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finding Bancec presumption rebutted where: auditors were required to obtain “an official letter from the [sovereign's] Ministry of Finance” to receive access to the instrumentality's financial records; audits revealed “the absence of any clear demarcation between [the sovereign's] finances and those of [the instrumentality]”; the instrumentality's corporate structure was designed to allow the sovereign to engage in “unnecessarily complex transactions and charades for the purpose of confounding its creditors”; and the instrumentality's business records suggested no commercial activity distinct from that performed on behalf of the sovereign
Summary of this case from Arch Trading Corp. v. Republic of EcuadorOpinion
03 Civ. 4578 (LAP).
March 29, 2007
OPINION AND ORDER
Plaintiff Kensington International Limited ("Kensington") brought the above-captioned action seeking recognition and enforcement of a final money judgment rendered against Defendant Republic of Congo ("Congo") by the High Court of Justice, Queen's Bench Division, Commercial Court in London (the "English Judgment"). Defendant Société Nationale des Petroles du Congo ("SNPC") now moves to dismiss this action pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction and Rule 12(b)(6) for failure to state a claim for a declaratory judgment. For the following reasons, the motion is denied.
BACKGROUND
The Parties
Kensington is a financial institution, organized and existing under the laws of the Cayman Islands in the business of, among other things, investing in debt and equity instruments issued by domestic and foreign entities. (Compl. ¶ 2.) Congo is a sovereign nation located in Africa. (Compl. ¶ 3.) SNPC is an oil company wholly owned by Congo and alleged to be an alter ego of Congo. (Compl. ¶ 4.) Olearius Limited ("Olearius") is a special purpose vehicle incorporated in the Cavman Islands designed to hold the property rights to Congo's oil and is alleged by Kensington to be a Congolese public entity. (Compl. ¶¶ 70, 71.)Jurisdiction and Venue
This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1330, § 1605(a)(1) in that Congo has explicitly waived any claim to sovereign immunity. (Compl. ¶ 5.) Congo has submitted generally to this Court's jurisdiction and, pursuant to a contractual agreement between the parties, Congo has expressly designated, appointed, and empowered both C.T. Corporation System, 1633 Broadway, New York, New York, 10009, now located at 111 8th Avenue, New York, New York 10011, and the Ambassador or Consul-General of Congo in New York, as its authorized agents for service of process. (Compl. ¶¶ 6-7.)
As will be discussed below, Kensington asserts that all of Congo's waivers, consents, agreements, and designations, including the waiver of sovereign immunity, its consent to the jurisdiction and venue of this Court, and its designation of agents for service of process, as described above and elsewhere in the Complaint, may be imputed to SNPC as the alter ego of Congo and thus that this Court has jurisdiction and venue over SNPC. (Compl. ¶¶ 9-10.)
Venue in this district is appropriate under New York Civil Practice Law and Rules ("CPLR") § 501 in that Congo has given its express and irrevocable written consent to venue in the jurisdiction of this Court, and, as just noted, Kensington asserts that that consent may be imputed to SNPC.
The Loan
On April 18, 1984, Congo executed an agreement (the "Loan Agreement") with certain managers, lenders and an agent, whereby it borrowed $13,500,000 on terms set forth therein. (Compl. ¶ 11.) Section 16 of the Loan Agreement permitted the lenders to assign their rights and obligations under the Loan Agreement. (Compl. ¶ 12.) Through assignments, Kensington obtained all of the "right, title, and interest" as a lender under the Loan Agreement, including the right to receive payments of principal due under the Loan Agreement from Congo in the amount of $11,999,999.80, together with all past and future unpaid and accrued interest. (Compl. ¶ 13.)
By letter and telex dated March 10, 1997, and by another letter dated October 1, 2002, payments of the amounts due from Congo under the Loan Agreement were demanded, including payment of all accrued and unpaid interest. (Compl. ¶ 14.) Kensington alleges that Congo has defaulted under the terms of the Loan Agreement by failing to pay any portion of the principal amount loaned to it and interest due on such amount. (Compl. ¶ 15.) Tolling agreements have been entered into extending the limitations period with respect to the debt now due to Kensington. (Compl. ¶ 16.) BNP Paribas, as agent to the lenders under the Loan Agreement, calculated the total amount outstanding as of September 12, 2002, to be $56,047,443.31. (Compl. ¶ 17.) Interest continues to accrue pursuant to Section 3 of the Loan Agreement. (Compl. ¶ 18.)
Section 19(i) of the Loan Agreement provides that "it shall be governed by the laws of England" and that "any suit, action or proceedings against [Congo] arising out of or in connection with this Agreement may be brought in the High Court of Justice in England, Federal Courts sitting in, and the State Courts of, New York, New York. . . ." (Compl. ¶¶ 19, 20.) Under section 19(iii) of the Loan Agreement, Congo consented
generally in respect of any suit, action, or proceedings arising out of or in connection with the Loan Agreement to the giving of any relief or the issuance of any process in connection with any such suit, action, or proceeding including, without limitation, the making, enforcement or execution against any property whatsoever . . . of any order of judgment which might be made or given in such action or proceedings.
(Compl. ¶ 22.) Under Section 19(iv) of the Loan Agreement, Congo waived its immunity from suit or other legal process, to be construed in New York in accordance with the United States Foreign Sovereign Immunities Act of 1976 ("FSIA"). (Compl. ¶ 23.) Section 5(ii) of the Loan Agreement requires Congo to "pay all expenses (including, without limitation, taxes thereon and legal expenses)" incurred in the enforcement or preservation of any right under the Loan Agreement. (Compl. ¶ 24.)
The English Judgment
On October 14, 2002, Kensington filed a claim against Congo, a copy of which was served by hand on Congo's designated service agent in England, in the High Court of Justice, Queen's Bench Division, Commercial Court, in London, England for, inter alia, the nonpayment of principal and interest due on the Loan Agreement from September 13, 2002 until payment, and costs. (Compl. ¶ 25.) Congo failed to acknowledge properly service of the claim, prompting Kensington to seek summary judgment. (Compl. ¶¶ 26-34.) On December 20, 2002, the High Court of Justice, Queen's Bench Division, Commercial Court held a hearing on Kensington's application for summary judgment, of which Congo received notice but did not attend. (Compl. ¶ 35.) Said Court granted Judgment (the "English Judgment") in favor of Kensington, entered December 23, 2002, ordering Congo to pay Kensington $56,911,991.47 plus interest at the rate of 8 percent per annum from the date of the Judgment, and costs to be assessed. (Compl. ¶ 36.) Kensington served the English Judgment upon Congo on January 27, 2003, in accordance with the Loan Agreement and through diplomatic channels on February 21, 2003, as required by the State Immunity Act. (Compl. ¶¶ 37, 38.) On April 21, 2003, two months from Kensington's service of the English Judgment upon Congo, the English Judgment became final, conclusive, and enforceable in England. (Compl. ¶ 39.) Congo has made no application to have the English Judgment set aside. (Compl. ¶ 40.)
