A.I. Trade Finance, Inc. v. Petra Intern. Banking Corp.

Citation314 U.S.App. D.C. 122,62 F.3d 1454
Decision Date22 August 1995
Docket NumberNo. 94-7117,94-7117
CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)

Mark F. Rosenberg, New York City, argued the cause, for appellant. With him on the briefs were Richard H. Sauer and Bernard A. Joseph, New York City.

John R. Fornaciari, Washington, DC, appeared pro hac vice and argued the cause, for appellee. John J. Vecchione, Washington, DC, was on the brief, for appellee.

Before: WILLIAMS, GINSBURG, and RANDOLPH, Circuit Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

GINSBURG, Circuit Judge:

A.I. Trade Finance, Inc. (AITF) appeals the district court's grant of summary judgment in favor of Petra International Banking Corporation (PIBC), an Edge Act corporation. AITF brought suit in order to hold PIBC liable on six notes guarantied by Petra Bank of Jordan (Petra Bank), upon the theory that PIBC is the alter-ego of Petra Bank. For the reasons set out below, we affirm the judgment of the district court.

I. Background

The facts as alleged in AITF's complaint (or as otherwise reflected in the record and not disputed) are as follows. On January 15, 1989 Nissilios Shipping of Piraeus, Greece executed six negotiable instruments with a face value of $15 million in favor of Welfin, S.A., a Swiss investment bank, ostensibly in order to finance the purchase of some electronic equipment to be used in the construction of the ship M.V. Nissilios. Each note is guarantied by Petra Bank with the notation "per aval" and promises a payment of $2.5 million dollars; two notes were due on October 17, 1989, and four were due on January 17, 1990.

This transaction is an example of "forfaiting," an increasingly common method of trade financing in which the exporter receives in payment a negotiable obligation guarantied by the importer's bank with terms that give it a present value equal to the purchase price of the goods sold. The forfaiter, in this case Welfin, may either hold the note to maturity or sell it on the secondary market. Forfaiters are more willing to deal in such obligations because they are guarantied by a bank "per aval" which, unlike an ordinary guaranty that is triggered only upon the default of the original maker, renders the guarantor bank liable directly upon the instrument. In exchange for the discount on the obligation, the forfaiter assumes only interest rate risk and the credit risk associated with the guarantor bank. In addition, these instruments are relatively liquid because they can be sold on the secondary market "without recourse" to the seller. See generally Elnora Uzzelle, Forfaiting Should Not Be Overlooked As An Innovative Means of Export Finance, BUSINESS AMERICA, Feb. 1995 at 20.

To continue, the six notes guarantied by Petra Bank were endorsed by Welfin, without recourse, to AITF, a secondary forfaiter, for just over $13.5 million. Shortly thereafter, AITF sold three of the notes, also "without recourse," to another secondary forfaiter, Centro Internationale Handelsbank, A.G. for a bit under $6.75 million. Centro, in turn, sold the three notes to ABN Amro, a Dutch bank, upon similar terms. The secondary forfaiters left holding the notes, AITF and Amro, had thus each purchased debt with a face value of $7.5 million at a discount that presumably reflected prevailing interest rates and their confidence in Petra Bank as guarantor of the notes.

Soon after the transactions described above Petra Bank began to suffer large losses, apparently due to misconduct on the part of some of its officers. The Jordanian government eventually put the bank into receivership. Prior to that, however, in August 1989 the failing Petra Bank declared a moratorium upon the payment of all guaranties. By January 1990 it had refused payment of the six notes involved in this case, which set off a chain reaction of lawsuits. First, AITF sued Centro in the federal court in New York for a declaratory judgment that AITF was not liable on the three notes that it had sold to Centro; inevitably Centro counterclaimed, alleging that AITF had committed various wrongs in connection with that sale. See A.I. Trade Finance, Inc. v. Centro Internationale Handelsbank, A.G., Dkt. No. 89 Civ. 7664 (PNL) (S.D.N.Y. filed Nov. 16, 1989). Meanwhile, Amro sued Centro in Vienna, and AITF sued Petra Bank, again in New York, for failing to honor its guaranty on the three notes that AITF still held. See A.I. Trade Finance, Inc. v. Petra Bank, 89 Civ. 7987 (JFK) (S.D.N.Y. filed Nov. 30, 1989).

