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Themis Capital, LLC v. Democratic Republic of Congo

United States District Court, S.D. New York

July 9, 2014

THEMIS CAPITAL, LLC and DES MOINES INVESTMENTS LTD., Plaintiffs,
v.
DEMOCRATIC REPUBLIC OF CONGO and CENTRAL BANK OF THE DEMOCRATIC REPUBLIC OF THE CONGO, Defendants

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[Copyrighted Material Omitted]

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For Themis Capital, Llc, Des Moines Investments Ltd., Plaintiffs: Dennis H. Hranitzky, LEAD ATTORNEY, Debra Dubritz O'Gorman, Dechert, LLP (NYC), New York, N.Y. USA; Amanda Frances Parsels, Charles Richard Jacob, III, Joel M. Miller, Miller & Wrubel, P.C., New York, N.Y. USA.

For Decocratic Republic of Congo, Democratic Republic of The Congo, Defendants: Tara M Lee, LEAD ATTORNEY, DLA Piper U.S. LLP (VA), Reston, VA USA; Douglas Walter Mateyaschuk, DLA Piper, New York, N.Y. USA; Nicholas Fremont Aldrich, Jr., Rana Bahri, DLA Piper U.S. LLP (NY), New York, N.Y. USA; Paul Schmitt, PRO HAC VICE, DLA Piper LLP (U.S.), Washington, DC USA; Sara Z. Moghadam, PRO HAC VICE, DLA Piper U.S. LLP (NY), New York, N.Y. USA.

For Central Bank of The Democratic Republic of The Congo, Defendant: Tara M Lee, LEAD ATTORNEY, DLA Piper U.S. LLP (VA), Reston, VA USA; Douglas Walter Mateyaschuk, DLA Piper, New York, N.Y. USA; Nicholas Fremont Aldrich, Jr., Rana Bahri, DLA Piper U.S. LLP (NY), New York, N.Y. USA; Paul Schmitt, DLA Piper LLP (U.S.), Washington, DC USA; Sara Z. Moghadam, PRO HAC VICE, DLA Piper U.S. LLP (NY), New York, N.Y. USA.

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OPINION & ORDER

Paul A. Engelmayer, United States District Judge.

Plaintiffs Themis Capital, LLC (" Themis" ) and Des Moines Investments, Ltd. (" Des Moines" ) (collectively, " plaintiffs" or " Themis" ) bring this claim for breach of contract against the Democratic Republic of the Congo (the " DRC" ) and the Central Bank of the Democratic Republic of the Congo (" Central Bank of the DRC" ) (collectively, " defendants" ). Themis and Des Moines are successors-in-interest to portions of debt that the DRC restructured in 1980, which have been in default since 1990. Plaintiffs' lawsuit seeks to recover on this debt.

Plaintiffs' lawsuit would ordinarily be time-barred under New York's six-year statute of limitations governing breach-of-contract claims. To sustain this claim, plaintiffs rely on a series of debt acknowledgment letters that purport to have been signed by officials of the DRC and Central Bank in 1991, 1997, and again in 2003. These letters, by their terms, tolled the statute of limitations, and, if effective, would make this lawsuit, brought in 2009, timely.

Defendants, however, assert that the signatories to these letters lacked actual or apparent authority to bind the DRC and the Central Bank. Thus, they argue, the statute of limitations expired long ago. Whether defendants are liable to pay the debts at issue here therefore turns on whether the debt acknowledgment letters are legally binding.

Following pretrial discovery and the resolution of pretrial motions, a bench trial on these issues was held on February 13 and 14, 2014. For the following reasons, the Court holds that the signatories to the 1991, 1997, and 2003 debt acknowledgment letters had actual and apparent authority to bind the DRC and the Central Bank. Accordingly, plaintiffs' attempt to collect on this long-owed debt is not barred by New York's six-year statute of limitations, and judgment must be, and is, entered in favor of Themis and Des Moines.

As to damages, the Court holds that plaintiffs are entitled to recover the outstanding

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principal and interest charges on their debt, and to recover compound interest on the interest that accrued on the unpaid principal. However, plaintiffs are not entitled to recover any compound interest on such compound interest. Finally, the Court holds, plaintiffs may recover these damages, jointly and severally, from the DRC and the Central Bank of the DRC.

