Opinion ID: 151499
Heading Depth: 3
Heading Rank: 1

Heading: The West German Bonds

Text: Mortimer's original complaint contended that West Germany, and subsequently the FRG, assumed liability for the Bonds, 35.5% of which were issued in what later became West Germany. It alleged that West Germany obligated itself to honor the terms of these bonds by enacting the Validation Law, see Validation Law, BGBl.II at 306, Arts. 1-3; id. at 327, Schedule C.IV, and by adopting the 1953 Treaty; it further alleged that upon reunification the FRG agreed to honor West Germany's laws and treaties, resulting in the FRG's assumption of West Germany's obligation for its share of the Bonds. See Unification Treaty, 30 I.L.M. at 471, Art. 11. The FRG disagrees, contending that it did not assume liability for any bonds that were issued in what later became West Germany and that, pursuant to the London Debt Accord, its responsibility in relation to properly validated West German Bonds was only that of a transfer agent. We need not determine the FRG's obligations respecting properly validated West German Bonds to resolve this appeal because the FRG waived its transfer agent argument by failing to present it to the district court. See Paese v. Hartford Life & Accidents Inc. Co., 449 F.3d 435, 446 (2d Cir.2006) (failure to raise an argument below generally bars appellate consideration of it); Suez Equity Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d 87, 104 (2d Cir.2001). Before the district court, the FRG neither contended that it was not liable for properly validated West German Bonds, nor contested Mortimer's allegations that the FRG assumed liability for payment of the relevant bond obligations under the Validation Law and the 1953 Treaty. In its motion to dismiss for lack of subject matter jurisdiction, the FRG agreed that it had assumed liability for properly validated West German Bonds but asserted that this assumption of liability was sovereign in character and therefore entitled to immunity pursuant to the FSIA. Likewise, in its motion to dismiss for failure to state a claim, the FRG did not dispute Mortimer's allegation that the FRG had assumed liability for properly validated West German Bonds. The FRG argued instead that Mortimer had not, and could not, state a claim because Mortimer had failed to comply with the requirements of the Validation Law. Because the FRG presented no argument to the district court disputing its liability for properly validated West German Bonds, the district court's order simply set forth a then-undisputed proposition: West Germany assumed liability for certain bonds issued prior to the end of World War II, and by operation of the [1953] Treaty, its liability was extended to bonds offered in the United States. Mortimer, 2007 WL 2822214, at . The statement was a summary of facts assumed as true by both parties. As a consequence of the FRG's failure to dispute its assumption of liability over properly validated West German Bonds to the district court, it may not raise that argument on appeal. Starting from the premise that West Germany and the FRG assumed liability for properly validated West German Bonds, we conclude that this affirmative assumption of liability plainly constitutes an action under section 1605(a)(2) of the FSIA. The FSIA defines commercial activity as a regular course of commercial conduct or a particular commercial transaction or act whose character . . . shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose. 28 U.S.C. § 1603(d). In Weltover, the Supreme Court held that Argentina's issuance of garden-variety bonds as an emergency measure[] to refinance the country's debt constituted commercial activity for FSIA purposes. 504 U.S. at 609, 615, 112 S.Ct. 2160. The Supreme Court clarified that the nature and not the purpose of a transaction control[s] in determining commerciality under section 1605(a)(2). Id. at 615, 112 S.Ct. 2160. Applying this principle, the Weltover Court determined that when a foreign government acts, not as regulator of a market, but in the manner of a private player within it, the foreign sovereign's actions are `commercial' within the meaning of the FSIA. Id. at 614, 112 S.Ct. 2160 (emphasis omitted). Private parties can and often do assume liability for bonds in trade or commerce. This would occur, for example, when, after issuing bonds, Company A is acquired by and merged into Company B, which then assumes liability for Company A's bonds. By allegedly assuming obligations under the Bonds, the FRG, like Argentina in Weltover, engaged in activity routinely undertaken by private parties. There is nothing distinctive about [the FRG]'s assumption of debt (other than perhaps its purpose) that would cause it . . . to be classified as non-commercial activity. Id. at 615, 112 S.Ct. 2160; see also Jackson v. People's Republic of China, 550 F.Supp. 869, 873 (D.Ala.1982) (applying the commercial activity exception to bonds issued by China on the basis that [i]t is clear that the sale, issuance of sale and authorization of issuance for sale in the United States constitutes a `commercial activity'); cf. In re Terrorist Attacks on Sept. 11, 2001, 538 F.3d 71, 92 (2d Cir.2008) (finding no commercial activity where defendants allegedly made donations to charity that were not part of the trade and commerce engaged in by a merchant in the marketplace (internal quotation marks omitted)). The commercial nature of the act of assuming the West German Bonds is confirmed by the fact that [the Bonds] are in almost all respects garden-variety debt instruments: They may be held by private parties; they are negotiable and may be traded on the international market . . .; and they promise a future stream of cash income. Weltover, 504 U.S. at 615, 112 S.Ct. 2160. The FRG does not challenge the conclusion that assumption of liability of the Agricultural Bonds would be an act in connection with a commercial activity under the FSIA; rather, it argues, as it did below, that even if it has assumed liability for properly validated West German Bonds, the commercial activity exception would not apply to Mortimer's West German Bonds because Mortimer failed to satisfy the settlement conditions set forth in the London Debt Agreement by not complying with the validation procedures. We are unpersuaded that non-compliance with the validation procedures undermines the applicability of the commercial activity exception to the FSIA. The issue of whether Mortimer complied with the validation procedures does not touch upon any of the requirements of the commercial activity exception, which is concerned with the conduct of the foreign state and not the allegedly aggrieved party. Mortimer's alleged lack of compliance does not implicate whether the challenged conduct occurred outside of the United States, was based upon an act in connection with the commercial activity of the foreign state, or caused a direct effect in the United States. 28 U.S.C. § 1605(a)(2). Taking up the validation issue at the jurisdictional stage would thus be premature. See Ex parte McCardle, 74 U.S. (7 Wall.) 506, 514, 19 L.Ed. 264 (1868) (Jurisdiction is power to declare the law, and when it ceases to exist, the only function remaining to the court is that of announcing the fact and dismissing the cause.); Robinson, 269 F.3d at 141 (`[J]urisdiction is not defeated by the possibility that the averments might fail to state a cause of action.' (quoting Bell v. Hood, 327 U.S. 678, 682, 66 S.Ct. 773, 90 L.Ed. 939 (1946))). Finally, even if we were to accept the FRG's contention that it did not assume liability and merely acted as a transfer agent, this court would still have jurisdiction over Mortimer's action pursuant to the FSIA's commercial activity exception. In Transamerican Steamship Corp. v. Somali Democratic Republic, 767 F.2d 998, 1002-03 (D.C.Cir.1985), the only case upon which the FRG relies for its transfer agent theory, the D.C. Circuit rejected a similar argument and found that the Somali embassy exceeded the bounds of ordinary diplomatic behavior by collecting and holding funds and advising a principal as to their receipt. As the D.C. Circuit stated, [t]he proper inquiry is whether [the state] acted in a sovereign or essentially private capacity. Id. at 1002. Because private parties frequently take on similar transfer agent obligations, this court would have jurisdiction even if the court were to accept the FRG's argument that it merely acted as a transfer agent. Accordingly, we agree with the district court that the FSIA's commercial activity exception applies to the West German Bonds and affirm the district court's denial of the FRG's motion to dismiss Mortimer's claims on the West German Bonds for lack of subject matter jurisdiction.