Opinion
Case No. 05-20470-CIV-UNGARO-BENAGES.
June 6, 2005
ORDER GRANTING IN PART DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND ORDER ADOPTING MAGISTRATE JUDGE O'SULLIVAN'S REPORT AND RECOMMENDATION
THIS CAUSE came before the Court upon Defendant's Motion for Summary Judgment, filed May 16, 2005. Plaintiffs filed their response on May 23, 2005 to which Defendant replied on May 27, 2005. Also before the Court is Defendant's Motion to Dismiss Amended Complaint and to Strike Certain Allegations, filed April 5, 2005. The Court referred the Motion to Dismiss to Magistrate Judge O'Sullivan who issued a Report and Recommendation on May 10, 2005 recommending that the Motion be granted in part. On May 27, 2005, Defendant filed its Objections to Magistrate O'Sullivan's Report and Recommendation. No objections were filed by Plaintiffs. The matters are ripe for disposition.
THE COURT has considered Defendant's Motion and Magistrate O'Sullivan's Report and Recomendation, made a de novo review of the entire file and record herein and is otherwise fully advised in the premises.
PROCEDURAL HISTORY
On February 16, 2005, Plaintiffs filed a three count complaint for breach of contract, rescission and fraudulent inducement. Plaintiffs simultaneously filed an Emergency Motion for Preliminary Injunction. After an extended evidentiary hearing, this Court granted in part Plaintiffs' Emergency Motion for Preliminary Injunction on March 11, 2005 and ordered Defendant's four "C" directors placed into office on February 9, 2005 removed and Plaintiffs' four "C" directors removed on February 9, 2005 restored. Additionally, the Court dismissed Plaintiffs' counts for rescission, fraudulent inducement and Plaintiffs' count for breach of contract to the extent it was based on Defendant's failure to enact legislative and regulatory changes.On March 25, 2005, Plaintiffs filed an amended complaint consisting of the following counts: (1) breach of the Share Pledge Agreement; (2) breach of the Payment Agreement: (3) violation of Florida's Uniform Commercial Code; and (4) conversion. On April 5, 2005. Defendant filed its Motion to Dismiss Amended Complaint and to Strike Certain Allegations. The matter was referred to the Honorable John O'Sullivan, United States Magistrate Judge. Magistrate Judge O'Sullivan entered a Report and Recommendation on May 10, 2005, recommending that Defendant's Motion be granted in part. Specifically, Judge O'Sullivan found that Plaintiffs' count for conversion, claim for punitive damages and allegations in paragraphs 34-38, 69, 72-73 and 92-93 should be dismissed.
1. Magistrate O'Sullivan's May 10, 2005 Report and Recommendation
Defendant objects to Magistrate O'Sullivan's Report and Recommendation only to the extent it concludes "[a]lthough the rights and remedies under the Florida Uniform Commercial Code are not the government's exclusive rights and remedies, because Florida law applies and the contract involves collateral as security, the government's disposition of the collateral is governed by Florida's UCC and must be commercially reasonable." (Report and Recommendation, at 10.) Defendant claims that this statement contradicts the plain language of the Share Pledge Agreement and renders certain provisions in it meaningless. Defendant acknowledges that the Share Pledge Agreement is governed and construed in accordance with Florida law, but claims that its rights and remedies for Plaintiffs' default are not limited to those provided for under Florida's UCC. Therefore, Defendant argues it is not subject to Florida's UCC because it has chosen to pursue a remedy for Plaintiffs' default under Belizean law.
Section 20 of the Share Pledge Agreement states that "[t]his agreement shall be governed by, and construed in accordance with, the laws of the State of Florida." (Share Pledge Agreement, at 9.) Section 12 (a) of the Share Pledge Agreement states "[t]he [Defendant] may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party upon default under the FL Uniform Commercial Code."
Defendant is correct in that Florida law requires a court, when possible, to "give effect to each provision of a written instrument in order to ascertain the true meaning of the instrument." Siegle v. Progressive Consumers Ins. Co., 819 So. 2d 732, 739 (Fla. 2002). However. Defendant's argument falls victim to the same principle of contract law upon which it purports to rely. Under Defendant's interpretation, its actions taken under the Share Pledge Agreement are governed by Florida law only if Defendant chooses. This reading of the Share Pledge Agreement essentially negates the language of Section 20 which unequivocally states that Florida law governs. The Court agrees with Defendant that the Share Pledge Agreement provides Defendant with the right to pursue remedies "otherwise available to it." However, Florida's UCC § 679.602 lists specific mandatory provisions which cannot be waived even by agreement and, because Florida law applies, the Share Pledge Agreement cannot not act to waive or modify these mandatory provisions. In turn, any remedies "otherwise available" to Defendant must he consistent with § 679.602. Id. (holding that "where the contract is susceptible to an interpretation that gives effect to all of its provisions, the court should select that interpretation over an alternative interpretation that relies on negation of some contract principles.")
