blue flame 72821
- Date
- 2021-07-28
Summary
The transcript of a motions hearing held July 28, 2021 in Blue Flame Medical LLC v. Chain Bridge Bank, N.A., Civil Action No. 1:20cv658, before Judge Leonie M. Brinkema of the U.S. District Court for the Eastern District of Virginia, filed August 1, 2021 as Document 169. The case includes a counterclaim by Chain Bridge Bank against Blue Flame Medical and a third-party claim against JPMorgan Chase Bank, N.A. The court frames the dueling summary judgment motions around whether a reasonable jury could find that the plaintiff had any damages. Counsel for Chain Bridge argues that damages under Section 404(a) cannot be shown because California declined to proceed with the mask transaction and because Blue Flame could not have supplied 100 million N95 masks. The hearing closes with argument on attorneys' fees and indemnification, and the court takes the motions under review in chambers.
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UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
ALEXANDRIA DIVISION
BLUE FLAME MEDICAL LLC, . Civil Action No. 1:20cv658
.
Plaintiff, .
.
vs. . Alexandria, Virginia
. July 28, 2021
CHAIN BRIDGE BANK, N.A., . 2:34 p.m.
JOHN J. BROUGH, and .
DAVID M. EVINGER, .
.
Defendants, .
.
------------------------------X
CHAIN BRIDGE BANK, N.A., .
.
Counterclaim Plaintiff, .
.
vs. .
.
BLUE FLAME MEDICAL LLC, .
.
Counterclaim Defendant. .
.
------------------------------X
.
CHAIN BRIDGE BANK, N.A., .
.
Third-Party Plaintiff, .
.
vs. .
.
JPMORGAN CHASE BANK, N.A., .
.
Third-Party Defendant. .
.
. . . . . . . . . . X
TRANSCRIPT OF MOTIONS HEARING
BEFORE THE HONORABLE LEONIE M. BRINKEMA
UNITED STATES DISTRICT JUDGE
(Pages 1 - 53)
COMPUTERIZED TRANSCRIPTION OF STENOGRAPHIC NOTES
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1 APPEARANCES:
2 FOR BLUE FLAME MEDICAL LLC: PETER H. WHITE, ESQ.
JASON T. MITCHELL, ESQ.
3 GREGORY KETCHAM-COLWILL, ESQ.
Schulte Roth & Zabel LLP
4 901 15th Street, N.W., Suite 800
Washington, DC. 20005
5
6 FOR CHAIN BRIDGE BANK, N.A.; GARY A. ORSECK, ESQ.
JOHN J. BROUGH; AND MATTHEW M. MADDEN, ESQ.
7 DAVID M. EVINGER: DONALD BURKE, ESQ.
LESLIE C. ESBROOK, ESQ.
8 ZACHARY N. FERGUSON, ESQ.
CAROLYN FORSTEIN, ESQ.
9 Robbins Russell Englert Orseck
Untereiner & Sauber LLP
10 2000 K Street, N.W., 4th Floor
Washington, DC. 20006
11
12 FOR JPMORGAN CHASE ALAN SCHOENFELD, ESQ.
BANK, N.A.: MARISSA W. MEDINE, ESQ.
13 Wilmer Cutler Pickering Hale &
Dorr LLP
14 7 World Trade Center
250 Grenwich Street
15 New York, NY 10007
and
16 ALBINAS J. PRIZGINTAS, ESQ.
WHITNEY RUSSELL, ESQ.
17 Wilmer Cutler Pickering Hale &
Dorr LLP
18 1875 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
19
20 OFFICIAL COURT REPORTER: ANNELIESE J. THOMSON, RDR, CRR
U.S. District Court, Third Floor
21 401 Courthouse Square
Alexandria, VA 22314
22 (703)299-8595
23
24
25
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1 P R O C E E D I N G S
2 THE CLERK: The Court calls Civil Case Blue Flame
3 Medical LLC versus Chain Bridge Bank, N.A., et al., Case No.
4 2020cv658. May I have appearances please, first for the
5 plaintiff?
6 MR. WHITE: Good afternoon, Your Honor. Pete White
7 for plaintiff, Blue Flame Medical. With me on my side of the
8 room are Greg Ketcham-Colwill and Jason Mitchell from my
9 office.
10 THE COURT: Good morning -- good afternoon, rather.
11 MR. WHITE: Good afternoon.
12 THE COURT: All right. For Chain Bridge?
13 MR. ORSECK: Good afternoon, Judge. I'm Gary Orseck
14 from Robbins Russell for Chain Bridge and the individual
15 defendants, and with me today are my colleagues, Matthew
16 Madden, Donald Burke, Leslie Esbrook, Carolyn Forstein, and
17 Zach Ferguson.
18 THE COURT: All right. And for JPMorgan?
19 MR. SCHOENFELD: Good afternoon, Your Honor. Alan
20 Schoenfeld from Wilmer Cutler Pickering Hale & Dorr for
21 JPMorgan Chase, and I'm joined by my colleagues --
22 THE COURT: You have to speak up louder.
23 MR. SCHOENFELD: Alan Schoenfeld from Wilmer Cutler
24 Pickering Hale & Dorr for JPMorgan Chase, joined by my
25 colleagues, Whitney Russell, Al Prizgintas, and Marissa Medine.
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1 THE COURT: All right. We have multiple motions
2 before the Court, and again, we've been through the record, so
3 I don't need to hear a huge amount of argument, but I will
4 start with the defendants Chase Bank -- I'm sorry, Chain Bridge
5 Bank's argument.
6 It seems to me that the core issue in this case,
7 which is before the Court on dueling summary judgment motions,
8 is whether or not there is sufficient evidence in the record as
9 it's been developed that there's any -- that any reasonable
10 jury could possibly find that the plaintiff had any damages
11 from what happened here.
12 MR. ORSECK: Thank you, Your Honor. I will address
13 that. You're referring to Count 1, I believe, of the --
14 THE COURT: Well, Count 1 as well as the state law
15 count.
16 MR. ORSECK: That's true. For two independently
17 sufficient reasons, the plaintiff fails to adduce any jury
18 submissible evidence that it could prove any damages in a jury
19 trial. The first reason, which comes straight from the
20 language of Section 404(a), is that it must adduce evidence of
21 damages, quote, resulting from in this case Chain Bridge's
22 refusal to pay.
23 The first reason it can't do that is that it's
24 undisputed that the State of California made a decision not to
25 move forward with this transaction as soon as the State
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1 Treasurer's Office learned the true and basic facts about Blue
2 Flame Medical. Those were that its principals and its entire
3 organization had no experience in medical supply or, indeed,
4 any supply, and instead were political operatives. California
5 learned that when it spoke to Chain Bridge and, I believe, when
6 it spoke to JPMorgan as well.
7 It also learned that, that Blue Flame had just been
8 incorporated three days before and had just opened a bank
9 account the day before. As soon as that happened, the State
10 Treasurer's Office representative, Ms. Gonzalez, told Chain
11 Bridge, "Please wait to credit this transfer until we can find
12 out additional information." That's the transcript of her
13 deposition, at page 50.
14 Forty minutes later, at 2 p.m., the State Treasurer's
15 Office asked JPMorgan to recall the funds because California
16 was not comfortable with the state's due diligence. That comes
17 from the deposition of Mr. Korpal, who is JPMorgan's global
18 head of security, at pages 21 and 22.
19 And then Ms. Gonzalez at 3:19 e-mailed JPMorgan and
20 asked, this is Exhibit 66 of our motion, "Is it possible for
21 JPMorgan to reach out to the Chain Bridge Bank and see where
22 the wire recall process is in the process?"
23 And it is undisputed that once the wire was returned,
24 Blue Flame Medical's representatives petitioned California to
25 go ahead after all with the transaction, even though the money
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1 had been returned, and California rebuffed Blue Flame, stating
2 explicitly that this is because you now have credibility
3 issues, and we're not going to move forward.
4 It is undisputed that California had every right to
5 terminate for convenience, that term was written right into the
6 procurement order, which is Exhibit 7, which incorporated a
7 standard document that said that California had a unilateral
8 right to terminate for convenience if it was, quote, in the
9 state's interest.
