The opinion of the court was delivered by: SAND
The plaintiff Irving Trust Company in this action for fraud, money had and received, conversion and unjust enrichment procured an ex parte order of attachment against the defendants in the Supreme Court of the State of New York, County of New York, on April 23, 1982. Pursuant to New York CPLR Section 6212(a), plaintiff sought an order confirming the attachment. Defendants Daniel Bulos, Carlos Bulos, and Marlene Bulos moved to transfer the action to this court on the basis of diversity of citizenship. The motion to confirm is now presented to this court. In addition, the defendants have moved to vacate the attachments.
For the reasons stated herein, the court confirms the attachments against Mariana Gomez, Aquiles Farias, and the Maximo Gomez P.C. por A, but vacates the attachments against Daniel Bulos, Carlos Bulos, and Marlene Bulos.
The burden of proof with respect to all of these motions is upon the plaintiff. Under NY CPLR Section 6212(a), which governs the granting of a motion to confirm, plaintiff must show: 1) that there is a cause of action and that there is a probability of success on the merits; 2) that there is one or more grounds for attachment; and 3) that the amount demanded from the defendants exceeds all counterclaims known to plaintiff. Section 6223, which governs the granting of a motion to vacate, requires in addition a showing of need for continuing the levy.
In this case the elements other than probability of success on the merits do not pose difficult questions. Since all the individual defendants are nondomiciliaries residing out of state and the defendant corporation is a foreign corporation not licensed to do business in this state, there are grounds for these attachments under Section 6201. Although defendants have asserted that they will bring counterclaims against the plaintiff for damages arising out of its stopping payment on certain checks, these counterclaims will not be considered under Section 6212(a) unless plaintiff does not dispute them but concedes that they are just. See Shearson Hayden Stone, Inc. v. Scrivener, 480 F. Supp. 256, 257 (S.D.N.Y.1979); Burt Printing Co. v. Middle East Media Corp., 80 F.R.D. 449 (S.D.N.Y.1978). Since these counterclaims would necessarily be based on contentions that the defendants acted in good faith, plaintiff's allegations of fraud amply show that plaintiff does not concede the proposed counterclaims are just. Plaintiff claims that the levy must be continued in order to ensure that a judgment in its favor will in fact be satisfied. The nature of the allegations if probability of success on the merits is shown and the difficulty plaintiff would have reaching the assets of these foreign domiciliaries demonstrate the need for security in this case.
The success of plaintiff's claims on the merits depends upon showing that the defendants acted in bad faith in their involvement in certain foreign currency transactions described in more detail below. Plaintiff, of course, must show intent in order to succeed on the merits of its fraud claim. Since defendants have asserted the defense that they were holders in due course under UCC Section 3-302 as to the other causes of action, plaintiff cannot succeed on these causes of action either, without reference to defendants' state of mind.
The bad faith that defeats status as a holder in due course was recently described as follows: "Bad faith, then, is obviously something far more extreme than a failure to observe reasonable commercial standards or the standards of a reasonably prudent man. It 'is not mere carelessness. It is nothing less than guilty knowledge or willful ignorance.' Manufacturers & Traders Trust Company v. Sapowitch, 296 N.Y. 226, 72 N.E.2d 166 (1947). See also Hall v. Bank of Blasdell, 306 N.Y. 336, 118 N.E.2d 464 (1954). The issue essentially is whether the circumstances of which the holder has knowledge 'rise to the level that the failure to inquire reveals a deliberate desire on his part to evade knowledge because of a belief or fear that investigation would disclose a defense arising from the transactions.' General Investment Corp. v. Angelini, 58 N.J. 396, 278 A.2d 193, 9 UCC Rep.Serv. 1, (1971). See also Manufacturers & Traders Trust Company v. Sapowitch, supra." Corporacion Venezolana de Fomento v. Vintero Sales Corp., 452 F. Supp. 1108, 1119 (S.D.N.Y.1978).
At a hearing commencing June 2, 1982, defendants Aquiles Farias, Mariana Gomez, and Daniel Bulos testified. A representative of the corporation Maximo Gomez P.C. por A, hereafter referred to as Gomep, also testified.
The Gomez/Farias/Gomep Attachment
Mrs. Gomez testified that she is the president of the corporate defendant Gomep and its active chief operating officer. She owns approximately 20 percent of its stock and family members own an additional 50 percent. The corporation is engaged in the cosmetic and medicine business and has been in existence for over fifty years and enjoys an excellent reputation.
For many years the corporation's American banking affiliation has been with the Royal Bank and Trust Company in New York. Aquiles Farias, her husband's nephew, served as financial consultant to the corporation and in recent years has been an executive employee of Gomep.
Neither Gomep nor Mrs. Gomez ever engaged in foreign currency transactions prior to the events described herein.
Mrs. Gomez testified that she received a telephone call from one Rafael Martinez, who described himself as an engineer. Martinez was not previously known to her. He offered to sell United States dollars to her because, allegedly, he and his associates were acquiring Dominican Republic pesos to further investment projects that they contemplated in that country. Martinez was a resident of the Dominican Republic, as are all of these defendants.
All witnesses testified that there is active trading in the Dominican Republic in United States currency and that this trading is lawful and is not limited to licensed currency exchange houses. A market parallel to the official Central Bank-administered exchange market exists. The official rate is one US dollar for one Dominican Republic peso. The rate on the parallel market fluctuates but is in the range of one dollar for 1.45 pesos.
