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TRANSAMERICA LEASING v. LA REPUBLICA DE VENEZUELA

September 29, 1998

Transamerica Leasing, Inc., Trans Ocean Container Corporation, Triton Container International Ltd., Matson Leasing Company, Inc., Sea Containers America Inc., Sea Containers Italia srl, Xtra Inc., Flexi-Van Leasing Inc., Interpool Ltd., Trac Lease Inc., Bridgehead Container Services Ltd., Cronos Container Limited, Plaintiffs,
v.
La Republica De Venezuela, Fondo de Inversiones de Venezuela, Defendants.



The opinion of the court was delivered by: GREEN

MEMORANDUM

 This matter is before the Court on the Defendants', La Republica de Venezuela ("Venezuela") and Fondo de Inversiones de Venezuela's ("FIV") *fn1" , Motion to Dismiss the Complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). The Defendants seek dismissal for lack of subject matter jurisdiction pursuant to 28 U.S.C. § 1604 *fn2" , forum non conveniens, failure to state a claim upon which relief can be granted, and of Plaintiffs' demand for punitive damages.

 In addition, the Defendants have filed a Motion for Oral Hearing on and a Motion to Strike Declarations Submitted in Opposition to Defendants' Motion to Dismiss. The Plaintiffs filed a separate Motion for Oral Hearing on and Motion for Jurisdictional Discovery.

 For the reasons that follow, the Court concludes that it has subject matter jurisdiction which it should not decline under the doctrine of forum non conveniens and that the Plaintiffs' claims and demand for punitive damages are valid. As explained more fully below, the Defendants' Motion to Dismiss the Complaint is denied.

 I. BACKGROUND

 Between March 17, 1980 and June 1, 1993, the Plaintiffs, domestic and foreign corporations, leased shipping equipment such as containers, chassis, and trailers ("intermodal equipment") to Compania Anonima Venezolana de Navegacion ("CAVN"), a Venezuelan government-owned steamship line subsidized and protected from 1917 to 1991. (Compl., PP 35-36; Barroeta Decl. I P 4.; Bradley Decl. I P 22.)

 In September 1991, Defendant FIV commissioned Booz Allen & Hamilton, Inc. ("BAH"), to conduct a review and analysis of CAVN. (Mem. Supp. Defs'. Mot. Dismiss at 5; Bradley Decl. I P 25.)

 In October 1991, BAH reported to Defendant FIV that if the Defendants did not restructure CAVN it would lose over $ 140 million in the ensuing five years. (Bradley Decl. I Ex. K at 3, 11, Ex. R at 9.) BAH concluded that the FIV and the Ministry of Transport and Communications ("MTC"), an agent of Defendant Venezuela, "as principal owners of [CAVN], must now decide on the future of CAVN." (Bradley Decl. I Ex. K at 18.) BAH recommended that the Defendants restructure CAVN, by significantly changing its operations. (Bradley Decl. I Ex. K at 20.)

 On July 27, 1992, Defendant Venezuela, by its agent the Sectoral Cabinet for Economic and Social Policy Issues, ordered and adopted measures to reorganize CAVN. *fn3" (Bradley Decl. I Ex. O at 3-5, Ex. R at 8; Barroeta Decl. I P 13.) Between October 1991 and March 1993, CAVN put forward a restructuring proposal subject to approval and later approved by the Economic Cabinet. (Bradley Decl. I Ex. R at 8.) On March 31, 1993, "subject to the conditions laid down by [Defendant] FIV, Booz-Allen developed [an updated] restructuring option and company plan. . ." that it delivered in a second report based on a "new political and economic scenario suggested by FIV." (Bradley Decl. I Ex. R at 10-11.)

 Beginning in 1992, CAVN, as a result of losses, allegedly failed to pay rental, repair, and other lease charges exceeding $ 55 million to the Plaintiffs pursuant to the terms of the equipment lease agreements. (Compl. PP 37-38.) In 1993 and 1994, Defendant Venezuela directed CAVN to enter into repayment and restructuring agreements with the Plaintiffs. (Barroeta Decl. I Ex. A; Bradley Decl., PP 45-56.) CAVN also failed to pay its obligations under the more recent repayment and restructuring agreements, that sum exceededing an additional $ 55 million. (Compl. PP 74-78; Bradley Dec. I PP 45-56.) In October 1994, CAVN declared a suspension of payments and commenced bankruptcy proceedings in Caracas, Venezuela. (Compl. P 62.) CAVN failed to return to Plaintiffs some of the equipment leased, valued at approximately $ 9 million. (Compl. P 38.)

 Claiming that CAVN is an agent of the Defendants, the Plaintiffs brought this action for breach of the equipment lease agreements, conversion, breach of restructuring and repayment plans, and tortious interference with contract. (Compl. PP 17-21.) The Defendants filed this motion to dismiss claiming that CAVN is not their agent and that Venezuela, as a foreign state, and the FIV, as an agent or instrumentality of a foreign state, are otherwise immune from jurisdiction under 28 U.S.C. § 1604. (Mem. Supp. Defs'. Mot. Dismiss at 1, 2.)

