On February 23, the U.S. Court of Appeals for the Second Circuit vacated the district court’s dismissal of a fraud case brought by Simmtech Co. Ltd. — a Korean circuit board manufacturer — against Citigroup Inc. and certain of its affiliates. Between 2006 and 2008, Simmtech purchased “knock in knock out” derivatives contracts (commonly known as KIKOs) from Citigroup. The KIKOs were meant to hedge against the risk of fluctuations in the value of the Korean won. Simmtech purchased the KIKOs to protect itself against the risk of loss in the event that the won decreased in value between the time that Simmtech made sales and the time that it actually received payment. When the won tumbled in 2008, the company ultimately lost $73 million in connection with 15 Citigroup KIKO contracts.
Simmtech was unsuccessful in a lawsuit that it brought against Citibank Korea in the Korean courts. In July 2013, Simmtech filed a complaint in New York state court against Citibank N.A., Citigroup Inc., Citibank Overseas Investment Corp., Citibank Holdings Inc., and Citigroup Global Markets Inc. (collectively, “Citigroup”), which Citigroup removed to federal court. The complaint alleged that Citigroup failed to disclose to Simmtech that KIKOs were risky and complex instruments that exposed Simmtech to extensive losses. The complaint sought $73 million in damages, alleging fraud, negligence, breach of fiduciary duty, and violations of Korean law. Simmtech also alleged that Citigroup took advantage of its lack of expertise with derivatives and unfamiliarity with U.S. law and the English language.
In 2015, U.S. District Judge Katherine Forrest dismissed the suit on forum non conveniens grounds, finding that Seoul was the proper venue for the case because Simmtech negotiated and executed the derivatives contracts at issue in South Korea with Citibank Korea. This week, the Second Circuit vacated the district court’s decision, finding that “the district court failed to appreciate that [Simmtech’s] complaint is grounded in the theory of agency,” in that much of the relevant conduct was directed by Citigroup from New York. In particular, the Second Circuit noted that Citibank Korea’s marketing materials used Citigroup logos, confirmations of the derivatives purchases at issue were issued by Citigroup, and a disclosure report relating to one of the KIKOs was attributed to Citigroup. Thus, the court concluded that “there are a multitude of contacts with New York that indicate a strong likelihood that witnesses and evidence are most conveniently produced in plaintiff’s chosen forum,” New York. The case is Simmtech Co. Ltd. v. Citibank N.A. et al., No. 15-736-cv, and the summary order was issued by Circuit judges Rosemary S. Pooler, Peter W. Hall, and Susan L. Carney.