Alter Ego Allegations
SNPC was created by Congolese statute (No. 1-9098) ("the Act") in April 1998, and Kensington alleges that SNPC is Congo's wholly owned and controlled oil company and is a Congolese Public Entity for the purposes of the Loan Agreement. (Compl. ¶¶ 67-68.) Kensington asserts that through SNPC, Congo exploits its oil wealth and controls all upstream aspects of Congo's production and marketing of oil and that in relation to the Olearius Facility, SNPC has at all material times acted for and on behalf of Congo. (Compl. ¶¶ 69, 99.) Kensington asserts that the Act and SNPC's by-laws reveal that SNPC is void of independence, and subject to such extensive control by the Congolese State that they are a single entity. (Compl. ¶ 100.) In March, 2002, the special purpose vehicle Olearius was incorporated in the Cayman Islands, and Kensington alleges that it was designed to hold the property rights to Congo's oil and is controlled by Congo and/or SNPC acting on behalf of Congo and is a Congolese Public Entity for the purposes of the Loan Agreement. (Compl. ¶¶ 70, 71.)
In or about May 2002, Congo became the guarantor of a hedged crude oil prepayment facility made available by lenders to SNPC and Olearius, in the amount of $210,000,000 (the "Olearius Facility.") (Compl. ¶ 66.) Kensington asserts that Olearius was established for the purpose of receiving Olearius Facility funds and to use those borrowed funds to make prepayments to SNPC for future deliveries of crude oil. (Compl. ¶ 72.) Kensington also alleges that Olearius was created by Congo in an attempt to prevent Congo's creditors from seizing oil in the hands of SNPC and to reduce the risk of action by Congo's creditors. (Compl. ¶ 107.) Kensington claims that Congo (and/or SNPC and/or Olearius acting on behalf of Congo) has made repayments or payments of interest to other lenders under the Olearius Facility and has failed to make any pro rata payment to Kensington and/or to its predecessors in title and thereby breached its pari passu obligations under section 9(d) of the Loan Agreement. (Compl. ¶ 75.) In addition, Kensington alleges that by creating and allowing to subsist the security and/or preferential arrangements over its monies and/or oil production and/or over its rights to receive the proceeds of sale of its oil production contained in the Olearius Facility or otherwise, Congo has also breached the negative pledge obligations under section 9(d) of the Loan Agreement. (Compl. ¶ 76.)
Foreign Findings of Alter Ego
On January 23, 2003, in the case of SNPC v. Walker Int'l Ltd. ("Walker"), C.A. Paris, the Court of Appeals of Paris, a French appellate court, found in contested proceedings abiding by fundamental standards of procedural fairness, that a judgment against Congo was enforceable against SNPC because SNPC was a "fictitious company" and simply an "alter ego" of Congo. (Compl. ¶ 102, Ex. N.) The French court's finding was upheld on July 3, 2003 at a further hearing before the Paris Court of Appeals. (Compl. ¶¶ 102-103, Declaration of Robert A. Cohen, Esq., dated May 3, 2006, ("Cohen Decl."), Ex. 1.)
On August 13, 2002, in the case of Walker v. Olearius Ltd., Mr. Justice Graham of the Grand Court of the Cayman Islands, exercised his discretion in favor of granting a Mareva injunction over assets owned by SNPC and a special purpose vehicle, Olearius, on the basis that there was an arguable case that "Congo is the controlling mind of SNPC" and that "SNPC has no independent will of its own and does what it is told by the Republic of Congo who after all control the oil." (Compl. ¶ 104, Ex. P.)
On November 28, 2005, Mr. Justice Cooke, sitting in the High Court of Justice, Queen's Bench Division, Commercial Court of London, rendered a decision in an action brought by Kensington to recover the payment due for two consignments of Congolese oil that had been bought by an English company, the oil trader Glencore Energy UK Limited ("Glencore"). (Cohen Decl., Ex. 2 ("Cooke Judgment").) Congo was named as a party to the proceedings but chose not to appear. In contested proceedings, it was revealed that no fewer than four entities had been interspersed between Congo and the ultimate buyer, Glencore. (Cooke Judgment.) These companies consisted of a Bermuda company owned by a British Virgin Islands company that was in turn controlled by the President and Director General of SNPC, Mr. Denis Gokana, who also holds the position of Special Advisor to the President of Congo, Sassou-Nguesso. (Cooke Judgment.) Another of the companies, A.O.G.C., was also controlled by Mr. Gokana, a third, Cotrade S.A. (a subsidiary of SNPC), was operated by President Sassou-Nguesso's son "Denis Christel," and the fourth company was SNPC. (Cooke Judgment ¶¶ 1-10.)
Although SNPC was not a party to the proceedings, its Director General, Mr. Gokana, testified at the trial. Mr. Gokana left after four days of cross examination to return to Congo for alleged appointments, promising the Court that he would return the following week to complete his testimony. He never did. Following a ten day trial, Mr. Justice Cooke entered the Cooke Judgment in which he pierced the veil of all four intermediary companies, finding with respect to SNPC that it "is simply part of the Congolese State and has no existence separate from the State," and is "to be equated with the Congo." (Cooke Judgment ¶¶ 55, 193.) The Cooke Judgment also contains a specific finding that "[t]he structure of companies and sales was therefore put in place and employed by the Congo/SNPC/Cotrade with the objective of evading enforcement of existing liabilities of the Congo by hiding its assets from view." (Cooke Judgment ¶ 199(iv).)
Kensington's Claims
Kensington brings five claims for relief; (1) for recognition of the English Judgment, (2) in the alternative, for breach of the Loan Agreement, (3) for breach of the pari passu and negative pledge provisions of the Loan Agreement, (4) for a declaratory judgment that SNPC and Olearius are the alter egos of Congo, (5) for costs and expenses in enforcing Congo's obligations. (Compl. at 9-23.)
On or about September 30, 2004, partial summary judgment in the amount of $56,911,991.47 plus interest from the date of the English Judgment was granted to Kensington against Congo on Kensington's first claim for recognition of the English Judgment. Thus, Kensington's second claim for breach of the Loan Agreement was rendered moot.
DISCUSSION
I. Legal Standard for Dismissal
"A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) when the district court lacks the statutory or constitutional power to adjudicate it." Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). A plaintiff bears the burden of proving by a preponderance of the evidence that subject matter jurisdiction exists. See McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189 (1936); Luckett v. Bure, 290 F.3d 493, 496 (2d Cir. 2002). Jurisdictional allegations must be shown affirmatively and may not be inferred favorably to the party asserting them. See In re Nat. Australia Bank Secs. Litig., No. 03 Civ. 6537, 2006 WL 3844465, at *2 (S.D.N.Y. Oct. 25, 2006) (citing Shipping Fin. Servs. Corp. v. Drakos, 140 F.3d 129, 131 (2d Cir. 1998)).
