Lnc Investments, Inc. v. Republic of Nicaragua, 96 Civ. 6360(JFK).

• Decision Date: 26 April 2000
• Docket Number: No. 96 Civ. 6360(JFK).,96 Civ. 6360(JFK).
• Citation: 115 F.Supp.2d 358
• Parties: LNC INVESTMENTS, INC., Plaintiff, v. REPUBLIC OF NICARAGUA, Defendant.
• Court: U.S. District Court — Southern District of New York

115 F.Supp.2d 358

LNC INVESTMENTS, INC., Plaintiff, v. REPUBLIC OF NICARAGUA, Defendant.

No. 96 Civ. 6360(JFK).

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

April 26, 2000.

COPYRIGHT MATERIAL OMITTED

Pavelic & Levites P.C., New York, NY, David R. Gilliatt, Radovan I. Pavelic, for the Plaintiff, of counsel.

Cleary, Gottlieb, Steen & Hamilton, New York, NY, George Weisz, for Interested Third Party the Banco Central de Nicaragua, of counsel.

OPINION and ORDER

KEENAN, District Judge.

Before the Court is the motion of the Banco Central de Nicaragua ("the Central Bank"), an interested third party, to vacate and quash the Restraining Notice and Information Subpoena served upon the Federal Reserve Bank of New York by the Plaintiff and judgment creditor LNC Investment, Inc. ("LNC"), pursuant to Rule 69 of the Federal Rules of Civil Procedure and section 5240 of the New York Civil Practice Law. For the reasons discussed below, the motion of the Central Bank is granted.

Background

The Republic of Nicaragua entered into a loan agreement dated December 11, 1980 (the "1980 Loan Agreement") which set forth terms pursuant to which Nicaragua restructured prior loans of both itself and over 60 of its governmental agencies, including the Central Bank, and was obligated to repay certain funds (hereinafter referred to as "Category I Debt").¹ See Joint 56.1 Stmt. ¶ 3. Nicaragua became the named obligor under the 1980 Loan Agreement, substituting itself for the borrowers under the old loans and promising to pay in full all of the canceled obligations. See Gilliatt Aff., Ex. A, 1980 Loan Agreement, at 1, 28. Nicaragua did not make all the loan payments it owed under the 1980 Loan Agreement when the payments were due. As a result, the 1980 Loan Agreement was amended by letter agreements dated February 9, 1984 (the "First Letter Agreement") and June 17, 1985 (the "Second Letter Agreement"). Nicaragua did not pay all of the amounts it owed under the 1980 Loan Agreement, the First Letter Agreement, and the Second Letter Agreement when they were due.

After Nicaragua defaulted on the payments due under the 1980 Loan Agreement and the letter agreements, LNC purchased on the secondary market at steep discounts notes issued by Nicaragua pursuant to the 1980 Loan Agreement. On October 3, 1986, LNC purchased by assignment from Drexel Burnham Lambert, Inc. $18,469,259.21 of the Category I Debt for $896,040.90. The assignment also included all interest accrued and to accrue on the debt assigned. On August 7, 1987, LNC purchased by assignment from National Westminster Bank USA (Nassau Branch) $7,783,028.19 of the Category I Debt for $253,332.70. See id. ¶ 40. LNC thereafter owned $26,252,287.40 of Category I Debt, excluding interest accrued after June 1986. See Joint 56.1 Stmt. ¶¶ 57-58.

On September 15, 1995, Nicaragua made an offer to purchase its Category I Debt at a price equal to 8% of the amount of the outstanding principal or 8 cents on the dollar. The Holders of 80% of the Category I Debt accepted Nicaragua's debt purchase offer. LNC rejected the debt purchase offer and remained a Record Owner in the amount of $26,252,287.40, excluding interest accrued after June 1986. Prior to bringing suit, LNC demanded payment from Nicaragua of the amount of Nicaragua's debt as to which LNC claims it is the Record Owner. Nicaragua declined to pay. LNC filed suit on August 21, 1996, seeking to recover $26,252,287.40 plus accrued interest, attorneys' fees and reasonable costs, pursuant to the 1980 Loan Agreement, the First Letter Agreement and the Second Letter Agreement. The parties filed cross-motions for summary judgment on June 1, 1998. This Court entered an opinion on February 19, 1999, awarding LNC summary judgment and subsequently entered a final judgment on April 2, 1999, entitling LNC to recover $86,885,856.63 plus attorneys' fees and costs from the Republic of Nicaragua.

