On November 30, 1995, Slovenia offered to assume a share of Yugoslavia's debt under the NFA in an effort to normalize its relations with the international community. Specifically, Slovenia sought to exchange its own, newly-issued obligations for a portion of the outstanding debt under the NFA (the "Exchange"). Upon the consent of creditors holding at least two-thirds of the aggregate principal amount of the outstanding loans (the "Majority Creditors"), Slovenia offered to issue to each "participating creditor" bonds in the amount of approximately 18% of the participating creditor's refinancing loans. In return, the consenting creditors would release all Slovenian entities -- all entities organized in Slovenia that are majority-owned or controlled by Slovenia, including the Slovenian bank defendants in this case as well as entities not involved in the transactions here at issue -- would be released from any liability arising under the NFA. Banka Slovenije would replace the National Bank of Yugoslavia as the Paying Agent under the NFA.
The Exchange was offered only to "participating creditors." It was not offered to creditors that appeared on a list, compiled by the United States Treasury Office of Foreign Asset Control ("OFAC"), of entities presumed to be controlled by the Serbian government, which had seized billions of dollars of the former Yugoslavia's foreign currency reserves.
Because Yucyco was on the list at the time of the Exchange, it was not permitted to participate. It was removed from the list in February 1996, although the removal apparently did not become effective until June 25, 1996, after the Exchange closed.
The terms of the Exchange were accepted by nearly 80% of the international creditors. Yucyco did not tender its consent and vigorously opposed the transaction. Thereafter, on June 11, 1996, Slovenia issued approximately $ 812 million in bonds to participating creditors who timely tendered their NFA refinancing loans. Participating creditors were thus able to exchange approximately 18% of their NFA refinancing loans for new Slovenian bonds. Yucyco, however, was not permitted to do so.
D. The Amended Complaint
Yucyco filed suit in this Court on June 10, 1996. The amended complaint sets forth seven causes of action. The first, second, and fifth causes of action allege breach of contract claims against all the Slovenian defendants based on the NFA. The third cause of action is asserted against Slovenia only, purportedly as successor to Yugoslavia, on the Guaranty. The fourth cause of action is asserted against Chase only and seeks an injunction ordering Chase to declare an event of default under the NFA and declaring the refinancing loans immediately due and payable. The sixth cause of action is asserted against the defendants other than Chase that are "parties to the NFA" for breach of their contractual duty of good faith and fair dealing. Finally, the seventh cause of action asserts a claim for tortious interference against defendants Ljubljanska Banka d.d., Kreditna Banka Maribor d.d., Nova Ljubljanska Banka d.d., and Nova Kreditna Banka Maribor d.d., to the extent they "are deemed not to be parties, or successors to parties, to the NFA."
These motions followed.
A. Standard for Motion to Dismiss
In deciding a motion to dismiss under Rule 12(b), this Court must view the complaint in the light most favorable to the plaintiff and accept all allegations contained therein as true. See Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974); Nova Int'l, Inc. v. American Express Bank, Ltd., 1996 U.S. Dist. LEXIS 969, 1996 WL 39317, *2 (S.D.N.Y. Jan. 31, 1996). All reasonable inferences must be drawn in favor of Yucyco, and the complaint may not be dismissed unless it appears beyond doubt that plaintiff can prove no set of facts in support of its claim that would entitle it to relief. See Scheuer, 416 U.S. at 236; Christ Gatzonis Elec. Contractor, Inc. v. New York City Sch. Constr. Auth., 23 F.3d 636, 639 (2d Cir. 1994).
