Competex, S.a. (in Liquidation), Plaintiff-appellee, v. Ronald Labow, Defendant-appellant, 783 F.2d 333 (2d Cir. 1986)

This appeal presents issues concerning currency conversion in the context of enforcing a foreign judgment. Specifically, the question is whether a judgment debtor may satisfy an American judgment that was based on an English judgment by paying the amount of the English judgment in pounds. Defendant-appellant Ronald LaBow appeals from an order of the District Court for the Southern District of New York (John E. Sprizzo, Judge), 613 F. Supp. 335, denying his motion under Fed. R. Civ. P. 60(b) for relief from the American judgment, previously entered by the late Judge Henry F. Werker in favor of plaintiff-appellee Competex, S.A. For reasons that follow, we affirm.

Background

LaBow, a New Yorker, lost a substantial sum of money through speculation in copper on the London Metal Exchange. His broker, Competex, a Swiss corporation, satisfied these debts. Competex sued LaBow for breach of contract in the English High Court of Justice, Queen's Bench Division, and obtained a default judgment for pounds sterling 187,929.82, which included principal, interest, and costs.

Competex then brought this diversity action to enforce the English judgment. Following a bench trial, Judge Werker held that the English judgment was entitled to recognition and enforcement. Because determination of the date on which to convert a foreign currency debt into dollars is a substantive question, see Vishipco Line v. Chase Manhattan Bank, N.A., 660 F.2d 854, 865-67 (2d Cir. 1981), cert. denied, 459 U.S. 976, 103 S. Ct. 313, 74 L. Ed. 2d 291 (1982), Judge Werker was compelled to apply New York law. New York uses the breach-day conversion rule, see Dougherty v. Equitable Life Assurance Society, 266 N.Y. 71, 193 N.E. 897 (1934); Parker v. Hoppe, 257 N.Y. 333, 178 N.E. 550 (1931); Richard v. American Union Bank, 241 N.Y. 163, 149 N.E. 338 (1925); Hoppe v. Russo-Asiatic Bank, 235 N.Y. 37, 138 N.E. 497 (1923); Brill v. Chase Manhattan Bank, 14 A.D.2d 852, 220 N.Y.S.2d 903 (1st Dep't 1961); Librairie Hachette, S.A. v. Paris Book Center, Inc., 62 Misc.2d 873, 309 N.Y.S.2d 701 (Sup.Ct.N.Y.Co.1970). But see John S. Metcalf Co. v. Mayer, 213 A.D. 607, 211 N.Y.S. 53 (1st Dep't 1925) (applying the judgment-day rule); Sirie v. Godfrey, 196 A.D. 529, 188 N.Y.S. 52 (1st Dep't 1921) (same).

In applying the breach-day rule, Judge Werker reasoned that Competex's American claim was based on the English judgment rather than on the underlying contract. Competex's American claim had therefore accrued upon the date of entry of the English judgment, and Judge Werker applied the conversion rate prevailing on that date: pounds sterling 1 = $2.20. He entered judgment for $583,201.78, which included interest and a fee award pursuant to Fed. R. Civ. P. 56(g).¹  LaBow noticed an appeal, which we dismissed sua sponte for failure to perfect. The appeal was never reinstated.

The pound depreciated substantially relative to the dollar between the dates of the English and American judgments. On the date of the American judgment, the conversion rate was: pounds sterling 1 = $1.50. The pound continued to depreciate. As a result, LaBow moved, pursuant to Fed. R. Civ. P. 60(b), for a clarification of the American judgment and a declaration that he could satisfy the American judgment by paying the underlying English judgment in pounds. While this motion was pending, LaBow borrowed the necessary funds and paid the English judgment, with interest, in pounds. Judge Sprizzo denied LaBow's Rule 60(b) motion and held that the American judgment could be satisfied only by paying the dollar amount specified in that judgment. He credited LaBow's payment against the American judgment at the conversion rate prevailing on the date of payment: pounds sterling 1 = $1.20. This calculation left a balance owing on the American judgment of approximately $236,000.²  LaBow appeals the denial of his Rule 60(b) motion.

Discussion

Because of the procedural posture of this case, we are faced with a narrow issue: whether Judge Sprizzo's denial of LaBow's Rule 60(b) motion was proper. Rule 60(b) is not a substitute for appeal. LaBow may not relitigate the bases for the enforcing judgment entered by Judge Werker. See Donovan v. Sovereign Security, Ltd., 726 F.2d 55, 60 (2d Cir. 1984); Daily Mirror, Inc. v. New York News, Inc., 533 F.2d 53, 56 (2d Cir.), cert. denied, 429 U.S. 862, 97 S. Ct. 166, 50 L. Ed. 2d 140 (1976). Specifically, LaBow may not challenge Judge Werker's application of the breach-day conversion rule. However, review of the Rule 60(b) denial requires some exploration of the currency conversion problem because determination of a state's rule for deeming enforcing judgments satisfied turns on the rationale for the state's currency conversion rule.