I. Background[1]

A. The Credit Agreement

On March 31, 1980, the Republic of Zaire (" Zaire" ), a sovereign state in Central Africa, and the Bank of Zaire, Zaire's central bank, entered into a Refinancing Credit Agreement with various creditors and agents. Stip. ¶ 11; Pl. Ex. 10 (" Credit Agreement" ). The Credit Agreement refinanced, consolidated, and restructured various debts that Zaire owed to its creditors, and designated the Bank of Tokyo Trust Company (" Bank of Tokyo" ) as the servicing bank. Stip. ¶ 13; see Credit Agreement. In return, the agreement obliged Zaire to make periodic payments of principal and interest to the creditors (or their assignees[2]), and to repay all principal and interest on or before April 2, 1990. Stip. ¶ 14. Attached to the agreement were credit schedules " setting forth outstanding principal amounts for the various debts refinanced, consolidated and restructured pursuant to the Credit Agreement." Id. ¶ 15; Credit Agreement at R-1(a).

The Credit Agreement was executed, on behalf of Zaire, by the State Commissioner of Finances, and, on behalf of the Bank of Zaire, by the Bank's Governor. Stip. ¶ ¶ 16, 17. On April 21, 1980--about three weeks after the execution of the Credit Agreement--Zaire's President, Mobutu Sé sé Seko (" Mobutu" ), signed an ordinance that officially authorized these two individuals--the Commissioner of Finances and the Governor of the Bank of Zaire--to sign the Credit Agreement. Id. ¶ 20; Def. Ex. 29 (Ordinance No. 80-073). That ordinance stated:

The President and Founder of the Popular Movement of the Revolution, President of the Republic, in light of the Constitution, in particular Article 42 therein;
HEREBY ORDERS:

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Article 1--The signing of the refinancing loan agreement between the Republic of Zaire, the Bank of Zaire and the private bank creditors is hereby authorized.
Article 2--The State Commissioner of Finances and the Governor of the Bank of Zaire are each in turn assigned with the duties of implementing the present Executive Order, which enters into effect on the date of its signing.

Def. Ex. 29. It is therefore undisputed that the State Commissioner of Finances[3] and the Governor of the Bank of Zaire had actual authority to execute the Credit Agreement in 1980.

Section 8.01 of the Credit Agreement included several " Affirmative Covenants of the Obligor," including:

So long as any Credit shall remain outstanding, the Obligor will:
. . .
(b) Duly obtain and maintain in full force and effect all governmental approvals (including any exchange control approvals) which may be necessary under the law of the Republic of Zaire for the execution, delivery and performance of this Agreement by the Obligor or for the validity or enforceability hereof and duly take all necessary and appropriate governmental and administrative action in the Republic of Zaire in order to make all payments to be made hereunder as required by this Agreement.

Credit Agreement § 8.01. The Credit Agreement defines the Republic of Zaire, now the DRC,[4] as the " Obligor." See id. at R-1.

Zaire's first missed payment under the Credit Agreement was in 1982; the second was in April 1985. See Pl. Ex. 11 (Memorandum Regarding the Republic of Zaire Refinancing Credit Agreement, dated March 13, 1991). In March 1988, Zaire ceased making monthly payments on the Credit Agreement. Stip. ¶ 23. Payments resumed in July 1989, but ceased again in January 1990. Id. Neither the Republic of Zaire nor its successor state, the DRC, has made any payments under the Credit Agreement, whether of principal or interest, since January 1990. Id.

B. The Debt Acknowledgment Letters

1. The 1991 Letter

In 1991, a " Steering Committee" of Zaire's creditors met with the Bank of Tokyo to discuss the payment missed in April 1985, and the fact that Zaire had ceased making payments in 1990. See Pl. Ex. 11. The creditors sought " to obtain an acknowledgment from the Republic of Zaire and [the Bank of Zaire] of payments due in order to avoid any risk that the six-year prescription period established by the New York Statute of Limitations would apply to the payments now in default." Id. The Steering Committee instructed the Bank of Tokyo to institute collection litigation against Zaire on behalf of all creditors if Zaire failed to sign an acknowledgment letter by March 29, 1991. Id. However, the Steering Committee stated that it was " optimistic that they [would] obtain the acknowledgment from Zaire at their meeting in Paris during the last week of March;

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and that any litigation against Zaire would be of the last resort." Id. at 3.

