Professional Documents
Culture Documents
1
Defendants originally filed their objections to the Report and Recommendation on March 20,
2009. Docket No. 447. On March 21, 2009, defendants amended and re-filed the same (Docket No. 449),
along with a motion for leave to file excess pages (Docket No. 448). On July 24, 2009, the court denied
defendants’ request, and ordered them to re-file their objections within the page limit. Docket No. 558.
Defendants complied with said request, and timely re-filed their corrected objections on July 29, 2009.
Docket No. 562. The court will only consider the corrected objections. The four additional exhibits,
designated SS-VV, that defendants added to the corrected objections will not, however, be considered
as they were not included as part of the original objections (Docket No. 447).
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III. Discussion
A. Magistrate-Judge’s Recommendations and Defendants Objections to the
Same
In the R & R, the Magistrate-Judge recommended that plaintiff’s motion for partial
summary judgment should be granted. As such, he recommended that: (1) defendants’
request for the court to refrain from ruling on the partial summary judgment, pursuant to
Federal Rule of Civil Procedure 56(f), be denied because they failed to comply with the rule;
(2) plaintiff’s motion for partial summery judgment regarding its breach of contact claim
should be granted because defendants failed to comply with the terms of the Loan
Agreements2, and breached the Personal Guarantees3. Further, the Magistrate-Judge found
defendants’ defenses to be without merit.
For their part, defendants contend that the Magistrate-Judge erred in all of his
recommendations. Specifically, they aver that the Magistrate-Judge: (1) failed to properly
interpret and apply the summary judgment standard; (2) failed to properly interpret and
apply Rule 56(f); (3) erred in a number of ways by concluding that there are no issues of
material facts as to the breaches of the Loan Agreements; (4) erred in concluding that there
are no issues of material facts as to whether defendants breached the Personal Guarantees;
(5) erred in rejecting defendants’ “waiver” defense; (6) erred in rejecting defendants’
“forbearance” defense; (7) erred in rejecting defendants’ “defenses” regarding the Personal
2
Inyx and its subsidiary, Inyx USA, entered into a Loan and Security Agreement with plaintiff
in March 2005 and Inyx subsidiaries Inyx Europe and Ashton Pharmaceuticals entered into a separate
Loan and Security Agreement with plaintiff in August 2005. Docket No. 223-2, at ¶¶ 1, 6, 17. These
loans will be collectively referred to as the “Loan Agreements.”
3
On June 7, 2007, Kachkar and Benkovitch executed an Amended and Restated Limited
Guarantee (the “First Personal Guarantee”) personally guaranteeing all the Inyx Borrowers’ obligations
to plaintiff up to a limit of $30.1 million. Id. at ¶ 25. On June 20, 2007, Kachkar and Benkovitch executed
an additional guarantee (the “Second Personal Guarantee”) personally guaranteeing all obligations of
the Inyx Borrowers to plaintiff up to a limit of $70 million plus the amount that the repayment
obligations under the Loan Agreements exceeded $142.4 million. Id. at ¶ 29. These guarantees will be
collectively referred to as the “Personal Guarantees.”
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Guarantees; and (8) erred in the damage finding. Each of defendants’ objections will be dealt
with in turn.
B. Analysis
1. Interpretation and Application of Fed. R. Civ. P. 56
After conducting a thorough review of the R & R, it is clear that the Magistrate-Judge
did not err in either his interpretation or application of Rule 56. The Magistrate-Judge held
plaintiff to its proper heightened standard, and, to the extent it was properly disputed,
viewed the evidence in a light most favorable to defendants.
2. Interpretation and Application of Fed. R. Civ. P. 56(f)
Defendants’ contend that the Magistrate-Judge failed to recognize the safe harbor
provided by Rule 56(f), and failed to properly apply applicable First Circuit precedent in
denying their request for additional discovery. The court does not agree.
Rule 56(f) offers a “safeguard against judges swinging the summary judgment axe
too hastily.” Resolution Trust Corp. v. N. Bridge Assocs., Inc., 22 F.3d 1198, 1203 (1st Cir. 1994);
see also Guzmán-Ruíz v. Hernández-Colón, 406 F.3d 31, 35 (1st Cir. 2005). Accordingly, summary
judgment may be denied if “a party opposing the motion shows by affidavit that, for specified
reasons, it cannot present facts essential to justify its opposition.” Fed. R. Civ. P. 56(f).
Because district courts “construe motions that invoke the rule generously, holding parties to
the rule’s spirit rather than its letter,” the First Circuit requires substantial, but not perfect,
compliance with its requirements. Resolution Trust Corp., 22 F.3d at 1203; see also Adorno v.
