Opinion ID: 151499
Heading Depth: 3
Heading Rank: 2

Heading: Foreign Currency Bonds

Text: After the First World War, German enterprises sold a large number of bearer bonds which were underwritten, marketed, and payable in the United States. See Abrey v. Reusch, 153 F.Supp. 337, 339-42 (S.D.N.Y.1957) (detailing the history of the validation laws and treaties relating to the bearer bonds); Dix v. Comm'r, 34 T.C. 837, 838-39 (1960) (same); J.L. Simpson, The Agreement on German External Debts, 6 Int'l & Comp. L.Q. 472, 472-86 (1957) (same). Prior to World War II, the issuers repurchased many of these bonds for eventual retirement and submitted them to meet sinking fund and amortization requirements. Abrey, 153 F.Supp. at 339. After World War II began, it became impossible to present such bonds to the American trustees or paying agents for cancellation. Id. As a result, German bank vaults held large numbers of reacquired, yet uncancelled foreign currency bonds, in negotiable form, that no longer represented valid obligations. Id. After Germany surrendered in 1945, Russian occupation forces seized and returned to circulation many such bonds with an estimated total face value of $350,000,000, while bona fide purchasers possessed approximately $250,000,000 in valid bearer bonds. Id. The invalid, but uncancelled bearer bonds posed a significant problem, both domestically and internationally, as there was 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 United States of all German Dollar Bonds was impeded by the [resulting] uncertainties.... Id. This problem of reacquired, yet uncancelled bonds is integral to the issues on appeal and several legislative acts and treaties that West Germany and the United States subsequently signed. The parties have asserted that the following laws, agreements, and treaties bear on the question of whether the FRG has assumed liability for the Bonds Mortimer seeks to enforce: (1) the Validation Law [4] and accompanying 1953 Treaty, [5] (2) the London Debt Accord, [6] (3) the 1960 Treaty, [7] and (4) the Unification Treaty. [8] We briefly summarize the relevant portions of each of these documents.
The 1953 Treaty and Validation Law were part of the overall process of quelling uncertainty about, and facilitating the orderly settlement of, debts owed by territory that became West Germany after World War II, 1953 Treaty, 4 U.S.T. at 888. Specifically, the 1953 Treaty, to which West Germany, the United States, and various other Western Allied nations were signatories, incorporated by reference the 1952 Validation Law, see id., pursuant to which West Germany allegedly assumed liability for certain specified foreign currency bonds issued before the end of World War II, see Validation Law, BGBl.II, at 327, Schedule C.IV, and implemented a series of procedures to determine the validity of such bonds and to screen out invalid ones. The Agricultural Bonds, the category of bonds at issue in this case, are included in the schedule of foreign currency bonds covered by the Validation Law, see id. at 327, Schedule C.IV (19), and therefore subject to the Validation Law's procedures, see id. at 306, Arts. 1-2. The Validation Law requires, inter alia, that the specified bonds held on January 1, 1945, outside West German borders as they existed in 1937, be registered, submitted along with relevant evidence, and validated after an administrative hearing by a Board for the Validation of German Bonds in the United States (Validation Board) in Germany or the country of offering. See id., at 306, Art. 3; id. at 407, Art. 8; id. at 310-11, Art. 23.
Negotiated contemporaneously in 1953, the London Debt Accordsigned by West Germany, the United States and several other nations, but not East Germany aimed to remove obstacles to normal economic relations with other nations and to facilitat[e] a resumption of payments on [its] external debts. London Debt Accord, 4 U.S.T. at 446. The London Debt Accord represented the culmination of the parties' settlement negotiations respecting West Germany's pre-World War II external debts. See Simpson, Agreement on German External Debts, 6 Int'l & Comp. L.Q. at 472-74. West Germany agreed, in relevant part, to satisfy its pecuniary obligations arising out of loan or credit contracts entered into before 8th May, 1945. London Debt Accord, 4 U.S.T. at 448, Art. 4(1)(b). In doing so, it did not repeal the validation requirements, stating that [o]nly such creditors shall be entitled to benefit under [the Accord], as . . . accept the offer, or, in the case of other debts, assent to the establishment in accordance with such provisions of terms of payment and other conditions in respect of such debts. Id. at 453, Art. 15(1). The parties to the London Debt Accord anticipated the possibility of the reunification of West Germany and East Germany by agreeing to review the present Agreement and to mak[e] equitable adjustments respecting East Germany's debts upon reunification. Id., at 459, Art. 25. However, they refrained from delineating what those adjustments would be. As such, despite the discussion of East Germany's debts, the London Debt Accord did not obligate West Germany, after reunification, to compensate holders of bonds issued in what became East Germany after reunification. See id.
Seven years later, West Germany and the United States executed the 1960 Treaty, which amended the 1953 Treaty by extending the Validation Law to seven categories of bonds issued by utilities and mining corporations in territory that became East Germany. See 1960 Treaty, 12 U.S.T. at 944-45. The 1960 Treaty, however, did not extend the Validation Law to the Agricultural Bonds issued in the territory that became East Germany.
On August 31, 1990, West Germany and East Germany signed the Unification Treaty reuniting the two nations into the present-day FRG. Unification Treaty, BGBl.II, at 889. Subject to certain limitations, West Germany's then-existing laws and legal obligations continued to be valid and were extended to the former East Germany: West German federal law applied in former East German territory unless [a given law's] area of applicability [wa]s restricted to [West Germany] and unless otherwise provided in this Treaty, notably Annex I, id. at 469-70, Art. 8, as did international treaties . . . to which [West Germany wa]s a contracting party, id. at 471, Art. 11. Article 11 then provided exceptions for the treaties named in Annex I. 30 I.L.M. at 471. Annex I, in turn, prohibited the entry into force of federal law of the Securities Validation Act in the revised version published in Part III of the Federal Law Gazette under no. 4139-2, as most recently amended by Article 95(3) of the Law of December 14, 1976 (BGBl.1, p. 3341). Unification Treaty, App. I Ch. IV.A.I(9), translation available at http:// www.juris.de (German Ministry of Justice, juris GmbH). Mortimer alleges that this language means that the Validation Law was not extended to cover the East German Bonds. The Unification Treaty also provided that the FRG shall take over the sureties, guarantees and warranties assumed by [East Germany] and debited to its state budget prior to unification. Unification Treaty, 30 I.L.M. at 479, Art. 23(6).