Yugoimport v. Republic of Croatia, Republic of Slovenia

11-1990-cv
Yugoimport v. Republic of Croatia, Republic of Slovenia
UNITED STATES COURT OF APPEALS 1
FOR THE SECOND CIRCUIT 2
August Term, 2012 3
(Argued: August 29, 2012 Decided: February 10, 2014) 4
Docket No. 11-1990-cv 5
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THE BANK OF NEW YORK, 7
Interpleader-Plaintiff, 8
9
v. 10
11
YUGOIMPORT, 12
Interpleader-Defendant-Appellant, 13
14
v. 15
16
REPUBLIC OF CROATIA, REPUBLIC OF SLOVENIA, 17
Interpleader-Defendants-Appellees. 18
19
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21
B e f o r e: WINTER, SACK, and RAGGI, Circuit Judges. 22
Appeal from an order of the United States District Court for 23
the Southern District of New York (Alvin K. Hellerstein, Judge) 24
granting summary judgment to the Republics of Croatia and 25
Slovenia. The Bank of New York commenced this interpleader 26
action to determine ownership of funds held in an account frozen 27
pursuant to executive order during the Bosnian War. The district 28
court found that the depositor was an agency of the former 29
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Socialist Federal Republic of Yugoslavia and that the funds were 1
subject to division among the Yugoslav successor states pursuant 2
to a multilateral treaty. Yugoimport, a Serbian instrumentality 3
purporting to be sole successor-in-interest of the original 4
depositor, appeals. We affirm. 5
6
RICHARD A. JACOBSEN, Orrick, 7
Herrington & Sutcliffe LLP, New 8
York, NY, for Interpleader- 9
Defendant-Appellant. 10
11
BOAZ S. MORAG, Cleary Gottlieb 12
Steen & Hamilton LLP, New York, NY, 13
SAMUEL SPITAL (Richard L. 14
Mattiaccio, on the brief), Squire, 15
Sanders & Dempsey LLP, New York, 16
NY, for Interpleader-Defendants- 17
Appellees. 18
19
WINTER, Circuit Judge: 20
The Bank of New York commenced this interpleader action to 21
determine ownership of $2,551,785.37 plus interest held on 22
deposit in an account in the name of the Federal Directorate of 23
Supply and Procurement (“FDSP”), an entity organized under the 24
laws of the former Socialist Federal Republic of Yugoslavia 25
(“SFRY”). The account was frozen in 1992 pursuant to executive 26
order during the Bosnian War. 27
The Interpleader-Defendants, Yugoimport and the Republics of 28
Croatia and Slovenia, all -asserted competing claims to the 29
funds. Yugoimport, a Serbian entity, claimed full ownership of 30
the disputed funds as successor-in-interest to the FDSP. The 31
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Republics of Croatia and Slovenia contend that the funds should 1
be divided among the states succeeding the SFRY pursuant to a 2
multilateral treaty, the Succession Agreement. See Agreement on 3
Succession Issues Between the Five Successor States of the Former 4
State of Yugoslavia, June 29, 2001, 41 I.L.M. 3 (2002). The 5
district court granted summary judgment to the Republics. We 6
hold that interpretation of the Succession Agreement is governed 7
by the Vienna Convention and that the FDSP was an agency of the 8
SFRY. As such, the funds are subject to division under that 9
Agreement. We, therefore, affirm. 10
BACKGROUND 11
a) Historical Context 12
We summarize only the facts relevant to this appeal. Those 13
seeking a more detailed account should go to the district court’s 14
opinion. Bank of N.Y. v. Yugoimport SDPR J.P., 780 F.Supp.2d 15
344, 346-49 (S.D.N.Y. 2011). 16
This case arises from the violent breakup of the SFRY. The 17
ethnic, racial, and religious tensions of the Balkans, and the 18
consequences of these tensions spanning generations, have been 19
the subject of commentary so extensive and well-known as not to 20
require citation. While somewhat controlled after World War II, 21
these tensions erupted into bloodshed with the weakening of 22
communist states in the 1980's. Beginning in 1989, the 23
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constituent states of the SFRY sought independence, leading to 1
nearly a decade of armed conflict. Slovenia formally declared 2
independence on June 25, 1991. Croatia, Bosnia-Herzegovina, and 3
Macedonia followed suit shortly thereafter. See Yucyco, Ltd. v. 4
Republic of Slovenia, 984 F. Supp. 209, 212- 213 (S.D.N.Y. 1997) 5
(describing the collapse). On April 27, 1992, the remaining 6
territories, Serbia and Montenegro, issued a joint declaration 7
formally dissolving the SFRY and establishing themselves as the 8
“Federal Republic of Yugoslavia” (“FRY”). See id. The FRY 9
purported to be the sole successor of the SFRY. See id. The 10
other Republics disputed the FRY’s claim, and the United Nations 11
Security Council issued a resolution declaring that the claim was 12
not “generally accepted” by the world community. U.N.S.C. Res. 13
757, U.N. Doc. S/RES/757, 31 I.L.M. 1427, 1454 (May 30, 1992). 14
Additionally, the Security Council denied the FRY’s request to 15
step into the shoes of the SFRY for the purpose of continuing the 16
SFRY’s U.N. membership. U.N.S.C. Res. 777, U.N. Doc. S/RES/777, 17
31 I.L.M. 1427, 1473 (Sept. 19, 1992). 18
In December 1995, due in large part to American efforts and 19
armed NATO intervention, representatives of Bosnia-Herzegovina, 20
Croatia, and the FRY signed the Dayton Accords, bringing a 21
qualified measure of peace to the region. The three Republics 22
agreed to recognize and respect each other’s sovereignty and 23
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authorized the deployment of a U.N.-led multinational military 1
implementation force in Bosnia. See General Framework Agreement 2
for Peace in Bosnia and Herzegovina (“Dayton Accords”), Bosn. & 3
Herz.-Croat.-Fed. Repub. Yugo., Dec. 14, 1995, 35 I.L.M. 75, 89, 4
92 (1996). 5
Because the Dayton Accords did not address a number of 6
issues arising from the breakup of the SFRY, Annex 10 of the 7
Accords established the Office of the High Representative to 8
assist in the implementation of the peace. Id. at 147. The High 9
Representative was to be appointed by the U.N. and was charged 10
with overseeing the creation of mutual agreements among the 11
signatory states concerning various issues. Id. One such issue 12
was distribution of financial assets of the SFRY. See U.N.S.C. 13
Res. 1022, U.N. S/RES/1022, 35 I.L.M. 259, 260 (November 22, 14
1995). 15
After the signing of the Dayton Accords, armed conflict 16
between the FRY and Kosovars and continuing sole-successor 17
sentiments in the FRY stymied the ability of the signatory states 18
to reach an agreement. See Carsten Stahn, The Agreement on 19
Succession Issues of the Former Socialist Federal Republic of 20
Yugoslavia, 96 Am. J. Int’l L. 379, 379 (2002). On June 29, 21
2001, after NATO intervention in the Kosovo conflict and 22
political shifts weakened FRY sole-successor sentiments, the 23
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emerging successor states, under the supervision of the High 1
Representative, finally came to an agreement. 2
b) The Succession Agreement 3
The Succession Agreement recognizes five SFRY successor 4
states –- Croatia, Slovenia, Bosnia-Herzegovina, Macedonia, and 5
the FRY. See Succession Agreement, 41 I.L.M. at 3.1 It contains 6
seven Annexes, each of which deals with the division of 7
particular types of assets and/or liabilities. Annexes C and G 8
are relied upon by the parties. 9
Annex C deals with the division of “financial assets and 10
liabilities.” Article 1 of Annex C defines the financial assets 11
of the SFRY to include “accounts and other financial assets in 12
the name of the SFRY Federal Government Departments and 13
Agencies.” Id. at 25. Article 5 provides that SFRY’s foreign 14
financial assets, including funds held in foreign banks, shall be 15
distributed in the following proportions: Bosnia and Herzegovina 16
15.50%; Croatia 23.00%; Macedonia 7.50%; Slovenia 16.00%; and the 17
FRY 38.00%. Id. at 27. 2 Whether the funds at issue here were 18
1 In June 2006, Serbia and Montenegro separated into independent states.
Montenegro agreed that it would not be deemed a successor state to the SFRY or
a party to the Succession Agreement.
2 Although Article 5(1) does not expressly include the assets of SFRY
agencies in its definition of “foreign financial assets,” there is no dispute
that the distribution scheme set forth in Article 5(2) applies to foreign-held
assets of SFRY agencies. The general definition of “financial assets”
embodied in Article 1 -- which includes the assets of SFRY agencies -- applies
to the foreign financial assets addressed in Article 5. Succession Agreement,
