restore the assets of GGT. Muhammad Aff., dated 9/13/95, P 2.
The second named defendant, Ufficio di Esecuzione e Fallimenti (Ufficio), is an administrative unit of the Canton of Ticino responsible for administering bankruptcy matters relating to non-banking entities. Hirsch Aff. P 12. It had no involvement with the liquidation of ICB. Defs' Mem. at 6; Hirsch Aff. PP 14b, 27. This defendant was not originally named by the plaintiff, but was added in an amended complaint in state court, filed February 17, 1993, which, however, added the name of the Ufficio di Esecuzione e Fallimenti only to the caption and to the first paragraph of the complaint. In supplemental papers, plaintiffs explain that in June 1993 Muhammad visited Switzerland in order to determine the status of the trust; he was referred to the Ufficio's office. Muhammad 1st Supp. Aff., dated 2/1/96, PP 2-3. At the Ufficio, he found all of the documents relating to ICB's bankruptcy. Consequently, plaintiffs maintain that the Ufficio had some involvement in the bankruptcy proceeding, and thus, it, too, could be liable for conversion of trust assets. Id. at 4.
Plaintiffs, GGT, Granville Gold Switzerland Corporation, and Muhammad, originally brought this action in New York State Supreme Court on February 25, 1993, claiming that ICB or the Commissione or the Ufficio converted the assets of a trust that the bank held. Compl. PP 20-22. Specifically, plaintiffs claim that defendants owed them a sum in excess of six hundred million dollars with interest compounded at one percent per week from 1966, thereby totaling approximately one-hundred and twenty-five billion dollars at the time of the filing of the complaint in state court. Compl. PP 14-16.
The summons was addressed to the Commissione at ICB's former address. On June 8, 1993, Dr. Rene C. Pedretti, a Swiss lawyer retained by plaintiffs, Muhammad 2d Supp. Aff. PP 10-12, sent a letter in Italian to the Commissione at the Ufficio's address enclosing a copy of the complaint in English. Doc. No. 49. Defendants argue that not only was this improper service, but also that Pedretti, himself, did not intend this to be service, as he stated that letters rogatory, a necessity for proper service in Switzerland, would follow. Id. Muhammad maintains that Pedretti spoke to an unidentified member of the Ufficio who "had no objection to receiving judicial papers by mail and gave approval and authorization to do so by the Swiss law firm of, Ferrari-Pedretti, Lugano Switzerland." Muhammad 2d Supp. Aff. P 12. Pedretti, himself, however, stated in a letter dated February 23, 1995 to Luca Beretta Piccoli, the director of the Division of Justice of the Republic and Canton of Ticino, that he did not intend his actions to act as formal service of process. Beretta Piccoli Aff. P 6.
The Ufficio sent the letter to the Court of Appeals of the Canton of Ticino as the suit involved its appointee, the Commissione, which was no longer in existence. Caimi Aff. P 3; Doc. No. 50. The Ticino Court of Appeals responded both to the Ufficio and to Pedretti that service was improper as it did not conform either to Swiss law or any recognized international convention, and that all documents should be returned to Pedretti. Doc. No. 52. Plaintiffs maintain that defendants chose not to respond to the complaint, but were "fully aware" of the summons and complaint. Pltffs' Mem. at 16.
Defendants contend that no further attempts at service were made, Defs' Mem. at 16, while plaintiffs argue that additional attempts to serve were made during February and March 1994 by Dr. Paul Gmuer, an attorney in Zurich. Pltffs' Mem. at 16. On February 28, 1994, Gmuer sent by Swiss registered mail the English summons and complaint to the Ufficio along with a German cover letter. The Ufficio, as it had with Pedretti, returned the contents of the letter to Gmuer on March 1, 1994. Doc. No. 55. On March 2, 1994, Gmuer sent an almost identical letter and enclosures to Dr. Enzo Tognola, a former member of the Commissione. Doc. No. 56. Tognola forwarded the letter and enclosures to another former commissioner, Bernasconi. Bernasconi wrote to Gmuer on March 4, 1994 that the Commissione had been disbanded since the bankruptcy proceeding had concluded and that Gmuer's clients were "never reported as creditors" and thus were not on the distribution lists. Doc. No. 57. Gmuer also did not intend his letters to be construed as formal service.
