Wight, Mackey, et al. v. Bankamerica Corp.

Citation219 F.3d 79
Decision Date13 March 2000
Docket NumberDocket No. 99-7718
Parties(2nd Cir. 2000) IAN A.N. WIGHT, as an Official Liquidator of Bank of Credit and Commerce International (Overseas) Limited, MICHAEL W. MACKEY, as an Official Liquidator of Bank of Credit and Commerce International (Overseas) Limited, CHRISTOPHER MORRIS, as a Joint Liquidator in England of Bank of Credit and Commerce International SA, JOHN PARRY RICHARDS, as a Joint Liquidator in England of Bank of Credit and Commerce International SA, RALPH STEPHEN PREECE, as a Joint Liquidator in England of Bank of Credit and Commerce International SA, MICHAEL PILLING, as an Official Liquidator of Bank of Credit and Commerce International (Overseas) Limited, STEPHEN JOHN AKERS, as Joint Liquidator in England of Bank of Credit and Commerce International SA, Plaintiffs-Appellants, v. BANKAMERICA CORPORATION, as successor to Security Pacific Corporation, BANK OF AMERICA NATIONAL TRUST AND SAVING ASSOCIATION, as successor to Security Pacific National Bank, BANKAMERICA INTERNATIONAL, as successor to Security Pacific International Bank, Defendants-Appellees. August Term 1999 Argued:
CourtU.S. Court of Appeals — Second Circuit

ERIC L. LEWIS, Esq., Baach, Robinson & Lewis, Washington, DC, for Plaintiffs Appellants.

CHARLES L. KERR, Esq., Morrison & Foerster, New York, NY, for Defendants-Appellees.

Before: McLAUGHLIN, KATZMANN, and GIBSON,* Circuit Judges.

BACKGROUND

McLAUGHLIN, Circuit Judge:

In 1991 the Bank of Credit and Commerce International and its various related entities ("BCCI") collapsed amidst claims of spectacular fraud and chicanery. In July of that year, bank regulators across the world moved to seize BCCI's assets and bring the bank under court supervision. Plaintiffs are liquidators appointed by courts in England and the Cayman Islands to wind up BCCI's affairs and to supervise the collection of its assets ("the Liquidators"). Defendants are successors in interest to various entities including Security Pacific International Bank and its affiliates ("SPIB").

Founded in 1972 by a Pakistani banker named Agha Hasan Abedi, BCCI had a short, swashbuckling life. Abedi remained at its helm until 1988, when he had a heart attack. His chief lieutenant, Saiyid Mohammad Swaleh Naqvi succeeded him. Throughout Abedi's and Naqvi's reigns, BCCI was involved in countless fraudulent schemes, all designed to conceal its underlying insolvency. Eventually, the various intrigues collapsed and BCCI went bankrupt. Abedi has since died. Naqvi is serving an eight year federal prison term for his involvement in BCCI's frauds.

The bank itself was indicted by the Manhattan District Attorney for corporate fraud, and by the Justice Department for violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO").

In late 1991, the Liquidators pled guilty on behalf of BCCI to the New York indictment. The factual allegations made by the New York indictment were that BCCI and its affiliates:

made false and fraudulent pretenses, representations and promises as to . . . the financial condition, net worth, and capital of the member entities of [BCCI], and the ability of [BCCI] to repay creditors . . . . The essence of the scheme was to convince depositors . . . by means of false pretenses . . . that [BCCI] was a safe financial repository and institution for funds.

In early 1992, the Liquidators entered into a similar plea on behalf of BCCI to the federal indictment. See United States v. BCCI Holdings, 69 F. Supp. 2d 36, 41 (D.D.C. 1999). The district judge who accepted the Liquidators' plea, described it as "a kind of partnership agreement between the Department of Justice and the [Liquidators], under which they would jointly work to identify BCCI assets in this country" and return them to defrauded creditors and depositors. Id.

Both the federal and New York plea agreements expressly provided that the pleas were "not intended by the parties . . . to preclude . . . any civil action against any culpable BCCI officers, employees, agents or other entities."

In July 1997, the Liquidators brought this action against SPIB in Supreme Court, New York County. The Liquidators also filed a petition in the United States Bankruptcy Court for the Southern District of New York, pursuant to 11 U.S.C. § 304 (allowing representatives of foreign bankrupt debtors to bring ancillary action in United States bankruptcy court to protect assets located in the United States). By virtue of that petition, the Liquidators obtained discovery from SPIB. In February 1998, SPIB removed the state court action to the United States District Court for the Southern District of New York (Patterson, J.) pursuant to 12 U.S.C. § 632 (providing for federal jurisdiction over suits arising out of transactions involving international banking).

