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VERLINDEN B.V. v. CENTRAL BANK OF NIGERIA

April 21, 1980

VERLINDEN B.V., Plaintiff, against CENTRAL BANK OF NIGERIA, Defendant.


The opinion of the court was delivered by: WEINFELD

Verlinden B.V. ("Verlinden"), a Dutch corporation with its principal offices in Amsterdam, The Netherlands, commenced this action for anticipatory breach of an irrevocable documentary letter of credit established in its favor by the defendant Central Bank of Nigeria, and advised and payable by its correspondent bank, Morgan Guaranty Trust Company in New York. The defendant Central Bank of Nigeria ("Central Bank") is the central bank of the Federal Republic of Nigeria ("Nigeria") and is an "agency or instrumentality of a foreign state" within the meaning of the Foreign Sovereign Immunities Act ("Immunities Act") of 1976. *fn1"

Although the instant action is based upon the alleged breach and repudiation by Central Bank of its obligations with respect to the irrevocable letter of credit, in order to put the matter into proper perspective, it is necessary to refer to events prior and subsequent to its issuance. On April 21, 1975, plaintiff entered into a contract whereby Nigeria agreed to buy from plaintiff, 240,000 metric tons of Portland Cement for the price of $ U.S.60 per ton, or a total of $ 14,400,000. *fn2" The Nigerian government agreed to establish, within 21 days after the contract was signed, "an Irrevocable, Transferable abroad, Divisible *fn3" and confirmed Letter of Credit in favour of the seller for the total purchase price through Slavenburg's Bank, Amsterdam, Netherlands." Shipment was to be made at the rate of 20,000 metric tons per month to commence 45 days after Verlinden had received the documentary irrevocable letter of credit in its favor. Demurrage was to be paid at "a rate not exceeding $ 3,500 per diem " per vessel, if and to the extent that discharge of the cargo was not completed at the rate of at least 1,000 tons per day. Demurrage payments were to accrue commencing on the first day after a vessel's arrival in the waters of Lagos Apapa, the port of Nigeria. The parties also agreed that the contract was to be governed by the Laws of the Netherlands and that disputes arising thereunder would be resolved by arbitration before the International Chamber of Commerce, Paris, France.

 According to the allegations of plaintiff's amended complaint, on June 23, 1975 the defendant established its Documentary Credit No. CBN/BP/75/145 ("the letter of credit" or "the credit") in favor of plaintiff for the full contract price ($ 14,400,000); the credit included as well an open-ended amount for demurrage, to be paid at the rate of $ 3,500 per day per vessel. However, contrary to the terms of the cement agreement, the letter of credit was advised by and made payable through Morgan Guaranty Bank in New York, rather than plaintiff's bank (Slavenburg's) in the Netherlands. It was further at variance with the terms of the cement contract in that, as plaintiff alleges, it "was not confirmed, not divisible . . . internally inconsistent and commercially ineffective and unusable." Moreover, unlike the cement contract, the credit did not indicate when demurrage payments would commence. Plaintiff further alleges that in response to its request defendant, over a period of weeks, issued amendments to said letter of credit to render it internally consistent and commercially available and usable, as to which plaintiff was not advised by Morgan Guaranty until the latter part of September 1975. However, Morgan Guaranty did not confirm the credit as originally issued or amended, although it did advise plaintiff as beneficiary of amendments. *fn4"

 In August 1975, the ports of Nigeria became bottlenecked with hundreds of ships carrying cargoes of cement, sent by more than 68 other cement suppliers from whom Nigeria had purchased cement. As a result of the increasing congestion in these ports, Central Bank commencing in mid-September 1975 unilaterally directed its correspondent banks, including Morgan, to adopt a series of amendments to all irrevocable letters of credit issued in connection with the cement contracts. In essence, the advising banks were directed to stop demurrage payments against documents unless those documents had been sent to and certified for payment by Central Bank. Additionally, Central Bank directly notified the suppliers that payment would be accorded only for those shipments cleared and approved by Central Bank two months before their arrival in Nigerian waters. On September 30, 1975 Morgan Guaranty cabled Slavenburg's Bank in Amsterdam to advise plaintiff of these amendments. It can hardly be questioned and the parties do not seriously dispute the fact that these unilateral amendments to the irrevocable letter of credit constitute violations of the Uniform Customs and Practice for Documentary Credits the terms of which, by stipulation of the parties, are applicable. *fn5"

