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October 19, 2005.

JOHN M. MURPHY, et al. Plaintiffs,

The opinion of the court was delivered by: RICHARD HOLWELL, District Judge


This action stems from the bankruptcy of Hanbo Iron & Steel Co., Ltd. ("Hanbo" or "Hanbo Steel"), a bankruptcy so colossal that, by many accounts, it precipitated the so-called "Asian financial crisis" of the late 1990's. At one time Korea's second-largest steel manufacturer, as well as a prominent member of a leading Korean conglomerate, or "chaebol," Hanbo collapsed in January 1997 under more than $6 billion of debt, most of which was associated with a single capital project called the "Dangjin Works Facility." As Hanbo's debt declined in value, much of it was acquired by a state-created entity known as the Korea Asset Management Corporation ("KAMCO"). Ultimately, KAMCO was to become Hanbo's largest creditor, and would play an important role in the company's bankruptcy, as well as the eventual sale of its assets at international auction.

Derivative plaintiff John M. Murphy, acting on behalf of AK Capital, LLC ("AK Capital"), now contends, inter alia, that KAMCO fraudulently misled AK Capital and conspired against AK Capital in connection with the Company's failed attempt to purchase Hanbo's assets at one such auction. In particular, Murphy contends that KAMCO made several false representations to AK Capital, including (1) that KAMCO would have de facto control over the auction; (2) that if AK Capital were the successful bidder, KAMCO would use its best efforts to help AK Capital consummate the purchase; and (3) that a $10 million earnest money deposit would be the maximum required up-front payment. Murphy further alleges that KAMCO conspired to defraud AK Capital and to prevent it from closing on the sale and purchase agreement, and that KAMCO tortuously interfered with the sale and purchase agreement. For these alleged wrongs, plaintiffs seek $1 billion in actual and punitive damages.

  By motion dated June 11, 2004, KAMCO moved to dismiss the case, arguing that (1) KAMCO is an organ of the Korean government, and therefore entitled to immunity under the Foreign Sovereign Immunities Act, 28 U.S.C. § 1601, et seq. (the "FSIA"); (2) the doctrine of forum non conveniens precludes plaintiffs' case from being heard in this jurisdiction; (3) the complaint does not comply with Local Rule 23.1 and Fed.R.Civ.P. 9(b); and (4) the complaint does not state a claim under Korean law, which would control the action. Murphy opposed the motion on all grounds and also asked the Court to conduct an evidentiary hearing before ruling, indicating at one point his belief that a hearing was "imperative" given the "critical factual disputes" presented by KAMCO's motion. (Pl. Opp. to KAMCO's Mot. to Dismiss, p. 14 ("Opp. Memo."); Pl. Sur-Reply, p. 4).

  On April 28, 2005, the Court granted Murphy's motion for an evidentiary hearing, but only with respect to the issue of FSIA immunity.*fn1 Less than one month later, by letter dated May 19, Murphy advised the Court that — upon further consideration — he did not believe a hearing would be necessary, at least with respect to the issue of FSIA immunity. (May 19, 2005 Letter from Herald Price Fahringer to the Court). That same day, KAMCO likewise notified the Court that it did not think an evidentiary hearing was needed. On this basis the Court proceeded to the merits of the motion and, on September 30, 2005, issued an order dismissing the case on the ground that KAMCO is entitled to FSIA immunity.

  The basis for the Court's ruling is set forth below.


  A motion to dismiss premised on FSIA immunity is equivalent to an attack on a court's jurisdiction, which means that this Court must look outside the pleadings in resolving KAMCO's motion. See Robinson v. Gov't of Malaysia, 269 F.3d 133, 140 n. 6 (2d Cir. 2001) (explaining that "[a] district court `may' consult evidence to decide a . . . motion [premised on FSIA immunity but it] `must' do so if resolution of a proffered factual issue may result in the dismissal of the complaint for want of jurisdiction"). In this case, the parties have submitted substantial evidence on the issue of FSIA immunity, including testimony from two experts, and several individuals who were involved in AK Capital's attempt to purchase Hanbo's assets.*fn2 Having considered this evidence, as well as the parties' memoranda and supporting material, the Court makes the following factual findings.

