American Bank and Trust Co. v. Bond Intern. Ltd.
| Decision Date | 04 August 2006 |
| Docket Number | No. 06-CV-0317-CVE-FMH.,06-CV-0317-CVE-FMH. |
| Citation | 464 F.Supp.2d 1123 |
| Parties | AMERICAN BANK AND TRUST CO., Plaintiff, v. BOND INTERNATIONAL LIMITED, Bond International (US) Inc., Bond International (U.K.) Limited, David K. Bond and Akkel Holdings Limited, Defendants. |
| Court | U.S. District Court — Northern District of Oklahoma |
Christopher J. Redmond, Hush & Eppenberger, Kansas City, MO, Gary Michael McDonald, George Michael Lewis, Norman Lance Bryan, Doerner Saunders Daniel & Anderson, Tulsa, OK, for Plaintiff.
John N. Hermes, Robert Thomas Luttrell, III, McAfee & Taft, Oklahoma City, OK, for Defendants.
Now before the Court is Defendants' Objection to Plaintiffs Motion to Appoint Receiver (Dkt.# 29). In their objection, defendants claim the Trading with the Enemy Act of 1917, 50 U.S.C. § 1, et seq. ("TWEA"), and the Cuban Assets Control Regulations, 31 C.F.R. § 515.101, et seq. ("CACR"), invalidate the security agreements held by American Bank and Trust Company ("American") in collateral owned by defendants.1 According to defendants, plaintiff is not likely to succeed in its request for the appointment of a receiver because the security agreement held by American is void under the TWEA and the CACR. However, neither party has complied with the licensing requirements of either the TWEA or the CACR. While this does not deprive the Court of subject matter jurisdiction, it does prevent the Court from entering an order that would potentially interfere with the status of items leased to a Cuban corporation. The Court will appoint a receiver, but will exclude the receiver from exercising any power over the leases or proceeds from the leases of Havana Club International, S.A. ("Havana Club").
Bond International Limited ("Bond BVI"), through its subsidiaries Bond International Inc. ("Bond US") and Bond International Limited ("Bond UK"), leases international tanks, containers and chassis used for transportation and shipping.2 David K. Bond ("Bond") is the president and chief executive officer of Bond BVI.3 Bond established a bank account and credit line with American in 1995 and the parties entered several loan agreements from 1995 to 1999. On March 23, 1999, American loaned Bond BVI and its subsidiaries $25 million.4 The credit agreement shows that Bond BVI, Bond US, and Bond UK accepted a loan of $25 million and promised to repay the loan by April 5, 2002. The borrowers executed a credit agreement granting American a security interest in certain leases, containers and chassis owned by Bond BVI and its subsidiaries.5
As part of the agreement, Bond agreed that proceeds from the identified leases would be deposited in a bank account at American, which the parties refer to as the "lockbox". This ensured that American could access funds for repayment of the loan and keep track of the overall condition of Bond BVI, Bond US, and Bond UK. However, the agreement provided that proceeds from tank leases to the Havana Club were not to be deposited in the lockbox. Havana Club is owned in part by the Cuban government and transactions with Havana Club are subject to the CACR. Havana Club leases approximately 40 tanks in order to export rum from Cuba.6 The parties do not dispute that the collateral is not illegal under the CACR or that defendants have the right to trade with a Cuban corporation. Defendants and American structured the loan agreement in order to avoid the regulatory requirements of the CACR and there is no evidence that any party had a license under the CACR to bring proceeds from the Cuban leases into the United States.
Defendants defaulted on the loan and the parties subsequently modified the note and credit agreement. By January 3, 2006, Defendants still owed $22,125,111 of the principal on the note. American modified the note to give defendants until April 4, 2006, to pay the remaining principal and interest on the note. As of August 2, 2006, the outstanding balance on the note was $23,292,211. American filed this lawsuit to collect the outstanding principal and interest on the loan, and as part of its claim for relief, American has asked the Court to appoint a receiver to safeguard its collateral and manage defendants' business. American has discovered that defendants were diverting payments from the lockbox and depositing payments in a bank account in the United Kingdom instead of the lockbox. Under the loan agreement, only Havana Club's payments were supposed to be diverted from the lockbox in order to avoid the regulatory restrictions imposed by the CACR. American has significant concerns about defendants' cash flow and ability to maintain their status as going concerns. Defendants object to the appointment of a receiver on the ground that the TWEA and the CACR require the Court to invalidate the entire loan agreement because part of the loan agreement gave American a security interest in leases, proceeds, and tanks held by a Cuban corporation.
