The opinion of the court was delivered by: Denise Cote, District Judge
Plaintiffs Latin America Finance Group, Ltd. ("LatFin"), a strategic advisory firm, and William A. van Diepen ("van Diepen"), LatFin's president, bring this action to recover money they claim they are owed in connection with the attempted sale of electrical assets in Ecuador. They are not, however, suing the party that they believe owes them money. Instead, they have chosen to bring claims for malpractice, breach of contract, and breach of fiduciary duty against Dr. Carlos A. Pareja ("Pareja"), an Ecuadorian lawyer involved in the transaction, and his law firm, Pareja y Asociados. What makes this choice of defendants perplexing is that Pareja was not hired by plaintiffs, was not paid by plaintiffs, and never did any work for plaintiffs. Moreover, the document whose legal defects purportedly left plaintiffs unable to collect their fees was drafted and filed by lawyers who were wholly unaffiliated with Pareja and his firm months before Pareja had any involvement with the transaction. In short, plaintiffs' claims are so entirely without merit that the only possible conclusion is that this litigation was undertaken in bad faith.
Plaintiffs filed their complaint on December 21, 2004. On February 7, 2005, defendants filed a motion to dismiss the complaint on the grounds of insufficient service, lack of personal jurisdiction, failure to state a claim, and forum non conveniens. At a conference on April 29, the motion was denied.
The trial was conducted on July 17 and 18, 2006, without objection in accordance with the Court's customary practices for the conduct of non-jury proceedings. The parties submitted a Joint Pretrial Order and proposed findings of fact and conclusions of law on May 3. The parties also served affidavits containing the direct testimony of their witnesses, as well as copies of all the exhibits and deposition testimony that they intended to offer as evidence in chief at trial.
With its Pretrial Order submissions, plaintiffs presented declarations constituting the direct testimony of van Diepen and Peter Heberling ("Heberling"), a managing director of LatFin and the trustee of Progreso Depositors Trust ("PDT") for most of the relevant period. Plaintiffs also submitted expert reports from Alejandro Ponce-Martinez ("Ponce"), an Ecuadorian lawyer; and business executives Juan Carlos Roa and Carlos MacWilliams. Van Diepen and Heberling were cross-examined at trial. Defendants offered declarations from Pareja; Francisco Swett ("Swett") and Glenn Goldhagen ("Goldhagen"), board members of the companies owned by PDT; and Deborah Das, a paralegal at Fox Horan & Camerini LLP. They also offered expert reports from Gerardo Vasquez Morales ("Vasquez"), an Ecuadorian lawyer and a former justice of the Supreme Court of Justice of Ecuador; Juan Carlos Peralvo, an Ecuadorian lawyer; and Mario A. Hansen-Holm, an Ecuadorian economist. Pareja, Swett, Goldhagen, and Vasquez were cross-examined at trial.
Excerpts from the depositions of most of the testifying witnesses, as well as the following individuals, were offered and received into evidence at trial. Plaintiffs submitted excerpts from the depositions of Richard Bruns ("Bruns"), trustee of PDT from May to July 2003; Enrique Garcia Holmes, receiver for the failed Banco del Progreso ("BP"); and Alberto Hernandez ("Hernandez") and Carlos Loumiet ("Loumiet"), both Miami lawyers who consulted on the transaction at issue here. Defendants offered excerpts from the depositions of Bruns; Hernandez; Holmes; Loumiet; David Castro Alarcon ("Castro"), former counsel to Empresa Electrica del Ecuador, Inc. ("EMELEC"); Anna Maria Perez, an Ecuadorian lawyer involved in the administration of mercantile trusts; and Patricio Molina Davila, the general manager of Ecuador's Agency of Guarantee of Deposits ("AGD").
The following constitutes many of the Court's findings of fact. Additional fact finding appears during the presentation of the Conclusions of Law.
This dispute arises out of the Ecuadorian banking crisis of the late 1990s. One of the banks that failed during this time was BP, which was owned by Fernando Aspiazu ("Aspiazu"), the former finance minister of Ecuador. On February 15, 2000, shortly before BP's collapse, Aspiazu placed certain assets into PDT. Among these assets were all the capital of North Eastern Power and Energy Corporation ("NEPEC"). NEPEC, in turn, owned all the capital stock of Electroecuador, Inc. ("Electroecuador") and EMELEC. Electroecuador produces power for the Guyuaquil region, and EMELEC distributes it. Neither company, however, is Ecuadorian: Electroecuador was originally organized under the laws of the Bahamas and then re-domiciled under the laws of Delaware; EMELEC is organized under the laws of Maine.
