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Sea Trade Company Ltd. v. Fleetboston Financial Corp.

September 4, 2008


The opinion of the court was delivered by: John F. Keenan, United States District Judge


Plaintiffs Nani Shipping, Inc. ("Nani") and Adrogue Chico, S.A. ("Adrogue Chico," and collectively, the "Plaintiffs") brought this action in diversity against Defendant FleetBoston Financial Corp. (the "Bank," or the "Defendant") for breach of an alleged oral agreement, in which the Bank promised to extend up to $1.5 million in overdraft credit to Plaintiffs for the purpose of funding Adrogue Chico, a real estate development project in Buenos Aires. After loaning approximately $780,000 to Plaintiffs in the form of overdraft credit, the Bank froze Nani's credit privileges. Plaintiffs subsequently filed this lawsuit, claiming that the Bank's refusal to honor the oral contract and extend further credit forced Plaintiffs to abandon their real estate project and caused them to incur approximately $7 million in damages, in the form of unrealized profits on the sale of the real estate. The Bank asserted a counterclaim in which it sought repayment of the funds that Plaintiffs had borrowed but failed to repay.

The Bank now moves for summary judgment dismissing Plaintiffs' claim and in favor of its counterclaim. For the reasons that follow, the Bank's motion to dismiss Plaintiffs' claim is granted but the motion for judgment in favor of its counterclaim is denied.


The following facts, viewed in a light most favorable to the non-movant, are undisputed unless otherwise noted. In September 1991, Plaintiff Nani, through its sole principals Ricardo Cazou ("Cazou") and Gerardo Cazou, opened a checking account with BankBoston International, the private banking division of the Bank's predecessor-in-interest, BankBoston Corporation. Cazou formed Nani and opened Nani's account with the Bank at the suggestion of Ricardo Carrasco ("Carrasco"), a former loan officer of the Bank, with whom Cazou had a history of business dealings. Cazou formed Nani and opened the account to facilitate the funding of various investment entities of which Cazou and his brother were the principals, including Plaintiff Adrogue, a 175,000 square meter private residential community that Cazou anticipated developing in a suburb of Buenos Aires.

In March 1997, Cazou and Carrasco orally agreed that the Bank would extend overdraft privileges to Nani in an amount up to $1.5 million for the primary purpose of funding the development of Adrogue Chico. According to Cazou, Carrasco and Cazou agreed that Nani would be required to repay the overdraft debt only upon completion of the Adrogue Chico project. Although it is uncertain whether a definite interest rate was actually discussed between Cazou and Carrasco, it is undisputed that the overdraft rate typically charged by the Bank, and the rate that Cazou understood would be applied to the credit line, was the London Interbank Offered Rate ("LIBOR") plus two percent. Neither Carrasco nor any other employee of the Bank required that Cazou and/or Nani provide financial information, collateral, personal guarantees or any other information in connection with the agreement. No written contract or other documentary evidence exists to memorialize the agreement.

In February 1998, the Bank froze Nani's account, as well as all other accounts for which Carrasco served as the primary loan officer. Carrasco was suspected of embezzling over $60 million of the Bank's money and had disappeared. At the time Nani's account was frozen, Nani had borrowed from the Bank and not repaid $779,859.25, in the form of overdrafts on its checking account. It is undisputed that Nani has never repaid the funds it overdrew on its account.

At the time the Bank froze Nani's account, Adrogue Chico was in the process of attempting to obtain necessary approvals from authorities of the municipality of Almirante Brown (the "Municipality") to enable the real estate development project to go forward. Adrogue Chico's proposed design as an enclosed, or gated, residential community was unusual at that time in Argentina, and the project was subject to particular scrutiny by the Municipality. In order to obtain approval, or "prefeasability," from the Municipality, Adrogue Chico was required to make certain capital improvements on and around the land where Adrogue Chico was to be built, as well as fund certain projects -- such as installation of lighting for a local hockey arena -- as a show of good faith. The Bank's freezing of overdraft privileges prevented Adrogue Chico from completing these projects and, subsequently, from obtaining the necessary building approvals from the Municipality. In May 1999, the Municipality sent Adrogue Chico a letter, listing the various projects that were required to be completed before approval for the development of the land would be given. The Adrogue Chico development was never built.

