MINPECO, SA v. Hunt

• Decision Date: 12 May 1988
• Docket Number: No. 81 Civ. 7619.,81 Civ. 7619.
• Citation: 686 F. Supp. 427
• Parties: MINPECO, S.A., Plaintiff, v. Nelson Bunker HUNT, Lamar Hunt, William Herbert Hunt, International Metals Investment Co., Ltd., Sheik Mohammed Aboud Al-Amoudi, Sheik Ali Bin Mussalem, Naji Robert Nahas, Gilion Financial, Inc., Advicorp Advisory and Financial Corporation, S.A., and Mahmoud Fustok, Defendants.
• Court: U.S. District Court — Southern District of New York

686 F. Supp. 427

MINPECO, S.A., Plaintiff, v. Nelson Bunker HUNT, Lamar Hunt, William Herbert Hunt, International Metals Investment Co., Ltd., Sheik Mohammed Aboud Al-Amoudi, Sheik Ali Bin Mussalem, Naji Robert Nahas, Gilion Financial, Inc., Advicorp Advisory and Financial Corporation, S.A., and Mahmoud Fustok, Defendants.

No. 81 Civ. 7619.

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

May 12, 1988.

Cole Corette & Abrutyn, Washington, D.C. (Mark A. Cymrot, Thomas O. Gorman, Pedro R. Pierluisi, of counsel), Grand & Ostrow, New York City, for plaintiff Minpeco, S.A.

Kaye, Scholer, Fierman, Hays & Handler, New York City (Aaron Rubinstein, Paul J. Curran, Stanley D. Robinson, Michael Malina, David S. Copeland, of counsel), Gardere & Wynne, Dallas, Tex. (Robert E. Wolin, of counsel), for defendants Nelson Bunker Hunt, William Herbert Hunt and Lamar Hunt.

Curtis, Mallet-Provost, Colt & Mosle, New York City (Herbert Stoller, Turner P. Smith, of counsel), for defendant Mahmoud Fustok.

Laxalt, Washington, Perito & Dubuc, Washington, D.C. (Paul L. Perito, of counsel), for defendant Intern. Metals Inv. Co., Ltd.

Debevoise & Plimpton, New York City (Andrew C. Hartzell, Jr., Standish F. Medina, Jr., Michael E. Wiles, Timothy J. Toohey, of counsel), for ACLI Intern. Commodity Services, Inc.

LASKER, District Judge.

Plaintiff Minpeco S.A. ("Minpeco") moved for partial summary judgment on defendants' "single entity" theory on January 4, 1988. The motion was granted prior to the commencement of trial in this action on February 18, 1988. This opinion sets forth the grounds for that decision.

Defendants' "single entity" theory alleges that Peru's mining sector was a single entity or enterprise controlled by the Government of Peru from "cradle to grave":

Minpeco in 1979 and 1980 was a creature of the Revolutionary Government's takeover of the entire mining sector in 1971, a takeover which led to Peru's total dominion over all aspects of the production, marketing and refining of the nation's minerals, including silver.¹

Hence, defendants argue that "Minpeco is obligated to include in its calculation of the required offset the benefits that accrued to the Government of Peru by virtue of the physical silver holdings of all Peru-owned and -controlled entities."²

The facts concerning the structure of Peru's mining sector and Minpeco's corporate structure in 1979-1980 are not in dispute. The State of Peru owns Peru's natural resources, including its mining fields. Peru assigns the right to exploit its mining fields to individuals and companies, both state-owned and private, which then have legal title to the minerals which they extract from the fields. In 1979-1980, Empresa Minera del Centro del Peru ("Centromin"), a stock corporation wholly owned by Minero Peru, a state-owned mining company, produced about half of Peru's silver in the form of silver bullion. Private miners produced the balance in the form of lead minerals and concentrates.

Minpeco is a state-owned corporation established in 1974 to engage in the trading of Peruvian mining products. In 1979-1980, Minpeco had the exclusive right and obligation to trade Centromin's and the private miners' silver production. Minpeco's articles of incorporation define it as a "public enterprise, as a juridical person of public internal law, with administrative, economic and technical autonomy." Minpeco has the legal right to have its own capital, to sue and be sued, to hold property in its own name and to contract in its own name.

Peru's central bank, Banco Central de Reserva del Peru ("BCR"), is a state-owned corporation that issues currency, regulates credit, administers exchange rates and maintains reserves. In 1979-1980 the BCR kept silver bullion as part of its reserves, either in its vaults or loaned to other entities.

