PRAVIN BANKER ASSOCIATES v. Banco Popular del Peru, 93 Civ. 0094 (RWS).
| Decision Date | 24 February 1994 |
| Docket Number | No. 93 Civ. 0094 (RWS).,93 Civ. 0094 (RWS). |
| Citation | 165 BR 379 |
| 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 |
Winthrop, Stimson, Putnam & Roberts, (John F. Pritchard and Valerie Fitch, of counsel), New York City, for plaintiff.
Baker & Hostetler (Mark A. Cymrot and Jean H. Baker, of counsel), Washington, DC, for defendants.
Plaintiff Pravin Banker Associates, Ltd. ("Pravin") moves for summary judgment, pursuant to Rule 56, Fed.R.Civ.P., against Banco Popular del Peru ("Banco Popular") and the Republic of Peru ("Peru") (collectively, the "Defendants"). Banco Popular and Peru have crossed-moved to dismiss or stay Banker's motion for summary judgment, or in the alternative, the Defendants request that the Court deny Pravin's motion for summary judgment on the grounds that it failed to prove essential elements of its claim and the Court should provide Defendants with adequate time for discovery, pursuant to Rule 56(f), Fed.R.Civ.P.
For the reasons set forth below, Pravin's motion for summary judgment will be adjourned for six months as will the Defendants' cross motions to dismiss or stay the action.
Plaintiff Pravin is a Delaware corporation with its principal place of business located 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 agency or 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).
In August, 1982, Mexico pronounced it could not service its foreign debt obligations, an event which triggered a foreign debt crisis affecting many countries in South America, Africa, and Asia. In response, many leading financial institutions aborted their traditional lending patterns and, as a result, many impoverished countries, including Peru, are still trying to resolve their economic woes.
In March 1983, Peru determined that it too had insufficient foreign exchange reserves to service its foreign debt. In an effort to resolve its illiquidity crisis, Peru negotiated with the Bank Advisory Committee for Peru — a committee consisting of representatives of Peru's major commercial lenders and chaired by Citibank, N.A. — certain foreign exchange controls limiting the ability of privately as well as publicly owned companies and banks, like Banco Popular, to repay debt on foreign currency loans.
These negotiations yielded a series of agreements, perfected on May 31, 1983, which divided Peru's debt into three categories: (a) short term trade related debt; (b) short term working capital debt; and (c) medium term debt. Nearly two hundred financial institutions entered into a Credit Agreement with Peru which addressed the medium term debt.1
Founded in 1899, Banco Popular was a private entity until purchased by the Government of Peru in 1970. As a state owned entity, Banco Popular provided loans and credits to public and private companies and individuals in Peru. It borrowed funds for these purposes from foreign financial institutions. As of May 1983, Banco Popular had borrowed $138,024,183.20 from forty-eight foreign financial institutions. On March 7, 1983, Banco Popular had more than thirty separate short term working capital loans outstanding from Mellon Bank, N.A. ("Mellon") totalling $14,217,788.64.
A separate round of negotiations between the Advisory Committee and Peru failed to yield an agreement, and by 1984, Peru imposed a new series of restrictions on the payment of foreign exchange in order to prevent the depletion of its external reserves. As a result, Banco Popular was unable to repay principal on the Mellon Letter Agreement and thereafter limited itself to only making interest payments on the debt, a practice which continued through February 1992.
Thus, from 1984 through 1990, Peru was generally isolated from the international financial community as it had failed to maintain good standing with the International Monetary Fund ("IMF") and had fallen into arrears on its payments to various multinational organizations, such as the World Bank, the IMF and the Inter-American Development Bank, its bilateral debt agreements with foreign countries, including the United States, as well as with its other foreign commercial lenders and suppliers.
On March 10, 1989, the United States Secretary of the Treasury, Nicholas Brady, revised the United States policy on international debt in what was later to become known as the Brady Plan. Previously, American policy, in what was known as the Baker Plan, had called for the extension of additional commercial credit to resolve the debt crisis. The Brady Plan, on the other hand, recognized that this new credit had not been forthcoming and that poor countries probably would never be in a position to repay the full amount of their foreign debt. Accordingly, the Brady Plan called for a variety of new responses, including a call upon commercial bank creditors to voluntarily reduce outstanding debt obligations owed by poor countries.
