State Street Bank v. Inversiones Errazuriz

Citation374 F.3d 158
Decision Date15 June 2004
Docket NumberDocket No. 02-9404.,Docket No. 03-7415.
PartiesSTATE STREET BANK AND TRUST COMPANY, Plaintiff-Appellee, v. INVERSIONES ERRAZURIZ LIMITADA, (f/k/a Inversiones Errazuriz S.A.); Supermercados Unimarc S.A., (f/k/a Comercial E Inmobiliaria Unimarc S.A.), Pesquera Nacional S.A., Unimarc Abastecimientos S.A., Cidef S.A.,Salmones Unimarc S.A., Industria Forestal Nacional S.A., Forestal Regional S.A., Cidef Argentina S.A., Corporation De Inversiones Y Desarrollo Financiero Cidef S.A., and Sociedad Contractual Minera Compania De Salitre Y Yodo Primera Region, (f/k/a Compania De Salitre Y Yodo Primera Region S.A.), Defendants-Appellants,
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Michael B. Wolk, New York City (Edmund F. Wolk, Peter J. Rossi, Law Offices of Michael B. Wolk, New York City, of counsel), for Appellants.

Joseph P. Moodhe, New York City (Daniel J. Levin, Deanna D'Amore, Debevoise & Plimpton, New York City, of counsel), for Appellee.

Before: MESKILL, POOLER and SOTOMAYOR, Circuit Judges.

MESKILL, Circuit Judge.

This appeal concerns the propriety of a multimillion dollar default judgment entered against defendants-appellants Inversiones Errazuriz Limitada, Supermercados Unimarc S.A., Pesquera Nacional S.A., Unimarc Abastecimientos S.A., Cidef S.A., Salmones Unimarc S.A., Industria Forestal Nacional S.A., Forestal Regional S.A., Cidef Argentina S.A., Corporacion de Inversiones y Desarrollo Financiero Cidef S.A., and Socieded Contractual Minera Compania de Salitre y Yodo Primera Region (collectively "defendants"). In April 2001, plaintiff-appellee State Street Bank and Trust Company ("State Street Bank" or "the bank") initiated a legal action to recover more than $100 million to which the bank was entitled pursuant to two credit agreements executed in 1994 and 1996 (individually and respectively the "1994 Credit Agreement" and the "1996 Credit Agreement" and collectively the "Credit Agreements"). When the defendants failed to respond to the complaint, the United States District Court for the Southern District of New York, Carter, J., on the application of State Street Bank, entered a default judgment of approximately $136 million.1 Thereafter, the defendants brought two motions to vacate the default judgment pursuant to various provisions of Rule 60(b) of the Federal Rules of Civil Procedure. The district court denied those motions and the defendants appealed.

Defendants contend that the district court improperly denied their efforts to secure relief from the default judgment. Defendants claim that the defenses and counterclaims they asserted justified the vacatur of the default judgment and that State Street Bank would not be prejudiced if that judgment were vacated. They also contend that State Street Bank perpetrated a fraud that merited vacatur. For the reasons that follow, we conclude that the district court properly denied their Rule 60(b) motions and affirm the court's decisions.

BACKGROUND

The roots of the appeal before us can be traced to certain transactions that took place in 1994 and 1996. State Street Bank initially agreed to supply defendant Inversiones Errazuriz Limitida (Inverraz), a Chilean company, with $50 million in accordance with the terms of the 1994 Credit Agreement. Subsequently, Inverraz borrowed an additional $65 million from State Street Bank pursuant to the 1996 Credit Agreement.

State Street Bank entered into these financing arrangements on the express condition that certain operating affiliates of Inverraz would guarantee the loans. As such, various Inverraz subsidiaries signed guaranty agreements in 1994 and 1996 (individually and respectively the "1994 Guaranty Agreement" and the "1996 Guaranty Agreement" and collectively the "Guaranty Agreements"), making each of them liable for a share of the sums borrowed by Inverraz and for certain penalties if their parent company defaulted on the loans.2

According to the Credit Agreements, the sums borrowed by Inverraz were to be repaid, by and large, through several semiannual installments. Both Credit Agreements expressly provided that the failure to make timely payments would constitute an "Event of Default." If an Event of Default occurred, State Street Bank could accelerate Inverraz's debt such that all of the interest and principal outstanding with respect to the loan defaulted on, together with a defined "Make Whole Amount," would become immediately due and payable. Under the provisions of the Guaranty Agreements, each guarantor agreed to pay for a specified share of this accelerated debt.

