The Bank of New York v. Yugoimport et al

Filing

OPINION, affirming judgment of the district court, by RKW, RDS, RR, FILED.[1153399] [11-1990]

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11-1990-cv
Yugoimport v. Republic of Croatia, Republic of Slovenia

1

UNITED STATES COURT OF APPEALS

2

FOR THE SECOND CIRCUIT

3

August Term, 2012

4

(Argued: August 29, 2012

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Decided: February 10, 2014)

Docket No. 11-1990-cv
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - THE BANK OF NEW YORK,
Interpleader-Plaintiff,
v.
YUGOIMPORT,
Interpleader-Defendant-Appellant,
v.
REPUBLIC OF CROATIA, REPUBLIC OF SLOVENIA,
Interpleader-Defendants-Appellees.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - B e f o r e:

WINTER, SACK, and RAGGI, Circuit Judges.

Appeal from an order of the United States District Court for

24

the Southern District of New York (Alvin K. Hellerstein, Judge)

25

granting summary judgment to the Republics of Croatia and

26

Slovenia.

27

action to determine ownership of funds held in an account frozen

28

pursuant to executive order during the Bosnian War.

29

court found that the depositor was an agency of the former

The Bank of New York commenced this interpleader

1

The district

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1

Socialist Federal Republic of Yugoslavia and that the funds were

2

subject to division among the Yugoslav successor states pursuant

3

to a multilateral treaty.

4

purporting to be sole successor-in-interest of the original

5
6
7
8
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12
13
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16
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20
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depositor, appeals.

Yugoimport, a Serbian instrumentality

We affirm.
RICHARD A. JACOBSEN, Orrick,
Herrington & Sutcliffe LLP, New
York, NY, for InterpleaderDefendant-Appellant.
BOAZ S. MORAG, Cleary Gottlieb
Steen & Hamilton LLP, New York, NY,
SAMUEL SPITAL (Richard L.
Mattiaccio, on the brief), Squire,
Sanders & Dempsey LLP, New York,
NY, for Interpleader-DefendantsAppellees.

WINTER, Circuit Judge:
The Bank of New York commenced this interpleader action to

22

determine ownership of $2,551,785.37 plus interest held on

23

deposit in an account in the name of the Federal Directorate of

24

Supply and Procurement (“FDSP”), an entity organized under the

25

laws of the former Socialist Federal Republic of Yugoslavia

26

(“SFRY”).

27

order during the Bosnian War.

28

The account was frozen in 1992 pursuant to executive

The Interpleader-Defendants, Yugoimport and the Republics of

29

Croatia and Slovenia, all -asserted competing claims to the

30

funds.

31

the disputed funds as successor-in-interest to the FDSP.

Yugoimport, a Serbian entity, claimed full ownership of

2

The

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1

Republics of Croatia and Slovenia contend that the funds should

2

be divided among the states succeeding the SFRY pursuant to a

3

multilateral treaty, the Succession Agreement.

4

Succession Issues Between the Five Successor States of the Former

5

State of Yugoslavia, June 29, 2001, 41 I.L.M. 3 (2002).

6

district court granted summary judgment to the Republics.

7

hold that interpretation of the Succession Agreement is governed

8

by the Vienna Convention and that the FDSP was an agency of the

9

SFRY.

10

13

The
We

As such, the funds are subject to division under that

Agreement.

We, therefore, affirm.

11
12

See Agreement on

BACKGROUND
a)

Historical Context
We summarize only the facts relevant to this appeal.

Those

14

seeking a more detailed account should go to the district court’s

15

opinion.

16

344, 346-49 (S.D.N.Y. 2011).

17

Bank of N.Y. v. Yugoimport SDPR J.P., 780 F.Supp.2d

This case arises from the violent breakup of the SFRY.

The

18

ethnic, racial, and religious tensions of the Balkans, and the

19

consequences of these tensions spanning generations, have been

20

the subject of commentary so extensive and well-known as not to

21

require citation.

22

these tensions erupted into bloodshed with the weakening of

23

communist states in the 1980's.

While somewhat controlled after World War II,

Beginning in 1989, the
3

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1

constituent states of the SFRY sought independence, leading to

2

nearly a decade of armed conflict.

3

independence on June 25, 1991.

4

Macedonia followed suit shortly thereafter.

5

Republic of Slovenia, 984 F. Supp. 209, 212- 213 (S.D.N.Y. 1997)

6

(describing the collapse).

7

territories, Serbia and Montenegro, issued a joint declaration

8

formally dissolving the SFRY and establishing themselves as the

9

“Federal Republic of Yugoslavia” (“FRY”).

Slovenia formally declared

Croatia, Bosnia-Herzegovina, and
See Yucyco, Ltd. v.

On April 27, 1992, the remaining

See id.

The FRY

10

purported to be the sole successor of the SFRY.

11

other Republics disputed the FRY’s claim, and the United Nations

12

Security Council issued a resolution declaring that the claim was

13

not “generally accepted” by the world community. U.N.S.C. Res.

14

757, U.N. Doc. S/RES/757, 31 I.L.M. 1427, 1454 (May 30, 1992).

15

Additionally, the Security Council denied the FRY’s request to

16

step into the shoes of the SFRY for the purpose of continuing the

17

SFRY’s U.N. membership.

18

31 I.L.M. 1427, 1473 (Sept. 19, 1992).

19

See id.

The

U.N.S.C. Res. 777, U.N. Doc. S/RES/777,

In December 1995, due in large part to American efforts and

20

armed NATO intervention, representatives of Bosnia-Herzegovina,

21

Croatia, and the FRY signed the Dayton Accords, bringing a

22

qualified measure of peace to the region.

23

agreed to recognize and respect each other’s sovereignty and
4

The three Republics

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authorized the deployment of a U.N.-led multinational military

2

implementation force in Bosnia.

3

for Peace in Bosnia and Herzegovina (“Dayton Accords”), Bosn. &

4

Herz.-Croat.-Fed. Repub. Yugo., Dec. 14, 1995, 35 I.L.M. 75, 89,

5

92 (1996).

6

See General Framework Agreement

Because the Dayton Accords did not address a number of

7

issues arising from the breakup of the SFRY, Annex 10 of the

8

Accords established the Office of the High Representative to

9

assist in the implementation of the peace.

