CONNECTICUT BANK OF COMMERCE, Plaintiff-Appellant-Cross-Appellee,
v.
REPUBLIC OF CONGO, Defendant-Appellee,
CMS Oil and Gas Company; CMS Oil and Gas (International) Company; CMS Nomeco International Congo Holdings, Inc.; CMS Nomeco Congo, Inc.; CMS Oil and Gas (Holdings), Ltd.; CMS Oil and Gas (International) Ltd.; CMS Nomeco Congo LDC; CMS Oil and Gas (Congo) Ltd.; Nuevo Energy Company; The Congo Holding Company; The Nuevo Congo Company; Nuevo Congo Ltd.; Nuevo International, Inc.; Nuevo International Holdings Ltd., Garnishees-Appellees-Cross-Appellants.
No. 01-50409.
United States Court of Appeals, Fifth Circuit.
July 17, 2002.
As Amended on Rehearing August 29, 2002.
COPYRIGHT MATERIAL OMITTED COPYRIGHT MATERIAL OMITTED COPYRIGHT MATERIAL OMITTED COPYRIGHT MATERIAL OMITTED John G. Kester (argued), Jonathan Park Graham, Williams & Connolly, Washington, DC, for Plaintiff-Appellant-Cross-Appellee.
George Weisz (argued), Cleary, Gottlieb, Steen & Hamilton, New York, NY, Donald Scott Thomas, Jr., Clark, Thomas & Winters, Austin, TX, for Defendant-Appellee.
Guy Stanford Lipe (argued), Vinson & Elkins, Houston, TX, Marc E. Vockell, Vinson & Elkins, Austin, TX, for Garnishees-Appellees-Cross-Appellants.
Peter Buscemi, Mark N. Bravin, Morgan, Lewis & Bockius, Washington, DC, for Amicus Curiae Emerging Markets Creditors Ass'n Inc. Sovereign Immunity Working Group.
Appeals from the United States District Court for the Western District of Texas.
Before EMILIO M. GARZA, PARKER and DENNIS, Circuit Judges.
EMILIO M. GARZA, Circuit Judge:
The Connecticut Bank of Commerce appeals the district court's judgment that the Foreign Sovereign Immunities Act renders royalty and tax obligations owed by certain Texas oil companies to the Republic of Congo immune from garnishment.
A predecessor in interest to the Connecticut Bank of Commerce (hereinafter "the Bank") lent the Congo $6.5 million. In the loan agreement, the Congo waived any right to claim foreign sovereign immunity either from suit or from attachment or execution of its property. The Congo defaulted on the loan. The Bank acquired the rights to a valid London judgment against the Congo for the outstanding principal and interest. In order to turn the foreign judgment into a U.S. judgment, the Bank filed suit in a state court in New York, as permitted by the terms of the loan agreement. The Congo did not appear in the New York action, and the state court entered a default money judgment in favor of the Bank.
The Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. § § 1602-1611, provides foreign sovereigns with immunity from execution against their property to satisfy an adverse judgment. 28 U.S.C. § 1609. This statutory immunity is subject to several exceptions. One exception is that, if a foreign sovereign waives its immunity from execution, U.S. courts may execute against "property in the United States ... used for a commercial activity in the United States." 28 U.S.C. § 1610(a)(1). Even when a foreign state completely waives its immunity from execution, courts in the U.S. may execute only against property that meets these two statutory criteria. Id.
Only a court may execute against a foreign sovereign's property under the FSIA. 28 U.S.C. § 1610(c) ("No attachment or execution referred to in subsections (a) and (b) of this section shall be permitted until the court has ordered such attachment and execution ..."). Some jurisdictions permit judgment creditors to execute against property simply by applying to the clerk of the court or to a sheriff. Section 1610(c) does not permit such summary procedures to be used when a foreign sovereign's property is involved. Instead, it requires a court to enter the writ of execution, so that the court can determine whether the property in question falls within one of the statutory exceptions to foreign sovereign immunity.
After obtaining the default judgment from the New York state court, the Bank asked that court to enter what it called a "1610(c) order." The only order mentioned by § 1610(c) is an order actually attaching or executing against property. 28 U.S.C. § 1610(c) ("the court has ordered such attachment or execution ..."). The New York court, however, acting at the Bank's request, entered a "1610(c) order" that did not purport to execute against any property within New York or elsewhere. Instead, it provided in declaratory terms that the Bank had "permission" to execute against the Congo's property wherever it may be found. The New York court authorized the Bank to execute against "any assets or other property of the Congo of any nature, irrespective of the use or intended use of such property... including any ... payments or obligations due to the Congo from any oil and gas exploration and development companies...."
The Bank registered its New York judgment in Texas state court and obtained, from the clerk of the Texas state court and without any court order, a writ of garnishment directed to a group of Texas oil companies: CMS NOMECO Congo, Inc., The Nuevo Congo Ltd., and some of their affiliate companiеs (hereinafter "the garnishees"). The writs of garnishment prohibited the garnishees from paying any debts to the Congo. The Congo and the garnishees removed the garnishment action to the United States District Court for the Western District of Texas and filed a motion to dismiss. The district court dissolved the writs of garnishment and dismissed the action. It held that, notwithstanding the obligations of the Full Faith and Credit statute and the New York court's "1610(c) order," it was not prohibited by res judicata from considering on a blank slate the amenability of the garnishees' debts to garnishment under the FSIA. It determined that the royalty and tax payments owed by the oil companies to the Congo did not arise from a "commercial activity in the United States," and therefore were not subject to garnishment. The Bank appeals.