  A. Hanbo's Bankruptcy

  Hanbo Iron & Steel Co., Ltd. rose to become Korean's second largest steel maker through a series of aggressive expansions. In 1990, Hanbo began work on the most ambitious and capital-intensive of these projects, the Dangjin Works Facility. If completed, the Dangjin plant was to be the company's crown jewel — one of the world's largest and most technologically advanced steelworks. (June 11, 2004 Decl. of Soung-Soon Choi, ¶ 12 ("Choi Decl.")). While under construction, however, the debt required to finance the project left Hanbo vulnerable to sudden shifts in the economy. In 1996, as the facility neared completion, Hanbo was hit with a disastrous one-two punch; the world steel industry entered into a recession at the same time the Korean economy began to lag. Despite a series of emergency loans from major Korean banks, in early 1997 Hanbo collapsed under more than $6 billion of debt.*fn3

  On January 23, 1997, Hanbo filed for corporate reorganization with the Bankruptcy Division of Seoul Central District Court (the "Bankruptcy Court"). As was standard practice, the Bankruptcy Court immediately appointed a trustee (the "Trustee") and empanelled a Representative Creditor Board (the "Creditor Board") to oversee the bankruptcy proceedings. The Trustee acted as a liaison between the Bankruptcy Court and the Creditor Board. In that capacity, the Trustee would submit regular reports to the Court on the progress of the effort to dispose of Hanbo's assets; the Trustee would also communicate the Court's instructions to interested parties, including the Creditor Board. (Choi Decl., ¶ 15). The Creditor Board, in turn, was composed by representatives from thirty-five of Hanbo's institutional creditors. Together, the Trustee and the Creditor Board would manage the day-to-day bankruptcy process.

  As Hanbo's largest creditor and a leading member of the Creditor Board, the defendant in this case, KAMCO, would figure prominently in that process.


  The Korea Asset Management Corporation was established by the Korean government on April 6, 1962, with passage of the Korea Development Bank Act ("KDBA"). Under the terms of the KDBA, KAMCO was to be a subsidiary of the Korea Development Bank ("KDB"), and would have three primary functions: to manage properties owned by the Korean government, to collect certain unpaid tax liabilities, and to liquidate KDB's non-performing assets. (June 10, 2004 Declaration of Kyung-Ho Song, p. 2 ("Song Decl.")). For the next thirty-five years, until the onset of the Asian financial crisis, these functions would remain largely unchanged.

  In 1997, with the Korean economy failing, the government reorganized KAMCO pursuant to the Act on Efficient Disposal of Non-Performing Assets of Financial Institutions and Establishment of Korea Asset Management Corporation (the "KAMCO Act"). (Id.; see also Jan. 1, 2005 Second Decl. of Je Wan Kim, ¶ 31 ("Second Kim Decl.")). Under the KAMCO Act, KAMCO was newly empowered to (i) to support and normalize distressed financial institutions by monitoring and resolving operational difficulties; and (ii) to perform the role of a "bad bank," i.e. to facilitate corporate recovery, to minimize taxpayer costs, and to recover public funds by efficiently disposing of non-performing loans. These objectives were memorialized by KAMCO's new mission statement: "to accelerate the resolution of non-performing assets held by financial institutions, and to efficiently support the management normalization, etc. of the enterprises showing signs of insolvency." (KAMCO Act, Art. 6, attached as Ex. 2 to Song Decl.).

