Competex, S.A. v. LaBow, 329

• Decision Date: 12 February 1986
• Docket Number: D,No. 329,329
• Citation: 783 F.2d 333
• Parties: COMPETEX, S.A. (In Liquidation), Plaintiff-Appellee, v. Ronald LABOW, Defendant-Appellant. ocket 85-7605.
• Court: U.S. Court of Appeals — Second Circuit

Page 333

783 F.2d 333

54 USLW 2495

COMPETEX, S.A. (In Liquidation), Plaintiff-Appellee, v. Ronald LABOW, Defendant-Appellant.

No. 329, Docket 85-7605.

United States Court of Appeals Second Circuit.

Argued Nov. 15, 1985.

Decided Feb. 12, 1986.

David Parker, New York City (David M. Levy, Olshan Grundman & Frome, New York, N.Y., on brief), for defendant-appellant.

Sheldon H. Elsen, New York City (Gary H. Greenberg, Lawrence M. Solan, John B. Orenstein, Orans, Elsen & Lupert, New York City, on brief), for plaintiff-appellee.

Before KAUFMAN, NEWMAN, and KEARSE, Circuit Judges.

JON O. NEWMAN, Circuit Judge:

This appeal presents issues concerning currency conversion in the context of enforcing a foreign judgment. Specifically, the question is whether a judgment debtor may satisfy an American judgment that was based on an English judgment by paying the amount of the English judgment in pounds. Defendant-appellant Ronald LaBow appeals from an order of the District Court for the Southern District of New York (John E. Sprizzo, Judge), 613 F.Supp. 335, denying his motion under Fed.R.Civ.P. 60(b) for relief from the American judgment, previously entered by the late Judge Henry F. Werker in favor of plaintiff-appellee Competex, S.A. For reasons that follow, we affirm.

Background

LaBow, a New Yorker, lost a substantial sum of money through speculation in copper on the London Metal Exchange. His broker, Competex, a Swiss corporation, satisfied these debts. Competex sued LaBow for breach of contract in the English High Court of Justice, Queen's Bench Division, and obtained a default judgment for pounds sterling 187,929.82, which included principal, interest, and costs.

Competex then brought this diversity action to enforce the English judgment. Following a bench trial, Judge Werker held that the English judgment was entitled to recognition and enforcement. Because determination of the date on which to convert a foreign currency debt into dollars is a substantive question, see Vishipco Line v. Chase Manhattan Bank, N.A., 660 F.2d 854, 865-67 (2d Cir.1981), cert. denied, 459 U.S. 976, 103 S.Ct. 313, 74 L.Ed.2d 291 (1982), Judge Werker was compelled to apply New York law. New York uses the breach-day conversion rule, see Dougherty v. Equitable Life Assurance Society, 266 N.Y. 71, 193 N.E. 897 (1934); Parker v. Hoppe, 257 N.Y. 333, 178 N.E. 550 (1931); Richard v. American Union Bank, 241 N.Y. 163, 149 N.E. 338 (1925); Hoppe v. Russo-Asiatic Bank, 235 N.Y. 37, 138 N.E. 497 (1923); Brill v. Chase Manhattan Bank, 14 A.D.2d 852, 220 N.Y.S.2d 903 (1st Dep't 1961); Librairie Hachette, S.A. v. Paris Book Center, Inc., 62 Misc.2d 873, 309 N.Y.S.2d 701 (Sup.Ct.N.Y.Co.1970). But see John S. Metcalf Co. v. Mayer, 213 A.D. 607, 211 N.Y.S. 53 (1st Dep't 1925) (applying the judgment-day rule); Sirie v. Godfrey, 196 A.D. 529, 188 N.Y.S. 52 (1st Dep't 1921) (same).

In applying the breach-day rule, Judge Werker reasoned that Competex's American claim was based on the English judgment rather than on the underlying contract. Competex's American claim had therefore accrued upon the date of entry of the English judgment, and Judge Werker applied the conversion rate prevailing on that date: pounds sterling 1 = $2.20. He entered judgment for $583,201.78, which included interest and a fee award pursuant to Fed.R.Civ.P. 56(g). ¹ LaBow noticed an appeal which we dismissed sua sponte for failure to perfect. The appeal was never reinstated.

The pound depreciated substantially relative to the dollar between the dates of the English and American judgments. On the date of the American judgment, the conversion rate was: pounds sterling 1 = $1.50. The pound continued to depreciate. As a result, LaBow moved, pursuant to Fed.R.Civ.P. 60(b), for a clarification of the American judgment and a declaration that he could satisfy the American judgment by paying the underlying English judgment in pounds. While this motion was pending, LaBow borrowed the necessary funds and paid the English judgment, with interest, in pounds. Judge Sprizzo denied LaBow's Rule 60(b) motion and held that the American judgment could be satisfied only by paying the dollar amount specified in that judgment. He credited LaBow's payment against the American judgment at the conversion rate prevailing on the date of payment: pounds sterling 1 = $1.20. This calculation left a balance owing on the American judgment of approximately $236,000. ² LaBow appeals the denial of his Rule 60(b) motion.