"In determining a 12(b)(6) motion, the Court may consider documents incorporated by reference into the complaint." Lomaglio Assocs., Inc. v. LBK Mktg Corp., 892 F. Supp. 89, 92 (S.D.N.Y. 1995); see also Hertz Corp. v. New York City, 1 F.3d 121, 124 (2d Cir. 1993), cert. denied, 510 U.S. 1111, 127 L. Ed. 2d 375, 114 S. Ct. 1054, 114 S. Ct. 1055 (1994). Although the documents governing the NFA and the Exchange were not attached to the complaint, this Court may properly examine these "integral" documents in evaluating defendants' motion to dismiss. See International Audiotext Network, Inc. v. AT&T Co., 62 F.3d 69, 72 (2d Cir. 1995) ("When a plaintiff chooses not to attach to the complaint or incorporate by reference a [document] upon which it solely relies and which is integral to the complaint,' the court may nevertheless take the document into consideration in deciding the defendant's motion to dismiss . . . .").
The Slovenian defendants move to dismiss the complaint on several grounds. First, they contend that Slovenia is not a party to the NFA, and that Slovenia's liability under the Guaranty raises the nonjusticiable political question of state succession. Second, defendants insist that the complaint fails to plead claims against Banka Slovenije. Third, defendants argue that all NFA creditors must be joined in this action as indispensable parties or the action should be dismissed. Fourth, defendants seek dismissal of Yucyco's contract claims on the ground that acceleration of the loans is unavailable under the NFA absent approval by the creditors. Fifth, defendants maintain that the Foreign Sovereign Immunities Act ("FSIA") bars Yucyco's tortious interference claim, and that the facts alleged in the complaint fail to support the claim.
Chase has been named as a defendant only in the fourth claim. It moves to dismiss under Rule 12(b)(6), arguing that because the Majority Creditors have not authorized acceleration of Yucyco's loans, it could not, under any scenario, provide plaintiff with the relief it seeks.
1. Yucyco's Claims Against Slovenia
Defendants insist that Yucyco's claims against Slovenia should be dismissed as a matter of law because (a) Slovenia is not and never has been a party to the NFA, and (b) whether Slovenia is liable under the Guaranty presents a nonjusticiable political question concerning the issue of state succession. (Slov. Defs. Mem. at 16-18). In response, Yucyco makes two principal arguments: first, Slovenia effectively became a party to the NFA through its actions in effecting the Exchange, and second, Slovenia is liable on the Guaranty and no political question is implicated. (Pl. Mem. at 26).
a. Slovenia as a Party to the NFA
It is well established that a plaintiff in a breach of contract action "may not assert a cause of action to recover damages for breach of contract against a party with whom it is not in privity." Perma Pave Contracting Corp., Inc. v. Paerdegat Boat & Racquet Club, 156 A.D.2d 550, 551, 549 N.Y.S.2d 57, 58 (2d Dep't 1989) (citations omitted); see also Smith v. Fitzsimmons, 180 A.D.2d 177, 180, 584 N.Y.S.2d 692, 695 (4th Dep't 1992) ("As a general rule, privity or its equivalent remains the predicate for imposing liability for nonperformance of contractual obligations."). Here, Yucyco acknowledges that Slovenia is not a signatory to the NFA, but contends that Slovenia transformed itself into an obligor under the NFA by playing an "integral role" in the restructuring of the NFA debt and by assuming a portion of the debt. (Pl. Mem. at 30). (Am. Compl. P 16-17).
This argument fails. Slovenia's involvement in the Exchange is no basis for holding it liable under the NFA in general. Slovenia agreed to the terms of the Exchange and nothing more. It agreed to accept only a limited portion of the former Yugoslavia's obligations; it did not agree to assume any further obligations, under the NFA or otherwise. Because "a non-signatory to a contract cannot be named as a defendant in a breach of contract action unless it has thereafter assumed or been assigned the contract," plaintiff may not assert its NFA-based claims against Slovenia. Crabtree v. Tristar Automotive Group, Inc., 776 F. Supp. 155, 166 (S.D.N.Y. 1991).
Yucyco also argues that Slovenia is liable under the NFA as an "Obligor" because Slovenia purported to be a "Yugoslav Obligor," as defined in the NFA, for purposes of the Exchange. Slovenia had to be classified as a "Yugoslav Obligor" for the Exchange to qualify as a "Qualified Weighted Average Exchange" ("QWAE") as opposed to a "Qualified Pro Rata Exchange" ("QPRE"). If the Exchange were not deemed a QWAE but were instead deemed a QPRE, no creditors under the NFA would have been able to participate in the Exchange unless all creditors were offered the opportunity to do so, and Slovenia would not have been able to exclude creditors such as those on the OFAC list. Yucyco contends that by agreeing to be a "Yugoslav Obligor," Slovenia became an "Obligor."
