Case 3:07 CV 01606 Adc BJM

Case 3:07-cv-01606-ADC-BJM Document 437 Filed 03/03/2009 Page 1 of 25
IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO
WESTERNBANK PUERTO RICO,

Plaintiff, Civil No. 07-1606 (ADC/BJM)
v.
JACK KACHKAR ET AL.,
Defendant.
REPORT AND RECOMMENDATION

Plaintiff Westernbank Puerto Rico (“Westernbank”) moved for partial summary judgment on
its claims for breach of contract and collection of monies against defendants Inyx, Inc. (“Inyx”), Jack
Kachkar, and Victoria Benkovitch (collectively “defendants”). (Docket No. 223). Defendants opposed
(Docket No. 275) and Westernbank replied. (Docket No. 310). Westernbank submitted a statement
of uncontested facts in support of its motion (Docket No. 223-2) and defendants duly opposed. (Docket
No. 275-2). Defendants submitted a counter-statement of material facts1 (id.), and Westernbank
opposed. (Docket No. 370). Westernbank submitted a supplemental statement of uncontested facts,
to which defendants did not object or oppose.2 (Docket No. 310-2). The parties supported their
statements of fact with citations to record evidence. (Docket Nos. 223-3 – 223-28; 275-3 – 275-27;
310-3 – 310-9; 370-2 – 370-10). This case was referred to me by the presiding district court judge for
a report and recommendation on all dispositive motions. (Docket No. 160). After careful review of
the briefs on file and evidence submitted, I recommend that Westernbank’s motion be granted.
1
References to defendants’ opposition to plaintiffs’ statement of uncontested facts are cited
herein as (Docket No. 275-2, ¶ _), while references to defendants’ counter-statement of material facts
also include the page number: (Docket No. 275-2, p. _, ¶ _).
2
Therefore, where those supplemental facts are supported by record evidence, the court deems
them admitted. See D.P.R.R. 56(e) (“[f]acts contained in a supporting or opposing statement of material
facts, if supported by record citations as required by this rule, shall be deemed admitted unless properly
controverted”).
W esternbank Puerto Rico v. Jack Kachkar, et al. Page 2

Civil No. 07-1606 (ADC/BJM)
REPORT AND RECOM M ENDATION
FACTUAL BACKGROUND AND PROCEDURAL HISTORY

This case concerns various loan agreements between Westernbank and Inyx and its wholly
owned subsidiaries, Inyx USA, Ltd., Inyx Europe, and Ashton Pharmaceuticals (with Inyx, the “Inyx
Borrowers”) through which Westernbank loaned over $142 million to the Inyx Borrowers. (Docket
No. 223-2, ¶ 1, 6, 17). Under the terms of the agreements, Westernbank agreed to provide the Inyx
Borrowers with lines of credit upon which they could draw down based on a percentage of their
accounts receivable, as reflected through invoices and reports provided by the Inyx Borrowers to
Westernbank. (Id., ¶ 2).
Specifically, Inyx and its subsidiary, Inyx USA, entered into a Loan and Security Agreement
with Westernbank in March 2005 (the “USA Loan Agreement”) (Id., ¶ 6) and Inyx subsidiaries Inyx
Europe and Ashton Pharmaceuticals entered into a separate Loan and Security Agreement with
Westernbank in August 2005 (the “EU Loan Agreement”) (Id., ¶ 17) (collectively, the “Loan
Agreements”). To secure payment and performance of their obligations under each Loan Agreement,
the borrowers granted to Westernbank a security interest over virtually all of their assets. (Id., ¶ 9, 19).
Each agreement provided that, in the event of default, Westernbank was entitled to accelerate all
amounts due and owed to it, demand immediate payment from the borrowers, and foreclose on the
borrowers’ pledged collateral. (Id., ¶ 11, 20). The parties also entered into a Cross-Default Agreement
providing that (1) an event of default under one Loan Agreement would be considered an event of
default under both, (2) in the case of an event of default under either agreement, Westernbank could
exercise all of its rights and remedies under either agreement, and (3) all of the collateral under each
Loan Agreement would serve as collateral under both. (Id., ¶ 21). In addition, the USA Loan
Agreement borrowers entered into a separate agreement (the “EU Guarantee”) guaranteeing payment
of all obligations under the EU Loan Agreement. (Id., ¶ 24).
Both Loan Agreements precluded any amendments, modifications, waivers, or discharges of
the agreement or any of its terms “orally or by course of conduct.” (Id., ¶ 12, 22). The agreements
stated that they could be modified, amended, or waived “only by a written agreement signed by an

authorized officer of [Westernbank].” (Id., ¶ 13, 22). Moreover, the agreements provided that
Westernbank “shall not, by any act, delay, omission or otherwise be deemed to have expressly or
impliedly waived any of its rights, powers and/or remedies unless such waiver shall be in writing and
signed by an authorized officer of [Westernbank].” (Id., ¶ 13, 22). The agreements also contained
integration clauses providing that the agreement itself and certain other related financing agreements
and instruments “represents the entire agreement and understanding concerning the subject matter
hereof and thereof between the parties hereto, and supersedes all other prior agreements,
understandings, negotiations and discussions, representations, warranties, commitments, proposals,
offers and contracts concerning the subject matter hereof, whether oral or written.” (Id., ¶ 15, 23).
Between March and November 2006, three letter agreements evidenced Westernbank’s limited
waiver of certain breaches of the Loan Agreements. (Id., ¶ 41-45). A March 31, 2006 letter stated that
Westernbank had agreed “to waive certain specific violations” of the Loan Agreements for the fiscal
period ended April 30, 2006, but expressly provided that the waivers “should not be construed or
understood to be a waiver of [Westernbank’s] rights to declare any future default(s) under the terms
of the [Loan Agreements].” (Id., ¶ 42). In an August 11, 2006 letter, Westernbank agreed to waive
“certain specific violations” through August 21, 2006, but expressly stated that it did not waive
Westernbank’s “rights to declare any future default(s)” under the agreements. (Id., ¶ 43). Finally, a
November 20, 2006 letter memorialized Westernbank’s waiver of “certain specific violations” through
December 15, 2006, but again expressly reserved Westernbank’s “rights to declare any future
default(s)” under the agreements. (Id., ¶ 44). Westernbank did not sign any additional waiver letters
after November 20, 2006. (Id., ¶ 45).
Also on November 20, 2006, Westernbank sent Inyx a letter confirming that it had been made
aware of “the inclusion of $37,665,000 of pre-billings in the borrowing base used by [Inyx] for
purposes of determining advances under the working capital lines of credit” and “various advances
made by [Inyx] in connection with future acquisitions of intellectual property, net assets, outstanding
stock of operating companies, and other investments.” (Id., ¶ 46). Westernbank informed Inyx that

