JPMorgan Chase Bank, N.A. v. Asia Pulp & Paper Co., s. 10–3413

• Decision Date: 21 February 2013
• Docket Number: Nos. 10–3413,12–2123.,s. 10–3413
• Parties: JPMORGAN CHASE BANK, N.A., successor in interest to the First National Bank of Chicago, Plaintiff–Appellee, v. ASIA PULP & PAPER COMPANY, LTD., PT. Indah Kiat Pulp & Paper Tbk., and PT. Pabrik Kertas Tjiwi Kimia Tbk., Defendants–Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

707 F.3d 853

JPMORGAN CHASE BANK, N.A., successor in interest to the First National Bank of Chicago, Plaintiff–Appellee,

v.ASIA PULP & PAPER COMPANY, LTD., PT. Indah Kiat Pulp & Paper Tbk., and PT. Pabrik Kertas Tjiwi Kimia Tbk., Defendants–Appellants.

Nos. 10–3413, 12–2123.

United States Court of Appeals,Seventh Circuit.

Argued Nov. 1, 2011.

Decided Feb. 21, 2013.

James Crowley (argued), Attorney, Crowley & Lamb, P.C., Chicago, IL, for Plaintiff–Appellee.

Thomas J. Ramsdell (argued), Attorney, Howard & Howard Attorneys PLLC, Chicago, IL, for Defendants–Appellants.

Before BAUER, FLAUM, and SYKES, Circuit Judges.

SYKES, Circuit Judge.

These consolidated appeals arise out of a complicated financing arrangement put in place to underwrite Beloit Corporation's construction of two massive paper-making machines for a consortium of paper manufacturers in Southeast Asia. Simplified, the basic facts are these: In 1996 Beloit agreed to build two high-speed paper-making machines for Indonesian paper companies PT. Indah Kiat Pulp & Paper Tbk. (“Indah Kiat”) and PT Pabrik Kertas Tjiwi Kimia Tbk. (“Tjiwi Kimia”), subsidiaries of Asia Pulp & Paper Company, Ltd. (“Asia Pulp”), which is based in Singapore. (For simplicity, we refer to the companies collectively as “Asia Pulp” unless the context requires otherwise.) To finance construction, Indah Kiat and Tjiwi Kimia executed credit agreements and promissory notes in favor of Beloit reflecting a principal indebtedness of approximately $38 million, later increased to $43.8 million. Asia Pulp guaranteed the notes, and Beloit assigned them to JPMorgan Chase Bank, N.A. (“JPMorgan”) in exchange for construction financing equal to the principal amount.

The machines were delivered in 1998 but did not run at the speeds specified in the contracts; there were other problems as well. In 2000 the parties entered into a settlement resolving all claims pertaining to the machines but specifically preserving Asia Pulp's obligations under the notes. Asia Pulp defaulted, and JPMorgan sued for nonpayment. Asia Pulp asserted multiple defenses and a counterclaim invoking various contract and fraud theories. In a series of decisions, the district court held that Asia Pulp's warranty-based claims were foreclosed by the settlement and its remaining claims lacked factual and legal support. The court entered judgment for JPMorgan for more than $53 million. Asia Pulp appealed, raising a host of arguments regarding the viability of its defenses and counterclaim and also challenging the court's award of interest and attorney's fees.

Matters became a bit more complicated after we heard argument. After the appeal was filed, JPMorgan issued citations to discover assets on which to execute its large judgment. Asia Pulp moved to stay discovery based on an Indonesian injunction in an unrelated case, raising an interesting international conflict-of-law question. The district court denied the motion and ordered Asia Pulp to comply with the asset-discovery citations. Asia Pulp appealed this order as well.

We affirm the judgment. The district court correctly held that the settlement waived Asia Pulp's implied-warranty defenses and counterclaim. The fraud defense is mostly barred as well; to the extent it is not, Asia Pulp's evidence is wholly insufficient to survive summary judgment. Asia Pulp's remaining defenses—that the notes lacked consideration; that the notes were issued for a “special purpose” and were not intended to be repaid; and that JPMorgan is not a holder in due course—are all meritless. As to damages, the court properly awarded interest at the contractual default rate and attorney's fees as provided in the notes. Finally, we lack jurisdiction over Asia Pulp's appeal of the asset-discovery order. Postjudgment orders for the discovery of assets are nonappealable interlocutory orders, and the collateral-order doctrine does not apply.

I. Background

The following account is from the summary-judgment record, which we construe in the light most favorable to Asia Pulp. On July 10, 1996, Beloit Corporation entered into two contracts with Asia Pulp to build two highspeed paper-making machines for its Indonesian subsidiaries, Indah Kiat and Tjiwi Kimia. These enormous machines—known as the PPM3 and the MPM11—are several stories high and about 200 meters long, roughly the length of two football fields. On May 12, 1997, Indah Kiat and Tjiwi Kimia assumed all of Asia Pulp's rights and obligations under the contracts. Specifically, Indah Kiat purchased the PPM3 machine and Tjiwi Kimia purchased the MPM11 machine.

