166 F.3d 614 (4th Cir. 1999), 97-2753, Hitachi Credit America Corp. v. Signet Bank

Docket Nº:97-2753, 97-2754.
Citation:166 F.3d 614
Party Name:HITACHI CREDIT AMERICA CORPORATION, Plaintiff-Appellee, v. SIGNET BANK, formerly known as Signet Bank/Virginia; Signet Leasing and Financial Corporation, Defendants-Appellants. Hitachi Credit America Corporation, Plaintiff-Appellant, v. Signet Bank, formerly known as Signet Bank/Virginia; Signet Leasing and Financial Corporation, Defendants-Appelle
Case Date:January 19, 1999
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit

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166 F.3d 614 (4th Cir. 1999)



SIGNET BANK, formerly known as Signet Bank/Virginia; Signet

Leasing and Financial Corporation, Defendants-Appellants.

Hitachi Credit America Corporation, Plaintiff-Appellant,


Signet Bank, formerly known as Signet Bank/Virginia; Signet

Leasing and Financial Corporation, Defendants-Appellees.

Nos. 97-2753, 97-2754.

United States Court of Appeals, Fourth Circuit

January 19, 1999

Argued Oct. 27, 1998.

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ARGUED: Murray Hardison Wright, Wright, Robinson, Osthimer & Tatum, Richmond, Virginia, for Appellants. Brian Alan Sher, Ross & Hardies, Chicago, Illinois, for Appellee. ON BRIEF: Jonathan S. Geldzahler, David E. Boelzner, Paul D. Anders, Wright, Robinson, Osthimer & Tatum, Richmond, Virginia, for Appellants. Daniel P. Hogan, Sean M. Sullivan, Ross & Hardies, Chicago, Illinois; John H. O'Brion, Jr., Cowan & Owen, P.C., Richmond, Virginia, for Appellee.

Before MURNAGHAN and WILLIAMS, Circuit Judges, and MOON, United States District Judge for the Western District of Virginia, sitting by designation.

Affirmed in part, reversed in part and remanded by published opinion. Judge

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WILLIAMS wrote the opinion, in which Judge MURNAGHAN and Judge MOON joined.


WILLIAMS, Circuit Judge:

Signet Bank and Signet Leasing and Financial Corporation (collectively Signet) appeal the district court's grant of summary judgment in favor of Hitachi Credit America Corporation on Hitachi's two breach of contract claims against Signet. Hitachi cross-appeals the district court's dismissal of its fraud claims against Signet, refusal to grant Hitachi attorneys' fees and costs in collateral litigation with third parties, and calculation of pre and postjudgment interest on Hitachi's monetary award on the breach of contract claims. We agree with the district court that summary judgment was proper on Hitachi's breach of contract claims and that Hitachi was not entitled to attorneys' fees and costs in collateral litigation with third parties. We conclude that the district court erred in dismissing Hitachi's fraud claims and in calculating pre and postjudgment interest on Hitachi's monetary award. We therefore affirm in part, reverse in part, and remand with instructions to reinstate Hitachi's fraud claims and to recalculate pre and postjudgment interest on Hitachi's monetary award in a manner consistent with this opinion.



This case arises from a fraudulent loan scheme perpetrated by Edward J. Reiners, a former employee of Philip Morris Companies, Inc. In the fall of 1993, Reiners met with representatives of Nelco, Ltd., a computer leasing firm located in Richmond, Virginia, to discuss the acquisition of computer and communications equipment for Philip Morris. Reiners had previously dealt with Nelco on behalf of Philip Morris. At the fall 1993 meeting, Reiners convinced the Nelco representatives that Philip Morris had selected him as Chief Operations Officer for a secret off-shore research and development project titled "Project Star" that needed to lease large quantities of computer equipment from Nelco. Shortly thereafter, Richard Nelson, the president and owner of Nelco, met with representatives of Signet, Nelco's primary lender, to discuss possible funding of "Project Star." As proof of Reiners's authority to represent Philip Morris, Nelson provided Signet with the "Incumbency Certificate" Reiners had given him, which appeared to confirm Reiners's claimed status as Chief Operating Officer of Philip Morris.

Supposedly to protect the secrecy of Project Star, Reiners required Signet to sign a "Confidentiality Agreement." This agreement required Signet to hold all information concerning Project Star in the strictest confidence and to deal exclusively with Reiners as Philip Morris's representative for the project. Reiners explained that the project was so secret that if anyone contacted Philip Morris to inquire about Project Star, Philip Morris would deny that the project existed and would even deny that Reiners was employed by Philip Morris. Signet signed the Confidentiality Agreement on November 12, 1993. Nelco signed the Confidentiality Agreement soon thereafter. On November 18, 1993, Nelco and Reiners (purportedly acting on Philip Morris's behalf) signed a "Master Equipment Lease" (the "Master Lease") setting forth the general terms of an equipment lease arrangement between Nelco, and, ostensibly, Philip Morris.