* The Full Faith and Credit Statute, 28 U.S.C. § 1738, does not bar the fresh consideration of whether the debts owed from the garnishees to the Congo are subject to garnishment under the FSIA because the New York court's determinations about garnishment were not necessary to any judgment issued by that court. Under New York law, extraneous determinations not necessary to sustain a default judgment are not entitled to any res judicata effect.
The Full Faith and Credit Statute, 28 U.S.C. § 1738, provides that the judgments of state courts "shall have the same full faith and credit in every court within the United States ... as they have by law or usage in the courts of such State... from which they are taken." The statute еxtends to the federal courts the requirements of the Full Faith and Credit Clause of the Constitution, which applies of its own force only to state courts. E.g., Kremer v. Chem. Constr. Corp.,
New York courts do not give preclusive effect to gratuitous determinations in a prior action. Res judicata operates to bar relitigation only of issues necessary to the judgment. Rader v. Mfrs. Cas. Ins. Co. of Philadelphia,
For example, in Finkelstein, the defendant issued a number of insurance policies to the рlaintiff. Some of the policies paid benefits when the insured became "presumably permanently disabled" (type 1 policies) and others paid benefits only when the insured became actually "permanently disabled" (type 2 policies). Under New York law, this difference in phrasing had an important legal effect. Under a type 1 policy, if the insured was disabled for a certain period of a time set out in the policy, he was entitled to an irrebuttable presumption of permanent disability. Under type 2 policies, being disabled for the amount of time set out in the policy gave rise to a presumption of permanent disability, but the presumption could be rebutted. In a prior action, Finkelstein obtained a judgment on a type 1 policy. He later brought an action on other policies, both type 1 and type 2, asserting that res judicata barred relitigation of the issue of his disability. The Appellate Division held that the prior action was not res judicata as to the type 2 policies, even if the previous court had determined that Finkelstein was not only "presumably" disabled, but that he was actually disabled. It reasoned that "in the prior action all that the insured was required to establish was total and presumably permanent disability ... anything more than that which the insured may have proved was not within the issues in that action, and, hence, the judgment as to such extraneous matters is not res judicata." Finkelstein,
To the extent that the New York court made determinations about the amenability of the Congo's property to garnishment, those determinations were not in any way necessary to the money judgment sought by the pleadings. Here, the only pleading was the bank's complaint1, which sought to convert a money judgment in London into a money judgment in New York. The New York court awarded the money judgment when the Congo failed to appear. The Congo does not challenge the validity of that judgment. Under New York law, the pleadings define the scope of a default judgment and therefore the scope of res judicata. N.Y. C.P.L.R. 3215(b); Novak & Co.,
Here, the "1610(c) order" and the determinations contained in the order were not necessary to awarding the money judgment. Section 1610(c) hаs nothing to do with the merits of an action against a foreign state, and does not somehow turn the amenability of a foreign state's property to garnishment into a necessary part of the merits court's consideration. Section 1610(c) is directed entirely to a court attaching or executing against a foreign state's property, and not at all to the merits court. The statute provides:
No attachment or execution referred to in subsections (a) and (b) of this section shall be permitted until the court has ordered such attachment and execution after having determined that a reasonable period of time has elapsed following the entry of judgment and the giving of any notice required under section 1608(e) of this chapter.2
The statute has three elements. First, as discussed above, its chief purpose is to provide that only a court may enter an order of attachment or execution against a foreign state's property. 28 U.S.C. § 1610(c) ("until the court has ordered such attachment and execution").3 Second, it provides that the court may order the attachment or execution only as "referred to in subsections (a) and (b)." Subsections (a) and (b) spell out the exceptions to the general rule that a foreign sovereign's property is immune from execution or attachment. See 28 U.S.C. § 1609. Third, the court may execute against property only after "determining that a reasonable period of time has elapsed follоwing entry of judgment." This phrase requires courts to acknowledge, for example, that a foreign sovereign may have to pass separate legislation to authorize the payment of the necessary funds. H.R. REP. No. 94-1487, at 30 (1976). It allows courts discretion to wait for a foreign sovereign to make alternate arrangements to pay a debt before executing against any property. Id. Nothing in section 1610(c) directs itself to the court issuing the judgment on the merits; it is all directed to the court ordering "such attachment or execution." Nothing in § 1610(c) makes any determination about the amenability of a foreign sovereign's property to attachment or execution a necessary part of the underlying money judgment.
The "1610(c) order" had no effect in the New York litigation at all: the determinations in the "1610(c) order" could conceivably have legal effect only if some other court actually executing on the Congo's property were to treat the order as res judicata. The order was therefore not necessary to any coercive relief prayed for in the complaint or granted by the state court, and under New York law the order is not entitled to any preclusive effect.