Pursuant to an agreement with AGD -- the Ecuadorian government agency established to pay depositors of failed banks -- PDT's mandate was to sell EMELEC and Electroecuador and to distribute the proceeds to the former depositors of BP. Heberling, an American corporate attorney, was appointed trustee of PDT. In addition to his role as trustee, Heberling was a friend of van Diepen's from college and a managing director of LatFin -- a Delaware corporation that represents and advises American and Latin American companies in mergers, acquisitions, joint ventures, and principal investing. Although he was not a shareholder of the company, Heberling participated as a "fifty-fifty partner" with van Diepen on projects in which he was involved. During the time pertinent to the events at issue here, the boards of directors of EMELEC, Electroecuador, and NEPEC were comprised of van Diepen, Swett, and Goldhagen. Swett, a former minister of finance to the president of Ecuador, served as chairman of each board. At the direction of Heberling, Swett also acted as treasurer of PDT.*fn1
On February 18, 2000, LatFin signed an agreement with NEPEC whereby LatFin was to act as the financial advisor for the sale of NEPEC, EMELEC, and Electroecuador. LatFin, a Delaware corporation, was to be paid $25,000 a month for its services and was to receive a percentage of the value of the assets sold, up to $12 million. Just one week later, Heberling increased LatFin's retainer to $85,000 monthly through a letter agreement. In March 2000, the political landscape surrounding the sale of the assets changed, as the government of Ecuador took physical possession of EMELEC and took control of most of its funds. On March 23, Consejo Nacional de Electricidad ("CONELEC") -- the Ecuadorian government agency that regulates Ecuador's electric sector -- passed Resolution 34, which installed a temporary administrator at EMELEC to handle the distribution of electric power and provided that there be a public bidding for the concession to provide electricity to Guayaquil. Recognizing that the public bidding process might eliminate any opportunity for LatFin to receive a success fee for a sale of NEPEC's assets, Heberling entered into new agreements with LatFin in June 2000 (the "Electroecuador Letter" and the "EMELEC Letter") that provided for even greater monthly fees.*fn2
Over the course of the next few months, it became increasingly clear that the Ecuadorian government was planning to go ahead with the EMELEC sale without the involvement of PDT. In October, Heberling, van Diepen, and Goldhagen went to Washington, D.C. to consult with lawyers from the firm of Greenberg Traurig, LLP. During these meetings, the group discussed the possibility of executing a security interest on the EMELEC assets to help protect PDT's control of the assets and to assist in getting LatFin's fees paid under the June 2000 agreements. This option was again discussed in November 2000, when Swett met with van Diepen, Heberling, and Goldhagen in Florida. Castro, EMELEC's in-house counsel, then drafted a security interest (the "Security Interest"), with assistance from PDT's lawyers at the Miami office of Greenberg Traurig. Neither Castro nor Greenberg Traurig is affiliated with Pareja or Pareja y Asociados, and there is no credible evidence that Pareja was aware of, let alone involved in, the drafting of the Security Interest. This document had two purported functions: (1) It gave PDT and LatFin a lien on the assets of EMELEC, and (2) it transferred to PDT and LatFin an irrevocable power of attorney over EMELEC. It contained a Florida choice-of-law provision, and van Diepen testified that he understood it was to have been filed in Florida, but never was. It was signed by Castro on behalf of EMELEC on January 3, 2001. And on January 9, it was signed by Heberling as PDT trustee and van Diepen as president of LatFin.
There is some dispute as to whether the Security Interest could ever have been enforceable under Ecuadorian law. Defendants contend that Ecuadorian law prohibits liens on assets, such as electric utilities, that are used in the public service. Plaintiffs contend that, to the extent such a prohibition exists, it does not cover assets related to electricity services. It is not necessary to reach this issue since, as explained below, no attorney-client relationship existed between plaintiffs and defendants. In any event, there was enough concern about the enforceability of the Security Interest that, after Castro had registered the document with a notary public in Ecuador, he asked an Ecuadorian judge to rule on the validity of the document, but highlighted only the portion regarding the power of attorney. On January 22, the judge ordered the Commercial Registrar of Guayaquil to register the document. On January 29, the Registrar did so, noting that the court had authorized the filing of the power of attorney. But the entire document -- including the Security Interest -- was filed.
Through the drafting of the Security Interest and its "virtual" filing, van Diepen and the others who participated in the creation of the Security Interest were attempting to make it appear like a legally enforceable lien on the assets of EMELEC. In this way, they hoped to cow potential buyers into negotiating with LatFin and PDT (thereby securing for themselves a portion of the proceeds of any sale), rather than allowing them to deal solely with the Ecuadorian government. Indeed, van Diepen termed it a "poison pill" that would give LatFin increased leverage in the event of a sale.
Pareja's first involvement with the events at issue here did not come until at least two months later, when Swett called him to ask for advice relating to PDT's problems with CONELEC and AGD. As a lawyer practicing in Ecuador since 1979, and as a former secretary to the president of Ecuador, Pareja was seen as possessing particular expertise both with regard to the substance of Ecuadorian law, and to negotiations with the various governmental entities involved with the proposed sale. (Pareja is not licensed to practice law in the United States.) Swett proposed that PDT engage Pareja to work on Electroecuador and EMELEC's issues with the Ecuadorian government.
In mid-April 2001, Pareja signed an engagement letter, which was back-dated to April 1 to reflect the work Pareja had already performed (the "April 1 Letter"). Swett drafted the April 1 Letter and testified that he did not intend it to result in Pareja being engaged by LatFin. This understanding is supported both by the text of the Letter and the circumstances of its execution. Although the Letter was printed on LatFin letterhead and van Diepen signed it as president of LatFin, the Letter noted that LatFin was "represent[ing] The Progreso Depositors Trust" and offered to "engage [Pareja], on behalf of PDT, for the legal services set forth below." (Emphasis supplied.) Furthermore, van Diepen signed the April 1 Letter in the United States, while Pareja signed it in Ecuador. In fact, van Diepen and Pareja did not meet until December 2001 -- nearly eight months later.
The agreement enumerated 12 services that Pareja was to provide:
1. be retained as outside legal counsel to PDT in the resolution of outstanding [EMELEC] and Electroecuador matters as determined by the Trustee and his representative;
2. defend at all times PDT's interests, and help secure the fulfillment of its mandate;
3. advise the LatFin and PDT American legal teams on matters ...