Morgan Guar. Trust Co. v. Republic of Palau

• Decision Date: 09 December 1988
• Docket Number: No. 86 Civ. 0590 (RWS).,86 Civ. 0590 (RWS).
• Citation: 702 F. Supp. 60
• Parties: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, Morgan Grenfell & Co., Limited, The Bank of Tokyo Limited, The Governor and Company of the Bank of Scotland and Orion Royal Bank Limited, Plaintiffs, v. REPUBLIC OF PALAU, Defendant.
• Court: U.S. District Court — Southern District of New York

702 F. Supp. 60

MORGAN GUARANTY TRUST COMPANY OF NEW YORK, Morgan Grenfell & Co., Limited, The Bank of Tokyo Limited, The Governor and Company of the Bank of Scotland and Orion Royal Bank Limited, Plaintiffs, v. REPUBLIC OF PALAU, Defendant.

No. 86 Civ. 0590 (RWS).

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

December 9, 1988.

Jones, Day, Reavis & Pogue, New York City (Robert Layton, Barry R. Satine, of counsel), Wilson, Elser, Moskowitz, Edelman & Dicker, New York City (Robert B. Wallace, of counsel), for plaintiffs.

Reboul, MacMurray, Hewitt, Maynard & Kristol, New York City (Wayne A. Cross, Stephen J. Riegel, Stephen P. Falvey, of counsel), for defendant.

OPINION

SWEET, District Judge.

Defendant Republic of Palau ("Palau") has moved under Rules 59(e) and 62(b), Fed.R.Civ.P., for this court to reconsider the opinion filed on August 8, 1988 in favor of the plaintiffs Morgan Guaranty Trust Company of New York, Morgan Grenfell & Co., Limited, The Bank of Tokyo Limited, The Governor and Company of the Bank of Scotland, and Orion Royal Bank, Limited (the "Banks") ("Opinion"), to vacate the judgment entered in this case on August 12, 1988 and enter judgment dismissing the complaint against it, and further to stay the execution or any proceedings to enforce the judgment pending the disposition of this motion. Alternatively, Palau has sought under Rule 62(d), Fed.R.Civ.P., to stay the execution of the judgment or any proceedings to enforce the judgment pending the disposition of any appeal without requiring a supersedeas bond.

The motions were heard on September 16, 1988 and considered fully submitted on September 20, 1988.¹ For the reasons stated below, the motion to reconsider will be granted, the motion to set aside the judgment will be denied, and the motion to stay the enforcement of the judgment pending appeal without the filing of a supersedeas bond will be denied in part.

Here presented is yet another move in the intricate pattern of the relationship between Palau, an impecunious archipelago, and the Banks, the financiers of a power plant and tank farm (the "Project") that now provides electricity for the islands. Palau has the Project and the electricity, the loans for the Project's construction are unpaid and in default, and the Banks at long last have a judgment for the amount of the loans in the neighborhood of $48 million entered on August 12, 1988. The issues between the Banks and Palau have been presented to Congress and this court and are moving toward appellate review. To resolve the equities between the Banks and Palau as they exist today against the complicated pattern of the past remains a daunting task, despite the assistance of skilled counsel.

The Motion to Reconsider

Given the difficulty of the issues of sovereign immunity and fraud in connection with a complex financing between commercial banks and a barely emerging nation, reconsideration of the Opinion is appropriate, although there is no new evidence or authority relied upon except as noted with respect to President Remeliik's recently recovered letter of February 7, 1984. Familiarity with the Opinion is assumed. 693 F.Supp. 1479.

The Waiver of Sovereign Immunity

Palau now contends that RPPL 1-20 (the "National Government Private Borrowing Authority Act") relied upon in the Opinion did not specifically authorize Palau's President to waive Palau's sovereign immunity, that there is no "proof in the record of any interpretation or legislative intent that RPPL 1-20 confers such authority," that RPPL 1-54 was the only legislation that authorized Palau to enter into the loan agreements, and that the High Commission suspended RPPL 1-54 in this regard. However, RPPL 1-20 in fact authorized the President to enter into the loan agreements. The statute declared:

(3) The need to develop necessary government services and programs requires immediate outlays of funds not currently available to the national government.

(5) The current international political status of the Republic of Palau makes borrowing from other sovereign nations and international financial organizations an uncertainty.

(6) There currently exists the possibility of the national government borrowing funds from private financial institutions and persons at reasonable rates and under reasonable terms, provided that sufficient enabling legislation is enacted to enable the Republic to meet those conditions normal to such private borrowings.

(RPPL 1-20 § 1(b)).