Although the Bank does not say so in as many words, it essentially asks us to treat the New York court's "1610(c) order" as a declaratory judgment, as a separate and distinct form of relief from the money judgment issued by the New York court. It points out that its motion requesting the "1610(c) order" was served separately on the Congo. But the Bank's complaint did not seek a declaratory judgment against the Congo, it sought a money judgment. If the Bank had filed what was clearly a declaratory judgment action, then we would have a different situation. Nor could the post-judgment motion requesting the 1610(c) order enlarge the scope of the issues determined by the default judgment. As explained above, New York law limits the scope of a default judgment to the issues necessary to resolve the questions raised by the pleadings. N.Y. C.P.L.R. 3215(b) (McKinney 2001); Novak & Co.,
New York does not require civil litigants to show up in court only to fall on their swords. If a defendant does not contest his liability to the plaintiff as set out in the complaint, he need not appear in the action. Defaulting does not carry the risk that the court will enter a judgment or make determinations not essential to awarding the relief called for in the complaint. The action in New York was an action to turn a money judgment in London into a money judgment in New York. The Congo had no way of knowing from the complaint that the New York court would make determinations and issue declarations that had nothing to do with a money judgment. The immunity of the royalty and tax payments to garnishment was not a defense to a claim for money damages, and whatever the New York court may have said about the immunity of the Congo's assets to execution had nothing to do with the merits of the action it was considering. Such statements were mere superfluities. Now that the immunity of these assets to garnishment really is in issue, the Congo is not precluded from asserting its sovereign immunity defense.
II
Under the FSIA, courts may attach only a foreign state's "property in the United States" when that property is "used for a commercial activity in the United States." 28 U.S.C. § 1610(a) (emphasis added). What matters under the statute is what the property is "used for," not how it was generated or produced. If property in the United States is used for a commercial purpose here, that property is subject to attachment and execution even if it was purchased with tax revenues or some other noncommercial source of government income. Conversely, even if a foreign state's property has been generated by commercial activity in the United States, that property is not thereby subject to execution or attachment if it is not "used for" a commercial аctivity within our borders. The district court (and the litigants) have focused on the question of whether the Congo's joint venture with the garnishees, which gave rise to the royalty and tax obligations that the Bank wants to garnish, was a "commercial activity in the United States." This was the wrong question to consider. What matters under the statute is not how the Congo made its money, but how it spends it. The amenability of these royalties and taxes to garnishment depends on what they are "used for," not on how they were raised.
Until 1952, the United States generally afforded foreign sovereigns absolute immunity from the jurisdiction of the courts, including complete immunity from execution. Verlinden B.V. v. Central Bank of Nigeria,
In 1952, the State Department issued the "Tate Letter," which announced the Department's аdoption of the "restrictive" theory of foreign sovereign immunity. Id. at 486-87,
The FSIA shifted the responsibility to make determinations about foreign sovereign immunity from the State Department to the courts. Verlinden,
Two subsections of the FSIA spell out the exceptions to immunity from execution. 28 U.S.C. § 1610(a) governs the immunity from execution of property belonging to foreign states. 28 U.S.C. § 1610(b) governs the immunity from execution of property belonging to an "agency or instrumentality" of a foreign state engaged in commercial activity in the United States. Subsection (a), regarding property belonging directly to a foreign state, permits execution only narrowly, when the property is "in the United States" and "used for a commercial purpose in the United States." Subsection (b) is broader; it permits execution of "any property in the United Stаtes" belonging to the agency or instrumentality, regardless of how the agency or instrumentality uses the property. Subsection (a) is generally thought to be more restrictive than subsection (b). De Letelier,
Because subsection (a) is intended to be narrower than subsection (b), we pay close attention to the differences in phrasing between the sections. Subsection (a) allows courts to execute only when the property is "used for a commercial activity," whereas subsection (b) permits execution of "any property," regardless of its use. The focus in subsection (a) is plainly on the "use" to which the property is put. As the Restatement explains, "For purposes of post-judgment attachment and execution, the Foreign Sovereign Immunities Act draws a sharp distinction between the property of states and the property of state instrumentalities ... The property of states may be attached only if it is or was used in commercial activity; the property of state instrumentalities may be attached without any such limitation, so long as the instrumentality itself is engaged in commercial activity in the United States." RESTATEMENT § 460 cmt. b.
Restricting execution against property belonging to foreign states depending on the "use" of that property, rather than its source, helps accomplish the purpose of limiting execution against property directly belonging to a foreign state more severely than execution against property belonging to an instrumentality. The premise is that agencies or instrumentalities engaged in commercial activity are akin to any other player in the market, and that their functions are primarily commercial. Id. On the other hand, the "primary function of states is government." Id. One of the chief motifs of the FSIA is to limit as much as possible disrupting the "public acts" or "jure imperii" of sovereigns, while restricting their purely commercial activity. H.R. REP. 94-1487, at 7. Confiscating funds that are being put immediately to some sovereign use interrupts a sovereign's public acts regardless of what kind of activity generated the funds, commercial or noncommercial.
An example helps clarify the point. Consider an airplane owned by a foreign government and used solely to shuttle a foreign head-of-state back and forth for official visits. If the plane lands in the United States, it would not be subject to attachment or execution. The plane is not "used for" any commercial activity, in the U.S. or elsewhere. It plainly would not matter how the foreign government bought the plane, raised the purchase price, or otherwise came into ownership. Even if the government received the plane as payment from a U.S. company in an obviously commercial transaction, that would not somehow transform the "use" of the plane into a commercial use. Regardless of how the government came to own the plane, a U.S. court could never under the terms of the FSIA confiscate a plane used solely to transport a foreign head-of-state on official business. Attaching the plane and selling it in execution of a judgment would go too far in interrupting the public acts of a foreign state.4
The phrase "used for" in § 1610(a) is not a mere syntactical infelicity that permits courts to look beyond the "use" of property, and instead try to find any kind of nexus or connection to a commercial activity in the United States. The statute means what it says: property of a foreign sovereign, unlike property belonging to a mere agency or instrumentality, may be executed against only if it is "used for" a commercial activity. That the property is revenue from or otherwise generated by commercial activity in the United States does not thereby render the property amenable to execution.
