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KOREA LIFE INSURANCE CO., LTD. v. MORGAN GUARANTY TRUST CO.

August 20, 2004.

KOREA LIFE INSURANCE CO., LTD. and MORNING GLORY INVESTMENT (L) LIMITED, Plaintiffs,
v.
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, Defendant.



The opinion of the court was delivered by: ALVIN HELLERSTEIN, District Judge

OPINION AND ORDER DENYING RECONSIDERATION, AND ON DAMAGES

In my Opinion and Order dated July 1, 2003 ("Opinion"), I granted summary judgment to defendant Morgan Guaranty Trust Company of New York ("Morgan") dismissing counts one, two, three, five, and six of plaintiffs' Second Amended Complaint. I granted summary judgment to plaintiffs Korea Life Insurance Co., Ltd. ("KLI") and Morning Glory Investment (L) Limited ("Morning Glory") on count four, alleging breach of contract against Morgan. Korea Life Ins. Co. v. Morgan Guar. Trust Co. of N.Y., 269 F. Supp. 2d 424, 447 (S.D.N.Y. 2003). I deferred ruling on damages, pending further submissions from the parties and further proceedings. Id. at 447-48.

Both parties filed motions regarding damages, and Morgan also filed a motion for reconsideration. I held oral argument on February 4, 2004, and the parties filed supplemental briefs on damages subsequent to the argument. I now rule on all outstanding issues, denying Morgan's motion for reconsideration, denying Morgan's defense regarding mitigation, and finding Morgan liable for damages pursuant to its breach of contract in the amounts stated below. I also deny as moot plaintiffs' motion to strike the expert reports of Michael R. Darby and Robert Pickel.

  The complex factual background is treated extensively in my prior opinion. See Opinion at 1-16; 269 F. Supp. 2d at 426-35. I assume familiarity with that opinion and restate the facts here only to the extent germane to this discussion.

  I. Reconsideration

  Morgan moved for reconsideration in response to my invitation. My original decision granted relief to both sides, even though only Morgan had moved for summary judgment. I granted summary judgment to plaintiffs for breach of contract on the ground that the district judge should search the record in deciding a motion for summary judgment and give judgment as appropriate, even though the party who turns out to win may not have made the motion itself. See Opinion at 37; 269 F. Supp. 2d at 446. However, I was concerned that the record was so extensive that I may have overlooked facts, or that a party may not have felt the need to present all relevant facts and arguments. I therefore invited further submissions to correct any overlooked or unpresented facts or arguments, as well as on the issues of damages. See Tr. Feb. 4, 2004, at 2-3.

  In moving for reconsideration, Morgan makes two primary arguments. The first is that there is no admissible evidence that written notice was ever provided to Morgan, rather than to Korea Exchange Bank ("KEB"), and that written notice to Morgan was contractually required. The second is that several contemporary documents written by KLI's Bo-Chan Kim in September and October 1997 do not mention KLI's demand to unwind, and Kim's contemporary silence suggests that his October 16, 1997 demand was not really intended. I consider and reject both of Morgan's arguments.

  A. Written Notice to Morgan

  As I held in my opinion, see Opinion at 9; 269 F. Supp. 2d at 431, the Total Return Swap Agreements between Morning Glory and KEB, and between KEB and Morgan, incorporated the ISDA Master Agreement, requiring all notices to be in writing. Accordingly, it was the October 16, 1997 written unwind request, rather than the prior oral communications, which constituted legally effective demand on Morgan, obligating it to unwind the transactions. Morgan's refusal to act constituted a breach of its contract obligations. Opinion at 37; 269 F. Supp. 2d at 446.*fn1

  Morgan asserts that I should grant reconsideration because it, and not only KEB, should have been given written notice of KLI's instruction to unwind the transactions. According to Morgan, the testimony of KLI's Bo-Chan Kim, who sent the October 16, 1997 demand to unwind and then telephoned KEB and Morgan to confirm its receipt, is hearsay and inadmissible, and that is the only evidence that Morgan was informed of the written notice.

