Wmw Mach. Inc. v. Werkzeugmaschinenhandel

• Citation: 960 F.Supp. 734
• Decision Date: 27 March 1997
• Docket Number: No. 95 Civil 1279 (BDP).,95 Civil 1279 (BDP).
• Parties: WMW MACHINERY, INC. and General Bearing Corporation, Plaintiffs, v. WERKZEUGMASCHINENHANDEL GMBH IM AUFBAU, Werner P. Muender, Treuhandanstalt, and Bundesanstalt Fuer Vereinigungsbedingte Sonderaufgaben, Defendants, v. Seymour GUSSACK and WMW Machinery Company, Inc., Additional Counterclaim Defendants.
• Court: United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York

960 F.Supp. 734

WMW MACHINERY, INC. and General Bearing Corporation, Plaintiffs, v. WERKZEUGMASCHINENHANDEL GMBH IM AUFBAU, Werner P. Muender, Treuhandanstalt, and Bundesanstalt Fuer Vereinigungsbedingte Sonderaufgaben, Defendants, v. Seymour GUSSACK and WMW Machinery Company, Inc., Additional Counterclaim Defendants.

No. 95 Civil 1279 (BDP).

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

March 27, 1997.

COPYRIGHT MATERIAL OMITTED

Gerard A. Riso, Stein Riso Hapel & Jacobs, New York City, for Plaintiffs.

William M. Barron, Karl Geercken, Walter Conston Alexander & Green, New York City, for Defendants.

MEMORANDUM DECISION AND ORDER

PARKER, District Judge.

WMW Machinery, Inc. ("WMW") and General Bearing Corporation ("GBC") commenced this action against Werkzeugmaschinenhandel GmbH IM Aufbau ("WEMEX"), Werner P. Muender, the Treuhandanstalt ("Treuhand"), and the Bundesanstalt Fuer Vereiningungsbedingte Sonderaufgaben ("BVS") for breach of contract, breach of fiduciary duties, conversion, and tortious interference with contract. Defendants now move for summary judgment pursuant to Fed.R.Civ.P. 56. For the reasons set forth below, defendants' motion is granted in part and denied in part.

BACKGROUND

This action arises out of damages allegedly sustained by plaintiffs WMW and GBC following the collapse of the former German Democratic Republic ("GDR" or "East Germany") and its reunification with the Federal Republic of Germany ("FRG"). Reunification altered not only the political face of the GDR, but also the economic and legal structure of the once communist state. The controversy in this case arises from the privatization of formerly state-owned enterprises in the aftermath of German reunification. Prior to reunification, in 1986 and 1987, WEMEX, one such enterprise, entered into contracts with WMW and GBC.¹ Disputes over the post-privatization status of those contracts, and the duties and rights flowing from them, form the basis of plaintiffs' complaint.

Before reunification, the GDR exercised monopoly control over the country's international commercial transactions. Thus, under GDR law, "Export Trade Management Entities" or Aussenhandelsbetriebs ("AHB"), were the only entities in the GDR authorized to conduct export or import transactions. WEMEX was the AHB responsible for all export and import transactions for the GDR's machine tool industry and the "statutory commission agent"² of machine tool manufacturers in the GDR. Those manufacturers, in turn, were required to export their goods through WEMEX.

On January 1, 1986, WEMEX entered into a Joint Venture Agreement with GBC, pursuant to which both parties became equal owners of Alurop, S.A., a Panamanian company. Alurop's sole asset was its 100% ownership of plaintiff WMW, a New Jersey corporation.³ The Joint Venture Agreement, in essence, prescribed the terms under which WEMEX would provide machinery to WMW for resale in the United States.

On December 8, 1987, WEMEX entered into a Commercial Agency Contract with WMW, which gave WMW the exclusive right to distribute in the United States and Canada machine tools manufactured in, and exported from, the GDR. The Commercial Agency Contract was structured so that the machine tool manufacturers themselves incurred no legal or contractual liability. In December 1989, WEMEX and WMW agreed to extend the term of the Contract through December 31, 1995.

The historic fall of the Berlin Wall on November 9, 1989 and the ensuing dismantling of the communist state brought about the dissolution of the government's monopoly power over the import and export of the country's goods and services. On June 17, 1990, prior to reunification, GDR's first freely elected government adopted the Treuhandgesetz ("Trusteeship Statute"), pursuant to which all former GDR enterprises, including WEMEX, were to be privatized. The Treuhand was the state agency created under the Trusteeship Statute to oversee the conversion of thousands of formerly stateowned entities into free-market enterprises. The Treuhand became the sole shareholder of WEMEX. The Treuhand's name was later changed to Bundesanstalt fuer Vereinigungsbedingte Sonderaufgaben ("BVS").⁴ On October 3, 1990, Germany was reunified.