10 So the reason I mention this first reason that they
11 cannot adduce damages is we don't have to wonder what the
12 counterfactual world would look like. We know as a matter of
13 fact that when California learned indisputably true facts about
14 its counterparty, it pulled the plug and decided not to move
15 forward.
16 So that means that Blue Flame cannot adduce evidence
17 that its losses, if any, resulted from my clients' refusal to
18 pay. It undoubtedly was caused by California's deciding not to
19 go forward based on its learning of true facts. That is enough
20 to dispose of the claims, as you put it, the state law claims
21 and Count 404 because they can't show causation at all.
22 The second reason that is independently sufficient is
23 that even if you put aside everything I just said, there is no
24 jury submissible nonspeculative evidence on which a jury could
25 conclude that Blue Flame Medical could have performed the
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1 contract in any event, and I'm going to give you the two main
2 reasons for that.
3 The first is that our expert in medical procurement
4 and supply asserted without contradiction or rebuttal that Blue
5 Flame's promise to procure 100 million of four particular types
6 of N95 masks exceeded China's total exports of N95 masks to the
7 United States between March and the middle of April 2020.
8 That's paragraph 48 of Mr. Faulkner's report.
9 And even by the end of April, China was exporting
10 only 5 million masks total per day. These are a small subset
11 that California ordered, namely, four particular types.
12 So that's the first point that shows the notion that
13 Blue Flame could have procured all those masks is preposterous.
14 They also have not adduced evidence that they had an inventory
15 of masks.
16 There is a lot more that we put in the record showing
17 that the schedule that they provided on March 25 to California
18 was simply scribbled up in multiple versions by their counsel,
19 Mr. Bearman. He first had a version that said they produced 58
20 million, and then minutes later, he had another version that
21 said that they would produce 100 million, with no evidence that
22 he got that information from anybody who was in any position to
23 supply them.
24 But I think second -- and again, proving the point
25 and showing that we don't -- there's no basis on which a jury
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1 could engage in some kind of hyper- -- I'm sorry,
2 counterfactual speculation about what would have happened is we
3 know what happened. We know what happened because Blue Flame's
4 outside counsel at Mayer Brown, Exhibit 73, responded to the
5 inquiries of congressional investigators and disclosed that
6 Blue Flame failed to fulfill its 13 other customers' much
7 smaller orders in March and April, a failure that it ascribed,
8 under a duty, obviously, to be truthful with Congress, because
9 of Chinese export restrictions and the failure of Blue Flame's
10 China-based supplier to come through. It didn't say that it
11 failed to do any of this because of Chain Bridge's return of
12 the wire.
13 In their brief, Blue Flame points out, well, we
14 produced a million and a half masks to the State of Maryland.
15 That order came in on April 1 and was fulfilled sometime after
16 October pursuant to a settlement with the State of Maryland,
17 and they produced 96,000 masks that they produced to the City
18 of Chicago on May 26.
19 But there is no evidence in the record, and I think
20 this is important, that either of the two middlemen brokers who
21 Blue Flame intended to rely upon to provide these masks,
22 namely, Great Health Companion, that was Mr. Henry Huang's
23 company in China, and Suuchi, which was going to produce
24 6 million out of the 100 million, there is no record evidence
25 that either of those entities ever supplied a single mask to
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1 Blue Flame.
2 So there is the, the impossibility of performance
3 based on undisputed facts about the capacity of China to
4 produce N95 masks in general, putting to one side these four
5 particular brands; and then second, we happen to have a
6 historical record of Blue Flame's capabilities, and Blue Flame
7 was unable to provide these masks to its other customers.
8 So that leaves Blue Flame's contrary assertions to be
9 unsupported speculation of a type that is not jury submissible
10 and is insufficient to overcome summary judgment.
11 The last thing I'll say on this is at the last
12 minute, Blue Flame adduced a declaration from Mr. Huang, which
13 is Exhibit 95, and Mr. Huang attests in his declaration in
14 conclusory fashion that he could have produced a great number
15 of masks, he doesn't go so far as to say he would have done it
16 within the 30 days required under the contract, and he also
17 says without support that the Chinese government would have let
18 him do it.
19 This is not in itself or in combination with anything
20 else a sufficient basis to overcome summary judgment first
21 because of the procedural problem with it. We've cited cases
22 demonstrating that an individual who was subpoenaed to give a
23 deposition and to produce documents, as Mr. Huang was by us,
24 cannot parachute in at the end of discovery and submit a
25 declaration that's untested by the other side, and this is
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1 particularly egregious here in that there's a contemporaneous
2 e-mail from him to Blue Flame, which is Exhibit 83, all the way
3 back on April 7, and he said orders of this size, quote, would
4 be impossible to fulfill.
5 We never got to test that because he refused to make
6 himself available despite admitting that he could have left
7 China to give a deposition, he could have returned to China,
8 but he would have been quarantined for some period of time.
9 THE COURT: So, I'm sorry, let me make sure I'm clear
10 about that. He was not deposed or he was deposed?
11 MR. ORSECK: He was not deposed.
12 THE COURT: He was not.
13 MR. ORSECK: We served the notice of deposition and
14 the document subpoena. He said, "I can't do it because China
15 won't let me," and he said he wouldn't leave China because he'd
16 have to quarantine on the way back in, and he wasn't willing to
17 do it.
18 We asked to him and to Blue Flame to be included in
19 any discussions about a possible deposition because very late
20 in discovery, we got a notice from Mr. White's firm that they
21 were hoping to after all depose Mr. Huang, and we said we want
22 to be a part of that. We want to know the scheduling. And it
23 never happened.
24 So the first reason his declaration is insufficient
25 to overcome summary judgment is because it's improper, but I
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1 would say even more to the point, his assertions in that
2 declaration are conclusory, and Rule 56(c)(4) says summary
3 judgment affidavits cannot be conclusory. All he says, without
4 any support, is that Great Health Companion could have procured
5 100 million masks and that he would have gotten the Chinese
6 government to allow him to do it. That's easy enough to say,
7 but it's not credible even if it were admissible, and it's not.
8 So those are the two main reasons why Blue Flame
9 cannot prove damages to a jury. First, there is no damage to
10 them resulting from Chain Bridge's return of the wire.
11 California had 100 percent right at any time it wanted to
12 cancel this contract. Even if, even if Blue Flame had already
13 been paid, China had a -- California had an unfettered right to
14 terminate the contract, recall the money, and we know it would
15 have done so because it did so.
16 And the second reason is Blue Flame could never have
17 procured this great number of masks at that time in competition
18 with the rest of the world.
19 THE COURT: Thank you.
20 All right, Mr. White?
21 MR. WHITE: Thank you, Your Honor. To address those
22 in turn, Your Honor, first off, as to the contract with
23 California, that actually is an incorrect description of the
24 contract. While there were termination rights in the contract,
25 there were notice provisions and a number of other things that
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1 would have had to have occurred for that contract to be
2 terminated.
3 The problem here is because defendants intervened
4 with the State of California and poisoned that well by accusing
5 my clients unjustifiably of fraud, that caused certain actions
6 by the State of California, classic tortious interference with
7 contract, classic in violation of both federal law and state
8 law in what they did.
9 THE COURT: Well, I don't think -- I don't think the
10 record shows that anybody at Chain Bridge accused your client
11 of fraud. They simply were concerned about the unusual nature
12 of what was going on, that is, that a company that had just
13 barely been formed was getting this significant amount of money
14 being sent to it, and I think, you know, they certainly saw
15 smoke.
16 They certainly were concerned about whether this was
17 legitimate, but even the attorney for your client was alerting
18 your clients that this large amount of money could very well
19 trigger concerns by a bank and that they needed to make sure
20 that the bank was adequately prepared for that situation.
21 MR. WHITE: Certainly, Your Honor, and that's why
22 Mr. Gula on the 25th had conversations with the bank letting
23 them know exactly what was coming in, exactly what it was for,
24 the amount that was going to be coming in, who the counterparty
25 was, and how it was going to be used, and that same day, the
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1 two most senior officers at the bank called Mr. Gula and had a
2 conversation with him about exactly these issues.
3 If that was their concern, Your Honor, they would
4 have told Mr. Gula, "We're not interested in that transaction."