Defendants claim that the TWEA and the CACR, do not allow American to maintain a security interest in leases and collateral to the Havana Club, because the Havana Club is partially owned by the Cuban government. Defendants argue that Cuba is an officially recognized enemy of the United States and American businesses may not have an interest in any property held by the Cuban government without a license from the Treasury Department. The TWEA prohibits business dealings with an enemy7 unless the President issues a license authorizing the transaction. 50 U.S.C.App. § 3. The President is authorized to appoint an Alien Property Custodian to enforce the TWEA and confiscate "all money and property in the United States due or belonging to an enemy, or ally of enemy." 50 U.S.C.App. § 6; Ecker v. Atlantic Refining Co., 222 F.2d 618, 621-22 (4th Cir.1955). The TWEA provides federal district courts with subject matter jurisdiction to hold summary forfeiture proceedings for actions brought by the Alien Property Custodian8 and for the United States Claims Court to hear claims against the United States to recover the proceeds from the sale of any property under the TWEA. 50 U.S.C.App. §§ 17, 42; Central Union Trust Co. of New York v. Garvan, 254 U.S. 554, 566, 41 S.Ct. 214, 65 L.Ed. 403 (1921); Bonnar v. United States, 194 Ct.Cl. 103, 438 F.2d 540, 547 (1971).
The CACR continued the Cuban embargo first authorized by the President in 1963 and allowed the executive branch to restrict trade and travel to Cuba in times of war and peace. Freedom to Travel Campaign v. Newcomb, 82 F.3d 1431, 1436 (9th Cir.1996); Emmpresa Cubana Del Tabaco v. Culbro Corp., 213 F.Supp.2d 247, 256 (S.D.N.Y.2002). The regulations prohibit products originating in Cuba from being imported into the United States and discourage businesses from directing American currency to Cuba which could be used to support the Cuban government. Havana Club Holding SA v. Galleon S.A., 203 F.3d 116, 117-118 (2d Cir.2000). Enforcement of the CACR has been delegated to the Treasury Department and the Office of Foreign Asset Control ("OFAC"). The CACR9 prohibits
(1) All dealing in, including, without limitation, transfers, withdrawals, or exportations of, any property or evidences of indebtedness or evidences of ownership of property by any person subject to the jurisdiction of the United States; and
(2) All transfers outside the United States with regard to any property or property interest subject to the jurisdiction of the United States.
31 C.F.R. § 515.201. The regulations further provide that "[a]ny transfer after the `effective date' which is in violation of any provision of this part ... is null and void and shall not be the basis for the assertion or recognition of any interest in or right, remedy, power or privilege with respect to such property." 31 C.F.R. § 515.203(a); Miranda v. Secretary of Treasury, 766 F.2d 1, 4 (1st Cir.1985). In order to conduct business in Cuba, a party may obtain a license from OFAC for particular transactions to "validate the transfer or render it enforceable to the same extent as it would be valid or enforceable but for the provisions of section 5(b) of the Trading With the Enemy Act." 31 C.F.R. § 515.203(c); Empresa Cubana Del Tabaco v. Culbro Corp., 399 F.3d 462, 473 (2d Cir.2005).
Neither the TWEA nor the CACR are not clear about who may seek judicial review or what court, if any, has jurisdiction over claims under these regulations. Neither the TWEA or the CACR provide litigants with a private cause of action to challenge the Cuban government's confiscation of their real property in Cuba. Glen v. Club Mediterranee SA, 365 F.Supp.2d 1263 (S.D.Fla.2005). It is clear that the United States may bring a prosecution for alleged violations of TWEA and CACR. United States v. Plummer, 221 F.3d 1298 (11th Cir.2000); United States v. Brodie, 174 F.Supp.2d 294 (E.D.Pa.2001). Cuban nationals who failed to obtain a license prior to filing an in personam crossclaim for monetary damages could proceed in federal court, as long as the judgment did not require the district court to dispose of property in violation of the CACR. Dean Witter Reynolds, Inc. v. Fernandez, 741 F.2d 355, 361-63 (11th Cir.1984). However, the issue in this case is not whether defendant has standing to bring a claim under the CACR, but whether the Court has the authority to enter an order authorizing a receiver to take control of property leased to a Cuban corporation that is partially owned by the Cuban government.
The court finds that the CACR limits the Court's power to grant plaintiff relief against collateral held by a Cuban corporation and plaintiffs security interests in property leased by the Havana Club may not be enforced in this Court. There is no evidence that any party has a license from OFAC to conduct business in Cuba, and this precludes the Court from entering an order authorizing a receiver to take control of property held by a Cuban entity. At the evidentiary hearing, the credit...
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