41 I.L.M. at 25.
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held in the name of an SFRY “agency” -- i.e. FDSP -- for purposes 1
of the Succession Agreement is the principal issue in this 2
appeal. 3
Annex G deals with private property. Article 1 thereof 4
states that “[p]rivate property and acquired rights of citizens 5
and other legal persons of the SFRY shall be protected by 6
successor States in accordance with the provisions of this 7
Annex.” Id. at 35. We mention this provision only because 8
Yugoimport attaches importance to it. However, if the funds were 9
held in the name of an SFRY agency, Annex G would be 10
inapplicable; if not, Yugoimport would succeed on this appeal 11
even without Annex G. 12
c) The FDSP/Yugoimport 13
We trace the history of Yugoimport in mind-numbing detail 14
because the nature of its governance and functions is critical –- 15
decisive, actually –- to the disposition of this appeal. 16
We begin with a summary that will suffice for casual 17
readers, who can then move on to the next section. Yugoimport 18
functioned primarily as an arms dealer for the successive 19
sovereign states referred to generally as Yugoslavia, from 1949 20
until the events giving rise to this case. It was owned, 21
controlled, managed, and supervised at all times by the 22
government -- in particular, by officials responsible for 23
national defense. Its earnings were put to public purposes. 24
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We now turn to the details. The original Yugoimport was 1
created on June 27, 1949 by the Federal People’s Republic of 2
Yugoslavia (the “FPRY”). 3 Basic Law on State Business 3
Enterprises (Act No. 5585/49)(June 27, 1949). Its enabling 4
statute described it as “[a] state business . . . of state-wide 5
significance” created to engage in the “import and export of all 6
types of goods.” Id. arts. 1, 3. Yugoimport’s initial assets 7
were provided by the FPRY’s Minister of Finance, id. art. 2, and 8
it operated under the administrative and operational supervision 9
of the FPRY’s Ministry of Foreign Trade. Id. art. 4. 10
On July 28, 1971, after the FPRY became the SFRY, a new law 11
established the basic form and substance of SFRY agencies. See 12
Law on Organizational Structure and Scope of Operations of 13
Federal Administration Bodies and Federal Organizations, art. 1 14
(Act No. 1045/71) (July 28, 1971) (hereinafter referred to as the 15
“Law on Agencies”). One such agency was the Federal Secretariat 16
of National Defense. Id. arts. 3, 5. In 1974, the SFRY amended 17
the Law on Agencies in several ways. See Act on the Amendment of 18
the Act on the Organization and Scope of Functions of Federal 19
Administrative Authorities and Federal Organizations (Act No. 20
21/74) (April 26, 1974) (hereinafter referred to as the “Amending 21
3 The FPRY was the predecessor state of the SFRY. It existed from 1946
to 1963. Like the SFRY, the FPRY was a socialist state headed by Josip Broz
Tito from 1963 to 1980.
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Act”). Article 3 of the Amending Act set forth amendments 1
pertaining to the SFRY Federal Secretariat of National Defense. 2
One amendment merged Yugoimport into a new sub-agency known as 3
the “Federal Directorate of Trade and Special Purpose Commodity 4
Reserves” or the “Federal Office for Trading and Reserves of 5
Special Purpose Goods” (the “Federal Office for Trading and 6
Reserves”). See id. art. 3; Statute of the Public Enterprise 7
“Jugoimport-SDPR,” art. 2 (FRY Gazette No. 89/9) (Jan. 27, 1997) 8
(FRY) (describing the merger in 1974 of Yugoimport into the 9
Federal Office for Trading and Reserves). The Amending Act 10
further stated that the Federal Office for Trading and Reserves 11
was “established within the Federal Secretariat of National 12
Defense for the purpose of performing tasks associated with the 13
sale and accumulation of commodity reserves . . . for the 14
national defense.” Amending Act, art. 3 (Act. No. 21/74). In 15
other words, the Federal Office for Trading and Reserves was the 16
SFRY’s arms dealer. 17
In 1991, the SFRY reconstituted the Federal Office for 18
Trading and Reserves as the Federal Directorate for Commerce of 19
Special Purpose Products. See Law on the Federal Directorate for 20
Commerce of Special Purpose Products, art. 24 (SFRY Gazette No. 21
11/91) (1991). It is undisputed that sometime between 1991 and 22
1996, the Federal Directorate for Commerce of Special Purpose 23
Products came to be known as the Federal Directorate of Supply 24
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and Procurement, or the FDSP. 4 For the sake of clarity, we will 1
refer to the entity solely as the FDSP and its enabling law as 2
the “FDSP Enabling Law” or simply the “Enabling Law.” 3
The Enabling Law that created the FDSP set forth its 4
function and management structure. See id. The Enabling Law 5
also required management, in agreement with the Federal Executive 6
Council, to establish within six months a governing “statute” 7
that would describe with greater particularity the FDSP’s 8
business activities and administration. Id. arts. 16, 17, 23. 9
Once created, the statute could be changed only with approval of 10
the Federal Executive Council. Id. art. 4. The statute 11
promulgated thereunder, Statute of the Federal Directorate for 12
Commerce of Special Purpose Products (Act. No. 750-3) (May 8, 13
1991) (SFRY) (hereinafter referred to as the “FDSP Statute” or 14
“Statute”), is akin to articles of incorporation. We draw upon 15
both the Enabling Law and the Statute to determine the defining 16
characteristics of the FDSP. 17
18
4 The parties agree that the Federal Directorate for Commerce of Special
Purpose Products and the FDSP are the same entity, governed by the same
organizational laws. Additionally, the 1996 statute reconstituting the FDSP
as Yugoimport, discussed infra, states that Yugoimport “keeps up the legal
continuity of the Federal Directorate of Supply and Procurement established
with the Law on the Federal Directorate of Supply and Procurement (“Official
Gazette of SFRY” 11/91).” Statute of the Public Enterprise “Jugoimport–SDPR,”
art. 2 (FRY Gazette No. 89/9) (Jan. 27, 1997). Despite referring to the
entity as the FDSP, the citation refers to the enabling law pursuant to which
the Federal Directorate for Commerce of Special Purpose Products was
established.
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The primary function of the FDSP remained the procurement 1
and trading of arms and military equipment on behalf of the SFRY. 2
FDSP Enabling Law, art. 1 (11/91) (“The [FDSP] . . . performs 3
activities that are in the interest of the . . . [SFRY] in the 4
area of foreign trade commerce with armaments and military 5
equipment.”); see also FDSP Statute, art. 8 (Act No. 750-3) 6
(describing with greater particularity the FDSP’s activities “in 7
the area of armaments and military equipment”). The FDSP was 8
allowed to undertake other lines of business subject to approval 9
from the Federal Secretariat for People’s Defense and only so 10
long as such undertakings did not impact its business dealings in 11
armaments and military equipment. FDSP Enabling Law, art. 3 12
(11/91); FDSP Statute, art. 9 (Act No. 750-3). The FDSP was 13
required to “direct its work in accordance with the plans for the 14
development and equipping of the military,” FDSP Statute, art. 12 15
(Act No. 750-3), and it was the FDSP’s “responsibility . . . to 16
organize and prepare for action in cases of immediate war danger 17
. . . [and] to perform other tasks and activities that are in the 18
interest of general people’s defense.” Id. art. 38. The Federal 19
Secretariat for People’s Defense supervised the FDSP’s 20
performance of national-interest functions, and the FDSP 21
submitted quarterly and annual reports to the Federal Secretariat 22
for this purpose. FDSP Enabling Law, art. 19 (11/91). Due to 23
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the nature of the FDSP’s work, the Enabling Law required that all 1
employee positions within the FDSP be staffed exclusively with 2
active military personnel. Id. art. 18. 3
The FDSP was organized as a juridical entity with the 4
“status of a legal person.” Id. art. 4. It guaranteed its 5
obligations with its own property, FDSP Statute, art. 2 (Act No. 6
750-3), and it was empowered to act “on its own behalf and own 7
account” and on others’ behalf and account pursuant to contract. 8
FDSP Enabling Law, arts. 7, 8 (11/91); FDSP Statute, art. 10 (Act 9