Contrary to Defendant's claim, this interpretation of the Share Pledge Agreement does not render Section 12 (a) meaningless. Defendant is free to pursue other remedies provided for in the Share Pledge Agreement or otherwise available to it so long as the mandatory provisions of Florida's UCC are met. This interpretation gives effect to both the parties' intent that they be bound by Florida law while still providing Defendant more expansive remedies than those provided for by Florida's UCC.
Additionally, the Court notes that throughout this case Defendant has relied on the argument that Belizean law governs and that its actions on February 9, 2005 and thereafter have been undertaken under Belizean law. Defendant has never been able to articulate, beyond general references, what the applicable Belizean law is. Consequently, the Court disagrees with Defendant that it has pursued a remedy "otherwise available to it" for the simple reason that Defendant has not articulated the remedy. Accordingly, the Court concludes that Magistrate O'Sullivan's Report and Recommendation should be affirmed.
II. Defendant's Motion for Summary Judgment
FACTS
The Court recites the following facts introduced during the Preliminary Injunction Hearing and from viewing the record in Plaintiffs' favor. In 2003, Defendant decided to update and modernize its telecommunications system. (Preliminary Injunction Hearing, Prosser Direct examination. at 39, February 23, 2005.) To do so, Defendant approached Jeffrey Prosser, Plaintiffs' CEO, and offered him an investment opportunity to acquire a majority interest in Belize Telecommunications Ltd. ("BTL"). Id. At this time, Carlisle Holdings Ltd. ("CHL"), primarily owned and controlled by Lord Michael Ashcroft, owned the majority of BTL's shares. Id. at 74. To effectuate Plaintiffs' entry into the Belizean telecommunications industry, Defendant agreed in December 2003 to purchase the shares of BTL held by CHL and then sell those shares, along with additional BTL shares already held by Defendant, to Plaintiffs. (Pls.' Ex. 1.) These negotiations led Plaintiffs and Defendant to enter into the Share Purchase Agreement on March 22, 2004. (Pis.' Ex.1.)The terms of the Share Purchase Agreement are straightforward. Defendant transferred to Plaintiffs: (1) the BTL shares Defendant purchased from CHL; (2) the BTL shares it already owned; and (3) the "Special Rights Share." (Pls. Ex. 1.) The CHL shares consisted of 7,520,000 class "B" ordinary shares and 11,823,451 class "C" ordinary shares. (Pls.' Ex. I) The shares already owned by Defendant consisted of 480,000 class "B" ordinary shares and 11,470,663 class "C" ordinary shares. (Pls.' Ex.1.) As consideration for the CHL shares, Plaintiffs gave the Defendant an unsecured promissory note for $57,000,000 maturing on April 30, 2004. (Pls.' Ex. 1.) As consideration for Defendant's shares, Plaintiffs gave Defendant an unsecured promissory note for $32,729,838 to mature on August 31, 2004. (Pls.' Ex. 1.) This transaction reflected a control premium of approximately thirty-five percent of the value of a minority interest in BTL. (Dep. of John Salomon, at 77.) It gave Plaintiffs a super majority interest in BTL, and allowed Plaintiffs to appoint all eight directors on BTL's board. (Pls.' Ex.1.)
Upon consummation of the transaction, BT/ICC owned 100% of the "B" shares, 79 % of the "C" shares and 85 % of the total share capital of BTL. In addition, BT/ICC became the owner of a "Special Rights Share."
Plaintiffs partially satisfied the $32,729,838 promissory note by paying Defendant $28,500,000 in cash and returning 567,666 class "C" ordinary shares with a value of approximately $1,500,000 to Defendant. (Preliminary Injunction Hearing, Prosser Direct examination, at 52, February 23, 2005.). However, Plaintiffs informed Defendant that it would be unable to make the $57,000,000 payment due on April 30, 2004. (Def.'s Ex.4.) Rather than proceed under the default provisions of the Share Purchase Agreement, on April 30, 2004, Plaintiffs and Defendant entered into two new agreements to facilitate Plaintiffs' acquisition of BTL: the Forbearance Agreement and the Payment Agreement. (Def.'s Ex.4, 5.) Additionally, Plaintiffs entered into the Share Pledge Agreement with The International Bank of Miami ("TIBOM"). (Pls.' Ex. 4.)
Defendant subsequently transferred the 567,666 "C" shares to Belizean unions who still hold them to date.