On November 14, 2001, Adrogue Chico filed a petition for insolvency relief in the form of a reorganization proceeding (known as a concurso preventivo) in Argentine court. (See Declaration of Lisa M. Coyle ("Coyle Decl."), English Translation of Petition for Voluntary Bankruptcy, Ex. J.) According to its petition, Adrogue Chico listed as the reason for its insolvency the Municipality's refusal to grant the necessary approvals and the resulting lengthy delay in the completion of the project. (Id., Ex. J at 2-7.) In its petition, Adrogue Chico did not list Nani as a creditor, although three other loans were listed*fn1 ; did not list the funding it had received or expected to receive from the Bank, via Nani, as an asset; and did not list its accrued cause of action for breach of contract against the Bank as a contingent asset. Adrogue Chico's proposed plan of reorganization was subsequently approved by a majority of the company's recognized creditors, as required under the Argentine Bankruptcy Law ("ABL"). On February 20, 2003, the Argentine court issued an order that, among other things, confirmed Adrogue Chico's plan of reorganization, pursuant to the terms of which the claims of all of Adrogue Chico's unsecured creditors were discharged accordingly. (See Coyle Decl., Ex. R, English Translation of Adrogue Insolvency Proceeding Final Order.)

On December 29, 2003, Plaintiffs filed the present action, asserting a claim against the Bank for breach of contract. Plaintiffs alleged that the Bank's cessation of overdraft privileges violated the oral agreement reached by Cazou and Carrasco and caused Adrogue Chico to suffer approximately $7 million in lost real estate profits.*fn2 In September 2006, the Bank asserted a counterclaim for breach of contract, seeking repayment of the $779,859.25 that Nani had overdrawn, exclusive of costs, fees, and interest.*fn3

All discovery in this case concluded on March 19, 2008. The present motion was fully briefed on July 16, 2008. The Court heard oral argument on July 29, 2008.


Summary Judgment Standard

Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). The moving party bears the initial burden of demonstrating "the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Where the moving party meets that burden, the opposing party must come forward with specific evidence demonstrating the existence of a genuine dispute of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). In determining whether there is a genuine issue as to any material fact, "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Id. at 255. To defeat a summary judgment motion, the nonmoving party must do "more than simply show that there is some metaphysical doubt as to the material facts," Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986), and "may not rely on conclusory allegations or unsubstantiated speculation," Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir. 1998); see also Contemporary Mission v. United States Postal Serv., 648 F.2d 97, 107 n.14 (2d Cir. 1981)(stating that an "opposing party's facts must be material and of a substantial nature, not fanciful, frivolous, gauzy, spurious, irrelevant, gossamer inferences, conjectural, speculative, nor merely suspicions")(internal citations and quotation marks omitted). Where it is clear that no rational finder of fact "could find in favor of the non-moving party because the evidence to support its case is so slight" summary judgment should be granted. Gallo v. Prudential Residential Servs., Ltd., 22 F.3d 1219, 1223 (2d Cir. 1994).


The Bank contends that Plaintiffs' claim must be dismissed as a matter of law because (i) Plaintiffs' present claim that Adrogue Chico is a third party beneficiary of the alleged oral agreement is fundamentally inconsistent with the representations made by Adrogue Chico in its Argentine insolvency proceedings and thus Plaintiffs are barred from pursuing the claim in this Court;

(ii) Plaintiffs have failed to raise a genuine issue of triable fact regarding the existence of the alleged oral agreement; and

(iii) Plaintiffs are barred from relief because there is no evidence that the alleged breach caused Plaintiffs' damages, the claimed damages are too speculative, and Plaintiffs made no effort to mitigate those damages.

