INTL FCStone Markets, LLC v. Intercambio Mexicano de Comercio S.A. de C.V.

Background

INTL FCStone Markets, LLC, a financial services firm, sued its former client, Intercambio Mexicano de Comercio S.A. de C.V., for breach of a Terms of Business Agreement. The agreement covered trading services involving swaps and over-the-counter derivatives and required Defendant to pay margin calls by noon New York time on the next business day.

The agreement allowed the performing party, after an event of default such as a failure to pay, to give written notice designating an early termination date for outstanding transactions. On December 11, 2017, Plaintiff emailed Defendant a margin call for $408,980.74. Defendant paid $50,000 that day. Plaintiff sent a written notice of failure to pay on December 12, stating that an event of default existed and warning that the account would be liquidated if payment was not made. Defendant claimed it did not receive the notice and did not pay the margin call. After additional unpaid margin calls, Defendant’s positions were liquidated by stop orders on December 22, 2017. Plaintiff later notified Defendant that a net settlement amount of $494,500.50 was due.

Counterclaim

Defendant denied breaching the agreement and counterclaimed for breach of contract. It alleged that Plaintiff breached the agreement by failing to specify an early termination date before liquidating the account. Defendant sought $359,000 for payments made to satisfy margin calls and $1.4 million in lost profits from cocoa futures positions.

Plaintiff moved to dismiss the counterclaim under Rule 12(b)(6), which allows dismissal when a pleading does not allege enough facts to state a legally plausible claim. Defendant moved for summary judgment, which asks the court to rule without a trial because no genuine dispute of important fact exists, on both Plaintiff’s claim and the counterclaim. Defendant also requested a definite award of $359,000.

Court’s Analysis

The court held that Defendant had not plausibly alleged damages caused by Plaintiff’s alleged breach. Regarding the $359,000 theory, Defendant admitted that the payments covered its own debt to Plaintiff but did not explain why properly made payments should be returned. Defendant also did not allege facts showing that Plaintiff’s failure to specify an early termination date caused the claimed loss. The court noted that Defendant’s account termination was triggered by Defendant’s failure to meet its obligations and that the liquidation resulted from stop orders triggered by falling prices.

The court also rejected the $1.4 million lost-profits theory. It held that Defendant did not plausibly allege that Plaintiff’s alleged breach caused the loss because the liquidation resulted from Defendant’s failure to pay margin calls. In addition, the alleged lost profits were consequential damages, meaning losses from related business arrangements rather than the contract’s direct and immediate benefits. Defendant did not plausibly allege that Plaintiff knew about Defendant’s plan to hold the cocoa positions until mid-April 2018, that the claimed profits were within the parties’ contemplation when they made the agreement, or that the amount could be proven with reasonable certainty.

The court further held that Defendant’s failure to pay the margin calls was a material breach of the agreement. Plaintiff’s alleged later breach would not excuse Defendant’s earlier breach or prevent Plaintiff from recovering damages caused by Defendant’s breach. The court stated that any later breach by Plaintiff could at most reduce the amount Plaintiff could recover, absent a showing that Defendant’s damages exceeded Plaintiff’s damages.

Disposition

The court granted Plaintiff’s motion to dismiss Defendant’s counterclaim and dismissed the counterclaim with prejudice. The court denied Defendant’s motion for summary judgment on Plaintiff’s breach-of-contract claim and denied Defendant’s motion for summary judgment on its counterclaim. The court also scheduled a status conference for January 20, 2023, and directed the Clerk to terminate the two motion entries.