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SEA TRADE COMPANY LTD. v. FLEETBOSTON FINANCIAL CORP.

United States District Court, S.D. New York


SEA TRADE COMPANY LTD., TRADEWINDS ENTERPRISE (JERSEY) LTD., ROBINSON FLETAMENTOS, S.A., AGENCIA MARITIMA ROBINSON, S.A.C.F.I., NANI SHIPPING CORP. LTD., and ADROGUE CHICO, S.A., Plaintiffs,
v.
FLEETBOSTON FINANCIAL CORP., Defendant.

The opinion of the court was delivered by: JOHN KEENAN, Senior District Judge

MEMORANDUM OPINION AND ORDER

Procedural Background

This is an action for damages for what plaintiffs contend is a failure on the part of the defendant, FleetBoston Financial Corp. ("FleetBoston"),*fn1 to honor an oral commitment to extend lines of credit to several businesses operating in Argentina. FleetBoston has moved the Court to dismiss plaintiffs' action pursuant to Federal Rule of Civil Procedure 12(b) (6). It is the defendant's position that the oral agreements are unenforceable because they do not satisfy the statute of frauds and do not fit within any of the recognized exceptions to the statute. Furthermore, FleetBoston argues that the plaintiffs lack the standing necessary to assert the claims contained within the complaint. For the reasons set forth herein, defendant's motion to dismiss is denied in part and granted in part.

  Facts

  In deciding a motion to dismiss a complaint as failing to sate a claim on which relief can be granted pursuant to Rule 12(b) (6), a district court is obligated to view the complaint in the light most favorable to the plaintiff. See Scheuer v. Rhodes, 416 U.S. 232, 237 (1974); Yoder v. Orthomolecular Nutrition Inst., Inc., 751 F.2d 555, 562 (2d Cir. 1985). This demands that the court accept as true the factual allegations stated by the plaintiff in its complaint. See Zinermon v. Burch, 494 U.S. 113, 118 (1990). Any reasonable inferences that may be drawn from the stated facts must be drawn in plaintiff's favor. See Haines v. Kerner, 404 U.S. 519, 520-21 (1972). As such, the facts set forth herein are drawn from the complaint.

  The Plaintiffs

  Plaintiffs Robinson Flemtamentos, SA ("Robflesa"), Agencia Maritima Robinson S.A.C.F.I. ("AMR") and Adrogue Chico are Argintine entities that share the same principals, Ricardo Gaston Cazou ("Cazou") and Andrew George Robinson ("Robinson"). Robflesa and AMR are in the shipping business and Adrogue Chico is involved with housing developments. Dating back to the 1980's these companies and their affiliates have used the international banking division of BankBoston, now a New York City based division of defendant, as their principal bank.

  In order to provide banking services for Robflesa and AMR and take advantage of certain tax laws, Plaintiff Sea Trade Company Ltd. ("Sea Trade") was organized under the laws of the Bahamas by BankBoston International ("BankBoston"). According to plaintiffs, Sea Trade's only function is to handle financial transactions for a second off-shore company, Plaintiff Tradewinds Enterprises (Jersey) Ltd. ("Tradewinds"), also organized by BankBoston under the laws of the Bailiwick of Jersey. Tradewinds in turn operated an international ship brokering business through its agent Robflesa, utilizing the BankBoston bank accounts owned by Sea Trade. Although Sea Trade, Tradewinds, Robflesa and AMR are separate legal entities, Sea Trade and Tradewinds were created solely to benefit Robflesa and AMR. It was the intention of the plaintiffs and BankBoston that the four entities would work in concert for the mutual benefit of one another. Similarly, Plaintiff Nani Shipping Corp. Ltd. ("Nani Shipping") was created by BankBoston under the laws of the Bahamas to function as a banking vehicle for Adrogue Chico.

  The Charter Contract

  Two major charterers, Centenary S.A. and Navynor S.A., sought to retain Tradewinds as its exclusive broker for all of their freight transactions. As part of this arrangement Tradewinds was to provide financing in a revolving amount of $1 million, and in return, receive a commission of the freight charges. AMR was to benefit as the ship's agent from an increased volume of fees. In order to finance the relationship, however, Tradewinds needed to secure a line of credit from BankBoston.

