        We have considered all of Williams’s remaining arguments and find them to be without

merit. Accordingly, for the foregoing reasons, the judgment of the district court is AFFIRMED.

                                                  FOR THE COURT:
                                                  CATHERINE O’HAGAN WOLFE, CLERK

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