The opinion of the court was delivered by: TRAGER
Defendants have moved to vacate a default judgment in excess of one-hundred and twenty-five billion dollars and to dismiss the complaint. Plaintiffs have cross-moved for leave to file an amended complaint. At a hearing on February 28, 1996, this court vacated the default judgment that had been entered by the Supreme Court of the State of New York, but reserved decision on the other two motions which this opinion will now address.
According to plaintiffs, Robert Granville Higgins created plaintiff Granville Gold Trust-Switzerland (GGT) in March 1966, naming Inter Change Bank (ICB), a Swiss entity, as trustee.
Pltffs' Mem. at 24. Under this trust, ICB had rights, powers, duties and obligations under the applicable laws of California, except that the laws of Switzerland would apply to issues relating to "performance" and to "all financial transactions." Doc. No. 21A at 3. The trust was nominally established for charitable purposes including, in the event any annual donations are made by the Trust, a ten percent interest to the Jesuit Order of the Roman Catholic Church for educational purposes throughout the world and a ten percent interest for the "Shrine [sic] Crippled Children" program throughout the world. However, there were two notable non-eleemosynary beneficiaries - the estate of Robert Higgins' brother, G. Sterling Higgins, and "such other beneficiaries as TRUSTOR may from time to time select . . .." Id. It should also be pointed out that the trust agreement, dated March 26, 1966, is signed only by Robert Higgins and not ICB, but it will be assumed for purposes of deciding these motions that at some point ICB did sign the agreement.
Robert Higgins claims that he met with representatives of ICB in New York City in 1966 in order to establish the trust. Higgins' Certification, dated 9/12/95, P 6. Further, Higgins attests that he made an initial deposit of $ 200 at that meeting, Higgins' Certification P 8, and subsequently deposited additional cash, gold certificates, and other assets allegedly amounting to over $ 600,000,000 in value. Id. at P 9. See Compl. at PP 8-9. The source of these funds allegedly was the estate of G. Sterling Higgins, Robert Higgins' brother.
Pltffs' Mem. at 24.
ICB is not a named defendant in this case. ICB was a Swiss incorporated bank located in Chiasso, Switzerland in the Canton of Ticino. The bank was under the supervision of the Federal Banking Commission and the Swiss Investment Trust Law of July 1, 1966. Pltffs' Mem. at 12.
ICB was placed into bankruptcy by the Canton of Ticino's civil court of appeals on September 27, 1967. Hirsch Aff. P 4. As was general Swiss practice, the Ticino Court of Appeals then appointed three commissioners to supervise ICB's liquidation, referred to as the "Commissione Del Fullimento." (Commissione) See Article 36, P 2 of Swiss Banking Act of 1934; Ltr. from Swiss Embassy to Court, dated 1/22/96, at 2. Over the course of the twenty-two years it took to wind up matters, the composition of the Commissione changed. Ultimately, it appears that at least six individuals served as commissioners. Tognola Aff. P 11; Doc. No. 48. The Commissione was disbanded on August 23, 1989 when the Ticino Court of Appeals approved the liquidation and settlement and the proceedings were completed. Defs' Mem. at 5; Doc. No. 47. Also, "ICB was canceled from the rolls of the registry of commerce in 1989." Defs' Mem. at 6.
According to the plaintiffs, the proceedings took so long for a number of reasons. Pltffs' Mem. at 31 (citing defendants' affidavits). First, ICB had many small creditors who were located outside of Switzerland, particularly in Italy and South America. Second, in order to realize ICB's assets, the Commissione had to challenge public authorities and squatters in Venezuela where the most significant of ICB's assets were located. Gaja Aff. P 6; Tognola Aff. PP 8-9. Third, several of ICB's directors were criminally prosecuted; three were convicted. Id. Civil actions were then commenced by the Commissione against former ICB directors. Tognola Aff. P 9.
The Commissione was responsible for identifying and collecting the assets of the ICB, establishing a list of the bank's depositors and creditors, and disbursing the remaining assets of the ICB equitably among the list of depositors and creditors according to Swiss law. Gaja Aff. PP 9-10; Doc. Nos. 40 & 47; Tognola Aff. PP 4, 7-8, & 10; Doc. No. 46. "The claims contained in the books and records of the bank at the time of the bankruptcy [were] deemed lodged." Defs' Mem. at 25, n. 83.
In 1967, Dr. Alberto Bernasconi, who served as the special receiver of ICB for five months until the Court of Appeals of Ticino created the Commissione and was, subsequently, a member of the original Commissione until 1970, prepared a report setting forth all known creditors of ICB, including all depositors and customers having claims against ICB's assets. None of the plaintiffs nor Robert Higgins was included on the list. Bernasconi Aff. P 3; Doc. No. 39. Bernasconi later explained in an affidavit filed in this proceeding:
As special receiver in 1967, one of my principal responsibilities was, as an auditing function, to prepare a report setting forth all assets and liabilities of the bank, including known creditors depositors and other customers having claims against the assets of ICB. I have recently reviewed the 121 page report plus balance-sheet I prepared. The review of the original report confirms my recollection that neither Granville Gold Trust Switzerland, Granville Gold Switzerland Corporation, Robert Higgins or Abdul Hafeez Muhammad, or indeed any name similar thereto, were included in the list of depositors, creditors or customers. Id. at P 3.
Plaintiffs maintain that on October 12, 1967 Robert Higgins wrote to Dr. Bernasconi requesting that Bernasconi transfer all the assets, deeds and titles, certificates, and papers of the GGT to the Credit Suisse Bank. The Commissione did not turn over the assets or otherwise respond to Higgins' request. Higgins' Certif. P 10. In addition, plaintiffs maintain, at nearly the same time, on October 16, 1967, Higgins wrote to Mr. Jack Smith at the United States Embassy in Bern, Switzerland asking for help in recovering the assets deposited in trust with the ICB. Pltffs' Mem. at 32; Higgins' Certif. P 10; Ex. A-7 to August 21 - Report. This effort too was "in vain." Pltffs' Mem. at 33.
Apparently, for the next ten years no further actions were taken by Robert Higgins or anyone else to recover the alleged assets of the trust. In 1977, apparently, Higgins wrote a series of letters to Bernasconi and Campana informing them that he had opened a trust in 1966 which had in it the equivalent of six hundred million dollars. Campana Aff. at P8. No further actions were then taken for the next twelve years. In June 1990, Higgins appointed plaintiff Abdul Hafeez Muhammad "principal beneficial interest holder of GGT." Id. at 33. Higgins irrevocably appointed Muhammad to assemble and 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 ...