Notwithstanding this policy initiative, late in 1989, Peru's commercial lenders, worried that the statute of limitations would expire on their Peruvian claims without a negotiated tolling agreement through the Bank Advisory Committee, filed a series of law suits in as many as five countries to preserve their legal claims.2
By 1990, Peru's economic status had deteriorated. The Peruvian debt had mounted to $22 billion, much of it in arrears. Hyperinflation had accumulated at a rate of 2 million percent in the previous five years, the Gross Domestic Product had fallen by 25 percent in the previous two years; and thirty percent of the nation's population lived in poverty, of which seven million earned less than $360 a year.
In July 1990, President Alberto Fujimori was elected. President Fujimori introduced dramatic changes into the Peruvian economy referred to in the press as "Fuji Shock." A major element of his reforms was an initiative to reinsert Peru into the international financial community and to comply with various IMF policies.
On October 25, 1990, Peru signed an agreement with the Bank Advisory Committee to stay the pending lawsuits in order to enter into negotiations. At that time, Mellon also agreed to ask the Court to stay its lawsuit against Banco Popular and Peru. On March 30, 1991, Peru and the Bank Advisory Committee agreed to continue to stay the pending lawsuits as long as none of the suits went forward, in exchange for Peru's continued efforts to achieve fiscally sound economic policies. Mellon participated in these meetings and the agreement.3
In September 1991, Peru and the IMF entered into an agreement which fundamentally restructured the Peruvian economy, including: a Stabilization Program to reduce inflation and replenish Peru's foreign reserves; a Structural Reform Program ("SRP") to reduce the size of the public sector; a Re-Insertion Program, in effort to eliminate Peru's foreign debt arrears; a reduction in the government deficit, with the consequent firing of thousands of public sector employees; and the privatization of many of the state-owned enterprises.
By November, 1992, Peru's Minister of Economy, in a meeting with the Bank Advisory Committee, could report positive economic results, as exemplified by an inflation rate which is constrained to five percent per month. Peru had also started to receive new multilateral funding from the World Bank and the Inter-Development Bank and bilateral credit financing from various countries, including the United States.
Pravin alleges that on December 10 and 12, 1990, it purchased, through the assignment of debt, Mellon's interest in $9,429,710.38 in working capital obligations of Banco Popular.4 By December 12, 1990, Pravin had resold much of this debt and kept only $1,425,000.5
The price of Pravin's purchases of Mellon's interest on December, 1990, appears to have been 27 cents on the dollar. The price of the subsequent resales were undisclosed. As of July 12, 1993, Peru's foreign debt was selling at approximately 34 cents on the dollar. Pinto Decl. at ¶ 22. As recently as September 13, 1993, the secondary market prices of bank loans to less developed countries per dollar of face value as compiled by Merrill Lynch, Pierce, Fenner & Smith was recorded at ranging from 43¼ to 44 cents on the dollar. Def.'s Ex. 17, LDC Debt Rep't, Sept. 13, 1993 at 3.
Pravin alleges that on August 12, 1991, it entered into an agreement with Banco Popular extending the Mellon debt's repayment date to February 1, 1992. Banco Popular, by contrast, claims it is unaware of this purported agreement. No evidence has been submitted as to whether Peru, as guarantor, was notified or agreed to the alleged Agreement of August, 1991.
Pravin alleges that on February 4, 1992, it made a demand on Banco Popular for payment of the principal amount of the $1,425,000 and unpaid interest pursuant to the May 1983 Letter Agreement with Mellon. On February 24 and 28, 1992, Pravin sent Banco Popular a Declaration of Default, although no notice of default was given to Peru as guarantor.
Meanwhile, as part of President Fujimori's reforms, Peru established a Commission de la Inversion Privada ("COPRI") to organize and administer the privatization of state-owned entities. On February 15, 1992, COPRI appointed a committee for the privatization of Banco Popular, and on October 10, 1992, that committee announced that Banco Popular would be publicly auctioned and that the foreign debt could be used as part of the consideration. Both the offerings of November 3 and 24, 1992 failed for lack of public bids.
On December 1, 1992, the Superintendencia de Banco y Seguros (the...
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