it did “not approve of the above mentioned transactions, and reserves its rights under the [Loan
Agreements] to demand payment in full of the loans outstanding and any other Obligations thereunder
as a result of the disclosures notified today by [Inyx].” (Id., ¶ 49).
In June 2007, defendants entered into various agreements to provide additional collateral for
the loans. On June 7, 2007, defendants Jack Kachkar, Chairman and CEO of Inyx, and his wife,
Viktoria Benkovitch, executed an Amended and Restated Limited Guarantee (the “First Personal
Guarantee”) personally guaranteeing all the Inyx Borrowers’ obligations to Westernbank up to a limit
of $30.1 million. (Id., ¶ 25). On June 20, 2007, Kachkar and Benkovitch (the “Guarantors”) executed
an additional guarantee (the “Second Personal Guarantee”) personally guaranteeing all obligations of
the Inyx Borrowers to Westernbank up to a limit of $70 million plus the amount that the repayment
obligations under the Loan Agreements exceeded $142.4 million. (Id., ¶ 29). The Second Personal
Guarantee was made “in addition to and not in substitution” of the First Personal Guarantee, which
remained “continuously in effect.” (Id., ¶ 29). Both the First and Second Personal Guarantees provided
that the “liability of the Guarantors for the entire Guaranteed Obligations shall mature and become
immediately due and payable upon the Obligations becoming due under the Loan Agreement, whether
at maturity, by acceleration or otherwise.” (Id., ¶ 26, 33). Each contained a no-reliance clause (Id., ¶
27, 34) and integration clause. (Id., ¶ 28, 34).
In signing the Second Personal Guarantee, Kachkar and Benkovitch acknowledged that the Inyx
Borrowers were “‘out of formula’ under the Loan Agreement” and that there was a “substantial
collateral deficiency thereunder.” (Id., ¶ 30). Further, they acknowledged that Westernbank “has the
right, under the Loan Agreement and [Personal Guarantees] at this time to make demand for immediate
payment of all amounts due under the Loan Agreements.” (Id.). The Guarantee provided that Kachkar
and Benkovitch “requested that [Westernbank], in its sole discretion, not at this time make immediate
demand for payments . . . [and Westernbank] has agreed not to make such demand at this time in
exchange for [Kachkar and Benkovitch] entering into this Guarantee.” (Id., ¶ 31). However, the
Guarantee provided in the very next sentence that the Guarantors “agree and acknowledge that

[Westernbank] may, at any time, hereafter, in its sole discretion, make such demand and nothing
contained herein shall be or shall be deemed to be a waiver of [Westernbank’s] right to make such
demand at any time in the future.” (Id., ¶ 32).
On June 7, 2007, Inyx executed a $2.5 million demand promissory note “to evidence a demand
loan” made by Westernbank to Inyx. (Id., ¶ 35). The note was secured by a mortgage and security
agreement for real property located in Miami, Florida. (Id.). On the same day, Kachkar and
Benkovitch executed two separate mortgage and security agreements in Westernbank’s favor
concerning several pieces of Florida real property. (Id., ¶ 36). On June 20, 2007, Kachkar and
Benkovitch also executed a letter agreement providing an additional guarantee to Westernbank in the
form of mining collateral stated to have a value sufficient to cover the amount of collateral deficiency
(“Mining Collateral Agreement”). (Id., ¶ 39). Defendants claim that Inyx was actively pursuing
sources of additional financing throughout the parties’ negotiations and until it was prevented by doing
so from the commencement of administration proceedings against Inyx’s UK subsidiaries on June 28,
2007. (Docket No. 275-2, p. 21, 22, 33, ¶ 20, 21, 79).
On June 29, 2007, Westernbank issued formal demands to Inyx for payment on the loans. (Id.,
¶ 53-55). Two June 29, 2007 letters issued to the borrowers under the USA and Europe Loan
Agreements stated that the amounts of the outstanding loans exceeded the amounts available under the
two Loan Agreements, and demand was made for the payment of the excess amounts, totaling more
than $87 million. (Id., ¶ 53, 54). A July 3, 2007 Notice of Default and Demand issued to the Inyx
Borrowers stated that based on various events of default, all obligations under the Loan Agreements
had been accelerated and had become due and owing, in the amount of over $142 million. (Id., ¶ 55).
The Notice of Default and Demand recited fourteen events of default under the Loan Agreements.
(Id.). In addition, on July 3 and July 10, 2007, Westernbank issued letters to Kachkar and Benkovitch
demanding payment under the Personal Guarantees and demanding the furnishing of collateral under
the Mining Collateral Agreement. (Id., ¶ 60).

For purposes of this motion, it is undisputed that as of that date, the Inyx Borrowers had (1)
failed to repay their obligations under the Loan Agreements; (2) diverted accounts receivable payments
away from certain lock box accounts controlled by Westernbank in which the Loan Agreements
required them to deposit all payments; (3) failed to maintain working capital, net worth, and cash flow
levels as required by the Loan Agreements; and (4) undergone material adverse changes to their
businesses and assets as reflected in draft balance sheet and income statements provided to
Westernbank in June 2007. (Id., ¶ 52). Inyx does not dispute that these events occurred, only that they
were in fact “Events of Default” as defined by the Loan Agreements. (Docket No. 275-2, ¶ 52
(“defendants deny that the events of default were in fact events of default under the Loan
Agreements”)).
Westernbank has put forth evidence of various specific events which it argues constituted
“events of default” under the Loan Agreements. First, Westernbank has provided evidence that Inyx
instructed its customers to deposit funds in Inyx’s account rather than the lock box account required
by the Loan Agreements. (Docket No. 223-2, ¶ 57; Docket No. 310-2, ¶ 3, 4, 9). Because the Inyx
Borrowers’ accounts receivable were part of the security for the loans, the Loan Agreements required
the Inyx Borrowers to direct their customers to deposit all accounts receivable payments into a “lock
box” bank account controlled by Westernbank. (Docket No. 223-2, ¶ 3). In particular, in January
2007 Inyx executive Steven Handley instructed customer Focus Pharmaceuticals to deposit payment
to an account controlled by Ashton Pharmaceuticals rather than to the lock box account.3 (Id., 57).
3
In response to this proposed statement of uncontested fact, defendants denied “that the events
described within SMF No. 57 constituted defaults under the Loan Agreements”, but did not dispute that
the described events themselves occurred. (Docket No. 275-2, ¶ 57). Moreover, defendants do not
properly cite to record evidence as required by Local Rule 56(e) in support of their contention that the
diversion of funds from the lock box account did not violate the Loan Agreements because Westernbank
was aware of “the lock-box issues” and Kachkar and Benkovitch provided a “cash-in-transit” guarantee
to Westernbank to address the situation. (Docket No. 275-2, ¶ 57). The statement refers to the
Goldshmidt Declaration and an attached exhibit, but there is no such declaration attached to defendants’
filings on this motion, nor do defendants provide a docket citation to identify where such declaration may
be found in the record (and the court has not identified a Goldshmidt Declaration elsewhere in the
record). A similar assertion is made in defendants’ counter-statement of material facts, but again is not