To finance the construction of these huge machines, Indah Kiat and Tjiwi Kimia executed credit agreements and promissory notes in favor of Beloit in the original principal amount of $21,809,962.00 (the Indah Kiat note) and $16,213,352.95 (the Tjiwi Kimia note). Asia Pulp issued unconditional guarantees ensuring repayment of the notes. These transactions closed on April 25, 1998. That same day, Beloit entered into a Note Purchase Agreement with First National Bank of Chicago, JPMorgan's predecessor in interest,¹ assigning the notes to the bank in exchange for a line of credit in the amount of $38,023,314.95 to serve as partial construction financing for the PPM3 and MPM11 machines.

On September 24, 1998, the parties increased the principal amount on the Indah Kiat and Tjiwi Kimia notes to $26,701,678.00 and $17,123,488.95, respectively. Indah Kiat and Tjiwi Kimia issued amended promissory notes to Beloit reflecting the increased indebtedness, and Asia Pulp again unconditionally guaranteed payment. On September 30, 1998, Beloit and JPMorgan amended their Note Purchase Agreement to cover the amended notes, and JPMorgan increased Beloit's line of credit to $43,825,167.00.

The terms of the credit agreements and notes required Indah Kiat and Tjiwi Kimia to make principal and interest payments to JPMorgan in eight installments, the first due on September 30, 1998. The remaining payments were to be made semiannually until the notes were paid in full. Indah Kiat and Tjiwi Kimia made their scheduled payments beginning in September 1998 and continuing through October 2000.

When the machines came online in 1998, however, Asia Pulp employees identified several defects in their operation. The main performance problem was insufficient speed. Asia Pulp catalogues other design and mechanical defects in its brief, but the details are not important to this appeal.² It is enough to note that the parties resolved all disputes regarding the defects by a “Deed of Settlement” dated October 3, 2000. This agreement expressly settled and released all claims relating to the “Disputed Contracts”—that is, the contracts for the construction, sale, and purchase of the PPM3 and MPM11 machines. More specifically, the settlement released Beloit, its successors, and related companies, from “all claims ... known or unknown ... in connection with or in any way pertaining to” the construction, installation, or operation of the PPM3 and MPM11 machines.

Importantly, however, the Deed of Settlement expressly preserved the obligation of Indah Kiat, Tjiwi Kimia, and Asia Pulp to pay on the notes. On this point, the agreement stated as follows:

The APP Parties [Asia Pulp, Indah Kiat, and Tjiwi Kimia] are not released from their obligations to pay or repay any promissory notes issued to [Beloit Corporation] or other financing or other loans relating to the PPM3 and MPM11 Contracts.... In addition, the Beloit Entities' rights with respect to such promissory notes, financings and loans are not [a]ffected by this Deed.

Despite this explicit reservation of rights and obligations under the notes, Asia Pulp and its subsidiaries made no further payment. Early in 2001 Asia Pulp issued a “standstill” letter to all its creditors—including JPMorgan—announcing a freeze of interest and principal payments on all Asia Pulp debt, including the debt of its subsidiaries Indah Kiat and Tjiwi Kimia. The standstill letter had nothing to do with the PPM3 and MPM11 machines; rather, the stated reason for the debt-payment freeze was Asia Pulp's corporate restructuring.

In September 2001 JPMorgan sent Asia Pulp a notice of default. The bank had not been paid since October 2000, and missing a principal or interest payment automatically caused the notes to mature, making all unpaid principal and accrued interest due immediately. In addition, the notes and credit agreements allowed for recovery of default interest and “fees and disbursements of counsel.” Payment was not forthcoming, so JPMorgan initiated this suit against Asia Pulp, Indah Kiat, and Tjiwi Kimia to collect money due on the notes.

A. The Litigation

The defendants vigorously contested JPMorgan's suit, asserting multiple affirmative defenses to liability and a counterclaim premised on various contract and fraud theories. Specifically, they alleged that: (1) Beloit breached several implied warranties; ³ (2) Beloit misrepresented its design and construction expertise and fraudulently represented that the notes were only a temporary construction-financing measure; ⁴ (3) the notes were issued as “special purpose” financing only and lacked consideration; ⁵ and (4) JPMorgan was not a holder in due course.⁶ JPMorgan moved for summary judgment. In three separate orders, the district court, Judge James F. Holderman, granted summary judgment in favor of JPMorgan and against the three defendants.

First, on October 14, 2009, the court granted summary judgment in favor of JPMorgan and against Indah Kiat and Tjiwi Kimia, rejecting their various defenses to liability on the notes. The court held that the implied-warranty defenses were barred by the Deed of Settlement and the remaining defenses were factually and legally deficient. On April 21, 2010, the court granted summary judgment in favor of JPMorgan and against Asia Pulp, rejecting the same affirmative defenses as well as the counterclaim. In this order the...