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January 6, 2005.

BANCO CENTRAL DE PARAGUAY, on behalf and as assignee of Banco Union S.A.E.C.A. in liquidation and Banco Oriental S.A.I.F.E.C.A. in liquidation, Plaintiff,

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 directors.

  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 ...

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