III
In its petition for rehearing, the Bank advances an interpretation of "used for" that conflicts with the plain meaning of that phrase. The Bank contends that property is "used for" a commercial activity in the United States whenever it is "integral to" or "related to" a commercial activity located here. The Bank relies on a sentence from Judge Dennis's separate opinion: "Because the... royalties to the Congo were necessary and integral to, and therefore used for, the joint venture ... those royalty obligations fell within the exceptions to immunity from execution provided for by FSIA § 1610(a)(1)" (emphasis added). In our view, this sentence is a non sequitur. The phrase "used for" on its face denotes something different and more specific than the phrases "integral to" or "necessary to." It also denotes something distinct (and narrower) than the other phrases the Bank uses in its petition, such as "related to" or "contemplated by."
The dictionary defines "to use" differently from any of these phrases. It defines "use," as relevant here, to mean: "to carry out a purpose or action by means of: make instrumental to an end or process... UTILIZE." WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 2524 (Philip B. Gove ed., Merriam Webster Inc. 1993) (1961). To use property for a commercial activity, within the ordinary meaning of "use," would be to put the property in the service of the commercial activity, to carry out the activity by means of the property. Here, the royalty obligations in question represent the revenue, the income, from an allegedly commercial activity. In ordinary usage, we would not say that the revenue from a transaction is "used for" that transaction. For example, in return for an employee's service to his employer, he generally receives revenue in the form of a salary. It would be strange to say that "Thе employee uses his salary for his job." He earns his salary from his job, but he uses it to pay the rent, buy groceries, and so forth. The revenue from a commercial transaction does not have the instrumental relationship to the commercial activity denoted by the phrase "used for;" it is not put in service of that activity, instead it is the end result or income from the activity.
The phrases "integral to" and "related to" plainly mean something different. These are broad phrases that would allow execution on the basis of just about any connection with a commercial activity. The statute specifies a particular kind of relationship, a "used for" relationship. If Congress had intended any relationship to suffice, we would not expect for it to have used the narrower "used for" language.
Furthermore, the structure of the FSIA indicates that the phrase "used for" was intended to have a more specific meaning than what the Bank suggests: if we were to interpret § 1610(a) in the way suggested by the petition, we would have to interpret away an obvious difference in the phrasing of two different parts of the FSIA. The FSIA deals separately with immunity from jurisdiction (§ 1605) and immunity from execution (§ 1610). Although each of these sections creates a "commercial activity" exception from immunity, Congress phrased the two "commercial activity" exceptions very differently. Section 1605(a)(2), concerning immunity from jurisdiction, provides:
(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case ...
(2) in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States;
This section uses the phrase "in connection with" a commercial activity. It allows a plaintiff to pierce a foreign state's immunity for suits based on acts that have any connection with a commercial activity in the United States (or with a commercial activity elsewhere that causes a direct effect in the United States). This phrase, "in connection with," means something like "related to" or "integral to." That is, the phrasing in the immunity section means much the same thing that the Bank wants to assign to the phrasing in the execution section.
Section 1610(a), concerning immunity from execution, does not use the phrase "in connection with." If Congress had intended to allow execution on property that had a "relationship with" or was "integral to" a commercial transaction in the United States, we would expect it to say as much, probably by using the same phrase ("in connection with") as it used in crafting the exception to jurisdictional immunity. Instead, § 1610(a) provides:
(a) The property in the United States of a foreign state, as defined in section 1603(a) of this chapter, used for a commercial activity in the United States, shall not be immune from attachment in aid of execution, or from execution, upon a judgment entered by a court of the United States or of a State after the effective date of this Act, if [one of several additional factors applies].
Congress used the more specific phrase "used for a commercial activity" in this section rather than the less specific phrase "in connection with a commercial activity" used in § 1605. If we were to take the Bank's approach, we would interpret away the difference in phrasing between these two sections: the Bank is asking us to ignore an obvious difference in the way these two different immunities have been crafted.
As we previously observed,
The British State Immunity Act's provision on immunity from execution more closely parallels the FSIA's: it focuses plainly on the "use" of the property. The Act provides:
(2)(b) the property of a State shall not be subject to any process for the enforcement of a judgment or arbitration award or, in an action in rem, for its arrest, detention or sale.
. . .
(4) Subsection (2)(b) above does not prevent the issue of any process in respect of property which is for the time being in use or intended for use for commercial purposes ...
State Immunity Act 1978, c. 33, § 13 (Eng.). The British Act's phrasing makes explicit that the mere relationship to a commercial activity does not suffice to permit execution, the property must presently, "for the time being," be "in use or intended for use for a commercial purpose." The British Act's focus in the jurisdictional immunity section, by contrast, is on the "relationship" to commercial activity:
A State is not immune as respects proceedings relating to —
(a) a commercial transaction entered into by the State
State Immunity Act 1978, c. 33, § 3 (Eng.). Thus, the British Act parallels the FSIA: it allows jurisdiction based on mere relationship to a commercial activity, but very clearly permits execution only depending on the "use" of the property.