Id. at 147.

The High

10

Representative was to be appointed by the U.N. and was charged

11

with overseeing the creation of mutual agreements among the

12

signatory states concerning various issues.

13

was distribution of financial assets of the SFRY.

14

Res. 1022, U.N. S/RES/1022, 35 I.L.M. 259, 260 (November 22,

15

1995).

16

Id.

One such issue
See U.N.S.C.

After the signing of the Dayton Accords, armed conflict

17

between the FRY and Kosovars and continuing sole-successor

18

sentiments in the FRY stymied the ability of the signatory states

19

to reach an agreement.

20

Succession Issues of the Former Socialist Federal Republic of

21

Yugoslavia, 96 Am. J. Int’l L. 379, 379 (2002).

22

2001, after NATO intervention in the Kosovo conflict and

23

political shifts weakened FRY sole-successor sentiments, the

See Carsten Stahn, The Agreement on

5

On June 29,

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emerging successor states, under the supervision of the High

2

Representative, finally came to an agreement.

3

b)

33

4

The Succession Agreement
The Succession Agreement recognizes five SFRY successor

5

states –- Croatia, Slovenia, Bosnia-Herzegovina, Macedonia, and

6

the FRY.

7

seven Annexes, each of which deals with the division of

8

particular types of assets and/or liabilities.

9

are relied upon by the parties.

10

See Succession Agreement, 41 I.L.M. at 3.1

It contains

Annexes C and G

Annex C deals with the division of “financial assets and

11

liabilities.”

Article 1 of Annex C defines the financial assets

12

of the SFRY to include “accounts and other financial assets in

13

the name of the SFRY Federal Government Departments and

14

Agencies.” Id. at 25.

15

financial assets, including funds held in foreign banks, shall be

16

distributed in the following proportions:

17

15.50%; Croatia 23.00%; Macedonia 7.50%; Slovenia 16.00%; and the

18

FRY 38.00%. Id. at 27.2

Article 5 provides that SFRY’s foreign

Bosnia and Herzegovina

Whether the funds at issue here were

1

In June 2006, Serbia and Montenegro separated into independent states.
Montenegro agreed that it would not be deemed a successor state to the SFRY or
a party to the Succession Agreement.
2

Although Article 5(1) does not expressly include the assets of SFRY
agencies in its definition of “foreign financial assets,” there is no dispute
that the distribution scheme set forth in Article 5(2) applies to foreign-held
assets of SFRY agencies. The general definition of “financial assets”
embodied in Article 1 -- which includes the assets of SFRY agencies -- applies
to the foreign financial assets addressed in Article 5. Succession Agreement,
41 I.L.M. at 25.

6

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held in the name of an SFRY “agency” -- i.e. FDSP -- for purposes

2

of the Succession Agreement is the principal issue in this

3

appeal.

4

Annex G deals with private property.

Article 1 thereof

5

states that “[p]rivate property and acquired rights of citizens

6

and other legal persons of the SFRY shall be protected by

7

successor States in accordance with the provisions of this

8

Annex.”

9

Yugoimport attaches importance to it.

Id. at 35.

We mention this provision only because
However, if the funds were

10

held in the name of an SFRY agency, Annex G would be

11

inapplicable; if not, Yugoimport would succeed on this appeal

12

even without Annex G.

13

c)

14

The FDSP/Yugoimport
We trace the history of Yugoimport in mind-numbing detail

15

because the nature of its governance and functions is critical –-

16

decisive, actually –- to the disposition of this appeal.

17

We begin with a summary that will suffice for casual

18

readers, who can then move on to the next section.

Yugoimport

19

functioned primarily as an arms dealer for the successive

20

sovereign states referred to generally as Yugoslavia, from 1949

21

until the events giving rise to this case.

22

controlled, managed, and supervised at all times by the

23

government -- in particular, by officials responsible for

24

national defense.

It was owned,

Its earnings were put to public purposes.
7

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We now turn to the details.

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The original Yugoimport was

2

created on June 27, 1949 by the Federal People’s Republic of

3

Yugoslavia (the “FPRY”).3

4

Enterprises (Act No. 5585/49)(June 27, 1949).

5

statute described it as “[a] state business . . . of state-wide

6

significance” created to engage in the “import and export of all

7

types of goods.”

8

were provided by the FPRY’s Minister of Finance, id. art. 2, and

9

it operated under the administrative and operational supervision

10
11

Basic Law on State Business

Id. arts. 1, 3.

Its enabling

Yugoimport’s initial assets

of the FPRY’s Ministry of Foreign Trade.

Id. art. 4.

On July 28, 1971, after the FPRY became the SFRY, a new law

12

established the basic form and substance of SFRY agencies.

See

13

Law on Organizational Structure and Scope of Operations of

14

Federal Administration Bodies and Federal Organizations, art. 1

15

(Act No. 1045/71) (July 28, 1971) (hereinafter referred to as the

16

“Law on Agencies”).

17

of National Defense.

18

the Law on Agencies in several ways.

19

the Act on the Organization and Scope of Functions of Federal

20

Administrative Authorities and Federal Organizations (Act No.

21

21/74) (April 26, 1974) (hereinafter referred to as the “Amending

One such agency was the Federal Secretariat
Id. arts. 3, 5.

3

In 1974, the SFRY amended
See Act on the Amendment of

The FPRY was the predecessor state of the SFRY. It existed from 1946
to 1963. Like the SFRY, the FPRY was a socialist state headed by Josip Broz
Tito from 1963 to 1980.

8

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Act”).

Article 3 of the Amending Act set forth amendments

2

pertaining to the SFRY Federal Secretariat of National Defense.

3

One amendment merged Yugoimport into a new sub-agency known as

4

the “Federal Directorate of Trade and Special Purpose Commodity

5

Reserves” or the “Federal Office for Trading and Reserves of

6

Special Purpose Goods” (the “Federal Office for Trading and

7

Reserves”).

8

“Jugoimport-SDPR,” art. 2 (FRY Gazette No. 89/9) (Jan. 27, 1997)

9

(FRY) (describing the merger in 1974 of Yugoimport into the

See id. art. 3; Statute of the Public Enterprise

10

Federal Office for Trading and Reserves).

