Opinion
Case No. 13 Civ. 1917 (CM)
06-03-2013
BERNARDUS HENRICUS FUNNEKOTTER, HERMANNES VAN DUREN, JR., MARGARETA VAN DUREN, DICKEY ROELANDA BREYTENBACH, ROMELIA GWENDOLYN FISHER, MAX WILLEM ARTHUR GRAAF VAN RECHTEREN L IMPURG, ROLF JAN PHILIP WALRAVEN, WESSEL JOHANNES WELLER, LOEKIE WELLER, JOHAN PIETER WELLER, LION HELLMUT BENJAMINS, CAREL FREDERIK DES TOMBE and ERICA HANSEN, Plaintiffs, v. AGRICULTURAL DEVELOPMENT BANK OF ZIMBABWE, MINERALS MARKETING CORPORATION OF ZIMBABWE, ZB BANK LIMITED, ZIMBABWE MINING DEVELOPMENT CORPORATION, ZIMRE HOLDINGS LIMITED and REPUBLIC OF ZIMBABWE, Defendants.
Edward P. Gilbert Mark S. Jarashow MORRISON COHEN LLP 909 Third Avenue New York, New York 10022 (212) 735-8600 Attorneys for Defendant ZB Bank Limited
Edward P. Gilbert
Mark S. Jarashow
MORRISON COHEN LLP
909 Third Avenue
New York, New York 10022
(212) 735-8600
Attorneys for Defendant
ZB Bank Limited
DEFENDANT ZB BANK LIMITED'S MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION TO DISMISS TABLE OF CONTENTS
Page TABLE OF AUTHORITIES ...................................................................................................... iii PRELIMINARY STATEMENT .................................................................................................. 1 FACTUAL BACKGROUND ....................................................................................................... 3 ARGUMENT ................................................................................................................................ 5 POINT I
THE COURT LACKS SUBJECT-MATTER AND PERSONAL JURISDICTION OVER THE CLAIMS AGAINST ZB BANK, AS ZB BANK IS ENTITLED TO AND HAS NOT WAIVED SOVEREIGN IMMUNITY .............................................................................................. 5
A. APPLICABLE STANDARDS ............................................................................. 5
B. PLAINTIFFS HAVE NOT ALLEGED AN INDEPENDENT BASIS FOR JURISDICTION OVER ZB BANK ................................................ 7
C. THE REPUBLIC OF ZIMBABWE DID NOT WAIVE SOVEREIGN IMMUNITY FOR ITSELF OR FOR ANY ALLEGED "ALTER EGO," INCLUDING ZB BANK, BY BECOMING A SIGNATORY TO THE CONVENTION ON THE SETTLEMENT OF INVESTMENT DISPUTES ............................... 11
D. ZB BANK HAS NOT ENGAGED IN FSIA COMMERCIAL ACTIVITY ......................................................................................................... 13
E. THE PLAINTIFFS HAVE FAILED TO ESTABLISH JURISDICTION OVER ZB BANK PURSUANT TO 28 U.S.C. § 1605(a)(6) ....................................................................................... 15 POINT II
THE COMPLAINT FAILS TO STATE A CLAIM THAT ZB BANK IS THE ALTER EGO OF THE REPUBLIC OF ZIMBABWE ..................................... 19
A. PLEADING REQUIREMENTS UNDER IQBAL AND TWOMBLY ................ 19
B. THE ELEMENTS OF AN ALTER EGO CLAIM UNDER BANCEC .............. 20
C. THE COMPLAINT'S CONCLUSORY ALLEGATIONS MUST BE DISREGARDED ................................................................................................ 23
D. THE COMPLAINT'S ALLEGATIONS OF "FRAUD AND INJUSTICE" UNDER BANCEC ARE PURELY CONCLUSORY .................. 24 CONCLUSION ........................................................................................................................... 25 TABLE OF AUTHORITIES
Page
CASES
Alejandre v. Telefonica Larga Distancia de Puerto Rico, Inc., 183 F.3d 1277 (11th Cir. 1999) ................................................................................................. 22 Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428 (1989) ..................................................................................................................... 6 Ashcroft v. Iqbal, 556 U.S. 662 (2009) ............................................................................................. 2, 17, 19-20, 23 Bayer & Willis Inc. v. Republic of Gambia, 283 F. Supp. 2d 1 (D.D.C. 2003) ............................................................................................... 22 Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) ............................................................................................. 2, 17, 19-20, 23 Butler v. Sukhoi Co., 579 F.3d 1307 (11th Cir. 2009) ................................................................................................. 11 Capital Ventures Int'l v. Republic of Argentina, 552 F.3d 289 (2d Cir. 2009) ........................................................................................................ 6 Covington Marine Corp. v. Xiamen Shipbuilding Indus. Co., No. 12 Civ. 30383, 2012 U.S. App. LEXIS 26297 (5th Cir. Dec. 21, 2012) ...................... 15-17 Dole Food Co. v. Patrickson, 538 U.S. 468 (2003) ..................................................................................................................... 6 EM Ltd. v. Republic of Argentina, 473 F.3d 463 (2d Cir. 2007) ...................................................................................................... 21 Epperson v. Entertainment Express, Inc., 242 F.3d 100 (2d Cir. 2001) ................................................................................................ 10-11 Fagan v. Republic of Austria, No. 08 Civ. 6715 (LTS), 2011 U.S. Dist. LEXIS 32058 (S.D.N.Y. Mar. 25, 2011) ................... 1 First Inv. Corp. v. Fujian Mawei Shipbuilding, Ltd., 703 F.3d 742 (5th Cir. 2012) ............................................................................................... 16-18 First Nat'l City Bank v. Banco Para El Comercio Exterior De Cuba, 462 U.S. 611 (1983) ..................................................................................................... 2, 8, 20-25 Flatow v. Islamic Republic of Iran, 308 F.3d 1065 (9th Cir. 2002) ..................................................................................................... 9 Flatow v. Islamic Republic of Iran, 67 F. Supp. 2d 535 (D. Md. 1999), aff'd, 225 F.3d 653 (4th Cir. 2000) ................................... 10 Foremost-McKesson, Inc. v. Islamic Republic of Iran, 905 F.2d 438 (D.C. Cir. 1990) ................................................................................................. 7, 9 Gabay v. Mostazafan Found. of Iran, 151 F.R.D. 250 (S.D.N.Y 1993) ................................................................................................ 10 Gates v. Victor Fine Foods, 54 F.3d 1457 (9th Cir. 1995) ..................................................................................................... 13 Hercaire Int'l, Inc. v. Argentina, 821 F.2d 559 (11th Cir. 1987) ................................................................................................... 22 Hester Int'l Corp. v. Federal Republic of Nigeria, 879 F.2d 170 (5th Cir. 1989) ..................................................................................................... 24 In re Arbitration Act of 1996 v. Xiamen Shipbuilding Indus. Co., No. 09-CV-7041, 2012 U.S. Dist. LEXIS 26741 (E.D. La. Feb. 29, 2012) .............................. 17 Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 313 F.3d 70 (2d Cir. 2002) .......................................................................................................... 6 Kensington Int'l Ltd v. Republic of Congo, No 03 Civ. 4578 (LAP), 2007 U. S. Dist. LEXIS 25282 (S.D.N.Y Mar. 30 2007) .................... 3 Knox v. Orascom Telecom Holding S.A.E., 477 F. Supp. 2d 642 (S.D.N.Y. 2007) ....................................................................................... 11 LNC lnvs., Inc. v. Republic of Nicaragua, 115 F. Supp. 2d 358 (S.D.N.Y.), aff'd, 228 F.3d 423 (2d Cir. 2000) .............................. 8, 21, 24 Letelier v. Republic of Chile, 748 F.2d 790 (2d Cir. 1984) .......................................................................................... 21-22, 25 Liberian Eastern Timber Corp. v. Government of the Republic of Liberia, 650 F. Supp. 73 (S.D.N.Y. 1986), aff'd without opinion, 854 F.2d 1314 (2d Cir. 1987) .......... 13 Library of Congress v. Shaw, 478 U.S. 310(1986) ................................................................................................................... 