This action arises out of defendant Orestes Christophides' refusal to remit to plaintiff Banque Franco the payment to which it believes it is entitled by virtue of defendant's contract to serve as guarantor on a loan now in default. Plaintiff Banque Franco ("the Bank") argues that this is a simple and straightforward action in which the Bank is entitled to judgment under absolute, unconditional guaranties of payment made by Christophides. While the Court agrees with plaintiff that it is entitled to payment under the guaranties, we believe this case is anything but simple and straightforward.
In early 1990, Levant Line S.A. ("Levant") was a privately-held Liberian corporation that operated a cargo vessel liner service between ports in the United States and the Mediterranean and Black Seas (Kokkinos Moving Aff. P4). At that time, the shareholders of Levant formed two privately-held shipping corporations known as Paralos Maritime, S.A. ("Paralos") and Pelagic Shipping, S.A. ("Pelagic"), for the purpose of purchasing two vessels, the Levant Spirit and the Levant Pride, and chartering them to the Levant Line. (Kokkinos Moving Aff. P15). Needing funds to procure the ships, the shareholders of Levant
were in contact with more than ten banks to request a loan. However, all of the banks were unwilling to extend a multi-million dollar loan with the aged Levant Spirit and Levant Pride ships as collateral. (Reply Affidavit of Thomas Dana in Further Support of Defendant's Cross Motion, "Dana Reply Aff." Ex. G, Mamoulakis Aff. PP 5 and 6; Affidavit of Thomas Dana in Opposition to Plaintiff's Motion for Summary Judgment and in Support of Defendant's Cross-Motions "Dana Aff." Valiotis Aff. P16; Skoufalos Supp. Aff. P7). Apparently the Levant Pride and the Levant Spirit were twenty years old and in serious need of repair at the time Levant solicited funds to purchase the ships. (Dana Aff., Skoufalos Deposition, Ex. Sat 16.)
After receiving many rejections, Levant was finally able to secure a loan with plaintiff Banque Franco ("the Bank"). Pursuant to an agreement dated May 24, 1990, the Bank loaned Paralos and Pelagic $ 5,700,000 to finance the purchase of the two vessels. (Affidavit of Ruth Ilan, sworn to March 6, 1995 "Ilan Reply Aff"; Bank's 3(g) statement P10).
Defendant Christophides has produced convincing evidence that this $ 5.7 million loan was secured through the payment of a bribe. In May 1990, after several rejected loan applications, Levant's directors met with Spiros Aspiotis ("Aspiotis"). Aspiotis was not an employee of Banque Franco, however he was able to arrange a meeting between Levant and the manager of the Bank's ship loan department, Mr. Trivyzas. Aspiotis accompanied two Levant directors, Valiotis and Skoufalos to the meeting with Trivyzas. After a 30 minute meeting and without inspecting the vessels, Trivyzas approved the loan. (Dana Aff. Ex. 4, Valiotis Deposition at 236; Kokkinos Reply Aff. P10). Valiotis and Skoufalos were "surprised" that the loan was approved so quickly after other banks had refused their requests. (Valiotis Aff. P17).
After Trivyzas approved the loan, he told the Levant directors that he would leave the room and that all arrangements should be made with Aspiotis. Upon Trivyzas' departure, Aspiotis told Valiotis and Skoufalos that in order to obtain the loan, five percent of the face value of the loan, or $ 285,000, would have to be paid to Aspiotis and Trivyzas as a "facilitation fee". (Dana Aff. Ex. 5, Skoufalos Deposition at 19, 93; Ex. 3, Valiotis Aff. P18). This "hush money" and "under the table money" was to be deposited into an account at Ergobank in Piraeus, Greece and not at the Bank. (Skoufalos Dep at 19, 21). When Levant received the $ 5.7 million loan, Valiotis wired $ 285,000 to an account at the Ergobank under the name "Hamilton Enterprises, S.A." (Dana Aff. Ex. 4, Valiotis Dep. at 280, 286). While Valiotis paid the bribe without the knowledge of the other directors at Levant, the payment "eventually became common knowledge amongst directors of the Levant Group." (Mamoulakis Aff. P7).
