Sovereign Bonds Exch. LLC v. Fed. Republic of Germany

• Decision Date: 20 October 2010
• Docket Number: Case No. 10–21944–CIV.
• Citation: 899 F.Supp.2d 1304
• Parties: SOVEREIGN BONDS EXCHANGE LLC, Plaintiff, v. FEDERAL REPUBLIC OF GERMANY, et al., Defendants.
• Court: U.S. District Court — Southern District of Florida

899 F.Supp.2d 1304

SOVEREIGN BONDS EXCHANGE LLC, Plaintiff,

v.FEDERAL REPUBLIC OF GERMANY, et al., Defendants.

Case No. 10–21944–CIV.

United States District Court,

S.D. Florida,

Miami Division.

Oct. 20, 2010.

Robert J. Pearl The Pearl Law Firm, P.A. Naples, FL, James F. Lowy, Lowy Royer Law Firm LLC, Tampa, FL, for Plaintiff.

Gerald J. Houlihan, Houlihan & Partners PA, Miami, FL, for Defendants.

ORDER

CECILIA M. ALTONAGA, District Judge.

THIS CAUSE came before the Court on the Motion to Dismiss of Defendants, HSH Nordbank AG, Kiel; Helaba Landesbank Hessen–Thueringen; LBBW Landesbank Baden–Wuerttemberg, Stuggart; Dekabank Deutsche, Girozentrale; Norddeutsche Landesbank Girozentrale Hannover; Frankfurt Am Main; ¹ and WestLB AG, Duesseldorf (collectively, the “German Banks”), [for] Lack of Subject Matter Jurisdiction and for Failure to State a Claim for Which Relief Can Be Granted (“Motion”) [ECF No. 26], filed on July 27, 2010. The Court has carefully considered the parties' written submissions, the record, and applicable law.

I. BACKGROUND²

This case is rooted in the modern history of Germany—from that nation's attempt at economic recovery in the wake of World War I, through the dark days of World War II, to the euphoric reunification of the German state in 1990. Plaintiff, Sovereign Bonds Exchange, LLC (“SBE”), filed this suit against Defendants, the Federal Republic of Germany ³ and the GermanBanks,⁴ in an effort to recover its interest in certain bearer bonds issued by Germany after World War I. ( See Compl. ¶ 1). In this case,⁵ the unredeemed bonds are German Provincial and Communal Banks Consolidated Agricultural Loan Bonds (Secured Sinking Fund Gold Bond Series A 6 & 1/2 % Dated June 1928—Due June 1, 1958) (the “Bonds”), sold on the New York Stock Exchange and made available to investors in the United States in the late 1920s. ( See id. ¶¶ 1, 46). The Bonds were issued by provincial and communal banks owned in whole or part by various German provinces, which were legally responsible for the obligations of their respective banks. ( See id. ¶ 50).

Because many of these provinces and banks were located in East Germany following World War II, holders of the Bonds were unable to demand payment under the terms of the Agreement on German External Debts, February 27, 1953, 4 U.S.T. 443 (the “London Debt Agreement,” the “Agreement” or “LDA”), an international agreement negotiated in 1953 between Germany and twenty-one other nations, including the United States. ( See id. ¶¶ 22–27). The London Debt Agreement did, however, include a provision anticipating reunification:

ARTICLE 25

Action on Reunification of Germany

The Parties to the present Agreement will review the present Agreement on the reunification of Germany exclusively for the purpose of—

(a) implementing the provisions of the Annexes to the present Agreement regarding adjustments to be made in respect of specific debts upon such reunification, except in so far as such provisions are to become automatically operative upon that event;

(b) and making the provisions of the present Agreement applicable to the debts of persons residing in the area reunited with the Federal Republic of Germany; and

(c) making equitable adjustments in respect of debts in the settlement of which consideration is given to the loss of or inability to use assets located in the area reunited with the Federal Republic of Germany.

LDA, art. 25, 4 U.S.T. 443.

On June 11, 2010, SBE filed suit against Germany and the German Banks alleging a violation of the London Debt Agreement, Article 25(b) and (c) (Count I) ( see Compl. ¶¶ 86–97); breach of contract (Count II) ( see id. ¶¶ 98–106); false and/or deceptive marketing under the Florida Deceptive and Unfair Trade Practices Act (“FDUTPA”), Fla. Stat. §§ 501.201–.23 (Count III) ( see id. ¶¶ 107–118); and a claim of fraud, misrepresentation and fraudulent concealment (Count IV) ( see id. ¶¶ 119–126). The German Banks filed the present Motion seeking to dismiss the Complaint for lack of subject matter jurisdiction and failure to state a claim pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). ( See Mot. 1; Defs.' Mem. 2 [ECF No. 27] ). SBE filed its Response ⁶ [ECF No. 42] and Memorandum in Opposition ⁷ (“Pl.'s Mem.” [ECF No. 43] ), to which the German Banks timely filed their Reply [ECF No. 55].

