The opinion of the court was delivered by: SOFAER
A.C. Israel Enterprises, Inc., and ACLI International Commodity Services, Inc. (collectively, "ACLI"), instituted this action for fraud against Banque Populaire Suisse ("the Banque"), its alleged agent Advicorp Advisory and Financial Corporation, S.A. ("Advicorp"), and Naji Robert Nahas ("Nahas"). Plaintiffs seek $20,100,000 in damages. ACLI alleges that defendants conspired to evade limits set by ACLI and the Commodity Exchange, Inc. ("Comex") on the extent to which any individual customer may trade in silver futures contracts. ACLI claims resulting losses of over $28 million, of which only $8 million has been repaid.
As part of its business as a commodities broker, ACLI places orders on Comex, a silver futures market, for customers wishing to trade in silver future contracts. If an ACLI customer fails to make payment on orders excecuted on its behalf, ACLI is liable for the default under Comex rules. Amended Complaint P11 ("Complaint") ACLI seeks to limit potential losses when trading in the fluctuating silver futures market by imposing limimts on the number of futures contracts which any one customer will unduly expose [ACLI] in the event of default." Id. ACLI also requires each of its customers to agree in writing that no one other than the customer has any interest in its account. Id. P12. This helps lessen the risk that a customer is "using nominee accounts to coceal his ownership and/or control of futures contracts in excess of the number [ACLI] would otherwise permit him to trade." Complaint P12. Comex also sets its own limits on the number of silver futures contracts held by any individual.
ACLI claims that Advicorp, acting as an investment advisory service to the Banque, introduced a series of eleven accounts to ACLI. Beginning on January 23, 1979, an account was opened for Litardex Traders, Inc. with Mr. Nahas listed as its president. ACLI Memo in opposition to Banque Motion to Dismiss the Complaint at 5 ("ACLI Memo I"). Then, ACLI contends, on February 14, 1979, another account was introduced to ACLI in New York at the Banque's name; ACLI also asserts that between February 15, 1979 and January 21, 1980, the Banque and Advicorp introduced nine other accounts to ACLI's affiliate in Geneva, Switzerland, to be approved by ACLI in New York in the names of Rene Maret, Jean-Jacques Bally, Paul Bisoffi, Pierre-Alain Hirschi, Antoine Achkar, Selim Gabriel Nassif, Emir Fayez Chehab, Franciso Javier Benedi-Garcia, and the corporation Imovest Inter, S.A. Complaint PP20-21.
In September 1979, the Commodities Futures Trading Commisson (CFTC) issued a "Special Call" to the Banque to determine on whose behalf the Banque was trading. When the Banque refused to provide this information, the CFTC brought suit against the Banque under the Commodity Exchange Act ("the Act"), 7 U.S.C. §§ 9 and 13b (1976). In the Matter of Banque Populaire Suisse, Comm. Fut. L. Rep. (CCH) P21,255 (CFTC 1981). As a result of that action, the Banque was ordered in 1981 to cease and desist from further violation of the Act and was suspended from trading on all United States contract markets for 90 days. Id. at 25,257. ACLI asserts that it was unaware of the CFTC's investigation of the Banque.
Plaintiff claims that in the fall of 1979, ACLI and Comex had also become concerned about the large number of silver futures contracts acquired by the Banque, and that Comex had become concerned about Nahas' contracts as well. They claim to have begun imposing restrictions on the Banque and Nahas' trading in October and November 1979. By late November, ACLI asserts that it had begun liquidating the silver futures positions held in the Banque's name, and that the Banque had transferred most of its account to ContiCommodity Services, Inc. ACLI Memo I, at 7.
ACLI alleges that the Banque, Advicorp, and Nahas devised a scheme, at some undetermined date, whereby they would use the remaining ten accounts carried by ACLI to continue trading in greater amounts than permitted. ACLI claims that the ten account holders, although representing that they were acting as individuals and that no one else had any interest in their accounts, were in reality "nominees" of Nahas, the Banque, and Advicorp and that these three entities actually controlled all of the accounts. Complaint P25.