Additionally, in October 2006 Handley instructed Inyx customer UCB Pharma to make payments into
an account controlled by Ashton Pharmaceuticals rather than to the lock box account.4 (Docket No.
310-2, ¶ 3,4). Moreover, a June 7, 2007 e-mail from Inyx Board Audit Committee chairman Joseph
Rotmil to fellow Audit Committee member Douglas Brown (the “Audit Committee email”) also
referred to the diversion of funds from the lock box accounts, noting that Rotmil believed Inyx
executives had to lied to the Audit Committee in reporting that Westernbank was “aware of the
deposits that Rima [Goldshmidt] and Jay [Green] diverted from the lockbox.” (Id., ¶ 9).
Next, Westernbank has provided evidence that defendants committed another act of default by
submitting false and fraudulent invoices which did not reflect actual accounts receivable owed to Inyx.
(Docket No. 223-2, ¶ 58; Docket No. 310-2, ¶ 2, 7, 8). In particular, Westernbank provided evidence
that the Inyx Companies submitted to Westernbank fraudulent invoices, know as the “Prefix 7
Invoices”, totaling more than $14 million that were not recorded on Inyx’s internal records, never sent
to customers, and never paid by customers. (Docket No. 223-2, ¶ 58). Westernbank’s evidence
includes a sworn statement by an Inyx customer purported to be the recipient of Prefix 7 Invoices who
attested that his company had not received the invoices and moreover, had not contracted with the Inyx
Companies for the work covered by the invoices. (Id.). Westernbank also provided sworn testimony
from three other Inyx customers who reviewed invoices purported to reflect amounts their companies
owed to the Inyx Companies, and each stated that their company had not received the invoices, had
not approved or paid the invoices, and that the invoices did not appear in their company records or
files. (Docket No. 310-2, ¶ 2, 7, 8). One of those customers, Dr. Reddy Laboratories (UK) Ltd. (“Dr.
Reddy”), further testified that some of the products described in the invoices had been discontinued
adequately supported by record evidence. (Docket No. 275-2, p. 21, ¶ 16). There, a reference to exhibit
5 to the Kachkar declaration (Docket No. 275-9) does not cite to “the specific page or paragraph” of the
lengthy letter agreement, D.P.R.R. 56(e), and the court has not identified any text in the document which
supports defendants’ assertion.
4
As noted, Inyx did not oppose or object to Westernbank’s Supplemental Statement of
Uncontested Material Facts (Docket No. 310-2), and thus the court deems those facts admitted where
they are supported by record evidence. See, supra, note 1.

by Dr. Reddy (and that fact had been communicated to Inyx) prior to issuance of the invoice, that the
services described in the invoices were inflated and did not relate to actual discussions between Inyx
and Dr. Reddy, and, in sum, that the invoices were “untrue and fraudulent.” (Id., ¶ 7).
In their opposition to this motion, defendants asserted that Westernbank representatives were
“well aware” that Inyx included pre-billings and development invoices in the accounts receivable
borrowing base, and specifically, that in November 2006, Inyx had reached more than $37 million in
pre-billings on development projects which it included in its borrowing base. (Docket No. 275-2, p.
18, ¶ 9, 10, 13, 14). Westernbank responds that, when Inyx disclosed this practice, Westernbank
clearly communicated to Inyx in its November 20, 2006 letter that it did “not approve” of the practice
and reserved its rights under the Loan Agreements to “demand payment in full” under the agreements
“as a result of the disclosures notified today”. (Docket No. 223-23).
Defendants also claim that Westernbank made an oral promise to forebear on calling the Inyx
loans (the “alleged Oral Forbearance Agreement”). (Docket No. 275-2, p. 24, ¶ 31). Defendants
provide evidence in the form of declarations by Kachkar and Inyx attorney Enzo Barichello. (Id.).
Specifically, defendants state that in a June 7, 2007 meeting attended by three Inyx executives and their
counsel, along with four Westernbank executives and their counsel, Westernbank Chairman and CEO
Frank Stipes “proposed the terms of a three-step workout plan which he had outlined and we had
already begun to implement after our meeting on May 31, 2007” and as “the first step, it was agreed
that Westernbank would not call the Inyx Loans.” (Id., p. 23-24, ¶ 29-31). Defendants do not identify
a specific statement made by Stipes or any other Westernbank executive, identify its terms (e.g., the
period of time for which Westernbank agreed to forbear) nor do they identify clearly whether the
statement was made at the June 7, 2007 meeting or the May 31, 2007 meeting. They also state that
in a smaller break-out session on June 7, 2007, “Mr. Stipes reiterated that the Bank would not
foreclose if Kachkar and Benkovitch immediately pledged their Florida real estate assets and entered
into personal guarantees to cover up the collateral shortfall.” (Id., p. 25, ¶ 36). Defendants claim that,
following this statement by Stipes, Stipes asked Westernbank’s attorney, Barry Woods, to confirm that

“an oral agreement is as good as a written agreement under Puerto Rico law.” (Id., p. 25, ¶ 37).
Defendants do not provide any non-testimonial evidence of the alleged Oral Forbearance Agreement.5
Kachkar and Benkovitch claim that out of reliance on this oral promise, they entered into the Personal
Guarantees, Mining Collateral Agreement, and mortgage agreement. (Docket No. 275-2, p. 26, 29,
¶ 42, 54). Westernbank refutes this evidence with deposition testimony of Westernbank attorney Barry
Woods, and notes that the alleged oral agreement is not memorialized in any of the parties’ subsequent
agreements. (Docket No. 370, ¶ 31).
Westernbank also presents evidence consisting of admissions by defendants that the Inyx
Borrowers violated the Loan Agreements. First, Inyx disclosed in its December 4, 2006 Form 10-Q
public filings with the Securities and Exchange Commission (“SEC”) that it “was in violation” of
certain loan covenants:
As of September 30, 2006, the Company [Inyx, Inc.] was in violation of certain
financial covenants in connection with its Westernbank loan and security agreements.
As it has previously done when requested so by the Company, Westernbank has
waived, through December 15, 2006, certain requirements such [that] the Company’s
non-compliance with its covenants under such agreements has not resulted in an event
of default by the Company. There can be no assurances the Company will meet such
covenants in the future or that Westernbank will continue to grant such waivers.
(Docket No. 310-2, ¶ 12). Further, Kachkar has previously stated under oath in this case that “I do not
deny that there were issues with the Inyx loans; rather, I assert that these issues were raised and openly
discussed with Westernbank, and resolved between the parties in the ordinary course of business.”
(Docket No. 164, ¶ 3). Moreover, the Audit Committee email demonstrates that Inyx Audit
5
Defendants also reference a separate alleged forbearance agreement (Docket No. 275-2, p. 28,
¶ 50), referencing a provision in the Mining Collateral Agreement providing that Kachkar has “the right
to secure the release of the Mining Collateral from [Westernbank’s] liens by indefeasible payment in full
to [Westernbank] of all ‘Obligations’ under the Loan Agreements” in two circumstances: (1) if
Westernbank accelerated payment of the loan obligations, Kachkar would have 150 days to exercise the
right, and (2) if Kachkar believed that Westernbank’s valuation of the mining collateral was materially
below his own valuation, he would have 150 days to exercise the right. (Docket No. 223-19). By its
terms, this language provides Kachkar with a right to release the mining collateral from Westernbank’s
liens, but does not provide that Westernbank will forebear on the loan obligations themselves.
Westernbank is not seeking here to foreclose on the mining collateral, and moreover, the 150 days have
long passed and defendants do not indicate that they in fact attempted to exercise this right, which under
the agreement terminates if not exercised within 150 days.

