Court Hands Citicorp a Setback In Lawsuit Against Bankers Trust

week sent to private arbitration a dispute over the adequacy of the bank's disclosures about a troubled borrower. In the case, Citicorp alleged that Bankers Trust had fraudulently and negligently misrepresented the credit status of Chicago businessman William J. Stoecker and his company, Grabill Corp. Citicorp filed a civil suit, seeking $143 million in compensatory damages and $100 million in punitive damages, claiming that, among other things, Bankers Trust knew that Mr. Stoecker was using the same collateral against several loans. Based on representations made by Bankers Trust, Citicorp claimed it lent the $143 million to Mr. Stoecker and his company in 1987 and 1988. The five appeals judges for the New York State Supreme Court unanimously reversed a March decision by state Supreme Court Justice Ira Gammerman, which had allowed Citicorp to file the suit. Observers said the decision underscores the tendency of the courts to hold parties to the alternative dispute resolution process once they have agreed to use it. The process entails private resolution of disputes with the help of several neutral parties agreed to by the combatants. "The decision follows a trend that has been growing throughout the country," said J. Samuel Tenenbaum, a partner at Sachnoff & Weaver, Chicago. This decision is unprecedented in that the court is forcing the parties toward a nonbinding agreement, said Mr. Tenenbaum. He added that the parties could go through the entire arbitration process and at the end reject all possible solutions. Some lawyers said that the decision made it extremely difficult for Citicorp, because the bank now has to return to a forum that provides a nonbinding solution and has no time table. The appellate court said the two banks were bound by a signed agreement to use arbitration to settle disputes, even though the outcome would be nonbinding. For Bankers Trust, the decision was a landmark in the private resolution process. "I regard it as a very important victory for the alternative dispute resolution community and the process," said Burton M. Freeman, a managing director and council at Bankers Trust. "Even though alternative dispute resolution doesn't provide for conventional arbitration, it is still a contract and should be enforced by the courts," Mr. Freeman said. One lawyer familiar with the case said that Citicorp was fighting an uphill battle now. "Bankers Trust could string this process along ad infinitum," said the expert. "There is no incentive to get to a decision point in the alternative dispute resolution." Most experts doubt the process will result in a quick resolution. Prior to the lawsuit, the parties spent three years without completing the discovery process or choosing a neutral party to hear the case. A spokesperson at Citicorp conceded that the court clearly ruled in favor of Bankers Trust. Citicorp is left with three options: drop the case, appeal, or return to the privately negotiated process. Lawyers said an appeal is unlikely because Citicorp would have to get special permission to appeal a unanimous court of appeals decision. "The chances of them getting that permission are virtually zero percent," said a lawyer.