Verlinden BV v. Central Bank of Nigeria

• Decision Date: 21 April 1980
• Docket Number: No. 79 Civ. 1150.,79 Civ. 1150.
• Citation: 488 F. Supp. 1284
• Parties: VERLINDEN B.V., Plaintiff, v. CENTRAL BANK OF NIGERIA, Defendant.
• Court: U.S. District Court — Southern District of New York

488 F. Supp. 1284

VERLINDEN B.V., Plaintiff, v. CENTRAL BANK OF NIGERIA, Defendant.

No. 79 Civ. 1150.

United States District Court, S. D. New York.

April 21, 1980.

COPYRIGHT MATERIAL OMITTED

Berthold H. Hoeniger, New York City, for plaintiff.

Kissam, Halpin & Genovese, New York City, for defendant; James G. Simms, Leo T. Kissam, James H. Halpin, Laurence May, Peter J. Dranginis, New York City, of counsel.

OPINION

EDWARD WEINFELD, District Judge.

Verlinden B.V. ("Verlinden"), a Dutch corporation with its principal offices in Amsterdam, The Netherlands, commenced this action for anticipatory breach of an irrevocable documentary letter of credit established in its favor by the defendant Central Bank of Nigeria, and advised and payable by its correspondent bank, Morgan Guaranty Trust Company in New York. The defendant Central Bank of Nigeria ("Central Bank") is the central bank of the Federal Republic of Nigeria ("Nigeria") and is an "agency or instrumentality of a foreign state" within the meaning of the Foreign Sovereign Immunities Act ("Immunities Act") of 1976.¹

Although the instant action is based upon the alleged breach and repudiation by Central Bank of its obligations with respect to the irrevocable letter of credit, in order to put the matter into proper perspective, it is necessary to refer to events prior and subsequent to its issuance. On April 21, 1975, plaintiff entered into a contract whereby Nigeria agreed to buy from plaintiff, 240,000 metric tons of Portland Cement for the price of $U.S.60 per ton, or a total of $14,400,000.² The Nigerian government agreed to establish, within 21 days after the contract was signed, "an Irrevocable, Transferable abroad, Divisible³ and confirmed Letter of Credit in favour of the seller for the total purchase price through Slavenburg's Bank, Amsterdam, Netherlands." Shipment was to be made at the rate of 20,000 metric tons per month to commence 45 days after Verlinden had received the documentary irrevocable letter of credit in its favor. Demurrage was to be paid at "a rate not exceeding $3,500 per diem" per vessel, if and to the extent that discharge of the cargo was not completed at the rate of at least 1,000 tons per day. Demurrage payments were to accrue commencing on the first day after a vessel's arrival in the waters of Lagos Apapa, the port of Nigeria. The parties also agreed that the contract was to be governed by the Laws of the Netherlands and that disputes arising thereunder would be resolved by arbitration before the International Chamber of Commerce, Paris, France.

According to the allegations of plaintiff's amended complaint, on June 23, 1975 the defendant established its Documentary Credit No. CBN/BP/75/145 ("the letter of credit" or "the credit") in favor of plaintiff for the full contract price ($14,400,000); the credit included as well an open-ended amount for demurrage, to be paid at the rate of $3,500 per day per vessel. However, contrary to the terms of the cement agreement, the letter of credit was advised by and made payable through Morgan Guaranty Bank in New York, rather than plaintiff's bank (Slavenburg's) in the Netherlands. It was further at variance with the terms of the cement contract in that, as plaintiff alleges, it "was not confirmed, not divisible . . . internally inconsistent and commercially ineffective and unusable." Moreover, unlike the cement contract, the credit did not indicate when demurrage payments would commence. Plaintiff further alleges that in response to its request defendant, over a period of weeks, issued amendments to said letter of credit to render it internally consistent and commercially available and usable, as to which plaintiff was not advised by Morgan Guaranty until the latter part of September 1975. However, Morgan Guaranty did not confirm the credit as originally issued or amended, although it did advise plaintiff as beneficiary of amendments.⁴