For purposes of a motion to dismiss pursuant to Rule 12(b)(6), the Court accepts the factual allegations made in the Complaint as true and draws all inferences in favor of the non-moving party. See Karedes v. Ackerly Group, Inc., 423 F.3d 107, 113 (2d Cir. 2005). On a motion to dismiss which challenges the Court's subject matter jurisdiction, the Court may consider evidence outside the pleadings, such as affidavits. United States Fidelity and Guaranty Co. v. Petroleo Brasileiro S.A. — Petrobras, No. 98 Civ. 3099, 1999 WL 307642 at * 1 (S.D.N.Y. May 17, 1999) (citingAntares Aircraft, L.P. v. Federal Republic of Nigeria, 948 F.2d 90, 96 (2d Cir. 1991)). The Court may also consider materials of which the plaintiff had notice and relied upon in framing his complaint, as well as materials of which judicial notice may be taken. See Fed.R.Evid. 201; Kavowras v. N.Y. Times Co., 328 F.3d 50, 57 (2d Cir. 2003); Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 48 (2d Cir. 1991). In addition, the Court may consider materials outside the record if certain conditions for those materials are met including: (1) it is clear on the record that no dispute exists regarding the authenticity or accuracy of the document; and (2) it is clear that there exist no material disputed issues of fact regarding the relevance of the document.Faulkner v. Beer, 463 F.3d 130, 134 (2d Cir. 2006).
It is well-settled that "[a] case should not be dismissed unless the court is satisfied that the complaint cannot state any set of facts that would entitle the plaintiff to relief." Miller v. Wolpoff Abramson, L.L.P., 321 F.3d 292, 300 (2d Cir. 2002) (citing Patel v. Contemporary Classics of Beverly Hills, 259 F.3d 123, 126 (2d Cir. 2001)). The Court, however, need not give "`credence to plaintiff's conclusory allegations'" or legal conclusions offered as pleadings. Cantor Fitzgerald v. Lutnick, 313 F.3d 704, 709 (2d Cir. 2002) (quoting Dawes v. Walker, 239 F.3d 489, 491 (2d Cir. 2001)); Van Carpals v. S.S. Am. Harvester, 297 F.2d 9, 11 n. 1 (2d Cir. 1961) (Friendly, J.) ("[I]n federal pleading there is no need to plead legal conclusions; these are for the court to apply.").
In contrast to a Rule 12(b)(6) motion to dismiss for failure to state a claim, in a challenge to FSIA subject matter jurisdiction, the defendant must present a "prima facie case that it is a foreign sovereign." Virtual Countries, Inc. v. Republic of South Africa, 300 F.3d 230, 241 (2d Cir. 2002) (quoting Cargill v. Int'l S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir. 1993)). Then the plaintiff has the burden of going forward with evidence showing that, under exceptions to the FSIA, immunity should not be granted. Id. Determining whether this burden is met involves a "review [of] the allegations in the complaint, the undisputed facts, if any, placed before [the court] by the parties, and-if the plaintiff comes forward with sufficient evidence to carry its burden of production on this issue-[resolution of] disputed issues of fact." Virtual Countries, Inc., 300 F.3d at 241 (quoting Robinson v. Gov't of Malaysia, 269 F.3d 133, 141 (2d Cir. 2001)). The ultimate burden of persuasion remains with the alleged foreign sovereign.Cargill, 991 F.2d at 1016; Robinson, 269 F.3d at 141 n. 8.
II. The Foreign Sovereign Immunities Act
The Foreign Sovereign Immunities Act (the "FSIA") is the exclusive basis for obtaining subject matter jurisdiction over foreign sovereigns in the courts of the United States and of the States. See Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 433 (1989). The FSIA was enacted to clarify the circumstances under which litigants may sue foreign states and their controlled enterprises in federal and state courts. U.S. Fidelity and Guaranty Co. v. Petroleo Brasileiro S.A. Petrobas, 1999 WL 307642 (S.D.N.Y. 1999). Section 1603 of the FSIA provides that:
(a) A "foreign state" except as used in section 1608 of this title, includes a political subdivision of a foreign state or an agency or instrumentality of a foreign state as defined in subsection (b).
(b) An "agency or instrumentality of a foreign state" means any entity —
(1) which is a separate legal person, corporate or otherwise, and
(2) which is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof, and
(3) which is neither a citizen of a State of the United States as defined in section 1332(c) and (d) of this title, nor created under any laws of any third country. . . .28 U.S.C. § 1603; see Mangattu v. M/V Ibn Hayyan, 35 F.3d 207 (5th Cir. 1994) ("In order to qualify for treatment as a foreign state, [defendant] must meet all three requirements under § 1603(b).").
The parties agree that SNPC is an "agency or instrumentality" of a foreign state because it satisfies all three requirements of section 1603(b), and thus, SNPC is immune from jurisdiction of the courts of the United States unless a statutory exception to foreign sovereign immunity applies. The exceptions to the FSIA are set forth in 28 U.S.C. §§ 1605- 1607, and, when one of these exceptions applies, the foreign sovereign is stripped of immunity, and, pursuant to 28 U.S.C. § 1330(a), subject matter jurisdiction exists in district court.
Section 1330(a) of Title 28 of the United States Code provides:
The district courts shall have original jurisdiction without regard to amount in controversy of any nonjury civil action against a foreign state as defined in section 1603(a) of this title as to any claim for relief in personam with respect to which the foreign state is not entitled to immunity either under sections 1605-1607 of this title or under any applicable international agreement.28 U.S.C. § 1330(a).
A. Presumption of Separate Juridical Status
As noted above, the parties agree that Defendant SNPC is a foreign sovereign instrumentality. Thus, the next question is whether Kensington has carried its burden of going forward with evidence — allegations, undisputed facts or other evidence — showing that immunity should not be granted to SNPC and, thus, that the Complaint should not be dismissed for lack of subject matter jurisdiction.
As a foreign sovereign instrumentality, SNPC is presumptively immune from suit in a United States district court. See Transatlantic Shiffahrtskontor GmbH v. Shanghai Foreign Trade Corp., 204 F.3d 384, 388 (2d Cir. 2000) (citing 28 U.S.C. § 1603(a)-(b) ("A foreign state, including its agencies and instrumentalities, is presumptively immune from suit in U.S. courts unless a specific FSIA exception to such immunity applies."); see also Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993). In addition, foreign sovereign instrumentalities and agencies are accorded a presumption of independent juridical status. Foremost-McKesson, Inc. v. Islamic Republic of Iran, 905 F.2d 438, 446 (D.C. Cir. 1990) (internal citations omitted). The presumption of juridical separateness of government instrumentalities applies to jurisdictional as well as to substantive issues. Id. at 446 (citing Gilson v. Republic of Ireland, 682 F.2d 1022, 1029-30 (D.C. Cir. 1982)).