 Plaintiff alleges that, in reliance upon the issuance of an irrevocable letter of credit as agreed upon, it contracted with another European concern, Interbuco Anstalt, Vaduz, Liechtenstein ("Interbuco"), for the purchase of cement and thereby exposed itself to a potential liability in liquidated damages. It seeks to recover damages for payments already made or owing to Interbuco, as well as its own lost profits, counsel fees and expenses in the sum of $ 4,660,000 as compensatory damages and punitive damages in a like amount.

 Presently before the Court are the defendant's motions to dismiss the action for (1) lack of subject matter jurisdiction; (2) lack of in personam jurisdiction over Central Bank based upon sovereign immunity and the act of state doctrine; (3) its motion for summary judgment on the merits; (4) also its motion pursuant to Rule 60(b) to be relieved of an order directing that it instruct Morgan Guaranty to keep funds in a separate account sufficient to satisfy any judgment plaintiff may recover; and (5) plaintiff's renewed motion for the entry of default judgment based upon defendant's failure timely to file its answer.

 I

 Plaintiff alleges jurisdiction under section 2(a) of the Immunities Act, 28 U.S.C., section 1330, which, in pertinent part, provides:

 
ยง 1330. Actions against foreign states
 
(a) The district courts shall have original jurisdiction without regard to amount in controversy of any nonjury civil action against a foreign state as defined in section 1603(a) of this title as to any claim for relief in personam with respect to which the foreign state is not entitled to immunity either under sections 1605-1607 of this title or under any applicable international agreement.
 
(b) Personal jurisdiction over a foreign state shall exist as to every claim for relief over which the district courts have jurisdiction under subsection (a) where service has been made under section 1608 of this title.

 Defendant's initial challenge is to plaintiff's assertion of jurisdiction under section 2(a) of the Immunities Act, contending that that provision does not empower a federal district court to adjudicate a dispute between foreign entities involving claims based upon a breach of a documentary letter of credit which defendant contends, if American law applies at all, would be governed by the laws of the State of New York and not by the United States Constitution or any federal statute enacted thereunder.

 It is not questioned that if jurisdiction exists it must be because the claim arises under either the Constitution or the laws of the United States. The parties agree that in this instance the framework of reference is a "law of the United States" since neither the Constitution nor any of the other bases for jurisdiction under Article III of the Constitution is applicable. *fn6" Thus an initial inquiry centers about section 2(a) of the Immunities Act upon which plaintiff in its complaint expressly asserts jurisdiction "is founded." The defendant's basic position is that the Act does not create the claim or right as alleged in plaintiff's complaint; that section 2(a) does not confer subject matter jurisdiction with respect to the Verlinden claim; that it is a procedural statute defining the limits of sovereign immunity and regulating the circumstances under which foreign states, and their agencies or instrumentalities, may be sued in American courts, both state and federal. *fn7" It contends that, like the Declaratory Judgment Act, *fn8" the Immunities Act only "enlarged the range of remedies available" *fn9" to a litigant but did not thereby enlarge federal jurisdiction to include "the kinds of issues which give right of entrance to federal courts." *fn10" According to this view, when Congress enacted the Immunities Act it did no more than affirm the already existing bases of jurisdiction such as diversity or federal question while eliminating the requirement of jurisdictional amount when the defendant is a foreign state. The hard core of defendant's argument is that plaintiff's claim for damages based upon an alleged breach of the letter of credit is one that normally would be adjudicated under state or common law, and unless it appears that the claim is based upon a federal right or a federal question this Court is without jurisdiction; in short, defendant contends that the claim must be grounded upon a federal right authorized by Congress as an essential element under a well-pleaded complaint, "unaided by anything alleged in anticipation of avoidance of defenses which it is thought the defendant may interpose," *fn11" such as, in this case, sovereign immunity or the act of state doctrine. This restrictive concept, as Mr. Justice Frankfurter noted, was not "to indulge in formalism or sterile technicality" but reflected a deep concern that federal district courts would be inundated with a vast volume of litigation that normally should be adjudicated in state courts, merely because of an artfully pleaded complaint that anticipated defenses derived from federal law. *fn12"

