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YUCYCO, LTD. v. REPUBLIC OF SLOVENIA

November 18, 1997

YUCYCO, LTD., Plaintiff, against REPUBLIC OF SLOVENIA, LJUBLJANSKA BANKA d.d., KREDITNA BANKA MARIBOR d.d., BANKA SLOVENIJE, NOVA LJUBLJANSKA BANKA d.d., NOVA KREDITNA BANKA MARIBOR d.d., and THE CHASE MANHATTAN BANK f/k/a CHEMICAL BANK, N.A., Defendants.


The opinion of the court was delivered by: CHIN

 CHIN, D.J.

 This case arises from the violent collapse and fragmentation of the former Socialist Federal Republic of Yugoslavia ("Yugoslavia"). Instead of one nation, there are now five successor states, including the fledgling Republic of Slovenia ("Slovenia"). The critical issue presented is whether Slovenia is liable for the obligations of the former Yugoslavia and its state-controlled banking institutions.

 Plaintiff Yucyco, Ltd. ("Yucyco"), a Cyprus corporation, is the owner of $ 29.5 million in loans made to certain Yugoslavian banks and guaranteed by Yugoslavia under a refinancing agreement, the New Financing Agreement of 1988 (the "NFA"). In June 1996, after the dissolution of Yugoslavia and the creation of the five new republics, Slovenia agreed to assume a share of the former Yugoslavia's debts by offering creditors the opportunity to exchange a portion of their loans for newly-issued Slovenian obligations. Slovenia did so in an effort to normalize its relations with the world financial community. Certain creditors, however, were not permitted to participate in the exchange because they had been placed by the United States on a list of entities identified with one of the other new republics, the Federal Republic of Yugoslavia ("Serbia-Montenegro"), which the United States had concluded presented a threat to the national security, foreign policy, and economy of the United States. Yucyco was one of these listed entities.

 Yucyco commenced this action against Slovenia, the central bank of Slovenia (Banka Slovenije), four other Slovenian banks (Ljubljanska Banka d.d., Kreditna Banka Maribor d.d., Nova Ljubljanska Banka d.d., and Nova Kreditna Banka Maribor d.d.) (collectively the "Slovenian defendants"), as well as Chase Manhattan Bank ("Chase"). Ljubljanska Banka d.d. and Kreditna Banka Maribor d.d. were original signatories to the NFA, and Nova Ljubljanska Banka d.d. and Nova Kreditna Banka Maribor d.d. are alleged to be their successors-in-interest. Chase is sued solely in its capacity as agent under the NFA.

 Yucyco seeks to hold the Slovenia defendants liable for the $ 29.5 million in loans. Alternatively, it contends that the Slovenian defendants should be ordered to permit Yucyco to participate in the exchange on the same terms as other creditors under the NFA. Finally, Yucyco asserts an alternative claim for tortious interference with contract.

 Before the Court are two motions to dismiss. The Slovenian defendants move to dismiss the complaint pursuant to Fed R. Civ. P. 12(b)(1), (2), (5), (6), and (7). Chase moves to dismiss the complaint for failure to state a claim, or in the alternative, for summary judgment.

 For the reasons that follow, the Slovenian defendants' motion is granted in part and denied in part. Chase's motion is granted in all respects.

 BACKGROUND

 A. The Dissolution of Yugoslavia

 Yugoslavia existed as a nation from 1918 until 1991. After World War I, Slovenes, Croats, Bosnians, and the pre-war states of Serbia and Montenegro joined to form what eventually became known as the Kingdom of Yugoslavia. In 1945, following World War II, the Federal People's Republic of Yugoslavia was created under the leadership of Joseph Broz Tito and the Communist Party. In 1963, the federation was renamed the Socialist Federal Republic of Yugoslavia, and a new constitution was adopted in 1974.

 Tito died in 1980. As the Tito regime came to an end, a system of collective leadership was instituted, in keeping with the 1974 constitution. Strife and inter-ethnic conflict arose as separatist movements in the individual republics and provinces grew. In the late 1980's, under the leadership of Slobodan Milosevic, Serbia became more and more aggressive, and in 1989, Serbia proposed abolishing the 1974 constitution.

 On April 27, 1992 the remaining Yugoslav territories, Serbia and Montenegro, issued a joint declaration formally dissolving the former Yugoslavia and claiming to be the sole successor state. The other republics disputed Serbia's claim of sovereign continuity, and on May 30, 1992 the U.N. Security Council passed Resolution 757, which declared that "the claim by the Federal Republic of Yugoslavia (Serbia and Montenegro) to continue automatically the membership of the former Socialist Federal Republic of Yugoslavia in the United Nations has not been generally accepted." 31 I.L.M. 1427, 1454 (1992). Four months later, the U.N. Security Council denied Serbia-Montenegro's request to continue automatic U.N. membership as Yugoslavia's sole successor but invited the republic to formally apply for membership. *fn1" See U.N.S.C. Res. 777, 31 I.L.M. at 1473 ("The state formerly known as the Socialist Federal Republic of Yugoslavia has ceased to exist.").

 Although Serbia-Montenegro has not been fully embraced by the international community, the republic continues to conduct its affairs as an unrecognized state. Hence, the nation of Yugoslavia has been succeeded by five separate republics: Slovenia, Bosnia-Herzegovina, Croatia, Macedonia, and Serbia-Montenegro.

 B. The NFA and Yugoslavia's Guaranty

 As a consequence of the economic difficulties of the 1980's, Yugoslavia and its state-controlled banks were forced to restructure the debt that they owed to foreign financial institutions. The NFA, signed in 1988, was the last in a series of debt restructuring agreements that involved hundreds of international banks and other financial institutions. In accordance with the terms of the NFA, creditors (non-Yugoslavian financial institutions) provided approximately $ 7 billion in refinancing to the Yugoslav banks that were party to the NFA. The refinancing loans were secured by a guaranty (the "Guaranty") separately executed by the government of Yugoslavia.

 By 1991, the principal amount of the outstanding loans under the NFA had been reduced to approximately $ 4 billion.

 C. The Exchange

 The dissolution of Yugoslavia left its financial obligations in a state of turmoil. Uncertainty existed as to whether its financial obligations would be met and, if so, how and by whom. The various new republics did not agree on how to assume responsibility for the dissolved state's liabilities and assets. Consequently, each sovereign, including Slovenia, has had to make its own efforts to deal with the financial consequences of dissolution. The individual republics have pursued strategies of negotiated or "conditional" succession with various nations and international organizations. Croatia, for example, has conducted its own bond exchange in an effort to assume its share of the former state's debts. *fn2"

 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. *fn3" 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.

 DISCUSSION

 A. Standard for Motion to Dismiss

 "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.

 B. Analysis

 1. Yucyco's Claims Against ...


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