On March 29, 1991, Zaire's Finance Minister and the Governor of the Bank of Zaire executed a debt acknowledgment letter. Pl. Ex. 12 (" 1991 Acknowledgment Letter" ). The letter states:

To: All parts to the Refinancing Credit Agreement dated as of March 31, 1980 among Republic of Zaire, Bank of Zaire, the Banks and Agents party thereto and the Bank of Tokyo Trust Company, as Servicing Bank.
The Republic of Zaire and the Bank of Zaire hereby refer to the Refinancing Credit Agreement dated as of March 31, 1980 among Republic of Zaire, Bank of Zaire, the Banks and Agents party thereto and The Bank of Tokyo Trust Company, as Servicing Bank.
The Republic of Zaire and the Bank of Zaire hereby acknowledge and confirm that Schedule 1 hereto sets forth the amounts of past due principal and past due interest on principal as of April 2, 1990 for each Credit Information Schedule under such Refinancing Credit Agreement. The past due interest on principal consists of both interest accrued on principal installments prior to their maturity (regular interest) and interest accrued on overdue principal. The Republic of Zaire and the Bank of Zaire further acknowledge and confirm their respective obligations with respect to such indebtedness and other obligations arising under such Refinancing Credit Agreement.
It is the intention of the Republic of Zaire and the Bank of Zaire in executing and delivering this acknowledgement formally to recognize and confirm all such obligations in order to eliminate any concerns any Bank holding any such indebtedness may have due to any possible application of any principles of prescription, including without limitation, those established by the New York statute of limitations, which might lead any Bank to conclude that the forbearance demonstrated to date by such Bank in refraining from acting to enforce any rights it may have to collect such indebtedness might have an adverse effect on the ultimate collectability of such indebtedness.

Id. Schedule 1 to the 1991 Acknowledgment Letter was a table listing the amounts of principal and interest outstanding under the Credit Agreement as of April 2, 1990. See Pl. Ex. 17.

On March 29, 1991, in response to the execution of the 1991 Acknowledgment Letter, the Steering Committee sent a fax to the Bank of Tokyo, which read: " Please find attached the confirmation from the . . . Steering Committee to cease any litigation against Zaire at this time." Pl. Ex. 14. Included with this fax were separate, but identical, messages from each of the three Steering Committee members to the Bank of Tokyo, which stated:

We refer to the Telex dated March 18, 1991 from Australia and New Zealand Banking Group Limited, Citibank, N.A., and Credit Commercial De France to the Agents and Banks party to the Zaire Refinancing Credit Agreement dated as of March 31, 1980.
This communication is to advise you that we have received a debt acknowledgment satisfactory to the three banks sending such Telex so as to make the litigation described in such Telex unnecessary at this time.

Id. Assuming that the 1991 Acknowledgment Letter restarted the statute of limitations on claims under the Credit Agreement, the creditors to the Agreement had, under New York's six-year statute of limitations, until March 29, 1997 to file a law

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suit for breach of contract, or to otherwise preserve their rights.

2. The 1997 Letter

In early 1997, Cecilia Bartner (" Bartner" ), an executive in the debt restructuring department at Citibank in New York, prepared, with the assistance of legal counsel, the draft of a new debt acknowledgment letter. Deposition of Cecilia Bartner, dated May 2, 2013 (" Bartner Dep." ) at 53-54, 70-71. The new letter was based on the 1991 Acknowledgment Letter, except that it did not contain an attachment with the reconciled amounts due under the Credit Agreement. Id. at 54-55. Bartner sent a draft of the new letter to Jean-Claude Masangu (" Masangu" ), a Citibank executive in Kinshasa. Id. at 53-54.

Masangu was the Managing Director of Citibank's Kinshasa office between April 1993 and August 1997. Deposition of Jean-Claude Masangu, dated June 12, 2013 (" Masangu Dep." ) at 118. Once Masangu received the draft acknowledgment letter from Bartner, he personally met with the Minister of Finance and the Governor of the Bank of Zaire to discuss the need for both parties to sign the new letter. Id. at 103. Masangu testified that he did so on behalf of Citibank and the other creditors who were owed money under the Credit Agreement. Id. at 102.

