The Export-Import Bank of The Republic of China v. Grenada
Filing
100
OPINION AND ORDER # 101975: I have considered the parties remaining arguments and find that they are without merit. For the foregoing reasons, Grenadas motion for a declaration that the Arbitration Funds are immune from attachment is GRANTED and Ex-I m Banks cross-motion for turnover of the Funds is DENIED. Further, Grenadas joint motion to vacate the restraining notices is GRANTED and Ex-Im Banks cross-motion for discovery and turnover of the restrained funds is DENIED. The Clerk of the Court is directed to close these four open motions and remove them from my docket (Signed by Judge Harold Baer on 6/22/2012) (js) Modified on 6/22/2012 (js). Modified on 6/22/2012 (ft).
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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THE EXPORT-IMPORT BANK OF THE REPUBLIC :
OF CHINA,
:
:
Plaintiff,
:
:
against:
:
:
GRENADA,
:
Defendant.
:
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06 Civ. 2469 (HB)
OPINION &
ORDER
Hon. HAROLD BAER, JR., District Judge:
Before the Court are two motions brought by Defendant/ Judgment Debtor Grenada
(“Grenada”). Grenada defaulted on four multimillion dollar loans totaling $21,586,057.38 made
by the Plaintiff/ Judgment Creditor Export-Import Bank of China (“Ex-Im Bank”) between 1990
and 2000. On March 16, 2007, I entered an amended judgment in favor of Ex-Im Bank and
against Grenada in the amount of $21,586,057.38, plus prejudgment interest, attorneys’ fees, and
statutory interest. Ex-Im Bank has attempted to obtain satisfaction on this judgment ever since.
Grenada’s first motion seeks to prevent Ex-Im Bank from using an award of costs and fees to
Grenada’s attorneys following an unrelated arbitration to gain entry to an exception in the
Foreign Sovereign Immunities Act (“FSIA”). Grenada’s second motion seeks to vacate the
restraining notices issued by Ex-Im Bank to various airlines, cruise lines and shipping
companies. Grenada’s motions are granted.
I. Grenada’s Motion for an Order (1) Declaring Funds Immune from Attachment or (2)
Fixing A Charging Lien and Directing Money Judgment for Legal Services
A. Overview of the Motion and Cross-Motion
On December 8, 2011, Grenada deposited $300,486.69 with the Clerk of the Court (the
“Arbitration Funds”). Phillip Decl. ¶ 18. The Arbitration Funds represent the proceeds of an
order entered in favor of Grenada following an international arbitration proceeding before the
International Centre for the Settlement of Investment Disputes (“ICSID”), which was confirmed
by the U.S. District Court for the Southern District of New York. Id. at ¶¶ 3-12. A judgment was
1
entered on April 29, 2011. Id. The arbitration proceeding was brought by claimants, RSM
Production Corp. and U.S. citizens, alleging that Grenada breached a treaty between the United
States and Grenada concerning Reciprocal Encouragement and Protection of Investment, and
asserted claims against Grenada for breach of contract, requesting specific performance,
declaratory relief and damages. Id. at ¶¶ 3-4; see also Phillip Decl. Ex. C, at ¶ 4. The tribunal
dismissed the claims and granted Grenada its legal costs and fees to pay Grenada’s counsel,
Freshfields Bruckhaus Dringer (“Freshfields”). Phillip Decl. ¶ 10.
Grenada seeks an order that (1) the Arbitration Funds are immune from attachment under
the FSIA, 28 U.S.C. §§ 1330, 1602-1611 or in the alternative, (2) fixing a charging lien pursuant
to New York Judiciary Law § 475 in favor of, and directing judgment for, Freshfields. Ex-Im
Bank cross-moves for turnover of the Arbitration Funds to Ex-Im Bank to help satisfy the unpaid
loans.
