To Be Argued By:
T. BARRY KINGHAM
Time Requested: 15 Minutes
APL-2014-00021
New York County Clerk’s Index No. 651437/12
Court of Appeals
STATE OF NEW YORK
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.,
“RABOBANK INTERNATIONAL”, NEW YORK BRANCH,
Respondent,
—against—
FRANCISCO JAVIER HERRERA NAVARRO,
Appellant,
—and—
THE ESTATE OF EDUARDO GUZMAN SOLIS,
Defendant.
REPLY BRIEF FOR APPELLANT
d
T. BARRY KINGHAM
FRANCESCA M. ERTS
CURTIS, MALLET-PREVOST, COLT
& MOSLE LLP
101 Park Avenue
New York, New York 10178
Telephone: (212) 696-6000
Facsimile: (212) 697-1559
Attorneys for Appellant
TABLE OF CONTENTS
Page#
Table of Authorities ................................................................................................... ii
Preliminary Statement ..... ................ ..... ..................................................................... 1
ARGUMENT ............................................................................................................ 4
I MR. HERRERA DID NOT WAIVE
RABOBANK'S COLLUSION ........... ............................................................ 4
A. Mr. Herrera Did Not Waive His Right To
Contest The Existence Of A Valid Underlying "Obligation" ................. 4
B. Rabobank's Reliance upon Citibank is Misplaced ................................. 8
C. Rabobank' s Attempts To Distinguish Canterbury
Actually Highlight Its Significance In The Present Case ..................... 11
D. Rabobank May Not Take Advantage Of
The Waiver To Excuse Its Own Wrongdoing ....................................... 14
II MATERIAL ISSUES OF FACT
PRECLUDE SUMMARY JUDGMENT .. ....... ............... .............................. 15
Conclusion ............................................................................................................... 22
-I-
TABLE OF AUTHORITIES
Page#
CASES
627 Acquisition Co. v. 627 Greenwich, LLC,
85 A.D.3d 645 (1st Dep't 2011) .......................................................................... 10
Acadia Woods Partners, LLC v. Signal Lake Fund LP,
102 A.D.3d 522 (1st Dep't 2013) .......................................................................... 7
Aniero Concrete Co. v. N. Y. City Constr. Auth.,
Nos. 94 Civ. 9111, 95 Civ. 3506, 1997 WL 3268 (S.D.N.Y. Jan. 3, 1997) .......... 9
Banco de Estado de Sao Paulo S.A. v. Mendez Junior Int'l Co.,
249 A.D.2d 137 (1st Dep't 1998) ........................................................................ 10
Canterbury Realty & Equip. Corp. v. Poughkeepsie Sav. Bank,
135 A.D.2d 102 (3d Dep't 1988) ....................................................... 11, 12, 13, 14
Citibank, N. A. v. Plapinger,
66 N.Y.2d 90 (1985) .................................................................................. 9, 10, 11
European Am. Bank v. Mr. Wemmick, Ltd.,
160 A.D.2d 905 (2d Dep't 1990) ......................................................................... 14
Finkelstein v. Itkowitz & Harwood,
28 A.D.3d 336 (1st Dep't 2006) .......... .................................................................. 9
Gannett Co. v. Tesler,
177 A.D.2d 353 (1st Dep't 1991) ........................................................................ 10
Gen. Trading Co. v. A&D Food Corp.,
292 A.D.2d 266 (1st Dep't 2002) ........................................................................ 10
Grand Pac. Fin. Corp. v. 97-111 Hale, LLC,
90 A.D.3d 534 (1st Dep't 2011) ............................................................................ 7
Hinckley v. Kreitz,
58 N.Y. 583 (1874) ................................................................................................ 6
Hotel 71 Mezz Lender LLC v. Falor,
14 N.Y.3d 303 (2010) .......................................................................................... 10
In re DeWolfe,
494 B.R. 193 (Ban1a. W.D.N.Y. 2013) ..................................................... ............ 6
JPMorgan Chase Bank ex rel. Mahonia Ltd. v. Liberty Mut. Ins. Co.,
189 F. Supp. 2d 24 (S.D.N.Y. 2002) ................................................................... 14
-11-
LFR Collections LLC v. Blan Law Offices,
117 A.D.3d 486 (1st Dep't 2014) .......................................................................... 7
Mfrs. Hanover Trust Co. v. Yanakas,
7 F.3d 310 (2d Cir. 1993) ...................................................................................... 9
N. Fork Bank v. ABC Merch. Servs. Inc.,
49 A.D.3d 701 (2d Dep't 2008) ............................................................................. 7
Philips Lighting Co. v. Schneider,
No. 05-CV-4820, 2008 U.S. Dist. LEXIS 77820
(E.D.N.Y. Sept. 30, 2008) ..................................................................................... 9
Pike v. New York Life Ins. Co.,
72 A.D.3d 1043 (2d Dep't 2010) ......................................................................... 14
Preferred Equities Corp. v. Ziegelman,
