RONFIN v. Nauru, 98-20331
| Citation | 182 F.3d 366 |
| Decision Date | 06 August 1999 |
| Docket Number | No. 98-20331,98-20331 |
| Parties | (5th Cir. 1999) IN RE: "RONFIN" SERIES C BONDS SECURITY INTEREST LITIGATION; KLESCH & COMPANY LIMITED; ET AL., Plaintiffs, KLESCH & COMPANY LIMITED, Plaintiff-Appellant, v. NAURU PHOSPHATE ROYALTIES (HONOLULU), INC.; NAURU PHOSPHATE ROYALTIES (HOUSTON) INC.; NAURU PHOSPHATE ROYALTIES DEVELOPMENT (HONOLULU), INC; NAURU PHOSPHATE ROYALTIES, INC., Defendants-Appellees. KLESCH & COMPANY LIMITED, Plaintiff-Appellant, v. NAURU PHOSPHATE ROYALTIES (HOUSTON) INC., Defendant-Appellee. KLESCH & COMPANY LIMITED, Plaintiff-Appellant, v. NAURU PHOSPHATE ROYALTIES, INC., Defendant-Appellee. KLESCH & COMPANY LIMITED, Plaintiff-Appellant, v. NAURU PHOSPHATE ROYALTIES (HONOLULU), INC., Defendant-Appellee |
| Court | United States Courts of Appeals. United States Court of Appeals (5th Circuit) |
Appeal from the United States District Court for the Southern District of Texas.
Before SMITH, DeMOSS, and CARL E. STEWART, Circuit Judges.
The court below granted summary judgment on plaintiff-appellant's claim for an equitable lien. Specifically, it held that plaintiff-appellant could not point to a genuine issue of material fact as to any of the requisite elements for such a claim. On appeal, plaintiff-appellant argues that the court below erred when it found that it could not grant the lien as a matter of law. For the reasons set forth below, we affirm.
This case begins on the tiny tropical island of Nauru, located in the Pacific Ocean near the coast of Japan. Governing the approximately ten thousand people residing on this island is the Republic of Nauru ("the Republic"), a democratic government that is also one of the world's smallest sovereign nations. One of the things Nauru is known for is its rich phosphate deposits; accordingly, the Republic generates a significant amount of revenue from the export and sale of this natural resource.
Realizing that these phosphate reserves cannot last forever (and in 1989, were estimated to last only another eight or ten years), the Republic set aside a fixed portion of the revenues derived from the phosphate sales into seven Trust Funds. In 1968, the Republic organized a statutory trust known as the Nauru Phosphate Royalties Trust ("Trust") to administer these funds so that the nation will continue to have adequate income well into the future. At the time the events that led to this lawsuit transpired, the Trust administered almost a billion dollars worth of assets.
In furtherance of its objective, the Trust organized several subsidiaries based in the United States, four of which were named as defendants in the consolidated action. The Trust is the sole shareholder of defendant-appellee (1) Nauru Phosphate Royalties, Inc. ("NPR"). In turn, NPR is the sole shareholder of defendants-appellees (2) Nauru Phosphate Royalties (Houston), Inc. and (3) Nauru Phosphate Royalties (Honolulu), Inc. The last of these is the sole shareholder in defendant-appellee (4) Nauru Phosphate Royalties Development (Honolulu), Inc. (collectively, "Trust Subsidiaries"). Three properties owned by the Trust Subsidiaries, namely Kaka'ako Land in Honolulu, the Pacific House in Washington D.C., and the Singer Building in Houston (collectively, "Properties"), are the subject of this lawsuit.
In 1972, the Republic enacted the Republic of Nauru Finance Corporation Act ("The RONFIN Act"), which created the Republic of Nauru Finance Corporation ("RONFIN") to carry on the business of finance and investment, including the issuance of securities. According to the RONFIN Act, the Republic is a statutory guarantor of the liabilities and obligations of RONFIN. Furthermore, the RONFIN Act provides that the Cabinet "may, if it considers it expedient to do so, direct that the assets of any one or more of" the Trust Funds discussed above "are to be charged or deposited to secure the repayment of any moneys borrowed by the Corporation or any credit to it." These provisions are important because the Properties owned by the Trust Funds, through the Trust Subsidiaries, are the subject of this lawsuit.
On July 21, 1989, RONFIN issued bearer bonds known as RONFIN Japanese Yen Bonds Series C ("Series C Bonds"), having an aggregate face value of five billion yen. Although the RONFIN bonds were originally due for repayment on July 27, 1994, by agreement of the original bondholders the maturity date was postponed to April 27, 1995. However, RONFIN did not pay the bond debt on that day, nor has it made any payment since then.