On March 7, 1997, the new debt acknowledgment letter was signed by both the Minister of Finance and the Governor of the Bank of Zaire. Pl. Ex. 17 (" 1997 Acknowledgment Letter" ). The letter states:

To: All persons holding claims under the Refinancing Credit Agreement dated as of March 31, 1980 among the Republic of Zaire, the Bank of Zaire, the Banks and Agents party thereto and the Bank of Tokyo-Mitsubishi Trust Company (formerly known as Bank of Tokyo Trust Company), as Servicing Bank.
The Republic of Zaire and the Bank of Zaire hereby refer to the Refinancing Credit Agreement dated as of March 31, 1980 among Republic of Zaire, the Bank of Zaire, the Banks and Agents party thereto and the Bank of Tokyo-Mitsubishi Trust Company (formerly known as Bank of Tokyo Trust Company), as Servicing Bank.
The Republic of Zaire and the Bank of Zaire hereby acknowledge and confirm as of the date hereof their respective obligations with respect to the principal and interest unpaid under such Refinancing Credit Agreement consisting, in the case of interest, both of interest accrued on principal installments prior to the maturity and interest accrued on overdue principal and interest, and all other obligations arising under such Refinancing Credit Agreement in accordance with the terms thereof.
It is the intention of the Republic of Zaire and the Bank of Zaire in executing and delivering this acknowledgement formally to recognize and confirm all such obligations in order to eliminate any concerns any person holding claims under such Refinancing Credit Agreement may have due to any possible application of any principles of prescription, including without limitation, those established by the New York statute of limitations, which might lead any such person to be concerned that the forbearance demonstrated to date by such person in refraining from acting to enforce such claims might have an adverse effect on the ultimate enforceability of such claims.

According to Masangu, his past experience caused him to conclude that it was unnecessary to inquire into whether the signatories to the 1997 Acknowledgment Letter

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had authority to bind the principals to the debt acknowledgment. Masangu Dep. at 104-105. Assuming that the 1997 Acknowledgment Letter restarted the statute of limitations on claims under the Credit Agreement, the creditors to that agreement had until March 7, 2003 to file a lawsuit, or to otherwise preserve their rights.

3. Events Between 1997 and 2003

In April 1997, Masangu, the former head of Citibank's Kinshasa office, became the Governor of the Central Bank of the Congo, a position he held until May 2013. Masangu Dep. 133. On November 26, 2002, Masangu sent an invitation to Bartner of Citibank, the subject line of which was " Invitation to the London Club[5] Agent Bank members' meeting on December 7, 2002 in Paris" :

The Central Bank of the Congo plans to organize an informal meeting with all of the Agent Banks that are members of the [London] Club, including yours. The meeting will allow us to assess our relationships, particularly with respect to the treatment of the accumulated arrears on your loans (Gentlemen's Agreement of June 24, 1989) and the definition of the new cooperation agreement with the London Club.
I propose that this informal meeting, which I will personally chair and in which I invite your bank to take part, be held on December 7, 2002 in Paris, as a side event to the creditors' meeting planned for December 4-6 in the same city. Accordingly, please be so kind as to confirm your participation as soon as possible.
Please find attached the list of the other Agent Banks, most of which have already expressed an interest in participating in this meeting.

Pl. Ex. 22. An identical letter was sent to the other creditor banks, such as BNP Paribas. Pl. Ex. 23. On December 4, 2002, however, Masangu informed Bartner that he was unable to travel to Paris for the December 7, 2002 meeting. Pl. Ex. 24. Instead, he offered to have his subordinates organize an information meeting on December 6, 2002 at the World Bank office in Paris, France, regarding " the work product document drawn up to this effect," which was sent as an attachment. Id.

The attached document was titled " Communication from the Governor of the Central Bank of Congo to the London Club Agent Banks." Id. Section II of the document contained the following summary of " The DRC's Relations with the London Club" :

5. The first refinancing bank debt agreement signed by the DRC with its London Club partners is dated March 31, 1980. This agreement covered a refinanced debt of 402 million USD for a duration of 10 years, with an end date of March 31, 1990.
6. Because of coming up against payment difficulties, the DRC did not completely honor its engagements, which led it to negotiate and arrive at rescheduling agreements in the form of " Gentlemen Agreements" in May 1984 and June 1989 respectively.
7. These two agreements were not honored either. On June 30, 1991, at the time when the DRC was getting ready to negotiate a new global agreement

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to replace that which was signed in March 1980, its commitments to the London Club were reaching 490.70 million USD, broken down as follows:

 

-

Principal

:

59.51 million USD

-

Contractual interest

:

4.10 million USD

-

Late interest on the principal due

:

07.90 million USD

Id. Section III of the document described " The DRC's Expectations of the London Club."

