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BANK ITEC N.V. v. J. HENRY SCHRODER BANK & TRUST C

June 19, 1985

BANK ITEC N.V., Plaintiff, against J. HENRY SCHRODER BANK & TRUST COMPANY, Defendant; ORANJE-NASSAU GROEP B.V., Additional Defendant on Counterclaims


The opinion of the court was delivered by: GOETTEL

GOETTEL, D.J.

Throughout my tenure on this Court, the Second Circuit has taken care to instruct the district judges of this circuit that summary judgment is to be applied sparingly. See Heyman v. Commerce and Industry Insurance Co., 524 F.2d 1317, 1319-20 (2d Cir. 1975); Wards Co. v. Stamford Ridgeway Associates and Trim Fashions, Inc., 761 F.2d 117 (2d Cir. 1985). Of course, I have also noted the Second Circuit's occasional references to the "salutary purposes of summary judgment." Meiri v. Dacon, 759 F.2d 989, 998 (2d Cir. 1985). Among these is "avoiding protracted, expansive and harassing trials." Id. Granting summary judgment in this case dutifully serves these purposes.

This action arises out of a complicated multi-party transaction involving a Dutch bank, a New York bank, and a now bankrupt Florida insurance company. The Dutch bank's corporate parent is a third-party defendant. Before the Court is the defendant New York bank's motion for partial summary judgment on its breach of contract counterclaim. The motion of the plaintiff's corporate parent to dismiss the counterclaims against it is also before us. For the reasons stated below, the defendant's motion for partial summary judgment is granted. That holding forecloses the need to decide the other motion before us.

 I. Factual Background

 In May 1982, the plaintiff, Bank Itec N.V. ("Itec"), a commercial bank organized under the laws of the Netherlands, loaned approximately $6 million to Christiaan G. Walhof ("Walhof") to enable him and his Florida holding company, First Florin Corporation ("First Florin"), to purchase all the capital stock of Gulf American Insuranc [sic] Company ("Gulf American"), a Florida casualty insurer. Subsequently, Itec decided that, as a result of the legal lending limits imposed upon it by the Netherlands Central Bank, Itec could not make such a large loan. Therefore, in mid-August of 1982, Itec approached the defendant, J. Henry Schroder Bank & Trust Company ("Schroder"), with a proposal that the latter loan Walhof $3 million so that it could pay off its loan from Itec. Schroder has claimed that this was a "fronting loan" made merely to accommodate Itec's desire to comply with the Dutch banking laws.

 Out of the negotiations that followed came an agreement between the various parties that required Schroder to loan Walhof and First Florin $3 million. Walhof and First Florin gave Schroder a note (the "Note") promising to repay the $3 million loan. The agreement also required Walhof to repay his $3 million loan from Itec. In turn, Itec was to assign to Schroder one-half of its rights to various security interests that it held in Gulf American. These included Itec's title to and interest in a surplus note (the "Surplus Note") that Gulf American had pledged to Itec as security for Itec's loan to Walhof. Itec and Schroder entered into a letter agreement (the "Letter Agreement") reiterating the terms noted above, with Itec guaranteeing Walhof and First Florin's obligation to Schroder. The pertinent portions of the Letter Agreement are set out in the margin. *fn1"

 On August 27, 1982, the day after the agreement was signed, Itec deposited $3 million in a time deposit account with Schroder's Grand Cayman branch. For more than a year after the agreements were signed, there were no apparent problems. Indeed, in August 1983, the one-year period of the loan, as well as the other agreements between the parties, was extended for another year, to August 26, 1984.

 Relations between the parties took a turn for the worse a month later when Itec informed Schroder that Gulf American was financially unstable and asked Schroder to assist Itec in saving the casualty insurer from insolvency. Schroder declined. On November 3, 1983, Gulf American consented to the appointment of a receiver. Walhof and First Florin failed to make the next interest payment due and owing Schroder, and Schroder informed Itec of this failure. On December 5, 1983, Schroder gave Walhof and First Florin notice of acceleration and Itec notice that within 30 days it would be required to fulfill Walhoff's and First Florin's obligations under the Note. (Itec had already informed Schroder that no substitute lender could be found and that Itec was constrained by the legal lending limits of the Netherlands' banking laws from assuming the obligations itself. Itec had also refused to purchase the Surplus Note.)

 II. The Litigation

 In the beginning of January 1984, Itec repeated its refusal to substitute itself as lender under the Note or to purchase the Surplus Note. Schroder reacted on January 6, 1984, by setting off the principal and interest accrued in Itec's time deposit account against the principal and interest that Schroder claimed to be due and owing under the terms of the Letter Agreement. Itec then filed this action for recovery of the more than $3 million set off from its account. It also moved for a preliminary injunction granting the same relief.

 In March 1984, Schroder filed its answer and counterclaims against Itec, against Itec's parent, Oranje-Nassau Groep, B.V. ("ONG"), and against ONG's parent, Compagnie Generale d'Industrie et de Participations ("CGIP"). Schroder asserted five counterclaims against Itec: a breach of contract claim, two claims of common law fraud, one claim of a securities law violation, and one RICO claim. The general allegation underlying the four non-contract counterclaims is that, from the time of the original negotiations, Itec either was aware, or should have been aware, of a number of facts concerning itself and Gulf American, which, if conveyed to Schroder, would have caused Schroder not to have made the loan to Walhof and First Florin or to have entered into any agreements with Itec. Schroder's sixth counterclaim alleged that ONG and CGIP had interfered with Itec's performance under the Letter Agreement. The complaint also named ONG and CGIP as defendants in one of the common law fraud claims and in the securities law fraud claim.

 On April 25, 1984, the Court granted in part Itec's motion for preliminary injunctive relief. It ordered Schroder to return the $3 million to the time deposit account but ordered Itec to leave those funds in the account until such time as Schroder's right to a set-off was fully resolved.

 On September 18, 1984, this Court issued a memorandum decision granting Itec's motion to dismiss Schroder's RICO counterclaim, but denying Itec's motions to dismiss the four other counterclaims against it. At the same time, the Court denied Schroder's motion for partial summary judgment on the breach of contract counterclaim.

 On September 21, 1984, the Court heard argument on ONG's motion to dismiss the claims against it for lack of personal jurisdiction, failure to state a claim for relief, and failue [sic] to plead fraud with particularity. At oral argument, the parties informed the Court that Schroder had agreed to dismiss its claims against CGIP. The Court reserved decision on ONG's motion.

 On August 28, 1984, Schroder again demanded that Itec perform its obligations under the Letter Agreement. Itec failed to do so within thirty days of this demand. In fact, on September 26, Itec expressly repudiated any obligation to purchase the Surplus Note.

 On January 21, 1985, Schroder renewed its motion for partial summary judgment on the breach of contract counterclaim. That motion, together with ONG's motions to dismiss, is now before the Court.

 III. Schroder's Motion for Partial Summary Judgment

 Under New York law, which governs the Letter Agreement (see note 1), an action for breach of contract requires proof of (1) a contract; (2) performance of the contract by one party; (3) breach of the contract by the other; and (4) damages. See Stratton Group Ltd. v. ...


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