Milbank, Tweed, Hadley & McCloy v. Boon
| Decision Date | 03 January 1994 |
| Docket Number | No. 491,D,491 |
| Citation | 13 F.3d 537 |
| Parties | MILBANK, TWEED, HADLEY & McCLOY, Plaintiff-Appellant, v. Chan Cher BOON, Defendant-Third-Party-Plaintiff, v. Tan Sri Dato Wen Tian QUANG, Third-Party-Defendant. Carol Sui Han LEO, Third-Party-Defendant-Counter-Claimant-Appellee, v. Chan Cher BOON and Milbank, Tweed, Hadley & McCloy, Counterclaim-Defendants. ocket 93-7418. |
| Court | U.S. Court of Appeals — Second Circuit |
Harvey R. Miller, New York City (Weil, Gotshal & Manges), for plaintiff-appellant.
Andrew S. O'Connor, New York City (Liddle, O'Connor, Finklestein & Robinson), for plaintiff-appellant.
Gerard E. Lynch, New York City (Sara E. Moss, Robert P. Haney, Nancy L. Kestenbaum, Howard, Darby & Levin, of counsel), for third-party-defendant-counter-claimant-appellee.
Before: McLAUGHLIN, JACOBS and REAVLEY, * Circuit Judges.
The New York law firm of Milbank, Tweed, Hadley & McCloy ("Milbank") appeals from a judgment awarding Carol Sui-Han Leo ("Mrs. Leo") $2,000,000 on her claim that Milbank breached its fiduciary duty to her. After representing Mrs. Leo through her agent, Chan Cher Boon ("Chan"), Milbank represented Chan alone without Mrs. Leo's consent in completing the same transaction. A jury found that Milbank's
representation of Chan constituted a breach of fiduciary duty to Mrs. Leo that was a substantial factor in preventing her from obtaining assets she sought in the transaction. We affirm.
The Leos take an interest in purchasing FOCO Bank
In late 1984, T.K. Wen, an international investor and Malaysian national, considered purchasing the assets of the bankrupt Deak & Company. 1 Wen was particularly interested in purchasing one of these assets, the stock of Foreign Commerce Bank ("FOCO"), a Swiss bank which a Malaysian national was not permitted to own under Swiss banking laws. Because of this bar, Wen undertook to purchase the bank for his daughter, Mrs. Leo, a U.S. resident living in Denver, Colorado. Wen contacted Mr. Leo's husband, Edmund, in the spring of 1985 and informed him of his intention.
Wen originally acted through Dow Banking Corporation ("Dow"). Milbank was retained by Dow and met Chan, Dow's Singapore counsel, during the course of the negotiations. Dow and those attorneys negotiated a contract with Deak for the FOCO stock, but Deak changed course when it decided that a higher price could be obtained for the FOCO stock if sold in conjunction with its other assets.
Milbank sent a telex to Dow and Wen inquiring whether they were interested in pursuing the FOCO shares together with Deak's other assets. Chan received a copy of the telex and replied in the affirmative. Milbank successfully negotiated a stock purchase agreement for the acquisition of these assets. In doing so Milbank purported to be acting in the name of Chan, but Milbank attorneys at some point during the negotiations became aware that Chan was acting as an agent on behalf of Mrs. Leo.
The agreement of July 5, 1985
The agreement signed on July 5, 1985 between Deak and Chan provided for the sale of all of the Deak assets to Chan for a total price of $52 million. However, the transfer was to be made in two stages, and it was not assured that Chan would acquire the assets in the second stage. The first stage included all of the stock of FOCO as well as 49% of the capital stock of Deak U.S. and 200 shares of second preferred stock of Deak National Bank. Chan was to pay the U.S. dollar equivalent of 133 million Swiss francs at this stage. The second stage consisted of the remaining Deak assets, including 51% of Deak U.S., to be transferred in exchange for the remainder of the total purchase price (originally stated to be $52 million) less the amount previously paid for the first stage assets. The agreement was subject to approval by the bankruptcy court, and it allowed the sale of the second stage assets to a different party for a higher price than would be obtained under the terms of the agreement. However, Deak was prohibited from soliciting competing bids for the second stage assets and was required to give notice to Chan of any offers received.
Because the 49% of Deak U.S. stock would be worthless if Chan did not conclude the second stage and obtain the remaining shares and control, the minority shares and preferred stock were placed in escrow along with $8.5 million of the total purchase price. The escrow would be discharged at the close of the second stage. If Chan completed the acquisition, the minority shares and stock would go to Chan and the $8.5 million to Deak's bankruptcy estate. If Chan failed to complete, he would get the $8.5 million back, and the high bidder would get the securities together with the other second stage assets.