With that stated public purpose, the Palauan Congress concluded that:

(7) Congress may properly delegate to the President a portion of its powers and duties with regard to borrowing funds, and Congress may set the guidelines under which such delegation of power is executed.

(RPPL 1-20 § 1(b)).

To effectuate this public policy, the Palauan Congress gave the President of Palau full authority:

To borrow money or goods and incur long term obligations and repay the same with interest, from any private person; backed by the full faith and credit of the Republic.

(RPPL 1-20 § 3(a)).

Pursuant to the authority of RPPL 1-20, President Remeliik agreed to the terms of the Recourse Agreement in which he pledged Palau's full faith and credit and waived its sovereign immunity to comply with the repayment provisions of the Guarantees to the Banks which are "private persons."

Palau now claims the President was without power to waive Palau's sovereign immunity because the specific language "the President may waive the sovereign immunity of Palau" does not appear in RPPL 1-20. This does not, however, address the broad authority granted the President "by and through the Republic" to:

... make any other agreement or contract that may be necessary, reasonable and proper for the execution of a private borrowing agreement....

(RPPL 1-20 § 3(1)).

On the other hand, the Palauan Congress enacted RPPL 1-54 at the ECGD's insistence to enable Palau to deal with government to government transactions (Opinion at p. 40). Not surprisingly, the ECGD, as the only government entity involved in the loan transaction other than Palau, was interested in drafting such legislation. The Guarantors did not participate in this exercise, and RPPL 1-54 did not affect the President's exercise of his powers in the Banks' favor under RPPL 1-20.

RPPL 1-54 specifically extends to governmental entities while RPPL 1-20 specifically limits the President's authority to borrowing from private entities.

Finally, the Recourse Agreement Palau signed provided that the parties intended that "the waiver of sovereign immunity ... is made in conformity and shall be governed by the Foreign Sovereign Immunities Act of 1976 of the United States of America" (Opinion at p. 40). The Recourse Agreement also provided that the loan in question constituted "private and commercial acts for private and commercial purpose." As such, the commercial activity of Palau constituted a waiver under the Foreign Sovereign Immunities Act of 1976 (Opinion at p. 41).

As is apparent from the foregoing considerations, the language of the relevant legislation has been relied upon rather than the contemporaneous opinions of either the Attorney General of Palau or George Hudson ("Hudson"), the chief negotiator for the Banks. In addition to the normal rules of statutory construction, see Metropolitan Transp. Auth. v. F.E.R.C., 796 F.2d 584, 591 (2d Cir.1986), cert. denied, 479 U.S. 1085, 107 S.Ct. 1286, 94 L.Ed.2d 144 (1987), the record contains sufficient evidence to challenge the adequacy of the opinions of either gentlemen on the difficult questions of law on which they opined.

The Reliance Upon Misrepresentation

Although the Banks were found in the Opinion to have misrepresented by omission, Palau's claim failed because it did not rely upon that misrepresentation. The usual difficulty of determining the responsibility for decision making by any government entity was even more extreme here. The representatives of Palau negotiating with the Banks were in London, listening with sympathetic ears to the representations by the Project's promoter made to counter the political opposition at home. However, the final decision was made in Palau by the President who knew that others, particularly the DOI, considered the representations as to the revenue producing capacity of the Project to be false. It is the evidence for that proposition that Palau now attacks.

The Opinion stated that:

the DOI Inspector General advised Remeliik not to consummate the loan agreements ... because, among other things, a DOI review of revenue projections and Palau's other available revenue sources had caused DOI to conclude that Palau could not service the debt.

(Opinion p. 22)

This finding is bottomed on the language contained in Inspector General Mulberry's letter to President Remeliik on July 14, 1983, describing the telex of June 6, 1983, which, of course, is among the missing. Mr. Mulberry described his conclusion as follows:

Moreover, based on a review of revenue expectations from the power plant and fuel storage facility, and the Government's available revenue sources, we concluded that the Government would be unable to meet payment demands specified under the proposed loan agreements.

* * * * * *

In our telegram of June 6, 1983, we advised you of our conclusion....

According to Palau, no evidence exists to support the conclusion that the June 6th telegram referred to the possibility that the project would be self-financing from its revenues. The issue turns upon the adequacy of the July 14, 1983 letter to permit the inference.

The Inspector General uses the word "conclusion" in that letter only in connection with of Palau's inability to repay loans from project revenues. Further, President Remeliik's letter of September 2, 1983 is even more revealing and confirms the accuracy of the Inspector General's description of his telex. In the President's letter he describes the circumstances leading up to the signing...