Milbank, Tweed, Hadley & McCloy LLP has achieved a significant victory before the United States Court of Appeals for the Second Circuit on behalf of Citibank, N.A. (“Citibank”) and its affiliates against a lawsuit brought by Simmtech Co., Ltd. (“Simmtech”), in which the South Korean circuit board manufacturer alleged that it lost $73 million at the height of the 2008 global financial crisis as a result of foreign exchange options trades it entered into with Citibank’s Korean affiliate, Citibank Korea Inc. (“CKI”).
The Second Circuit affirmed the decision of the district court in Simmtech Co., Ltd. v. Citibank, N.A., et al. in which it granted Milbank’s motion to dismiss Simmtech’s Second Amended Complaint with prejudice on the grounds of res judicata and collateral estoppel, statute of limitations, and failure to state a claim.
In July 2013, Simmtech filed an action against Citibank and several other members of the Citigroup family of companies, for claims arising from Simmtech’s purchase of so-called “knock-in, knock-out” or “KIKO” foreign exchange options from CKI. According to the complaint, from approximately 2006 to 2008, CKI entered into a series of KIKO trades with Simmtech. These KIKO options referenced the value of the US dollar and the Korean won, and allowed Simmtech to hedge the exposure to the US dollar that it faced when it received payment for its goods in US dollars. As a result of the financial crisis and its effects on foreign currency exchange rates, Simmtech claims that it incurred approximately $73 million of losses on the KIKO trades.
Milbank, on behalf of all Defendants, removed this action to the United States District Court for the Southern District of New York, defeated a motion to remand the case, and ultimately successfully moved to dismiss Simmtech’s Second Amended Complaint on a number of grounds, including res judicata and collateral estoppel, statute of limitations, and failure to state a claim.
Simmtech subsequently filed an appeal to the Second Circuit, seeking to reinstate its fraud and negligence claims. Oral arguments were held on May 9, 2017, and on September 6, 2017, the Second Circuit affirmed the district court’s decision, agreeing with its “thorough and well-reasoned opinion.” The Second Circuit found, among other things, that CKI’s purported statements were not misrepresentations, that “Simmtech understood the inherent volatility and unpredictability of exchange rates,” and that “Simmtech had not plausibly pled that it was not properly apprised of the risks” of the KIKO transactions.
The decision is significant as hundreds of KIKO cases have been litigated in Korea. Milbank’s win in this US test case serves as strong precedent against future attempts by Korean plaintiffs to relitigate many of these lawsuits in the US against deeper-pocketed US affiliates.
The Milbank team representing Citibank is led by Litigation partners Scott A. Edelman, Daniel Perry and Jed Schwartz, along with Litigation associates Taryn Gallup and Daniel Kaplan.
