Corporacion Venezolana de Fomento v. Vintero Sales Corp.

• Decision Date: 28 July 1980
• Docket Number: D,No. 835,835
• Citation: 629 F.2d 786
• Parties: CORPORACION VENEZOLANA de FOMENTO, Plaintiff-Appellant, v. VINTERO SALES CORPORATION, Vintero Corporation, The Merban Corp., Defendants-Appellees, Security Pacific International Bank, Defendant, Vincent A. De Lyra, Robert J. Redmond, and James E. Himoff, Defendants- Appellees, and Canadian Imperial Bank of Commerce, The Royal Bank of Canada International Limited, Banque Canadienne Nationale, Banque Provinciale, LaSalle National Bank, and American Security and Trust Company, Intervening Defendants, v. VENEZOLANA DE CRUCEROS DEL CARIBE, C. A., Additional Defendant on the Counterclaim by Intervening Defendants, and Merban International, Incorporated, Additional Defendant on the Second Crossclaim by Intervening Defendants. ocket 79-7730.
• Court: U.S. Court of Appeals — Second Circuit

Page 786

629 F.2d 786

CORPORACION VENEZOLANA de FOMENTO, Plaintiff-Appellant, v. VINTERO SALES CORPORATION, Vintero Corporation, The Merban

Corp., Defendants-Appellees,

Security Pacific International Bank, Defendant,

Vincent A. De Lyra, Robert J. Redmond, and James E. Himoff,

Defendants- Appellees,

and

Canadian Imperial Bank of Commerce, The Royal Bank of Canada

International Limited, Banque Canadienne Nationale, Banque

Provinciale, LaSalle National Bank, and American Security and Trust Company, Intervening Defendants, v. VENEZOLANA DE CRUCEROS DEL CARIBE, C. A., Additional

Defendant on the Counterclaim by Intervening Defendants,

and

Merban International, Incorporated, Additional Defendant on

the Second Crossclaim by Intervening Defendants.

No. 835, Docket 79-7730.

United States Court of Appeals Second Circuit.

Argued March 19, 1980.

Decided July 28, 1980.

Sirius C. Cook, New York City (Healy & Baillie, Nicholas J. Healy, John P. O'Donnell, New York City, of counsel), for plaintiff-appellant, Corporacion Venezolana de Fomento.

David Hartfield, Jr., New York City (White & Case, Allan L. Gropper, Harry G. Barlow, Paskus, Gordon & Hyman, New York City, Robert R. Slaughter, New York City, of counsel), for defendants-appellees, The Merban Corporation, Robert J. Redmond and James E. Himoff.

Anthony Limitone, Jr., New York City (Thacher, Proffitt & Wood, Edward C. Kalaidjian, New York City, of counsel), for defendants-appellees, Vintero Sales Corporation, Vintero Corporation and Vincent A. DeLyra.

Before LUMBARD, MULLIGAN and OAKES, Circuit Judges.

LUMBARD, Circuit Judge:

This appeal presents a complex of legal issues arising out of the default by Venezolana de Cruceros del Caribe, C.A. ("Cariven"), a Venezuelan corporation, on notes issued by it and guaranteed by Corporacion Venezolana de Fomento ("CVF"), a Venezuelan governmental entity, and purchased by The Merban Corporation ("Merban"), a Swiss corporation, and later resold in part to various United States and Canadian banks, who became intervenors in this action. CVF alleged in its complaint filed in the Southern District of New York that the guarantees were void both because CVF had never approved them and because CVF had been fraudulently induced to guarantee the notes by Vintero Sales Corporation and Vintero Corporation, both New York corporations, by Vincent A. DeLyra, a United States citizen and principal in the Vintero companies (all parties to this action, and hereinafter collectively described as "the DeLyra interests"), and by Merban and several of Merban's officers. CVF appeals from the decision of the district court, Sweet, J., rejecting CVF's claims of non-approval and fraud, rendering judgment for Merban on its counterclaims to recover on the guarantees, No. 76-1671 (S.D.N.Y., Feb. 13, 1979), and from the district court's supplemental opinion finding that it had subject matter jurisdiction, 477 F.Supp. 615 (S.D.N.Y.1979). We affirm this portion of the district court's decision, but reverse and remand insofar as the judgment and opinion below absolves the DeLyra interests of actionable fraud. ¹

In 1974, Cariven sought from CVF a Venezuelan state agency charged with stimulating economic enterprise a guarantee for notes it intended to issue in order to finance its first business venture, the purchase and outfitting of two vessels as cruise ships. Cariven's stock was held by two Venezuelan nominees, and the district court found that DeLyra was the "49% owner of the corporation" (along with an associate named Gascue, who is not a party to this litigation) and that DeLyra "consider(ed) himself a joint venturer or perhaps an undisclosed principal in Cariven." Cariven had no appreciable assets and its principals had no experience running a cruise line. CVF was given the right to nominate two directors to seats on Cariven's board of directors early on in the course of financing negotiations.

Meanwhile, in 1975, as Cariven's arrangements for financing its purchases of the ships progressed, Vintero Sales Corporation bought two ships, the S.S. Santa Rosa and the S.S. Bahama Star. Vintero paid approximately $2 million for the two, most of this sum being money borrowed from Merban, in a loan not involved in this case.

