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SCHMIDT v. POLISH PEOPLE'S REPUBLIC

January 16, 1984

ADOLPH W. SCHMIDT, JOHN F. TIM, JR., and JAMES M. WALTON, successor trustees for STANDARD CAR FINANCE CORPORATION, Plaintiffs,
v.
THE POLISH PEOPLE'S REPUBLIC, Defendant



The opinion of the court was delivered by: CARTER

CARTER, District Judge

 Plaintiffs, trustees for the former stockholders of the Standard Car Finance Corp. ("Standard"), brought this suit under the Foreign Sovereign Immunities Act of 1976 ("FSIA" or "Act") *fn1" seeking to recover on certain defaulted Treasury notes of the Republic of Poland. *fn2" Defendant has moved to dismiss the complaint, contending that (1) the Court lacks jurisdiction over the subject matter; (2) the Court lacks jurisdiction over defendant; (3) venue is improper; and (4) the action is barred by the applicable statute of limitations. The Court agrees that plaintiffs' claim is time barred, and the motion is, therefore, granted.

 Background3

 In 1926, a representative of the Polish government contacted A. W. Mellon, the Pittsburgh financier, in an effort to secure financing for the construction of several thousand railroad cars. The agreement reached after extensive negotiations in New York and Pittsburgh was implemented through a two-part contract. The first contract, executed on December 6, 1929, between the Polish State and the Polish firm of Lilpop, Rau & Lowenstein ("Lilpop"), provided that Lilpop would manufacture the cars and receive payment, in part, in Polish Treasury notes. The contract expressly acknowledged that Lilpop would, in turn, sell the notes to Standard. *fn4" The second contract, executed on February 5, 1930, between Lilpop and Standard, provided for Standard's purchase of the Treasury notes and its acquisition of Lilpop's interest in the railway cars as security for the notes.

 Standard redeemed the notes as they fell due at the New York City offices of National City Bank until October 1936, when Poland defaulted. *fn5" The parties renegotiated the debt in New York and on September 28, 1937, signed a new agreement which called for the cancellation of the 426 remaining notes and the issuance of 78 new notes bearing a lower interest rate. The old and new notes were exchanged in New York on March 1, 1938, and the latter were made payable at National City Bank. Between April 1938 and April 1939, Standard redeemed nine of the new notes. Poland defaulted again in October 1939 as World War II had begun.

 In 1960, Poland and the United States concluded an agreement whereby Poland paid the United States $40 million over 20 years in satisfaction of the claims of American nationals whose property had been nationalized by the Polish government after the War. *fn6" Poland had nationalized the 115 railroad cars manufactured by Lilpop and owned by Standard that had survived the War, and in 1964, Standard filed a claim with the Foreign Claims Settlement Commission ("FCSC") under the Polish Claims Agreement. Between 1964 and 1980, $88,000 was paid to Standard by the FCSC out of the $40 million fund. Standard returned ten of the 69 outstanding notes to Poland in consideration of the payment.

 Standard also filed a claim with the FCSC pursuant to Title II of the War Claims Act of 1948, 50 U.S.C. app. § 2017(a). This claim sought compensation for the 4,923 railway cars lost or destroyed during the War. Standard received $3,150,285.32 on this claim from the FCSC in 1967. The funds used to pay the award were derived from the sale of German and Japanese assets in the United States, and no part of the payment was made by Poland.

 In October 1980, plaintiffs' attorney met in Warsaw with Jan Boniuk, Advisor to the Polish Ministry of Finance. Plaintiffs also submitted a memorandum of law to the Polish government at that time. No settlement of plaintiffs' claim was reached, however. Aside from the two FCSC awards, Standard has received no payments in connection with the Treasury notes or the railway cars since 1939. In December 1982, Standard's trustees filed this action seeking payment on the 59 outstanding notes. *fn7" The notes have a face value of $4,474,036.98. With interest from October 1939, plaintiffs demand judgment for over $15 million.

 Jurisdiction and Venue

 FSIA gives the Court jurisdiction over any non-jury civil action against a foreign state as long as the defendant is not entitled to sovereign immunity. 28 U.S.C. § 1330. The Act denies sovereign immunity to a foreign state in, inter alia, any case

 
in which the action is based [1] upon a commercial activity carried on in the United States by the foreign state; or [2] upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or [3] upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.

 28 U.S.C. § 1605(a)(2). Thus, in order to assume jurisdiction over this case, the Court must determine that plaintiffs' cause of action is based upon acts defendant performed in connection with commercial activity and that those acts and the underlying commercial activity constitute contacts with the United States sufficient to bring them within one of the clauses of § 1605(a)(2). Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300, 308 (2d Cir. 1981), cert. denied, 454 U.S. 1148, 71 L. Ed. 2d 301, 102 S. Ct. 1012 (1982); Gibbons v. Udaras na Gaeltachta, 549 F. Supp. 1094, 1108-09 (S.D.N.Y. 1982) (Ward, J.).

 Defendant does not dispute that in contracting with Lilpop for the construction of railway cars, issuing Treasury notes to pay for the cars and renegotiating the debt represented by the notes, Poland engaged in commercial activity. Contracting with a manufacturer to produce a commodity and issuing bonds to raise the necessary capital are both activities in which a private profit-making corporation might well engage. As such, they are commercial activities within the meaning of FSIA. IAM v. OPEC, 649 F.2d 1354 (9th Cir. 1981), cert. denied, 454 U.S. 1163, 102 S. Ct. 1036, 71 L. Ed. 2d 319 (1982); see, H.R. Rep. No. 94-1407, 94th Cong. 2d Sess. 16, reprinted in [1976] U.S. Code Cong. & Ad. News 6604, 6615 ("House Report"). Moreover, the House Report on FSIA specifically listed the purchase of equipment and the borrowing of money as activities that would be deemed commercial under the Act. House Report at 6616.

 The Court is also convinced that if plaintiffs' allegations are true, their cause of action is based on acts sufficiently connected to the United States to deprive defendant of sovereign immunity under § 1605(a)(2). Even if, as plaintiffs apparently concede, defendant's commercial activity was not carried on in the United States, within the meaning of clause [1], but rather in Poland, plaintiffs' cause of action is based upon acts performed in the United States, within the meaning of clause [2]. *fn8" The negotiations that led to Standard's financing of the railroad car construction took place in New York and Pittsburgh and this contact with the United States is sufficiently substantial to fall under § 1605(a)(2) even though the formal contract may have been executed in Poland. Gibbons v. Udaras na Gaeltachta, 549 F. Supp. at 1113-14; see, House Report at 6615 (commercial activity in the United States includes negotiating or executing a loan agreement in this country). *fn9" In addition, the original notes were payable at National City Bank in New York, the negotiations subsequent to Poland's first default took place in New ...


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