Universal Inv. Advisory SA v. Bakrie Telecom PTE, Ltd., Index No. 652890/2014, 04/18/15 (Scarpulla, J.)

Breach of Contract, Fraud; Aiding and Abetting Fraud; Risk Disclosure ; CPLR §3211(a)(7).

By: Anastasia Galstian | Staff Writer

Plaintiff was a shareholder Defendant, an Indonesian phone company. Defendant issued a bondholder notice to Plaintiff stating it was negotiating with a Steering Committee of “key holders” regarding operations and note restructuring. Later, Defendant, through a May 2010 indenture and a supplemental 2011 indenture, made an offering of $380 million of 11.5% Senior Notes to Plaintiff due in 2015 (hereinafter “the notes”). Such offering was memorialized in an Offering Memoranda. However, Defendant failed to make interest payments, constituting a breach of payment obligations under notes issued pursuant to a $380 million bond indenture.

In light of Defendant’s failure to make payments, Plaintiff commenced an action against the issuer and guarantors to enforce the notes. The original claim alleged breach of contract. A separate action was commenced asserting fraud in connection with an offering. The court consolidated both actions into one case. Plaintiff alleged that defendant was insolvent and unable to pay debts, thereby breaching its contract. Plaintiffs also alleged that financial statements in the offering were false due to the following: (1) Defendant’s cash flow was inadequate to meet debt requirements; (2) Defendant hid insolvency by refinancing business operations; (3) Defendant inflated the value of infrastructure assets necessary for its wireless telecom business; and (4) Defendant touted its “high quality network” when its technology and infrastructure was becoming obsolete. Plaintiff moved for summary judgment solely on the breach of contract claim on the basis that Defendant was in default of the notes.

Ultimately, the court granted Plaintiff’s motion for summary judgment for its breach of contract claim. First, the court held that Defendant failed to raise an issue of fact concerning repayment under the notes. For a breach of contract claim, a plaintiff must be in privity with defendant and defendant must fail to perform obligations under the contract. Here, the Court held that defendant’s failure to make payments on the notes constituted a breach of contract. Defendant failed to offer any evidence to contrary. Thus, the court granted Plaintiff’s motion because Defendant failed to raise an issue of fact.

Second, the Court held that the disclaimer by Defendant was not specific to Plaintiff’s fraud allegations. Under CPLR §3016, a complaint alleging fraud must state circumstances in particular detail. A complaint may allege facts inferring damages. Here, since the information and belief-based allegations stated “sufficient information to apprise defendants of the alleged wrongs,” the Court held that such claims should not be dismissed under CPLR § 3211(a)(7). Therefore, plaintiff sufficiently pled fraud. Third, the Court noted that risk disclosure did not prevent Plaintiff from relying on the Offering Memoranda. A risk disclosure is typically a document disclosing potential risks associated with options and future trading. Here, defendant had peculiar knowledge of the fraud that was unavailable to plaintiffs. Such knowledge was not a risk contemplated here. Therefore, risk disclosure did not prevent Plaintiff to rely on the Offering Memoranda in its fraud claim against defendant.

Accordingly, the Court granted plaintiffs motion as to liability for the notes under Plaintiff’s breach of contract action only. For all other issues, the Court denied Plaintiff’s motion.

Universal Inv. Advisory SA v. Bakrie Telecom PTE, Ltd., Index No. 652890/2014,  04/18/15 (Scarpulla, J.).

 

 

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