DECISION AFTER BENCH TRIAL At summary judgment, this court dismissed plaintiff’s claim for breach of fiduciary duty, but declined to dismiss plaintiff’s claim for negligent misrepresentation. The Appellate Division, First Department affirmed this decision (216 A.D.3d 592 [1st Dep't 2023]), recognizing there were issues of fact concerning whether or not the parties had a special relationship. The case therefore proceeded to a bench trial on the issue of negligent misrepresentation. The facts of this case are delineated in this court’s summary judgment decision, Era Capital L.P. v. Soleil Chartered Bank, 2023 WL 158783 (N.Y. Sup. Ct. Jan. 10, 2023). The court presumes familiarity with that decision and will not repeat the facts again except as to those that are relevant to this decision after trial. In sum, this dispute arises from a failed letter of credit (“LC”) transaction that involved plaintiff ERA Capital L.P. (“ERA”) and defendants Soleil Chartered Bank (individually, “SCB”), Soleil Capitale Corporation (individually “SCC,” but together with SCB, “Soleil”), and Regions Bank (“Regions”). ERA alleges that Regions, who merely “advised”1 on the LCs, failed to investigate Soleil. Instead, according to plaintiff, Regions negligently told plaintiff that Soleil was “good” to be the LC’s issuer, even after Regions received information that plaintiff claims should have led it to suspect that Soleil would issue LCs with no intention of making good on them. However, at trial, plaintiff failed carry its burden to establish Regions had a duty to vet the bank or verify collateral. Plaintiff did not carry its burden to establish the parties had a special relationship sufficient to satisfy a claim for negligent misrepresentation. Nor did plaintiff establish that the information Regions did impart was incorrect. Plaintiff also did not establish reasonable reliance. FACTS — RELEVANT INDIVIDUALS Amira Shapira (“Shapira”) is the managing director and decision maker for ERA, a real estate investment company. ERA, or an affiliate, was the beneficiary on the two LCs in this case: (1) the $900,000 LC Soleil issued on February 26, 2018 (“$900K LC”); and (2) the $1.8M LC Soleil issued on March 22, 2018 (“$1.8M LC” [see J-18]). Only the latter LC is at issue in this case. That $1.8M LC was set to expire on June 22, 2018, and was for the account of IR Real Investments GMBH (“IR Real”) to secure ERA’s short-term loan of up to $925K for IR Right Investment GMBH (IR Right). Amir Bramly is the individual with whom Shapira dealt with exclusively on the two loans, ostensibly to fund real estate projects. During the negotiations concerning the loans related to the LCs at issue in this case, Bramley’s businesses were in liquidation and his assets frozen in Israel. Bramly was convicted of operating a scheme that bilked investors out of $150 million and sentenced to 10 years in prison in October 2020, while this case was pending. Simon Asseraf was the broker on the LCs. Although Bramly was the one obligated to pay the broker fee, ERA paid it, even before loaning any money, presumably to hide Bramly’s involvement with the transaction. Bramly asked Shapira to fund the fee and would pay back Shapira’s father in Israel (D-93). Govind Srivastava (“Srivastava”) was the owner and chief executive of SCC. (Trial Tr. ["TT"] 676-77, 718-19). SCC allegedly marketed LCs that SCB issued (TT 683, 720). Jyoti Maewall, Srivastava’s sibling, worked with Asseraf on behalf of SCC to document the LCs. Maewall did not know any details concerning SCB, despite partnering with it on letters of credit. Maewall did not know the identity of its owners, officers, directors, employees, type of entity or its relationship with SCC (TT 683-84). Other than claiming SCB was a Lichtenstein trust, Srivastava had no documentation, policies or information about the bank or its formation, ownership, or management, other than a copy of a Comoros banking license (TT 743-46). The alleged bank has no presence, operations, assets or licenses in the US, despite allegedly issuing LCs (id.). Srivastava testified it was a mere coincidence that both entities have the name “Soleil” (TT 747), a coincidence the court finds stunning considering the amount of collaboration between