  Plaintiffs met with Ricardo Carrasco ("Carrasco"), the BankBoston official who had for some time handled plaintiffs' accounts and was responsible for the creation of Sea Trade, Tradewinds and Nani Shipping. Plaintiffs also met with Cecilia Recalde, another BankBoston official, to explain the proposed transaction. Plaintiffs hoped to obtain the $1 million line of credit necessary to finance the deal. Carrasco declined to extend a $1 million line of credit, but agreed to grant Sea Trade an unsecured line of credit for $400,000 to fund the Centenary/Navynor contract. According to plaintiffs, Carrasco did not ask that the agreement, which was to finance a 4 year shipping contract that could be renewed for another 2 years, be memorialized in writing. This, they claim, was "consistent with the history of the account." In practice, the line of credit was more or less an agreement to allow Sea Trade to overdraw its account by up to $400,000.

  Relying on the agreement with BankBoston, the charter agreement was entered into in September of 1997. In 1998, however, Carrasco disappeared after the bank began to suspect that he had been scheming to divert substantial assets from BankBoston. Concerned by what it believed Carrasco to be guilty of and by the fact that he had apparently fled, in February of 1998, BankBoston froze all of the accounts for which he had served as the primary loan officer. Included among the accounts frozen was Sea Trade's account. Cazou and Robinson protested the freeze, claiming the agreement had been in effect for nearly six months and there had never been any improprieties associated with their account. In response, BankBoston offered to reactivate Sea Trade's account if the company would agree to certain modifications to its terms, including providing collateral. Sea Trade objected to the modifications and the account remained closed. Its access to credit gone, Tradewinds began defaulting on contracts. In April Centenary and Navynor suspended the Exclusivity and Financing Contract.

  The Housing Project

  The claim brought against defendant by Adrogue Chico and Nani Shipping follows a similar script to the one offered by their fellow plaintiffs. In need of capital to develop a housing project on the outskirts of Buenos Aires, Cazou was introduced to Carl Kishman ("Kishman") of BankBoston's Buenos Aires office. Officials within the Buenos Aires office studied the proposed Adrogue Chico project that Cazou had presented to Kishman and Carrasco and in March of 1995 offered to loan Adrogue Chico $1,250,000 at a variable interest rate initially set at 16.5% per annum.

  For one reason or another, the loan never materialized. Cazou continued to discuss the project with Carrasco. In March of 1997 Carrasco suggested that a $1,500,000 unsecured line of credit bearing an interest rate of LIBOR % be extended to the Nani Shipping account. According to plaintiffs, Cazou made certain that Carrasco understood that Adrogue Chico needed to write two checks to Banco Mariva, totaling $162,000, as a prerequisite to its being awarded the project, and that the checks would have to be honored by the proposed line of credit to Nani shipping. Plaintiffs claim Carrasco understood this and assured them that the checks would be paid from the unsecured line of credit.

  In reliance on these assurances, Cazou wrote the checks to Banco Mariva. By the time the checks, which were being held by Banco Mariva for negotiation at a later date, became payable, Carrasco had disappeared. BankBoston refused to pay the checks, froze the Nani Shipping account and ended further extension of the line of credit. Shortly thereafter Adrogue Chico's development project became beset with financial problems. Eventually, Adrogue Chico lost the project and the projected $7,200,000 in value it would have generated.

  Discussion

  Plaintiffs Are Third-Party Beneficiaries

  Defendant contends that the various plaintiffs either lack standing to bring the claims they assert or have failed to allege an injury necessary to support their claims. FleetBoston notes that with respect to the charter party claim, Sea Trade is the only plaintiff alleged to have been a party to the oral agreement to extend the line of credit. Sea Trade, however, alleges no injury to itself. Rather Tradewinds and AMR are the entities that claim to have suffered an injury. Similarly, defendant directs the Court's attention to the fact that Nani Shipping and not Adrogue Chico was the party to the oral agreement to extend a $1,500,000 line of credit to finance the housing project in Buenos Aires. Adrogue Chico, however, is the party that alleges an injury.

  Although Tradewinds, AMR and Adrogue Chico are not parties to the respective contracts, in certain circumstances a third party that stood to benefit from the agreement can maintain an action against a party to the contract that has breached that contract. "The third-party beneficiary concept arises from the notion that `it is just and practical to permit the person for whose benefit the contract is made to enforce it against one whose duty it is to pay' or perform." Fourth Ocean Putnam Corp. v. Interstate Wrecking Co., Inc., 66 N.Y.2d 38, 43 (1985) (quoting Seaver v. Ransom, 224 N.Y. 233, 237 (1918)). In order for the third party to sue as a beneficiary, however, the party must demonstrate that there was an intent to benefit the third party by way of the contract and that the benefit is intentional and not merely incidental. See Airco Alloys Div., Airco Inc. v. Niagra Mohawk Power Corp., 76 A.D.2d 68, 79 (4th Dep't 1980). The party claiming to be a third-party beneficiary bears the burden of demonstrating that it is in fact an intended beneficiary. See HBL Indus. v. Chase Manhattan Bank, 45 B.R. 865, 870 (S.D.N.Y. 1985). Under New York law, one is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either (a) performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or (b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance. Septembertide Publ'g, B.V. v. Stein & Day, Inc., 884 F.2d 675, 679 (2d Cir. 1989).

