Case of the Day: Palladian Partners v. Province of Buenos Aires

The case of the day is Palladian Partners, LP v. Province of Buenos Aires (S.D.N.Y. 2022). In 2018, Palladian obtained a German judgment against the Province of Buenos Aires, which had defaulted on euro-denominated bonds following the 2001 financial crisis. Now it seeks recognition and enforcement of the German judgment in the Southern District of New York. The Province, which is a political subdivision of a foreign state and thus treated as a foreign state for purposes of the FSIA, moved to dismiss on venue grounds.

Venue in FSIA cases against foreign states is governed by 28 U.S.C. § 1391(f), which allows cases against foreign states and their subdivisions to be brought in a district “in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated,” or in the District of Columbia. There was no question that the events giving rise to the case took place in New York, but Palladian argued that a substantial part of the property that is the subject of the action was situated in New York. The most it could do, though, was allege that the Province had property in New York, and the statute is referring to the property that is the subject of the action.

But venue can be waived, and the bond documents had the following provision:

Any suit, action or other legal proceedings (“Proceedings”) arising out of or in connection with the Notes may be brought in the District Court (Landgericht), Frankfurt am Main, Federal Republic of Germany. Holders of the Notes, however, are also entitled to pursue their claims under the Notes before any other court of competent jurisdiction, including the Supreme Court of Justice of Argentina. The Issuer hereby irrevocably submits to the jurisdiction of the District Court, Frankfurt am Main, Federal Republic of Germany and waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such Proceedings and any present or future objection to such Proceedings whether on grounds of venue, residence or domicile. The Issuer agrees that a final judgment in any such Proceedings in the courts mentioned above shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or any other matter provided by law.

On its face, this provision looks fatal to a venue objection, but the judge parsed the language carefully and, I think correctly. She reasoned that the words “such Proceedings,” read most naturally, indicated that the venue waiver applied only to proceedings in Frankfurt, and that in any case, the waiver could be read to apply only to “claims under the Notes.” The claim in New York was a claim on the German judgment, not a claim on the note itself.

The court decided to transfer the case to the District of Columbia rather than to dismiss it. The decision is pretty clearly correct, but it does point out some of the oddness in our venue doctrine. When you bring a claim in the United States to enforce a foreign judgment, usually you’re doing it because the judgment debtor’s assets are in the United States rather than the forum state. And very often the underlying claim didn’t have a strong connection with the United States in the first place. When the case involves a foreign sovereign, Washington DC is always available as a venue, even though the judgment creditor’s next step, after getting the judgment recognized (if it can) will be to register the judgment in New York, where it thinks the assets are. So there is some formalism here that is correct but also more cumbersome than the judgment creditor would wish.

Palladian theater in Vicenza, Italy.

This Post Has 2 Comments

  1. Bill Dodge

    Ted, this is a fascinating case. Thanks for bringing it to our attention. I agree with the interpretation of contractual venue provision. I disagree with the interpretation of 1391(f). It seems to me that “subject of the action” refers to the action to enforce the award, not the original action. That is particularly true in light of Mobil Cerro Negro’s holding that the FSIA requires a separate plenary action to enforce an investor-state award. I have discussed this question and others relating to the enforcement of investor-state awards in a contribution to a festschrift for George Bermann available here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3855640.

  2. Ted Folkman

    Thanks Bill! I agree that “subject of the action” refers to the subject of the recognition action, not the subject of the underlying action. But why would we think that the property you hope to seize is the subject of a judgment recognition action? You might just as well say that in any damages case, the damages the plaintiff hopes to get are the subject of the action. I think that as a matter of good policy that you should be able to seek recognition of an award or judgment wherever the losing party has reachable assets, but I am not sure that the venue statute as written lets us accommodate that.

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