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Arab African Intern. Bank v. Epstein

filed: November 30, 1993.

ARAB AFRICAN INTERNATIONAL BANK APPELLANT
v.
JONATHAN I. EPSTEIN; RICHARD S. GOLDMAN; GOLDMAN & EPSTEIN; KENDIS & BAKER, P.C.; SHERMAN L. KENDIS, ARAB AFRICAN INTERNATIONAL BANK V. JONATHAN I. EPSTEIN; RICHARD S. GOLDMAN; GOLDMAN & EPSTEIN; KENDIS & BAKER, P.C.; SHERMAN L. KENDIS, JONATHAN I. EPSTEIN, RICHARD S. GOLDMAN AND GOLDMAN & EPSTEIN, APPELLANTS



ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY. D.C. Civil Action No. 90-02461.

Before: Sloviter, Chief Judge, Nygaard and Weis, Circuit Judges.

Author: Nygaard

Opinion OF THE COURT

NYGAARD, Circuit Judge.

In this legal malpractice action the district court granted summary judgment in favor of Jonathan I. Epstein, Richard S. Goldman, and the law firm of Goldman & Epstein (the "Epstein defendants"). Arab African International Bank appeals the summary judgment and the denial of its motion for leave to amend its complaint to assert a claim under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. ("RICO"). The Epstein defendants appeal the denial of their motion for sanctions under Fed. R. Civ. P. 11. For the following reasons, we will reverse the summary judgment, affirm the denial of sanctions and leave to amend, and remand the cause to the district court.

I.

This case, now in its second appearance before us, arises out of Sencit F/G Development Company's default on a $3.25 million mortgage loan from Arab African. Arab African is an Egyptian bank with a place of business in New York. Sencit, a New Jersey partnership, was represented by the Epstein defendants in the loan transaction with Arab African. The property securing the loan is in New Jersey.

The loan documents originally provided that they would be executed in New Jersey and that New Jersey law would apply. Both designations were changed to New York, however, because the New Jersey Banking Act, N.J. Stat. Ann. § 17:9A-315 et seq. (the "Act"), prohibits foreign banks from doing business in New Jersey. At Arab African's request, the Epstein defendants issued an opinion letter, signed by Epstein, stating that:

The Mortgage and Note . . . constitute binding, and enforceable agreements of the Partnership in accordance with their terms (subject as to enforcement of remedies to applicable bankruptcy, reorganization, insolvency, moratorium or other laws or equitable principles affecting the enforcement of creditor's rights, generally from time to time in effect).

After Sencit defaulted, Arab African commenced foreclosure proceedings in the Superior Court of New Jersey, Chancery Division. Sencit moved to dismiss the action, asserting that it was barred by section 330 of the Act, which provides:

A. A foreign bank shall not be entitled to maintain any action in any court of this State on any cause arising out of its transaction of business in this State in violation of the provisions of this article.

B. A foreign bank which violates any of the provisions of this article and its directors, officers, agents and employees who participate in any such violation shall be guilty of a misdemeanor.

N.J. Stat. Ann. § 17:9A-330. After a two-day trial on the issue of where the transaction had occurred, the court ruled in Sencit's favor, holding that Arab African was a foreign bank that had done business in New Jersey in violation of the Act and therefore could not file its foreclosure actions in a New Jersey court. Arab African argued that, in light of the choice of law clause and the Epstein defendants' opinion letter, Sencit was estopped from raising the Act as a defense, but the court rejected this contention for two reasons: first, because Arab African had not relied on the opinion letter, and second, because estoppel does not apply to defenses based on penal statutes. Arab African did not raise the issue of the Act's constitutionality in the foreclosure action.

Arab African then sued in the United States District Court for the District of New Jersey, asserting claims of fraud, material misrepresentation and negligence against the Epstein defendants and against its own attorney and his law firm.*fn1 The Epstein defendants moved for summary judgment based in part upon the doctrine of issue preclusion. The district court found that the New Jersey Superior Court's determination that Arab African did not rely on the Epstein defendants' opinion letter precluded Arab African from relitigating the reliance issue, which was essential to its claims against them, and granted the motion. We reversed and remanded. Arab African Int'l Bank v. Epstein et al., 958 F.2d 532 (3d Cir. 1992).

On remand, the Epstein defendants again moved for summary judgment, arguing that the Act precluded Arab African's suit. Arab African opposed the motion arguing that an application of the Act would violate the Commerce Clause. Relying on the Act and finding no constitutional violation, the district court granted the motion. Arab African moved for and was denied reconsideration and leave to file an amended complaint to assert ...


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