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CITIBANK, N.A. v. REAL COFFEE TRADING CO.

June 24, 1983

CITIBANK, N.A., Plaintiff,
v.
REAL COFFEE TRADING COMPANY, N.V., and RAMIRO RESTREPO, Defendants and Third-Party Plaintiffs v. JAIME RIVAS, SARA RIVAS, AURORA DE LA TORRE, SONIA GONZALEZ, T & R LTDA., JAIME RIVAS & COMPANY, RAYMOND LAST and ABIGAIL ARMS, Third-Party Defendants


Edelstein, District Judge.


The opinion of the court was delivered by: EDELSTEIN

MEMORANDUM OPINION AND ORDER

EDELSTEIN, District Judge:

 FACTUAL BACKGROUND

 For several years prior to 1979, plaintiff, Citibank, N.A. ("Citibank"), provided financing to defendant Ramiro Restrepo ("Restrepo") to ship coffee beans from the Republic of Colombia to the United States. Defendant Real Coffee Trading Company, N.V. ("Real Coffee") is the corporate vehicle for Restrepo's exporting business. In 1979, disputes arose between the parties in which Citibank claimed Restrepo owed it more than $18,000,000 and demanded payment from Restrepo for that amount. In connection with this claim, Citibank applied the proceeds of a $4,000,000 non-negotiable certificate of deposit held at Citibank in Restrepo's name, thereby reducing the amount of its claim to more than $14,000,000. Restrepo challenged Citibank's demand and, more specifically, its improper application of the proceeds of the $4,000,000 certificate of deposit.

 In an attempt to settle their disputes, *fn1" the parties entered into an agreement dated November 16, 1979 establishing a Letter of Credit and a Refinancing Agreement between Citibank and Real Coffee (the "Settlement Agreement"). *fn2" Pursuant to the Settlement Agreement Citibank agreed to forego its right to demand immediate payment of its $14,000,000 claim against Real Coffee. In return, Real Coffee agreed that $14,741,213.52 plus interest would be paid over an extended period of time as evidenced by two promissory notes executed on November 21, 1979 by Restrepo on behalf of Real Coffee to the order of Citibank (the "A Note," and "B Note").

 Additionally, Citibank provided Real Coffee with new financing in exchange for which Real Coffee executed another promissory note (the "D Note") representing its additional obligation to repay Citibank $1,348,837.18 plus interest. *fn3" The aggregate amount which Real Coffee promised to pay Citibank under the A, B and D Notes was $16,090,050.70 plus interest. Each of the notes incorporates by reference the Settlement Agreement. As part of this agreement, on November 21, 1979 Restrepo executed his personal guaranty of Real Coffee's obligations and of its notes.

 Citibank commenced this action on October 7, 1982 by filing a complaint and serving a summons, claiming that Real Coffee and Restrepo have failed to meet their obligations under the A, B and D Notes which have become due and owing. On December 13, 1982 Citibank filed an amended complaint. In the original complaint jurisdiction was predicated on diversity of citizenship, 28 U.S.C. § 1332. When defendants moved to dismiss the complaint for lack of jurisdiction, Citibank consented to the entry of an order dismissing the action as against Real Coffee. Citibank was granted leave to amend its complaint. In the amended complaint jurisdiction is based upon 12 U.S.C. § 632.

 On January 19, 1983 defendants filed their answer to the amended complaint, asserting thirteen defenses and alleging five counterclaims. Some of the defenses and counterclaims allege that the defendants are protected from liability by the act of state doctrine, failure of consideration, fraud in the inducement by Citibank and breaches of the Settlement Agreement by Citibank.

 As their fourth counterclaim defendants allege that Citibank wrongfully converted Restrepo's $4,000,000 certificate of deposit in applying it to amounts Citibank claimed were owed it. Defendants raise as their twelfth defense and fifth counterclaim what is in effect a prolix and somewhat confusing litany of misdeeds, constituting negligence, fraud and economic duress, by Citibank. In consequence of which, it in turn seeks relief against Citibank.

 Specifically, the fifth counterclaim alleges that Jaime Rivas & Company, a New York coffee broker, bought coffee from Restrepo and other coffee exporters in the following manner: Jaime Rivas & Company ("Rivas") purchased coffee from Restrepo and others with money borrowed from Citibank. In return, Rivas executed promissory notes in favor of Citibank. Citibank then issued letters of credit. Rivas was not expected to have the funds to repay the Citibank loan until the coffee reached New York City and was thereafter sold. In the meantime, Citibank executed trust receipts in its favor for the coffee before releasing it to Rivas. When the coffee was sold, the proceeds were used to pay off the promisory notes to Citibank.

 Rivas executed promissory notes in Restrepo's name in accordance with Citibank's requirements and as an accommodation to Rivas when he borrowed money from Citibank to purchase coffee from Restrepo. It was understood that Rivas would use the proceeds of the sale of the coffee purchased from Restrepo in payment of the promissory note signed in Restrepo's name.

 Defendants claim they were defrauded in that Rivas, with the knowledge of Raymond Last, a Citibank vice president and a senior loan officer, and his assistant Abigail Arms *fn4" 1) executed promissory notes in Restrepo's name regarding coffee sold by other exporters; 2) failed to apply the proceeds of the sales of coffee purchased from Restrepo to repay promissory notes to which Rivas had signed Restrepo's name; and 3) converted Restrepo's assets in that the letters of credit Rivas obtained from Citibank were insufficient to pay Restrepo for the coffee supplied by him. Restrepo contends Citibank actively concealed the activities of Rivas, Last and Arms in breach of its fiduciary duty to him.

 He asserts that in March 1979, Citibank became aware of these fraudulent activities, demanded he pay it $18,423,789.61 representing unpaid promissory notes in Restrepo's name signed by Rivas, and, fired Last and Arms. Affidavit of Ramiro Restrepo sworn to March 11, 1983 ("Restrepo Affidavit") at paras. 14-16. Also, at approximately the same ...


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