  To elaborate on what I described in my earlier opinion, see Opinion at 15, 31; 269 F. Supp. 2d at 434, 443, the record shows that KLI first demanded an unwind as early as June 1997, directing its requests both to Morgan and to KEB as intermediary. KEB and Morgan both declined to act. At a meeting at KLI's office in August 1997, Dr. Chang Hyun Chi, the head of Morgan's Korea team, acknowledged to Kim, a manager in KLI's Fixed Income Department, that Morgan had received, but had not executed, KLI's demand to unwind. Kim reiterated to Chi KLI's demand to unwind, but Morgan still did not comply. Ultimately, on Morgan's specific instructions, KLI sent its written demand to KEB on October 16, 1997, in the form of a telefax from Kim to Joongseok Ahn, a General Manager of KEB. After sending the telefax, Kim called KEB to confirm its receipt of KLI's telefax, in accordance with the regular business practice in Korea, and KEB acknowledged to Kim that it had received KLI's demand notice. A week later, Kim called both KEB and Morgan to inquire why the unwind had not yet been executed. Both KEB and Morgan told Kim that they would not unwind the transaction, each stating that it could not act without the assent of the other, but neither giving the other its assent.

  The record that establishes these facts is drawn primarily from testimony by Kim, and confirmed in testimony by other KLI and Morgan employees having personal knowledge, including Chae Wook Noh, the General Manager of KLI's Stock Department who had principally brokered the deal. Taped telephone conversations among Morgan employees confirm that Morgan knew of, and that it intentionally ignored, KLI's attempts to make further contact.

  The relevant testimony by Kim, aside from deposition testimony, was at an evidentiary hearing which I conducted on September 4-5, 2002. Kim testified that he sent the fax on the instructions of the Morgan representative whom he spoke with, either Dr. Chang Hyun Chi or General Manager Sung Woo Park. Tr. Sept. 5, 2002, at 174-75. "Before we sent out this particular instruction, we made several calls in order to unwind — in order to request unwinding of a thai baht, but that was not done. . . . Dr. Chi said that we have to send out instruction to KEB . . . What he said was that if we sent this instruction to KEB, KEB will relay this document to J.P. Morgan and then J.P. Morgan will quote the price and if we accept the price, then deal can be settled." Id. at 175-77; see also id. at 169 ("We sent this document because J.P. Morgan asked us to send."). Kim authenticated a translation and the original of the telefax which he had sent, which were received as Plaintiffs' Exhibits 15 and 16, respectively.

  Morgan did not object to the admission of the original document, Exhibit 16, on grounds of authenticity, but objected on grounds of late production and on the grounds that a foundation was not laid for its receipt by KEB. Id. at 164-65. I inquired of Kim as to the regular business practice in Korea, and he explained that the legend which in the United States customarily appears at the top of a faxed document to confirm its receipt is not printed in Korea. Instead, the sender customarily telephones the recipient to confirm the document's receipt. Kim testified that he followed the customary practice in this case, speaking to either KEB General Manager Joongseok Ahn or his deputy, Yong Il Keum. Id. at 165-66. Morgan did not raise any objections during the course of my questioning, id., and on the basis of this testimony, I overruled Morgan's objection and admitted the document into evidence. Id. at 167.