B. Evidence of Alter Ego Relationship
It is well established that an instrumentality's presumption of separateness may be rebutted by evidence establishing an alter ego relationship between the instrumentality and the sovereign state that created it. First National City Bank v. Banco Para El Comercio Exterior, 462 U.S. 611 (1983) ("Bancec"). Reviewing principles common to both international law and federal common law, the Supreme Court in Bancec noted that a private incorporated entity, both in the United States and abroad, "is not to be regarded as legally separate from its owners in all circumstances." 462 U.S. at 628-629. The Court went on to explain circumstances where the owner might be held liable for the actions of the corporate entity, including (1) "where a corporate entity is so extensively controlled by its owner that a relationship of principal and agent is created;" (2) where failing to disregard the corporate form would "work fraud and injustice;" and (3) where the corporate form is interposed to defeat legislative policies. Id. at 629. The Court went on to conclude that "similar equitable principles" are applicable in the sovereign context holding that, in a suit by a Cuban instrumentality to collect on a letter of credit against a U.S. bank (Citibank), the U.S. bank could apply the value of its assets that had been seized years earlier by the government of Cuba as a setoff against its debt to the Cuban instrumentality. Id. at 633-34.
The Court of Appeals has embraced the Bancec holding and explained that the broader message of Bancec is:
foreign states cannot avoid their obligations by engaging in abuses of corporate form. The Bancec Court held that a foreign state instrumentality is answerable just as its sovereign parent would be if the foreign state has abused the corporate form, or where recognizing the instrumentality's separate status works a fraud or injustice.De Letelier v. The Republic of Chile, 748 F.2d 790, 794 (2d Cir. 1984). Although the Court of Appeals in De Letelier did not lift sovereign immunity for a Chilean-owned airline in order to satisfy a default judgment obtained against the Republic of Chile for the assassination of the Chilean ambassador to the United States and his aide's wife, the Court of Appeals has upheld the application of Bancec's alter ego analysis to issues of FSIA jurisdiction.
For example, in United States Fidelity and Guaranty Co. v. Petroleo Brasileiro S.A. Petrobas, 199 F.3d 94, 97 (2d Cir. 1999) ("U.S. Fidelity"), the Court of Appeals affirmed the District Court's holding that where the plaintiffs had made a "sufficient showing at this point in the litigation," that the day to day operations of the non-sovereign corporate defendant, Brasoil, were controlled by a non-party sovereign instrumentality, Petrobas, the two were to be considered alter egos for the purpose of determining subject matter jurisdiction under the FSIA and: (1) Petrobas' sovereign status and immunity were imputed to Brasoil even though Brasoil did not otherwise qualify as a sovereign instrumentality under § 1603 of the FSIA; (2) the commercial acts of Petrobas were imputed to Brasoil for purposes of determining whether Brasoil had waived immunity pursuant to the commercial activity exception of the FSIA and, (3) the commercial acts of Brasoil were imputed to Petrobas for the purposes of making the same waiver determination in the companion case in which Petrobas was a party and Brasoil was not. See U.S. Fidelity and Guaranty Co. v. Braspetro Oil Services, Co., No. 97 Civ. 6124, 1999 WL 307666, *10-13 (S.D.N.Y. 1999), affirmed, 199 F.3d 94 (2d Cir. 1999); U.S. Fidelity and Guaranty Co. v. Petroleo Brasileiro S.A. Petrobas, No. 98 Civ. 3099, 1999 WL 307642, affirmed, 199 F.3d 94 (2d Cir. 1999); see First City, Texas-Houston, N.A. v. Rafidain Bank, 150 F.3d 172, 176 (2d Cir. 1998) (The district court erred in dismissing a claim without permitting plaintiff to take further discovery as to the existence of an alleged alter ego relationship that would have allowed commercial activities in the U.S. to be imputed to the sovereign instrumentality.); Kalamazoo Spice Extraction Co. v. Provisional Military Government of Socialist Ethiopia, 616 F. Supp. 660, 665-666 (W.D. Mich. 1985), rev'd on other grounds by 729 F.2d 422 (6th Cir. 1984) (jurisdictional contacts of a non-party corporation, which was majority owned and dominated by the Government of Ethiopia were imputed to the Government of Ethiopia).
The Court of Appeals affirmed the District Court's findings of FSIA subject matter jurisdiction and personal jurisdiction over Brasoil "for substantially the same reasons as set forth in the court's May 17, 1999 opinion and order." 199 F.3d at 97.
Kensington, in its Complaint, makes numerous allegations to the effect that SNPC is controlled and dominated completely by Congo and thus that SNPC must be deemed Congo's alter ego. The Complaint alleges how SNPC was created by Congolese statute, that Olearius, a special purpose vehicle, was incorporated to hold the property rights to Congo's oil, and that both are Congolese public entities for the purposes of the Loan Agreement. (Compl. ¶¶ 67-71.) As explained in the factual background above, the Complaint alleges that Congo (and/or SNPC and/or Olearius) had created and allowed to exist certain preferential arrangements over its monies and/or oil production and/or its rights to receive the proceeds of sale of its oil production contained in the Olearius Facility that involved payments to creditors in preference to Kensington and/or its predecessors in title under the Loan Agreement without making any pro rata payments to Kensington and/or its predecessors in title as required by the Loan Agreement. (Compl. ¶¶ 72-97.) Given the numerous allegations related to SNPC's complete control by Congo and the actions taken by Congo with respect to SNPC and/or Olearius, Kensington also asserts in the Complaint that giving effect to the independent status of SNPC and Olearius would work an injustice on SNPC's non-oil creditors such as Kensington. (Compl. ¶ 113.)
As noted above, in additional support of its alter ego allegations, Kensington has submitted the decisions from the courts of England, France, and the Cayman Islands confirming SNPC's alter ego status. These decisions contain many factual findings that directly support Kensington's allegations of control and its assertions that Congo utilizes SNPC and unnecessarily complex transactions and charades for the purpose of confounding its creditors. For example, after a detailed review of the laws establishing, Law 1/98 of 23 April 1998 [Compl., Ex. H], and regulating, Law no. 13-81 14 March 1981, SNPC, as well as its Articles of Association [Compl., Ex. M], Mr. Justice Cooke observed that they "reveal the State's involvement in SNPC and its control of the board of directors. Mr. Gokana's own position as Special Adviser to the President of Congo as well as being President and DG [Director General] of SNPC speaks for itself . . ." and that:
SNPC is simply part of the Congolese state and has no existence separate from the State. . . . [i]t is financed by the State, its function is to act on behalf of the State and it is under the financial and economic control of the State with its officers being governmental appointees. . . . it acts as the trading arm of the State and is controlled by it, whilst putting into effect Government policy in relation to oil and oil products. The two decisions of the French Court of Appeal . . . are to the same effect.
