NEW YORK (March 19, 2010) — In a case that will have important ramifications for the enforcement of derivatives contracts signed by foreign companies, on March 18, 2010, Justice Eileen Bransten of the New York State Supreme Court granted McDermott clients Merrill Lynch Capital Services, Inc. and Merrill Lynch Capital Markets AG (collectively, Merrill) summary judgment on Merrill’s breach of contract claims against Controladora Comercial Mexicana S.A.B. de C.V. (CCM).
CCM is one of Mexico’s largest retailers and is a competitor of U.S. discount stores. CCM entered into numerous foreign exchange and interest rate derivatives transactions with Merrill and several other financial institutions. In October 2008, following a precipitous drop in the value of the peso and Euro to the dollar during the financial crisis, CCM defaulted on its derivatives obligations.
Merrill and other financial institutions filed suit in related actions, collectively seeking more than $1.5 billion. Merrill sought nearly $450 million in damages plus attorneys’ fees. In response to Merrill’s claims, CCM sought to void the transactions by asserting numerous affirmative defenses and counterclaims, including fraud and negligent misrepresentation, breach of fiduciary duty, breach of New York State’s deceptive acts and practices statute, illegality under Mexican law, rescission based on illegality under Mexican law, participation in breach of fiduciary duty, and failure to mitigate damages.
The Court granted Merrill pre-discovery summary judgment, holding that the derivatives transactions were enforceable under governing New York law. Not only did Justice Bransten adopt Merrill’s arguments in her 38-page opinion, but she often recited them verbatim from McDermott’s briefs. The McDermott team was led by John T. Lutz and Andrew B. Kratenstein, who took the lead in arguing the summary judgment motions on behalf of all of the financial institutions. Mr. Lutz and Mr. Kratenstein were assisted by associate Audrey Lu.
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