Crowley Towing And Transp. Co., 443 F.3d 122, 127 (1st Cir. 2006). Nonetheless, a party seeking
the protection of Rule 56(f) must still show “(i) good cause for his inability to have discovered
or marshaled the necessary facts earlier in the proceedings; (ii) a plausible basis for believing
that additional facts probably exist and can be retrieved within a reasonable time; and (iii) an
explanation of how those facts, if collected, will suffice to defeat the pending summary
judgment motion.” Rivera-Torres v. Rey-Hernández, 502 F.3d 7, 10 (1st Cir. 2007).
In the instant action, defendants, on page thirty-four (34) of their thirty-nine (39) page
opposition to plaintiff’s request for partial summary judgment, requested, for the first time,
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lock box accounts and into accounts under the control of defendants. Docket No. 437, at 6-7,
n.3 & 4; Docket No. 223-3, at ¶ 57; Docket No. 310-2, ¶¶ 3, 4, 9. As such, pursuant to L. Cv.
R. 56(e), these facts are deemed admitted, and defendants cannot come back now and contest
the same.4 Additionally, the record is replete with evidence that defendants improperly
diverted funds from the lock box accounts. See Docket No. 563, at Exs. A-D; Docket No. 310-
2, at ¶ 9.
5. Genuine Issues of Material Fact Concerning Default Events (Section
II(B)(1)) – “Prefix 7” Receivables
Defendants argue that the Magistrate-Judge erred in finding that there was
undisputed evidence that fraudulent invoices and accounts receivable were reported to
plaintiff. According to defendants, they proffered enough evidence “showing that the nature
and basis for these invoices were well known to [plaintiff] throughout virtually the entire
relationship of the parties.” Docket No. 562, at 14. Again, defendants’ failed to properly
oppose plaintiff’s properly supported statements of fact concerning the Prefix 7 receivables
by either failing to cite to a record citation for the referenced supporting exhibit, or failing to
oppose altogether, and therefore they are admitted pursuant to L. Cv. R. 56(e). Docket No.
437, at 15; Docket No. 223-3, at ¶ 58; Docket No. 310-2, ¶¶ 2, 7, 8. Further, this argument is
little more than a recitation of the argument made previously, and rejected by, the Magistrate-
Judge.
4
Defendants, in an attempt to side-step the Magistrate-Judge’s decision to admit these
statements, explain that the Goldshmidt declaration—the one the Magistrate-Judge was unable to
locate—had become part of the record “earlier in the case when it was submitted pursuant to a motion
by Defendants to file certain materials conventionally and under seal.” Docket No. 562, at 3, n.4.
Instead of accepting responsibility for failing to bring it to the Magistrate-Judge’s attention, defendants
place blame on the Magistrate-Judge for not requesting the missing document. As far as this court can
tell, defendants are suggesting that the Magistrate-Judge should have had intimate knowledge of every
document filed in this case (a case 400+ docket entries long at the time of the R & R), and that they were
under no obligation to direct the court’s attention to the exhibit’s location. This argument is misguided.
See L. Cv. R. 56(e) (“The court may disregard any statement of fact not supported by a specific citation
to record material properly considered on summary judgment. The court shall have no independent
duty to search or consider any part of the record not specifically referenced in the parties’ separate
statement of facts.”).
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5
Moreover, defendants’ statement that plaintiff waived the collateral requirements under the
Loan Agreements, and that the parties worked a novation, is undercut by the Second Personal
Guarantee which states that “the Borrower is ‘out of formula’ under the Loan Agreements and there is
a substantial collateral deficiency thereunder” giving plaintiff the right “to make demand for immediate
payment” of the loan obligations. Docket No. 223-13, at 1.
6
For example, the following selective evidence supports the Magistrate-Judge’s findings: (1) Inyx
disclosed in its December 4, 2006 Form 10-Q public filings with the Securities and Exchange Commission
that it “was in violation” of certain loan covenants (Docket No. 310-2, at ¶ 12); (2) Kachkar stated under
oath that he does “not deny that there were issues with the Inyx loans”, but that there were “resolved”
among the parties (Docket No. 164, at ¶ 3); (3) the Audit Committee email demonstrates that Inyx Audit
Committee members were aware that “[plaintiff] has been misled” by Inyx executives and in particular,
that Inyx executive Rima Goldshmidt had falsely reported to plaintiff that Inyx’s accounts receivable
aging as $107 million when it should have been closer to $10 million and that she was responsible for
diverting funds from the lockbox account (Docket No. 310-2, at ¶ 9); (4) Inyx’ Chief Financial Officer
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37 F.3d 731, 736 (1st Cir. 1994) (“As is true of virtually any factual question, if the materiality
question in a given case admits of only one reasonable answer (because the evidence on the
point is either undisputed or sufficiently lopsided), then the court must intervene and address
what is ordinarily a factual question as a question of law.”).