the two entities. There is no written agreement between the two entities (TT 747-48). SCC keeps all LC fees and Srivastava did not know how SCB benefits from its issuance of LCs (TT 748). Regions provides various financial and banking-related services in the U.S. and served as ERA’s primary U.S. bank since about April 2015, after Shapira opened two accounts. Carson Strickland (“Strickland”) was a Senior VP in Regions’ Global Trade Finance Department, that markets LCs and other cross-border financing products. Donald N. McCorkell, Jr. (“McCorkell”) is a Senior VP at Regions and is the LC department manager to whom Shapira was referred after he requested assistance with ERA’s needs in the two LC transactions. Shapira professed to be unfamiliar with LC transactions to McCorkell. FINDINGS OF FACT Some troubling facts came out at trial concerning the underlying transactions and the persons involved. The actual transaction for which plaintiff needed the first letter of credit was to secure a loan to Roy Tzvi Horowitz for approximately $500,000. Subsequently, plaintiff needed a second LC to secure a short-term loan of up to $925,000 to IR Right. Roy Tzvi Horowitz is none other than Bramly’s brother-in-law. As mentioned earlier, Bramly was under indictment and his assets frozen at the time the events in this case took place. Despite the freezing of his assets, Mr. Bramly is also likely the true owner of IR Real. This is because, although the loans did not go to Bramly directly, or a company he owned, Shapira’s negotiations for the loans underlying the LCs were entirely with Bramly. In addition, the draft LC emanated from Bramly’s email account. Shapira was also aware that, at the time he was negotiating a loan with Bramly, Bramly’s assets were in receivership having been placed in permanent liquidation in Israel. Before he loaned a dime, Shapira knew that Bramly could not pay Asseraf, the broker, directly. Instead, Shapira helped to avoid Bramly’s involvement by having ERA pay the broker fee, and Bramly would repay that fee to Shapira’s father in Israel (see D-93 [from Bramly "Hi, there is an account in that I can transfer (not from me or related to me) $30,000 (in NIS) that you will transfer in US dollars?"]). Indeed, Shapira was poignantly aware of the trouble dealing with Bramly could cause. Previously, circa 2013, Bramly had talked Shapira, a Canadian citizen, into being a director of a company so that Bramly could operate in Quebec. That company, Capitalix, was included in the receivership of Bramly’s assets. As a result, Shapira was forced to dissolve Capitalix in June 2017 (TT 38-39). Nevertheless, despite expecting Regions to investigate the bank that would issue the LC, Shapira never disclosed Bramly to Regions at all. He did not inform Regions that he was negotiating entirely with Bramly and that Bramly likely was the true interest on the other side of the loan transaction. Shapira never disclosed that Bramly could not have anything to do with the transaction due to his 2016 asset freeze. Nor did Shapira disclose to Regions that Bramly had been indicted in the summer of 2016 for, inter alia, money laundering, fraud and bilking investors to the tune of $150M (TT 36-37; 168, 200-201; 218-220). Instead, Shapira and Bramly ensured there was no record of Bramly’s involvement in the loans or the LC transactions. ERA paid the broker on the LCs and helped Bramly hide his involvement. None of the documents involving the two loans or the LCs disclosed Bramly. Nor did Shapira disclose his past business transactions with Bramly that ended badly. Shapira claims that had he known that Soliel was shady, he would never have entered into the LC transaction. The same can be said of Regions. Had Shapira disclosed Bramly to Regions, it would not have participated (Direct Examination Affidavit of Donald McCorkle [EDOC 238] ["McCorkell Aff.], 9). A. The Sequence of Relevant Events, Generally Before contacting Regions, Shapira testified that it was Bramly who suggested an LC to secure loans that ERA would make to a company Bramly controlled: “Bramly assured me that the LC would be secure collateral. Bramly advised me that the borrower would have substantial assets with the issuer of the LC so that the LC would