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Bank of New York v. Yugoimport SDPR J.P.

May 11, 2007

THE BANK OF NEW YORK, INTERPLEADER PLAINTIFF,
v.
YUGOIMPORT SDPR J.P., REPUBLIC OF CROATIA, AND REPUBLIC OF SLOVENIA, INTERPLEADER DEFENDANTS.



The opinion of the court was delivered by: Haight, Senior District Judge

MEMORANDUM OPINION AND ORDER

In this interpleader action, the interpleaded defendants have filed cross-motions for distribution of the funds in the Court registry which are the subject of their conflicting claims. Reflecting that conflict, the parties dispute the manner in which the distribution should be made.

I. PROCEDURAL HISTORY

The interpleader plaintiff, The Bank of New York ("BNY"), filed its complaint in state court pursuant to N.Y. C.P.L.R. § 1006. BNY's interpleader complaint alleged that it held on deposit the sum of $2,551,785.37 (plus interest) in an account in the name of interpleaded defendant Yugoimport SDPR-J.P. ("Yugoimport"), to which interpleaded defendants the Republic of Croatia ("Croatia") and the Republic of Slovenia ("Slovenia") had asserted claims.

Slovenia removed the case to this Court pursuant to 28 U.S.C. §§ 1441 and 1446, asserting as the ground for removal that this is a civil action brought against a foreign nation, as that term is defined in 28 U.S.C. § 1603(a). No party has questioned this Court's subject matter jurisdiction, and the Court's independent inquiry established its existence.

The case proceeded in this Court. I have written two prior opinions, reported at 2004 WL 1145836 (S.D.N.Y. May 21, 2004) ("Yugoimport I") and 2005 WL 2429424 (S.D.N.Y. Oct. 3, 2005) ("Yugoimport II"), familiarity with which is assumed. Yugoimport I specified the procedures by which BNY would be permitted to transfer the deposited funds to the Court registry and be discharged from the action. That transfer was accomplished and BNY was discharged by subsequent order. Yugoimport, Croatia, and Slovenia press their claims to the interpleaded funds. Yugoimport II directed limited discovery into the agency status of Yugoimport's predecessor in interest, under the circumstances more fully described in Part II., infra.

Croatia and Slovenia (hereinafter "the Republics") now move jointly for an order directing distribution of the interpleaded funds among the several interpleaded defendants in accordance with the international agreement discussed infra, or in the alternative for a stay pending resolution of interpretative issues arising out of that agreement by an international committee the agreement created. The Republics do not style their motion as one for summary judgment under Rule 56, Fed. R. Civ. P., but I treat it as such because the first prong of the motion seeks the ultimate relief. Yugoimport cross-moves for summary judgment pursuant to Rule 56 directing payment to it of the full amount of the funds.

II. BACKGROUND

A. The Creation of the Funds Which Are the Subject Matter of this Interpleader Action

In October 1991, BNY opened an account in the name of the "Federal Directorate of Supply and Procurement," whose mailing address was in Belgrade. By October 2002, the name of the account had been changed to "Jugoimport SDPR."*fn1

The Federal Directorate of Supply and Procurement (hereinafter "FDSP") was a creation of the then-existing Socialist Federal Republic of Yugoslavia ("SFRY"). The legal status of the FDSP vis-a-vis the SFRY is a matter of dispute between the parties.

In 1992 the funds on deposit in BNY were frozen under regulations imposing economic sanctions against certain Yugoslavian property issued by the Office of Foreign Assets Control of the United States Department of the Treasury.*fn2 On December 27, 2002, that Treasury Office issued a decision which, as of February 25, 2003, lifted the restrictions on certain previously blocked Yugoslavian assets, including the funds in suit on deposit with BNY.*fn3 The present parties' rival claims to those funds prompted BNY's interpleader complaint, dated April 14, 2003, which alleged that BNY then held on deposit $2,551,785.37 (plus interest). These are the funds that are deposited in the Court registry.