8. Genuine Issues of Material Fact Concerning Breach of the Personal
Guarantees (Section II(B)(2))
Next, defendants aver that the Magistrate-Judge erred in concluding that there were
no genuine issues of material fact regarding breaches of the Personal Guarantees. Specifically,
they allege that the Personal Guarantees were not breached because of the oral three-part
Forbearance and Workout Agreement. This argument is a recitation of the arguments raised
before, and rejected by, the Magistrate-Judge. Rivera-García v. United States, Civ. No. 06-1004
(PG), 2008 WL 3287236, *1 (D.P.R. Aug. 7, 2008) (explaining that to the extent the objections
are repetitive of the arguments already made to the magistrate-judge, a de novo review is
unwarranted). Nonetheless, after conducting further review of the evidence submitted by
the parties, and the analysis performed by the Magistrate-Judge regarding the same, the court
finds that the Magistrate-Judge did not err inasmuch as the oral forbearance agreement fails
as both a matter of law and fact. Hence, as the Magistrate-Judge found, because the Personal
Guarantees “become immediately due and payable upon the Obligations becoming due under
the Loan Agreements, whether at maturity, by acceleration or otherwise” (Docket No. 223-2,
at ¶¶ 26, 33), and because the Loan Agreements were indeed “due and payable”, the payment
obligations under the Personal Guarantees became due.
admitted to Inyx’s Board of Directors and Audit Committee that Inyx was “in material breach” of its
“obligation to reimburse all funds received or deposited from customers into designated lockbox or
blocked accounts under the control of [plaintiff]” (Docket No. 223, at ¶ 57); (5) Kachkar and Benkovitch
admitted that “a substantial ‘Collateral Deficiency’ exists under the Loan Agreements” (Id. at ¶ 63); and
(6) the waivers referenced by defendants in their objection may have waived “certain specific
violations”, but they also expressly reserved plaintiff’s right to declare any future defaults under the
Loan Agreements (Id. at ¶¶ 41-45). Finally, by granting defendants limited waivers of certain breaches,
yet retaining the right to declare the same defaults in the future, plaintiff’s gave defendants notice that
these breaches were material.
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7
Defendants acknowledge as much by stating that these other witnesses, Barry Woods and
Miguel Vázquez, “provided testimony that corroborates key aspects of Defendants’ deception of salient
events” (Docket No. 562, at 19), not that a forbearance agreement was entered. Said “corroborating”
evidence consists mainly of testimony from both Woods and Vázquez reflecting that Woods had told
Kachkar that an oral agreement was enforceable in Puerto Rico. Both Woods and Vázquez, however,
testified that this statement was made with respect to an agreement about the mining collateral being
put up by Kachkar, not with regards to a forbearance agreement. See Docket No. 562-5; Docket No. 562-
6.
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Second, the Magistrate-Judge did not err in finding that defendants’ vague and nonspecific
evidence failed to defeat plaintiff’s properly supported partial summary judgment motion as
far as it pertained to the alleged oral forbearance agreement. See Pérez, 247 F.3d at 317
(explaining that to defeat a properly supported motion for summary judgment, evidence
offered by the non-movant “must be significantly probative of specific facts.”); see also P.R.
Laws Ann. tit. 31, § 3471 (evidence as to the parties’ intention only proper when the terms of
the contract are not clear). Third, the cases cited by the Magistrate-Judge, Nike v. Athletic Sales,
Inc., 689 F. Supp. 1235 (D.P.R. 1988) and Freightliner, LLC v. Puerto Rico Truck Sales, 399 F.
Supp. 2d 57 (D.P.R.), do support the general proposition that Puerto Rico law dictates that the
“no-oral-modification” clauses in contracts cannot be waived orally. Fourth, and finally,
defendants fail to address the fact that even had the parties agreed to modify the Loan
Agreements orally, the Puerto Rico Statute of Frauds would have rendered it unenforceable.
P.R. Laws Ann. tit. 10, § 1302 (precluding a party from proving the existence of commercial
contracts over $300 based solely on testimonial evidence).
11. Defenses Regarding Personal Guarantees (Section II(B)(5))
Defendants object to the Magistrate-Judge’s finding that they were not fraudulently
induced to enter into the Personal Guarantees, and put forth a potpourri of arguments to
support the same. Each argument is dealt with in turn.
