Summary
In Wasserstein Perella Emerging Markets Fin., L.P. v. Formosa, 2000 WL 573231, *10 (S.D.N.Y. May 11, 2000), the court found that the defendant foreign sovereign was subject to jurisdiction under the commercial activities exception.
Summary of this case from In re Stone Webster, IncorporatedOpinion
97 Civ. 793 (BSJ)
May 11, 2000
Memorandum Opinion and Order
Before this Court is defendant's motion pursuant to Rule 12(b)(2) to dismiss for lack of personal jurisdiction and plaintiff's cross-motion for summary judgment pursuant to Rule 56. The Court's first task in this matter is to determine whether — if the facts alleged are proven to be true — it would have jurisdiction over the sovereign.
In this Court's interim order of June 16, 1998, this Court noted that the plaintiff's assertion in its Complaint that jurisdiction was premised on diversity of citizenship was incorrect. Pursuant to the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. § 1602, a political subdivision such as defendant the Province of Formosa ("Formosa"), is a foreign state for purposes of the FSIA. See 28 U.S.C. § 1603 (a). The FSIA provides the sole basis for obtaining subject matter jurisdiction over suits against foreign sovereigns brought in the United States. See Republic of Argentina v. Weltover. Inc., 504 U.S. 607, 611 (1992); see also 28 U.S.C. § 1330; 28 U.S.C. § 1604. "Under the [FSIA], a foreign state is presumptively immune from the jurisdiction of the United States courts; unless a specified exception applies, a federal court lacks subject matter jurisdiction over a claim against a foreign state."Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993); see also 28 U.S.C. § 1604. Regarding personal jurisdiction, the Court has personal jurisdiction over a foreign state pursuant to the FSIA provided: (1) it has subject matter jurisdiction, and (2) service has been effected in accordance with the FSIA. See Seetransport Wiking Trader Schiffarhtsgesellschaft MBH Co., Kommanditgesellschaft v. Navimpex Centrala Navala, 989 F.2d 572, 579 (2d Cir. 1993); see also 28 U.S.C. § 1330 (b). Thus, both forms of jurisdiction turn on whether the foreign state is entitled to immunity. In other words, the Court lacks both personal and subject matter jurisdiction if none of the FSIA's exceptions to sovereign immunity applies. See Cargill Int'l S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir. 1993).
Therefore, defendant's motion is incorrectly styled as a motion to dismiss under Rule 12(b)(2) for lack of personal jurisdiction. Instead, as the relevant case law cited above indicates, the proper motion is a motion to dismiss for lack of subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1). The Court will thus analyze the motion under the appropriate standards for deciding FSIA motions.
On a motion to dismiss, the allegations in the complaint are accepted as true. See Grandon v. Merrill Lynch Co., 147 F.3d 184, 188 (2d Cir. 1998). In deciding a motion to dismiss, all reasonable inferences must be drawn in the plaintiff's favor. See Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995); Cosmas v. Hasset, 886 F.2d 8, 11 (2d Cir. 1989). The court's function on a motion to dismiss is "not to weigh the evidence that might be presented at trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). Therefore, the defendants' present motion should be granted only if it appears that the plaintiffs can prove no set of facts in support of their claim that would entitle them to relief. See Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Grandon, 147 F.3d at 188; see also Goldman, 754 F.2d at 1065.
In deciding the motion, the Court may consider documents referenced in the complaint and documents that are in the plaintiffs' possession or that the plaintiffs knew of and relied on in bringing suit. See Brass v. American Film Technologies, Inc., 987 F.2d 142, 150 (2d Cir. 1993);Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47-48 (2d Cir. 1991); I. Meyer Pincus Assoc., P.C. v. Oppenheimer Co., Inc., 936 F.2d 759, 762 (2d Cir. 1991); Skeete v. IVF America, Inc., 972 F. Supp. 206, 208 (S.D.N.Y. 1997).
II.
