The opinion of the court was delivered by: JOHN KEENAN, Senior District Judge
This dispute involves the diversion of $16 million from Banco
Union S.A.E.C.A. ("Banco Union") and Banco Oriental
S.A.I.F.E.C.A. ("Banco Oriental"), two Paraguayan banks in
liquidation. During March and April of 2000, the funds were
transferred to trust accounts maintained by Nominal Defendant
John W. Tulac, Esq. ("Tulac") at Citibank in New York.
Thereafter, $14 million of the $16 million was transferred to
Citibank accounts maintained by Principal Defendant Paraguay
Humanitarian Foundation ("PHF"), and over $1 million of the $16
million to other accounts maintained or controlled by Principal
Defendants Avijos, Inc. ("Avijos"), Jose M. Avila ("Avila"), CQZ
Holding Corp. ("CQZ Holding") and Nominal Defendant Tulac.
On November 1, 2001, Plaintiff Banco Central de Paraguay
("Banco Central"), claiming to be the assignee of the two
liquidated banks, commenced this action to recover the $16
million. Banco Central alleges conversion and constructive trust
claims against all defendants, and a conspiracy claim against the
principal defendants. On September 13, 2002, the principal
defendants filed their answer, affirmative defenses, counterclaim
and a now-discontinued third-party complaint against Citibank.
Tulac simultaneously filed his answer and interpleader
counterclaim. Upon leave of Magistrate Judge Maas, Banco Central
filed an amended complaint adding principal defendants Ronald L. Wolfson ("Wolfson") and Jorge Ralph Gallo Quintero ("Quintero")
on July 10, 2003. Principal Defendants have filed an answer to
the amended complaint and amended affirmative defenses.
Four motions are now before the Court. Banco Central moves for
summary judgment on Count One of its amended complaint, which
alleges conversion of the $16 million against all defendants. The
principal defendants move for summary judgment dismissing Banco
Central's claims and awarding costs and attorney's fees. Tulac
moves for judgment on the pleadings, or, alternatively, summary
judgment, for discharge under the interpleader and dismissal of
Banco Central's claims against him.
Banco Central is the highest banking authority in Paraguay and
has been characterized by one of its directors as "the Paraguyan
equivalent of the Federal Reserve Bank." (Weiner Affid., Exh. Q,
¶ 3). Under Paraguayan law, one of Banco Central's duties is to
supervise the liquidation of failed Paraguayan banks through the
Superintendent of Banks of Paraguay ("Superintendent"). (Id.).
The Superintendent appoints the liquidators and supervises the
liquidation while reporting back to Banco Central. (Id.). There
is some dispute among the parties concerning Banco Central's role
in this process. Banco Central claims that it supervises the
liquidation through the Superintendent. (Pl. Rule 56.1 Stmt. in
Support of Motion ¶¶ 1-2). Nominal defendant Tulac does not dispute the substance of this
statement. (Tulac Resp. to Pl. Rule 56.1 Stmt. ¶ 1). Principal
defendants, however, claim that Banco Central is not the Federal
Reserve equivalent and that the superintendent has the "full
authority" over the liquidated banks. (Def. Ans. To Pl. Rule 56.1
Stmt. ¶¶ 1-2).
In 1998, Banco Central placed Banco Union and Banco Oriental in
liquidation. In March 2000, the liquidators of the two banks,
presumably appointed by the Superintendent, appointed Juan
Fernando Rodriguez Leith ("Rodriguez Leith") power of attorney of
Banco Union and Ramon Alberto Guillen Ortiz ("Guillen Ortiz")
power of attorney of Banco Oriental. (Cubitt Affd., Exh. B & C).
The duration of these appointments was until the termination of a
so-called "Reserved Funds Investment Program," or until specified
dates in April 2001, whichever occurred first. (Weiner Affd.,
Exh. Z). At some point, presumably before March 2000, Rodriguez
Leith signed a pre-agreement to form a joint venture between the
"CQZ Project Manager" and the "D.F.M. Foundation" for work on a
"project management plan in Paraguay" and other South and Central
American countries. (Cubitt Affd., Exh. F). This pre-agreement
was signed by Rodriguez Leith, defendant Quintero (a director and
officer of defendant CQZ Holding Corp.), defendant Avila (a
director and officer of defendant Avijos), and Julio Gonzalez
Ugarte ("Gonzalez Ugarte"). Gonzalez Ugarte was a member of the Banco Central board of
On March 13, 2000, Rodriguez Leith, acting on behalf of both
banks, signed a letter of intent directed to Quintero referencing
the placement of the $16 million in a Paraguayan humanitarian
project. (Weiner Affd., Exh. G).*fn1 The next day, Rodriguez
Leith and Quintero apparently entered into a "Joint Venture"
referencing the $16 million placement. (Id. at Exh.
H).*fn2 This Joint Venture provides that "in the event that
the investment plan is not carried out, instruments deposited in
the form of cash and/or demand draft shall be reimbursed without
suffering damage or loss of value for any reason whatsoever."
(Id. ¶ 5).
