Atlantica Holdings, Inc. v. Sovereign Wealth Fund Samruk-Kazyna JSC
2016 U.S. App. LEXIS 1782
| 2d Cir. | 2016Background
- SK Fund is a sovereign-wealth fund of Kazakhstan and majority owner of BTA Bank; BTA restructured debt in 2010 and issued Subordinated Notes described in an Information Memorandum that incorporated a Deed of Undertaking by SK Fund.
- The Information Memorandum was distributed to creditors and marketed to investors, including in the U.S.; some U.S. investors (the Kibliskys in Miami and Gliksberg in Illinois) purchased notes through UBS’s Miami office and completed transactions in New York.
- Plaintiffs (investment funds and individual U.S. investors) allege SK Fund and BTA made false and misleading statements (including about dividend restrictions and undisclosed transactions — the "Negative Carry Swap") that inflated note values; disclosures beginning in 2011 revealed the problems and the notes collapsed in value.
- Plaintiffs sued in S.D.N.Y. under Sections 10(b) and 20(a) of the Exchange Act, asserting securities fraud and control-person liability against SK Fund; SK Fund moved to dismiss for lack of subject-matter jurisdiction under the FSIA, lack of personal jurisdiction, and failure to state claims.
- The district court denied SK Fund’s motion, finding the FSIA commercial-activity exception (both first and third clauses) waived immunity and (in a footnote) that § 1330(b) conferred personal jurisdiction; SK Fund appealed the FSIA ruling and personal-jurisdiction issues.
- The Second Circuit affirmed that FSIA immunity was overcome under the third clause (the direct-effect clause) and dismissed the appeal of the personal-jurisdiction claim (declining pendent appellate jurisdiction).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FSIA's commercial-activity exception (third clause) bars immunity | Misrepresentations about the notes were made abroad but were directed at and caused direct economic injury to U.S. investors, so §1605(a)(2) applies | The gravamen is foreign conduct; plaintiffs’ losses are not a direct U.S. effect and causal chain is attenuated by intermediaries | Held: The action is based upon misrepresentations made abroad and those acts caused a direct effect in the U.S.; FSIA immunity does not apply |
| Whether BTA Bank statements can be attributed to SK Fund for FSIA purposes | Plaintiffs advance §20(a) control theory: if SK Fund controlled BTA, BTA’s statements support claims against SK Fund | SK Fund invoked separate juridical-entity presumption and challenged control allegations | Held: Attribution via control-person theory is a viable basis for FSIA analysis here (district court’s §20(a) sufficiency not before panel but attribution need not be resolved by alter-ego analysis now) |
| Whether financial loss to U.S. investors qualifies as a “direct effect” under §1605(a)(2) | Economic injury in U.S. (locus of tort) is the last event making defendant liable; thus a direct effect exists | Financial loss alone insufficient if initial injury occurred abroad; also argued that UBS intermediary attenuated causation | Held: Where U.S. investors’ initial economic injury occurred in the U.S. and the issuer marketed notes to U.S. persons, the loss is a direct effect; intermediary distribution did not break the causal chain |
| Whether appellate court should decide constitutional personal-jurisdiction challenge | Plaintiffs did not dispute FSIA analysis; resolution unnecessary on appeal of immunity denial | SK Fund urged that exercising jurisdiction would violate Due Process; sought review of personal jurisdiction | Held: Court declines pendent appellate jurisdiction to resolve due-process personal-jurisdiction claim (issue pending in related en banc panel); appeal as to personal jurisdiction dismissed |
Key Cases Cited
- Republic of Argentina v. Weltover, 504 U.S. 607 (1992) (direct-effect clause: nonpayment into a New York bank caused a direct U.S. effect)
- First Nat’l City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611 (1983) (presumption that foreign instrumentalities are juridically distinct from sovereign)
- Janus Capital Grp. v. First Derivative Traders, 564 U.S. 135 (2011) (requirement that actionable misstatement be "made" by defendant under §10(b))
- Sack v. Low, 478 F.2d 360 (2d Cir. 1973) (locus of securities-fraud claim is where plaintiff sustains economic loss)
- Antares Aircraft, L.P. v. Federal Republic of Nigeria, 999 F.2d 33 (2d Cir. 1993) (in tort, locus of the tort is the relevant analog to contract place of performance for FSIA direct-effect analysis)
- Virtual Countries, Inc. v. Republic of South Africa, 300 F.3d 230 (2d Cir. 2002) (third-party mediated chain can render effect non-direct when many intervening actions are required)