The Second Circuit held that Switzerland's role in the UBS-Credit Suisse rescue was not commercial activity under the Foreign Sovereign Immunities Act, affirming dismissal of bondholders' claims over a $17.3 billion AT1 write-down.
What happened
The Second Circuit on Thursday affirmed the dismissal of a suit by Credit Suisse AT1 bondholders against Switzerland, holding that the country remains immune from U.S. jurisdiction over claims tied to the forced write-down of $17.3 billion in bond liabilities during the UBS rescue deal.
The bondholders had argued that Switzerland fell within the Foreign Sovereign Immunities Act's commercial activity exception because the write-down order was connected to the country's alleged brokering of Credit Suisse's takeover by UBS, conduct they likened to work routinely performed by investment banks.
The panel rejected that framing. Although the opinion acknowledged that some pieces of Switzerland's conduct, including loans and guarantees, could be characterized as commercial, it said the alleged course of conduct had to be viewed as a whole. On that view, Switzerland's use of sovereign authority to dominate Credit Suisse and enact emergency ordinances made the transaction unlike private-market dealmaking.
The dispute stems from the March 2023 rescue of Credit Suisse, when Swiss officials, UBS and Credit Suisse announced a merger agreement and Swiss regulators ordered Credit Suisse to write down its outstanding AT1 securities to zero. The plaintiffs, beneficial owners of Credit Suisse-issued securities, alleged they held $372 million in AT1s cleared through the Depository Trust Company in New York.
Writing for the panel, Circuit Judge Calabresi said Switzerland did more than advise a client or broker a deal. The opinion said Switzerland strongarmed Credit Suisse in a manner only a sovereign could and used ordinances to authorize loans and guarantees, alter creditor priorities, waive shareholder approval requirements and push the transaction through.
Those actions, the court held, were "fundamentally different types of actions" than private parties use in trade or commerce. The panel therefore affirmed the Southern District of New York's dismissal for lack of subject matter jurisdiction, while noting the lower court had not reached other FSIA elements or other issues Switzerland raised in its dismissal motion.