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In re Application of Kaiser Group International

August 13, 2010

IN RE APPLICATION OF KAISER GROUP INTERNATIONAL, INC. AND KAISER ENGINEERS, INC. FOR AN ORDER TO CONDUCT DISCOVERY


The opinion of the court was delivered by: Royce C. Lamberth, Chief Judge

MEMORANDUM OPINION

Before the Court are petitioners Kaiser Group International, Inc. (Kaiser International) and Kaiser Engineers, Inc.'s (Kaiser Engineers) Motion to Treat Petitioners' Application for Discovery as Conceded (ECF No. 3), and respondent International Bank for Reconstruction and Development's (IBRD) Motion to Quash Subpoena of Third-Party IBRD (ECF No. 7). Both stem from a Petition for an Order Granting Discovery for Use in a Foreign Proceeding (ECF No. 1).

Upon consideration of petitioners' Motion to Treat Petitioners' Application for Discovery as Conceded, the opposition thereto (ECF No. 9), petitioners' reply (ECF No. 13), applicable law, and the entire record, petitioners' motion will be denied as moot for the reasons set forth below.

Upon consideration of respondent's Motion to Quash Subpoena of Third-Party IBRD, the opposition thereto (ECF No. 11) and declaration in support thereof (ECF No. 12), respondent's reply (ECF No. 14), applicable law, and the entire record, respondent's motion will be granted due to lack of subject-matter jurisdiction for the reasons set forth below.

I. BACKGROUND

A. Underlying Dispute

This discovery issue stems from a contract dispute between Kaiser Netherlands-a foreign subsidiary of petitioner Kaiser International and affiliate of petitioner Kaiser Engineers- and ArcelorMittal Ostrava, formerly known as Nova Hut. Nova Hut planned to construct a steel-producing minimill, which it financed with a $250 million loan from the International Finance Corporation (IFC). Nova Hut conditionally assigned its rights under the contract to the IFC. See In re Kaiser Group Int'l, 399 F.3d 558 (3d Cir. 2005) (setting out the details of the underlying dispute).

In 2000, Kaiser International and certain subsidiaries filed a petition in Delaware Bankruptcy Court under Chapter 11 of the Bankruptcy Code. The IFC subsequently filed a Proof of Claim in the bankruptcy case, seeking recovery from Kaiser International based on its assignment of rights under the contract. In January 2001, a dispute arose over the contract and related letter of credit, when Nova Hut improperly drew down on the letter of credit and terminated the underlying contract, allegedly at the direction of the IFC. After several filings in the bankruptcy case, the IFC filed a motion to dismiss Kaiser International's Third Amended Complaint for lack of subject-matter jurisdiction. In this motion, the IFC claimed that international-organization immunity shielded it from suit under the International Organizations Immunity Act (IOIA), 22 U.S.C. § 288a(b), and under the bankruptcy code, 11 U.S.C. § 106(b). The Bankruptcy Court ruled that the IFC expressly waived its immunity by filing a Proof of Claim, so the court retained subject-matter jurisdiction over the case. The IFC appealed to the District Court of Delaware, arguing also that the claims in the Third Amended Complaint were beyond the scope of its waiver. The District Court ultimately agreed with the IFC, reversing the Bankruptcy Court and finding that the claims were beyond the scope of the waiver. See In re Kaiser Group Int'l, Inc., 308 B.R. 666 (D. Del. 2004); see also In re Kaiser Group Int'l, Inc., 302 B.R. 814 (D. Del. 2003). Kaiser International appealed this decision to the United States Court of Appeals for the Third Circuit. The Third Circuit reversed the District Court and remanded to the Bankruptcy Court, finding that the claims were not beyond the scope of the waiver. See In re Kaiser Group, 399 F.3d 558. The Third Circuit found, therefore, that the IFC waived its immunity by filing a Proof of Claim.

