Confidential
Settlement – $637,500Facts
The two plaintiffs were customers of the two defendant stockbrokers. The stockbrokersÆ corporation issued
promissory notes to the customers for a total of $550,000 and the notes were personally guaranteed by the
stockbrokers. The notes were to be part of "bridge financing" for the defendant Costa Rican coffee company,
which was to purchase coffee futures.
The coffee company had been incorporated in the Netherlands Antilles and was never a signatory to either of
the notes. The notes called for monthly payments of interest only, with the balance to be paid within one year.
The interest rate was 15 percent per annum. Further, the notes also required that the two plaintiffs receive a
combined total of 22,000 stock shares in the coffee company.
The notes stated that they were secured by the coffee companyÆs assets and by 800,000 shares of the coffee
companyÆs stock. The two plaintiffs received several of the monthly interest payments and then the note went
into default in November 1999. The principal was due in a balloon payment on Dec. 31, 1999.
The coffee company denied that the defendant stockbrokers had the authority to obtain a loan on its behalf, or
to pledge any of the company assets as collateral.
On Dec. 17, 1999, the plaintiffs filed suit against all the defendants for various causes of action including
breach of promissory note, breach of guaranty and fraud.
Settlement Discussions
On the day before the guarantors were to have their depositions taken by the plaintiffs, the defendants settled the case for the full amount of the notes, including the 15 percent interest and the full amount of attorney fees and costs incurred by the plaintiffs, plus the promised 22,000 shares of coffee company stock.
Damages
Default on a promissory ntoe.
Other Information
The plaintiffs obtained ex parte temporary protective orders against the guarantors. After a hearing, the trial court granted the plaintiffs' application for writs of attachment against the defendant stockbrokers. The trial court also rejected the defenses of the guarantors and denied the defendants' motion to compel arbitration before the National Association of Securities Dealers, on the basis that the case would remain pending within the court as to the parties who were not subject to arbitration.
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