AMERICAN GENERAL LIFE INSURANCE CO et al v - Docket Alarm

AMERICAN GENERAL LIFE INSURANCE CO et al v - Docket Alarm

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK .................................................................... x AMERICAN GENERAL LI...

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SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ....................................................................

x

AMERICAN GENERAL LIFE INSURANCE CO. and

:

AIG ANNUITY LIFE INSURANCE COMPANY,

:

Hon. Barbara R. Kapnick

V.

RAIN/GLC HOLDINGS, LLC (f/k/a AIP/GLC HOLDINGS, LLC) and RAIN COMMODITIES LIMITED,

PLAINTIFFS AMERICAN GENERAL LIFE INSURANCE COMPANY

AND AIG ANNUITY LIFE INSURANCE CONIPANY’S OPPOSITION TO THE RAIN PARTIES’ MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR PARTIAL SUMMARY JUDGMENT AND MEMORANDUM OF LAW

IN SUPPORT OF THEIR CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT

WOLLMUTH MAHER & DEUTSCH LLP 500 Fifth Avenue New York, New York 10110

(212) 382-3300 David H. Wollmuth

Vincent T. Chang

f

Defendants.

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Plaintiffs,

Index No. 603334/07

TABLE OF CONTENTS

Page TABLE OF AUTHORITIES ....................................................................................................... .. iii

STATEMENT OF FACTS ........................................................................................................... .. 3 The AIG Parties’ Purchase of the Notes ........................................................................... .. 4

The Note Purchase Agreements ........................................................................................ .. 4 The Critical Nature of Rain’s Failure to Disclose

That it Received Interest at The Fixed Exchange Rate ......................................... .. 5 ARGUMENT ................................................................................................................................ .. 7 RAIN HAS BREACHED NUMEROUS PROVISIONS OF THE SECURITIES PURCHASE AGREEMENTS ...................................................... .. 7

A.

The Breaches of Contract Committed by Rain ......................................... .. 8

f

I.

1.

Rain's Failure to Disclose its Waiver of Certain Provisions of the Notes and the Indenture .................................... .. 8

2.

Rain’s Failure to Disclose That it Was Bound by the Acknowledgment Agreements ...................................................... .. 8

3.

Rain’s Failure to Disclose Its Agreement to Receive Less Favorable Treatment Than Provided for Under the Notes

and Indenture ................................................................................ .. 9 4.

Rain’s Failure to Disclose that it Had Written Notice of a

Defense to the Indenture and the Notes ........................................ .. 9

5.

Rain’s Failure to Disclose That the Notes Were Not Enforceable By Rain in Accordance With Their Terms ............. .. 10

6.

Rain’s Failure to Disclose that a Potential Event of

Default Existed............................................................................ .. 10

B.

Rain Is Not Entitled to Any Deferred Compensation Due to Ra_in’s Breaches of Contract ................................................................... .. 10

C.

The AIG Parties Are Entitled to Summary Judgment

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PRELIMINARY STATEMENT .................................................................................................. .. 1

TABLE OF CONTENTS

(continued) Page

D.

The AIG Parties Are Entitled to Summary Judgment On Their Claim For Breach of the Covenant of Good Faith and Fair

Dealing .................................................................................................... .. 14 II.

THE AIG PARTIES ARE ENTITLED TO SUMMARY JUDGMENT

ON THE EACH OF THE OTHER COUNTS IN THEIR COMPLAINT.......... .. 15

A.

AIG Is Entitled To Summary Judgment On Its Implied Warranty Claim ....................................................................................................... .. 15

AIG Is Entitled To Summary Judgment On Its Negligent Misrepresentation Claim ........................................................ .. 17

C.

The AIG Parties Are Entitled To Summary Judgment On Their Promissory Estoppel Claim .................................... .. 18

D.

The AIG Parties Are Entitled to Summary Judgment on Their

f

B.

Unjust Enrichment Claim ....................................................................... .. 19

III.

Defendants’ Judicial Estoppel Claims Are Wholly Without Merit .................... .. 15

IV.

Defendants’ Damages Arguments Are Wholly Without Merit

22

CONCLUSION ........................................................................................................................... .. 25

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Arising Out of the Breaches of the Purchase Agreements by Rain .................... .. 11

TABLE OF AUTHORITIES

Page CASES

50 Madison Ave. LLC V. RCDolner LLC,

Advent Elecs. V. Buckrn-an,

1995 U.S. Dist. LEXIS 11696 (N.D. Ill. Aug. 14, 1995) ................................................. ..11 Aggess v. Clarkstown Cent. Sch. Dist.,

69 A.D.3d 769 (2d Dep’t 2010) ....................................................................................... ..18

