First Fidelity Bank v. Government Of Antigua & BarbudaFirst Fidelity Bank v. Government Of Antigua & Barbuda
William M. O‘Connor, Foyen & Peri (Joseph D. Giacoia, New York City, of counsel), for appellee.
Before OAKES, Chief Judge, NEWMAN, Circuit Judge, and HAIGHT, District Judge.*
OAKES, Chief Judge:
The Government of Antigua and Barbuda appeals from a decision of the United States District Court for the Southern District of New York, Louis L. Stanton, Judge, which denied its motion for relief under
BACKGROUND
In November 1983, First Fidelity‘s predecessor, First National State Bank of New Jersey, loaned $250,000 to Lloydstone Jacobs, Antigua‘s ambassador to the United Nations. Jacobs signed for the loan as ambassador, representing the “Government of Antigua & Barbuda--Permanent Mission.” The stated purpose of the loan was to pay for the renovation of Antigua‘s Permanent Mission to the United Nations in New York. Repayment of the loan ceased in mid-1985. In September 1985, the bank contacted government officials in Antigua, seeking repayment. The following month, the bank wrote to Jacobs and to Prime Minister Vere C. Bird‘s permanent secretary, threatening legal action. According to an officer of the bank, the permanent secretary told the officer by telephone in November that Jacobs and Robert Healy, in-house counsel for Antigua‘s Permanent Mission, were authorized to negotiate a settlement, but this is now disputed by Antigua.
No settlement was reached, and in July 1986 First Fidelity sued Antigua for repayment. Antigua did not answer the complaint, although it concedes that it was properly served. Representatives of the bank met with Jacobs and Healy. According to the bank, Jacobs and Healy acknowledged that Antigua had no defense against the action and revealed that the proceeds from the loan had in fact been invested in a casino. There was still no settlement, however, so the bank sought a default judgment. The bank decided, “[a]fter a review of Mr. Healy‘s involvement and appearance in this action,” to obtain the default judgment by formal motion. The district court granted the default judgment on December 19, 1986.
First Fidelity received $70,000 pursuant to the consent order, but in January 1988 payments ceased again. The bank executed upon a New York account of Antigua‘s Permanent Mission but obtained only $500. First Fidelity then sought to attach bank accounts maintained by Antigua‘s embassy in Washington, D.C. The Government of Antigua, sitting in the capital city of St. John‘s, then took its first direct action in this case: it moved in the district court to dismiss First Fidelity‘s complaint for lack of subject matter jurisdiction or, alternatively, to vacate the consent order. Antigua claimed that it was not bound by Jacobs’ actions because he had acted without authority in borrowing the money and in consenting to the settlement. Since Antigua was not responsible for Jacobs’ fraudulent activities, the argument ran, it retained its sovereign immunity. Judge Stanton denied the motion; in a brief memorandum, he applied agency law to hold Antigua responsible for Jacobs’ actions. Antigua could not interpose sovereign immunity, he decided, because the loan fell within the Foreign Sovereign Immunity Act‘s commercial activity exception. Antigua then filed this appeal.1
DISCUSSION
First Fidelity asserts that Jacobs possessed the actual authority to bind Antigua. The bank goes on to claim that, even if Jacobs lacked that actual authority, under applicable agency law he nevertheless had ample apparent authority to bind Antigua. In this context, First Fidelity emphasizes the power inherent in an ambassador‘s position: the bank claims that, as “Ambassador Extraordinary and Plenipotentiary,” Jacobs occupied the highest rank in diplomacy, as established by the Congresses of Vienna (1815) and Aix-la-Chapelle (1818). Under the Headquarters Agreement with the United Nations, an ambassador to the U.N. possesses the same privileges and immunities as diplomatic envoys accredited to the United States. See Agreement Between the United Nations and the United States of America Regarding the Headquarters of the United Nations, June 26, 1947, art. V, Sec. 15, 61 Stat. 3416, 3427-28, T.I.A.S. No. 1676, at 13-15, authorized by S.J. Res. of Aug. 4, 1947, Pub.L. No. 80-357, 61 Stat. 756, set out in
The powers of an ambassador may include the authority to conclude international agreements. See Restatement (Third) of Foreign Relations Sec. 311 (1987). “Heads of diplomatic missions and representatives accredited to international organizations are regarded as possessing powers to negotiate agreements on matters within their jurisdiction.”