For the purposes of the defendant's motion to dismiss, the following allegations made in the plaintiff's Complaint are accepted as true. Plaintiff Wasserstein Perella Emerging Markets Finance, LP ("WPEM") is a limited partnership organized in accordance with the laws of the Cayman Islands. Defendant Province of Formosa ("Formosa" or the "Province") is a geographic and political administrative district of the Republic of Argentina. Plaintiff alleges that the Banco de las Provincia de Formosa, SEM, was wholly owned by the Province until it was privatized by Argentina in 1995.
The sole general partner of WPEM is Wasserstein Perella Emerging Markets, Inc., a Delaware Corporation authorized to do business in New York State and having its principal place of business in New York City.
This lawsuit arises from the Province's alleged breach of its obligations as assignee of the Provincial Bank's rights and obligations under a series of written agreements between the Provincial Bank and W.P. Co. alleged to have been adopted and amended by WPEM and the Province. On May 8, 1995, WPEM and the Provincial Bank signed a Financial Advisor and Placement Agent Engagement Letter (the "Engagement Letter") in which the Provincial Bank retained WPEM for the placement. Concurrently with the Engagement Letter certain other documents were executed by the parties hereto or their predecessors in interest as part of the objectives of the Financing Contract. These documents included: (1) an indenture dated May 28, 1995 with exhibits annexed thereto signed by the Provincial Bank, the Province and Caledonian Bank Trust Limited ("the Indenture"); (2) a note purchase agreement with exhibits annexed thereto signed by the Provincial Bank and WPEM ("the Note Purchase Agreement"); (3) an assignment of credits dated May 1995 signed by the Province, WPEM and Caledonian bank Trust Limited ("the Assignment"); and (4) an indemnity agreement executed by the Provincial bank in favor of W.P. Co. and its affiliates (collectively with the Engagement Letter, the "Financing Contract"). In its answer, the defendant admits to signing the indicated documents.
The transaction contemplated by the Engagement Letter was the issuance and private sale of certain debt securities issued by the Provincial Bank for the gross proceeds of approximately $40 million. As compensation for WPEM's issuance and sale of the debt securities, the Financing Contract requires the Provincial Bank to pay WPEM: (1) a private placement agency fee equal to 2% of the gross proceeds of any senior indebtedness issued in the Financing ("the Commission"); and (2) a placement fee to be mutually agreed by the parties ("the Placement Fee") prior to the closing of the Financing Contract. See ¶ 2(a)(i) (ii). WPEM alleges that the Financing Contract did not close because the Republic of Argentina privatized the Provincial bank prior to the scheduled closing date for the loan.
In early 1996, the Province and WPEM renewed discussion about the private placement. On or about April 1, 1996, WPEM and Dr. Jorge Ibanez, Minister of Economy, Public Works and Services of the Province of Formosa signed an agreement (the "Novation Agreement"), pursuant to which: (1) the Province was substituted in the place of the Provincial Bank as a party to the Financing Contract; (2) the Province and WPEM agreed to set the Engagement Letter Placement Fee at 1.5% of the $40,000,000 to be raised for the Province under the Financing Contract; and (3) the Province agreed to reimburse WPEM for all legal and other expenses incurred in the United States in connection with the Financing Contract, provided such expenses did not exceed 1% of the funds to be raised under the Financing Contract. On or about April 11, 1996, the Province, in a letter signed by Minister Ibanez, ratified its agreement with WPEM to perform the Financing Contract "upon the conditions agreed upon" and to pay all fees and expenses due to WPEM.
Plaintiff alleges that the "conditions agreed upon" include the following provisions of the May 1995 Engagement Letter: (1) the agreement "shall be deemed made in New York," ¶ 12; (2) all controversies arising from or relating to performance under the Financing Contract are to be governed by and construed in accordance with the laws of New York State, without giving effect to New York rules on conflicts of laws, see ¶ 12; and (3) the Provincial Bank irrevocably consents to personal jurisdiction and venue in federal court in the Southern District of New York for the purposes of any action arising out of the Financing Contract. See ¶ 12.
