In re Good Hope Chemical Corp.

• Citation: 31 BR 887
• Decision Date: 22 July 1983
• Docket Number: Bankruptcy No. 75-2742-G.
• Parties: In re GOOD HOPE CHEMICAL CORP., Debtor.
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts

31 B.R. 887 (1983)

In re GOOD HOPE CHEMICAL CORP., Debtor.

Bankruptcy No. 75-2742-G.

United States Bankruptcy Court, D. Massachusetts.

July 22, 1983.

Steven Gordon, McCabe/Gordon, P.C., Boston, Mass., for debtor.

Charles Normandin, Ropes & Gray, Boston, Mass., for Koerver & Lersch.

C. Hall Swaim, Hale & Dorr, Boston, Mass., for Creditors' Committee.

MEMORANDUM AND ORDER

RE: EXCHANGE RATE ISSUE

PAUL W. GLENNON, Bankruptcy Judge.

On June 12, 1980, Koerver & Lersch, a German corporation, Good Hope Chemical Corporation, a Chapter XI debtor, and the creditors' committee of Good Hope Chemical Corporation entered into a stipulation (approved by the Court) fixing the amount of Koerver & Lersch's claim in the United States dollar equivalent of 11,055.121 Deutsche marks. The stipulation expressly left open the question as to what date the amount of the claim should be converted into United States dollars. That question, which was briefed and argued by counsel on January 20, 1983, is addressed by this memorandum and order.

FACTS

Koerver & Lersch ("K & L") and Good Hope Chemical Corporation ("Chemical") contracted in 1974 for K & L to construct two sets of heat exchangers intended for use in an ammonia plant to be constructed by Chemical in Ingleside, Texas. The M.W. Kellogg Co., a division of Pullman Incorporated ("Kellogg"), acted as Chemical's purchasing agent. Through a series of telexes, the contract was formed. The first relevant telex was dated July 12, 1974 and was sent from Kellogg to K & L. The price of the heat exchangers was stated in United States dollars. Two weeks later, on July 25, 1974, K & L sent a telex to Kellogg which stated "all prices in the purchase order to be in german marks as follows. . . . two plants have been ordered at a total price of 13.046.540,—german marks. If the purchase order is made out in dollars, it will not be accepted. . . . The dollar prices shown in your purchase order have been worked out at a rate of one german mark equal to 0,394 dollars and have been used for comparison reason only."

Chemical purchase orders dated October 3, 1974 list the price of each of the heat exchangers in United States dollars and provide further that: "payment will be made by Good Hope Chemical Company in U.S. Dollars equivalent to the following German Marks. . . ." and set forth the amounts in German marks.¹ Subsequent modifications to the purchase order by Chemical reflect price increases were to be paid "in accordance with terms of original purchase order, payment is to be made in U.S. dollars equivalent to German marks indicated. U.S. dollar amount shown is based on rate of one German mark equal to 0.394 dollars as per original order." "U.S. dollar amount shown is approximate and for MWK Kellogg purposes only. . . ." Invoices sent from K & L to Chemical and dated October 17, 1974 and January 21, 1975, list the amount due K & L in German marks. Payment was to be made 30 percent 90 days after placement of the order, 30 percent 180 days after placement of the order and the balance of 40 percent on shipment FOB, North Sea Port.

Although the first two invoices were sent to Chemical,² no payment was ever made. At the hearing held on January 20, 1983, Hans Dreyer, the employee of K & L responsible for negotiating the contract with Chemical, testified that K & L was willing to accept payment only in United States dollars equivalent to a fixed number of German marks. That would enable K & L to pay its employees and suppliers the amount of money (i.e. German marks) it actually expended in constructing the heat exchangers. All employees and suppliers were paid in German marks. All of K & L's offices were in Germany. K & L had no investments outside of Germany. K & L was unwilling to shoulder the risk of foreign exchange fluctuations.

Payment was to be made by Chemical through its bank to a German bank. Chemical was to inform its bank of how many German marks it owed K & L. The American bank would then correspond with a German bank and set a date for exchange. On this date, the American bank would wire marks to the German bank, the German bank would credit K & L's account with that amount of German marks and Chemical's account in the American bank would be debited in an equivalent amount of United States dollars. Only on that date would Chemical learn the cost in United States dollars, of the heat exchangers, to that date.