During this litigation, Nova Hut moved to stay the proceedings and compel arbitration, which the Bankruptcy Court denied, but which the District Court granted on appeal. See In re Kaiser Group Int'l, Inc., 307 B.R. 449 (D. Del. 2004). In 2005, the IFC renewed its motion to stay the proceedings and compel arbitration, which the Bankruptcy Court granted. In 2004, Kaiser Netherlands initiated separate arbitration proceedings against Nova Hut in the International Chamber of Commerce (ICC). In 2006, the ICC arbitration panel awarded judgment in large part to Nova Hut. In 2006, after the entry of this award of judgment, Nova Hut filed a motion to lift the stay on proceedings, also moving for summary judgment based on the ICC award. In 2007, Kaiser International filed a cross-motion for partial summary judgment and a motion requesting discovery. Kaiser International was seeking discovery regarding IFC's interference in Nova Hut during the contractual dispute. The Bankruptcy Court denied this request for discovery, finding that all discovery should take place during arbitration. See In re Kaiser Group Int'l, Inc., 375 B.R. 120, 123 (Bankr. D. Del. 2007) (denying summary judgment and citing to hearing in which the court denied the discovery motion). The District Court denied leave to appeal this discovery ruling. See In re Kaiser Group Int'l, Inc., 400 B.R. 140 (D. Del. 2009). The Third Circuit affirmed the District Court. See In re Kaiser Group Int'l, Inc., No. 09-1565 (3d Cir. Mar. 22, 2010).

On April 6, 2010, petitioners commenced two arbitration proceedings in the ICC against Nova Hut and the IFC. On April 29, 2010, petitioners filed in this Court a Petition for an Order Granting Discovery for Use in a Foreign Proceeding (ECF No. 1). Petitioners argued that they were entitled to such discovery pursuant to 28 U.S.C. § 1782. Petitioners' proposed subpoena summons the World Bank to testify at a deposition. Although petitioners' subpoena states that they are seeking discovery from the "World Bank," respondents understand this request to mean that they are seeking discovery from the IBRD-a component of the World Bank. See Mendaro v. World Bank, 717 F.2d 610, 611 (D.C. Cir. 1983) (stating that the IBRD is "commonly referred to as World Bank").On June 7, 2010, the Court temporarily granted this unopposed petition (Order, ECF No. 4), ordering that any motions to quash the subpoena be filed within 14 days of service of that order. The IBRD timely moved to quash.

B. Structure of Relevant International Organizations

Respondent IBRD and the International Development Association (IDA) together comprise the World Bank. The IBRD and the IDA join with three other institutions-the IFC, the Multilateral Investment Guarantee Agency, and the International Centre for Settlement of Investment Disputes-to comprise the World Bank Group. The relevant groups here are the IBRD and the IFC.

The IBRD was created in 1944 under Articles of Agreement. See Articles of Agreement of the International Bank for Reconstruction and Development, Dec. 27. 1945, 60 Stat. 1440, as amended, 16 U.S.T. 1942 (IBRD Articles). The President subsequently designated the IBRD a "public international organization" entitled to the protections of the IOIA. See Exec. Order No. 9751, 11 Fed. Reg. 7713 (1946). The IBRD Articles provide for limited waiver of immunity: "Actions may be brought against the Bank only in a court of competent jurisdiction in the territories of a member in which the Bank has an office, has appointed an agent for the purpose of accepting service or notice of process, or has issued or guaranteed securities." IBRD Articles, art. VII, § 3.

The IFC was created in 1955 under its own Articles of Agreement. See Articles of Agreement of the International Finance Corporation, May 25, 1955, 7 U.S.T. 2197, as amended, 24 U.S.T. 1760 (IFC Articles). The President subsequently designated the IFC as a "public international organization" entitled to the protections of the IOIA. See Exec. Order 10680, 21 Fed. Reg. 7647 (1956). The IFC Articles state the purpose of the IFC in relation to the IBRD: "The purpose of the Corporation is to further economic development by encouraging the growth of productive private enterprise in member countries, particularly in the less developed areas, thus supplementing the activities of the International Bank for Reconstruction and Development (hereinafter called the Bank)." IFC Articles, art. I. The Articles further clarify the legal relationship between the IFC and the IBRD: "The Corporation shall be an entity ...


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