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MATTER FRANK WILLE (06/12/68)

SUPREME COURT OF NEW YORK, SPECIAL TERM, NEW YORK COUNTY 1968.NY.42070 <http://www.versuslaw.com>; 308 N.Y.S.2d 520; 61 Misc. 2d 992 June 12, 1968 IN THE MATTER OF FRANK WILLE, AS SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK, PETITIONER. INTRA BANK, S. A., ET AL., RESPONDENTS Hughes, Hubbard, Blair & Reed (Francis Reed and Powell Pierpont of counsel), for petitioner. Robert Morgenthau, United States Attorney (Lawrence W. Schilling of counsel), for United States of America, respondent. Bigham, Englar, Jones & Houston (Robert B. Budelman of counsel), for Middle East Airlines, respondent. Milbank, Tweed, Hadley & McCloy (William E. Jackson and A. Sidney Holderness, Jr., of counsel), for Chase Manhattan Bank, respondent. Bernard Bernstein for Pehle, Reimer, Luxford & Naiden, respondent. William Mellon Eaton and John G. Houser for Intra Bank, S. A., respondent. Lee, Mulderig & Celentano (Peter J. Malloy, Jr., of counsel), for American Life Ins. Co. and others, respondents. William C. Hecht, Jr., J. Author: Hecht


William C. Hecht, Jr., J.

Author: Hecht

 Intra Bank, S. A. ("Intra Beirut"), a banking corporation organized under the laws of the Republic of Lebanon, was licensed to maintain a branch in New York City ("Intra NY"). On October 15, 1966, the Superintendent of Banks took possession of the business and property of Intra NY and determined to liquidate its affairs, pursuant to section 606 of the Banking Law.

The time for filing claims expired on July 20, 1967. The Superintendent allowed claims aggregating $913,656. He rejected the following claims:

United States, on behalf of Commodity Credit

Corporation ("CCC") $21,010,766

Claims involved in actions pursuant to Banking

Law, § 625 5,850,918

$26,861,684

The Superintendent has available quick assets of $1,532,810, which are subject to the expenses of administration. The other assets include (a) the building at 680 Fifth Avenue, presently subject to a sale on sealed bids authorized by this court, on which the anticipated net realization is approximately $3,500,000; and (b) causes of action against various banks, as to which no estimate of anticipated realization is made.

The Superintendent has submitted for approval a proposed Agreement of Compromise with the United States, pursuant to section 618 (subd. 1) of the Banking Law. This provides, in substance, that the Superintendent

(a) accepts CCC's claim as valid;

(b) will pay in full, with maximum statutory interest, all other valid claims against Intra NY (and all costs of administration and liquidation) before making payment on account of CCC's claim;

(c) will assign to the United States all his rights in the causes of action held by him.

The Superintendent has been advised and believes that, if the agreement is approved, he will be able to pay all other valid claims in full with maximum statutory interest, with a balance remaining to be paid to the United States. Moreover, the latter will assume all of the costs and other burdens of the many pending litigations. If the CCC claim be upheld as valid, and if it be found entitled to the statutory priority, there will be nothing left for payment to other creditors. The original priority statute was enacted in March, 1797 (and was subsequently known as U. S. Rev. Stat., § 3466). It is now embodied in the U. S. Code (tit. 31, § 191) and applies in all cases of insolvency. So far as is material here, it provides: "Whenever any person indebted to the United States is insolvent * * * the debts due to the United States shall be first satisfied".

"[CCC] shall have all the rights, privileges, and immunities of the United States with respect to the right to priority of payment with respect to debts due from insolvent, deceased, or bankrupt debtors. The Corporation may assert such rights, privileges, and immunities in any suit, action or proceeding" (U. S. Code, tit. 15, § 714b, subd. [e]).

The Superintendent recommends approval of the compromise. Notice thereof was given to all those involved in the Superintendent's pending litigations, to all persons whose claims were rejected, and to Intra Beirut. A hearing was held on March 27.