No. 750-3). The mutual rights and obligations of the FDSP and 10
“those on whose behalf . . . it perform[ed] foreign trade 11
commerce and services . . . [were] determined by contract.” FDSP 12
Enabling Law, art. 8 (11/91). 13
The FDSP was managed by a Director and a Council (the “FDSP 14
Council”), both of which were appointed, supervised, or removed 15
by the Federal Executive Council. Id. arts. 9-15. The FDSP 16
Council consisted of a representative of each of the following: 17
1) Federal Secretariat for People’s Defense 18
2) Federal Secretariat for Foreign Affairs 19
3) Federal Secretariat for Foreign Economic 20
Relations 21
4) Yugoslav National Bank 22
5) The Yugoslav Association of Industries for 23
Armament and Military Equipment; and 24
6) A representative from the employees of the 25
[FDSP]. 26
27
FDSP Statute, art. 24 (Act. No. 750-3). The Director was also a 28
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member of the FDSP Council. FDSP Enabling Law, art. 11 (11/91); 1
FDSP Statute, art. 25 (Act. No. 750-3). 2
The Director was responsible for, among other things, 3
business decisions, hiring and staffing decisions, and managing 4
the FDSP’s preparation for national defense. FDSP Statute, art. 5
22 (Act. No. 750-3). The FDSP Council was responsible for 6
1) Pass[ing] the strategic plan; 7
2) Pass[ing] a plan for foreign trade 8
commerce and a financial plan; 9
3) Pass[ing] a decision for the permanent and 10
long-term investments of the [FDSP]; 11
4) Decid[ing] upon the long-term acquiring of 12
funds; [and] 13
5) Perform[ing] other tasks defined by the 14
law . . . 15
16
Id. art. 26. The FDSP Council was also empowered to “decide[] on 17
changes in status (splitting, merging, and acquiring)” subject to 18
approval from the Federal Executive Council. Id. art. 3. 19
The FDSP’s earnings were to be used to “replenish the funds 20
spent and to provide for personal, common, and general social 21
needs and responsibilities.” Id. art. 16. If it produced a net 22
surplus or profit in a given year, the Director and FDSP Council 23
were to determine the division of profits in the course of 24
preparing the annual report. Id. art. 19. If the FDSP 25
experienced a liquidity problem or a loss, the FDSP Council was 26
to inform the Federal Secretariat for People’s Defense and the 27
Federal Executive Council. Id. art. 21. 28
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Because the FDSP operated out of Belgrade, Serbia, the FRY 1
was able to control its physical assets during the armed conflict 2
described supra. In 1996, the FRY formally reconstituted the 3
FDSP as Yugoimport SDPR. The government enacted a new 4
organizational law in September 1996, and the Belgrade Business 5
Court issued a decision purporting to merge the two entities in 6
early 1997. See Law on the Public Enterprise “Jugoimport-SDPR” 7
(PR. Nr. 291) (Official Gazette of SRY No. 46/96) (Sept. 27, 8
1996) (FRY). Like the FDSP, Yugoimport SDPR was created pursuant 9
to an enabling “law” and its functions and management structure 10
were set out more precisely in a governing “statute” enacted by 11
the managing board. See Statute of the Public Enterprise 12
“Jugoimport-SDPR,” preamble (FRY Gazette No. 89/9) (Jan. 27, 13
1997) (FRY), promulgated under Law on the Public Enterprise 14
“Jugoimport-SDPR,” (Official Gazette of SRY No. 46/96). The 15
primary function of Yugoimport SDPR remained the procurement and 16
trading of weapons and military equipment. Law on Jugoimport- 17
SDPR, arts. 2, 4 (46/96). 5 Initial funding was provided by the 18
state, id. art. 5, and the federal government was empowered to: 19
(i) approve the governing statute and any changes made to the 20
5 According to the governing statute, “Jugoimport-SDPR deal[t] with
other activities as well.” Statute on Jugoimport–SDPR, art. 4. The statute
listed several hundred activities, ranging from the “production, processing
and refrigeration of animal meat” to publishing books and bookbinding to the
“retail trade of household appliances, radios, and tv sets.” Id.
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statute thereafter; (ii) the development plan and working 1
program; (iii) any increases or decreases in basic capital; (iv) 2
any plans to acquire or sell real estate; (v) annual financial 3
plans and investment decisions; and (vi) any changes to the 4
organizational structure. Id. art. 15. 5
Yugoimport SDPR was managed by a Director, a Managing Board, 6
and a Supervisory Board. Id. art. 8. The Director was appointed 7
and subject to dismissal by the federal government. The Managing 8
Board consisted of eight members, five of which were appointed 9
and subject to dismissal by the federal government. Id. arts. 9, 10
14. 6 And the Supervisory Board consisted of a president, 11
appointed and subject to dismissal by the federal government, and 12
two members. Id. arts. 12, 17, 20. The enabling law permitted 13
[Yugoimport] to be organized as a “stock-sharing company,” but 14
required that the state retain at least 51 percent ownership. 15
Id. art. 16. 16
Following the dissolution of the FRY, Yugoimport has 17
continued to operate in Serbia, presumably reorganized under 18
Serbian law or adopted thereunder. 19
d) The Disputed Funds 20
In 1991, the FDSP opened a deposit account with the Bank of 21
New York. On May 30, 1992, the United States, pursuant to an 22
6 The remaining three members were elected by Yugoimport SDPR employees.
Id. arts. 9, 14.
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Executive Order issued by President George H.W. Bush, froze “all 1
property, and interests in property, in the name of the [SFRY] or 2
the [FRY] . . . in the United States,” including property in the 3
name of their “agencies, instrumentalities and controlled 4
entities, and any person acting or purporting to act for or on 5
behalf of any of the foregoing.” Exec. Order No. 12808, 57 F.R. 6
23299, Sec. 2, 4(c) (May 30, 1992). On July 20, 1992, the Office 7
of Foreign Assets Control, a division of the Department of 8
Transportation, published a notice containing a list of “entities 9
owned or presumed to be controlled by the [FRY].” Office of 10
Foreign Assets Control General Notice No. 1, 57 F.R. 32051-02 11
(July 20, 1992). The FDSP was on the list. Id. The asset 12
freeze remained in place until February 2003. This litigation 13
commenced shortly thereafter. 14
e) Procedural History 15
In light of Yugoimport’s and the Republics’ competing claims 16
of ownership of the funds, the Bank of New York filed this 17
interpleader action on April 14, 2003 in New York state court. 18
Pursuant to the Foreign Sovereign Immunities Act, 28 U.S.C. §§ 19
1441(d) and 1446, Slovenia removed the case to the Southern 20
District of New York, where it was initially assigned to Judge 21
Charles S. Haight. 22
23
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The bank deposited the disputed funds into the district 1
court’s registry and, on June 2, 2004, obtained a discharge from 2
this action. Judge Haight ordered limited discovery on the issue 3
of the FDSP’s status as an SFRY agency, which is of course 4
critical to the application of Annex C of the Succession 5
Agreement. On July 31, 2006, the Republics moved for summary 6
judgment or, in the alternative, for a stay to allow the Standing 7
Joint Committee under the Succession Agreement to make a 8
determination regarding whether the funds were subject to 9
division. 7 On September 22, 2006, Yugoimport cross-moved for 10
summary judgment and opposed the Republics’ motion to stay, 11
arguing that it was not subject to the jurisdiction of the 12
Standing Joint Committee. On May 11, 2007, Judge Haight stayed 13
the case so that the Standing Joint Committee could decide the 14
issue. Bank of New York v. Yugoimport SDPR J.P., No. 03 Civ. 15
9055, 2007 WL 1378426, at *10-11 (S.D.N.Y. May 11, 2007) 16
(hereinafter “Yugoimport I”). 17
7 Article 5 of the Succession Agreement sets forth dispute-resolution
methods that the successor states are to use in the event of disagreement:
If the differences [over interpretation] cannot be
resolved . . . the States concerned shall either (a)
refer the matter to an independent person of their
choice, with a view to obtaining a speedy and
authoritative determination of the matter . . .; or
(b) refer the matter to the Standing Joint Committee.
41 I.L.M at 5. The Standing Joint Committee, established by Article 4 of the
Succession Agreement, consists of senior representatives of each successor
state. Id. at 4.
17

