Baglab Ltd. v. Johnson Matthey Bankers Ltd.

• Decision Date: 24 July 1987
• Docket Number: No. 85 Civ. 8993 (RJW).,85 Civ. 8993 (RJW).
• Citation: 665 F. Supp. 289
• Parties: BAGLAB LIMITED, Strongsay Limited and Parklane Investments, Inc. Plaintiffs, v. JOHNSON MATTHEY BANKERS LIMITED and the Bank of England, Defendants.
• Court: U.S. District Court — Southern District of New York

665 F. Supp. 289

BAGLAB LIMITED, Strongsay Limited and Parklane Investments, Inc. Plaintiffs, v. JOHNSON MATTHEY BANKERS LIMITED and the Bank of England, Defendants.

No. 85 Civ. 8993 (RJW).

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

July 24, 1987.

Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey, New York City, for plaintiffs; Arthur H. Ruegger, of counsel.

Sullivan & Cromwell, New York City for defendants; William E. Willis, Robinson B. Lacy, Deborah C. Moritz, of counsel.

OPINION

ROBERT J. WARD, District Judge.

Plaintiffs Baglab Limited ("Baglab"), Strongsay Limited ("Strongsay"), and Parklane Investments, Inc. ("Parklane") have sued Johnson Matthey Bankers Limited ("JMB") and the Bank of England (the "Bank"), asserting a number of causes of action stemming from defendants' allegedly wrongful refusal to honor an agreement to provide financing. The Bank has moved to dismiss the complaint for lack of subject matter jurisdiction and for failure to state a claim upon which relief may be granted. For the reasons to follow, the Court grants the Bank's motion to dismiss the complaint.

BACKGROUND

A. Parties.

Baglab, Strongsay, and Parklane are corporations organized under the laws of Rhode Island, the Island of Jersey, and Texas respectively. Baglab is authorized to do business in New York and maintains its principal place of business in New York City. Strongsay, now defunct, had its principal place of business in Providence, Rhode Island. Parklane owns a warehouse located in East Providence, Rhode Island.

The Bank of England is an English Crown Corporation wholly owned by the Government of the United Kingdom. The Bank is the central bank of the United Kingdom. In that capacity, it is authorized to issue currency, to manage the nation's gold and foreign exchange reserves, and to regulate deposit-taking institutions in the United Kingdom. The Bank is an agency or instrumentality of a foreign state within the meaning of section 4(a) of the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. § 1603(a).

Defendant Johnson Matthey Bankers Limited ("JMB") is a banking corporation organized under the laws of England. JMB's principal place of business is London. Prior to October 1, 1984, when its ownership and control were transferred to the Bank of England, JMB was a wholly-owned subsidiary of Johnson Matthey Public Limited Company ("JM-PLC"), an English holding company.

B. Events.

In deciding this motion, the Court accepts plaintiffs' well-pleaded allegations as true. In 1983, JM-PLC determined to sell Johnson Matthey Jewelry Corporation ("JMJC"), a financially troubled and insolvent jewelry and luggage business it owned and operated in the United States. In an effort to sell JMJC, an officer of JMB contacted Mr. Shamji, a long-time customer of JMB to determine whether he might be interested in purchasing the business. Shamji referred JMB to a relative, Mr. Walji. Walji, allegedly upon the urging and encouragement of JMB and in reliance upon JMB's offer to finance the purchase, agreed to purchase the two businesses and a warehouse in Providence, Rhode Island.

Shamji's companies, the Gomba Group, entered into letter agreements to purchase JMJC in contemplation of transferring the businesses to plaintiffs. The letter agreements specified the purchase price for the businesses and set out a schedule of payments to be made to JMJC.

In January of 1984, Walji took possession of the jewelry and luggage operations even though the parties had not yet closed the transaction. New York counsel for JMB and JMJC prepared the closing documents. Plaintiffs contend that they allowed JMB and JMJC to dictate the terms of the agreement on the basis of their representations as to the bright prospects for their future business association. The terms, which plaintiffs now contend are unfair, included provisions that JMB could withdraw financing without cause, that plaintiffs would pay counsel fees, and that plaintiffs would have to pay whatever fees and expenses JMB would incur in connection with the agreement.

By plaintiffs' account, the jewelry and luggage operations improved steadily through 1984. JMB, however, did not fare so well. During 1984, the grave problems which had surfaced in JMB's loan portfolio threatened its solvency. To avoid serious disruption of the gold bullion market in England, the Bank of England acquired JMB from JMB-PLC on October 1, 1984 for the nominal sum of one dollar. As part of that agreement, JMB-PLC contributed fifty million pounds toward JMB's losses. At the time it acquired JMB, the Bank of England announced its intention to return the bank to the private sector. JMB is now Minories Finance Limited.