The implication of First Fidelity‘s argument is that Antigua is bound by Jacobs’ actions solely because he was Antigua‘s ambassador to the U.N. In effect, First Fidelity is telling us: “L‘etat, c‘est lui.” If it were true, as a matter of law, that an ambassador‘s actions under color of authority automatically bind the state that he represents, then we must affirm the decision below: Antigua would be bound by Jacobs’ settlement of this lawsuit. We do not believe, however, that a person‘s position as ambassador, and nothing more, should be dispositive in this case, let alone all cases.
The conduct of an ambassador may be attributed to his state under other circumstances. In the words of the Restatement (Third) of Foreign Relations, “[a] state is responsible for any violation of its obligations under international law resulting from action or inaction by ... any ... official, employee, or other agent of a government or of any political subdivision, acting within the scope of authority or under color of such authority.”
We conclude that an ambassador‘s actions under color of authority do not, as a matter of law, automatically bind the state that he represents. The facts of a given case must be examined, and the agency law of developed states, here our own, provides the proper framework for that examination. Cf. Restatement (Third) of Foreign Relations Sec. 311 Reporters’ Note 4 (noting that provision concerning apparent authority to conclude international agreements is analogous to national laws on the authority of agents).2
The question here would be whether Jacobs, as Antigua‘s ambassador to the United Nations, in the circumstances of this case possessed the apparent authority to borrow the money and to waive Antigua‘s sovereign immunity. See Restatement (Second) of Agency Sec. 8 (1958) (defining apparent authority). Under the Restatement (Second) of Agency, a principal causes his agent to have apparent authority by conduct which, reasonably interpreted, causes third persons to believe that the principal consents to have an act done on his behalf.
Thus, agency law is flexible enough so that the fact that a person is an ambassador can be given its appropriate weight in determining the extent of his apparent authority. The fact that Jacobs was Antigua‘s ambassador to the U.N. does not make his settlement of the lawsuit binding upon Antigua, but that fact is relevant in deciding whether First Fidelity‘s reliance upon his authority was reasonable.
Antigua claims that Jacobs exceeded his authority (both actual and apparent) in borrowing the money and, later, in waiving Antigua‘s sovereign immunity. Jacobs may have acted, the argument runs, but Antigua did nothing. Antigua claims that it therefore retains its sovereign immunity despite the fact that the loan itself was commercial activity within the meaning of the Foreign Sovereign Immunity Act (FSIA). See
First Fidelity responds that Antigua cannot present its substantive defense when seeking relief under
For example, in Carl Marks & Co. v. USSR, 665 F.Supp. 323 (S.D.N.Y.1987), aff‘d per curiam, 841 F.2d 26 (2d Cir.), cert. denied, --- U.S. ----, 108 S.Ct. 2874, 101 L.Ed.2d 909 (1988), the Soviet Union moved under
In Carl Marks, Judge Brieant had to consider the merits of the case in order to determine whether his court had jurisdiction over the case: he found that the defendant‘s actions that were the basis for the suit occurred before the effective date of the FSIA. The default judgments were therefore void for want of jurisdiction under
The facts in our record are susceptible of two opposing interpretations. First Fidelity has alleged facts sufficient to show Jacobs’ and Healy‘s apparent authority under New York law. See Hallock v. State, 64 N.Y.2d 224, 231, 474 N.E.2d 1178, 1181, 485 N.Y.S.2d 510, 513 (1984) (apparent authority exists where principal‘s conduct leads third party reasonably to believe that agent has authority). If Jacobs and Healy acted within their apparent authority in their transactions with the bank, then Antigua would be liable. See Restatement (Second) of Agency Sec. 159 (liability created by actions within apparent authority). However, there is also evidence that First Fidelity mistrusted Jacobs’ and Healy‘s bona fides, which raises questions about the reasonableness of First Fidelity‘s reliance upon their apparent authority. See Ford v. Unity Hosp., 32 N.Y.2d 464, 472, 299 N.E.2d 659, 664, 346 N.Y.S.2d 238, 244 (1973) (“One who deals with an agent does so at his peril, and must make the necessary effort to discover the actual scope of authority.“); General Overseas Films, Ltd. v. Robin Int‘l, Inc., 542 F.Supp. 684, 690 (S.D.N.Y.1982) (extraordinary nature of transaction should have altered plaintiff to danger of fraud), aff‘d, 718 F.2d 1085 (2d Cir.1983); Restatement (Third) of Foreign Relations Sec. 456 comment b (party relying on waiver has burden of showing that person waiving had authority to bind state); Restatement (Second) of Agency Sec. 165 (principal is not liable for agent‘s improper actions if third party knows that agent is not acting for principal‘s benefit).
