Opinion
96 Civ. 7916 (RWS) and 96 Civ. 7917 (RWS)
January 18, 2000
WEIL, GOTSHAL MANGES LLP New York (OTTO G. OBERMAIER, ESQ., MITCHELL D. HADDAD, ESQ., ROSS MORRISON, ESQ., of Counsel), for plaintiffs.
BAKER HOSTETLER, New York (MARK A. CYMROT, ESQ., PEDER A. GARSKE, ESQ., MARK I. BAILEN, ESQ., of counsel), for defendants.
OPINION
Plaintiff Elliott Associates, L.P. ("Elliott") has sought further modification of an Order of Attachment and Restraint (the "Order") granted by this Court on November 2, 1999, and continued in force and effect, as modified, on November 17, 1999. Defendants Banco de la Nacion ("Nacion") and the Republic of Peru ("Peru") (together, "Defendants") have objected to entry of the Order and have sought to have it lifted. Alternatively, Defendants have sought modification of the Order. For the reasons set forth below, the Order will continue in force and effect as modified on November 17, 1999, without further modification.
Background and Prior Proceedings
The facts and prior proceedings in these actions have been set forth in several opinions of this and other courts, familiarity with which is assumed. See, e.g., Elliott Assoc. L.P. v. Banco de la Nacion, 194 F.3d 363 (2d Cir. 1999); Elliott Assoc. L.P. v. Banco de la Nacion, 12 F. Supp.2d 328 (S.D.N.Y. 1998); Elliott Assoc. L.P. v. Banco de la Nacion, 176 F.R.D. 93 (S.D.N.Y. 1997); Elliott Assoc. L.P. v. Banco de la Nacion, 961 F. Supp. 83 (S.D.N.Y. 1997); Elliott Assoc. L.P. v. Banco de la Nacion, 948 F. Supp. 1203 (S.D.N.Y. 1996). Facts and proceedings relevant to the instant decision are set forth below.
Following the Second Circuit's reversal and remand, see Elliott, 194 F.3d 363, of this Court's judgment in favor of Defendants, see Elliott, 12 F. Supp.2d 328, Elliott sought, by an Order to Show Cause dated October 31, 1999, an Order of Attachment and Restraint on assets of Defendants sufficient to satisfy the sums of $39,900,884.45 (as to Peru) and $15,606,224.62 (as to Nacion), which Elliott claims it will be due should judgment be entered in its favor following the reversal and remand.
Elliott filed on November 23, 1999 a motion for entry of judgment against Defendants. Defendants have cross-moved to dismiss the actions. Oral argument on these motions, as well as on motions involving discovery disputes, is scheduled to be heard on January 19, 2000.
On November 2, 1999, this Court issued the Order, which was limited to attachment and restraint of assets of Peru and Nacion, respectively, in the amounts indicated in the previous paragraph, contained within the Court's geographical jurisdiction and used for commercial activity in the United States. The following assets were exempted from attachment and restraint under the Order: (a) property belonging to any consulate, embassy or permanent U.N. mission of Peru, (b) property used in connection with military activity, and (c) property of the Central Bank of Peru held for its own account. The restraint prohibited Defendants, and their garnishees, from directly or indirectly transferring, alienating and/or relocating out of the State of New York any property subject to the attachment up to the amounts indicated.
The Order was set to expire at 5:00 p.m. on November 17, 1999. A hearing was scheduled for noon on that day to consider both Defendants' objections to entry of the Order and Elliott's objections to certain language in the Order. Between November 2 and November 17, the Court received further written submissions from the parties.
At the November 17, 1999 hearing, after oral argument, the Court directed that the Order be modified. First, the Order was made effective up until the entry of judgment in the actions. Second, the geographic reach of the Order was expanded to include all of New York State. Third, the prohibition on transferring, alienating, and/or relocating property out of New York State was expanded to include such activities within New York State. These modifications had been sought by Elliott over the objections of Defendants, were granted for the reasons stated in open court.
The Court also declined, provisionally, to make two further modifications which Elliott sought: (i) to drop the language "used for commercial activity in the United States"; (ii) to include, among the restrictions on transferring, alienating, or relocating property, "funds on deposit with any foreign branches or head offices of [all persons and garnishees, their officers, agents, etc.], to the extent that the records of such deposits or copies of those records are maintained in, or are accessible by electronic means or otherwise from within, the jurisdiction of this Court."
Finally, the Court provisionally declined to include in the Order language sought by Defendants which would exempt from attachment or restraint "payments or other funds received from International Organizations."
The three provisional rulings are the subject of the discussion which follows.
Discussion
I. The Order Is Restricted to Property of Defendants Used for Commercial Activity in the United States
The power of this Court to attach property of Defendants is constrained by the Foreign Sovereign Immunities Act, 28 U.S.C. § 1601-1611 (the "FSIA"). Section 1609 of the FSIA provides that "the property in the United States of a foreign state shall be immune from attachment arrest and execution except as provided in sections 1610 and 1611 of this chapter." It is undisputed that both Peru and Nacion meet the definition of "foreign state" as set forth in § 1603.
28 U.S.C. § 1610 provides, in pertinent part:
(d) The property of a foreign state, as defined in section 1603(a) of this chapter, used for a commercial activity in the United States, shall not be immune from attachment prior to the entry of judgment in any action brought in a court of the United States . . . if-
(1) the foreign state has waived its immunity from attachment prior to judgment . . . and
(2) the purpose of the attachment is to secure satisfaction of a judgment that . . . may ultimately be entered against the foreign state, and not to obtain jurisdiction.