190 A.D.2d 784 (2d Dep't 1993) ......................................................................... 10
Red Tulip, LLC v. Neiva,
44 A.D.3d 204 (1st Dep't 2007) .................................................................... 10, 14
Signature Bank v. Laro Maintenance Corp.,
No. 016790/2009, 2011 N.Y. Misc. LEXIS 3205,
(Sup. Ct. Nassau Cnty. June 21, 2011) ................................................................ 13
Sterling Nat'l Bank v. Biaggi,
No. 604015/04, 2006 NY Misc LEXIS 9404
(Sup. Ct. N.Y. Cnty. Sept. 28, 2006) ..................................................................... 7
STATUTES
N.Y. Real Prop. Acts Law § 521 ............................................................................... 6
RULES
CPLR 3213 .......................................................................................................... 1, 15
OTHER AUTHORITIES
Black's Law Dictionary (9th ed. 2009) ...................................................................... 6
Edward Beal, Cardinal Rules of Legal Interpretation 55
(A.E. Randall ed., 3d ed. 1924) ............................................................................. 6
-lll-
Defendant-Appellant Francisco Javier Herrera Navarro
("Mr. Herrera") respectfully submits this Reply Brief in further support of his
appeal from the 3-2 decision and order of the Appellate Division, First
Department, dated January 16, 2014, reversing the Supreme Court's denial of the
motion of Plaintiff-Appellee Cooperatieve Centrale Raiffeisen-Boerenleenbank
B.A. "Rabobank International," New York Branch ("Rabobank") for Summary
Judgment in Lieu of Complaint.
Preliminary Statement
In Section 1 (b) of the Guaranty 1 at issue in this case, Mr. Herrera
guaranteed "the punctual payment ... of all obligations and liabilities of the
Company [Agra USA] to [Rabobank]." (R. 172). The sole legal issue in this
appeal is whether the waiver provisions of the Guaranty preclude Mr. Herrera from
requiring Rabobank to establish that the Federal Default Judgment obtained against
Agra USA was a valid "obligation" covered by Section l(b) of the Guaranty. The
IAS court and the dissenting justices of the Appellate Division panel held correctly
that Rabobank must first establish the existence of such a valid obligation (the
underlying debt) and held further that material fact issues preclude summary
judgment in this accelerated proceeding under CPLR 3213.
Capitalized terms have the same definition ascribed to them in Appellant's initial brief.
In its Opposition brief to this Court ("Opp."), Rabobank mis-states
and misapplies the waiver provisions of the Guaranty, as well as the applicable
law, and actually emphasizes the existence of disputed questions of fact as to
whether the Federal Default Judgment against Agra USA was a valid obligation
under the Guaranty.
Rabobank's Opposition is based upon the erroneous notion that
Mr. Herrera waived any right to challenge the existence of a valid "underlying
debt." He did not do so, and the Guaranty does not contain such a waiver.
Apparently recognizing as much, Rabobank repeatedly substitutes the words
"underlying debt" for the actual terms of the waiver: "notes, agreements or
instruments." (Opp. at 1, 2, 4, 8, 10, 23, 24, 28, 33, 34, 42). However, Mr. Herrera
does not challenge the validity of any such documents. Rather, he urges this Court
to require Rabobank to prove the existence of a valid underlying debt, as is
required by the law of this State.
Rabobank also mischaracterizes the fact issues Mr. Herrera raises to
challenge the existence of a valid underlying debt. Even without the benefit of any
discovery, Mr. Herrera submitted facts that raise the issue of who controlled Agra
USA, both de facto and de Jure, when Rabobank obtained the Federal Default
Judgment. If the answer is "Rabobank," then the lawsuit and judgment were
collusive because Rabobank was obtaining a judgment against a company it
2
controlled. Neither the Appellate Division majority nor Rabobank disputes that
legal proposition.
In response, Rabobank now states that Mr. Herrera accuses Rabobank
of conspiring with Agra Canada's "court-appointed" Receiver from Deloitte (who,
of course, was represented by the same lawyers who represented Rabobank in the
Federal Action and in the instant case). (Opp. at 44). Whether there was such a
conspiracy remains to be determined in discovery. The simple point is that
Rabobank sued Agra USA, and obtained a default judgment against a company it
controlled. Because fact questions exist as to the control issue, the IAS court
properly denied summary judgment.
Rabobank, however, attempts to persuade this Court that the
Guaranty's waiver confers upon Rabobank the right to enforce, without challenge,
and without any discovery as to these issues of fact, a $42 million default judgment
that it collusively engineered and obtained.
Appellant Herrera respectfully urges this Court not to permit
Rabobank to succeed.
