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SACE SpA. v. Republic of Paraguay

United States District Court, District of Columbia

March 21, 2017

SACE SPA., Plaintiff,
v.
THE REPUBLIC OF PARAGUAY, Defendant.

          MEMORANDUM OPINION

          KETANJI BROWN JACKSON United States District Judge

         Plaintiff SACE S.p.A. ("SACE") is an Italian joint stock corporation that has brought the instant action seeking to enforce two foreign money judgments against Defendant Republic of Paraguay ("Paraguay"). SACE claims that it holds all rights to two Swiss money judgments that are "enforceable against Paraguay under the laws of Switzerland[, ]" (Compl., ECF No. 1, ¶¶ 12, 16); it has filed the instant action pursuant to the District of Columbia's Uniform Foreign-Country Money Judgment Recognition Act of 2011, ("the D.C. Recognition Act"), D.C. Code §§ 15-361-71, seeking a court order that enters judgment against Paraguay for the U.S.-dollar equivalent of the amount of the Swiss awards, along with specified categories of interest. (See Compl., Relief Requested ¶ B.) Significantly for present purposes, SACE's complaint maintains that this Court has subject matter jurisdiction to entertain this enforcement action as provided under the Foreign Sovereign Immunities Act ("FSIA" or "the Act"), 28 U.S.C. §§ 1602-11, because Paraguay (a foreign state defendant) waived its sovereign immunity with respect to the loan transactions upon which the Swiss money judgments are based. (See Compl. ¶ 1.) See also 28 U.S.C. § 1605(a)(1) (authorizing jurisdiction over a foreign state in a case "in which the foreign state has waived its immunity either explicitly or by implication").

         Before this Court at present is Paraguay's motion to dismiss SACE's complaint for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). (Def.'s Mem. in Supp. of Def.'s Mot. to Dismiss ("Def.'s Mem."), ECF No. 13-2.) Among other things, Paraguay insists that there was no valid waiver of sovereign immunity under section 1605(a)(1) of the FSIA because SACE does not, and cannot, allege that the Paraguayan official who purportedly effected an explicit waiver of Paraguay's sovereign immunity was actually authorized to do so. (See Id. at 25-35).[1]SACE responds that section 1605(a)(1) does not require actual authority to waive the sovereign immunity of the foreign state, and that the circumstances it alleges in the complaint are sufficient to give rise to a reasonable belief that the pertinent official had such waiver authority-i.e., that the alleged facts demonstrate there was apparent authority to waive sovereign immunity. (Pl's Opp'n to Def.'s Mot. to Dismiss ("Pl's Opp'n"), ECF No. 16, at 23-30.)

         For the reasons explained below, this Court agrees with Paraguay that the waiver provision of the FSIA requires actual authority to waive the foreign state's sovereign immunity, which is indisputably lacking in this case. This Court further finds that, even if apparent authority can suffice to trigger the FSIA's waiver provision, any belief that the Paraguayan official at issue here had the authority to waive Paraguay's sovereign immunity was unreasonable, given the fact the official was not a duly-accredited ambassador or otherwise vested with the power to act on Paraguay's behalf in this regard, and was also patently engaged in self-dealing when he made the waiver representations. Consequently, this Court concludes that it lacks subject-matter jurisdiction to entertain SACE's enforcement action, and as a result, Paraguay's motion to dismiss SACE's complaint must be GRANTED. A separate order consistent with this Memorandum Opinion will follow.

         I. BACKGROUND

         A. Factual Background

         Unless otherwise noted, the following allegations of fact appear in SACE's complaint and the attached exhibits. (See Compl.; see also Compl. Exs. A-L, ECF Nos.1-3 to 1-14.) In particular, the recitation below draws heavily from the two Swiss court decisions that announce the money judgments that SACE seeks to enforce in this lawsuit. (See J. of Civil Chamber of the Geneva Court of Justice, Sept. 3, 2004 ("2004 Swiss Judgment"), Compl. Ex. A, ECF No. 1-3; J. of the Tribunal of First Instance, Sept. 30, 2010 ("2010 Swiss Judgment"), Compl. Ex. C, ECF No. 1-5; see also Compl. ¶¶ 7, 11 (incorporating by reference the facts set forth in the Swiss court decisions).)