In August 1975, the ports of Nigeria became bottlenecked with hundreds of ships carrying cargoes of cement, sent by more than 68 other cement suppliers from whom Nigeria had purchased cement. As a result of the increasing congestion in these ports, Central Bank commencing in mid-September 1975 unilaterally directed its correspondent banks, including Morgan, to adopt a series of amendments to all irrevocable letters of credit issued in connection with the cement contracts. In essence, the advising banks were directed to stop demurrage payments against documents unless those documents had been sent to and certified for payment by Central Bank. Additionally, Central Bank directly notified the suppliers that payment would be accorded only for those shipments cleared and approved by Central Bank two months before their arrival in Nigerian waters. On September 30, 1975 Morgan Guaranty cabled Slavenburg's Bank in Amsterdam to advise plaintiff of these amendments. It can hardly be questioned — and the parties do not seriously dispute the fact — that these unilateral amendments to the irrevocable letter of credit constitute violations of the Uniform Customs and Practice for Documentary Credits the terms of which, by stipulation of the parties, are applicable.⁵

Plaintiff alleges that, in reliance upon the issuance of an irrevocable letter of credit as agreed upon, it contracted with another European concern, Interbuco Anstalt, Vaduz, Liechtenstein ("Interbuco"), for the purchase of cement and thereby exposed itself to a potential liability in liquidated damages. It seeks to recover damages for payments already made or owing to Interbuco, as well as its own lost profits, counsel fees and expenses in the sum of $4,660,000 as compensatory damages and punitive damages in a like amount.

Presently before the Court are the defendant's motions to dismiss the action for (1) lack of subject matter jurisdiction; (2) lack of in personam jurisdiction over Central Bank based upon sovereign immunity and the act of state doctrine; (3) its motion for summary judgment on the merits; (4) also its motion pursuant to Rule 60(b) to be relieved of an order directing that it instruct Morgan Guaranty to keep funds in a separate account sufficient to satisfy any judgment plaintiff may recover; and (5) plaintiff's renewed motion for the entry of default judgment based upon defendant's failure timely to file its answer.

I

Plaintiff alleges jurisdiction under section 2(a) of the Immunities Act, 28 U.S.C., section 1330, which, in pertinent part, provides:

§ 1330. Actions against foreign states

(a) The district courts shall have original jurisdiction without regard to amount in controversy of any nonjury civil action against a foreign state as defined in section 1603(a) of this title as to any claim for relief in personam with respect to which the foreign state is not entitled to immunity either under sections 1605-1607 of this title or under any applicable international agreement.

(b) Personal jurisdiction over a foreign state shall exist as to every claim for relief over which the district courts have jurisdiction under subsection (a) where service has been made under section 1608 of this title.

Defendant's initial challenge is to plaintiff's assertion of jurisdiction under section 2(a) of the Immunities Act, contending that that provision does not empower a federal district court to adjudicate a dispute between foreign entities involving claims based upon a breach of a documentary letter of credit — which defendant contends, if American law applies at all, would be governed by the laws of the State of New York and not by the United States Constitution or any federal statute enacted thereunder.

It is not questioned that if jurisdiction exists it must be because the claim arises under either the Constitution or the laws of the United States. The parties agree that in this instance the framework of reference is a "law of the United States" since neither the Constitution nor any of the other bases for jurisdiction under Article III of the Constitution is applicable.⁶ Thus an initial inquiry centers about section 2(a) of the Immunities Act upon which plaintiff in its complaint expressly asserts jurisdiction "is founded." The defendant's basic position is that the Act does not create the claim or right as alleged in plaintiff's complaint; that section 2(a) does not confer subject matter jurisdiction with respect to the Verlinden claim; that it is a procedural statute defining the limits of sovereign immunity and regulating the circumstances under which foreign states, and their agencies or instrumentalities, may be sued in American courts, both state and federal.⁷ It contends that, like the Declaratory Judgment Act,⁸ the Immunities Act only "enlarged the range of remedies available"⁹ to a litigant but did not thereby enlarge federal jurisdiction to include "the kinds of issues which give right of entrance to federal courts."¹⁰ According to this view, when Congress enacted the Immunities Act it did no more than affirm the already existing bases of jurisdiction — such as diversity or federal question — while eliminating the requirement of jurisdictional amount when the defendant is a foreign state. The hard core of defendant's argument is that plaintiff's claim for damages based upon an alleged breach of the letter of credit is one that normally would be adjudicated under state or common law, and unless it appears that the claim is based upon a federal right or a federal question this Court is without jurisdiction; in short, defendant contends that the claim must be grounded upon a federal right authorized by Congress as an essential element under a well-pleaded complaint, "unaided by anything alleged in anticipation of avoidance of defenses which it is thought the defendant may interpose,"¹¹ — such as, in this case, sovereign immunity or the act of state doctrine. This restrictive concept, as Mr. Justice Frankfurter noted, was not "to indulge in formalism or sterile technicality" but...