Pravin Banker Assoc., Ltd. v. Banco Popular

• Decision Date: 24 August 1995
• Docket Number: No. 93 Civ. 0094 (RWS).,93 Civ. 0094 (RWS).
• Citation: 895 F. Supp. 660
• Parties: PRAVIN BANKER ASSOCIATES, LTD., Plaintiff, v. BANCO POPULAR del PERU and The Republic of Peru, Defendants.
• Court: U.S. District Court — Southern District of New York

895 F. Supp. 660

PRAVIN BANKER ASSOCIATES, LTD., Plaintiff, v. BANCO POPULAR del PERU and The Republic of Peru, Defendants.

No. 93 Civ. 0094 (RWS).

United States District Court, S.D. New York.

August 24, 1995.

Winthrop, Stimson, Putnam & Roberts, New York City (John F. Pritchard, Valerie Fitch, of counsel), for plaintiff.

Baker & Hostetler, Washington, DC (Mark A. Cymrot, of counsel), for defendants.

OPINION

SWEET, District Judge:

Plaintiff Pravin Banker Associates, Ltd. ("Pravin") has renewed its motion for summary judgment on its claims against defendants Banco Popular del Peru ("Banco Popular") and the Republic of Peru ("Peru") (Banco Popular and Peru are, collectively, the "Defendants") for dishonoring their respective obligations under (1) a letter agreement (the "Letter Agreement"), dated as of May 31, 1983, among Mellon Bank, N.A. ("Mellon"), Banco Popular and Peru, and (2) a Guaranty (the "Guaranty"), dated as of May 31, 1983, made by Peru in favor of Mellon. Pursuant to an Assignment Agreement, dated as of December 12, 1990, Mellon assigned its right, title and interest in the Letter Agreement to Pravin.

Defendants have renewed their cross-motion for a stay or dismissal of the complaint. For the reasons set forth below, Defendants' motion will be denied, and Pravin's motion for summary judgment will be granted.

The Parties

Plaintiff Pravin is a Delaware corporation having its principal place of business in New York, New York.

Defendant Banco Popular is a Peruvian State entity organized and incorporated under the laws of Peru and is a foreign state instrumentality as defined in 28 U.S.C. § 1603(b).

Defendant Peru is a foreign state as defined in 28 U.S.C. § 1603(a).

Prior Proceedings

This action was commenced on January 7, 1993. By opinion and order dated February 24, 1994, Pravin Banker Assocs., Ltd. v. Banco Popular del Peru and The Republic of Peru, 165 B.R. 379 (S.D.N.Y.1994) ("Pravin I"), Defendants were granted a stay of six months by way of an adjournment of Pravin's summary judgment motion. The facts and issues underlying this dispute are set forth in Pravin I, familiarity with which is assumed.

At the expiration of the six month adjournment, on October 24, 1994, the parties renewed and supplemented their motions. By opinion and order dated March 8, 1995, Pravin Banker Assocs., Ltd. v. Banco Popular del Peru and The Republic of Peru, 1995 WL 102840 (S.D.N.Y.1995) ("Pravin II"), Defendants were granted a further stay of sixty days to enable the parties to submit responses to the following questions:

1. Has the bank Advisory Committee or Peru adopted a plan which would resolve the debts in the category held by Pravin?

2. Are there currently actions pending which present claims for debts in the category held by Pravin other than this action? If so, how many and where are they pending?

3. Are there tolling agreements in effect for debts in the category held by Pravin? If so, how many?

4. Are there currently pending any actions seeking the relief sought by Pravin or any relief which could affect the Peruvian debt restructuring effort?

5. What is the amount of the Peruvian debt presently the subject of restructuring which remains unresolved?

The parties having submitted their responses, and the sixty day adjournment having expired, the motion and cross-motion were renewed and oral argument was heard on May 15, 1995. Pravin submitted further argument and factual allegations by way of a letter dated July 21, 1995, and the defendants submitted a response on August 8 and August 16, 1995. The motion and cross-motion were deemed fully submitted at that time. Although the arithmetical aggregate of the two stays amounts to eight months, the actual effect of the two stays and their related motion practice has been to delay the resolution of this question for almost eighteen months.

