Pravin Banker Associates, Ltd. v. Banco Popular Del Peru

• Citation: 109 F.3d 850
• Decision Date: 25 March 1997
• Docket Number: No. 248,D,248
• Parties: PRAVIN BANKER ASSOCIATES, LTD., Plaintiff-Appellee, v. BANCO POPULAR DEL PERU and The Republic of Peru, Defendants-Appellants. ocket 96-7183.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 850

109 F.3d 850

65 USLW 2640

PRAVIN BANKER ASSOCIATES, LTD., Plaintiff-Appellee, v. BANCO POPULAR DEL PERU and The Republic of Peru Defendants-Appellants.

No. 248, Docket 96-7183.

United States Court of Appeals Second Circuit.

Argued Sept. 11, 1996.

Decided March 25, 1997.

John F. Pritchard, New York, N.Y. (Valerie Fitch, Winthrop, Stimson, Putnam & Roberts, of counsel) for Plaintiff-Appellee.

Mark A. Cymrot, Baker & Hostetler, Washington, D.C., for Defendants-Appellants.

Before NEWMAN, Chief Judge, and OAKES and CALABRESI, Circuit Judges.

CALABRESI, Circuit Judge:

The reverberations of the international sovereign debt crisis of the 1980's are still being felt. Banco Popular del Peru ("Banco Popular") and the Republic of Peru ("Peru") appeal from a decision of the United States District Court for the Southern District of New York (Robert W. Sweet, Judge ), entered on August 24, 1995, granting summary judgment against them and denying their motion for or dismissal, or for a stay, of these proceedings pending completion of Peru's efforts to renegotiate its commercial debt under the Brady Plan. They seek a reversal of summary judgment or a stay of the execution of that judgment until Peru's renegotiation efforts are complete, arguing that the judgment for the appellee, Pravin Banker Associates, Ltd. ("Pravin"), threatens those negotiations and, hence, the successful economic rehabilitation of Peru. We find that the district court properly weighed America's competing interests in: a) ensuring the successful, voluntary resolution of past-due foreign sovereign debt and b) maintaining the enforceability of contracts under United States law. It then appropriately concluded that using principles of international comity to defer further the enforceability of Pravin's debt would violate United States policy. Accordingly, we affirm the district court's judgment.

I. BACKGROUND

Banco Popular, a state-owned bank since 1970, provided loans and credit to public and private companies and individuals in Peru. In order to do so, it borrowed funds from many foreign financial institutions. This action concerns the small part of Peru's foreign debt that was borrowed by Banco Popular from Mellon Bank, N.A. of Pittsburgh, PA ("Mellon") and later sold to Pravin.

Following Mexico and a number of other Latin American countries, Peru announced in March 1983 that it had insufficient foreign exchange reserves to service its foreign debt, and that it was unable to get credit to do so. After its announcement, Peru negotiated with its creditors a series of agreements that stated terms for the settlement of various categories of Peruvian debt. Two of these, the Mellon Letter Agreements, attempted to resolve more than $14 million owed as a result of over thirty separate short-term working capital loans that Mellon had made to Banco Popular. The agreements, signed by Mellon Bank and Banco Popular, extended the due dates on these loans for 360 days. In exchange, the government of Peru itself guaranteed the loans.

In 1984, a round of negotiations intended to provide a longer-term solution to Peru's liquidity crisis failed, and Peru imposed new restrictions on the payment of foreign exchange in order to prevent the depletion of its external reserves. As a result, Banco Popular stopped making the principal payments on the Mellon debt that were required by the Letter Agreements, and from 1984 until 1992, only paid interest. This put Banco Popular in default on the loans. In 1989, many of Peru's commercial lenders, including Mellon, filed lawsuits to preserve their legal claims because they worried that, if they did not do so, the statute of limitations would expire on the outstanding debts.

In 1990, after Alberto Fujimori was elected President of Peru, Peru's economic policies changed dramatically. President Fujimori began a major reform of the Peruvian economy and in doing so attempted to comply with International Monetary Fund ("IMF") policies. Following these changes, the Bank Advisory Committee, a committee of Peru's creditors headed by Citibank, N.A., signed an agreement with Peru to stay all pending lawsuits in order to promote negotiations to resolve the entire problem of the unpaid foreign debts. The stay was conditioned on Peru's continued efforts to maintain fiscally sound economic policies, and on none of the individual lawsuits being permitted to go forward alone. Mellon participated in these meetings and agreed to a stay of its own lawsuit on analogous terms. Since then, Peru has made significant strides in restructuring its economy, reducing inflation, and decreasing the government deficit.