On May 3, 1996, the parties scheduled the closing of the Financing Transaction to take place simultaneously in New York and Buenos Aires on May 21, 1996. Due to the alleged inability of the authorized representative of the Province to be present in Buenos Aires on the projected date of the closing, it was adjourned to May 22, 1996. WPEM alleges that the Province demanded that WPEM provide evidence of the availability of the first tranche prior to the closing of the Financing Transaction.
WPEM alleges that the Financing Transaction as then structured between WPEM and the Province provided for the delivery of $40 million to the Province in two tranches less agreed upon costs and expenses. The first tranche in the sum of $25 million upon the closing of the Financing Transaction, and the second of $15 million within forty-eight hours thereafter.
On May 27, 1996, WPEM provided the Province with evidence that the first tranche of $25 million was on deposit in the Euroclear Account of Morgan Stanley-the clearing agent of WPEM. At that time, WPEM communicated to the Province that the second tranche of the $15 million would be on deposit within 48 hours of the closing of the Financing Transaction. The closing of the Financing Transaction was rescheduled for 11:00 a.m. Buenos Aires time on May 28, 1996, to be held simultaneously in New York and Buenos Aires. The Buenos Aires portion of the closing was to be carried out at the offices of Cleary, Gottlieb, Steen Hamilton, WPEM's attorneys in New York.
On May 28, 1996, at the time and place designated for the closing, the authorized representative of the Province failed to appear and did not sign the necessary documents for the closing of the Financing Transaction. Immediately thereafter, the Province allegedly informed WPEM that it would not close the Financing Transaction. WPEM alleges that the Province has failed and refused to pay WPEM the commission and placement fee which WPEM earned pursuant to the Financing Transaction. It claims that it has suffered damages in the amount of $1,686,986.30 for its commission, placement fee, legal fees and expenses and lost interest on the first tranche of funds.
III.
The Foreign Sovereign Immunities Act of 1976 ("FSIA"), 28 U.S.C. § 1330, 1602 et seq., provides that "a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607 of this chapter." 28 U.S.C. § 1604. In suits against foreign sovereigns, it is well settled that the FSIA provides the only basis for the subject-matter jurisdiction of United States courts. See Saudi Arabia v. Nelson, 507 U.S. 349 (1993). Thus, a foreign state, including its agencies and instrumentalities, is presumptively immune from suit in United States courts unless a specific FSIA exception to immunity applies. See 28 U.S.C. § 1603 (a)-(b); Nelson, 507 U.S. at 355; Transatlantic Shiffahrtskontor GmbH v. Shanghai Foreign Trade Corp., 204 F.3d 384, 388 (2d Cir. 2000). The exceptions at issue in this case are provided by § 1605(a)(1) and (2), which provides that:
A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case — (1) 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; [or] (2) in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States. . . .
"Once the defendant presents a prima facie case that it is a foreign sovereign, the plaintiff has the burden of going forward with showing that, under exceptions to the FSIA, immunity should not be granted, although the ultimate burden of persuasion remains with the alleged foreign sovereign." Cargill Int'l S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir. 1993). This Court now considers, against this background, the specific exceptions to FSIA immunity at issue in this case.
A. The Waiver Exception.
Section 1605(a)(1) of the FSIA provides that:
A foreign state shall not be immune from the jurisdiction of courts of the United States or 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.
