Court Affirms $53M Award for JPMorgan

CHICAGO (CN) - An Asian paper company that defaulted on a JPMorgan Chase loan to buy machinery must disclose assets to pay off a $53 million judgment, the 7th Circuit ruled.

JPMorgan Chase won $53 million in damages against Asia Pulp & Paper Co. and its subsidiaries, Indah Kiat Pulp & Paper and Pabrik Kertas Tjiwi Kimia, in 2010.

In 1996, the bank executed promissory notes worth a total of $43 million on behalf of Beloit Corp., to finance the construction of two enormous paper-making machines.

Ultimately, however, those machines, which were each several stories high and roughly 200 meters long, never ran as fast as promised.

Asia Pulp settled with Beloit in 2000, but stopped making payments on the promissory notes soon afterward, even though the settlement agreement explicitly stated that Asia Pulp still had an obligation to repay the notes.

In a series of decisions, a federal judge dismissed Asia Pulp's defenses and entered a judgment for JPMorgan of $53 million, including interest. The court also found that Asia Pulp could not stay discovery on its assets based on an Indonesian injunction in an unrelated case.

A three-judge panel of the 7th Circuit affirmed Thursday, finding that it did not have jurisdiction to review the discovery decision.

"The District Court correctly held that the settlement waived Asia Pulp's implied warranty defenses and counterclaim," Judge Diane Sykes wrote for the panel. "The fraud defense is mostly barred as well; to the extent it is not, Asia Pulp's evidence is wholly insufficient to survive summary judgment. Asia Pulp's remaining defenses - that the notes lacked consideration; that the notes were issued for a 'special purpose' and were not intended to be repaid; and that JPMorgan is not a holder in due course - are all meritless."

Asia Pulp claimed that it reasonably believed it would not have to repay the notes after settling with Beloit, but the court found that "no record evidence supports this contention."

"To the contrary, Indah Kiat and Tjiwi Kimia paid on the notes for two years before defaulting," Sykes wrote. "Asia Pulp has not explained why these payments were made if indeed it believed it did not have to repay the notes. Moreover, Asia Pulp and its subsidiaries expressly acknowledged their continued liability on the notes in the Deed of Settlement, which specifically preserved their obligation to pay."

Asia Pulp also cannot appeal production of its financial records that the lower court ordered.

"The District Court's denial of Asia Pulp's motion to stay is ... not the end of the post-judgment proceedings - to the contrary, the denial of a stay simply lets those proceedings continue," Sykes wrote.

She declined to apply the collateral-order doctrine, which permits appellate review of non-final rulings.

"Under Mohawk Industries [v. Carpenter], Asia Pulp cannot establish that the issue is effectively unreviewable if a collateral review is not allowed," Sykes wrote. "In Mohawk Industries, the Supreme Court concluded that collateral-order appeals were not permitted from pretrial discovery orders adverse to the attorney-client privilege. The court held that post-judgment appeal was sufficient to protect the interests secured by the privilege. The Court emphasized that piecemeal appeals 'undermine[] efficient judicial administration and encroach[] upon the prerogatives of district court judges.'" (Brackets in original.)

Therefore, "we lack jurisdiction over Asia Pulp's appeal of the asset discovery order," the panel concluded.

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