For illustrative purposes, the following example will be helpful.³  Defendant defaults on a contractual obligation to pay plaintiff pounds sterling 1. Plaintiff brings suit in an English court and receives judgment for that amount, at which time the prevailing conversion rate is: pounds sterling 1 = $1. For simplicity and to keep the discussion focused on the pertinent points, we assume that the value of the dollar remains constant (i.e., constant against gold and all currencies except the pound) but that fluctuation in the value of the pound causes a change in the exchange rate for the dollar. Initially, we consider what would happen if the pound depreciates relative to the dollar, so that pounds sterling 1 = $.60. Plaintiff then brings an action on the English judgment in an American state court. We will further assume that defendant has sufficient property in both jurisdictions to satisfy any judgments against it.

If the English judgment is entitled to enforcement, a state court applying New York's breach-day rule would enter judgment for $1, in accordance with the conversion rate prevailing on the date the English judgment debt became due. The asserted purpose of this rule is to assure that plaintiff will be made whole by protecting him against fluctuation in relative currency values. See Vishipco Line v. Chase Manhattan Bank, N.A., supra, 660 F.2d at 866 n. 7. Thus, had defendant paid plaintiff pounds sterling 1 on the date of the English judgment and had plaintiff converted this amount into dollars on that date, plaintiff would be in possession of $1 on the date of the American judgment. On the surface, the breach-day rule appears to do no more than regard as done that which ought to have been done.

However, the breach-day rule does more than make plaintiff whole. It generously allows him to reap the benefit of appreciation in the value of the pound without risking loss as a result of the pound's depreciation. In our example, plaintiff was insulated from any loss as a result of the pound's depreciation. His right to receive $1 was completely unaffected by the pound's depreciation. However, had the pound appreciated relative to the dollar, so that pounds sterling 1 = $1.30, plaintiff would simply have executed on the English judgment. He would receive pounds sterling 1, the equivalent of $1.30. Since the original obligation was worth only $1, plaintiff would make $.30 as a result of the pound's appreciation.⁴ 

Of course, this game of creditor's choice is possible only if the judgment debtor has property in both jurisdictions sufficient to satisfy either judgment. The proposed Restatement of Foreign Relations Law suggests a more extreme rule of creditor's preference that can enable the creditor to benefit from currency fluctuations even if the debtor does not have property in both jurisdictions.⁵  See Restatement of Foreign Relations Law of the United States Sec. 823 comment c (Tent. Draft No. 6, 1985). According to the Restatement, if the foreign currency has depreciated since the foreign obligation accrued, an American court should follow the breach-day rule and apply the conversion rate prevailing at the time of accrual. In our example, if the value of pounds sterling1 goes from $1 to $.60, the American court enters judgment for $1, and plaintiff loses nothing as a result of the pound's depreciation. However, if the foreign currency appreciates, an American court, according to the Restatement, should follow the judgment-day rule and apply the conversion rate prevailing on the date of the American judgment.⁶  In our example, if the value of pounds sterling1 goes from $1 to $1.30, the American court enters judgment for $1.30, and plaintiff makes $.30. Thus, under the Restatement's approach, the judgment debtor need not have property in England for the judgment creditor to be allowed to engage in currency speculation without risk.

It might be argued that the judgment debtor can avoid these unfavorable consequences by immediately satisfying the first judgment. Indeed, it could be argued that these consequences are fitting punishment for failure to pay debts justly due. However, these arguments assume that the original judgment is valid and enforceable. It might be that the original judgment is arguably not entitled to foreign recognition.⁷  There is no justification for forcing defendant to choose between waiving all defenses to the enforcement action by satisfying the original judgment and assuming the risk of currency fluctuation.⁸  Moreover, post-judgment interest, which compensates the judgment creditor for the time value of money, is ordinarily the only "punishment" for delay in paying judgment debts.