5 They would have told Mr. Gula perhaps even that the account
6 would have been closed. They would have set up a block in
7 their system to keep that from coming in.
8 They did none of those things. The problem is, what
9 they found out was after agreeing to this transaction that
10 hadn't even hit their balance sheet, they realized they were
11 going to have a huge balance sheet problem, and they couldn't
12 keep it on their books. Their records, their e-mails, their
13 internal e-mails don't talk about any of these issues. They
14 talk about that immediately.
15 And instead of investigating and seeking to contact
16 Mr. Gula to find out any other information, they interceded,
17 and what were they doing when they called California? Were
18 they, were they just trying to find out more information about
19 the transaction? No. They were giving information.
20 They weren't trying to get information. They were
21 giving information, and their purpose in doing so was to keep
22 this from remaining on their balance sheet because that would
23 create the problem that is mentioned in those e-mails.
24 That doesn't go directly to the issues of damages,
25 which I want to make sure I'm responsive to Your Honor. A
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1 couple aspects as to damages. Once that well had been
2 poisoned, there was -- as Mr. Orseck recognizes, there was no
3 possibility of going forward with California.
4 They selectively mentioned certain facts to
5 California, many of which California officials already knew,
6 which was confirmed in depositions. They selectively mentioned
7 some things to them with the purpose of getting a recall of
8 this transaction.
9 I submit to Your Honor it is a -- the measure of
10 damages both on Count 1, which is consequential damages, and on
11 the state law claims deals with the lost profits. It's very
12 easy to see that by engaging with California in a manner that
13 clearly violated Regulation J, clearly violated federal law,
14 what they did clearly violated federal law, a jury could well
15 believe and we believe will believe the testimony of our
16 clients that they were substantially damaged by that both in
17 defamation and by the tortious interference with the contract
18 with the State of California, but also with their, their
19 business expectancy that they were going to make profit on this
20 transaction, and we will be able to prove that at trial.
21 So to say that it's not possible that this, that
22 this -- that there's not a material issue of fact as to whether
23 they'd be able to perform is completely inaccurate. Our
24 clients testified, as is cited in our briefs, that they did
25 believe they would be able to perform, that they did have
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1 contracts with suppliers. Those contracts --
2 THE COURT: But isn't the strongest evidence on this
3 counterfactual issue the admissions that were made before
4 Congress that of the, what was it, 13 contracts that, that your
5 client ultimately did get, that they were never ever able to
6 really satisfy any of them except for those, the two, the
7 Chicago contract, which was such a small amount, and the
8 Maryland contract, that was all sort of a problem? Those are
9 the only two.
10 There's no evidence in this record whatsoever that
11 your client was ever able to get anywhere near 100 million of
12 these masks.
13 MR. WHITE: Your Honor, to understand the problem
14 that was created here, first off by Chain Bridge Bank doing
15 what they did, their reputation was destroyed. That made it
16 very, very difficult for them to deal with anyone going
17 forward.
18 THE COURT: But if it was so destroyed, how did they
19 even get the 13 contracts? I mean, I think the problem is it
20 wasn't so destroyed that Chicago didn't enter into a contract
21 with them or that Maryland didn't.
22 So, I mean, that's a hard argument to make when even
23 after the California situation, there were other entities that
24 were willing to do business with them, but they couldn't
25 deliver, and they couldn't deliver because in part everybody in
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1 the world wanted these masks. I mean, there's clear evidence
2 of that in the record. I could take judicial notice of that
3 fact if I had to.
4 But also, you've got the evidence in the record that
5 the Chinese government, at least in terms of sourcing the
6 materials from China, the Chinese government was putting a
7 stamp on it, so that they couldn't get those quantities.
8 MR. WHITE: Your Honor, that last point, I want to
9 address that directly because that's misleading. That is not
10 the amount of production that was occurring in China at the
11 time. That was the amount that was being exported to the
12 United States. There was a worldwide market competing for this
13 supply at the time.
14 The problem here is -- it's much like if you think
15 about any commodities market. Buying extremely large
16 commodities has a certain price. Buying spot commodities,
17 smaller commodities, has a much higher price. That's just the
18 way markets work. You have much more buying power if you are
19 buying a much larger quantity.
20 If they had been able to get this money where it was
21 supposed to go, to, ultimately to Chinese manufacturers in late
22 March of 2020, the evidence would show that they would have
23 been able to get that production -- sorry, 2020, yes -- they
24 would have been able to get that production because they would
25 have had that level of buying power.
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1 A half a billion dollars being -- or close to that,
2 400 million, whatever it would be that would ultimately go
3 through Great Health Companion, would give them the ability, as
4 Mr. Huang's declaration states, would give them the ability to
5 get supply consolidated around that California order. It would
6 have taken supply that could have gone to other places, and it
7 would have energized the creation of new production lines.
8 THE COURT: But that's really hypothetical and
9 speculative, and the problem you've got is you do have the
10 contemporaneous e-mail from Mr. Huang where he's clearly
11 indicating that there could be real problems with the Chinese
12 government and he wasn't at all sure he could produce that
13 quantity.
14 So I agree with defense counsel that the declaration
15 that's filed solely for purposes of summary judgment,
16 especially if there had been a genuine effort to get the same
17 witness for a deposition, would not be admissible. So -- and
18 again, this has to be admissible evidence.
19 MR. WHITE: Your Honor, if I may address that, I
20 would beg to differ on that point as to whether it's
21 admissible. They haven't cited a case where an individual --
22 the cases that they cite are cases where people have avoided
23 subpoenas and avoided service of process. That's not what
24 happened here.
25 There was an extraordinary event that caused
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1 Mr. Huang's unavailability, and his unavailability would have
2 been for a very extended period of time given if he were to
3 leave China, he would have been quarantined, the entire process
4 would have taken about a month, and he would have been unable
5 to keep his employment because of what he needed -- what he
6 needs to do there.
7 So he -- and by the way, he was never served with a,
8 with a subpoena of any kind. They attempted to locate him and
9 then abandoned their effort to communicate with him further.
10 So it is commonly the case that declarations, as a
11 matter of fact, Rule 56, the language of it specifically speaks
12 to declarations and affidavits as evidence, and there are a
13 multitude of cases that talk about declarations of people who
14 haven't been deposed.
15 Now, if he needs to be deposed prior to trial, that's
16 fine, but what you're talking about is a potential credibility
17 attack on what he had to say. He is clearly a competent
18 witness to say what he had to say in the, in the declaration
19 that's been filed.
20 In addition to the one text, I can't recall if it's
21 text or e-mail, that talked about potential inability, there
22 are others that say he would have been able to get it done.
23 This is not unusual. This was a very -- it's not unusual in a
24 strange circumstance, as this clearly was, for there to be some
25 back-and-forth about am I going to be able to do it, am I not
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1 going to be able to do it.
2 It ultimately got to the point, and the defendants
3 know this and there is evidence in the record to support it,
4 got to the point that he believed he would be able to do it,
5 and he stated that confidence in the declaration before the
6 Court.
7 So there is evidence that this would have gotten
8 done, and they can't be said that there is no material issue of
9 fact in dispute as to whether there could be damages, as to
10 whether they could have completed that mission. Now,
11 Mr. Orseck may have ample, ample ways to cross-examine that
12 testimony when it comes in at trial, and he may succeed and he
13 may not, but that's what trials are for.
14 What the plaintiffs have put forward is their own
15 testimony as to how they were going to execute, documentary
16 support in the form of purchase orders from Great Health
17 Companion and Suuchi that support it, that are uncontradicted,
18 and the testimony of Mr. Huang, the executive with Great Health
19 Companion, who would have the ability to perform under this
20 contract and would have the ability to direct the Chinese
21 government, who he is an employee of a state-owned Chinese
22 entity, they would have the ability, as he states in his
23 declaration, to have manufacturing facilities shift their focus
24 toward the California order.
25 And this is why you can't compare the much smaller
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1 orders to the California order. Those are so far different in
2 size and scope. When, when you've got a potential order for
3 $450 million or $500 million that is out there, you're not
4 going to listen to orders for a few thousand dollars or even a
5 few million dollars. It's just not going to happen. You don't
6 have the buying power, and that is what the, the expert for the
7 plaintiff said.