13 Mason v. Am. Tobacco Co., 346 F.3d 36 (2d Cir. 2003), cert. denied, 541 U.S. 1057 (2004) ................................................. 3 Matar v. Dichter, 563 F.3d 9 (2d Cir. 2009) ............................................................................................................ 6 McKesson Corp. v. Islamic Republic of Iran, 52 F.3d 346 (D.C. Cir. 1995) ..................................................................................................... 10 Minpeco, S.A. v. Hunt, 686 F. Supp. 427 (S.D.N.Y. 1988) .......................................................................................... 8-9 Peacock v. Thomas, 516 U.S. 349 (1996) ................................................................................................................... 11 Pravin Banker Assocs., Ltd. v. Banco Popular del Peru, 9 F. Supp. 2d 300 (S.D.N.Y. 1998) ............................................................................................ 22 Rogers v. Petroleo Brasileiro, S.A., 741 F. Supp. 2d 492 (S.D.N.Y. 2010) ......................................................................................... 6 Saudi Arabia v. Nelson, 507 U.S. 349 (1993) ............................................................................................................... 6, 14 Scheidemann v. Qatar Football Ass'n, No. 04 Civ. 3432 (LAP), 2004 U.S. Dist. LEXIS 2852 (S.D.N.Y. Jan. 15, 2008) ................... 21 Smith v. Local 819 I.B.T. Pension Plan, 291 F.3d 236 (2d. Cir. 2002) ....................................................................................................... 3 Transamerica Leasing, Inc. v. La Republica de Venezuela, 200 F.3d 843 (D.C. Cir. 2000) ................................................................................................... 24 Transatlantic Shiffahrtskontor GmBH v. Shanghai Foreign Trade Corp., 204 F.3d 384 (2d Cir. 2000) ................................................................................................ 14-15 Walter Fuller Aircraft Sales, Inc. v. Republic of Philippines, 965 F.2d 1375 (5th Cir. 1992) ................................................................................................... 21 World Wide Minerals, Ltd. v. Republic of Kazakhstan, 296 F.3d 1154 (D.C. Cir. 2002) ................................................................................................. 13
DOCKETED CASES
Funnekotter et al. v. Republic of Zimbabwe, No. 09-CV-9168 (CM), Doc. No. 11 (S.D.N.Y. Feb. 1, 2010) ............................................. 3, 18
FEDERAL STATUTES
Fed. R. Civ. P. 8(a) ................................................................................................................... 1, 19 Fed. R. Civ. P. 12(b)(1) ................................................................................................................... 1 Fed. R. Civ, P. 12(b)(2) .............................................................................................................. 1, 7 Fed. R. Civ. P. 12(b)(6) .............................................................................................................. 1, 3 28 U.S.C. § 1303(a) ........................................................................................................................ 6 28 U.S.C. § 1303(b) ........................................................................................................................ 7 28 U.S.C. § 1602, et seq. ................................................................................................................. 1 28 U.S.C. § 1603 ............................................................................................................................. 6 28 U.S.C. § 1603(a) ........................................................................................................................ 6 28 U.S.C. § 1604 ............................................................................................................................. 6 28 U.S.C. § 1605(a)(1) ............................................................................................................. 4, 12 28 U.S.C. § 1605(a)(2) ................................................................................................... 4, 7, 14-15 28 U.S.C. § 1605(a)(6) ....................................................................................................... 4, 15, 19 28 U.S.C. § 1605(a)(6)(B) ............................................................................................................ 16 28 U.S.C. § 1610(b) ...................................................................................................................... 21
MISCELLANEOUS
H.R. Rep. No. 94-1487 (1976), reprinted in U.S. Code Cong. & Admin. News, 6604 (1976) ........................................................................... 21 Paul L. Lee, Central Banks and Sovereign Immunity, 41 Colum. J. Transnat'l L. 327 (2003) ......................................................................................... 21
Defendant ZB Bank Limited ("Defendant" or "ZB Bank") submits this memorandum in support of its motion to dismiss the claims alleged against it, pursuant to Fed. R. Civ. P. 12(b)(1), 12(b)(2) and 12(b)(6) on the grounds that (a) the Court lacks subject matter and personal jurisdiction over such claims, as ZB Bank is entitled to and has not waived sovereign immunity, and (b) the complaint fails to state a claim that ZB Bank is the alter ego of defendant Republic of Zimbabwe (the "Republic").
PRELIMINARY STATEMENT
Plaintiffs, judgment creditors of the Republic, have filed this action against, among others, the Republic and ZB Bank seeking a declaratory judgment holding that ZB Bank is the alter ego of the Republic. Plaintiffs' theory is that ZB Bank is the Republic's alter ego, and therefore should be treated in all respects as if it were the Republic. The Complaint must be dismissed because this Court lacks subject matter and personal jurisdiction over ZB Bank and because it consists almost entirely of conclusory allegations with no facts to support them.
A copy of the Summons & Complaint ("Compl.") is attached as Exhibit A to the accompanying Declaration of Edward P. Gilbert, dated June 3, 2013 ("Gilbert Dec").
As plaintiffs admit, ZB Bank is an instrumentality of the Republic and, as such, is immune from the jurisdiction of United States courts pursuant to the Foreign Sovereign Immunities Act, 28 U.S.C. § 1602, et seq. (the "FSIA"). (Compl. ¶ 27). Plaintiffs, however, allege that the FSIA's waiver, commercial activity and arbitration exceptions to immunity apply to ZB Bank. While these exceptions to immunity may apply to the Republic, it is indisputable that: (1) ZB Bank has not waived immunity with respect to this action or the claims asserted by Plaintiffs against the Republic; (2) ZB Bank's alleged commercial activities in the United States have nothing to do with Plaintiffs' claims against the Republic; and (3) ZB Bank cannot be considered to have been a party to the underlying arbitration or agreement to arbitrate that is at the root of the present action. Plaintiffs do not allege that jurisdiction exists over ZB Bank itself. Instead, in a circular argument, Plaintiffs rely on ZB Bank's alleged alter ego status -- which is the ultimate relief that Plaintiffs seek in this case -- to claim that ZB Bank is subject to the Court's jurisdiction on the same basis that the Court (allegedly) has jurisdiction over claims against the Republic. Plaintiffs thus fail to allege an independent basis for jurisdiction over ZB Bank, as the law requires.
Agencies and instrumentalities of a foreign state, like ZB Bank, are entitled to a presumption of separateness from their sovereign governments. See First Nat'l City Bank v. Banco Para El Comercio Exterior De Cuba, 462 U.S. 611, 627 (1983) ("Bancec"). This presumption may be rebutted only where: (1) plaintiffs can demonstrate that there is an alter ego relationship between the foreign state and its instrumentality; or (2) recognizing the separateness of the instrumentality would work a fraud or injustice. Bancec, 462 U.S. at 629.