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In the fall of 2008, the case was reassigned to Judge Alvin 1
K. Hellerstein, who lifted the stay because, in the interim, the 2
successor states had not appointed any members to the Standing 3
Joint Committee and it had never met. On April 29, 2011, the 4
district court granted the Republics’ motion for summary judgment 5
and held that the funds were to be divided among the successor 6
states. It based this holding on its conclusion that Yugoimport 7
was an agency, as a matter of law, under Annex C of the 8
Succession Agreement. Bank of New York v. Yugoimport SDPR J.P., 9
780 F. Supp. 2d 344 (S.D.N.Y. 2011) (hereinafter “Yugoimport 10
II”). 11
DISCUSSION 12
We review a grant of summary judgment de novo. K&A 13
Radiologic Tech. Serv’s, Inc. v. Comm’r of the Dep’t of Health of 14
New York, 189 F.3d 273, 278 (2d Cir. 1999) (citing Bogan v. 15
Hodgkins, 166 F.3d 509, 511 (2d Cir. 1999)). 16
a) Application of the Succession Agreement 17
When subject matter jurisdiction is based on the Foreign 18
Sovereign Immunities Act (the “FSIA”), 28 U.S.C. §§ 1441(d), 19
1446, 1603(a), we apply the choice-of-law rules of the forum 20
state, here New York, with respect to all issues governed by 21
state substantive law. Barkanic v. Gen. Admin. of Civil Aviation 22
of the People’s Republic of China, 923 F.2d 957, 959 (2d Cir. 23
18