Agplnick v. American Hospital Supply Co;p.,

507 F. Supp. 135 (D. Mass. 1981) .......................... .._. ...................................................... ..14 AUSA Life Ins. Co. v. Ernst & Young, 206 F.3d 202 (2d Cir. 2000) ............................................................................................. ._17 Basko v. Sterling Drug, Inc.,

f

416 F.2d 417 (2d Cir. 1969) ............................................................................................ ..24

Bellevue South Assocs v. HRH Cont. Co;'p., 184 A.D.2d 221, S85 N.Y.S.2d 191 (1st Dep’t 1992)), lv. denied, 80 N.Y.2d 758, 602 N.E.2d 1125, 589 N.Y.S.2d 309 (1992) ........................ ..20 Bi-Economy Mkt., Inc. v. Harlexsville Ins. Co. ofN.Y., 10 N.Y.3d 187 (2008) ...................................................................................................... ..24 Borrillo V. Beekman Downtown Hosp.,

146 A.D.2d 734 (2d Dep’t 1989) ..................................................................................... ..21 Brushton-Moira Cent. School Dist. v Thomas Assoc.

91 N.Y.2d 256, 692 N.E.2d 551, 669 N.Y.S.2d 520 (1998) ............................................ ..24 Cascade Energy and Metals Copp. v. Banks,

896 F.2d 1557 (1o“‘ Cir. 1990) ........................................................................................ ..11 Chemical Bank v. Aetna Ins. Co.,

417 N.Y.S.2d 382 (Sup. Ct. N.Y. County 1979) ............................................................. ..22 Cipriano v. Glen Clove Lodge # 1458, B.P.O.E., I N.Y.3d 53 (2003) .......................................................................................................... ..11

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2010 N.Y. Slip Op. 30910U (N .Y. Cty. Apr. 7, 2010) .................................................... ..11

CMMF, LLC v. J.P. Morgan Investment Management, Inc.,

2010 N.Y. Slip Op. 8628 (1st Dep’t Nov. 23, 2010) ....................................................... ..17 Collard v. Incomorated Village of Flower Hill,

Deutsch v. Integrated Barter International, Inc.,

700 F. Supp. 194 (S.D.N.Y. 1988) .................................................................................. ..20 Dorking Genetics v. United States,

76 F.3d 1261 (2d Cir 1996)............................................................... .. ............................. ..17 E*Trade Fin. Corp. v. Deutsche Bank AG,

420 F. Supp. 2d 273 (S.D.N.Y. 2006) .............................................................................. ..24 ECDC Envt’l. L.C. v. New York Marine & Gen. Ins. Co.,

1999 U.S. Dist. LEXIS 15268 (S.D.N.Y. Sept. 27, 1999) ............................................... ..25 Estate of Gallagher,

First Am. Title Ins. Co. v. Cumberland Conny Bank, 633 F. Supp. 2d 566 (M.D. Tenn. 2009) .......................................................................... ..16 Geren v. Quantum Chem. Co;p.,

832 F. Supp. 728 (S.D.N.Y. 1993) .................................................................................. ..14 Gersh v. Fortnow

2008 N.Y. Misc. LEXIS 8584 (N .Y. Sup. Ct. Mar. 6, 2008) .......................................... ..l9 Goodstein Constr. Corp. v. Cig; of New York,

80 N.Y.2d 366, 604 N.E.2d 1356, 590 N.Y.S.2d 425 (1992) .......................................... ..24 I-Iammelburger V. Foursome Inn Corp, 54 N.Y.2d 580 (1981) ...................................................................................................... ..16 Indiana Nat’l Bank v. State Dep’t of Human Servs., 880 P.2d 371 (Okla. 1994) ............................................................................................... ..l6

J0113 v. MPTC Holdings, Inc.,

2009 U.S. Dist. LEXIS 111172 (N.D. Tex. Dec. 1, 2009) .............................................. ..14 Kaye v. Grossman,

202 F.3d 611 (2d Cir. 2000) ............................................................................................. .,18

f

2007 N.Y. Misc. LEXIS 7639 (N.Y. Sur. Ct. Sept. 26, 2007) ......................................... ..20

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75 A.D.2d 631, 427 N.Y.S.2d 301 (2d Dep’t 1980) aff’d, 52 N.Y.2d 594, 439 N.Y.S.2d 326, 421 N.E.2d 818 (1981) .................................. ..14

Korff v. Corbett

18 A.D.3d 248, 794 N.Y.S.2d 374 (1st Dep’t 2005) Leber—Krebs, Inc. v. Capitol Records,

1985 U.S. Dist. LEXIS 22325 (S.D.N.Y. Feb. 25, 1985) .......................................... ..21, 22 Mann Theatres Com. V. Mid-Island Shopping Plaza Co., 94 A.D.2d 466 (2d Dep’t I983) ....................................................................................... ..21