(Cohen Decl., Ex. 2, Cooke Judgment, ¶¶ 44-55 (emphasis added).) He also found that a consultant to SNPC, Dr. Nwobodo, "equated" SNPC with Congo, [Cooke Judgment, ¶ 141], and that Mr. Gokana was [and is] President and DG [Director General] of SNPC, the representative of the President of the Congo on the Board of SNPC and Special Adviser to him on oil, whilst Mr. Christel is the son of that President as well as President and DG of Cotrade [a subsidiary of SNPC]. (Cooke Judgment ¶ 155.)
Referring to the arrangement in the case before him that placed four corporate entities, including SNPC, between the purchaser of the oil and Congo, Mr. Justice Cooke found:
This was a deliberate scheme to create an appearance of contracts and independent oil trades and traders which was devised to enable SNPC and Cotrade to sell their assets (oil) against payment from international market buyers, without their assets (neither the oil nor the proceeds) becoming available to meet existing liabilities.
Those involved in creating and masterminding the use of the structure were dishonest in the relevant sense of the word because of this objective when creating and using the sham companies and transactions in question, to avoid enforcement of existing liabilities.
(Cooke Judgment ¶¶ 199, 200(v) (emphasis added).)
Regarding the financial relationship between Congo and SNPC in the context of the Olearius facility (described in the Complaint at ¶¶ 66-76), the Cayman court observed:
I note the striking fact that in the agreement between the two of them, SNPC are entitled to deduct 1.6% of gross on the main oil dealings that they carry out and yet they have not done so.
That must be an enormous sum and it indicates to this Court, at least arguably, that SNPC has no independent will of its own and it does what it is told by the Republic of Congo who after all control the oil. It is the oil which makes the trade.
(Compl., Ex. O at p. 10 (emphasis added).)
In addition, the French Court in Walker, after reviewing the relevant legislation concerning SNPC, noted in its July 3, 2003 decision, that,
. . . as a result of the intensive supervision that SNPC is not statutorily in a sufficient state of functional independence to make autonomous decisions in its own interest, and to be considered, in fact and in law, as autonomous with regard to the Congolese State; that it is not even the master of its own future, personal investment policy, or organizational structure; that its accounting records to not clearly show the existence of significant commercial activity distinct from its mission of public service; that, according to its 2000 annual Report, the company realized theoretical net revenue of $58.5 million, yet it notes that "the cost of reimbursement of the State's obligations to certain operators, by means of production in an equivalent amount of SNPC's oil profit, represents a debt owed by the State to the company which results in zero net revenue"; that thus, deprived of real autonomy, the company can only establish that it is a creditor of the State without actually being able to establish a policy of development founded on self-financing;
. . . although ordinarily the supervision or even the control of a State over a legal entity, exerted through its managers, and the mission of public service given to it, is not sufficient to consider it an alter ego of the State implying its assimilation with it, in the case in point, the Congolese state, concerning SNPC, reserved to itself not merely the power to supervise or monitor, but the veritable power of orientation and approval constituting interference which completely eliminater. Any, autonomy on the part of SNPC which could give it the status of a commercially registered company; that [SNPC] constitutes a legal entity that has proven to be fictitious, and, therefore, an alter ego of the REPUBLIC OF CONGO.
(Cohen Decl., Ex. 1 at p. 9 (emphasis added).)
More indications of Congo's control and domination of SNPC, as well as its disregard for SNPC's corporate form, appear in the attachments to the Complaint and elsewhere, including reports from KPMG and Global Witness concerning audits of SNPC that evidence Congo's disregard of SNPC's corporate form and the commingling of their assets. (See Cohen Decl., Exs. 1-5.) For example, due to the lack of clarity surrounding the management of SNPC's revenues, an audit of SNPC was carried out by KPMG at the behest of the IMF and the World Bank. In 2004, KPMG made public 103 recommendations that highlighted the absence of any clear demarcation between Congo's finances and those of SNPC. KPMG's August 1, 2003 SNPC Audit Report (Cohen Decl., Ex. 3), which was published on the internet, contains the following statements on page 4:
It is important to point out that the income generated for account of SNPC or for account of the State do not always translate into corresponding cash flows. A large part of this income is allocated directly to repayment of prefinancings, secured debts, or reimbursements of tanker costs, the overall financial cost of which is very high.
During the fiscal years in question, [1999 to 2001] moreover, SNPC incurred expenses for account of the State. Since these expenses were excluded from the scope of our review, we obtained for each fiscal year a summary statement, on a per-bank-account basis, of the receipts and expenses recorded for account of SNPC or for account of the State.
Unfortunately, insofar as this summary statement is still incomplete as of the date of this report (several bank accounts are missing), and we did not have access to bank reconciliations, we were not able to reconcile this summary statement with the audited financial statements. In addition, since we were not authorized to gain access to the SNPC/State statements, it was not possible to verify the amounts indicated.
We recommend that these direct expenses for account of the State cease to be made or be limited to exceptional circumstances, and that in this case they be the subject of detailed and specific reports (which possibly exist but to which we did not have access), so that they can be properly taken into account with the national accounting records.
A March 2004 report drawn up by Global Witness, a well known anti-corruption association, in describing the events of the KPMG audit, noted that
The auditors, meanwhile, complained of a lack of full and prompt access to information `in contradiction of the terms of the audit contract'. Most significantly, they were denied access to SNPC's bank accounts: "Mr. Itoua [then Chairman of SNPC] . . . raised the fact that the SNPC's bank accounts contain transactions relative to operations carried out in the name of the state; so in consequence SNPC would need an official letter from the Ministry of Finance authorizing it to allow KPMG access to the bank statements." There is an apparent contradiction here: SNPC claims that it is financially and operationally autonomous from the state when in dispute with creditors, yet seems to be claiming financial interdependence with the state when in dispute with World Bank-appointed auditors.
(Cohen Decl., Ex. 4 at p. 30 (emphasis added).)
Finally, a later March 31, 2005 KPMG report concerning the 2003 financial statements of SNPC may be found on the website of the Congolese Ministry of Economy and Finance. Section "1.1 Review of financial statements" concludes with the statement,
the SNPC 2003 corporate financial statements and consolidated financial statements cannot be certified, or even audited, in their current condition (as in 2002). A major effort must be undertaken by the company to deal quickly with each of these audit items.