Six months after the $ 5.7 million was granted, Levant advised the Bank that the addition of a third vessel to Levant Line's service would enhance the operation of the shipping line and improve its cash flow. (Oates Deposition "Oates Dep.", Ilan Moving Aff. Ex. 6 at 87-89). Apparently, Levant could not repay portions of the existing loan as they became due. (Plaintiff's Response to Defendant's Statement Pursuant to Rule 3(g) P10). Seeking some way to rectify the situation, Levant sent a letter to the Bank dated December 5, 1990, stating that it was "in the process, of negotiating the participation of a third vessel into [their] liner service." (Ilan Moving Aff. Ex. 5)
On January 8, 1991, Levant reached a preliminary agreement with Defendant Christophides to employ a third ship, the Levant Fortune in Levant's shipping line. (Ilan Moving Aff. Ex. 7). The Levant Fortune was to be chartered to Levant Line for four years at a rate equivalent to amortization, interest and the running cost of the Levant Fortune. The net profits from the operation of the ship would be shared equally between Levant Line and the owner of the Levant Fortune. (Ilan Moving Aff. Ex.7; Skoufalos Dep.). At the time of the preliminary agreement, Christophides did not own the Levant Fortune; rather the ship was to be auctioned on February 6, 1991.
In anticipation of the auction, Christophides began to seek financing to purchase the ship. Deciding that he would establish a shell corporation for the sole purpose of holding title to the Levant Fortune, Christophides began to solicit funding for his new corporation, Silver Anchor. Christophides first contact with Banque Franco was during a January 10, 1991 meeting. On that date, Levant's chief executive officer, Efstratios Skoufalos introduced Christophides to Banque Franco's Kevin Oates. (Def. 3(g) PG; Oates Dep., Ilan Moving Aff. Ex 6 at 87). At that meeting the parties discussed potential financing for the Levant Fortune. However the auction had not yet taken place so Silver Anchor could not provide any concrete terms and "nothing was concluded." (Christophides Dep., Ilan Moving Aff. Ex. 1 at 374-376). Throughout the meeting, Kevin Oates stated that he did not have the authority to commit the Bank's funds, but rather could only take down the information and present it to those Bank officers who could. (id.). In response to Oates' statements, Christophides indicated that he would attempt to purchase the Levant Fortune, even without the Bank's assistance. (Ilan Moving Aff. Ex. 14 and 6 at 100.).
As a follow-up to the January 10 meeting, Kevin Oates sent a letter dated January 24, 1991 to Christophides which included the following:
"the Bank is pleased to respond positively to your provisional request for finance. Of course the matter cannot progress further until a formal request for finance is received from you and I realize that you will not know fully details until the auction in late February." (Ilan Moving Aff. Ex. 15)
On February 6, 1991, Christophides successfully bid for the Levant Fortune on behalf of Jet.
While Christophides was not a shareholder in Jet, on April 15, 1991, Jet would transfer its interest in the Levant Fortune to Silver Anchor. (Kokkinos Aff. P18 n. 12).
With ownership of the Levant Fortune in place, Christophides contacted the Bank on February 7, 1991, one day after the auction. Christophides advised Kevin Oates and George Kokkinos, the Bank's new shipping manager, that he had successfully bid $ 2.4 million for the Levant Fortune, and requested a loan in the amount of 65% of the value of the Levant Fortune. (Kokkinos Moving Aff. PP7-10). After extensive negotiations, the parties set forth the following proposed financing terms that would be presented to the Bank's Credit Committee for approval: (1) a term loan of $ 1,700,000; (2) a short-term working capital facility of $ 300,000; (3) various terms of security for the proposed Silver Anchor Loan including a first mortgage in the ship; (4) a guaranty from Christophides for the $ 2 million loan; (5) two cross-collateralization provisions concerning (a) a guaranty by Silver Anchor of Levant Line's previous $ 5.7 million loan and a second mortgage on the Levant Fortune as security for that guaranty, and (b) guaranties by Paralos, Pelagic, and Levant Line of Silver Anchor's $ 2 million loan and second mortgages on the Levant Pride and Spirit as security for those guaranties. (Kokkinos Moving Aff. P12).
