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Fir Tree Capital Opportunity Master Fund, Lp and Fir Tree v. Anglo Irish Bank Corporation

November 28, 2011

FIR TREE CAPITAL OPPORTUNITY MASTER FUND, LP AND FIR TREE VALUE MASTER FUND, LP, PLAINTIFFS,
v.
ANGLO IRISH BANK CORPORATION LIMITED (F/K/A ANGLO IRISH BANK CORPORATION PLC),
DEFENDANT.



The opinion of the court was delivered by: Paul G. Gardephe, U.S.D.J.:

ECF CASE

MEMORANDUM OPINION & ORDER

Plaintiffs Fir Tree Capital Opportunity Master Fund, LP and Fir Tree Value Master Fund, LP hold $200 million in notes issued by Defendant Anglo Irish Bank Corporation Limited (the "Bank"). As a result of the 2008 global financial crisis, the Bank was nationalized by the Republic of Ireland in 2009. Plaintiffs seek declaratory and injunctive relief related to their claim that the Bank has breached an agreement governing the notes by selling off its U.S.-based assets and merging with another entity.

On February 14, 2011, Plaintiffs moved -- by order to show cause -- for a preliminary injunction:

(a) enjoining Defendant from consolidating with or merging with or into, or selling, leasing or otherwise disposing of its assets as an entirety or substantially as an entirety to any Person (as defined in the Note Purchase Agreement ("NPA")), except as may be permitted by Section 9.3 of the NPA (in particular, the Solvency Condition, the Assumption Condition, and the Opinion of Counsel Condition, as those terms are defined in the Complaint);

(b) requiring Defendant to leave in the United States assets totaling at least the amount necessary for Anglo Irish Bank to satisfy its obligations under the NPA and the Notes, to wit, no less than $200,000,000, absent demonstrated compliance with the Solvency Condition, Assumption Condition, and Opinion of Counsel Condition; and,

(c) appointing a Receiver to take charge of Defendant's assets located in the United States, up to and including an amount necessary for Defendant to comply with its performance obligations under the NPA, to wit, no less than $200,000,000. . . .

(Feb. 14, 2011 Order to Show Cause for Preliminary Injunction and Temporary Restraining Order at 1-2)

On March 2, 2011, this Court conducted a hearing concerning Plaintiffs' motion. At that hearing, the Court requested briefing concerning the question of whether the Foreign Sovereign Immunities Act ("FSIA") prohibits the relief Plaintiffs seek.*fn1

After the parties filed the first round of supplemental briefs, Plaintiffs submitted a series of letters to the Court dated March 18, 2011, May 20, 2011, June 20, 2011, and June 24, 2011, asking this Court to hold a hearing in light of "urgent" events, including the potential sale of U.S.-based assets and an impending merger between Anglo Irish Bank and another bank, the Irish National Building Society ("INBS").

On August 1, 2011, the Court conducted an evidentiary hearing concerning the Bank's sale of assets and merger with INBS, and heard argument on, inter alia, whether these events justify application of the commercial activity exception to sovereign immunity under the FSIA. After the August 1 hearing, the parties submitted a second round of supplemental briefing. Additional letter briefs followed. (See, e.g., October 14, 2011 Smith Ltr.; October 18, 2011 Stuart Ltr.; Nov. 1, 2011 Smith Ltr.; Nov. 3, 2011 Stuart Ltr.) The case has been a moving target since it was filed, both as to the facts -- which have rapidly changed -- and the legal authorities that the parties rely on.

Having considered the numerous rounds of briefing and the evidence and argument presented at the March 2, 2011 and August 1, 2011 hearings, as well as the entire record in this case, the Court concludes -- for the reasons stated below -- that the FSIA prohibits the relief sought in the Amended Complaint. Accordingly, this Court lacks subject matter jurisdiction, the motion for a preliminary injunction must be denied, and this action will be dismissed. This opinion constitutes this Court's findings of fact and conclusions of law.

BACKGROUND

In 2005, Plaintiffs -- two limited partnerships headquartered in the Cayman Islands -- purchased $200 million in notes issued by the Bank (the "Notes"), which is incorporated under the laws of the Republic of Ireland. (Am. Cmplt. ¶¶ 1, 15-17; Meyer Decl. ¶ 6) The Notes were purchased pursuant to a Note Purchase Agreement ("NPA") dated September 28, 2005. The Notes are payable in New York, and the NPA is governed by New York law. (Am. Cmplt. ¶ 1, Meyer Supp. Decl., Ex. A (Note Purchase Agreement) § 19.7)

As a result of the 2008 global financial crisis, the Irish government took steps to stabilize and preserve the nation's banking system to prevent the collapse of the country's economy. (Bradley Decl. ¶ 2)*fn2 To that end, the Irish government guaranteed all of the Bank's liabilities, injected $29 billion in capital into the Bank, and -- in January 2009 -- nationalized the Bank. (Am. Cmplt. ¶¶ 2, 17; Aug. 1, 2011 Tr. 13) Since January 21, 2009, the Irish government has owned 100% of the Bank's shares. (Am. Cmplt. ¶ 17; Bradley Decl. ¶ 9)