8 So the statement that his, his -- the expert for the
9 defense is uncontradicted, that's not true. The expert for the
10 plaintiff took issue with that, and that would be an issue that
11 would be posed at trial. So --
12 THE COURT: Yeah, but you still have, as I understand
13 it, a clear, uncontroverted evidence, I believe, from the
14 defendants' expert as to the record of Chinese exports to the
15 United States of these masks during the relevant time period.
16 I mean, California was expecting to start getting delivery in
17 April. I think April 3 was the date that they had as is shown
18 in Exhibit 7.
19 And, you know, whether, whether Florida -- I'm sorry,
20 whether China could have delivered it in 2021 is irrelevant to
21 this case. What's relevant is in the time frame that
22 California was looking at, which would have been starting on
23 April 3, that they would start getting shipments.
24 MR. WHITE: But, Your Honor, that actually is
25 incorrect as well. The one document you're referring to was an
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1 internal California document that was not sent to, to
2 plaintiffs. Their agreement, their agreement was best efforts
3 to get this done in a timely basis. That's what the
4 understanding of the parties was.
5 That purchase order that caused the internal
6 processing of the $456 million wire, that was only internal in
7 California, and nobody testified that they were expecting
8 delivery by April 3.
9 THE COURT: Well, not of the whole thing but they
10 were expecting -- and your clients had practically told them,
11 what, three to seven days. I mean, there's evidence in the
12 deposition testimony.
13 MR. WHITE: Well, the Suuchi masks would have been
14 available immediately, Your Honor. That's why they were trying
15 to get that wire out to Suuchi that day and to get the wire out
16 to begin shipment of masks in China that had already been
17 located.
18 So there would have been -- the testimony would be at
19 trial that there would have been significant productions of
20 masks that would have been made available to California within
21 whatever time frame. I don't believe April 3 is the proper
22 time frame. I think that's a mischaracterization of the
23 record, but even if it were, there would have been substantial
24 production by April 3. That's what the evidence is going to
25 show, and that was cut off by defendants' improper conduct.
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1 THE COURT: All right.
2 MR. WHITE: If I could address one other point, Your
3 Honor, the measure of damages for Count 1 is foreseeable
4 damages. Clearly, here they knew that if they took the actions
5 that they took, it was going to affect Blue Flame's ability to
6 complete the California contract. It was going to undermine
7 it. They knew that. That was their intention from the
8 beginning.
9 So those are clearly foreseeable damages that existed
10 there, and I believe it is an issue of fact for the, for the
11 trier of fact to decide. The same with the tortious
12 interference.
13 Count 2, Your Honor, the damages there are calculated
14 differently. They would be in the -- the problem in Count 2 is
15 that Chain Bridge Bank issued a payment order from Blue Flame
16 Medical's account without Blue Flame Medical's authorization.
17 There's no dispute about that. There's a document that the
18 Court can see.
19 The document that actually sends the payment from
20 Chain Bridge Bank to JPMorgan in connection with the recall,
21 that document shows that the source of the funds, the source is
22 Blue Flame Medical. It's Blue Flame Medical's account.
23 They took those funds out of their account in a
24 manner that is clearly and expressly forbidden by federal law.
25 The measure of damages there is return of that money.
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1 And I don't believe there's any issue of material
2 fact as to what happened there. Those, those funds were
3 clearly, there was a payment order clearly without Chain
4 Bridge's -- without Blue Flame Medical's authorization from
5 Blue Flame Medical's account.
6 Chain Bridge Bank issued that payment order. They
7 did not attempt to nor did they get the consent of the owner of
8 that account. They don't have the authority to do that under
9 federal law, and they knew they didn't have the authority to do
10 it, but they did it anyway.
11 They took that money from the account, which is
12 clearly and expressly forbidden by Regulation J, which says
13 that there are very strict rules around how banks can handle
14 their customers' money and when they can take money out of
15 their account and when they can't. This clearly is not one of
16 those cases. They had no authority to do that, and the damages
17 there are expressed in the statute, and the damages are
18 rescission back to the customer of that amount that the bank
19 improperly took. There is no dispute in the record that those
20 funds were improperly taken without authorization from that
21 account.
22 So while I respectfully disagree with the Court's
23 concern regarding the damage -- the foreseeability of damages
24 and the ability to prove damages, I think that's a very typical
25 trier of fact issue. You've got a very large contract. It
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1 would be unusual that there wouldn't be profit to be made from
2 that contract. Of course, there was going to be profit to be
3 made from that contract, and that's how they were damaged is
4 that lost profit and that lost business opportunity, which also
5 affected their ability to perform on these other contracts. It
6 dramatically affected their ability to perform on these other
7 contracts because they lost that buying power, and they had the
8 reputational hit that came with it.
9 So all of those factors together, which were caused
10 by Chain Bridge Bank's conduct in this case, is why we believe
11 that that presents an issue for the trier of fact, but again,
12 regardless, Count 2 has its own separate statutory measure of
13 damages, and I don't think there is -- well, there is no
14 material issue of fact as to whether the actions of Chain
15 Bridge Bank violated the federal law as alleged in Count 2.
16 THE COURT: All right. I'll hear -- wait. While
17 you're there, Mr. White --
18 MR. WHITE: Yes, ma'am.
19 THE COURT: -- on the defamation count, which is the
20 last one that we haven't discussed, but the defendant argues
21 that the statements that were made, none of them could be
22 considered defamatory, and I think that that's a very strong
23 argument that they make.
24 Again, the word "fraud" was never used. I think all
25 of the facts that were conveyed to California are accurate,
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1 that the company had just been started, that the owners of the
2 company were individuals who were political consultants,
3 lobbyists. I mean, the word "lobbyist" can't be considered
4 defamatory. And so the defendants' argument, I want you to
5 respond to that one.
6 MR. WHITE: Yes, Your Honor. It's clear under
7 Virginia law that an insinuation of fraudulent conduct is
8 sufficient to allow for the trier of fact to determine whether,
9 whether damages are due. Recall what happened here. This is
10 Chain Bridge Bank's, Chain Bridge Bank's own customer. Chain
11 Bridge is reaching out not to their own customer; they're
12 reaching out to their customer's counterpart, and what are they
13 telling them?
14 They're telling them they're seeing badges of fraud.
15 That's exactly what happened here. They're telling them that
16 they're seeing badges of fraud, and the reality is the reaction
17 was dramatic, as you would expect. This is their own
18 counterparty's bank who is doing the extraordinary step of
19 calling them, not calling their own customer, not calling their
20 counterparty bank, calling the State of California, the
21 counterparty, who they have the relationship with, and telling
22 them facts that they consider badges of fraud.
23 Clearly, that creates an insinuation that under
24 Virginia law is actionable as a defamatory conduct.
25 THE COURT: All right.
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1 MR. WHITE: And just one other point, Your Honor.
2 THE COURT: Yeah.
3 MR. WHITE: I disagree that all of the facts that
4 they, that they say they told California were uncontroverted.
5 That's, that's not true. There are things that they told
6 California that, that were literally false as well, but I think
7 the stronger argument and the clear one under Virginia law is
8 the insinuation of fraud is sufficient for defamation.
9 THE COURT: All right.
10 MR. ORSECK: Thank you, Judge, and I'll be brief.
11 I'm going to take these in reverse order.
12 On the defamation claim, the evidence on this point
13 is closed. The California officials who were parties to the
14 call with Chain Bridge Bank, there's no reason to think they'll
15 come to trial, and according to all parties to that
16 conversation, two from the State Treasurer's Office as well as
17 the two defendants, Mr. Brough and Mr. Evinger, all say that
18 what Chain Bridge told California on that call was that
19 Mr. Gula was a, quote, political lobbyist; and two, he'd opened
20 Blue Flame Medical's bank account the previous day. That's at
21 Ms. Gonzalez's deposition transcript at pages 50-51 and 130.
22 You didn't hear Mr. White say that either of those
23 things was untrue. In fact, in their brief at page 29, they --
24 the best they can do is to say that there's a technical truth
25 to these. Technical indeed. Another word for that is truth.
