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Turkmani v. Republic of Bolivia

March 28, 2002

SALAH TURKMANI, PLAINTIFF,
v.
THE REPUBLIC OF BOLIVIA, DEFENDANT.



The opinion of the court was delivered by: Ricardo M. Urbina United States District Judge

Document Nos.: 21, 22

MEMORANDUM OPINION GRANTING THE PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DENYING THE DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

I. INTRODUCTION

This Foreign Sovereign Immunities Act case comes before the court on the parties' cross-motions for summary judgment pursuant to Federal Rule of Civil Procedure 56(c). Salah Turkmani ("the plaintiff") seeks damages for an alleged breach of contract by the Republic of Bolivia ("the defendant"). The defendant filed its cross-motion for summary judgment on the ground that it is immune from suit pursuant to the Foreign Sovereign Immunities Act ("FSIA"), as amended 28 U.S.C. §§ 1602 et seq., and, in the alternative, asserts a champerty defense pursuant to Section 489 of the New York Judiciary Law. After consideration of the parties' submissions and the relevant law, the court grants the plaintiff's motion for summary judgment and denies the defendant's motion for summary judgment.

II. BACKGROUND

A. Factual Background

The plaintiff served as the president and director of the Mega Company, and was also the Mega Company's sole shareholder. See Pl.'s Mot. For Summ. J. ("Pl.'s Mot.") at 6. In the late 1980s, the Mega Company engaged in the business of purchasing foreign debt from various creditors, including bondholders. See id. at 7. The defendant is a foreign state located in South America. See Compl. at 3.

In October 1968, the defendant issued more than $67 million in "sinking fund" bonds, *fn1 with the principal amount of the bonds set to mature on October 1, 1995 ("the bonds"). See id. at 2-3. In February 1969, the defendant entered into a Fiscal Agency Agreement with the Bank of New York, whereby the defendant established a sinking fund at the Bank of New York to purchase and redeem the bonds. See id. at 3-4.

The Mega Company, through the plaintiff, bought the majority of the bonds at issue in this case in August 1995 for 12 percent of their par value. *fn2 See Pl.'s Mot. at 6. The Mega Company made the initial purchases from two different individuals. See id. at 6-10. The plaintiff's wife, Chang Oh Turkmani, who served as the general counsel at the Mega Company, brokered each of the deals. See Def.'s Mot. for Summ. J. ("Def.'s Mot.") at 6.

The defendant first defaulted on interest payments due on the bonds in 1988. See Pl.'s Stat. of Mat. Facts at 14-15. On October 1, 1995, the defendant defaulted on the principal payments. See id. Several holders of the Bolivian bonds then instituted a class action against the defendant on October 18, 1995, in Hirshon v. Bolivia, Civil Action No. 95-1957 (SSH) (D.D.C.). See id. at 15. That class-action suit came before Judge Stanley S. Harris of this court. See Hirshon v. Bolivia, 979 F. Supp. 908 (D.D.C. 1997).

On December 15, 1995, the defendant entered into an agreement with the Paris Club ("the Paris Club Agreement"), a group of creditor governments that formed in 1956 to address restructuring debts with debtor countries. *fn3 See Def.'s Mot. at 3-4. The Paris Club Agreement provides for restructuring of the defendant's external debt based on a payment of 33 percent of the principal amount due, with payments of accrued interest forgiven. See id. The United States and the defendant entered into an agreement ("the International Agreement") adopting the Paris Club Agreement on January 23, 1996. See id.

After the defendant had already defaulted on paying the interest and principal due on the bonds, the Mega Company purchased additional bonds in October 1996 from a third individual. See Def.'s Mot. at 6. Again, the plaintiff's wife brokered the purchase of these bonds. See id.

In December 1996, the Mega Company, by a unanimous vote of its board of directors, transferred the bonds to the plaintiff as a year-end bonus for his work performed for the company in 1996. See Def.'s Mot. at 7. The board of directors consisted of the plaintiff, the plaintiff's wife, and the plaintiff's brother. See id. They set the value of the bonds at $30,000.00. See id.

The defendant alleges that the plaintiff and his wife spoke to personnel at the Bolivian Embassy, who informed them that the defendant was already in default of the principal and interest due on the bonds, and made no promise of any payment forthcoming. See Def.'s Mot. at 7-8. The plaintiff claims, to the contrary, that the Bolivian Embassy represented that the defendant would honor its debt. See Pl.'s Mot. at 9-11. The plaintiff also claims that the bonds were not transferred to him and his wife for the purposes of initiating litigation as prohibited by New York's champerty statute. *fn4 See Pl.'s Mot. at 10-11.