be fully collateralized. These statement [sic] matched my knowledge of how LCs were issued. I had no idea that an LC could issue without the issuer holding assets of the borrower to back up the LC. If McCorkell had told me that Soleil may not have assets as collateral, the loans would not have been made” (Direct Examination of Amir Shapira [EDOC 277] “Shapira Aff. 18). After speaking with Bramly about backing up the loans with a LC, Shapira approached Regions for assistance with obtaining one for his father’s company, an affiliate of ERA. Eventually, he was referred to McCorkell. After a phone call in or around January 23, 2018, McCorkell emailed Shapira: “Amir, nice speaking to you earlier. We would be happy to accommodate the standby letter of credit in your favor. As discussed, we would need your customer’s bank (preferably a US based bank) to do the following. Issue a standby letter of credit in favor of ERA Capital in the amount of $XXX, advised and confirmed by Regions Bank. The letter of credit must be subjected to the UCP600 or the ISP98. The credit must be irrevocable and must show a definite expiry date. The credit can be automatically renewable with 60 notice of non-renewal notification clause. The credit must be in US dollars and be payable against a simple statement that ‘Applicant has defaulted under that certain agreement between ERA Capital and XXX, dated xx/xx/xxxx’” (J-8). The next day, January 24, 2018, Bramly sent Shapira a WhatsApp message with information related to the LC transaction they had discussed (see D-83-85; see also D-90). The message contained two documents: 1) a proposed draft LC; and 2) a document that listed, amongst other things, the issuing bank’s SWIFT code information (id.). The proposed draft listed the issuer’s name as “S CHARTERED BANK, NEW YORK.” but did not list applicant or beneficiary names (D-84). The second document listed Standard Chartered Bank as the issuer and provided its SWIFT information, address, city, and postal code. Shapira forwarded Bramly’s draft to McCorkell. On January 30, 2018, Shapira sent McCorkell a ‘corrected draft’ of the LC and asked him to confirm that the changes were correct (J-11 at 0000000316). The draft was for a $900,000 irrevocable standby LC that “S CHARTERED BANK” would issue in ERA’s favor as beneficiary, and listed IR Real Investments GMBH as the applicant (D-88). On January 31, 2018, at 10:50 am, McCorkell replied that he was on a plane but just landed and that the draft Shapira had emailed him “[was] fine” (J-39). It is highly likely that Bramly drafted the draft LCs. This is because Srivastava testified that SCB did not use “S. Chartered Bank” on its LC instruments (TT 725), while Maewall did not prepare the draft (TT 659). Maewall worked with Asseraf, the LC broker, and did not receive this draft from him. Considering that Shapira received drafts of this document directly from Bramly, it is probable Bramly drafted it (D-83-85; see also D-90). On February 21, 2018, on an unrelated LC transaction, also involving Soleil, McCorkell forwarded an email to Strickland and asked him the following: “Ever heard of this customer [Petroleo] sir? Never heard of them. They have an account with 1,100.00 and they use it exclusively for UBER riders and at Walgreens” (P-3). Two minutes later, Strickland replied that he was not familiar with Petroleo, but assumed they were a branch client (J-20). He also commented that “Soleil is kind of shady — one of those companies that will just issue [LCs] because they are on SWIFT…” (id.). Strickland testified that his comment was an “off-the-cuff” remark after he conducted a short Google search (Direct Examination Aff. of Carson Strickland [EDOC 238] ["Strickland Aff."],
