Lehman Bros. V. Minmetals Intern. Non-Ferrous, 94 CIV 8301 JFK.

• Decision Date: 25 April 2001
• Docket Number: No. 94 CIV 8301 JFK.,94 CIV 8301 JFK.
• Citation: 169 F.Supp.2d 186
• Parties: LEHMAN BROTHERS COMMERCIAL CORPORATION and Lehman Brothers Special Financing Inc., Plaintiffs, v. MINMETALS INTERNATIONAL NON-FERROUS METALS TRADING COMPANY and China National Metals and Minerals Import and Export Company, Defendants. Minmetals International Non-Ferrous Metals Trading Company, Counterclaim Plaintiff, v. Lehman Brothers Inc., Lehman Brothers Asia Limited, Lehman Brothers Securities Asia Limited and Lehman Brothers Capital Co. (H.K.) Limited, Additional Counterclaim Defendants.
• Court: U.S. District Court — Southern District of New York

169 F.Supp.2d 186

LEHMAN BROTHERS COMMERCIAL CORPORATION and Lehman Brothers Special Financing Inc., Plaintiffs, v. MINMETALS INTERNATIONAL NON-FERROUS METALS TRADING COMPANY and China National Metals and Minerals Import and Export Company, Defendants.

Minmetals International Non-Ferrous Metals Trading Company, Counterclaim Plaintiff, v. Lehman Brothers Inc., Lehman Brothers Asia Limited, Lehman Brothers Securities Asia Limited and Lehman Brothers Capital Co. (H.K.) Limited, Additional Counterclaim Defendants.

No. 94 CIV 8301 JFK.

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

April 25, 2001.

COPYRIGHT MATERIAL OMITTED

Cadwalader, Wickersham & Taft (Jonathan D. Polkes, Douglas Koff, Tom M. Fini, Douglas L. Friedman, Matthew L. Mustokoff, of counsel), New York City, for Plaintiffs and Additional Counterclaim Defendants.

Kaye Scholer Fierman Hays & Handler, (Aaron Rubinstein, Phillip A. Geraci, Jeffrey A. Fuisz, Michael M. Pomerantz, of counsel), New York City, for Defendants and Additional Counterclaim Plaintiff.

OPINION and ORDER

KEENAN, District Judge.

Before the Court is a motion by the Plaintiffs Lehman Brothers Commercial Corporation and Lehman Brothers Special Financing, Inc.¹ to strike the jury demand in this case pursuant to 28 U.S.C. § 1330(a) ("section 1330(a)"). The Defendants Minmetals International Non-Ferrous Metals Trading Company ("Non-Ferrous") and China National Metals & Minerals Import & Export Corporation ("Minmetals") oppose the motion. For the reasons that follow in this Opinion and Order, the Court grants Lehman's motion. Any trial in this case will be before this Court without a jury.

BACKGROUND

The Court will discuss only those circumstances that are relevant to the current motion, as the background to this case is fully set forth in a previous decision of this Court. See Lehman Bros. Commercial Corp. v. Minmetals Int'l Non-Ferrous Metals Trading Co., No. 94 Civ. 8301, 2000 WL 1702039 (S.D.N.Y. Nov. 13, 2000). Lehman, a global investment bank, is a citizen of the United States. Id. at *1. Minmetals is the parent corporation of the Minmetals Group, an international trading conglomerate that is owned entirely by the People's Republic of China ("China") and reports directly to China's Ministry of Foreign Trade and Economic Cooperation. Id. Non-Ferrous is a wholly-owned subsidiary of Minmetals. Id.

Lehman originally asserted that this Court's jurisdiction in this case was based upon diversity of citizenship, pursuant to 28 U.S.C. § 1332(a)(2), and alternatively, upon section 1330(a), known as the Foreign Sovereign Immunities Act, codified at 28 U.S.C. §§ 1330, 1441(d), 1602 et seq. ("FSIA"). Along with its answer to Lehman's complaint, Non-Ferrous asserted fourteen counterclaims against Lehman, two of which were subsequently dismissed by an Opinion and Order of this Court. See Lehman Bros. Commercial Corp., 2000 WL 1702039 at *10.

Both Lehman and the Defendants entered jury demands in this case. In a letter to this Court dated November 30, 2000, however, Lehman stated that this Court's exclusive source of jurisdiction in this case was section 1330(a), which, according to Lehman, mandates a nonjury trial. The parties subsequently briefed and filed the motion that is now before the Court.

DISCUSSION

The FSIA provides that "[t]he district courts shall have original jurisdiction ... of any nonjury civil action against a foreign state as defined in section 1603(a) of this title as to any claim for relief...." 28 U.S.C. § 1330(a). Section 1603(a) of that title states that the term "foreign state" "includes a political subdivision of a foreign state or an agency or instrumentality of a foreign state...." See 28 U.S.C. § 1603(a) ("section 1603(a)").

Lehman argues that because this case is a civil action against two foreign-state defendants, section 1330(a) requires that any trial in this case be nonjury. The Defendants, on the other hand, argue that this case may be tried before a jury, at least in part, for three reasons: (1) Non-Ferrous is not a foreign-state defendant as defined in section 1603(a); (2) foreign-state defendants can waive the protection of the non-jury provision in section 1330(a); and (3) section 1330(a) does not govern Non-Ferrous' counterclaims against Lehman.² The Court will address the Defendants' contentions in that order.

