Opinion
No. 13 Civ. 1917 (CM)
12-17-2015
BERNARDUS HENRICUS FUNNEKOTTER, et al. Plaintiffs, v. AGRICULTURAL DEVELOPMENT BANK OF ZIMBABWE, et al., Defendants.
MEMORANDUM DECISION AND ORDER GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT
:
Plaintiffs are Dutch nationals who want to use Defendants' assets to satisfy a judgment against the Republic of Zimbabwe ("Zimbabwe"). To do so, Plaintiffs first must establish Defendants' status as Zimbabwe's alter egos. Currently before the Court is Plaintiffs' motion for summary judgment against Defendants Agricultural Development Bank of Zimbabwe ("Agribank"), Minerals Marketing Corporation of Zimbabwe ("MMCZ"), Zimbabwe Mining Development Corporation ("ZMDC"), and Zimare Holdings Limited ("Zimre") (collectively "Non-ZB Bank Defendants"), which asks the Court to declare that (1) the Non-ZB Bank Defendants are alter egos of Zimbabwe; (2) Plaintiffs may enforce the judgment against assets of Non-ZB Bank Defendants that are located in the United States and used for commercial purposes; and (3) assets frozen pursuant to sanctions established by the United States Department of Treasury's Office of Foreign Assets Control ("OFAC") are property of Zimbabwe that is located in the United States and used for commercial purposes.
For the reasons discussed below, the Court grants Plaintiffs' requests for declaratory relief.
BACKGROUND
I. Factual Background
The factual background of this case has been detailed in previous orders by the Court. Plaintiffs held direct or indirect investments in commercial farms located in Zimbabwe. Between 1992 and 2001 the Zimbabwean government expropriated the farms and, as a result, Plaintiffs lost their investments. Plaintiffs then commenced an arbitration against Zimbabwe before the International Centre for the Settlement of Investment Disputes ("ICSID"). The ICSID tribunal ruled that Zimbabwe had violated a bilateral investment treaty between itself and the Netherlands and awarded Plaintiffs damages in the amount of €8,220,000.
Plaintiffs then filed a lawsuit (the "Related Action") in this Court seeking to confirm the arbitral award in their favor pursuant to 22 U.S.C. § 1650a. See Petition to Confirm Arbitration, Funnekotter v. Republic of Zimbabwe, 09 Civ. 8168 (S.D.N.Y. Sept. 24, 2009), ECF #1. Plaintiffs obtained a default judgment in their favor against Zimbabwe confirming the arbitral award. See Judgment, Funnekotter v. Republic of Zimbabwe, 09 Civ. 8168 (S.D.N.Y. Sept. 24, 2009), ECF #11. The Court entered judgment in the amount of $25,170,171.33, comprising the amount of the original arbitral award plus interest and costs. Id.
Zimbabwe did not pay.
II. Procedural Background
Plaintiffs filed this action to seek a declaratory judgment that Defendants are alter egos of the Zimbabwean government, and that their assets in the United States may therefore be used to satisfy Plaintiffs' judgment against Zimbabwe obtained in the Related Action. While Defendants do not deny having a relationship with Zimbabwe or its government, they do deny being alter egos.
Prior to the initial Rule 26 conference, Defendant ZB Bank Limited ("ZB Bank") filed a motion to dismiss, arguing that the Court lacked subject-matter jurisdiction over ZB Bank, because ZB Bank was entitled to sovereign immunity. ZB Bank argued in the alternative that the complaint failed to state a claim. At the initial pre-trial conference, the Court denied ZB Bank's motion without prejudice to renew after the close of discovery and ordered discovery to be completed within 120 days. (Docket #29.)
A few weeks later, the Non-ZB Bank Defendants filed a motion to dismiss, asserting that they too were entitled to sovereign immunity and that the complaint failed to state a claim under Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009). (Docket #37.) Magistrate Judge Ellis denied the Non-ZB Bank Defendants' motion without prejudice to renew after the close of discovery. (Docket #68.)