  Kim testified that he called KEB to confirm its receipt of his telefax, see id. at 166, and that he called Morgan the following week to inquire why the unwind had not occurred. His most detailed explanation followed at the end of his redirect examination, when I questioned him directly:
THE COURT: What happened after you sent Exhibit 16?
THE WITNESS: After we sent out this document, we still did not receive any response from J.P. Morgan. So after one week we called J.P. Morgan once again. I'm not sure whether the person who answered my call was Dr. Chi or Mr. Sung Woo Park.
When I asked why the order was not implemented, why they didn't give us the price quote, J.P. Morgan answered that they did not receive this document from KEB. So after I hung up the phone, I called Mr. Keum at KEB.
When I asked Mr. [Keum] why this instructional document was not released to J.P. Morgan, Mr. Keum answered that he did relay this document to J.P. Morgan but he said that . . . he was under the impression that J.P. Morgan was not interested in implementing the order.
I was very nervous about what happened, so I called J.P. Morgan once again. THE COURT: Before you do that, you testified that Mr. [Keum] at KEB said that it was his impression that Morgan wasn't interested. Did he say why he had that impression?
MR. HUMMEL [counsel for Morgan]: Your Honor, may I object to the hearsay?
THE COURT: Overruled.
MR. HUMMEL: And I move to strike the hearsay.
THE WITNESS: Mr. Keum said that J.P. Morgan was trying to make excuses, but I didn't really ask why Mr. Keum formulated such an impression about J.P. Morgan because I was really angry and I just wanted to speak to J.P. Morgan once again to find out why. So I called.
THE COURT: See if you can give me a date for this next call to Morgan.
THE WITNESS: I made all these calls one week after we sent out this document and several calls were made on the same day after sending out this document. And when I spoke to J.P. Morgan, they told me something opposite to what KEB told me, had told me earlier, saying that J.P. Morgan said that it is KEB who seemed to be not interested in unwinding the thai baht.
. . .
I was very much angry at the time and . . . I really was under the impression that KEB and J.P. Morgan [were] playing with KLI.
Id. at 177-79. The only hearsay objection that Morgan made to any of Kim's testimony was the objection, quoted above, to Kim's testimony regarding the basis for Keum's "impression that J.P. Morgan was not interested in implementing the order." Id. at 178. Morgan now objects to Kim's entire testimony on the grounds that it was hearsay. I note first that Morgan's objection was not timely made, and Morgan in no way indicated that its objection applied to any previous part of Kim's testimony. Morgan did not object during Kim's direct examination, for instance, when he testified that he called KEB to confirm receipt of the telefax. Id. at 165-67. Nor did Morgan object earlier in Kim's redirect examination, when he testified that he informed Morgan that he had sent the unwind demand to KEB. Id. at 173. As applied to these aspects of Kim's testimony, Morgan's objection was not timely made and therefore is waived. See Fed.R. Evid. 103(a)(1) (admission of evidence is not error unless "a timely objection or motion to strike appears of record"); United States v. Frustaci, 96 Cr. 430, 1997 U.S. Dist. Lexis 14111 (S.D.N.Y. Sept. 16, 1997) (objection sustained where not timely made). Even if Morgan's objection is understood broadly to refer to the entirety of Kim's testimony, and even if it were deemed timely, it could not properly be sustained as applied to other aspects of Kim's testimony beyond his testimony regarding Keum's impression that J.P. Morgan was not interested in implementing the order. Fed.R. Evid. 801(c) defines hearsay as "a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted." Kim's testimony that he called KEB and Morgan to check that the unwind demand was received and would be acted upon was not hearsay, since Kim made the statements himself, regarding his own previous activities. See Fed.R. Evid. 801(c) (defining hearsay as a statement "other than one made by the declarant while testifying at the . . . hearing"); cf. United States v. Yousef, 327 F.3d 56, 153 (2d Cir. 2003) (defendant's prior written statement is hearsay but his testimony is admissible under Fed.R. Evid. 801(c)). Kim's testimony regarding the course of phone calls following a telefax was also not hearsay, for this testimony was offered not "to prove the truth of the matter asserted," but to establish the regular business practice in Korea. The testimony was not offered in the context of direct questioning, but in the context of investigating the reliability of Plaintiffs' Exhibit 16.