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1991). 8 New York courts adopt a “center of gravity” approach to 1
choice-of-law questions in contract cases. This approach 2
requires application of the law of the jurisdiction with the most 3
significant interest in, or relationship to, the dispute. Lazard 4
Freres & Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1539 (2d 5
Cir. 1997) (Brink’s Ltd. v. South African Airways, 93 F.3d 1022, 6
1030-1031 (2d Cir. 1996) (citing In re Allstate Ins. Co. & 7
Stolarz, 81 N.Y.2d 219, 227 (1993))); Auten v. Auten, 308 N.Y. 8
155, 160-61 (1954). To determine the jurisdiction with the 9
greatest interest in the dispute, New York courts consider “a 10
spectrum of significant contacts, including the place of 11
contracting, the places of negotiation and performance, the 12
location of the subject matter, and the domicile . . . of the 13
8 The FSIA, 28 U.S.C. §§ 1330, 1332, 1391(f), 1441(d), 1602-1611, grants
foreign sovereigns general immunity from suit in the U.S., id. § 1604, unless
the action falls under one of several enumerated exceptions. Id. §§ 1605-
1607. Where an exception applies, district courts have original jurisdiction
over the action, id. § 1330, and if the action was brought in state court, the
foreign sovereign may remove it to the district court of the district
encompassing the state in which the action is pending. Id. § 1441(d).
Congress did not intend that the FSIA establish substantive rules of
liability. See Barkanic, 923 F.2d at 960 (quoting Verlinden v. Cent. Bank of
Nigeria, 647 F.2d 320 (2d Cir. 1981), rev’d on other grounds, 461 U.S. 480
(1983)). The FSIA operates as a pass-through, granting federal courts
jurisdiction over otherwise ordinary actions brought against foreign states.
It provides foreign states and their instrumentalities access to federal
courts only to ensure uniform application of the doctrine of sovereign
immunity. Id. at 960-961.
Because the FSIA creates federal question jurisdiction but does not
supply any substantive law of liability, see Verlinden, 461 U.S. at 491-93,
choice of law problems arise in the FSIA context. The FSIA contains no
express choice of law provision, but Section 1606 provides that a foreign
sovereign “shall be liable in the same manner and to the same extent as a
private individual under like circumstances.” 28 U.S.C. § 1606. In Barkanic,
we found that the goal of like-treatment is best served by applying the state
choice of law rules if the action is governed by state substantive law.
Barkanic, 923 F.2d at 959.
19

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contracting parties.” Brink’s, 93 F.3d at 1031 (citing In re 1
Allstate, 81 N.Y.2d at 227). New York choice-of-law rules also 2
“require[] the court to honor the parties’ choice [of law 3
provision] insofar as matters of substance are concerned, so long 4
as fundamental policies of New York law are not thereby 5
violated.” Woodling v. Garrett Corp., 813 F.2d 543, 551 (2d Cir. 6
1987). 7
The countries with the strongest interest in the present 8
dispute are the successor states. All of them, except for non- 9
party Macedonia, have ratified or acceded to the Vienna 10
Convention on the Law of Treaties (the “Vienna Convention”), 11
opened for signature May 23, 1969, 1155 U.N.T.S. 331, reprinted 12
in 8 I.L.M. 679, which contains a set of interpretive rules 13
regarding treaty interpretation. 9 Prior to its dissolution, the 14
SFRY was also a party to the Vienna Convention. Moreover, 15
Article 9 of the Succession Agreement provides that the 16
9 The Vienna Convention was adopted on May 22, 1969 by the United
Nations Conference on the Law of Treaties.
http://treaties.un.org/Pages/ViewDetailsIII.aspx?&src=TREATY&mtdsg_no=XXIII~1&
chapter=23&Temp=mtdsg3&lang=en (last visited Jan. 16, 2014). To date, 113
nations are parties to the Convention and 45 nations are signatories to it.
Id.
The SFRY signed and ratified the Vienna Convention on May 23, 1969. Id.
After the dissolution of the SFRY, Slovenia became a party on July 6, 1992;
Croatia on October 12, 1992; Bosnia-Herzegovina on September 1, 1993; and
Serbia on March 12, 2001. Id. All the pertinent countries became parties to
the Vienna Convention prior to the finalization of the Succession Agreement on
June 29, 2001. See Vienna Convention, art. 4, 1155 U.N.T.S. at 334
(explaining that the Convention does not apply retroactively to treaties
already in force); Chubb & Son, Inc. v. Asiana Airlines, 214 F.3d 301, 308 n.5
(2d Cir. 2000) (same).
20

