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BANKHAUS HERMANN LAMPE KG v. MERCANTILE-SAFE DEPOS

January 11, 1979

BANKHAUS HERMANN LAMPE KG, Plaintiff,
v.
MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY, ACF Industries, Incorporated, American Bank Note Company, Emery Air Freight Corporation and National Airlines, Inc., Defendants



The opinion of the court was delivered by: BRODERICK

MEMORANDUM ORDER

I

 Introduction

 This case arises out of the theft of a shipment of a series of equipment trust certificate engravings from Kennedy International Airport in New York ("Kennedy") on March 22, 1973, and subsequent use of the engravings as collateral for a loan obtained from plaintiff Bankhaus Hermann Lampe KG ("Bankhaus"), a German banking company. This court has jurisdiction under 28 U.S.C. ยง 1332(a): the plaintiff is a citizen of Germany and the defendants are citizens of various of the United States. More than $ 10,000 is in controversy.

 In this action plaintiff seeks the registration as securities of defendant ACF Industries, Inc. ("ACF") of the engravings it retains. Alternatively, Bankhaus seeks damages from all defendants for the money it loaned in the transaction in which the engravings served as collateral. This action is now before me on defendants' motions for summary judgment. For the reasons hereafter stated, defendants' motions are granted and the action is dismissed.

 II

 The Agreements

 a) ACF and Mercantile

 Defendant ACF is a corporation incorporated under the laws of the State of New Jersey and having its principal place of business in the State of New York. Defendant Mercantile Safe Deposit and Trust Company ("Mercantile") is a corporation incorporated under the laws of and having its principal place of business in the State of Maryland.

 On March 15, 1973, pursuant to a decision by ACF to raise funds through the issuance and sale of a series of equipment trust certificates, ACF and Mercantile entered into an equipment trust agreement ("the Trust Agreement"), with Mercantile as trustee. *fn1" The Trust Agreement created ACF Industries Equipment Trust, Series B and provided for the issuance of 7.95% Sinking Fund Trust Certificates ("the Trust Certificates") in the aggregate principal amount of $ 25,000,000. The Trust Certificates were to be issued as fully registered in denominations of $ 1,000 and multiples thereof.

 b) ACF and American Bank Note

 Defendant American Bank Note Company ("American") is an engraver and printer of corporate securities and other engraved instruments. American is purported to be the largest such engraver in the country.

 ACF initially contacted American on March 1, 1973 and accepted a quotation the following day for the printing of the Trust Certificates. A proof dated March 2, 1973 was prepared, and the parties approved this and subsequent proofs.

 On March 14, 1973 ACF received from American and executed a form of authorization. Pursuant to this authorization, American printed the agreed upon forms ("the engravings"). Each engraving as printed bore the facsimile signature of R. F. Ziemski, Vice President of Mercantile, and the facsimile seal of Mercantile. The engravings as printed were undated, and a space on each for the attestation signature of the Assistant Corporate Officer of Mercantile was left blank. On each engraving the spaces for the name of the registered owner and the dollar amount were also left blank.

 The agreement between ACF and American provided for delivery of the engravings F.O.B. New York and shipment to Mercantile in Baltimore, Maryland by air freight. *fn2"

 c) American and Emery

 On March 21, 1973 American at its Bronx plant consigned a two carton shipment to defendant Emery Air Freight Corporation ("Emery"), a major air freight company with which American had dealt for many years and to which American gave a large part of its business. The consignment, the contents of which were described as "Printed Matter", contained some 12,000 of the ACF engravings.

 d) Emery and National

 On March 22, 1973 Emery entered into an agreement with National Airlines, Inc. ("National"). Per the agreement, Emery was to deliver the two carton ACF shipment to National's facilities at Kennedy. National agreed to receive the shipment and transport it to Baltimore, Maryland. The shipment was then to be delivered to Emery at National's facilities within that city.

 The two cartons were turned over by Emery to National at Kennedy that same day.

 The Loss of the Engravings Notification to Authorities

 On March 22, 1973, Mr. Borst, Assistant Treasurer of ACF, received a telephone call from Mr. Allfree, sales representative of American, informing him that the two cartons of ACF engravings had not been received as scheduled by Mercantile. An arrangement was made that if the engravings were not located, American would reprint them in a different color using different serial numbers.

