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Schmidt v. Polish People's Republic

August 16, 1984

ADOLPH W. SCHMIDT, JOHN F. TIM, JR., AND JAMES M. WALTON, SUCCESSOR TRUSTEES FOR STANDARD CAR FINANCE CORPORATION, PLAINTIFFS-APPELLANTS, CROSS-APPELLEES,
v.
THE POLISH PEOPLE'S REPUBLIC, DEFENDANT-APPELLEE, CROSS-APPELLANT



Appeal from a judgment of the United States Distraict Court for the Southern District of New York (Robert L. Carter, Judge, dismissing plaintiffs-appellants' action under the Foreign Sovereign Immunities Act of 1976, 28 U.S.C. §§ 1330 et seq. (1976), to cover on defaulted Treasury notes issued by the Republic of Poland in 1929 and 1930. The district court held that plaintiffs' claim was time barred. Affirmed.

Author: Winter

Before: OAKES and WINTER, Circuit Judges and MISHLER, District Judge.*fn*

WINTER, Circuit Judge:

Plaintiffs-appellants Adolph W. Schmidt, John F. Tim, Jr. and James M. Walton, successor trustees for Standard Car Finance Corporation ("Standard") brought this action under the Foreign Sovereign Immunities Act of 1976, 28 U.S.C. §§ 1330 et seq. (1976) ("FSIA" or "Act") to recover on defaulted Treasury notes issued by the Republic of Poland in 1929 and 1930. Judge Carter dismissed the complaint as time barred under the New York Statute of Limitations, N.Y. Civ. Prac. Law § 213 (McKinney Supp. 1983). Appellants now assert for the first time that the Pennsylvania statute of limitations applies. Defendant protectively cross-appeals Judge Carter's conclusion that the court had personal jurisdiction over the Polish People's Republic.*fn1

BACKGROUND

In 1926, a representative of the Polish government contacted Mr. Andrew Mellon, the Pittsburgh financier, in an effort to secure financing for the construction of several thousand railroad cars. After extensive negotiations in Pittsburgh and New York, an agreement was reached and implemented through a two-part contract. The first contract, executed on December 6, 1929, between Poland and the Polish firm of Lilpop, Rau and Lowenstein ("Lilpop"), provided that Lilpop would manufacture the cars and receive payment, in part, in Polish Treasury notes. This agreement expressly acknowledged that Lilpop would, in turn, sell the notes to Standard. The resultant contract between Lilpop and Standard, executed on February 5, 1930, provided that Standard would purchase the Treasury notes and acquire Lilpop's interest in the railway cars as security.

Standard redeemed the notes as they fell due at the New York City offices of National City Bank until October, 1936, when Poland defaulted. The parties renegotiated the debt and signed a new agreement on September 28, 1937. That agreement called for the cancellation of 426 of the outstanding notes and the issuance of 78 new notes bearing a lower interest rate. The old and new notes were exchanged on March 1, 1938 and the latter were made payable at National City Bank (now Citibank, N.A.). Between April, 1938 and April, 1939, Standard redeemed nine of the new notes. Poland defaulted in October, 1939, as World War II began. Sixty-nine new notes having a face value of $5,294,036,98 were left outstanding.

After the war, the Polish Mission of Restitution conducted a search for 5038 railway cars which had been pledged as security to Standard. The search yielded 115 railway cars which were subsequently nationalized by the defendant.

In 1960, Poland and the United States concluded an agreement whereby Poland would pay the United States $40 million over 20 years as satisfaction for the claims of American nationals whose property had been nationalized after the war.*fn2 In 1964, Standard filed a claim with the Foreign Claims Settlement Commission ("FCSC") seeking to recover for the 115 nationalized railway cars. Between 1964 and 1980, the FCSC paid Standard $88,000 out of the $40,000,000 fund. In exchange, Standard returned 10 of the 69 outstanding notes to Poland with a face value of $820,000.

Standard also filed a claim with the FCSC pursuant to Title II of the War Claims Act of 1948, 50 U.S.C. App. § 2017a (1976). This claim sought compensation for the 4923 railway cars lost or destroyed during the War. Standard received an award in the amount of $5,132,814.55. Partial payment of that award was made in the amount of $3,150,285.32 on October 6, 1967. The fundsused to pay the award were derived from the sale of German and Japanese assets in the United States, and no part of the payment was made by Poland.

In 1972, a trust was created under Pennsylvania law to manage Standard's claims. Between 1972 and 1982, the Mellon National Bank and Trust Company acted as trustee with respect to that Company's claim against the Polish government. The current trustees were appointed in 1982 and are residents of Pennsylvania. Standard, however, is a Delaware corporation.

In October, 1980, Henry J. Clay, Esquire, representing the Standard trustees, met with Jan Boniuk, an advisor to the Polish Ministry of Finance. Because Poland's records regarding the history of Standard's claim were scanty, Mr. Clay provided the Polish government with a memorandum setting forth the background to Standard's claim. No settlement was reached. Aside from the payments pursuant to the 1960 FCSC settlement, Poland has made no payments in connection with the Treasury notes or railway cars since 1939.

In December, 1982, Standard's trustees filed this action seeking payment on the 59 outstanding notes, which have a face value of $4,474,036.98. Adding interest from October, 1939, plaintiff's demanded judgment for over $15,000,000. Poland moved to dismiss on the grounds that (i) the court lacked jurisdiction over the subject matter; (ii) the court lacked jurisdiction over Poland; (iii) venue was improper; and (iv) the action was time barred by the applicable statute of limitations. The trustees cross-moved to strike the affirmative defenses and for judgment on the pleadings or, in the alternative, for summary judgment. Affidavits fleshing out relevant facts were submitted by both parties. In its brief and argument before Judge Carter, Standard maintained that New York law governed the relationship of the parties.

Judge Carter found that he had jurisdiction over the subject matter, statutory jurisdiction over the defendant, and that venue was properly in the Southern District of New York. However, he dismissed the complaint on the ground that it was time barred by New York's statute of limitations. The trustees appeal from the dismissal of the complaint and now maintain that Pennsylvania's statute of limitations governs. Poland argues that Judge Carter correctly dismissed the ...


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