Responses to the Court's Questions

In response to this Court's first question, Defendants submit that negotiations to resolve Peru's commercial debt problems are proceeding apace. During the week of February 6, 1995, Peru's Minister of Economy and Finance, Jorge Camet, held meetings in New York, London, Paris and Frankfurt with the majority of Peru's bank creditors. Additional meetings took place during the week of April 3, 1995, at the Inter-American Development Bank annual meeting in Jerusalem. Negotiations with the full Bank Advisory Committee (the "Bank Advisory Committee")¹ were held during the weeks of May 15, June 5, June 19, and July 10, 1995, "with the objective of reaching a definitive resolution of Peru's external commercial bank debt," and additional meetings are planned. Defendant's Letter of August 8, 1995, at 1. The projected purpose of these negotiations has been to:

negotiate a menu of options for commercial bank creditors of all categories to accept as an alternative to their current debt. Once an agreement is reached with the Bank Advisory Committee, these options will be offered to Peru's commercial bank creditors, including Pravin, for their approval or rejection. The plan will go forward if sufficient commercial bank creditors accept the plan. The number of creditors needed to agree to the plan is also a matter of negotiations.

Supplemental Memorandum in Support of Defendants' Renewed Motion to Stay or Dismiss the Complaint at 3-4.

Pravin acknowledges that these negotiations are ongoing but maintains that no "plan" is forthcoming with respect to Peru's short-term working capital debt (the category of debt held by Pravin) and, in any event, that Pravin has not been notified of the ongoing negotiations and is not represented on the Bank Advisory Committee.

In the interim, there have been reports in the press that Peru is repurchasing its own foreign bank debt at a discount of 45 cents on the dollar. Peru is said to be acting through an intermediary Swiss bank to effect the repurchase. Plaintiff's letter of July 21, 1995. Defendants counter that Peru's negotiations regarding its commercial bank debt are by now well-advanced and that "substantial progress" has been made towards arranging refinancing of Peru's external bank debt. Defendants point out also that Peru's economy has made important strides towards soundness.² Defendants' Letter of August 8, 1995.

Pravin maintains that Peru has accorded disparate treatment to its creditors, conferring upon the Citibank syndicate a benefit not enjoyed by Pravin or other creditors, pointing to a July 12, 1995 presidential decree making the debt held by the Citibank syndicate eligible for use in Peruvian privatization transactions and to a subsequent waiver "permitting them to tender their debt to Peru in connection with privatization transactions." Plaintiff's Letter of July 21, 1995, at 4. Pravin interprets these actions to accord Citibank the opportunity to be a buyer in privatization, while withholding the opportunity from other creditors.

However, an examination of Peruvian law on external debt counters allegations of discrimination against Pravin and other creditors. As Defendants note, Peruvian Law No. 26520 makes all Peruvian external debt eligible for use in the privatization process as long as the debt is not subject to litigation and is owed by the republic. Where the debt is owed to a syndicate of banks, as in the case of the Citibank debt, that debt "enjoys the necessary waivers so that the use of part of the debt in privatization does not violate the `sharing of payment' provisions of the applicable syndicated loan payment." Defendants' Letter of August 8, 1995, at 2. The actions taken in regard to the Citibank debt resulted from its status as held by a syndicate. Were Pravin to accept Peru's assumption of Pravin's debt, Pravin, like Citibank and all other debt-holders, would be permitted to use its debt to participate in the Peruvian privatization scheme.

Thus, since Peru indicates that the provisions of the privatization program afford Pravin the same opportunity as anyone else to trade debt for a stake in the newly privatized industries, Pravin's complaints of discrimination in this regard are unfounded.

In response to this Court's second question, the parties agree that the only other lawsuit pending against Peru or any of its state-owned entities for nonpayment of sovereign debt is Banco Cafetero (Panama) Ltd. v. The Republic of Peru and Banco de la Nacion, 94 Civ 3569 (JSM) (S.D.N.Y.).

In response to this Court's third question, Defendants maintain that a Tolling Declaration dated November 20, 1992 (the "Tolling Declaration") tolls the statute of limitations on short-term working capital debt until November 20, 1998, and that Pravin will have the benefits of the Tolling Declaration if it dismisses this lawsuit. Pravin contends that it is unaware of any tolling agreements in favor of holders of short-term working capital debt.

In response to this Court's fourth question, the parties agree that the Banco Cafetero action is the only other action pending in respect of short term working capital debt. Defendants note that Peru has committed to the Bank Advisory Committee not to give creditors who file suit an advantage over creditors abiding by the Tolling Declaration.

In response to this Court's fifth question, the parties agree that the principal amount of Peru's currently unrestructured commercial bank debt is approximately $3.8 billion.

Discussion

Solvency is maintained by means of a national debt, on the principle, "If you will not lend me the money, how can I repay you."³

In Pravin I and Pravin II, this Court concluded that successive stays of this action, in deference to the Banco Popular liquidation proceedings ongoing in Peru, were warranted by principles of international comity. This action has been stayed for more than eight months. The question before the Court at present is whether the same principles of comity warrant yet another stay, or dismissal, of this action. In their instant motion, in addition to...