The difficulty with this argument, however, is that the two terms -- "Obligor" and "Yugoslav Obligor" -- are defined differently in the NFA. The definition of "Obligor" includes the National Bank of Yugoslavia and the other Yugoslav banking institutions that are parties to the NFA. The term "Yugoslav Obligor" includes a "Yugoslav Entity that is not ultimately controlled . . . by a Non-Yugoslav Person." In turn, a "Yugoslav Entity" is defined as any "Obligor," "Agency" ("any agency of Yugoslavia or of any of the republics or autonomous provinces thereof") (emphasis added), or "other corporation, partnership, joint venture, business entity of any kind . . . , bank or financial institution organized under the laws of Yugoslavia or any political subdivision thereof."
The fact that Slovenia was considered a "Yugoslav Obligor" for the Exchange does not mean that it became an NFA "Obligor." While the "Obligors" signed the NFA and undertook certain obligations to repay the loans, "Yugoslav Obligor" is merely a defined term that includes, in addition to "Obligors," general categories of entities not party to the NFA. Slovenia did not assume the obligations of an "Obligor" merely by agreeing to be a "Yugoslav Obligor." Indeed, the consents authorizing the transaction clearly state that Slovenia would act as "Yugoslav Obligor" "solely for purposes of characterizing the Exchange as a Qualified Weighted Average Exchange." (Mrak Declar., Ex. B., at Annex A) (emphasis added).
Finally, Yucyco suggests in its papers in opposition to defendants' motions that Slovenia is liable for the actions of Slovenian Obligers on an alter ego or "piercing the corporate veil" theory. (Pl. Mem. at 33). The argument must be rejected as well, for Yucyco did not allege such a theory in its amended complaint, and it is well-settled that a "claim for relief 'may not be amended by the briefs in opposition to a motion to dismiss.'" Telectronics Proprietary, Ltd. v. Medtronic, Inc., 687 F. Supp. 832, 836 (S.D.N.Y. 1988); see also Green v. Bauvi, 792 F. Supp. 928, 936 n.11 (S.D.N.Y. 1992) (refusing to consider factual allegations in opposition papers not contained in second amended complaint). Nor has Yucyco offered sufficient facts to support such a claim. Although Slovenia was intimately involved in the Exchange, that fact alone does not suggest that Slovenia "exercised general control over the day-to-day activities" of the Slovenian banks or that it engaged in conduct that would trigger alter ego liability. Gabay v. Mostazafan Found. of Iran, 151 F.R.D. 250, 254 (S.D.N Y. 1993).
In short, Yucyco has not sufficiently alleged a basis for a breach of contract claim against Slovenia under the NFA.
b. Slovenia as a Successor to Yugoslavia as Guarantor
Yucyco's claims against Slovenia based on the Guaranty similarly fail as a matter of law. Under principles of international law, a successor state such as Slovenia is not bound by its predecessor's agreements. Furthermore, Yucyco fails to allege any facts suggesting that Slovenia has voluntarily assumed Yugoslavia's financial duties under the Guaranty.
"International law sharply distinguishes the succession of state, which may create a discontinuity of statehood, from a succession of government, which leaves statehood unaffected." Trans-Orient Marine Corp. v. Star Trading & Marine, Inc., 731 F. Supp. 619, 621 (S.D.N.Y. 1990), aff'd, 925 F.2d 566 (2d Cir. 1991). Although a mere change in "government, regime or ideology has no effect on that state's international rights and obligations . . . , where one sovereign succeeds another, and a new state is created, the rights and obligations of the successor state are affected." Id. A full successor state, unlike a state that has experienced a mere change in government or ideology, is not bound by the contracts executed by the former sovereign. Id.; see also Restatement (Third) of Foreign Relations Law § 208 ("When the state ceases to exist, its capacities, rights, and duties terminate."); id. § 210 ("When part of a state becomes a new state, the new state does not succeed to the international agreements to which the predecessor state was party, unless, expressly or by implication, it accepts such agreements and the other party or parties thereto agree or acquiesce.").