From January to March 1980, the price of silver dropped from roughly $50 per ounce to less than $11 per ounce. Despite representations allegedly made by Advicorp's officers Jean-Jacques Bally and Pierre-Alain Hirschi that Advicorp's customers were solvent, the ten accounts defaulted in an aggregate amount of over $28 million, and ACLI was required to pay Comex that amount. Complaint P29. ACLI contends that had it "been aware that these accounts were mere nominees" of Nahas, the Banque, and Advicorp, opened for the purpose of exceeding position limits, ACLI would not have accepted these accounts and thus would not have lost $28 million. Id. It further claims that through its introduction of the ten "nominee" accounts, Advicorp was the "vehicle for the fraudulent trading" and that the Banque in turn had extensive control of Advicorp's activities. ACLI Memo in Opposition to Banque Motion for Summary Judgment or a Separate Trial at 4, n.*. ("ACLI Memo II").
After learning of Nahas' involvement with these ten accounts, ACLI asserts that it entered into settlement negotiations with Nahas' representatives to recover the debit balances on these ten accounts receivable. Complaint P30. ACLI's representatives at the negotiations included Henry Maringer, its President and Chief Operating Officer; Herbert Stoller, an attorney from the law firm of Curtis, Mallet-Prevost, Colt & Mosle; and Jean-Louis Blomme, head of ACLI's London office. Julius Katz, now ACLI's Chairman of the Board and in 1980 its Senior Vice Presidnet, was periodically consulted, as was A.C. Israel. At the end of May 1980, Chester Grant of the law firm of Rogers & Wells replaced Herbert Stoller and his firm. Representing Nahas were Irwin R. Robinson and Joseph Getraer, both attorneys from Rosenman, Colin, Freund, Lewis & Cohen; and Professor Ibrahim Fadlallah, also an attorney. The Banque played no part in any of the negotiations.
Mr. Blomme of ACLI testified that on March 26, 1980 he was assured by Nahas' representatives that ACLI "would not suffer any loss because of the silver situation." Blomme Tr. 25, reprinted in ACLI Memo II, at 4. ACLI further alleges that on April 12 an agreement was reached which would have resulted in ACLI's receiving full compensation. Id. ACLI thereafter submitted to Nahas' representatives a draft agreement which would have settled the ten accounts. See Banque Memo in Support of Motion for Summary Judgment or Separate Trial at 7 ("Banque Memo"). A meeting was convened on April 16, 1980, the substance of which is in great dispute. ACLI claims that Nahas falsely represented that he was unable to honor the settlement agreement, because "he did not have sufficient assets to pay more than $8 million in settlement." ACLI Memo in Opposition to Banque Motion for Accelerated Separate Trial at 3 ("ACLI Memo III"). ACLI's attorney Stoller claims he was told that it was beyond Nahas' "financial capabilities to perform, that there were many claims against Mr. Nahas . . ." (Stoller Tr. 119-20, reprinted in ACLI Memo II, at 25), and that "there wasn't enough to go around" (Stoller Tr. 124, reprinted in Second ACLI Memo at 26). Nahas' attorney, Robinson, denies that he ever represented that $8 million was all Nahas was capable of paying, but rather said that $8 million was all Nahas was willing to pay. Robinson asserts that at most he stated that Nahas "was not prepared" to offer ACLI more than $8 million.
During the negotiations, ACLI contends that it undertook an investigation into Nahas' assets but could obtain no reliable information. Allegedly persuaded that Nehas' representations were accurate, and relying on them, ACLI agreed to settle for $8 million. On April 28, 1980, a written agreement was executed between ACLI and Compania Financiera Caldas, S.A. ("Caldas"), a Panamanian corporation apparently owned or controlled by Nahas. ACLI states that the agreement was made with Caldas rather than Nahas because Nahas did not want his name to appear on the settlement documents.