 II. ANALYSIS

 A. Subject Matter Jurisdiction

 A foreign government is liable for the actions of its instrumentality if the instrumentality is so extensively controlled by the government that a relationship of principal to agent is created. See First Nat'l. City Bank v. Banco Para El Comercio Exterior De Cuba, 462 U.S. 611, 629, 77 L. Ed. 2d 46, 103 S. Ct. 2591 (1983)("Bancec"); Foremost-McKesson, Inc. v. Islamic Republic of Iran, 284 U.S. App. D.C. 333, 905 F.2d 438, 446-47 (D.C. Cir. 1990). In deciding whether there is subject matter jurisdiction, the plaintiff has the "burden of asserting facts sufficient to withstand a motion to dismiss regarding the agency relationship." Foremost-McKesson, 905 F.2d at 447.

 Specifically, the Court explained that:

 
to address a motion to dismiss under Rule 12(b)(1) where the suit involves a foreign sovereign and the court's jurisdiction over the sovereign is contested, the district court must do more than just look to the pleadings to ascertain whether to grant the motion to dismiss. The district court has "considerable latitude in devising the procedures it will follow to ferret out the facts pertinent to jurisdiction."

 284 U.S. App. D.C. 333, 905 F.2d 438 at 449 (quoting Prakash v. American University, 234 U.S. App. D.C. 75, 727 F.2d 1174, 1179 (D.C. Cir. 1984)).

 In McKesson Corp. v. Islamic Republic of Iran, 311 U.S. App. D.C. 197, 52 F.3d 346 (D.C. Cir. 1995), the D.C. Circuit affirmed the District Court's finding of an agency relationship where it relied on such factors as (1) majority shareholding and majority control of a board of directors, (2) extensive government involvement (via the board of directors or otherwise) in the day-to-day operations of the instrumentality, and (3) manifestations by the government that the instrumentality could act for it (either made to the instrumentality, i.e. actual authority, or to a third party, i.e. apparent authority). 52 F.3d at 352; see McKesson Corp. v. Islamic Republic of Iran, 1993 U.S. Dist. LEXIS 11792, No. 82-0220 (D.D.C. Aug. 23, 1993), at 47-48.

 All of the factors relied upon by the trial court in McKesson are present in the case at bar and are set out below. *fn4"

 1. Stock Ownership

 There is no dispute that the Defendants, through agencies and instrumentalities of Venezuela, owned all of the shares of CAVN. (Compl. P 18, Barroeta Decl. I P 4, Ex. Z.) The shareholders were the FIV as the majority shareholder; the Ministries of Transportation and Communications, Treasury, and Defense; and Dianca and Transportada Maritima Venezolana, both state owned corporations. Id.

 2. Board of Directors

 The Defendants appointed all of the members of the Board of Directors of CAVN. The Chairman of the Board was the President of CAVN. (Planas Decl. P 10.) Moreover, the President of Venezuela appointed high ranking officers of the Venezuelan Navy to serve as President of CAVN during their service in the Navy including a Rear Admiral and a Vice-Admiral. (Bradley Decl. I P 9.)

 The Defendants, as shareholders, also elected the other Board members. (Bradley Decl. P 7.) On August 6, 1987, in a letter to the Federal Maritime Commission (FMC), the counsel for CAVN acknowledged that Venezuela had the right to appoint or disapprove the appointment of a majority of the directors or the chief operating or executive officer of CAVN. (Bradley Decl. Ex. A,B.) Also, in an undated memorandum regarding a meeting with the FMC, CAVN stated that Defendant Venezuela designated the members of the Board. (Bradley Decl. at Ex. B).

 3. Day-to-Day Operations

 In McKesson, the District Court found a foreign government, through a board of directors, was extensively involved in the day-to-day operations of an instrumentality because the board approved and confirmed important matters. McKesson Corp. v. Islamic Republic of Iran, No. 82-0220 (D.D.C. Aug. 23, 1993), at 47.

 During the restructuring period in 1992 and years subsequent, the Defendants were even more extensively involved in the day-to-day operations of CAVN. As part of the restructuring plan, and in accordance with the BAH reports, the Defendants, through the Board of Directors and otherwise, directed CAVN to restructure its capital and improve its operations, especially with regard to the leasing and use of intermodal equipment. (Bradley Decl. I Ex. M, Ex. R at 11, 17-32.)

 BAH identified CAVN's intermodal operations as the first priority for restructuring. *fn5" (Bradley Decl. I Ex. R at 17-32, 41-43.) Specifically, BAH recommended to the FIV that it arrange to "reposition all surplus equipment," "introduce vigorous managerial and cost control relating to administration of equipment," and shut down substantial portions of CAVN's service globally. (Bradley Decl. I Ex. R at 35.)

 Defendant Venezuela considered and adopted BAH's recommendations regarding CAVN's intermodal problems. (Bradley Decl I Ex. R at 7, 9, 10, Ex. S at 2, 3, 5.) On April 19, 1993, in response to the recommendation of the BAH restructuring study mandated by Defendant Venezuela and commissioned by the FIV, CAVN's Board of Directors appointed Captain Antonio Romero Sierraalta, a maritime professional and officer in the Venezuelan Navy, with full power and authority, to head a new Intermodal Division. (Bradley Decl. I Ex. S at 3.) The Board instructed Capt. Sierraalta to solve CAVN's intermodal problems and specifically to reduce inventory, redeliver surplus equipment, and implement a control system. (Bradley Decl. I Ex. M at 5-6, S at 3.)

 Then on June 18, 1993, the Defendants commissioned BAH to implement a future systematic relocation policy for intermodal equipment. (Bradley Decl. I Ex. S at 8.) Capt. Sierraalta, who carried out the BAH models, reported that "the Board of [Directors] was aware of [the] details . . ." of these efforts, ...


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