The settlement is opposed by Intra Beirut and by Chase Manhattan Bank. Both contend that CCC's claim is not valid, and that if it is invalidated, there will be a surplus after payment to New York creditors. In that event, Intra Beirut points out that its stockholders would be entitled to the surplus (Banking Law, § 606, subd. 4, par. [b]); Chase argues (a) that the Superintendent would be precluded from pursuing his actions against it to recover funds claimed to be due to Intra NY; (b) its right to set off balances held by it in New York against debts owed to it in Beirut would be advantaged.

The duty of a court in passing upon proposed compromises in an insolvency proceeding was recently summarized by White, J., in Protective Committee v. Anderson (390 U.S. 414, 424): "Compromises are 'a normal part of the process of reorganization' Case v. Los Angeles Lumber Prods. Co., 308 U.S. 106, 130 (1939). In administering reorganization proceedings in an economical and practical manner it will often be wise to arrange the settlement of claims as to which there are substantial and reasonable doubts. At the same time, however, it is essential that every important determination in reorganization proceedings receive the 'informed, independent judgment' of the bankruptcy court. National Surety Co. v. Coriell, 289 U.S. 426, 436 * * * There can be no informed and independent judgment as to whether a proposed compromise is fair and equitable until the bankruptcy judge has apprised himself of all facts necessary for an intelligent and objective opinion of the probabilities of ultimate success should the claim be litigated. Further, the judge should form an educated estimate of the complexity, expense, and likely duration of such litigation, the possible difficulties of collecting on any judgment which might be obtained, and all other factors relevant to a full and fair assessment of the wisdom of the proposed compromise. Basic to this process in every instance, of course, is the need to compare the terms of the compromise with the likely rewards of litigation."

In Shielcrawt v. Moffett (59 N. Y. S. 2d 619, 621), Botein, J., said: "In weighing the benefits held forth by the agreement of settlement against benefits dependent on the likelihood of recovery upon the plaintiffs' cause of action, the courts cannot be expected to balance the scales with the nicety of an apothecary. The very object of a compromise 'is to avoid the determination of sharply contested and dubious issues' In re Prudence Co., 2 Cir., 98 F. 2d 559, 560, certiorari denied 306 U.S. 636 * * * However, the facts and the law must be considered carefully and fully, to the end that a true appraisal be made of the plaintiffs' chances of success upon the issues presented, and a correlative conclusion drawn as to the fairness and reasonableness of the proposed compromise."

(See, to the same effect, Zenn v. Anzalone, 17 Misc. 2d 897 [McGivern, J.].)

The court "has apprised himself of all facts necessary for an intelligent and objective opinion of the probabilities of ultimate success should the claim be litigated * * * to the end that a true appraisal be made of [CCC's] chances of success upon the issues presented, and a correlative conclusion drawn as to the fairness and reasonableness of the proposed compromise."

CCC was created "for the purpose of stabilizing, supporting, and protecting farm income and prices, of assisting in the maintenance of balanced and adequate supplies of agricultural commodities * * * and of facilitating the orderly distribution of agricultural commodities" (U. S. Code, tit. 15, § 714). "[CCC] is an 'agency and instrumentality of the United States, within the Department of Agriculture, subject to the general supervision and direction of the Secretary of Agriculture.' It was created by Congress to support farm prices and to assist in maintaining and distributing adequate supplies of agricultural commodities. Its capital was provided by congressional appropriation. Any impairment of this capital, which at times has been great due to the nature of its activities, is replaced out of the public treasury; any gains are returned to that treasury" (Rainwater v. United States, 356 U.S. 590, 591-592 [footnotes omitted]). In the fulfillment of its purposes, CCC was authorized only (so far as is here material) to

"(a) Support the prices of agricultural commodities through loans, purchases, payments, and other operations; * * *

"(d) Remove and dispose of or aid in the removal or disposition of surplus agricultural commodities; * * *

"(f) Export or cause to be exported, or aid in the development of foreign markets for, agricultural commodities; * * *

"In the Corporation's purchasing and selling operations with respect to agricultural commodities * * * the Corporation shall, to the maximum extent practicable consistent with the fulfillment of the Corporation's purposes and the effective and efficient conduct of its business, utilize the usual and customary channels, facilities, and arrangements of trade and commerce" (U. S. Code, tit. 15, § 714c).

