Competex, S.A. (In Liquidation) v. Ronald Labow
1986 U.S. App. LEXIS 22187, 783 F.2d 333 (1986)
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Rule of Law:
When a U.S. court enters a judgment in U.S. dollars to enforce a foreign currency judgment, the U.S. judgment creates a new, primary obligation that must be satisfied in the specified dollar amount. The debtor cannot satisfy this judgment by subsequently paying the original amount in the foreign currency if that currency has depreciated.
Facts:
- Ronald LaBow, a New Yorker, incurred substantial debts through copper speculation on the London Metal Exchange.
- LaBow's broker, Competex, S.A., a Swiss corporation, satisfied these debts on his behalf.
- Competex obtained a default judgment against LaBow for breach of contract in the English High Court of Justice for £187,929.82.
- Following the entry of the English judgment, the British pound depreciated significantly in value relative to the U.S. dollar.
- LaBow borrowed funds and paid the English judgment, with interest, in British pounds.
Procedural Posture:
- Competex, S.A. sued Ronald LaBow in the English High Court of Justice, Queen’s Bench Division, for breach of contract.
- The English court entered a default judgment for Competex in the amount of £187,929.82.
- Competex then brought a diversity action in the U.S. District Court for the Southern District of New York to enforce the English judgment.
- Following a bench trial, the District Court (Judge Werker) recognized the English judgment and entered a U.S. judgment for Competex for $583,201.78, having converted the pounds to dollars using the exchange rate on the date of the English judgment (the 'breach day').
- LaBow filed an appeal of the District Court's judgment, but it was dismissed for failure to perfect.
- After paying the English judgment in pounds, LaBow filed a motion under Fed. R. Civ. P. 60(b) in the District Court, seeking a declaration that this payment satisfied the U.S. judgment.
- The District Court (Judge Sprizzo) denied LaBow's motion, holding the U.S. judgment must be satisfied in dollars and credited his pound payment at the current, lower exchange rate, leaving a substantial balance due.
- LaBow appealed the denial of his Rule 60(b) motion to the U.S. Court of Appeals for the Second Circuit.
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Issue:
Does a defendant satisfy a U.S. dollar judgment, entered to enforce a foreign currency judgment under New York's breach-day rule, by later paying the original foreign currency amount after that currency has depreciated against the dollar?
Opinions:
Majority - Jon O. Newman, Circuit Judge
No, a defendant does not satisfy a U.S. dollar judgment by paying the original, depreciated foreign currency amount. The court held that once a U.S. judgment is entered in dollars, it creates a new, independent obligation that must be satisfied by paying the specified dollar amount. The court reasoned that it was bound by New York's "breach-day" conversion rule, which converts the foreign debt into dollars using the exchange rate on the date the obligation was breached (here, the date of the English judgment). The purpose of this rule is to protect the creditor from currency fluctuations and make them whole. Allowing the debtor to later pay in the devalued foreign currency would undermine this creditor-protective policy, create a rule of "debtor's preference," and allow the debtor to benefit from currency speculation without risk. Therefore, the U.S. dollar judgment is primary and must be satisfied in dollars, with any foreign currency payments credited at the exchange rate on the date of payment.
Analysis:
This decision solidifies the principle that a U.S. judgment domesticating a foreign debt creates an independent, dollar-denominated obligation. It clarifies that the policy behind New York's creditor-protective 'breach-day' rule extends to the satisfaction of the judgment, preventing debtors from taking advantage of subsequent currency devaluations. The ruling provides certainty for creditors enforcing foreign judgments in the U.S., as it establishes that once the amount is fixed in dollars, that obligation is insulated from the volatility of the original foreign currency. This prevents post-judgment forum shopping or gamesmanship by debtors based on fluctuating exchange rates.