3
ARGUMENT
I
MR. HERRERA DID NOT WAIVE
RABOBANK'S COLLUSION
A. Mr. Herrera Did Not Waive His Right To Contest
The Existence Of A Valid Underlying "Obligation"
Rabobank asserts that the Federal Default Judgment against Agra
USA is a guaranteed "Obligation" defined in Section l(b) of the Guaranty because
it purports to be an "obligation or liability" of Agra USA, defined in the Guaranty
as the "Company." (Opp. at 12). Mr. Herrera asserts that the judgment is not a
valid "obligation or liability" covered by the Guaranty because it was obtained by
collusion.
In its Opposition, Rabobank argues that Mr. Herrera waived the right
to contest whether the Federal Default Judgment is actually an "Obligation"
covered by the Guaranty. Rabobank repeatedly invokes Section 2(i) of the
Guaranty's waiver provision - a provision that simply does not apply here.
(Opp. at 8, 10, 23, 24, 28, 33, 34, 42). Rabobank states, for example:
Section 2 of the Guaranty further provides that
Appellant's obligations are absolute and unconditional
and that Appellant voluntarily agrees to waive any right
to contest Rabobank' s enforcement of the Guaranty
based upon the alleged invalidity or unenforceability of
the underlying debt ....
(Opp. at 8) (emphasis in original).
4
But Section 2 does not waive the right to contest enforcement of the
Guaranty based upon the alleged invalidity or enforceability of the "underlying
debt." Instead, Section 2(i) actually states:
The Guarantor guarantees that the Obligations will be
paid strictly in accordance with the terms of the
applicable agreements, notes or other instruments under
which the Obligations arise .... The liability of the
Guarantor under this Guaranty shall be absolute and
unconditional irrespective of:
(i) any lack of validity or enforceability of any such
agreement, note, or other instrument; ...
(R. 172) (emphasis added).
The distinction here is critical: the waiver in section 2(i) precludes
Mr. Herrera from asserting any defenses as to the validity or enforceability of the
"agreement, note, or other instrument" from which the "Obligations" arise. The
Federal Default Judgment, however, is not an "agreement, note, or other
instn1ment." Accordingly, Section 2(i) of the waiver does not apply.
In its Opposition, Rabobank pretends that the Federal Default
Judgment is an "instrument," citing the time-honored definition in Black's Law
5
Dictionary.2 However, Rabobank ignores the context of the Guaranty, which refers
to the Receivables Purchase Agreement and a Repayment Agreement.
(R. 171-72). While the Guaranty applies to all "obligations and liabilities" of Agra
USA, there is no mention of any expectation that the Guaranty would apply to a
judgment or anything other than a typical commercial instrument.
New York courts consistently have recognized the distinction between
instruments and judgments. See, e.g., Hinckley v. Kreitz, 58 N.Y. 583, 590 (1874)
("[sureties] are entitled to the benefit of any judgment or instrument against the
principal") (emphasis added); In re DeWolfe, 494 B.R. 193, 196 (Bankr. W.D.N.Y.
2013) ("her attorney would have had a charging lien if there had been an
appropriate instrument or judgment awarding that debtor/client an interest in the
property") (emphasis added); N.Y. Real Prop. Acts Law§ 521 ("Where there has
been an actual continued occupation of premises under a claim of right, exclusive
of any other right, but not founded upon a written instrument or a judgment or
decree, the premises so actually occupied, and no others, are deemed to have been
held adversely.") (emphasis added).
2 "An 'instmment' seems to embrace contracts, deeds, statutes, wills, Orders in Council,
orders ... whether in writing or in print, or partly in both; in fact, any written or printed
document that may have to be interpreted by the Courts." Black's Law Dictionary (9th ed. 2009)
(citing Edward Beal, Cardinal Rules of Legal Interpretation 55 (A.E. Randall ed., 3d ed. 1924)).
(Opp. at 23, n. 9).
6
Even if one were to consider that the Federal Default Judgment is an
"agreement, note, or other instrument," which it cannot be, the waiver in Section
2(i) of the Guaranty would not apply. Mr. Herrera does not contest the validity of
the Federal Default Judgment itself -- he does not argue, for example, that it was
not actually obtained by Rabobank, or that it was not actually entered by the
federal court on April 30, 2012. Instead, Mr. Herrera has raised questions of fact
as to whether the debt represented by the Federal Default Judgment is a proper
obligation of Agra USA, given the collusive manner in which it was obtained.
Rabobank cites a litany of inapposite cases on this point. (Opp. at
24-25). These cases, however, either: (i) involve waivers that specifically
disclaim defenses as to the validity of the underlying debt (unlike Section 2(i) of
the Guaranty, which only disclaims defenses as to the validity of the agreement or
instrument sued upon) (see Opp. at 24-25, citing LFR Collections LLC v. Blan Law
Offices, 117 A.D.3d 486 (1st Dep't 2014), Sterling Nat'! Bank v. Biaggi, No.