11

further stated that the Federal Office for Trading and Reserves

12

was “established within the Federal Secretariat of National

13

Defense for the purpose of performing tasks associated with the

14

sale and accumulation of commodity reserves . . . for the

15

national defense.”

16

other words, the Federal Office for Trading and Reserves was the

17

SFRY’s arms dealer.

18

The Amending Act

Amending Act, art. 3 (Act. No. 21/74).

In

In 1991, the SFRY reconstituted the Federal Office for

19

Trading and Reserves as the Federal Directorate for Commerce of

20

Special Purpose Products.

21

Commerce of Special Purpose Products, art. 24 (SFRY Gazette No.

22

11/91) (1991).

23

1996, the Federal Directorate for Commerce of Special Purpose

24

Products came to be known as the Federal Directorate of Supply

See Law on the Federal Directorate for

It is undisputed that sometime between 1991 and

9

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and Procurement, or the FDSP.4

2

refer to the entity solely as the FDSP and its enabling law as

3

the “FDSP Enabling Law” or simply the “Enabling Law.”

4

For the sake of clarity, we will

The Enabling Law that created the FDSP set forth its

5

function and management structure.

See id.

The Enabling Law

6

also required management, in agreement with the Federal Executive

7

Council, to establish within six months a governing “statute”

8

that would describe with greater particularity the FDSP’s

9

business activities and administration.

Id. arts. 16, 17, 23.

10

Once created, the statute could be changed only with approval of

11

the Federal Executive Council.

12

promulgated thereunder, Statute of the Federal Directorate for

13

Commerce of Special Purpose Products (Act. No. 750-3) (May 8,

14

1991) (SFRY) (hereinafter referred to as the “FDSP Statute” or

15

“Statute”), is akin to articles of incorporation.

16

both the Enabling Law and the Statute to determine the defining

17

characteristics of the FDSP.

Id. art. 4.

The statute

We draw upon

18

4

The parties agree that the Federal Directorate for Commerce of Special
Purpose Products and the FDSP are the same entity, governed by the same
organizational laws. Additionally, the 1996 statute reconstituting the FDSP
as Yugoimport, discussed infra, states that Yugoimport “keeps up the legal
continuity of the Federal Directorate of Supply and Procurement established
with the Law on the Federal Directorate of Supply and Procurement (“Official
Gazette of SFRY” 11/91).” Statute of the Public Enterprise “Jugoimport–SDPR,”
art. 2 (FRY Gazette No. 89/9) (Jan. 27, 1997). Despite referring to the
entity as the FDSP, the citation refers to the enabling law pursuant to which
the Federal Directorate for Commerce of Special Purpose Products was
established.

10

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The primary function of the FDSP remained the procurement

2

and trading of arms and military equipment on behalf of the SFRY.

3

FDSP Enabling Law, art. 1 (11/91) (“The [FDSP] . . . performs

4

activities that are in the interest of the . . . [SFRY] in the

5

area of foreign trade commerce with armaments and military

6

equipment.”); see also FDSP Statute, art. 8 (Act No. 750-3)

7

(describing with greater particularity the FDSP’s activities “in

8

the area of armaments and military equipment”).

9

allowed to undertake other lines of business subject to approval

The FDSP was

10

from the Federal Secretariat for People’s Defense and only so

11

long as such undertakings did not impact its business dealings in

12

armaments and military equipment.

13

(11/91); FDSP Statute, art. 9 (Act No. 750-3).

14

required to “direct its work in accordance with the plans for the

15

development and equipping of the military,” FDSP Statute, art. 12

16

(Act No. 750-3), and it was the FDSP’s “responsibility . . . to

17

organize and prepare for action in cases of immediate war danger

18

. . . [and] to perform other tasks and activities that are in the

19

interest of general people’s defense.”

20

Secretariat for People’s Defense supervised the FDSP’s

21

performance of national-interest functions, and the FDSP

22

submitted quarterly and annual reports to the Federal Secretariat

23

for this purpose.

FDSP Enabling Law, art. 3
The FDSP was

Id. art. 38.

FDSP Enabling Law, art. 19 (11/91).

11

The Federal

Due to

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the nature of the FDSP’s work, the Enabling Law required that all

2

employee positions within the FDSP be staffed exclusively with

3

active military personnel.

4

Id. art. 18.

The FDSP was organized as a juridical entity with the

5

“status of a legal person.”

Id. art. 4.

It guaranteed its

6

obligations with its own property, FDSP Statute, art. 2 (Act No.

7

750-3), and it was empowered to act “on its own behalf and own

8

account” and on others’ behalf and account pursuant to contract.

9

FDSP Enabling Law, arts. 7, 8 (11/91); FDSP Statute, art. 10 (Act

10

No. 750-3).

11

“those on whose behalf . . . it perform[ed] foreign trade

12

commerce and services . . . [were] determined by contract.”

13

Enabling Law, art. 8 (11/91).

14

The mutual rights and obligations of the FDSP and

FDSP

The FDSP was managed by a Director and a Council (the “FDSP

15

Council”), both of which were appointed, supervised, or removed

16

by the Federal Executive Council.

17

Council consisted of a representative of each of the following:

18
19
20
21
22
23
24
25
26
27
28

Id. arts. 9-15.

The FDSP

1) Federal Secretariat for People’s Defense
2) Federal Secretariat for Foreign Affairs
3) Federal Secretariat for Foreign Economic
Relations
4) Yugoslav National Bank
5) The Yugoslav Association of Industries for
Armament and Military Equipment; and
6) A representative from the employees of the
[FDSP].
FDSP Statute, art. 24 (Act. No. 750-3).

12

The Director was also a

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member of the FDSP Council.

2

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FDSP Enabling Law, art. 11 (11/91);

FDSP Statute, art. 25 (Act. No. 750-3).

3

The Director was responsible for, among other things,

4

business decisions, hiring and staffing decisions, and managing

5

the FDSP’s preparation for national defense.

6

22 (Act. No. 750-3).

FDSP Statute, art.

The FDSP Council was responsible for

7
8
9
10
11
12
13
14
15
16
17

Id. art. 26.

