The opinion of the court was delivered by: Leisure, District Judge.
This is a diversity breach of contract action, with
jurisdiction alternatively based on 12 U.S.C. § 632. Plaintiff
Bank of America National Trust and Savings Association ("Bank
of America") is suing to recover over $3 million plus interest
and costs allegedly due and owing from defendants under a loan
restructuring agreement dated September 15, 1988 (the
"Restructuring Agreement"). Plaintiff contends that defendants
have defaulted on their repayment obligation, and is demanding
immediate repayment of the total amount due under the
Restructuring Agreement, plus interest. Plaintiff has now moved
for summary judgment on the Restructuring Agreement. Defendants
oppose plaintiffs' motion on a number of grounds, asserting
that they have stated legally sufficient defenses about which
there are genuine issues of material fact in dispute, and
arguing that, counter to the assertion of plaintiff, New York
law does not control the ultimate determination of this action.
For the reasons stated below, plaintiff's motion is granted in
Between 1978 and 1983, plaintiff Bank of America made a
series of loans to defendant Envases Venezolanos, S.A.
("Envases"). By 1988, Envases owed $3,238,937.70 on those
loans. On or about September 15, 1988, Envases and Bank of
America entered into the Restructuring Agreement, which called
for Envases to pay its remaining debt, plus interest, in 25
quarterly payments, beginning November 28, 1988, and ending in
November 1994.*fn1 The Restructuring Agreement allowed Envases
to take advantage of a favorable foreign exchange arrangement,
available through the Banco Central de Venezuela ("Central
Bank"). That exchange arrangement in essence provided for
Central Bank subsidization of Venezuelan companies with foreign
currency obligations. Each company desiring to take advantage
of the favorable exchange rates was required to enter into a
private agreement with the Central Bank. Under the agreement
between the Central Bank and Envases, entered into on May 26,
1987, Envases was to deliver Venezuelan Bolivares to the
Central Bank, and the Central Bank, using a preferential
exchange rate, would then forward dollars to the foreign
Envases' first payment to Bank of America under the
Restructuring Agreement, on November 28, 1988, utilized this
favorable exchange system through the Central Bank. Shortly
after this payment, the Central Bank ceased to honor the
exchange agreement with Envases, and thus refused to grant any
favorable exchange rate for the repayments under the
Restructuring Agreement. This refusal by the Central Bank to
honor the exchange arrangement was formalized by the President
of Venezuela in a decree issued on June 15, 1989. See
Defendants' Exh. G. Because the Central Bank has refused to
provide favorable exchange rates since December 1988, Envases
has failed to make any of the subsequent repayments under the
Restructuring Agreement. Envases claims that it would cost five
times the number of Bolivares to
meet its obligations under the Restructuring Agreement, if it
is forced to buy dollars on the open market, than it would have
cost under the Central Bank exchange arrangement. Envases does
not deny that it is able to purchase dollars through normal
exchange channels, though at a substantially higher cost.
On September 7, 1989, after sending a demand letter, Bank of
America noticed Envases' default under the Restructuring
Agreement and demanded payment in full, plus interest and
costs, on the entire amount covered by the agreement.
See Affidavit of Steven D. Munter, sworn to on January 4, 1990,
Exh. F. When defendants failed to respond to that notice of
default with payment, plaintiff instituted the instant action.
Plaintiff alleges that payment in full is required under the
explicit terms of the Restructuring Agreement. Defendants do
not deny their default, but challenge the enforcement of the
Restructuring Agreement, asserting the contract defenses of
frustration of purpose, impossibility, and unconscionability.
Specifically, defendants claim that the sole purpose of the
Restructuring Agreement was to allow Envases to take advantage
of the favorable exchange rates available through the Central
Bank. When those rates were no longer available, the purpose of
the Restructuring Agreement was frustrated. Further, given the
substantial cost of obtaining dollars through regular exchange
channels, it is impossible for defendants to perform under the
Restructuring Agreement. Finally, defendants allege that terms
in the Restructuring Agreement that provide for a continuing
obligation on the part of Envases, regardless of the fate of
the Central Bank exchange arrangement, are unconscionable as
they were the result of unfair bargaining power on the part of
Bank of America. Plaintiff contends that none of these defenses
are effective against the Restructuring Agreement.
A) Standard for Summary Judgment
Rule 56(c) provides that summary judgment "shall be rendered
forthwith if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to
judgment as a matter of law." "'Summary judgment is appropriate
when, after drawing all reasonable inferences in favor of the
party against whom summary judgment is sought, no reasonable
trier of fact could find in favor of the non-moving party.'"
Horn & Hardart Co. v. Pillsbury Co., 888 F.2d 8, 10 (2d Cir.
1989), quoting Murray v. National Broadcasting Co.,
844 F.2d 988, 992 (2d Cir.), cert. denied, 488 U.S. 955, 109 S.Ct. 391,
102 L.Ed.2d 380 (1988).
The substantive law governing the case will identify those
facts which are material, and "[o]nly disputes over facts that
might affect the outcome of the suit under the governing law
will probably preclude the entry of summary judgment. . . .
While the materiality determination rests on the substantive
law, it is the substantive law's identification of which facts
are crucial and which facts are irrelevant that governs."
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct.
2505, 2510, 91 L.Ed.2d 202 (1986). "[T]he judge's function is
not himself to weigh the evidence and determine the truth of
the matter but to determine whether there does indeed exist a
genuine issue for trial." Id. at 249, 106 S.Ct. at 2511; see
also R. C. Bigelow, Inc. v. Unilever N. V., 867 F.2d 102, 107
(2d Cir.), cert. denied sub nom. Thomas J. Lipton, Inc. v. R.C.
Bigelow, Inc., ___ U.S. ___, 110 S.Ct. 64, 107 L.Ed.2d 31
(1989). The party seeking summary judgment "always bears the
initial responsibility of informing the district court of the
basis for its motion" and identifying which materials it
believes "demonstrates the absence of a genuine issue of
material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323,
106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986); see also Trebor
Sportswear Co. v. Limited Stores, Inc., 865 F.2d 506, 511 (2d
Cir. 1989). "[T]he burden on the moving party may be discharged
by 'showing' — that is, pointing out to the district court —
that there is an
absence of evidence to support the nonmoving party's case."
Celotex, supra, 477 U.S. at 325, 106 S.Ct. at 2553.
Indeed, once a motion for summary judgment is properly made,
the burden then shifts to the nonmoving party, which "must set
forth facts showing that there is a genuine issue for trial."
Anderson, supra, 477 U.S. at 250, 106 S.Ct. at 2511. The
nonmoving party "must do more than simply show that there is
some metaphysical doubt as to the material facts." Matsushita
Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586,
106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986) (citations
As a threshold matter, the Court is faced with a dispute
regarding the applicable law in this action. It is undisputed
that the Restructuring Agreement contains choice of forum and
choice of law provisions. Restructuring Agreement, Defendants'
Exhibit A, §§ 11.04, 11.05. Defendants assert, however, that
the Court should not give effect to those provisions, and that,
additionally, this action is controlled by 12 U.S.C. § 632, and
not by state common law.
In 1984, New York State amended its General Obligations Law
to indicate a strong policy in favor of choice of law and
choice of forum provisions. See N.Y. Gen. Oblig.Law ...