While the Non-ZB Bank Defendants' motion was pending, the parties had a number of discovery disputes related primarily to Defendants' purported failures to timely respond to Plaintiffs' discovery requests. Plaintiffs, citing Defendants' failure to produce requested documents, filed a motion to preclude Defendants from denying that they were alter egos of Zimbabwe - which would have effectively granted Plaintiff judgment on its first request for declaratory relief- or in the alternative to extend the discovery deadline. (Docket #48.) Magistrate Judge Ellis ordered Defendants to produce various documents and extended the discovery deadline by two months. (Docket #55.) A month later, Magistrate Judge Ellis issued another order requiring the Non-ZB Bank Defendants to comply fully with outstanding discovery requests by the discovery deadline and striking as untimely several objections to discovery requests interposed by the Non-ZB Bank Defendants. (Docket #74.) Magistrate Judge Ellis did not rule on Plaintiffs' motion to preclude at that time.
Plaintiffs renewed their motion to preclude several times with respect to the various Defendants before Magistrate Judge Ellis ruled on it. (Docket ##57 (ZB Bank), 58 (Non-ZB Bank Defendants), 69 (all Defendants), 73 (all Defendants), 75 (Non-ZB Bank Defendants), 80 (ZB Bank), 81 (Non-ZB Bank Defendants), 103 (ZB Bank)). In each case, Plaintiffs pointed to Defendants' purported ongoing refusal to comply with court orders concerning discovery and their failure to produce requested documents.
On September 11, 2014, Magistrate Judge Ellis denied Plaintiffs' motion to preclude, except for requiring the Non-ZB Bank Defendants to produce minutes and resolutions from meetings of their respective boards of directors. Although Magistrate Judge Ellis's opinion chastised Defendants for their dilatory behavior, he held that Defendants had not willfully violated any discovery orders and that the harsh sanction of preclusion was unwarranted. (Docket #124.)
On September 24, 2014, Plaintiffs filed a new motion to preclude as to the Non-ZB Bank Defendants only. (Docket #128.) This motion was predicated on the Non-ZB Bank Defendants' failure to produce minutes and resolutions from meetings of their boards of directors as required by Magistrate Judge Ellis's September 11 order. In the alternative, Plaintiffs asked that the Non-ZB Bank Defendants be ordered to show cause why they should not be adjudged in contempt for failing to produce the required documents.
In their reply to the motion to preclude, the Non-ZB Bank Defendants filed a cross-motion to dismiss for lack of jurisdiction. The Court denied that motion during a telephone conference with the parties. (See Minute Entry of October 28, 2014.)
On October 10, 2014, this Court withdrew the order of reference to Magistrate Judge Ellis for supervision of discovery, ordered a discovery "do over" to reconsider all of Defendants' objections to the various requests for discovery, and stated that Defendants were to produce any documents to which they did not object by October 24, 2014. (Docket #151.) The Court specifically warned Defendants that, "Failure to comply with this court's order to produce will be prima facie evidence of bad faith on the part of the non-producing defendant and will result in the entry of the very preclusion order that plaintiffs unsuccessfully sought from Judge Ellis." (Docket #146 at 2.)
Two weeks later, on October 24, 2015, Plaintiffs' served Non-ZB Bank Defendants with a request for admissions ("Request for Admissions"). (Docket #185 Exhs. 7-8.) The Non-ZB Bank Defendants did not respond to the request.
On June 3, 2015, the Court denied Plaintiffs' motion to preclude the Non-ZB Bank Defendants from denying that they are alter egos of Zimbabwe, but agreed that the Non-ZB Bank Defendants had violated several court orders by failing to produce minutes and resolutions of their boards of directors. In light of the Non-ZB Bank Defendants' failure to produce these documents, the Court held that the Non-ZB Bank Defendants forfeited their right to rely on them and directed the trier of fact to draw an adverse inference about their contents. The Court further ordered the Non-ZB Bank Defendants to produce other evidence of non-alter ego status within thirty calendar days of the date of the order or be precluded from offering any evidence on the subject of alter ego status beyond the scant evidence already produced to Plaintiffs. (June 3 Order at 7-10.)
The Non-ZB Bank Defendants failed to produce any additional evidence.