The Complaint falls far short of alleging sufficient non-conclusory facts evidencing an alter ego relationship between the Republic and ZB Bank. In its 1983 Bancec decision, the Supreme Court set forth the rare circumstances under which an instrumentality's separate status may be disregarded. Plaintiffs attempt, in their Complaint, to allege that such circumstances exist with respect to ZB Bank. However, much of the Complaint consists of bare conclusory allegations which, under the pleading standards in the Supreme Court's decisions in Ashcroft v. Iqbal and Bell Atlantic v. Twombly, must be disregarded. The remaining allegations describe facts concerning the relationship between the Republic and ZB Bank that are innocuous and typical of relationships between sovereign states and their instrumentalities generally -- e.g., that the state owns most or all of the instrumentality's shares or appoints most or all of its directors.
Finally, Plaintiffs claim that an "injustice" would result unless the Court disregarded ZB Bank's separate status -- a status it is presumed to have -- is based on one threadbare paragraph which consists of purely conclusory allegations. Glaringly missing from the Complaint are any specific, non-conclusory allegations that the Republic has used ZB Bank for any purpose whatsoever. Plaintiffs' allegations do not add up to anything that resembles the abuses in the decisions cited in Bancec.
For each of these reasons, lack of FSIA jurisdiction and failure to plead a plausible alter ego claim, the claims against ZB Bank should be dismissed.
FACTUAL BACKGROUND
Certain factual allegations of the Complaint are assumed to be true solely for the purpose of this motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6). The presumption of truthfulness does not apply to conclusory allegations or legal conclusions. See Mason v. Am. Tobacco Co., 346 F.3d 36, 39 (2d Cir. 2003) ("legal conclusions, deductions or opinions couched as factual allegations are not given a presumption of truthfulness") (internal quotation marks and citations omitted), cert. denied, 541 U.S. 1057 (2004); Smith v. Local 819 I.B.T. Pension Plan, 291 F.3d 236, 240 (2d. Cir. 2002) ("conclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss") (internal citation omitted); Kensington Int'l Ltd v. Republic of Congo, No 03 Civ. 4578 (LAP), 2007 U. S. Dist. LEXIS 25282, at *4 (S.D.N.Y Mar. 30 2007) ("[a Court] need not give credence to plaintiff's conclusory allegations or legal conclusions offered as pleadings") (internal quotation marks and citations omitted). ZB Bank reserves its right to deny or contest any allegation in the Complaint.
On July 29, 2009, Plaintiffs obtained an arbitration award from the International Center for Settlement of Investment Disputes ("ICSID") against the Republic. See Funnekotter et al. v. Republic of Zimbabwe, No. 09-CV-9168 (CM), Doc. No. 11, (S.D.N.Y. Feb. 1, 2010); Compl. at ¶ 1. On February 2, 2010, this Court confirmed the ICSID arbitration award and entered a judgment against the Republic for $25,120,171.33. See id.
Over three years later, on March 21, 2013, Plaintiffs commenced the present action against the Republic, along with several other defendants, including ZB Bank, seeking a declaration that these defendants, including ZB Bank, are alter egos of the Republic, a judgment debtor of the Plaintiffs due to this Court's prior confirmation of the ICSID arbitral award (Compl., pp. 11-12 ["Wherefore" clauses]). The Plaintiffs also seek a declaration that the assets of the other defendants, including ZB Bank, which are located in the United States, "should be treated as property of Zimbabwe used for commercial purposes against which the Judgment may be enforced" (Compl., pp. 11-12). In essence, the present action is one for the execution of the arbitral award that this Court previously confirmed against the Republic (Compl. ¶ 1, pp. 11-12).
The Plaintiffs have alleged that this Court has jurisdiction over ZB Bank pursuant to three exceptions to sovereign immunity codified in the FSIA: waiver (citing § 1605(a)(1)), the commercial activity exception (citing § 1605(a)(2)), and the arbitration exception (citing § 1605(a)(6)). (Compl. ¶¶ 7-11). Plaintiffs, however, do not allege that ZB Bank itself was a party to the underlying arbitration or arbitration agreement which resulted in the ICSID arbitral award. Likewise, Plaintiffs do not allege that ZB Bank itself waived immunity under the FSIA. Instead, Plaintiffs' jurisdictional allegations depend solely on its claim that the Republic's waiver, commercial and/or arbitration activity should be imputed to ZB Bank, on the theory that ZB Bank is the Republic's alter ego (Compl. ¶¶ 9, 10). Notably, Plaintiffs' alter ego allegations all concern the relationship between the Republic and ZB Bank in Zimbabwe (Comp. ¶ 20).
The majority of the Plaintiffs' allegations against ZB Bank are conclusory group pleadings against all of the so-called "alter ego defendants," including allegations that:
• "Zimbabwe's dominance over the Alter Ego Defendants is wide-ranging, extending throughout the Alter Ego Defendants' activities and Zimbabwe has displayed a dominating hand in directing the use of the Alter Ego Defendants' assets and profits." (Compl. ¶ 5);
• "Zimbabwe, through its government officials and military officers, dictates how and with whom the Alter Ego Defendants conduct their businesses. Zimbabwe utterly dominates the business, management and day-to-day operations of the Alter Ego Defendants." (Compl. ¶ 5); and
• "As alter egos of Zimbabwe, the Alter Ego Defendants are not entitled to be treated as separate juridical entities. The dominion and control by Zimbabwe and its official and military over the Alter Ego Defendants is so complete that they have no meaningful separate existence, but operate as mere agents of Zimbabwe." (Compl. ¶ 42).
The few allegations that are specific to ZB Bank are similarly conclusory and are based upon "information and belief," including the allegations that:
• "[ZB Bank] is a banking corporation wholly owned by ZB Financial Holdings Limited which, in turn, is majority owned by, and completely controlled by [the Republic]." (Compl. ¶ 20); and
• "[The Republic's] ministries appoint directors to ZB Bank's board of directors." (Compl. ¶ 20).
The Plaintiffs have also alleged that because ZB Bank has been designated a Specially Designated National ("SDN") by the Office of Foreign Assets Control of the United States Department of Treasury it is conclusively the Republic's alter ego. (Compl. ¶ 20). Not only is this allegation conclusory, but Plaintiffs have conceded that being listed as a SDN can mean many different things that fall short of alter ego status. (Compl. ¶ 30).
Despite their best efforts, the Plaintiffs have not, and in fact cannot adequately plead that this Court has jurisdiction over ZB Bank. Likewise, even if there were jurisdiction, the Plaintiffs have not and cannot adequately plead that ZB Bank is an alter ego of the Republic. Accordingly, for the follow reasons, this Court must dismiss the claims brought against ZB Bank.
ARGUMENT
POINT I
THE COURT LACKS SUBJECT-MATTER AND PERSONAL JURISDICTION
OVER THE CLAIMS AGAINST ZB BANK, AS ZB BANK IS ENTITLED TO
AND HAS NOT WAIVED SOVEREIGN IMMUNITY
A. APPLICABLE STANDARDS
The FSIA is "the sole basis for obtaining jurisdiction over a foreign state in our courts." Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434 (1989); see also Capital Ventures Int'l v. Republic of Argentina, 552 F.3d 289, 293 (2d Cir. 2009). The FSIA creates original jurisdiction in the federal courts over "any nonjury civil action against a foreign state," but holds that "a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States" except when certain enumerated exceptions apply. 28 U.S.C. §§ 1330(a), 1604. The FSIA defines a "foreign state" to "include[] a political subdivision of a foreign state or an agency or instrumentality of a foreign state," defining the latter category to include "any entity . . . a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof." 28 U.S.C. § 1603; see also, e.g., Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 313 F.3d 70, 75-76 n.1, 4 (2d Cir. 2002); Rogers v. Petroleo Brasileiro, S.A., 741 F. Supp. 2d 492, 499 (S.D.N.Y. 2010). Foreign state status is to "be determined at the time suit is filed." Dole Food Co. v. Patrickson, 538 U.S. 468, 478, (2003). While the initial burden of a prima facie showing is on a defendant seeking immunity, once that showing has been made, the "burden then shifts to the plaintiff to present evidence showing that an exception to the FSIA applies." Matar v. Dichter, 563 F.3d 9, 12 (2d Cir. 2009).
