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March 21, 1975

DORSEY & COMPANY, INC., Plaintiff,

Edward Weinfeld, District Judge.

The opinion of the court was delivered by: WEINFELD

EDWARD WEINFELD, District Judge.

Plaintiff, Dorsey & Company, Inc., a stock brokerage house located in New Orleans, Louisiana, brought this action against Banque National De La Republic D'Haiti ("Banque") for damages allegedly caused by Banque's negligence in handling stock certificates and drafts transmitted to it for collection by plaintiff's agent, the Hibernia National Bank ("Hibernia Bank"), also located in New Orleans. The stocks in question had been purchased by plaintiff for the account of two of its customers, Williams Investors and Whitkind Realty; it was at their instruction that plaintiff, on September 25, 1972, caused the stock certificates and drafts totalling $628,434.64 to be sent by registered mail to defendant Banque for collection from one Paul Supart & Co.

 The instructions contained in the collection letters accompanying the stock certificates and drafts directed the Banque to deliver them against payment by Paul Supart, the drawee, and to remit the proceeds by cable. The instructions further provided that in the event of nonpayment of the drafts, or delay in payment or acceptance, or dishonor the Banque was to notify the Hibernia Bank promptly stating the reasons therefor.

 The Banque received the documents and stock certificates on or about September 29, 1972; however, for reasons set forth hereafter, it never presented the drafts or received payment, nor did it notify the Hibernia Bank promptly of delay in payment or acceptance giving reasons therefor. The package containing the certificates and the drafts was returned to the Hibernia Bank on December 22, 1972, by which time the value of the shares was considerably lower than on the date when the Banque received them on September 29, 1972. The plaintiff, having been unable thereafter to collect payment from its customers, Williams Investors and Whitkind Realty, sold the securities at a loss, which it seeks to recover.

 The evidence upon the trial established that on or about September 30, 1972, a day after the package containing the drafts and certificates arrived at the Banque, Banque sent it to the post office at Haiti for return to the Hibernia Bank. However, as the defendant itself acknowledges, "inexplicably, the Haitian Post Office did not return the package containing the certificates and drafts until on or about December 1, 1972, and then by steamship," and, as noted, the package was delivered to the Hibernia Bank three weeks later on December 22, 1972.

 Prior thereto other events had occurred. The Hibernia Bank, not having heard from Banque, cabled it on October 2, 1972, requesting confirmation of the receipt of the documents and information as to whether they were paid. The Banque responded on October 11th by cable to the Hibernia Bank that the documents were "apparently not received to date." On October 17th Hibernia Bank again cabled Banque: "Please investigate again and cable results"; this was followed up on October 20th when the Hibernia Bank sent another cable to Banque: "As soon as you receive advise urgently by cable." On October 26th Hibernia Bank again cabled Banque requesting that it be advised by cable of the receipt or non-receipt of the documents. Finally, on October 31st Banque cabled Hibernia Bank that the documents had not been received to date. On November 16th, acting under the belief that the documents had been lost in the mails, and stating that "our post office has been unable to get a reply from the Post Office in Haiti," the Hibernia Bank sent duplicate copies of the collection letters to Banque, requesting Banque to assist it in tracing the package of documents and to complete mail loss affidavits. Hibernia Bank then followed up on November 20th with another cable requesting confirmation of its letter and of the Banque's intention to provide the mail loss affidavits. Still without word from the Banque on November 28th, a representative of the Hibernia Bank called an official at the Banque in Port-au-Prince, who apparently professed lack of knowledge of the matter, whereupon the representative of the Hibernia Bank on that day sent another letter to the Banque confirming their conversation and enclosing a copy of its November 16, 1972 letter and additional mail loss affidavits with a request they be completed and returned immediately.

 At this point, in the beginning of December 1972, Banque officials for the first time conducted an investigation which, according to them, revealed that a mail clerk, believing the documents were sent to the Banque in error, since Supart was not known in Haiti, had delivered them to the post office for return to the sender on September 30th. The Banque's comptroller, who supervised the investigation, testified that the Collection Department was unaware of what the mail clerk had done with the documents. However, the Banque is responsible for the actions of its employees, whether employed in the Mail Department or in the Collection Department. Additionally, there is no explanation for the delay in answering Hibernia's cables and letters of inquiry, or for the misstatement that the documents apparently had not been received, or for failure to notify the Hibernia Bank promptly of nonpayment, no matter what the reason. A prompt inquiry would have disclosed the facts when the Hibernia Bank, on October 2, first requested confirmation of the receipt of documents, and thereafter when cable after cable was sent. The Banque clearly was negligent in the handling of the transaction; its acts and omissions to act were not only negligent, but misleading. Indeed, the Banque practically conceded its negligent conduct when on December 19th it cabled the Hibernia Bank that it had returned the documents "by error on September 30, 1972 thru the post office," added that "we are at your disposal for collecting" the items, and concluded with "apologies."

 The parties are in agreement that the law of Haiti governs on the issue whether the conduct of defendant casts it in liability to plaintiff, and that two provisions of the Haitian Civil Code are applicable:

"Article 1168 -- Any act by a person which causes prejudice to another, obliges said person through whose fault the prejudice occurs, to repair it."
"Article 1169 -- Everyone is liable for the prejudice he has caused, not only through his act, but also through his carelssness or imprudence."

 The parties also agree that "carelessness or imprudence" connotes the usual standards in determining negligent conduct.

 The legal expert called by defendant acknowledged the applicability of these provisions to the issues at hand. However, without citation of authority, based upon a hypothetical question, he expressed the opinion that upon the facts both the plaintiff and defendant were negligent, and in consequence the defendant would not be held liable. He was of the view that the greater fault was with the plaintiff because it failed to furnish the address of the drawee. However, the determination of the fact issue is, of course, for the trier of the fact. I find no basis upon which to hold that plaintiff was negligent in this transaction. The expert was voluble but far from impressive, and considering that he was counsel for defendant Banque, to whom he previously had given an opinion exonerating it from liability, he can hardly be considered an objective witness.

 The defendant persists in its contention that plaintiff was also at fault, that plaintiff's contributory negligence was a proximate cause of its losses, and that plaintiff is therefore barred from recovery. Essentially, defendant's claim is that the plaintiff had failed to use due diligence to ascertain the essential facts pertaining to the principals of Williams Investors and Whitkind Realty; that these principals were engaged in fraudulent activities; and that the direction to present the drafts for payment by Paul Supart in Port-au-Prince, Haiti, was itself part of a fraudulent scheme, since Paul Supart either did not exist or had no place of business in Port-au-Prince. To support its claim that plaintiff was contributorily negligent, defendant contends that plaintiff, in connection with the Williams Investors and Whitkind Realty accounts, violated various rules and regulations: SEC Rule 15b10-3, *fn1" the "Suitability Rule"; Rule 405 of the New York Stock Exchange, the "Know Your Customer" Rule; SEC Rule 15b10-4, *fn2" which among other things requires supervision of customer accounts; and sections 4(c)(2), (5) and (8) of Regulation T. *fn3"

 It is defendant's contention that if the plaintiff had used due care throughout its dealings with the accounts in question, and had not violated the rules and regulations referred to above, it never would have opened the two accounts and never would have sent the drafts and stock certificates to the defendant Banque for collection -- or, put another way, that plaintiff, through its own negligence, set in motion a series of events which, in any event, could only have resulted in a return of the certificates and unpaid drafts. This defense must ...

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