Pursuant to this section, a foreign state may waive its immunity either explicitly or implicitly. Explicit waiver is generally found when the contract language itself clearly and unambiguously states that the parties intended waiver, and therefore, adjudication in the United States. See, e.g., Proyecfin de Venezuela, S.A. v. Banco Indus. de Venezuela, S.A., 760 F.2d 390, 393 (2d Cir. 1985). In Proyecfin, the Second Circuit held
that the parties expressly waived immunity to suit in New York where the unambiguous language of the contract stated that, "Borrower . . . hereby waives such immunity to the full extent permitted by the laws of such jurisdiction and, in particular, to the intent [sic] that in any proceedings taken in New York the foregoing waiver of immunity shall have effect. . . .Id. In this case, if the Province of Formosa waived its immunity to suit in the United States, it did so in the language of Paragraph 12 of the Financial Advisor and Placement Agent Engagement Letter of May 8, 1995 between Hernando Pérez Añ. Managing Director of Wasserstein Perella Co., Inc., and José Manuel Pablo Vuidez, Presidenté Banco de Law Provincia of Formosa, S.E.M., which reads:
This Agreement shall be deemed made in New York. This agreement and all controversies arising from or relating to performance under this agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to such state's rules concerning conflicts of laws. The Company hereby irrevocably consents to personal jurisdiction and venue in any court of the State of New York or any Federal court sitting in the Southern District of New York for the purposes of any suit, action or other proceeding arising out of this agreement or any of the agreements or transactions contemplated hereby, which is brought by or against the Company, and hereby agrees that all claims in respect of any such suit, action or proceeding may be heard and determined in any such court. The Company hereby irrevocably consents to the service of process of any of the aforementioned courts in any such suit, action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Company at its address set forth above, such service to become effective ten (10) days after such mailing. ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR ACTION ARISING OUT OF THIS AGREEMENT OR CONDUCT IN CONNECTION WITH THIS ENGAGEMENT IS HEREBY WAIVED.
Plaintiff argues that the Province's Minister of Economy, Public Works and Services, Dr. Jorge Ibanez sent an April 11, 1996 letter to WPEM stating that "the Government of Formosa ratifies its willingness that the disbursements of [the loan of $40,000,000] become effective under the conditions agreed upon, including the commissions and expenses detailed by [WPEM] through note dated 2nd of August of 1994." WPEM contends that the Province, in its ratification, thereby adopted the waiver of sovereign immunity contained in the May 8 Engagement Letter. The Province argues that it is not bound by the May 8, 1995 Engagement Letter because it did not sign it. Further, the Province argues that it is not firmly established that it stepped "into the shoes of the bank with regard to the May 8, 1995 Engagement Letter," Def.'s Mem. of Law at 10, or that Dr. Ibanez had the actual or apparent authority to bind the Province.
The first August 2, 1994 letter from WPEM to Dr. Oscar Rodriguez, Minister of Economy, Public Works and Services of the Province of Formosa, provides for the placement of up to $40 million for the Province of Formosa. The letter was accepted and agreed to by Minister Rodriguez. The second August 2, 1994 letter is again from WPEM to Minister Rodriguez and sets forth that the commission for WPEM's services is to be 2% of the total amount to be paid at the conclusion of the transaction and that the legal fees to be paid by Formosa would be up to $40,000. This letter was also accepted and agreed to by Minister Rodriguez. The letters are in the moving papers of both parties.
WPEM argues that Ibanez had authority because WPEM requested and received from the Province's Director for Judicial Affairs and its Attorney General an assurance in writing in January 1995 that Dr. Ibanez had authority to bind the Province. It also contends that its Argentine attorney determined that under Argentine law, the Minister had authority to bind the Province to pay WPEM's fees pursuant to the May 8 Engagement Letter. Finally, it cites Minister Ibanez's deposition testimony for the proposition that Dr. Ibanez had the authority to bind the Province to pay WPEM's commissions and expenses.
The Province argues that Dr. Ibanez did not — as a matter of Argentine law — have the requisite authority because under the law, it argues, "[one] cannot on [his] own [initiative] take resolutions with the exception of matters concerning the administrative and economic regime of [his] own department. Such a possibility would be excluded because of the regulation of article 141 of the Constitution of the Province." Garcia-Cabello Aff. at 3.
The parties have submitted expert opinions on this subject and the Court notes that under Fed.R.Civ.P. 44.1, it may consider "any relevant material or source including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence . . . [in making] a ruling on a question of law." However, the Court does not find the opinions to be sufficiently comprehensible to decide the issue as a matter of law, and will require testimony before this issue can be resolved. The plaintiffs also argue that the course of conduct between the parties establishes Ibanez's apparent authority. These are issues which cannot be resolved on summary judgment, but rather must be resolved at trial.
