Mortimer Off Shore Servs., Ltd. v. Fed. Republic of Germany
| Decision Date | 28 March 2012 |
| Docket Number | CIVIL ACTION NO. 10-11551-RWZ |
| Parties | MORTIMER OFF SHORE SERVICES, LTD., and RONNIE FULWOOD v. FEDERAL REPUBLIC OF GERMANY, et al. |
| Court | U.S. District Court — District of Massachusetts |
ZOBEL, D.J.
Plaintiffs Mortimer Off Shore Services, Ltd. ("Mortimer"), and Ronnie Fulwood ("Fulwood") bring this action against the Federal Republic of Germany ("FRG") and five German banks1 ("Defendant Banks") claiming a right to recover the accrued principal and interest on 1,694 German pre-World War II agricultural bonds. This is the second lawsuit by each plaintiff against the FRG.
FRG and the Defendant Banks have each moved to dismiss: FRG on the grounds of res judicata, improper venue, and failure to state a claim upon which relief can be granted (Docket # 23); the banks for lack of subject matter jurisdiction, lack of personal jurisdiction, improper venue, issue preclusion, and failure to state a claim(Docket # 12).
To evaluate defendants' motions to dismiss, I accept as true the facts alleged in the complaint (Docket # 1) and also consider documents incorporated therein (either directly or by reference), matters susceptible to judicial notice, and matters of public record. Giragosian v. Ryan, 547 F.3d 59, 65 (1st Cir. 2008).
Some historical background is necessary to understand the issues raised by these motions. Since other courts have detailed the historical and legal background as it relates to these issues raised in this case, see Mortimer Off Shore Servs, Ltd. v. Fed. Republic of Germany, 615 F.3d 97, 99-103 (2d Cir. 2010) [hereinafter "Mortimer I"] and authorities cited therein, I rely on and incorporate that background and recite only that which is relevant to the disposition of defendants' motions to dismiss.
After World War I, the German Reich was made up of several states or Länder, the largest of which was Prussia, that encompassed territory later comprising both West and East Germany. Mortimer I, 615 F.3d at 100. When the Nazi Party rose to power in 1933, the Third Reich formally abolished the Länder parliaments and became a centralized totalitarian state. Id. "In 1949, four years after World War II ended, the western eleven Länder that were controlled by France, the United Kingdom, and the United States merged to form West Germany, a market economy, and the five Länder in the eastern sector occupied by the Soviet Union became East Germany, a communist Eastern block state that remained under the Soviet Union's political andmilitary control." Id. at 100-01. In 1990, West and East Germany reunited to create the present-day FRG. Id. at 101.
The FRG is allegedly "identical to the pre-World War II German Reich and is the legal successor to its political subdivisions, including the State of Prussia ('Prussia') and the German Democratic Republic ('East Germany')." Docket # 1 ¶ 9. It is a foreign state as defined in the Foreign Sovereign Immunities Act ("FSIA"),2 28 U.S.C. § 1603(a). Id.
According to the complaint, Mortimer is a Cyprus company and holder of 1,611 bearer bonds entitled "German Provincial & Communal Bank Consolidated Agricultural Loan US $1000 Secured Sinking Fund Gold Bond Series A 6 1/2%-Due June 1958" ("the Agricultural Bonds" or "the bonds").3 Fulwood is a Florida resident and holder of 83 Agricultural Bonds. The bonds have an aggregate face amount of $25,000,000, a 30-year term, and coupons providing for interest payments twice a year. The bonds were "listed on the New York Stock Exchange and marketed in New York." Principal and interest was "payable" in Boston, New York City, or Chicago. Plaintiffs allege that their bonds currently exceed $7 billion in value.
The bonds were issued in 1928 by fourteen German "provincial and communal"banks ("the obligor banks") to raise money to rebuild Germany's post-World War I agricultural infrastructure. Docket # 1 ¶ 19; Mortimer I, 615 F.3d at 99. The obligor banks contracted for the loans underlying the issuance of the Agricultural Bonds and lent the bond proceeds to German farmers. Some of the obligor banks were located in what later became known as West Germany and some were located in what became known as East Germany. The bonds are the obligations of the obligor banks and their "guarantors and successors." Each obligor bank is allegedly liable for "a portion of the debt on each bond proportionate to its share of the total proceeds of the underlying loan. . . ." Obligor banks located in what were West Germany and East Germany are liable for 35.5 and 64.5 percent of the Agricultural Bond debt, respectively. Mortimer I, 615 F.3d at 100; Docket #1 ¶ 25, 49; Declaration of Dr. Matthias Lang ¶ 4(a), Mortimer Off Shore Servs., Ltd. v. Fed. Republic of Germany, No. 05-10669-GEL (S.D.N.Y July 17, 2006), ECF No. 12 [hereinafter "Lang Decl."]. Each Defendant Bank is alleged to be a successor to an obligor bank located in West Germany.4 Docket # 1 ¶¶ 10-14, 25;Lang Decl. ¶ 4(b).