Soon after, Cariven agreed to buy the two ships from Vintero at a combined price of approximately $17 million. The record reveals that although some money was expended by Vintero towards the refurbishing of the ships, less than a million dollars in such expenses was evidenced by receipts. ²

By early 1975, the financing structure for Vintero's sale to Cariven was in place. Cariven issued and Merban bought two series of notes, one in April, 1975 and the second in October, 1975, each corresponding to one of the two ships to be bought from Vintero with the proceeds. Approximately $12 million of the notes were sold by Merban to various U.S. and Canadian banks ("the purchasing banks"). The money thus raised for Cariven was made available in the form of letters of credit at Security Pacific International Bank ("SPIB") made out in favor of Vintero, which was permitted to make drawdowns according to conditions incorporated in the Merban-Cariven Loan Agreement. Vintero collected about $8 million in this manner.

In April, 1976, Cariven defaulted on its interest payments to Merban and other holders of both series of its notes. No payments of principal or interest on either series have been made since October 30, 1975, when the first payments by Cariven were due.

In 1976, CVF brought suit in the Southern District of New York for a declaratory judgment against Merban and Vintero, seeking judicial nullification of its guarantees on the theory that Cariven had failed to comply with certain conditions precedent to the validity of the CVF guarantees. ³ The purchasing banks intervened and counterclaimed against CVF, and Judge Conner granted them summary judgment against CVF, at the same time denying summary judgment to Merban. 452 F.Supp. 1108 (S.D.N.Y.1978). The case was then transferred to Judge Sweet, who, after a bench trial on those issues left for resolution in light of Judge Conner's decision, entered judgment as described above. Subsequently, on June 27, 1979, this court remanded to Judge Sweet an appeal from Judge Conner's decision alleging lack of subject matter jurisdiction. The rulings by Judge Conner with respect to the purchasing banks were no longer in issue because a settlement had been reached between CVF and the purchasing banks. On September 20, 1979, Judge Sweet issued a second opinion, in which he found that jurisdiction existed under the Foreign Sovereign Immunities Act of 1976, 28 U.S.C. §§ 1330, 1602-1611; and under the Edge Act, 12 U.S.C. § 632.

Federal Jurisdiction

The district court initially took jurisdiction on diversity grounds. But in its supplemental opinion on jurisdiction the district court recognized that this basis was insufficient under this circuit's case law. Both Merban, a Swiss corporation, and CVF, a Venezuelan corporation, are aliens. We have held that the presence of aliens on two sides of a case destroys diversity jurisdiction. IIT v. Vencap, Ltd., 519 F.2d 1001, 1015 (2d Cir. 1975). Merban, however, has its principal place of business in New York, and since the 1958 amendment to the diversity statute, 28 U.S.C. § 1332(c), making corporations citizens of the states in which they have their principal place of business, in addition to the states in which they are incorporated, there has been a question as to whether or not alien corporations possess such dual citizenship. In our most recent comment on the subject, we suggested that alien corporations are not citizens of the state in which they have their principal place of business. Clarkson Co., Ltd. v. Shaheen, 544 F.2d 624, n. 5 (2d Cir. 1976). We need not reach the issue of whether or not 28 U.S.C. § 1332(c) applies to alien corporations, however, because it is enough in this case to hold that, even assuming such dual citizenship, the fact that alien parties were present on both sides would destroy complete diversity. Hercules, Inc. v. Dynamic Export Corp., 71 F.R.D. 101 (S.D.N.Y.1976).

The district court reasoned that the Foreign Sovereign Immunities Act, 28 U.S.C. §§ 1330, 1602-1611, supplied a basis for federal jurisdiction. We disagree.

The basic purpose of the Foreign Sovereign Immunities Act ("FSIA") is to give the district courts jurisdiction to hear civil cases involving claims against foreign states, and their instrumentalities, which have waived their immunity from suit with regard to the transaction involved. CVF is clearly the kind of governmental instrumentality against which such suits were contemplated, and there can be no gainsaying that this commercial transaction is one in which the government of Venezuela waived its immunity. The sole difficulty with the invocation of the FSIA as a basis for jurisdiction is CVF's argument that the Act was not meant to confer jurisdiction on cases pending at the time the Act became law.

CVF filed this action on April 9, 1976. The FSIA did not become effective until January 24, 1977. Pub.L. 94-583, § 8. Since that time a number of district courts have faced the issue of whether or not to apply the provisions of the Act retroactively. In Yessenin-Volpin v. Novosti Press Agency, 443 F.Supp. 849 (S.D.N.Y.1978), the court decided to apply the substantive principles of immunity embodied in the Act to a case filed before the effective date of the substantive criteria enacted by Congress. Other cases, unlike Yessenin-Volpin, have addressed the jurisdiction-conferring aspects of the Act, but in the context of removal statutes, which are construed strictly and involve the necessity of giving weight to the extent to which the action has progressed in the court where it was initially brought, Martropico et al. v. (Pertamina), 428 F.Supp. 1035 (S.D.N.Y.1977); or in context of in personam jurisdiction, ...