The Argentine Bankruptcy Proceeding & Judicial Estoppel

The Bank argues that Adrogue Chico should be precluded from pursuing the present claim in this Court because of its failure to make certain required disclosures in its Argentine bankruptcy petition. In particular, the Bank contends that Adrogue Chico is barred from bringing this action because it (i) did not list Nani or the Bank as creditors; (ii) did not list the funding it received or expected to receive from Nani as an asset; (iii) did not list the Bank's freezing of the Nani account as the cause of its insolvency; and (iv) did not list the present cause of action against the Bank as an asset. The Bank claims that these omissions now preclude Adrogue Chico from claiming that it is a third party beneficiary to the alleged oral agreement that was concluded between Nani and the Bank. The Bank asks, in essence, that the Court apply the joint, prudential principles of international comity and judicial estoppel to preclude Adrogue Chico from prosecuting this lawsuit on the ground that the present claim is fundamentally inconsistent with the representations made by Adrogue Chico in its Argentine bankruptcy proceeding.

"Under the principles of international comity, United States courts ordinarily refuse to review acts of foreign governments and defer to proceedings taking place in foreign countries, allowing those acts and proceedings to have extraterritorial effect in the United States." Rapture Shipping, Ltd. v. All-round Fuel Trading B.V., 350 F. Supp. 2d 369, 373 (S.D.N.Y. 2004) (quoting Pravin Banker Assocs., Ltd. v. Banco Popular Del Peru, 109 F.3d 850, 854 (2d Cir. 1997) (internal quotation marks omitted)). As the Bank correctly observes, American courts have routinely extended deference to foreign bankruptcy proceedings under the principle of international comity. See Finanz AG Zurich v. Banco Economico S.A., 192 F.3d 240, 246 (2d Cir. 1999) (observing that the courts of this circuit have "repeatedly noted the importance of extending comity to foreign bankruptcy proceedings"). "The orderly distribution of a debtor's property requires combining all claims against the remaining assets into a single proceeding and, as a result, American courts regularly defer to foreign proceedings in this area." Daly v. Castro Llanes, No. 98 Civ. 1196, 2001 U.S. Dist. LEXIS 21180, at *7 (S.D.N.Y. Dec. 19, 2001) (citing Victrix S.S. Co., S.A. v. Salen Dry Cargo A.B., 825 F.2d 709, 713-14 (2d Cir. 1987)). "Comity is generally appropriate where the foreign proceedings do not violate the laws or public policy of the United States and if the foreign court abides by fundamental standards of procedural fairness." Argo Fund Ltd. v. Bd. of Dirs. of Telecom Arg., S.A. (In re Bd. of Dirs. of Telecom Arg., S.A.), 528 F.3d 162, 171-72 (2d Cir. 2008); see also Ecoban Fin. Ltd. v. Grupo Acerero del Norte, S.A. de C.V., 108 F. Supp. 2d 349, 352 (S.D.N.Y. 2000). Because Argentine bankruptcy proceedings are deemed by our courts to be "procedurally and substantively fair" and indeed "similar to a chapter 11 case in the United States . . . it is not surprising that other courts in this district have granted comity to Argentine bankruptcies even though Argentine bankruptcy law is not identical to our own." In re Compania de Alimentos Fargo, S.A., 376 B.R. 427, 435 (Bankr. S.D.N.Y. 2007) (citing cases).

Courts are especially inclined to extend comity to foreign proceedings when a party in the subsequent proceeding in the United States makes "arguments [that] smack of inconsistencies seemingly designed to game the system." Rapture Shipping, 350 F. Supp. 2d at 373. As a result, "the concepts of estoppel, and in particular judicial estoppel, have developed." Id. The doctrine of judicial estoppel prevents a party from "asserting a factual position in a legal proceeding that is contrary to a position previously taken by him in a prior legal proceeding." Bates v. Long Island R.R. Co., 997 F.2d 1028, 1037 (2d Cir. 1993). Judicial estoppel aims to "preserve the sanctity of the oath by demanding absolute truth and consistency in all sworn positions" and to "protect judicial integrity by avoiding the risk of inconsistent results in two proceedings." Id. at 1038; see also In Re Galerie de Monnaies of Geneva, Ltd., 62 B.R. 224, 226 (S.D.N.Y. 1986) ("Judicial estoppel is invoked in these circumstances to prevent the party from playing fast and loose with the courts, and to protect the essential integrity of the judicial process.") (internal quotation marks omitted). There are two elements of judicial estoppel. "First, the party against whom the estoppel is asserted must have argued an inconsistent position in a prior proceeding; and second, the prior inconsistent position must have been adopted by the court in some manner." Bates, 997 F.2d at 1038.

