Stephen Taufen – Alaska – 1999 revisited:More than just Antitrust, Lender Liability & Your Boat Loan

Lender Liability & Your Boat Loan
“Alaska – 1999 revisited:”
The Bristol Bay salmon antitrust lawsuit has been making progress for the class action plaintiffs.  December saw the end of nearly two hundred depositions in the discovery phase.  Now, both sides are readying for the trial, which is only ten months away.
At its heart, this kind of case on restraint of trade and price-fixing is about collective activities, against any potential competitors or economic players who are not members of “the trust.”  Among the less than five-percent who opted out, many now question their decision, and wonder if they gave away all of their legal rights.  Well, if they are borrowers from their processor, they probably haven’t.
If the Bay case were to find price-fixing, then Pandora’s box would be opened, and many lender liability lawsuits could follow, from jilted borrowers who opted-out before discovering “bad faith” dealings by their ‘bankers’.  Also, since the case’s filing, there has been much speculation about falling fish prices throughout Alaska being tied to the case — in retaliation.  As a result, curiosity about ‘lender liability law’ is rising.
Likewise, as the effects of the ill-named American Fisheries Act become known, many pollock and crab fishermen are also now reviewing the trust-level powers of several processors who are leading defendants in this case.  Given that independent catcher boats develop financial problems they, too, could become highly interested in such legal recourse.
One also wonders if lender liability law will come into play in SB1221 processor-fleet “cooperatives”, as well.  Without a doubt, a fifteen percent vessel-owner/driver may well end up the one who’s worrying the most about his legal standing – when up against processor/co-owner/lenders — especially when it’s a foreign-owned subsidiary who financed the vessel.
In any case, as vessel fund borrowers, fishers should be aware of lender liability law and the duties which such lenders owe you.  It may also be wise to keep a written record of all your financial dealings and discussions, as diligently as if your vessel log.
What follows is an article (revised) that first appeared in The Bristol Bay Times, in September, 1997, just prior to the opt-out deadline.  The article hit a raw nerve with certain processors.  They were bothered by its legal implications about “having used economic duress to force the borrower to take action it would not have otherwise taken, such as pressures to belong to or not to groups or actions” (such as opting out).  Obviously, like antitrust, these powerful laws can work to the favor of fishermen.
We think the topic is essential education for all fleets; and many eyes will be on the Bay antitrust trial this October.
Many processors chose to write letters to their fleets expressing their views on the Bristol Bay antitrust case.  When the Alaska court ruled that they have legitimate legal rights to such ‘opinions’, the processors got even more communicative.  But, if they are also money lenders to their fleets, they may have created a whole other problem.
A key concept is that the lender cannot act for its own benefit to the disadvantage of the borrower, and can owe borrowers “legally imposed fiduciary duties which extend beyond negotiated terms of the loan agreements”.
While it may be legitimate under one legal context — antitrust — to write a certain letter to one’s fleet, that same letter might not fit into legal allowances under what is known as lender liability law.  So, while the judge might not have censured their communications under antitrust guidelines, the court has not necessarily given the processors a full ‘green light’ to selectively say only just what they want.
Lender liability is “pattern” law.  This pattern includes legal concepts such as the “breach of duty of good faith and fair dealing; breach of contract; and “tortious interference with the contractual and business relationships and unlawful control over the borrower’s business, domination, and improper interference with the governance of one’s business.”
So, where the processors are “the only bank in town” it creates a special situation.
And lender liability law may apply in any situation where a company acts like a subsidiary finance company.  These lenders must disclose all material facts they know to have importance to their debtors.
What seems especially important is that “lender silence regarding material facts otherwise available to the borrower in an arm’s length transaction is not legally actionable” but that “this is not true in a relationship of trust and confidence where the trusted party (i.e. the lender) has superior knowledge of the facts.”
Note also that “the longer the relationship continues, the greater the likelihood a court will find the borrower justified in relying on the lender for information and services.  Perhaps of greater importance [to the court] is the sophistication level of the borrower.”
Courts are particularly concerned when the debtor’s level of knowledge is understood by the lender to render that borrower helpless without the lender’s representations, due to the borrower’s insufficient training and experience or outside knowledge, and the borrower’s troubles later stem from that reliance.
How appropriate regarding Bristol Bay native permit holders, if processor financed.
Indeed, it is a special consideration “when the lender knows a great deal about the borrower’s business and ability to pay back the loan, especially when the lender represents to the borrower that proposed business operations will generate sufficient

cash to service the loan while failing to disclose the nature and extent” of other problems.  This could be interpreted to mean that multinational corporations who act as finance companies owe borrowers detailed information about any of their operations which negatively affect their loans.
So, wouldn’t the special role of Japanese fishing giants, as parent-firms and purchasers of the products from their own US subsidiaries, also mean obligations to disclose facts they know to be of importance to you as a down-the-line  borrower?  Didn’t they owe you more complete answers to their role in Chilean salmon farms, for example?
Strictly speaking, one might conclude that these Japanese multinational fishing corporations also owe you a substantial level of information about their involvement in any interceptions of Bay salmon in Russian waters by all of their affiliates, preventing fish from returning to Alaska.  Otherwise, they would be deliberately withholding information upon which you base your abilities to make loan repayments to their other affiliates, fundamentally violating lender liability laws.
It makes good sense, then, that any processor-lender should also encourage its fishermen-borrowers to obtain the highest prices possible for all fish catches, at all times, since that enhances their ability to repay any loans.  It would seem an obvious violation of such law when a processor/lender, while knowingly paying a lower price, also demands fleet loyalty that subsequently affects one’s debtor status by diminishing the overall revenues available to you as a fisherman/borrower to repay that loan.  On their face, such “family” agreements would seem legally challengeable, and processor loyalty demands therefore totally unenforceable, unless negotiated under full disclosure in a truly open climate.
Another interesting point of lender liability law is that “false threats may be the basis of a claim of fraud, even if the communications were based on legitimate legal rights”.  So, conditionally withholding seasonal financing based on a borrower’s capitulation to a processor’s demands may be illegal under certain conditions.  Subsidiary financiers risk violating lender liability laws if they interfere with a debtor’s ability to repay loans by obtaining financing (or catch revenues) elsewhere.
Accordingly, superior knowledge of such a lender, which is not openly and honestly communicated to a borrower, can represent “a breach of good faith in fair dealing.”
For example, if a fisherman opts out of the antitrust action, he could learn during the trial about an important fact that would have allowed him to avoid a debtor’s problem: had it simply been disclosed earlier.  Not sharing in a court award due to reliance on a processor’s word to “trust me, we’re innocent” could take on a whole new meaning in the context of lender liability.
So, it is interesting to note that processor communications which are claimed to be opinions in the antitrust suit could be seen as company-level “misrepresentations or incomplete disclosures” in the context of bankruptcy or debt problems under lender liability.
Fishermen must note their dual position.  You are not just dealing with your market price and related income issues, but may be dealing with borrower issues, too.  It is hard when both occur at once.  But, all you need from your processor are “ALL THE MATERIAL FACTS which ‘a lender-in-good-conduct’ knows.”  As a borrower, it doesn’t seem too much to ask for, legally.
So, I hope you asked your processor: “If you are later found guilty of having damaged me on price-fixing, after I opted-out based on your letters, and I find out that you willingly withheld facts from me that affected my ability to pay off my boat debt due your company, then will you personally make good the difference to me?”
Please consult an attorney about ‘lender liability law’, if needed.
Stephen Taufen, Groundswell Fisheries Movement