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Succession Agreement is to be interpreted in accordance with 1
international law, of which the Vienna Convention is an integral 2
part. See supra n.9; Succession Agreement, art. 9, 41 I.L.M. at 3
9. Therefore, under New York’s choice-of-law principles, we 4
apply the interpretative rules set forth in the Vienna 5
Convention. 6
To reiterate, the issue is whether the FDSP was an agency of 7
the SFRY as that term is used in the Succession Agreement. The 8
term agency is not defined in the Succession Agreement, and 9
neither party has supplied a definition under SFRY law. Under 10
the Vienna Convention, terms in a treaty are to be interpreted in 11
accordance with their ordinary meaning. Vienna Convention, art. 12
31(1). A term’s ordinary meaning is generally derived from the 13
language in which the treaty was drafted. See id. art. 33 14
(providing that treaties authenticated in two or more languages 15
“are equally authoritative in each language,” and where language 16
divergences create ambiguity, courts should adopt the meaning 17
which “best reconciles the texts”). The Succession Agreement was 18
drafted in English. In at least one instance where a concept was 19
apparently not susceptible to English translation, i.e., 20
“dwelling rights,” the Agreement provided Croatian, Slovenian, 21
and Serbian versions to clarify its meaning. Succession 22
Agreement, Annex G, art. 6, 41 I.L.M. at 36. The absence of such 23
non-English versions of the term agency indicates that there was 24
21

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no intended meaning beyond the plain-language English definition. 1
Therefore, we construe the term “agency” in accordance with 2
generally-accepted international principles and its ordinary 3
meaning in English. 4
A principal-agent relationship is “created by express or 5
implied contract or by law, in which one party (the agent) may 6
act on behalf of another party (the principal) and bind that 7
other party by words or actions.” AGENCY (1), Black’s Law 8
Dictionary (9th ed. 2009). The fact that FDSP was organized as a 9
corporation does not preclude it from being deemed an SFRY agency 10
under the Succession Agreement. The definition of “federal 11
agency” in Black’s Law Dictionary expressly includes government 12
corporations: “A department or other instrumentality . . . , 13
including a government corporation.” AGENCY (3), Black’s Law 14
Dictionary (9th ed. 2009). 15
As the district court observed, “there is nothing 16
inconsistent, or even unusual, about a state employing the 17
corporate form to create an agency.” Yugoimport II, 780 F. Supp. 18
2d at 356. Quite the contrary, many governments have public 19
corporations that function as agencies. As the district court 20
pointed out in an impressive string cite, almost all of the fifty 21
U.S. states have corporations that function as agencies. Id. at 22
358; see also 1 Fletcher Cyc. Corp. § 57 (“A ‘public’ corporation 23
22

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. . . may be defined as a corporation that is created by the 1
state as an agency in the administration of civil government.”). 2
For the purposes of determining which entities are entitled 3
to sovereign immunity, the FSIA, the Canada State Immunity Act, 4
and the European Convention on State Immunity all adopt broad 5
definitions of agency that expressly include public corporations. 6
See 28 U.S.C. § 1603(b) (“An ‘agency or instrumentality of a 7
foreign state’ means any entity (1) which is a separate legal 8
person, corporate or otherwise, and (2) which is an organ of a 9
foreign state or political subdivision thereof, or a majority of 10
whose shares or other ownership interest is owned by a foreign 11
state or political subdivision thereof . . .”); Canada State 12
Immunity Act, R.S.C. 1985, c. S-18, § 2; European Convention on 13
State Immunity Explanatory Report, Art. 27 ¶ 107-109 (noting that 14
“proceedings are frequently brought . . . not, strictly speaking, 15
against a State itself, but against [] legal entit[ies] 16
established under the authority of the State and exercising 17
public functions” and that such entities “may be . . . State 18
agencies, such as national banks or railway administrations”). 19
Under any reasonable understanding of the term, there is no 20
doubt that the FDSP was an agency of the SFRY, as the exhaustive 21
description of its origins, ongoing governance, and role showed. 22
It was, at all times, controlled by the government; its 23
23

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management consisted of government officials; it was subject to 1
supervision by the Federal Secretariat of People’s Defense and 2
the Federal Executive Council; its earnings were to be used not 3
only to “replenish[] funds spent” but also “to provide for 4
personal, common, and general social needs and responsibilities”; 5
and management could not alter the FDSP Statute without approval 6
from the Federal Executive Council. FDSP Enabling Law, arts. 19, 7
12, 15, 16 (11/91); FDSP Statute, art. 16 (Act. No. 750-3). 8
Moreover, the FDSP served a purpose so elemental to a nation- 9
state government as to render any suggestion that it was not an 10
SFRY agency risible. 11
A compelling reason for the existence of nation states is to 12
strengthen military defense, as the American experience 13
demonstrates. The FDSP was the SFRY’s arms dealer, charged with 14
equipping the SFRY’s military forces according to strategic needs 15
determined by the SFRY. It was required to coordinate its work 16
with the government’s military planners, and it was the FDSP’s 17
“responsibility” to supply the military to meet its perceived 18
needs. Even in the SFRY –- a socialist state where many 19
enterprises were owned and controlled by the government –- the 20
FDSP was clearly a governmental agency because of the important 21
national-interest functions it performed. 22
23
24