 Plaintiff responds that the Immunities Act is primarily a substantive federal statute that Congress' purpose in passing the Act was to codify a single body of substantive, federal law governing assertions of sovereign immunity; *fn13" that although section 2(a), the jurisdictional provision of the statute, is cast in part in procedural terms, it incorporates by reference substantive criteria set forth in section 4(a). *fn14" Plaintiff emphasizes that these substantive criteria govern an area of law foreign relations that is uniquely federal in nature. In sum, the argument proceeds that since the Immunities Act is primarily substantive in that it makes fundamental substantive changes in the law of sovereign immunity, the claim asserted is one arising under a "law of the United States" within Article III of the Constitution under which the courts have federal question jurisdiction. Plaintiff emphasizes that, although state courts may continue to entertain suits against foreign states, they must apply federal substantive law, in assessing the validity of the sovereign immunity defense. *fn15" Thus, plaintiff argues that any complaint wherein jurisdiction is alleged under the Act requires for its correct determination the construction of the Act; *fn16" accordingly it is within federal jurisdiction. In further support of this, plaintiff points out that Congress obviously considered the likely increase in litigation by virtue of the Immunities Act since it eliminated the requirement of a jurisdictional amount in suits against foreign states in order "to encourage the bringing of actions against foreign states in Federal courts" *fn17" and also provided for removal of such actions from the state to the federal courts. In essence, then, resolution of the present dispute turns on whether Congress intended to make the issue of sovereign immunity a controlling question of federal law, and an essential, substantive element of the plaintiff's proof; or, as plaintiff has termed it, whether Congress intended to "federalize" all disputes in which foreign states are named as defendants. If it did, then, under plaintiff's theory, a foreign state could be sued under the Immunities Act by any plaintiff, regardless of its citizenship.

 Plaintiff cites numerous cases and passages from the legislative history of the Immunities Act in support of its contentions. Of the cases cited, only one involved the Immunities Act and none sheds any light on the precise issue before the Court. Principal reliance is placed upon Pfizer, Inc. v. Government of India, *fn18" in which a five-member majority of the Supreme Court held that foreign nations could sue domestic corporations to recover damages for violations of the antitrust laws. Essentially, the issue there was whether a foreign sovereign nation was a "person" as that term is used in section 4 of the Clayton Act. Although the majority held that it was, they emphasized that the result reached did "not involve any novel concept of the jurisdiction of the federal courts" *fn19" since Congress had already specifically conferred jurisdiction upon the federal courts to entertain suits brought by foreign nations *fn20" and that to allow foreign nations to sue under the antitrust acts was "no more than a specific application of a long-settled general rule." *fn21"

 None of the many other lawsuits brought in the aftermath of the Nigerian cement crisis *fn22" and cited by plaintiff is parallel to this action. In all but one of those brought in United States courts the plaintiff was a domestic corporation allegedly injured by Nigeria's breach of the cement contract. Indeed, of the cases cited by the plaintiff, only two involved aliens on both sides of the dispute and neither is apposite. In Ipitrade International v. Federal Republic of Nigeria *fn23" yet another of the Nigerian cement contract cases a Swiss corporation sued in the United States District Court for the District of Columbia to enforce a final arbitration award against Nigeria pursuant to Swiss law and based upon the parties' agreement to submit all disputes to arbitration. Federal subject matter jurisdiction in Ipitrade, however, existed by virtue of a treaty for the enforcement of foreign arbitration awards to which the United States was a signatory and which had been incorporated into federal law. *fn24" Finally, plaintiff cites Abdul-Rahman Omar Adra v. Clift, *fn25" a custody dispute between alien parents of a Lebanese child living in the United States involving tortious conduct by one of the parties. In that case, federal jurisdiction explicitly was conferred by a statute *fn26" permitting aliens to sue in tort; moreover, the Court cited its inherent equitable powers to act on behalf of children found within its jurisdiction. In sum, none of these cases sheds any light on the instant issue.