 It is not altogether clear whether the engravings were initially lost or actually stolen, but they disappeared on March 22, 1973 from Kennedy. The disappearance triggered a series of events which eventually culminated in criminal conduct on the part of third persons, the most relevant person being one Jorn Grimmsmann who presented certain of the engravings to plaintiff Bankhaus in Germany as collateral for a loan (See infra at p. 1138). *fn3"

 Subsequent to the loss of the engravings, Mr. Allfree "informed Mr. Borst that American Bank Note would undertake all necessary actions to locate the missing shipment through the proper authorities. . . ." American in fact notified various agencies of the missing shipment. These agencies included the New York City Police Department, the New York Port Authority police, the New York Stock Exchange, the National Association of Securities Dealers, the American Bankers Association, the American Stock Exchange, the American Banker (a trade publication) and SCITEK (a private agency which informs subscribers in the financial community with respect to lost or stolen securities). No notices were sent to Interpol, the Association of International Bond Dealers, or other non-domestic organizations.

 Plaintiff Bankhaus

 Plaintiff Bankhaus is a German bank in the form of a limited partnership. As such, it is managed by a general partner and other limited partners rather than by directors in the domestic corporate sense of the word. It is a "general bank" it accepts deposits and makes loans, arranges for mortgages and other monies, advises customers with respect to capital investments, and handles securities for its own accounts and for the accounts of its customers.

 Until 1973 plaintiff Bankhaus had had limited experience with American securities. The securities handled for the bank's own account were in large part German. If the securities for the accounts of the bank's customers were to be bought and sold on non-German exchanges, the transactions were handled by foreign correspondent banks or business associates of Bankhaus. Prior to making a loan to Jorn Grimmsmann in April, 1973 (See infra at p. 1138), Bankhaus had not entered into any transactions involving American equipment trust certificates. During the period from January 1, 1970 until April, 1973, Bankhaus had not dealt with any American securities as collateral for loans it made. In short, Bankhaus personnel were not specialists in American securities.

 Bankhaus' Dealings with Jorn Grimmsmann The Loan

 In July, 1972 the manager of Bankhaus' Hamburg branch, Joachim Kebschull, was introduced to one Jorn Grimmsmann by a client of the bank. In August, Kebschull, through Grimmsmann's offices, met two German publishers with whom Kebschull discussed the financing of paper imports. After this discussion, and in light of the favorable impression Kebschull had formed of Grimmsmann's relationship with the publishers, Bankhaus decided to accept Grimmsmann as a client. Factors relevant to this determination were 1) the possibility of further contacts through Grimmsmann with publishing people; 2) information from Grimmsmann that he managed substantial deposits of money belonging to others; and 3) a credit report on Grimmsmann as a member of the Board of Confida, A. G. (a chartered public accounting firm) which report indicated that he was above reproach. *fn4"

 During the second half of 1972 Bankhaus declined to grant Grimmsmann loans "regarding discounting Notes or advances on securities of non-registered loans." These dealings with Grimmsmann led, however "to a sole possibility of working with the securities loan of stock market totally free securities, since allegedly there existed large deposits in behalf of third parties which were being managed."

 In the early part of 1973 Grimmsmann informed Kebschull that he expected to receive a shipment of American securities which he would deliver to the Bank as collateral for a loan. Grimmsmann represented to Kebschull that he was acting on behalf of an American estate. He explained that the heirs wanted to dispose of the securities in Germany due to American tax considerations.

 In February, 1973 Grimmsmann applied to the Hamburg branch of Bankhaus for a personal loan of DM 7,000,000, or approximately $ 2,410,800. *fn5"

 On February 23, the Hamburg branch of Bankhaus forwarded a "Rush Resolution" to a Mr. Winterhoff at its Bielefeld branch. The resolution outlined Grimmsmann's request for a loan with an interest rate of 9.5% Per annum. *fn6" The collateral was to be Treasury bills and "American Stock mostly Blue Chips," including Singer Co., Polaroid Corp., Amerada Hess Corp. Pref., Atlantic Richfield, Sony Corp., Natamos, Disney, Gulf Oil, Fairchild Camera, and General Electric.

 On February 26, 1973 Bankhaus' Central Credit Office approved the above Rush Resolution "subject to the following provisions:

 
1) Maximum borrowing limit: 50% Of securities
 
2) Each security delivered shall be examined as to its borrowing capacity."

 A formal loan resolution dated March 22, 1973 was then submitted. This resolution recited the same interest rate that had been indicated and the same securities that had been listed on the Rush Resolution. Neither the Rush Resolution nor the loan resolution mentioned ACF securities.

 On April 17, 1973 Grimmsmann appeared at Bankhaus' Hamburg branch with 80 purported ACF Trust Certificates that appeared to have a face value of $ 650,000. These "Trust Certificates," and those which Bankhaus thereafter received from Grimmsmann, were in fact a part of the ACF engravings which had disappeared from Kennedy (See supra at pp. 1136-1137). Grimmsmann explained to Kebschull and another Bankhaus official that these engravings were the first shipment of securities from the United States. The bank accepted the engravings and issued a receipt. *fn7" Grimmsmann signed signature cards, an application for a deposit account, and a ...


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