626 F. App'x 346
2d Cir.2015Background
- Plaintiffs Themis Capital and Des Moines Investments are successors to 1980 Credit Agreement debt issued by (then) Zaire; the debt defaulted in 1990 and plaintiffs sued in 2009 to recover.
- Defendants are the Democratic Republic of the Congo (DRC) and its Central Bank; officials signed debt-acknowledgement letters in 1991, 1997, and 2003 acknowledging the obligations and tolling New York’s six-year statute of limitations.
- District Court held after a two-day bench trial that the 2003 Acknowledgement Letter was binding because the Finance Minister and Central Bank Governor had actual and apparent authority to bind the DRC and Central Bank, making plaintiffs’ claims timely.
- District Court awarded principal, interest on principal, and compound interest on interest (but denied “second-generation” compound interest — i.e., interest on unpaid compound interest).
- On appeal, defendants challenged signatories’ authority and the award of compound interest; plaintiffs cross-appealed the denial of second-generation compound interest.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Authority to bind DRC via 2003 Acknowledgement Letter | Officials retained actual authority under DRC law (Ordinance 80-073) to implement Credit Agreement; letter valid | Regime change and executive decree required Council of Ministers approval for actions with budgetary repercussions, so signatories lacked authority | Affirmed: Finance Minister and Central Bank Governor had actual authority; Executive Degree inapplicable because letter preserved status quo |
| Apparent authority (alternative ground) | Plaintiffs reasonably relied on routine practice of prior acknowledgements | Defendants denied that reliance could bind sovereign | District Court’s apparent-authority holding unnecessary to reach; affirmance rests on actual authority |
| Interpretation of interest clause (compound interest) | Section 3.05 requires monthly compounding of interest; compound interest payable on demand but accrues | Defendants: “payable on demand” means both due and payable on demand, precluding accrual until demanded | Affirmed: clause yields compound interest on interest (accrues monthly and payable on demand); defendants’ reading unreasonable |
| Second-generation compound interest (interest on unpaid interest that itself is compound) | Contract language (interest on “all interest which is not paid when due hereunder”) encompasses interest on previously compounded interest | District Court: textual basis lacking; infinite compounding problematic | Reversed: plain contract language supports interest on all unpaid interest, including compound interest; remanded to calculate full damages |
Key Cases Cited
- Merck Eprova AG v. Gnosis S.p.A., 760 F.3d 247 (2d Cir.) (standard of review for bench-trial legal conclusions)
- Diebold Foundation, Inc. v. C.I.R., 736 F.3d 172 (2d Cir.) (review of mixed law-fact questions)
- Diesel Props S.r.l. v. Greystone Bus. Credit II LLC, 631 F.3d 42 (2d Cir.) (clearly erroneous standard where two permissible views exist)
- Readco, Inc. v. Marine Midland Bank, 81 F.3d 295 (2d Cir.) (unreasonable contractual interpretation cannot create ambiguity)
- LaSalle Bank Nat. Ass’n v. Nomura Asset Capital Corp., 424 F.3d 195 (2d Cir.) (contracts construed to give full meaning to all provisions)
- Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 313 F.3d 70 (2d Cir.) (foreign sovereign’s legal views merit some but not commanding deference)