18

changes in status (splitting, merging, and acquiring)” subject to

19

approval from the Federal Executive Council.

20

1) Pass[ing] the strategic plan;
2) Pass[ing] a plan for foreign trade
commerce and a financial plan;
3) Pass[ing] a decision for the permanent and
long-term investments of the [FDSP];
4) Decid[ing] upon the long-term acquiring of
funds; [and]
5) Perform[ing] other tasks defined by the
law . . .
The FDSP Council was also empowered to “decide[] on

Id. art. 3.

The FDSP’s earnings were to be used to “replenish the funds

21

spent and to provide for personal, common, and general social

22

needs and responsibilities.”

23

surplus or profit in a given year, the Director and FDSP Council

24

were to determine the division of profits in the course of

25

preparing the annual report.

26

experienced a liquidity problem or a loss, the FDSP Council was

27

to inform the Federal Secretariat for People’s Defense and the

28

Federal Executive Council.

Id. art. 16.

Id. art. 19.

Id. art. 21.

13

If it produced a net

If the FDSP

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Because the FDSP operated out of Belgrade, Serbia, the FRY

2

was able to control its physical assets during the armed conflict

3

described supra.

4

FDSP as Yugoimport SDPR.

5

organizational law in September 1996, and the Belgrade Business

6

Court issued a decision purporting to merge the two entities in

7

early 1997.

8

(PR. Nr. 291) (Official Gazette of SRY No. 46/96) (Sept. 27,

9

1996) (FRY).

In 1996, the FRY formally reconstituted the
The government enacted a new

See Law on the Public Enterprise “Jugoimport-SDPR”

Like the FDSP, Yugoimport SDPR was created pursuant

10

to an enabling “law” and its functions and management structure

11

were set out more precisely in a governing “statute” enacted by

12

the managing board.

13

“Jugoimport-SDPR,” preamble (FRY Gazette No. 89/9) (Jan. 27,

14

1997) (FRY), promulgated under Law on the Public Enterprise

15

“Jugoimport-SDPR,” (Official Gazette of SRY No. 46/96).

16

primary function of Yugoimport SDPR remained the procurement and

17

trading of weapons and military equipment.

18

SDPR, arts. 2, 4 (46/96).5

19

state, id. art. 5, and the federal government was empowered to:

20

(i) approve the governing statute and any changes made to the

See Statute of the Public Enterprise

The

Law on Jugoimport-

Initial funding was provided by the

5

According to the governing statute, “Jugoimport-SDPR deal[t] with
other activities as well.” Statute on Jugoimport–SDPR, art. 4. The statute
listed several hundred activities, ranging from the “production, processing
and refrigeration of animal meat” to publishing books and bookbinding to the
“retail trade of household appliances, radios, and tv sets.” Id.

14

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statute thereafter; (ii) the development plan and working

2

program; (iii) any increases or decreases in basic capital; (iv)

3

any plans to acquire or sell real estate; (v) annual financial

4

plans and investment decisions; and (vi) any changes to the

5

organizational structure.

6

Id. art. 15.

Yugoimport SDPR was managed by a Director, a Managing Board,

7

and a Supervisory Board.

Id. art. 8.

The Director was appointed

8

and subject to dismissal by the federal government.

9

Board consisted of eight members, five of which were appointed

The Managing

10

and subject to dismissal by the federal government.

11

14.6

12

appointed and subject to dismissal by the federal government, and

13

two members.

14

[Yugoimport] to be organized as a “stock-sharing company,” but

15

required that the state retain at least 51 percent ownership.

16

Id. art. 16.

17

Id. arts. 9,

And the Supervisory Board consisted of a president,

Id. arts. 12, 17, 20.

The enabling law permitted

Following the dissolution of the FRY, Yugoimport has

18

continued to operate in Serbia, presumably reorganized under

19

Serbian law or adopted thereunder.

20

d)

21
22

The Disputed Funds
In 1991, the FDSP opened a deposit account with the Bank of

New York.

On May 30, 1992, the United States, pursuant to an

6

The remaining three members were elected by Yugoimport SDPR employees.
Id. arts. 9, 14.

15

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1

Executive Order issued by President George H.W. Bush, froze “all

2

property, and interests in property, in the name of the [SFRY] or

3

the [FRY] . . . in the United States,” including property in the

4

name of their “agencies, instrumentalities and controlled

5

entities, and any person acting or purporting to act for or on

6

behalf of any of the foregoing.”

7

23299, Sec. 2, 4(c) (May 30, 1992).

8

of Foreign Assets Control, a division of the Department of

9

Transportation, published a notice containing a list of “entities

Exec. Order No. 12808, 57 F.R.
On July 20, 1992, the Office

10

owned or presumed to be controlled by the [FRY].”

11

Foreign Assets Control General Notice No. 1, 57 F.R. 32051-02

12

(July 20, 1992).

13

freeze remained in place until February 2003.

14

commenced shortly thereafter.

15

e)

16

The FDSP was on the list.

Id.

Office of

The asset

This litigation

Procedural History
In light of Yugoimport’s and the Republics’ competing claims

17

of ownership of the funds, the Bank of New York filed this

18

interpleader action on April 14, 2003 in New York state court.

19

Pursuant to the Foreign Sovereign Immunities Act, 28 U.S.C. §§

20

1441(d) and 1446, Slovenia removed the case to the Southern

21

District of New York, where it was initially assigned to Judge

22

Charles S. Haight.

23

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The bank deposited the disputed funds into the district

2

court’s registry and, on June 2, 2004, obtained a discharge from

3

this action.

4

of the FDSP’s status as an SFRY agency, which is of course

5

critical to the application of Annex C of the Succession

6

Agreement.

7

judgment or, in the alternative, for a stay to allow the Standing

8

Joint Committee under the Succession Agreement to make a

9

determination regarding whether the funds were subject to

Judge Haight ordered limited discovery on the issue

On July 31, 2006, the Republics moved for summary

10

division.7

11

summary judgment and opposed the Republics’ motion to stay,

12

arguing that it was not subject to the jurisdiction of the

13

Standing Joint Committee.

14

the case so that the Standing Joint Committee could decide the

15

issue.

