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The Export-Import Bank of Republic of China v. Grenada

United States District Court, Second Circuit

August 19, 2013

THE EXPORT-IMPORT BANK OF THE REPUBLIC OF CHINA, Plaintiff,
v.
GRENADA, Defendant.

OPINION & ORDER

HAROLD BAER, Jr., District Judge.

Defendant Grenada ("Grenada") and Plaintiff The Export-Import Bank of the Republic of China ("Ex-Im Bank") both move for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c). Grantham, Mayo, Van Otterloo ("GMO") Trust, on behalf of its series GMO Emerging Country Debt Fund, GMO Emerging Country Debt L.P., GMO Emerging Country Debt Investment Fund plc, and Greylock Global Opportunity Master Fund Ltd., and Franklin Templeton Emerging Market Debt Opportunities Fund plc (together "Proposed Intervenors") move to intervene as parties pursuant to Fed.R.Civ.P. 24. For the reasons stated below, Proposed Intervenors' motion is GRANTED, and both Grenada and Ex-Im Bank's motions for judgment on the pleadings are DENIED. It is time for the litigation to move past the pleading stage so that a factual record may be developed, and discovery will hopefully do that.

Background

This is Ex-Im Bank's second action based on four loan agreements between Grenada and Ex-Im Bank executed in 1990 and 1997 and originally totaling $28 million. Based on the same four loan agreements, Ex-Im Bank's original action against Grenada was for the latter's default in 2006 and resulted in an amended judgment on March 16, 2007, in the amount of approximately $21.6 million, plus prejudgment interest, attorneys' fees, and statutory interest. See Exp.-Imp. Bank of Republic of China v. Grenada, 876 F.Supp.2d 263, 264 (S.D.N.Y. 2012). The Complaint in the first action ("FA Compl.") also described, but did not seek to enforce, Grenada's promise under the loan agreements to rank "its obligations to the Ex-Im Bank... at least pari passu with its other External Indebtedness, " defined as "debt denominated in a currency other than Grenada's and payable to a nonresident of Granada." FA Compl. ¶ 24. The term pari passu is defined as "proportionally; at an equal pace; without preference." Black's Law Dictionary (9th ed. 2009).

Now, some six years later, Ex-Im Bank brings this second action, alleging the breach of the pari passu clause and negative covenant in the same four loan agreements and seeking injunctive relief. Specifically, the Complaint in the second action ("SA Compl.") alleges that Grenada has not satisfied any part of the judgment owed to Ex-Im Bank in the first action but has made "substantial interest payments on its external debt" in the period between 2008 and 2012, following Grenada's debt restructuring in 2005 and 2006. SA Compl. ¶¶ 9, 22. The Complaint also alleges that Grenada's Offering Memorandum in 2005 that sought to restructure its commercial debt stated that Grenada did not intend to pay any debt that was not restructured "unless resources became available to do so" and "if, at the time such payment is due, a payment default then existed under any new bond issued in the exchange." Id. ¶ 19. Ex-Im Bank did not participate in the 2005 restructuring. Id. ¶ 20.

Although Ex-Im Bank initially sought a temporary restraining order against Grenada when it filed the second action, Grenada stated at the hearing on March 13, 2013, that it was not in a position to make any payments to its other external creditors in the near future. The Court entered an order on consent to that effect; the order provided that Grenada would give Ex-Im Bank ten days' notice if Grenada were to make any such payments or alter any of its existing payment mechanisms. ECF No. 2. Proposed Intervenors hold beneficial interests in bonds that were issued by Grenada in the 2005 debt restructuring, and they seek intervention contending that Ex-Im Bank seeks a judgment that would effectively bar Grenada's payment to them.

Discussion

A. Judgment on the Pleadings

"The standard for addressing a Rule 12(c) motion for judgment on the pleadings is the same as that for a Rule 12(b)(6) motion to dismiss for failure to state a claim." Cleveland v. Caplaw Enters., 448 F.3d 518, 520 (2d Cir. 2006) (citation omitted). The Court therefore accepts all factual allegations in the complaint as true and draws all reasonable inferences in favor of the non-movant, Hayden v. Paterson, 594 F.3d 150, 157 n.4 (2d Cir. 2010) (internal quotation marks omitted), and in doing so, may consider the complaint, the answer, any attached written documents to the pleadings, and any matter with respect to which judicial notice is appropriate, as well as any written instrument incorporated in the complaint by reference, L-7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 422 (2d Cir. 2011) (citations omitted). "The motion for a judgment on the pleadings only has utility when all material allegations of fact are admitted or not controverted in the pleadings and only questions of law remain to be decided by the district court." Wright & Miller, 5C Fed. Prac. & Proc. Civ. § 1367 (3d ed.). "[D]ismissal is proper only when it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Sheppard v. Beerman, 94 F.3d 823, 827 (2d Cir. 1996) (citation and internal quotation marks omitted).