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1 Their theory here is how dare you tell the State of
2 California true facts about us that we never told them
3 ourselves? That's not defamation under any version of the law,
4 and the controlling case that we cited, Cashion v. Smith, which
5 is a Virginia case from 2013, explains that the insinuation
6 theory that Mr. White was referring to is in a situation where
7 the defendant states an opinion which carries with it an
8 insinuation or a wink-wink, if you will, of defamatory facts.
9 There is no case and the plaintiff cites no case in
10 which the statement of true facts has been deemed defamatory
11 for fear that the listener of those facts will infer something
12 bad. Nobody -- there's no evidence that anybody ever accused
13 them of fraud or used words to that effect.
14 So the defamation claim is dead in the water for that
15 reason, and even if it weren't, the law is abundantly clear
16 that there is a privilege that applies in trading information
17 among people who have an interest in knowing that information.
18 They say, well, California had no interest in knowing
19 this information because it had already authorized the wire
20 transfer. That's not a tenable response. Obviously,
21 California was concerned with nearly half a billion dollars of
22 its taxpayers' money.
23 That's my response on the defamation claim. On the
24 Count 2, Section 204, the language of that section says that it
25 applies if the receiving bank -- that's Chain Bridge -- accepts
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1 a payment order issued in the name of its customer as sender,
2 and all the cases we -- and it turns out to be unauthorized or
3 improper.
4 All the cases we found consistent with the commentary
5 are cases in which some scam artist calls up the bank
6 purporting to be the bank's customer, purporting to issue a
7 payment order as the sender, and then the bank screws up and
8 sends out the money.
9 Mr. White, I listened carefully, he very carefully
10 said that the payment order that Chain Bridge sent back to
11 JPMorgan identified Blue Flame as the source, but, in fact, it
12 very explicitly identified Chain Bridge Bank as the sender,
13 which is the term used in the statute. That's Exhibit 68. It
14 says it plain as day. It says sender: Chain Bridge Bank.
15 So Section 204 has no application in a situation
16 where the bank simply sends the money out. It would be liable
17 in every case, every case that it sends a wire, unless the
18 beneficiary, unless the customer approves, and that's not the
19 law.
20 If I can circle back to a couple of comments Mr.,
21 Mr. White made, the first I agree with wholeheartedly. He said
22 that as soon as the California officials learned these two
23 facts, that Blue Flame's principals were political lobbyists
24 and that they had just opened the account, he said there was no
25 possibility of going forward.
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1 That's the whole point. That's the whole point.
2 Count 1 requires that the plaintiff prove damages as a result
3 of the return of the wire, but here they lost this transaction
4 because California learned from us what Mr. White's client
5 never told them. So that's the end of Count 1, but it's also
6 the end of the tortious interference and defamation counts
7 because those require an untrue statement or some other
8 improper conduct.
9 As far as Mr. Huang goes, he said there was --
10 Mr. White said there was no further communication. We e-mailed
11 him repeatedly, that's in Exhibit 114, and the cases we've
12 cited, Dedvukaj and Henry, do not turn on the question of
13 whether the affiant is a wrongdoer. This is not a punishment
14 when you exclude the evidence. The question is one of fairness
15 to the opposing party, and that's us.
16 In a situation where we're in realtime,
17 contemporaneously, he said we can't do this. This is
18 impossible. To allow them to overcome summary judgment where
19 we've never had the opportunity and may never have the
20 opportunity to cross-examine him would be quite unfair.
21 The notion of trying to explain away their failure to
22 fulfill any other contracts on a timely basis on the ground
23 that this one was much bigger and markets allow you to do much
24 better on a big order than a small one, that is the most utter
25 of speculation. There is no record evidence to suggest that
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1 any of these suppliers, both of whom, by the way, were merely
2 brokers, to fulfill these contracts, Great Health Companion and
3 Suuchi did not have masks. They were arranging to provide
4 masks, so they said.
5 Two more points: Mr. White said, well, you should
6 look at the testimony of our expert. He contradicts their
7 expert, who said they could never have fulfilled this. He's
8 referring to Mr. Prisament, and I believe it's paragraph 46 of
9 his report at the end, and all Mr. Prisament says at the end
10 is -- I'm not quoting it because I don't have it in front of
11 me -- but he says: I conclude that there is no reason to doubt
12 that Blue Flame could have fulfilled this contract in these
13 trying times, could have provided these masks in these trying
14 times.
15 Again, totally conclusory. He may be an expert or
16 not, but that's not sufficient to overcome summary, summary
17 judgment.
18 The last point, where Mr. White said, well, these
19 statements, this whole, this whole event writ large destroyed
20 our reputation and made it impossible for us to fulfill these
21 contracts, number one, that rests on the doomed defamation
22 claim. We didn't say anything untrue.
23 But in any event, the record is clear, and I would
24 refer you to our expert, Laura Stamm's report, that there was
25 no press whatsoever about the failure of this transaction until
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1 more than a month later, which was after they'd already tried
2 to obtain and fulfill these other contracts that they weren't
3 able to fulfill.
4 So just as a matter of the chronology, the notion
5 that my client destroyed Blue Flame's reputation, thus causing
6 damages, is a physical impossibility, even if you were to
7 ignore the fact that nobody made any untrue statements about
8 Blue Flame.
9 THE COURT: All right, thank you.
10 Mr. White, I saw you sort of jumping around. Do you
11 want to respond to some of that?
12 MR. WHITE: Yes, briefly, Your Honor. As to the
13 State of California, no California -- all the California
14 officials that were deposed here were asked about would they
15 have liked to have known this fact or that fact or the other
16 fact. They were then asked would that have made a difference,
17 and no one said it would have. They said it's information they
18 would want to know, but no one said it would have made a
19 difference to their determination.
20 They had done their diligence on this deal, and those
21 true facts that he says that he was letting them know, there
22 may be some additional details that they would have wanted to
23 know, but absolutely no one from California said that it would
24 have made a difference. No one testified to that.
25 California has investigated it. California has not
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1 accused Blue Flame of fraud.
2 THE COURT: Well, if it wouldn't have made a
3 difference, then why did they -- why did they cancel the
4 contract?
5 MR. WHITE: Because, because Blue Flame's bank was
6 making an insinuation of fraud. It's that simple. The State
7 of California can't be dealing with an entity when their own
8 bank is making an insinuation of fraud, and that insinuation
9 was false.
10 THE COURT: Okay.
11 MR. WHITE: And that's why they would not deal with
12 them any longer. It didn't have anything to do with this
13 detail or that detail. They all testified that would have been
14 interesting information, but I'm not saying that would have
15 made a difference, every one of them.
16 What they did say is what happened was once there's
17 been an insinuation of fraud and they could get the money back,
18 they're going to get the money back and move on, and they're
19 not going to deal with them again. That's the, that's the very
20 essence of the damage here and the problem here.
21 If I could address as well the point regarding the --
22 THE COURT: Count 2?
23 MR. WHITE: Yes, regarding Count 2. The actual wire
24 instruction, the wire transfer display that was produced in
25 discovery, it's -- Plaintiff's Exhibit 45 is one of the copies
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1 of it, it's in a couple of places, that document, it is always
2 going to be the case that the sender in a wire transaction is a
3 bank and the receiver in a wire transaction is a bank.
4 The fact that the sender was Chain Bridge Bank, well,
5 obviously, of course it was Chain Bridge Bank who do wire
6 transfers, banks do, but that document has listed the
7 originator of the wire, and the originator of the wire is Blue
8 Flame Medical LLC with their account. So the originator of
9 that wire was Chain Bridge Bank's customer.
10 That's exactly what 204 talks about. It talks about
11 a bank having -- without authority, sending money, wiring money
12 out of a customer's account.
13 Mr. Orseck made an interesting comment. He said that
14 would subject banks to liability every time they wired money
15 out of a customer account without their authorization. He's
16 right; it would and it does.
17 Banks know they're not supposed to do that. Banks
18 know they don't have the authority to do that. Banks know they
19 can't wire money out of their customers' accounts without their
20 authorization. That's why it doesn't happen, but it did happen
21 here.
22 And the entire structure of Regulation J and the way
23 that the banking laws are set up is to avoid that happening.