604015/04, 2006 NY Misc LEXIS 9404 (Sup. Ct. N.Y. Cnty. Sept. 28, 2006)); or
(ii) involve defenses raised by defendants as to the validity of the instrument itself
(a defense that Mr. Herrera does not raise) (see Opp. at 25, citing Acadia Woods
Partners, LLC v. Signal Lake Fund LP, 102 A.D.3d 522 (1st Dep't 2013), Grand
Pac. Fin. Corp. v. 97-111 Hale, LLC, 90 A.D.3d 534 (1st Dep't 2011), N. Fork
Bank v. ABC Merch. Servs. Inc., 49 A.D.3d 701 (2d Dep't 2008)).
7
Rabobank's reliance on the "any other circumstances" waiver in
Section 2(iv) of the Guaranty is also misplaced. The relevant section provides:
The Guarantor guarantees that the Obligations will be
paid strictly in accordance with the terms of the
applicable agreements, notes or other instruments under
which the Obligations arise .... The liability of the
Guarantor under this Guaranty shall be absolute and
unconditional irrespective of:
* * *
(iv) any other circumstances which might otherwise
constitute a defense available to, or a discharge of, the
Seller or a guarantor.
(R. 172). Like Section 2(i), this provision waives defenses to a guarantor's failure
to pay an "Obligation" "strictly in accordance with the terms of the applicable
agreements, notes or other instruments under which the Obligation[] arose."
(R. 172). As explained above, here there are no such "agreements, notes or other
instruments." There is only the Federal Default Judgment. Mr. Herrera has not
waived any right to contest its validity as an "Obligation" covered by the Guaranty.
B. Rabobank's Reliance upon Citibank is Misplaced
Insisting upon application of the "any other circumstances " waiver in
Section 2(iv) of the Guaranty, Rabobank attempts in vain to apply this Court's
decision in Citibank, N. A. v. Plapinger, 66 N.Y.2d 90 (1985) to the present case.
This Court's holding in Citibank does not apply here, however, because it is
8
limited to defenses which challenge the validity of the actual instn1ment sued
upon.3
At the crux of the defenses asserted by defendants in Citibank was the
contention that they had been fraudulently induced to enter into a loan agreement
based upon plaintiffs' oral representations that a line of credit that would be
extended to the defendants. Citibank, 66 N.Y.2d at 93-94. Defendants also
asserted a secondary defense, asserting that the denial of the promised line of credit
constituted a failure of a condition precedent to their liability on the loan
agreement. Id. Contrary to Raboba1?1c's assertion here (Opp. at 26), this secondary
defense was grounded in and inextricably tied to the Citibank defendants' primary
defense of fraudulent inducement.
3 Indeed, in order to invalidate an asserted defense under Citibank, a waiver of defenses
clause must specifically disclaim the asserted defense. See Mfrs. Hanover Trust Co. v. Yanakas,
7 F.3d 310, 316-17 (2d Cir. 1993) (noting that, under Citibank, the "touchstone is specificity");
Philips Lighting Co. v. Schneider, No. 05-CV-4820, 2008 U.S. Dist. LEXIS 77820, at *9-10
(E.D.N.Y. Sept. 30, 2008) ("New York precedent supports the conclusion that this requirement
of specificity applies to waivers of defenses generally ... In finding waivers of various defenses,
the New York courts have relied substantially on specific language in the guarantee agreements
at issue even though the agreements contained the phrase 'absolute and unconditional."').
Although New York Courts have occasionally enforced more general waivers of
defenses, this relaxed standard only applies where the contract was "signed 'following extended
negotiations between sophisticated business people."' Yanakas, 7 F.3d at 316. See also
Finkelstein v. ltkowitz & Harwood, 28 A.D.3d 336 (1st Dep't 2006) (affirming denial of
summary judgment motion based on contract waiver given "evidence indicating that the
purported waiver had not been made by one with authority to bind defendant"); c.f Aniero
Concrete Co. v. N.Y. City Constr. Auth., Nos. 94 Civ. 9111, 95 Civ. 3506, 1997 WL 3268, at *8
(S.D.N.Y. Jan. 3, 1997) (enforcing waiver clause that was "sufficiently specific," where
agreement was "not merely a standard form agreement" and plaintiff was a "business sufficiently
large and sophisticated to take on a project whose cost it estimated as close to $19 million").
Given that Mr. Herrera, who has limited familiarity with the English language, signed the
Guaranty only at the behest of Guzman, and given that Guzman was responsible for the
negotiation and execution of that Guaranty, questions of fact exist as to whether Mr. Herrera's
Guaranty may indeed constitute an arms-length transaction between parties of equal
sophistication. (R. 251-52).
