The opinion of the court was delivered by: Robert W. Sweet, District Judge.
Defendant Russian Savings Bank, a/k/a Savings Bank of the Russian
Federation a/k/a Russian Federation Savings Bank a/k/a Commercial Savings
Bank of the Russian Federation a/k/a Sberbank ("Sberbank") moves, pursuant
to Rules 12(b)(2) and (6), Fed. R. Civ. P, to dismiss the complaint filed
by Plaintiff Parex Bank ("Parex") on the grounds of lack of personal
jurisdiction, forum non conveniens, and failure to state a claim upon which
relief can be granted. For the reasons stated below, the motions are denied
in part and granted in part.
Plaintiff Parex Bank is a financial institution organized and existing
under the laws of Latvia.
Defendant Sberbank is an open joint-stock company organized under the laws
of the Russian Federation. Its majority shareholder is the Central Bank of
the Russian Federation, and its principal place of business is Moscow.
The prior proceedings of this action are set forth in the prior opinion
of this Court, which held that Sberbank properly removed the case from
state to federal court. See Parex Bank v. Russian Savings Bank,
81 F. Supp.2d 506, 508 (S.D.N.Y. 2000).
Parex filed the complaint in New York Supreme Court on July 21, 1999,
claiming breach of contract and deceptive business acts and practices under
New York's General Business Law ("NYGBL"). Sberbank removed the action to
this Court on August 9, 1999. The dispute arose out of Sberbank's alleged
failure to honor a nondeliverable forward exchange contract ("NDF
contract")*fn1 between the parties in the aftermath of Russia's 1998
On March 11, 1998, a Parex trader in Riga, Latvia telephonically
initiated a contract for a non-deliverable forward transaction with
Sberbank in Moscow. The parties agreed to exchange rubles for dollars at
the currency exchange rate as of March 9, 1999. The agreement was
memorialized only by Reuters electronic records rather than in a signed,
written contract. At the time the contract was entered into, the value of
the Russian ruble was determined by the MICEX exchange and fluctuated based
on market trading within a trading band set by the Russian government.
To the extent that the exchange rate moved unfavorably for a party, the
contract required that party to pay the other party the difference between
the MICEX dollar-ruble exchange rate on March 9, 1999 and the agreed amount
of 6.9 multiplied by 5,362,318.84. The difference was to be transferred in
dollars into the other party's Bank of New York account. Upon Sberbank's
request, Parex transferred a $268,116 security deposit into Sberbank's Bank
of New York account, which Sberbank held from March 11, 1998 through March
Five months after the NDF contract was negotiated, Russia suffered a
financial crisis that fundamentally altered its financial landscape. Like
other emerging world markets, Russia's financial system collapsed after
violence erupted in Indonesia in May 1998. In August of 1998, Russia's
Central Bank enacted emergency measures to counteract the country's serious
liquidity problem. On August 17, the Russian Government announced a package
of severe economic measures: First, it raised the trading band, which
allowed the ruble to devalue; second, it ordered a 90-day moratorium on the
repayment of foreign debt by banks; and third, it announced the
restructuring of ruble-denominated debt. Russian citizens withdrew their
savings from banks en masse and stores closed. In late August of 1998, the
ruble-dollar trading on the MICEX exchange was temporarily suspended. From
August to the beginning of September, the ruble lost a significant portion
of its face value.
In early September, due to the combination of the economic crisis, the
non-existence of any MICEX exchange rate on which to assess the NDF
contract, and the moratorium on paying back foreign debt, Sberbank
representatives contacted Parex in an attempt to settle the NDF contract.
Sberbank offered to settle at a rate equivalent to the ceiling for rubles
set by the Russian government in 1998, 7.15 rubles per dollar. Parex
objected to what it viewed as Sberbank's altering the terms of the NDF
contract. The ensuing negotiations took place either in Moscow or by
telephone between Riga and Moscow through February of 1999, and failed to
produce a settlement.
On the value date of March 9, 1999, Parex demanded that Sberbank transfer
$3,755,642.01 to Parex's Bank of New York account in satisfaction of the
contract. On March 10, 1999, Parex sent Sberbank a letter again demanding
immediate payment. Attached to that letter was a copy of a claim for relief
Parex had filed at the Moscow City Arbitration Court, the Russian state
commercial court that has jurisdiction over this dispute.
The parties met once more on March 22, 1999, but failed to reach an
agreement. Parex filed this action in the New York Supreme Court three
months later, and Sberbank properly removed it to this Court on August 9,
1999 pursuant to 28 U.S.C. § 1330(a) and 1446(d).
Sberbank filed the instant motion to dismiss on March 24, 2000. Parex
filed a memorandum in response on May 22, 2000 and the motion was deemed
fully submitted when Sberbank filed its reply memorandum on June 20, 2000.
For the purposes of this motion to dismiss, the material facts alleged in
the complaint are accepted as true. See Newman & Schwartz v. Asplundh Tree
Expert Co., 102 F.3d 660, 662 (2d Cir. 1996); O'Brien v. Alexander,
101 F.3d 1479, 1484 (2d Cir. 1996).
II. Subject Matter Jurisdiction
Where a case is brought against a "foreign state," the Foreign Sovereign
Immunities Act ("FSIA"), 28 U.S.C. § 1330, 1602 et seq.,
provides that personal jurisdiction exists where there is both subject
matter jurisdiction and proper service. 28 U.S.C. § 1330
(a), (b); see Seetransport Wiking Trader v. Navimpex Centrala Navala,
989 F.2d 572, 578 (2d Cir. 1993) (citing Texas Trading
& Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300,
308 (2d Cir. 1981), cert. denied, 454 U.S. 1148 (1982)).
This Court concluded in a prior opinion that Sberbank, as an
instrumentality or agency of the Russian State, qualifies as a "foreign
state" under the FSIA. Parex Bank v. Russian Savings Bank,
81 F. Supp.2d 506, 508 (S.D.N.Y. 2000). The parties do not
contest whether service was proper pursuant to
28 U.S.C. § 1608. Although the parties did not
raise the issue of subject matter jurisdiction, it is a threshold
question that must be addressed under the FSIA before reaching the
personal jurisdiction analysis.
A. Commercial Activity Exception to Sovereign Immunity
The FSIA is the only basis for the subject-matter jurisdiction of the
United States courts. See Saudi Arabia v. Nelson, 507 U.S. 349,
355 (1993); Transatlantic Shiffahrtskontor v. Shanghai Foreign Trade
Corp., 204 F.3d 384, 388 (2d Cir. 2000). Under the FSIA,
foreign states are immune from suit in the United States unless one of
several exceptions applies. See 28 U.S.C. § 1604,
1605; Nelson, 507 U.S. at 455; Transatlantic Shiffahrtskontor, 204 F.3d
The most relevant exception to foreign sovereign immunity is the
"commercial activity" exception, which provides that a foreign state ...