On November 18, 1993, Reiners and Nelson met with Signet officials. At that meeting, Reiners described Project Star. According to Reiners, Project Star was a confidential off-shore research and development project being conducted by Philip Morris through a corporate subsidiary known as Worldwide Regional Exports ("WRE"). The purpose of the project was to study the long-term effects of smoking and to develop alternative tobacco products, including "smokeless" cigarettes. Reiners stated that each of Philip Morris's five overseas Project Star research centers would require large amounts of sophisticated computer and communications equipment, including an estimated $25 million worth of equipment in the first year alone. In order to finance the acquisition of the

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equipment Philip Morris needed pursuant to the Master Lease agreement, Reiners, through Nelco, requested loans from Signet.

In reality, each of Reiners's representations was false and made with fraudulent intent. Project Star was completely fictitious. Reiners was not employed in any capacity by Philip Morris and, according to Philip Morris, had no authority to represent or bind Philip Morris. The Incumbency Certificate and the authenticity signature on it were forgeries. WRE was not affiliated with Philip Morris. Reiners knew that no computers or communications equipment would be procured. Nevertheless, on the basis of Reiners's representations, in November 1993 Signet entered into the first of several secured loans to Nelco for the purchase of computer equipment to be leased pursuant to the Master Lease (the "Credit Facility"). Each loan to Nelco was secured by, inter alia, all of the computer equipment, lease payment streams, and other proceeds associated with the Master Lease (the "Collateral").

The fraud proceeded in the following manner. 1 Nelco was to purchase computers from CCS, Inc., a New York computer reseller and Reiners's co-conspirator in the scheme, and lease the computers to Philip Morris. Pursuant to this plan, Signet Bank (and later, other banks) disbursed funds directly to CCS, which was then supposed to ship the computers to the various project sites for use by Philip Morris. In exchange for the funds, CCS provided the banks with invoices showing that large quantities of equipment had been purchased and shipped to Philip Morris and also provided "Certificates of Acceptance" from Philip Morris. In fact, both the invoices and Certificates of Acceptance were forged and no computers were ever purchased or delivered. Instead, Reiners, with CCS's complicity, diverted the loan proceeds for his personal benefit, including investment of the funds in real estate, stocks, and other securities.

Other banks soon became ensnared in Reiners's fraudulent scheme. Faced with requests for increased funding by Nelco, beginning in 1995 Signet syndicated portions of the loans made under the Credit Facility. Banks that purchased a participation in the Project Star Credit Facility from Signet included NationsBank, N.A., Bank of Montreal, and CoreStates Bank, N.A. In late November 1995, Gil Kennedy, a Vice President in the Syndication Department of Signet Leasing, had a discussion with Brian Riordan, a Vice President of Hitachi. 2 Kennedy told Riordan that Signet was in the process of syndicating participation in a $250 million lease financing for Nelco for the purchase of computers and related equipment involving what Kennedy described as an "A" rated confidential lessee. Kennedy further stated that Signet was interested in selling a portion of its Nelco financing facility to Hitachi, but that he could not disclose the identity of the lessee until Hitachi signed a Confidentiality Agreement.

After some negotiations, on or about December 6, 1995, Hitachi signed a Confidentiality Agreement. Kennedy then informed Riordan that the lessee was Philip Morris and that the transactions between Nelco and Philip Morris were part of a highly secret offshore cigarette development project initiated in 1993. The Confidentiality Agreement prevented Hitachi from investigating the role of Philip Morris in the underlying transaction. Riordan therefore requested a meeting with Signet to obtain more details about the proposed financing transaction.

On December 14, 1995, Riordan and William Besgen, Executive Vice President of Hitachi, attended a meeting in New York with representatives of Signet and Nelco. Present at the meeting were Kennedy, Nelson, and Connie Mooney, a Vice President of Signet Bank. Mooney informed Riordan and Hitachi that

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(1) Nelco was a "good customer" and that Signet had provided Nelco with $65 million in financing for the Philip Morris leases since the inception of Project Star in 1993; (2) Signet had provided financing to Nelco for a number of other leases with Philip Morris unrelated to the secret project; (3)Philip Morris had given its approval for Hitachi's proposed involvement in the Nelco financing; (4) Signet was confident that Reiners was authorized to act on behalf of Philip Morris; and (5) Signet would obtain and provide to Hitachi an Incumbency Certificate from Philip Morris acknowledging that Reiners was authorized...

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