calls and meetings that marked late August and early September
1998. They certainly would not have allowed the interest and
penalties to accumulate for months. Second, Fernández's
testimony is supported by the testimony of Horacio Seligra, a
public accountant whom Fernández regularly consulted on tax
deferral matters. Seligra testified that Fernández first
contacted him about the tax problem in August 1998. See id. at
On August 26, Pardo called Fernández to inform him that the
DGI had obtained a judgment against Finvercon. See id. at 312,
665. This judgment obligated Finvercon to pay the deferred VAT
taxes, plus punitive and compensatory interest and other costs
(the "tax judgment"). See Undisputed Facts at ¶ G. Pardo
explained to Fernández that Finvercon's accounts might be seized
as a result of this judgment. See Trial Tr. at 665. Fernández
understood that Finvercon had to pay promptly in order to avoid
seizure. See id. at 324. Fernández demanded that Pardo send
him all of the information on the matter and then spoke with
Pristera. See id. at 319-24, 665. After discussing the matter
with Pristera, Fernández informed Keiser, Olive, and Iribarren.
See id. at 313, 669. Olive, who was on vacation at the time,
notified Eric Torkelson, Norwest's Controller, and Keiser. See
id. at 157. Keiser informed Jim Goodson, Norwest's general
counsel, John Sondereker, a Senior Vice President at Norwest, and
Iribarren. See id. at 491-92. On the same day that Fernández
learned of the tax judgment — August 26 — he sent a fax to
Iribarren and Keiser, in which he stated: "This matter does not
cause any damage to Finvercon, and if it does, Gustavo and I will
compensate for it." See Pl.Ex. 19. In addition, Iribarren,
Olive, and Keiser all testified that Fernández had told them
that he and Lanzillotta would compensate Finvercon for the tax
judgment. See Trial Tr. at 110-11, 167, 493-94.
The Purchase Agreement contains several guarantees related to
the tax deferrals. See Pl.Ex. 1, at §§ 2.2(c), 7.2, 7.3. On
August 31, 1998, Norwest demanded, verbally and in writing, that
defendants immediately pay to Finvercon the sum of $481,920.67
for the tax judgment. See Undisputed Facts at ¶ K; Pl.Ex. 20.
Norwest repeated this demand, in writing, on September 2, 1998,
and on September 3, 1998. See Undisputed Facts at ¶ K; Pl. Exs.
21, 22. Defendants did not satisfy these demands. See Trial Tr.
at 496. On September 3, 1998, Finvercon paid the sum of
$441,494.17 to Banco Hipotecario Nacional for the tax judgment.
See Undisputed Facts at ¶ H. On September 8, 1998, Finvercon
paid the additional sum of $41,529.00 to Banco Hipotecario
Nacional for the attorneys' fees charged by the Argentine
government to collect the tax judgment. See id.
On September 9, 1998, Ezequiel Camerini, a lawyer representing
defendants, informed Norwest that, in his view, Norwest had
failed to notify defendants about the tax problem in a timely
fashion, as required by § 12.3(b) of the Purchase Agreement, and
Finvercon had failed to raise all reasonable defenses to the tax
judgment, as required by § 2.2(c) of the Purchase Agreement.
See Pl.Ex. 25. On September 10, 1998, Norwest replied, stating
that it had not learned of the tax problem until August 1998 but
alleging that Fernández had known earlier. See Pl.Ex. 26. On
September 14, 1998, Camerini stated that Fernández did not learn
about the tax problem in February and indicated that defendants
were trying to determine whether Norwest had raised all
reasonable defenses. See Pl.Ex. 27. On September 16 and 17,
1998, Norwest sent letters to Camerini relating its view that it
had raised all reasonable defenses and that defendants were
liable for the tax judgment. See Pl. Exs. 80, 81. On October 8,
1998, defendants paid to Finvercon the amounts that had been
demanded of them to satisfy the tax judgment. See Undisputed
Facts at ¶ L. Fernández testified that he also paid off other
before their due date, in the amount of $1,800,000, between
October 1998 and October 1999. See Trial Tr. at 673-74.
D. Collateral for Deferred Taxes
Section 5.11 of the Purchase Agreement states:
Sellers shall provide to the Company at Closing
collateral, satisfactory to Buyers, in the form of
dollar-denominated bonds issued by the Republic of
Argentina with a residual face value of not less than
the amount of Taxes actually deferred as of the
Pl.Ex. 1, at § 5.11. At the Closing, defendants did not provide
this collateral and Norwest did not demand it. See Trial Tr. at
332, 500-01, 675-76.
On September 10, 1998, Norwest demanded that defendants provide
the collateral immediately. See Undisputed Facts at ¶ M; Pl.Ex.
26. On September 14, 1998, Camerini responded that Norwest had
waived the posting of the collateral, both by failing to demand
it at the Closing and through the statements of Shari Del Carpio,
a Norwest employee. See Pl.Ex. 27. On September 16, 1998,
Norwest indicated that it did not consider the collateral
requirement to be waived and demanded that defendants post the
collateral. See Pl.Ex. 80. Norwest reiterated its demand on
September 17, 1998. See Pl.Ex. 81.