B. The Dissolution of the Socialist Federal Republic of Yugoslavia and Emergence of the Successor States

This case requires us to revisit the tumultuous and tragic times when the former SFRY ceased to exist and was replaced by five new nations, usually referred to as the "Successor States," the term I will use in this opinion.

Beginning in 1991, the SFRY faced political upheaval and military conflict that eventually led to its disintegration. As a result, the SFRY was replaced by five Successor States: Slovenia, Croatia, Bosnia-Herzegovina, Macedonia, and the Federal Republic of Yugoslavia ("FRY"), which was composed of Serbia and Montenegro.*fn4 Wars between the FRY and the other Successor States, most notably Bosnia-Herzegovina, raged from the end of 1991 until 1995. "A by-product of this conflict has been a number of civil suits in this country involving the SFRY, its agencies and state-owned companies, and the successor states, regarding their assets and liabilities in the United States." 767 Third Ave. Assocs. v. Consulate Gen. of Socialist Fed. Republic of Yugoslavia, 218

F.3d 152, 155 (2d Cir. 2000).*fn5 The case at bar is another example of such litigation.

In late 1995, following intense negotiations mediated primarily by the United States, the FRY

and the other Successor States signed the Dayton Accords marking the end of the armed conflict in Bosnia. Simultaneously, a Peace Implementation Council was established in order to arrive at a comprehensive resolution of succession issues among the Successor States.

C. The Succession Agreement and the Standing Joint Committee

The five Successor States achieved that comprehensive resolution on June 29, 2001, when their representatives met at Vienna and signed an Agreement on Succession Issues Between the Five Successor States of the Former State of Yugoslavia (the "Succession Agreement") which inter alia created a Standing Joint Committee tasked with implementing the Succession Agreement and serving as a forum for the discussion and resolution of issues that might arise during that implementation. The Succession Agreement and its accompanying Annexes and Appendices are in English. The full texts are printed at 41 I.L.M. 3 (2002).

1. The Succession Agreement

Given the strife and bloodshed of the immediately preceding years, the Succession Agreement must be regarded as a very considerable diplomatic achievement.

The preamble's first paragraph recites that Bosnia and Herzegovina, the Republic of Croatia, the Republic of Macedonia, the Republic of Slovenia, and the Federal Republic of Yugoslavia are "in sovereign equality the five successor States to the former Socialist Federal Republic of Yugoslavia." The preamble goes on to recite the Successor States' intention "to resolve questions of State succession arising upon the break-up of the former Socialist Federal Republic of Yugoslavia," with particular reference "to identifying and determining the equitable distribution amongst themselves of rights, obligations, assets and liabilities of the former Socialist Federal Republic of Yugoslavia," and declares the Successor States' "readiness to co-operate in resolving outstanding succession issues in accordance with international law."

Article 3 of the Succession Agreement provides: "The Annexes listed below set out the terms on which the subject matter of each Annex is settled." Annex C is captioned "Financial Assets and Liabilities." That is the Annex which is relevant to the case at bar.

Annex C contains provisions for settling both the assets and the liabilities of the former SFRY among the Successor States. With respect to assets, Article 1 of Annex C provides in pertinent part:

The SFRY's financial assets comprised all financial assets of the SFRY (such as cash, gold and other precious metals, deposit accounts, and securities), including in particular --

(a) accounts and other financial assets in the name of the SFRY Federal Government Departments and Agencies; . . .

Article 5(2) of Annex C provides that "[t]he available foreign financial assets identified in paragraph (1) shall be distributed according to the following proportions . . . Bosnia and Herzegovina 15.50%; Croatia 23.00%; Macedonia 7.50%; Slovenia 16.00%; and Federal Republic of Yugoslavia 38.00%."

The Succession Agreement reflects the common sense awareness of the Successor States that disputes might arise with respect to the proper distribution of assets covered by the Agreement. ...


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