         1. The Construction Projects That Paraguay Purportedly Authorized And Guaranteed

         In the mid-1980s, two privately owned Paraguayan companies-Rosi SA ("Rosi") and Compania Industrial Agro-forestal Lapachos de Sanlsidro SA ("Lapachos")-entered into "Construction and Supply" contracts with certain Italian construction companies that agreed to undertake substantial building projects in Paraguay. (See 2004 Swiss Judgment at 3, 10.) Specifically, in May of 1986, Rosi agreed to pay U.S. $25 million for the construction of a fruit-preserve factory (id. at 3), and in January of 1987, Lapachos agreed to pay 50 million Deutsche Marks for a pharmaceutical plant (id. at 10). Before entering into its contract, Rosi apparently received a letter from Paraguay's Ministries of Finance and of Industry and Trade that indicated that the "government had deemed the establishment of the fruit preserve factory as a high priority[.]" (2004 Swiss Judgment at 4.)[2] Both contracts specifically stated that the multi-million dollar payments that Rosi and Lapachos owed would be financed over a ten-year period through either a bank loan (Rosi) or a credit contract (Lapachos) that was to be executed with specific financial institutions. (See Id. at 3, 10.)

         As part of the financing plan, a part-owner of both Rosi and Lapachos-a man by the name of Gustavo Gramont Berres ("Gramont")-became involved in the negotiation and execution of two Notes Financing Agreements ("NFAs") that Rosi and Lapachos entered into with a banking syndicate that the Overland Trust Banque ("OTB") had organized. (Id. at 4-5.) The NFAs were subject to Swiss law and were the primary source of the funding for the construction contracts. (Id. at 4, 8 (explaining that the Rosi NFA, along with subsequent addendums, covered a loan amounting to 46, 700, 000 SFr.); see also Id. at 10, 13-14 (noting that the Lapachos NFA and supplemental credits financed a loan in the amount of DM 54, 800, 000).)[3]

         Furthermore, and importantly, Gramont also signed two unconditional and irrevocable "Guarantees" on behalf of the Republic of Paraguay in order to secure the loan agreements with the OTB banking syndicate. (See Guaranty of the Republic of Paraguay, June 5, 1986 ("Rosi Guaranty"), Decl. of Lucio Amoruso ("Amoruso Decl.") Ex. 1, ECF No. 16-9; Guaranty of the Republic of Paraguay, Sept. 1, 1987 ("Lapachos Guaranty"), Amoruso Decl. Ex. 2, ECF No. 16-10.) Gramont signed the Rosi guaranty on June 5, 1986, and the Lapachos guaranty on September 1, 1987. (See Rosi Guaranty at 4; Lapachos Guaranty at 4; see also 2004 Swiss Judgment at 5, 10.) The wording in both guarantees was substantially similar: Gramont purported to be "duly authorized" by the "Constitution and Paraguayan law" to execute guarantees of the Rosi and Lapachos loans "in the name of the Paraguayan State[.]" (Rosi Guaranty at 2; Lapachos Guaranty at 2.) Thus, in essence, Gramont purported to make the country of Paraguay a guarantor with respect to the repayment of any outstanding amount that Rosi or Lapachos were obligated to pay to the OTB banking syndicate under the NFAs. (See Rosi Guaranty at 2-3; Lapachos Guaranty at 2-3.) Moreover, in each of the guaranty documents, Gramont specifically represented that "all disputes arising from the 'NFA' Agreement and the Guaranty shall be brought before the Swiss courts whose jurisdiction [Paraguay] accepts irrevocably, " and that "[Paraguay] hereby expressly waives the privileges of immunity of jurisdiction and the enforcement privilege that may be granted to it[.]" (Rosi Guaranty at 4; Lapachos Guaranty at 4.)

         With the construction contracts and financing arrangements complete, OTB then contracted with SACE-an Italian agency that provides insurance for export risks-to insure the banks in the syndicate against the risk of non-repayment on the part of Rosi and Lapachos, and the risk of nonpayment by Paraguay in its capacity as guarantor. (See 2004 Swiss Judgment at 6-7, 12.) Then, in anticipation of each of Rosi's biannual repayment dates, the first of which was scheduled for March 12, 1990, OTB sent letters to Rosi and to Paraguay beginning in September of 1989, "informing [them] of the amount of the principal and interest due on this due date" pursuant to Rosi's NFA. (2010 Swiss Judgment ¶ 16.) OTB likewise wrote Lapachos and Paraguay regarding the outstanding principal and interest owed by Lapachos on each of its bi-annual repayment dates, the first of which was scheduled for April 17, 1991. (See 2004 Swiss Judgment at 16).

         When the repayment dates arrived, however, both Rosi and Lapachos failed to "honor their [repayment] obligations[, ]" and upon their default, "the banks contacted the Republic of Paraguay so that it would act on its obligations as guarantor." (J. of the Tribunal of First Instance, Oct. 23, 2003, Deck of Ana C. Reyes ("Reyes Deck") Ex. 9, ECF No. 13-12, at 7.) "Paraguay then informed the banks ... on September 11, 1990, that it did not consider itself bound in any way by the commitments signed by [Gramont] (id.) and, in turn, SACE disputed its obligation to insure Paraguay's guarantee (see J. of the Swiss Federal Tribunal, Aug. 20, 1998, Reyes Deck Ex. 11, ECF No. 13-14, at5). And because "the Paraguayan companies Rosi and Lapachos did not repay the loans granted, and neither the Republic of Paraguay nor SACE honored their guarantees, " the banks commenced "legal proceedings before the Court of First Instance in the Canton of Geneva" against Paraguay "to obtain payment of the sums granted, " and against SACE, for a declaratory judgment establishing Paraguay's nonpayment, so that they could thereafter demand satisfaction of the debt from SACE pursuant to the insurance contract. (Id.;see also Compl. ¶ 5.)

         A lengthy period of litigation ensued, involving bifurcated trial-level proceedings on jurisdictional challenges and on the merits, followed by several appeals. On September 3, 2004, the Civil Chamber of the Geneva Court of Justice (the "Court of Justice") ruled in favor of the banks with respect to their claims against Paraguay, and "order[ed] Paraguay to pay a total of 28, 018, 794 [Euros] and 36, 700, 000 SFr." (Id. ¶ 7.)[4] Meanwhile, one of the banks that had participated in the loan financing but had withdrawn its legal claims in the context of the initial litigation-BNP Parib as, London Branch-"commenced a separate proceeding against Paraguay in the Swiss [courts]" on February 6, 2005. (Compl. ¶ 9.) On September 30, 2010, the Swiss courts awarded judgment against Paraguay and in favor of BNP Paribas in the amount of 10, 000, 000 SFr., plus interest. (See Id. ¶11; see also 2010 Swiss Judgment at 16.)

         The banks ultimately settled their claims against SACE in November of 2009, and in the context of the settlement agreement, the banks transferred to SACE their rights to enforce all prior and potential judgments against Paraguay in connection with the Rosi and Lapachos guarantees, including the judgments that the Swiss courts rendered in 2004 and 2010. (See Settlement Agreements, Compl. Exs. D-L, ECF Nos. 1-6 to 1-14.)

         2. Gramont's Title, Role, And Alleged Authority

         The motion to dismiss that Paraguay has filed in the instant action relates to the status and authority of the individual who signed the Guarantees that secured the loan agreements upon which the Swiss money judgments are based. Notably, as suggested above, Gramont wore several different hats with respect to the negotiation and execution of the construction contracts and financing agreements at issue. As the president of both Rosi and Lapachos, Gramont "owned virtually all of the shares of these companies" along with his wife, who was the vice president of Rosi. (See J. of the Swiss Federal Tribunal, May 31, 2005, at 9.) In addition, Gramont happened to be the nephew-in-law of then-Paraguayan President Alfredo Stroessner (see Id. at 3), [5] and when he signed the Rossi and Lapachos loan Guarantees on behalf of the Republic of Paraguay, Gramont apparently relied upon tokens of this relationship, including a presidential decree and certain documents that Paraguay's Minister of Finance had issued, as the source of his authority for doing so. (See Id. at 4.)

         Specifically, Gramont's uncle-in-law had appointed him to serve as Paraguay's "Consul" in Geneva, Switzerland, in November of 1979. (2010 Swiss Judgment ¶ 1; see also Judgment of the Swiss Federal Tribunal, Aug. 20, 1998, at 15-16 (noting that the Republic of Paraguay did not have an Ambassador, embassy, or diplomatic mission to Switzerland at that time).) In 1983, President Stroessner issued a decree that further conferred upon Gramont the title of "Ambassador on special mission" (2010 Swiss Judgment ¶ 2), and thereby entrusted him with "sufficient rank" to "facilitate[e] certain management [steps] related to development programs" for Paraguay. (See Presidential Decree No. 39.808, May 27, 1983, Amoruso Decl. Ex. 3, ECF No. 16-11, at 2; but see also 2010 Swiss Judgment ¶ 1 (emphasizing that Gramont was "never accredited as Ambassador. . . in Switzerland since the accreditation procedures were never completed").)

         Three years later, Paraguay's Minister of Finance, Cesar Barrientos, purportedly clarified the scope of Gramont's official duties and powers in two documents. First, in a letter dated May 22, 1986, Barrientos informed any interested "national and international institutions, organizations and individuals" that, as Ambassador on a Special Mission based in Geneva, Gramont was endowed "with broad powers" and had the authority "not only to promote negotiations, but to receive and sign documents and perform operations related to the execution of programs and projects that will promote" Paraguay's social and economic development. (Letter from the Minister of Finance, Amoruso Decl. Ex. 4, ECF No. 16-12, at 2.) Second, the Ministry of Finance promulgated an official resolution that entrusted Gramont "with the management, presentation, and negotiation of financial transaction[s] to finance investment projects for the socio-economic development" of Paraguay, and that also bestowed upon Gramont a special power of attorney to "sign for the Ministry of Finance of the Republic of Paraguay and/or its Government the necessary documentation" that such transactions may require. (Resolution 1205 of the Ministry of Finance, Oct. 10, 1986, Amoruso Decl. Ex. 5, ECF No. 16-13, at 3.) However, the resolution also specifically clarified that, as a "Diplomatic Representative[, ]" Gramont had to "maintain strict contact and constant coordination with the Ministry" and report on all pertinent transactions. (Id.)

         Ultimately, Paraguayan authorities apparently determined that Gramont did not carry out his assigned mission in an acceptable fashion because, on March 15, 1990, prosecutors filed a criminal complaint that accused Gramont of "utilizing invalid debt instruments to issue supposed 'guarantees' in favor of international financial institutions and backed by public credit in order to pay the private debts" of Rosi and Lapachos, and"illegal[ly] alter[ing] . . .public documents to give an air of authenticity to the supposed guarantees signed by the defendant." (Decision of Paraguayan Criminal Ct. of First Instance, Dec. 30, 1992, Reyes Decl. Ex. 5, ECF No. 13-8, at 6-7.) Gramont was convicted in 1992 in a Paraguayan Criminal Court (see id.), and on December 30, 1997, the Supreme Court of Paraguay sentenced him "to a prison term of seven years for use of forged documents and abuse of his public office[.]" (2010 Swiss Judgment ¶ 18.)[6] Similar criminal charges were brought in Switzerland, but Gramont was not convicted there, due in large part to the fact that he had already served the maximum penalty allowed under Swiss law when he was incarcerated in a Paraguayan prison. (See Id. ¶ 19.)

         B. Procedural History

         As the assignee to the banks' right to enforce the 2004 and 2010 Swiss money judgments, SACE filed a complaint in this Court on July 1, 2015. SACE's complaint invokes the D.C. Recognition Act and requests entry of a judgment in the amount of € 28, 018, 794 and 46, 715, 000 SFr. (converted to U.S. dollars at present-day rates), plus interest (calculated as of the 2010 Swiss Judgment) and post-judgment interest. (See Compl., Relief Requested ¶¶ A-B.)[7] The complaint briefly alludes to the history of the parties' litigation abroad, and further notes that SACE has acquired all rights to the monetary awards in the Swiss judgments pursuant to various settlement agreements. (See Id. ¶¶ 5-13.) SACE acknowledges that "Defendant Paraguay is a foreign state" and, as such, is ordinarily entitled to sovereign immunity (id. ¶ 4), but asserts that the waiver exception in 28 U.S.C. § 1605(a)(1) "is satisfied" here; therefore, this Court has subject matter jurisdiction over the complaint's claims (id. ¶ 1).

         1. Paraguay's Motion to Dismiss

         Paraguay filed a motion to dismiss SACE's complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) on January 21, 2016. The motion argues that SACE has failed to carry its burden of establishing the applicability of the FSIA's waiver exception, and thus Paraguay is entitled to sovereign immunity from suit, for several reasons.

         First, Paraguay argues that Gramont could only have validly waived Paraguay's sovereign immunity for FSIA purposes if he had actual authority to effect such a waiver, and SACE's complaint does not allege "that Gramont had actual authority-as opposed to mere apparent authority-to waive Paraguay's sovereign immunity[.]" (Id. at 26; see also Id. at 30 (explaining that "the Swiss Courts did not consider whether Gramont had authority to waive Paraguay's immunity because they held that, under Swiss law, Paraguay did not have immunity for its commercial acts"). Paraguay insists that SACE's complaint is "plainly deficient" insofar as it lacks allegations of fact regarding Gramont's actual authority to waive Paraguay's sovereign immunity (id. at 32), and Paraguay further asserts that no such facts exist, because Gramont was not actually authorized to waive Paraguay's sovereign immunity under Paraguayan law (see Id. at 32-35).

         Paraguay also maintains that, even if the FSIA permits lawsuits against foreign sovereigns whose immunity was waived by officials with mere apparent authority to effect such as waiver, apparent authority was not present under the circumstances presented here, because "there was no manifestation from the principal (the Government of Paraguay) to third parties (the Banks) that Gramont had authority to waive Paraguay's sovereign immunity[, ]" which the common law of agency requires in order to sustain a claim of apparent authority. (Def. 's Mem. at 36; see also Id. at 36-39 (citing Restatement (Third) of Agency § 3.03 (2006)); Def.'s Reply Mem. in Supp. of Def.'s Mot. ("Def s Reply"), ECF No. 19, at 17-18.) In this regard, Paraguay argues that none of the decrees or letters that SACE highlights "authorized Gramont to bind the Paraguayan fisc to any credit agreement, much less to one in which a company owned by Gramont himself was the primary debtor being indemnified[.]" (Def.'s Mem. at37.) Moreover, Paraguay argues that apparent authority was lacking in any event because the banks plainly failed to "fulfill their [heightened] duty to investigate Gramont's authority" to bind Paraguay prior to entering into the NFAs. (Id. at 36; see also Def.' s Reply at 13 & n.5.)

         In addition to faulting the complaint's allegations regarding Gramont's authority to waive Paraguay's sovereign immunity, Paraguay's motion to dismiss also maintains that SACE should be judicially estopped from arguing that Paraguay waived its sovereign immunity, and that the FSIA's waiver exception does not apply in this case as a matter of law "[b]ecause all the acts underlying the Swiss judgments occurred outside of the United States[.]" (See Def.'s Mem. at 41 (asserting that it would be unfair to allow Plaintiff to "use the purported validity of the guaranties as a sword" in the present suit to support a finding of waiver when in prior proceedings in Swiss and Italian courts SACE was allowed to use "the invalidity of the guaranties as a shield"); see also Id. at 42 ("Nothing in the plain language of the FSIA's waiver exception, § 1605(a)(1), suggests that Congress intended that exception to grant jurisdiction over extraterritorial disputes.").)

         2. SACE's Opposition To ...


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