Mrs. Gomez testified that she met with Mr. Martinez and that they quickly agreed to the following arrangement: Mr. Martinez would cause large sums of money, in the millions of dollars, to be deposited in an account which Mrs. Gomez would open in the Irving Trust Company in New York. When Irving Trust Company confirmed to her that the dollars were available in the New York account, Mrs. Gomez was to buy the dollars at a rate which was between 20 and 25 percent under the going exchange rate.
Mrs. Gomez conducted no investigation of Mr. Martinez. She could give no satisfactory explanation of why he approached her other than her prominence in the community, or why he was willing to sell dollars to her at a rate so much less than the rate offered by the many available and wellknown foreign currency exchange houses. She testified that Martinez "suggested" that the account be opened in the Irving Trust Company because his associates had good relations with that bank and that she did not mention Gomep's long standing banking relationship with Royal Bank. The Royal Bank account was, moreover, a corporate account. Mrs. Gomez and Aquiles Farias, with whom she conferred on the matter, agreed to engage in these transactions as individuals on an equal partner basis.
Mrs. Gomez and Aquiles Farias went to New York, opened an account at the Irving Trust Company in their joint names, and deposited some $3,426 ($2,000 was the minimum required balance). Thereafter, on two occasions, Martinez alerted them that checks were being deposited to that account. They obtained confirmation of this from Irving Trust by telex and paid Martinez for the United States dollars pursuant to their agreement. The first transaction involved $313,530.77, and the second involved $311,659.75.
There was another unconsummated transaction, unconsummated insofar as Gomez, Farias, and Gomep are concerned, involving a million dollar deposit. Martinez advised that such an amount was placed in the Irving Trust account, which Gomez and Farias had opened. Mrs. Gomez testified she was agreeable and quite receptive to engaging in this transaction. Martinez asked that a letter be sent to Irving Trust, alerting the bank to this anticipated deposit. Mrs. Gomez sent such a letter.
The versions of Mrs. Gomez and Aquiles Farias diverge somewhat with respect to what next occurred. Mrs. Gomez testified that Martinez told her that unbeknownst to him his associates had sold the $1,000,000 to Juan Valerio Sanchez, a prominent elected official in the Dominican Republic. Farias testified that Mrs. Gomez and he had shown great reluctance to engage in the $1,000,000 transaction and to write a letter to Irving Trust concerning the anticipated $1,000,000 deposit, and that Martinez had taken that deal elsewhere because Gomez and Farias were too difficult to deal with.
In any event, Gomez and Farias agreed that they caused a telex to be sent on the Gomep telex machine to Irving Trust in the name of Juan Valerio Sanchez, containing his account number and other data supplied by Martinez, requesting confirmation by reply to the Gomep telex by Irving Trust that a $1,000,000 deposit had been made to a Sanchez account. Both Mrs. Gomez and Aquiles Farias testified that Martinez insisted that the telex be sent to demonstrate to them that he in fact had caused a $1,000,000 deposit to be made to the Sanchez account. Both Mrs. Gomez and Farias acknowledged that it was improper to send a telex in the name of a stranger inquiring as to such confidential matters as a bank account balance, but claimed they did this because Martinez insisted.
The Irving Trust Company asserts that deposits referred to above were false and fraudulent. It appears that some as yet unidentified corrupt Irving Trust Company employee by some means caused the accounts to reflect the deposits although in fact no funds were actually received in the accounts. Irving Trust had by this time issued official bank checks and sent telex confirmations based on the false deposits. It thereafter stopped payment on the checks, instituted this action, and obtained the attachments which are the subject of this proceeding.
Conclusions as to Gomez/Farias/Gomep
We find that plaintiff has shown probable success on the merits as to these defendants. The transactions Gomez and Farias became involved in were on their face so irregular that their failure to further investigate reveals a deliberate choice to avoid learning the truth. Defendants provided the court with no satisfactory explanation of why they never investigated Martinez, why they thought Martinez would sell dollars at such an excessively unfavorable exchange rate if he could have secured the ordinary rate offered by legitimate foreign exchange dealers, or why the bogus Sanchez telex was sent. Moreover, the minimal explanations that Gomez and Farias did offer lacked credibility.
Because it is likely that these defendants will not be able to show that they became holders in due course and in the light of all the other facts set forth in plaintiff's affidavits, we find that plaintiff has shown probable success on the merits and confirm the attachments against Gomez and Farias.
As to Gomep, we find that the corporate defendant purchased some of these dollars and would have benefited from the transaction; its credit and reputation were utilized in effecting this scam, and plaintiff's demonstration of entitlement to an attachment extends to the corporate defendant as well.
Irving Trust also seeks to attach the assets of the foreign currency exchange dealer to whom Gomez/Farias resold the dollars they obtained from Martinez and who purchased from Jose Ares Guzman some $600,000 of the Sanchez deposit. Irving Trust contends that the actions of Bulos indicate that the transactions were not in the normal course of business and that Bulos is at best not a holder in due course.
Bulos claims that he is a victim who relied upon Irving Trust official checks and confirmations, and moves to set aside the attachment of its New York bank account. (Although only $3,584 has been attached in this proceeding, the vigor with which this matter has been pursued is doubtless attributable to the fact that another pending proceeding in Miami has tied up approximately $400,000 of Bulos funds, and the impact which this attachment allegedly has on Bulos's reputation in his financial community, which is essential to the successful conduct of his business as a foreign currency dealer).
Irving Trust attempts to demonstrate Bulos's bad faith with the following contentions: A) the actions of Carlos Bulos in going to New York in connection with the first Gomez/Farias transaction were inconsistent with the financial gains allegedly realized by Bulos on that transaction; B) the desire of Bulos to have a certified check exchanged for an official Irving Trust check and the speed with which the funds were withdrawn from the United States, which Irving Trust claims is ...