On the face of the FSIA, the exception to executional immunity is crafted using the more specific "used for" language instead of the broader "in connection with" language. When we place this difference in phrasing against the background of the history of the two forms of immunity in the United States and the international law context of the FSIA, the difference in phrasing stands out even more plainly. We reject the Bank's definition, not only because it does not accord with the plain meaning of the phrase "used for,"5 but because it would obscure a clearly intentional difference in the way the two different "commercial activity" exceptions from immunity — executional and jurisdictional — have been phrased by Congress.6
IV
Contrary to the Bank's suggestion, assigning the phrase "used for" its ordinary meaning does not make it impossible to execute against the intangible property of the foreign state. The Bank argues that we have improperly assigned a temporal focus to the phrase "used for," that we have focused on the intended use of the property in the future instead of its use in the present or the past. The Bank suggests that, because it is difficult to prove what a foreign state intends to do in the future with intangible property, like bank accounts,7 judgment creditors will rarely be able to execute against any intangible property.
We clarify that we express no holding as to the temporal aspect of the phrase "used for." In its petition for rehearing, the Bank does not allege any scenario under which the Congo has put its royalty or tax obligations at any point in time in the service of a commercial activity in the United States. That is, it does not claim that the Congo used the property for a commercial activity, within the ordinary meaning of "used for," at any time. Instead, it wants us to interpret the phrase "used for" in a way that goes beyond the ordinary meaning assigned to that phrase. Because the temporal aspect of the phrase "used for" does not seem particularly important to resolving this case on any of the Bank's current theories, we express no opinion on when the property must be used for a commercial activity in the United States.
Moreover, we cannot see how focusing on the use of property forecloses exеcution against intangible property. Our decision in Atwood Turnkey Drilling, Inc. v. Petroleo Brasileiro, S.A.,
In Atwood, Petrobras, a Brazilian state instrumentality, contracted with Atwood, an American company, to drill oil wells off the coast of Brazil. As security for the sums due Atwood under the contract, Petrobras provided a letter of credit issued by an American bank. When Petrobras refused to pay Atwood, Atwood sued for breach of contract in federal court. Because the letter of credit was due to expire by its own terms, the district court issued a preliminary injunction requiring Petrobras to extend the letter of credit for one year from the date of the order or until all issues pertinent to the letter of credit were resolved. Petrobras appealed, arguing that none of the FSIA's exceptions to immunity from prejudgment attachment, 28 U.S.C. § 1610(d), permitted attachment of the letter of credit. Section 1610(d) provides:
(d) The property of a foreign state ... used for a commercial activity in the United States, shall not be immune from attachment prior to the entry of judgment in any action ... if —
(1) the foreign state has explicitly waived its immunity from attаchment prior to judgment ... and
(2) the purpose of the attachment is to secure satisfaction of a judgment that has been or may ultimately be entered against the foreign state, and not to obtain jurisdiction.
This section, like § 1610(a), includes the phrase "used for a commercial activity in the United States." In Atwood, we concluded that Petrobras had contractually waived any immunity from prejudgment attachment and affirmed the district court.
Although Atwood did not explicitly consider the "used for" requirement, Petrobras plainly used the letter of credit for a commercial purpose within the ordinary meaning of the phrase "used for." Petrobras used the letter of credit to secure the services of an American corporation to do drilling work. As we explained in the panel opinion, "what matters is not how [the foreign state] made its money, but how it spends it." In Atwood, the letter of credit did not represent the income or the revenue from the commercial transaction, as the royalty and tax obligations do here. Rather, Petrobras put the letter of credit in service of the commercial activity, it "spent" the letter of credit on that activity. On the record before us, by contrast, the Congo has not put its intangible property in the service of any commercial activity in the United States. The panel's definition of "used for" is therefore fully consistent with our having permitted the prejudgment attachment in Atwood.8,9
The Atwood case shows how courts can determine, without speculation, that the intangible property of a foreign state is used for a commercial activity in the United States. In this case, for example, the royalty and tax obligations would be used for a commercial activity in the United States if the Congo used them as collateral for loans obtained from United States banks. There is nothing so inherently speculative about the use of intangible property that courts cannot meaningfully ascertain how such interests are used by the foreign states that own them.
V
Finally, our focus on the use of a foreign state's property does not in any way conflict with the Supreme Court's decision in Republic of Argentina v. Weltover,
[W]e conclude that when a foreign government acts, not as regulator of a market, but in the manner of a private player within it, the foreign sovereign's actions are "commercial" within the meaning of the FSIA. Moreover, because the Act provides that the cоmmercial character of an act is to be determined by reference to its "nature" rather than its "purpose," 28 U.S.C. § 1603(d), the question is not whether the foreign government is acting with a profit motive or instead with the aim of fulfilling uniquely sovereign objectives. Rather, the issue is whether the particular actions that the foreign state performs (whatever the motive behind them) are the type of actions by which a private party engages in "trade and traffic or commerce."
