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Solymar Investments, Ltd., A Cayman Islands Corporation, Astrolite v. Banco Santander S.A.

February 28, 2012

SOLYMAR INVESTMENTS, LTD., A CAYMAN ISLANDS CORPORATION, ASTROLITE INVESTMENTS, LTD., A CAYMAN ISLANDS CORPORATION, ETERNALITE INVESTMENTS, LTD., A CAYMAN ISLANDS CORPORATION, SUNRAYS INVESTMENTS, LTD., A CAYMAN ISLANDS CORPORATION, PLAINTIFFS -APPELLANTS,
v.
BANCO SANTANDER S.A., BANCO SANTANDER INTERNATIONAL, SANTANDER BANK AND TRUST, LTD., OPTIMAL INVESTMENT SERVICES S.A., MANUEL ECHEVERRIA FALLA, ET AL.,
DEFENDANTS - APPELLEES.



D.C. Docket No. 1:10-cv-20695-FAM Appeal from the United States District Court for the Southern District of Florida

The opinion of the court was delivered by: Fay, Circuit Judge:

[PUBLISH]

FILED FEB 28, 2012

U.S. COURT OFAPPEALS ELEVENTH CIRCUIT

JOHN LEY CLERK

Before DUBINA, Chief Judge, MARCUS, and FAY, Circuit Judges.

At its core, this case presents a novel question about who is supposed to decide what in considering challenges to a contract containing an arbitration clause. While the Supreme Court has recently addressed this general issue in Granite Rock Co. v. International Brotherhood of Teamsters, 130 S. Ct. 2847 (2010), it did not address the particular circumstances at issue here. Namely, whether a district court, having found a valid contract containing an arbitration clause exists, is also required to consider a further challenge to that contract's place within a broader, unexecuted agreement. Having considered those circumstances in light of Granite Rock and other relevant precedent, we find that the district court properly construed the law regarding arbitrability in dismissing Plaintiff-Appellants' suit. Accordingly, we affirm.

I.*fn1

Plaintiff-Appellants (the "Holding Corporations") are personal investment holding corporations owned by two related Panamanian shareholders. Defendant-Appellees, of which there are two distinct groups, are (1) a related group of banking corporations operating under the umbrella of Banco Santander,*fn2 which provide banking, investment, and other financial management services; and (2) certain individual officers/employees of Santander. For convenience, we refer to Defendant-Appellees collectively as "Santander."

The Holding Corporations invested an undisclosed sum of money with Santander. At the time of that investment, they informed Santander that they desired low-risk investments. Santander assured them that a low-risk portfolio would be tailored to their needs and that they would receive certain additional services, including comprehensive account management, investment advisory services, and other similar services directed towards ensuring their investment needs were met.

Santander invested some of the Holding Corporations' money in a fund called Optimal Strategic US Equity Series of Optimal Multiadvisors Ltd. ("Optimal Strategic"). Optimal Strategic had engaged Bernard L. Madoff "to execute its investment strategy and had all or a substantial part of its assets deposited with and traded through Madoff Securities." Exch. Agmnt. at 2 ¶ IV. While Santander had a policy against investing in funds managed by a single person, it continued to recommend Madoff-run funds to its clients and particularly to the Holding Corporations. Eventually, Madoff's Ponzi scheme was exposed and the Holding Corporations' substantial losses were revealed.*fn3

After learning of their losses, the Holding Corporations sought to negotiate a recovery from Santander. Santander's first offer, found within an "Exchange Agreement," involved an exchange of "worthless" Optimal Strategic shares for shares of Santander's own perpetual, non-cumulative 2% shares.*fn4 The Exchange Agreement also contained an arbitration clause.*fn5 The Holding Corporations rejected Santander's Exchange Agreement as the sole basis for a settlement between the parties. The negotiations continued.

Eventually, the parties agreed to a multi-part, comprehensive settlement. In relevant part, the settlement was to include the Exchange Agreement previously rejected by the Holding Corporations, as well as a non-recourse promissory note secured by Santander's perpetual, non-cumulative 2% preferred shares. The term of the promissory note was ten years.

