Pravin Banker Associates v. Banco Popular Del Peru, 93 CIV. 0094 (RWS).

• Decision Date: 15 June 1998
• Docket Number: No. 93 CIV. 0094 (RWS).,93 CIV. 0094 (RWS).
• Citation: 9 F.Supp.2d 300
• 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

9 F.Supp.2d 300

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.

June 15, 1998.

Winthrop, Stimson, Putnam & Roberts by John F. Pritchard, Valerie Fitch, John E. Davis, New York City, for Plaintiff.

Baker & Hostetler by Mark A. Cymrot, Ronald F. Wick, Washington, DC, for Defendants.

OPINION

SWEET, District Judge.

Plaintiff Pravin Banker Associates, Ltd. ("Pravin") has moved for an order of execution (1) granting execution, pursuant to 28 U.S.C. § 1610, upon the obligations of Merrill Lynch & Co. ("Merrill Lynch"), J.P. Morgan Securities, Inc. ("J.P.Morgan"), CS First Boston, Salomon Brothers Inc., and Smith Barney Inc. (the "Underwriters") to pay for certain shares of stock of Telefónica del Peru, S.A. ("Telefónica") in order to satisfy the $2,133,061.11 judgment, plus post-judgment interest (the "Judgment Amount"), rendered by this Court against the Republic of Peru ("Peru") and Banco Popular del Peru (together, the "Defendants") and in favor of Pravin; (2) granting execution upon the undertaking discharging the attachment (the "Undertaking") underwritten by National Union Fire Insurance Company ("National Union") in favor of Pravin; and (3) directing National Union to pay the Judgement Amount to Winthrop, Stimson, Putnam & Roberts, as attorneys for Pravin. For the reasons set forth below, the motion is denied.

The Parties

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

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).

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

Prior Proceedings

Pravin commenced this action on January 7, 1993. By opinion and order dated February 24, 1994, the Court stayed Pravin's summary judgment motion for six months. Pravin Banker Assocs., Ltd. v. Banco Popular del Peru, 165 B.R. 379 (S.D.N.Y.1994) ("Pravin I"). By opinion and order dated March 8, 1995, the Court granted Defendants a further stay of sixty days to enable the parties to submit responses to certain questions. Pravin Banker Assocs., Ltd. v. Banco Popular del Peru, No. 93 Civ. 0094, 1995 WL 102840 (S.D.N.Y.1995) ("Pravin II"). By opinion and order dated August 24, 1995, the Court granted Pravin's motion for summary judgment in its favor regarding the enforcement of Defendants' obligations under the 1983 financing plan and the guaranty underlying the debt, and denied Defendants' motion to dismiss or stay the action. Pravin Banker Assocs., Ltd. v. Banco Popular del Peru, 895 F.Supp. 660 (S.D.N.Y.1995) ("Pravin III"), aff'd, 109 F.3d 850 (2d Cir.1997). The Clerk of the Court entered judgement on September 5, 1995, and on September 14, 1995, Defendants moved, pursuant to Rule 58, Fed.R.Civ.P., by Order to Show Cause to vacate the judgment on the grounds that the judgment was not for a sum certain. Defendants also moved on September 15, 1995, for an order extending their time to reargue Pravin III. The Court granted both motions on October 12, 1995, and thereafter deemed that the motions would be treated as a Notice of Settlement of Judgment. The Court granted Pravin's motion for summary judgment regarding enforcement of Defendants' obligations under the letter agreement and guaranty, in a sum certain of $2,083,234.61, 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. Pravin Banker Assocs., Ltd. v. Banco Popular del Peru, 912 F.Supp. 77 (S.D.N.Y.1996) (Pravin IV).

Pravin filed the instant motion on February 2, 1998. Oral argument was heard on March 18, 1998, at which time the motion was deemed fully submitted.

Facts

The underlying facts in this matter are set forth in the prior opinions of the Court, familiarity with which is assumed. See Pravin I, Pravin II, Pravin III, and Pravin IV. The facts relevant to the instant motion are discussed below.

A. Telefónica Privatization

In January 1996, Corporacion Nacional del Desarrollo ("CONADE"), a Peruvian state-owned enterprise, announced plans to sell its remaining 28.6 percent interest in Telefónica through a global stock offering.¹ Telefónica was a legally independent private corporation, subject to Peruvian corporate law, which operated the domestic and long distance telephone service in Peru. CONADE retained the Underwriters for the United States offering of Telefónica stock.

B. Pravin Attachment and Discharge Orders

At a hearing on June 21, 1996, on Pravin's motion to attach the proceeds of the Telefónica transaction and Defendants' motion for a protective order, the Court ordered Peru to inform Pravin when the purchase agreements were signed.