A. FSIA's Applicability to Non-Ferrous

Minmetals concedes that it is governed by the FSIA because it is the instrumentality of a foreign state, China. (See Defs.' Opp. Mem. at 10, 15). Non-Ferrous, on the other hand, asserts that it does not fall under the FSIA because it is neither a political subdivision of a foreign state (China) nor an agency or instrumentality of China. Lehman does not argue that Non-Ferrous is a political subdivision of China, and so this Court need only determine whether Non-Ferrous is an agency or instrumentality of China.

The term "agency or instrumentality of a foreign state" is defined in 28 U.S.C. § 1603(b) ("section 1603(b)") as "a separate legal person, corporate or otherwise, and ... [inter alia,] a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof...." 28 U.S.C. § 1603(b)(1)-(2).

Non-Ferrous argues that it is not an "agency or instrumentality of a foreign state" as defined in section 1603(b) because it is not majority-owned by a foreign state or a political subdivision of a foreign state. Non-Ferrous acknowledges that its sole owner, Minmetals, is an instrumentality of a foreign state. It argues, however, that because Minmetals is neither a foreign state nor a political subdivision of a foreign state, Non-Ferrous cannot be an "agency or instrumentality of a foreign state" as defined in section 1603(b). As a result, it would not be a "foreign state" as defined in section 1603(a), and would not fall under the FSIA.

Non-Ferrous' argument depends upon the breadth of the term "foreign state" as it is used in section 1603(b). If that term is used in section 1603(b) to refer only to foreign states themselves, Non-Ferrous is not an agency or instrumentality under that subsection.³ On the other hand, if the term "foreign state" in section 1603(b) itself includes an agency or instrumentality of a foreign state as defined in section 1603(a), then Non-Ferrous does fit that definition because it is majority-owned by Minmetals, a "foreign state."

The Second Circuit has not yet squarely addressed the issue of whether the use of the term "foreign state" in section 1603(b) includes the agencies and instrumentalities of foreign states as defined in section 1603(a). Other circuits have spilt on the issue, however, as have other courts in this district. See, e.g., In re Air Crash Disaster Near Roselawn, Ind., 96 F.3d 932, 935, 939 (7th Cir.1996) (includes agencies and instrumentalities); Gates v. Victor Fine Foods, 54 F.3d 1457 (9th Cir.1995) (does not include agencies and instrumentalities); Parex Bank v. Russian Sav. Bank, 81 F.Supp.2d 506 (S.D.N.Y.2000) (includes agencies and instrumentalities); Hyatt Corp. v. Stanton, 945 F.Supp. 675 (S.D.N.Y.1996) (does not include agencies and instrumentalities).

The Ninth Circuit has ruled that the term "foreign state" in section 1603(b) does not include the agencies and instrumentalities of foreign states. See Gates, 54 F.3d 1457. In Gates, the court declined to extend the provisions of the FSIA to a pork-processing plant indirectly owned by the Canadian province of Alberta. Id. The court adopted a narrow reading of "foreign state" in section 1603(b) for three reasons. See id. at 1462.

First, the Court opined that the term "includes" in section 1603(a) should be read as "encompasses" rather than "is" or "is defined as," as follows: "`foreign state' ... [encompasses] a political subdivision of a foreign state or an agency or instrumentality of a foreign state." See id. That phrase would therefore describe what the use of the term "foreign state" could possibly but not necessarily include in any one instance.

Second, the Gates court noted that if the definition of "foreign state" in section 1603(a) fully applied to that term in section 1603(b), the explicit inclusion of the phrase "or a political subdivision thereof" in section 1603(b) would be redundant. Id.

Third, the court found that the FSIA's legislative history supported a conclusion that Congress intended "foreign state" as it is used in section 1603(b) to apply only to foreign states themselves. Id. From a House Report, the court quoted Congress as stating, "[t]he second criterion requires that ... a majority of an entity's shares or other ownership interest be owned by a foreign state (or by a foreign state's political subdivision)." Id. (quoting H.R.Rep. No. 94-1487 (1976), reprinted in 1976 U.S.C.C.A.N. 6604, 6614 (emphasis added by the Gates court)). The court concluded that it could not add government agencies or instrumentalities to section 1603(b) when Congress could easily have done so itself, had it so intended. Id.

More recently, the Seventh Circuit ruled that the term "foreign state" as used in section 1603(b) does include the agencies and instrumentalities of foreign states. See Roselawn, 96 F.3d 932. In Roselawn, the court held that the FSIA governed an airplane manufacturer that was indirectly owned by the French and Italian governments through two commercial aerospace companies. Id. at 935, 939.

The Roselawn court found that Congress' intent to use the term "foreign state" broadly in section 1603(b) was evident from the plain language of § 1603(a) as well as from the legislative history of the FSIA. Id. at 939-41. The court noted that even if that broad definition would render the explicit inclusion of political subdivisions in section 1603(b) redundant, it was not empowered to rewrite the statute by excising political subdivisions and government agencies or instrumentalities from the definition of "foreign state" in section 1603(a). Id. at...