ACLI agreed to "sell, transfer and assign" to Caldas "all the commodity futures accounts deficit balances (i.e., accounts receivable) owed to ACLI by the following persons and corporations: Antoine Achkar, Selim Gabriel Nassif, Emir Fayez Chehab, Litardex Traders, Inc., Imovest Inter, S.A., Jean-Jacques Bally, Paul Bisoffi, Pierre-Alain Hirschi, Rene Maret." Banque Memo, Ex. 1 (punctuation added). These nine individuals were referred to collectively as the "Debtors." Banque Memo, Ex. 1. Originally, Francisco Javier Benedi-Garcia was also included on this list, but his name was later deleted. Id.
In exchange for transferring the accounts receivable, ACLI was to receive $1 million initially and the balance of $7 million plus interest within 90 days. ACLI executed releases in favor of Caldas, Nahas, and Antonie Achkar. A standard integration clause stated: "This Agreement constitutes the entire understanding among the parties and supersedes all prior agreements or understandings among the parties. No waiver or modification of the terms hereof shall be valid unless in writing signed by the party to be charged and only to the extent therein set forth." Id.
To implement the agreement, ACLI executed an assignment on July 23, 1980, whereby it assigned to Caldas "all of its right, title and interest in and to each of the accounts receivable" listed in the agreement. Furthermore, ACLI assigned, transferred, and sold to Caldas "all of its right, title and interest in and to each of the Accounts, including all rights, claims and causes of action that ACLI has against the owners of the Accounts (the "Assigned Rights")." ACLI also covenanted not to bring "any form of action whatsoever against the owners of the accounts arising out of, or in connection with, the Accounts." Both the agreement and assignment were to be governed by New York law. Id.
Concerning the account of Mr. Benedi-Garcia, a separate settlement agreement was reached with ACLI some four months later, on November 26, 1980. The parties executed a Deed of Mutual Release providing in part:
A. Acli claims that Mr. Benedi-Garcia is indebted to Acli in the sum of $315,238.50 US dollars and has commenced proceedings in the Office des Poursuites, Geneva, Switzerland . . . for the recovery of that sum.
B. Mr. Benedi-Garcia denies that he is indebted to Acli in that sum or any other sum whatsoever.
C. Acli and Mr. Benedi-Garcia have reached agreement for the settlement of all differences between them as hereinafter appears.
ACLI then released and discharged Benedi-Garcia "from the said debt and all other debts and obligations of whatever nature may be or are outstanding at the date hereof from Mr. Benedi-Garcia to Acli." Benedi-Garcia, in turn, released ACLI from all debts and other obligations due to him by ACLI. The parties agreed that this agreement was to be governed by English law. Banque Memo, Ex. 3.
This complicated, historical background accounts in large part for the slow pace of this litigation. Thus far, a judgment of default has been entered against Advicorp, after its failure to appear and answer. An earlier motion by the Banque to dismiss was denied, and extensive discovery ensued, limited primarily to the issues on these summary judgment motions. The Banque now moves for summary judgment or, alternatively, for separate trial, arguing that ACLI can no longer sue defendants for conspiracy to evade position limits because (1) ACLI assigned those rights away, and (2) ACLI's release of Benedi-Garcia automatically released the Banque. In addiiton, the Banque argues that ACLI has failed to raise a triable issue of fact on its claim of fraudulent inducement. The defendant Nahas has simultaneously moved to dismiss ACLI's complaint, and has joined the Banque's motion for summary judgment or separate trial. ACLI, in turn, has moved for partial summary judgment on the effect of the assignment agreement, claiming that as a matter of law assignment of accounts receivable does not include an assignment of fraud. ACLI also argues that issues of fact exist with respect to its claim of fraudulent inducement, requiring a trial on the merits.
For the reasons that follow the summary judgment motions made by the Banque and Nahas are denied; ACLI's motion for partial summary judgment on the effect of the assignment to Caldas is granted, and ACLI is also granted summary judgment on the effect of the Benedi-Garcia release. ACLI's claim of fraudulent inducement must be tried to determine Nahas' potential liability. In light of the above rulings, the Banque and Nahas' motions for a separate trial on the validity and effect of the assignment agreement and the Benedi-Garcia release are denied. A separate trial may be warranted on ...