The "single entity" defense was first raised in this action in 1982, when defendants moved for a separate trial on the issue of damages. Defendants argued that Minpeco is "an `arm' of the Peruvian government, and therefore cannot recover damages for losses caused by a rise in the price of silver, because the Peruvian government as a whole benefitted from the rise in price." Minpeco S.A. v. ContiCommodity Services, Inc., 549 F.Supp. 857, 858 (S.D.N. Y.1982). The motion was denied because defendants offered "no factual basis for disputing Minpeco's assertion that it is a corporation, a separate legal entity, organized validly and in good faith ...," id. at 858, but defendants were held to be "free to attempt to develop and put before the Court evidence, if any, that Peru and Minpeco have engaged in conduct which justify disregarding Minpeco's corporate existence," id. at 859.

After five years of extensive discovery on this issue, defendants assert that they have developed "substantial evidence establishing that Minpeco and the other entities in the Peruvian mining sector constitute a single enterprise,"³ sufficient that a jury could reasonably find for defendants on this issue. Minpeco responds that the evidence of record is insufficient as a matter of law to overcome the presumption established by the Supreme Court in First National City Bank v. Banco Para El Comercio Exterior De Cuba, 462 U.S. 611, 626-27, 103 S.Ct. 2591, 2600, 77 L.Ed.2d 46 (1983) ("Bancec"), that "government instrumentalities established as juridical entities distinct and independent from their sovereign should normally be treated as such."

Drawing all justifiable inferences in favor of defendants, I still conclude that defendants have failed to make a sufficient demonstration that either Minpeco or Peru has engaged in conduct which could overcome the Bancec threshold presumption in favor of honoring the separate legal status of a government corporation. Because there is insufficient evidence of record to allow a reasonable jury to find for defendants on the single entity defense, the motion for partial summary judgment under Fed.R.Civ.P. 56 is granted. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).

I.

First National City Bank v. Banco Para El Comercio, 462 U.S. 611, 103 S.Ct. 2591, 77 L.Ed.2d 46 (1983) ("Bancec"), sets forth the legal framework for decision on this motion. The Bancec court considered whether a claim asserted against Citibank in the United States federal courts by Bancec, a foreign trading bank created and wholly owned by the government of Cuba but established as a separate juridical entity, could be subject to a set-off for Citibank's counterclaim against Cuba. In 1960 the Cuban Government had nationalized through forced expropriation the Cuban properties of United States citizens, including properties owned by Citibank. In 1961 Bancec sued in the Southern District of New York to recover on a letter of credit established by Citibank in a transaction for the sale of sugar. The Cuban Government then dissolved Bancec and transferred its assets, first to several government agencies which had been involved in the 1960 nationalizations, and later to several government corporations. After Bancec's dissolution, Citibank counterclaimed in the Bancec action, seeking a set-off on the letter of credit for the value of its seized assets in Cuba.

In determining whether Citibank was entitled to a set-off, the Bancec court described the characteristics and growing importance, especially in developing countries, of government instrumentalities established as separate juridical entities:

Increasingly during this century, governments throughout the world have established separately constituted legal entities to perform a variety of tasks. The organization and control of these entities vary considerably, but many possess a number of common features. A typical government instrumentality, if one can be said to exist, is created by an enabling statute that prescribes the powers and duties of the instrumentality, and specifies that it is to be managed by a board selected by the government in a manner consistent with the enabling law. The instrumentality is typically established as a separate juridical entity, with the power to hold and sell property and to sue and be sued. Except for appropriations to provide capital or to cover losses, the instrumentality is primarily responsible for its own finances. The instrumentality is run as a distinct economic enterprise; often it is not subject to the same budgetary and personnel requirements with which government agencies must comply.

These distinctive features permit government instrumentalities to manage their operations on an enterprise basis while granting them a greater degree of flexibility and independence from close political control than is generally enjoyed by government agencies. These same features prompt governments in developing countries to establish separate juridical entities as the vehicles through which to obtain the financial resources needed to make large-scale national investments.

462 U.S. at 624-25, 103 S.Ct. at 2598-99 (footnotes omitted).

Consideration for the political and economic importance of the government instrumentality as an instrument for development led the Court to establish a presumption in favor of honoring a foreign government's determination that its instrumentality is to be accorded separate legal status:

Freely ignoring the separate status of government instrumentalities would result in substantial uncertainty over whether an instrumentality's assets would be diverted to satisfy a claim against the sovereign, and might thereby cause third parties to hesitate before extending credit to a government instrumentality without the government's guarantee. As a result, the efforts of sovereign nations to structure their governmental activities in a manner deemed necessary to promote economic development and efficient administration would surely be frustrated. Due respect for the actions taken by foreign sovereigns and for principles of comity between

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