In 1999 and 2000, Inverraz failed to make the semiannual installment payments required by the Credit Agreements. In response, State Street Bank accelerated Inverraz's debt and demanded repayment of all the sums then due. Nevertheless, neither Inverraz nor any guarantor repaid any portion of Inverraz's outstanding debt.

In April 2001, State Street Bank filed this legal action against the defendants in an effort to recover the sums to which it was entitled pursuant to the Credit Agreements and the Guaranty Agreements, as well as to secure a declaration that the defendants could not sell certain assets without the bank's prior consent.3 The defendants did not immediately answer State Street Bank's complaint. Rather, in June 2001 the district court endorsed a stipulation in which the defendants acknowledged personal jurisdiction as well as service of process and State Street Bank agreed to extend the defendants' time to respond to the complaint. Notwithstanding this extension of time, the defendants failed to file an answer in the months that followed.

State Street Bank eventually moved for the entry of a default judgment and the district court granted the bank's motion. With respect to the 1994 Credit Agreement, the court issued a default judgment that held defendants Inverraz, Supermercados Unimarc S.A., Pesquera Nacional S.A., Unimarc Abastecimientos S.A., Cidef S.A., Salmones Unimarc S.A., Industria Forestal Nacional S.A., Forestal Regional S.A., and Corporación de Inversiones y Desarrollo Financiero Cidef S.A. jointly and severally liable for $57,283,874.86 as well as for prejudgment interest from November 1, 2001, at the rate of $20,011.63 per day. As to the sums owed under the 1996 Credit Agreement, the court held defendants Inverraz, Supermercados Unimarc S.A., Pesquera Nacional S.A., Unimarc Abastecimientos S.A., Cidef S.A., Salmones Unimarc S.A., Cidef Argentina S.A., Corporación de Inversiones y Desarrollo Financiero Cidef S.A., and Sociedad Contractual Minera Compañia de Salitre y Yodo Primera Región jointly and severally liable for $79,180,000.12 as well as for prejudgment interest from November 1, 2001, at the rate of $21,599.47 per day. In addition, the court prohibited the defendants from selling or transferring the assets of Compañia de Salitre y Yodo de Chile S.A. without State Street Bank's prior consent.

Thereafter, the defendants moved the district court to vacate the default judgment pursuant to various provisions of Rule 60(b) of the Federal Rules of Civil Procedure. They argued that the default in question had not been willful and that State Street Bank would not be prejudiced if the default judgment was vacated. They also advanced a host of defenses and counterclaims that allegedly justified the vacatur of the default judgment.

In February 2002, the district court held that two of those defenses and counterclaims were not meritorious. See State Street Bank & Trust Co. v. Inversiones Errazuriz, Limitada, 230 F.Supp.2d 313, 319-24 (S.D.N.Y.2002) (State Street Bank I). However, the court determined that the "factual record regarding [the] defendants' seven remaining counterclaims [and defenses was] simply too incomplete for the court to conclude one way or the other whether they constitute meritorious defenses." Id. at 324. As such, the court referred the remaining counterclaims and defenses to a magistrate judge and directed him to issue a report and recommendation, after the defendants had "been given an opportunity to flesh out the factual foundation for each counterclaim [and defense]," with respect to whether they were meritorious. Id. The district court also found that there was not enough information, as of yet, for it to decide whether the default had been willful or whether State Street Bank would suffer prejudice in the event of vacatur. See id. at 318-19, 324. Hence, the court also directed the magistrate judge to issue a report and recommendation evaluating these two issues following further briefing and factual inquiry. See id. at 324.

The magistrate judge responded to the district court's directives by holding a two day hearing in May 2002 and thereafter issued a report recommending that the district court deny the motion to vacate the default judgment. See Street Bank & Trust Co. v. Inversiones Errazuriz Limitada, 246 F.Supp.2d 231, 263 (S.D.N.Y.2002) (State Street Bank II). Although the magistrate judge found that the defendants' failure to respond to the complaint had not been willful, he nonetheless determined that their motion should be denied because they had failed to establish any meritorious defense or counterclaim and had failed to demonstrate that State Street Bank would not be prejudiced by the vacatur of the default judgment. Id.

Defendants objected to several of the magistrate judge's determinations. The district court reviewed the issues and agreed with the magistrate judge that the remaining counterclaims and defenses were not meritorious and that the defendants had failed to demonstrate that State Street Bank would not be subjected to prejudice if the default judgment were vacated. Accordingly, the court denied the defendants' motion to vacate the default judgment. See id. at 243. The defendants filed...

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