Committee members were aware that “[Westernbank] has been misled” by Inyx executives and in
particular, that Inyx executive Rima Goldshmidt had falsely reported to Westernbank Inyx’s accounts
receivable aging as $107 million when it should have been closer to $10 million and that she was
responsible for diverting funds from the lockbox accounts. (Docket No. 310-2, ¶ 9).
Westernbank commenced this action on July 6, 2007, and filed an amended complaint against
Inyx, Kachkar and Benkovitch, as well as certain other Inyx executives, on August 23, 2007, alleging,
inter alia, claims for violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”)
(18 U.S.C. § 1962(a)), violations of Puerto Rico Civil Code Article 1802 (31 L.P.R.A. § 5141), breach
of contract and collection of monies, breach and foreclosure of collateral under all security agreements,
breach and enforcement of personal guarantees, and fraud. (Docket No. 3). Westernbank now moves
for summary judgment on its claims for breach of contract and collection of monies against Inyx,
Kachkar, and Benkovitch (Docket No. 223) and defendants opposed. (Docket No. 275). In particular,
Westernbank seeks summary judgment on the following claims: (1) breach of contract and collection
of monies against Inyx (Count IV); (2) breach and enforcement of EU Guarantee against Inyx (Count
V); (3) breach and foreclosure of collateral under all security agreements relating to the USA and EU
Loan Agreements against Inyx (Count VI); (4) breach and enforcement of the First Personal Guarantee
against Kachkar and Benkovitch (Count VII); and (5) breach and enforcement of the Second Personal
Guarantee against Kachkar and Benkovitch (Count VIII). (Docket No. 3).
DISCUSSION
I. Standard of Review on Summary Judgment
Summary judgment is appropriate when “the pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to judgment as a matter of law.” Fed. R. Civ.
P. 56©. A fact is material only if it “might affect the outcome of the suit under the governing law.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In determining if a material fact is
“genuine,” the court does not weigh the facts but instead ascertains whether the “evidence is such that

a reasonable jury could return a verdict for the nonmoving party.” Id.; Leary v. Dalton, 58 F.3d 748,
751 (1st Cir. 1995).
“[A] party seeking summary judgment always bears the initial responsibility of informing the
district court of the basis for its motion, and identifying those portions of the [evidence] ... which it
believes demonstrate the absence of a genuine issue of material fact.” Crawford-El v. Britton, 523
U.S. 574, 600 n.22 (1998), quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once this
threshold is met, the burden shifts to the nonmoving party. The nonmovant may not rest on mere
conclusory allegations or wholesale denials. Fed. R. Civ. P. 56(e); Libertad v. Welch, 53 F.3d 428,
435 (1st Cir. 1995). Instead, the nonmoving party must “set forth specific facts showing that there is
a genuine issue for trial” and support such facts with “affidavits... made on personal knowledge ...
set[ting] forth such facts as would be admissible in evidence.” Fed. R. Civ. P. 56(e).
Further, the nonmovant “must do more than simply show that there is some metaphysical doubt
as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
Of course, the court draws inferences and evaluates facts “in the light most favorable to the nonmoving
party.” Leary, 58 F.3d at 751. Still, summary judgment is appropriate where the nonmoving party
rests entirely upon “conclusory allegations, improbable inferences, and unsupported speculation” on
any essential element of the claim. Medina-Muñoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st
Cir. 1990).
II. Analysis
A. Rule 56(f)
Defendants invoke Federal Rule of Civil Procedure 56(f) to argue that this case is not ripe for
summary judgment. Fed. R. Civ. P. 56(f). Rule 56(f) provides that if a party opposing a motion for
summary judgment “shows by affidavit that, for specified reasons, it cannot present facts essential to
justify its opposition,” the court may deny the summary judgment motion, order a continuance to allow
additional discovery to be obtained, or exercise its discretion to issue any other order. Fed. R. Civ. P.
56(f). Under that Rule, a party must elect between responding to the substantive arguments of a

summary judgment motion or invoking Rule 56(f). Rodriguez-Cuervos v. Wal-Mart Stores, Inc., 181
F.3d 15, 23 (1st Cir. 1999). “In other words, a party ordinarily may not attempt to meet a summary
judgment challenge head-on but fall back on Rule 56(f) if its first effort is unsuccessful.” C.B.
Trucking v. Waste Mgmt., 137 F.3d 41, 44 (1st Cir. 1998).
Under First Circuit jurisprudence, Rule 56(f) requires that a litigant follow a specific set of
procedures in order to claim that more discovery must be had before summary judgment is proper. The
party seeking to invoke Rule 56(f) must submit to the court an affidavit showing (1) good cause for
his inability to have discovered the necessary facts earlier in the proceedings; (2) a plausible basis for
believing that additional facts probably exist and can be retrieved within a reasonable time; and (3) an
explanation of how those facts, if collected, will suffice to defeat the pending summary judgment
motion. Rivera-Torres v. Rey-Hernandez, 502 F.3d 7, 10 (1st Cir. 2007) (affirming district court’s
denial of Rule 56(f) motion and grant of summary judgment). To this end, “[s]peculative conclusions,
unanchored in facts, are not sufficient to ground a Rule 56(f) motion.” Id., 502 F.3d at 12. While a
court should “hold[] parties to the rule’s spirit rather than its letter,” Resolution Trust Corp. v. North
Bridge Assocs., 22 F.3d 1198, 1203 (1st Cir. 1994), a party “departs from the plain language of the rule
at his peril.” Paterson-Leitch Co. v. Massachusetts Municipal Wholesale Elec. Co., 840 F.2d 985, 988
(1st Cir. 1988).
Here, defendants ignore both the spirit and the letter of Rule 56(f) “at [their] peril.” Id. First,
defendants improperly invoke Rule 56(f) as a “fall back” position thirty-six pages into their otherwise-
substantive opposition brief, which also incorporates multiple affidavits and exhibits in support of their
substantive arguments. See C.B. Trucking, 137 F.3d at 44. Next, defendants do not submit an
affidavit as required by the text of the rule and elaborated by First Circuit jurisprudence. Even if the
arguments in their brief were considered a substitute for the affidavit, they do not address the required
matters. Defendants reference certain categories of documents which they claim Westernbank has
failed to produce, and assert that they have not had access to certain of Inyx’s own business records
because those documents are under the control of administrators in the U.K. administration

