MORGAN GUARANTY TRUST COMPANY OF NEW YORK, Morgan Grenfell &
Co., Limited, the Bank of Tokyo Limited, the Governor and
Company of the Bank of Scotland and Orion Royal Bank,
Limited, Plaintiffs-Appellees,
v.
REPUBLIC OF PALAU, Defendant-Appellant.
No. 1191, Docket 91-9224.
United States Court of Appeals,
Second Circuit.
Argued May 26, 1992.
Decided Aug. 5, 1992.
Barry R. Satine, New York City (Robert Layton, Jones, Day, Reavis & Pogue, Wilson, Elser, Moskowitz, Edelman & Dicker, of counsel), for plaintiffs-appellees.
Kristie Stokes Hassett, New York City (Wayne A. Cross, Reboul, MacMurray, Hewitt, Maynard & Kristol, of counsel), for defendant-appellant.
Before MINER and WALKER, Circuit Judges, and KELLEHER, District Judge.*
MINER, Circuit Judge:
Defendant-appellant Republic of Palau appeals from a final judgment of the United States District Court for the Southern District of New York (Sweet, J.) entered on November 1, 1991. The final judgment followed entry by the district court of a judgment on July 31, 1991, remanding this case to the Supreme Court of the State of New York, New York County, for proceedings on the merits. Palau removed the case from the New York Supreme Court to the district court in January 1986, and the remand was required by our decision in Morgan Guaranty Trust Co. of New York v. Republic of Palau,
In determining that Morgan was entitled to these costs and fees, the district court applied 28 U.S.C. § 1447(c), as amended on November 19, 1988, rather than the version of section 1447(c) in effect at the time Palau removed this case in 1986. See Morgan Guaranty Trust Co. of New York v. Republic of Palau,
BACKGROUND
I. The Morgan-Palau Litigation
The background of this litigation is set forth fully in our Palau I opinion and in the district court's opinion, and is recounted only as pertinent here. In 1983, Palau, a Trust Territory of the United States located in the Southwest Pacific Ocean, entered into an agreement for the construction of a power plant and fuel storage facility by International Power Systems Company Ltd. of London. Morgan participated in the transaction as the guarantor of loans made by the primary lenders who financed the construction for Palau. Palau defaulted on the debt in March 1985 and Morgan, as guarantor, was constrained to reimburse the primary lenders. After making an unsuccessful demand on Palau for repayment, Morgan commenced this action in the New York Supreme Court on December 17, 1985 to recover from Palau the sums paid by Morgan to the primary lenders. The action was brought under a Recоurse Agreement, which provided that Palau would indemnify the guarantors for costs and liabilities they incurred in connection with the guarantees.
Palau removed the case to the district court on January 21, 1986, asserting federal jurisdiction on the ground that Palau was a "foreign state" as defined in the Foreign Sovereign Immunities Act ("FSIA"), see 28 U.S.C. § 1603; see also 28 U.S.C. § 1441(d) (jurisdiction conferred upon district courts for civil actions brought in state court against a "foreign state" as defined in the FSIA). Disputing Palau's claimed status as a foreign state under the FSIA, Morgan moved for an order remanding the case to the New York Supreme Court. The district court denied Morgan's motion on July 10, 1986, concluding that while Palau technically was not independent аs of that time, Palau was a de facto foreign state because its sovereignty was inevitable and imminent. See Morgan Guaranty Trust Co. of New York v. Republic of Palau,
Crucial to the district court's determination that Palau was a de facto foreign state was the finding that the United States and Palau had entered into a Final Compact of Free Association on January 10, 1986, and that the Compact had been ratified by a 72% margin in a Palauan plebiscite on February 21, 1986. See id. at 709-16. Indeed, at the time of the district court's ruling, it appeared that the only material steps remaining to Palau's full independence were approval of the Compact by the United States Congress and the United Nations, and both approvals seemed likely. The Congress did formally approve the Compact on November 14, 1986, by Joint Resolution. See Approval of the Compact of Free Association with the Government of Palau, Pub.L. No. 99-658, 1986 U.S.C.C.A.N. (100 Stat.) 3672.