II. SUBJECT MATTER JURISDICTION

The German Banks seek to dismiss SBE's Complaint for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1). “Federal courts are courts of limited jurisdiction.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994). It is presumed that a federal court lacks jurisdiction in a particular case until the plaintiff demonstrates the court has jurisdiction over the subject matter. See id. (citing Turner v. Bank of No. Am., 4 U.S. 8, 11, 4 Dall. 8, 1 L.Ed. 718 (1799); McNutt v. Gen. Motors Acceptance Corp. of Ind., 298 U.S. 178, 182, 56 S.Ct. 780, 80 L.Ed. 1135 (1936) (“It is incumbent upon the plaintiff properly to allege the jurisdictional facts....”)). Attacks on subject matter jurisdiction under Rule 12(b)(1) may be either facial or factual. See Lawrence v. Dunbar, 919 F.2d 1525, 1528–29 (11th Cir.1990). Like a Rule 12(b)(6) motion, “[a] ‘facial attack’ on the complaint requires the court merely to look and see if plaintiff has sufficiently alleged a basis of subject matter jurisdiction, and the allegations in the complaint are taken as true....” Menchaca v. Chrysler Credit Corp., 613 F.2d 507, 511 (5th Cir.1980) (citing Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir.1977)).⁸

The German Banks raise a facial challenge to the Complaint and assert a treaty between the United States and Germany “prohibits bondholders from resorting to the courts of the United States to enforce their purported rights ... if they have not validated their bonds in accordance with the 1953 treaty.” (Defs.' Mem. 1 (citing Agreement Regarding Certain Matters Arising from the Validation of German Dollar Bonds, April 1, 1953, 4 U.S.T. 885 (the “Validation Treaty”))).

When the German Banks filed this Motion on July 27, 2010, the Eleventh Circuit Court of Appeals had not yet issued its ruling in World Holdings, LLC v. Germany, 613 F.3d 1310 (11th Cir.2010), affirming the denial of a motion to dismiss for lack of subject matter jurisdiction in a similar German bonds case. ⁹See id. at 1317–18. In World Holdings, the Defendant, Germany, relied on the same authorities presented by the German Banks in this case. See id. at 1314. I concluded subject matter jurisdiction existed under the commercial-activity exception to the Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C. §§ 1602–11. See id. Germany appealed, and the Eleventh Circuit affirmed, relying on Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434, 109 S.Ct. 683, 102 L.Ed.2d 818 (1989). See id. at 1316.

In its Memorandum, SBE points to the Eleventh Circuit's decision in World Holdings and asserts it applies here. ( See Pl.'s Mem. 2–3, 7–8). The German Banks disagree. ( See Reply 3). While the German Banks correctly summarize the significance of the World Holdings decision—“that the 1953 Treaty did not expressly conflict with the FSIA” ( id.), they claim “[t]he present case does not involve this interplay between the 1953 Treaty and the FSIA and, hence, the World Holdings decision is not dispositive” ( id.). The German Banks fail, however, to explain why the present case would not “involve the interplay” between the FSIA and the Treaty, especially when SBE directly relies on the World Holdings decision in its Response. Without more, the Court is left to conclude it has subject matter jurisdiction in this matter under the commercial-activity exception to the FSIA.

III. FAILURE TO STATE A CLAIM

The German Banks seek to dismiss each of the four counts alleged in SBE's Complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Although this pleading standard “does not require ‘detailed factual allegations,’ ... it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Id. (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955). Pleadings must contain “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555, 127 S.Ct. 1955. Indeed, “only a complaint that states a plausible claim for relief survives a motion to dismiss.” Iqbal, 129 S.Ct. at 1950 (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955). To meet this “plausibility standard,” a plaintiff must “plead[ ] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 1949 (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955). “The mere possibility the defendant acted unlawfully is insufficient to survive a motion to dismiss.” Sinaltrainal v. Coca–Cola Co., 578 F.3d 1252, 1261 (11th Cir.2009) (citing Iqbal, 129 S.Ct. at 1949).

When reviewing a motion to dismiss, a court must construe the complaint in the light most favorable to the plaintiff and take the factual allegations therein as true. See Brooks v. Blue Cross & Blue Shield of Fla., Inc., 116 F.3d 1364, 1369 (11th Cir.1997). But pleadings that “are no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.” Iqbal, 129 S.Ct. at 1950;see also Sinaltrainal, 578 F.3d at 1268 (“ ‘[U]nwarranted...