proceeding, the receiver in the Canadian-receivership proceeding, and the bankruptcy trustee in the
U.S. bankruptcy proceeding. (Docket No. 275, p. 38). However, the rule does not ask a party to
specify missing documents, but to set forth a “plausible basis for believing that additional facts
probably exist.” Rivera-Torres, 502 F.3d at 10 (emphasis added). Defendants do not set forth any
additional facts that they claim will be uncovered through additional discovery. Moreover, defendants
do not offer any explanation of how any missing facts will “suffice to defeat the pending summary
judgment motion.” Id. It is difficult to imagine how they could discover any additional facts that
would support their central defense on this motion: even additional facts concerning the alleged Oral
Forbearance Agreement would not defeat the no-oral-modification clause of the Loan Agreements (see
section II.B.4., infra), the Puerto Rico statute of frauds (see id., infra), or the no-reliance clause of the
Personal Guarantees (see section II.B.5., infra). Therefore, to the extent defendants’ arguments are
construed as a motion for relief under Rule 56(f), their motion is denied.
B. Breach of Contract
Westernbank argues that summary judgment should be granted on its claim for breach of
contract. Specifically, Westernbank argues that (1) the Inyx Borrowers entered into the Loan
Agreements; (2) Kachkar and Benkovitch guaranteed the obligations of the Inyx Borrowers; (3)
Westernbank advanced millions of dollars to the Inyx Borrowers under the Loan Agreements; (4) the
Inyx Borrowers defaulted on the obligations under the Loan Agreements and have failed to satisfy the
Loans; and accordingly, (5) the Inyx Borrowers and Kachkar and Benkovitch (as guarantors) are liable
to Westernbank for the outstanding obligations under the Loan Agreements. (Docket No. 223, p. 2).
In response, defendants (1) dispute whether these events constituted “Events of Default” under the
Loan Agreements, (2) contend that Westernbank waived certain violations of loan covenants, and (3)
assert that Westernbank agreed to forebear on calling the loans. (See, e.g., Docket No. 275-2, ¶ 12,
31, 52).

1. Default Events Under the Loan Agreements

The Loan Agreements provide that they are to be governed by Puerto Rico law. (Docket No.
223-6, § 11.1(a); 223-9, § 11.1(a)). Puerto Rico law provides that contractual obligations have the
force of law between the contracting parties and where the obligations are not fulfilled, the prejudiced
party may seek performance of the obligation with interest. 31 L.P.R.A. §§ 2994, 3052. Where it is
determined that a contract governs and its terms are clear and unambiguous, the court must enforce
the letter of the contract. Myers v. Benus Silva, 208 F. Supp. 2d 155, 160 (D.P.R. 2002).
Westernbank alleges that certain conduct by Inyx resulted in breach of the Loan Agreements,
and Inyx does not dispute that it engaged in such conduct. Because the facts are not in dispute, it is
the court’s duty to determine whether the conduct at issue constituted events of default under the Loan
Agreements. Wright, Miller & Kane, Federal Practice and Procedure: Civil 3d §2725 (“when the only
issues to be decided in the case are issues of law, summary judgment may be granted”). The events
alleged to have breached the contract include: (1) the Inyx Borrowers’ failure to repay their obligations
under the Loan Agreements; (2) diversion of accounts receivable payments away from the lock box
accounts; (3) failure to maintain working capital, net worth, and cash flow levels as required by the
Loan Agreements; and (4) material adverse changes the company’s businesses and assets as reflected
in draft balance sheet and income statements provided to Westernbank in June 2007. (Docket No.
223-2, ¶ 52, 55). As noted, Inyx does not dispute that these events occurred, only whether that they
“were in fact events of default under the Loan Agreements.” (Docket No. 275-2, ¶ 52).
Under the USA Loan Agreement, “Events of Default” include, among many other provisions,
the borrowers’ “fail[ure] to perform any of the terms, covenants, conditions or provisions contained
in the Agreement”, “any representation, warranty or statement made by Borrower to Lender” which
“when made or deemed made be false or misleading in any material respect,” and “a material adverse
change in the business, assets or prospects of Borrower.” (Docket No. 223-2, ¶ 10). Among the terms
and covenants of the Agreement is the Borrower’s obligation to “establish and maintain . . . blocked
accounts or lock boxes” and to “promptly deposit and direct their account debtors, to directly remit

payments on Receivables, including Accounts and all payment constituting proceeds of Inventory,
Equipment or other Collateral” into the lock box account. (Id., ¶ 4).
The record on this motion makes clear that certain acts by the Inyx Borrowers indeed
constituted events of default under the Loan Agreements. There is ample evidence in the record –
undisputed by defendants – that Inyx directed its customers to deposit funds into the company’s
account rather than into the lock box account, as required by the Loan Agreements. (Docket No. 223-
2, ¶ 57; Docket No. 310-2, ¶ 3, 4, 9). There is also undisputed evidence that the Inyx Borrowers
submitted false and fraudulent invoices and accounts receivable reports to Westernbank (Docket No.
223-2, ¶ 58; Docket No. 310-2, ¶ 2, 7, 8), which were “false or misleading” representations and thus
constituted events of default under the Loan Agreements. (See Docket No. 223-2, ¶ 10).
In addition to their failure to dispute these facts on this motion, there is ample evidence that
defendants have on other occasions admitted to violating the Loan Agreements. Inyx asserted in a
December 2006 SEC filing that “[a]s of September 30, 2006, the Company was in violation of certain
financial covenants in connection with its Westernbank loan and security agreements.” (Docket No
310-2, ¶ 12). Members of the Inyx Audit Committee discussed their growing awareness that Inyx
executives had “misled” Westernbank through the diversion of funds from the lockbox account and
false reporting of accounts receivable. (Docket No. 310-2, ¶ 9). Moreover, the Second Personal
Guarantee signed by Kachkar and Benkovitch acknowledged that “the Borrower is ‘out of formula’
under the Loan Agreement and there is a substantial collateral deficiency thereunder” giving
Westernbank the right “to make demand for immediate payment” of the loan obligations. (Docket No.
223-2, ¶ 30). Defendants do not assert that the “substantial collateral deficiency” was ever corrected.
Indeed, Inyx’s defenses on this motion focus only on whether Westernbank agreed to waive Inyx’s
defaults or otherwise forbear on calling the loans, and do not contest that the defaults occurred.
Thus, based on undisputed evidence of events of default, Inyx’s own admissions of violating
the Loan Agreements, and Inyx’s utter lack of a defense to those alleged defaults, the court concludes
that the Inyx Borrowers engaged in “Events of Default” as defined in the Loan Agreements. The

