Procedural Posture

This document is an appellate decision issued by the United States Court of Appeals for the Second Circuit, addressing an appeal from the United States District Court for the Southern District of New York. The district court previously dismissed the plaintiffs' complaint against the Swiss Confederation for lack of subject matter jurisdiction under the Foreign Sovereign Immunities Act (FSIA). The plaintiffs, beneficial owners of Additional Tier 1 (AT1) securities issued by Credit Suisse, appealed the dismissal.

Factual Background

The dispute arises from the March 2023 state-facilitated acquisition of Credit Suisse by UBS Group AG. Amidst a severe liquidity crisis, the Swiss Confederation intervened to broker a merger between the two systemically important financial institutions. As part of this intervention, Swiss regulators ordered Credit Suisse to write down approximately $17.3 billion of outstanding AT1 securities to zero. The plaintiffs subsequently initiated proceedings in the United States, asserting claims for conversion, tortious interference, deceptive trade practices, and unjust enrichment, alleging that the write-down order caused a direct effect in the United States where the securities were held and cleared.

Legal Issues

The principal legal issue before the Second Circuit was whether Switzerland's conduct fell within the "commercial activity" exception to sovereign immunity under the FSIA, 28 U.S.C. § 1605(a)(2). Specifically, the Court examined whether Switzerland's "brokering" of the merger constituted an act taken in connection with a commercial activity that caused a direct effect in the United States. The analysis required determining whether the nature of Switzerland's course of conduct was akin to that of a private player in the market, pursuant to the standard articulated by the Supreme Court in Republic of Argentina v. Weltover, Inc.

Court's Analysis and Findings

The Second Circuit affirmed the district court's dismissal, holding that Switzerland's brokering of the merger did not constitute a commercial activity. The Court acknowledged that certain isolated acts, such as the extension of massive liquidity loans and loss protection guarantees, might arguably resemble commercial transactions. However, evaluating the course of conduct as a whole, the Court found the intervention to be distinctly sovereign in nature.

The Court emphasized that Switzerland exercised sovereign coercion to compel Credit Suisse into the merger, dictating terms and excluding the bank from direct negotiations. Furthermore, the Swiss executive branch enacted emergency ordinances that unilaterally altered the legal framework of the transaction. These ordinances authorized preferential bankruptcy rights, waived mandatory shareholder approval requirements, and expressly mandated the AT1 write-down. The Court reasoned that such unilateral legislative and regulatory interventions are uniquely sovereign powers unavailable to private market participants, thereby negating any resemblance to a privately brokered commercial deal.

Disposition

Concluding that Switzerland's actions were fundamentally sovereign rather than commercial, the Second Circuit held that the commercial activity exception to the FSIA did not apply. Consequently, the Court affirmed the judgment of the district court, maintaining Switzerland's sovereign immunity and dismissing the action for lack of subject matter jurisdiction.