On July 21, 2015, Plaintiffs filed a motion for summary judgment, arguing that undisputed facts establish that the Non-ZB Bank Defendants are alter egos of Zimbabwe and that Plaintiffs' judgment may be enforced against Non-ZB Bank Defendants' frozen assets used for commercial activity in the United States. (Pls. Br. at 14 (Docket # 187).) Plaintiffs argue that OFAC's designation of the Non-ZB Bank Defendants as Specially Designated Nationals ("SDNs"), the adverse inference about the contents of Non-ZB Bank Defendants' board resolutions and minutes permitted by the Court, and Non-ZB Bank Defendants' admissions, supported in part by documentary evidence, are undisputed evidence establishing Non-ZB Bank Defendants' alter ego status. Pursuant to Local Civil Rule 56.1, Plaintiffs filed a Statement of Undisputed Material Facts ("Rule 56.1 Statement") in support of their motion, listing contentions that Plaintiffs believe to be undisputed. (Docket #186.)
On August 11, 2015, the Non-ZB Bank Defendants filed an opposition to Plaintiffs' motion for summary judgement, arguing that Plaintiffs had not overcome the presumption that the Non-ZB Bank Defendants' were independent from Zimbabwe because (1) Plaintiffs had identified no evidence that any of the Non-ZB Bank Defendants were created by Zimbabwe for the specific purpose of working a fraud or an injustice on Plaintiffs or a third party, and (2) OFAC's designation of the Non-ZB Bank Defendants as SDNs is not "persuasive" evidence of their alter ego status. (Def. Br. at 5 (Docket #189).)
The Non-ZB Bank Defendants did not file a statement of undisputed material facts in response to Plaintiffs' Rule 56.1 Statement, as required by Local Civil Rule 56.1. They also did not address their failure to respond to Plaintiffs' Request for Admissions.
DISCUSSION
I. Standard
Summary judgment is appropriate where "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). In addressing a motion for summary judgment, "the inferences to be drawn from the underlying facts . . . must be viewed in the light most favorable to the party opposing the motion" and the court must draw all reasonable inferences in its favor. Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
The moving party has the initial burden of demonstrating the absence of a disputed issue of material fact. Celotex v. Catrett, 477 U.S. 317, 323 (1986). Once such a showing has been made, the non-moving party must present "specific facts showing that there is a genuine issue for trial" to withstand the motion. Fed. R. Civ. P. 56(e). If the non-moving party fails to address an undisputed fact asserted by the moving party, "the court may . . . consider the fact undisputed for purposes of the motion." Id. In demonstrating the existence of disputed issues of fact, the non-moving party "may not rely on conclusory allegations or unsubstantiated speculation," Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir. 1998), and must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Industries Co., 475 U.S. at 586.
Matters admitted under Rule 36(a) of the Federal Rules of Civil Procedure may be used for summary judgment under Rule 56. Donovan v. Carls Drug Co., 703 F.2d 650, 651 (2d Cir. 1983), rejected on other grounds by McLaughlin v. Richland Shoe Co., 486 U.S. 128, 133-34 (1988).
II. Plaintiffs' Rule 56.1 Statement
The Non-ZB Bank Defendants have not filed a response to Plaintiffs' Rule 56.1 Statement. This poses an evidentiary issue that must be dealt with at the outset.
To assist the court in determining whether parties properly address each other's assertions of fact, Local Rule 56.1 requires a party moving for summary judgment to "annex[] to the notice of motion a separate, short and concise statement, in numbered paragraphs, of the material facts as to which the moving party contends there is no genuine issue to be tried." Local Civ. R. 56.1(a). Each paragraph in the moving party's 56.1 statement "will be deemed to be admitted for purposes of the motion unless specifically controverted by a correspondingly numbered paragraph in the statement required to be served by the opposing party." Local Civ. R. 56.1(c); see also Gadsden v. Jones Lang Lasalle Americas, Inc., 210 F. Supp. 2d 430, 438 (S.D.N.Y. 2002). However, where the party opposing the motion fails to respond to a numbered paragraph, there must be support for that paragraph in the evidentiary record for it to be deemed undisputed, since assertions of fact "cannot be deemed true simply by virtue of their assertion in a Local Rule 56.1 statement." Holtz v. Rockefeller & Co., 258 F.3d 62, 73-74 (2d Cir. 2001).