  Based upon the standard adopted by New York courts, Tradewinds, AMR and Adrogue Chico are undeniably third-party beneficiaries of the respective contracts. In each of the scenarios the plaintiffs approached Carrasco with the intent of securing a line of credit to enable them to undertake certain business opportunities. In each case Carrasco entered into the alleged oral agreements fully aware that parties other than those that directly controlled the bank accounts stood to benefit from the agreements. As the individual who advised Cazou and Robinson to create off-shore holding companies and assisted in creating Sea Trade and Nani Shipping, Carrasco, and thereby FleetBoston, knew that those entities were nothing more than banking vehicles for the other plaintiffs. In light of this reality, there is no doubt that it was the intention of the parties, FleetBoston and Sea Trade and Nani Shipping, respectively, that Tradewinds, AMR and Adrogue Chico would be the actual beneficiaries of the agreed upon lines of credit. As such, plaintiffs may maintain an action against defendant.

  Plaintiffs' First Claim Does Not Satisfy the Statute of Frauds

  Under New York law, "[e]very agreement, promise or undertaking is void, unless it . . . [is] in writing, and subscribed by the party to be charged therewith . . . [provided] such agreement, promise or undertaking . . . is not to be performed within one year from the making thereof." N.Y. Gen. Oblig. Law § 5-701(a)(1) (McKinney's 2000). FleetBoston contends and plaintiffs concede that the claim brought by Sea Trade, Tradewinds and AMR with respect to the oral agreement to extend a $400,000 line of credit to Sea Trade falls squarely within the confines of the statute of frauds.*fn2 Thus, in order for the oral agreement to be enforceable and able to provide a basis for this action, the agreement must be saved by one of the accepted exceptions to the statute of frauds. Plaintiffs offer two such doctrines: (1) partial performance and (2) promissory estoppel.

  1. Partial Performance

  New York law provides that certain oral agreements can be removed from the statute of frauds by the equitable doctrine of partial performance. This is not, however, an agreement that can be saved by partial performance. The partial performance exception to the statute of frauds applies to those agreements governed by § 5-703 of the General Obligations Law, namely real estate transactions, no such exception has been recognized with respect to agreements governed by § 5-701. Steven Pevner, Inc. v. Ensler, 309 A.D.2d 722, 722 (1st Dep't 2003). New York's highest court has in the past five years clarified that it has never acknowledged the existence of such an exception. In Messner Vetere Berger McNamee Schmetterer Euro RSCG Inc. v. Aegis Group plc, 93 N.Y.2d 229, 234 n. 1 (1999), the Court of Appeals stated that despite a District Court and the Second Circuit's belief that the Court had "recognized a parallel judicially-created part performance exception to § 5-701, we have not in fact adopted that proposition." (internal citations, quotations and alterations omitted).

  Plaintiffs would like the Court to narrowly interpret Messner Vetere as simply addressing, in a footnote, a reference to the Court of Appeals regarding an earlier case and explaining that the case, Anostario v. Vicinazo, 59 N.Y.2d 662 (1983), had been decided pursuant to § 5-703 and not § 5-701. Thus, plaintiffs argue the Court of Appeals held only that the Anostario case did not establish a partial performance exception, and not that such an exception does not actually exist. In support of this position plaintiffs cite a number of cases*fn3 they contend demonstrate the post-Messner Vetere availability of the partial performance exception to § 5-701 in New York courts. The cases cited by plaintiffs do not, however, stand for the proposition they contend they do. In none of the cases cited is an agreement governed by § 5-701 saved from the statute by partial performance. Although in certain of the cases the various courts stated that the agreements before them failed to satisfy elements of the partial performance doctrine this does not mean the courts believe such an exception exists. Rather the courts merely recognized other flaws in the arguments in support of enforcing the agreements, thereby rendering it unnecessary for the courts to confront whether a partial performance exception does exist. Conversely, several New York courts that have directly addressed the issue post-Messner Vetere have held that no such exception exists. See, e.g., Belotz v. Jeffries & Co., Inc., 213 F.3d 625, **2 (2d Cir. 2000) (unpublished summary order) ("[T]he doctrine of part performance is of no aid to appellant. Section 5-701(a)(10) does not expressly provide a part performance exception, and the New York Court of Appeals has firmly stated there is no such exception."); Spencer Trask Software & Info. Servs. LLC v. RPost Int'l Ltd., 2003 WL 169801, *16 (S.D.N.Y. Jan. 24, 2003) ("Section 5-701(a)(10) does not expressly provide a part performance exception, and the New York Court of Appeals has firmly stated there is no such exception."); Stephen Pevner, Inc., 309 A.D.2d at 722 ("The exception to the statute of frauds for part performance applies to General Obligations Law § 5-703, which deals with real estate transactions, but it has not been extended to General Obligations Law § 5-701."); Valentino v. Davis, 270 A.D.2d 635, 637 (3rd Dep't 2000) ("The Court of Appeals has recently clarified that the doctrine of part performance cannot save contracts governed by General Obligations Law § 5-701."). The oral agreement, therefore, cannot be salvaged based upon BankBoston's alleged part performance.