9
This Court held that the affirmative defenses of fraudulent inducement
and failure of a condition precedent were precluded by the waiver of defenses. Id.
at 95. Otherwise, the Court reasoned, the defendants' assertion of those defenses
would have contradicted the defendants' averment, in signing the guaranty, that the
loan agreement "absolute[ly] and unconditional[ly]" encompassed the parties'
entire agreement, without mention of any oral representations. Id.
Rabobank cites various post-Citibank cases for the proposition that
Citibank "preclude[s] [the] assertion of defenses by defendants in actions to collect
upon guarantees where the guarantees contained express waivers of such defenses"
(Opp. at 28). However, all of these cases likewise involved defenses calling into
question the validity of the very instn1ment sued upon.4 They were defenses
which, if allowed to proceed, would "in effect condone defendants' own fraud" by
permitting the defendants to represent that the agreement they had already signed
4 See 627 Acquisition Co. v. 627 Greenwich, LLC, 85 A.D.3d 645 (1st Dep't 2011)
(involving only the defense of fraudulent inducement); Banco de Estado de Sao Paulo S.A. v.
Mendez Junior Int'/ Co., 249 A.D.2d 137 (1st Dep't 1998) (same); Preferred Equities Corp. v.
Ziegelman, 190 A.D.2d 784 (2d Dep't 1993) (same); Gen. Trading Co. v. A&D Food Corp., 292
A.D.2d 266 (1st Dep't 2002) (involving defenses of fraudulent inducement and failure of
consideration: defenses which call into question the validity of the guaranty itself); Gannett Co.
v. Tesler, 177 A.D.2d 353 (1st Dep't 1991) (involving defenses of fraudulent inducement,
discharge in release, and failure of consideration: defenses which again call into question the
validity of the guaranty itself).
Rabobank cites as well to Hotel 71 Mezz Lender LLC v. Falor, 14 N.Y.3d 303 (2010) on
this point. (Opp. at 28). That case neither cites to Citibank nor addresses the issues of waiver.
Rabobank also cites Red Tulip, LLC v. Neiva, 44 A.D.3d 204 (1st Dep't 2007) in support
of its position here. The First Department there noted, however, that a waiver of defenses would
not operate where, as here, "the record in this case [could] support a finding that [plaintiff]
wrongfully caused [defendant's] default." 44 A.D.3d at 211. However, because the defendant
there was unable to prove that plaintiff wrongfully caused the debt to accme (as the debt had
already accmed as of the time of plaintiff's alleged wrongful conduct), the court held that the
defense would not survive the unconditional language of the guaranty. 44 A.D.3d at 213.
10
was not, in fact, absolute and unconditional. Citibank, N. A. v. Plapinger,
66 N.Y.2d at 95.
For this reason, Citibank does not apply to the present case.
Mr. Herrera's contention that a true and correct obligation has not yet accrued
under the Guaranty is not a contradiction of any of the Guaranty's representations.
He does not assert that Rabobank made any representations collateral to the
Guaranty; nor that the Guaranty is invalid as procured by fraud; nor that the
Guaranty is anything other than absolute and unconditional. He argues only that
an underlying "obligation" has not accrued.
C. Rabobank's Attempts To Distinguish Canterbury
Actually Highlight Its Significance In The Present Case
Rabobank also tries in vain to distinguish Canterbury Realty & Equip.
Corp. v. Poughkeepsie Sav. Bank, 135 A.D.2d 102 (3d Dep't 1988).
In its Opposition, Rabobank points to three alleged discrepancies in
Canterbury. First, Rabobank asserts that the "guarantors in Canterbury waived
only those defenses of the primary obligor as to the primary obligation . . . . As a
result, the Canterbury guarantors were free to assert a variety of defenses of their
own." (Opp. at 35) (citations omitted). This suggestion that the guarantors in
Canterbury were raising a "defense of their own" is simply false. The guarantors
in Canterbury were contesting the very existence of a "primary obligation" owed
11
by the primary obligor - the same argument that Mr. Herrera makes here.
135 A.D.2d at 106-07. This argument, as the court in Canterbury explicitly held,
does not even implicate the absolute and unconditional waiver:
[D]espite the language of the unconditional guarantees ...
there is nothing in the guarantee language which
precludes each of the guarantors from holding the Bank to
the terms of that instrument itself .... The guarantors
only obligated themselves unconditionally to make
payments on Canterbury's liabilities 'when due.'
Id. Mr. Herrera contests the very existence of an obligation properly owed by
Agra USA, as he too guaranteed only the obligations of Agra USA "when due."
(R. 171-72).
Second, Rabobank claims that Canterbury does not apply because the
"guarantees at issue [there] contained specific conditions precedent to the [bank's]
ability to trigger their enforcement ... inherently rais[ing] factual issues precluding
an award of summary judgment." (Opp. at 35) (citations omitted). While it is
correct that the guarantees in Canterbury contained conditions precedent, it was
not the existence of those conditions precedent alone which "inherently" raised
questions of fact precluding an award of summary judgment. Rather, the fact
issues raised by the guarantors in Canterbury ultimately concerned whether the
bank had wrongfully caused the default sued upon, just as the questions of fact
raised by Mr. Herrera challenge whether the Federal Default Judgment was
wrongfully caused by Rabobank' s own collusion.