B. The Arbitration Funds Are Immune From Attachment
Under the FSIA, 28 U.S.C. §§ 1602-1611, the property of a foreign sovereign within the
United States is immune from attachment or execution to satisfy a judgment, 28 U.S.C. § 1609,
unless the property is subject to one of the exceptions found in the FSIA, 28 U.S.C. § 1610. The
sole relevant exception is:
§ 1610. Exceptions to the immunity from attachment or execution
(a) The property in the United States of a foreign state…used for a
commercial activity in the United States, shall not be immune
from . . . execution, upon a judgment entered by a court of the
United States . . . if-(1) the foreign state has waived its immunity from
attachment in aid of execution or from execution either
explicitly or by implication. . . .
Id.(a)(1). Grenada waived sovereign immunity from attachment and execution in the loan
agreement between Ex-Im Bank and Grenada. See Samuels Decl. Ex. 4, Loan Agreement § 9.06.
Grenada does not dispute that the Arbitration Funds are in the United States; however, the parties
dispute whether they were “used for a commercial activity in the United States.” 28 U.S.C. §
1610.
The Arbitration Funds have not been disbursed for commercial or any other activity
because before any disbursement was made, Ex-Im Bank restrained the Funds and the parties
2
stipulated to an order to deposit the Funds with the Court. Phillip Decl. ¶¶ 18-19; see, e.g.,
Aurelius Capital Partners, LP v. Republic of Argentina, 584 F.3d 120, 131 (2d Cir. 2009)
(concluding that assets held in the United States and administered by private corporations for the
benefit of Argentine pensioners that were to be transferred to Argentina’s social security
administration pursuant to Argentine legislation were immune where creditors attached the assets
“effective immediately,” and so “neither the Administration nor the Republic had any
opportunity to use the funds for any commercial activity whatsoever”).
Ex-Im Bank responds that Aurelius is “unique” and not helpful to Grenada, however, the
Second Circuit made it clear that the FSIA’s plain language “does not say that the property in the
United States of a foreign state that ‘will be used’ or ‘could potentially be used’ for a commercial
activity in the United States is not immune from attachment or execution.” Id. at 130. The
property “must be used for a commercial activity in the United States ‘upon a judgment entered
by a court of the United States or of a State.’ ” Id. (quoting 28 U.S.C. § 1610(a)); see also EM
Ltd. v. Republic of Arg. (EM Ltd. II), No. 06 Civ. 7792, 2010 WL 2399560, at *4 (S.D.N.Y. June
11, 2010) (“[I]t is difficult to see how a sum of money frozen by stipulation and thereby entirely
unavailable to defendants for more than four years has been ‘used’ for any activity at all,
commercial or not.”). More recently, in NML Capital, Ltd. v. Republic of Argentina, No. 03 Civ.
8845, 2011 WL 1533072, at *6 (S.D.N.Y. Apr. 22, 2011), the Court wrote, “Section 1610(a)
requires not that property ‘will be used’ or ‘could potentially be used’ for commercial activity,
but that the property ‘must be used’ for commercial activity upon a judgment entered by a
court.”
Ex-Im Bank’s other arguments are also without merit. Ex-Im Bank argues that the
Arbitration Funds were “used for a commercial activity” because “the underlying Arbitration
was all about a clearly commercial venture: petroleum exploration by a United States company.”
Ex-Im Bank Opp. 7. How the Arbitration Funds came into existence—i.e., whether the
underlying arbitration was about a commercial venture—is immaterial. See Conn. Bank of
Commerce v. Republic of Congo, 309 F.3d 240, 254 (5th Cir. 2002) (“That the property is
revenue from or otherwise generated by commercial activity in the United States does not
thereby render the property amenable to execution.”).
Further, Ex-Im Bank argues that the Arbitration Funds have been put to a commercial use
already since Grenada used a portion of the Arbitration Funds to pay its Colorado counsel in
3
connection with transferring the Arbitration Funds to this Court. Ex-Im Bank Opp. 7-8.1 The
amount paid to Grenada’s Colorado lawyers, $3,500, was about one percent of the total
$303,986.69. Grenada Reply 5-6.2 The entire Arbitration Fund has not been put to commercial
use. See, e.g., Walker Int’l Holdings Ltd. v. Republic of Congo, 395 F.3d 229, 236 (5th Cir. 2006)
(concluding that the fact that “minor reimbursements,” well less than fifty percent of the
proceeds, had been used for “commercial activity,” did not mean that all of the proceeds had
been used for a commercial activity); Liberian E. Timber Corp. v. Gov’t of the Republic of
Liber., 659 F. Supp. 606, 610 (D.D.C. 1987) (“The Court, however, declines to order that if any
portion of a bank account is used for a commercial activity then the entire account loses its
immunity.”).
