The Bank for International Settlements Wins Dismissal of Class Action

September 30, 2012

Cleary Gottlieb won a victory for the Bank for International Settlements ("BIS") on September 30 when District Judge Edmond E. Chang dismissed, with prejudice, a putative class action brought in the Northern District of Illinois against the BIS and numerous other defendants including the Federal Republic of Germany. Plaintiffs asserted numerous claims to payment on bonds they claimed to hold that were issued by Germany after World War I to fund reparations payments determined in the Treaty of Versailles, including, as to the BIS specifically, bonds issued under the Dawes Plan of 1924 and the Young Plan of 1930. Many of these bonds had been repurchased -- but not physically cancelled -- by Germany before World War II and stored in Reichsbank vaults in Berlin. During the fall of Berlin in April 1945, Russian soldiers raided the vaults, looted the invalid bonds, and returned them to circulation. After World War II, by treaty and legislation, Germany established a process for holders of Dawes, Young, and similar bonds to submit them to an agency in Germany to determine whether the bonds were valid (and not the looted bonds), and if so, exchange the valid bonds for performing debt pursuant to the London Debt Agreement of 1953.

Despite declining to proceed with the validation procedures in Germany, Plaintiffs sought payment from the BIS and the other defendants based on numerous common-law theories of liability, including, by way of example, breach of contract, breach of fiduciary duty, fraud, conversion, and intentional infliction of emotional distress. Plaintiffs also asserted a series of federal claims based on the federal securities laws, the RICO statute, and the Alien Tort Claims Act. Judge Chang dismissed the complaint on numerous grounds, including that Plaintiffs' failure to comply with the validation requirements prevented them from seeking payment, that all applicable statutes of limitations for their claims had long since run, and that the complaint suffered from myriad pleading deficiencies.