12
Third, Rabobank asserts that Canterbury is inapposite because it is
based upon the "general proposition that 'a promisee who prevents the promisor
from being able to perform the promise cannot maintain a suit for nonperformance'
... [and] Appellant does not allege that anyone prevented him from taking action
as a director of Agra USA .... " (Opp. at 36) (citations omitted). But Mr. Herrera
does exactly that: he points to evidence and raises questions of fact indicating that
Rabobank indeed prevented him from asserting a defense on Agra USA's behalf.
See infra pp. 17-20.
In sum, Rabobank's purported distinctions ring hollow. See also
Signature Bank v. Laro. Maint. Corp., No. 016790/2009, 2011 N.Y. Misc. LEXIS
3205, at *5-6 (Sup. Ct. Nassau Cnty. June 21, 2011) (defendants' assertion that
plaintiff bank had "consented to or even encouraged the corporate defendants'
default through an agent of the Plaintiff," was not barred by the guarantees' "broad
waiver clauses," because, "[i]n any case, [the guarantors'] argument is not a
defense to the Guaranty Agreement itself, much less a counter-claim or set-off ...
[r]ather, [the argument raises] issues that go to a basic fact question that the
Plaintiff must resolve in order to establish a prima facie case .... ")(emphasis
added).
13
D. Rabobank May Not Take Advantage Of The Waiver
To Excuse Its Own Wrongdoing
As Rabobank recognizes (Opp. at 29-30), New York law clearly holds
that a party may not use a waiver to its advantage in furthering its own
wrongdoing. See Red Tulip, LLC v. Neiva, 44 A.D.3d 204, 211 (1st Dep't 2007)
(an unconditional waiver of defenses will not apply where the record "support[s] a
finding that [plaintiff] wrongfully caused [defendant's] default"); Pike v. New York
Life Ins. Co., 72 A.D.3d 1043, 1051 (2d Dep't 2010) (insured's waiver of "all
rights, claims and demands" could not "operate to shield [insurer] from [its] own
fraud"); European Am. Bank v. Mr. Wemmick, Ltd., 160 A.D.2d 905, 906 (2d
Dep't 1990) (waiver of all counterclaims could not be used to shield the bank
"from its own tortious conduct"); Canterbury, 135 A.D.2d at 107 (bank's
"wrongful conduct" in causing the default sued upon could "serve to discharge the
guarantors' obligation"). See also JPMorgan Chase Bank ex rel. Mahonia Ltd. v.
Liberty Mut. Ins. Co., 189 F. Supp. 2d 24, 28 (S.D.N.Y. 2002) ("nothing in the
broad disclaimer language of the Bonds excludes the defense -- whether
characterized as a defense of fraudulent inducement or fraudulent concealment --
that the insured arrangements were a total sham whose reality was totally
concealed from the Sureties.").
Rabobank acknowledges the legal principle, but argues that the
relevant cases address only efforts to use a waiver to permit fraud and deceit (or
14
perhaps bullying). (Opp. at 29). While it is true that none of the cases specifically
addresses collusion, and Mr. Herrera has not used the word "fraud" to describe
Rabobank' s deceitful conduct, Rabobank misses the point. The legal principle is
sound, and Rabobank has violated it: this Court will not enforce a waiver
provision that would permit Rabobank to enforce an obligation that was
wrongfully obtained.
(R. 17).
II
MATERIAL ISSUES OF FACT
PRECLUDE SUMMARY JUDGMENT
The IAS court correctly held:
Given the facts available at this time, it is unclear
who controlled Agra USA during the course of the
District Court action, at the time of the default, and when
[the Federal Default Judgment] was entered. These are
material questions of fact that preclude summary
judgment.