The Restatement of Foreign Relations Law defines a successor state as one
that wholly absorbs another state, that takes over part of the territory of another state, that becomes independent of another state of which it had formed a part, or that arises because of the dismemberment of the state of which it had been a part.
Restatement § 208, Comment B.
In the instant case, Yucyco does not deny that Slovenia is one of five successor states to the now-dissolved Yugoslavia. (Pl. Mem. at 27). Slovenia clearly constitutes a successor state within the meaning of the law. The Yugoslav government did not merely see its power taken over by a new government. Rather, Yugoslavia has been dismembered, its boundaries have been dramatically redrawn, and multiple sovereigns exist where once there stood a single nation. There can be little doubt that Slovenia exists today "because of the dismemberment of the state of which it had been a part." Restatement (Third) § 208, Comment B.
The cases cited by Yucyco to the contrary are inapposite, as they involve the mere succession of governments rather than the creation of whole states. See, e.g., Trans-Orient Marine, 731 F. Supp. at 623 ("The military coups of 1985 and 1989 did not effect succession of the state of Sudan but merely changed the state's governing body, leaving the state's obligations undisturbed."); Jackson v. People's Republic of China, 550 F. Supp. 869 (E.D. Ala. 1982) (People's Republic of China held liable as successor government for bonds issued by Imperial Chinese government), aff'd, 794 F.2d 1490 (1986), cert. denied, 480 U.S. 917, 94 L. Ed. 2d 687, 107 S. Ct. 1371 (1987); Kunstsammlungen Zu Weimar v. Elicofon, 536 F. Supp. 829 (E.D.N.Y. 1981) (holding that GDR was entitled to possession of stolen paintings as successor government to Third Reich), aff'd, 678 F.2d 1150 (2d Cir. 1982); United States v. National City Bank of New York, 90 F. Supp. 448, 452 (S.D.N.Y. 1950) (finding that Bolshevik Revolution of 1917 did not amount to state succession).
As a successor state, Slovenia is not legally bound by any contract executed by the former Yugoslavia unless Slovenia has voluntarily "assumed" the responsibilities of the predecessor state and "the other party or parties thereto agree or acquiesce." Restatement (Third) of Foreign Relations Law § 210(3); see also Crabtree, 776 F. Supp. at 166; Ebenroth & Kemner, supra note 1, at 783 (noting that U.S. adopts view of successorship summarized in Restatement).
Yucyco does not allege that Slovenia has explicitly assumed Yugoslavia's role as NFA Guarantor. Indeed, the amended complaint is devoid of any such factual allegations. Because Slovenia does not automatically succeed Yugoslavia as NFA Guarantor and there are no indications that Slovenia has voluntarily substituted itself as NFA Guarantor, Yucyco is not in privity with this defendant.
To the extent Yucyco now argues that Slovenia is liable for an "equitable" share of the former state's obligations under the Guaranty, such a claim poses a nonjusticiable political question. (Pl. Mem. at 28). In Baker v. Carr, 369 U.S. 186, 7 L. Ed. 2d 663, 82 S. Ct. 691 (1962), the Supreme Court identified some of the characteristics of a political question:
Prominent on the surface of any case held to involve a political question is found a textually demonstrable constitutional commitment of the issue to a coordinate political department; or a lack of judicially discoverable and manageable standards for resolving it; or the impossibility of deciding without an initial policy determination of a kind clearly for nonjudicial discretion . . . .