Soon after the execution of the letter of intent and Joint
Venture, the transfers of funds at issue in this dispute
occurred. On March 17, 2000, $2 million was transferred from
Banco Union to a Citibank trust account in the name of "CQZ
Holding Project Trust." ("CQZ Trust Account"). On April 11, 2000, $6.1 million was transferred from Banco Union to another
Citibank trust account maintained by nominal defendant Tulac
("Trust Account"). The same day, $7.9 million was transferred
from Banco Oriental to the Trust Account. Later in the year, $14
million was transferred from the Trust Account to accounts
maintained by PHF at Citibank. Over $1 million was transferred
from the CQZ Trust Account to other accounts maintained or
controlled by Avijos, Avila (the president of Avijos and
secretary of PHF), CQZ Holding and Nominal Defendant Tulac. (Pl.
Rule 56.1 Stmt. in Support of Motion ¶ 3).
On June 28, 2000, Rodriguez Leith sent a "Donation Letter"
addressed to "CQZ Humanitarian Foundation" (the former name of
defendant PHF), which the letter defined as "a United States
charitable organization formed to fund humanitarian projects in
Paraguay and possibly other South American and Central American
nations." (Cubitt Affd., Exh. G). Rodriguez Leith extended a
"contribution" of $4 million and a "no-interest" loan of $10
million to the CQZ Humanitarian Foundation for feasibility
studies, a proposed hospital project and infrastructure
development in Paraguay. (Id.). On June 29, 2000, Rodriguez
Leith and the CQZ Humanitarian Foundation (PHF) executed the $10
million loan agreement. (Id.). It appears the transfer of $14
million of the $16 million from the Trust Account to the Citibank
accounts maintained by PHF occurred on the same day as the execution of the loan agreement. (Id., Amended
Cmplt. ¶ 22). On October 19, 2000, Rodriguez Leith wrote PHF and
informed the directors that the parties responsible for the $10
million loan wished to cancel the note and contribute the money
to PHF. (Cubitt Affd., Exh. I)
Also occurring in 2000 was the issuance of two checks by
defendant Avijos (Avila's company). (Weiner Affd., Exh. J-K). The
first, for $2 million, was dated March 13, 2000 and made payable
to Banco Union. This check was dated on the same day that
Quintero and Rodriguez Leith signed the letter of intent and four
days before the $2 million transfer from Banco Union. The second
check, for $14 million, was dated October 19, 2000 and made
payable to Rodriguez Leith. Avijos's account did not, and still
does not, have sufficient funds to cover these checks. (Weiner
Affd., Exh. L). Defendants claim that the giving of a check
(presumably even those that bounce as high as a Baltimore chop)
in South America and elsewhere signifies the giving of a
guaranty, even though "this is not the way we do things in the
U.S." (Def. Ans. to Pl. 56.1 Stmt. ¶ 4).
In January 2001, the Paraguayan press reported that $16 million
was missing from Banco Union and Banco Oriental. Soon thereafter,
the liquidators of the banks were replaced. Plaintiffs allege
that Avila, working in concert with Ugarte, then concocted phony
guarantees issued by ABN-AMRO Bank ("ABN") in favor of Banco Union and Banco Oriental. Defendants emphasize
that the phony ABN guarantees actually were provided by Banco
Central. (Def. Reply Mem. in Support at 3). In their depositions,
both Avila and Tulac testified that Ugarte appeared to be the
brains behind the guarantees. (Weiner Affd., Exh. A at 131-46;
Exh. D at 353-55). Avijos (Avila's company) sent contracts to the
new liquidators pursuant to which Avijos would purchase the
guarantees from Banco Union and Banco Oriental, thereby providing
an avenue for returning the $16 million. It appears that Avila,
on behalf of Avijos, entered into the contracts with the
liquidators on March 16, 2001. (Cubitt Affd., Exh. J, K).
Principal defendants submitted these contracts as part of their
opposition papers to Banco Central's summary judgment motions,
but failed to submit English translations of the documents.
On April 13, 2001, Tulac sent a letter to the new liquidators
in which he informed them that "[p]ursuant to a written agreement
between each bank and Avijos, Inc., the banks were guaranteed
repayment of a liquidated amount, including principal and all
accrued interest." (Weiner Affd., Exh. N). Tulac stated that he
was "instructed to settle these two contracts" and that once the
banks were paid in full, they would "no longer be a part of the
project development." (Id.). On April 27, 2001, Tulac wrote to
Citibank in Paraguay to ask for information necessary to send payments to Banco Union and Banco
Oriental "in settlement of their contracts with Avijos." (Id.,
Exh. P.). On May 1, 2001, the Banco Union liquidator acknowledged
receipt of an April 30, 2001 letter from Tulac that discussed
"the probable sending of the funds that were transferred to
[Tulac's] account at Citibank." (Id., Exh. O).*fn3 The
Banco Union liquidator requested an exact date for the transfer.
(Id.). The transfer was never made.
On September 10, 2001, in separate documents, Banco Union and
Banco Oriental assigned all their rights and claims in connection
with the diverted funds to Banco Central. (Weiner Affd., Exh. R).
Defendants claim that these assignments are invalid because they
were not notarized in accordance with Paraguayan law. (Def. Mem.
in Support at 6-7). On November 1, 2001, Banco Central commenced
this action. On November 15, 2001, the Court entered an order ...