A decision that a default judgment is void for want of jurisdiction must be accompanied by dismissal of the action. See Thos. P. Gonzalez Corp. v. Consejo Nacional de Produccion de Costa Rica, 614 F.2d 1247, 1256 (9th Cir.1980) (per curiam); Gregorian, 658 F.Supp. at 1229. In this case, however, since subject matter jurisdiction is interwoven with the merits, dismissal of the suit before trial would leave both the substantive and the jurisdictional issues unexplored. We find that there are enough doubts about the facts in this case (where disputed affidavits from First Fidelity comprise vital parts of the record) to justify setting aside the default judgment. Yet these same doubts about the facts weigh against declaring the default judgment void and dismissing the complaint under
Relief under
Antigua should, then, have an opportunity to defend this case on its merits. Cf. Practical Concepts, Inc. v. Bolivia, 811 F.2d 1543, 1551-52 (D.C.Cir.1987) (vacating district court‘s decision to set aside default judgment and dismiss case; nonetheless declining to reinstate default judgment for policy reasons, instead remanding for consideration of defendant‘s substantive defenses). At the same time, First Fidelity‘s rights must be protected, for there is some evidence that Antigua responded to this lawsuit only when First Fidelity began to grasp its assets.
Judgment in accordance with opinion; costs to neither party.
JON O. NEWMAN, Circuit Judge, dissenting:
This case has serious implications for the relationships between the United States and all foreign states that send duly accredited ambassadors to head their diplomatic missions in this country. Because I believe the majority has fashioned a rule of law that risks impairment of those relationships, I respectfully dissent.
Litigation brought by the Bank to collect the loan resulted initially in a default judgment against the Government of Antigua and Barbuda and subsequently in a stipulation of settlement, which was “so ordered” by the District Court. The stipulation contained an express waiver of the immunity of Antigua from the jurisdiction of the courts of the United States under the Foreign Sovereign Immunities Act of 1976,
The majority directs that the default judgment be vacated and that the District Court conduct an inquiry into whether the Bank was entitled to rely on the apparent authority of Ambassador Jacobs to borrow the money and to settle the ensuing litigation. In that inquiry, Antigua will be entitled to a dismissal of the Bank‘s claim on the basis of sovereign immunity if it can establish “that Antigua is the innocent victim of its ambassador‘s fraud and the bank‘s willful ignorance of the ambassador‘s lack of authority.” 877 F.2d at 195. The majority decides the case by rejecting the proposition that Antigua is bound by the actions of its Ambassador solely by virtue of his office and by concluding that the only inquiry left once that proposition is rejected is whether Antigua is bound under the doctrine of apparent authority.
The initial question concerns choice of law. Though foreign states, if amenable to suit in this country, may, in most circumstances, be obliged to accept state substantive law that normally applies to such matters as contracts and creditors’ rights, they are entitled to expect that this country will have a uniform body of federal law that determines those issues of agency law that implicate relationships between a foreign government and its ambassador accredited within this country. In this respect, it should make no difference that Jacobs was his country‘s Ambassador to the UN, rather than to the Government of the United States. As the host country to the United Nations headquarters, this country has an obligation to develop federal law on the sensitive subject of a UN ambassador‘s authority to bind his government on ordinary commercial matters. In the absence of federal legislation on the subject, the matter is appropriate for the development of federal common law. Cf. First National City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S. 611, 623, 103 S.Ct. 2591, 2598, 77 L.Ed.2d 46 (1983) (federal common law is appropriate for deciding whether separate juridical status of foreign state‘s instrumentality should shield it from liability).
Turning, then, to the issue of agency law, as a matter of federal common law in this context, I can agree with the majority that a person‘s role as his country‘s UN ambassador does not automatically entitle him to bind his government in all cases. For example, that role would not entitle an ambassador to bind his government to an obligation collusively entered into between the ambassador and a third party for the third party‘s benefit. Nor would the foreign government automatically be bound when its ambassador contracts, without actual authority, as to matters far removed from the routine functioning of a diplomatic mission.