Plaintiffs, therefore, face the most difficult hurdle in this case. It is undisputed that ZB Bank is an instrumentality of the Republic (Compl. ¶¶ 9, 11, 27). ZB Bank therefore is a "foreign state" as defined in § 1603(a) and, as such, "is presumptively immune from the jurisdiction of United States courts" unless an exception specified in the FSIA applies. Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993); 28 U.S.C. § 1604. Likewise, foreign sovereign instrumentalities are presumed to have independent judicial status, which applies to both jurisdictional and substantive issues. Foremost-McKesson, Inc. v. Islamic Republic of Iran, 905 F.2d 438, 446 (D.C. Cir. 1990).
Thus, the burden is on plaintiffs to come forward with evidence which establishes that one of the exceptions to the FSIA applies, denying ZB Bank immunity from jurisdiction, as well as the presumption of separate status that the FSIA grants to ZB Bank. To do so, Plaintiffs must overcome the strong presumption that ZB Bank is separate from the Republic. This they cannot do. Plaintiffs' failure to overcome the presumption of separateness is fatal to the Complaint.
Plaintiffs allege that three statutory exceptions to immunity apply: waiver (Compl. ¶ 9 [citing § 1605(a)(1)]), commercial activity (Compl. ¶ 10 [citing § 1605(a)(2)]); and arbitration (Compl. ¶ 9 [citing § 1605(a)(6)]). However, the Complaint fails to allege facts establishing that these exceptions apply. Plaintiffs' conclusory allegations are wholly insufficient to establish subject matter jurisdiction over ZB Bank. Moreover, because the Court lacks subject-matter jurisdiction over the declaratory judgment claim against ZB Bank, it also lacks personal jurisdiction over ZB Bank under the FSIA. See Fed R. Civ. P. 12(b)(2); 28 U.S.C. § 1330(b) (personal jurisdiction in FSIA cases exists where there is subject-matter jurisdiction and service has been made in accordance with the FSIA). B. PLAINTIFFS HAVE NOT ALLEGED AN INDEPENDENT BASIS FOR JURISDICTION OVER ZB BANK
Plaintiffs do not allege that ZB Bank itself waived immunity under the FSIA. Plaintiffs' jurisdictional allegations instead depend on its claim that the Republic's waiver, commercial and/or arbitration activity should be imputed to ZB Bank, on the theory that ZB Bank is the Republic's alter ego (Compl. ¶¶ 9, 10). This is a circular and improper argument. It assumes for jurisdictional purposes the ultimate relief that Plaintiffs seeks in this action, namely, a declaration that ZB Bank is the Republic's alter ego, that its separate status should be ignored for all purposes, and that it is liable for the Republic's debts (Compl., pp. 11-12).
The presumption of separateness can only be overcome under two extraordinary circumstances, neither of which is present in this case: (1) where an entity "is so extensively controlled by its owner that a relationship of principal and agent is created . . . (such) that one may be held liable for the actions of the other" as the other's alter ego; or (2) where recognizing the separateness of the agency or instrumentality "would work fraud or injustice." Bancec, 462 U.S. at 629. The Complaint, which consists entirely of conclusory allegations with no factual support, comes nowhere close to meeting Plaintiffs' heavy burden of overcoming the presumption under either of these two grounds.
Courts since Bancec have established a high standard for proving an alter ego relationship between a government instrumentality and its foreign sovereign. In order to establish an alter ego relationship between ZB Bank and the Republic, plaintiffs must show that the Republic exercises extensive control over the day-to-day operations of ZB Bank, not merely that the Republic has influence over ZB Bank. Plaintiffs must show that the Republic abused ZB Bank's corporate form, resulting in the loss of ZB Bank's separate existence. LNC Invs., Inc. v. Republic of Nicaragua, 115 F. Supp. 2d 358, 363 (S.D.N.Y.), aff'd, 228 F.3d 423 (2d Cir. 2000) ("A government instrumentality loses its separate juridical status and becomes the alter-ego or agent of its parent government when the government exercises extensive control over the instrumentality's daily operations and abuses the corporate form."); Minpeco, S.A. v. Hunt, 686 F. Supp. 427, 435 (S.D.N.Y. 1988) ("For the purposes of establishing an alter ego relationship the more significant question is whether the government exercised day-to-day control over the instrumentality's operations.").
The vast majority of courts have declined to find that a sovereign government exercised the type of day-to-day control over an instrumentality necessary to sustain an alter ego claim and rebut the presumption of separateness. In Minpeco the court declined to find an alter ego relationship on facts which evidence much greater control than those alleged in the Complaint, including that the instrumentality, "Minpeco," was created "to benefit the Peruvian economy;" Peru intervened in major policy decisions ordinarily reserved to management; Minpeco failed to keep adequate business records; Minpeco could be dissolved upon request of Peru's Ministry of Commerce; Minpeco was subject to Peru's austerity regulations, including government approval for foreign travel; and Minpeco had low capitalization. 686 F. Supp. at 434-35. In declining to find an alter ego relationship between Minpeco and the government of Peru, the court stated that "[a]lthough defendants have pointed to evidence giving rise to the reasonable inference that Minpeco and Peru have a close relationship and that their interests are aligned, these features typify the relationship between all government instrumentalities and their parent governments. Such evidence, particularly in the absence of abuse, fraud or injustice, is legally insufficient to overcome the presumption of separateness set forth in Bancec." Id. at 437 (emphasis in original); see also Flatow v. Islamic Republic of Iran, 308 F.3d 1065, 1072-74 (9th Cir. 2002) (foreign state's "limited supervision" and "economic control" of nationalized bank, which included reviewing annual report and financial statements as well as proposing candidates for directors, insufficient to overcome presumption of separateness); Foremost-McKesson, 905 F.2d at 448 ("Majority shareholding and majority control of a board of directors, without more, are not sufficient to establish a relationship of principal to agent under FSIA.").
In the rare cases in which an alter ego relationship has been found to exist, the control exercised by the government, or non-governmental principal, was extraordinary, and/or the instrumentality had direct involvement in the underlying action. See, e.g., McKesson Corp. v. Islamic Republic of Iran, 52 F.3d 346, 351-52 (D.C. Cir. 1995) (finding relationship of principal and agent where government controlled routine business decisions, such as declaring and paying dividends and honoring contracts).