The three agreements are interrelated as follows: The Forbearance Agreement states that Defendant will forbear from exercising any default remedy under the Share Purchase Agreement provided Plaintiffs execute and satisfy the provisions of two other agreements, the Payment Agreement and the Share Pledge Agreement. (Def.'s Ex. 4.) The Payment Agreement refers to the fact that as of April 30, 2004, Defendant had outstanding unrelated promissory notes to TIBOM totaling $100,000,000 arising from an unrelated public financing. (Pls.' Ex.3.) Under the Payment Agreement, Plaintiffs agreed to take over Defendant's payments on these notes up to $57,000,000 and Defendant agreed to credit, dollar for dollar, payments that Plaintiffs made to TIBOM against the $57,000,000 that Plaintiffs owed Defendant under the Share Purchase Agreement. (Pls.' Ex.3.) However, TIBOM required collateral from Plaintiffs in order to allow them to assume Defendant's obligations. (Pls.' Ex.4.) Consequently, TIBOM and Plaintiffs entered into the Share Pledge Agreement which provided that Plaintiffs pledge to TIBOM as collateral a number of BTL shares Plaintiffs had acquired under the Share Purchase Agreement with Defendant, including the CHL shares. (Pls.' Ex.4.)
From April 30, 2004 to September of 2004, Plaintiffs made payments totaling $4,022,777.78 as required by the Payment Agreement. (Preliminary Injunction Hearing, Prosser Direct Examination, at 56-58, February 23, 2005.) Defendant never credited the $4,022.777.78 against Plaintiffs' outstanding debt. In October of 2004, Plaintiffs sought financing from the Royal Bank of Trinidad and Tobago ("RBTT") to make the payment due to TIBOM on November 22, 2004. (Preliminary Injunction Hearing, March 7, 2005, Guiseppi Cross-examination, at 44.) RBTT could not raise the funds in time to meet the November 22, 2004 due date, and on November 22, 2004, Plaintiffs failed to make the $51,305,555.56 payment to TIBOM. (Preliminary Injunction Hearing, March 7, 2005, Guiseppi Cross-examination, at 45.) In response, Defendant paid $51,305,555.56 to TIBOM, which was the amount then due from Plaintiffs for the CHL shares, and TIBOM assigned its rights under the Share Pledge Agreement to Defendant. (Def.'s Ex.7.)
On December 29, 2004, BTL's board, while still controlled by Plaintiffs, authorized the issuance of an additional 24,000,000 class "C" ordinary shares which it intended to apply toward its acquisition of Intelco, the BTL competitor whose license Defendant had promised to rescind. (Pls. Ex. 18.) However, a number of board members were concerned about the structure of the transaction because Intelco's assets had been placed into receivership. (Def.'s Ex.16, at 4.) Therefore, after further consideration the board decided to rescind the issuance of the shares on January 18, 2005. (Def.'s Ex.16, at 5.) In place of the 24,000,000 shares, BTL assumed a debt to Plaintiffs for $27,000,000. (Preliminary Injunction Hearing, Prosser Direct Examination, at 65. February 23, 2005.) Shortly thereafter, BTL's board was advised that the assumption of the $27,000,000 debt contravened Article 99 of BTL's Articles of Association. (Def.'s Ex. 15, at 5.) Plaintiffs remain in possession of the Share Certificate for the additional 24,000,000 shares. (Pls.' Ex.7.)
During the next couple of months, Plaintiffs and RBTT continued to discuss financing to allow Plaintiffs to meet their obligations. However, RBTT was reluctant to go forward due to. among other circumstances, a suit brought in Belize by BTL's minority shareholders to investigate BTL and a suit brought by Lord Ashcroft that resulted in the Supreme Court of Belize issuing an injunction preventing BTL from taking any action with respect to the CHL shares. (Def's Ex. 11, 12.) Then, on February 9, 2005 Defendant seized the shares covered by the Share Pledge Agreement, registered the shares in its own name, proclaimed itself the majority shareholder, removed six of Plaintiffs' directors, appointed six new directors and ejected all of Plaintiffs' managerial employees. (Preliminary Injunction Hearing, Prosser Direct Examination, at 42-43, February 23, 2005.) At the time of his removal, managing director John Vondras was in the midst of a number of business negotiations which have since been suspended. (Preliminary Injunction Hearing, Vondras Direct Examination, at 72-73, March 9, 2005.) Vondras, who had thirty years experience in operating telephone companies, was replaced by Gaspar Aguilar who had been the CFO under Vondras. (Preliminary Injunction Hearing, Prosser Direct Examination, at 50-51, February 23, 2005.)
On March 22, 2005, Defendant sold to E-COM a portion of Plaintiffs' pledged shares. including 4,000,000 "B" shares and 1,531,278 "C" shares, for $14,500,000. (Statement by Belize Prime Minister, Said Musa, at 1.) Defendant failed to provide Plaintiffs with notice before it sold the shares to E-COM. The sale to E-COM reduced Defendant's total share percentage of BTL from 52% to 37% and raised E-COM's from 10% to 25%. (Statement by Belize Prime Minister. Said Musa, at 1.)
After this Court entered its Preliminary Injunction, Defendant pursued a contrary interpretation of Article 90(D)(ii) of BTL's Articles of Association from the Belizean Supreme Court. On April 6, 2005, Chief Justice Conteh issued an opinion concluding that a party's two directors appointed pursuant to Article 90(D)(ii) cease to remain directors if that party no longer holds the Special Share or 37.5% of the issued share capital. This conclusion is contrary to this Court's Preliminary Injunction Order in which it found that pursuant to the plain language of Article 90(D)(ii) and 90(D)(i) the two directors appointed under 90(D)(ii) may only be removed from office by the holder the Special Share and 37.5% of the issued share capital of BTL.