On December 11, 1996, Judge Harris preliminarily approved a proposed settlement in the Hirshon class action, conditionally certified a settlement class, and approved a notice to be sent to all known bondholders, including the plaintiff. See Hirshon, 979 F. Supp. at 910; Pl.'s Mot. at 11. On February 10, 1997, the plaintiff opted out of the class certified for settlement purposes. See Pl.'s Mot. at 11. On April 4, 1997, the Hirshon class action entered a settlement, awarding payment of 33 percent of the principal face amount due on the bonds to the remaining class members. See id.; Hirshon, 979 F. Supp. at 911. Because the plaintiff did not participate in the 1997 class-action settlement, he now brings this breach-of-contract claim against the defendant seeking his own recovery of damages.

B. Procedural Background

The plaintiff filed his complaint on July 8, 1997. As stated before, the case was initially assigned to Judge Harris. The plaintiff claims that he bought bonds with an aggregate face value of $220,211.75 and interest coupons worth $46,101.00. See Compl. at 6. As such, he seeks damages of at least $266,312.75 plus attorneys' fees. *fn5 The parties filed cross-motions for summary judgment on September 4, 1998. The defendant asserts, among other things, the defenses of sovereign immunity and champerty. See Answer at 1. On March 15, 2001, the case was reassigned to the below-signed member of the court, Ricardo M. Urbina.

On June 4, 2001, the plaintiff renewed his motion for summary judgment. On June 11, 2001, the defendant renewed its motion for summary judgment. Accordingly, the parties' cross-motions for summary judgment are now fully briefed and ripe for resolution. For the reasons that follow, the court grants summary judgment for the plaintiff and denies summary judgment for the defendant.

III. ANALYSIS

A. Legal Standard for Summary Judgment

Summary judgment is appropriate when "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 a judgment as a matter of law." FED. R. CIV. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Diamond v. Atwood, 43 F.3d 1538, 1540 (D.C. Cir. 1995). To determine which facts are "material," a court must look to the substantive law on which each claim rests. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A "genuine issue" is one whose resolution could establish an element of a claim or defense and, therefore, affect the outcome of the action. See Celotex, 477 U.S. at 322; Anderson, 477 U.S. at 248.

In ruling on a motion for summary judgment, the court must draw all justifiable inferences in the nonmoving party's favor and accept the nonmoving party's evidence as true. See Anderson, 477 U.S. at 255. A nonmoving party, however, must establish more than "the mere existence of a scintilla of evidence" in support of its position. See id. at 252. To prevail on a motion for summary judgment, the moving party must show that the nonmoving party "fail[ed] to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." See Celotex, 477 U.S. at 322. By pointing to the absence of evidence proffered by the nonmoving party, a moving party may succeed on summary judgment. See id.

In addition, the nonmoving party may not rely solely on allegations or conclusory statements. See Greene v. Dalton, 164 F.3d 671, 675 (D.C. Cir. 1999); Harding v. Gray, 9 F.3d 150, 154 (D.C. Cir. 1993). Rather, the nonmoving party must present specific facts that would enable a reasonable jury to find in its favor. See Greene, 164 F.3d at 675. If the evidence "is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson, 477 U.S. at 249-50 (internal citations omitted).

B. The FSIA Does Not Preclude the Plaintiff's Claim

When the court addresses a suit against a foreign state, the court must initially determine whether it has subject-matter jurisdiction to hear the case. See Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 443 (1989). The FSIA provides the sole basis for jurisdiction over suits against foreign nations. See id.

The FSIA presumes that foreign states are immune from the jurisdiction of United States courts. See 28 U.S.C. § 1604. Exceptions to this immunity exist for cases dealing with waiver of immunity, certain commercial activities, expropriation of certain types of property, cases concerning rights to immovable property situated in the United States, and actions based in tort, or admiralty claims. See 28 U.S.C. §§ 1605(a)(1)-(5),(b).

In the present case, the defendant argues that because the facts giving rise to the plaintiff's cause of action took place before the enactment of the FSIA, the court lacks subject-matter jurisdiction over the instant case because the FSIA may not apply to the defendant retroactively. See Def.'s Mot. at 11. The plaintiff contends that the FSIA applies to this case and, furthermore, that the defendant's actions, which are the subject of this lawsuit, are commercial activities that are exempt from the FSIA's sovereign-immunity status pursuant to 28 U.S.C. § 1605(a)(2). See Pl.'s Mot. at 24. The court addresses these arguments in turn.

1. The FSIA Applies to Post-1952 Commercial Acts by a Foreign Sovereign

The court must first determine whether the FSIA applies to the plaintiff's claim and thereby ascertain whether subject-matter jurisdiction exists. Since the founding of the nation to the latter half of the twentieth century, foreign sovereigns enjoyed absolute immunity from suit in United States courts. See e.g., The Schooner Exchange v. McFaddon, 11 U.S. 116, 137-38 (1812); see also Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 486 (1983) (explaining the history of sovereign immunity in the United States). During that time, courts deferred to the decisions of the Executive branch on whether to exert jurisdiction over actions against foreign sovereigns and their instrumentalities, and, as a matter of ...


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