Since 1990, the Bank Advisory Committee has continued negotiations with Peru with the aim of reaching a restructuring agreement, under the auspices of the IMF, that would be consistent with the Brady Plan. Before the Brady Plan, announced by then United States Secretary of the Treasury Nicholas Brady in March of 1989, United States policy mainly encouraged additional lending to developing countries that were unable to service their sovereign debt. Under the Brady Plan, banks were, instead, urged voluntarily: (1) to reduce the foreign countries' debt burdens; (2) to restructure old debts; and, (3) as before, to provide additional loans. Countries entering Brady Plan negotiations are expected to conform to IMF requirements for restructuring their economy, and the IMF is charged with overseeing the negotiations between each country and its creditors. Thus, the plan contemplates a sharing of financial sacrifices between sovereign debtors and their commercial creditors in the context of negotiated and mutually agreed-upon terms.

The appellee, Pravin, acquired, at a discount in the secondary market for sovereign debt, $9 million (face value) of Banco Popular's debt to Mellon in 1990. Pravin resold most of this debt almost immediately, but continues to hold $1,425,000. Peru and Banco Popular were notified of the assignment from Mellon to Pravin, and Banco Popular, thereafter, made interest payments directly to Pravin.

Subsequently, Pravin alleges, Banco Popular stopped making interest payments, in violation of a new agreement between Pravin and the bank. Pravin contends that it then made a demand on Banco Popular for the principal and unpaid interest. When this demand was not met in February of 1992, Pravin declared Banco Popular in default on the debt. Later that year, since Banco Popular was unable to pay its creditors, Peru's central bank appointed a committee of liquidators to dissolve Banco Popular and to distribute its liquidated assets.

Pravin refused to join either the Peruvian liquidation proceedings or the Brady Plan negotiations. Instead, Pravin brought this suit against Banco Popular, and its guarantor, Peru, for non-payment of the debt. The defendants cross-moved to dismiss, stay, or deny Pravin's motion for summary judgment arguing that allowing the action to go forward would reawaken all of the other lawsuits that the Bank Advisory Committee had succeeded in having stayed. It would, Peru contends, result in a creditor stampede to find and attach Peruvian assets, and such a stampede would, in turn, disrupt Peru's structural reform efforts.

The district court granted a six-month stay to allow the orderly completion of Banco Popular's Peruvian liquidation proceedings. See Pravin Banker Assocs., Ltd. v. Banco Popular del Peru, 165 B.R. 379 (S.D.N.Y.1994) ("Pravin I "). After the six-month stay elapsed, Pravin renewed its motion for summary judgment and Banco Popular and Peru renewed their cross-motions for a stay or for dismissal of the complaint. They argued that this was essential to facilitate Peru's ongoing negotiations with the Bank Advisory Committee under the Brady Plan. The district court, thereupon, granted an additional two-month stay to permit the parties to submit further information to the court relating to: (1) the extent of Peru's debt problem, (2) Peru's efforts to resolve the problem through negotiations with its creditors, (3) whether there were other foreign debt actions pending against Peru, and (4) whether Peru had entered into any agreements that would toll the statute of limitations on Pravin's debt if Pravin did not continue its lawsuit against Peru. See Pravin Banker Assocs., Ltd. v. Banco Popular del Peru, 1995 WL 102840 (S.D.N.Y. Mar. 8, 1995) ("Pravin II").

When this further stay expired, Pravin again renewed its motion for summary judgment, and the defendants again renewed their cross-motion for a stay or for dismissal. At this time, Peru and Banco Popular also advanced for the first time the argument that Pravin was not a proper assignee because, allegedly not being a financial institution, it was prohibited from buying the Mellon debt.

The court rejected this claim, denied the motion of Banco Popular and Peru to dismiss or stay the action, and granted Pravin's motion for summary judgment, thereby allowing enforcement of the debt. See Pravin Banker Assocs. Ltd. v. Banco Popular del Peru, 895 F.Supp. 660 (S.D.N.Y.1995) ("Pravin III "). On January 19, 1996, it entered judgment for Pravin in the amount of $2,161,539.78, plus pre-judgment simple interest accrued from October 26, 1995 through the date of judgment, plus post-judgment interest calculated pursuant to 28 U.S.C. § 1961. See Pravin Banker Assocs. Ltd. v. Banco Popular del Peru, 912 F.Supp. 77 (S.D.N.Y.1996) ("Pravin IV ").

After this decision issued, the defendants once again moved to stay the judgment pending the resolution of their Brady negotiations with creditors. The district court rejected the motion, but stayed the judgment for 30 days to allow the defendants to appeal the denial. This court thereupon denied the motion to stay unless a bond were posted in the full amount of the judgment. Pravin Banker Assocs. Ltd. v. Banco Popular del Peru, No. 96-7183 (2d Cir. Apr. 12, 1996). Before doing so, however, we asked the...