LEGAL STANDARD
Summary judgment is authorized only when the moving party meets its burden of demonstrating that "the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any mate rial fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56. The Supreme Court explained in Adickes v. S.H. Kress Co., 398 U.S. 144, 157 (1970), that when assessing whether the movant has met this burden, the court should view the evidence and all factual inferences in the light most favorable to the party opposing the motion.
The party opposing the motion may not simply rest upon mere allegations or denials of the pleadings; after the moving party has met its burden of coming forward with proof of the absence of any genuine issue of material fact, the non-moving party must make a sufficient showing to establish the existence of an essential element to that party's case, and on which that party will bear the burden of proof at trial. Celotex Corp. v. Catrell, 477 U.S. 317, 322-323 (1986); Poole v. Country Club of Columbus, Inc., 129 F.3d 551, 553 (11th Cir. 1997); Barfield v. Brierton, 883 F.2d 923, 933 (11th Cir. 1989).
If the record presents factual issues, the court must not decide them; it must deny the motion and proceed to trial. Environmental Defense Fund v. Marsh, 651 F.2d 983, 991 (5th Cir. 1981). Summary judgment may be inappropriate even where the parties agree on the basic facts but disagree about the inferences that should be drawn from these facts. Lighting Fixture Electric Supply Co. v. Continental Ins. Co., 420 F.2d 1211, 1213 (5th Cir. 1969). If reasonable minds might differ on the inferences a rising from undisputed facts then the court should deny summary judgment. Impossible Electronics Techniques, Inc. v. Wackenhut Protective Systems, Inc., 669 F.2d 1026, 1031 (5th Cir. 1982); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) ("[T]he dispute about a material fact is `genuine,' . . . if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.").
Decisions of the United States Court of Appeals for the Fifth Circuit entered before October 1, 1981, are binding precedent in the Eleventh Circuit. See Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir. 1981).
Moreover, the party opposing a motion for summary judgment need not respond to it with evidence unless and until the movant has properly supported the motion with sufficient evidence. Adickes, 398 U.S. at 160. The moving party must demonstrate that the facts underlying all the relevant legal questions raised by the pleadings or otherwise are not in dispute, or else summary judgment will he denied notwithstanding that the non-moving party has introduced no evidence whatsoever. Brunswick Corp. v. Vineberg, 370 F.2d 605, 611-12 (5th Cir. 1967). The Court must resolve all ambiguities and draw all justifiable inferences in favor of the non-moving party. Liberty Lobby, Inc., 477 U.S. at 255.
ANALYSIS
Defendant claims it is entitled to summary judgement on the following issues: (1) that Defendant breached the Share Pledge Agreement by failing to give Plaintiffs notice before it sold 4,000,000 "B" shares and 1,531,278 "C" shares to E-COM on March 22, 2005; (2) that Defendant breached the Share Pledge Agreement by disrupting and mismanaging BTL's operations thereby harming the collateral; (3) that the Court adopt the Belizean Supreme Court's interpretation of Article 90(D)(ii) of BTL's Articles of Association; and (4) that Defendant breached the Payment Agreement. The Court will address each of Defendant's arguments in turn.
1. Defendant is entitled to summary judgment on Plaintiffs' claim that Defendant breached the Share Pledge Agreement by failing to give Plaintiffs notice before it sold a portion of the pledged shares to E-COM.
Defendant claims that it is entitled to summary judgment on Plaintiffs' claim that Defendant breached the Share Pledge Agreement by failing to give Plaintiffs notice before it sold a portion of the pledged shares to E-COM because even if Plaintiffs establish that Defendant breached the Share Pledge Agreement, § 679.625 and § 679.626 limit Plaintiffs' remedies to a rebuttable presumption that Defendant disposed of the shares in a commercially unreasonable manner if Defendant seeks a deficiency judgment and recovery of any surplus after Plaintiffs' deficiency is eliminated. Plaintiffs respond by arguing that, because its action places surplus at issue, § 679.626(2) places the burden on Defendant to establish "that the collection, enforcement, disposition, or acceptance was conducted in accordance [Part 6]." Fla. Stat. § 679.626(2). If Defendant fails to meet this burden, Plaintiffs argue that their deficiency is limited by § 679.626(3) and that they may recover any surplus under § 679.625(4).
Section 679.625 of Florida's UCC governs the remedies available to a debtor for a secured party's failure to comply with the chapter. Section 679.625(2) states:
Subject to subsections (3), (4), and (6), a person is liable for damages in the amount of any loss caused by a failure to comply with this chapter, including damages suffered by the debtor resulting from the debtor's inability to obtain, or increased costs of, alternative financing, but not including consequential, special, or penal damages, unless the conduct giving rise to the failure constitutes an independent claim under the laws of this state other than this chapter and then only to the extent otherwise recoverable under law.