1. Grenada's Motion

Grenada moves to dismiss the second action on the ground of res judicata, as well as the doctrine of merger. Under both New York and federal law, the doctrine of res judicata, or claim preclusion, simply "provides that a final judgment on the merits of an action precludes the parties from relitigating issues that were or could have been raised in that action." Duane Reade, Inc. v. St. Paul Fire & Marine Ins. Co., 600 F.3d 190, 195 (2d Cir. 2010) (citation, original alterations and internal quotation marks omitted). In deciding whether res judicata applies, the court must first determine whether the second suit involves "the same claim or-nucleus of operative fact- as the first suit" by an analysis of the following concepts: "(1) whether the underlying facts are related in time, space, origin, or motivation; (2) whether the underlying facts form a convenient trial unit; and (3) whether their treatment as a unit conforms to the parties' expectations." Channer v. Dep't of Homeland Sec., 527 F.3d 275, 280 (2d Cir. 2008) (internal quotation marks and citations omitted). The doctrine of merger, again in its simplest form, comes into play where a plaintiff's original claim is substituted for a valid and final judgment. It is a theory "closely related" to that of res judicata in that both doctrines are "based primarily on the policy of preventing multiple lawsuits based on the same cause of action." Orix Credit Alliance, Inc. v. Horten, 965 F.Supp. 481, 485 (S.D.N.Y. 1997).

Here, judgment on the pleadings must be denied because the record before the Court does not reflect that "the facts essential to the second [action] were [already] present in the first." Channer, 527 F.3d at 280 (quoting Computer Assocs. Int'l v. Altai, Inc., 126 F.3d 365, 369 (2d Cir. 1997)) (first alteration added). In the first action, where Ex-Im Bank sought to recover the outstanding amount under the four loan agreements, the essential facts were those that relate to Grenada's default, i.e. its failure to make principal and interest payments since April 2004 and Ex-Im Bank's notice of default in June 2005. See FA Compl. ¶¶ 5, 32, 41, 49, 56. The key facts and the foundation for the second action are based on the pari passu clause and Grenada's alleged payments to other external debtors in the period between 2008 and 2011, while Grenada paid nothing to Ex-Im Bank. See SA Compl. ¶¶ 9, 22. It is difficult to characterize the latter set of wrongs, which takes place years after Grenada's default, as "related in time, space or origin to the wrongs litigated" in the first action. Interoceanica Corp. v. Sound Pilots, Inc., 107 F.3d 86, 91 (2d Cir. 1997).

Yet Grenada argues that the present claim could have been brought in the first action because: (1) the Complaint in the first action mentions the pari passu clause; and (2) Grenada's Offering Memorandum for the 2005 Debt Structuring was publicly available at the time of the first action. Def.'s Supp. 14. The facts suggest otherwise. First, it is undisputed that the Complaint in the first action brought no claim under the pari passu clause nor did it contain any facts about Grenada's payment to its other external creditors. Secondly, the Offering Memorandum dated September 9, 2005-which may be considered by the Court because it is referenced in the Complaint in the second action-at most, suggests that Grenada intended to make its first payment on the restructured bonds fourteen days before the first action was filed and that it intended to make another payment in September 2006, a few months before the original judgment was entered in February 2007. Morag Decl. Ex. D, at 6. However, if "after the first suit is underway, a defendant engages in actionable conduct, plaintiff may-but is not required to-file a supplemental pleading setting forth defendant's subsequent conduct." Maharaj v. Bankamerica Corp., 128 F.3d 94, 97 (2d Cir. 1997). More to the point, that case goes on to hold that "[p]laintiff's failure to supplement the pleadings of his already commenced lawsuit will not result in a res judicata bar when he alleges defendant's later conduct as a cause of action in a second suit." Id. Given the proximity between Grenada's first alleged breach in this action and Ex-Im Bank's filing of the first action-a mere fourteen days-the doctrine of res judicata cannot apply. See Restatement (Second) of Judgments § 24(2) (1982) (urging a pragmatic determination of the relevant factual grouping).

Grenada's argument based on the doctrine of merger does not fare any better. Albeit in a different context, the Second Circuit recently characterized "merger" as a "terminology of the common law that federal courts have supposedly retired." NML Capital, Ltd. v. Banco Cent. de la Republica Argentina, 652 F.3d 172, 185 (2d Cir. 2011) (quoting Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 77 n.1 (1984), for the proposition that "Claim preclusion... encompasses the law of merger and bar."). Although Grenada acknowledged during the oral argument that "merger is not an independent, totally distinct doctrine" but "a subspecies of res judicata, " it nonetheless urged the Court to apply the "concept of extinguishment, of a contract being extinguished and merging into a judgment" and adopt the position that no provisions of the loan instruments survive judgment absent explicit contrary language. Oral Arg. Tr. 7:6-9, 8:1-2 May 29, 2013. Similar efforts to bypass the standard res judicata analysis have been rejected by the courts in this Circuit. See Counsel Fin. Servs., LLC v. Leibowitz, No. 09-CV-1025S, 2012 WL 1057311, at *4 (W.D.N.Y. Mar. 27, 2012) (holding that the doctrine of merger "does not serve to limit a plaintiff to one suit based on one instrument, ' but instead limits a plaintiff to one suit based on ...


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