Pursuant to Puerto Rico law, any contract where consent is obtained through deceit
is void. P.R. Laws Ann. tit. 31, § 3404. “Under Puerto Rico law, the party alleging fraud has
the burden of demonstrating: (1) a false representation by the defendant; (2) the plaintiff's
reasonable and foreseeable reliance thereon; (3) injury to the plaintiff as a result of the
reliance; and (4) an intent to defraud.” P.R. Elec. Power Auth. v. Action Refund, 515 F.3d 57, 66
(1st Cir. 2008) (citing Microsoft Corp. v. Computer Warehouse, 83 F. Supp. 2d 256, 262 (D.P.R.
2000)). “The applicable Puerto Rico contract law regarding fraud has a strong underlying
presumption in favor of good faith and honesty; the party alleging fraud has the burden of
presenting evidence which is ‘strong, clear, unchallengeable, convincing, and conclusive, since
a mere preponderance of the evidence is not sufficient to establish the existence of fraud in
[Puerto Rico].’” Id. at 66-67 (internal citation and quotation omitted).
Case 3:07-cv-01606-ADC-BJM Document 597 Filed 09/22/2009 Page 13 of 16
Defendants’ first argument is that they have put forth an “abundance” of evidence to
support their claim that they were fraudulent induced into signing the Personal Guarantees,
and therefore meet the requirements set forth in P. R. Elec. Power Auth. The court, as did the
Magistrate-Judge before it, does not agree. First, as previously discussed, supra III(B)(10),
defendants’ evidence in support of their fraudulent inducement claim is lacking, and in
someways damaging to their claim. See, e.g., supra note 7; Docket No. 223-12 (First Personal
Guarantee wherein it states that plaintiff “has not made any representations to any of
Guarantors with respect to Borrower, any other Obligor or otherwise in connection with the
execution and delivery by Guarantors of this Guarantee and Guarantors are not in any respect
relying upon Lender or any statements by Lender in connection with this Guarantee.”);
Docket No. 223-13 (same). Accordingly, defendants have failed to present “strong, clear,
unchallengeable, convincing, and conclusive” evidence supporting their fraudulent
inducement claim.
Second, defendants fail to address the fact that in determining whether reliance is
reasonable, “Puerto Rico law places little weight on a sophisticated and experienced business
party’s assertion of unknowing reliance.” P.R. Elec. Power Auth., 515 F.3d at 67. Here, as the
Magistrate-Judge explained, and defendants have made no effort to rebut, Kachkar is a
sophisticated and experienced businessman who had his counsel present during the
negotiation of the Personal Guarantees and chose not to include contractual terms in the
Personal Guarantees concerning the alleged oral forbearance agreement. Their sophistication
as experienced businessmen further reinforces the Magistrate-Judge’s finding.8
Next, defendants argue that the Magistrate-Judge erred in finding that the “no-
reliance” clauses contained in the Personal Guarantees foreclosed defendants’ fraudulent
8
It bears noting that the court agrees with the Magistrate-Judge’s opinion that defendants’
alleged reliance on statements by plaintiff’s counsel that an oral agreement is as good as a written
agreement in Puerto Rico is troubling. As the Magistrate-Judge aptly explained, “it defies credulity to
allow defendants to claim to have reasonably relied on the legal advice of opposing counsel in a
sophisticated (not to mention adversarial) business transaction when their own counsel, Barichello, was
present at the time.” Docket No. 275-2, at ¶ 36.
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9
The Magistrate-Judge found that defendants could not prove that they relied on, and were
induced by, alleged representations by plaintiff in the face of the no-reliance claim contained in the
Personal Guarantees. Docket No. 437, at 20.
10
Defendants also argue that the integration clause in the Personal Guarantees has no bearing
on their fraudulent inducement claim. Specifically, they claim that Puerto Rico law does not bar a claim
for fraud based on statements not contained in the contract. See Rodríguez v. PEP Boys Corp., Civ. No.
02-1536, 2004 U.S. Dist. LEXIS 2772 (D.P.R. Feb. 2, 2004). Even if defendants are correct, and the
integration clause in the Personal Guarantees does not bar parol evidence of the alleged oral forbearance
agreement, defendants’ claim that they were fraudulently induced to enter into the Personal Guarantees
still fails for the above mentioned reasons.
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Puerto Rico law, no consideration need be given for a guarantee to be enforceable. P.R. Laws
Ann. tit. 31, § 4872.
12. Amount of Damages
Finally, defendants argue that the Magistrate-Judge erred in recommending the award
of damages. Based on the foregoing, the court does not agree, and the Magistrate-Judge
damage recommendations are adopted in full.
IV. Conclusion
In light of the foregoing, the R & R (Docket No. 437) is ADOPTED in full.
Consequently, plaintiff’s motion for partial summary judgment (Docket No. 223) is
GRANTED.
SO ORDERED.
At San Juan, Puerto Rico, on this 17th day of September, 2009.
S/AIDA M. DELGADO-COLÓN
United States District Judge