There is no dispute that, with respect to the debt that is the subject of these actions, Defendants have waived their sovereign immunity to the "fullest extent permitted under the Foreign Sovereign Immunities Act." Elliott maintains that this waiver goes beyond the "property used for a commercial activity in the United States" exception. The plain language of the statute, however, does not support Elliott's view. "As the language of the statute makes plain, the FSIA does not create immunities, but rather creates exceptions to pre-existing immunities. Before enactment of the FSIA in 1976, the traditional view of courts in the United States was that property of foreign states was absolutely immune from execution." Fidelity Partners v. Philippine Export Foreign Loan Guarantee Corp., 921 F. Supp. 1113, 1117 (S.D.N.Y. 1996) (citing H.R. Rep. No. 1487, 94th Cong., 2d Sess. 27, reprinted in 1976 U.S.C.C.A.N. 6604, 6626). The waivers only grant immunity to the extent permitted under the FSIA. For prejudgment attachment, this extent is limited to property used for commercial activity in the United States.
II. Funds Held in Foreign Branches of New York Banks, or in Head Offices of Banks with Branches in New York, Are Not Subject to Restraint
Elliott has also sought language in the Order including, within the restrictions on transferring, alienating, or relocating property, "funds on deposit with any foreign branches or head offices of [all persons and garnishees, their officers, agents, etc.], to the extent that the records of such deposits or copies of those records are maintained in, or are accessible by electronic means or otherwise from within, the jurisdiction of this Court."
Support for this position comes principally from Digitrex, Inc. v. Johnson, 491 F. Supp. 66 (S.D.N.Y. 1980). Digitrex held that service of a valid restraining notice on the main office of Manufacturers Hanover Trust Company ("Manufacturers Hanover") sufficed to freeze assets of the defendant Johnson which were located in a branch office of Manufacturers Hanover. See id. at 69. Previously, New York law required a restraining notice to be served upon the particular branch at which a judgment debtor's account was maintained. See id. at 67-68. The Digitrex court relied chiefly on the fact that technological advances, in the form of high-speed computers and other sophisticated communications equipment, rendered the previous rule obsolete. See id. at 68.
However, the Digitrex rule is only applicable where "the bank's main office and branches are within the same jurisdiction." Limonium Maritime, S.A. v. Mizushima Marinera, S.A., 961 F. Supp. 600, 607 (S.D.N.Y. 1997); see Fidelity Partners, Inc. v. Philippine Export Foreign Loan Guarantee Corp., 921 F. Supp. 1113, 1120 (S.D.N.Y. 1996). Here, the language Elliott seeks to be added to the Order is precisely for the purpose of restraining funds held in branches or main offices of banks outside the jurisdiction. To amend the Order by adding such language would be to disregard the established case law in this District.
Elliott has not cited any post-Digitrex case holding that service of a restraint on a branch or main office of a bank within the jurisdiction will serve effectively to restrain assets held in a branch or main office of the same bank outside the jurisdiction.
Moreover, Elliott's attempt to distinguish Limonium and Fidelity Partners fails. While both Limonium and Fidelity cited additional factors for prohibiting the restrictions on assets sought therein — for example, a lack of control over, or high-speed computer connections with, the foreign branches or offices — these factors are independent from the jurisdictional factor. See Limonium, 961 F. Supp. at 607; Fidelity Partners, 921 F. Supp. at 1120.
Furthermore, as a matter of public policy, "[a] rule providing that service of a restraining notice on one bank branch (e.g. New York) suffices to reach assets in another bank branch in a city in a different country (e.g. London) would cause substantial interference with routine banking business." Limonium, 961 F. Supp. at 608.
For these reasons, the Court declines to modify the Order as suggested by Elliott.
III. Language Pertaining to Funds Received from International Organizations Will Not Be Added to the Order
Defendants seek modification of the Order to prohibit attachment or restraint of payments or other funds received by
Defendants from International Organizations.
Section 1611(a) of the FSIA states:
Notwithstanding the provisions of section 1610 of this chapter, the property of those organizations designated by the President as being entitled to enjoy the privileges, exemptions, and immunities provided by the International Organizations Immunities Act shall not be subject to attachment or any other judicial process impeding the disbursement of funds to, or on the order of, a foreign state as the result of an action brought in the courts of the United States or of the States.28 U.S.C. § 1611(a).
As the parties may recall from oral argument on November 2, 1999, this Court has attempted to conform the Order to the precise language of the FSIA where applicable, and where disputed by the parties. Defendant's request here would go beyond the language of the FSIA. As indicated, § 1611(a) is silent regarding the fate of funds after they have been distributed to a foreign state by an International Organization. Just as it has been determined, in Part I above, that it would be inappropriate to include in the Order language more expansive than the "commercial property" exception contained in the statute, so here it would be inappropriate to expand the immunities beyond the precise language of the FSIA.
It may be the case, as Defendants suggest, that funds distributed to Peru or Nacion by International Organizations would in any event not fall within the terms of the Order because such funds would not be "used for commercial purposes in the United States." However, Republic of Argentina v. Weltover, 504 U.S. 607 (1992) suggests otherwise. In any event, this situation has not yet, to the knowledge of this Court, come to pass in the instant case, and, as Elliott points out in its moving papers, to insert language specifically excluding attachment of such funds after disbursement would, under the circumstances, be tantamount to rendering an advisory opinion, something this Court may not do. For this reason, the Court finds that it would be imprudent to modify the Order in accordance with Defendants' suggestion.
Conclusion
For the reasons set forth above, the Order of November 17, 1999 will not be modified.
It is so ordered.