In applying the Bancec standard, many courts have given particular weight to the fact that the instrumentality lacked any connection to the claims against its sovereign. "Where a plaintiff seeks to attribute a wrong committed by one entity to another under an alter ego theory, courts frequently require participation in the wrong by both entities, or an abuse of the corporate form to commit the wrong." Gabay v. Mostazafan Found. of Iran, 151 F.R.D. 250, 255 (S.D.N.Y 1993); see also Flatow v. Islamic Republic of Iran, 67 F. Supp. 2d 535, 542 (D. Md. 1999) ("Furthermore, in order to be liable as an agent, alter ego, or instrumentality, the entity generally must have some connection with the underlying dispute."), aff'd, 225 F.3d 653 (4th Cir. 2000). Similarly, here, in addition to the utter lack of day-to-day control required to overcome the Bancec presumption, because ZB Bank has no connection with Plaintiffs' underlying claims against the Republic or claims related to the Republic's failure to satisfy a judgment, ZB Bank should not be held liable for the Republic's obligations.
Courts have made clear that a plaintiff alleging alter ego or veil-piercing claims in order to enforce a judgment against a person not already liable on the judgment may not rely on the court's jurisdiction over the original judgment debtor, but must assert an independent basis for jurisdiction over the new defendant. Epperson v. Entertainment Express, Inc., 242 F.3d 100, 105 (2d Cir. 2001) (veil-piercing claims against "a person not already liable" for a judgment "require an independent jurisdictional basis") (citing Peacock v. Thomas, 516 U.S. 349 (1996)); see also Knox v. Orascom Telecom Holding S.A.E., 477 F. Supp. 2d 642, 645-47 (S.D.N.Y. 2007) (same). The principle applies whether the claim against the person not already liable is alleged in the same action or in a separate action. Epperson, 242 F.3d at 106 n.6.
The principle equally applies when the person not already liable is either a foreign state or instrumentality, i.e., where jurisdiction over that defendant can only be based on the FSIA. For example, in Butler v. Sukhoi Co., 519 F.3d 1307, 1310 (11th Cir. 2009), plaintiffs had obtained a $3.6 million judgment against "SDB," a Russian government instrumentality. As the judgment remained unpaid, plaintiffs commenced a second action against several other Russian government instrumentalities, alleging that these additional defendants were liable as alter egos of SDB. Id. The Eleventh Circuit held that the alter ego allegations did not allege an independent basis for FSIA jurisdiction over the additional Russian entities, even though defendants "conceded for purposes of their motion to dismiss that they were alter-egos of SDB." Id. at 1314.
In this case, by contrast, Plaintiffs do not allege that the Republic has used ZB Bank's funds or bank accounts, that ZB Bank has any liability with respect to the claims that underlie this lawsuit, or that any court has found ZB Bank to be the Republic's alter ego. Plaintiffs have thus failed to allege an independent basis for jurisdiction over ZB Bank. C. THE REPUBLIC OF ZIMBABWE DID NOT WAIVE SOVEREIGN IMMUNITY FOR ITSELF OR FOR ANY ALLEGED "ALTER EGO ," INCLUDING ZB BANK, BY BECOMING A SIGNATORY TO THE CONVENTION ON THE SETTLEMENT OF INVESTMENT DISPUTES
In their Complaint, the Plaintiffs have alleged that " Zimbabwe has waived its immunity explicitly and by implication by becoming a party to the Convention on the Settlement of Investment Disputes [(the "Convention")]." (Compl. ¶ 9) (emphasis added). Plaintiffs do not allege that ZB Bank itself is a signatory. Plaintiffs rely on ZB Bank's alleged alter ego status to contend that the FSIA's waiver exception, § 1605(a)(1), applies. The Plaintiffs, however, have misapplied the relevant law with respect to the waiver of sovereign immunity resulting from a nation becoming a signatory to the Convention. Because this action is not an action to confirm an international arbitration award issued pursuant to the Convention, but is, in effect, an execution action, in which Plaintiffs have requested that this Court should "[d]eclare that the assets of the Alter Ego Defendants located in the United States should be treated as property of Zimbabwe used for commercial purposes against which the Judgment may be enforced," the Republic of Zimbabwe and the "Alter Ego Defendants," including ZB Bank, have not waived their sovereign immunity, either expressly or by implication.
Compl., pp. 11-12 ["Wherefore" clause (B)].
The Convention explicitly states that, while a court in one of the nations that is a signatory may confirm an arbitral award rendered by ICSID, "[e]xecution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories execution is sought." See Gilbert Dec., Ex. B (the Convention) at pp. 27-28, Art. 54. The Convention further states that "[n]othing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution." Id. at Art. 55 (emphasis added). The meaning and operation of these provisions was explained in the official commentary on the Convention, which states that:
The doctrine of sovereign immunity may prevent the forced execution in a State of judgments obtained against foreign States or against the State in which execution is sought. Article 54 requires Contracting States to equate an award rendered pursuant to the Convention with a final judgment of its own courts. It does not require them to go beyond that and to undertake forcedSee Gilbert Dec., Ex. B (Report of the Executive Directors of the International Bank for Reconstruction and Development on the Convention) at pp. 47-48, ¶ 43 (emphasis added).
execution of awards rendered pursuant to the Convention in cases in which final judgments could not be executed. In order to leave no doubt on this point Article 55 provides that nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution.
Federal courts in this District have likewise refused to execute upon arbitral awards issued by the ICSID where the party seeking such execution has not established an exception to sovereign immunity. See Liberian Eastern Timber Corp. v. Government of the Republic of Liberia, 650 F. Supp. 73, 76-78 (S.D.N.Y. 1986) ("LETCO"), aff'd without opinion, 854 F.2d 1314 (2d Cir. 1987) (vacating writs of execution against the defendants because such action did not fit into an exception under the FSIA warranting such execution). Moreover, sovereign waivers under the FSIA must be narrowly construed. See World Wide Minerals, Ltd. v. Republic of Kazakhstan, 296 F.3d 1154, 1162 (D.C. Cir. 2002) ("explicit waivers of sovereign immunity are narrowly construed 'in favor of the sovereign' and are not enlarged 'beyond what the language requires") (quoting Library of Congress v. Shaw, 478 U.S. 310, 318 (1986)); Gates v. Victor Fine Foods, 54 F.3d 1457, 1465-66 (9th Cir. 1995) (Canadian instrumentality's explicit waiver under a particular transaction did not constitute waiver with respect to other transactions).
Accordingly, as in LETCO, this Court should dismiss the Complaint in this action because it seeks execution of an arbitral award issued by ICSID and because the Plaintiffs have not plead that an exception applies which vitiates the Defendants' sovereign immunity. D. ZB BANK HAS NOT ENGAGED IN FSIA COMMERCIAL ACTIVITY
Plaintiffs allege that the Court also has jurisdiction over this matter under the FSIA's commercial activity exception, § 1605(a)(2). (Compl. ¶ 10). The allegation fails because it meets neither of § 1605(a)(2)'s requirements: (1) that the foreign state (in this case ZB Bank) has engaged in commercial activity satisfying at least one of the three clauses in that subsection, and (2) that the action be "based upon" upon such commercial activity. Transatlantic Shiffahrtskontor GmBH v. Shanghai Foreign Trade Corp., 204 F.3d 384, 388-89 (2d Cir. 2000). For the commercial activity exception to apply, the alleged commercial activity must also have some nexus with the United States. See 28 U.S.C. § 1605(a)(2); Fagan v. Republic of Austria, No. 08 Civ. 6715 (LTS), 2011 U.S. Dist. LEXIS 32058, at *31-36 (S.D.N.Y. Mar. 25, 2011).