  I provided Morgan with ample opportunity to supplement the record with its own evidence, through testimony or otherwise, that it and KEB had not received notice of KLI's October 16, 1997 telefax. Both on and off the record, at conferences, during the evidentiary hearings on Morgan's summary judgment motion, and during this motion for reconsideration, I pressed the parties to submit any other relevant evidence which would provide a more complete record. See, e.g., Tr. Sept. 4, 2002, at 3, 107-08, 117-18; Tr. Sept. 5, 2002, at 183; Tr. July 17, 2003, at 13-14; Tr. Feb. 4, 2004, at 2-3. Morgan did not produce any evidence contradicting Kim's testimony; instead, Morgan rests on its denials. Morgan "must do more than simply show that there is some metaphysical doubt as to the material facts" in order to raise a triable issue of fact. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Morgan's simple denial is even less persuasive in the context of a motion for reconsideration. See Kotlicky v. United States Fidelity Guar. Co., 817 F.2d 6, 9 (2d Cir. 1987) (heightened standards for motion to reconsider); Nemaizer v. Baker, 793 F.2d 58, 61-62 (2d Cir. 1986) (same).

  Aside from disputing the evidence showing that KEB and Morgan were made aware of KLI's October 16, 1997 unwind demand, Morgan also contends that the unwind demand was legally defective because the requirement of written notice included a requirement that the written notice be sent, not to KEB, but to Morgan directly. As I held before, Morgan "knew, by reason of both KLI's written and oral notices, that KLI wanted its baht position unwound, and that it was Morgan's decision not to comply with the demand Clearly, Morgan had actual knowledge, and therefore is deemed to have notice that KLI made demand pursuant to the unwind provision." Opinion at 32; 269 F. Supp. 2d at 443 (citing Leasing Serv. Corp. v. Diamond Timber, Inc., 559 F. Supp. 972, 978 (S.D.N.Y. 1983)). Morgan thus had actual knowledge of the written notice. "A person is deemed to have notice when he has actual knowledge or when `from all the facts and circumstances known to him at the time in question he has reason to know that it exists.'" Pavia v. 1120 Ave. of the Americas Assocs., 901 F. Supp. 620, 625 (S.D.N.Y. 1995) (quoting Diamond Timber, 559 F. Supp. at 978).

  More significantly, it was Morgan which had "instructed KLI to send any request to unwind to KEB." Opinion at 15; 269 F. Supp. 2d at 431. Indeed, Morgan maintained that position — that any notice was to be sent to KEB — right up through its motion for summary judgment. See Memorandum in Support of Defendant's Motion for Summary Judgment at 35-36 (April 12, 2002) ("Morning Glory did have an express contractual right under the Morning Glory-KEB Swap to `terminate' that contract upon two days written notice to KEB." (emphasis original; citing clause establishing privity between Morning Glory and KEB)); Tr. June 20, 2002, at 62-63 ("The contracts provide that there should be a demand, that it should be to KEB . . ."); Tr. Sept. 5, 2002, at 171 ("The unwind request should have been to KEB . . ."). After consistently maintaining the position that KLI and Morning Glory were required to give written notice to KEB, Morgan is now estopped from arguing that the written notice should have been to Morgan instead. See, e.g., Club Haven Investment Co. v. Capital Co. of America, 160 F. Supp. 2d 590 (S.D.N.Y. 2001) (equitable estoppel doctrine binds a party to its word in breach of contract case).

  Morgan held out KEB as its agent for receiving notice. It rejected KLI's initial attempts to communicate directly to Morgan its desire to unwind, instructing KLI that an unwind demand would be considered effective only if it was sent, in writing, to KEB. It maintained that position throughout this lawsuit. Morgan's actions now are governed by the rule that a party which gives instructions as to the recipient to whom notice must be provided may not later contend that notice given to that recipient was ineffective. "[K]knowledge acquired by an agent acting within the scope of his agency is imputed to his principal and the latter is bound by such knowledge although the information is never actually communicated to it." Center v. Hampton ...


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