Morgan moved for summary judgment on the merits in December 1986. In opposing summary judgment, Palau asserted that as a foreign state it was immune under the FSIA from the jurisdiction of the district court, see 28 U.S.C. §§ 1604, 1605 (foreign state under certain circumstances "immune from the jurisdiction of the courts of the United States and of the States"). Palau also contended that there were triable issues as to the fraudulent inducement and other affirmative defenses it had interposed. The district court agreed with this cоntention and, on April 3, 1987, denied Morgan's summary judgment motion. However, the district court also held that while Palau had the right to claim immunity as a foreign state, the immunity had been waived. See Morgan Guaranty Trust Co. of New York v. Republic of Palau,
Palau then moved under Fed.R.Civ.P. 12(b)(1) and 12(b)(6) to dismiss Morgan's claim, contending that it had not waived its immunity and that the terms of the intervening Joint Resolution of Congress, approving the Compact, specifically immunized Palau from the jurisdiction of the district court. The district court rejected these arguments and denied Palau's motion on January 29, 1988. See Morgan Guaranty Trust Co. of New York v. Republic of Palau,
After a bench trial on the merits, the district court ruled again that Palau had waived immunity, determined that Morgan had established a prima facie case against Palau under the Recourse Agreement, and rejected Palau's fraudulent inducement and other defenses. See Morgan Guaranty Trust Co. of New York v. Republic of Palau,
Palau then appealed to this Court. The original briefs submitted by the parties dealt exclusively with the waiver of immunity issue and with the fraudulent inducement and other defenses. At oral argument on August 15, 1990, we questioned, sua sponte, whether there was federal jurisdiction in the first instance, i.e., whether Palau was a foreign state under the FSIA. Supplemental briefing on that issue was directed.
In their supplemental submissions, the parties essentially reversed their 1986 positions on whether Palau was a foreign state subject to federal jurisdiction as to certain matters. Morgan argued that Palau was a foreign state, and that the federal courts accordingly retained jurisdiction over the case. By contrast, Palau conceded that a crucial assumption behind the district court's July 10, 1986 determination that Palau was a de facto foreign state--proper ratification of the Compact in the February 1986 Palauan plebiscite--had "proved to be erroneous." We were informed that, not long after the Compact was approved by the United States Congress in November 1986, the Supreme Court of Palau ruled that under the Palauan Constitution the Compact had to be ratified by a 75% margin. This ruling effectively nullified the February 1986 plebiscite, which had ratified the Compact only by a 72% margin. We also learned that four plebiscites had been held after the February 1986 рlebiscite--in December 1986, June 1987, August 1987, and February 1990--and that a 75% majority had never been attained. In short, Palauan independence was no longer imminent or inevitable, although Palau maintained that it would gain independence someday.
In light of the facts and circumstances revealed in the supplemental submissions, we vacated the district court's judgment on February 4, 1991. We held that Palau was not a foreign state for purposes of the FSIA, that there was no jurisdiction over Palau in the federal courts, and that remand of the case to the New York Supreme Court was required. See Palau I,
II. The Instant Dispute
Shortly after our decision in Palau I, Morgan moved in the district court, under 28 U.S.C. § 1447(c) as amended on November 19, 1988, for costs and attorneys fees incurred as a result of Palau's removal of the case. The new statute, amended after Palau had lost the bench trial and during the pendency of the district court's reconsideration of the judgment, provides in pertinent part:
If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded. An order remanding the case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal.
28 U.S.C. § 1447(c) (1988) (enacted as part of the Judicial Improvements and Access to Justice Act, which amended several of the statutes relating to removal). The original section 1447(c), in effect at the time Palau removed this case to the district court in January 1986, provided in pertinent part:
If at any time before final judgment it appears that the case was removed improvidently and without jurisdiction, the district court shall remand the case, and may order the payment of just costs.