16

9055, 2007 WL 1378426, at *10-11 (S.D.N.Y. May 11, 2007)

17

(hereinafter “Yugoimport I”).

On September 22, 2006, Yugoimport cross-moved for

On May 11, 2007, Judge Haight stayed

Bank of New York v. Yugoimport SDPR J.P., No. 03 Civ.

7

Article 5 of the Succession Agreement sets forth dispute-resolution
methods that the successor states are to use in the event of disagreement:
If the differences [over interpretation] cannot be
resolved . . . the States concerned shall either (a)
refer the matter to an independent person of their
choice, with a view to obtaining a speedy and
authoritative determination of the matter . . .; or
(b) refer the matter to the Standing Joint Committee.
41 I.L.M at 5. The Standing Joint Committee, established by Article 4 of the
Succession Agreement, consists of senior representatives of each successor
state. Id. at 4.

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In the fall of 2008, the case was reassigned to Judge Alvin

2

K. Hellerstein, who lifted the stay because, in the interim, the

3

successor states had not appointed any members to the Standing

4

Joint Committee and it had never met.

5

district court granted the Republics’ motion for summary judgment

6

and held that the funds were to be divided among the successor

7

states.

8

was an agency, as a matter of law, under Annex C of the

9

Succession Agreement.

On April 29, 2011, the

It based this holding on its conclusion that Yugoimport

Bank of New York v. Yugoimport SDPR J.P.,

10

780 F. Supp. 2d 344 (S.D.N.Y. 2011) (hereinafter “Yugoimport

11

II”).

12

DISCUSSION

13

We review a grant of summary judgment de novo.

K&A

14

Radiologic Tech. Serv’s, Inc. v. Comm’r of the Dep’t of Health of

15

New York, 189 F.3d 273, 278 (2d Cir. 1999) (citing Bogan v.

16

Hodgkins, 166 F.3d 509, 511 (2d Cir. 1999)).

17

a)

18

Application of the Succession Agreement
When subject matter jurisdiction is based on the Foreign

19

Sovereign Immunities Act (the “FSIA”), 28 U.S.C. §§ 1441(d),

20

1446, 1603(a), we apply the choice-of-law rules of the forum

21

state, here New York, with respect to all issues governed by

22

state substantive law.

23

of the People’s Republic of China, 923 F.2d 957, 959 (2d Cir.

Barkanic v. Gen. Admin. of Civil Aviation

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1

1991).8

2

choice-of-law questions in contract cases.

3

requires application of the law of the jurisdiction with the most

4

significant interest in, or relationship to, the dispute.

5

Freres & Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1539 (2d

6

Cir. 1997) (Brink’s Ltd. v. South African Airways, 93 F.3d 1022,

7

1030-1031 (2d Cir. 1996) (citing In re Allstate Ins. Co. &

8

Stolarz, 81 N.Y.2d 219, 227 (1993))); Auten v. Auten, 308 N.Y.

9

155, 160-61 (1954).

New York courts adopt a “center of gravity” approach to
This approach

Lazard

To determine the jurisdiction with the

10

greatest interest in the dispute, New York courts consider “a

11

spectrum of significant contacts, including the place of

12

contracting, the places of negotiation and performance, the

13

location of the subject matter, and the domicile . . . of the
8

The FSIA, 28 U.S.C. §§ 1330, 1332, 1391(f), 1441(d), 1602-1611, grants
foreign sovereigns general immunity from suit in the U.S., id. § 1604, unless
the action falls under one of several enumerated exceptions. Id. §§ 16051607. Where an exception applies, district courts have original jurisdiction
over the action, id. § 1330, and if the action was brought in state court, the
foreign sovereign may remove it to the district court of the district
encompassing the state in which the action is pending. Id. § 1441(d).
Congress did not intend that the FSIA establish substantive rules of
liability. See Barkanic, 923 F.2d at 960 (quoting Verlinden v. Cent. Bank of
Nigeria, 647 F.2d 320 (2d Cir. 1981), rev’d on other grounds, 461 U.S. 480
(1983)). The FSIA operates as a pass-through, granting federal courts
jurisdiction over otherwise ordinary actions brought against foreign states.
It provides foreign states and their instrumentalities access to federal
courts only to ensure uniform application of the doctrine of sovereign
immunity. Id. at 960-961.
Because the FSIA creates federal question jurisdiction but does not
supply any substantive law of liability, see Verlinden, 461 U.S. at 491-93,
choice of law problems arise in the FSIA context. The FSIA contains no
express choice of law provision, but Section 1606 provides that a foreign
sovereign “shall be liable in the same manner and to the same extent as a
private individual under like circumstances.” 28 U.S.C. § 1606. In Barkanic,
we found that the goal of like-treatment is best served by applying the state
choice of law rules if the action is governed by state substantive law.
Barkanic, 923 F.2d at 959.

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contracting parties.”

2

Allstate, 81 N.Y.2d at 227).

3

“require[] the court to honor the parties’ choice [of law

4

provision] insofar as matters of substance are concerned, so long

5

as fundamental policies of New York law are not thereby

6

violated.”

7

1987).

8
9

Brink’s, 93 F.3d at 1031 (citing In re
New York choice-of-law rules also

Woodling v. Garrett Corp., 813 F.2d 543, 551 (2d Cir.

The countries with the strongest interest in the present
dispute are the successor states.

All of them, except for non-

10

party Macedonia, have ratified or acceded to the Vienna

11

Convention on the Law of Treaties (the “Vienna Convention”),

12

opened for signature May 23, 1969, 1155 U.N.T.S. 331, reprinted

13

in 8 I.L.M. 679, which contains a set of interpretive rules

14

regarding treaty interpretation.9

15

SFRY was also a party to the Vienna Convention.