Section 679.625(4) limits a debtor's remedies stating,
[a] debtor whose deficiency is eliminated under s. 679.626 may recover damages for the loss of any surplus. However, a debtor or secondary obligor whose deficiency is eliminated or reduced under s. 679.626 may not otherwise recover under subsection (2) for noncompliance with the provisions of this part relating to collection, enforcement, disposition, or acceptance.
Section 679.626 sets out the rules for calculating the amount of deficiency or surplus if a deficiency or surplus is at issue. Thus, if a deficiency or surplus is not at issue, Plaintiffs have no claim for damages under § 679.625. Contrary to Plaintiffs' argument, Defendant has not moved for a deficiency judgment, and, because it is undisputed that the sale to E-COM failed to eliminate Plaintiffs' deficiency, Plaintiffs are unable to allege facts evidencing any surplus that they are entitled to recover. See Fla. Stat. § 679.625(4) (stating that debtor may recover damages for the loss of any surplus if debtor's deficiency is eliminated) (emphasis added). In other words, until Plaintiffs' deficiency is eliminated or until Defendant seeks a deficiency judgment, the amount of a deficiency or surplus is not in issue within the meaning of § 679.626. Therefore, Defendant is entitled to summary judgment on Plaintiffs' claim for breach of the Share Pledge Agreement to the extent Plaintiffs seek damages under § 679.625(4) and § 679.626.
2. Defendant is not entitled to summary judgment on Plaintiffs' claim that Defendant breached the Share Pledge Agreement by failing to use reasonable care in the custody and preservation of the collateral
Defendant makes four arguments to support its claim that it is entitled to summary judgment on Plaintiffs' claim that Defendant failed to use reasonable care in the custody and preservation of the pledged shares. First, Defendant claims that Plaintiffs have failed to introduce evidence that Defendant intended to diminish the value of the collateral. Second. Defendant claims that even if Plaintiffs have introduced evidence of intent, they have failed to introduce evidence demonstrating that the collateral has been damaged. Third, Defendant claims that even if Plaintiffs have raised material issues of fact with respect to intent and damages, Plaintiffs' claim for failure to use reasonable care in the custody and preservation of the collateral is not ripe for adjudication. Finally, Defendant claims that even if Plaintiffs have introduced material facts and their claim is ripe, Defendant's damages should be limited to the period from February 9, 2005 to March 22, 2005.
a. Plaintiffs do not have to show that Defendant intended to harm the collateral
Defendant erroneously relies on the assumption that Plaintiffs are required demonstrate that Defendant intended to harm the collateral. Section 679.2071(1) of the Florida UCC provides, in pertinent part,
[e]xcept as otherwise provided in subsection (4), a secured party shall use reasonable care in the custody and preservation of collateral in the secured party's possession.
From a plain reading of the statue, the term "reasonable care" denotes a negligence standard. Nothing in the statute suggests to the contrary and Defendant's reliance on Citibank, N.A. v. Data Lease Financial Corp., 828 F.2d 686 (11th Cir. 1987) and Empire Life Ins. Co. of America. Inc. v. Valdak Corp., 468 F.2d 330 (5th Cir. 1972) is misplaced. Most fundamentally, the court in Empire did not address a pledgee's duties to a pledgor under Florida law. Id. at 334. Additionally, the defendant in Empire based its counterclaim on the theory that the plaintiff fraudulently depleted the collateral. It was within this context that the court concluded a finding of intent to deplete the collateral was a necessary prerequisite. Id. at 335-36. Here, Plaintiffs are suing under the Florida UCC, which was not even in effect at the time Empire was decided, and is based not on fraud but rather on Defendant's failure to act reasonable in its possession of the collateral.
Furthermore, upon a careful reading Citibank appears to undercut Defendant's position. There the court held, in the context of § 679.207(1), that summary judgment was inappropriate for the pledgee against the pledgor because the pledgor "adduced evidence that Citibank used its power as controlling shareholder to install and maintain incompetent individuals in positions of management . . . [and] blithely allowed these individuals to deplete the value of the pledged collateral." Citibank, 828 F.2d at 697. The Court makes no mention of an intent requirement and its findings of fact, which the court concluded amounted to a jury question under § 679.207(1), clearly do not support a conclusion that Citibank intended to deplete the collateral.