The facts concerning the relationship between the Bank and the Province are murky at best, mostly due to the inconsistent statements of the Province about the Bank's status vis-a-vis the Province. The Province maintains in its Memorandum of Law that: "It has been established that while the Province and the bank are separate and distinct legal entities, the Province held a substantial ownership interest in the Bank." Id. In its Reply Memorandum, the Province states: "In 1994, when the Bank, a quasi governmental entity, wanted to renegotiate [a] loan. . . ." Def.'s Reply Mem. at 8. Plaintiff argues that the Provincial Bank was wholly owned by the Province until it was privatized by the Republic of Argentina in 1995, see Complaint ¶ 5, and was nationalized by the Government of Argentina before the loan closed. See Plaintiff's Mem. of Law at 3.
Placing the undetermined ownership saga of the bank aside the following four documents provide some clarity: (1) the August 2, 1994 letter from WPEM accepted and agreed to by Dr. Oscar Rodriguez, Minister of Economy, Public Works and Services of the Province, concerning the placement of up to $40 million for the Province; (2) the engagement letter dated May 8, 1995 for the financing of $40,000,000 between Wasserstein Perella and the Provincial Bank; (3) the April 1, 1996 letter from WPEM to Dr. Ibanez asking for approval to proceed in placing the $40,000,000 loan "which we arranged with [the Province]"; and (4) the letter from Dr. Ibanez to WPEM dated April 11, 1996 referring to the loan "undertaken by that bank by contract signed with date 8th of May of 1994 [sic]" and ratifying the "conditions agreed upon."
From a review of these documents, it is clear to this Court that negotiations were conducted between the Province and WPEM concerning the placement of a $40,000.000 loan and that Dr. Ibanez, at a minimum, had the authority to negotiate on behalf of the Province. See Ibanez Dep, at 78-80 ("I am empowered to negotiate all the conditions of a loan. I am not empowered or not authorized to sign a contract or to have legal authority.")
These preliminary issues resolved, the question remains: Did the Province explicitly waive its immunity under the FSIA by the Provincial Bank's agreement to the May 8, 1995 Engagement Letter and Dr. Ibanez's purported ratification of the conditions agreed upon?
This Court concludes that despite the language in the Engagement Letter that "the agreement shall be governed by and construed in accordance with the laws of the State of New York," ¶ 12, there was not an explicit waiver of the Province's immunity as contemplated by the Second Circuit in Proyecfin de Venezuela, S.A. v. Banco Indus. de Venezuela. S.A.. In that case, the waiver was unequivocal for the contractual waiver in that case stated: "in that in any proceedings taken in New York the foregoing waiver of immunity shall have effect under and be construed in accordance with the United States Foreign Sovereign Immunities Act [of] 1976."Proyecfin, 760 F.2d at 393. In addition to the fact that the waiver in this case does not mention FSIA, Dr. Ibanez's reference in his April 11, 1996 letter to WPEM to "conditions agreed upon" is too vague to say that the Province recognized an explicit waiver of its rights under the FSIA.
In the alternative, plaintiff contends that paragraph 12 of the Engagement Letter constitutes an implied waiver. To determine whether the Province has implicitly waived immunity to suit in this Court, the Court looks to the House Report accompanying the passage of the FSIA. The legislative history narrows the scope of implied waiver by delineating only three examples of waiver: (1) in cases where a foreign state has agreed to arbitration in another country; (2) where a foreign state has agreed that the law of a particular country should govern a contract; and (3) where a foreign state has filed a responsive pleading in an action without raising the defense of sovereign immunity. See H.R. Rep. No. 1487, 94th Cong., 2d Sess., 18 (1976), reprinted in 1976 U.S.S.C.A.N. 6604, 6617. Courts have been reluctant to extend the bases of implicit waiver beyond these three examples. See Shapiro v. Republic of Bolivia, 930 F.2d 1013, 1017 (2d Cir. 1991) ("Federal courts have been virtually unanimous in holding that the implied waiver provision of Section of 1605 (a)(1) must be construed narrowly."); Colonial Bank v. Compagnie Generale Maritime et Financiere, 645 F. Supp. 1457, 1461 (S.D.N.Y. 1986).