16

Article 9 of the Succession Agreement provides that the

9

Prior to its dissolution, the
Moreover,

The Vienna Convention was adopted on May 22, 1969 by the United
Nations Conference on the Law of Treaties.
http://treaties.un.org/Pages/ViewDetailsIII.aspx?&src=TREATY&mtdsg_no=XXIII~1&
chapter=23&Temp=mtdsg3&lang=en (last visited Jan. 16, 2014). To date, 113
nations are parties to the Convention and 45 nations are signatories to it.
Id.
The SFRY signed and ratified the Vienna Convention on May 23, 1969. Id.
After the dissolution of the SFRY, Slovenia became a party on July 6, 1992;
Croatia on October 12, 1992; Bosnia-Herzegovina on September 1, 1993; and
Serbia on March 12, 2001. Id. All the pertinent countries became parties to
the Vienna Convention prior to the finalization of the Succession Agreement on
June 29, 2001. See Vienna Convention, art. 4, 1155 U.N.T.S. at 334
(explaining that the Convention does not apply retroactively to treaties
already in force); Chubb & Son, Inc. v. Asiana Airlines, 214 F.3d 301, 308 n.5
(2d Cir. 2000) (same).

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Succession Agreement is to be interpreted in accordance with

2

international law, of which the Vienna Convention is an integral

3

part.

4

9.

5

apply the interpretative rules set forth in the Vienna

6

Convention.

7

See supra n.9; Succession Agreement, art. 9, 41 I.L.M. at

Therefore, under New York’s choice-of-law principles, we

To reiterate, the issue is whether the FDSP was an agency of

8

the SFRY as that term is used in the Succession Agreement.

9

The

term agency is not defined in the Succession Agreement, and

10

neither party has supplied a definition under SFRY law.

Under

11

the Vienna Convention, terms in a treaty are to be interpreted in

12

accordance with their ordinary meaning.

13

31(1).

14

language in which the treaty was drafted.

15

(providing that treaties authenticated in two or more languages

16

“are equally authoritative in each language,” and where language

17

divergences create ambiguity, courts should adopt the meaning

18

which “best reconciles the texts”).

19

drafted in English.

20

apparently not susceptible to English translation, i.e.,

21

“dwelling rights,” the Agreement provided Croatian, Slovenian,

22

and Serbian versions to clarify its meaning.

Succession

23

Agreement, Annex G, art. 6, 41 I.L.M. at 36.

The absence of such

24

non-English versions of the term agency indicates that there was

Vienna Convention, art.

A term’s ordinary meaning is generally derived from the
See id. art. 33

The Succession Agreement was

In at least one instance where a concept was

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no intended meaning beyond the plain-language English definition.

2

Therefore, we construe the term “agency” in accordance with

3

generally-accepted international principles and its ordinary

4

meaning in English.

5

A principal-agent relationship is “created by express or

6

implied contract or by law, in which one party (the agent) may

7

act on behalf of another party (the principal) and bind that

8

other party by words or actions.”

9

Dictionary (9th ed. 2009).

AGENCY (1), Black’s Law

The fact that FDSP was organized as a

10

corporation does not preclude it from being deemed an SFRY agency

11

under the Succession Agreement.

12

agency” in Black’s Law Dictionary expressly includes government

13

corporations:

14

including a government corporation.”

15

Dictionary (9th ed. 2009).

16

The definition of “federal

“A department or other instrumentality . . . ,
AGENCY (3), Black’s Law

As the district court observed, “there is nothing

17

inconsistent, or even unusual, about a state employing the

18

corporate form to create an agency.”

19

2d at 356.

20

corporations that function as agencies.

21

pointed out in an impressive string cite, almost all of the fifty

22

U.S. states have corporations that function as agencies.

23

358; see also 1 Fletcher Cyc. Corp. § 57 (“A ‘public’ corporation

Yugoimport II, 780 F. Supp.

Quite the contrary, many governments have public

22

As the district court

Id. at

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1

. . . may be defined as a corporation that is created by the

2

state as an agency in the administration of civil government.”).

3

For the purposes of determining which entities are entitled

4

to sovereign immunity, the FSIA, the Canada State Immunity Act,

5

and the European Convention on State Immunity all adopt broad

6

definitions of agency that expressly include public corporations.

7

See 28 U.S.C. § 1603(b) (“An ‘agency or instrumentality of a

8

foreign state’ means any entity (1) which is a separate legal

9

person, corporate or otherwise, and (2) which is an organ of a

10

foreign state or political subdivision thereof, or a majority of

11

whose shares or other ownership interest is owned by a foreign

12

state or political subdivision thereof . . .”); Canada State

13

Immunity Act, R.S.C. 1985, c. S-18, § 2; European Convention on

14

State Immunity Explanatory Report, Art. 27 ¶ 107-109 (noting that

15

“proceedings are frequently brought . . . not, strictly speaking,

16

against a State itself, but against [] legal entit[ies]

17

established under the authority of the State and exercising

18

public functions” and that such entities “may be . . . State

19

agencies, such as national banks or railway administrations”).

20

Under any reasonable understanding of the term, there is no

21

doubt that the FDSP was an agency of the SFRY, as the exhaustive

22

description of its origins, ongoing governance, and role showed.

23

It was, at all times, controlled by the government; its

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management consisted of government officials; it was subject to

2

supervision by the Federal Secretariat of People’s Defense and

3

the Federal Executive Council; its earnings were to be used not

4

only to “replenish[] funds spent” but also “to provide for

5

personal, common, and general social needs and responsibilities”;

6

and management could not alter the FDSP Statute without approval

7

from the Federal Executive Council.

8

12, 15, 16 (11/91); FDSP Statute, art. 16 (Act. No. 750-3).

9

Moreover, the FDSP served a purpose so elemental to a nation-

FDSP Enabling Law, arts. 19,

10

state government as to render any suggestion that it was not an

11

SFRY agency risible.

12

A compelling reason for the existence of nation states is to

13

strengthen military defense, as the American experience

14

demonstrates.

15

equipping the SFRY’s military forces according to strategic needs

16

determined by the SFRY.

17

with the government’s military planners, and it was the FDSP’s

18

“responsibility” to supply the military to meet its perceived

19

needs.

20

enterprises were owned and controlled by the government –- the

21

FDSP was clearly a governmental agency because of the important

22

national-interest functions it performed.

