Proyecfin de Venezuela, S.A. v. Banco Industrial de Venezuela, S.A.

Decision Date04 April 1985
Docket NumberNo. 889,D,889
Citation760 F.2d 390
PartiesPROYECFIN DE VENEZUELA, S.A., Plaintiff-Appellant, v. BANCO INDUSTRIAL DE VENEZUELA, S.A., Defendant-Appellee. ocket 84-7946.
CourtU.S. Court of Appeals — Second Circuit

Sidney B. Silverman, New York City (Joan T. Harnes, Jay H. Schafrann, Martin H. Olesh, and Silverman & Harnes, New York, N.Y., on the brief), for plaintiff-appellant.

P.B. Konrad Knake, New York City (George O. Richardson, III, and White & Case, New York, N.Y., on the brief), for defendant-appellee.

Before TIMBERS, NEWMAN and KEARSE, Circuit Judges.

TIMBERS, Circuit Judge:

This is an appeal from a judgment entered in the Southern District of New York, Vincent L. Broderick, District Judge, denying appellant's motion to remand the action to the Supreme Court of the State of New York, County of New York, from which the action had been removed, and sua sponte dismissing the action with prejudice for lack of subject matter jurisdiction. The issues presented are (1) whether appellee, an instrumentality of a foreign sovereign, has waived its right to immunity under the Foreign Sovereign Immunities Act of 1976 (1982); (2) whether appellee agreed to litigate in New York; and (3) whether appellee waived its right to remove the action from the state court to the federal court. For the reasons stated below, we affirm in part and reverse and remand in part.

I.

The summary of facts which follows is based upon the complaint whose allegations are taken as true for purposes of appeal. We summarize only those facts believed necessary to an understanding of our rulings on the legal issues raised on appeal.

Appellant Proyecfin de Venezuela, S.A. ("Proyecfin") is a corporation organized under the laws of Venezuela. Since 1970, Proyecfin has been engaged in the development and construction of a large, privately- owned residential development in the City of Maracay, Venezuela. Appellee Banco Industrial de Venezuela, S.A. ("BIV") is a commercial bank organized under the laws of Venezuela. The government of Venezuela owns nearly all of the BIV stock. BIV has offices at 400 Park Avenue in the City of New York. It is chartered to engage in the business of banking in the State of New York.

On March 19, 1980, Proyecfin and BIV entered into a contract (the "Loan Agreement") with a consortium of Middle East banks (the "Consortium"). The Consortium is not a party to this action. Under the Loan Agreement, the Consortium would lend and Proyecfin would borrow up to $43 million to finance construction in Maracay. This amount was increased to $63 million in 1981. The loan by the Consortium was conditioned upon the promise by BIV to act as guarantor.

At the same time that the Loan Agreement was entered into, Proyecfin and BIV entered into a Contract of Supervision (the "Supervisory Contract"), under which BIV undertook to act as trustee for all money received and disbursed for the project; to make progress payments to Proyecfin based upon work performed; and to monitor the work performed by Proyecfin and the costs and expenses incurred in the project. The Supervisory Agreement was made a condition to the effectiveness of the Loan Agreement. A breach by Proyecfin of the former would constitute a default as to the latter. Similarly, the Supervisory Agreement contained a clause that provided that the Loan Agreement "with all its exhibits is deemed to be totally reproduced herein and is considered as forming an integral part of this contract."

On July 3, 1984, Proyecfin commenced an action against BIV in the Supreme Court of the State of New York, County of New York, alleging wrongful refusal of BIV to advance payments due under the contract, failure to provide documentation necessary for the sale of housing units, breach of fiduciary duty, conversion and wrongful exaction of fees and interest. On July 27, BIV filed a petition and bond for removal of the action to the Southern District of New York, asserting subject matter jurisdiction pursuant to 28 U.S.C. Sec. 1330 (1982) (actions against foreign states) and removal jurisdiction pursuant to 28 U.S.C. Sec. 1441(d) (1982).

On August 28, Proyecfin moved to remand the action to the state court. Both sides submitted affidavits. Oral argument was heard by the court on October 16. At the conclusion of the argument, Judge Broderick from the bench denied the motion to remand and dismissed the action sua sponte with prejudice for lack of subject matter jurisdiction. On November 14, a written order was entered in accordance with the court's oral decision of October 16. From the judgment entered thereon, this appeal was taken.

II.