As a result of reunification, former East German manufacturers and producers were no longer required to deal through AHBs in order to sell their goods abroad. Thus, the East German machine tool manufacturers that had previously exported through WEMEX were free to establish new channels of distribution. Plaintiffs contend that the Treuhand, nonetheless, assured WMW that the Commercial Agency Contract was still valid, and that the Treuhand could take steps to require the manufacturers to continue to honor WMW's exclusive distribution rights.

Despite those assurances, many former East German manufacturers refused to distribute through WMW. According to plaintiffs, some manufacturers were closed down by the Treuhand, or ordered to change their product lines. Others were sold by the Treuhand to other companies, who used their own machine tool distributors. Others agreed to sell machine tools to WMW, but only on terms less favorable than those prescribed by the Commercial Agency Contract.

No longer the exclusive distributor of East German machine tools, WMW could not ensure its customers that service and parts could be supplied, or that the terms of its warranties to purchasers could be met. As a result, WMW's business decreased dramatically, which, in turn, caused the rapid devaluation of its inventory. By 1991, WMW ceased making payments to WEMEX under the Commercial Agency Contract on the ground that WEMEX had refused to acknowledge the devaluation of WMW's inventory, WMW's growing losses, or the validity of the offsets and claims of WMW and GBC. In an attempt to resolve the problems surrounding its indebtedness to WEMEX, WMW reached two agreements with WEMEX. Because of the Treuhand's inaction, however, neither agreement was approved by the FRG's Ministry of Finance as was required for the agreements to be binding.

Meanwhile, WEMEX continued to export machine tools from a number of German manufacturers that had opted to continue to do business with WEMEX and WMW. On March 1991, WMW and WEMEX entered into an agreement ("the Heckert Agreement") to distribute goods manufactured by Heckert-Chemnitzer Werkzeugmaschinen ("Heckert"), a machine tool manufacturer of the former GDR. The agreement conferred upon WMW exclusive distribution rights in the United States and Canada for a large inventory of Heckert machinery. Disputes arising under the agreement were to be brought in the court "located at the principal place of business of the defendant." Heckert Agreement, Article 23.

Pursuant to the terms of the agreement, WMW purchased large quantities of machine tools from Heckert. Heckert, in turn, stored the machines for WMW in Germany until they could be shipped pursuant to WMW's instructions. Meanwhile, by June 1991, WMW owed WEMEX over $10 million for amounts due under the Commercial Agency Contract.

In January 1993, WEMEX was placed in liquidation and Werner P. Muender was its appointed liquidator and sole legal representative. In the fall of 1993, Werner P. Muender learned that machine tools that had been ordered by WMW, and had yet to be paid for, were being stored in a Heckert warehouse in Germany. Thus, in November 1993, Muender, in his capacity as liquidator of WEMEX's remaining assets, secured an ex parte order from a German court attaching the Heckert machines and preventing their shipment from Germany.⁵ WEMEX sold the attached machine tools to WMW, as well as other distributors. WMW paid WEMEX the full purchase price for the machines in order to obtain their release.

Plaintiffs subsequently brought this action against WEMEX for breach of contract, breach of fiduciary duties, and for declaratory judgment extinguishing or diminishing WMW's indebtedness to WEMEX. Plaintiff also sued Muender for wrongful conversion and breach of fiduciary duties and sued Treuhand for tortious interference with the Joint Venture Agreement and Commercial Agency Contract. Plaintiffs allege that since unification, defendants have acted to undermine the objectives of the Joint Venture Agreement and Commercial Agency Contract. Specifically, plaintiffs claim that defendants have failed to take measures to require the former East German machine tool manufacturers to comply with the Commercial Agency Contract; made statements disparaging WMW's management and marketing competence; and changed the names and missions of various machine tool factories, thereby diminishing the value of products WMW had in its inventory.

Defendants now move for summary judgment pursuant to Fed.R.Civ.P. 56 on the grounds that (1) the Court lacks subject matter and personal jurisdiction over the Treuhand; (2) the act of state doctrine bars all claims against the Treuhand and WEMEX; (3) the complaint fails to state a claim for breach of fiduciary duties; (4) there is no basis for Muender's personal liability; and (5) the German law defense of "changed circumstances" bars all of the claims against WEMEX and the Treuhand. In the alternative, defendants argue that plaintiffs' complaint should be dismissed in its entirety under the doctrine of forum non conveniens.

DISCUSSION

I. Foreign Sovereign Immunities Act

Defendants argue that the Treuhand is immune from suit under the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. § 1602 et seq. The FSIA provides the "sole basis for obtaining jurisdiction over a foreign state" in the courts of the United States. Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434, 109 S.Ct. 683, 688, 102 L.Ed.2d 818 (1989); Commercial Bank of Kuwait v. Rafidain Bank, 15 F.3d 238, 240 (2d Cir.1994). The FSIA presumes that foreign states are immune from suit and permits federal courts to exercise jurisdiction over foreign states only if one of the...