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In an effort to avoid this plain language interpretation, 1
Yugoimport submitted several pieces of extrinsic evidence, 2
including: (i) an affidavit of Dr. Veroljub Dugalić, a former 3
FRY Minister of Finance who served as a delegate in the 4
negotiations of the Succession Agreement and as an FRY (and now 5
as a Serbian) representative in the Annex C Committee on the 6
Distribution of Financial Assets and Liabilities; (ii) documents 7
purporting to represent the drafting history of the Succession 8
Agreement; and (iii) letters submitted by the Ministers of 9
Finance of Bosnia-Herzegovina and Serbia. 10 Yugoimport contends 10
that the district court was able to grant summary judgment only 11
by failing to consider or by not crediting this evidence. 12
However, none of these items could properly have been taken into 13
consideration under the interpretive rules set forth in the 14
Vienna Convention. 15
Under the Vienna Convention, external evidence may be 16
considered only in limited circumstances. Article 31 provides 17
A treaty shall be interpreted in good faith 18
in accordance with the ordinary meaning to be 19
given to the terms of the treaty in their 20
context and in the light of its object and 21
purpose. 22
Vienna Convention, art. 31(1). 23
10 We need not reach the issue of whether this extrinsic evidence, even
if considered, would be sufficient to alter the result. As discussed supra,
the nature and functions of the FDSP may well have dictated the result we
reach.
25

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Yugoimport contends that the extrinsic evidence proffered is 1
necessary to interpreting the Treaty in “context and in the light 2
of its object and purpose.” Id. However, this argument fails 3
because the Vienna Convention expressly sets forth in Article 31 4
the materials that may be considered to discern that context and 5
purpose. Context may be evaluated by consulting: (i) the text 6
of the treaty, including its preamble and annexes; (ii) “[a]ny 7
agreement relating to the treaty which was made between all the 8
parties in connection with the conclusion of the treaty”; and 9
(iii) “[a]ny instrument which was made by one or more parties in 10
connection with the conclusion of the treaty and accepted by the 11
other parties as an instrument related to the treaty.” Id. art. 12
31(2) (emphasis supplied). A court may also consult: “(a) [a]ny 13
subsequent agreement between the parties regarding the 14
interpretation of the treaty or the application of its 15
provisions; (b) [a]ny subsequent practice in the application of 16
the treaty which establishes the agreement of the parties 17
regarding its interpretation; and (c) [a]ny relevant rules of 18
international law.” Id. art. 31(3) (emphasis supplied). There 19
is an obvious preference of the Vienna Convention toward 20
consideration only of those materials that were ratified, 21
adopted, or somehow endorsed by all the treaty parties. Because 22
the documents proffered by Yugoimport are not traced to all the 23
26

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successor states, the district court should not have considered 1
them or afforded them weight in determining the context of the 2
treaty or its object and purpose. 11
3
Yugoimport next contends that such evidence is properly 4
before the court because the treaty is ambiguous. Article 32 of 5
the Vienna Convention states: 6
Recourse may be had to supplementary means of 7
interpretation, including the preparatory 8
work of the treaty and the circumstances of 9
its conclusion, in order to confirm the 10
meaning resulting from the application of 11
article 31 [ordinary-meaning analysis], or to 12
determine the meaning when the interpretation 13
according to article 31: (a) [l]eaves the 14
meaning ambiguous or obscure; or (b) [l]eads 15
to a result which is manifestly absurd or 16
unreasonable. 17
18
Vienna Convention, art. 32 (emphasis added). Under this Article, 19
courts may consider certain, limited types of external evidence 20
only to confirm the ordinary meaning of the text, or where the 21
ordinary meaning is ambiguous or would lead to absurd results. 22
External evidence may not be admitted to create ambiguity where 23
there is none or to compel an interpretation different from the 24
text’s ordinary meaning. 25
26
11 Yugoimport also cites Article 31(4) for the proposition that “special
meaning shall be given to a term if it is established that the parties so
intended.” Id. art. 31(4). However, as discussed above there is no
indication that the parties intended a special meaning for “agency.”
27

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Yugoimport contends that the treaty is ambiguous because: 1
(i) the term agency is undefined, and (ii) Annexes C and G, when 2
read in conjunction, create an ambiguity. We find that the 3
Succession Agreement is not ambiguous in this regard. A failure 4
to include a precise definition of agency does not render the 5
contract ambiguous with regard to the term “agency,” at least so 6
far as a body intended to arm the SFRY’s military is concerned. 7
Furthermore, we perceive no relevant conflict between Annexes C 8
and G. Annex C calls for the division of assets of governmental 9
agencies. Annex G does not inform the definition of agency in 10
Annex C. It provides that “private property” of legal persons 11
shall be respected. Although Yugoimport may have been organized 12
as a legal person, it was a public corporation that functioned, 13
as intended, as an SFRY agency. Under no discernible principles 14
were its funds “private property.” Therefore, Annex G does not 15
dictate otherwise. 16
b) An Afterword 17
Although the decisive issue on this appeal is disposed of 18
above, we address Yugoimport’s argument that its corporate form 19
shields it from application of Annex C of the Succession 20
Agreement. Yugoimport contends that because the FDSP was 21
organized as a corporation, under United States federal common 22
law it is not subject to the Succession Agreement unless it is 23
deemed to be an “alter ego” of the SFRY. 24
28