Approximately one month before the bonds were to have matured, plaintiff-appellant Klesch & Co., Limited ("Klesch"), purchased certain Series C Yen Bonds ("Bonds") with a face value of one billion yen (worth approximately $ 9.4 million at the time of the summary judgment proceedings) in the secondary bond market at a discount rate, and registered its ownership of the Series C Bonds in Japan. Klesch is a privately owned British company that focuses on the distressed securities market, i.e. defaulted bonds. As noted above, on April 27, 1995, RONFIN defaulted on the Bonds. After making repeated demands to the Republic for repayment,1 on June 1, 1995, Klesch filed suit in Japan against the Republic and RONFIN seeking judgment for the full amount owed to Klesch.2 After initially refusing to accept service in this lawsuit and agreeing to appear only to contest the jurisdiction of the Japanese courts and to assert sovereign immunity, the Republic has now filed a complete answer on the merits. This suit remains pending in Japan.
In May and June 1995, Klesch filed suit in several state courts in the United States against specific properties owned by the Trust Subsidiaries in those jurisdictions. These lawsuits do not name the Republic or RONFIN as defendants; instead, they name the specific Trust Subsidiary in control of the property in the relevant jurisdiction. The first of these lawsuits was filed in the territorial court system in Guam against the Republic of Nauru (Guam), Inc., and sought an equitable lien on real property owned by that defendant in Guam. In February 1997, the Superior Court of Guam granted summary judgment in favor of the defendant. Although Klesch lodged an appeal in the Supreme Court of Guam, that appeal was eventually dismissed for lack of prosecution.
The other three American suits were filed in Texas, Hawaii, and Washington, D.C. against the Trust Subsidiaries for property owned by them in their respective jurisdictions. After the Trust Subsidiaries removed the cases to federal court, the Judicial Panel for Multidistrict Litigation, pursuant to 28 U.S.C. 1407, consolidated and transferred the cases to United States District Court for the Southern District of Texas. In these consolidated cases, Klesch asserts that the Republic's default on the bonds creates a right to have an equitable lien imposed in its favor on the Properties.3 To this end, Klesch utilizes language from several documents having to do with the Bond issuance: (1) the Placement Memorandum; (2) the Purchase Agreement; (3) the Conditions of Bond; and (4) the Conditions of Guarantee (collectively, "Bond documents").
After determining that it was the proper forum, that the defendants before it were the proper parties, and that the laws of Texas, Hawaii, and D.C. (as opposed to Japanese law) were the correct choices of law, the district court on April 2, 1997, granted summary judgment in favor of the Trust Subsidiaries. The court reasoned that Klesch could not point to a genuine issue of material fact as to any of the three elements of an equitable lien claim. The district court entered final judgment on March 5, 1998, after denying Klesch's motion to stay entry of final judgment and for reconsideration. This appeal followed.4
We review de novo the denial of equitable relief when that denial stems from a matter of law. See F.D.I.C. v. Dawson, 4 F.3d 1303, 1308 (5th Cir. 1993). Alternatively, we review for an abuse of discretion a district court's denial of equitable relief when that denial stems from its weighing of the equities. See National Ass'n of Gov't Employees v. City Pub. Serv. Bd., 40 F.3d 698, 707 (5th Cir. 1994). Defendants-appellants contend that the abuse of discretion standard applies in this case because, they say, the district court weighed the equities before issuing its decision. We disagree. The court below held that equitable relief was unavailable as a matter of law; it did not withhold such relief simply as a matter of discretion. Consequently, we review de novo the decision of the district court. See Dawson, 4 F.3d at 1308 (reaching similar result).
The court below disposed of Klesch's equitable lien claim on summary judgment. Of course, we review de novo the grant of summary judgment, applying the same criteria as did the district court. See id. at 1306. As such, we review the evidence and draw all inferences in the light most favorable to the nonmovant. See id. "Summary judgment is proper if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Id. (citing FED. R. CIV. P. 56(c)).
The district court held that to obtain an equitable lien, Klesch had to satisfy three elements:
(1) that there exists an express or implied agreement between the parties demonstrating a clear intent to create a security interest in order to secure an obligation between them;
(2) that the parties intended specific property to secure the payment;
(3) and that there is no adequate remedy at law.5
After closely scrutinizing each of these elements, the court concluded that Klesch could not point to a genuine issue of material fact as to any of them. As a matter of law, then, the court rendered summary judgment...
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