  2. Promissory Estoppel

  Plaintiffs offer the doctrine of promissory estoppel as an alternative basis for removing the oral agreement to extend a $400,000 line of credit to Sea Trade from the confines of the statute of frauds. Promissory estoppel can be asserted to support a quasi-contract claim upon a showing of: (1) a clear and unambiguous promise; (2) a reasonable and foreseeable reliance by the party to whom the promise is made; and (3) an injury sustained by the party asserting the estoppel by reason of its reliance. Zucker v. Katz, 708 F. Supp. 525, 532-33 (S.D.N.Y. 1989); Steele v. Deverde S.R.L., 242 A.D.2d 414, 415 (1st Dep't 1997). Plaintiffs claim to have relied on Carrasco's promise to extend the lines of credit; that the reliance was reasonably foreseeable considering they told Carrasco why they needed the line of credit and how they planned to utilize it; and that they were injured by losing the future value of the charter contract.

  In addition, plaintiffs must demonstrate that the injury they suffered was significant enough that denying them relief would be unconscionable. See N. Am. Knitting Mills, Inc. v. Int'l Women's Apparel, Inc., 2000 WL 1290608, at *3 (S.D.N.Y. Sept. 12, 2000); Horn & Hardart Co. v. Pillsbury Co., 703 F. Supp. 1062, 1068 (S.D.N.Y. 1989); Long Island Pen Corp. v. Shatsky Metal stamping Co., Inc., 94 A.D.2d 788, 789 (2nd Dep't 1983). If denying the plaintiffs relief would merely result in an unfair result, the denial cannot be deemed to be unconscionable. See Philo Smith & Co., Inc. v. USLIFE Corp., 554 F.2d 34, 36 (2d Cir. 1977). An injury that flows naturally from the defendant's nonperformance of an unenforceable oral agreement cannot be deemed unconscionable either. N. Am. Knitting Mills, Inc., 2000 WL 1290608, at *3.

  Plaintiffs contend that the injury they suffered is the loss of the expected future revenue from the charter agreement. The loss of future benefits is a typical consequence of a party's nonperformance. More often than not, one party's failure to perform results in a loss of a business or economic opportunity for the other party. Were the doctrine of promissory estoppel invoked whenever a party lost out on prospective profits, the statute of frauds would be rendered essentially meaningless. That the plaintiffs lost out on prospective earnings because defendant decided not to honor the agreement may be unfair, it is not, however, unconscionable.

  Nor can it be said that FleetBoston's overall conduct was unconscionable. It is far from unconscionable that FleetBoston would freeze the accounts of an official it believes was engaged in serious wrongdoing and who had mysteriously disappeared. Particularly when that account is $400,000 overdrawn and not secured by collateral. Thus, plaintiffs cannot satisfy the requirement of unconscionability necessary to invoke the doctrine of promissory estoppel.

  Conclusion

  Plaintiffs have the standing necessary to assert the claims advanced in their complaint. Plaintiffs' First Claim, however, fails to satisfy the statute of frauds and cannot be saved by an exception to the statute. That claim is, therefore, dismissed. Plaintiffs's Second Claim is not dismissed. Plaintiffs Nani Shipping and Adrogue Chico, the only plaintiffs with a claim remaining, and FleetBoston are hereby instructed to submit a proposed discovery plan to the Court by no later than October 1, 2004. The Court's preference is that the submission be in the form of a joint stipulation.

  SO ORDERED.


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