Finally, Ex-Im Bank argues that the Arbitration Funds have been clearly designated for
commercial use by Grenada because Grenada intends to use them to pay its attorneys. Cf. EM
Ltd. v. Republic of Arg. (EM Ltd. I), 473 F.3d 463, 484-85 (2d Cir. 2007) (“[P]laintiffs presented
no evidence to the District Court that the Republic or BCRA [Banco Central de la República
Argentina] intended the FRBNY [Federal Reserve Bank of New York] Funds to be so
designated [for commercial use]. . . . Even if actual use were not required, at least specific
designation for such use would be necessary.”). Grenada correctly points out, however, that in
EM Ltd. I, id. at 474-75, “the question was whether two governmental decrees had legally
designated particular funds to be used only in a certain manner.” Grenada Reply n.2. The funds
at issue here have not been legally designated for payment to Freshfields, and how the funds
“will be used” or “could potentially be used” is irrelevant. Aurelius, 584 F.3d at 130; see also EM
Ltd. II, 2010 WL 2399560, at *4 (rejecting Plaintiff’s argument that frozen funds were used for
commercial activity because the use of property “to provide security for potential liability in a
civil suit, as here, is the type of commercial activity in which any private actor can engage and is
1
The other cases cited by Ex-Im Bank are distinguishable. In Atwood Turnkey Drilling, Inc. v. Petroleo Brasileiro
S.A., 875 F.2d 1174, 1177 (5th Cir. 1989), the court concluded that a letter of credit had been used for a commercial
activity where the sovereign posted the letter of credit as security for a commercial endeavor in the United States.
My case, Libancell S.A.L. v. Republic of Leb., No. 06 Civ. 2765, 2006 WL 1321328, at *3 (S.D.N.Y. May 16, 2006),
merely concluded that a “sovereign debt offering is a commercial activity within the definition of the FSIA.”
2
Grenada also argues, without citation, that “[a] sovereign should be entitled to employ legal assistance to assert its
rights to an otherwise immune fund without destroying the immunity of the very property that counsel has been
hired to protect or secure.” Grenada Reply 6.
4
therefore commercial activity for FSIA purposes”). The funds from the arbitration award are
immune from attachment.3
II. Grenada and Interested Third Parties Joint Motion to Vacate the Restraining Notices
A. Overview of the Motion and Cross-Motion
Since October 2011, Ex-Im Bank has issued restraining notices pursuant to New York
Civil Practice Law and Rules (“NYCPLR”) § 5222 in an attempt to enforce the 2007 judgment.
See Greenblatt Aff. Exs. A-L. The notices prevent airlines, cruise lines and shipping companies
(the “Restrained Entities”) from paying taxes, fees and other charges (the “Restrained Funds”) in
connection with Grenada-related business operations. Id.
Grenada and the corporate entities (the “Corporations”)4 move to vacate these restraining
orders because (1) the Restrained Funds are due to the independent Corporations rather than to
the Grenada government and, in the alternative, (2) even if the Corporations were deemed “alter
egos” of Grenada, the notices would violate the FSIA, 28 U.S.C. §§ 1602-1611. Ex-Im Bank
opposes Grenada’s motion and cross-moves for discovery and turnover of the Restrained Funds.
B. Even if the Corporate Entities are Grenada’s “Alter Egos,” the Notices Violate the
FSIA
Although discovery would likely be necessary to determine whether the Corporations are
the alter egos of Grenada, I need not resolve the issue because assuming that the Corporations
are Grenada’s alter egos, the FSIA bars the notices. 28 U.S.C. § 1610(a).5 The payments that the
Corporations receive from these Restrained Entities are used as a source of revenue for carrying
out public functions in Grenada. See, e.g., LNC Invs., Inc. v. Republic of Nicar., 2000 U.S. Dist.
