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HYATT CORP. v. STANTON

November 19, 1996

HYATT CORPORATION, Plaintiff, against MICHAEL V. STANTON, Defendant.


The opinion of the court was delivered by: MUKASEY

 MICHAEL B. MUKASEY, U.S.D.J.

 Hyatt Corporation sued Michael Stanton, Senior Vice President of Skopbank, a Finnish Bank owned by the Finnish Government Guarantee Fund ("GGF"), in New York State Supreme Court, New York County, for tortious interference with contract and prospective economic advantage, civil conspiracy, and prima facie tort. The action was removed to this court pursuant to: 1) Section 1441(d) of Title 28, permitting the removal of any action involving a foreign state as defined by the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. § 1602 et seq. ; 2) Section 1651 of Title 28, the All Writs Act; and 3) Section 1441(b) of Title 28, federal question jurisdiction. Hyatt now moves to remand this case to state court, arguing that none of these statutes justifies removal. For the reasons given below, Hyatt's motion is granted.

 I.

 For the purposes of this motion, non-jurisdictional facts alleged in the complaint are accepted as true. Jurisdictional facts are drawn from the complaint, affidavits and exhibits submitted by the parties. Kline v. Kaneko, 685 F. Supp. 386, 389-90 (S.D.N.Y. 1988). Defendant Stanton, a resident of New York, is a Senior Vice President of Skopbank. Skopbank is a savings institution, incorporated and headquartered in Finland, with an office in New York City. (Compl. PP 4,5) Plaintiff Hyatt Corporation is a Delaware corporation with its principal place of business in Chicago.

 On September 19, 1991, the Bank of Finland took control of Skopbank, assuming ownership of 52.9% of its total stock and 63.59% of its voting stock. (Notice of Removal, Ex. B at 5; Vaisanen Aff. P 5) The Bank of Finland is the "national central bank" of Finland and is under the control of the Finnish Parliament. (Notice of Removal, Ex. B at 5) It owned its shares in Skopbank through a wholly-owned subsidiary, Scopulus Oy. (Id.)

 On June 15, 1992, Finland's Government Guarantee Fund ("GGF") purchased all of Scopulus Oy's shares in Skopbank. (Id. at 6; Vaisanen Aff. P 6) The GGF was created by the Finnish Parliament. Its "mission . . . is to safeguard the activities of [Finnish] deposit banks and the claims of depositors. The GGF has been provided with extensive powers to grant bank support and deal with the bank crisis in Finland." (Vaisanen Aff. PP 8-9) Skopbank is currently controlled by GGF, which owns 52.9% of its total stock and 62.59% of its voting stock.

 This lawsuit concerns a defaulted loan to a resort on the Caribbean island of St. John. In June 1988, Skopbank loaned approximately $ 100 million to Great Cruz Bay Development Co. to facilitate the development of a resort hotel and condominium project on St. John to be named Virgin Grand Beach Hotel - St. John. (Compl. P 7) The resort project was not an immediate success and, in July 1989, Great Cruz missed its interest payment on the loans. (Id. PP 9, 10) Instead of foreclosing, Skopbank decided to restructure the loan. As a condition of the restructuring, Skopbank insisted that the managers of the hotel be replaced, preferably by the Hyatt Corporation. (Id. PP 10-12)

 After extensive negotiations, Hyatt agreed to manage the resort and on March 9, 1990, entered a Management Agreement with Great Cruz. (Id. P 18) Great Cruz agreed to fund improvements in the hotel's physical plant and to give Hyatt a share of hotel profits. (Id. PP 16, 17) The Agreement had a term of 30 years and included a provision that bound Great Cruz's successors-in-interest to the Agreement's obligations. (Id. P 16) The Agreement could be terminated if certain defaults occurred; Hyatt contends that no default, as defined by the Agreement, has occurred. (Id. PP 26-27) Skopbank guaranteed the renovation which Great Cruz had promised. (Id.) Skopbank also agreed, in a document entitled "Subordination, Non-Disturbance and Attornment Agreement," that a foreclosure on the property would not impact Hyatt's rights under the Management Agreement. (Id. PP 20-21)