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Yugoimport relies principally on First National City Bank v. 1
Banco Para El Comercio Exterior de Cuba (“Bancec”), 462 U.S. 611 2
(1983). At issue in Bancec was whether Citibank could maintain a 3
counterclaim against Bancec, Cuba’s fully-owned foreign-trade 4
agent, for actions taken against Citibank by the Cuban 5
government. 12 Bancec’s successor maintained that it was 6
organized as an independent juridical entity under Cuban law and 7
therefore could not be liable for actions of the Cuban 8
government. The Supreme Court agreed that “government 9
instrumentalities established as juridical entities distinct and 10
independent from their sovereign should normally be treated as 11
such.” Id. at 626-27. The Court refused, however, to treat the 12
Cuban organizational law as decisive. According “conclusive 13
effect to the law of the chartering state in determining whether 14
the separate juridical status of its instrumentality should be 15
respected would permit the state to violate with impunity the 16
rights of third parties under international law while effectively 17
insulating itself from liability in foreign courts.” Id. at 621- 18
12 Bancec filed suit against Citibank in the Southern District of New
York to recover on an unpaid letter of credit. Bancec had executed a series
of contracts whereby it purchased sugar from another instrumentality of the
Cuban government and then sold the sugar as export to a private company.
Citibank issued the letter of credit on behalf of the private company as
consideration for the sugar. Shortly after the issuance of the letter, Cuba
nationalized all property belonging to American citizens and entities in Cuba,
including Citibank’s branch offices in Cuba. When the letter of credit became
due, Citibank credited the amount due to Bancec’s account but then applied the
account balance to setoff the value of Citibank’s lost Cuban branches. After
Bancec initiated the action, Citibank counterclaimed seeking setoff based on
the Cuban government’s seizure of its assets. Id. at 613-16.
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22. The Court ruled that foreign instrumentalities organized 1
under foreign law as independent juridical entities are entitled 2
to a presumption of independence, but this presumption can be 3
overcome by equitable veil-piercing or alter-ego analysis under 4
federal common law. Id. at 626-30. 5
To the extent that Yugoimport’s arguments suggest that 6
Bancec controls interpretation of the Succession Agreement as to 7
whether FDSP was an “agency” of the SFRY, the argument fails. 8
The purpose of treaty interpretation is to give effect to the 9
intent of the contracting states. Bancec’s alter-ego analysis 10
applies to the unilateral acts of a single sovereign and attempts 11
to reconcile the oft-conflicting goals of giving respect to the 12
acts of other sovereigns while avoiding results that amount to 13
the rewarding of fraud. Bancec’s analysis simply has nothing to 14
do with interpretation of the Succession Agreement. 15
Moreover, assuming the FDSP was organized as an independent 16
juridical entity or corporation, 13 nothing in Bancec suggests 17
that the FDSP’s legal form insulates it from the Succession 18
13 This assumption is likely correct. The FDSP was organized as a
juridical entity with the “status of a legal person.” FDSP Enabling Law, art.
4 (11/91). It was empowered to act on its own behalf and enter into
contracts, id. arts. 7, 8, and it guaranteed its obligations with its own
property, FDSP Statute, art. 2 (Act. No 750-3). The organizational laws also
suggest that the government intended for the FDSP to be funded by its own
commercial activities. See id. art. 16 (providing that earnings were to be
used to “replenish funds spent”); id. art. 21 (providing that the FDSP Council
was to inform the Federal Secretariat for People’s Defense and the Federal
Executive Council if the FDSP experienced a liquidity problem or a loss in any
given year).
30

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Agreement. Such a result would be contrary to both corporate law 1
and the principles of comity animating Bancec. Bancec 2
establishes two analytic components, a presumption of 3
independence and alter-ego analysis, that operate in tandem. 4
Contrary to Yugoimport’s suggestion, the Court’s concern 5
about the diversion of an instrumentality’s assets was not 6
motivated by a desire to protect instrumentalities for their own 7
sake; the recognition of the independent status afforded to 8
instrumentalities is derivative of, and incidental to, the 9
underlying purpose of the presumption, which is to give respect, 10
but not conclusive effect, to foreign sovereigns’ policy 11
decisions. Id. at 626-27 (observing that the presumption is 12
based on “[d]ue respect . . . for foreign sovereigns” and 13
“principles of comity between nations”). 14
14
The presumption may be overcome by alter-ego analysis, i.e. 15
if the instrumentality was so extensively dominated by the 16
14 As the Court explained, governments create juridical entities for a
variety of important governmental purposes. Instrumentalities run as distinct
economic enterprises are often exempt from the budgetary and personnel
requirements applicable to other government agencies. Bancec, 462 U.S. at
624. Such instrumentalities also enjoy a greater degree of flexibility and
independence from political control than typical agencies. Id. By delegating
certain activities to such instrumentalities, governments may easily waive
sovereign immunity with respect to the instrumentalities’ activities, enabling
third parties to deal with the instrumentality with confidence that judicial
relief will be available should the need arise. Id. at 625. Most
importantly, it is often easier to obtain large-scale financing using entities
with distinct debt structures. Id. at 625-26. Disregarding corporate form
would frustrate these objectives. In the case of a developing country,
diversion of an instrumentality’s assets to satisfy debts of the sovereign
could stymie investment and cause third-parties dealing with the
instrumentality to demand government guarantees. See id.
31

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sovereign that a principal-agent relationship existed and where 1
respecting the corporate form of the instrumentality “blindly . . 2
. would cause . . . injustice.” Id. at 629, 632; see Frontera 3
Res. Azerbaijan Corp. v. State Oil Co. of the Azerbaijan 4
Republic, 582 F.3d 393, 400 (2d Cir. 2009). The party seeking to 5
overcome the presumption of independence bears the burden of 6
proof. Zappia Middle East Constr. Co. Ltd. v. Emirate of Abu 7
Dhabi, 215 F.3d 247, 252 (2d Cir. 2000). This burden evinces the 8
measure of respect due foreign sovereigns. Alter-ego analysis is 9
simply a back-stop measure that prevents foreign sovereigns from 10
using their business laws to immunize themselves from third-party 11
liability. 15 It defies logic to apply it where, as here, there 12
is no third-party seeking redress and Bancec is relied upon 13
solely to shield the instrumentality from the foreign state that 14
owns it. 15
For the foregoing reasons, we hold that Bancec has no 16
bearing on the issue of whether the FDSP was an agency as that 17
term is used in the Succession Agreement. And, because 18
Yugoimport cannot show as a matter of law that it was not an 19
agency, its motion for summary judgment was properly denied. 20
15 In Bancec, the Cuban government could not have brought suit in the
U.S. without waiving its sovereign immunity with respect to counterclaims.
Bancec, 462 U.S. at 630; see also 28 U.S.C. § 1607(c) (foreign states waive
their sovereign immunity with respect to counterclaims “to the extent that the
counterclaim does not seek relief exceeding in amount or differing in kind
from that sought by the foreign state.”). Failure to apply alter-ego analysis
would have permitted the Cuban government to circumvent Section 1607(c).
32

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CONCLUSION 1
For the reasons stated herein, the district court’s order 2
and opinion are AFFIRMED. 3
33

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