E. Personal Lending by Fernández and Lanzillotta
In 1998, Fernández made personal loans to several companies
and one individual while serving as President of Finvercon. See
Trial Tr. at 292-307, 653-65. Four of the companies — Torrance
S.A., Poliequipos S.A., Colomba Viajes S.A., and Obtener — had
outstanding loans with Finvercon. See id. at 292-93. Two of the
companies — Adicom S.A. and Lanci Impersores, S.R.L. — had never
done any business with Finvercon. See id. at 306. The
individual, Hugo Iurcovich, lived in Brazil and was either the
President or Vice President of Colomba Viajes, which had
outstanding loans with Finvercon. See id. at 296-97. In 1998,
Lanzillotta made loans to two commercial entities — Obtener,
which had outstanding loans with Finvercon, and Suriser, which
did not — while serving as Vice President of Finvercon. See id.
Fernández admits that he did not notify Norwest about most of
his personal lending. See id. at 294, 307-08. He testified that
he did ask Iribarren for permission to make some loans to Colomba
Viajes and Obtener, although Iribarren stated at trial that
Fernández only asked him about a short-term loan to Obtener.
See id. at 103-08, 294-95, 311-12. I credit Iribarren's
testimony and find that Fernández only asked permission to make
a single loan to Obtener.
Prior to its purchase by Norwest, Finvercon had made a number
of loans to commercial entities. See id. at 124. Norwest made
clear, even before it purchased Finvercon, that Finvercon could
not continue to make commercial loans after the Closing. See
id. at 124. Indeed, once the Closing took place, Norwest
instituted a policy against making commercial loans. See id. at
147-48, 623-24. In addition, Fernández testified that Finvercon
could not and did not make loans to individuals outside
Argentina. See id. at 663.
On September 18, 1998, the shareholders of Finvercon, at a
shareholders' meeting, removed Fernández and Lanzillotta as
directors of Finvercon. See Undisputed Facts at ¶ O; Trial Tr.
at 508-09. This shareholders' meeting consisted of John
Sondereker, Mario Olive, Chris Keiser, and John Deal, head of
Norwest's quality support unit. See Trial Tr. at 389, 508-09.
Following this meeting, Olive became the President of Finvercon.
See id. at 510.
On September 21, 1998, Sondereker met with Fernández and
Lanzillotta. See id. at 389, 647, 970-73. The participants
offer very different versions of what transpired at that meeting.
According to Sondereker,
he told Fernández and Lanzillotta that they were being removed
for cause, because they had not paid the tax judgment or posted
the collateral; he also noted concerns with mismanagement. See
id. at 389-90. According to Fernández and Lanzillotta,
Sondereker did not mention the tax judgment or the collateral;
rather, they claim that Sondereker said that Fernández was being
terminated because he did not fit Norwest's "style" and
Lanzillotta was being terminated because he was Fernández's
partner. See id. at 647, 652-53, 970-73. Sondereker denies
making these statements. See id. at 390-91.
I credit Sondereker's testimony and find that he told
defendants that they were being terminated because they had not
paid the tax judgment or posted the collateral. This finding is
supported by the fact that, on the day of their termination,
Norwest sent both Fernández and Lanzillotta written notice of
their removal, indicating that "such revocation constitutes a
termination with Cause as defined in clauses 1.4 and 1.5(a) of
the Agreement, for reasons and events that are known to you."
See Pl. Exs. 30, 31.
The removal of defendants was part of a larger shakeup at
Finvercon. On the same day that defendants were notified of their
removal, Norwest fired Pristera. See Trial Tr. at 154-55,
510-14, 811-14. In addition, Norwest already had removed
Iribarren from his role of supervisor of Finvercon in early
September. See id. at 129. Iribarren testified that this
decision probably was related to the removal of defendants. See
III. CONCLUSIONS OF LAW
A. Credit Losses
1. Payment of Credit Losses
a. Were defendants required to pay on demand?
The parties dispute when defendants were required to pay
Norwest for claimed Credit Losses. Norwest argues that, under §§
2.2(b) and 7.1 of the Purchase Agreement, defendants were
required to reimburse Finvercon and Norwest for claimed Credit
Losses on demand. Defendants contend that Norwest was required to
offset any Credit Losses against the Contingent Portion of the
Purchase Price, a reserve fund detailed in the Purchase
Agreement, before demanding payment. Defendants also argue that
they were not required to pay the claimed Credit Losses on
demand, because they had concerns about the accuracy of those
Section 2.2(b) of the Purchase Agreement states, in relevant
As referred hereinbelow, the Sellers [defendants]
guarantee without limitation the Company [Finvercon]
against any and all Credit Losses. . . . Sellers
shall reimburse the Company for any guaranteed Credit
Loss upon demand by the Company. However, if the
accumulated guaranteed Credit Losses that are not
reimbursed to the Company by the Sellers upon demand
by the Company are less than the Contingent Portion
of the Purchase Price, then Buyer [Norwest] shall pay
Sellers an amount equal to the Contingent Portion of
the Purchase Price less the accumulated guaranteed
unreimbursed Credit Losses as set forth below.
Pl.Ex. 1, at § 2.2(b). Section 7.1 of the Purchase Agreement
Sellers jointly and severally undertake to reimburse
Buyer on demand upon the occurrence of any Credit
Loss and, thus, guarantee to Buyer that the Accounts
Receivable shall be collected by the Company when and
as due and that the Company shall not have to
disburse any funds for any Sold Obligation. This
guarantee obligation is absolute and Sellers waive
any defense they may have against Buyer, including,
but not limited to, any defense that the borrowers of
the Company may have and any request that the Company
exhaust all actions against any assets of the debtors
Company; Sellers also waive any right or claim of
Pl.Ex. 1, at § 7.1.