AITF's litigation with Centro soon bogged down in discovery disputes, and its litigation against Petra Bank was in jeopardy of being dismissed in favor of the bankruptcy proceedings in Jordan. So in August 1993 AITF filed this suit against PIBC in the United States District Court for the District of Columbia.

PIBC is incorporated under the Edge Act, a federal law that authorizes the chartering of a corporation "for the purpose of engaging in international or foreign banking or other international or foreign financial operations." 12 U.S.C. Sec. 611. PIBC's only office is located in the District of Columbia. With the approval of the Federal Reserve Board, Petra Bank owns approximately 70 percent of PIBC's stock. See 12 U.S.C. Sec. 619; 12 C.F.R. Sec. 211.4(b)(2) (requiring majority of shares in Edge Act corporation be owned by U.S. citizens or firms unless Board approves foreign ownership).

AITF alleges that PIBC is the "mere agent, instrumentality and alter ego of Petra [Bank]," and that PIBC is therefore liable on the $7.5 million worth of notes that Petra Bank guarantied and AITF still holds. AITF also seeks a declaration that PIBC is likewise liable for any losses that AITF may incur in connection with the $7.5 million worth of notes that AITF sold to Centro, which are the subject of litigation in both New York and Vienna.

PIBC moved for dismissal or, in the alternative, summary judgment upon the grounds that AITF's claim is barred by the District of Columbia's three-year statute of limitations for contract actions and that, in any event, PIBC is neither the alter-ego of Petra Bank nor otherwise responsible for Petra Bank's guaranties. AITF opposed, arguing that: (1) the statute of limitations has not even begun to run on its claim involving the Centro notes because AITF has not yet been held liable to Centro in New York; (2) under federal choice-of-law rules New York's six-year statute of limitations applies to AITF's claim based upon the notes that it holds; (3) even if a D.C. statute of limitations applies, it was tolled in 1989 when AITF filed suit against Petra Bank in New York; (4) if there was no tolling, the action is still timely because the applicable limitation period under D.C. law is 12 years for contracts under seal; and (5) PIBC's assertions concerning the merits of the case are inadequate and, because AITF has not yet been able to conduct any discovery, premature.

The district court granted PIBC's motion for summary judgment. The court held first that its jurisdiction rested both upon the parties' diversity of citizenship and upon the specific grant of jurisdiction over suits involving foreign banking transactions of Edge Act corporations in 28 U.S.C. Sec. 632. The court reasoned that because its subject-matter jurisdiction was based in part upon diversity of citizenship, it would look to the law of the forum to determine the applicable statute of limitations; the court also noted, however, that it would reach the same result if it were to decide that issue under federal law because the District of Columbia has a superior interest in a suit seeking to "pierce the veil of a District of Columbia corporation." The court then held that the District's three-year limitation upon contract actions applies and, because the suit was filed some four-and-one-half years after Petra Bank had dishonored its guaranties, entered judgment for the defendant.

Since the district court's decision, Amro has lost its bid in the Austrian court of first instance to hold Centro liable on the three notes that Centro sold to Amro, which prompted AITF to seek dismissal of its claims and of Centro's counterclaims in their New York litigation upon the ground that there is no longer a case or controversy over which the court may exercise jurisdiction. Centro has opposed that motion upon the grounds that not all of its claims against AITF are rendered moot by the decision of the Vienna court and that the case is as live as ever in light of Amro's pending appeal. AITF's suit against Petra Bank in New York also remains pending; the bankruptcy court (to which the district court referred the case) recently denied Petra Bank's motion to dismiss in favor of the proceedings in Jordan, which it considered inadequate to protect AITF's interests. Petra Bank is currently appealing that decision to the district court.

On appeal here, AITF presses four statute of limitations arguments. First, however, we take up its argument that federal choice-of-law rules dictate that we apply the appropriate New York statute of limitations to its cause of action against PIBC. Only after we have determined what law applies will we address AITF's statute of limitations arguments, starting with its contention that the statute of limitations has not even begun to run on its claim against PIBC based upon the three notes that AITF sold to Centro.

II. Choice of Law

AITF argues that this is a "federal question" case, and that we should therefore apply federal choice-of-law principles in order to determine which state's law supplies the applicable statute of limitations. AITF, of course, argues for New York's six-year period for contract actions. See N.Y. Civ.Prac L. & R. Sec. 213. PIBC counters that this case presents no reason to depart from the general rule that a federal...

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