Claims Against Bank Dismissed On Grounds of FSIA Based On Post-Contract Takeover of Bank by Non-U.S. Sovereign, Even Though Contract Contained Express Consent To Suit Clause in New York

The recent decision in Fir Tree Capital Opportunity Master Fund, L.P., et al. v. Anglo Irish Bank Corp., 11 Civ. 0955 (PGG) (S.D.N.Y. Nov. 2011), describes both the obstacles to a successful suit against an entity cloaked with immunity under the Foreign Soveign Immunities Act (FSIA) but, perhaps, shows a path to a succcessful suit against a sovereign by preplanning and appropriate corporate-lawyer drafting.

Plaintiffs hold $200 million in Notes issued by the Bank.   As a result of the global financial crisis in 2008, the Bank was nationalized in 2009.  Plaintiffs have been paid on their Notes but sought to stop a merger that Ireland had essentially directed the Bank to undergo, allegedly contrary to several provisions of the Notes.  So the fundamental question in the case was whether and to what extent the Bank could shield itself from liability by reason of being taken over by the government of Ireland after the Notes were issued.

The District Court analyzed the FSIA in the context of an application for a preliminary injunction, after conducting an evidentiary hearing.  It found that it lacked subject matter jurisdiction by reason of immunity of the Bank under the FSIA and thus dismissed the action.

The issues of international litigation practice that arise in the Court’s discussion include the following:

First, and most significant, the Notes contained a forum selection clause providing for the exercise of in personam jurisdiction in New York:

. . . ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION HEREWITH, OR ANY LEGAL ACTION OR PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT OBTAINED AGAINST THE COMPANY, FOR BREACH HEREOF OR THEREOF, OR AGAINST ANY OF ITS PROPERTIES, MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK BY ANY PURCHASER OR ON BEHALF OF SUCH PURCHASER OR BY OR ON BEHALF OF ANY HOLDER OF A NOTE, AS SUCH PURCHASER OR HOLDER MAY ELECT, AND THE COMPANY HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR PURPOSES OF ANY SUCH LEGAL ACTION OR PROCEEDING.

The District Court held that the Plaintiffs could not rely on this clause to prove explicit or implicit waiver of sovereign immunity.  The Court distinquished the holdings of several cases, the only controlling one being the decision of the Second Circuit in Aquas Lenders Recovery Group v. Suez, S.A., 585 F.3d 696 (2d Cir. 2009) (in which the author was lead counsel), on the ground that the Circuit addressed but did not decide whether a party could enforce a forum selection clause against an alleged successor in interest, even if the successor was a non-U.S. sovereign entity.  Would the result here have been different had the corporate lawyer drafting the Note included language to the effect that the forum clause would apply to successors?  One can assume there was a general successorship clause in the Notes.  Yet the District Court here distinguished another decision by stating that, in the case of the Notes, “there is no evidence that the Irish government agreed to be bound by the choice of forum/law provisions of the” Notes.   Would it have helped if the corporate draftsman had specifically adverted to the possibibility of a governmental takeover?  Should every contract do that?  Are there significant implications to the District Court’s ruling?

Second, the Plaintiffs asserted that sovereign immunity had been waived by reason of the Friendship Treaty (technically the Treaty of Friendship, Commerce and Navigation, U.S. – Ir., Jan. 21, 1950, 1 U.S.T. 785.  The Court found that the Plaintiffs had no right of action under the Treaty since they were Cayman Island entities — even though payment on the Notes was due in the U.S. and even though U.S. law apparently provided the rule of decision.

Third, the District Court rejected any “pre-nationalization acts to serve as the basis for application of th commercial activity exception”, finding that “inconsistent with the plain language of the FSIA, which speaks to commercial activity ‘of’ or ‘carried on’ by a ‘foreign state’ in the present tense”.

Fourth, given the Bank’s arguments that much of what the Plaintiffs were complaining about was forced by the sovereign, one would have thought the act-of-state doctrine might have been asserted.  The District Court observed:

The Bank has not argued that the act-of-state doctrine applies. Where, as here, a debt instrument is payable in New York, courts have found that the act-of-state doctrine does not bar suit. See, e.g., Allied Bank v. Banco Credito, 757 F.2d 516, 522 (2d Cir. 1985) (holding that act-of-state doctrine did not bar action where notes were payable in New York).

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