Id. at 217. Courts have held that certain intractable issues involving state succession may pose such problems of justiciability. See Can v. United States, 14 F.3d 160, 161 (2d Cir. 1994) (finding claim of title to blocked assets nonjusticiable where U.S. government had not recognized North Vietnamese control of South Vietnam); Federal Republic of Yugoslavia v. Park-71st Corp., 913 F. Supp. 191, 194 (S.D.N.Y. 1995) (dismissing action involving "issues of state succession, competing claims to the property of a former state, [and] the allocation of the former state's property among successors").
Matters involving state succession do not always present nonjusticiable political questions.
The political question doctrine should not be invoked merely because a case involves controversial matters or issues that are of some political significance. Likewise, it is "error to suppose that every case or controversy which touches foreign relations lies beyond judicial cognizance." Japan Whaling Ass'n v. American Cetacean Soc., 478 U.S. 221, 230, 92 L. Ed. 2d 166, 106 S. Ct. 2860 (1986). As the Supreme Court has made clear, the doctrine "is one of 'political questions,' not one of 'political cases.'" Baker, 369 U.S. at 217.
In the instant case, the Court lacks "judicially discoverable and manageable standards for resolving" Yucyco's claims against Slovenia. While the international norm may arguably be that a successor state should be held liable for a share of its predecessor's liabilities, plaintiff has not offered any basis by which this Court may "equitably" apportion Slovenia's liability, if any, under the Guaranty. Yucyco does not allege the existence of any controlling agreement, treaty, or similar instrument allocating the economic liabilities of the former nation under the Guaranty among the various successor states. As a result, this Court lacks "satisfactory criteria for a judicial determination" of Yucyco's equitable claims against Slovenia. Coleman v. Miller, 307 U.S. 433, 454, 83 L. Ed. 1385, 59 S. Ct. 972 (1939). Under the circumstances, I am unable to properly "take into account . . . the property, rights and interests which pass to the successor States" to properly determine the fair share of debt that should be borne by Slovenia. Vienna Convention on Succession of States in Respect of State Property, Archives and Debts, April 8, 1983, art. 41, 22 I.L.M. 306, 324 (1983).
In addition, without the benefit of such legal instruments, resolution of Yucyco's claims would require this Court to make policy determinations -- including, for example, apportionment of responsibility among the five new republics -- for which the Court is ill-suited and "of a kind clearly for nonjudicial discretion." Baker, 369 U.S. at 217. To the contrary, the settlement of foreign debts falls squarely within the ambit of the President's and Congress's constitutional authority. See U.S. Const. art. I, § 8; id. art. II, § 2; see also Barclays Bank v. Franchise Tax Bd. of Calif., 512 U.S. 298, 114 S. Ct. 2268, 2284-85, 129 L. Ed. 2d 244 (1994) (stating that courts have "no constitutional authority to make the policy judgments essential to regulating foreign commerce and conducting foreign affairs."). This Court should not thrust itself into a role "textually committed" to the political branches by the Constitution. Baker, 369 U.S. 186 at 217, 82 S. Ct. 691, 7 L. Ed. 2d 663.
In short, Yucyco is unable to state a claim against Slovenia under the Guaranty or the NFA. Accordingly, all claims against Slovenia must be dismissed.
2. Yucyco's Claims Against Banka Slovenije
Defendants further argue that plaintiff has failed to plead any claims against Banka Slovenije. Plaintiff acknowledges that it has not articulated claims specific to this defendant. Instead, Yucyco argues that Banka Slovenije, as the Paying Agent during the Exchange, must be retained in the lawsuit because its "presence may be necessary to afford Yucyco complete relief" in the event that this Court were to decide that Yucyco is entitled to participate in the transaction. (Pl. Mem. at 42-43). Construing the amended complaint liberally in plaintiff's favor, I conclude that Yucyco has failed to plead claims against Banka Slovenije.
