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Morris v. People's Republic of China

March 22, 2007

MARVIN L. MORRIS, JR., PLAINTIFF,
v.
THE PEOPLE'S REPUBLIC OF CHINA, ET AL., DEFENDANTS.
GLORIA BOLANOS PONS, ET AL., PLAINTIFFS,
v.
THE PEOPLE'S REPUBLIC OF CHINA, ET AL., DEFENDANTS.



MEMORANDUM OPINION AND ORDER

Consolidated plaintiffs Marvin L. Morris and Gloria Bolanos Pons and Aitor Rodriguez Soria bring actions against defendant People's Republic of China ("PRC") seeking to recover on defaulted bonds issued by the PRC's predecessor government in 1913. The PRC moves to dismiss Morris's complaint on the grounds that: (1) it is entitled to sovereign immunity and none of the exceptions enumerated in the Foreign Sovereign Immunities Act ("FSIA") are applicable; (2) the action is barred by the comprehensive settlement of existing claims of United States nationals against the PRC under the International Claims Settlement Act*fn1 and a 1979 treaty between the two nations*fn2 ; and (3) the statute of limitations has long since expired. For the reasons that follow, the Court concludes that it lacks subject matter jurisdiction over Morris's complaint as the PRC is entitled to sovereign immunity, and further, that if jurisdiction existed, plaintiffs' claims would be time-barred. The Court does not address whether plaintiffs' claims are also barred by the International Claims Settlement Act or the 1979 treaty. If and when the PRC has been properly served in the Pons action, the Court will entertain further briefing on whether there are facts justifying a different conclusion than that reached herein.

BACKGROUND

These actions represent part of a concerted effort by certain American citizens to collect almost $90 billion from the People's Republic of China for the failure of the PRC to pay the principal and interest on bonds issued in 1913 by the predecessor government of Yuan Shih-Kai. The bondholders have formed the American Bondholders Foundation and are pursuing political, financial, and legal channels in their efforts to persuade the PRC to negotiate a settlement. Asserting their rights as American citizens, plaintiffs insist that the PRC should be held to account for its economic commitments if it wishes to partake in international financial markets.

As fascinating as China's political history during the twentieth century may be, set forth in varying detail in the pleadings and moving papers, the Court will endeavor only to recount those facts necessary for the resolution of the motion before it. In 1913, facing desperate financial conditions and mounting debt following the fall of the Qing Dynasty, the new Chinese government sought to raise capital through the issuance of bonds. Under the Chinese Government Reorganisation Loan Agreement ("Loan Agreement"), an international consortium of banks loaned the Republic of China £25,000,000 and in turn issued bonds for the value of the loan.*fn3 (Loan Agreement, Pietrzak Decl. Ex. 6; Bond, id. Ex. 1; Bond conditions (on reverse side of bond), id. Ex. 2.) The loan was secured by revenues from the Salt Administration of China and central government taxes on four specified Chinese provinces.*fn4 (Loan Agreement, Arts. IV, VI.) The consortium of banks included banks from Britain, Germany, France, Russia, and Japan, but not America. Indeed, American banks withdrew from the consortium after President Woodrow Wilson refused to support their participation on the grounds that the terms of the loan imposed on China's sovereignty. (Statement of American Government in regard to Support requested by the American Group, March 18, 1913, Pietrzak Decl. Ex. 9.) Because America was excluded from the loan agreement, no American banks took part in the issuance of the bonds, loan payments by China were not paid to and loan proceeds not held by American banks, principal and interest payments were only redeemable at issuing banks and cities outside of America, and issuing banks could not transfer their interest in the loans to American companies. (Bond Condition ¶ 5; Loan Agreement, Arts. VIII, X, XIII, XIX.) However, issuing banks were not prohibited from issuing bonds to United States citizens. The Chinese government serviced and paid the debt for approximately twenty-six years. In 1939, the Chinese government ceased making interest payments on the bonds. (Compl. ¶ 31.) In 1949, after a revolution, the Communist Party of China founded the PRC. The PRC made no interest payments, nor did it pay the principal when the bonds matured in 1960.*fn5

Beginning in 1968 and spanning a year and a half, the Foreign Claims Settlement Commission set up under the International Claims Settlement Act of 1949 heard claims by U.S. nationals for losses resulting from the "nationalization, expropriation, intervention, or other takings" by the PRC from October 1, 1949 until November 6, 1966. See 22 U.S.C. § 1643 (2006). During a second claims period, the Commission heard claims arising from November 6, 1966 until May 11, 1979. See 22 U.S.C. § 1623(a)(1)(B). American citizens holding bonds, including the 1913 bonds at issue here, submitted claims to the Commission, although they were ultimately rejected. The valuations of the claims established by the Commission were not finally resolved or paid until the United States and the PRC normalized diplomatic relations and reestablished bilateral economic and trade relations in 1979. Under the treaty, the two nations reached a comprehensive settlement of all property claims of U.S. nationals against the PRC "arising from any nationalization, expropriation, intervention, and other taking . . . on or after October 1, 1949, and prior to the date of this Agreement [May 11, 1979]." (Agreement Between the Government of the United States of America and the Government of the People's Republic of China Concerning the Settlement of Claims, May 11, 1979, 30 U.S.T. 1957, Pietrzak Decl. Ex. 4.)