 The legislative history of the Immunities Act invoked by each party on its own behalf likewise provides no clear answer. Although the drafters of the Act proclaimed, among other matters, their intent to codify the restrictive principle of sovereign immunity *fn27" and to create a single uniform federal standard *fn28" they also stated that another purpose was to fashion a remedy for "American citizens," "U.S. businessmen" and "American property owner(s)" who "are increasingly coming into contact with foreign states and entities owned by foreign states." *fn29" The legislators repeatedly emphasized that they did not intend to create an international court of claims, and that the bill was "not designed to open up our courts to all comers to litigate any dispute which any party may have with a foreign state anywhere in the world." *fn30" Despite this somewhat contradictory and unilluminating legislative history, Professor Moore finds a "plain intention" on the part of Congress "to confer on the district court jurisdiction of an action by an alien against a foreign state if the action otherwise meets the requirements of that section." *fn31" However, the single section of legislative history cited to support that view does not, either expressly or impliedly, reflect Congress' "plain intent" on the precise jurisdictional question here at issue whether subject matter jurisdiction was granted as to a claim asserted, not by a United States citizen, but by a foreign entity against a foreign state. A close study of the legislative history indicates that Congress did not consider or even discuss either vesting or limiting jurisdiction in the district courts where the claimant was a foreign entity.

 Nonetheless, the view propounded by Professor Moore and plaintiff is not without support. While Congress' foremost concern was with actions by United States citizens against foreign sovereigns it does not follow that it necessarily intended to deny foreign citizens or entities access to our courts when they asserted claims against a foreign state. In fact, the legislative history reflects a purpose "to provide when and how parties can maintain a lawsuit against a foreign state." *fn32" The Congressional Report further commented that "there are no comprehensive provisions in our law to inform parties when they can have recourse to the courts to assert a legal claim against a foreign state." *fn33" To be sure the all inclusive references to "parties" by themselves hardly carry the day for the plaintiff's contention. But the language of section 1330 is broad and embracing. It confers jurisdiction over "any nonjury civil action" against a foreign state. *fn34" It neither limits such actions to those brought only by citizens of the United States nor does it exclude those brought by foreign citizens. The only delimiting test of jurisdiction contained in the express language of the statute is the requirement that the case have sufficient contact with the United States, considered hereafter. *fn35" Moreover, section 1330(a) must be read in conjunction with the new removal provision; *fn36" both are part of the "comprehensive jurisdictional scheme" enacted by Congress to foster "uniformity in decision" *fn37" in cases involving foreign states. The removal provision permits a foreign state named as a defendant in "any civil action brought in a State court" *fn38" to avail itself of a federal forum.

 Clearly there are instances in which aliens may sue foreign instrumentalities in the state courts. *fn39" If the defendant's view of the Immunities Act were adopted, and aliens were barred from suing aliens in the federal courts, the purpose of the removal statute would be thwarted; a foreign state that removed an action might well find that the federal court had no jurisdiction over the case. That result would frustrate the Congressional purpose of concentrating litigation against sovereign states in the federal courts in order to aid the development of a uniform body of federal law governing assertions of sovereign immunity. It could hardly have been within the contemplation of Congress to permit removal in the instance of an action properly commenced in a state court by a foreign citizen against a foreign nation and to deny initial access to the federal courts to the same plaintiff.

 In sum, although the Court is unable to discern any precedent or any articulated Congressional intention to grant subject matter jurisdiction in actions of this type in the federal courts, the language of the statute itself is controlling. That language is broad and inclusive. It incorporates into the concept of jurisdiction substantive, federal criteria for determining the validity of assertions of sovereign immunity. It imposes a single, federal standard to be applied uniformly by both state and federal courts hearing claims brought against foreign states. In consequence, even though the plaintiff's claim is one grounded upon common law, the case is one that "arises under" a federal law because the complaint compels the application of the uniform federal standard governing assertions of sovereign immunity. *fn40" In short, the Immunities Act injects an essential federal element into all suits brought against foreign states. That Congress may not have foreseen the result of its handiwork that ...


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