 In 1991, Skopbank initiated foreclosure proceedings against Great Cruz. (Id. P 31) On February 17, 1995, a Consent Judgment in Foreclosure was filed. Pursuant to this Consent Judgment, a $ 71 million cash-flow note held by Skopbank was converted to a judgment lien on the hotel. (Id. P 34) On March 1, 1995, Skopbank and GGF wrote Hyatt stating that "the Management Agreement . . . [is] not binding on GGF, Skopbank or their successors, nominees and assigns." (Id. P 35)

 The resort was sold at auction by the United States Marshal's Office on March 20, 1995. An entity named 35 Acres Associates purchased title to the hotel part of the resort. (Id. P 36) Hyatt alleges that 35 Acres is a general partnership consisting of two corporate partners, Oy Intersio Ab and Ultraponi Oy, which it asserts are wholly owned by Skopbank and directed by Stanton. (Id. P 37) Defendant presents the testimony of a GGF official, who states that Stanton is not a director of, and has no control over, 35 Acres. (Vaisanen Aff. PP 21, 24, 25)

 On March 21, 1995, after acquiring title to the hotel, 35 Acres terminated the Management Agreement with Hyatt. (Compl. P 39) On June 8, 1995, 35 Acres demanded that Hyatt surrender possession of the hotel. (Id. P 40)

 In its complaint, Hyatt alleges that Stanton directed the foreclosure, sale, and subsequent termination of the Management Agreement in an attempt to appropriate for Skopbank the premiums and goodwill from the resort's success. Hyatt alleges that Stanton acted for his own personal benefit and beyond the scope of his authority in directing these actions. It alleges that this conduct benefitted him by "broadening his own responsibilities and thereby enhancing his future employment possibilities and economic opportunities." (Id. P 31) Stanton has submitted the affidavit of Jarmo Vaisanen, the Financial Counsellor of the Ministry of Finance of Finland. He attests that Stanton acted in his official capacity as loan officer and within the scope of his authority in his actions in relation to the resort. (Vaisanen Aff. PP 17, 20, 21, 26-29) He also states that Stanton received no personal benefit from these actions. (Id. PP 26-29)

 On May 29, 1996, Hyatt filed a complaint against Stanton in New York State Supreme Court, New York County, asserting three causes of action, including tortious interference with contractual relationship and prospective economic advantage, prima facie tort, and civil conspiracy.

 Stanton filed a Notice of Removal on June 28, 1996. The Notice asserts three grounds for removal. First, it relies on 28 U.S.C. § 1441(d), arguing that Skopbank is a foreign state under the definition given in 28 U.S.C. § 1603, and Stanton was acting in his official capacity on Skopbank's behalf. Second, it claims that removal is proper under the All Writs Act, 28 U.S.C. § 1651, in order to prevent the frustration of and collateral attack upon orders previously issued by the District Court of the Virgin Islands. Third, defendant cites 28 U.S.C. § 1441(b), arguing that plaintiff's claims raise questions of federal law "since the Finnish Government has substantial interests in regulating its banking system, including the collection of loans." (Notice of Removal P 10)

 Two other federal actions, one pending and one dismissed, are relevant to this motion. An action styled GGF v. Hyatt Corp., 167 F.R.D. 399, Civ. Action No. 1995-49-M (D.V.I. filed March 16, 1995), is currently pending in the United States District Court of the Virgin Islands. The plaintiffs in that action are GGF, Skopbank, 35 Acres Associates, 12 Acres Associates and Benefori Oy. They assert various claims against Hyatt based on its alleged breach of the March 1990 Management Agreement, including failure to make debt service payments to Skopbank. Hyatt's motion to dismiss that complaint was denied on April 10, 1996. (Notice of Removal, Ex. F) Hyatt recently filed a Second Amended Counterclaim in that case against 35 Acres, Skopbank and GGF. In its counterclaim, Hyatt asserts breach of contract against Skopbank and 35 Acres, tortious interference against Skopbank and GGF, conspiracy against Skopbank and GGF, equitable estoppel against Skopbank, unjust enrichment against Skopbank and GGF, breach of warranty against 35 Acres, fraud against Skopbank, breach of guaranty by Skopbank, fraudulent conveyance against Skopbank and 35 Acres, and prima facie tort against all defendants. (Biester Aff., Ex. B)