Courts frequently invoke judicial estoppel to prevent a party who failed to disclose a claim in bankruptcy proceedings from asserting that claim in a subsequent action. See Negron v. Weiss, No. 06 Civ. 1288, 2006 U.S. Dist. LEXIS 69906, at *8-9 (E.D.N.Y. Sept. 27, 2006) (citing cases) "In the bankruptcy context, 'the rationale for these [estoppel] decisions is that the integrity of the bankruptcy system depends on full and honest disclosure by debtors of all of their assets.'" Kunica v. St. Jean Fin., Inc., 233 B.R. 46, 58 (S.D.N.Y. 1999) (quoting Rosenshein v. Kleban, 918 F. Supp. 98, 104 (S.D.N.Y. 1996)). "When an assertion in a bankruptcy proceeding is at issue, the . . . requirement [that the bankruptcy court have adopted the prior inconsistent position] is usually fulfilled when the bankruptcy court confirms a plan pursuant to which creditors release their claims against the debtor." Negron, 2006 U.S. Dist. LEXIS 69906, at *9. However, if the statements or positions in the prior proceeding can be reconciled with the statements or positions taken in the subsequent proceeding, estoppel does not apply. See Simon v. Safelite Glass Corp., 128 F.3d 68, 72-73 (2d Cir. 1997). Similarly, the doctrine does not apply if the initial statement was the result of a good faith mistake or unintentional error. Id. at 73.

Plaintiffs do not dispute that this Court should recognize, and defer to, the Argentine bankruptcy proceeding under the principle of international comity. Nor is there any dispute that, for purposes of the application of judicial estoppel, the Argentine court adopted the position taken by Adrogue Chico when that court confirmed the company's plan of reorganization in February 2003. Rather, Plaintiffs argue that, under Argentine law, they were not required to make the disclosures identified by the Bank. Therefore, the argument goes, Adrogue Chico's pursuit of its claim against the Bank in this court is not fundamentally inconsistent with its representations in the Argentine insolvency proceeding and judicial estoppel should not apply.

To decide whether Adrogue Chico's position in the Argentine bankruptcy proceeding was inconsistent with its present claim, the Court must look to the applicable provisions of the ABL. The Court must determine whether, under the ABL, Adrogue Chico was required to make the disclosures identified by the Bank and, if the disclosures were in fact required, whether their omission in the Argentine proceeding is fundamentally inconsistent with Adrogue Chico's pursuit of its claim in this Court

The Court's determination of foreign law is governed by Rule 44.1 of the Federal Rules of Civil Procedure, which provides that "[t]he court, in determining foreign law, may consider any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence. The court's determination shall be treated as a ruling on a question of law." Fed. R. Civ. P. 44.1. Thus, the Court "may rely upon its own research and any submissions from the parties when considering foreign law." Haywin Textile Prods. v. Int'l Fin. Inv. & Commerce Bank, Ltd., 137 F. Supp. 2d 431, 434-35 (S.D.N.Y. 2001) (citing Ackermann v. Levine, 788 F.2d 830, 838 n.7 (2d Cir. 1986)). In construing foreign law under Rule 44.1, "a court may reject even uncontradicted expert testimony and reach its own decisions on the basis of [an] independent examination of foreign legal authorities." Guidi v. Inter-Continental Hotels Corp., No. 95 Civ. 9006, 2003 U.S. Dist. LEXIS 6385, 2003 WL 1907901, at *2 (S.D.N.Y. Apr. 16, 2003) (internal quotations marks and citations omitted). "Courts weigh conflicting expert ...

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