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Richard Bleier, Elfriede Korber, and Christopher Mark v. Bundesrepublik Deutschland

September 30, 2011

RICHARD BLEIER, ELFRIEDE KORBER, AND CHRISTOPHER MARK, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
BUNDESREPUBLIK DEUTSCHLAND, ) ET AL. DEFENDANTS.



The opinion of the court was delivered by: Judge Edmond E. Chang

MEMORANDUM OPINION AND ORDER

Plaintiffs Elfriede Korber and Christopher Mark*fn1 bring this putative class action on behalf of themselves and all others similarly situated against twenty-six named Defendants: Bundesrepublik Deutschland (Federal Republic of Germany), Bundesministerium Der Finanzen (German Ministry of Finance), Deutsche Bundesbank (German National Bank), BADV - Prufstelle Fur Auslandsbonds Landesamt Fur Finanzen, Commerzbank AG, Commerzbank (Chicago, New York, Los Angeles, and Atlanta branches), Commerzbank Capital Markets Corp., Commerzbank Securities, Commerzbank Corporates & Markets, Eurohypo AG, Deutsche Bank AG, Deutsche Bank/Bankers Trust Co., Citibank N.A., JP Morgan Chase Bank, N.A., Warburg Dillon Read, Schroders plc, Bank for International Settlements, UBS AG, Dresdner Bank AG, Mizuho Corporate Bank Ltd., The Bank of New York Mellon, Credit Suisse Group AG, Skandinaviska Ensilkda Banken AB. Plaintiffs seek redemption and payment for German gold bearer bonds that they own and/or possess.

R. 82 (Second Am. Compl.) at ¶ 119. Plaintiffs' complaint is over two-hundred pages and alleges some 24 causes of action. Defendants jointly move to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6).*fn2 R. 103. In addition, several Defendants also filed individual motions to dismiss on various grounds. R. 90, 92, 96, 99, 101, 107, 108, 109, 117, 209, 254.

This opinion addresses a subset of those motions, in particular, primarily those motions dealing with threshold issues: the motion to reconsider the previously-assigned judge's subject matter jurisdiction ruling (which is denied); the insufficient service of process motion of Germany, the German Ministry of Finance, and the German National Bank (which is granted); and various motions filed by Plaintiffs (which are denied). In a forthcoming opinion, the Court will address the remaining motions, including the motion to dismiss on statute of limitations grounds and for failure to state a claim.

I.

Plaintiffs allege that they are the owners or holders of certain bonds issued decades ago by Germany, political subdivisions of Germany, and German corporations.*fn3

R. 82 ¶¶ 3, 119, 128. The complaint alleges that Defendants are guarantors, successors, trustees, co-obligors, and/or redemption or paying agents on Plaintiffs' bonds and, thus, are liable for payment of the bonds. Id. ¶¶ 32, 67-86. The bonds are alleged to have been marketed and sold to, among others, United States citizens in the years between the end of World War I and through 1930. Id. ¶¶ 1, 124. Plaintiffs allege that when Hitler came to power in 1933, Germany ceased payments on the bonds.*fn4 Id. ¶ 4. In 1952, Germany passed the Law for the Validation of German Foreign Currency Bonds (hereinafter, the Validation Law).*fn5 It established the criteria of validity of such German bonds and the procedure for obtaining validation.

Specifically, the Validation Law requires that "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." Mortimer Off Shore Servs., 615 F.3d at 102 (citing Validation Law, Art. 3 at 306; Art. 8 at 307; Art. 23 at 310-11). In order to register the bonds so that they can be validated, the holder must submit them to the Examining Agency and include the information required by Article 39. See Validation Law, Art. 39 at 314; Art. 40 at 314-15. Following registration, the registrant bears the burden of proving the validation requirements have been met. See id., Art. 41 at 315. Failing to register the bonds before the registration period ended would result in the bonds' invalidation. See id., Art. 50 at 317; Art. 21 at 310; Art. 37 at 314. Where a person fails to register and have his or her bonds validated in accordance with the Validation Law, the bonds may not be enforced. See Mortimer Off Shore Servs., 615 F.3d at 115-17.

In situations where a bond is not validated, the Validation Law allows for the possibility of "subsequent" registration and validation. Validation Law, Art. 51 at 317. Under the Law, when a bond is not timely registered and the failure is not the fault of the person "entitled to register," subsequent registration and validation may occur. Id. This may be done in one of two ways. First, under Article 51, bonds may be registered with the Examining Agency and submitted to the Chamber for Settlements. See id., Art. 51(2) at 317. Under this method, bonds will only be validated "if the denial of validation would effect extraordinary hardship upon the bondholder . . . ." Id. Second, under Article 52, the bondholder may "claim compensation from the issuer and any third party liable directly as a debtor for the bonded obligation . . . ." Id., Art. 52 at 317. This method requires that: (1) the bond would have been validated if timely registered, and (2) the failure to register was not due to the person's own "gross negligence." Id. A holder may only proceed under Article 52 after "it has been finally adjudicated that the conditions on which [the right to compensation] depends exist." Id. "Exclusive jurisdiction to make such adjudication shall rest with the Chamber for the Settlement of Securities of the district in which the issuer has its seat." Id.

In1953, the United States Senate advised ratification of the Agreement Between the United States of America and the Federal Republic of Germany Regarding Certain Matters Arising from the Validation of German Dollar Bonds (1953 Treaty). 4 U.S.T. 885, at pmbl. The President ratified the Treaty on August 4, 1953, the Treaty entered into force on September 16, 1953, and the President proclaimed the Treaty on October 19, 1953.*fn6 See id. Pursuant to the 1953 Treaty, "No bond . . . shall be enforceable unless and until it shall be validated either by the Board for the Validation of German Bonds in the United States established by the Agreement on Validation Procedures, or by the authorities competent for that purpose in the Federal Republic [of Germany]." 4 U.S.T. 885, at Art. II. Thus, for validation, the 1953 Treaty incorporated by reference Germany's 1952 Validation Law.

In addition, Germany, the United States, and several other nations contemporaneously negotiated the Agreement on German External Debts, or the London Debt Agreement. See London Debt Agreement, 4 U.S.T. 443. Signed in 1953, the London Agreement aimed "to remove obstacles to normal economic relations" with other nations and to "facilitat[e] a resumption of payments on [its] external debts." 4 U.S.T. at 446. The London Agreement's preamble described the purposes and objectives of the London Agreement as an "overall" settlement of German pre-war external debts. 4 U.S.T., pmbl.; R. 82 ¶ 41 (London Agreement entered into "to reduce Germany's debts"). To be covered by a debt, it must have originated and been due before May 8, 1945. Id. at Art. 4. Bondholders had five years within which to accept the terms of the London Agreement. See London Agreement, Annex I(C)(8)(b).

The Validation Law remains in effect today and is still listed in Germany's statutory code. See Mortimer Off Shore Servs., 615 F.3d at 114-15. Likewise, even after the unification of Germany, the 1953 Treaty remains in force. Id.; see also United States Department of State, Treaties in Force: A List of Treaties and Other International Agreements of the United States in Force on January 1, 2010, at 102 (2010), available at www.state.gov/documents/organization/123747.pdf (last visited September 14, 2011). There has been no agreement between the United States and Germany to "nullify" the Validation Law. Mortimer Off Shore Servs., 615 F.3d at 115.

II.

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