Candor in Court May Have Helped East West: Bank Did Not Cause Borrower to Go under, California Jury Says
Kuehner-Hebert, Katie, American Banker
When East West Bank in Pasadena, Calif., was accused of causing a borrower's default and subsequent bankruptcy, the bank offered to settle for $20 million rather than take its chances with a jury.
But the borrower, a seafood importing company, took the case to court, asking for $40 million plus punitive damages.
The gamble did not pay off.
Last month, a Los Angeles jury unanimously ruled that East West, a unit of the $11.8 billion-asset East West Bancorp, was not responsible for Ocean Fresh Trading Inc.'s demise.
The bank prevailed, in part, because it did not try to hide a conflict of interest involving an employee, his wife, and an Ocean Fresh competitor.
"The lesson learned is that banks can get fair trials, too, but you've got to take the high road and be completely up front if something was amiss," said Skip Miller, a partner at Miller Barondess LLP in Los Angeles who represented East West in the case.
Walter G. Moeling 4th, a partner with the Atlanta law firm Powell Goldstein LLP, said the ruling is particularly important given the current environment; the subprime mortgage crisis, mounting foreclosures, and the credit crunch have tarnished the banking industry's reputation, making it potentially more difficult to win in front of a jury.
"In this market, there is a pent-up sentiment, 'I'm not happy with financial institutions,' and juries are skeptical whether a bank is being greedy," he said. "They think, 'If this bank isn't shooting straight, I'm going to nail them,' so banks are better off owning up to their mistakes."
Ocean Fresh Trading, an importer of frozen seafood from Asia and South America, was owned by three siblings. The suit stemmed from a decision by one of them, Jimmie Dang, to form his own company without the others' knowledge.
According to the lawsuit, Mr. Dang secretly diverted Ocean Fresh funds and seafood from warehouses to his new company, Seafresh Trading Inc. He was able to do this because he was in charge of Ocean Fresh's finances, the suit said.
He also opened a line of credit for Seafresh at East West Bank. His manager on the account was Marcus Kamarga, who also managed the Ocean Fresh account, and their relationship did not end there. Shortly after Seafresh opened for business, Mr. Kamarga's wife began working there.
In November 2006, Ocean Fresh was notified that it was nearing default on its line of credit. The notice led Mr. Dang's siblings to discover that he was diverting assets to Seafresh.
East West put Ocean Fresh's line of credit into default several months later. Ocean Fresh alleged in its suit that the default was unlawful, because East West falsely used the original loan terms, which would have required Ocean Fresh to maintain a higher balance. …