L'Europeenne de Banque v. La Republica de Venezuela, 86 Civ. 7808 (KC).

• Court: United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
• Citation: 700 F. Supp. 114
• Docket Number: No. 86 Civ. 7808 (KC).,86 Civ. 7808 (KC).
• Parties: L'EUROPEENNE de BANQUE, for itself and as Agent for SFE Banking Corporation Limited, Hongkongbank Ltd., Den Norske Creditbank (Luxembourg) S.A., Australia and New Zealand Banking Group Limited, Banco Pinto & Sotto Mayor, Norwest Bank Minneapolis, N.A., Credit Commercial de France S.A., Euro-Latinamerican Bank Limited, Nederlandse Credietbank, N.V., Privatbanken Limited, Banque Francaise du Commerce Exterieur, Banque Industrielle et Mobiliere Privee, S.A., Credit Commercial de France Paris, S.A., Plaintiffs, v. LA REPUBLICA de VENEZUELA, Juan Vincente Perez Sandoval, Sociedad Financiera de Comercio, C.A. (formerly named Sociedad Financiera Credival, C.A.), Ramon Carrasco Pintor, Inversiones Credival, C.A., Redline Management Corp., 5712 Management Corp., and Archway Management Corp., Defendants.
• Decision Date: 18 October 1988

700 F. Supp. 114

L'EUROPEENNE de BANQUE, for itself and as Agent for SFE Banking Corporation Limited, Hongkongbank Ltd., Den Norske Creditbank (Luxembourg) S.A., Australia and New Zealand Banking Group Limited, Banco Pinto & Sotto Mayor, Norwest Bank Minneapolis, N.A., Credit Commercial de France S.A., Euro-Latinamerican Bank Limited, Nederlandse Credietbank, N.V., Privatbanken Limited, Banque Francaise du Commerce Exterieur, Banque Industrielle et Mobiliere Privee, S.A., Credit Commercial de France Paris, S.A., Plaintiffs, v. LA REPUBLICA de VENEZUELA, Juan Vincente Perez Sandoval, Sociedad Financiera de Comercio, C.A. (formerly named Sociedad Financiera Credival, C.A.), Ramon Carrasco Pintor, Inversiones Credival, C.A., Redline Management Corp., 5712 Management Corp., and Archway Management Corp., Defendants.

No. 86 Civ. 7808 (KC).

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

October 18, 1988.

COPYRIGHT MATERIAL OMITTED

Daryl Libow, Michael Strauss, Sullivan and Cromwell, New York City, for plaintiffs.

William D. Rogers, Arnold and Porter, Washington, D.C., Whitney Debevoise, Kenneth Handal, Arnold and Porter, New York City, for Republic and Pintor, Sociedad Financiera de Comercio, Invesiones Credival.

Howard B. Adler, Shea and Gould, New York City, for Juan Sandoval.

MEMORANDUM OPINION AND ORDER

CONBOY, District Judge.

On November 6, 1981, the plaintiffs, a consortium of banks,¹ entered a deposit lending agreement with a Venezuelan bank, then known as Sociedad Financiera Credival, C.A., which, at an undetermined subsequent date was legally succeeded by Sociedad Financiera de Comercio, C.A., see Comp. para. 4, ("SFC"). Comp. para. 18. Plaintiff L'Europeenne de Banque ("LEB"),² has acted as agent for the consortium. The consortium agreed to deposit, at the request of SFC, up to thirty million dollars (U.S.) with SFC. See generally Exhibit B to Affidavit of Michel Sperry, executed Oct. 10, 1986 (the "Deposit Agreement"). The consortium advanced the full amount to SFC. Comp. para. 18. The agreement provided for non-discretionary substitution of new deposits when certificates of deposit matured, subject to certain conditions not relevant here. In effect, the Deposit Agreement provided SFC with revolving credit. See Deposit Agreement clause 4.3. The Deposit Agreement contained no overall termination date.

The complaint alleges that beginning in or before March 1982, defendant Juan Vincente Perez Sandoval, who then controlled SFC either directly or indirectly through intermediary corporations, Comp. para. 4, embarked on a scheme to loot the assets of SFC and to defraud its creditors. Id. para. 22. The scheme did not appreciably affect the consortium until March, 1984, when SFC failed to make a payment due under the agreement. Id. para. 30. LEB, on behalf of the consortium, met with officers of SFC, including Perez Sandoval, to obtain assurances of a resumption of payments. Id. Perez Sandoval made sufficient assurances that LEB decided not to declare the entire debt in default and not to commence legal action. See id. Perez Sandoval subsequently made a series of false and misleading representations, including one for the provision of a "collateral package" as security for SFC's debts, which satisfied LEB and induced it to continue to forgo recourse to judicial remedies. Id. paras. 31-32. Perez Sandoval fled Venezuela in mid-1985. Id. para. 33.

As of June 3, 1985, Banco de Comercio, S.A.C.A. and its subsidiary, SFC, "formed part of one of the largest financial organizations in Venezuela." See Affidavit of Tomas E. Sanchez Rondon, executed Feb. 13, 1987, at para. 5. On that date, Venezuela, acting through its Ministry of Finance, issued Resolution 244, declaring an "intervention" by Venezuela in the affairs of Banco de Comercio, S.A.C.A., SFC, and two affiliated credit organizations. See Affidavit of Manuel Simon Egana, executed Feb. 13, 1987, at para. 13 & Exhibit B.³ The resolution granted to the "interventor," defendant Ramon Carrasco Pintor, a Vice President of the Deposit Guaranty and Bank Protection Fund, (the "Fondo"), see id. resolution second, all management powers.⁴

Carrasco Pintor operated SFC as an ongoing business for approximately fourteen months. The Fondo provided financial assistance worth approximately U.S. $452 million during that time. See Sanchez Rondon Feb. 13, 1987 Aff. at para. 12; Memorandum of Law of Defendant La Republica de Venezuela in Support of Motion to Dismiss at 7-8 & n. 7. Then, on July 29, 1986, Venezuela, through the Ministry of Finance, issued Resolutions 887 and 888, revoking the authorizations to function of, respectively, SFC and its parent, Banco de Comercio, S.A.C.A., and ordering their immediate liquidations. See Exhibit C to Simon Egana Aff.