Section 2.2 regarding "Review of cash flows" contains the following statements regarding expenditures on behalf of the state:
We have no assurance that these expenditures are included in the accounting mechanism of the state budget.
These expenditures were justified in connection with a task that, exceptionally was delegated during a period of crisis. They should henceforth be paid by the government directly. If necessary, for 2004 and 2005 SNPC should furnish a list of expenditure paid for account of the State, so that the State can facilitate reconciliation of the figures with the information in the information in the national accounting records.
(Cohen Decl., Ex. 5.) The KPMG and Global Witness reports demonstrate Congo's obvious disregard for SNPC's corporate form and a commingling of their assets — classic earmarks of an alter-ego relationship.
The documents submitted in response by SNPC showing that the IMF and World Bank have elected to grant debt relief to Congo under the Enhanced Heavily Indebted Poor Countries Initiative ("HPIC Initiative") are irrelevant to the issue of alter ego and, indeed, even demonstrate that the problems with Congo's control of SNPC persist. One of the reports states that Congo "must address serious concerns about governance and financial transparency" in order to qualify for irrevocable debt relief at the completion point. (Declaration of Bennette D. Kramer, Esq., executed June 7, 2006, ("Kramer Decl."), Ex. B at 1.) The report then goes on to cite the reforms of SNPC's internal controls and accounting systems to which Congo has committed (but not effected). (Id.)
SNPC argues that the KPMG reports are "necessarily critical" and claims that other reports demonstrate that SNPC and Congo have "made great efforts towards total separation in their financial accounting and providing greater transparency." (Defendant's Reply Memorandum of Law in Support of the Motion to Dismiss, dated June 7, 2006, ("Def. Reply Memo") at pp. 10-11.) However, even those reports reveal that this separation has not occurred and they comment on the "poor governance and weak economic management" that has existed historically in Congo. (Kramer Decl., Ex. A at 8.) The April 2006 IMF report, "Republic of Congo: Enhanced Initiative for Heavily Indebted Poor Countries — Decision Point Document," makes clear that despite considerable progress in reforming the oil sector, "major weaknesses remain with respect to issues concerning the interrelationship between Congo and SNPC, including "auditors noting a lack of access to adequate information." (Second Declaration of Robert Cohen, Esq., dated June 23, 2006, ("Second Cohen Decl.") Ex. 6 at p. 12.) Thus, the evidence presented by SNPC is not sufficient to rebut or even raise a disputed issue of fact as to the allegations in the Complaint and the other evidence presented by Kensington.
Courts have noted that a plaintiff in this type of case might have difficulty discovering many facts to support claims of separate juridical status. See Alejandre v. Telefonica Larga Distancia de Puerto Rico, Inc., 183 F.3d 1277, 1285 fn. 19 (11th Cir. 1999) ("[A] court deciding whether a plaintiff has carried this burden must also be mindful that the instrumentality and its related government — not the plaintiff — will frequently possess most of the information needed to determine whether the presumption should be overcome. These foreign entities obviously have little incentive to provide information that will help the plaintiff's case, and it may be difficult for the plaintiff to obtain discovery from them.").
C. Congo Waiver of Immunity
Under Section 1605 of the FSIA, a foreign state or its sovereign instrumentality shall not be immune from the jurisdiction of courts of the United States or the States in any case "in which the foreign state has waived its immunity either explicitly or by implication, notwithstanding any withdrawal of the waiver which the foreign state may purport to effect except in accordance with the terms of the waiver." 28 U.S.C. § 1605. Both parties agree that Congo waived its immunity under the FSIA in section 19(iv) of the Loan Agreement. (See Compl. ¶ 23.)
SNPC argues that an alter ego claim should not be used to impute Congo's waiver of immunity to SNPC because SNPC did not exist at the time the Loan Agreement was executed, was not a party to the agreement, and did not engage in action resulting in its breach. (See Plaintiff's Memorandum of Law in Opposition to the Motion to Dismiss, dated May 3, 2006, ("Pl. Opp. Memo"), at p. 9.) However, if the facts alleged in the Complaint claiming that SNPC is an alter ego of Congo are accepted as true, then SNPC is Congo, and the only immunity at issue is Congo's immunity.
The Court agrees with Kensington's argument that "to hold that no act of a controlling sovereign can be imputed to a subsequently created alter ego would lead to the untenable result of permitting sovereigns to avoid liabilities simply by transferring assets to newly created juridical entities whenever the need arises." (Pl. Opp. Memo, at p. 9.) Cf. Bancec, 462 U.S. at 633. In Bancec the Court disregarded Bancec's separate juridical status because the Cuban government had dissolved Bancec and would be the beneficiary of Bancec's lawsuit in the U.S. courts without waiving its sovereign immunity and answering for the seizure of Citibank's assets. The Cuban government had transferred Bancec's assets to other Cuban instrumentalities that could be held liable on Citibank's counterclaim, but Bancec argued that since its assets were eventually transferred to separate juridical entities, Empresa and Cuba Zucar, that the immunity still applied to Bancec's assets. Id. at 632-633. However, the Court disagreed, stating that "Cuba cannot escape liability for acts in violation of international law simply by retransferring assets to separate juridical entities. To hold otherwise would permit governments to avoid the requirements of international law simply by creating juridical entities whenever the need arises." Id. at 633.
Here, the Complaint contains sufficient allegations that even though SNPC did not exist when Congo signed the Loan Agreement, waived its immunity, and originally breached the Loan Agreement, SNPC is being used by Congo, which is in full control of SNPC's assets, to shield Congo's assets from creditors such as Kensington. (Compl. ¶¶ 90-116.) These allegations, and the other materials cognizable on this motion, fall directly within the teachings of the Court in Bancec.
D. Imputation of Congo's Waiver
The Court does not accept SNPC's argument that under "general principles of agency," the acts of a principal (Congo) cannot be imputed to an agent (SNPC). (Def. Memo at pp. 8-10.) The Court inBancec did warn against "freely ignoring" the separate status of government instrumentalities because of the potential uncertainty for creditor third parties as to whether the instrumentality's assets could be diverted to cover a claim against the sovereign. 462 U.S. at 626. But the Court then went on to explain that in some circumstances the presumption of separateness must be overcome in order to serve broad equitable principles and avoid fraud or injustice. Id. at 629. The Court did not dictate a narrow test for ignoring the separate juridical status of an agency or instrumentality; instead, the Court stated that
[o]ur decision today announces no mechanical formula for determining the circumstances under which the normally separate juridical status of a government instrumentality is to be disregarded. Instead, it is the product of the application of internationally recognized equitable principles to avoid the injustice that would result from permitting a foreign state to reap the benefits of our courts while avoiding the obligations of international law.462 U.S. at 634-635.