We start with a consideration of the question of subject matter jurisdiction, for lack of which, in the view of the district court, the action was dismissed. We disagree.

Under the Foreign Sovereign Immunities Act of 1976, Pub.L. No. 94-583, 90 Stat. 2891 (codified at 28 U.S.C. Secs. 1330(a)-(c), 1332(a)(4), 1391(f), 1441(d), 1602-1611 (1982)) (the "Act"), the district courts of the United States are vested with subject matter jurisdiction in any civil action against a foreign state or its instrumentality 1 "with respect to which the foreign state [or instrumentality] is not entitled to immunity either under sections 1605-1607 of this title or under any applicable international agreement." 28 U.S.C. Sec. 1330(a) (1982). Section 1605(a)(1) provides that a foreign state is not immune from jurisdiction in any case "in which the foreign state has waived its immunity either explicitly or by implication". 28 U.S.C. Sec. 1605(a)(1) (1982).

The Loan Agreement, which was subscribed by Proyecfin, BIV and the Consortium, contains the following provision:

"30. Jurisdiction

....

(C) To the extent that any Borrower or the Guarantor may in any jurisdiction claim for itself or its assets immunity from suit, execution, attachment (whether in aid of execution, before judgment or otherwise) or other legal process and to the extent that in any such jurisdiction there may be attributed to itself or its assets the immunity (whether or not claimed) such Borrower and such Guarantor as the case may be hereby waives such immunity to the full extent permitted by the laws of such jurisdiction and, in particular, to the intent [sic] that in any proceedings taken in New York the foregoing waiver of immunity shall have effect under and be construed in accordance with the United States Foreign Sovereign Immunities Act [of] 1976."

The Loan Agreement also contains a clause that provides: "27. Benefit of Agreement (A) This Agreement shall be binding upon and enure to the benefit of each party hereto and its successors and assigns."

It appears, therefore, that under Secs. 1605(a)(1) and 1330(a) the district court had jurisdiction by virtue of the fact that BIV had waived the defense of sovereign immunity. The district court, however, held that subject matter jurisdiction was lacking because it found, and appellee continues on appeal to argue, that the waiver provision of the Loan Agreement does not apply to this action which was brought because of violations of the Supervisory Agreement. We disagree.

First, the waiver provision is not limited by its terms to actions arising under the Loan Agreement and does not preclude incorporation into the Supervisory Agreement. Second, the clause in the Supervisory Agreement that provides that the Loan Agreement is "totally reproduced herein" is so broad, unqualified and unambiguous as to require the conclusion that all of the provisions, including the waiver of immunity, are carried over to the Supervisory Agreement. We further are persuaded by the fact that the related agreements were nearly contemporaneous and that there is an identity of parties to the two agreements. Thus, regardless of whether the complaint states a claim upon which relief can be granted under only the Supervisory Agreement, or under both the Supervisory and Loan Agreements as appellant contends, we hold that the waiver of immunity is applicable to the present action. 2

Appellee also argues that the benefit of the waiver provision was intended to run only to the Consortium as lender and not to Proyecfin as borrower. Although the parties filed affidavits in the district court on the issue of their intent, the language of the agreement is unambiguous, as appellee concedes. Parol evidence need not be considered. The Loan Agreement, the provisions of which are incorporated in the Supervisory Agreement, expressly states that its provisions run to the benefit of all of the parties to the agreement. We find no basis for second guessing the unambiguous language of the agreement.

Having held that BIV waived the defense of sovereign immunity in this action, we focus next on the central question of whether the district court had subject matter jurisdiction. Such jurisdiction, under Sec. 1605(a)(1), is premised solely upon an express or implied waiver. The fact that both parties are foreign corporations does not preclude jurisdiction. In Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480 (1983), the Supreme Court held that "[i]f an action satisfies the substantive standards of the Act, it may be brought in federal court regardless of the citizenship of the plaintiff", id. at 490-91, and that "a suit against a foreign state under this Act necessarily raises questions of substantive federal law at the very outset, and hence clearly 'arises under' federal law, as that term is used in Art. III." Id. at 493. Verlinden, however, did not involve the question of whether, under Sec. 1605(a)(1), subject matter jurisdiction exists when the transaction upon which the action is based involves activities wholly unrelated to the United States. Id. at 490 n. 15. The nexus between the transaction in this case and the United States is a contractual requirement that loan payments be made by Proyecfin at BIV's New York branch and then be transferred to an...

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