The opinion of the court was delivered by: Alvin K. Hellerstein, U.S.D.J.
AMENDED OPINION INCORPORATING RESPONSES TO COURT OF APPEALS FOLLOWING REMAND
The health and welfare of the United States economy depends on a strong domestic agriculture and substantial exports of its farm products. The United States Department of Agriculture furthers this policy by providing partial financial guarantees to exporters, thus sharing the risk of non-payment with them. This case, involving exports of soybeans to Indonesia, arises from stratagems of private parties to take advantage of both the government guarantees and the payments made by importers, without sharing those payments with the government as the law and the governing contracts require.
AWB (USA) Ltd., an American subsidiary of an Australian company, accepted the benefit of Department of Agriculture guarantees to export shipments of soybeans to Indonesia. It financed the exports, as Department of Agriculture regulations permitted, by discounting the importers' promissory notes with Standard Chartered Bank, an English bank licensed to do business in New York City. The methods by which AWB (USA) Ltd. first arranged to secure the bank against loss, and then impaired those arrangements in relation to Department of Agriculture regulations, are the tale of this lawsuit.
Plaintiff Standard Chartered Bank filed this lawsuit in February 2005, seeking to recover its loss of $22,660,790.40, plus interest, from defendant AWB (USA) Ltd. After extensive pre-trial proceedings, the case came on for trial before me, without a jury, on November 13, 14, 15 and 19, 2007. At the conclusion of trial, on November 19, 2007, I delivered my decision extemporaneously, reciting extensive findings of fact and conclusions of law, and finding in favor of the plaintiff, Standard Chartered.
Following the close of trial, the parties submitted post-trial motions: Standard Chartered made a motion to amend the findings and conclusions, and AWB (USA) made a motion for a new trial and for reversal of the Court's findings and conclusions. On January 14, 2008, I issued a written decision, responding to the parties' post-trial motions and arguments, and reflecting further thinking on my part, which supplanted the rulings made on the record on November 19, 2007.
AWB (USA) appealed from the decision. The Court of Appeals remanded, asking me to respond to a number of questions to clarify various of my findings and rulings. This Opinion embodies my clarifications and expands on the Opinion dated January 14, 2008. Also, and separately, I issue my specific responses to the questions the Court of Appeals posed.
I hold, for the reasons stated in this decision, that defendant AWB (USA) Ltd. breached its contract with plaintiff Standard Chartered Bank, and that plaintiff is entitled to recover $23,859,775.70, inclusive of interest to November 20, 2007, plus interest thereafter and costs.
Standard Chartered Bank is an English bank, with its executive offices in London and several offices worldwide, doing business in New York State through its branch located and licensed here. AWB (USA) Ltd. is a corporation incorporated in Delaware, with a principal place of business in Portland, Oregon. Its parent, AWB Ltd., is an Australian company, based in Melbourne, Australia. AWB Ltd. established its American subsidiary to engage in the business of exporting American agricultural products and, as an American company, to be eligible for guarantee-subsidies by the United States Department of Agriculture. See 7 C.F.R. § 1493.420(a)(4); 1493.410(a). AWB Ltd., the Australian parent, also set up a Switzerland subsidiary, AWB (Geneva) SA, to arrange financing for the exports made by its sister American company and, as will be seen, to shift the profits from the American to the Swiss subsidiary, thereby avoiding United States income taxes.
The Department of Agriculture guarantees were administered by a government-owned corporation, the Commodity Credit Corporation ("CCC"). The guarantees were regulated by an extensive set of regulations, known as the Supplier Credit Guarantee Program (SCGP), set out at 7 C.F.R. §§ 1493.400 et seq. The purpose of the SCGP is to develop and expand United States agricultural exports and to encourage United States exporters to extend financing on credit terms to importers. Id. § 1493.400(a)(1). The SCGP is designed to assist "in cases where credit is necessary to increase or maintain U.S. exports to a foreign market and where private U.S. exporters would be unwilling to provide financing without CCC's guarantee." Id. § 1493.400(a)(2). "The program is targeted toward those countries where the guarantees are necessary to secure financing of the exports but which have sufficient financial strength so that foreign exchange will be available for scheduled payments." Id. By encouraging exports to multiple importers, including those with less creditworthy capacity, the U.S. policy of increasing agricultural exports is furthered.