The State of Prussia allegedly guaranteed payment on the Agricultural Bonds. In 1933, the Third Reich suspended payment on the Agricultural Bonds and began repurchasing them. Plaintiffs allege that in October 1938, "Germany issued a written guarantee of payment on all principal and interest" of the bonds ("the 1938 Guaranty").
During World War II, it became impossible to present the bonds "to the American trustees or paying agents for cancellation"; consequently, "German bank vaults held large numbers of reacquired, yet uncancelled foreign currency bonds, in negotiable form, that no longer represented valid obligations." Mortimer I, 615 F.3d at 101 (internal quotation marks and citations omitted). See also Docket # 1 ¶ 33. "After Germany surrendered in 1945, Russian occupation forces seized and returned to circulation many such bonds, with an estimated total face value of $350,000,000, while bona fide purchasers possessed approximately $250,000,000 in valid bearer bonds." Mortimer I, 615 F.3d at 101. "The invalid, but uncancelled bearer bonds posed a significant problem, both domestically and internationally, as there was a real possibility" that the holders of the looted bonds would share the available assets equally with legitimate bondholders. Id. at 101 (internal quotation marks and citations omitted).
Concern over the redemption of looted bonds led West Germany to pass the so-called Validation Law of August 25,1952, pursuant to which it allegedly assumed liability for certain specified foreign currency bonds - including the Agricultural Bonds -issued before the end of World War II. Mortimer I, 615 F.3d at 101-02 and n.4. The Validation Law requires that, before payment may be had, the bonds must be "registered, submitted along with relevant evidence, and validated after an administrative hearing by a Board for the Validation of German Bonds in the United States ("Validation Board") in Germany or the country of offering." Id. at 102.
In 1953, the United States, West Germany, and various other Western allied nations signed a treaty ("the 1953 Treaty") which incorporated by reference the 1952 Validation Law. Id. That law and treaty were "part of the overall process of quelling uncertainty about, and facilitating the 'orderly settlement of,' debts owed by territory that became West Germany after World War II." Id.
The London Debt Accord ("LDA") was negotiated contemporaneously with the Validation Law and the 1953 Treaty and was signed by West Germany, the United States and several other nations, but not East Germany. Id. It "represented the culmination of the parties' settlement negotiations respecting West Germany's pre-World War II external debts." Id. Under the system set up by the LDA, "German debtors and creditor committees would negotiate an 'offer and settlement' for various debt instruments covered by the London Debt Accord," including the Agricultural Bonds. The LDA did not repeal the validation requirements nor did it "obligate West Germany, after reunification, to compensate holders of bonds issued in what became East Germany after reunification." Id. Mortimer I, 615 F.3d at 102.
Plaintiffs allege, however, that the LDA system was "strictly voluntary," and thatthe Validation Law's requirements applied only to those bondholders who chose to accept an offer of settlement. According to plaintiffs, the LDA merely prevented a non-validating bondholder from bringing an "action to recover on those bonds until after all creditors who accepted the settlement offer were paid in full." Plaintiffs similarly allege that the 1953 Treaty "did not bar any creditor from asserting his or her rights, but rather was intended to ensure that Germany settled and paid claims on validated bonds before satisfying other obligations." They cite to "published media reports" - including a 1958 New York Times article - allegedly confirming the "voluntary nature of the London Debt Accord and the 1953 Treaty." They allege that both the LDA and the 1953 Treaty did not apply to obligations originating with debtors who were outside of West Germany, and describe the Validation Law as "designed to implement the London Debt Accord's voluntary settlement scheme for assenting creditors."
In 1960, the United States and West Germany executed a treaty that extended the Validation Law to certain categories of bonds issued in territory that became East Germany, but not to Agricultural Bonds issued in East Germany. Mortimer I, 615 F.3d at 102-03. Id. at 103. Plainti...
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