"On 9 February 1995, the Counsel of State wrote to Dr. Gmuer to confirm that the transmittal of documents on 25 March 1994 was not intended as formal service. On 17 February 1995, Dr. Gmuer responded to our letter . . . stating: 'My letters with enclosures to the Ufficio in Mendrisio as well as to Dr. Enzo Tognola in Locarno . . . were sent as clearly expressed in the texts, exclusively on request and on behalf of plaintiff parties and not of a foreign court . . . . To them my view, too, was made known that a judgment, if any, of the New York court resorted to would have no chance of being recognized and enforceable in Switzerland.'"
Beretta Piccoli Aff. P 8.
Defendants did not appear in the New York State case. On March 18, 1994, plaintiffs filed an amended notice of motion in the New York State Supreme Court, Kings County, seeking a default judgment against both the Commissione and the Ufficio. Doc. No. 24. Gmuer again sent a letter in German along with the English amended notice of motion to Tognola who again sent it to Bernasconi. Doc. No. 58.
The state court issued a default judgment on May 5, 1994. Doc. No. 28. On May 13, 1994, the Ufficio received a copy of the judgment in English directly from the state court. Doc. No. 60. On August 2, 1994, Justice Gerald Held settled the order for an inquest. Gmuer sent to Tognola a copy of the order in English and a German letter advising Tognola of its contents on August 15, 1994. Doc. No. 63. Tognola responded on August 18, 1994 returning the documents and warning that "possible future mailings of the same nature will be returned to your office without having been opened." Doc. No. 64. In September, Gmuer attempted to mail a copy of the notice (in English) that an inquest would be held to Tognola. It was returned to him. Doc. No. 65 & 66. On October 3, 1994, Justice Held entered a default judgment in the amount of $ 125,444,300,221.00. Doc. No. 32. Gmuer mailed a copy of the judgment in English to Tognola which he returned as well. Doc. No. 67 & 68.
On December 23, 1994, plaintiffs served restraining notices on various financial institutions including the Federal Reserve Bank of New York, seeking to restrain the Ufficio's and the Commissione's funds, as well as the funds of the Swiss Canton of Ticino, all other Swiss cantons, the National Bank of Switzerland, all Swiss banks and the Confederation of Switzerland up to the amount of the default judgment. Bschorr Aff. P 15; Doc. No. 33. Information subpoenas were likewise served on various financial institutions. Id. P 16; Doc. No. 34.
On January 3, 1995, the Federal Reserve Bank by Order to Show Cause, sought an injunction against plaintiffs in the Southern District of New York. Judge Peter K. Leisure issued the order that day. Bschorr Aff. P 17; Doc. No. 35. Judge Leisure entered a temporary restraining order later that day, preventing plaintiffs from enforcing the restraining notices or information subpoenas. The TRO still remains in effect. Bschorr Aff. P 18; Doc. No. 36.
The Canton of Ticino, on behalf of the Ufficio and the disbanded Commissione, retained counsel to protect its interests in January 1995. Pursuant to 28 U.S.C. § 1441(d), a notice of removal was filed on February 14, 1995,
and defendants brought this motion to vacate the state default judgment and to dismiss this action.
On February 28, 1996, this court vacated the default judgment, following Federal Rule of Civil Procedure 60(b). The serious and complex issues of proper service, jurisdiction and comity in this international litigation, combined with the enormity of the judgment, the very existence of which threatened to create havoc in the financial markets - even if the judgment were subsequently held void - made a compelling case for resolving the issues on the merits and not via a default judgment. Hearing Tr. at 7. See Klein v. Williams, 144 F.R.D. 16 (E.D.N.Y. 1992) (vacating default because of lack of proper service); Forum Ins. Co. v. McNerney, 1991 U.S. Dist. LEXIS 14043, 1991 WL 207549 (S.D.N.Y. Oct. 3, 1991) (vacating default because defective service renders judgment void).