Finally, in reaction to a United States district court decision rendering a default judgment against the PRC for certain defaulted bonds not including the 1913 bonds, see Jackson v. PRC, 550 F. Supp. 869 (N.D. Ala. 1982),the PRC in 1983 sent a diplomatic Aide Memoire to the United States stating that "[t]he Chinese government recognizes no external debts incurred by the defunct Chinese governments and has no obligation to repay them."*fn6 (Pietrzak Decl. Ex. 13 ¶ 2.) Plaintiffs now bring suit to enforce the obligations of the 1913 bonds against the PRC.

STANDARD OF REVIEW

Defendant moves to dismiss the complaint under Rule 12(b)(1) on the grounds that the Court lacks subject matter jurisdiction to hear the case because the PRC is immune from this lawsuit as a sovereign nation. In the context of a Rule 12(b)(1) challenge to jurisdiction under the FSIA, the Court must look to the substance of the allegations to determine whether one of the exceptions to the FSIA's general grant of immunity applies. See Robinson v. Gov't of Malaysia, 269 F.3d 133, 140 (2d Cir. 2001). "[T]he plaintiff has the burden of going forward with showing that, under exceptions to the FSIA, immunity should not be granted, although the ultimate burden of persuasion remains with the alleged foreign sovereign." See Cargill Int'l S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir. 1993) (citations omitted). The Court should look outside the pleadings to submissions by the parties when there are disputed factual issues. See Filetech S.A. v. Fr. Telecom S.A., 157 F.3d 922, 932 (2d Cir. 1998); Antares Aircraft, L.P. v. Federal Republic of Nigeria, 948 F.2d 90, 96 (2d Cir. 1991) (on a motion "challenging the district court's subject matter jurisdiction, the court may resolve disputed jurisdictional fact issues by reference to evidence outside the pleadings, such as affidavits").

Defendant also moves to dismiss the complaint as time-barred under the applicable statute of limitations. "Where the dates in a complaint show that an action is barred by a statute of limitations, a defendant may raise the affirmative defense in a pre-answer motion to dismiss[, which] is properly treated as a Rule 12(b)(6) motion to dismiss." Ghartey v. St. John's Queens Hosp., 869 F.2d 160, 162 (2d Cir. 1989). "[S]uch a motion should not be granted unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Ortiz v. Cornetta, 867 F.2d 146, 148 (2d Cir. 1989) (citations and internal quotation marks omitted). The Court "must accept as true the factual allegations in the complaint, and draw all reasonable inferences in favor of the plaintiff." Bolt Elec., Inc. v. City of New York, 53 F.3d 465, 469 (2d Cir. 1995) (citations omitted). The Court may not look outside the complaint and "any documents that are either incorporated into the complaint by reference or attached to the complaint as exhibits." Blue Tree Hotels Inv. (Can.), Ltd. v. Starwood Hotels & Resorts Worldwide, Inc., 369 F.3d 212, 217 (2d Cir. 2004) (citing Taylor v. Vt. Dep't of Educ., 313 F.3d 768, 776 (2d Cir. 2002)).

DISCUSSION

A. Foreign Sovereign Immunity

Until 1952, the United States held the official view that foreign sovereigns were absolutely immune from suits in the courts of the United States. At that time, the executive branch adopted a restrictive theory of immunity, under which a state would be granted immunity only for its sovereign or public acts. See Letter from Jack B. Tate, Acting Legal Adviser, to Philip B. Perlman, Acting Attorney General (May 19, 1952). This view was codified by the Foreign Sovereign Immunities Act ("FSIA") in 1976, now the sole means of obtaining jurisdiction over a foreign sovereign in the United States. 28 U.S.C. §§ 1330, 1602--11 (2006); see also Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 443 (1989); Republic of Austria v. Altmann, 541 U.S. 677 (2004) (FSIA applies to lawsuits based on claims arising before its passage as well). Under the FSIA, "a foreign state is presumptively immune from the jurisdiction of United States courts" unless one of the enumerated exceptions apply. Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993).*fn7

Plaintiff invokes the "commercial activity" exception to a foreign state's immunity, which provides:

A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case . . . in which the action is based [1] upon a commercial activity carried on in the United States by the foreign state; or [2] upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or [3] upon an act outside the territory of the United States in connection ...


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