24 That's why, you know, it's unusual, this case, I think, is a
25 really good case for summary judgment as to the liability
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1 issues both between Chain Bridge Bank and JPMorgan and between
2 Chain Bridge Bank and Blue Flame Medical because Regulation J
3 in the structure itself and the comments explicitly
4 contemplated this circumstance, explicitly contemplated this
5 circumstance, and they're extremely clear as to what banks can
6 and can't do.
7 Banks can't send out money out of a customer account
8 without that customer's authorization, period, full stop. If
9 they do, they have to put the money back. That's what 204
10 says, and it can't be more clear.
11 It also can't be more clear that that's exactly what
12 Chain Bridge Bank did here. They took money that was in a
13 customer account, and they sent it out to JPMorgan without the
14 customer's authorization, didn't even tell them they were doing
15 it, and that's a clear violation of a banking regulation that
16 you don't see violated very often because it is so crystal
17 clear, and that, as I mentioned before, that doesn't hinge on
18 any of the proof issues that the Court has mentioned regarding
19 damages, which may I respectfully disagree, that seems to me
20 the classic trier of fact issue that should be decided here in
21 terms of whether they were going to be able to perform, and if
22 so, what that level of performance would have been and what
23 they lost out on in the benefit of the bargain when their bank
24 called their counterparty and accused them of fraud.
25 THE COURT: All right, thank you.
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1 MR. ORSECK: May I just beg the Court's indulgence
2 for 60 seconds?
3 THE COURT: All right. I'll time you on that one.
4 MR. ORSECK: That's fine. Mr. White is wrong that
5 California said that's interesting but I don't care. Mr. Kim's
6 deposition, who was the director of the department of general
7 services, who is the director of the Department of General
8 Services, at page 85 testified that had he learned these true
9 facts, it, quote, would raise alarm bells; and the controller
10 of California said in a text message to Mr. Thomas, the head of
11 Blue Flame, that what they'd learned had raised a credibility
12 issue. That's Exhibit 12. So the idea that they don't care is
13 just wrong.
14 Second, Mr. White is incorrect that anytime a bank
15 returns a wire without its customer's approval, it's violated
16 the law. That's what 211(c) talks about, that, that when there
17 is a cancellation, the wire may be returned without the
18 beneficiary's authorization.
19 And if a bank were to just spirit off a customer's
20 money, without anybody cancelling it or without the client --
21 the customer authorizing it, that would amount to a breach of
22 contract between the bank and its accountholder, but 204 is a
23 very narrow provision that refers to a circumstance in which
24 the bank accepts a payment order from someone purporting to act
25 as the sender, as the customer, in which case the bank is
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1 responsible. The law puts the burden of that mistake on the
2 bank.
3 That's not what happened here.
4 THE COURT: All right. Now, we still have the
5 JPMorgan motion for summary judgment, so we'll give you a
6 chance, Mr. Schoenfeld. Just remember to speak loud and slow.
7 MR. SCHOENFELD: Understood. Thank you, Your Honor.
8 The record is unequivocal, I think, that Chain Bridge
9 intended to prevent Blue Flame from accessing the wire funds,
10 and I think the record is clear on that point both on the 25th
11 and on the 26th. Every single action that Chain Bridge Bank
12 took on March 25 and March 26 confirmed and furthered that
13 intention.
14 So with that in mind, I'd like to address Chase's
15 argument on the parties' agreement and on causation, and the
16 causation argument that we make in the briefs may be mooted, I
17 think, a little bit by the exchange between Mr. Orseck and
18 Mr. White. We fully agree with everything Mr. Orseck has said,
19 of course, with respect to whether Chain Bridge -- whether Blue
20 Flame could ever have performed on these contracts and whether
21 any of the losses may have been caused by anything that Chain
22 Bridge did versus, as I believe Mr. White conceded, what
23 California chose to do.
24 With respect to this question of the agreement, the
25 provision of 211(f) that speaks to unless otherwise provided in
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1 an agreement of the parties, the Court has a full record of the
2 parties' communications around the cancellation of the wire as
3 well as their internal communications reflecting their
4 contemporaneous understanding of what their agreement to cancel
5 the wire entailed. The parties discussed their respective
6 concerns about the wire, the steps they would take to cancel
7 it, and the form and timing of the recall request.
8 As between the parties, indemnification was not
9 explicitly discussed, and that makes all the sense in the
10 world. There was no plausible basis under these circumstances
11 for either party to believe that Chase was going to indemnify
12 Chain Bridge for doing something that Chain Bridge had
13 expressly requested and openly wanted for its own reasons.
14 Indemnification is meant to protect a party when that
15 party increases its legal exposure at some other party's behest
16 for that other party's benefit. That's the common law
17 understanding of indemnification, and it's inscribed in 211(f),
18 both in the text and in the commentary, and no one, not even
19 Chain Bridge, contends that indemnification under 211(f) is
20 meant to serve any other purpose.
21 That purpose is totally foreign to the circumstances
22 here, and the parties knew it. We know precisely what -- where
23 the parties' minds met on this issue because Chain Bridge
24 personnel tell you exactly that. On the call between
25 Mr. Evinger, Mr. Brough, and Ms. Mojica-Guadron, Evinger and
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1 Brough relate all of the details of the cancellation --
2 THE COURT: Slow down just a second. Slow down just
3 a second. I want to make sure we can get this.
4 MR. SCHOENFELD: Sorry.
5 THE COURT: All right.
6 MR. SCHOENFELD: So on the call between Mr. Evinger,
7 Mr. Brough, and Ms. Mojica-Guadron, which takes place only six
8 minutes after the second call between JPMorgan Chase and Chain
9 Bridge, Evinger and Brough relate all of the details of the
10 conversation they just had, all the details of the cancellation
11 agreement between the banks, who would do what, when, and how,
12 and Chain Bridge specifically disclaims on that call
13 indemnification as an aspect of that agreement.
14 They tried to clean that up on litigation somewhat,
15 but their account is incredible. On the one hand, they tell
16 you that Chain Bridge personnel knew at the time that 211(f)
17 carried an implicit indemnity. On the other, they tell you
18 that everyone in the industry includes the "no indemnity"
19 language on Fedwire confirms, the transmission that conveyed
20 the instructions to cancel.
21 If Chain Bridge is to be believed then, their
22 expectation at the time, at 1:43 on March 26, was that Chase
23 was not going to indemnify them and they were willing to return
24 the wire anyway. That's because their incentives were concrete
25 and they were powerful, they're reflected in the record, the
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1 decision had been made to return the wire based on Chain
2 Bridge's considerations, and an expectation that
3 indemnification wasn't part of the bank's agreement.
4 With respect to the second argument we make in the
5 brief, which is essentially on loss causation, as I said, I
6 think a lot of it has been mooted by the exchange between
7 Mr. White and Mr. Orseck. I think, as Your Honor has
8 suggested, the record here is clear that there are no losses to
9 Blue Flame, in which case there's nothing to indemnify, but in
10 any event, any loss was not caused by the cancellation, which
11 is what is required under 211(f), but it was required -- but it
12 was caused by circumstances that have nothing to do with JPMC's
13 conduct here or, in fact, with Chain Bridge's, but as between
14 Chain Bridge and JPMorgan Chase, and I'll do this very briefly
15 because I think the point is relatively moot, as between Chase
16 and Chain Bridge, again, any loss for which Chain Bridge might
17 be indemnified here needs to be as a result of the
18 cancellation, not of any other consideration. It has to be a
19 "but for" cause of any loss that Chain Bridge might have
20 experienced here.
21 And again, I think the same record evidence about
22 Chain Bridge's intention, its plans as of March 25 never to
23 make the funds accessible to Blue Flame, defeat any claim that
24 the cancellation itself was a "but for" cause of any loss here.
25 And we know from the moment they were contacted on
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1 March 25 and all of the events of March 26, that there was no
2 intention to make these funds available to Blue Flame. We have
3 all of the record evidence, the e-mails, the phone
4 conversations, both internal and with Chase, they were
5 withholding the funds. They intended to return them to Chase
6 or to California, which they spoke to and offered to return the
7 funds. Then they very quickly closed the accounts down and
8 stopped communicating with their client.