Plaintiffs allege that, soon after the Bank was nationalized, it breached certain provisions of the NPA addressing noteholder rights in the event of consolidation, merger, or disposition of assets. Plaintiffs also contend that the Irish government has taken steps that put the "most basic and fundamental Agreement rights, including the collection of scheduled payments, the ability to seek legal recourse, and the protections of New York law" at peril. (Pltf. Feb. 24, 2011 Br. at 4)

I.THE NOTE PURCHASE AGREEMENT

The parties to the NPA are purchasers of the notes and the Bank. (Meyer Supp. Decl. Ex. A (Note Purchase Agreement)) The Republic of Ireland is not a party to the NPA (id.), nor did the Irish government have a controlling interest in the Bank when Plaintiffs purchased the Notes in 2005. (See Bradley Decl. ¶ 9; Meyer Decl. ¶ 19)

With respect to payment of principal and interest, the NPA provides: Section 9.1. Payment of Principal, Interest and Premium; to Keep Books; Ranking. The Company will duly and punctually pay the principal of and interest and premium, if any, on the Notes in accordance with the terms of the Notes and this Agreement. The Company will ensure that, at all times, all obligations and liabilities of the Company under this Agreement and the Notes will rank in right of payment either pari passu or senior to all other Subordinated Indebtedness. (Meyer Supp. Decl., Ex. A, (Note Purchase Agreement) § 9.1) The parties agree that, to date, the Bank has satisfied all of its payment obligations under the NPA.*fn3 (Meyer Decl. ¶ 10; Bradley Decl. ¶ 39; Aug. 1, 2011 Tr. 23, 85; Nov. 3, 2011 Stuart Ltr.)

As to dispute resolution, the NPA contains a forum selection clause providing for the exercise of in personam jurisdiction in New York:

. . . ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION HEREWITH, OR ANY LEGAL ACTION OR PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT OBTAINED AGAINST THE COMPANY, FOR BREACH HEREOF OR THEREOF, OR AGAINST ANY OF ITS PROPERTIES, MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK BY ANY PURCHASER OR ON BEHALF OF SUCH PURCHASER OR BY OR ON BEHALF OF ANY HOLDER OF A NOTE, AS SUCH PURCHASER OR HOLDER MAY ELECT, AND THE COMPANY HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR PURPOSES OF ANY SUCH LEGAL ACTION OR PROCEEDING. (Meyer Supp. Decl., Ex. A (Note Purchase Agreement) §19.5 (capitalization in original))

Plaintiffs claim that the Bank has breached three conditions set forth in § 9.3 of the NPA: (1) the "Solvency Condition"; (2) the "Assumption Condition"; and (3) the "Opinion of Counsel Condition":

Consolidation, Merger or Disposition of Assets. The Company will not consolidate with or merge with or into, or sell, lease or otherwise dispose of its assets as an entirety or substantially as an entirety to, any Person, unless

(i) the surviving entity of such consolidation or merger or the transferee of such assets (x) is a solvent Person organized under the laws of any OECD Member State or any jurisdiction therein and (y) if other than the Company, (1) expressly assumes in writing all obligations of the Company under this Agreement and the Notes and (2) causes to be delivered to each holder of Notes an opinion of independent counsel reasonably satisfactory to the Holders of at least 51 % in aggregate principal amount of the Notes, to the effect that the agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof; and

(ii) in the case of any such transaction after giving effect thereto no Default or Event of Default shall have occurred and be continuing. (Meyer Supp. Decl., Ex. A (Note Purchase Agreement) §9.3)

Finally, § 11.3 of the NPA provides for the following remedies in the event of breach:

Suits for Enforcement. If any Default or Event of Default or other breach or violation of this Agreement or the Notes shall have occurred and be continuing, the holder of any Note may proceed to protect and enforce its rights, either by suit in equity or by action at law, or both, whether for the specific performance of any covenant or agreement contained in this Agreement or in aid of the exercise of any power granted in this Agreement, or the holder of any Note may proceed to enforce the payment of all sums then due and owing upon such Note or to enforce any other legal or equitable right (whether now existing or hereafter available), of the holder of such Note provided, however, that any holder of a Note shall not have any power or right to accelerate the right to repayment of the principal of the Notes except as provided in §11.1 (Meyer Supp. Decl., Ex. A (Note Purchase Agreement) §11.3)

While the NPA envisions the possibility of consolidation, merger, or a transfer of the Bank's assets "as an entirety or substantially as an entirety," it does not directly address the ramifications of a nationalization.