  To facilitate and finance these objectives, the KAMCO Act created the Non-Performing Loan Resolution Fund (the "Resolution Fund"), and gave KAMCO the exclusive authority to control and manage the Resolution Fund, as well as any non-performing loans it acquired. (Song Decl., p. 2). The Resolution Fund was initially infused with 21.6 trillion Korean Won, most of which came from the issuance of government-guaranteed bonds. KAMCO, by contrast, is a corporation wholly owned by its shareholders, which include the Korean government (42.8%) and the Korea Development Bank (28.6%), an agency of the Korean government, as well as a group of private Korean banks (28.6%). (KAMCO Act, Arts. 10, 11; Second Kim Decl., ¶ 17; Song Decl., p. 2).*fn4

  KAMCO shares other characteristics with a typical corporation. It has a board of directors, officers, and employees (KAMCO Act, Arts. 17, 22); it also has 1 trillion Korean Won of "authorized capital," (KAMCO Act, Art. 9), and a paid-in capital of 140 billion Won. (Second Kim Decl., ¶ 17). In at least one respect, KAMCO also "behaves" like a typical for-profit corporation: in order to achieve its purpose of "resolv[ing] . . . nonperforming assets held by financial institutions," KAMCO engages "distressed debt professionals" to repackage and sell non-performing loans to domestic and international investors in a variety of ways, including by issuing asset-backed securities, conducting international auctions, or by establishing asset management corporations. (KAMCO Act, Art. 26; Song Decl, p. 11); see, e.g., Steinhardt Group, Inc. v. Citicorp, 1996 WL 790097, at *1 (D. Del. Dec.2, 1996) (describing how Citicorp devised a plan to "securitize" its non-performing assets by selling them to limited partnerships outside the banking industry). In 2003, KAMCO generated a modest profit of approximately $19 million. (Oct. 11, 2004 Decl. of Je Wan Kim, ¶ 70 ("J. Kim Decl.")).

  Nonetheless, in many respects KAMCO does not actually operate as a "for profit" corporation. In using the Resolution Fund to acquire non-performing loans, KAMCO, after consultation with government authorities, negotiates prices that are substantially in excess of what the loans are worth on the open market — in effect subsidizing the holder of the bad debt. (Song Decl., ¶ 12). Perhaps of greater significance (at least for purposes of FSIA immunity), profits and losses associated with the acquired non-performing loans — including those associated with Hanbo's debt — are not accounted for on KAMCO's financial statements, and any profits from such loans are distributed to the institutions that contributed money to the Resolution Fund, not to KAMCO's shareholders. (Nov. 25, 2004 Reply Decl. of Jinsu Yune, ¶ 10 ("Yune Reply")). Moreover, the distribution of any profits arising from KAMCO's other operations is subject to further limitations not applicable to for-profit corporations. (Id.). Collectively, these restrictions and limitations reflect the fact that, whatever KAMCO's similarities to a typical corporation, it performs several functions most often associated with — and in most cases reserved for — governments or their agencies.

  First, as noted at the outset, KAMCO is vested with the exclusive authority to oversee and control a public fund backed by government securities, the Resolution Fund. In this capacity, KAMCO is responsible for recovering "public funds" by acquiring and disposing of non-performing assets, and otherwise promoting financial stability by supporting and normalizing distressed financial institutions. Second, under the Korean National Tax Collection Act and the Korean Customs Act, KAMCO is authorized to conduct public auctions of property seized by the Korean Tax Authority ("KTA") or the Korean Customs Authority ("KCA"). (Yune Reply, ¶ 11). Indeed, when conducting such auctions, KAMCO is considered to actually be the KTA and the KCA for at least one purpose: KAMCO is potentially subject to suit as an administrative agency under the Korean Administrative Litigation Act ("ALA") for actions taken while conducting auctions. (Id.; ALA, Ex. 12 to Yune Reply). Finally, under Korea's State Properties Act, the Ministry of Finance and Economy may entrust KAMCO with works concerning administration and disposal of certain properties owned by the Korean government. (Id., Ex. 15).