Mercantile Bank of Kansas Cig v. Farmers & Merchants State Bank,

1988 U.S. Dist. LEXIS 14784 (D. Kan. Dec. 19, 1988) (affd in part, rev’d in part, 920 F.2d 1539 (10th Cir. 1990) .................................................................. ..16 Meyersohn v. Bloom, 288 A.D.2d 36 (1st Dep’t 2001) ...................................................................................... ..18

Monteleone v. Leverage Group,

2009 U.S. Dist. LEXIS 8682 (E.D.N.Y. Jan. 28, 2009) .................................................. ..24 Moriajg v. Hills Funeral Home, 221 F. Supp. 2d 887 (ND. 111. 2002) ............................................................................... ..25

Mount Vernon Fire Insurance Co. v. Creative Housing Ltd., 88 N.Y.2d 350 (1996) ...................................................................................................... ..12 NAS Elecs. v. Transtech Elecs. PTE,

262 F. Supp. 2d 134 (S.D.N.Y. 2003) .............................................................................. ..11

New Windsor Volunteer Ambulance Corps v. Meyers, 442 F.3d 101 (2d Cir. 2006) ............................................................................................. ..11 Norstar Bank Nat. Ass’n v. Davis,

238 A.D.2d 892, 661 N.Y.S.2d l06_ (4th Dept 1997) Northern Trust Co. v. Bunge Com,

1988 U.S. Dist. LEXIS 4124 (N.D. Ill. Apr. 28, 1988) ................................................... ..23 Ossining Union Free School Dist. V. Anderson,

Pentair, Inc. v. Wis. Energy C03},

545 F. Supp. 2d 917 (D. Minn. 2008) .............................................................................. ..23 Piven v. Wolf Haldenstein Adler Freeman & Herz L.L.P.,

2010 U.S. Dist. LEXIS 27609 (S.D.N.Y. Mar. 12, 2010) ............................................... ..18

Poughkeepsie Sav. Bank v. R & G Sloane Mfg. Co., 84 A.D.2d 212 (2d Dep’t 1981) ....................................................................................... ..16

Quick Response Commer. Div., LLC v. Travelers Prop. Cas. Co. of Am., 2009 U.S. Dist. LEXIS 95438 (N.D.N.Y Oct. 14, 2009) ................................................ ..25 Rodonich V. House Wreckers Union,

837 F. Supp. 550 (S.D.N.Y. I993), rev’d, 52 F.3d (2d Cir. 1995) .................................. ..24 S.C. Johnson & Son Inc. v. DowBrands Inc.,

2004 U.S. App. LEXIS 20594 (3d Cir. Sept. 30, 2004) .................................................. ..13 Simplot v. Chevron Pipeline Co.,

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563 F.3d 1102 (10th Cir. 2009) ....................................................................................... ..13 Stone V. Grayson Shops, Inc.,

173 F.2d 135 (2d Cir. 1949) ............................................................................................. ..16 Third Ave. Trust V. SunTrus1: Bank,

166 F. Supp. 2d 783 (S.D.N.Y. 2001) .............................................................................. ..13 Thrift Association’s Service Corp. v. DuBuono, 255 A.D.2d 809, 680 N.Y.S.2d 746 (3d Dep’t 1998) ...................................................... ..20 Westmoreland Coal Co. v. Entech Inc., 100 N.Y.2d 352 (2003) .................................................................................................... ..24 White v. Guarente,

43 N.Y.2d 356 (1977) ...................................................................................................... ..l7 Wiener v. Lazard Freres & Co.,

241 A.D.2d 114, 672 N.Y.S.2d 8 (1st Dep’t 1998) ......................................................... ..19 XL Specialty Ins. Co. v. Agoglia,

2009 U.S. Dist. LEXIS 36601 (S.D.N.Y. Mar. 2, 2009) ................................................. ..12

RULES AND REGULATIONS

CPLR Rule 3212 ............................................................................................................................ ..1

Pursuant to C.P.L.R. Rule 3212, Plaintiffs American General Life Insurance Company and AIG Annuity Insurance Company (the “AIG Parties”), through their counsel Wollrnuth

Maher & Deutsch LLP, submit (i) this Memorandum of Law, (ii) the accompanying afiidavit of Gregory S. Hammer (“Hammer Afff’), (iii) the affidavit of Vincent T. Chang (“Chang Aff.”),

and (iv) the Proposed Amended Complaint, dated January 6, 20111, as annexed to the Chang Aff. (A) in Opposition to The Rain Parties’ Memorandum of Law in Support of Motion for Partial Summary Judgment as to the AIG Parties’ Complaint, dated October 10, 2007 (the