9 There's also the wire transfer policy, which I
10 realize is a point of contention between us and Chain Bridge,
11 but it speaks for itself. It does have a discretionary clause
12 that says that when the beneficiary's account number doesn't
13 match the account number on the Fedwire confirm, there's
14 discretion to return it, but the second sentence says if there
15 is a question as to the beneficiary's right to funds, the wire
16 will be returned. It's mandatory, and there's plenty of
17 testimony in this record reflecting that particularly under
18 these unique circumstances that wouldn't depart from the
19 mandatory language of its policy.
20 And so I think again the record is undisputed on this
21 point that this money was not going to be sent to Blue Flame
22 for reasons having nothing to do with the cancellation of the,
23 of the payment order.
24 So finally there's the argument about the statutory,
25 whether 211(f) applies here at all because this wasn't a
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1 communication by the sender, and this consumed most of the
2 parties' briefing, and so I'll keep it hopefully mercifully
3 short.
4 Indemnification is available under 211(f) when one
5 party to a payment order cancels the transfer and induces the
6 other party to agree. In those circumstances, indemnification
7 provides the inducement.
8 And it's established as a statutory default, unless
9 the parties otherwise agree, and I think we've discussed that
10 issue, because the vast majority of wires are processed and
11 cancelled with no human interaction. The statute is set up to
12 ensure that transfers are cancelled and returned without the
13 need for the parties to negotiate the details or to concern
14 themselves with future liability.
15 None of that rationale obtains when the party
16 returning the wire is the one that initiated the cancellation.
17 It's not accommodating anyone's request, and there's no need
18 for it to be indemnified.
19 The statute doesn't contemplate a windfall or an
20 assurance for one party's willing and self-interested acts.
21 The statute says as much and the commentary in the law of
22 indemnification underscore it. Indemnification is available
23 when the sending bank makes the request and the receiving bank
24 agrees to it. That's not what happened here on any fair
25 reading of the record.
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1 Chain Bridge's main response is that receiving banks
2 can't initiate a cancellation, but the statute never says that.
3 In fact, you know, 211 is quite clear when it speaks to legal
4 or factual impossibility. It states it in very clear,
5 declarative language. 211(e) says a cancelled payment order
6 cannot be accepted.
7 Chain Bridge wants you to read the same sort of
8 prohibition, the same sort of legal or factual impossibility
9 into 211(a) to say that the receiving bank can never cancel a
10 wire transfer. That's simply not there.
11 And there's evidence elsewhere in the record and in
12 the statute itself that receiving banks can cancel wires. We
13 point to provisions elsewhere in the statute that speak to the
14 ability of receiving banks to process cancellations of wires.
15 There's also the operational evidence we put in, which is the
16 Fedwire handbook, which allows -- which instructs operational
17 technicians about how precisely you go about returning wires,
18 and there's evidence in there that suggests that a receiving
19 bank can, in fact, reverse a wire.
20 So their main argument here is that the Court doesn't
21 even need to reach this construction of 211 and 211(f) because
22 it's simply an impossibility for a receiving bank to do exactly
23 what happened here, which is to request and initiate the return
24 of the wire, and under those circumstances, 211(f) doesn't
25 apply here because it is not the situation contemplated by this
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1 indemnification provision.
2 And so just to be clear on the kind of architecture
3 of this argument, there's an argument that 211(f) doesn't apply
4 here at all, and that's the statutory construction argument I
5 just offered. There's then an argument that even if 211(f) did
6 apply here, there's no indemnification obligation here because
7 the parties otherwise agreed, as contemplated in this
8 preparatory clause of 211(f); and finally, even if -- if the
9 Court were to reject the argument about the unless otherwise
10 agreed, there's a question about what losses there are that
11 would be indemnifiable, and that's limited to losses that are
12 "but for" caused by the cancellation, and for the reasons that
13 we discussed, I don't think there's any argument, there's no
14 evidence in the record that any of the losses from Chain Bridge
15 were caused -- would not have been caused but for the
16 cancellation by Chase.
17 THE COURT: All right. I'll hear a response.
18 MR. ORSECK: Thank you, Your Honor. I will again
19 take these in reverse order. Mr. Schoenfeld argued first -- or
20 last that Section 211(f) doesn't apply here, but the language
21 again couldn't be clearer. It says unless otherwise provided,
22 in an agreement of the parties, if the receiving bank after
23 accepting a payment order agrees to cancellation, then it goes
24 on to say whether or not that cancellation or amendment is
25 effective, then the cancelling bank is liable to the bank for
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1 any loss and expenses, including reasonable attorneys' fees,
2 incurred as a result of the cancellation.
3 Comment 5 to 211(f) makes clear, and I'm quoting, if
4 a receiving bank agrees to cancellation or amendment under
5 subsection (c)(1) or (2), it is automatically entitled to
6 indemnification from the sender under subsection (f).
7 THE COURT: Isn't there -- I want to make sure I'm
8 clear that I understand what's going on in this respect: Isn't
9 there information in this record that nobody at Chain Bridge
10 advised JPMorgan that the monies had been credited to the Blue
11 Flame account? Because there is a difference between a bank
12 getting the money and then assigning it to a particular
13 account, correct?
14 MR. ORSECK: Well, it depends what you mean. The
15 answer to your first question is no, nobody from Chain Bridge
16 told JPMorgan that the money had been credited to Blue Flame's
17 account, and that's because the money was never credited to
18 Blue Flame's account, and we have the accounting documents to
19 prove it.
20 THE COURT: Well, you put a hold, you put a hold on
21 the money.
22 MR. ORSECK: We did for, for the two hours between
23 when it came out and we returned it. It was not credited to
24 Blue Flame during that time, but the point I wanted to get to
25 is that's of zero legal significance under Section 211(f). It
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1 makes no difference. 211(f) turns on whether the receiving
2 bank accepted the payment order.
3 Everybody agrees we accepted it because that happens
4 by operation of law the moment it comes into the bank. That's
5 4A-209(b)(2). It's automatic when it comes in. So we
6 couldn't -- that's a post-acceptance cancellation, but it
7 doesn't matter for purposes of 211(f) whether the money was
8 ever credited to Blue Flame.
9 The, the argument that Mr. Schoenfeld makes at the
10 podium and in the briefing is he wants to import this concept
11 of inducement was the word he used, and he suggested that
12 211(f) doesn't apply if the receiving bank, that was Chain
13 Bridge here, induced the cancellation; and then he asserts that
14 we were the ones who orchestrated or induced it or
15 stage-managed it or whatever, but there's nothing in the UCC or
16 the commentary or any case law whatsoever that concerns itself
17 as to any of those case-by-case facts.
18 211(f) says in the most black line -- or clear line
19 language possible that so long as the sending bank cancels and
20 then the receiving bank honors that cancellation, which it is
21 under the UCC under no obligation to do, it is automatically in
22 the language of comment 5 and it is absolutely in the language
23 of the Banca Commerciale Italiana case in the Second Circuit
24 entitled to indemnification of any resulting expenses, which
25 would include any judgment against us by Blue Flame, and it's
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1 also entitled to indemnification for any legal fees and
2 expenses. That's automatic.
3 So there is no basis for a court to inquire whose
4 idea was it first to return the money, whose bread was buttered
5 by the return, who stood more to benefit from it.
6 And I think more to the point, I understand why
7 JPMorgan keeps referring to common law concepts of indemnity.
8 We have to look to where the burden ought to lie, should it be
9 with them or should it be with us, but the Banca Commerciale
10 Italiana case explicitly says, Judge Preska held and then the
11 Second Circuit affirmed, that in drafting the UCC, the idea was
12 to ignore common law indemnification concepts, and the case
13 explicitly says that the concept of who is wrongful has no
14 place. All that has to happen is there is a request for
15 cancellation, which there undeniably was here. They actually
16 set out a Fedwire notice saying please return the funds. Their
17 expert agreed that that counts as a cancellation. It's
18 undisputed that we honored it at 3:21 p.m. on the 26th, and
19 that's the end of the story.
20 All of this stuff about we orchestrated it, which on
21 the record is completely not true, I mean, all the calls came
22 from JPMorgan saying our global security team is looking at
23 this and it's leading to not good places. They called back
24 twice more and said we're going to have to call this back
25 because California wants us to call it back.
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1 So on the facts, we didn't induce anything, but it's
2 irrelevant, and the reason they're harping on this notion of
3 whose idea it was is because the statute is so damning of their
4 position otherwise.