Plaintiffs' claims are similar to those which the Court in Citibank found survived summary judgment. Plaintiffs claim that Defendant appointed an inexperienced manager of BTL, Gaspar Aguilar, and that Defendant's removal of Plaintiffs' management team adversely affected business relationships with its creditors and vendors. (Preliminary Injunction Hearing, Vondras Direct examination, at 72-73, March 9, 2005.) This evidence raises a genuine issue of material fact with respect to whether Defendant breached the Share Pledge Agreement by failing to take reasonable care of the collateral in its custody. Under § 679.207(1) and Citibank, Plaintiffs are not required to produce facts demonstrating the Defendant intended to damage the collateral.
b. Defendant is not entitled to summary judgment on its claim that Plaintiffs have failed to produce evidence demonstrating that the collateral has been damaged
Defendant next argues that, even if Plaintiffs allege mate rial facts supporting their claim that Defendant failed to use reasonable care in the custody and preservation of the collateral, Defendant is entitled to summary judgment on Plaintiffs' claim because Plaintiffs have failed to produce facts demonstrating that the collateral has been damaged. Plaintiffs respond that the Court should deny Defendant's motion with respect to Plaintiffs' ability to produce mate rial facts demonstrating damage to the collateral because Plaintiffs have been unable to depose the Honorable Ralph Fonseca, one of Defendant's ministers, and Gaspar Aguilar, the CEO appointed by Defendant on February 9, 2005. Plaintiffs also claim that Defendant has failed to produce BTL financial statements prepared since February 9, 2005 or projections regarding the company's cash flow, operating income and balance sheets. Plaintiffs argue that, without these depositions and documents, their economic loss valuation expert is unable to render an opinion regarding the devaluation of the collateral.
Plaintiffs have submitted the affidavit of James W. Deacon, counsel for Plaintiffs, to support their argument that they are unable to produce evidence at this time to demonstrate that the collateral has been damaged. Deacon confirms that the depositions of Fonseca and Aguilar have not been taken and that Defendant has failed to produce BTL's financial documents beginning February 9, 2005. (Deacon Aff. ¶ 2-14.) On June 1, 2005, Magistrate Judge O'Sullivan ordered Fonseca's deposition to be taken on June 2, 2005 and Aguilar's deposition to be taken on June 3, 2005. Additionally, at the calendar call on May 25, 2005, Defendant's counsel acknowledged that certain documents relating to BTL's operations had not been disclosed to Plaintiffs.
Federal Rule of Civil Procedure 56(f) states:
[s]hould it appear from the affidavits of a party opposing the motion that the party cannot for reasons stated present by affidavit facts essential to justify the party's opposition, the court may refuse the application for judgment or may order a continuance to permit affidavits to be obtained or depositions to be taken or discovery to be had or may make such other order as is just.
It is axiomatic that "summary judgement should not be granted until the party opposing the motion has had an adequate opportunity for discovery." Dean v. Barber, 951 F.2d 1210, 1213 (11th Cir. 1992) (quoting Snook v. Trust Co. of Ga., 859 F.2d 865, 870 (11th Cir. 1988)). In Snook, the court stated:
The party opposing a motion for summary judgment has a right to challenge the affidavits and other factual materials submitted in support of the motion by conducting sufficient discovery so as to enable him to determine whether he can furnish opposing affidavits. If the documents or other discovery sought would be relevant to the issues presented by the motion for summary judgment, the opposing party should be allowed the opportunity to utilize the discovery process to gain access to the requested materials859 F.2d at 870 (citations omitted).
Of all the evidence likely to be presented, Aguilar's testimony will undoubtedly be the most pivotal. Defendant appointed him as CEO of BTL on February 9, 2005. He is sure to have information regarding BTL's operations since February 9, 2005, including any decisions made that may have impacted the value of the collateral. If decisions were made that impacted the value of the collateral, Aguilar is also likely to have information relating to Defendant's involvement in those decisions. Likewise, BTL's financial records beginning February 9, 2005 appear critical to any determination regarding the value of the collateral. (Deacon Aff. ¶ 14; Dep. of John I. Salomon at 57-58.) It seems clear to the Court that the above depositions and documents are extremely relevant to Defendant's claim that Plaintiffs can produce no evidence of damage to the collateral. In light of the expedited track that this case is on and Plaintiffs' diligence in pursuing discovery, the Court concludes that Plaintiffs have made the required showing under Rule 56(f). Therefore, Defendant's claim that it is entitled to summary judgement because Plaintiffs are unable to produce evidence of damage to the collateral will be denied.
c. Plaintiffs' claim for failure to preserve the collateral is ripe for adjudication
Defendant next argues that, regardless of the merits of Plaintiffs' factual allegations, Defendant is entitled to summary judgment on Count I (breach of the Share Pledge Agreement) and Count III (Violation of the Florida UCC) because the claims are not ripe for adjudication by this Court. Specifically, Defendant claims that Plaintiffs cannot allege an injury until either they seek redemption of the collateral or Defendant sells all of it. Plaintiffs argue that their claims are ripe because they have suffered a direct injury by (1) losing the control premium paid to acquire a majority interest in BTL and (2) suffering the diminution in the value of the collateral since February 9, 2005.
Under the law in this circuit, the Court is directed to look primarily at two considerations in determining ripeness: (1) the fitness of the issue for judicial determination, and (2) the hardship to the parties of withholding court consideration. Midrash Sephardi, Inc. v. Town of Stwfcide, 366 F.3d 1214, 1224 (11th Cir. 2004) (citing Abbot Labs. v. Gardner, 387 U.S. 136 (1967) (abrogated on other grounds by, Califano v. Sanders, 430 U.S. 99 (1977))).