Moreover, courts have even construed these three examples narrowly. See Cargill Int'l S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1017 (2d Cir. 1993) (interpreting the waiver provision narrowly); As this Court noted in Maritime Ventures Int'l, Inc. v. Caribbean Trading Fidelity, Ltd., 689 F. Supp. 1340, 1351 (S.D.N.Y. 1988):
A literal interpretation of the House Report would subject a foreign government to jurisdiction in the United States whenever it agreed to be governed by the laws or arbitrate in the forum of any country other than its own, even when the contract makes no mention of the United States. This would result in a vast increase in the jurisdiction of the federal courts over matters involving sensitive foreign relations.See also Fickling v. Commonwealth of Australia, 775 F. Supp. 66, 70 (E.D.N.Y. 1991) (noting that courts demand strong evidence of a foreign sovereign's intent to waive immunity before finding a waiver by implication). Instances in which courts have found an implicit waiver "involve circumstances in which the waiver was unmistakable, and courts have been reluctant to find an implied waiver where the circumstances were not similarly unambiguous." Shapiro, 930 F.2d at 1017.
For the same reasons that this Court declined to find an explicit waiver of immunity, I must also conclude there has not be an implicit waiver either. While the language in paragraph 12 fits within the second example provided in the House Report, because the Engagement Letter specifies that New York law will govern disputes arising out of the agreement, it is unclear that Dr. Ibanez's purported adoption of the Engagement Letter for the Province waived the Province's rights either explicitly or implicitly.
As a result, this Court concludes-on the bare record before it — that plaintiff has not met its burden in establishing that the Province waived its sovereign immunity explicitly or implicitly.
B. The Commercial Activity Exception
This exception provides for subject matter jurisdiction in cases "in which the action is based upon . . . an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States." § 1605(a)(2). 28 U.S.C. § 1603 (d) defines "commercial activity" to mean
either a regular course of commercial conduct or a particular commercial transaction or act. The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose.
The Supreme Court has specified that "a state engages in commercial activity [within the meaning of § 1605(a)(2)] where it exercises only those powers that can also be exercised by private citizens, as distinct from those powers peculiar to sovereigns." Nelson, 507 U.S. at 360 (internal quotation marks and citations omitted). In Nelson, the Court addressed the claim of a United States citizen who alleged that he had been recruited in the United States by an agency of Saudi Arabia for employment in that nation, and was subsequently imprisoned and tortured there for complaining about workplace safety hazards. The Court held that the victim's intentional tort claims, see id. 507 U.S. at 351-354, and claims for "negligent failure to warn" of this danger, see id. 507 U.S. at 354, as well as derivative claims brought by his spouse, see id., were not premised upon "commercial activity" by Saudi Arabia within the meaning of § 1605(a)(2). See id. 507 U.S. at 358-363. The Court stated:
We emphasized in Weltover [Republic of Argentina v. Weltover, Inc., 504 U.S. 607 (1992)] _that whether a state acts "in the manner of" a private party is a question of behavior, not motivation: [B]ecause the Act provides that the commercial character of an act is to be determined by reference to its "nature" rather than its "purpose," the question is not whether the foreign government is acting with a profit motive or instead with the aim of fulfilling uniquely sovereign objectives. Rather, the issue is whether the particular actions that the foreign state performs (whatever the motive behind them) are the type of actions by which a private party engages in "trade and traffic or commerce." (internal quotation marks, citations, and emphasis omitted). We did not ignore the difficulty of distinguishing "purpose"(i.e., the reason why the foreign state engages in the activity) from "nature" (i.e., the outward form of the conduct that the foreign state performs or agrees to perform), but recognized that the [FSIA] "unmistakably commands" us to observe the distinction. (internal quotation marks, citations, and emphasis omitted).Nelson, 507 U.S. at 360. Because the exercise of police power had historically been understood to be a "peculiarly sovereign" function, the Court concluded that the plaintiffs had failed to state a claim based upon § 1605(a)(2) "commercial activity." See id.