28 U.S.C. § 1447(c) (superseded).
Although it applied the amended statute in evaluating Morgan's motion, the district court opined that "[i]n this particular situation, which it can be assumed is quite unique, § 1447(c) [as amended] will not be applied retroactively." Morgan Guaranty,
Accordingly, the district court held that Morgan should recover "just costs and actual attorneys' fees [ ] attributable to the resolution of the sovereign immunity issue subsequent to November 19, 1988," the date the statute was amended. Morgan Guaranty,
On August 19, 1991, Morgan submitted a Bill of Costs for about $136,000. The amounts claimed in the Bill of Costs included costs and attorneys fees relating to the foreign state and jurisdictional issues addressed in the supplemental briefings on appeal. After a hearing, the district court on November 1, 1991 directed the entry of the Bill of Costs submitted by Morgan. This appeal followed.DISCUSSION
I. Retroactive Application of Section 1447(c)
Palau argues that the district court, despitе its disclaimer of retroactive application, in fact applied amended section 1447(c) retroactively, and that retroactive application of the statute is improper. Palau's claim of retroactive application is grounded on the fact that removal of this case to the district court occurred prior to the amendment of section 1447(c) in 1988. According to Palau, "[t]he act of removal, which took place in 1986, is the only basis for an award of costs and attorneys' fees under [the amended] Section 1447(c)" (emphasis added).
The Supreme Court's current position on retroactive application of civil statutes is, as the Court itself has acknowledged, somewhat unclear. Compare Bradley v. School Board of City of Richmond,
Although a statute creating a new obligation on the basis of considerations rooted in the past generally is said to operate retroactively, see Cox v. Hart,
Moreover, impairment of a "vested right" acquired under prior law--another telltale characteristic of retroactive effect, see Cox,
Uncontroversial aspects of the Supreme Court's Bradley decision, together with the Court's discussion in Cohen v. Beneficial Industrial Loan Corp.,
The Court clearly indicated that a retroactivity issue arose only because, and to the extent that, fees had been awarded for services rendered prior to the effective date of the statute. See Bradley,
In Cohen, a state statute passed during the pendency of litigation provided that stockholders not prevailing in suits against their corporations were liable for the corporation's expenses and attorneys fees. In declining to view the statute as retroactive by its terms, the Court noted that the statute did not necessarily impose liability "for expenses incurred by the defense previous to its enactment," but rather could be interpreted to impose liability "only from the time when the Act was passed." Cohen,
In Fowler v. Safeco Ins. Co. of America,
Other decisions, involving other provisions of the various removal statutes amended in November 1988, also have viewed the time of removal as central to determining whether application of the amended statute would have retroactive effect. However, operation of the particular provision at issue in each of these cases, unlike the provision of section 1447(c) at issue here, depended upon the time of removal. See, e.g., In re Shell Oil Co.,
II. Standard for Awarding Costs and Fees Under Section 1447(c)
Palau contends that costs and fees cannot be awarded undеr section 1447(c) as amended unless the removal was undertaken in bad faith. The parties, as well as the district court, seem to be in agreement that Palau did not remove this case in bad faith. As noted previously, there appears to be some lack of clarity in the case law interpreting original section 1447(c) with respect to the circumstances under which costs, and particularly attorneys fees, could be awarded on remand. It is not necessary for us to examine these cases. Whatever argument might have been made for a bad faith removal requirement under the old statute is mooted, in our view, by the amended version of section 1447(c) applicable to costs and attorneys fees.