Construction of the heat exchangers was suspended in July of 1975 due to the severe financial difficulties being experienced by Chemical. Chemical filed its Chapter XI petition on October 3, 1975. On June 21, 1977 the creditors' committee of Chemical filed a motion requesting the Court to order the debtor to file its statement of executory contracts³ and requesting an order that all contracts relating to the ammonia plant be deemed rejected. As grounds therefore, the committee alleged inter alia that it was unlikely that the contracts relating to the construction of the ammonia plant could be assumed by Chemical and the ammonia plant completed. Chemical objected to the motion on the grounds inter alia that the creditors' committee was not the proper party to move for a "wholesale" rejection of all executory contracts, that each contract should be examined individually to determine whether its rejection would benefit the debtor's estate, and that the Court could not order rejection of the executory contracts but could only set a date within which the debtor must assume or reject the contracts. By memorandum and order dated June 8, 1978, the Court denied the creditors' committee's motion on the grounds that there was no showing that the contracts were burdensome to the estate and no showing that rejection would benefit the creditors.

At some later point in time, Petroleos Mexicanos ("Pemex"), the Mexican National Oil Company, desired to purchase the two heat exchangers. Chemical filed a complaint against K & L and Pemex seeking to enjoin the sale of the heat exchangers to Pemex. By order dated September 12, 1978, the Court denied the injunctive relief requested (with certain limitations not relevant here) and allowed the sale to proceed. In addition to the request for injunctive relief, the complaint contained an objection by Chemical to the proof of claim filed by K & L and requested inter alia that the Court disallow the claim.⁴ The above-mentioned stipulation was entered into on June 12, 1980 by Chemical, K & L, and Chemical's creditors' committee in settlement of the dispute as to the amount of the total claim of K & L. The Court approved the stipulation on that date.

Concerned with the exchange rate issue is the creditors' committee, rather than the debtor. This is because the plan of Chemical, confirmed on May 9, 1980, is a "pot plan" so that my decision affects the amount other creditors of Chemical will receive and does not require Chemical to supply additional money to fund the plan. In determining what date the DM 11,055.121 is to be converted into United States dollars, K & L argues that the Court should apply the "judgment day" rule, i.e., either the date on which the stipulation was approved by order of the Court or the date on which the plan of arrangement was confirmed which plan provided for the rejection of all executory contracts. On the former date, the exchange rate was 0.5679, producing an award to K & L of $6,278,203; on the latter date the exchange rate was .05529 and would produce $6,112,376. The creditors' committee contends that the "breach day" rule should apply, i.e., the date of the filing of the Chapter XI petition. The conversion rate of .3913 in effect then would produce $4,325,869. For the reasons set forth below, I am applying the judgment day rule to compute the claim of K & L. In so doing, the rate of exchange in effect on June 12, 1980, i.e., 0.5679 applies.

DISCUSSION

Initially, it must be mentioned that neither party believes there is a conflict as to the applicable law. Both parties proceed on the assumption that the applicable law is that as set forth by the federal courts of the United States, and I have no reason to reject that choice of law.⁵

Two Supreme Court cases, Hicks v. Guinness, 269 U.S. 71, 46 S.Ct. 46, 70 L.Ed. 168 (1925) ("Hicks") and Deutsche Bank v. Humphrey, 272 U.S. 517, 47 S.Ct. 166, 71 L.Ed. 383 (1926) ("Humphrey") control the issue at hand. In the Hicks case, a German firm owed a pre-World War I debt to an American firm. The debt was payable in the United States although expressed in German marks. Justice Holmes stated: "The debt was due to an American creditor and was to be paid in the United States. When the contract was broken by a failure to pay, the American firm had a claim here, not for the debt, but, at its option, for damages in dollars. It no longer could be compelled to accept marks. It had a right to say to the debtors `You are too late to perform what you have promised, and we want the dollars to which we have a right by the law here in force. . . .'" Hicks, supra 269 U.S. at 80, 46 S.Ct. at 47.

The next year, in the Humphrey case, the Supreme Court again addressed the issue of the proper date for conversion. In that case, an American citizen brought suit in the United States to recover money deposited in a German bank in Germany, payable in marks on demand. Justice Holmes, again writing for the Court, stated:

A suit in this country is based upon an obligation existing under the foreign law at the time when the suit is brought, and the obligation is not enlarged by the fact that the creditor happens to be able to catch his debtor here. . . . We may assume that when the debtor failed to pay on demand its liability was fixed at a certain number of marks both by the terms of the contract and by the German law—but we also assume that it was fixed in marks only, not at the extrinsic value that those marks then had in commodities or in the currency of another country. . . . The liability was and

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