agreements provide that if an event of default occurred or existed, Westernbank had the right to
“accelerate the payment of all Obligations and demand immediate payment thereof” as well as to
“collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral.” (Docket No.
223-6, § 10.2; 223-9, § 10.2). Accordingly, Westernbank made demand for amounts due under the
Loan Agreements and that demand has not been fulfilled. (Docket No. 223-2, ¶53, 54, 55).
2. Breach of Personal Guarantees
Westernbank also claims that Kachkar and Benkovitch defaulted on the Personal Guarantees.
The Personal Guarantees contained clauses providing that the guaranteed obligations “become
immediately due and payable upon the Obligations becoming due under the Loan Agreement, whether
at maturity, by acceleration or otherwise.” (Docket No. 223-2, ¶ 26, 33). As discussed above (Sec.
I.B.1, supra), the Inyx Borrowers’ obligations under the Loan Agreements were indeed “due and
payable” to Westernbank. This fact thus triggered the payment obligations under the Personal
Guarantees. Defendants do not dispute that they have not satisfied the obligations of the Personal
Guarantees. (Docket No. 223-2, ¶ 61). Thus, so long as the Loan Agreement obligations are due and
owing, Kachkar and Benkovitch also owe the amounts promised in the Personal Guarantees.
3. Waiver Defense
Defendants argue that notwithstanding their default, they are not required to pay the loan
obligations because Westernbank was aware of and agreed to waive the Inyx Borrowers’ defaults
under the Loan Agreements. (Docket No. 275-2, ¶ 41-44). In support of their assertion that
Westernbank was aware of and agreed to waive their events of default under the Loan Agreements,
defendants reference waiver letters issued by Westernbank. (Docket Nos. 223-20, 223-21, 223-22).
However, each of these letters agreed only to waive “certain specific violations” and moreover, each
had a limited temporal scope and agreed to waivers only for a certain period of time. In particular, the
waiver letters agreed to waive violations of requirements under the Loan Agreements relating to
working capital levels, cash flow levels, net worth levels, and Inyx’s provision of financial statements
to Westernbank. (Id.). The letters did not concern the diversion of funds from the lock box account

or the false invoices and accounts receivable reports. Each letter provided a waiver for a limited time
period – the latest in date granting a waiver through December 15, 2006 – and provided that the waiver
“should not be construed or understood to be a waiver of our rights to declare any future default(s)”
under the Loan Agreements. (Id.). Finally, each explicitly stated that the waiver letter did not “alter
or amend any provisions” of the Loan Agreements, unless otherwise provided. (Id.).
Under Puerto Rico law, when contractual terms are clear and unambiguous, a court must
enforce the letter of the agreement. Myers, 208 F. Supp. 2d at 160. Therefore, the waiver letters
cannot be construed to have provided anything more than a limited waiver of certain financial
covenants through December 15, 2006, and cannot be viewed as extinguishing the current obligations
of the Inyx Borrowers.
4. Alleged Oral Forbearance Agreement
Defendants also argue that Westernbank orally agreed to forebear from calling the Loan
Agreements. (Docket No. 275, p. 25). Confronted with the Loan Agreements’ no-oral-modification
clauses providing that the agreements and their terms may not be modified except in a writing signed
by a Westernbank executive, defendants assert that Westernbank made a separate oral agreement to
waive the no-oral-modification provision itself. (Id., p. 26).
The record evidence for such promises is scant, at best, and consists only of testimony by
Inyx’s principal and attorney. (Docket No. 275-4, ¶ 23; 275-25, ¶ 10). Through the Kachkar and
Barichello declarations, defendants assert that in a June 7, 2007 meeting among Inyx, Westernbank,
and their respective counsel, “it was agreed that Westernbank would not call the Inyx loans.” (Docket
No. 275-4, ¶ 23; see also Docket No. 275-25, ¶ 10 (“Westernbank agreed not to call the Inyx loans”)).
This evidence fails to identify the person who made the promise or the terms of the alleged promise.
Defendants also state that in a smaller break-out session on the same day, “Mr. Stipes reiterated that
the Bank would not foreclose if Kachkar and Benkovitch immediately pledged their Florida real estate
assets and entered into personal guarantees to cover up the collateral shortfall.” (Docket No. 275-2,

p. 25, ¶ 36). While this assertion identifies the speaker and date more clearly, defendants still do not
identify the length of time for which Westernbank would agree to refrain from foreclosing.
However, even assuming that Westernbank did make such a promise, under Puerto Rico law
and the Loan Agreements themselves, it would not have modified the parties’ Loan Agreements. The
Loan Agreements contain no-oral-modification clauses providing that “neither this Agreement nor any
provision hereof shall be amended, modified, waived, or discharged orally or by course of conduct,
but only by a written agreement signed by an authorized officer of [Westernbank].” (Docket No. 223-
6, § 11.3; 223-9, § 11.3). In addition, in the Loan Agreements here, the no-oral-modification clause
extends to “any provision” of the agreement, and thus, by its terms, the no-oral-modification clause
itself may not be waived orally. Courts applying Puerto Rico law have enforced no-oral-modification
clauses, rejecting attempts to alter the terms of written contracts based on alleged oral agreements.6
See, e.g., Nike Int’l Ltd. v. Athletic Sales, Inc., 689 F.Supp. 1235, 1244 (D.P.R. 1988) (refusing to
enforce alleged oral agreement where written contract provided that terms could be waived, changed,
or otherwise modified only in writing); Freightliner, LLC v. Puerto Rico Truck Sales, 399 F.Supp.2d
57, 74 (D.P.R. 2005) (same). Under Puerto Rico law, “[i]f the terms of a contract are clear and leave
no doubt as to the intentions of the contracting parties, the literal sense of its stipulations shall be
observed.” 31 L.P.R.A. § 3471. Defendants do not provide any authority to the contrary in support
of their assertion that Westernbank orally agreed to waive that provision and subsequently proceeded
to make an oral forbearance promise.
In addition, even if the parties had agreed to allow oral modifications of the Loan Agreements,
the alleged Oral Forbearance Agreement could not be enforced under the Puerto Rico statute of frauds
rule. The Puerto Rico statute of frauds rule precludes a party from proving the existence of
commercial contracts over $300 based solely on testimonial evidence. 10 L.P.R.A. § 1302 (“Section
1302”). Pursuant to this rule, this court has refused to enforce an alleged oral loan agreement where
6
Defendants do not cite to any courts interpreting Puerto Rico law, and their attempt to rely on
cases interpreting the laws of California, Virginia, Illinois, and New York is without merit. (Docket No.
275, p. 26-27).