Because the Non-ZB Bank Defendants failed to respond to Plaintiffs' Rule 56.1 Statement, the Court need only determine whether the statements in Plaintiff's document have support in the record to deem them undisputed. Many of Plaintiffs' purported undisputed facts are supported by citation to documentary evidence, including executive orders, press releases, excerpts of OFAC's list of SDNs, and corporate governance materials and legislation. (See Jacob Decl. Exhs. 7, 9-15 (Docket # 185).) These are clearly supported and can be considered undisputed.
Paragraphs in Plaintiffs' Rule 56.1 Statement that are supported by documentary evidence are paragraphs 1-5, 7-28, 33-34, 36-38, 40-41, 43, 55-56, 58-60.
The rest of the Rule 56.1 contentions are supported only by citations to Plaintiffs' unanswered Request for Admissions. These, too, can be deemed undisputed. The Non-ZB Bank Defendants failed to respond to Plaintiffs' Request for Admissions within 30 days of service. Under the Federal Rules of Civil Procedure, Non-ZB Bank Defendants are deemed to have admitted all "statements or opinions of fact, or application of law to fact" unless "the court, on motion, permits the admission to be withdrawn or amended." Fed. R. Civ. P. 36(a)-(b). The Non-ZB Bank Defendants have made no such motion, and the Court sees no other ground for excusing them from the impact of the rule. The Defendants' de facto admissions can be used to support uncontroverted statements in Plaintiffs' Rule 56.1 Statement, and can be independently considered in deciding Plaintiffs' motion for summary judgment. See J & J Sports Prods., Inc. v. Mari, No. 10-CV-455, 2012 WL 1004842, at *2 (E.D.N.Y. Mar. 23, 2012); see also Donovan, 703 F.2d at 651.
Paragraphs in Plaintiffs' Rule 56.1 Statement that are only supported by Plaintiffs' unanswered Request for Admissions are 6, 29-32, 35, 39, 42, 44-54, 57, 61-64. --------
Because each of the paragraphs in Plaintiffs' Rule 56.1 Statement contains citations to documentary evidence or to Plaintiffs' Requests for Admissions, the Court concludes, with only one exception, that the statements contained in Plaintiffs' Rule 56.1 Statement are undisputed. Paragraph six is framed as a statement of what Plaintiffs learned from non-party witnesses, which Non-ZB Bank Defendants are not in a position to dispute. (See Rule 56.1 Statement at ¶ 6.) Paragraph six is not deemed undisputed. However, it is also not relevant to the outcome of this case.
III. Defendants' Alter Ego Status
The Supreme Court's opinion in First National City Bank v. Banco Para El Comercio Exterior de Cuba (Bancec), 462 U.S. 611 (1983), sets out the analysis for determining whether the Non-ZB Bank Defendants are alter egos of Zimbabwe. Under Bancec, there is a presumption that a corporate entity related to a foreign government "is to be accorded separate legal status." Id. at 628. That presumption may be overcome "where a corporate entity is so extensively controlled by its owner that a relationship of principal and agent is created" or where "adher[ing] blindly to the corporate form . . . would cause . . . injustice." Id. at 629.
In determining whether a sovereign state "exercises significant and repeated control over the instrumentality's day-to-day operations" and thus whether the "extensive control" prong of Bancec is met, courts examine whether the involvement in the corporate entity's day-to-day operations exceeds the normal supervisory control exercised by a corporate parent over a subsidiary, or whether the sovereign and the instrumentality "operated as a single enterprise." See Transamerica Leasing, Inc. v. La Republica de Venezuela, 200 F.3d 843, 848-849 (D.C. Cir. 2000). Though a fact-intensive inquiry, several factors are relevant in that determination, including "whether the sovereign nation: (1) uses the instrumentality's property as its own; (2) ignores the instrumentality's separate status or ordinary corporate formalities; (3) deprives the instrumentality of the independence from close political control that is generally enjoyed by government agencies; (4) requires the instrumentality to obtain approvals for ordinary business decisions from a political actor; and (5) issues policies or directives that cause the instrumentality to act directly on behalf of the sovereign state." EM Ltd. v. Banco Cent. De La Republica Argentina, 800 F.3d 78, 91 (2d Cir. 2015).