The U.S. Supplier Credit Guarantee Program
For exporting arrangements that qualify for the SCGP, the CCC offers a 65 percent guarantee against the default of a foreign importer, thereby taking on a significant portion of the risk of default. Id. § 1493.400(a)(3). In exchange, the exporter, or the assignee of the exporter, must share any recoveries with the CCC, recovered "from the importer or any other source whatsoever," 65 percent to the CCC, and 35 percent to the exporter or the exporter's assignee:
In the event that monies for a defaulted payment are recovered by the exporter or the exporter's assignee from the importer or from any other source whatsoever, such monies shall immediately be paid to the Treasurer, CCC.
And, further, in the event that CCC makes recovery, from either the importer or the exporter, "or any other source whatsoever," CCC is to make the same allocation, keeping 65 percent for itself, and remitting 35 percent to the exporter, or the exporter's assignee:
Recoveries made by CCC from the importer, and recoveries received by the CCC from the exporter, the exporter's assignee, or any other source whatsoever, will be allocated by CCC to the exporter or the exporter's assignee and to CCC on a pro rata basis . . . .
The Structure of the Transactions at Issue
The Indonesian importers of soybeans gave 180-day promissory notes to AWB (USA). Simultaneously, AWB (USA) entered into several separate, but inter-dependent, arrangements:
1. AWB (USA) paid the American growers of the soybeans (or middle-men) the price of soybeans, f.o.b. the ship at the United States port of embarkation ("the f.o.b. price").
2. AWB (USA) sold the cargo to its sister company in Geneva, AWB (Geneva), essentially at cost (the f.o.b. price paid to the American grower).
3. Without any movement of cargo, AWB (Geneva) immediately sold back the cargo to AWB (USA), but with a profit to AWB (Geneva) added, and inclusive of the costs of the ocean voyage, insurance and freight; the price was expressed as cost and freight from the port of disembarkation in Indonesia (the c.&f. price).
4. AWB (USA) obtained the CCC's 65 percent guarantee. Thus, the guarantee covered both the delivered costs of the exported soybeans borne by AWB (USA), and the profit of the exportation enjoyed by AWB (Geneva), to the extent of 65 percent of the face value of the 180-day promissory notes given by the importers.*fn1
5. AWB (USA) assigned the importers' promissory notes via Note Purchase & Assignment Agreements (NPAAs) at a discount to Standard Chartered, obtaining immediate full payment of the face value of the notes, less a finance fee equivalent to LIBOR plus a half-percent (the London Interbank Offered Rate plus 45 basis points). The assignment was made on a without recourse basis.
6. AWB (USA) also assigned and delivered to Standard Chartered the CCC guarantee and an undertaking to arrange for standby letters of credit covering the 35 percent balance of the face value of the importers' promissory notes. An affiliate of AWB (USA), AWB (Geneva), secured the standby letters of credit. The standby letters of credit were issued by a bank acceptable to Standard Chartered, ANZ Banking Group Ltd., a major Australian bank with a branch operating in London. Thus, Standard Chartered obtained full security for 100 percent of the 180-day promissory notes given by the importers to AWB (USA), and assigned without recourse by AWB (USA) to Standard Chartered.
AWB (USA) and Standard Chartered Bank executed twenty-eight such transactions. Six of the transactions are at issue in this lawsuit.
The Note Purchase and Assignment Agreements
AWB (USA) assigned the 180-day promissory notes given by the importers to Standard Chartered via the NPAAs, without recourse but ...