11. After a long period of progress within the dialogue with other creditors, the negotiations with the London Club represent the next decisive step before the DRC's eligibility for the HIPC Initiative [ i.e., the World Bank's debt relief program for Highly Indebted Poor Countries]. In order to allow the [International Monetary Fund] and the [World Bank] to proceed with a debt sustainability analysis, the DRC is planning to finalize negotiations with the London Club before the end of December 2002.
12. In a very clear way, the informal meeting with the London Club agent banks, organized on the sidelines of the Consulting Group's work, should allow to set a calendar of meetings, the goal of which would be:
1) to determine the actual level of its commitments to the syndicated banks, in accordance with prior agreements;
2) to determine the actual level of the DRC's commitments to the Bank of Tokyo in terms of service commission;
3) the composing of a new coordination committee with current agent banks at the lenders meeting;
4) the discussion of facilities that should be granted to the DRC as compared to the conditions set by the Paris Club on September 13, 2002;
5) the determining of [an] agreement negotiation calendar to be signed between the DRC and the London Club, replacing the Refinancing Agreement enacted March 31, 1980.

Id. Masangu did not anywhere suggest, in this document, that the debts under the Credit Agreement were time-barred or otherwise unenforceable.

4. The 2003 Letter

The 1997 Acknowledgment Letter had extended, until March 6, 2003, the statute of limitations on claims brought under the Credit Agreement. In 1999 or 2000, Bartner became chief of staff for William Rhodes, Citibank's senior international officer, a position she held until 2006. Bartner Dep. at 23-24. In late 2002 and early 2003, Bartner was again involved with obtaining a renewed debt acknowledgment letter from DRC officials. Id. at 108. By then, Masangu had left Citibank to become the Central Bank's Governor. Bartner therefore worked with Michel Losembe (" Losembe" ), a Citibank employee in Kinshasa, in attempting to obtain the new letter. Id. at 125-26. On January 16, 2003, Bartner sent Losembe an e-mail, attaching a draft of the letter. Pl. Ex. 25. She instructed Losembe to get the Minister of Finance to sign it on behalf of the Government by March 7, 2003. Id. Bartner testified that she used the 1997 Acknowledgment Letter as the basis for the draft letter she sent to Losembe. Bartner Dep. at 125-26.

On February 4, 2003, Bartner sent Losembe an e-mail, requesting an update on

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his progress in getting the new acknowledgement letter signed. Pl. Ex. 26. On February 5, 2003, Losembe responded to Bartner:

Sorry for this long silence. Since I came, I was unable to meet with the Min Fin.[6] Between travels and Budget session in front of Parliament (based in Lubumbashi), we did not ha[ve] a chance to organize a meeting. He however promised to see me this week. The external debt management has been officially removed from Central Bank [in favor of] MinFin[.] Masangu will only be willing to countersign. I'll keep you posted.

Id. Later that day, Bartner responded:

Thanks for your e-mail. When you see the MinFin mention to him that the acknowledgment is a formality but if the Banks don't have it, they would need to sue the country so that the statute of limitations on the debt does not run out. I am sure you will have a nicer way to say this to him if he gives you the runaround but in a nutshell that is what it is.
I would hope that we have it signed as soon as possible.

Id. On February 11, 2003, Losembe sent a formal letter to the DRC's Finance Minister, Ilankir Mbuyamu Matungulu (" Matungulu" ), which included as an enclosure a " draft recognition of debt document." Pl. Ex. 27. In that letter, Losembe explained to Matungulu that:

The signing of this document will extend for six (6) years the validity of the [Credit Agreement] on the 31st of next March, the date of expiration of the last extension. It is understood that failure to sign the aforementioned document at its maturity by the [DRC] could lead creditors to seek forced recovery of their loans based on the law applicable to this Agreement.
Indeed the agreement is governed by the laws of the State of New York, United States and has a validity of six years. The latest extensions, copies attached, were signed on March 20, 19991 and March 7, 1997 by the Ministers of Finance and Governors of the Central Bank who held those offices on those dates.
Citibank Congo acts on behalf of all Banks and Agent Banks [that are] signator[ies] [to] the Agreement and the Recognition of Debt, duly signed, will be sent to the servicing bank designated by the Agreement, the Bank of Tokyo-Mitsubishi Trust Company, in New York, which will communicate it to all lenders. In this way, the [DRC] can continue to manage the outstanding London Club loans within . . . a well-defined framework.

Id. On February 17, 2003, Losembe sent Bartner an e-mail, informing her that Matungulu had resigned as Finance Minister. Pl. Ex. 28. In response, Bartner sent Losembe ...


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