Several days later, the Holding Corporations received for the first time the Exchange Agreement in English.*fn6 Santander informed them that they had less than 24 hours to return the signed Exchange Agreement, otherwise they would not be permitted to subscribe to the preferred shares. Counsel for the parties discussed the Exchange Agreement in the context of the comprehensive settlement. The Holding Corporations allege that Santander "represented that the Exchange Agreement was limited to Madoff claims," and was "only one part of the intended Proposed Settlement Agreement." Although the Holding Corporations were unwilling to execute the document because they did not want it to stand alone, Santander told them that they had not yet had time to prepare the necessary paperwork for the other aspects of the agreement and that execution of the Exchange Agreement would be a showing of "good faith." Santander further assured the Holding Corporations that the other relevant documents would be completed soon after.

In reliance on those representations, the Holding Corporations signed the Exchange Agreement.*fn7 Relevant sections within the Exchange Agreement included the Holding Corporations' acknowledgment that they were "sophisticated investor[s]," and that, "[p]rior to the execution of this Agreement . . . [they had] sought and received, to [their] entire satisfaction, independent financial, legal and taxation advice in relation to this Agreement, this investment in the Preferred Securities and the risks deriving therefrom." Furthermore, the Holding Corporations agreed that, "[i]n making [their] decision to enter into this Agreement, . . . [they were] not relying on any information, representation or warranty given by the Bank, . . . other than as specifically set forth in this Agreement . . . ." Moreover, the Exchange Agreement contained an integration clause, which stated that "this Agreement contains the entire agreement between [the Holding Corporations], on the one hand, and [Santander], on the other hand, regarding the subject matter hereof. . . . No oral understandings, statements promises or inducements contrary to the terms of this Agreement exist."

The final provision within the Exchange Agreement relevant to these proceedings was the release provision, wherein the Holding Corporations release[d], acquit[ed], and forever discharge[d] [Santander] of and from all past, present, and future claims . . . and any liability ( . . . whether arising out of statute, regulations, contracts, breach of fiduciary duty or tort or otherwise, and whether based on strict liability, fraud, gross negligence or negligence or otherwise) . . . arising out of or in connection with or relating to the Optimal Strategic US Equity Series of Optimal Multiadvisors Ltd., the Optimal Strategic US Equity Ireland Fund, [the Holding Corporations'] Optimal SUS Securities, [the Holding Corporations'] investment in the Optimal Funds or any other matter deriving from an investment managed by any Bank Party, or in connection with which a Bank Party may have rendered advice or investment services, and having any actual or potential exposure to Madoff Securities . . .

Exch. Agmnt. at 3(F). Santander contemporaneously executed Final Term Sheets as to each holding corporation. The Final Term Sheets specified the terms of the 10-year term notes and the date (April 25, 2009) by which the notes would be funded.

Although the parties subsequently exchanged several revisions of the proposed promissory note and a document detailing the pledge of the preferred shares, they failed to come to any agreement as to the structure or substance of those documents. The Holding Corporations' counsel therefore sent an e-mail to Santander's counsel, advising him that they believed no contract had been formed between the parties. The Holding Corporations subsequently filed suit.

The Holding Corporations' 149-page Amended Complaint is the controlling pleading here. Therein, they set forth fourteen counts against Santander, alleging such causes of action as breach of fiduciary duty (Counts I, II, V, VI,), negligence (Counts III, IV, VII, VIII), fraud (Count X), a claim under the Securities and Exchange Act (Counts XII and XIII), a state statutory claim (Count XI), and equitable relief in the form of an unjust enrichment claim (Count IX), as well as seeking declaratory relief (Count XIV). To rebut the explicit language of the Exchange Agreement, the Holding Corporations seek to rely on affidavits and parol testimony regarding the intent of the parties in executing the Exchange Agreement.

Santander asked the district court to dismiss the proceedings, either under the arbitration clause of the Exchange Agreement or the forum-selection provision, which required "that all claims . . . to enforce the Parties' agreement to arbitrate . . . be heard and determined exclusively in the courts sitting in Geneva, Switzerland." Exch. Agmnt. at ¶ 6.2. The district judge referred the matter to a magistrate. The magistrate judge recommended granting dismissal of the Amended Complaint in its entirety, finding that the Exchange Agreements was a binding contract and that, under Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967) and Granite Rock, the Holding Corporations' challenges were reserved for an arbitrator or a court of law.*fn8 The district court adopted the Report and Recommendation. This appeal follows.

II.

We turn first, as we must, to the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1 et seq. It provides that a written arbitration agreement in certain contracts "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Because of the FAA, federal courts are required to place arbitration clauses on equal footing with other contracts. Rent-A-Center, ...


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