The gamesmanship of the breach-day rule can be avoided by selecting a conversion rule of general application that is neutral between the parties with respect to currency fluctuation. There are three methods by which neutrality can be achieved, depending on whether the original or the enforcing judgment is viewed as primary. If the original judgment is viewed as primary, which seems theoretically superior, neutrality can be achieved, first, by entering the enforcing judgment in the currency of the original jurisdiction (foreign-currency-judgment rule) or, second, by entering the enforcing judgment for an amount of dollars to be determined by converting the original judgment into dollars as of the date of payment (payment-day rule). If the enforcing judgment is viewed as primary, the third method for achieving neutrality is by converting the original judgment into dollars as of the date of the enforcing judgment (judgment-day rule).

Entry of judgment in a foreign currency is allowed in England, see Miliangos v. George Frank (Textiles) Ltd., [1975] 3 All E.R. 801 (H.L.), France, and Germany, see E. Scoles & P. Hay, Conflict of Laws Sec. 24.40 (1982). Despite the obvious appeal of this approach, which preserves the original judgment inviolate and places on both parties the risk of fluctuation in the value of the currency of the original judgment, it has received little support in the United States for a procedural reason. Most American courts have assumed that American judgments must be entered in dollars. This assumption has rested on either common law notions of sovereignty, see Hicks v. Guinness, 269 U.S. 71, 72, 46 S. Ct. 46, 70 L. Ed. 168 (1925); Frontera Transportation Co. v. Abaunza, 271 F. 199, 202 (5th Cir. 1921); Liberty National Bank v. Burr, 270 F. 251, 252 (E.D. Pa. 1921), or, at least in part, on the now repealed section 20 of the Coinage Act of 1792, see International Silk Guild, Inc. v. Rogers, 262 F.2d 219, 224 (D.C. Cir. 1958); Shaw, Savill, Albion & Co. v. The Fredericksburg, 189 F.2d 952, 954 n. 5 (2d Cir. 1951). This assumption probably deserves reexamination in light of the repeal of section 20.⁹ 

The payment-day rule is economically equivalent to the foreign-currency-judgment rule. Indeed, the House of Lords recognized that, although entry of an enforcing judgment in a foreign currency may be the purest method of preserving the original judgment, there comes a time when that type of enforcing judgment, if paid in local currency, must be converted into that currency, at which point the foreign-currency-judgment rule becomes the payment-day rule. That point is reached no later than the time of execution, when a decision must be made as to how many units of the local currency satisfy the judgment entered in a foreign currency. See Miliangos v. George Frank (Textiles) Ltd., supra.¹⁰  In France, the court has the option of adopting either the payment-day or judgment-day rule. See In re James' Will, 248 N.Y. 1, 5, 161 N.E. 201, 202 (1928). However, in the United States, there has been some concern that a judgment must be entered in dollars for a sum certain. Cf. Forms 31 and 32, Appendix of Forms to Fed. R. Civ. P. Although the Federal Rules contain no explicit obstacle to the entry of a judgment for an amount of dollars to be determined in the future (by reference to ascertainable figures), the payment-day rule has found little favor in this country.

American courts wishing to avoid the procedural objections to the foreign-currency-judgment or payment-day rules while choosing a neutral conversion rule may apply the judgment-day rule. See Die Deutsche Bank Filiale Nurnberg v. Humphrey, 272 U.S. 517, 47 S. Ct. 166, 71 L. Ed. 383 (1926); Paris v. Central Chiclera, 193 F.2d 960 (5th Cir. 1952); Shaw, Savill, Albion & Co. v. The Fredericksburg, supra; B.V. Bureau Wijsmuller v. United States, 487 F. Supp. 156 (S.D.N.Y. 1979), aff'd, 633 F.2d 202 (2d Cir. 1980); Restatement (Second) of Conflict of Laws Sec. 144 (1971).¹¹  The neutrality of the judgment-day rule may be illustrated by a return to our example. If plaintiff holds an English judgment for pounds sterling1 and the value of pounds sterling1 depreciates from $1 to $.60 as of the date of the American judgment, the American court enters judgment for $.60, and plaintiff loses $.40. But that is merely the consequence of holding an obligation in pounds. Had plaintiff executed on his English judgment, he would have lost the equivalent of $.40 as a result of the pound's depreciation. Conversely, if the value of pounds sterling1 appreciates from $1 to $1.30, the American court enters judgment for $1.30, and plaintiff makes $.30, the equivalent of what he would have made had he executed on the English judgment. Thus, the judgment-day rule allows the plaintiff to speculate in pounds for as long as he wishes, but he now engages in true speculation. His gains and losses are registered with equal force in England and in the United States, and any incentive for forum shopping disappears.¹²  After entry of the American judgment, the judgment creditor is insulated from fluctuation in the value of the pound but takes the risk of fluctuation in the value of the dollar. But that is merely the consequence of holding a judgment in dollars.