Id. at 614,
VI
We interpret statutes according to their plain meanings. United States v. Ron Pair Enters., Inc.,
This appeal comes to us on a motion to dismiss. As such, there is little factual development in the record about how the royalties and tax obligations are used. We therefore vacate the dismissal of the garnishment action, which was based on the district court's conclusion that the oil joint venture between the Congo and the garnishees was not "commercial activity in the United States." Even assuming that the district court was correct in this conclusion, that would tell us only how the royalties and tax obligations were generated, not how they are used. We remand to the district court for further consideration of the dispositive factual question, what the royalty and tax obligations are "used for."10 If it turns out that the royalties and tax obligations are not used for any commercial activity in the United States, the district court should dissolve the writs of garnishment and dismiss the action.
VACATED and REMANDED for further proceedings not inconsistent with this opinion.
Notes:
Notes
The Bank actually plead by way of a "Motion for Summary Judgment in Lieu of Complaint," apparently a permissible pleading under New York law. For the sake of simplicity, we will refer to the Bank's pleading as its "complaint."
28 U.S.C. § 1608(e) requires that a copy of any default judgment entered against a foreign state be served on that state in the same manner proscribed by statute for serving complaints against foreign states
The House Report explains that the purpose of § 1610(c) is to require a court to issue the order of attachment or execution. It explains:
Section 1610(c) prohibits attachment or execution under sections 1610(a) and (b) unless the court has issued an order for such attachment and execution. In some jurisdictions in the United States, attachment and execution to satisfy a judgment may be had simply by applying to a clerk or to a local sheriff. This would not afford sufficient protection to a foreign state.
H.R. REP. No. 94-1487, at 30 (1976).
The Third Circuit relied on similar reasoning inCity of Englewood v. Socialist People's Libyan Arab Jamahiriya,
Even the Bank appears to recognize that what matters under the statute is how theforeign state uses the property, not how private parties may have used the property in the past. See Flatow v. Islamic Republic of Iran,
We also reiterate that assigning the phrase "usеd for" its plain meaning helps accomplish one of the principal goals of the FSIA: to restrain as much as possible judicial interference with thejus imperii, or sovereign acts, of a foreign state. See H.R. REP. 94-1487, at 7. Its true that allowing any kind of execution against a foreign state's property will likely have some indirect effect on the state's sovereign acts. If, for example, you execute against the commercially used property of a foreign state's national airline, you will probably damage the profits of the airline. The loss of those profits may, down the line, make it more difficult for the sovereign to supply books to its schoolchildren or send its officials abroad on diplomatic missions. But the impact of a court confiscating some property being used at present for a sovereign purpose is much more direct and immediate: for example, the attachment of a bank account used to pay diplomatic salaries or maintain an embassy would immediately and directly affect the foreign state's sovereign diplomatic activities.
In considering execution against bank accounts, several district court cases have in fact focused on the use of those accounts, not on the source of the money in the account. For example, inLiberian Eastern Timber Corp. v. Republic of Liberia,
The Bank's petition cites a sentence inAtwood out of context for the proposition that any intangible property "contemplated by" a commercial transaction is thereby "used for" that transaction. Atwood's discussion of the FSIA focused mainly on whether Petrobras had contractually waived its immunity from prejudgment attachment. The relevant contract provided:
B. Waiver of sovereign immunity. The Borrower [Petrobras] acknowledges and agrees that the activities contemplated by the provisions of this agreement and the notes are commercial in nature ... and therefore acknowledges and agrees that it is not entitled to any right of immunity on the grounds of sovereignty ... in any legal action or proceedings arising out of or relating to this agreement or the notes.
Atwood,
The instant case relates to the letter of credit which is an activity contemplated by the financing agreement. Accordingly, the waiver provision applies ...
The phrase "contemplated by" in Atwood refers to the scope of Petrobras's waiver of immunity, not to the "used for" requirement of § 1610(d). That the royalty and tax obligations at issue here may have been "contemplated by" the joint venture with the American oil companies does not mean that those obligations are used by the Congo for that joint venture.
Moreover, our definition of "used for" corresponds to the way that district courts have dealt with execution against foreign state bank accounts (a form of intangible property). Those courts have focused on the use of the accounts rather than on the source of the money in the account. For example, inLiberian Eastern Timber Corp. v. Republic of Liberia,
Our decision to vacate the dismissal of the garnishment action obviates the need to reach two additional issues argued on appeal: whether Texas law permitted the district court's award of attorneys' fees and whether the Bank was entitled to additional discovery. Consideration of the attorneys' fees issue would be premature at this time. Under Texas law, "where the [garnishee's] answer is contested, the costs shall abide the issue of the contest." TEX.R. CIV. P. 677. Because we do not yet know how the "issue of the contest" will be resolved, it is too soon to consider any attorneys' fees issues
With respect to discovery, the district court may on remand limit any additional discovery to facts relating to the immunity determination. Arriba Ltd. v. Petroleos Mexicanos,
DENNIS, Circuit Judge, Concurring in vacating the district court's judgment and remanding the case for further proceedings but disagreeing in part with the majority opinion as to the controlling principles of law:
The pertinent provisions of the FSIA are:
§ 1610. Exceptions to the immunity from attachment or execution
(a) The property in the United States of a foreign state, as defined in section 1603(a) of this chapter, used for a commercial activity in the United States, shall not be immune from attachment in aid of execution, or from execution, upon a judgment entered by a court of the United States or of a State after the effective date of this Act, if —
(1) the foreign state has waived its immunity from attachment in aid of execution or from execution either explicitly or by implication, notwithstanding any withdrawal of the waiver the foreign state may purport to effect except in accordance with the terms of the waiver,
1.
