Kalamazoo Spice Ext. Co. v. PROVISIONAL MILITARY GOVERNMENT, K81-17 CA.

• Decision Date: 26 August 1985
• Docket Number: No. K81-17 CA.,K81-17 CA.
• Citation: 616 F. Supp. 660
• Parties: KALAMAZOO SPICE EXTRACTION COMPANY, Plaintiff, v. The PROVISIONAL MILITARY GOVERNMENT OF SOCIALIST ETHIOPIA, Defendant.
• Court: U.S. District Court — Western District of Michigan

616 F. Supp. 660

KALAMAZOO SPICE EXTRACTION COMPANY, Plaintiff, v. The PROVISIONAL MILITARY GOVERNMENT OF SOCIALIST ETHIOPIA, Defendant.

No. K81-17 CA.

United States District Court, W.D. Michigan, S.D.

August 26, 1985.

Eric V. Brown, Sr., Thomas G. Parachini, Karen L. Brissette, Miller, Canfield, Paddock & Stone, Kalamazoo, Mich., Mark B. Feldman, John P. Dean, Donovan, Leisure, Newton & Irvine, Washington, D.C., for plaintiff.

Burt Burgoyne, Bromberg, Robinson, Shapero, Cohn & Burgoyne, Southfield, Mich., Thomas D. Carey, Carey, Durham & Risdon, Kalamazoo, Mich., Jack Weinberg, Graubard, Moskovitz, McGoldrick, Dannett, Horowitz & Mollen, New York City, for defendant.

OPINION

BENJAMIN F. GIBSON, District Judge.

This is one of two lawsuits pending in this Court which arose out of the expropriation of a majority of the stock of the Ethiopian Spice Extraction Share Company (ESESCO) by the Provisional Military Government of Socialist Ethiopia (the PMGSE). Earlier in this litigation, the PMGSE filed a motion to dismiss, challenging this Court's jurisdiction on several grounds. In an Opinion filed July 6, 1982, and reported at 543 F.Supp. 1224 (W.D. Mich.1982), this Court concluded that jurisdiction over plaintiff's claims was precluded by the Act of State Doctrine. The Court, therefore, did not reach all of the arguments defendant offered in support of its motion to dismiss. Plaintiff appealed that decision and the Sixth Circuit reversed, holding that the 1953 Treaty of Amity and Economic Relations between the United States and Ethiopia made the Act of State Doctrine inapplicable to the controversy presented by this lawsuit. Kalamazoo Spice Extraction Co. v. Provisional Military Government of Socialist Ethiopia, 729 F.2d 422 (6th Cir.1984).

Following the remand by the Sixth Circuit, defendant renewed its motion to dismiss based on the jurisdictional arguments which the Court had not addressed in its previous Opinion. It is that renewed motion for dismissal which is now before the Court. Central to the determination of the jurisdictional questions raised by defendant's motion are certain facts surrounding the history of ESESCO, its relationship to the PMGSE, and the events giving rise to these lawsuits.

Plaintiff in this case, Kalamazoo Spice Extraction Company (KAL-SPICE), formed and incorporated ESESCO under the laws of Ethiopia in 1966. Just prior to the Ethiopian government's expropriation decree in 1975, KAL-SPICE owned eighty percent of the stock of ESESCO. As the majority stockholder, KAL-SPICE exerted control over the operation of the company and the utilization of the company's assets.

The PMGSE expropriated ESESCO and assumed operation and control early in 1975. It issued an expropriation decree declaring that, as of February 3, 1975, it assumed a majority shareholding in ESESCO. Plaintiff's Exhibit A, at 7. A letter from the PMGSE's Ministry of National Resources Development received by ESESCO in February, 1975, documents the PMGSE's appointment of three members to the five member Board of Directors. Plaintiff's Exhibit B. Minutes of a July 3, 1975, Board of Directors meeting indicate that three directors representing the PMGSE's interests were present and conducted ESESCO business. Plaintiff's Exhibit C.

Although it was not immediately clear whose shares had been expropriated, a November 1977 letter from the PMGSE's Ministry of Industry informed ESESCO that the Government had taken its fifty-one percent interest proportionally from each of ESESCO's shareholders. Plaintiff's Exhibit B. By that formula, KAL-SPICE's original eighty percent interest had been reduced to approximately forty percent.

Even though the government had assumed control of ESESCO, the company continued to ship oleoresin spices¹ to KAL-SPICE pursuant to a contract existing between the parties. Those shipments and previous shipments generated accounts receivable which were payable in the United States. It is those accounts receivable which ESESCO is attempting to recover in K79-400 (Case One).