Plaintiffs rely on certain undisputed facts common to each of the Non-ZB Bank Defendants. Each was designated a SDN by OFAC, which, as the Court previously found, is "one kind of (potentially very persuasive) evidence tending to show alter ego status." (See June 3 Order at 27.) Plaintiffs are also entitled to "an adverse inference about the contents" of board resolutions and minutes requested but not produced by the Non-ZB Bank Defendants. (Id. at 10.) The court will presume "that if [the resolutions and minutes] had been produced, they would have supported Plaintiffs' argument and undermined the Non-ZB Bank Defendants' argument that they are in fact no alter egos of the Government of Zimbabwe." (Id.)
Based on these and other undisputed facts, the Court concludes that Zimbabwe's control over each of the Non-ZB Bank Defendants is so dominant that they and the sovereign operated "as a single enterprise." Defendant ZMDC was structured to be dominated by Zimbabwe. The Zimbabwe Mining Development Corporation Act, which created ZMDC, mandates that Zimbabwe is to own no less than 51% of the entity's stock and that members of its board of directors - as well as the boards of directors of its subsidiaries - are to "be appointed by the Minister after consultation with the President and in accordance with any directions the President may give him." (Rule 56.1 Statement at ¶¶ 33-41; Jacob Decl. Exh. 12.) The Act also bars ZMDC from making any investments or loans without seeking the directions and advice of the Minister of Mines, who also sets the terms and conditions for the transfer of shares, approves auditors, and gives ZMDC's board of directors directions for managing the corporation's general reserve account. More generally, the Minister of Mines may direct ZMDC to take any actions that the Minister deems to be in the national interest, which ZMDC is responsible for promoting. (Id.)
Furthermore, Plaintiffs' 56.1 Statement describes instances in which ZMDC was forced to repay a loan Zimbabwe received from third parties using ZMDC's share of dividends from a mining project, to turn over the majority of its interest in a mining joint-venture to the National Army of Zimbabwe, and to permit Zimbabwe to retain revenue from certain other joint ventures in which ZMDC partnered with the government. (Rule 56.1 Statement at ¶¶ 42-52.)
Defendant MMCZ was also structured to be dominated by Zimbabwe. The Minerals Marketing Corporation of Zimbabwe Act, which created Defendant MMCZ, mandates that a majority of the entity's stock (75%) is to be owned by Zimbabwe and that members of its board of directors are to be appointed by the Minister of Mines "after consultation and in accordance with any directions the President may give him." (Rule 56.1 Statement at ¶¶ 55-60; Jacob Decl. Exh. 15.) The Minister of Mines sets compensation for the Board, sets the terms and conditions for transfer of shares, and may direct MMCZ to take certain actions that the Minister deems to be in the national interest, which MMCZ is responsible for promoting. (Id.)
Collectively, these facts indicate that Zimbabwe used ZMDC's and MMCZ's property as its own, deprived ZMDC and MMCZ of independence from close political control, and required ZMDC and MMCZ to obtain approval for ordinary business decisions from a political actor - namely the Minister of Mines and the President. In short, Zimbabwe exercised far more supervisory control over ZMDC and MMCZ than a corporate parent normally would over a subsidiary. Plaintiffs have thus shown that ZMDC and MMCZ are not operated as a typical government instrumentality entitled to the Bancec presumption, but rather were so extensively controlled by Zimbabwe as to be its alter egos.
The undisputed facts as to the other two Non-ZB Bank Defendants offered by Plaintiffs are less robust. Besides the SDA designations and the adverse inferences about the contents of Agribank's and Zimre's board resolutions and minutes, the only undisputed facts about Agribank and Zimre are that Agribank is wholly owned and Zimre is 43.23% owned by Zimbabwe. (Rule 56.1 Statement at ¶¶ 61-64.) Zimbabwe's ownership stakes in these entities is not dispositive; courts have consistently rejected the argument that ownership or even "the appointment or removal of an instrumentality's officers or directors, standing alone, overcomes the Bancec presumption." EM Ltd. v. Banco Cent. De La Republica Argentina, 800 F.3d 78, 92 (2d Cir. 2015).
