Elliott Associates, L.P. v. Republic of Peru, 96 Civ. 7917(RWS).
| Decision Date | 06 August 1998 |
| Docket Number | No. 96 Civ. 7917(RWS).,No. 96 Civ. 7916(RWS).,96 Civ. 7917(RWS).,96 Civ. 7916(RWS). |
| Citation | 12 F.Supp.2d 328 |
| Parties | ELLIOTT ASSOCIATES, L.P., Plaintiff, v. The REPUBLIC OF PERU, Defendant. ELLIOTT ASSOCIATES, L.P., Plaintiff, v. Banco DE LA NACION, Defendant. |
| Court | U.S. District Court — Southern District of New York |
Weil, Gotshal & Manges LLP, New York City (Otto G. Obermaier, Brian S. Rosen, Eli Gottesdiener, Steven M. Shebar, Paul M. Tarr, Ross Morrison, of counsel), Bainbridge & Straus, Birmingham, AL (Michael Straus, of counsel), for Plaintiff.
Baker & Hostetler, Washington, DC (Mark A. Cymrot, Ralph G. Blasey, III, Ralph G. Blasey, III, Paul O. Gagnier, of counsel), for Defendants.
Elliott Associates, L.P. ("Elliott") brought these actions to recover monies due and owing on foreign debt instruments it acquired by way of assignment in the secondary capital markets. Defendants The Republic of Peru ("Peru") and Banco de la Nacion ("Banco") (collectively, the "Peru Defendants") concede the validity of the debt but deny that Elliott is a valid holder. They contend that the assignments, by two third-party banks, are void because Elliott committed "champerty" in purchasing the debt in violation of Section 489 of the New York Judiciary Law. Banco additionally contends that it cannot be liable on the debt assigned to Elliott, even if the assignments are valid, due to an internal 1994 Peruvian law which purported to transfer Banco's foreign debt obligations to Peru, thus allegedly relieving Banco of any liability.
Upon the trial before the Court and all the prior proceedings and the findings of fact and conclusions of law which follow, judgment will be entered in favor of the Peru Defendants.
Elliott is a Delaware limited partnership authorized to do business in the State of New York with its principal place of business in New York, New York.
Banco is a foreign financial institution organized under the laws of Peru with its principal place of business in Lima, Peru.
Peru is a foreign state as defined in 28 U.S.C. § 1603(a).
The prior proceedings in this controversy are set forth in the previous opinions of this Court, familiarity with which is assumed. See Elliott Assocs., L.P. v. Republic of Peru, 176 F.R.D. 93 (S.D.N.Y.1997); Elliott Associates, L.P. v. Republic of Peru, 96 Civ. 7916, 1997 WL 436493 (S.D.N.Y. Aug.1, 1997); Elliott Assocs., L.P. v. Republic of Peru, 961 F.Supp. 83 (S.D.N.Y.1997); Elliott Assocs., L.P. v. Republic of Peru, 948 F.Supp. 1203 (S.D.N.Y.1996). Elliott commenced these actions on October 18, 1996 in the Supreme Court of the State of New York, County of New York, seeking money judgments based upon allegations of Banco's default under certain written loan agreements and Peru's default under a written guaranty securing certain loan agreements. Peru and Banco removed these actions to this Court on October 21, 1996. The Court denied Elliott's motion for an order of attachment on December 12, 1996 and for summary judgment on April 28, 1997. Some fourteen Orders and Opinions were entered relating to discovery and scheduling. A bench trial was held beginning on March 19, 1998, and ending on March 25, 1998. Post-trial submissions were received, and closing arguments were heard on May 26, 1998, at which time the action was considered fully submitted.
Elliott purchased, in a series of five trades from January 31, 1996, to March 1, 1996, all right, title and interest, from Swiss Bank Corporation ("SBC") and ING Bank, N.V. ("ING"), $20,682,699.04 in principal amount, together with all accrued and unpaid interest, of the working capital obligations1 of Banco de la Nacion and Banco Popular del Peru under certain letter agreements (the "Letter Agreements"). The Letter Agreements were guaranteed by Peru in a written Guaranty on May 31, 1983 (the "Guaranty"). Elliott paid SBC and ING a combined total of $11,431,202.08.
The trades were as follows: (1) On January 31, 1996, $5,000,000 in principal amount was traded for $2,589,500.00 by SBC; (2) on February 6, 1996, $2,000,000 in principal amount was traded for $1,090,000 by ING; (3) on February 14, 1996, $5,000,000 in principal amount was traded for $3,250,000 by SBC; (4) on February 14, 1996, $5,000,000 in principal amount was traded for $2,589,500 by SBC; and (5) on March 1, 1996, $3,682,679.55 in principal amount was traded for $1,907,259.83 by SBC.