Chan reported to the Leos on the success of the negotiations and sought to obtain a power of attorney from Mrs. Leo to permit the opening of a letter of credit on her behalf for the $52 million purchase money. C.E. Eckerman, personal attorney for the Leos in Denver, voiced concerns about the July 5 agreement because it had been signed in Chan's name alone. Eckerman insisted that, before Mrs. Leo authorized the letter of credit, Chan sign a document acknowledging that he was acting as Mrs. Leo's nominee. Eckerman testified at the trial that he called Milbank claimed at trial that it was unaware of Mrs. Leo's extensive role in the developing transaction, but the evidence proves that some Milbank attorneys were aware of her position. In an internal memo written by Shimshak and circulated to other Milbank attorneys (including partner Barry Radick), the creation of a trust for Mrs. Leo was considered to meet her needs as the purchaser of the FOCO bank. The memo stated "Mr. Chan has requested that Milbank, Tweed advise him on behalf of Mrs. L on these matters" and that "Mr. Chan, on behalf of Mrs. L may be pursuing other ... acquisitions." Another note handwritten by Shimshak analyzes the agreement with Chan and refers to "Mrs. L, principal home in Colorado." The writing further briefly mentions "Mrs. L" and her possible interest in various transactions.
the attorneys at Milbank at this time and asked them to send a writing acknowledging that Chan was acting for Mrs. Leo. Chan provided the Leos with the requested document stating that he was "acting as nominee for Mrs. Sui-Han Leo in completing the transactions contemplated in the above agreement dated 5th July, 1985." The document was signed by Chan and notarized by Milbank attorney Stephen Shimshak, who forwarded a copy of the letter and the July 5 agreement to Eckerman. Mrs. Leo then authorized Chan as her agent to sign a loan agreement with Dow bank for $52 million
The dollar falls against the franc
Between the time of the signing of the agreement and the closing of the first stage on August 12, the value of the dollar against the Swiss franc diminished to the point that the 133 million Swiss francs required to close the first stage represented a value in excess of $56.6 million dollars. Mrs. Leo therefore was forced to invest $56.6 million (of which $8.5 million was in the escrow) rather than $52 million. Furthermore, the creditors of Deak then contended that, with or without competitive bids, the estate should receive some additional compensation for the second stage assets--the payment of the first stage having exhausted all of the total price. In a hearing on August 6, Radick on behalf of Chan stated that Chan "has no commitment to increase his price, but he is prepared to discuss that further with the committee."
When Chan reported to the Leos about this development, a disagreement arose over how to proceed. The Leos were unwilling to increase their investment at this point because they had no information on the actual accounting value of the second stage assets. Mr. Leo told Chan that he wanted more information and wanted to be present at any meetings with the creditors' committee if renegotiation was to take place. Chan's response caused the Leos to doubt Chan's true intentions and to suspect that he might no longer be acting in their best interests. Chan was therefore terminated as Mrs. Leo's agent.
The agency breaks up
On October 28, 1985, Eckerman wrote a letter for the Leos to the concerned parties announcing that Chan had been terminated. Eckerman also called Milbank and spoke to Shimshak regarding the discharge of Chan. Eckerman then sent a letter to Shimshak at Milbank on October 28, which stated:
This letter will confirm our telephone conversation regarding Deak & Co., Inc. In the past you have been dealing with Mr. Chan Cher Boon in connection with the acquisition of the FOCO Bank and potential acquisition of Deak & Co., Inc. on behalf of Mrs. Sui Han Leo. Mr. Chan Cher Boon was acting in the role of a nominee, in accordance with the July 9, 1985 letter which you signed as Notary Public. Please be advised that Mr. Chan Cher Boon is no longer authorized to represent Mrs. Sui Han Leo in any manner.
After the quoted letter, Chan advised Milbank that he wanted to proceed on his own with an acquisition of the second stage assets. Milbank attorney Radick testified that after discussions with Chan, he called Eckerman to try to get an understanding of "just what his client's interest was in this so-called back end of the deal." Eckerman's response was that the Leos were prepared to perform the contract. Radick testified that he protested that the contract had been "eaten up" by the Swiss franc, to which Eckerman replied that the Leos were not interested in Milbank recognized the conflict brewing between Chan and Mrs. Leo, and on November 1, Milbank partner Andrew Connick wrote to Eckerman that ...
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