FC IMPORTS v. First Nat. Bank

• Decision Date: 02 March 1993
• Docket Number: Civ. No. 91-2485 (JP).
• Parties: F.C. IMPORTS, INC.; Fernando Couso and Esperanza Diaz; and the Conjugal Partnership Composed by Fernando Couso and Esperanza Diaz, Plaintiffs, v. The FIRST NATIONAL BANK OF BOSTON, N.A., Defendant.
• Court: U.S. District Court — District of Puerto Rico

816 F. Supp. 78

F.C. IMPORTS, INC.; Fernando Couso and Esperanza Diaz; and the Conjugal Partnership Composed by Fernando Couso and Esperanza Diaz, Plaintiffs, v. The FIRST NATIONAL BANK OF BOSTON, N.A., Defendant.

Civ. No. 91-2485 (JP).

United States District Court, D. Puerto Rico.

March 2, 1993.

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Héctor F. Martinez Jiménez, Santurce, P.R., for plaintiffs.

Manuel A. Moreda Toledo, Paul R. Cortés Rexach, Sweeting, González, Cestero & Bruno, San Juan, P.R., for defendant.

OPINION AND ORDER

PIERAS, District Judge.

The Court has before it defendant's unopposed¹ motion for summary judgment filed on December 18, 1992. For the reasons stated below, the defendant's Motion is hereby GRANTED.

I. Background

F.C. Imports, Inc. ("Imports"), Mr. Fernando Couso ("Mr. Couso"), Mrs. Esperanza Diaz and their conjugal partnership,² filed the instant action on November 26, 1991, against The First National Bank of Boston, N.A. ("FNBB"). Imports was a wholesale supplier of electronic appliances and creditor of Novedades Guerra, Inc. ("Novedades"), a retail seller of electronic appliances. On June 10, 1992, plaintiffs filed their final amended complaint (hereinafter "the complaint").

Plaintiffs seek to hold FNBB liable for the debts owed by Novedades to Imports for electronic appliances Imports sold on credit to Novedades. Plaintiffs aver that Imports accepted five post-dated checks drawn against a Novedades corporate account with FNBB relying on FNBB's assurances that Novedades would have sufficient funds in its account to cover the amount of the checks.³ Plaintiffs allege that after Imports accepted the checks FNBB undertook a series of fraudulent or negligent actions which caused Novedades debt to Imports to remain unsatisfied. The alleged amount of the debt owed by Novedades to Imports for unpaid appliances is $93,265.46.⁴ Imports also seeks to recover from FNBB $3,000,000.00 for its alleged loss of profits from future sales to Novedades and for damages to its goodwill. Mr. Couso, Mrs. Couso, and their conjugal partnership seek to recover $1,000,000.00 for alleged damages suffered as a result of FNBB's actions.

Plaintiffs allegations can be summarized as follows. FNBB knew and approved of Novedades' practice of paying its suppliers with post-dated checks and induced Imports to accept Novedades' post-dated checks by falsely representing that Novedades' account held sufficient funds to cover the amounts of the checks and by representing that the proceeds Novedades acquired from the sales of merchandise provided on credit would be used to pay Novedades' creditors. Instead of honoring its representations, FNBB, itself a creditor of Novedades, funneled out from Novedades' account the sales proceeds from merchandise sold on credit to satisfy debts Novedades owed to FNBB. Plaintiffs aver that FNBB depleted Novedades' accounts by making numerous offsets against Novedades' commercial line of credit; by applying amounts deposited in Novedades' account toward the reduction of the debt owed by Novedades to the bank under the line of credit; by substituting checks drawn against Novedades' account with manager's or certified checks and thereby benefiting certain creditors of Novedades to the detriment of Imports; by using funds deposited in the account to extend credit advances in favor of some creditors of Novedades thereby benefiting these creditors to the detriment of Imports; and by honoring some checks drawn against Novedades' corporate account while dishonoring checks presented by Imports. Furthermore, Imports alleges that FNBB further depleted Novedades' funds by requesting additional security from Novedades' shareholders and officials and opening an additional account to deposit Novedades' sale proceeds and pay some of Novedades' debts while other debts of Novedades went unsatisfied because of the lack of funds in Novedades' regular account. Plaintiffs allege that FNBB allowed Novedades resale profits to be "ripped away" from Imports by letting Novedades issue checks for the purchase of additional inventory goods.