Weltover was an action brought by bondholders for breach of contract in response to a unilateral rescheduling of the bond payments by the Republic of Argentina. 504 U.S. at 609. The unanimous Court ruled that Argentina's rescheduling of this debt was undertaken "in connection with a commercial activity" of Argentina, and had a "direct effect [upon bondholders] in the United States," within the meaning of the third clause of § 1605(a)(2). See Weltover, 504 U.S. at 612-620. The Court noted that the bonds were "garden-variety debt instruments" — (1) held by private parties, (2) freely negotiable (except in Argentina), and (3) the source of a stream of cash income over time. See id. at 615. Argentina contended that the bonds had been issued "to address a domestic credit crisis, and as a component of a program designed to control that nation's critical shortage of foreign exchange."Id. at 616. The Court responded that under the definition of "commercial activity" provided by § 1603(d), which directs attention to the "nature," rather than the "purpose," of the activity under examination, "it is irrelevant why Argentina participated in the bond market in the manner of a private actor; it matters only that it did so." Id. at 617.
Here, all the requirements for the commercial activity exception enunciated in the third clause of § 1605(a)(2) are present: (1) an act that occurs outside the United States; (2) taken "in connection with a commercial activity"; (3) that causes a "direct effect" in the United States. See Hanil Bank v. PT. Bank Negara Indonesia, (Persero), 148 F.3d 127, 131 (2d Cir. 1998).
1. An Act Outside the United States
The Province concedes that "[t]he negotiation of the Engagement Letter took place in Argentina and all efforts under it were undertaken by plaintiff, a Cayman Island partnership, in Argentina." Def.'s Mem. of Law at 11.
2. In Connection With a Commercial Activity
Acts are in connection with such commercial activity so long as there is a substantive connection or a causal link between them and the commercial activity. See id. The Province's retention of an investment bank to arrange a $40 million loan is a commercial activity. Retaining a private investment bank to raise money for a loan, like borrowing money and issuing debt instruments, is an inherently commercial transaction. Private parties regularly hire investment banks to raise money in the ordinary trade and traffic in commerce. It is not the type of activity exclusively reserved to sovereign states and their political subdivisions.
The Province does not deny that borrowing money and hiring investment banks are inherently commercial activities. Instead, it argues that the transaction giving rise to this lawsuit only involved the Provincial Bank, not the Province. See Def.'s Mem. of Law at 9-11. The Province's argument misses the mark. The lawsuit is not based on the Provincial Bank's breach of the May 8 Engagement Letter. Plaintiff's base their breach of contract suit on the Province's purported adoption and subsequent breach of that agreement. The April 1, 1996 Letter Agreement and the April 11, 1996 Letter Agreement were both executed by the Province after the Provincial Bank was nationalized.
WPEM's fees and expenses were part and parcel of its attempts to secure the $40 million in financing. It is important to note there that WPEM's breach of contract action is not concerned with the Province's failure to close the financing transaction and take control of the $40 million. WPEM is concerned solely with recouping its fees and expenses that the Province was allegedly contractually bound to pay.
3. Direct Effect
In Weltover, the Supreme Court stated that an effect is direct if "it follows as an immediate consequence of the defendant's . . . activity."Weltover, 504 U.S. at 618 (internal quotation marks and citation omitted). The Supreme Court further observed that the effect need not be substantial or foreseeable in order to be direct. See id. It held that Argentina's unilateral rescheduling of the maturity dates on the bonds had such a direct effect on the United States, stating
[bondholders] had designated their accounts in New York as the place of payment, and Argentina made some interest payments into those accounts before announcing that it was rescheduling the payments. Because New York was thus the place of performance for Argentina's ultimate contractual obligations, the rescheduling of those obligations necessarily had a "direct effect" in the United States: Money that was supposed to have been delivered to a New York bank for deposit was not forthcoming. We reject Argentina's suggestion that the "direct effect" requirement cannot be satisfied where the plaintiffs are all foreign corporations with no other connections to the United States.Id. at 619. In Weltover, the Supreme Court held that by issuing negotiable debt instruments payable in New York and appointing a financial agent in that city Argentina caused sufficiently direct effects within the United States to sustain jurisdiction under the FSIA. The Province used American banks and securities markets to raise money. It hired a New York investment bank (WPEM) to arrange a $40 million loan. It appointed the New York office of Banco de la Nacion de Argentina as its New York representative for the $40 million loan. It agreed to close the loan simultaneously in New York and Buenos Aires, and to repay the loan in New York. It used Morgan Stanley, another New York bank, to facilitate the Financing. If the Province had taken the loan, transferable securities in the form of promissory notes would have been offered for sale in the United States. The Province's commercial activities had sufficient direct effects within the United States to justify this Court's exercise of jurisdiction.