If we were free to choose a conversion rule, we would select either the judgment-day or the payment-day rule. However, as noted, we are not free to do so because the conversion question is one of New York law and because we are reviewing only the denial of LaBow's Rule 60(b) motion. Our task is to predict what satisfaction of judgment rule New York would apply.¹³ 

Bearing in mind the consequences previously discussed of the various possible conversion rules, we believe that New York's choice of the breach-day conversion rule clearly implies that New York would require satisfaction of a New York enforcing judgment by payment of the dollar amount specified in that judgment and would not consider an enforcing judgment satisfied by payment of the amount of the underlying judgment in foreign currency. The breach-day rule protects the judgment creditor against fluctuation in currency values to the point of allowing him to speculate without risk. It would be anomalous to suggest that New York would allow its creditor's preference rule to be undercut by giving the judgment debtor the opportunity to satisfy his New York judgment by paying the underlying judgment in depreciated pounds.¹⁴  Therefore, Judge Sprizzo was correct in holding that Competex's American judgment could be satisfied only in dollars. As a corollary, any pounds paid must be credited in dollars at the rate prevailing on the date the pounds were paid.¹⁵ 

LaBow contends that our holding is contrary to the principle that a judgment debtor can prevent entry of an enforcing judgment by satisfying the original judgment. See, e.g., United States National Bank v. United States, 23 F.2d 927 (S.D. Tex. 1928). However, once an enforcing judgment is entered, a new obligation in dollars is created, and jurisdictions that follow the breach-day or the judgment-day rule view this enforcing judgment as primary. Where that judgment is regarded as primary, the opportunity to prevent its entry by paying in pounds does not imply the right to satisfy it by paying in pounds.

LaBow also contends that our holding is contrary to the general rule of non-merger in a judgment-on-a-judgment case:

j. Merger in a judgment on a judgment. When the plaintiff has obtained a judgment against the defendant and brings an action upon the judgment, and obtains a judgment in that action, the first judgment is not merged in the second judgment, whether the second action is brought in the same State in which the first judgment was rendered or is brought in another State. The plaintiff can enforce either judgment by execution or otherwise, but satisfaction of one of the judgments operates also as satisfaction of the other.

Restatement (Second) of Judgments Sec. 18 comment j (1982). The Restatement suggests that the judgment debtor may choose which of the judgments he desires to satisfy. However, the drafters clearly envisioned the context of two judgments within the United States, a context in which the dual currency problem does not arise. Transferring the debtor's choice rule into the international sphere would allow the judgment debtor to speculate without taking any risk. The principal debate in this area has been whether the judgment creditor should be allowed gains from fluctuation without risk (breach-day rule) or whether he should be required to assume the fair risks of speculation (judgment-day rule). However that choice is made, there is no sound basis for selecting a rule of debtor's preference.¹⁶ 

Finally, LaBow contends that the District Court's ruling conflicts with the New York Court of Appeals' decision in In re James' Will, supra. In James, a judgment debtor failed to pay a New York judgment. The judgment creditor obtained an enforcing judgment in France. The debtor paid the amount of the French judgment in depreciated francs¹⁷  and sought a declaration in New York that the American judgment had been satisfied. The Court of Appeals ruled that the New York judgment had been satisfied. LaBow views James as holding that satisfaction of either judgment extinguishes the other judgment. Competex views James as holding that the enforcing judgment must be satisfied in local currency.

Though James is not an opinion of absolute clarity, we believe that both parties misread it. We think the Court of Appeals resolved the satisfaction issue by applying choice of law principles. Since the judgment creditor had chosen to enforce his New York judgment in France, instead of executing on his New York judgment, the Court viewed the French judgment as primary and held that French law should determine the satisfaction question.¹⁸  It viewed the New York judgment as "merged" into the French judgment. 248 N.Y. at 8, 161 N.E. at 203. The Court of Appeals held that, since the French judgment had been satisfied under French law, the New York judgment had been satisfied.¹⁹ 

James is pertinent only as authority on the choice of law rule New York will apply in the satisfaction context: New York will apply the law of the enforcing jurisdiction. In the instant case, New York would apply its own substantive law. Since neither James nor any other New York decision supplies a New York answer to the substantive question, we must predict the law the New York Court of Appeals would apply. We predict that, where New York law applies, the Court of Appeals would require payment of a New York enforcing judgment in the specified dollar amount or its equivalent value at the date of payment to safeguard the policy underlying the breach-day rule.²⁰ 

Conclusion

The order of the District Court is affirmed.