The Court of Appeals has used the broad equitable principles that the Bancec Court employed in disregarding the separate juridical status of Cuba and Bancec to find that where the type of control and disregard of corporate form described in Bancec is present, the acts and liabilities of the controlling sovereign entity may be imputed to the controlled entity. The Court of Appeals in De Letelier ultimately refused to ignore the instrumentality's separate juridical status because the evidence did not reveal the abuse of corporate form to the degree ofBancec. However, although the Court warned against ignoring juridical separateness too easily, the De Letelier Court acknowledged that if "abuse of corporate form" has been "clearly demonstrated" by the plaintiff, the "subsidiary" may be held liable for the debts of its sovereign "parent." De Letelier, 748 F.2d at 795 n. 1.
The liability also may be imputed from owner to instrumentality. The Bancec Court, in examining the level of one entity's control of another stated that "where a corporate entity is so extensively controlled by its owner that a relationship of principal and agent is created, we have held that one may be held liable for the actions of the other," without explaining whether the liability could flow in either direction. 462 U.S. at 628. Other courts have found that liability can flow both ways, as the Eleventh Circuit noted in Alejandre v. Telefonica Larga Distancia de Puerto Rico, Inc.:
The principal/agent terminology used by the Court could be read to suggest only that an owner who exercises sufficient control over his corporate agent may be held liable for the agent's actions. . . . however, liability can also flow in the other direction. (internal citation omitted) For example, the corporate agent may be held responsible for its owner's debts to third parties upon a showing that the owner's exercise of control constitutes an abuse of the corporate form sufficient to deprive the agent of its independent juridical identity.183 F.3d 1277, 1285 fn. 18 (11th Cir. 1999) (citing De Letelier, 748 F.2d at 795) (emphasis added).
It is important to note that in this case, Kensington has alleged, and has provided materials demonstrating, that SNPC is not just an agent of Congo, but is an alter ego of Congo. In U.S. Fidelity and Guaranty Co., the District Court applied the "agent/principal" analysis from Bancec and held that the immunity and commercial activities of the controlling principal, Petrobas, a sovereign instrumentality, could be imputed to its non-sovereign agent, Brasoil, for FSIA jurisdiction and waiver purposes because the Court found that the plaintiffs had made a sufficient initial showing that Petrobas controlled the day to day operations of Brasoil enough to hold that the two were alter egos. 1999 WL 307666, *10-13.
Although the Court of Appeals did note in Antares Aircraft L.P. v. Federal Republic of Nigeria, 948 F.2d 90, 97 (2d Cir. 1991), that, while generally, "the jurisdictional contacts of an agent may properly be imputed to the principal, the reverse is not true," the plaintiff in Antares alleged only that the defendant Nigerian Airports Authority acted as an agent of the Federal Republic of Nigeria ("FRN"), not as an alter ego of the FRN. Indeed, the Court of Appeals has recently interpreted Bancec to state that the two circumstances in which the presumption of juridical separateness may be overcome are when the instrumentality is proven to be the alter ego of the foreign state and when disregarding the separate status is necessary to avoid fraud or injustice. EM Ltd. v. Republic of Argentina, 473 F.3d 463, 480 (2d Cir. 2007). In EM Ltd., the Court of Appeals affirmed the District Court's vacatur of restraining notices and orders of attachment imposed with respect to an account of Argentina's central bank at the Federal Reserve Bank on the grounds that they were protected from attachment by the FSIA. The Court saw "no reason why the presumption of separateness" should not apply because "plaintiffs expressly elected not to argue in support of attachment that BCRA's [Banco Central de la República Argentina] separate juridical status should be disregarded because BCRA is the alter ego of the Republic [of Argentina]." 473 F.3d at 479. In contrast here, Kensington has made explicit allegations and provided other evidence that SNPC is so controlled and dominated by Congo that it is an alter ego of Congo and thus that their separate juridical status must be disregarded. Thus, Congo's waivers, consents, agreements, and designations, including its waiver of sovereign immunity and consent to jurisdiction and venue in this Court, may be imputed to SNPC.
This is contrary to what was suggested in a footnote in Gabay v. Mostazafan Foundation of Iran, 151 F.R.D. 250, 255 n. 7 (S.D.N.Y. 1993), but it does not appear that "alter ego" was asserted in Antares.
That case involved an attempt to attach an asset of a foreign central bank, and the FSIA provides additional protection to such assets which is not applicable to this case. See 28 U.S.C. § 1611(b)(1). Congress developed 28 U.S.C. § 1611(b)(1) to shield from attachment the U.S. assets of foreign central banks, many of which might be engaged in commercial activity in the United States while managing reserves and engaging in financial transactions, and to provide an incentive for foreign banks to maintain the reserves in the United States. EM Ltd., 473 F.3d at 473.
E. Fraud and Injustice
As noted above, the Court in Bancec stated that a sovereign instrumentality's separate juridical status could be disregarded if the separateness was being used to work a fraud and/or injustice. 462 U.S. at 629. Contrary to SNPC's assertions, the fraud/injustice reason for disregarding the independent status of a sovereign instrumenality is not limited to only two circumstances where either (1) the instrumentality was involved in the underlying act for which the sovereign is liable or (2) the separateness of the instrumentality was used to defeat a statutory policy of the United States. Instead, the Bancec Court used broad equitable principles, refusing to apply any "mechanical formula," to find that the separate juridical status of the instrumentality in that case should be ignored in order to allow Citibank to set off the value of its seized Cuban assets against Cuba. The instrumentality, Bancec, was not involved in the enactment of the law pursuant to which Citibank's assets in Cuba were expropriated and was not involved in the expropriation itself; nor did Bancec involve a situation where the separateness of the instrumentality was used to defeat a statutory policy of the United States or Cuba.
Here, Kensington does allege that SNPC has been involved in the activities related to Kensington's claims against Congo. As alleged in the Complaint and as other courts have held, Congo has used SNPC — its alter ego — as a means to control its assets while attempting to shield them from its creditors. Also, the Complaint alleges, and the attached documents demonstrate that SNPC participated in a structured oil facility (the Olearius Facility) that was specifically designed by Congo to circumvent the claims of Congo's creditors, and, as the Cooke Judgment acknowledged, SNPC continues to participate in such transactions. (See Compl. at ¶¶ 66-76; Cohen Decl. Ex. 2, Cooke Judgment.) Kensington alleges that through these and other transactions SNPC has been utilized by Congo to breach the negative pledge provisions of the Loan Agreement — a provision that was intended to prevent Congo from pledging and making preferential arrangements over assets against which Kensington could enforce its claims. Under such circumstances as alleged by Kensington, it would be unfair to allow Congo, which contractually waived its immunity with respect to its claims relating to the Loan Agreement and further waived immunity with respect to its assets, effectively to revoke those waivers by transferring its most valuable and available assets to a newly formed instrumentality that Congo controls and uses to engage in complicated transactions for the specific purpose of insulating its assets from lawful creditors such as Kensington.