LEXIS 7814, at *15-*17 (S.D.N.Y. June 8, 2000) (taxes owed by airline to foreign sovereign
“are non-commercial in nature and immune from attachment and execution under the FSIA”
3
I need not address Grenada’s alternative argument that Freshfields has a valid charging lien against the Arbitration
Funds because I find that they are immune from attachment in any event.
4
Grenada argues that both Grenada and the Corporations have standing to challenge the restraining notices. As a
party in the underlying action, Grenada argues that it has standing to challenge the notices and the corporations have
standing as “interested third parties.” Grenada Mem. 9 (citing LNC Invs., Inc. v. Republic of Nicar., 2000 U.S. Dist.
LEXIS 7814 (S.D.N.Y. June 8, 2000)). Alternatively, Grenada argues that the Corporations should be permitted to
intervene to seek vacatur of the restraining notices. Id. Ex-Im Bank does not address this argument.
5
At oral argument, I directed the parties to submit supplemental submissions regarding the extent of discovery and
what Ex-Im Bank needed to show to obtain discovery. Having now reviewed all of their submissions, I conclude
that discovery is not warranted.
5
because “taxation is a uniquely governmental activity in which private persons cannot and do not
engage”).6 Ex-Im Bank cites Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 614 (1992),
in which the Supreme Court concluded that “a foreign government’s issuance of regulations
limiting foreign currency exchange is a sovereign activity because such authoritative control of
commerce cannot be exercised by a private party; whereas a contract to buy army boots or even
bullets is a ‘commercial’ activity, because private companies can similarly use sales contracts.”
However, Weltover favors Grenada’s position: the Restrained Funds are not involved in regular
commercial transactions, but rather are collected as part of the Corporations regulation of and
provision of access to Grenada’s public facilities and services.7 The restraining notices must be
vacated.8
Conclusion
I have considered the parties’ remaining arguments and find that they are without merit.
For the foregoing reasons, Grenada’s motion for a declaration that the Arbitration Funds are
immune from attachment is GRANTED and Ex-Im Bank’s cross-motion for turnover of the
Funds is DENIED. Further, Grenada’s joint motion to vacate the restraining notices is
GRANTED and Ex-Im Bank’s cross-motion for discovery and turnover of the restrained funds is
6
The Restrained Funds, all of which are used for the maintenance of facilities and services in Grenada, are also not
“used in the United States” according to Grenada. Grenada Mem. 22.
7
The other two cases cited by Ex-Im Bank are also distinguishable. In the recently issued Second Circuit decision
in NML Capital, Ltd. v. Republic of Argentina, 2012 WL 1059073 (2d Cir. Mar. 30, 2012), the court held that funds
earmarked by Argentina for purchase of scientific equipment in commercial transactions on the open market in the
United States were not entitled to sovereign immunity. Similarly, in Texas Trading & Mill Corp. v. Federal
Republic of Nigeria, 647 F. 2d 300, 310 (2d Cir. 1981), the court concluded that cement contracts and letters of
credit qualified as commercial activity.
8
In a footnote in its opening memorandum, Grenada argues that the Restraining Notices were improperly issued by
Ex-Im Bank without, according Grenada, the procedural protections it is entitled to under the FSIA, particularly
seeking a court order prior to issuing the notices. Grenada Mem. at n.12. Grenada is likely correct. See, e.g., First
City, Texas-Houston, N.A. v. Rafidain Bank, 197 F.R.D. 250, 256 (S.D.N.Y. 2000) (noting that First City “concedes
that it failed to seek” a court order under § 1610(c) “before serving the Restraining Notice. . . [c]onsequently, the
Restraining Notice must be vacated without prejudice to its being renewed upon appropriate motion to the Court”).
However, because the notices are vacated on a different and broader basis, this argument is moot.
6
.
.
DENIED. The Clerk of the Court is directed to close these four open motions and remove them
from my docket.
SO ORDERED.
New York, New York
.
June i2,2012
Hon. Harold Baer, Jr.
U.S.D.J.
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