Decisive here is the Non-ZB Bank Defendants' failure to put forward any evidence of their independence from Zimbabwe. In denying Defendant ZB Bank's motion for summary judgment on the issue of its alter ego status, this Court found that the "question [of] how much deference" is owed to OFAC's designation of an entity as a SDN "depends on what evidence goes the other way." (See June 3 Order at 28.) There, ZB Bank offered evidence that it was separated from Zimbabwe by a layer of intermediate ownership and that it "repeatedly struggled to maintain deposits related to government agencies and to stop government regulations that might harm its business . . . ." (Id.) This created a disputed fact to be decided at trial. The Non-ZB Bank Defendants have offered no evidence of their independence whatsoever. As a result, they are far more analogous to the defendant in In re 650 Fifth Ave., No. 08 Civ. 10934, 2013 WL 2451067 (S.D.N.Y. June 6, 2013) than was ZB Bank. In In 650 Fifth Ave, Judge Forrest held that an OFAC designation alone was sufficient for plaintiffs to meet their burden of showing that an entity is an instrumentality of a terrorist sponsor under the Terrorism Risk Insurance Act because the defendants, like the Non-ZB Bank Defendants here, presented no evidence tending to contradict OFAC's designation. Id.
Agribank and Zimri's failure to offer any evidence supporting independence from Zimbabwe has set the bar low for Plaintiffs. Based on Agribank's and Zimri's designations as SDNs, this Court concludes that the Agribank and Zimri were also so extensively controlled by Zimbabwe as to be its alter egos.
IV. Judgement Against Assets
In addition to a declaration that Non-ZB Bank Defendants are alter egos of Zimbabwe, Plaintiffs also ask the Court to declare that (1) the judgment against Zimbabwe may be enforced using the assets of the Non-ZB Bank Defendants that are located in the United States and used for commercial purposes, upon identification of such property, and (2) "the Non-ZB Bank Defendants' frozen assets in the United States are such property used for a commercial activity in the United States." (Pls. Br. at 2.)
Section 1610(b) of the Foreign Sovereign Immunities Act states that "any property in the United States of an agency or instrumentality of a foreign state engaged in commercial activity in the United States shall not be immune from attachment in aid of execution, or from execution, upon a judgment entered by a court of the United States" if "the judgment relates to a claim for which the agency or instrumentality is not immune by virtue of section 1605(a) (2), (3), or (5) or 1605(b) of this chapter." 28 U.S.C. § 1610 (2014). This Court has already held that the Non-ZB Bank Defendants, if found to be alter egos of Zimbabwe, are not immune from judgment under Section 1605(a)(2). (See Jacob Decl. Exh. 3 at 4 (Feb. 10, 2011 Order).) Accordingly, Plaintiffs need only show that the Non-ZB Bank Defendants' assets are "property in the United States of a foreign state . . . used for a commercial activity in the United States" before "there can be post-judgment process" against the Non-ZB Bank Defendants' assets under the FSIA. See Aurelius Capital Partners, LP v. Republic of Argentina, No. 07 CIV. 11327 (TPG), 2010 WL 768874, at *2 (S.D.N.Y. Mar. 5, 2010).
The Non-ZB Bank Defendants did not dispute Plaintiffs' contentions of fact that "All of the Non-ZB Bank Defendants have assets frozen in the United States pursuant to the Sanctions," and that "The assets of the Non-ZB Bank Defendants that are frozen were used for a commercial activity in the United States." (Rule 56.1 Statement at ¶¶ 28-29.) It being undisputed that the Non-ZB Bank Defendants have assets in the United States and that these assets are used for commercial activity in the United States, the Court grants Plaintiffs' second and third requests for declaratory relief.
CONCLUSION
For the foregoing reasons, Plaintiffs' motion for summary judgment is granted in full. Dated: December 17, 2015
/s/_________
U.S.D.J. BY ECF TO ALL COUNSEL