The IAS court's mention of "facts available at this time" is highly
significant. The court was referring to the limited record before it on a motion for
accelerated judgment pursuant to CPLR 3 213. There had been no discovery, and
Rabobank moved for summary judgment as to Section l(a) of the Guaranty, in
which Mr. Herrera guaranteed payment of Agra Canada's outstanding
"receivables." (R. 219-36). When Mr. Herrera opposed the motion by raising fact
15
issues as to the existence of any real receivables, Rabobank's Reply raised for the
first time a claim to enforce Section 1 (b) of the Guaranty, which covered all
"obligations and liabilities" of Agra USA. (R. 296-311). Mr. Herrera was then
forced to ask for permission to file a surreply, such that the Record before this
Court reflects only those documents that Mr. Herrera was able to locate, without
discovery of Rabobank, in the intervening thirteen days before the surreply was
due. (R. 312-25). Documents produced after summary judgment are not before
this Court.5
Taking advantage of the limited Record, Rabobank attempts in its
Opposition brief to obfuscate the relevant material issues of fact as to its collusive
lawsuit against Agra USA and "who controlled Agra USA" by arguing what
Mr. Herrera "could" or "should" have done to prevent Rabobank from obtaining
the Federal Default Judgment. (Opp. at 6, 12, 36, 38-42). That argument belies
the facts in the Record demonstrating that Mr. Herrera did not have the practical
ability to foil Rabobank' s actions. It also ignores what is actually relevant: the
evidence demonstrating Rabobank' s control over Agra USA through Deloitte, the
Agra Canada receiver that took over Agra USA at the behest of Rabobank' s
5 On June 5, 2014, this Court denied Mr. Herrera's motion to expand the record with
documents obtained in discovery after summary judgment had been denied. Cooperatieve
Centrale Ra(ffeisen-Boerenleenbank B.A., &c., v. Francisco Javier Herrera Navarro, N.Y. Ct.
Appeals, June 5, 2014, Mot. No. 2014-257.
16
counsel, Haynes Boone, and Rabobank' s procurement of a default judgment
against Agra USA, a company it actually controlled.
Instead Rabobank boldly professes that the Federal Default Judgment
"resulted from Appellant's own inactions." (Opp. at 38). Rabobank then goes on
to enumerate a list of ostensibly undisputed facts, all centered upon the "fact" that
Mr. Herrera was "aware" of the Federal Action. (Opp. at 38-39). Putting aside
that Rabobank's conduct in the Federal Action was collusive and wrongful
irrespective of whether Mr. Herrera "should" have asserted a defense on Agra
USA's behalf, the fact that Mr. Herrera was "aware" of the lawsuit against Agra
USA is not relevant. The relevant questions of fact instead concern whether
Mr. Herrera retained any practical ability to intervene or assert a defense on Agra
USA's behalf.6
The Record shows that Mr. Herrera did not retain that ability, whether
before or after his official removal as director of Agra USA on April 11, 2012.
Although April 11, 2012 is the date upon which the Deloitte trustee officially
replaced Mr. Herrera as director of Agra USA (R. 368), it strains credulity to
imagine that this April 11, 2012 changeover happened suddenly, in a vacuum, and
6 The court in the Federal Action lacked subject matter jurisdiction over the claim against
Mr. Herrera. Rabobank's representation to this Court that Mr. Herrera "respond[ed] to the
claims asserted against him individually in the Federal Action" (Opp. at 39) is not accurate, as
Rabobank well knows. Mr. Herrera never responded to the complamt. Rabobank withdrew its
complaint against Mr. Herrera in the Federal Action "[u]pon notice from Mr. Herrera's counsel
that subject matter jurisdiction was lacking." (R. 329). It is surprising, therefore, that Rabobank
implies that Mr. Herrera participated in the Federal Action. He unquestionably did not.
17
without any prior steps taken by Rabobank or the Deloitte receiver to exercise
ownership and control over Agra USA. The Record demonstrates that Rabobank
was indeed exerting its influence over Agra USA as early as January 20, 2012,
when it placed Agra Canada into receivership and nominated Deloitte as receiver
and trustee. (R. 339).
To that end, by Febniary 2012, Rabobank and/or Deloitte had already
intervened to:
• Obtain writs of garnishment against Agra USA (R. 343);
• Contact and question Agra Canada's employees (R. 344-46);
• Contact and question Agra Canada's former directors (id.);
• Contact and question the security guard for Agra Canada's
office (id.);
• Contact and question Agra Canada's legal counsel, Fraser
Milner Casgrain LLP (id.);
• Contact and question Agra Canada's external accountants,
Keown & Liebig LLP (id.);
• Contact and question Agra Canada's external auditors, Grant
Thornton LLP (id.);
• Contact and question the banks at which Agra Canada's
accounts were located (id.);
• Seize five boxes of documents from Agra Canada's main office
(id.);
• Seize 16 boxes of documents from storage (id.); and
• Instruct the attorney in Texas for Mr. Herrera to secure and
return Agra USA's property (R. 368-69).
18
The practical implications of having Rabobank: ( 1) place Agra
Canada into involuntary bankn1ptcy; (2) engage in interrogations and inspections
of the company's employees, attorneys, consultants, and documents via the
Deloitte receivership; and (3) then instruct Mr. Herrera's attorney to provide
Rabobank with all property belonging to Agra USA - cannot be underestimated. It
is unrealistic to expect Mr. Herrera, who was in Mexico and a director of Agra
USA in name only, and who had not taken part in the commercial activities of
Agra Canada (or Agra USA) since 2006 (R. 251),7 to have been in a position to
usurp Rabobank' s increasing control over the Agra entities.