On July 1, 1996, Pravin filed a motion for an order of attachment which sought to attach any property of Peru in the possession of the Underwriters. At a hearing on July 2, 1996, the Honorable John Koeltl (acting in Part I) entered two orders. The first order granted Pravin's motion for an order of attachment (the "Attachment Order"). The second order (the "Discharge Order"), granted Peru's request to deem the Attachment Order served upon the Underwriters and to authorized the discharge of the attachment by the filing of an undertaking pursuant to N.Y.C.P.L.R. § 6222. The purpose of the Discharge Order was to permit the Telefónica transaction to go forward unhindered by the Attachment Order while reserving the legal issues for a later date. By the terms of the Discharge Order, the undertaking would be paid only:

upon a final determination that the plaintiff is entitled to any property in the possession of the Underwriters pursuant to the order of attachment and levies thereunder and entry of a final judgment in the favor of the plaintiff after the exhaustion of all available appeals in this action.

On July 2, 1996, Peru discharged the Attachment Order and the levies thereunder by delivering to the Clerk of the Court an undertaking in an amount of $2,300,000 (the "Undertaking"). The Undertaking has the same conditions as Judge Koeltl's Discharge Order.

C. Telefónica Letters of Credit

On July 1, 1996, Merrill Lynch and J.P. Morgan (the "U.S. Representatives"), on behalf of the Underwriters, executed letter of credit and reimbursement agreements for irrevocable letters of credit with two London banks: the London branches of Swiss Bank Corporation and Banco Exterior de España. The letters of credit were then issued and confirmed by Banco de Credito del Peru, a privately owned bank in Lima, Peru ("Letters of Credit").

Under the terms of the Letters of Credit, the confirming bank was obligated to make payment upon presentation by CONADE of a demand certificate (the "Demand Certificate") and a demand letter (the "Demand Letter"). The Demand Letter was to be executed by Morgan Guaranty Trust Company of New York ("Morgan Guaranty"), as a depositary (the "Depositary") under a separate deposit agreement, confirming to the U.S. Representatives that its custodian in Lima had received the Class B Shares from CONADE. The Demand Certificate was to be executed by CONADE, demanding payment for the stock and providing the confirming bank with instructions for payment in Lima.

Pravin contends that the Underwriters acted as custodian for the Class B Shares and therefore had control over the Demand Letter. Defendants disagree, contending that the Depositary, Morgan Guaranty, along with its representative in Lima, Banco Weise Ltd, were independent from any of the Underwriters.

D. Telefónica Purchase Agreements

On July 1, 1996, CONADE executed a purchase agreement (the "Purchase Agreement") for the sale of the Class B Shares.

Subject to the terms and conditions set forth in the Purchase Agreement, CONADE agreed to sell to each of the Underwriters, and the Underwriters severally agreed to buy, Class B Shares of Telefónica stock. The Purchase Agreement acknowledged that prior to its execution, the Underwriters had opened the Letters of Credit to provide for the payment for the Class B Shares if all of the terms and conditions of the sale were satisfied by all parties prior to closing. The Underwriters' obligation to purchase the stock was contingent on the occurrence of approximately 20 conditions precedent. The U.S. Representatives also had powers to cancel the agreement at any time if there were (i) any material adverse change in the earnings, business affairs, or business prospects of Telefónica; (ii) a material adverse change in the financial markets in the United States or the international financial markets; (iii) a change or development in the existing political, economic, or regulatory conditions in Peru (including a material devaluation of the nuevo sol against the dollar); or (iv) any event or circumstance relating to the sale that in the sole judgment of the U.S. Representatives could be expected to have a material adverse consequence on the offering.

E. The Deposit Agreement

Also on July 1, 1996, Telefónica and Morgan Guaranty executed a deposit agreement (the "Deposit Agreement") under which Morgan Guaranty would act as the Depositary on behalf of the holders of American Depositary Receipts ("ADRs"). Under the Deposit Agreement, the Depositary would receive the Class B Shares from CONADE through its custodian in Lima, Banco Weise, a private bank in Lima, and would issue ADRs evidencing American Depositary Shares ("ADSs"). Each ADS represented the right to receive ten Class B Shares. Under the Purchase Agreement, the Underwriters purchased Class B Shares from CONADE and then caused the Depositary to issue ADRs to investors.

F. Telefónica Closing

On July 8, 1996, CONADE provisionally delivered the Class B Shares to Banco Weise in Lima as custodian under the Deposit Agreement. On July 9, 1996, CONADE delivered a...