The amendment did not add the phrase "bad faith" to the statute, but rather deleted the requirement that the case have been "removed improvidently." Indeed, the statute as amended makes no reference at all to the state of mind or intent of the party removing the action, instead focusing strictly on the mere absence of subject matter jurisdiction. The amendment also added to the statute an explicit reference to attorneys fees as part of the costs that may be awarded. We must, at least in the absence of strong and convincing evidence to the contrary, consider such sharply different wording to have been a deliberate choice by Congress. See Brewster v. Gage,
We observe also that other courts have taken specific note of these changes to the statute in concluding that awards of costs and attorneys fees are not to be predicated under the new section 1447(c) on bad faith removal. See, e.g., Moore v. Kaiser Foundation Hospitals, Inc.,
The district court concluded that section 1447(c) as amended requires application of a test of "overall fairness given the nature of the case, the circumstances of the remand, and the effect on the parties," Morgan Guaranty,
As of January 21, 1986--the date Palau removed this case to the district court--no plebiscite on the Compact had yet been held in Palau. While the Compact was approved by a 72% vote shortly thereafter, the factors that eventually clearly established the lack of federal jurisdiction were attributable to Palau, as the district court pointed out. These factors included the ruling of the Palauan Supreme Court requiring 75% аpproval of the Compact, and the repeated declinations of the Palauan people to ratify the Compact by the margin required by the Palauan Constitution as interpreted by the Palauan Supreme Court.
While we are willing to accept Palau's claim that it informed the district court of the plebiscite results as they were announced from time to time, it remains that Palau did not make the district court fully aware of the substantive meaning of these developments: that Palau's status as a foreign state, and hence federal jurisdiction, never a certainty, was becoming increasingly doubtful with the passage of time.2 Palau insists, for example, that the district court, as late as its Jаnuary 1988 opinion on Palau's motion to dismiss under Fed.R.Civ.P. 12(b)(1) and 12(b)(6), was aware that the Compact had not yet been ratified properly. Yet throughout this same time period, Palau continued to proceed with this litigation as if nothing at all had changed and Palau's status as a de facto foreign state were unassailable. In short, Palau was content to behave as a sovereign until we forced the issue and called for further briefing. Palau then essentially changed its position and all but expressly admitted it was not a foreign state, on the basis of facts of which Palau had been aware for some time.
It is true that Morgan changed its position as well, perhaps even more sharply than did Palau. However, it must also be recalled that Palau, and not Morgan, removed this case in the first instance.3 Lastly, as previously mentioned, the district court carefully limited the impact of the award on Palau by awarding only costs and fees incurred subsequent to the date section 1447(c) was amended.
We have considered carefully Palau's remaining arguments, and find them to be without merit.
CONCLUSION
The judgment of the district court is affirmed.
JOHN M. WALKER, Jr., Circuit Judge, dissenting:
The majority holds that the district court did not apply § 1447(c) retroactively and properly awarded $136,000 in attorney's fees. While I am not wholly convinced by the majority's retroactivity analysis, my principal disagreement is with the majority's conclusion that the fee award did not constitute an abuse of discretion. Because Palau has consistently acted in good faith, because Palau's supposed change of position came about only at the request of this court, and because the district court's award of fees is unprecedented both in size and context, I think the district court abused its discretion. Accordingly, I respectfully dissent.
I agree with the majority that fees may be awarded even absent bad faith. I do not agree that "the award was fair and equitable under the circumstances." The panel identifies three reasons why the fee award was appropriate: (1) "the factors that eventually clearly established the lack of federal jurisdiction were attributable to Palau", supra at 924; (2) "Palau did not make the distriсt court fully aware of the substantive meaning" of the Palau Supreme Court decision and the subsequent plebiscites, id.; and (3) Palau "essentially changed its position and all but expressly admitted it was not a foreign state", supra at 924. None of these claims survives serious scrutiny.
First, to suggest that "the factors that eventually clearly established the lack of federal jurisdiction were attributable to Palau" is to confuse the government of Palau with the people of Palau (who voted in the plebiscites) and the Supreme Court of Palau (who invalidated an early plebiscite). Only the government of Palau is a party in this case. Presumably, the government of Palau supported the sovereignty plebiscites and opposed the Palau court's decision. That the people and the court took actions that ultimately thwarted the jurisdictional claim cannot be attributed to the government of Palau and thus are irrelevant to assessing Palau's conduct in this litigation.