“Complaint”), and (B) in Support of The AIG Parties’ Cross—Motion for Partial Summary Judgment as to liability. PRELIMINARY STATEMENT

Years of litigation have been spawned by the failure of the Defendants in this case, Rain

Commodities Ltd. and its affiliates, to properly disclose that they did not receive the interest provided for by the terms of certain Notes they sold to the Plaintiffs, the AIG Parties. The Notes

sold to the AIG Parties provide for the payment of interest in Canadian dollars at the rate of 16% per annum. At all times, however, Rain accepted interest in U.S. dollars at an unfavorable fixed

rate of exchange as provided for in certain side agreements (referred to herein as

“Acknowledgment Agreements”). At the time Rain sold the Notes to the AIG Parties, Rain had copies of the Acknowledgment Agreements and had been abiding their terms for some time.

Nevertheless, Rain never disclosed to the AIG Parties the Acknowledgment Agreements or the

fact that Rain had always accepted interest different than that proved for by the terms of the Notes. As discussed below, these facts would have been extremely important to the AIG Parties and would have allowed them to avoid years of litigation over the terms of the Notes.

1 Simultaneously herewith, the AIG Parties file their Proposed Amended Complaint to reflect facts that have

Specifically, after the AIG Parties purchased the Notes, the Issuer of the Notes (an entity known as “GLC”), sought to enforce the Acknowledgement Agreements against the AIG Parties

and compel them to accept interest payments in U.S. dollars at an unfavorable fixed exchange rate. After years of litigation (and the consequent loss of management time and the expenditure of very substantial sums by the AIG Parties), it was finally determined that the Acknowledgment Agreements could not be enforced against the AIG Parties. All of the litigation and the attendant expense could have been easily avoided, however, if Rain had merely disclosed the Acknowledgment Agreements to the AIG Parties.

Instead of doing so, the Rain parties misleadingly agreed in the Note Purchase

Agreements not to waive any rights to interest under the Notes (despite the fact that they had

already done so), falsely represented that they had received all scheduled interest payments on the Notes and falsely represented that GLC had no right to demand that Rain accept less interest than provided for by the terms of the Notes. Through these misrepresentations, Rain was able to

sell its Notes to the AIG Parties at the price Rain wanted, without the AIG Parties asking the Issuer to confirm that it would honor the terms of the Notes, despite the Acknowledgment Agreements. Of course, if the Issuer had refused to confirm that it would honor the terms of the

Notes, Rain would have faced the very substantial risk that the AIG Parties would merely walk away from the deal without purchasing the Notes.

By wrongfully inducing the AIG Parties to purchase the Notes through false representations, Rain unlawfully deprived the AIG Parties of the right to decide whether the Acknowledgement Agreements and Rain’s course of conduct made it advisable to ask the Issuer

to confirm that it would comply with the terms of the Notes ifthey were purchased by the AIG Parties. And if the Issuer refused to provide such confirmation, the AIG Parties would have had

reason to lower their price or refuse to proceed with the transaction at all. Instead, AJG

purchased the Notes in reliance on false and misleading information provided by Rain and, as a

resnlt,‘the AIG Parties have suffered very material damages in an amount to be proven at trial. Such damages stand as an offset to any “deferred compensation” that Rain wrongfully seeks to recover under the Note Purchase Agreements (compensation which would unavailable but for the fact that the AIG Parties defeated GLC in litigation). STATEMENT OF FACTS

In August 2003, GLC issued certain Canadian dollar denominated notes (the “Notes”), which are governed by a Note Indenture dated August 12, 2003 (the “Indenture”). The Indenture unambiguously requires payment of interest in Canadian dollars (hereinafter referred to as “Cdn

S _”) at the rate of 16% per annum. AIP/GLC Holdings, LLC (“AIP/GLC”), a Delaware

corporation and an affiliate of GLC, was the original holder ofthe Notes. In 2006, AIP/CIELC was acquired by an Indian company named Rain Commodities Ltd (“Rain”), at which time it was

renamed “RainfGLC”. Thus, by acquiring AIP/GLC, Rain indirectly acquired the Notes. fiee Rosen Exhs. C, D.

The Notes, however, were subject to the Acknowledgement Agreements between

AIP/GLC and GLC, whereby AIP/GLC agreed to accept interest payments on the Notes in U.S.

dollars at an unfavorable exchange rate of Cdn $1.404 to U.S. $1.00 (the “Fixed Exchange Rate”). When the AIG Parties subsequently acquired the Notes the Canadian dollar had

strengthened to a point where imposition of the Fixed Exchange Rate would deprive them of more than 25% of the interest they were entitled to under the terms of the Notes and the

Indenture. During the entire time Rain and Rain/GLC owned the Notes, however, they honored the Acknowledgment Agreements and accepted all interest payments in U.S. dollars at the Fixed

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