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MENDES JUNIOR INT'L CO. v. BANCO DO BRASIL

June 29, 1998

MENDES JUNIOR INTERNATIONAL COMPANY, Plaintiff, against BANCO DO BRASIL, S.A. and BB-LEASING COMPANY, Defendants.

Robert L. Carter, U.S.D.J.


The opinion of the court was delivered by: CARTER

OPINION

ROBERT L. CARTER, District Judge

 This action arises from an alleged breach of contract between plaintiff construction company and defendant bank and its subsidiary which financed some of the plaintiff's projects. Plaintiff's action is for a declaratory judgment, promissory estoppel, and over $ 800 million in damages based on the defendants' alleged breaches of contract, breaches of fiduciary duty, and failure to perform various obligations in a commercially reasonable manner. Defendants now move to dismiss plaintiff's suit based on the doctrine of forum non conveniens, lack of subject matter jurisdiction pursuant to Rule 12(c)(1), F. R. Civ. P., lack of personal jurisdiction pursuant to Rule 12(b)(2), F. R. Civ. P., and failure to state a claim pursuant to Rule 12(b)(6), F. R. Civ. P.

 I. Introduction

 Plaintiff Mendes Junior International Company ("Mendes") is an international construction company which designs and builds, inter alia, railroads, highways, airports, and hydro-electric power plants. (Complaint at 3). It is a Cayman Islands corporation whose principal place of business is Belo Horizonte, Brazil. Id. Defendant Banco do Brasil, S.A. ("Banco") is a Brazilian commercial bank whose principal place of business is Rio de Janeiro, Brazil. Id. Co-defendant BB-Leasing Company LTD ("BB-Leasing") is a subsidiary of Banco in the commercial leasing business and conducts business out of its New York offices. Id. at 4.

 In the 1970's, Banco agreed to finance several of Mendes' construction projects in Iraq. In 1986, Banco refinanced Mendes' debts through a sale lease back transaction (the "Lease") with BB-Leasing. The Lease provided for Mendes to sell its construction equipment to BB-Leasing for a nominal sum. Mendes was then required to pay back the debt through monthly lease installment payments. (Def.'s Mem. of Law at 4).

 In July of 1989, financial disputes with the Iraqi government over missed payments to Mendes led to the creation of an assignment agreement (the "Assignment Agreement") between Mendes and Banco. Under the terms of this agreement, Mendes assigned its payment claims against Iraq to Banco. (Pl.'s Mem. of Law at 6). Petrobras, the parent of Mendes' partner in the construction projects, was then designated as the entity that was to attempt to negotiate with the Iraqi government for payment of the debts owed to Mendes. (Def.'s Mem. of Law at 5).

 Banco and Mendes subsequently entered into another agreement on October 14, 1989, pursuant to which Banco loaned Mendes an additional $ 45 million for the Iraqi construction projects. (Pl.'s Mem. of Law at 3). As a condition to the refinancing, Banco required Mendes to obtain a special insurance policy from Instituto Resseguor do Brasil ("IRB") that would provide full repayment to Banco if Mendes became unable to do so. Id.

 Iraq's invasion of Kuwait and the subsequent United Nations embargo of Iraq exacerbated Mendes' contractual difficulties with the Iraqi government. Unable to extract payments from Iraq, Mendes defaulted on its loan repayment obligations to Banco. (Def.'s Mem. of Law at 6). Banco then brought suit against Mendes in Brazil to collect the defaulted loan amounts. (Def.'s Mem. of Law at 6). That litigation is still pending.

 Mendes brought the instant action against Banco and BB-Leasing in New York State court for defendants' alleged failure to enforce the insurance policy or to collect the payments due from Iraq. Mendes claims that defendants' wrongful acts and omissions caused its operating income to decline from approximately $ 1.2 billion in 1986 to under $ 270 million in 1995. (Pl.'s Mem. of Law at 4). Mendes seeks compensation for its monetary damages as well as a declaration that it is not required to repay the Loan, the Lease, or any other financial obligation to Banco. (Pl.'s Mem. of Law at 4). Defendants removed the case to federal court pursuant to 28 U.S.C. § 1441(d) *fn1" and now seek its dismissal.

 II. Plaintiff's Claims

 Plaintiff's first claim is that Banco breached its obligations to Mendes under the Lease and the 1989 Loan by failing to pursue repayment under the IRB insurance policy. (Compl. at 13, 14). Plaintiff's second cause of action is that the Bank breached its obligations under the Assignment Agreement by failing to pursue Mendes' claims against Iraq. Id. at 14. Plaintiff's third cause of action is that Banco's alleged failure to pursue claims against Iraq and IRB also constituted a breach of its fiduciary duties to Mendes. Id. at 15.

 Plaintiff's fourth cause of action is that, due to Banco's alleged promises to obtain payment from Iraq and consequent failure to make reasonable attempts to do so, Banco should be estopped from demanding repayment of any of Mendes' obligations to the bank, including the Lease. Id. at 16. Similarly, plaintiff's fifth cause of action states that Banco's failure to use reasonable efforts to collect the proceeds from the IRB policy warrants Banco being estopped from obtaining repayment of any alleged obligation of Mendes, including, but not limited to, the Lease and the 1989 Loan. Id. at 17.

 Plaintiff's sixth and seventh causes of action are for alleged breaches of a duty of good faith. Id. at 17, 18. Specifically, plaintiff claims that the Lease and 1989 Loan are governed by New York State law which means that each contract contains a covenant of good faith and fair dealing and imposes an obligation of good faith in the contract's performance and enforcement. Id. Plaintiff claims that Banco's failures to use reasonable efforts to collect the amounts due to Mendes from Iraq and under the IRB insurance claim constitute a breach of Banco's duty of good faith. Id.

 Plaintiff's eighth cause of action is a claim that Banco breached its duty under New York law to act in a commercially reasonable manner with respect to the collateral for the Lease and the 1989 Loan. Id. at 18, 19. In particular, plaintiff alleges that Banco's failure to collect the insurance proceeds from the IRB policy was a breach of its duty to exercise commercial reasonableness in connection with the Lease and the 1989 Loan. Id.

 In addition to a declaratory judgment, plaintiff seeks over $ 800 million in damages. Id. at 19, 20.

 X Defendants now move to dismiss plaintiff's suit based on the doctrine of forum non conveniens, lack of subject matter jurisdiction pursuant to Rule 12(c)(1), F. R. Civ. P., lack of personal jurisdiction pursuant to Rule 12(b)(2), F. R. Civ. P., and failure to state a claim upon ...


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