5 THE COURT: All right.
6 MR. ORSECK: They say that their -- they try to say,
7 leverage the language that says unless otherwise provided in an
8 agreement of the parties, but it's a stipulated fact in the
9 case that there was no agreement to displace the default rule
10 of indemnification.
11 Of course, there was an agreement that we would send
12 the money back because under 211, the receiving bank, that's
13 us, has to agree. You don't have an obligation as the
14 receiving bank to honor a cancellation; you have to agree to do
15 it. But to displace the default rule of indemnification, there
16 has to be an agreement -- in an agreement of the parties, there
17 has to be a provision displacing indemnification.
18 And it's important that I note, Mr. Schoenfeld said
19 it here and he said it in his brief, he ascribed to us an
20 argument that the cancelling bank, in this case JPMorgan,
21 always puts in a term that says "no indemnity." That's not, of
22 course, what we said.
23 What we said is if the sending bank wants to displace
24 indemnity and disclaim indemnity, then it has to put in that
25 language, which the Federal Operating Circular that we cite
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1 makes very explicit. It puts it in all capital letters.
2 The notion that the largest and most sophisticated
3 bank in the United States attempted to reach an agreement with
4 us sub silentio to displace indemnification by not saying
5 anything is -- I know it's a cliché, but it's turning the
6 statute on its head. They're saying because there was no
7 provision that said we will indemnify you, therefore, we won't
8 indemnify you, but the statute very pointedly requires exactly
9 the opposite.
10 On the causation point, this one Mr. Schoenfeld said,
11 well, this is mooted if you agree with Chain Bridge in granting
12 summary judgment against Blue Flame because then there'll be
13 nothing to indemnify, but this has been a very expensive
14 litigation, through no fault of my client, and we're entitled
15 to indemnification to be held harmless in terms of attorneys'
16 fees as well.
17 And so on the causation point, I agree, I agree with
18 JPMorgan that our losses have to have been incurred, quote, as
19 a result of the cancellation, that's what 211(f) says, but here
20 we have a complaint from Blue Flame, and it says we're suing
21 you because you honored that cancellation and sent the money
22 back.
23 It really is that simple. So our honoring it,
24 honoring the cancellation notice is the cause in fact of our
25 damages.
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1 JPMorgan's response to that is to say, well, we're
2 going to speculate that if we hadn't cancelled the money, you
3 were going to just up and send it back anyway or you were going
4 to hold onto it forever.
5 There is no basis in the record for that. The
6 counterfactual that they're positing would be that when
7 JPMorgan called Chain Bridge at 1:37 p.m. on the 26th and said
8 we're going to be recalling those funds because we're not
9 comfortable about this, we have to claw it back, if they had
10 instead said to us, guess what, Chain Bridge? We've decided
11 we're not going to cancel, we're not going to call back, we've
12 satisfied ourselves that Blue Flame is legit, you can go ahead
13 and pay the money, that Chain Bridge would have said no, no,
14 no, no. No dice. We're going to send it back to you anyway.
15 There is not a stitch of evidence in the record to
16 support any of that. To the contrary, on that very same call,
17 and we've printed out the transcript in the record, they
18 followed up, it was Mr. Coffey who said, "We're going to be
19 recalling it. Do you need anything from me?"
20 And the response was, "Yes. We'd like a formal
21 cancellation notice."
22 And why did they want a cancellation notice? Well,
23 Mr. Evinger testified because we would be indemnified if we got
24 a cancellation notice and we honored it.
25 We wanted there to be no mistake that we were
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1 honoring a formal cancellation done by JPMorgan, and that is
2 exactly what happened. There's no other evidence that matters.
3 THE COURT: Mr. Schoenfeld, did you want to respond
4 to that briefly?
5 MR. SCHOENFELD: Thank you, Your Honor. Judge, very
6 briefly on this, I'll take it in the order Mr. Orseck did, this
7 notion that we are trying to import the concept of inducement
8 into this, this is an indemnification provision.
9 Comment 5 speaks very explicitly about the receiving
10 bank agreeing to cancellation as an accommodation. That's
11 speaking about the receiving bank being induced and doing
12 something that is essentially not consistent with its wishes at
13 the behest of another party, and it's for that reason that
14 indemnification is made available.
15 The idea that the common law is some stranger to
16 211(f) is also, you know, defied by the language of the
17 statute. This is not about imputing common law concepts where
18 they don't belong.
19 The UCC explicitly says that common law concepts of
20 indemnification are relevant to supplement the language of the
21 statute where it's not otherwise inconsistent with the statute,
22 and there's certainly no inconsistency with 211 or with 211(f)
23 in reading it the way that JPMorgan suggests it ought to be
24 read, which is to say when the sending bank cancels the
25 transaction and the receiving bank agrees, in those
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1 circumstances, there may be indemnification in order to induce
2 the receiving bank to go along with the request.
3 But on the facts here -- and I'll get to exactly what
4 the chronology is, but on the facts here, there's no reason to
5 impute the indemnification obligation of 211(f).
6 With respect to this idea about the record not
7 bearing out in any way that it was -- that the cancellation was
8 orchestrated, initiated, whatever the language Mr. Orseck used,
9 what we have here is insistent requests by Chain Bridge Bank to
10 return this money. They make it first to California twice.
11 They say: Do you want this money back from us?
12 And California says: No, not now.
13 They then go to Chase and they say: Do you want this
14 money back from us?
15 I think what's critically missing from Mr. Orseck's
16 chronology here, the uncontroverted testimony of Mr. Korpal,
17 the person in charge of this at Chase, who said: I was content
18 to have Chain Bridge hold these funds, and I would not have
19 recalled the transaction had Chain Bridge committed to continue
20 holding the funds.
21 And it was because on that 1:34 call Chain Bridge
22 requested that the money be returned that Chase then decided
23 that it would agree with Chain Bridge's request and recall the
24 funds rather than letting them sit at Chain Bridge to ensure
25 that they didn't go on to Blue Flame, which I think was the
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1 common goal here.
2 I think the reference to Mr. Evinger's testimony that
3 at that point in time, he was confident that 211(f) would allow
4 for indemnification, I think is not, is not consistent with the
5 record, to put it mildly. There's a phone conversation among
6 Chain Bridge Bank employees at 1:43 where someone raises,
7 Ms. Mojica-Guadron, the wire technician, raises the question do
8 we need indemnification?
9 The answer is not no, they're sending a Fedwire
10 confirm, it's implied, or no, we've got it covered. The answer
11 is this is what it is. This is just what we've got to do.
12 That is not consistent with the suggestion after the
13 fact in the context of litigation that he was confident in the
14 implied indemnification agreement to 211(f).
15 Finally, on the loss causation issue, if this comes
16 down to attorneys' fees, I think the question then becomes, you
17 know, but for the cancellation, what attorneys' fees would have
18 been incurred here? I don't think that because there's a claim
19 in the complaint about cancellation, all of Chain Bridge's
20 attorneys' fees were, in fact, caused by the cancellation
21 itself.
22 So if the remainder of Blue Flame's damages
23 dissipates and this becomes a question of to what extent Chase
24 needs to indemnify Chain Bridge for attorneys' fees incurred in
25 connection with this litigation, I think there's still a
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1 question about what fees were incurred as a result of but for
2 the cancellation. That's not an issue that the parties have
3 litigated here, but it's certainly a consequential one if all
4 that -- if that's the only thing that remains of the case.
5 THE COURT: All right. Well, thank you, gentlemen.
6 You've had interesting arguments. Obviously, it's a very thick
7 record. Your arguments have helped me think about portions of
8 the record that I want to further review in chambers. So we'll
9 get an answer out to you as quickly as we can, but thank you
10 very much.
11 MR. WHITE: Thank you, Your Honor.
12 MR. ORSECK: Thank you, Your Honor.
13 THE COURT: We'll recess court for the day.
14 (Which were all the proceedings
15 had at this time.)
16
17 CERTIFICATE OF THE REPORTER
18 I certify that the foregoing is a correct transcript of
19 the record of proceedings in the above-entitled matter.
20
21
22 /s/
Anneliese J. Thomson
23
24
25
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