In my opinion, the district court erred in failing to recognize that, in the loan agreement upon which the Bank's judgment against the Congo is based, the Congo explicitly waived its immunity from execution, as follows:
(C) The Borrower consents generally in respect of any suit, action or proceedings arising out of or in connection with this Agreement to the giving of any relief, or the issuance of any process in connection with any such suit, action or proceedings including, without limitation, the [taking], enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment that may be made or given in such action or proceedings.
(D) To the extent that the Borrower may in any jurisdiction claim for itself or its assets immunity from suit, execution, attachment (whether in aid or execution, before judgment or otherwise) or other legal process and to the extent that in any such jurisdiction there may be attributed to itself or its assets such immunity (whether or not claimed) the Borrower agrees not to claim and waives such immunity to the fullest extent permitted by the laws of that jurisdiction intending, in particular, that in any proceedings taken in New York the foregoing waiver of immunity shall have effect under and be construed in accordance with the United States Foreign Sovereign Immunities Act of 1976.
There can be no reasonable doubt that the Congo thereby explicitly waived its immunity from execution of the judgment entered against it in New York in favor of the Bank in accordance with the FSIA § 1610(a)(1).
2.
Under the undisputed facts, the property executed upon — the garnishees' intangible obligations to pay royalties — are in the United States, as required by FSIA § 1610(a). The garnishees are oil companies headquartered in Texas. The situs of a debt is the situs of the debtor in Texas. Mo., Kan. & Tex. Ry. Co. of Tex. v. Swartz,
3.
The oil companies' obligations to pay royalties are property of the Congo being used for commercial activity in the United States in accordance with FSIA § 1610(a).
The FSIA defines "commercial activity" as:
[E]ither a regular course of commercial conduct or a particular commercial transaction or act. The commercial nature of an activity shall be determined by reference to the nature of the course of conduct, rather than by reference to its purpose. 28 U.S.C. § 1603(d).
The Supreme Court held in Republic of Argentina v. Weltover, Inc.,
In Weltover, bond holders brought a breach of contract action against Argentina arising out of Argentina's unilateral rescheduling of the maturity dates for payment on certain government bonds.
In the present case, the Congo engaged in commercial activity by entering into a joint venture with American oil companies and others for the purpose of discovering and extracting oil and gas. A "joint venture" is by definition a "business undertaking by two or more persons engaged in a single defined project." Black's Law Dictionary 843 (7th ed. 1999); "shared profits and losses" is one of its necessary elements. Id. The joint venture agreement assigned the Congo the right to receive royalty payments on the minerals developed. There is nothing uniquely sovereign about a contract to enter a joint venture to discover and extract oil and gas with specified methods of sharing in profits and losses wherein one of the parties is a mineral owner entitled to receive royalties from production. Like the issuance of the "garden-variety debt instruments" in Weltover, "there is nothing about [Congo's action in entering and participating in the joint venture to exploit minerals] that is not analogous to a private commercial transaction." Weltover,
The district court concluded that the Congo did not engage in commercial activity because its contract with the oil companies was sovereign in nature and some of its activities were strictly sovereign. The district court relied on dictum in a Seventh Circuit case, Rush-Presbyterian-St.Luke's Med. Ctr. v. Hellenic Republic,
Unlike the situation in MOL, however, the Congo's actions did not stop with its initial action as sovereign, in the regulation of its natural resources, to open them to exploitation and development. The Congo went on to step down from its sovereign status and engage in a typical commercial activity, a joint venture contract with oil companies for the exploration, production, and sale on the world market of oil and gas. This is not something that only a sovereign can do. Even if the Congo's initial action in exposing its minerals to development was sovereign and regulatory, "when a foreign government acts, not as a regulator of a market, but in the manner of a private player within it, the foreign sovereign's actions are `commercial' within the meaning of the FSIA." Weltover,
Because the Texas oil companies' obligation to pay royalties to the Congo were necessary and integral to, and therefore used for, the joint venture commercial activity conducted, in substantial part in the United States, by the Congo and the other parties to the joint venture, those royalty obligations fell within the exceрtions to immunity from execution provided for by FSIA § 1610(a)(1).
4.
Finally, in my view, the district court erred or abused its discretion in not allowing the Bank to conduct discovery before dismissing its garnishment proceeding. The Bank made a reasonable showing that the garnishees' obligations to pay royalties to the Congo is property of the Congo present in the United States, used for a commercial activity in the United States, and therefore not immune from execution upon an uncontested judgment entered by a court of a State. The district court's dismissal was tantamount to the conversion of a Rule 12(b)(6) motion to dismiss into a Rule 56 motion for summary judgment without giving all parties an opportunity to present all material made pertinent to such a motion by Rule 56. See Rule 12(b). The Bank's judgment against the Congo is valid and uncontested, and, in my opinion, upon the prima facie showing made by the bank, the Congo's property is squarely within the exceptions to the immunity from execution provided by FSIA § 1610(a)(1). Accordingly, the district court should have allowed full discovery against the Congo, which would have allowed the Bank a fair opportunity to present all available material evidence pertinent to its opposition to the Congo's motion to dismiss or motion for summary judgment. Cf. First City, Texas-Houston, N.A. v. Rafidain Bank,
Conclusion
Although I agree with much of the majority opinion, I would reverse and remand the case for further proceedings not inconsistent with the reasons herein assigned.