To meet its initial burden, a plaintiff must allege that the foreign state's activities fall within at least one of § 1605(a)(2)'s three clauses: (1) "commercial activity carried on in the United States ," or (2) "an act performed in the United States in connection with commercial activity of the foreign state elsewhere," or (3) commercial activity by the foreign state elsewhere which "causes a direct effect in the United States." 28 U.S.C. § 1605(a)(2) (emphasis added). The Complaint in this case doesn't identify which of these three clauses applies and doesn't state what acts by ZB Bank (or the Republic) constitute commercial activity on which Plaintiffs' declaratory judgment claim is based. The Complaint thus fails to meet the initial requirement.
In addition, Plaintiffs' do not allege that its declaratory judgment claim in this action is "based on" any such commercial activity. To meet this requirement, a plaintiff must show a close connection between the alleged commercial activity and "those elements of a claim that, if proven, would entitle a plaintiff to relief under his theory of the case." Saudi Arabia, 507 U.S. at 357; see also Transatlantic, 204 F.3d at 390 (the degree of closeness required to meet the "based on" requirement is "considerably greater than common law causation requirements"). Plaintiffs' cannot meet (and do not even attempt to meet) this requirement because its claims against ZB Bank are based, as stated above, solely on the alter ego theory. The elements of an alter ego claim -- i.e., excessive control by a parent over its subsidiary, abuse of the corporate form -- are not connected at all, let alone closely connected, to any commercial activity of ZB Bank or the Republic identified in the Complaint. Rather, Plaintiffs' alter ego allegations all concern the relationship between the Republic and ZB Bank in Zimbabwe, which has no direct effect in the United States (Compl. ¶ 20). See Transatlantic, 204 F.3d at 389-91 (action to enforce Hong Kong judgments against instrumentality of Chinese state was not "based upon" any acts of the instrumentality that caused a "direct effect in the United States").
In sum, Plaintiffs' jurisdictional allegation based on the commercial activity exception is unsupported by any factual allegations, fails to allege "commercial activity" as defined in § 1605(a)(2), and fails to allege that its claims are "based on" any such activity. E. THE PLAINTIFFS HAVE FAILED TO ESTABLISH JURISDICTION OVER ZB BANK PURSUANT TO 28 U.S.C. § 1605(A)(6)
In their Complaint, Plaintiffs have also alleged that this Court has jurisdiction over ZB Bank pursuant the FSIA's "arbitration exception," 28 U.S.C. § 1605(a)(6). (Compl. ¶ 9). The Plaintiffs have asserted that the "arbitration exception" applies because ZB Bank is an alter ego of the Republic and because the Republic waived its immunity by becoming a party to the Convention, pursuant to which it agreed to submit to the arbitration with the Plaintiffs that is the basis for the action before this Court. Id. These claims must fail, however, because ZB Bank was not a party to the arbitration or the underlying agreement to arbitrate, because ZB Bank is not a signatory to the Convention and because the Plaintiffs have failed to sufficiently allege that ZB Bank is an alter ego of the Republic. See Covington Marine Corp. v. Xiamen Shipbuilding Indus. Co., No. 12 Civ. 30383, 2012 U.S. App. LEXIS 26297, at *7-11 (5th Cir. Dec. 21, 2012). These claims must also fail because the present action is not one for confirmation of an arbitration award, but rather is one for execution of an award that this Court previously confirmed (Compl. ¶ 1, pp. 11-12 ["Wherefore" clauses]).
To establish that the "arbitration exception" applies, the Plaintiffs were first required to allege that a the action was: (1) commenced to confirm an award made pursuant to an agreement to arbitrate entered into by a foreign state; and (2) governed by a treaty or international agreement in force in the United States calling for the recognition and enforcement of such arbitral awards. See 28 U.S.C. § 1605(a)(6)(B). Since ZB Bank was not a party to the agreement to arbitrate and is not a signatory to the Convention, the Plaintiffs were also required to sufficiently allege that it is an alter ego of the Republic, the foreign state who was a party to the agreement to arbitrate and who is a signatory to the Convention, in order to establish that ZB Bank's sovereign immunity has been waived. See First Inv. Corp. v. Fujian Mawei Shipbuilding, Ltd., 703 F.3d 742, 756 (5th Cir. 2012) (holding that to bind a foreign state who was not a party to the arbitration agreement to that agreement, the plaintiff was required to "establish an alter ego relationship" between the foreign state and the defendant, who was a party to the agreement). As with the other allegations in the complaint, such allegations must meet the standards for pleading set out in Iqbal and Twombly, which are discussed in-depth later in this brief.
28 U.S.C. § 1605(a)(6)(B) states that:
(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case—
* * *
(6) in which the action is brought, either to enforce an agreement made by the foreign state with or for the benefit of a private party to submit to arbitration all or any differences which have arisen or which may arise between the parties with respect to a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration under the laws of the United States, or to confirm an award made pursuant to such an agreement to arbitrate, if . . . (B) the agreement or award is or may be governed by a treaty or other international agreement in force for the United States calling for the recognition and enforcement of arbitral awards . . . .
Courts have dismissed similar actions in which plaintiffs have sought to enforce international arbitral awards against entities that were not parties to the underlying arbitration or the underlying agreement to arbitrate where the plaintiffs failed to sufficiently plead that the third-party entity was an alter ego of a foreign state that was a party to a treaty or international agreement in force in the United States calling for the recognition and enforcement of such arbitral awards. See First Inv. Corp., 703 F.3d at 753 (affirming district court's decision to deny confirmation of a foreign arbitral award for lack of jurisdiction because the plaintiff had "not overcome the presumption in favor of [the defendants'] separate judicial identity" from the foreign state to which they were alleged to be alter egos); see also Covington Marine, 2012 U.S. App. LEXIS 26297, at *7-11 (affirming district court's dismissal of petition to confirm arbitration award because evidence before the district court was "clearly . . . insufficient to establish the control necessary to establish an alter ego relationship"); In re Arbitration Act of 1996 v. Xiamen Shipbuilding Indus. Co., No. 09-CV-7041, 2012 U.S. Dist. LEXIS 26741, at *4-13 (E.D. La. Feb. 29, 2012) (dismissing foreign state who was non-party to the arbitration agreement from the action to confirm an arbitration award because it found that there was "insufficient evidence that [the foreign state] exert[ed] so much control over [the defendant] that they [were] not legally separate entities and that subject matter jurisdiction over [defendant] extend[ed] to [the foreign state]").
For instance, in First Inv. Corp., the plaintiffs sought to confirm a foreign arbitral award against not only Fujian Mawei Shipbuilding Ltd. and Fujian Shipbuilding Industry Group Corp. (together, "The Fujian Entities"), but also against the People's Republic of China ("PRC"), which owned majority shares of The Fujian Entities, despite the fact that the PRC was not a party to the arbitration or the arbitration agreement between the other parties. 703 F.3d at 745. The plaintiffs alleged that the Fujian Entities were alter egos of the PRC and, therefore, the court should exercise jurisdiction over the PRC and enforce the arbitral award against the PRC pursuant to the "arbitration exception" to the FSIA. Id. at 752. Relying on Bancec, the Fifth Circuit ultimately affirmed the district court's dismissal of the petition for lack of jurisdiction, holding that because "[t]he PRC was not . . . a party to the arbitration agreement between First Investment and the Fujian Entities" and because "the Fujian Entities were not alter egos of the PRC," "the PRC could not be bound to the agreement" through the Fujian Entities. Id. at 756. Accordingly, "the arbitration exception in § 1605(a)(6) did not apply and [the district court] lacked subject matter jurisdiction over First Investment's petition against the PRC." Id.