After October 1, 1984, Stephen Grady handled JMB's business dealings with plaintiffs. Plaintiffs assert that Grady originally assured them that JMB still intended to provide the funds and that the anticipated financing would encounter no problems. At a meeting on December 10, 1984 in Providence, Rhode Island, however, JMB raised, assertedly for the first time, certain unresolved items including an inventory of the jewelry stock. Plaintiffs agreed to allow an independent firm to audit and appraise the inventory. Up until this point, plaintiffs aver, JMB had not openly repudiated its stated intention to follow through with the financing on December 30, 1984. JMB, however, delayed payment of the funds past the anticipated closing date. JMJC then served a default notice on plaintiffs, but when plaintiffs explained that JMB had assured them that the money would be forthcoming, JMJC withheld legal proceedings. When the payment remained outstanding in February, JMJC commenced an action to attach the assets of the business and to restrain plaintiffs from further dealing with the business. Johnson Matthey Florida, JMJC's assignee, is now disposing of the assets of the jewelry business.

After losing the jewelry business, plaintiffs turned to Baglab, which was also dependent upon JMJB for financing. On March 22, 1985, Walji sent a financial statement to Grady in anticipation of receiving funding on the scheduled closing date of June 30, 1985. Plaintiffs contend that Grady simply requested further information. Grady subsequently met with Walji in Baglab's offices in New York City. At that meeting on May 22, 1985, Grady supposedly stated that JMB saw its role as an English bank whose proper role involved English rather than international financing and informed plaintiffs that in light of Baglab's earlier default on its agreement with JMB, JMB considered itself relieved of its obligation to proceed with the June 30 financing.

When the June 30 financing date passed without any action by JMB, Johnson Matthey Florida threatened to foreclose on the luggage operation. Plaintiffs turned over the assets of the luggage operation to Johnson Matthey Florida.

Plaintiffs then instituted the present action against JMB and against the Bank of England who, plaintiffs aver, directed and controlled the actions of JMB after October 1, 1984. Plaintiffs seek a declaration that defendants wrongfully breached their financing agreement and request injunctive and monetary relief for the destruction of their businesses. The Bank of England asserted the defense of sovereign immunity and moved to dismiss the complaint under Rule 12(b)(1), Fed.R.Civ.P., for lack of subject matter jurisdiction pursuant to the Foreign Sovereign Immunities Act, 28 U.S.C. § 1602 et seq., under Rule 12(b)(6), Fed.R. Civ.P., for failure to state a claim upon which relief may be granted, and under Rule 11, Fed.R.Civ.P., for attorneys' fees and sanctions. JMB moved for summary judgment under Rule 56, Fed.R.Civ.P. In order to consider deposition testimony submitted by the parties, the Court, upon notice to the parties, converted the Bank's motion to dismiss the complaint for failure to state a claim upon which relief could be granted into one for summary judgment under Rule 56, Fed.R.Civ.P. The Court scheduled a conference and heard oral argument on all motions October 10, 1986.

At oral argument, counsel for the Bank of England pragmatically conceded that while the acquisition of JMB itself was a sovereign act, JMB was clearly engaged in commercial activity and that should JMB's conduct be deemed to be that of the Bank of England, the motion to dismiss the complaint on grounds of sovereign immunity should be denied. Nevertheless, although numerous Bank personnel had been seconded to JMB, the Bank maintained that once it had replaced and restructured JMB management, it had not exercised day-to-day management over JMB but rather the two institutions had operated as separate entities under independent management.¹ For their part, plaintiffs asserted that the Bank exercised sufficient direction and control over JMB to incur liability under the commercial activity exception to the FSIA. Plaintiffs argued alternatively that they should be permitted discovery on the issue of the degree of control the Bank actually exercised over JMB.

Because the intent of the parties formed a factual issue concerning liability under the financing agreement, the Court denied both motions for summary judgment. Inasmuch as the degree of control actually exercised by the Bank of England over JMB also presented a factual issue, the Court denied without prejudice the Bank's motion to dismiss the complaint. The Court directed the parties to conduct limited discovery from JMB, and from Bank of England personnel who had been seconded to JMB, concerning the role the Bank of England had played in JMB's business activities after acquiring the bank.

In response to plaintiffs' discovery requests, JMB produced (1) a list of all individuals whom the Bank of England had brought in to assist JMB after October 1, 1984, and (2) all documents concerning any communication between or among those individuals, JMB, and the Bank of England relating to the plaintiffs or to any...