Rabobank' s fixation on how or why Mr. Herrera failed to foil
Rabobank' s collusion does not alter the actual material issues of fact that
Rabobank cannot refute:
• Agra Canada was placed into involuntary bankruptcy only upon
Rabobank' s application (R. 339);
7 Rabobank suggests that Mr. Herrera exag~erates his degree of disassociation from Agra
Canada's activities. (Opp. at 43). But Rabobank s Record citations on this point actually
exemplify Mr. Herrera's very lack of power or control over the Agra entities. Rabobank claims,
for example, that Mr. Herrera was "Chief Executive Officer of Aara Canada." (Opp. at 43). The
single insurance policy that purports to identify Mr. Herrera as "Chief Executive Officer,"
however, simultaneously lists one David Homer and Eduardo Guzman Solis as "Chief Executive
Officers" of Agra Canada as well. (R. 113).
Rabobank then points to Mr. Herrera's Affidavit and claims that Mr. Herrera has been in
"control" of Agra's activities following Guzman's death. (Opp. at 43). Mr. Herrera's Affidavit
makes clear, however, that he assumed responsibility over Agra's activities only insofar as he
retained an independent auditor to review Agra Canada's books and records. (R. 252). Those
auditors, moreover, were retained on January 17, 2012 (R. 257), days prior to Rabobank placing
Agra Canada into involuntary bankmptcy in Canada. (R. 342). Mr. Herrera's Affidavit further
notes that he had "not taken any part m A~ra Services' habitual commercial activities since
2006[,]" and that Guzman was "exclusively responsible for the negotiation, execution, and
supervision of all of Agra Services' business activities, [including] the transactions with
Rabobank." (R. 252).
19
• Rabobank's "US legal counsel" (Haynes Boone) retained
Deloitte's member firm as a "consultant" for purposes of
collecting the Receivables against Agra Canada (R. 343);
• Rabobank' s attorneys at Haynes Boone, while purporting to
represent the Deloitte receiver, instructed Mr. Herrera's
attorneys in February 2012 to tum over Agra USA's property
(R. 368-69);
• Rabobank' s attorneys at Haynes Boone collectively referred to
Deloitte and Rabobank as a "we," and representatives from
Haynes Boone joined Deloitte in attempting to seize Agra
USA' s property (R. 369);
• Deloitte took only "minimal actions" to preserve Agra USA's
property in the Unites States pending Rabobank's own
initiatives (R. 343);
• Through Haynes Boone, Rabobank continued to actively pursue
a default judgment against Agra USA for almost three weeks
after the official removal of Mr. Herrera as director of Agra
USA (R. 373-83);
• Rabobank' s Order to Show Cause requesting entry of a default
judgment against Agra USA in the Federal Action, filed on
April 16, 2012, failed to disclose that Rabobank had installed
its own agent as sole director of Agra USA (R. 375);
• Rabobank' s Declaration further requesting entry of a default
judgment against Agra USA in the Federal Action, filed on
April 19, 2012, also failed to disclose that Rabobank had
installed its own agent as sole director of Agra USA (R. 375);
and
• Rabobank, at the April 24, 2012 hearing set by U.S. District
Judge Gardephe in the Federal Action, again failed to disclose
to the court that it had installed its own agent as sole director of
Agra USA.
20
In its Opposition, Rabobank provides no response to these undisputed
facts.
The Appellate Division majority likewise ignored these facts. Instead,
it held that "[ e ]ven if the issue of control were relevant, the record presents no
material issue of fact on that issue." (R. xiv). The majority then proceeded only to
acknowledge that Deloitte had moved to take control of Agra USA as early as
February 2012, but that Mr. Herrera was a director of Agra USA until he was
removed on April 11, including on April 4 when the request for default was filed.
(R. xv). The majority, however, failed to address any of the other facts in the
record. In its Opposition, Rabobank similarly ignores the same facts.
(R. xxii).
The minority opinion of the Appellate Division correctly states:
Plaintiff's argument, moreover, ignores the
evidence of plaintiff's de facto control of Agra USA prior
to Herrera's removal. Due to the accelerated nature of
this proceeding under CPLR 3213 there has been no
discovery. In all likelihood, discovery will reveal
additional evidence as to the extent of the authority
exercised by plaintiff over Agra USA.
Accordingly, Mr. Herrera respectfully requests that this Court deny
plaintiff's motion for summary judgment in lieu of complaint and permit the case
to proceed.
21
Conclusion
The Order of the Appellate Division should be reversed.
October 6, 2014
New York, New York
19937978
22
Respectfully submitted,
CURTIS, MALLET-PREVOST,
COLT&MOSLELLP ~· /
By: I . &;::- AL-----
T. Barry Kingh'fil7 /
Francesca M. Erts
101 Park A venue
New York, New York 10178-0061
(212) 696-6000
Attorneys for Defendant-Appellant