Plaintiffs have made the required showing that its claim for breach of the Share Pledge Agreement and violation of the Florida UCC are ripe. Whether Plaintiffs wrongfully lost their control premium paid to acquire BTL is fit for judicial determination. If Plaintiffs produce evidence supporting this claim at trial, the Court sees no impediment, and Defendant has failed to allege one, to the Court resolving the issue and fashioning an appropriate remedy.
With respect to the devaluation of the collateral (Count III), the Court concludes it too is ripe for adjudication and rejects Defendant's argument that an injury only occurs when Plaintiffs redeem the collateral or Defendant sells it. Unlike § 679.625(4) which limits a debtor's damages for a secured party's failure to provide notice to a surplus once the debtor's deficiency is eliminated, § 679.625(2) provides that "a person is liable for damages in the amount of any loss caused by the failure to comply with this chapter." If Plaintiffs are able to prove that the collateral has been devalued because of Defendant's failure to use reasonable care under § 679.2071(1), the issue is ripe and the Court can fashion a remedy.
Defendant's claim that there is no injury because the collateral may rise in value in the future, defies logic. If Plaintiffs establish damage to the collateral, the collateral will have still suffered that damage even if it rises in value at some future point. Logically, whatever value the collateral rises to in the future would be that much higher, but for the damage caused by Defendant. Therefore, the Court finds that Count I and Count III are both ripe for judicial determination.
The second ripeness factor, the hardship to the parties if the Court withholds adjudication, also weighs in Plaintiffs' favor. If Plaintiffs' allegations in Count I are true, they are damaged every day that they are not in control of BTL. If Plaintiffs' allegations in Count III are correct. this Court would be withholding from Plaintiffs' right to protection of the value of the collateral as specifically provided for in the Share Pledge Agreement and the Florida UCC. Additionally, Defendant has failed to allege any hardship it would suffer if the Court adjudicates Plaintiffs' claims now versus when Plaintiffs redeem the collateral or Defendant sells it. Therefore, the Court concludes that Plaintiffs' claim for Defendant's failure to preserve the collateral under both Count I and Count III are ripe for adjudication.
d. Plaintiffs' damages are not limited to the period from February 9, 2005 to March 22, 2005.
Defendant next argues that, even if Plaintiffs' claims are ripe, Defendant is entitled to summary judgment limiting the time frame for damages from February 9, 2005 to March 22, 2005, the period of time Defendant held a majority of the BTL shares. Plaintiffs respond that Defendant is liable for all foreseeable harms resulting from its breach of the Share Pledge Agreement regardless of when Defendant sold the shares to E-COM to negate its status as majority shareholder.
Defendant is correct that a pledgee is exposed to liability with respect to the value of the collateral only if the pledgee holds a controlling interest and has the ability to manage the corporation. Citibank, 828 F.2d at 697. However, Defendant's claim that the minute it divests its status as controlling shareholder terminates its liability turns the law of contracts on its head. Under Defendant's theory, it could have breached the Share Pledge Agreement on February 9, 2005 causing Plaintiffs and the collateral substantial damage and then, by divesting its controlling interest on February 10, 2005 limit its damages to one day. Such a result is inequitable, absurd and completely misstates the court's holding in Citibank. Nowhere in that case does the court even allude to the theory advanced by Defendant. If Defendant breached the Share Pledged Agreement, Plaintiffs may recover damages which were "reasonably foreseeable or contemplated by the parties as a result of the breach." Plantation Key Developers, Inc. v. Colonial Mortg. Co. of Indiana, Inc., 589 F.2d 164, 169 (5th Cir. 1979) (quoting Olin's, Inc. v. Avis Rental Car System of Fla., Inc., 172 So. 2d 250, 252 (Fla. 3d DCA 1965) (cert. denied, 177 So. 2d 482 (Fla. 1965))). So long as the act causing the harm took place while Defendant exerted control over BTL, Plaintiffs may recover the reasonably foreseeable damages resulting from that act. Therefore, Defendant is not entitled to summary judgment limiting its liability for those damages accruing between February 9, 2005 to March 22, 2005.
3. The Belizean Supreme Court's decision, decided after this Court's Injunction Order, does not entitle Defendant to summary judgment on the interpretation of Article 90(D)(ii)
Defendant next claims this Court should adopt the Belizean Supreme Court's decision entered on April 6, 2005 regarding the removal of Plaintiffs' 90(D)(ii) directors and consequently grant summary judgment for Defendant on this issue. Plaintiffs respond that, because Defendant pursued the case in Belize in order to obtain a ruling contrary this Court's Injunction Order, this Court should continue to abide by its previous interpretation of Article 90(D)(ii).