To satisfy the judgment it obtained, LNC has executed on certain assets of the Central Bank which are currently being held in the Federal Reserve Bank of New York by serving a Restraining Notice and Information Subpoena on the Federal Reserve Bank. The Central Bank is now moving to vacate and quash LNC's restraining notice, arguing that the Central Bank cannot be held liable for Nicaragua's default because the Central Bank is a corporate entity independent and distinct from the Republic of Nicaragua. LNC, however, contends that the motion must be denied because Nicaragua expressly waived any immunity of its Central Bank from post-judgment execution in respect of the obligations of Nicaragua in the 1980 Loan Agreement.

Discussion

Under Fed.R.Civ.P. 69(a), the procedure for the execution of a judgment is governed by the practice and procedure of the state in which the district court resides. Section 5240 of the New York Civil Practice Law and Rules provides, in pertinent part: "The court may at any time, on its own initiative or the motion of any interested person, and upon such notice as it may require, make an order denying, limiting, conditioning, regulating, extending, or modifying the use of any enforcement procedure." N.Y. C.P.L.R. § 5240.

A. Waiver of Immunity

As noted above, LNC argues that the motion to quash must be denied because Nicaragua expressly waived any immunity of its Central Bank from post-judgment execution in respect of the obligations of Nicaragua in the 1980 Loan Agreement. LNC relies on §§ 10.08(c) and 2.09(c) of the 1980 Loan Agreement in making this assertion. Section 10.08(c) provides, in relevant part:

Waiver of Immunities. To the extent that the Republic or any Governmental Agency has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process under any laws (other than immunity in the courts of the Republic from attachment prior to judgment, attachment in the courts of the Republic in aid of execution or execution in the courts of the Republic), whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise, with respect to itself or its property, the Republic hereby irrevocably waives such immunity in respect of the Republic's obligations under this Agreement and the Notes.

The second provision LNC relies upon, section 2.09(c), provides:

Authority to Charge Certain Accounts. The Republic hereby authorizes each Bank, if and to the extent payment owed to such Bank is not made when due hereunder or under a Note, to charge from time to time any amount so due against any or all of the accounts with such Bank of the Republic, the Ministry of Finance of the Republic or the Central Bank of the Republic.

LNC argues that pursuant to these two contract terms, Nicaragua expressly waived any immunity that might otherwise attach to the property of its Governmental Agencies, including the Central Bank.² LNC further argues that section 1611(b) of the Foreign Sovereign Immunities Act of 1976 (FSIA), 28 U.S.C. §§ 1602-1611, expressly allows Nicaragua, as "parent government" to deliver the property of its Central Bank to satisfy judgements against itself. Section 1609 of the FSIA provides that the property of a foreign state enjoys a threshold immunity from attachment, arrest and execution "except as provided in sections 1610 and 1611 of this Chapter." Section 1611(b) specifically addresses the property of central banks, stating that:

Notwithstanding the provisions of section 1610 of this chapter, the property of a foreign state shall be immune from attachment and from execution, if —

(1) the property is that of a foreign central bank or monetary authority held for its own account, unless such bank or authority, or its parent foreign government, has explicitly waived its immunity from attachment in aid of execution, or from execution, notwithstanding any withdrawal of the waiver which the bank, authority or government may purport to effect except in accordance with the terms of the waiver....

28 U.S.C. § 1611(b). Thus, LNC contends that Nicaragua made the Central Bank's property available to satisfy any judgments against it under the 1980 Loan Agreement and that the FSIA expressly permits a foreign government to abrogate the immunity of its agencies and instrumentalities.

The Central Bank, however, argues that the waiver of immunities clause in the 1980 Loan Agreement solely affects the jurisdictional powers of this Court and has absolutely no effect on the substantive issue of whether the Central Bank is responsible for the judgment LNC obtained against the Republic of Nicaragua. The Court agrees based on the plain language of § 10.08(c) set out above. The Central Bank additionally argues that LNC's reliance on the FSIA is misplaced because, as stated by the Supreme Court in First National City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 103 S.Ct. 2591, 77 L.Ed.2d 46 (1983) (hereinafter Bancec), the FSIA is a jurisdictional statute that has no impact on substantive issues regarding the legal liability of a foreign state or instrumentality.

The FSIA is the exclusive basis for subject matter jurisdiction in any civil action initiated in a state or federal court against a foreign state, the instrumentality of a foreign state, or the property of a foreign state or instrumentality of a foreign state. Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 493, 103 S.Ct. 1962, 76 L.Ed.2d 81 (1983); Hercaire Int'l, Inc. v. Argentina, 821 F.2d 559, 563 (11th Cir.1987). Jurisdiction under the FSIA is narrow and must be grounded in one of the specific exceptions to immunity specified in the FSIA itself or there must be an explicit waiver of immunity by the foreign state or the foreign instrumentality. Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434-35, 109 S.Ct. 683, 102 L.Ed.2d 818 (1989). In Bancec, the U.S. Supreme Court concluded that "[t]he language and history of the FSIA clearly establish that the Act was not...