Minasian v. Standard Chartered Bank, PLC

• Decision Date: 28 March 1997
• Docket Number: No. 96-2445,96-2445
• Citation: 109 F.3d 1212
• Parties: 46 Fed. R. Evid. Serv. 1037 Armen S. MINASIAN and Jon Ansari, Plaintiffs-Appellants, v. STANDARD CHARTERED BANK, PLC, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1212

109 F.3d 1212

46 Fed. R. Evid. Serv. 1037

Armen S. MINASIAN and Jon Ansari, Plaintiffs-Appellants, v. STANDARD CHARTERED BANK, PLC, Defendant-Appellee.

No. 96-2445.

United States Court of Appeals Seventh Circuit.

Argued Feb. 18, 1997.

Decided March 28, 1997.

C.A.7 (Ill.) 1997.

Dean A. Dickie (argued), D'Ancona & Pflaum, Chicago, IL, Aimee Storin Harrison, Monahan & Cohen, Chicago, IL, Mary P, Benz, Quinlan & Crisham, Chicago, IL, for Plaintiffs-Appellants.

Walter C. Greenough, J. Mark Fisher (argued), Stephen J. Bonebrake, Schiff, Harden & Waite, Chicago, IL, for Defendant-Appellee.

Before ESCHBACH, EASTERBROOK, and DIANE P. WOOD, Circuit Judges.

EASTERBROOK, Circuit Judge.

Par-Inco, Inc., borrowed $1,850,000 from Standard Chartered Bank to finance an oriental rug business. The loan was secured by the firm's inventory and backed up by guarantees of its principals, Armen Minasian and Jon Ansari. When the loan came due at the end of 1991, Par-Inco did not pay. Ultimately the Bank agreed to an amortization schedule. (At the same time, Minasian Rug Corporation, Amiran Corporation, and Kayam International, Inc., stepped into the shoes of Par-Inco. This detail does not affect anything, so for simplicity we refer throughout to Par-Inco as the borrower.) Par-Inco promised to remit the receipts of sales to a cash collateral account to pay down the balance it also promised to send the Bank monthly reports of inventory and accounts receivable, and provide access to the firm's books and records. Yet it deposited only a pittance in the account, donated some of the collateral to charity, did not send monthly reports, and rebuffed the Bank's efforts to examine the books. The Bank declared a default and demanded immediate repayment; Par-Inco did not comply.

Next the Bank called on Par-Inco's principals to fulfil their guarantees of its obligations. Minasian and Ansari had promised to pay on demand, and not to assert any defense based on the underlying transaction. Nonetheless, they refused to pay. Seeking leverage, they filed this suit contending that the Bank had defrauded them. The Bank removed the action to federal court. Because it is a citizen of the United Kingdom, 28 U.S.C. § 1332(a)(2) supplies jurisdiction. By the time the district court granted summary judgment to the Bank, Par-Inco had retired the loan, mooting plaintiffs' request for reformation of the contracts and the Bank's counterclaim on the debt. This did not end the dispute, however, for the guarantors had promised to pay the attorneys' fees the Bank incurred in collection. They refused to perform this portion of their obligations, just as they had refused to cover Par-Inco's debt. After additional litigation, the district court awarded the Bank about $110,000 in attorneys' fees, and the guarantors have appealed.

Minasian is a retail dealer in oriental rugs, with most of his outlets in the Chicago area. Ansari is an importer of rugs. The two decided to enter the New York retail market by buying a business operated by Abdolreza Parvizian, whose inventory financing was supplied by the Bank. Parvizian had a line of credit with a balance of some $2.5 million and a cap of $3.8 million. Minasian and Ansari agreed with Parvizian to assume $1,350,000 of his debt to the Bank, but they hoped that the Bank would write the check to itself by extending them too a loan--indeed, the contract made the transaction contingent on the buyers' belief that they would be able to obtain $4 million in credit, without "parent company guarantees or other support." Discussions between Par-Inco and Stephen Wahl, the oriental rug financing manager at the Bank's New Jersey office, led Par-Inco to believe that the Bank would be cooperative. But Wahl did not have the final word, as Minasian and Ansari knew. Only the New York office could approve a loan of the magnitude Par-Inco sought. Managers in New York had grown skeptical of the Bank's portfolio of oriental rug loans; one memo, turned over during discovery, characterized the Parvizian loan as a risky one that could be justified only by a strong personal relationship. Perhaps the Bank had one with Parvizian; it did not develop one with Par-Inco's principals.

Par-Inco asked the Bank to make a firm loan commitment in time for the closing, scheduled for October 4, 1990. What they received fell short. Although the Bank's letter began by expressing interest in financing Par-Inco on terms "very similar" to those extended to Parvizian, it continued: "Please understand that this letter is not a commitment, a contract, or an offer to enter into a contract and should not be deemed to obligate the Bank in any manner whatsoever. Our consideration for your financing request is subject to a credit approval and the satisfactory negotiations of a loan agreement with terms and conditions satisfactory to the Bank, which may not be limited to those requirements mentioned above." The letter added that the Bank would require guarantees from the principals. At this point Par-Inco could have walked away; financing had not materialized. Par-Inco closed the purchase anyway and continued to seek a loan from the Bank. Negotiations were protracted. Reluctance to supply financial documents or guarantees--which might have alerted the Bank to trouble ahead--delayed the extension of credit until April 1991. Even then the Bank was willing to lend only $1,850,000, rather than the $2.5 million balance, and even higher maximum, Parvizian enjoyed.

According to Minasian and Ansari, Wahl led them to believe that a loan comparable to Parvizian's would be forthcoming, knowing full well that this would not happen--that the Bank was winding down its financing of the oriental rug business. Had they known the truth, they contend, they would not have closed the purchase from Parvizian and would not have sustained the losses they incurred in operating the acquired business, losses they want the Bank to absorb. As support for this contention, plaintiffs note that in December 1990 the Bank denied Parvizian's application for an extension of his line of credit. Although the Bank replies, with some support in the record, that this decision surprised Wahl, who recommended renewal, as well as the manager of the New York branch (who endorsed Wahl's recommendation), the district court was willing to assume that plaintiffs could establish that the Bank had, and Wahl knew about, a plan to pare back its volume of lending to oriental rug merchants, and ultimately to withdraw from this segment of the market. Still, the court held, there is no material dispute, and thus no need for a trial, about the question whether Par-Inco and its principals relied on Wahl's statements. Before they closed with Parvizian, Minasian and Ansari knew that the Bank was unwilling to substitute Par-Inco for Parvizian. As of October 4 the Bank had indicated interest in lending to Par-Inco, but financing was made conditional on credit approval plus guarantees that the buyers did not want to supply (and ultimately did not honor).

Choice-of-law clauses in the guarantees provide for the application of New York law. Both sides nonetheless assume that New Jersey supplies the law for plaintiffs' fraud claims, perhaps because Wahl was based there and perhaps because the loan agreement between Par-Inco and the Bank specifies New Jersey law. We accept this concord, without vouching for it as an original matter. In New Jersey, as in most other states, a person claiming to be the victim of commercial fraud must show that he justifiably relied on the other party's false...