MOTION TO DISMISS

The Provisional Military Government of Socialist Ethiopia has filed a motion to dismiss pursuant to Fed.R.Civ.P. 12(b). In that motion, the PMGSE argues that dismissal is warranted on three grounds: 1) that this Court lacks subject matter jurisdiction over KAL-SPICE's claims; 2) that the Court lacks personal jurisdiction over the government of Ethiopia; and 3) that venue is improper in this district. The Court will consider each of these arguments in turn.

Subject Matter Jurisdiction

KAL-SPICE alleges that this Court has jurisdiction over the claims against the PMGSE pursuant to the Foreign Sovereign Immunities Act of 1976 (FSIA), Pub.L. No. 94-583, 90 Stat. 2891 (1976). That statute amended Title 28 of the United States Code "to define the jurisdiction of the United States courts in suits against foreign states and the circumstances in which foreign states are immune from suit and in which execution may not be levied on their properties." H.R.Rep. No. 1487, 94th Cong., 2d Sess. 1, reprinted in 1976 U.S.Code Cong. & Ad.News 6604. The grant of jurisdiction under the FSIA is codified at 28 U.S.C. § 1330 which provides in part:

§ 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.

See also 28 U.S.C. § 1604.²

KAL-SPICE argues that this action falls within an exception created by section 1605 and that the PMGSE is therefore not entitled to immunity. Section 1605(a)(3) provides that:

§ 1605. General exceptions to the jurisdictional immunity of a foreign state (a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case —

. . . . .

(3) in which rights in property taken in violation of international law are in issue and that property or any property exchanged for such property is present in the United States in connection with a commercial activity carried on in the United States by the foreign state; or that property or any property exchanged for such property is owned or operated by an agency or instrumentality of the foreign state and that agency or instrumentality is engaged in a commercial activity in the United States.

Thus, in order to find subject matter jurisdiction under the section 1605(a)(3) exception, this Court must find: 1) that rights in property are at issue, 2) that the property was taken in violation of international law, and 3) that either of the two jurisdictional nexus requirements of the statute are satisfied.³ Because the Court finds that each of these requirements is met, it concludes that it has subject matter jurisdiction in this case.

The rights in property that are at issue are the assets of ESESCO. Although the PMGSE purported to seize only fifty-one percent of KAL-SPICE's stock, KAL-SPICE's complaint alleges that, without majority ownership and control, its remaining stock is worthless. Complaint ¶ 12. Thus, in addition to claiming an unlawful taking of its stock, KAL-SPICE claims there has been a de facto taking of its interest in the physical assets of ESESCO.⁴

The PMGSE argues that, at the most, KAL-SPICE has lost its rights to stock in ESESCO and that section 1605(a)(3) of the FSIA was not intended to apply to intangible property rights, such as rights in stock. See Canadian Overseas Ores, Ltd. v. Compania de Acero, 528 F.Supp. 1337 (S.D.N.Y.1982) (holding that contractual rights to payment, absent an expropriation of real property, do not constitute "property" within the meaning of section 1605(a)(3)), aff'd, 727 F.2d 274 (2d Cir. 1984). The PMGSE informs the Court that, under Ethiopian law, as under United States law, a shareholder generally has no direct right to the assets of a corporation until the dissolution of the corporation. Ethiopian Commercial Code, Art. 345(1) ("Every share shall confer a right to participation in the annual net profits and to a share in the annual net proceeds on a winding up"); see also Owens v. Commissioner of Internal Revenue, 568 F.2d 1233, 1238-39 (6th Cir.1977); First National Bank v. Perfection Bedding Co., 631 F.2d 31 (5th Cir.1980). Thus, because it seized a majority of the stock of ESESCO, rather than its physical assets, the PMGSE contends that the 1605(a)(3) exception does not apply.

Without deciding whether section 1605(a)(3) would apply if the PMGSE had seized less than a majority interest in the stock of ESESCO, the Court concludes that section 1605(a)(3) can only logically be interpreted to encompass the property interest seized in this case. It would not make sense to distinguish between the expropriation of the physical assets of a company, which would clearly fall within section 1605(a)(3), and expropriation of a controlling interest in the stock of the company. In either case, the foreign state has expropriated control of the assets and profits of the corporation. Thus, the Court concludes that the property at issue in this case is the kind of property that is subject to this Court's jurisdiction under section 1605.⁵

With respect to the second requirement, KAL-SPICE alleges that the PMGSE has violated international law by failing to pay compensation for the seized property. The PMGSE, in defense, alleges that it tendered an offer to pay 946,939 Ethiopian birr, approximately $460,000, as compensation. Claiming that the property was worth $11 million, KAL-SPICE rejected the offer. The PMGSE contends that, because it made the offer, it has not violated international law and that the Court, therefore, cannot find jurisdiction under section 1605(a)(3).

The Court is unable to conclude on the...