Two weeks after the auction, Silver Anchor and Levant Line executed a formal charterparty agreement for the exclusive use of the Levant Fortune by the Levant Line (the "Charterparty"). (Ilan Moving Aff. Ex. 8). The terms of the Charterparty were negotiated on February 22, 1991, between Christophides and Levant Line, without any involvement of the Bank. (Christophides Dep., Ilan Moving Aff. Ex. 1 at 313; Kokkinos Reply Aff. P8). Under the agreement, Levant Line had full control of the Levant Fortune for the entire duration of the Charterparty, and Silver Anchor could not utilize the vessel outside of Levant's service or direct its employment in any way. (Ilan Moving Aff. Ex. 8; Christophides Dep., Ilan Moving Aff. Ex. 1 at 280-81).
With the charterparty agreement in place and the Levant Fortune purchased, Banque Franco issued its commitment letter for the $ 2 million loan to purchase the Levant Fortune on March 12, 1991. One week later, on March 19, 1991, Silver Anchor was incorporated by Christophides for the sole purpose of holding title to the Levant Fortune. (Kokkinos Moving Aff. P8 and Ex. E and I; Bank's 3(g) Statement P5; Defendant's Statement Pursuant to Rule 3(g) P B). Christophides took a 25% ownership and was pronounced a director and president of the privately-held Panamanian corporation. (Defendant's Statement Pursuant to Rule 3(g) P3).
On April 12, 1991, Christophides (on behalf of Silver Anchor) and the Bank executed the $ 2 million loan agreement to finance the purchase of the Levant Fortune. (Kokkinos Moving Aff. Ex. K). Contemporaneously with making the $ 2 million loan to Silver Anchor, the Bank restructured Levant Line's $ 5.7 million loan by modifying the repayment schedule. As a result of the restructuring, the $ 5.7 million loan was no longer in default. (Kokkinos Reply Aff. Ex. D P C).
The $ 5.7 million loan to Levant and the $ 2 million loan to Silver Anchor were cross-collateralized. Silver Anchor (but not Christophides) guarantied the $ 5.7 million loan and Silver Anchor provided the bank with a second preferred mortgage on the Levant Fortune as security for its guaranty of that loan. (Kokkinos Reply Aff. Ex. D. § 4(b)). Similarly, Paralos and Pelagic provided the Bank with guaranties of the Silver Anchor $ 2 million loan as well as a second preferred mortgage on the Levant Spirit and the Levant Pride as security for their guaranties. (Kokkinos Moving Aff. Ex. K § 10.04).
In addition to the cross-collateralization guaranties, Christophides personally guarantied Silver Anchor's $ 2 million loan. (Kokkinos Moving Aff. Ex. J). Paragraph 3 of the Guaranty provides:
The obligations of the Guarantor hereunder are independent of any other guaranty of or security for the Loan now or hereafter made and are absolute and unconditional irrespective of the genuineness, legality, validity, regularity or enforceability of the Loan Agreement or any Note or any other document, instrument or agreement contemplated therein.... The Guarantor waives any rights the Guarantor may have to require the Lender first to proceed against or enforce any guaranty or security of, or claim payments from the Borrower or any other person before claiming from the Guarantor under this Guaranty as well as, the benefit of any statute of limitations affecting the Guarantor's liability hereunder or the enforcement hereof as well as any other circumstance or provision of law which might otherwise constitute a defense or discharge of the guarantor or hinder prompt enforcement of the Guaranty...
In addition to this guaranty, Christophides furnished the Bank with another personal guaranty in the Loan Agreement itself. (Kokkinos Moving Aff. Ex. K at 34-36. This guaranty stated:
The obligations of the Guarantors hereunder shall be absolute and unconditional irrespective of the validity, legality or enforceability of any and all the terms and provisions hereof and of the other Security Documents as against the Borrower and shall not be affected by any action taken hereunder in the exercise of any right or power herein conferred or by any failure or omission to enforce any right conferred hereby or by any of the other Security Documents or by any waiver or covenant or condition herein provided ... or by any circumstance whatsoever (with or without notice to or knowledge of the Guarantors) which may or might in any manner or to any extent vary the risk of the Guarantors or might otherwise constitute a legal or equitable discharge of a surety or guarantor, it being the purpose and intent that the Guarantee and liability of the Guarantor hereunder... shall be absolute and unconditional under any circumstances.