C. Due Process
In Texas Trading Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300 (2d Cir. 1981), the Second Circuit held that the exercise of jurisdiction over foreign states sued under the FSIA was subject to the same constitutional constraints which "otherwise regulate every exercise of personal jurisdiction." See id. at 313 (holding that a foreign state is a "person" within the meaning of the Due Process Clause). However, since the Supreme Court decided Weltover, the Court of Appeals expressed its uncertainty as to whether its holding remains good law. See Hanil Bank v. PT. Bank Negara Indonesia, (Persero), 148 F.3d 127, 134 (2d Cir. 1998). In Weltover, the Supreme Court "[a]ssum[ed], without deciding, that a foreign state is a `person' for purposes of the Due Process Clause." See 504 U.S. at 619. But, immediately after making that statement, the Court cited South Carolina v. Katzenbach, 383 U.S. 301, 323-24 (1966), in which it had held that States of the Union were not "persons" under the Due Process Clause. The Weltover Court then determined that Argentina possessed "minimum contacts" that would satisfy the constitutional test. See 504 U.S. at 619.
Like the Second Circuit in Hanil Bank, this Court need not resolve the exact status of a foreign sovereign for due process analysis because I believe, in any event, that the due process requirements have been met here. The circumstances persuade me that the Province possessed "minimum contacts" sufficient to satisfy the constitutional test.
Congress enacted FSIA specifically to provide access to the courts. See Texas Trading Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300, 315 (2d Cir. 1981) (quoting H.R. Rep. No. 94-1487, at 6-7 (1976),reprinted in 1976 U.S.C.C.A.N. 6604, 6605). Given that purpose, the Province should reasonably have expected to be sued in the United States were it to fail to make a payment in the United States. The Province was well aware that WPEM has designated New York law to govern disputes arising out of the agreement and specified courts within the state of New York as a venue for the dispute to be heard. Further, it designated an agent in the United States for purposes of the transaction giving rise to this action. Accordingly, for these reasons and others discussed supra, as plaintiff is entitled to access to our courts and defendant could reasonably anticipate being haled into these same courts, the maintenance of jurisdiction over this FSIA action does not in this Court's view "offend `traditional notions of fair play and substantial justice.'"International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (quotingMilliken v. Meyer, 311 U.S. 457, 463 (1940)).
D. Service of Process
Pursuant to 28 U.S.C. § 1608 (a)(2) service of process may be effected "by delivery of a copy of the summons and complaint in accordance with an applicable international convention on service of judicial documents." The Inter-American Convention on Letters Rogatory, signed by the United States and Argentina, allows WPEM to serve the Province by serving three English and three Spanish copies of letters rogatory, together with the summons and complaint on the United States Office of International Judicial Assistance. WPEM effected service in this manner. See Lopez Aff., Exh. 13.
IV.
For the reasons stated above, the Province's motion to dismiss is denied . Because there are material facts in dispute as to whether Minister Ibanez had actual or apparent authority to bind the Province of Formosa to contractual terms with WPEM, the plaintiff's motion for summary judgment is denied .
The parties are directed to appear for a conference to schedule further proceedings in this case on Monday May 15, 2000 at 5 p.m. in Courtroom 905 at 40 Foley Square.