the plaintiff could not furnish any non-testimonial evidence that its counter-party, a bank, had
consented to the alleged agreement. Garita Hotel Ltd. P’ship v. Ponce Federal Bank, F.S.B., 954 F.
Supp. 438, 454 (D.P.R. 1996) (“this article [Section 1302] attempts to foster security in commercial
transactions by promoting the use of more formal instruments”), aff’d, 122 F.3d 88 (1st Cir. 1997).
Here, the alleged Oral Forbearance Agreement involved over one hundred million dollars, and thus
undoubtedly falls into the category of commercial agreements which must be made in writing.
Therefore, by the Loan Agreements’ own terms as well as Puerto Rico law, the alleged Oral
Forbearance Agreement is unenforceable.7
5. Defenses Concerning Personal Guarantees
Defendants also argue that the alleged Oral Forbearance Agreement fraudulently induced them
to enter into the Personal Guarantees, and thus evidence of the forbearance agreement is admissible
for the purpose of nullifying the Personal Guarantees.
As defendants point out, under Puerto Rico law any contract where consent is obtained through
deceit shall be void. 31 L.P.R.A. § 3404. Deceit may exist when, but for the “words or insidious
machinations” of a counter-party, a party would not have been induced to execute a contract. 31
L.P.R.A. § 3408. Nonetheless, deceit will only serve to nullify a contract where it is “serious” and
used by only one of the contracting parties. 31 L.P.R.A. § 3409. Federal courts interpreting Puerto
Rico law have made clear that “[t]he applicable Puerto Rico contract law regarding fraud has a strong
underlying presumption in favor of good faith and honesty; the party alleging fraud has the burden of
presenting evidence which is strong, clear, unchallengeable, convincing, and conclusive, since a mere
preponderance of the evidence is not sufficient to establish the existence of fraud in Puerto Rico.” P.R.
Elec. Power Auth. v. Action Refund, 515 F.3d 57, 66-67 (1st Cir. 2008) (internal citations omitted)
7
Defendants also argue that Florida law governs the alleged Oral Forbearance Agreement, but
this argument is unavailing because evidence concerning the alleged agreement must be interpreted as a
modification of the Loan Agreements, which are clearly governed by Puerto Rico law. (See Docket Nos.
223-6, p. 2 (agreement governed by Puerto Rico law); 223-8, p. 78 (same)). Thus, the court must turn to
Puerto Rico law in order to determine whether the alleged forbearance agreement effectively modifies or
waives the Loan Agreements.

(affirming district court’s grant of summary judgment upholding validity of contract over fraud
claims). On summary judgment, assertions of fraud may not meet this standard where they are
“challenged vigorously” by the counter-party. Id.
Here, defendants have put forth very little evidence, let alone evidence of the “strong, clear,
unchallengeable, convincing, and conclusive” kind required by law. Defendants’ evidence, as
discussed in section II.B.4, supra, consists of the testimonial evidence by Kachkar and Barichello to
the effect that Westernbank agreed not to call the Inyx loans in exchange for executing the Personal
Guarantees. As discussed below, this testimony fails to create a genuine issue of material fact that the
Personal Guarantees were fraudulently induced.
First and foremost, defendants cannot prove that they relied on – that is, that they were induced
by – the alleged representation in the face of the Personal Guarantees’ “no-reliance” clauses, which
specifically state that Westernbank “has not made any representations to any of the Guarantors . . . and
Guarantors are not in any respect relying upon Lender or any statements by Lender in connection with
this Guarantee.” (Docket No. 223-2, ¶ 27, 34). See, e.g., Vigortone Ag Prods. v. AG Prods., 316 F.3d
641, 645 (7th Cir. 2002) (“[s]ince reliance is an element of fraud, the [“no-reliance”] clause, if upheld
– and why should it not be upheld, at least when the contract is between sophisticated commercial
enterprises – precludes a fraud suit”). Moreover, in determining whether reliance is reasonable,
“Puerto Rico law places little weight on a sophisticated and experienced business party’s assertion of
unknowing reliance.” P.R. Elec. Power Auth., 515 F.3d at 67. In that case, the First Circuit found that
reliance was unreasonable given the business sophistication of the parties, the fact that plaintiff’s
counsel had reviewed the contract, and plaintiff decided not to add specific contractual terms
addressing the later-contested issues. Id. Here, Kachkar was a sophisticated and experienced
businessman who had his counsel present during the negotiation of the Personal Guarantees8 and chose
not to include contractual terms in the Personal Guarantees concerning the alleged Oral Forbearance
8
(Docket No. 275-2, p. 22, ¶ 29; p. 25, ¶36).

Agreement.9 The parties’ sophistication also persuades the court that the no-reliance clause itself
should be upheld.10
Second, defendants’ claimed reliance on the alleged Oral Forbearance Agreement stands in
direct contrast to the express forbearance language included in the terms of the Second Personal
Guarantee. The Second Personal Guarantee provides that Kachkar and Benkovitch “requested that
[Westernbank], in its sole discretion, not at this time make immediate demand for payments . . . [and
Westernbank] has agreed not to make such demand at this time in exchange for [Kachkar and
Benkovitch] entering into this Guarantee” (Docket No. 223-2, ¶ 31), but in the very next sentence the
Guarantee provided that the Guarantors “agree and acknowledge that [Westernbank] may, at any time,
hereafter, in its sole discretion, make such demand and nothing contained herein shall be or shall be
deemed to be a waiver of [Westernbank’s] right to make such demand at any time in the future.” (Id.,
¶ 32). Thus, while the Guarantee provided that Westernbank would not make demand for payments
“at this time”, it expressly allowed that Westernbank could make such demand “at any time, hereafter”
and “at any time in the future.” By these terms, the Second Personal Guarantee must contemplate that
any forbearance would be very brief in nature.11 In short, defendants’ claim that they were induced into
signing the Personal Guarantees by a promise of indefinite forbearance is belied by the specific
9
The record does not indicate whether Benkovitch was equally “sophisticated,” but she was also
represented by counsel during the negotiation of the Personal Guarantees (see Docket No. 275-25, ¶ 3
(attesting that Barichello was also counsel to Benkovitch)), and in any event, defendants have not made
any separate arguments pertaining to Benkovitch’s alleged reliance and the court thus treats the
Guarantors collectively.
10
Defendants refer to a statement by counsel for Westernbank that “an oral agreement is as good
as a written agreement under Puerto Rico law” (Docket No. 275-2, p. 25, ¶ 37), insinuating that they
relied on the statement. However, even if such a statement was made, it defies credulity to allow
defendants to claim to have reasonably relied on the legal advice of opposing counsel in a sophisticated
(not to mention adversarial) business transaction when their own counsel, Barichello, was present at the
time. (Id., p. 25, ¶ 36).
11
By these terms, it appears that Westernbank would have been within its rights under the
Second Personal Guarantee to forebear the very next day. (Id., ¶ 32 (“[Westernbank] may, at any time,
hereafter, in its sole discretion, make such demand and nothing contained herein shall be or shall be
deemed to be a waiver of [Westernbank’s] right to make such demand at any time in the future”)
(emphasis added)).