The consortium, unsecured and unpaid, responded by filing this lawsuit on October 10, 1986. The defendants are Venezuela, SFC and another Venezuelan bank, Inversiones Credival, C.A., SFC's wholly-owned subsidiary, Perez Sandoval and Carrasco Pintor, and three New York corporations, alleged to be Perez Sandoval's alter egos, each of which has as its principal purpose to hold title to real property located in New York. See Comp. paras. 2-9. Claims are asserted under the Foreign Sovereign Immunities Act, 28 U.S.C. §§ 1330, 1332(a)(2)(4), 1391(f), 1441(d), 1602-1611 (1982) ("FSIA"), the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968 (1982 & Supp. IV 1986) ("RICO"), and common law. Jurisdiction is asserted under 28 U.S.C. §§ 1330, 1331, and 1332(a)(2), (4). At the time the complaint was filed, this Court, by the Honorable Robert W. Sweet, U.S.D.J., issued an order of attachment and temporary restraining order on the property in New York allegedly belonging to the New York corporations and Perez Sandoval.⁵ Pending before the Court are plaintiff's motion to confirm the order of attachment, certain defendants' cross-motions to vacate the order of attachment and cancel Notices of Pendency, and certain defendants' motions to dismiss the complaint.

JURISDICTION

It is incumbent on the court to determine whether it has subject matter jurisdiction over this action before it can address plaintiffs' motion to confirm the attachment. See Gross v. Hougland, 712 F.2d 1034, 1036 (6th Cir.1983) (federal court "must satisfy itself that it has subject-matter jurisdiction over the dispute before it addresses the merits of the claims"), cert. denied, 465 U.S. 1025, 104 S.Ct. 1281, 79 L.Ed.2d 684 (1984); Rice v. Rice Found., 610 F.2d 471, 474 (7th Cir.1979) ("The initial inquiry in any suit filed in federal court must be whether the federal court possesses subject matter jurisdiction."); Blessing v. United States, 447 F.Supp. 1160, 1167 (E.D.Pa. 1978) ("jurisdictional issues must be resolved before other questions may properly be considered"); cf. Visual Sciences, Inc. v. Integrated Communications Inc., 660 F.2d 56, 59 (2d Cir.1981) ("A court must have in personam jurisdiction over a party before it can validly enter even an interlocutory injunction against him.").

A. Ripeness of the RICO Claim

Count Four of the complaint alleges a civil violation of RICO. In substance, the plaintiffs allege that Perez Sandoval, SFC, inversiones, and the three New York corporations committed various predicate racketeering acts designed to loot SFC, thereby "substantially impairing" SFC's "ability to operate as a going concern," and rendered SFC "unable to repay LEB on a timely basis." See Comp. paras. 22-29, 33. Perez Sandoval acted to keep SFC's creditors from pursuing "legal remedies against him while he continued the process of looting SFC." Id. at para. 31. He made multiple fraudulent misrepresentations that "induced LEB to forgo recourse to judicial remedies necessary to insure timely repayment of its loans to" SFC. See id. at paras. 30-32. Plaintiffs claim to be injured financially by this conduct because SFC is unable to pay its creditors, including the syndicate. See Comp. para. 61.

The defendants assert that the plaintiffs lack standing to assert the RICO claim, relying on Rand v. Anaconda-Ericsson, Inc., 794 F.2d 843, 849 (2d Cir.), cert. denied, 479 U.S. 987, 107 S.Ct. 579, 93 L.Ed. 2d 582 (1986). Rand involved a suit by shareholders of a corporation injured by racketeering activity. See 794 F.2d at 844. The Second Circuit held that the shareholders had no standing to assert such derivative claims. See id. at 849.

The plaintiffs in this action, however, are creditors of the injured corporation, not shareholders. The Second Circuit has recently distinguished Rand on this very ground. In Bankers Trust Co. v. Rhoades, 859 F.2d 1096 (2d Cir.1988), a creditor alleged that it was induced to accept a bankrupt debtor's plan of arrangement under which it received "only 17.5% of its allowed claim" after the individuals owning the corporate debtor "fraudulently concealed from the debtor's creditors a major asset." See id. at 1098. The creditor alleged that if it had "known of the fraudulent transfer of the asset, it never would have consented to the reorganization plan." Id. at 1099. The debtor was involved in bankruptcy proceedings that continued through the date of the Second Circuit's decision. See id. at 1099.

The Second Circuit reversed the district court's conclusion that the creditor "had no standing `to sue for any injury attributable to the depletion of the debtor's corporate assets.'" See id. at 1100 (quoting district court opinion). The court stated that its decision was not contrary to its decision in Rand. See id. at 1101. The court explained that in holding that the shareholders of an injured corporation did not have individual standing to bring a claim under civil RICO, it

merely recognized a standing requirement applicable throughout corporate law: "An `action to redress injuries to a corporation cannot be maintained by a shareholder in his own name but must be brought in the name of the corporation'" through

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