As is discussed elsewhere in this brief, Plaintiffs have failed to sufficiently allege that ZB Bank is an alter ego of the Republic. Therefore, as in First Inv. Corp., this Court cannot obtain jurisdiction over ZB Bank pursuant to the "arbitration exception" to the FSIA.
Even if the Plaintiffs had not failed to sufficiently plead their claim that ZB Bank is an alter ego of the Republic, they would still be precluded from obtaining jurisdiction over ZB Bank pursuant to the "arbitration exception" to the FSIA because the present action is not one to confirm an arbitration award, but is one to execute upon the award. As is readily admitted by the Plaintiffs, this Court previously confirmed the arbitration award that the Plaintiffs now seek to execute upon. (Compl. at ¶ 1); see Funnekotter et al. v. Republic of Zimbabwe, No. 09-CV-9168 (CM), Doc. No. 11, (S.D.N.Y. Feb. 1, 2010). The text of 28 U.S.C. § 1605(a)(6) is controlling, stating that that the "arbitration exception" only applies where the action in question is "either to enforce an agreement . . . to submit to arbitration . . . or to confirm an award made pursuant to such an agreement to arbitrate." 28 U.S.C. § 1605(a)(6). Thus, even if ZB Bank were an alter ego of the Republic, the "arbitration exception" would not apply.
POINT II
THE COMPLAINT FAILS TO STATE A CLAIM THAT ZB BANK
IS THE ALTER EGO OF THE REPUBLIC OF ZIMBABWE
A. PLEADING REQUIREMENTS UNDER IQBAL AND TWOMBLY
The sufficiency of Plaintiffs' complaint is evaluated under Fed. R. Civ. P. 8(a) as interpreted by the Supreme Court in its decisions in Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face." Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570).
Plausibility in this context has a special meaning, which is critical in the present case. It means more than "possible" or "consistent with." Iqbal, 556 U.S. at 678. A complaint is not sufficient if it pleads facts that are "merely consistent with" both actionable and non-actionable conduct. Id. In Twombly, for example, the plaintiff alleged that defendants engaged in an illegal antitrust conspiracy. The complaint alleged facts showing parallel conduct by the defendants, but did not allege facts showing that defendants had made an agreement to act in parallel. Noting that, under antitrust law, parallel action is consistent both with independent action (which is legal) and with an illegal conspiracy, the Supreme Court held that Plaintiff failed to meet the plausibility standard. Twombly, 550 U.S. at 555-57. Here, Plaintiffs' non-conclusory allegations in this case concern activities that, under the Bancec standard, are not actionable at all, but rather are consistent with customary and accepted dealings between a sovereign and its instrumentality that do not warrant treating them as alter egos.
The plausibility standard is applied after the court has discounted conclusory allegations, i.e., allegations that consist of "labels and conclusions," "formulaic recitation[s] of the elements of a cause of action," or "'naked assertion[s]' devoid of "further factual enhancement.'" Iqbal, 556 U.S. 679 (quoting Twombly, 550 U.S. at 555, 557).
In applying these pleading standards, a court first determines the elements of the substantive claim that a Plaintiff must plead. Iqbal, 556 U.S.676-77 (reviewing first the elements of a Bivens action, just as the Court in Twombly began by reviewing the applicable antitrust principles). In this case, the applicable legal standard is the alter ego analysis of Bancec and its progeny (discussed in the following section). Next, the court identifies those allegations in the complaint "that, because they are no more than conclusions, are not entitled to the assumption of truth." Iqbal, 556 U.S. 679. Finally, the court considers the remaining allegations "to determine if they plausibly suggest an entitlement to relief." Id. at 681. B. THE ELEMENTS OF AN ALTER EGO CLAIM UNDER BANCEC
In Bancec, the Supreme Court reaffirmed the principle that "duly created instrumentalities of a foreign state are to be accorded a presumption of independent status." 462 U.S. at 627. But the court held that "this presumption may be overcome in certain circumstances[:]" (1) "where a corporate entity is so extensively controlled by its owner that a relationship of principal and agent is created," and (2) when preserving an entity's separate status "would work fraud or injustice." Id. at 628-29.
Both circumstances described in Bancec as warranting the disregard of an instrumentality's separate status have been narrowly construed. The Second Circuit has stated, "both Bancec and the FSIA legislative history caution against too easily overcoming the presumption of separateness." Letelier v. Republic of Chile, 748 F.2d 790, 795 (2d Cir. 1984). See also Scheidemann v. Qatar Football Ass'n, No. 04 Civ. 3432 (LAP), 2004 U.S. Dist. LEXIS 2852, at *16 (S.D.N.Y. Jan. 15, 2008) ("veil-piercing is the rare exception, applied only in exceptional circumstances") (internal quotation marks and citation omitted).
The cited legislative history is a discussion of § 1610(b) -- which concerns execution against assets of an instrumentality: "If U.S. law did not respect the separate juridical identities of different agencies or instrumentalities, it might encourage foreign jurisdictions to disregard the juridical divisions between different U.S. corporations or between a U.S. corporation and its independent subsidiary." H.R. Rep. No. 94-1487, pp. 29-30 (1976), reprinted in U.S. Code Cong. & Admin. News, 6604, pp. 6628, 6629 (1976) (citation omitted) (quoted in Bancec, 462 U.S. at 627- 28, and in Letelier, 748 F.2d at 793-94).
Accordingly, courts have construed Bancec's "extensive control" branch to require a showing that the government "exercises extensive control over the instrumentality's daily operations and abuses the corporate form." LNC Invs., Inc., 115 F. Supp. 2d at 363 (emphasis added); see also Walter Fuller Aircraft Sales, Inc. v. Republic of Philippines, 965 F.2d 1375, 1382 (5th Cir. 1992) (courts pay "particularly close attention to whether the government is involved in [the instrumentality's] day-to-day operations"). As the Second Circuit noted, the decision in LNC "has been described by a commentator as 'consistent with the outcome in a series of prior appellate decisions that had shown a strong aversion to overriding the presumption of independent status for separate corporate agencies or instrumentalities.'" EM Ltd. v. Republic of Argentina, 473 F.3d 463, 478 (2d Cir. 2007) (footnote and citations omitted) (quoting Paul L. Lee, Central Banks and Sovereign Immunity, 41 Colum. J. Transnat'l L. 327, 364 (2003)).
Consistent with this approach, the "fraud or injustice" branch of Bancec has also been narrowly construed. Courts generally require a plaintiff to show that the entity sought to be held liable has participated in the wrongful conduct underlying the claim, for example, that the entity "was the vehicle through which the foreign state incurred the liability." Bayer & Willis Inc. v. Republic of Gambia, 283 F. Supp. 2d 1, 6-7 (D.D.C. 2003) (citing Alejandre v. Telefonica Larga Distancia de Puerto Rico, Inc., 183 F.3d 1277, 1286-87 (11th Cir. 1999), and Hercaire Int'l, Inc. v. Argentina, 821 F.2d 559, 563 (11th Cir. 1987)). See also Pravin Banker Assocs., Ltd. v. Banco Popular del Peru, 9 F. Supp. 2d 300, 305 (S.D.N.Y. 1998) (there was no fraud or injustice where there was no evidence that Peru's instrumentality "was responsible for the underlying conduct giving rise to Peru's liability"). In this case, Plaintiffs' do not allege that ZB Bank had any role in the dispute that underlies Plaintiffs' judgment against the Republic.