The panel also notes that although Palau informed the district court of intervening events, Palau did not explain to the district court that these events undermined the court's jurisdiction. To my mind, this is to Palau's credit. Palau faced a 46 million dollar judgment in the district court. Had it occurred to Palau at any time between the entry of judgment in August of 1988 and the moment we inquired into the sovereignty issue at oral argument in August of 1990 that it was not a de facto sovereign and thus that the award was void because the court lacked jurisdiction, it is inconceivable that Palau would have paused for a second before bringing the issue to the district court's attention. The only inference that can be drawn from Palau's silence for nearly two years is that it never occurred to Palau that jurisdiction was still an issue. The inference of concealment that the majority draws is implausible.
Finally, the panel observes that Palau "essentially" changed its position by "all but expressly" admitting that it was not a foreign state. Palau simply responded to a request of this court and made an honest factual report of post-removal circumstances that cast doubt on the district сourt's jurisdiction. Palau had no choice but to report these facts truthfully. Had Palau done otherwise, Rule 11 sanctions would have been appropriate.
In short, the majority has not pointed to a single act by Palau that would warrant awarding fees. Instead, we have here a $136,000 fee award predicated solely on the fact that events subsequent to removal and beyond the control of the Palau government defeated jurisdiction. The majority responds that jurisdiction was lacking from the start. While I give due deference to the author of the majority opinion's analysis of his prior opinion in Palau I, it seems to me that events subsequent to removal were critical to the decision in Pаlau I. See Palau I,
First, section 1447(c) is principally designed to compensate plaintiffs for the costs of opposing removal in the district court. Here, however, the district court allowed the plaintiffs to recover for fees associated with defending the removal in the court of appeals. This is a rather strange use of section 1447(c).
Second, the award here is unprecedented both in size and circumstance. The majority has not identified a single case where attorney's fees (or even costs, under the old rule) were awarded where the district court approved the removal and the court of appeals subsequently disagreed.
Third, awarding fees where the initial removal is proper opens the door for far greater fee shifting than occurs in the normal removal case. In the normal removal case, the defendant merely has to pay the plaintiff's costs in filing the motion that leads to remand. Where remand comes only after a trial and full appeal, the statute appears to open the defendant to liability for all of plaintiff's fees. While Congress may have intended that result where the removal was improper, I do not believe that Congress intended to turn removal into a game of chance, where factual developments subsequеnt to removal could suddenly expose one party to liability for the full litigation costs of the other. Accordingly, I would find that the district court abused its discretion in awarding plaintiffs $136,000 in fees.
I respectfully dissent.
Notes
Hon. Robert J. Kelleher, United States District Judge for the Central District of California, sitting by designation
According to the dissent, "events subsequent to removal and beyond the control of the Palau government defeated jurisdiction." At 925-26. However, we held in Palau I that "there was no basis for the exercise of removal jurisdiction in this case and that the district court therefore erred in denying [Morgan's] motion to remand the action to the New York Supreme Court." Palau I,
The dissent seeks to excuse Palau's failure to inform the district court of the jurisdictional problem by interpreting that failure to mean that it "never occurred" to Palau that jurisdiction was lacking. But it must have occurred to Palau that there was at least a potential problem with jurisdiction, or else it would not have even bothered to inform the district court of the disappointing plebiscite results from time to time
The dissent maintains that the statute is designed to compensate plaintiffs only for the costs оf opposing removal, and correctly notes that on appeal in Palau I, Morgan took the position that federal jurisdiction was proper. It may be that, in practice, the statute ordinarily will operate to compensate plaintiffs who oppose removal. However, the statute as amended requires only that the costs and fees have been incurred "as a result of the removal," and does not make any specific mention of which party is to be compensated. The quoted language reinforces our belief that the new version of section 1447(c) affords the district courts a good deal of flexibility in dealing with unusual circumstances such as those presented in this case