The FDSP was the SFRY’s arms dealer, charged with

It was required to coordinate its work

Even in the SFRY –- a socialist state where many

23

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In an effort to avoid this plain language interpretation,

2

Yugoimport submitted several pieces of extrinsic evidence,

3

including:

4

FRY Minister of Finance who served as a delegate in the

5

negotiations of the Succession Agreement and as an FRY (and now

6

as a Serbian) representative in the Annex C Committee on the

7

Distribution of Financial Assets and Liabilities; (ii) documents

8

purporting to represent the drafting history of the Succession

9

Agreement; and (iii) letters submitted by the Ministers of

(i) an affidavit of Dr. Veroljub Dugalić, a former

10

Finance of Bosnia-Herzegovina and Serbia.10

11

that the district court was able to grant summary judgment only

12

by failing to consider or by not crediting this evidence.

13

However, none of these items could properly have been taken into

14

consideration under the interpretive rules set forth in the

15

Vienna Convention.

16
17

Under the Vienna Convention, external evidence may be
considered only in limited circumstances.

18
19
20
21
22
23

Yugoimport contends

Article 31 provides

A treaty shall be interpreted in good faith
in accordance with the ordinary meaning to be
given to the terms of the treaty in their
context and in the light of its object and
purpose.
Vienna Convention, art. 31(1).

10

We need not reach the issue of whether this extrinsic evidence, even
if considered, would be sufficient to alter the result. As discussed supra,
the nature and functions of the FDSP may well have dictated the result we
reach.

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Yugoimport contends that the extrinsic evidence proffered is

2

necessary to interpreting the Treaty in “context and in the light

3

of its object and purpose.”

4

because the Vienna Convention expressly sets forth in Article 31

5

the materials that may be considered to discern that context and

6

purpose.

7

of the treaty, including its preamble and annexes; (ii) “[a]ny

8

agreement relating to the treaty which was made between all the

9

parties in connection with the conclusion of the treaty”; and

Id.

However, this argument fails

Context may be evaluated by consulting:

(i) the text

10

(iii) “[a]ny instrument which was made by one or more parties in

11

connection with the conclusion of the treaty and accepted by the

12

other parties as an instrument related to the treaty.”

13

31(2) (emphasis supplied).

14

subsequent agreement between the parties regarding the

15

interpretation of the treaty or the application of its

16

provisions; (b) [a]ny subsequent practice in the application of

17

the treaty which establishes the agreement of the parties

18

regarding its interpretation; and (c) [a]ny relevant rules of

19

international law.”

20

is an obvious preference of the Vienna Convention toward

21

consideration only of those materials that were ratified,

22

adopted, or somehow endorsed by all the treaty parties.

23

the documents proffered by Yugoimport are not traced to all the

A court may also consult:

Id. art.
“(a) [a]ny

Id. art. 31(3) (emphasis supplied).

26

There

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1

successor states, the district court should not have considered

2

them or afforded them weight in determining the context of the

3

treaty or its object and purpose.11

4

Yugoimport next contends that such evidence is properly

5

before the court because the treaty is ambiguous.

6

Article 32 of

the Vienna Convention states:

7
8
9
10
11
12
13
14
15
16
17
18
19

Recourse may be had to supplementary means of
interpretation, including the preparatory
work of the treaty and the circumstances of
its conclusion, in order to confirm the
meaning resulting from the application of
article 31 [ordinary-meaning analysis], or to
determine the meaning when the interpretation
according to article 31: (a) [l]eaves the
meaning ambiguous or obscure; or (b) [l]eads
to a result which is manifestly absurd or
unreasonable.
Vienna Convention, art. 32 (emphasis added).

20

courts may consider certain, limited types of external evidence

21

only to confirm the ordinary meaning of the text, or where the

22

ordinary meaning is ambiguous or would lead to absurd results.

23

External evidence may not be admitted to create ambiguity where

24

there is none or to compel an interpretation different from the

25

text’s ordinary meaning.

Under this Article,

26

11

Yugoimport also cites Article 31(4) for the proposition that “special
meaning shall be given to a term if it is established that the parties so
intended.” Id. art. 31(4). However, as discussed above there is no
indication that the parties intended a special meaning for “agency.”

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Yugoimport contends that the treaty is ambiguous because:

2

(i) the term agency is undefined, and (ii) Annexes C and G, when

3

read in conjunction, create an ambiguity.

4

Succession Agreement is not ambiguous in this regard.

5

to include a precise definition of agency does not render the

6

contract ambiguous with regard to the term “agency,” at least so

7

far as a body intended to arm the SFRY’s military is concerned.

8

Furthermore, we perceive no relevant conflict between Annexes C

9

and G.

We find that the
A failure

Annex C calls for the division of assets of governmental

10

agencies.

Annex G does not inform the definition of agency in

11

Annex C.

It provides that “private property” of legal persons

12

shall be respected.

13

as a legal person, it was a public corporation that functioned,

14

as intended, as an SFRY agency.

15

were its funds “private property.”

16

dictate otherwise.

17

b)

18

Although Yugoimport may have been organized

Under no discernible principles
Therefore, Annex G does not

An Afterword
Although the decisive issue on this appeal is disposed of

19

above, we address Yugoimport’s argument that its corporate form

20

shields it from application of Annex C of the Succession

21

Agreement.

22

organized as a corporation, under United States federal common

23

law it is not subject to the Succession Agreement unless it is

24

deemed to be an “alter ego” of the SFRY.

Yugoimport contends that because the FDSP was

28

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Yugoimport relies principally on First National City Bank v.

2

Banco Para El Comercio Exterior de Cuba (“Bancec”), 462 U.S. 611

3

(1983).

4

counterclaim against Bancec, Cuba’s fully-owned foreign-trade

5

agent, for actions taken against Citibank by the Cuban

6

government.12

7

organized as an independent juridical entity under Cuban law and

8

therefore could not be liable for actions of the Cuban

9

government.

At issue in Bancec was whether Citibank could maintain a

Bancec’s successor maintained that it was

The Supreme Court agreed that “government

10

instrumentalities established as juridical entities distinct and

11

independent from their sovereign should normally be treated as

12

such.”

13

Cuban organizational law as decisive.

14

effect to the law of the chartering state in determining whether

15

the separate juridical status of its instrumentality should be

16

respected would permit the state to violate with impunity the

17

rights of third parties under international law while effectively

18

insulating itself from liability in foreign courts.”

Id. at 626-27.