language in the Second Personal Guarantee that makes clear that the forbearance would be extremely
limited.
This language, especially when viewed alongside the Second Personal Guarantee’s integration
clause, precludes defendants from relying on the alleged Oral Forbearance Agreement. (See Docket
No. 223-13, p. 6, ¶ 12 (“This Guarantee represents the entire agreement and understanding of [the]
parties concerning the subject matter hereof, and supersedes all other prior agreements, understandings,
negotiations and discussions, warranties, commitments, proposals, offers and contracts concerning the
subject matter hereof, whether oral or written”)). Pursuant to the integration clause, the Second
Personal Guarantee’s limited forbearance language superseded the alleged Oral Forbearance
Agreement. In addition, the court may not consider the extrinsic evidence of the alleged Oral
Agreement because the terms of the Second Personal Guarantee are “‘clear and leave no doubt as to
the intentions of the contracting parties.’” P.R. Tel. Co. v. Advanced Cellular Sys., 483 F.3d 7, 13 (1st
Cir. 2007) (citing 31 L.P.R.A. § 3471). Therefore, the Second Personal Guarantee’s limited
forbearance language and integration clause preclude defendants from either relying on the alleged
Oral Forbearance Agreement or using its terms to modify the Second Personal Guarantee.
Defendants also argue that the Personal Guarantees should fail for lack of consideration. This
argument fails as both a matter of fact and law. By its own terms, the First Personal Guarantee recites
that Kachkar and Benkovitch entered into it “[d]ue to the close business and financial relationships
between Borrower [the Inyx Borrowers] and [the Guarantors, Kachkar and Benkovitch], in
consideration of the benefits which will accrue to Guarantors and as an inducement for and in
consideration of Lender [Westernbank] continuing to make and making loans and advances which
Lender might otherwise not be obligated to make and providing other financial accommodations to
Borrower [the Inyx Borrowers] pursuant to the Loan Agreements.” (Docket No. 223-11 (emphasis
added)). The Second Personal Guarantee provides similar language, noting that “Guarantors
acknowledge, represent and warrant to Lender that they will receive significant consideration and
benefits by entering into this Guarantee,” noting their “close . . . relationships” with the Inyx

Borrowers and Westernbank’s “agreement to forbear at this time from making demand for immediate
payment of all amounts due under the Loan Agreement” and the First Personal Guarantee. (Docket
No. 223-12 (emphasis added)). Given this explicit contractual language indicating the presence of
consideration, as well as the consideration provided by Westernbank’s agreement to continue
providing financing and forbear from immediately demanding payment on the Loan Agreement,
defendants’ argument that the agreement should fail for lack of consideration is unpersuasive.
Defendants appear to suggest that insufficient consideration was provided because
Westernbank only forebore on calling the loans for approximately nine days between the signing of
the June 20, 2007 Second Personal Guarantee and the demand letters sent to the Inyx Borrowers on
June 29, 2007. However, it is a “general principle of contract law”, applicable under Puerto Rico law,
that “courts will not inquire into the adequacy of consideration in an agreed-upon exchange, unless that
consideration is so grossly inadequate as to shock the conscience of the court.” P. R. Elec. Power
Auth., 515 F.3d at 64. Given the facts in this case and the fast-paced, sophisticated business
transactions at issue, it is easily conceivable that Kachkar and Benkovitch were willing to take a risk
of providing additional guaranteed collateral to Westernbank in exchange for the Inyx Borrowers
having another week to try to find additional outside financing before defaulting on the loans. (See,
e.g., Docket No. 275-2, p. 33, ¶ 79 (stating that June 28, 2007 commencement of administration
proceedings against Inyx UK subsidiaries “effectively prevent[ed] refinancing of the Inyx Loans”)).
In any event, under Puerto Rico law, no consideration need be given for a guarantee to be enforceable.
31 L.P.R.A. § 4872 (“security may be . . . gratuitous”). Therefore, based on the contractual terms and
Puerto Rico law, the Personal Guarantees are enforceable.
III. Amount of Damages
Westernbank claims that the total outstanding balance under the Loan Agreements owed by
Inyx is not less than $138,418,881.03, with interest accruing at a rate of $36,266.67 per diem. (Docket
Nos. 223-2, ¶ 65; 224). Defendants do not dispute that this amount is the total outstanding loan
balance, but claim that Westernbank may have already recouped some of this outstanding balance

through other judicial proceedings, including the administration proceedings ongoing in the United
Kingdom concerning Inyx’s UK subsidiaries. (Docket No. 275-4, ¶ 56). However, defendants do not
provide any evidence that Westernbank will or has in fact received any funds through the U.K.
proceeding or that those funds satisfy the loan obligations. There is a further issue as to the precise
amount due and owning, since Westernbank has not submitted an updated calculation of interest.
Moreover, Westernbank has not provided more than testimonial evidence concerning the total
outstanding balance under the Loan Agreements (Docket No. 223-3, ¶ 65), nor has it provided
evidence in any form as to how that figure was derived.
In the end, I believe that before judgment for a precise quantity of damages is entered on the
breach of contract claims, Westernbank should be required to provide admissible evidence
demonstrating the quantum of damages owed, including interest, and how that figure is derived. The
parties should also address with admissible evidence whether Westernbank has recouped any of the
amount owed in other proceedings.
As to the Personal Guarantees, the First Personal Guarantee provides a guarantee of all
obligations of the Inyx Borrowers up to a limit of $30.1 million and the Second Personal Guarantee
provides a similar guarantee up to a limit of $70 million, plus the amount that the repayment
obligations under the Loan Agreements exceed $142.4 million. (Docket Nos. 232-2, ¶ 25, 29).
Because Westernbank does not claim that the repayment obligations exceed $142.4 million, Kachkar
and Bankovitch are personally liable under the Personal Guarantees for $100.1 million.
CONCLUSION
For the reasons stated above, I recommend that Westernbank’s motion for summary judgment
on causes of action IV through VIII be GRANTED and that Westernbank be ordered to provide
additional admissible evidence demonstrating the precise quantum of damages owed, plus interest, and
how that figure is derived, and whether it has recouped any of this amount in other proceedings.
Defendants then should be given a reasonable amount of time thereafter to submit any opposition.

This report and recommendation is filed pursuant to 28 U.S.C. 636(b)(1)(B) and Rule 72(d)
of the Local Rules of this Court. Any objections to the same must be specific and must be filed with
the Clerk of Court within ten (10) days of its receipt. Failure to file timely and specific objections to
the report and recommendation is a waiver of the right to appellate review. See Thomas v. Arn, 474
U.S. 140, 155 (1985); Davet v. Maccorone, 973 F.2d 22, 30-31 (1st Cir. 1992); Paterson-Leitch Co.
v. Mass. Mun. Wholesale Elec. Co., 840 F.2d 985 (1st Cir. 1988); Borden v. Sec’y of Health & Human
Servs., 836 F.2d 4, 6 (1st Cir. 1987).
IT IS SO RECOMMENDED.
In San Juan, Puerto Rico, on this 3rd day of March, 2009.
S/Bruce J. McGiverin
BRUCE J. MCGIVERIN
United States Magistrate Judge

Case 3:07 CV 01606 Adc BJM

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Case 3:07-cv-01606-ADC-BJM Document 437 Filed 03/03/2009 Page 1 of 25

IN THE UNITED STATES DISTRICT COURT

WESTERNBANK PUERTO RICO,

REPORT AND RECOMMENDATION

W esternbank Puerto Rico v. Jack Kachkar, et al. Page 2

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

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1. Default Events Under the Loan Agreements

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