Elliott closed its assignment agreement with ING on March 29, 1996, and provided a fully executed copy of the agreement to ING until April 15, 1996. Elliott closed its SBC purchases on April 19, 1996, and provided a fully executed copy of the assignment agreement to SBC on May 1, 1996.
The Letter Agreements and the Guaranty, both of which are governed by New York law, are valid outstanding obligations of Banco and Peru. The Letter Agreements and the Guaranty entitle the holder to, among other things, repayment of all principal, plus interest as provided in the Letter Agreements. The Letter Agreements and the Guaranty also entitle the holder to recover attorneys' fees, costs and disbursements incurred to enforce the Letter Agreements and the Guaranty.
Of the total $20,682,699.04 in principal obligations Elliott acquired, Banco is the Obligor of $7,000,000 in principal. Banco Popular is the Obligor for the remaining $13,682,699.04 in principal. Peru, however, guaranteed to repay the entire amount.
Banco and Peru have not paid any of the outstanding amounts due and owing under the Letter Agreements or the Guaranty. Banco and Peru are therefore in default of their obligations under those instruments.
Elliott purchased the Peruvian debt with the intent and purpose to sue. This purpose and intent can be determined from Elliott's investment strategy, the resumes of the individuals assembled for the Peruvian debt project, Elliott's delay in closing the Peruvian debt trades until after litigation risks were clarified by the Second Circuit in the Pravin Banker matter, the absence of credibility to Elliott's alternatives, and Elliott's conduct subsequent to the purchases.
Elliott set up an investment team for the purchase of emerging market debt, consisting principally of Jay Newman ("Newman"), Andrew Kurtz ("Kurtz"), a senior analyst and portfolio manager at Elliott, Paul Singer ("Singer"), Elliott's founder and chief executive, and Ralph Dellacamera ("Dellacamera"), Elliott's head trader. Additionally, the team retained Michael Straus as outside counsel.
Prior to its first meeting with Newman, Elliott had never invested in emerging market debt. Elliott is an investment fund which, at the time the sovereign debt team was assembled, specialized in the purchase of distressed assets which it believed the market had undervalued. These included debtor-companies in bankruptcy, companies recently emergent from bankruptcy, or companies which had yet to enter formal bankruptcy.
Singer, Kurtz and Dellacamera had no experience in emerging market debt. Elliott therefore relied on Newman's expertise and recommendations in purchasing emerging market debt.
Jay Newman, who had formerly practiced law, entered the sovereign debt investment area in 1983 during the Latin American debt crisis when he began working for Lehman Brothers. In 1987 or 1988, Newman became Lehman Brothers' managing director for Third World debt, responsible for developing Lehman Brothers' trading and investment business in that area.
In 1989, Newman joined Dillon Reed, where he continued trading and brokering emerging market debt and managed a third world debt investment fund. One year later, he moved to Morgan Stanley, again to work on emerging market debt investments.
In 1993, Newman left Morgan Stanley to establish The Percheron Fund, an offshore investment fund that focused on emerging market debt. Newman managed the Percheron Fund until 1995. Also in 1993, Newman solicited investors for Water Street Bank & Trust Limited ("Water Street"), another offshore fund that invested in emerging market debt. At approximately the same time, Newman introduced Water Street's investors to Michael Straus, who he had first met in 1992 or 1993, when Straus was representing Banque de Gestion Privee-SIB in its sovereign debt lawsuit against the Republic of Paraguay. Newman knew of Straus because of his work as trial counsel to clients involved in sovereign debt lawsuits, as Straus has been involved in at least thirteen other debt lawsuits against sovereigns in the United States.2
Straus assisted Newman in the solicitation of investors for Water Street and later became trial counsel to Water Street for its sovereign debt lawsuits.
Newman and Straus advised Water Street on its purchases of the sovereign debt of Poland, Ecuador, Ivory Coast, Panama, and Congo. Water Street thereafter filed lawsuits against each of those sovereigns seeking full payment of the debt purchased by Water Street. Straus served as trial counsel to Water Street for each of those lawsuits. Neither Newman nor Straus, however, made the ultimate decisions for Water Street regarding whether to purchase emerging market debt, or whether to sue the sovereign governments to collect. In May 1995, the Water Street investors decided to liquidate the fund, and Newman "assist[ed] extensively in [the] liquidation of Water Street."
Straus had become familiar with the elements of champerty. Allegations of champerty were charged against Straus' clients in Banque de Gestion Privee-Sib v. La Republica de Paraguay, 787 F.Supp. 53 (S.D.N.Y. 1992); Water St. Bank & Trust Ltd. v. Republic of Congo, 94 Civ. 1894(SS) (S.D.N.Y.); and Water St. Bank & Trust Ltd. v. Republic of Poland, 95...
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