Notes:
The district court relied on a similar statement inJones v. Petty Ray Geophysical Geosource, Inc.,
"Foreign sovereigns constantly implement broad programs intended to stimulate their economy or to avoid economic catastrophe. Each of these programs, however, is implemented through numerous individual transactions. To imbue each transaction with a sovereign character simply because it is part of a broader governmental scheme would run afoul of the FSIA's restrictive theory of foreign sovereign immunity."Weltover Inc. v. Republic of Argentina,
The cases relied upon by the district court and the majority to deny or limit discovery,Arriba Ltd. v. Petroleos Mexicanos,
ON PETITION FOR PANEL REHEARING
PER CURIAM:
IT IS ORDERED that the Republic of Congo's motion for leave to file its petition for rehearing out of time is GRANTED.
IT IS FURTHER ORDERED that the Republic of Congo's petition for panel rehearing is DENIED. In the petition, the Congo points out that the majority opinion in this case neglected to address explicitly one of the two prongs of analysis under 28 U.S.C. § 1610(a). Section 1610(a) provides that, under certain circumstances, a judgment creditor may execute against the "property in the United States of a foreign state ... used for a commerciаl activity in the United States." The majority opinion addressed the second of these clauses, but not the first. That is, it addressed whether the royalty and tax obligations at issue were "used for a commercial activity in the United States," but not whether the obligations were "property in the United States" within the meaning of the statute.
In our view, this omission does not require any change to the mandate of the majority opinion. The factual question of what the royalty and tax obligations are "used for" appears much less difficult on this record than the legal question of determining the situs of the intangible royalty obligations. Moreover, despite the Congo's arguments to the contrary, we continue to believe that the district court is the appropriate forum to resolve the factual question of how the Congo uses its property.
The petition for panel rehearing is therefore DENIED.
DENNIS, CIRCUIT JUDGE
concurring in granting the Bank's petition for panel rehearing, and dissenting from denial of the Congo's petition for rehearing:
I.
I commend the majority opinion for recognizing that we interpret statutes according to their "plain meaning" and turning to the dictionary to determine what that meaning is for the words "used for" in FSIA § 1610(a)(1). Unfortunately the majority chooses to ignore those parts of the definition which do not support its overly-narrow construction of the term.
As the majority itself correctly notes, "used for" can mean "utilize." What the majority omits to mention is that "used for" also means "to put into action or service: have recourse to or enjoyment of: EMPLOY." Webster's Third New International Dictionary 2253 (Philip B. Gove ed., 3rd ed. 1993). See also Black's Law Dictionary 1540 (Bryan A. Gardner, ed., 7th ed. 1999) ("[t]he application or employment of something"); Merriam-Webster's Collegiate Dictionary 1301 (Frederick C. Mish ed., 10th ed. 1993) ("avail oneself of: EMPLOY ... to expend or consume by putting to use"). Thus property is "used for commercial activity" if it is employed in, applied in the service of, or utilized for commercial activity.
The majority not only uses an improperly truncated and cramped meaning of "use", it also mischaracterizes the assets at issue in this case which the Bank seeks to attach. In order to make its argument work, the majority incorrectly describes Congo's royalty interest as "revenue" or "income," i.e., as the results or fruits of the Congo's right to receive royalties rather than the property right itself. On the contrary, however, a landowner royalty interest is an intangible property interest entitling its owner to a share of production, in kind or cash, if, as and when there is production, free of the costs of production. See 8 Howard R. Williams & Charles J. Meyer, Oil and Gas Law 952 (2001). See also Jensen v. Wilkinson,
A simple analogy helps here. The relationship between a royalty interest and the proceeds from that interest is the same as between shares of stock and dividends owed as a consequence of ownership of shares. Just as a share of stock has existence and value separate from dividends, landowner royalty interest has existence and value as a property interest separate from the payments owed on that interest. See Jensen,
The majority thus ignores both the ordinary meaning of "use" and misconceives the nature of the property interest involved here, to arrive at the conclusion that Bank has failed make a showing that the royalty interest is "used for" commercial activity. For these reasons I believe that the majority's analysis is incorrect.
I would reverse the district court's grant of summary judgment, and remand for further proceedings in light of the precepts discussed in my separate opinions.
II.
In denying the Congo's request for an opinion on the situs of the royalty obligations the majority writes, "[t]he factual question of what the royalty and tax obligations are `used for' appears much less difficult on this record than the legal question of determining the situs of the intangible royalty obligations."
I cannot comprehend why the difficulty of the situs question allows this court to shirk its duty in guiding the district court on a complex legal determination it may have to make. Such a conclusion is justifiable only by assuming that it is inevitable that the district court will find that the royalty interest is not "used for" commercial activity. If the majority sub silentio has already reached this decision, it should forthrightly declare the reasons for its conclusion. Although I likely would disagree with the reasons, they may reveal that the case should not be remanded or provide helpful guidance to the district court if it is remanded.
Upon further research I think that the situs question is one which deserves more attention, and one upon which the district court may need more guidance in answering. Accordingly, I would grant the Congo's petition for rehearing for the purpose of clarifying and setting forth the legal principles controlling the situs determination.