In the furtherance of such purpose CCC "may make such loans and advances of its funds as are necessary in the conduct of its business" (§ 714b, subd. [l]).

The credit regulations issued by the Secretary of Agriculture under the authority of the foregoing statutes (GMS 3) limit the authority of CCC's General Sales Manager to issue letters of credit for periods longer than 6 or 12 months. This section of the regulations reads:

"§ 1488.3 (c) Criteria for approving longer credit periods: Credit periods beyond 6 or 12 months but not beyond 36 months may be granted by the General Sales Manager in cases where extension of credit will achieve one or more of the following results:

"(1) Permit U. S. exporters to meet credit terms offered by competitors from other Free World countries.

"(2) Prevent a loss or decline in established U. S. commercial export sales caused by non commercial factors.

"(3) Permit U. S. exporters to establish or retain U. S. markets in the face of penetration by Communist suppliers.

"(4) Substitute commercial dollar sales for sales for local currencies and barter transactions.

"(5) Result in a new use of the imported agricultural commodities in the importing country.

"(6) Permit expanded consumption of agricultural commodities in an importing country and thereby increase total commercial sales of agricultural commodities to the importing country by the U. S. and other exporting countries.

"In considering applications involving export of commodities to eligible countries in a good financial and balance of payments situation, principal reliance will be placed upon subparagraphs (1), (2), and (3) of this paragraph." (Code of Fed. Reg., tit. 7, § 1488.3.)

Another section of the regulations reads as follows: "§ 1488.8 Advance payment. If the exporter receives payment, in whole or in part, from or on behalf of the foreign importer of the principal value of the commodities exported under the credit arrangement prior to maturity of the credit period, he shall remit promptly to CCC such payment received plus interest for the actual credit period utilized." (Code of Fed. Reg., tit. 7, § 1488.8.)

The claim of CCC herein is based upon 53 irrevocable letters of credit issued by Intra NY, in the aggregate amount of $21,010,766, in purported compliance with Regulation GMS 3. The affidavit of the Superintendent describes in detail one such transaction. Examination of the documents submitted by the Superintendent satisfies me that this transaction is fairly representative of 51 of the 53 letters. (The records regarding the remaining two, in the aggregate amount of approximately $200,000, are not available.)

The facts, stated chronologically, are:

1. On December 7, 1965, Archer Daniels Midland Company ("ADM"), an American exporter, submitted the following application to the General Sales Manager: "Subject terms and conditions GSM 3 we hereby make application for credit in amount of 3 million dollars for wheat, approximately 1,900,000 bushels, all qualities, for shipment from Gulf and Eastern ports to Lebanon for payment in thirty-six months plus interest. Payment will be assured by an irrevocable letter of credit issued by a qualified United States bank in the amount of the purchase price plus interest."

2. The General Sales Manager replied on December 14:

"Your application dated December 7, 1965 for a CCC credit arrangement of 36 months covering approximately $3,000,000 worth of wheat for export to Lebanon is approved.

"This approval is subject to the submission to the applicable ASCS Commodity Office of an acceptable assurance of payment from a bank in the United States. A standby type of letter of credit will be acceptable. Purchase of wheat from CCC is to be made within 90 days of the date of this approval. Export of private stocks must take place within 120 days of the date of this approval. For eligible transactions under this credit approval the interest rate will be 5%.

"Your credit approval number is GSM-3108." . On January 18, 1966, a Lebanese miller authorized Intra NY to designate ADM as the exporter of certain wheat "covered by letters of credit in your possession received from US Banks or to be received later."

4. On January 20, a Lebanese bank opened an irrevocable letter of credit, confirmed by Chase Manhattan, for the account of the Lebanese miller in favor of Intra NY.

5. On January 21, Intra NY sent ADM a copy of the letter of credit, and advised ADM that, if it supplied the proper documents required in the letters of credit, Intra NY would (a) "establish our letter of credit in favor of CCC for the amount indicated by you, plus 5% interest per annum; and ...


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