In Alejandre, the Eleventh Circuit intimated that it would be appropriate to disregard an instrumentality's separate juridical status to prevent fraud or injustice in cases where agreements, like the Loan Agreement here, are transferred to the instrumentality "for the purpose of insulating payments made under those agreements from garnishment by the . . . Government's creditors." 183 F.3d at 1286. This is the very action that Kensington alleges SNPC participated in with Congo — transferring Congo's available assets to a new instrumentality, SNPC, that Congo controls but that Congo's creditors cannot reach. Here, Kensington has sufficiently alleged and provided evidence to demonstrate that Congo is working a fraud and an injustice by using SNPC and thus that SNPC's separate juridical status may be disregarded, consistent with the holdings in Bancec and Alejandre.
F. Conclusion
As the discussion above makes clear, Kensington has carried its burden of going forward with evidence showing that immunity should not be granted to SNPC. The allegations of the Complaint, together with the court decisions and other materials in the record of, inter alia, Congo's control over SNPC, the commingling of assets and lack of internal and accounting controls at SNPC, SNPC's being the alter ego of Congo, and the fraud/injustice to creditors effected by Congo through SNPC, easily demonstrate that SNPC is not entitled to immunity. The evidence submitted by Congo fails to rebut or even raise a disputed issue of fact on the issues presented. Indeed, the decision of the Court of Appeal of Paris (which was affirmed by the French Court of Appeal of Paris on July 3, 2004) rendered after contested proceedings, is sufficient, in and of itself, not only to meet the standard set forth above, but arguably to estop SNPC from re-litigating its alter ego status. See, Alfadda v. Fenn, 966 F.Supp. 1317 (S.D.N.Y. 1997) (prior decision of French court precluded relitigation of same issue in U.S. action). Accordingly, SNPC's motion to dismiss for lack of subject matter jurisdiction on the ground of sovereign immunity is denied.
The case has since been appealed by SNPC to France's highest court, the Cour de Cassation. The process is similar to the filing of a petition for certiorari in that the Cour de Cassation is not required to hear the appeal. The fact that the French judgment is on appeal to France's highest court does not bar application of the doctrine of issue preclusion to the judgment.Alfadda v. Fenn, 966 F.Supp. 1317, 1325 n. 9. (S.D.N.Y. 1997).
III. Claim Under the Declaratory Judgment Act
The Declaratory Judgment Act, 28 U.S.C. § 2201(a) permits courts to issue declaratory relief in cases that involve an actual controversy: "In a case of actual controversy within its jurisdiction any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." In order to decide whether to entertain an action for declaratory judgment, the Court of Appeals has instructed district courts to ask: (1) whether the judgment will serve a useful purpose in clarifying or settling the legal issues involved; and (2) whether a judgment would finalize the controversy and offer relief from uncertainty.Duane Reade Inc. v. St. Paul Fire and Marine Ins. Co., 411 F.3d 384, 389 (2d Cir. 2005) (citing Broadview Chemical Corp. v. Loctite Corp., 417 F.2d 998, 1001 (2d Cir. 1969)). While courts have the discretion whether or not to grant declaratory relief, the Court of Appeals has noted that if either of the two objectives noted above can be achieved, "the action should be entertained and the failure to do so is error." Broadview, 417 F.2d at 1001.
In its Complaint, Kensington seeks a declaration that SNPC is the alter ego of Congo and "as such [is] responsible for the obligations of Congo, including, but not limited to, those obligations arising under the 1984 Loan Agreement, the English Judgment, and those that may arise pursuant to this action." (Compl. ¶ 116.) Because Kensington has obtained a judgment against Congo, not SNPC, a declaration that SNPC is the alter ego of Congo and is responsible for Congo's obligations, is necessary for judgment to be entered against SNPC.
The Court rejects SNPC's argument that the stipulation offered by Congo to Kensington that Congo "would not oppose attachment of SNPC's property in the context of enforcement proceedings against Congo in the United States on the ground that such property is not its own" concludes the controversy and that, thus, there is no active controversy between SNPC and Kensington. (Def. Memo, at pp. 15-16.) Without a declaration that SNPC is an alter ego of Congo, the stipulation offered by Congo does nothing to help resolve the controversy, because if SNPC is still considered separate, then Kensington remains unable to enforce its judgment against SNPC and whether Congo does or does not object to what cannot be enforced is of no importance or help in resolving the situation.
Based on the allegations in the Complaint, there is an actual and active controversy between and among the parties, viz., Kensington is seeking to enforce against SNPC a judgment entered in this Court, and Congo and SNPC do not agree to such enforcement. Kensington is not just seeking a declaration for purposes of past or future disputes but a declaration with respect to the judgment entered in this Court which it seeks to enforce. Whether Kensington might also use such a declaration to pursue SNPC in other courts is not a factor in determining what Kensington is seeking here and now.
The Court also acknowledges that Kensington, in its Complaint, specifies the declaration it is seeking, viz., to hold SNPC liable for only certain obligations of the Congo that presently are owed to Kensington under the 1984 Loan Agreement, or the English Judgment, or that which might become owed to Kensington pursuant to this action. (Compl. ¶ 3 of WHEREFORE clause.) Because Kensington specifies the precise declaratory relief it is seeking against SNPC, the controversy between the parties is not speculative or hypothetical. Here, there were amounts stated in the Loan Agreement and determined in the English Judgment to be due and owing and, indeed, on which partial summary judgment in the amount of $56,911,991.47 plus interest has been entered against Congo. Kensington has made specific allegations that there is an active, actual controversy between the parties in this case and seeks certainty about the relationship of a party (SNPC) to a debtor (Congo) of another party (Kensington) as well as a resolution of the pending enforcement of the English Judgment against all appropriate parties. Thus, because a declaratory judgment would serve one if not both of the objectives of declaratory relief mentioned by the Court of Appeals, the Court finds a case or controversy within the meaning of Article III of the Constitution is presented. Accordingly, SNPC's motion to dismiss for lack of subject matter jurisdiction based on lack of a case or controversy is denied.
In contrast, the Court of Appeals in Olin Corp. v. Consolidated Aluminum Corp., 5 F.3d 10, 16 (2d Cir. 1993), cited by SNPC, refused to issue a declaration on the defendant's liability to pay because no costs had yet been incurred on the sites at issue and it was not clear that any costs would have ever be incurred. The relief sought in that case was much more speculative that the relief sought in this present action, where there are determined amounts.
CONCLUSION
For the foregoing reasons, SNPC's motion to dismiss [dkt. no. 99] is denied. The parties shall confer and inform the Court by letter how they propose to proceed.SO ORDERED: