Mortimer Off Shore Servs., Ltd. v. The Fed. Republic of Germany, No. 08-1783 (2d Cir. 2010)
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08-1783-cv (L), 08-2358-cv (XAP) Mortimer Off Shore Servs., Ltd. v. The Fed. Republic of Germany 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 4 August Term 2008 5 (Argued: May 13, 2009 6 7 Docket Nos. Decided: July 26, 2010) 08-1783-cv (L), 08-2358-cv (XAP) -----------------------------------------------------x 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 MORTIMER OFF SHORE SERVICES, LTD., 23 Services, Ltd. appeals from the judgment of the United States 24 District Court for the Southern District of New York (Lynch, 25 Judge) dismissing Mortimer s action to enforce bearer bonds 26 valued at $400,000,000 against Defendant-Appellee-Cross-Appellant 27 the Federal Republic of Germany ( FRG ) for failure to state a 28 claim. 1 2 Plaintiff-Appellant-Cross-Appellee, -- v. -THE FEDERAL REPUBLIC OF GERMANY, Defendant-Appellee-Cross-Appellant. -----------------------------------------------------x B e f o r e : WALKER, WESLEY, and WALLACE,* Circuit Judges. Plaintiff-Appellant-Cross-Appellee Mortimer Off Shore Mortimer also appeals from the denial of its subsequent * The Honorable J. Clifford Wallace, of the United States Court of Appeals for the Ninth Circuit, sitting by designation. 1 1 motions to amend the judgment and for leave to file an amended 2 complaint. 3 to dismiss for lack of subject matter jurisdiction pursuant to 4 the Foreign Sovereign Immunities Act, 28 U.S.C. § 1602 et seq. The FRG cross-appeals from the denial of its motion 5 On appeal, we AFFIRM the district court s dismissal of 6 Mortimer s action for failure to state a claim with regard to the 7 Bonds issued in territory that became West Germany. 8 with the district court that Mortimer cannot seek to enforce the 9 West German Bonds without first complying with the statutory We agree 10 validation procedures aimed to ensure that the Bonds represent 11 valid, legal obligations. 12 dismiss with regard to the Bonds issued in territory that became 13 East Germany, however, we do so on alternative grounds. 14 the FRG s motion to dismiss for lack of subject matter 15 jurisdiction with respect to the East German Bonds because 16 Mortimer failed to allege an action [by East Germany or the FRG] 17 . . . based upon a commercial activity. 18 that, if proven, would give rise to jurisdiction over a foreign 19 sovereign. 20 Mortimer s motions to amend the judgment and for leave to file an 21 amended complaint in regard to both the West German Bonds and the 22 East German Bonds. We further AFFIRM the motion to We grant 28 U.S.C. § 1605(a)(2), Finally, we AFFIRM the district court s denial of 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 PEDER A. GARSKE (Mark A. Cymrot & Mark W. DeLaquil, on the brief), Baker & Hostetler LLP, Washington, DC,for Plaintiff-Appellant-CrossAppellee. JEFFREY HARRIS (Max Riederer von Paar & Walter E. Diercks, on the brief), Rubin, Winston, Diercks, Harris & Cooke, LLP, Washington, DC, for Defendant-Appellee-CrossAppellant. Tai-Heng Cheng, Associate Professor of Law & Associate Director, Center for International Law, New York Law School, New York, NY (Roger P. Alford, Professor of Law, Pepperdine University School of Law, Malibu, CA, of counsel), for Amici Curiae Supporting PlaintiffAppellant-Cross-Appellee. JOHN M. WALKER, JR., Circuit Judge: 25 Plaintiff-Appellant-Cross-Appellee Mortimer Off Shore 26 Services, Ltd. ( Mortimer ) appeals from the dismissal by the 27 United States District Court for the Southern District of New 28 York (Gerard E. Lynch, Judge) of Mortimer s action to enforce 351 29 bearer bonds ( Bonds ) valued at over $400,000,000 (as of the 30 filing of the complaint) against the Federal Republic of Germany 31 ( FRG )1 for failure to state a claim. 1 2 3 4 5 6 7 8 1 See Mortimer v. The Fed. The Federal Republic of Germany has existed since 1949, but only included in its territory that of the former German Democratic Republic beginning in 1990, when the two countries unified. Throughout our decision, FRG refers to the presentday Federal Republic of Germany, post-unification, West Germany refers to the Federal Republic of Germany prior to unification, and East Germany refers to the former German Democratic Republic. 3 1 Republic of Germany, No. 05 Civ. 10669 (GEL), 2007 WL 2822214 2 (S.D.N.Y. Sept. 27, 2007). 3 assumed liability for the Bonds, which were issued after the 4 First World War by banks located in the state of Prussia in 5 territory later comprising West Germany and East Germany. 6 The complaint alleged that the FRG We hold that Mortimer s claim seeking to enforce the Bonds 7 issued in territory that became East Germany ( East German 8 Bonds ) must be dismissed for lack of subject matter 9 jurisdiction, because Mortimer failed to allege an action [by 10 East Germany or the FRG] . . . based upon a commercial activity, 11 28 U.S.C. § 1605(a)(2), that, if proven, would give rise to 12 jurisdiction over a foreign sovereign. 13 Mortimer cannot seek to enforce the Bonds issued in territory 14 that became West Germany ( West German Bonds ) without first 15 complying with the statutory validation procedures aimed to 16 ensure that the Bonds represent valid, legal obligations. 17 We further hold that Next, Mortimer appeals from the denial of its subsequent 18 motions to amend the judgment and for leave to file an amended 19 complaint. 20 because the proposed amended complaint did not cure the original 21 complaint s deficiencies, either by providing a basis for subject 22 matter jurisdiction to enforce the East German Bonds, or by 23 showing that the validation procedures do not apply to the West 24 German Bonds. We determine that leave to amend would be futile 4 1 Accordingly, we affirm the district court s dismissal of 2 Mortimer s action in regard to both the West German Bonds and the 3 East German Bonds, and we affirm its denial of Mortimer s motions 4 to amend the judgment and for leave to file an amended complaint 5 in regard to both the West German Bonds and the East German 6 Bonds. BACKGROUND 7 8 9 Mortimer possesses 351 bearer bonds entitled German Provincial & Communal Bank Consolidated Agricultural Loan Secured 10 Sinking Fund Gold Bonds Series A ( Agricultural Bonds ) that 11 have a face amount of $25,000,000 and that, as of the 12 commencement of this action in December 2005, were estimated to 13 exceed $400,000,000 in value. 14 Mortimer brought this action to recover the outstanding principal 15 and interest under the Bonds from the FRG. 16 Mortimer, 2007 WL 2822214, at *2. On June 1, 1928, a consortium of fourteen provincial banks 17 ( obligor banks ) within the state of Prussia, a political 18 subdivision of the German Reich, issued the Bonds and then loaned 19 the proceeds to farmers as part of a Prussian program for 20 improving agricultural conditions. 21 Prussia allegedly guaranteed the obligor banks obligations under 22 the Bonds. 23 constituting West Germany and East Germany, which have since been Id. at *1. The state of The obligor banks were located within territory later 5 1 reunified to make up the present-day FRG.1 2 coupons from December 1944 and matured on June 1, 1958. 3 thirty-year Bonds were listed on the New York Stock Exchange, 4 were marketed in the Southern District of New York, were made 5 payable . . . in the Borough of Manhattan, New York City, and 6 entitle[d] the holder to payment upon demand. 7 & 13) 8 liable for a value of the Bonds proportionate to its share of the 9 underlying loans, and obligor banks located in West Germany and 10 East Germany are liable for 35.5 and 64.5 % of the Bonds debt, 11 respectively. The Bonds contained The (Compl. ¶¶ 6, 8, According to Mortimer, each obligor bank is severally Mortimer, 2007 WL 2822214, at *1. 12 13 The FRG asserts on appeal that only nine of the issuer banks are located in its territory, and that the other five are located in present-day Poland and Russia. However, the FRG cites no support for this proposition, which is contradicted by its own representations to the district court. At the February 16, 2007 district court proceedings, Judge Lynch had the following exchange with Mortimer: [MORTIMER S COUNSEL]: Well, it s a question of fact as to where the issuers were actually located and whether the law-THE COURT: But that s not in dispute. We know who the 14 issuers were; there s no factual dispute about where those banks were located. You can give me a map and point to where the boundaries of the former VRD [sic] and the former democratic republic were, and nobody is fighting about that, we don t need discovery, everybody knows where the banks were. (Tr. 35:5-12.) At no point during these proceedings did the FRG contend that some of the obligor banks were in Poland, Russia, or anywhere outside of former West German and East German territory. 6 1 I. Historical and Legal Background 2 A. German History 3 The FRG, as it exists today[,] is the product of a long, 4 contentious, and disparate history. 5 European Union, Germany, and the Länder: 6 Political Relations in Europe, 5 Colum. J. Eur. L. 415, 417 7 (1999). 8 Heiliges römisches Reich (Holy Roman Empire or First Reich ), 9 consisted of several hundred discrete political units. 10 Martin A. Rogoff, The New Patterns of For many centuries, German territory, then part of the Id. The modern German nation-state was formed in 1871, when most 11 of these units were united into one [centralized] state under 12 the leadership of [the Kingdom of] Prussia, id., a monarchy, and 13 officially called the Deutsches Reich ( German Reich or Second 14 Reich ). 15 abdicated his throne and the Deutsches Reich was declared the 16 Weimar Republic.2 17 or Länder, the largest of which was the Free state of Prussia, 18 Michael Stolleis, A History of Public Law in Germany, 1914-1945, 19 108-09 (Thomas Dunlap trans., Oxford Univ. Press 2004), that 20 encompassed territory later comprising both West Germany and East 1 2 3 4 5 6 In 1919, after World War I ended, the King of Prussia The German Reich was made up of several states 2 Mortimer s complaint alleged that the FRG succeeded to the debts of the German Reich. (Compl. ¶ 11.) Because Mortimer seeks to enforce bonds issued in 1928, during which German territory was part of the Weimar Republic s Deutsches Reich, we interpret Mortimer s references to, and employ the term, German Reich to refer to the Weimar Republic. 7 1 Germany. 2 In 1933, as a result of growing discontentment with the 3 Weimar government, the Nazi Party rose to power and Adolf Hitler 4 was appointed Chancellor of Germany. 5 the Drittes Reich ( Third Reich ), formally abolished the Länder 6 parliaments, Rogoff, 5 Colum. J. Eur. L. at 418, and became a 7 centralized totalitarian state. 8 dictatorship, the Third Reich invaded Poland, and in 1941, 9 attacked the Soviet Union and declared war on the United States, Over the next few years, In 1939, under Hitler s 10 thereby beginning World War II in Europe. 11 L. Shirer, The Rise and Fall of the Third Reich: 12 Nazi Germany (1960). 13 See generally William A History of In 1949, four years after World War II ended, the western 14 eleven Länder that were controlled by France, the United Kingdom, 15 and the United States merged to form West Germany, a market 16 economy, and the five Länder in the eastern sector occupied by 17 the Soviet Union became East Germany, a communist Eastern block 18 state that remained under the Soviet Union's political and 19 military control. 20 21 On October 3, 1990, West and East Germany were reunified, thereby creating the present-day FRG. 22 B. 23 After the First World War, German enterprises sold a large 24 Foreign Currency Bonds number of bearer bonds which were underwritten, marketed, and 8 1 payable in the United States. See Abrey v. Reusch, 153 F. Supp. 2 337, 339-42 (S.D.N.Y. 1957) (detailing the history of the 3 validation laws and treaties relating to the bearer bonds); Dix 4 v. Comm r, 34 T.C. 837, 838-39 (1960) (same); J. L. Simpson, The 5 Agreement on German External Debts, 6 Int l & Comp. L.Q. 472, 6 472-86 (1957) (same). 7 repurchased many of these bonds for eventual retirement and 8 submitted them to meet sinking fund and amortization 9 requirements. Prior to World War II, the issuers Abrey, 153 F. Supp. at 339. After World War II 10 began, it became impossible to present such bonds to the 11 American trustees or paying agents for cancellation. 12 result, German bank vaults held large numbers of reacquired, 13 yet uncancelled foreign currency bonds, in negotiable form, that 14 no longer represented valid obligations. 15 Id. As a Id. After Germany surrendered in 1945, Russian occupation forces 16 seized and returned to circulation many such bonds with an 17 estimated total face value of $350,000,000, while bona fide 18 purchasers possessed approximately $250,000,000 in valid bearer 19 bonds. 20 significant problem, both domestically and internationally, as 21 there was a 22 23 24 25 26 Id. The invalid, but uncancelled bearer bonds posed a real possibility that the eventual holders of the looted bonds would share the available assets . . . of the German obligors equally with the legitimate bondholders, a large number of whom were nationals of the United States. Moreover, the free and open trading in the 9 1 2 3 4 United States of all German Dollar Bonds was impeded by the [resulting] uncertainties . . . . Id. 5 integral to the issues on appeal and several legislative acts and 6 treaties that West Germany and the United States subsequently 7 signed. 8 9 This problem of reacquired, yet uncancelled bonds is The parties have asserted that the following laws, agreements, and treaties bear on the question of whether the FRG 10 has assumed liability for the Bonds Mortimer seeks to enforce: 11 (1) the Validation Law3 and accompanying 1953 Treaty,4 (2) the 12 London Debt Accord,5 (3) the 1960 Treaty,6 and (4) the 13 Unification Treaty.7 14 of each of these documents. 1 2 3 4 5 3 1 2 3 4 1 2 5 1 2 3 6 1 2 3 4 5 6 7 We briefly summarize the relevant portions 7 Gesetz zur Bereinigung von deutschen Schuldverschreibungen, die auf ausländishe Währung lauten (Bereinigungsgesetz für deutsche Auslandsbonds AuslWBG) [Validation Law for German Foreign Currency Bonds], Aug. 25, 1952, BGBl.I, at 553 (F.R.G.), translated in BGBl.II, at 305 (hereinafter Validation Law). Certain Matters Arising from the Validation of German Dollar Bonds, U.S.-F.R.G., Apr. 1, 1953, 4 U.S.T. 886, T.I.A.S. No. 2794 (entered into force Sept. 16, 1953) (hereinafter 1953 Treaty). Agreement on German External Debts, U.S.-F.R.G., Feb. 27, 1953, 4 U.S.T. 445 (hereinafter London Debt Accord). Second Agreement Regarding Certain Matters Arising from the Validation of German Dollar Bonds, U.S.-F.R.G., Aug. 16, 1960, 12 U.S.T. 944 (hereinafter 1960 Treaty). Vertrag zwischen der Bundesrepublik Deutschland und der Deutchen Demokratischen Republik über die Herstellung der Einheit Deutschlands (Einigungsvertrag) [The Treaty between the Federal Republic of Germany and the German Democratic Republic on the Establishment of German Unity (Unification Treaty)], Aug. 31, 1990, BGBl.II, at 889, translated in 30 I.L.M. 457 (hereinafter Unification Treaty). 10 1 2 1. Validation Law and 1953 Treaty The 1953 Treaty and Validation Law were part of the overall 3 process of quelling uncertainty about, and facilitating the 4 orderly settlement of, debts owed by territory that became West 5 Germany after World War II, 1953 Treaty, 4 U.S.T. at 888. 6 Specifically, the 1953 Treaty, to which West Germany, the United 7 States, and various other Western Allied nations were 8 signatories, incorporated by reference the 1952 Validation Law, 9 see id., pursuant to which West Germany allegedly assumed 10 liability for certain specified foreign currency bonds issued 11 before the end of World War II, see Validation Law, BGBl.II, at 12 327, Schedule C.IV, and implemented a series of procedures to 13 determine the validity of such bonds and to screen out invalid 14 ones. 15 this case, are included in the schedule of foreign currency bonds 16 covered by the Validation Law, see id. at 327, Schedule C.IV 17 (19), and therefore subject to the Validation Law s procedures, 18 see id. at 306, Arts. 1-2. 19 The Agricultural Bonds, the category of bonds at issue in The Validation Law requires, inter alia, that the specified 20 bonds held on January 1, 1945, outside West German borders as 21 they existed in 1937, be registered, submitted along with 22 relevant evidence, and validated after an administrative hearing 23 by a Board for the Validation of German Bonds in the United 24 States ( Validation Board ) in Germany or the country of 11 1 offering. 2 310-11, Art. 23. 3 4 See id., at 306, Art. 3; id. at 407, Art. 8; id. at 2. London Debt Accord Negotiated contemporaneously in 1953, the London Debt Accord 5 signed by West Germany, the United States and several other 6 nations, but not East Germany aimed to remove obstacles to 7 normal economic relations with other nations and to 8 facilitat[e] a resumption of payments on [its] external debts. 9 London Debt Accord, 4 U.S.T. at 446. The London Debt Accord 10 represented the culmination of the parties settlement 11 negotiations respecting West Germany s pre-World War II external 12 debts. 13 & Comp. L.Q. at 472-74. 14 to satisfy its pecuniary obligations arising out of loan or 15 credit contracts entered into before 8th May, 1945. 16 Accord, 4 U.S.T. at 448, Art. 4(1)(b). 17 repeal the validation requirements, stating that [o]nly such 18 creditors shall be entitled to benefit under [the Accord], as . . 19 . accept the offer, or, in the case of other debts, assent to the 20 establishment in accordance with such provisions of terms of 21 payment and other conditions in respect of such debts. 22 453, Art. 15(1). 23 24 See Simpson, Agreement on German External Debts, 6 Int l West Germany agreed, in relevant part, London Debt In doing so, it did not Id. at The parties to the London Debt Accord anticipated the possibility of the reunification of West Germany and East Germany 12 1 by agreeing to review the present Agreement and to mak[e] 2 equitable adjustments respecting East Germany s debts upon 3 reunification. 4 from delineating what those adjustments would be. 5 despite the discussion of East Germany s debts, the London Debt 6 Accord did not obligate West Germany, after reunification, to 7 compensate holders of bonds issued in what became East Germany 8 after reunification. 9 3. Id., at 459, Art. 25. However, they refrained As such, See id. 1960 Treaty 10 Seven years later, West Germany and the United States 11 executed the 1960 Treaty, which amended the 1953 Treaty by 12 extending the Validation Law to seven categories of bonds issued 13 by utilities and mining corporations in territory that became 14 East Germany. 15 Treaty, however, did not extend the Validation Law to the 16 Agricultural Bonds issued in the territory that became East 17 Germany. 18 4. See 1960 Treaty, 12 U.S.T. at 944-45. The 1960 Unification Treaty 19 On August 31, 1990, West Germany and East Germany signed the 20 Unification Treaty reuniting the two nations into the present-day 21 FRG. 22 limitations, West Germany s then-existing laws and legal 23 obligations continued to be valid and were extended to the former 24 East Germany: Unification Treaty, BGBl.II, at 889. Subject to certain West German federal law applied in former East 13 1 German territory unless [a given law s] area of applicability 2 [wa]s restricted to [West Germany] and unless otherwise provided 3 in this Treaty, notably Annex I, id. at 469-70, Art. 8, as did 4 international treaties . . . to which [West Germany wa]s a 5 contracting party, id. at 471, Art. 11. 6 Article 11 then provided exceptions for the treaties named 7 in Annex I. 30 I.L.M. at 471. Annex I, in turn, prohibited 8 the entry into force of federal law of the Securities 9 Validation Act in the revised version published in Part III of 10 the Federal Law Gazette under no. 4139-2, as most recently 11 amended by Article 95(3) of the Law of December 14, 1976 (BGBl.1, 12 p.3341). 13 available at http://www.juris.de (German Ministry of Justice, 14 juris GmbH). 15 Validation Law was not extended to cover the East German Bonds. 16 Unification Treaty, App. I Ch. IV.A.I(9), translation Mortimer alleges that this language means that the The Unification Treaty also provided that the FRG shall 17 take over the sureties, guarantees and warranties assumed by 18 [East Germany] and debited to its state budget prior to 19 unification. 20 II. Unification Treaty, 30 I.L.M. at 479, Art. 23(6). Procedural Background 21 A. Original Complaint 22 In December 2005, Mortimer commenced this action, claiming 23 that the FRG guaranteed, succeeded to, and/or assumed [liability 24 for] the outstanding and unpaid principal and interest under the 14 1 Bonds. 2 (Compl. ¶ 11.) In June 2006, the FRG filed a motion to dismiss this action 3 pursuant to Federal Rules of Civil Procedure 12(b)(1) and 4 12(b)(6), for lack of subject matter jurisdiction pursuant to the 5 Foreign Sovereign Immunities Act (the FSIA ), 28 U.S.C. § 1602 6 et seq., and for failure to state a claim, respectively. 7 Mortimer, 2007 WL 2822214, at *2, 6. 8 submitted declarations of support from two of its attorneys 9 asserting first, that discovery was necessary to determine the See In response, Mortimer 10 scope and validity of the Validation Law, the validation 11 procedures, and the Reunification Treaty, and second, that after 12 unification, the validation procedures no longer apply. 13 On September 27, 2007, the district court denied the FRG s 14 motion to dismiss for lack of subject matter jurisdiction. 15 Mortimer, 2007 WL 2822214, at *6. 16 assumption of garden-variety bond liability to routine, private 17 commercial transactions, the district court held that the FSIA s 18 commercial activity exception, 28 U.S.C. § 1605(a)(2), applies, 19 thereby conferring subject matter jurisdiction over this case. 20 Mortimer, 2007 WL 2822214, at *4-6.8 1 2 3 4 5 6 7 8 8 Analogizing the FRG s alleged The district court also found unavailing the FRG s contention that its alleged assumption of liability pursuant to an international treaty was not commercial and only constituted a political act. See Mortimer, 2007 WL 2822214, at *5-6. We consider this argument abandoned, because the FRG did not reassert it on appeal. See Storey v. Cello Holdings, L.L.C., 347 F.3d 370, 380 n.6 (2d Cir. 2003) (holding that a party abandoned an argument by failing to raise it in its appellate brief). 15 1 The district court, however, granted the FRG s motion to 2 dismiss on the basis that Mortimer s complaint failed to state a 3 claim. 4 private parties, sovereigns can only assume liability for debt of 5 predecessor states through explicit acts that leave traces in 6 legal documents. 7 respect to the West German Bonds, the district court determined 8 that the Validation Law is the only apparent source of [the 9 FRG] s liability, id. at *7, and that Mortimer could not Id. at *11. The district court noted that unlike Id. at *9 (emphasis in original). With 10 receive relief on its claim because it had not yet complied 11 with the administrative process created by the Validation Law, 12 id. at *11. 13 found that West Germany had not assumed liability under the 14 London Debt Accord, and that, even assuming arguendo that West 15 Germany had done so by way of the Validation Law and 1953 Treaty, 16 Mortimer s failure to comply with [the validation procedures] 17 doom[ed] [its] claim. 18 concluded that Mortimer did not affirmatively plead the source 19 of [the FRG] s obligation to satisfy the Bonds, id. at *8, and 20 thus failed to state a claim to relief that is plausible on its 21 face, id. at *6 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 1 2 3 4 5 As for the East German Bonds, the district court Id. at *10.9 9 The district court The district court did not discuss whether East Germany assumed liability for the East German Bonds, although it impliedly rejected such a conclusion by requiring Mortimer to affirmatively plead the source of the FRG s alleged assumption of liability for the Bonds. 16 1 544, 570 (2007)). 2 B. Proposed Amended Complaint 3 On December 12, 2007, Mortimer filed motions pursuant to 4 Federal Rule of Civil Procedure 59(e) to amend the judgment and 5 for leave to file an amended complaint. 6 German Bonds, the proposed amended complaint alleged that the 7 London Debt Accord and 1953 Treaty do not require bondholders 8 seeking to enforce their bonds against the FRG to comply with the 9 validation procedures, and that, in any event, the Validation Law With respect to the West 10 no longer applies after unification. As for the East German 11 Bonds, the proposed amended complaint listed various acts of 12 recognition by which Mortimer alleged that the FRG repeatedly 13 recognized its obligation for the pre-war external debt of the 14 German Reich and the [s]tate of Prussia. 15 15.) 16 Unification Treaty exempts the East German Bonds from the 17 validation procedures. (Proposed Am. Compl. ¶ The proposed amended complaint also averred that the 18 On April 9, 2007, the district court denied Mortimer s 19 motion as essentially an effort to reargue the basic rationale 20 underlying the dismissal of the claim. 21 10669, Order at 1. 22 added allegations that the FRG adopted the obligations of former 23 East Germany by taking over its territory and by entering into 24 the Unification Treaty of 1990 d[id] not explain how the former Mortimer, No. 05 Civ. The district court reasoned that Mortimer s 17 1 East German state assumed any liability on the [B]onds, or how 2 the provisions of the Validation Law [were] overcome. 3 district court also concluded that the relation of the present 4 Federal Republic to the pre-war governments of Germany is a 5 classic example of state succession and not simply a change of 6 government. Id. The Id. at 2. 7 Mortimer appealed, challenging both the dismissal of its 8 complaint for failure to state a claim, and the denial of its 9 motions to amend the judgment and for leave to file an amended 10 complaint. The FRG cross-appealed, challenging the district 11 court s holding that it had subject matter jurisdiction over 12 Mortimer s claim under the FSIA.10 DISCUSSION 13 14 I. Subject Matter Jurisdiction Pursuant to the FSIA 15 The FSIA, which is the sole source for subject matter 16 jurisdiction over any action against a foreign state, 17 Republic of Ghana, 165 F.3d 193, 196 (2d Cir. 1999), provides 18 that a foreign sovereign shall be immune from the jurisdiction 19 of the courts of the United States, 28 U.S.C. § 1604, unless one 20 of the FSIA s exceptions applies, 28 U.S.C. §§ 1605-07. 21 deciding subject matter jurisdiction pursuant to the FSIA, we 1 2 3 4 10 Cabiri v. In Tai-Heng Cheng, Associate Professor of Law at New York Law School, and Roger P. Alford, Professor of Law at Pepperdine University School of Law, filed an amici curiae brief in support of Mortimer. 18 1 review district court factual findings for clear error and legal 2 conclusions de novo. 3 Minyak Dan Gas Bumi Negara, 313 F.3d 70, 80 (2d Cir. 2002). 4 Karaha Bodas Co. v. Perusahaan Pertambangan The burden is on the defendant seeking sovereign immunity to 5 show it is a foreign sovereign. Matar v. Dichter, 563 F.3d 9, 12 6 (2d Cir. 2009). 7 then shifts to the plaintiff to show that a FSIA-enumerated 8 exception to sovereign immunity applies. 9 the context of a Rule 12(b)(1) motion based on factual If the defendant makes this showing, the burden Id. Under the FSIA, in 10 insufficiency, a court may look beyond the pleadings, to the 11 evidence properly before it, and assess the substance of the 12 allegations to determine whether one of the exceptions to the 13 FSIA's general exclusion of jurisdiction over foreign sovereigns 14 applies. 15 court should make this determination recognizing that a motion 16 to dismiss based on an assertion of sovereign immunity has 17 particular significance because . . . [s]overeign immunity under 18 the FSIA is immunity from suit, not just from liability. 19 Robinson, 269 F.3d at 141 (internal quotation omitted). 20 21 Id. at 140 & n.6 (citations omitted). The district The question we must answer in this case is whether the commercial activity exception to foreign sovereign immunity 19 1 provided by section 1605(a)(2) of the FSIA applies. Section 2 1605(a)(2) states, in relevant part, that a foreign state is not 3 immune where 4 5 6 7 8 9 10 11 12 13 the action is based [i] upon a commercial activity carried on in the United States by the foreign state; or [ii] upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or [iii] upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States. 28 U.S.C. § 1605(a)(2). 14 section 1605(a)(2) to establish jurisdiction; thus, we need 15 consider only whether this lawsuit is (1) based . . . upon an 16 act outside the territory of the United States ; (2) that was 17 taken in connection with a commercial activity of [the foreign 18 state] outside this country; and (3) that cause[d] a direct 19 effect in the United States. 20 Weltover, Inc., 504 U.S. 607, 611 (1992) (quoting 28 U.S.C. § 21 1605(a)(2). 22 took place outside of the United States and caused direct effects 23 in the United States. 24 Accordingly, our concern is whether, upon the complaint, an 25 alleged act occurred and, if so, whether it occurred in 26 connection with a commercial activity of the foreign state. Mortimer relies upon the third clause of Republic of Argentina v. The parties agree that the alleged acts at issue Mortimer, 2007 WL 2822214, at *3. 20 28 1 U.S.C. § 1605(a)(2). If either of these did not occur then the 2 foreign state enjoys sovereign immunity under the FSIA and the 3 claim against the state must be dismissed for lack of subject 4 matter jurisdiction. 5 We begin our analysis by identifying the particular conduct 6 on which [Mortimer s] action is based for purposes of the Act. 7 Saudi Arabia v. Nelson, 507 U.S. 349, 356-57 (1993) (internal 8 citation omitted). 9 claim that, if proven, would entitle [Mortimer] to relief under The act is defined by the elements of a 10 [its] theory of the case. 11 the basis of Mortimer s action is the assumption of liability by 12 the FRG, and earlier by West Germany and East Germany, for the 13 Bonds issued by banks in the territory that became West Germany 14 and East Germany. 15 Id. The alleged conduct that forms The next step in our analysis is to determine (a) whether 16 the foreign state (in this case, the FRG, West Germany, or East 17 Germany) actually assumed liability for the Bonds, (b) whether 18 the state committed an action in doing so, and (c) whether the 19 assumption of liability was an action in connection with a 20 commercial activity of the state that assumed liability. 21 Mortimer seeks to recover bonds issued by banks in the territory 21 1 that became both West Germany and East Germany, and we address 2 each in turn. 3 4 A. The West German Bonds Mortimer s original complaint contended that West Germany, 5 and subsequently the FRG, assumed liability for the Bonds, 35.5% 6 of which were issued in what later became West Germany. 7 alleged that West Germany obligated itself to honor the terms of 8 these bonds by enacting the Validation Law, see Validation Law, 9 BGBl.II at 306, Arts. 1-3; id. at 327, Schedule C.IV, and by It 10 adopting the 1953 Treaty; it further alleged that upon 11 reunification the FRG agreed to honor West Germany s laws and 12 treaties, resulting in the FRG s assumption of West Germany s 13 obligation for its share of the Bonds. 14 30 I.L.M. at 471, Art. 11. 15 did not assume liability for any bonds that were issued in what 16 later became West Germany and that, pursuant to the London Debt 17 Accord, its responsibility in relation to properly validated West 18 German Bonds was only that of a transfer agent. 19 determine the FRG s obligations respecting properly validated 20 West German Bonds to resolve this appeal because the FRG waived 21 its transfer agent argument by failing to present it to the See Unification Treaty, The FRG disagrees, contending that it 22 We need not 1 district court. 2 449 F.3d 435, 446 (2d Cir. 2006) (failure to raise an argument 3 below generally bars appellate consideration of it); Suez Equity 4 Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d 87, 104 (2d 5 Cir. 2001). 6 See Paese v. Hartford Life & Accidents Inc. Co., Before the district court, the FRG neither contended that it 7 was not liable for properly validated West German Bonds, nor 8 contested Mortimer s allegations that the FRG assumed liability 9 for payment of the relevant bond obligations under the Validation 10 Law and the 1953 Treaty. In its motion to dismiss for lack of 11 subject matter jurisdiction, the FRG agreed that it had assumed 12 liability for properly validated West German Bonds but asserted 13 that this assumption of liability was sovereign in character and 14 therefore entitled to immunity pursuant to the FSIA. 15 in its motion to dismiss for failure to state a claim, the FRG 16 did not dispute Mortimer s allegation that the FRG had assumed 17 liability for properly validated West German Bonds. 18 argued instead that Mortimer had not, and could not, state a 19 claim because Mortimer had failed to comply with the requirements 20 of the Validation Law. 23 Likewise, The FRG 1 Because the FRG presented no argument to the district court 2 disputing its liability for properly validated West German Bonds, 3 the district court s order simply set forth a then-undisputed 4 proposition: West Germany assumed liability for certain bonds 5 issued prior to the end of World War II, and by operation of the 6 [1953] Treaty, its liability was extended to bonds offered in the 7 United States. 8 was a summary of facts assumed as true by both parties. 9 consequence of the FRG s failure to dispute its assumption of Mortimer, 2007 WL 2822214, at *1. The statement As a 10 liability over properly validated West German Bonds to the 11 district court, it may not raise that argument on appeal. 12 Starting from the premise that West Germany and the FRG 13 assumed liability for properly validated West German Bonds, we 14 conclude that this affirmative assumption of liability plainly 15 constitutes an action under section 1605(a)(2) of the FSIA. 16 FSIA defines commercial activity as a regular course of 17 commercial conduct or a particular commercial transaction or act 18 whose character . . . shall be determined by reference to the 19 nature of the course of conduct or particular transaction or act, 20 rather than by reference to its purpose. 21 In Weltover, the Supreme Court held that Argentina s issuance of 24 The 28 U.S.C. § 1603(d). 1 garden-variety bonds as an emergency measure[] to refinance 2 the country s debt constituted commercial activity for FSIA 3 purposes. 4 that the nature and not the purpose of a transaction 5 control[s] in determining commerciality under section 6 1605(a)(2). 7 Court determined that when a foreign government acts, not as 8 regulator of a market, but in the manner of a private player 9 within it, the foreign sovereign s actions are commercial 10 11 504 U.S. at 609, 615. Id. at 615. The Supreme Court clarified Applying this principle, the Weltover within the meaning of the FSIA. Id. at 614 (emphasis omitted). Private parties can and often do assume liability for bonds 12 in trade or commerce. This would occur, for example, when, after 13 issuing bonds, Company A is acquired by and merged into Company 14 B, which then assumes liability for Company A s bonds. 15 allegedly assuming obligations under the Bonds, the FRG, like 16 Argentina in Weltover, engaged in activity routinely undertaken 17 by private parties. 18 FRG] s assumption of debt (other than perhaps its purpose) that 19 would cause it . . . to be classified as non-commercial 20 activity. 21 China, 550 F. Supp. 869, 873 (D. Ala. 1982) (applying the By There is nothing distinctive about [the Id. at 615; see also Jackson v. People s Republic of 25 1 commercial activity exception to bonds issued by China on the 2 basis that [i]t is clear that the sale, issuance of sale and 3 authorization of issuance for sale in the United States 4 constitutes a commercial activity ); cf. In re Terrorist 5 Attacks on Sept. 11, 2001, 538 F.3d 71, 92 (2d Cir. 2008) 6 (finding no commercial activity where defendants allegedly made 7 donations to charity that were not part of the trade and 8 commerce engaged in by a merchant in the marketplace (internal 9 quotation marks omitted)). The commercial nature of the act of 10 assuming the West German Bonds is confirmed by the fact that 11 [the Bonds] are in almost all respects garden-variety debt 12 instruments: 13 negotiable and may be traded on the international market . . . ; 14 and they promise a future stream of cash income. 15 U.S. at 615. They may be held by private parties; they are Weltover, 504 16 The FRG does not challenge the conclusion that assumption of 17 liability of the Agricultural Bonds would be an act in connection 18 with a commercial activity under the FSIA; rather, it argues, as 19 it did below, that even if it has assumed liability for properly 20 validated West German Bonds, the commercial activity exception 21 would not apply to Mortimer s West German Bonds because Mortimer 26 1 failed to satisfy the settlement conditions set forth in the 2 London Debt Agreement by not complying with the validation 3 procedures. 4 validation procedures undermines the applicability of the 5 commercial activity exception to the FSIA. 6 Mortimer complied with the validation procedures does not touch 7 upon any of the requirements of the commercial activity 8 exception, which is concerned with the conduct of the foreign 9 state and not the allegedly aggrieved party. We are unpersuaded that non-compliance with the The issue of whether Mortimer s alleged 10 lack of compliance does not implicate whether the challenged 11 conduct occurred outside of the United States, was based upon an 12 act in connection with the commercial activity of the foreign 13 state, or caused a direct effect in the United States. 14 § 1605(a)(2). 15 jurisdictional stage would thus be premature. 16 McCardle, 74 U.S. (7 Wall.) 506, 514 (1868) ( Jurisdiction is 17 power to declare the law, and when it ceases to exist, the only 18 function remaining to the court is that of announcing the fact 19 and dismissing the cause. ); Robinson, 269 F.3d at 141 20 ( [J]urisdiction is not defeated by the possibility that the 28 U.S.C. Taking up the validation issue at the 27 See Ex parte 1 averments might fail to state a cause of action. (quoting 2 Bell v. Hood, 327 U.S. 678, 682 (1946))). 3 Finally, even if we were to accept the FRG s contention that 4 it did not assume liability and merely acted as a transfer agent, 5 this court would still have jurisdiction over Mortimer s action 6 pursuant to the FSIA s commercial activity exception. 7 Transamerican Steamship Corp. v. Somali Democratic Republic, 767 8 F.2d 998, 1002-03 (D.C. Cir. 1985), the only case upon which the 9 FRG relies for its transfer agent theory, the D.C. Circuit In 10 rejected a similar argument and found that the Somali embassy 11 exceeded the bounds of ordinary diplomatic behavior by 12 collecting and holding funds and advising a principal as to 13 their receipt. 14 inquiry is whether [the state] acted in a sovereign or 15 essentially private capacity. 16 parties frequently take on similar transfer agent obligations, 17 this court would have jurisdiction even if the court were to 18 accept the FRG s argument that it merely acted as a transfer 19 agent. As the D.C. Circuit stated, [t]he proper Id. at 1002. Because private 20 Accordingly, we agree with the district court that the 21 FSIA s commercial activity exception applies to the West German 28 1 Bonds and affirm the district court s denial of the FRG s motion 2 to dismiss Mortimer s claims on the West German Bonds for lack of 3 subject matter jurisdiction. B. 4 5 The East German Bonds Turning to the East German Bonds, our jurisdictional 6 determination is different. 7 complaint and the proposed amended complaint, as well as the 8 evidence properly before us, we hold that Mortimer failed to meet 9 its jurisdictional burden with respect to enforcing the East 10 11 Looking to the allegations in the German Bonds against the FRG. Mortimer seeks to enforce the 64.5% of the Bonds issued by 12 Prussian banks located in territory that became East Germany. 13 Mortimer argues that jurisdiction is appropriate under two 14 theories. 15 liability, alleges that liability exists on the basis of the 16 FRG's formal takeover of the territory covering the East German 17 provincial and communal debt . . . represented by the Bonds. 18 (Proposed Am. Compl. ¶ 15.) 19 affirmative assumption of liability, alleges that the FRG 20 entered into an agreement . . . in which it assumed liability 21 for the pre-war external debt of the German Reich, and Its first theory, predicated on successor state Its second theory, predicated on 29 1 acknowledg[ed] and confirm[ed] [its] payment obligations under 2 the Bonds (Compl. ¶¶ 11, 20); however, the complaint neither 3 specified nor provided copies of treaties or other legislative 4 documents as sources of that alleged liability. 5 Mortimer s proposed amended complaint identified various acts of 6 recognition by which the FRG allegedly recognized its 7 obligation for the pre-war external debt of the German Reich[,] 8 the [s]tate of Prussia, and East Germany, but it proffered no 9 evidence of an explicit assumption of liability. 10 In contrast, (Proposed Am. Compl. ¶ 15.) 11 We hold that automatic assumption of liability by a 12 successor state, even if established, would not meet the 13 requirements of the FSIA s commercial activity exception. 14 further find that there is no evidence presented that East 15 Germany and the FRG explicitly assumed liability for any East 16 German Agricultural Bonds, unlike West Germany, which 17 affirmatively and unequivocally assumed liability for valid West 18 German Agricultural Bonds by enacting the Validation Law and 19 subsequent treaties, see, e.g., Validation Law, BGBl.II, at 327, 20 Schedule C.IV(19). We Accordingly, we find that subject matter 30 1 jurisdiction is lacking over Mortimer s cause of action against 2 East Germany. 3 1. 4 State succession occurs when one State is replaced by Successor State Assumption of Liability 5 another in its "responsibility for the international relations of 6 territory." 7 Debts and Assets: The Modern Law and Policy, 42 Harv. Int'l L.J. 8 355, 362 & n.21 (2001) (internal quotation marks and citations 9 omitted). Paul Williams & Jennifer Harris, State Succession to The Third Restatement of Foreign Relations Law 10 provides that "where part of the territory of a state becomes 11 territory of another state, local public debt [is] transferred to 12 the successor state; [and] where a state is absorbed by another 13 state, the public debt . . . pass[es] to the absorbing state." 14 Restatement (Third) of Foreign Relations Law § 209(2)(a)-(b) 15 (1987). 16 Mortimer alleges that East Germany and the FRG automatically 17 acceded to liability for the East German Bonds as successor 18 states of Prussia and that this assumption of liability 19 constitutes an "action . . . based upon a commercial activity" 20 28 U.S.C. § 1605(a)(2). 21 whether successor state liability is even applicable in this While we have our misgivings as to 31 1 case,11 we need not reach that question. 2 successor state liability, Mortimer's cause of action would 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 Even if we were to find 11 See 767 Third Ave. Assocs. v. Consulate Gen. of Socialist Federation of Yugoslavia, 218 F.3d 152, 161 (2d Cir. 2000) (stating that [t]here is no [absolute] rule of law that automatically subrogates successor states to their predecessor s debt ); Restatement (Third) of Foreign Relations Law, at IX (stating that the Restatement is "in no sense an official document of the United States," because "a number of particulars . . . in [it] are at variance with positions that have been taken by the United States Government." (internal quotation marks omitted)). Successor state liability for the debts of the predecessor state is a far from settled issue of law. See Tai-Heng Cheng, Renegotiating the Odious Debt Doctrine, 70 Law & Contemp. Probs., Summer 2007, at 7, 11 (stating that [t]here are no clear customary rules or multilateral treaties in force governing whether and when a successor state is responsible for the debts of its predecessor state and that [j]urists are divided on what the applicable rules might be, despite urging this court in his amici curiae brief to find in favor of Mortimer); see generally Williams & Harris, supra; Jeff A. King, Odious Debt: The Terms of the Debate, 32 N.C. J. Int'l L. & Com. Reg. 605, 609 & n.9 (2007) (providing numerous, conflicting sources). In 767 Third Avenue, we underscored the policy and institutional dangers of finding successor state liability, namely, that [s]uch an outcome would directly interfere with executive foreign policy prerogatives. 218 F.3d at 160 (quoting Can v. United States, 14 F.3d 160, 163 (2d Cir. 1994)). For example, reinforcing our concerns regarding interference with executive foreign policy prerogatives, the FRG has disavowed any liability for the East German Bonds throughout this litigation, and the FRG s Federal Court of Justice, its highest court for civil and criminal matters, recently denied the claim of a United States holder of German dollar bonds issued in 1925 in a city located in what later became East Germany, concluding that neither East Germany nor the FRG succeeded to such debt automatically, under international law, or by way of an affirmative legislative act and treaty. See Bundesgerichtshof [BGH] [Federal Court of Justice] Oct. 25, 2005, 25 Entscheidungen des Bundesgerichtshofes in Zivilsachen [BGHZ] 353/04 (F.R.G.); cf. James V. Feinerman, Odious Debt, Old and New: The Legal Intellectual History of an Idea, 70 Law & Contemp. Probs., Fall 2007, at 193, 197 n.17 ( Successor regimes that have renounced the debts of their predecessors include . . . East Germany. ). 32 1 nevertheless not lie because it would fail to allege an action . 2 . . based upon a commercial activity. 3 to liability by the rules of customary international law entails 4 no action by the successor state with respect to the 5 activity at issue the assumption of liability. 6 performs no action when it automatically assumes liability. 7 stands in sharp contrast to a country s assumption of liability 8 through an explicit act, such as West Germany did here. 9 Weltover, 504 U.S. at 609, 615 (holding that Argentina's issuance § 1605(a)(2). Accession commercial The state This E.g., 10 of bonds was an action that satisfied the FSIA's commercial 11 activity exception). 12 1605(a)(2) occurs when a successor state accedes to liability, 13 the requirements of FSIA's commercial activity exception are not 14 met in that context and jurisdiction under the FSIA based on such 15 an accession will not lie. 16 17 2. Because no action within the meaning of § Affirmative Assumption of Liability Mortimer also alleges that the FRG acceded to obligations 18 under the East German Bonds through various legislative documents 19 and treaties referenced in the original and proposed amended 20 complaints as acts of recognition. 21 sufficient to establish that the FRG became obligated under the 33 If these documents were 1 East German Bonds, then FSIA jurisdiction would be present; 2 however, they are insufficient, and jurisdiction is absent here 3 as well. 4 The complaint alleged that [a]fter World War II, Germany 5 entered into an agreement with the Allied High Commission in 6 which it assumed liability for the pre-war external debt of the 7 German Reich. 8 no further specifics respecting this agreement. 9 understand the complaint s reference to an agreement with the (Compl. ¶ 11.) However, the complaint provided Thus, we 10 Allied High Commission to refer to the London Debt Accord, which 11 is the only possible, reasonable interpretation of Mortimer s 12 complaint.12 13 In addition, Mortimer s proposed amended complaint specified 14 acts of recognition by which the FRG allegedly repeatedly 15 recognized its obligation for the pre-war external debt of the 1 2 3 4 5 6 7 8 9 10 11 12 13 14 12 The district court similarly interpreted the complaint as vaguely allud[ing] to . . . the London Debt Accord, see Mortimer, 2007 WL 2822214, at *10, and Mortimer has not contended on appeal that the complaint referred to a different agreement. Nor could we interpret Mortimer s complaint as referring to the Validation Law, the 1953 Treaty, or the 1960 Treaty. With respect to the Validation Law and 1953 Treaty, neither document expressly provided for foreign currency bonds issued in the territory of East Germany and East Germany was not a signatory to the treaty. See 1953 Treaty, 4 U.S.T. at 887-91; Validation Law, BGBl.II at 305-27. As for the 1960 Treaty, although it extended the 1953 Treaty to some East German bonds, it did not do so for the Agricultural Bonds, and thus the East German Bonds at issue here. See 1960 Treaty, 12 U.S.T. at 944-45. 34 1 German Reich and the [s]tate of Prussia : 2 Treaty, 3 I.L.M. at 379, Art. 23(6); (2) a letter dated March 6, 3 1951 from Konrad Adenauer, Chancellor, Federal Republic of 4 Germany, to André François-Poncet, Chairman, Allied High 5 Commission (Mar. 6, 1951), reprinted in 2 U.S.T. 1250, 1250, 6 translated in 2 U.S.T. 1252, 1252 (hereinafter Adenauer Letter); 7 and (3) a post-reunification Letter on Behalf of the Federal 8 Republic of Germany to Office of the Chief Counsel, Securities 9 and Exchange Commission (Feb. 18, 1994) (hereinafter SEC 10 (1) the Unification Filing).13 11 We examine each of these documents in turn to determine 12 whether any of them constitutes an act conferring liability for 13 the East German Bonds upon the FRG. 14 a. 15 London Debt Accord The FRG s Federal Court of Justice concluded in 2005 that 16 the London Debt Accord does not govern foreign currency bonds 17 issued in territory that became East Germany, and that applying 1 2 3 4 5 6 7 8 13 The fourth act of recognition Mortimer identified is [the FRG] s formal takeover of the territory covering the East German provincial and communal debt . . . represented by the Bonds. (Proposed Am. Compl. ¶ 15.) This argument is predicated upon a theory of successor state liability. Because we do not find such a theory cognizable under the FSIA s commercial activity exception, see supra, we reject this fourth act of recognition. 35 1 the Accord to such bonds would exceed the appropriate boundaries 2 of judicial decision-making. 3 353/04, at 19 ¶ 41. See Bundesgerichtshof, 25 BGHZ We agree. 4 Only two provisions of the London Debt Accord, adopted in 5 1960 by West Germany, address West Germany s liability for the 6 debts of either the German Reich or East Germany. 7 obligates West Germany to assume liability for the East German 8 Bonds. 9 Neither The first, Article 20, governs Reich [d]ebts and provides 10 that West Germany will, at the request of the interested 11 creditors, enter into direct negotiations with regard to these 12 debts. 13 plainly applies only to debts of the German Reich owing under 14 [m]ultilateral [a]greements, meaning debts for which either the 15 German Reich or West Germany had already assumed liability. 16 Even assuming arguendo that the East German Bonds constitute 17 Reich [d]ebts for purposes of the London Debt Accord,14 as 18 Mortimer has maintained throughout this action, the Validation 19 Law and 1953 Treaty, cover only foreign currency bonds issued in 20 what later became West German territory. 1 2 3 London Debt Accord, 4 U.S.T. at 457. 14 This provision Id. (See Tr. 30:16-19 This requires significant speculation given that Mortimer alleges only that the State of Prussia, one of the German Reich s Länder, guaranteed twelve of the fourteen obligor banks. JA. 39. 36 1 (Mortimer s counsel stated that the validation law . . . . made 2 every effort not to cover East Germany liabilities [sic] at the 3 time. 4 Treaty references and is governed by the Validation Law). 5 Article 20 does not indicate that the Accord confers East German 6 Bond liability upon West Germany. That s confirmed. ); Tr. 36:18-21 (arguing that the 1953 Thus, 7 The second provision, Article 25, specifically refers to 8 bonds issued in territory that became East Germany, providing 9 that the Parties . . . will review the [Accord] on the 10 reunification of Germany to mak[e] the [Accord s] provisions . 11 . . applicable to the debts of persons residing in East Germany. 12 4 U.S.T. at 459. 13 reunification and the need to mak[e] equitable adjustments, 14 respecting debts incurred in the territory of East Germany, id., 15 Article 25 and the remainder of the Accord refrained from 16 delineating those possible adjustments, let alone imposing 17 liability upon West Germany for any of East Germany s debts. 18 Thus, we conclude that the London Debt Accord did not obligate 19 the FRG to compensate holders of bonds issued in what became East 20 Germany. Although anticipating West and East Germany s 21 37 1 2 b. Unification Treaty Mortimer s proposed amended complaint also alleged that upon 3 unification, the FRG assumed liability for East Germany s debts, 4 including the East German Bonds. 5 Treaty provides that the FRG shall take over the sureties, 6 guarantees and warranties assumed by [East Germany] and debited 7 to its state budget prior to unification. 8 30 I.L.M. at 479, Art. 23(6). 9 recognition that [the FRG] is liable for [East Germany s] state Article 23 of the Unification Unification Treaty, Article 23 is based on the 10 debts. Frowein, 86 Am. J. Int l L. at 157. But, Mortimer s 11 argument suffers from a critical flaw: 12 East Germany assumed liability for bonds issued by private banks 13 located in the state of Prussia. 14 discussion of automatic successor liability, supra, Mortimer has 15 failed to allege an affirmative act by which East Germany assumed 16 liability for debt issued within the German Reich, let alone the 17 state of Prussia. 18 Unification Treaty alone provides no basis for liability beyond 19 speculation that East Germany assumed liability for the bonds. 20 claim based on such speculation is implausible. 21 S. Ct. at 1949. the failure to allege how As we concluded in our Thus, Mortimer s allegation that the 38 See Iqbal, 129 A 1 2 c. Adenauer Letter and the FRG s SEC Filing The remaining documents referenced in Mortimer s amended 3 complaint are West German Chancellor Konrad Adenauer s letter to 4 the Allied Commission in 1951 opining that West Germany is 5 liable for the pre-war external debt of the German Reich, 6 U.S.T. at 1252, and, the FRG s SEC filing in 1994 stating that 7 the FRG is not only the successor to, but is identical with, the 8 German Reich under principles of international public law, and 9 that holders of the interest coupons or talons . . . can look 10 11 2 only to the Federal Republic for payment, SEC Filing at 3. Neither document provides an independent legal basis for 12 holding the FRG liable for the East German Bonds. Mortimer has 13 identified, and we have located, no precedent holding a foreign 14 sovereign state liable based solely on a representation by its 15 head of state or an administrative filing made in the United 16 States on the sovereign s behalf. 17 expressly mentions the East German Bonds at issue; instead, each 18 discusses West Germany s affirmative assumption of liability for 19 the German Reich s pre-war external debts issued in what became 20 West Germany. 21 were intended to cover the East German Bonds, thereby expanding Moreover, neither document It is at best ambiguous whether such statements 39 1 the FRG s legal obligations, as opposed to discussing then- 2 existing debts and obligations undertaken by West Germany in pre- 3 existing multilateral agreements such as the 1960 Treaty. 4 Chancellor Adenauer s 1951 letter speaks only to West 5 Germany s assumption of the German Reich s debt; it gives no 6 indication that West Germany assumed more than the debt incurred 7 in what became its territory or otherwise obligated itself to 8 honor debt incurred in what became East Germany. 9 letter discusses West Germany s debts by reference to its Instead, the 10 obligation to resume payments on the German external debt. 2 11 U.S.T. at 1253. 12 Germany might have assumed liability for the East German Bonds or 13 would have had any motivation to do so prior to the 1951 letter, 14 such as by way of a preexisting multilateral agreement. 15 Moreover, Mortimer has never explained how West The SEC filing cited by Mortimer provides that the FRG is 16 liable for certain bonds issued between 1924 and 1930 by the 17 German Reich and the [s]tate of Prussia, and subsequently 18 references interest payments that the present-day FRG 19 obligated itself to pay . . . following the reunification of 20 Germany under the London Debt Accord. 21 added). SEC Filing at 1 (emphases As already explained, because the London Debt Accord 40 1 does not cover foreign currency bonds issued in the territory of 2 East Germany, the SEC filing logically refers only to bonds 3 issued in what became West German territory, bonds for which West 4 Germany and thus the FRG repeatedly and affirmatively assumed 5 liability, beginning with the Validation Law and 1953 Treaty. 6 Accordingly, we conclude that neither letter expands the FRG s 7 liability to encompass obligations for the East German Bonds. 8 After considering and rejecting all the documents identified 9 by Mortimer s proposed amended complaint as potential bases for 10 holding the present-day FRG liable for the East German Bonds as 11 incapable of advancing Mortimer s claim for compensation, we are 12 left with mere conclusory statements, Iqbal, 129 S. Ct. at 13 1949, in Mortimer s original complaint. 14 to show anything more than a sheer possibility, id., that the 15 FRG assumed liability under the East German Bonds. 16 with the district court that leave to amend would be futile 17 because Mortimer s proposed amended complaint did not cure the 18 original complaint s deficiencies. 19 These contentions fail We thus agree See Acito, 47 F.3d at 55. For the foregoing reasons, we affirm the judgment of the 20 district court dismissing Mortimer s claim to enforce the East 21 German Bonds, but we do so on the alternative ground that 41 1 Mortimer has failed to make the threshold showing necessary to 2 invoke the commercial activity exception to the FSIA, and 3 therefore subject matter jurisdiction is lacking. 4 Mortimer has moved for leave to amend the judgment and to amend 5 the complaint with respect to the East German Bonds, we affirm 6 the district court s denial of that motion. Insofar as 7 II. 8 Having found subject matter jurisdiction present with regard 9 Mortimer s Claim to Recover on the West German Bonds to the West German Bonds, we now consider Mortimer s claim as to 10 those Bonds on the merits. We review the district court s order 11 granting the FRG s motion to dismiss under Rule 12(b)(6) de novo, 12 consider[ing] the legal sufficiency of [Mortimer s] complaint, 13 taking its factual allegations to be true[,] and drawing all 14 reasonable inferences in [Mortimer] s favor. 15 572 F.3d 66, 71 (2d Cir. 2009). 16 a complaint must meet a plausibility standard. 17 Although we must accept as true all of [a complaint s] 18 allegations . . . , that tenet is inapplicable to legal 19 conclusions, and [t]hreadbare recitals of the elements of a 20 cause of action, supported by mere conclusory statements, do not 21 suffice. 22 (2009)) (second alteration in Harris). 23 context-specific task that requires [us] to draw on [our] Harris v. Mills, To survive a motion to dismiss, Id. at 72. Id. (quoting Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 42 This analysis is a 1 judicial experience and common sense. Id. (quoting Iqbal, 129 2 S. Ct. at 1950). 3 As for the district court s denial of Mortimer s subsequent 4 motions to alter the judgment and for leave to amend its 5 complaint, although we generally review such determinations for 6 abuse of discretion, where the determination is based upon a 7 legal interpretation, de novo review is appropriate. 8 v. Consol. Edison Corp., 488 F.3d 586, 592 (2d Cir. 2007); Fed. 9 R. Civ. P 44.1. See Gorman It is well-established that [o]ne good reason 10 to deny leave to amend is when such leave would be futile, 11 specifically when the additional information d[oes] not cure the 12 complaint. 13 1995). 14 Acito v. IMCERA Group, Inc., 47 F.3d 47, 55 (2d Cir. As previously noted, Mortimer s original complaint alleged 15 that the FRG assumed liability for the Bonds, 35.5 % of which 16 were issued in what later became West Germany. 17 proposed amended complaint further alleged that [t]he German 18 Validation laws are no longer in force and do not currently apply 19 to the obligations of West German origin. 20 ¶ 22.) 21 either met the statutory validation requirements aimed to 22 represent valid, legal obligation or was not required to do so, 23 we conclude that it has failed to state a claim. Mortimer s (Proposed Am. Compl. Because Mortimer has failed to plausibly allege that it 43 1 Starting from the premise that the FRG assumed liability for 2 valid foreign currency bonds issued in the territory that became 3 West Germany which we accept for reasons already stated, the 4 parties dispute whether Mortimer must comply with the validation 5 procedures before seeking to recover on the West German Bonds in 6 its possession. 7 case lies because Mortimer failed to comply with the validation 8 procedures. 9 validation procedures; instead, it contends that it need not do The FRG argues that no cause of action in this Mortimer does not assert that it complied with the 10 so. Specifically, Mortimer avers that the Validation Law is no 11 longer in effect, and that even if it is, Mortimer s claims are 12 enforceable notwithstanding its refusal to register and submit 13 the West German Bonds to a Validation Board. 14 argument in turn. A. 15 16 We address each Continued Applicability of Validation Procedures We first examine whether the bond validation procedures 17 required by the Validation Law are still in force. Mortimer 18 argues that the Unification Treaty s inclusion of the Validation 19 Law in Annex I amounts to an implied agreement that the 20 Validation Law is no longer in effect. 21 merit. 22 international agreements to which [West Germany] is a party 23 shall retain their validity, and with the exception of the 24 treaties named in Annex I, shall also relate to [former East This argument is without Article 11 of the Unification Treaty provides that 44 1 German] territory. 30 I.L.M. at 471. Article 11 s plain 2 language only excludes treaties listed in Annex I from being 3 extended to former East German territory; it in no way affects 4 the validity of those treaties with respect to former West German 5 territory. 6 235 (3d Cir. 2006) ( The usual meaning of the word and . . . is 7 conjunctive, . . . unless the context dictates otherwise, the 8 and is presumed to be used in its ordinary sense. (internal 9 quotation marks omitted)). Cf. Reese Bros., Inc. v. United States, 447 F.3d 229, Moreover, the Validation Law is 10 listed in the FRG s current statutory code, with only minor 11 amendments irrelevant to this case since its enactment.15 12 The Validation Law s continued applicability is supported by 13 the inclusion of both the 1953 and 1960 Treaties, which 14 incorporate the Validation Law, in the United States Department 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 15 These amendments, the most recent of which was in December 2008, replaced the names of ministries and agencies or the titles of laws referred to in the Act when these name changes occurred. See Bereinigungsgesetz für deutsche Auslandsbonds in der im Bundesgesetzblatt Teil III, Gliederungsnummer 4139-2, veröffentlichten bereinigten Fassung, das zuletzt durch Artikel 82 des Gesetzes vom 17. Dezember 2008 (BGBl. I S. 2586) geändert worden ist [Securities Validation Act in the revised version published in Part III of the Federal Law Gazette under no. 41392, as most recently amended by Article 82 of the Law of December 17, 2008 (BGBl. I S. 2586)], BGBl.III, at 4139-2 (F.R.G.) (providing most recent version of the Validation Law and noting its 2008 amendment); Introductory Act of the Fiscal Code, Gesetz, Dec. 13, 1976, BGBl.I at 3341, art. 94, no. 3 (amending the Act by replacing the word Reichsabgabenordnung (Imperial Fiscal Code) with the term Abgabenordnung (Fiscal Code) when West Germany enacted a new Fiscal Code; Bundesgesetzblatt Teil I Fundstellennachweis A 4139-2 (Dec. 31, 2008) (listing amendments in 2001, 2003, and 2008 that made similar name changes). 45 1 of State s list of treaties in force as of January 1, 2009, see 2 United States Department of State, Treaties in Force: 3 Treaties and Other International Agreements of the United States 4 in Force on January 1, 2009, at 100-01 (2009), available at 5 http://www.state.gov/documents/organization/123747.pdf (last 6 visited January 29, 2010). 7 confirm that the Validation Law may not be amended or modified 8 except as may be agreed between [West Germany] and the United 9 States. A List of Both the 1953 and 1960 Treaties 1960 Treaty, 12 U.S.T. at 944; 1953 Treaty, 4 U.S.T. at 10 888-89, Art. I. 11 list suggests the conclusion that there has been no agreement 12 between the United States and the FRG to nullify the Validation 13 Law. 14 Therefore, inclusion on the treaties in force For the foregoing reasons, we conclude that the Validation 15 Law s bond validation procedures continue to apply to the West 16 German Bonds. B. 17 18 Enforcability of Mortimer s West German Bonds We now turn to the plausibility of Mortimer s attempt to 19 enforce its West German Bonds as a non-assenter 16--that is, a 20 bondholder who neither registered nor presented its foreign 21 currency bonds for validation in accordance with the Validation 1 2 3 4 5 16 We use the term non-assenter because the London Debt Accord only deems bonds enforceable if the bondholder assent[s] to the . . . conditions in respect of such debts, 4 U.S.T. at 453, Art. 15(1), which refers in the case of West German bonds to compliance with the Validation Law s procedures. 46 1 Law. 2 restriction on such a claim for compensation is that it may not 3 be asserted to the prejudice of holders of validated foreign 4 currency bonds, Validation Law, BGBl.II at 317, Art. 52(1), and 5 that because the FRG made final payments to settling creditors in 6 1994, there is no possibility that validated bondholders would be 7 prejudiced by a non-assenter s claim. 8 9 Mortimer contends that the Validation Law s sole We find Mortimer s position unavailing. First, Mortimer points to no language in any enactment that abrogates the 10 validation requirements once all validated bondholders have been 11 compensated. 12 the Validation Law, 1953 Treaty, and London Debt Accord, see id. 13 at 306, Art. 2 ( Foreign currency bonds remain valid only if they 14 are validated . . . pursuant to this Law. ); id. at 315, Art. 41 15 (placing the burden of proving the bonds validity on the 16 bondholder) id. at 317, Art. 50 (governing the Invalidation of 17 Bonds which have not been validated ); 1953 Treaty, 4 U.S.T. at 18 889, Art. II (providing that [n]o bond . . . shall be 19 enforceable unless and until it shall be validated in accordance 20 with the Validation Law); id. at 888 (providing that 21 corresponding benefits apply only to bonds which have been 22 duly validated ); London Debt Accord, 4 U.S.T. at 453, Art. 15(1) 23 (extending benefit[s] to a limited class of creditors who In light of the express validation requirements in 47 1 assent to the . . . conditions in respect of such debts ), we 2 find Mortimer s non-assenter claim unpersuasive. 3 Additionally, we find Mortimer s argument regarding the 4 intent of the validation procedures to be unreasonably narrow. 5 While the validation procedures were created, in part, to 6 facilitate assenting bondholders receipt of payment, there is no 7 reason to believe that prejudice to validated bondholders is the 8 only reason to require validation. 9 reason to screen out and protect against illegitimate bond There is another significant 10 claims. As the 1953 Treaty explains, the Validation Law 11 facilitates the settlement of West Germany s financial 12 obligations . . . with assurance that claims prejudicial to such 13 settlement will not be asserted on the basis of bonds which were 14 unlawfully acquired. 15 generally Abrey, 153 F. Supp. at 339-42 (detailing the historical 16 background leading to promulgation of validation procedures). 17 In any event, even assuming arguendo that enforcing 1953 Treaty, 4 U.S.T. at 888. See 18 Mortimer s claims would not prejudice holders of validated bonds, 19 Mortimer failed to comply with the additional requirements that 20 all non-assenting bondholders must meet. 21 requirement, cited by Mortimer, that a claim for compensation 22 based on non-validated bonds not prejudice of holders of 23 validated [bonds], Article 52(1) also requires that a claimant 24 establish two preconditions prior to asserting such a claim: (1) 48 In addition to the 1 that the bonds at issue were validated upon timely 2 registration ; and (2) that the failure to register [the bonds] 3 was not due to . . . gross negligence. 4 Moreover, the next paragraph of the provision, Article 52(2), 5 states that the right to compensation for non-validated bonds 6 created by Article 52 can be asserted only after it has been 7 finally adjudicated that the conditions set forth in Article 8 52(1) have been met. 9 further states that [e]xclusive jurisdiction to make such 10 adjudication shall rest with the Chamber of Settlement of 11 Securities of the district in which the issuer has its seat. 12 Id. BGBl.II, at 317. Id. (emphasis added). Article 52(2) 13 These additional requirements make plain that the absence of 14 prejudice to the holders of validated bonds is necessary, but not 15 sufficient, to permit Mortimer to bring claims relating to the 16 West German Bonds under Article 52 without their prior validation 17 pursuant to the Validation Law. 18 the preconditions to bringing a compensation claim under this 19 provision were adjudicated in its favor or even that, as a 20 factual matter, the preconditions are satisfied with respect to 21 the West German Bonds, we hold that Mortimer s argument fails on 22 its own terms. As Mortimer has not alleged that 23 In sum, a non-assenter can only enforce bonds covered by the 24 Validation Law after complying with the validation procedures and 49 1 explaining why any delay in doing so is excusable. Like the 2 district court, we hold that Mortimer, by not satisfying either 3 criterion, has failed to set forth a plausible basis in either 4 the complaint or the proposed amended complaint for enforcing the 5 West German Bonds at this stage. 6 so would undercut the purpose of the Validation Law by 7 eliminating any guarantee that Mortimer s West German Bonds, 8 allegedly valued at over $400,000,000, are in fact legitimate. 9 Our decision is consistent with past cases, which have evaluated Indeed, allowing Mortimer to do 10 the enforceability of foreign currency bonds covered by the 11 Validation Law only after the bondholder has registered and 12 submitted its bonds for evaluation in accordance with the Law, 13 and the Validation Board has adjudicated their validity. 14 Teplin v. Fed. Republic of Germany, No. 81-1874, 1982 U.S. App. 15 LEXIS 12629, at *2-3 (D.C. Cir. Aug. 18, 1982) (per curiam) 16 (finding a bondholder s claims to be not properly before th[e] 17 court because he failed to validate the bonds, thus making them 18 enforceable in U.S. courts ); cf. Cavac Compania Anonima 19 Venezolana de Administracion y Comercio v. Bd. for the Validation 20 of German Bonds in the United States, 189 F. Supp. 205, 208 21 (S.D.N.Y. 1960) (permitting arbitration after a Validation Board 22 refused to validate the bonds at issue); Abrey, 153 F. Supp. at 23 338 (permitting an independent trial respecting the bonds 24 validity after they were declared invalid by a Validation Board). 50 See 1 We therefore affirm the dismissal of Mortimer s claims 2 respecting the West German Bonds and the denial of leave to 3 amend. 4 CONCLUSION 5 For the foregoing reasons, the judgment of the district 6 court is AFFIRMED, in part on alternative grounds. 7 8 51
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