Rule 8(a) of the Federal Rules of Civil Procedure requires that a complaint against multiple defendants "indicate clearly the defendants against whom relief is sought and the basis upon which the relief is sought against the particular defendants." Mathews v. Kilroe, 170 F. Supp. 416, 417 (S.D.N.Y. 1959); see also Weiszmann v. Kirkland & Ellis, 732 F. Supp. 1540, 1549 (D. Colo. 1990) ("Where . . . there are multiple defendants, the complaint should specify what conduct by each defendant gives rise to the asserted claim"). Here, however, Yucyco alleges only that "Banka Slovenije is responsible in whole or in part for negotiating and proposing the exchange of to-be-issued bonds for NFA Refinancing Loans." (Am. Compl. P 6). Plaintiff does not allege that Banka Slovenije is a party to the NFA or the Guaranty. But even assuming Banka Slovenije were a party to either agreement, plaintiff fails to explain how "responsibility" for "negotiating and proposing" the Exchange would constitute breach of contract. Additionally, a mere assertion that the defendant "may" be necessary under a speculative scenario for relief is insufficient to justify its continued presence in this litigation. Thus, Yucyco's pleadings against this defendant are inadequate, and the claims against Banka Slovenije are dismissed.
3. Other Creditors as Indispensable Parties
Defendants further contend that Yucyco must join as indispensable parties the more than one hundred NFA creditors that executed the agreements, waivers, and consents authorizing the Exchange. Defendants insist that, in the event any such creditor cannot be joined, the suit must be dismissed under Fed. R. Civ. P. 12(b)(7). (Slov. Defs. Mem. at 28-31). Plaintiff argues, on the other hand, that nonparty NFA creditors are not necessary to this litigation, that complete relief may be obtained from the present parties, and that other creditors have not claimed an interest in this action. (Pl. Mem. at 5-12).
Under Rule 19(a), joinder is compulsory if:
(1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.
Fed. R. Civ. P. 19(a).
Joinder of all NFA creditors, or even just the consenting creditors, is unnecessary in this case. Complete relief can be accorded among the current parties to this lawsuit. Although parties to a contract are typically deemed indispensable to an action to "set aside" the contract, see Fluent v. Salamanca Indian Lease Auth., 928 F.2d 542, 547 (2d Cir.), cert. denied, 502 U.S. 818, 116 L. Ed. 2d 48, 112 S. Ct. 74 (1991); Tucker v. Nat'l Linen Serv. Corp., 200 F.2d 858 (5th Cir. 1953), in this case plaintiff does not seek to unravel the NFA or the Exchange. Rather, Yucyco desires only to vindicate its interest in the loans for which the Slovenian banks were liable. The complaint, fairly construed, seeks a nullification of the consents only to the extent that they relieved defendants of their joint and several liability as to the loans held by plaintiff. (Am. Compl. PP 66, 73; Pl. Mem. at 11-12). Therefore, complete relief can be afforded without requiring any nonparty creditor "to do anything or change any of its positions." Peregrine Myanmar, Ltd. v. Segal, 89 F.3d 41, 48 (2d Cir. 1996). Hence, joinder of additional creditors is not required under Rule 19(a)(1).
Nor is joinder required under 19(a)(2). No other creditor has claimed an interest in this litigation. Where, as here, absent parties fail to assert an interest in the proceedings, Rule 19(b)(2) does not mandate their joinder. See Conntech Dev. Co. v. Univ. of Conn. Educ. Properties, 102 F.3d 677, 682 (2d Cir. 1996) ("'Subparts (i) and (ii) [of Rule 19(a)(2)] are contingent . . . upon an initial requirement that the absent party claim a legally protected interest relating to the subject matter of the action.'") (quoting Northrop Corp. v. McDonnell Douglas Corp., 705 F.2d 1030, 1043 (9th Cir. 1983)).
The terms of the NFA provide an additional basis for not requiring joinder under Rule 19(b)(2). The NFA provides that the refinancing loans constitute "independent" debts that may be enforced without requiring joinder of any other creditor. Section 14.13 provides that
the amounts payable at any time . . . to each Creditor shall be a separate and independent debt and each Creditor shall be entitled to protect and enforce his rights arising out of this Agreement, and it shall not be necessary for any other Creditor to be joined as an additional party in any proceedings for such purpose . . . .