Discussion

Because of the procedural posture of this case, we are faced with a narrow issue: whether Judge Sprizzo's denial of LaBow's Rule 60(b) motion was proper. Rule 60(b) is not a substitute for appeal. LaBow may not relitigate the bases for the enforcing judgment entered by Judge Werker. See Donovan v. Sovereign Security, Ltd., 726 F.2d 55, 60 (2d Cir.1984); Daily Mirror, Inc. v. New York News, Inc., 533 F.2d 53, 56 (2d Cir.), cert. denied, 429 U.S. 862, 97 S.Ct. 166, 50 L.Ed.2d 140 (1976). Specifically, LaBow may not challenge Judge Werker's application of the breach-day conversion rule. However, review of the Rule 60(b) denial requires some exploration of the currency conversion problem because determination of a state's rule for deeming enforcing judgments satisfied turns on the rationale for the state's currency conversion rule.

For illustrative purposes, the following example will be helpful. ³ Defendant defaults on a contractual obligation to pay plaintiff pounds sterling 1. Plaintiff brings suit in an English court and receives judgment for that amount, at which time the prevailing conversion rate is: pounds sterling 1 = $1. For simplicity and to keep the discussion focused on the pertinent points, we assume that the value of the dollar remains constant (i.e., constant against gold and all currencies except the pound) but that fluctuation in the value of the pound causes a change in the exchange rate for the dollar. Initially, we consider what would happen if the pound depreciates relative to the dollar, so that pounds sterling 1 = $.60. Plaintiff then brings an action on the English judgment in an American state court. We will further assume that defendant has sufficient property in both jurisdictions to satisfy any judgments against it.

If the English judgment is entitled to enforcement, a state court applying New York's breach-day rule would enter judgment for $1, in accordance with the conversion rate prevailing on the date the English judgment debt became due. The asserted purpose of this rule is to assure that plaintiff will be made whole by protecting him against fluctuation in relative currency values. See Vishipco Line v. Chase Manhattan Bank, N.A., supra, 660 F.2d at 866 n. 7. Thus, had defendant paid plaintiff pounds sterling 1 on the date of the English judgment and had plaintiff converted this amount into dollars on that date, plaintiff would be in possession of $1 on the date of the American judgment. On the surface, the breach-day rule appears to do no more than regard as done that which ought to have been done.

However, the breach-day rule does more than make plaintiff whole. It generously allows him to reap the benefit of appreciation in the value of the pound without risking loss as a result of the pound's depreciation. In our example, plaintiff was insulated from any loss as a result of the pound's depreciation. His right to receive $1 was completely unaffected by the pound's depreciation. However, had the pound appreciated relative to the dollar, so that pounds sterling 1 = $1.30, plaintiff would simply have executed on the English judgment. He would receive pounds sterling 1, the equivalent of $1.30. Since the original obligation was worth only $1, plaintiff would make $.30 as a result of the pound's appreciation. ⁴

Of course, this game of creditor's choice is possible only if the judgment debtor has property in both jurisdictions sufficient to satisfy either judgment. The proposed Restatement of Foreign Relations Law suggests a more extreme rule of creditor's preference that can enable the creditor to benefit from currency fluctuations even if the debtor does not have property in both jurisdictions. ⁵ See Restatement of Foreign Relations Law of the United States Sec. 823 comment c (Tent. Draft No. 6, 1985). According to the Restatement, if the foreign currency has depreciated since the foreign obligation accrued, an American court should follow the breach-day rule and apply the conversion rate prevailing at the time of accrual. In our example, if the value of pounds sterling1 goes from $1 to $.60, the American court enters judgment for $1, and plaintiff loses nothing as a result of the pound's depreciation. However, if the foreign currency appreciates, an American court, according to the Restatement, should follow the judgment-day rule and apply the conversion rate prevailing on the date of the American judgment. ⁶ In our example, if the value of pounds sterling1 goes from $1 to $1.30, the American court enters judgment for $1.30, and plaintiff makes $.30. Thus, under the Restatement's approach, the judgment debtor need not have property in England for the judgment creditor to be allowed to engage in currency speculation without risk.

It might be argued that the judgment debtor can avoid these unfavorable consequences by immediately satisfying the first judgment. Indeed, it could be argued that these consequences are fitting punishment for failure to pay debts justly due. However, these arguments assume that the original judgment is valid and enforceable. It might be that the original judgment is arguably not entitled to foreign recognition. ⁷ There is no justification for forcing defendant to choose between waiving all defenses to the enforcement action by satisfying the original judgment and assuming the risk of currency fluctuation. ⁸ Moreover, post-judgment interest, which compensates the judgment creditor for the time value of money, is...