  KAMCO also receives certain benefits under the KAMCO Act not available to a typical corporation. For example, under Article 33(3) of the KAMCO Act, the government may "guarantee the repayment of principal and interest of debentures issued by . . . KAMCO"; pursuant to Article 46, KAMCO is exempt from paying certain specific taxes, such as acquisition and securities transaction taxes, and also potentially benefits from any other tax relief that the national or local governments deem "necessary" for KAMCO's welfare; and under Article 9(3), "[t]he government may, when it is deemed necessary to support the performance of KAMCO's services, make a capital investment in KAMCO or support necessary expenses." This last provision essentially means that the Korean government can assume KAMCO's debts, pay its employees, or provide any other financial support it deems necessary. (Yune Reply, ¶ 22).

  Moreover, precisely because KAMCO performs these governmental functions, and receives these special benefits, it is subject to far more oversight and control than a normal corporation. To begin, KAMCO is supervised by the Korean Financial Supervisory Commission ("FSC"), an agency of the Korean government, which itself reports directly to the President of Korea. (KAMCO Act, Arts. 47, 48). The FSC has the authority to appoint and remove KAMCO's auditor, and also has ex post facto authority to approve or reject KAMCO's "Managing Director" or CEO after selection by its shareholders. (KAMCO Act, Art. 17; Yune Reply ¶¶ 4(d), 12). The FSC also collects and reviews the Resolution Fund's annual closing statement, balance sheet, and income statement at the end of each fiscal year. (Song Decl., p. 4; Yune Reply, ¶ 13). KAMCO's control of the Resolution Fund also subjects it to the supervision of the Public Fund Oversight Committee of the Ministry of Finance and Economy, as well as the auditing authority of Korea's National Assembly's Board of Audit and Inspection ("BAI"), which is responsible for auditing all agencies of the Korean government. (Song Decl., p. 5; Yune Reply, ¶¶ 4(e), 9, 14). And because KAMCO is subject to audit by the BAI, it is also subject to annual inspection and special investigation by Korea's National Assembly. (Yune Reply, ¶ 17).

  Even more significantly, KAMCO is required to pass all resolutions concerning amendments to its operational policies, including its policies for the Resolution Fund, through a Management Committee composed of eleven members, including public officials from Korea's Ministry of Finance and Economy, Ministry of Planning and Budgeting, the Korea Development Bank, and the Financial Supervisory Service, which is the executive arm of the FSC. (KAMCO Act, Art. 14; Yune Reply, ¶¶ 4(c), 15). And under certain circumstances, KAMCO is subject to the Korean Framework Act on the Management of Government Affiliated Institutions ("FAGAI"), pursuant to which its management objectives, business plans, and budgets are subject to adjustment and review by the Korean government. (Yune Reply, ¶ 5(a)).

  Taking a broader view of these facts, it is clear that KAMCO acts — in many, if not most respects — as would any agency of the Korean government. The question, of course, is whether KAMCO is enough like an agency to qualify as an "organ" of the Korean government, as that term is used in the Foreign Sovereign Immunities Act. Before resolving that issue, however, the Court must provide some context for KAMCO's role in this case, which takes us back to the events surrounding Hanbo's bankruptcy.

  C. The First Auction

  As noted, supra, the Korean government dramatically expanded KAMCO's role at about the same time that Hanbo collapsed. The expansion was not coincidental. To the contrary, KAMCO was reorganized in 1997, in part, to acquire the billions of dollars of non-performing loans issued to Hanbo, including almost $8 billion of loans from the Korea First Bank and Seoul Bank. And it did just that, becoming Hanbo's largest creditor by the time the Creditor Board was empanelled in 1997. On this basis, KAMCO was appointed the "primary representative" of the Board, which meant that a KAMCO executive sat as the chair of the Joint Management Committee, a subcommittee of the Board comprising Hanbo's eleven largest creditors. (Kyung-Ho Song Decl., p. 6).*fn5 In addition, a KAMCO employee served as chief of the "Sales Bureau," which was created in 2001 by the Joint Management Committee and the Trustee to implement the Joint Management Committee's directives and to oversee the ...

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