 Another action, styled Hyatt Corp. v. 35 Acres Associates, 166 F.R.D. 321, Civ. Action No. 1995-68 (D.V.I.), was filed in the District Court of the Virgin Islands on April 25, 1995, after 35 Acres terminated Hyatt's Management Agreement. Hyatt sought a declaratory judgment that its Management Agreement was enforceable and not terminated. It also alleged that 35 Acres had engaged in a civil conspiracy to deprive Hyatt of its rights under the Agreement. In January, 1996, Judge Thomas K. Moore dismissed that action, finding that the Management Agreement had created an agency that was revocable at will, and that Hyatt could not prove a civil conspiracy because it had alleged no unlawful acts by the defendant. In the same ruling, Judge Moore granted 35 Acres' motion for summary judgment in GGF v. Hyatt Corp., the case currently pending in the Virgin Islands, finding that Hyatt's agency was revocable at will and the Agreement had been terminated. This decision was affirmed by the Third Circuit at 95 F.3d 291 (3d Cir. 1996). (Notice of Removal, Ex. F)

 The plaintiffs in GGF v. Hyatt Corp. have moved in the District Court for the Virgin Islands to enjoin this action. They claim that the contentions in the present complaint are the same as those in the dismissed complaint in Hyatt Corp. v. 35 Acres and in the Second Amended Counterclaim Hyatt recently filed in GGF v. Hyatt Corp..

 III.

 "In light of the congressional intent to restrict federal court jurisdiction, as well as the importance of preserving the independence of state governments, federal courts construe the removal statute narrowly, resolving any doubts against removability." Lupo v. Human Affairs Int'l, Inc., 28 F.3d 269, 274 (2d Cir. 1994); see also Boyer v. Snap-on Tools Corp., 913 F.2d 108, 111 (3d Cir. 1990), cert. denied, 498 U.S. 1085, 112 L. Ed. 2d 1046, 111 S. Ct. 959 (1991). In deciding whether removal is appropriate, "the district judge may resolve disputed jurisdictional fact issues . . . and may rely on affidavits as well as the pleadings." Kline v. Kaneko, 685 F. Supp. 386, 389-90 (S.D.N.Y. 1988).

 Section 1441(d) of Title 28 provides:

 
Any civil action brought in a State court against a foreign state as defined in § 1603(a) . . . may be removed by the foreign state to the district court of the United States for the district . . . embracing the place where such action is pending.

 28 U.S.C. § 1441(d) (1994). Stanton argues that he qualifies as a foreign state under the FSIA's definition of that term and therefore this case may be removed to federal court. In order to qualify as a foreign state under the FSIA, Stanton must show that: a) his employer, Skopbank, is a foreign state; and b) he was acting in his official capacity and within the scope of his authority when he undertook the acts which are the subject of this lawsuit. See Chuidian v. Philippine Nat'l Bank, 912 F.2d 1095, 1103 (9th Cir. 1990). Because Stanton fails to make the first showing, I need not address the second.

 Section 1603 defines the term "foreign state" as used in the FSIA:

 
(a) A "foreign state", except as used in section 1608 of his title, includes a political subdivision of a foreign state or an agency or instrumentality of a foreign state as defined in subsection (b).

 28 U.S.C. § 1603(a) (1994). The statute then defines the term "agency or instrumentality of a foreign state":

 
(b) An "agency or instrumentality of a foreign state" means any entity --
 
(1) which is a separate legal person, corporate or otherwise, and
 
(2) which is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof, and
 
(3) which is neither a citizen of a State of the United States as defined in section 1332(c) and (d) of this title, nor created under the laws of any third country.

 28 U.S.C. § 1603(b) (1994).

 The second prong of this test is the focus of the parties' dispute. Hyatt argues that Congress, in defining an agency or instrumentality as an entity "a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof," specifically excluded from this definition entities a majority of whose shares are owned by an agency or instrumentality of a foreign state. Stanton, on the other hand, claims that the term "foreign state" in § 1603(b)(2) includes an agency or instrumentality of a foreign state, and therefore that a corporation majority-owned by an agency or instrumentality is also itself an agency or instrumentality.

 Before reaching this issue of statutory interpretation, I must resolve a threshold issue: whether the GGF is a political subdivision or an agency or instrumentality of the Finnish Government. If GGF is a political subdivision, then Skopbank would fall squarely within the statutory definition of agency or instrumentality of a foreign government: it would be a corporation a majority of whose shares are owned by a political subdivision of a foreign state, and therefore a foreign state under the FSIA. If GGF is an agency or instrumentality of a foreign state, then I must decide whether a corporation like ...


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