Plaintiffs allege that FNBB acted maliciously and with specific intent to prejudice and defraud third party creditors of Novedades, or at the very least was negligent in managing Novedades' affairs to the detriment of Novedades' creditors. Plaintiffs' complaint lists the following causes of action: compensatory damages for breach of contractual obligations; compensatory damages for fraud, misrepresentations and negligence; compensatory damages for breach of fiduciary duties; compensatory damages for unsafe and unsound banking practices; and damages for tortious interference with the contractual relationships.

In support of its motion for summary judgment, FNBB has submitted the deposition testimony of Mr. Couso, interrogatory answers provided by plaintiffs, the sworn statement of FNBB's commercial finance manager, Mr. Rufino Rosado, and a statement of material facts. FNBB argues that these materials show that it is entitled to judgment as a matter of law.

The following facts are undisputed. On March 12, 1990, FNBB approved an $800,000.00 secured revolving line of credit on behalf of Novedades. On April 1990, Novedades and FNBB executed an agreement under which Novedades could request loans up to this credit limit from FNBB to use for its working capital needs. As collateral for the payment of the loans, Novedades executed and gave FNBB a factor's lien⁵ over all its present and future inventory and assigned to FNBB all its present and future accounts receivable. FNBB and Novedades further agreed that FNBB would not be obligated to loan Novedades money under the line of credit, rather it would loan money only at its discretion. The parties agreed to use a special borrowing base⁶ to determine the maximum ceiling of the loans to be disbursed to FNBB at any one time. If at any time the debit balance of the loan account exceeded the maximum amount borrowable under the borrowing base formula, Novedades agreed to deliver whatever cash payments were necessary to eliminate the deficit or to give FNBB additional collateral.⁷

Pursuant to the credit agreement Novedades opened two accounts with FNBB—a corporate checking account and a depository account. The corporate checking account (account no. 1004959) was exclusively funded by loans disbursed by the bank under the line of credit; Novedades never deposited funds of its own in this account. The depository account (number no. 1004967) was used by Novedades to deposit the proceeds from the sale of its inventory, which collateralized the loans disbursed by FNBB to Novedades under the line of credit; this type of account is known as a factor's lien account. No checks were issued by Novedades against the depository account. Pursuant to the credit agreement, monies deposited in the depositary account would be applied, at least once a week, to the amortization of the outstanding loans. Interest generated by the loans was collected from credit-line funds deposited in the corporate account until February 1991, at which time interest began to accrue on the funds in the depository account.

To obtain disbursements of loans under the line of credit, Novedades was required to submit a "Borrowing Base Report" at least once a week. This report would show the outstanding balance of loans disbursed under the line of credit, the value of Novedades' inventory, and the available margin of disbursements. Loans would be disbursed into Novedades' corporate checking account only as long as there was an available margin. Whether there was an available margin depended on the outstanding balance of loans and the current value of Novedades' inventory.⁸

Novedades started experiencing economic difficulties at the end of 1990. As a result of poor sales during the 1990 holiday season, Novedades available cash flow diminished dramatically during the final months of 1990 and the first few months of 1991. By October 18, 1990, Novedades' corporate account was overdrawn in excess of $100,000.00 and the funds in Novedades' corporate checking account were insufficient to cover all the checks drawn by Novedades. Thus, if on any given day the checks presented exceeded the available credit margin, FNBB would dishonor the checks or pay them in whatever order was most convenient to FNBB. On December 3, 1990, FNBB granted Novedades a $350,000.00 increase in the line of credit so that Novedades could cover its working expenses and reimburse the bank for the payment of overdrafts. Additional collateral was requested and obtained.⁹ Starting in January 1991, the bank refused to honor checks presented for payment against Novedades checking account if paying the checks would exceed Novedades' new credit limit of $1.3 million. In early March 1991, FNBB discovered that Novedades had been misrepresenting the value of its inventory. A physical inventory revealed that instead of having an inventory valued at $2,077,000.00, as represented by Novedades in its March report, the inventory was worth only $816,000.00. Because the borrowing base used by FNBB to determine the amount of loans that would be disbursed into Novedades' checking account was based in part on the value of Novedades' inventory, the fact that the inventory was significantly less valuable signified that FNBB had made a gross over-advance of loans—in the amount of $818,000.00—to Novedades. Moreover, approximately $500,000.00 in loans were now unsecured due to the absence of sufficient collateral. FNBB requested additional collateral from Novedades and asked Novedades to decrease the over-advance made by paying the bank $10,000 weekly. FNBB also began monitoring Novedades' inventory on a daily basis. The bank continued loaning money to Novedades only if new loans disbursed would not increase the over-advance figure. In addition, at Novedades' request, FNBB disbursed loans into...