7, 14). On February 25, 2018, Bramly sent Shapira a message with a copy of the LC (2/25/18 Message With Draft LC From Bramly to Shapira [D-94]). This copy identified the issuer as Soliel for the first time (id.). Bramly did not bring to Shapira’s attention that he had switched banks. Nor did Shapira notice the switch. A day later, on February 26, 2018, Shapira sent McCorkell the standby LC Soliel issued, that Shapira had received from Bramly. Shapira asked McCorkell to “confirm once the SWIFT [hits] the bank and that everything looks in order” (J-10). At 9:51 am on that same day, McCorkell responded to Shapira’s email and stated the following: “Amir, they totally threw me with the name of the issuing bank. I have asked my compliance officer to quickly do a background check on Soleil Chartered Bank and get back to me. In the past communications they list themselves as S. Chartered Bank, which I interpreted to be Standard Chartered Bank. Hold tight and I will get back to you shortly” (J-11 [emphasis added]). Shapira never disclosed that he had received the LC from Bramly. At no point did Shapira inform Regions that Bramly, who was under indictment for fraud, with all assets frozen, had chosen this bank. Shapira claims that he “sought clarification from Bramly, who advised me that Soleil was only an intermediary bank for the LC” (Shapira Aff. 40). The “check” McCorkell referred to in his email was a “regulatory compliance check required by the Bank Secrecy Act and anti-money laundering regulations and [involved] reviewing the OFAC [Office of Foreign Asset Control of the U.S. Dep't of Treasury] website [and] [determining] if any of the parties were listed” (“OFAC Check”) (McCorkell Aff., 16). McCorkell advised Shapira of the limited nature of this check: “I also advised Mr. Shapira of the nature of the regulatory background check that Regions was conducting, specifically, that it was an OFAC check and that Regions runs the parties’ names through the government website to see if there are any matches to names that the U.S. Government had listed as prohibited parties” (id., 17). McCorkle also told Shapira that because Regions was not familiar with SCB, it could only act as “advising bank” (id., 17). McCorkell watched as the check was conducted, and the results were returned, without any positive hits (id., 18; see also J-26 OFAC Report at RB _6069). Regions regularly conducted OFAC Checks for all LC transactions (McCorkle Aff., 16). McCorkle also felt comfortable with advising the LC as it was issued through SWIFT, meaning Soleil was vetted, verified, and had passed a rigorous screening test designed to eliminate fraudulent parties in similar transactions (id., 22). At 10:44 am, 53 minutes after he stated to Shapira that he requested his compliance officer to run a background check, McCorkell sent another message to Shapira that stated the following: “Amir, this bank is good but I would have preferred Standard Chartered Bank. One change needed to be made on the LC. It is asking for an authenticated SWIFT if/when you are claiming and I am sure you do not have SWIFT capabilities. Please have them change that to ‘Written certification signed by an authorized officer of ERA Capital L.P.”‘ (J-12). The next day, February 27, 2018, Shapira followed up with McCorkell and emailed him the following: “Hi Donald, Did the representative for the LC creator spoke to you [sic]. I want to make sure everything is ok. Please contact me when you can…” (J-27). Shortly thereafter, on March 1, 2018, at 2:17 pm, Strickland sent McCorkell an article from the Documentary Credit World titled “Fraudulent Letters of Credit; Commercial Fraud” (“DCW Article”) and stated that “[he] saw [the article] in the [DCW] [and][hoped][the] transaction went away” (J-21). The article summarized legal proceedings against Soleil in New York State Supreme Court that a LC customer initiated seeking recovery on “partial payment of an issuance fee for a $25 million [LC]” (J-21 [emphasis added]). Strickland testified that his comment referred to the unrelated Petroleo transaction with Soleil (Strickland Aff., 12) and that it was unusual for him not to have heard of a proposed letter of credit before the credit department learned about it (id.). McCorkell testified that he only glanced at the article’s headline and that he remained unconcerned about the ERA transaction because the article involved the unrelated Petroleo transaction (McCorkell Aff., 58). He was also unconcerned because the disputes the article referenced were between an account party and an issuer, and stemmed from the payment of LC issuance fees, not an issuer’s potential dishonor of a demand under an LC. Moreover, “[he] [was] not a lawyer and would not advise a customer regarding litigation” (id.,