As previously mentioned, the trust was opened with an initial deposit of $ 200. Plaintiffs maintain that deposits were made thereafter, "authenticated through a 'balance sheet of Granville Gold Trust as of September 14, 1966' prepared by J.C. Plummer, an accountant"
for GGT. Pltffs' Mem. at 26. Exhibit A-I to August 21 - Report.
Plaintiffs maintain that ICB verified the "presence of substantial assets in the Granville Gold Trust, under the control of ICB as trustee." Pltffs' Mem. at 27. Telegrams were sent by ICB to various individuals, including Fred World, William Burris, Jacob Reuben, and Nat Rosenberg, in August and September of 1966 verifying the presence of "considerable documents on deposit" as well as issuing letters to potential trust depositors. See Ex. A, Telegram dated 8/30/66 sent to Billingsley. (Emphasis supplied.) In these letters to potential contributors, it appears that ICB relied upon the financial statements prepared by Plummer which reflected the trust's net worth "in excess of 200 million dollars." Pltffs' Mem. at 28, Ex. A-2.
On February 24, 1994, former counsel to ICB, Pierfrancesco Campana, wrote to Muhammad stating:
I was the liquidator for Inter Change Bank, Chiasso Switzerland and was in charge of all agreements with the bank and its customers, and having knowledge of all deposits and assets accepted by Inter Change Bank in trust accounts. Regarding your inquiry on Granville Gold Trust, I have first hand knowledge the Granville Gold Trust assets in 1966 being indicated were in excess of $ US 600 Million and were comprised of and not limited to the following assets: real estate mining properties with indicated and referred in-ground and above-ground precious metals, gold and silver certificates trust production notes and other personal properties.
Ex. A-32,33 and 34 to August 21 - Report. Although Campana verified his knowledge of the alleged $ 600 million on deposit in the trust in an undated affidavit submitted to this court in support of plaintiff's motion, his recollection is not quite the way plaintiffs describe it.
According to his later affidavit, submitted for the defendants, not only were plaintiffs not creditors, depositors or customers included on the 1967 list compiled by Bernasconi, but also Campana had no personal knowledge of the alleged deposit. Rather Campana relied upon the facts claimed by Muhammad in his letter to Campana requesting Campana to create an affidavit for the plaintiffs when he wrote the February 24 letter quoted above. In addition, in his later affidavit for the defendants, he explained that the box of certificates in his office did not belong to Granville, but were issued by Granville:
According to my recollection and upon review of the corresponding relevant documents, I can confirm that neither Granville Gold Trust Switzerland, Granville Gold Switzerland Corporation, Robert Higgins or Abdul Hafeez Muhammad, was included in the list of depositors, creditors or customers contained in the report setting forth all assets and liabilities of ICB, previously prepared in 1967 by the special receiver . . . Bernasconi. Furthermore, after the publication of the commencement of the bankruptcy proceedings in the Cantonal Gazette (on October 20, 1967), the above mentioned entities or natural persons never lodged any creditor's claims against ICB. . . . It is my recollection that there was at ICB's offices a large box containing certificates issued by Granville Gold Trust itself. I emphasize: not certificates belonging to Granville but issued by Granville itself, . . . I could not say how many they were. I remember that Angelo Maternini, a former director of ICB, had told me that said Granville certificates had been deposited with ICB since Granville Gold Trust had in mind to obtain a loan by ICB which, of course, ICB never granted. I further recollect that ICB was never holding any assets, of any nature whatsoever, that belonged to Granville or that Granville had deposited with ICB other than its own certificates. Campana Aff. PP 6-7. (emphasis added.)
Furthermore, in his later affidavit, Campana points out that the letter he wrote to Muhammad on February 24, 1994 contained errors:
About the contents of this letter I need to point out that its text is not fully accurate because: I have never had any personal knowledge that Granville Gold Trust's assets were in excess of US $ 600 Mio; [and] I have never had any personal knowledge about the nature, the quality and the value of the assets assertedly held by Granville Gold Trust. The indications to this respect were originating from the draft in handwriting submitted to me by Mr. Muhammad on February 24, 1994 in order to get my help. . . ." Campana Aff. P 13.