Critically, failure of a sovereign state to pay a valid judgment does not constitute fraud or injustice under Bancec. That circumstance "is present in every case in which a plaintiff seeks to hold an instrumentality responsible for the debts of its related government. Allowing the Bancec presumption of separate juridical status to be so easily overcome would effectively render it a nullity." Alejandre, 183 F.3d at 1286-87. In fact, that circumstance is built into the FSIA, which imposes stricter requirements on enforcing judgments than on establishing jurisdiction to obtain such judgments. As the Second Circuit has stated, in enacting the FSIA, "Congress did in fact create a right without a remedy." Letelier, 748 F.2d at 798. "[S]ince it was not Congress' purpose to lift execution immunity wholly and completely, a right without a remedy does exist." Id. at 799. Thus, the alleged fact that Plaintiffs' have obtained a valid judgment against the Republic provides no reason to ignore the plain language of the FSIA given Congress's conscious design of the statute. C. THE COMPLAINT'S CONCLUSORY ALLEGATIONS MUST BE DISREGARDED
The complaint contains numerous and repetitive conclusory allegations, which, under Iqbal and Twombly, must be disregarded. For example, in paragraph 5, Plaintiffs' baldly allege -- through the use of group pleading -- that "Zimbabwe's dominance over the Alter Ego Defendants is wide-ranging, extending throughout the Alter Ego Defendants' activities and Zimbabwe has displayed a dominating hand in directing the use of the Alter Ego Defendants' assets and profits." Paragraph 5 further alleges that "Zimbabwe, through its government officials and military officers, dictates how and with whom the Alter Ego Defendants conduct their businesses. Zimbabwe utterly dominates the business, management and day-to-day operations of the Alter Ego Defendants." Paragraph 42 also makes broad sweeping and conclusory allegations: "As alter egos of Zimbabwe, the Alter Ego Defendants are not entitled to be treated as separate juridical entities. The dominion and control by Zimbabwe and its official and military over the Alter Ego Defendants is so complete that they have no meaningful separate existence, but operate as mere agents of Zimbabwe." These paragraphs are classic examples of "formulaic recitation[s]" and "naked assertion[s]" devoid of "further factual enhancement" that the Supreme Court has held must be disregarded.
When the Complaint's conclusory allegations are disregarded, few factual allegations remain that need to be evaluated. What is left, however, is also legally insufficient.
Paragraph 20 of the Complaint alleges that, on information and belief, ZB Bank "is a banking corporation wholly owned by ZB Financial Holdings Limited which, in turn, is majority owned by, and completely controlled by," the Republic. Paragraph 20 goes on to allege that the Republic's "ministries appoint directors to ZB Bank's board of directors." As these two features are present in what Bancec described as the "typical government instrumentality," 462 U.S. at 624, they lend no support whatsoever to the claim that ZB Bank is the Republic's alter ego. See Transamerica Leasing, Inc. v. La Republica de Venezuela, 200 F.3d 843, 849 (D.C. Cir. 2000) ("If majority stock ownership and appointment of the directors were sufficient, then the presumption of separateness announced in Bancec would be an illusion."); see also Hester Int'l Corp. v. Federal Republic of Nigeria, 879 F.2d 170, 181 (5 th Cir. 1989) ("The two factors of 100% ownership and appointment of the Board of Directors cannot by themselves force a court to disregard the separateness of the juridical entities.").
Plaintiffs also devote significant space in the Complaint to the allegation that ZB Bank has been designated a Specially Designated National ("SDN") by the Office of Foreign Assets Control of the United States Department of Treasury. (Compl. ¶ 20). This allegation, according to Plaintiffs, demonstrates that ZB Bank is the Republic's alter ego. It does nothing of the sort. As noted in paragraph 30 of the Complaint, being listed as a SDN can mean many things. As stated by Plaintiffs, the list of SDN's comprises "a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries." (Compl. ¶ 30) (emphasis added). Such possibilities -- e.g., being owned by a targeted country or acting on behalf of a targeted country -- do not rise to the level of "extensive control" required under Bancec. See LNC Invs., Inc., 115 F. Supp. 2d at 363. Although Plaintiffs seek to create "a presumption of alter ego status" (Compl. ¶ 41), no such presumption exists under the law. D. THE COMPLAINT'S ALLEGATIONS OF "FRAUD AND INJUSTICE" UNDER BANCEC ARE PURELY CONCLUSORY
The Complaint contains one paragraph, paragraph 43, seeking to avail Plaintiffs of the "fraud and injustice" exception stated in Bancec. The paragraph reads as follows:
To permit Zimbabwe to rely on the fictitious corporate separateness of the Alter Ego Defendants would be manifestly
unjust to Plaintiffs, who are entitled to be compensated for their losses, as recognized in the Award and Judgment. It would further defeat the international policy reflected in the ICSID convention and the bilateral investment treaty between the Netherlands and Zimbabwe, which are intended to provide for the just and orderly determination of disputes like the one between Plaintiffs and Zimbabwe.
These allegations fail to state a claim under Iqbal and Twombly. They are also wrong on the law. As stated above, a foreign state's failure or refusal to pay a judgment does not amount to "fraud or injustice" under Bancec. Not surprisingly, the Complaint does not allege any facts showing a fraud or injustice. Likewise, it does not allege that ZB Bank had any role concerning the Republic's underlying liability or that any court has deemed it to be the Republic's alter ego.
In sum, the complaint's non-conclusory allegations concerning the relationship between the Republic and ZB Bank do not add up to anything that resembles the abuses required to ignore the presumption of separateness in Bancec. Letelier, 748 F.2d at 794.
CONCLUSION
For the foregoing reasons, the Court should grant the motion and dismiss all claims alleged against ZB Bank in this action. Dated: June 3, 2013
MORRISON COHEN LLP
By: /s/ Edward P. Gilbert
Edward P. Gilbert
Mark S. Jarashow
egilbert@morrisoncohen.com
mjarashow@morrisoncohen.com
909 Third Avenue
New York, New York 10022
(212) 735-8600
Attorneys for Defendant ZB Bank Limited Edward P. Gilbert
Mark S. Jarashow
MORRISON COHEN LLP
909 Third Avenue
New York, New York 10022
(212) 735-8600
Attorneys for Defendant
ZB Bank Limited
APPENDIX OF UNREPORTED CASES CITED IN DEFENDANT ZB BANK LIMITED'S MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION TO DISMISS
INDEX TO THE APPENDIX OF UNREPORTED CASES CITED IN
DEFENDANT ZB BANK LIMITED'S MEMORANDUM OF LAW
IN SUPPORT OF ITS MOTION TO DISMISS
TAB CASE 1 Covington Marine Corp. v. Xiamen Shipbuilding Indus. Co., No. 12 Civ. 30383, 2012 U.S. App. LEXIS 26297 (5th Cir. Dec. 21, 2012) 2 Fagan v. Republic of Austria, No. 08 Civ. 6715 (LTS), 2011 U.S. Dist. LEXIS 32058 (S.D.N.Y. Mar. 25, 2011) 3 In re Arbitration Act of 1996 v. Xiamen Shipbuilding Indus. Co., No. 09-CV-7041, 2012 U.S. Dist. LEXIS 26741 (E.D. La. Feb. 29, 2012) 4 Kensington Int'l Ltd v. Republic of Congo, No 03 Civ. 4578 (LAP), 2007 U. S. Dist. LEXIS 25282 (S.D.N.Y Mar. 30 2007) 5 Scheidemann v. Qatar Football Ass'n, No. 04 Civ. 3432 (LAP), 2004 U.S. Dist. LEXIS 2852 (S.D.N.Y. Jan. 15, 2008)