"It is well-established that United States courts are not obligated to recognize judgments rendered by a foreign state, but may choose to give res judicata effect to foreign judgments on the basis of comity." Films by Jove, Inc. v. Berov, 250 F. Supp. 2d 156, 176 (E.D.N.Y. 2003) (quoting Gordon Breach Sci. Publishers S.A. v. American Inst. of Physics, 905 F.Supp. 169, 178-79 (S.D.N.Y. 1995)). Comity "is the recognition which one nation allows within its territory to the legislative, executive, or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens, or other persons who are under the protection of its laws. Hilton v. Guyot, 159 U.S. 113, 144 (1895). Res judicata bars parties from litigating in a subsequent action issues that were or could have been litigated in a prior proceeding. Kremer v. Chemical Constr. Corp., 456 U.S. 461, 466-67 n. 6 (1982).
The Court notes that all of the cases cited by Defendant involve situations in which a party sought enforcement of a foreign judgment that was entered before the matter had been ruled on by a Florida court. While this fact alone may not be dispositive, the Court finds that condoning a party's race to another jurisdiction for the purpose of circumventing a court's ruling runs contrary to "the processes of accommodation and cooperation which form the basis for a genuine system of international comity." Laker Airways Ltd. v. Sabena, Belgian World Airlines, 731 F.2d 909, 915-16 (D.C. Cir. 1984) (holding that "[l]imitations on the application of comity dating from the origins of the doctrine recognize that a domestic forum is not compelled to acquiesce in pre- or postjudgment conduct by litigants which frustrates the significant policies of the domestic forum.") By virtue of the Share Pledge Agreement and Payment Agreement, the parties agreed to submit to the jurisdiction of this Court to resolve their claims. Permitting Defendant to run to another jurisdiction and obtain rulings contrary to this Court frustrates the policies behind holding the parties to the terms of their agreement.
Furthermore, the Court notes that the Belizean Supreme Court's opinion sheds no additional light on exactly what Belizean law governs the interpretation of BTL's Articles of Association. The Court's decision appears to rely, similar to this Court, on an analysis of the plain language of BTL Articles of Association. At this stage in the litigation, Defendants have failed to present the Court with persuasive evidence of Belizean law, apart from the April 6, 2005 decision purporting to construe the terms of Article 90 of BTL's Articles of Association, that would cause this Court to reverse its prior determination on Article 90(D)(ii). Therefore, the Court concludes that Defendant is not entitled to summary judgment on the interpretation of Article 90(D)(ii).
The parties represent that they intend to introduce competing experts on this issue at trial.
4. Defendant is not entitled to summary judgment on Plaintiffs' claim for breach of the Payment Agreement because Plaintiffs' claim is not premature.
Similar to its ripeness argument, Defendant claims that its failure to credit Plaintiffs' $4,022,777.78 payment is not a breach of the Payment Agreement and this amount need not he credited until such time as either Defendant sells all of the collateral or Plaintiffs redeem it. Plaintiffs contend the Payment Agreement requires Defendant to credit the amount paid against Plaintiffs' debt at the time payment is made, not after the entire debt is extinguished.
The Payment Agreement states, in pertinent part:
[Defendant] shall grant to [Plaintiffs], for each Debt Service Payment made in accordance with the terms herein, a dollar for dollar credit towards the outstanding amounts due and payable by [Plaintiffs] to [Defendant] pursuant to the BTL Note. Upon timely receipt and due credit by the Bank of a Debt Service Payment in accordance with this Agreement, the corresponding obligations of [Plaintiffs] under the BTL Note shall be discharged and reduced by [Defendant] in the amount of such Debt Service Payment.
(Payment Agreement, ¶ 3.) The provision's clear and unambiguous language contemplates payments being made in an amount less than the total debt and requires Defendant to make such credits upon receipt of those payments. Hamilton Const. Co. v. Board of Public Instruction of Dade County, 65 So. 2d 729 (1953) (holding that courts finding a contract's language clear and unambiguous should give the contract no meaning beyond the language expressed.) The record reflects that Defendant received a payment of $4,022,777.78 but has failed to credit Plaintiffs for this payment. Clearly, Plaintiffs have produced facts demonstrating that Defendant breached the Payment Agreement, and while it may be true that Plaintiffs are only entitled to nominal damages, Defendant's motion for summary judgment on this issue is properly denied. Accordingly, it is hereby
ORDERED AND ADJUDGED that Defendant's Motion for Summary Judgment is GRANTED IN PART. Defendant is granted summary judgment on Plaintiffs' claim that Defendant breached the Share Pledge Agreement by failing to give Plaintiffs notice before selling a portion of the shares to E-COM. The remainder of Defendant's Motion is denied and the case will proceed to trial in accordance with this Order on June 8, 2005. It is further
ORDERED AND ADJUDGED that Magistrate O'Sullivan's Report and Recommendation entered on May 10, 2005 is RATIFIED, AFFIRMED and ADOPTED.
DONE AND ORDERED.