II.POST-NATIONALIZATION EVENTS

Plaintiffs allege that soon after Ireland nationalized the Bank in January 2009, it began to "liquidate its assets at steep discounts," selling "tens of billions of euros in assets to a special purpose vehicle at discounts ranging from 54% to 66%." (Am. Cmplt. ¶ 3)

In December 2009, the Irish government enacted the National Asset Management Agency Act of 2009 (the "NAMA Act"). (Bradley Decl. ¶ 12) "The NAMA Act enables participating Irish financial institutions to sell qualifying illiquid loans to the National Asset Management Agency ("NAMA"), a government-created body, and, in exchange, receive liquid, Government-guaranteed securities." (Bradley Decl. ¶ 12) The Government-guaranteed securities -- referred to as "NAMA bonds" -- are to be used by participating banks as collateral for short-term funding. (Id.) During 2010, the Irish government purchased approximately €34 billion in non-performing loans from the Bank in exchange for approximately €13 billion in NAMA bonds. (Bradley Decl. Ex. 16 (Nolan Decl.) ¶ 47; Aug. 1, 2011 Tr. 70-72) In addition, during 2009 and 2010, respectively, the Irish government injected €4 billion (US $5.4 billion) and €25.3 billion (US $34.3 billion) in capital into the Bank. (Bradley Decl. ¶¶ 10-11, Ex. 16 (Nolan Decl.) ¶ 43; Aug. 1, 2011 Tr. 66; Supp. Bradley Decl. ¶¶ 8-9)

The NAMA program provided the only vehicle by which the Bank could obtain value for the non-performing loans that were transferred:

Q. Was there a market outside of the NAMA program for these loans?

A. If there was, I was not aware of it. I mean, these are very problematic loans. And I suggest it was the only, only avenue for the Irish banks in terms of getting any value in that, in the marketplace at that point in time. (Aug. 1, 2011 Tr. 69)

In December 2010, the Irish government enacted the Credit Institutions Stabilisation Act. (Am. Cmplt. ¶ 29) According to Plaintiffs, the Act permits the Irish Minister for Finance to obtain, on an ex parte basis, orders from the High Court of Ireland to, inter alia, "make proposed direction orders or subordinated liabilities orders without providing notice." (Am. Cmplt. ¶ 31) Plaintiffs argue that "once a subordinated liabilities order is effective, . . . [it would] eliminate any contractual or equitable remedies that creditors such as Noteholders may have -- including the right to commence proceedings against the relevant institution, to bring petitions to wind up the relevant institution, or to exercise a right of set-off against the relevant institution." (Am. Cmplt. ¶ 32)

The Bank disputes Plaintiffs' interpretation of the Act and its significance: Firstly, the Credit Stabilisation Act does not, simply by its existence, expressly modify or eliminate the terms of agreements governed by laws outside of the Republic of Ireland (or in certain circumstances, those of other members of the European Economic Area). Secondly, to the extent that the rights of any subordinated creditor are modified by a "subordinated liabilities order" under the terms of the Credit Stabilisation Act, there are express rights for such a creditor to apply to have such an order set aside, varied or amended on various grounds. Thirdly, no "subordinated liabilities order" has been made.

(Bradley Decl. ¶ 26)

On February 8, 2011, the High Court of Ireland issued an order (the "February 8 Order") directing the Bank to, inter alia, sell certain of the Bank's deposits and assets and begin to "formulate a detailed steps plan for the acquisition of and/or merger with [INBS] and deliver it to the [National Treasury Management Agency] no later than 31 March 2011." (Am. Cmplt., Ex. E (Feb. 8, 2011 Order) ¶¶ 5.2.5, 5.2.1, 5.2.2, 5.2.3, 5.2.4) In compliance with the February 8 Order, the Bank sold €12.2 billion of government-guaranteed securities to Allied Irish Bank in exchange for the assumption of the Bank's €8.6 billion of deposit liabilities and a €3.5 billion payment. (Am. Cmplt. ¶¶ 27, 40)

On June 20, 2011, Plaintiffs moved to supplement the record to add certain news reports indicating that the Bank was in the process of selling certain U.S.-based assets, including (1) a $300 million note related to a hotel in Manhattan, allegedly being sold for $190 million (Meyer Second Supp. Decl. ¶ 2, Ex. 1); and (2) a $147 million construction loan related to condominiums in lower Manhattan, allegedly sold for $80 million. (Id. ¶ 3, Ex. 2). These news reports also indicated that the Bank had appointed an agent to sell its entire U.S. loan portfolio, totaling approximately €10.7 billion (id. ¶ 5), and that the Bank was working towards a July 1, 2011 "merger" with INBS, another financial institution that has been nationalized by the Irish government. (Id. ¶ 15)

At the August 1, 2011 hearing, the Court received additional evidence concerning the Bank's merger with INBS and its disposal of its U.S. loan portfolio. James Bradley, the Bank's interim Chief Financial Officer, testified that the Bank was in the process of marketing its approximately $10 billion U.S.-based loan portfolio and planned a winding down of the Bank over the next seven to ten years. (Aug. 1. 2011 Tr. 39-40, 43-44) Bradley also testified that the Bank had merged with INBS:

Q. Also, since this case began, Anglo Irish has merged with another bank, is that correct?

A. We were instructed to merge on the 1st of July.

Q. And the bank you merged with is another Irish bank called Irish Nationwide Building Society?

A. That's correct.

Q. And under the directives of the Irish government, that bank is also being wound down, is that correct?

A. It's part of Anglo now, and, in fact, when we call it a merger, the assets and liabilities were transferred into Anglo Irish, so I know it's referred to as a merger, but technically I don't know if that's a merger or not. It was a transfer of assets by, once again, the Irish ...


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