Inherent agency power is a term used in the restatement of this subject to indicate the power of an agent which is derived not from authority, apparent authority or estoppel, but solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent.
Restatement (Second) of Agency Sec. 8A (1958).
Though the circumstances of the government-ambassador relationship are not precisely within the examples of inherent agency power set forth in the Restatement,
Instead, our context concerns only actions of an ambassador dealing with third parties on ordinary commercial matters ostensibly of benefit to his government‘s ability to maintain its presence in this country. In that context, whether to bind a government by the actions of its ambassador, under the doctrine of inherent agency power, poses this choice: Will the relationships between our government and foreign governments be better served by ensuring that an ambassador can promptly obtain the goods and services needed to operate his embassy or mission, even if on occasion a foreign government is held responsible for incurring obligations his government neither authorized nor condones, or by obliging third parties who supply such goods and services to ascertain from the foreign government in each instance whether the ambassador has actual authority. The latter option strikes me as the one to be avoided.
Under the majority‘s approach, the third party‘s reliance on the apparent authority of an ambassador remains available, but, as the remand in this case demonstrates, it is an uncertain ground of support. A third party who supplies an embassy (or a UN mission) with champagne or credit expects payment, not an opportunity to persuade a trial court that its ignorance of an ambassador‘s lack of actual authority was not willful. The majority‘s unwillingness to recognize an ambassador‘s inherent authority in this context will, I fear, have the unfortunate consequences of making some vendors unwilling to extend credit for goods and services ordered by embassies and impelling others to make potentially intrusive and resented inquiries of foreign governments. An ambassador may not be “l‘etat” for all purposes, but in the context of purporting to obtain goods and services for his country‘s diplomatic mission, I believe “c‘est lui” indeed.
The majority suggests that the Restatement ‘s principle of inherent agency power should not apply to ambassadors because some circumstances can be imagined in which the principle would not apply. If that is a “defect” in the principle or in its application to an ambassador, it is one shared by every legal principle ever announced. In urging that the relationship of an ambassador to his government is one appropriate for the application of the inherent agency principle, I do not suggest that the transaction need not be examined to see if it is one to which the principle applies. In this case, however, there is no claim whatever by Antigua that the bank engaged in any unlawful or even questionable activities with the Ambassador, nor that the bank had any knowledge or basis for suspicion that the Ambassador was not borrowing the money for the stated purposes. Relationships with foreign governments are not put at risk by subjecting those who supply goods and services to foreign embassies to the prospect of an inquiry concerning the legitimacy of the transaction. Whenever a bank lends money, it faces the possibility of subsequent inquiry concerning the bona fides of the transaction. But relationships with foreign governments are put at risk by rules that oblige vendors to probe the relationship of an ambassador to his government in order to avoid the risk of subsequent disputes concerning the ambassador‘s actual or apparent authority.
In any event, we ought not to reject inherent authority in this context without having the benefit of the views of the Executive Branch officially presented to this Court in an amicus curiae brief. We are informed that counsel for Antigua sought to have the State Department present an amicus brief in this case on behalf of Antigua, a request that was declined.
Even if this case should be governed solely by the principle of apparent authority, rather than inherent agency power, I fail to see why the judgment of the District Court should not be affirmed. In seeking to vacate the default judgment, Antigua has made no claim nor produced any affidavit that puts in issue the reasonableness of First Fidelity‘s reliance on the apparent authority of Ambassador Jacobs at the time the funds were borrowed. Any information that First Fidelity may have acquired concerning the need for explicit authorization for the loan from the Antiguan government came to its attention in the course of trying to collect the loan, long after the loan agreement was signed. Since Jacobs indisputably had the apparent authority to bind Antigua to the obligation to repay the funds and since sovereign immunity is not a defense to liability for this commercial transaction,
For these reasons I respectfully dissent.2-1
Notes
The majority maintains that because international agreements have “more dignity” than Ambassador Jacobs’ commercial transactions with First Fidelity, the binding effect of his signature on the loan agreement and the stipulation must be less than would arise from his signature on an international agreement. 877 F.2d at 192. I should think the “dignity” factor has precisely the opposite effect. A foreign state needs more insulation when its ambassador purports to commit it to an international treaty than when he orders groceries or borrows money to renovate a diplomatic mission.