The Liquidators' complaint focuses on one of the many frauds allegedly committed by Abedi and Naqvi. Early in its existence, BCCI extended large loans to a Pakistani shipping group, the Gokal/Gulf Group. When the Gokal/Gulf Group was unable to repay these loans, Abedi and Naqvi secretly agreed to lend it even more money, so that the Gokal/Gulf Group could avail itself of further BCCI loan facilities. To disguise this sinister arrangement, Abedi and Naqvi arranged for BCCI to funnel money to the Gokal/Gulf Group through various conduit companies incorporated in Liberia (the "Conduit Companies").

SPIB was the primary correspondent bank for BCCI in the United States. SPIB also maintained accounts for the Conduit Companies. Essentially, the complaint alleges that SPIB knowingly or recklessly aided BCCI in the commission of the Gokal/Gulf fraud. According to the complaint, Butch Ahmad and James Canora--the SPIB account officers responsible for BCCI--had longstanding personal ties to BCCI and Gulf/Gokal personnel. Butch Ahmad had been friends with Abedi since 1960. And Mehdi Taqi, a senior employee of the Gokal/Gulf Group, as well as a member of its founding family, had dealt with James Canora when he had worked at another bank. Thus, when Canora moved to SPIB, Taqi used him to help open the accounts for the Conduit Companies.

The complaint alleges that, for four years, Canora and Ahmad executed transfers between the accounts of the Conduit Companies and BCCI at SPIB. Detailed instructions for these transfers were communicated to Canora from Taqi, who would then call to ensure that the transfers went through. On occasion, SPIB deviated from its own internal procedures to accommodate Taqi's demands.

The complaint alleges that SPIB knew these transfers had no business purpose. BCCI's money was transferred out of its SPIB account to the Conduit Companies and then ultimately shifted back into BCCI's SPIB account, where it was recorded as a loan repayment from Gulf/Gokal. A total of $1.5 billion was moved into the Conduit Companies' accounts over the years, and most of it was transferred out the very same day. For its role in this arrangement, SPIB received rich transaction fees from BCCI.

The complaint sought money damages under New York law for: (1) aiding and abetting fraud; (2) aiding and abetting breach of fiduciary duty; and (3) commercial bad faith. The Liquidators sought $530 million in damages for each of these three claims.

In May 1998, SPIB moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). On April 8, 1999, the district court granted the motion, concluding that the Liquidators lacked standing to sue SPIB. As an alternative justification for dismissal, the district court--relying on Federal Rule of Civil Procedure 9(b)--concluded that the complaint failed to adequately plead scienter, i.e., that SPIB knew of the wrongful activity, as is necessary to establish its three claims. See Wight v. BankAmerica Corp., No. 98 Civ. 2010 (RPP), 1999 WL 199021 (S.D.N.Y. Apr. 8, 1999). The clerk entered a final judgment on April 12th.

The Liquidators then moved for reconsideration pursuant to Rule 59(e). They sought to add as parties other liquidators appointed by a court in Luxembourg (who under Luxembourg law did have standing to assert claims on behalf of creditors and depositors), and a class of BCCI overseas creditors. The Liquidators also argued, for the first time, that SPIB should now be judicially estopped from denying the Liquidators' standing based on an unrelated BCCI case, where SPIB had successfully argued that BCCI's depositors also lacked standing to sue.

Finally, the Liquidators also sought leave to amend their complaint pursuant to Rule 15(b) of the Federal Rules of Civil Procedure to bolster their allegations of scienter. In support of their motion to amend, the Liquidators relied primarily on the testimony of Canora given during a deposition they had taken through the ancillary bankruptcy proceeding in the Southern District Bankruptcy Court. The Liquidators also relied on a deposition given by Canora to England's Serious Fraud Office in November 1993.

In those depositions, Canora testified that he was told by Taqi that the various accounts for the Conduit Companies, which he himself described as "shell" companies, were opened for "accounting purposes." He admitted, however: "I don't recall having complete knowledge of the rationale for the separate accounts." Canora also testified that after BCCI was indicted in 1988 on an unrelated money laundering scheme, he and Ahmad acknowledged the "sad possibility" that BCCI might also be using SPIB to launder money. Nevertheless, they continued to cycle funds between BCCI and the Conduit Companies for another two years. Finally, Canora testified that: "We actually overcharged BCCI." Later, Canora softened this somewhat by explaining that SPIB simply gave BCCI less of a discount than they could have gotten had they bargained harder.

The district court denied the motion for reconsideration, declining to grant the...

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