The Court refused, however, to treat the

12

According “conclusive

Id. at 621-

Bancec filed suit against Citibank in the Southern District of New
York to recover on an unpaid letter of credit. Bancec had executed a series
of contracts whereby it purchased sugar from another instrumentality of the
Cuban government and then sold the sugar as export to a private company.
Citibank issued the letter of credit on behalf of the private company as
consideration for the sugar. Shortly after the issuance of the letter, Cuba
nationalized all property belonging to American citizens and entities in Cuba,
including Citibank’s branch offices in Cuba. When the letter of credit became
due, Citibank credited the amount due to Bancec’s account but then applied the
account balance to setoff the value of Citibank’s lost Cuban branches. After
Bancec initiated the action, Citibank counterclaimed seeking setoff based on
the Cuban government’s seizure of its assets. Id. at 613-16.

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1

22.

The Court ruled that foreign instrumentalities organized

2

under foreign law as independent juridical entities are entitled

3

to a presumption of independence, but this presumption can be

4

overcome by equitable veil-piercing or alter-ego analysis under

5

federal common law.

Id. at 626-30.

6

To the extent that Yugoimport’s arguments suggest that

7

Bancec controls interpretation of the Succession Agreement as to

8

whether FDSP was an “agency” of the SFRY, the argument fails.

9

The purpose of treaty interpretation is to give effect to the

10

intent of the contracting states.

11

applies to the unilateral acts of a single sovereign and attempts

12

to reconcile the oft-conflicting goals of giving respect to the

13

acts of other sovereigns while avoiding results that amount to

14

the rewarding of fraud.

15

do with interpretation of the Succession Agreement.

16

Bancec’s alter-ego analysis

Bancec’s analysis simply has nothing to

Moreover, assuming the FDSP was organized as an independent

17

juridical entity or corporation,13 nothing in Bancec suggests

18

that the FDSP’s legal form insulates it from the Succession

13

This assumption is likely correct. The FDSP was organized as a
juridical entity with the “status of a legal person.” FDSP Enabling Law, art.
4 (11/91). It was empowered to act on its own behalf and enter into
contracts, id. arts. 7, 8, and it guaranteed its obligations with its own
property, FDSP Statute, art. 2 (Act. No 750-3). The organizational laws also
suggest that the government intended for the FDSP to be funded by its own
commercial activities. See id. art. 16 (providing that earnings were to be
used to “replenish funds spent”); id. art. 21 (providing that the FDSP Council
was to inform the Federal Secretariat for People’s Defense and the Federal
Executive Council if the FDSP experienced a liquidity problem or a loss in any
given year).

30

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Agreement.

2

and the principles of comity animating Bancec.

3

establishes two analytic components, a presumption of

4

33

independence and alter-ego analysis, that operate in tandem.

5

Such a result would be contrary to both corporate law
Bancec

Contrary to Yugoimport’s suggestion, the Court’s concern

6

about the diversion of an instrumentality’s assets was not

7

motivated by a desire to protect instrumentalities for their own

8

sake; the recognition of the independent status afforded to

9

instrumentalities is derivative of, and incidental to, the

10

underlying purpose of the presumption, which is to give respect,

11

but not conclusive effect, to foreign sovereigns’ policy

12

decisions.

13

based on “[d]ue respect . . . for foreign sovereigns” and

14

“principles of comity between nations”).14

15
16

Id. at 626-27 (observing that the presumption is

The presumption may be overcome by alter-ego analysis, i.e.
if the instrumentality was so extensively dominated by the

14
As the Court explained, governments create juridical entities for a
variety of important governmental purposes. Instrumentalities run as distinct
economic enterprises are often exempt from the budgetary and personnel
requirements applicable to other government agencies. Bancec, 462 U.S. at
624. Such instrumentalities also enjoy a greater degree of flexibility and
independence from political control than typical agencies. Id. By delegating
certain activities to such instrumentalities, governments may easily waive
sovereign immunity with respect to the instrumentalities’ activities, enabling
third parties to deal with the instrumentality with confidence that judicial
relief will be available should the need arise. Id. at 625. Most
importantly, it is often easier to obtain large-scale financing using entities
with distinct debt structures. Id. at 625-26. Disregarding corporate form
would frustrate these objectives. In the case of a developing country,
diversion of an instrumentality’s assets to satisfy debts of the sovereign
could stymie investment and cause third-parties dealing with the
instrumentality to demand government guarantees. See id.

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1

sovereign that a principal-agent relationship existed and where

2

respecting the corporate form of the instrumentality “blindly . .

3

. would cause . . . injustice.”

4

Res. Azerbaijan Corp. v. State Oil Co. of the Azerbaijan

5

Republic, 582 F.3d 393, 400 (2d Cir. 2009).

6

overcome the presumption of independence bears the burden of

7

proof.

8

Dhabi, 215 F.3d 247, 252 (2d Cir. 2000).

9

measure of respect due foreign sovereigns.

Id. at 629, 632; see Frontera

The party seeking to

Zappia Middle East Constr. Co. Ltd. v. Emirate of Abu
This burden evinces the
Alter-ego analysis is

10

simply a back-stop measure that prevents foreign sovereigns from

11

using their business laws to immunize themselves from third-party

12

liability.15

13

is no third-party seeking redress and Bancec is relied upon

14

solely to shield the instrumentality from the foreign state that

15

owns it.

16

It defies logic to apply it where, as here, there

For the foregoing reasons, we hold that Bancec has no

17

bearing on the issue of whether the FDSP was an agency as that

18

term is used in the Succession Agreement.

19

Yugoimport cannot show as a matter of law that it was not an

20

agency, its motion for summary judgment was properly denied.
15

And, because

In Bancec, the Cuban government could not have brought suit in the
U.S. without waiving its sovereign immunity with respect to counterclaims.
Bancec, 462 U.S. at 630; see also 28 U.S.C. § 1607(c) (foreign states waive
their sovereign immunity with respect to counterclaims “to the extent that the
counterclaim does not seek relief exceeding in amount or differing in kind
from that sought by the foreign state.”). Failure to apply alter-ego analysis
would have permitted the Cuban government to circumvent Section 1607(c).

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Case: 11-1990

Document: 143-1

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2
3

Page: 33

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CONCLUSION
For the reasons stated herein, the district court’s order
and opinion are AFFIRMED.

33