Af-Cap Inc v. Republic of Congo ( 2004 )

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
September 17, 2004
FOR THE FIFTH CIRCUIT
_____________________ Charles R. Fulbruge III
Clerk
No. 03-50506
_____________________
AF-CAP INC.,
Plaintiff - Appellant,
versus
THE REPUBLIC OF CONGO;
Defendant - Appellee,
CMS OIL AND GAS CO.; ET AL.,
Garnishees,
CMS NOMECO CONGO INC.; THE NUEVO CONGO CO.; NUEVO CONGO LTD.,
Garnishees - Appellees.
_____________________
03-50560
______________________
AF-CAP INC.,
Plaintiff-Appellant,
versus
THE REPUBLIC OF CONGO
Defendant-Appellee.
__________________________________________________________________
Appeals from the United States District Court
for the Western District of Texas
_________________________________________________________________
Before JOLLY and PRADO, Circuit Judges.1
E. GRADY JOLLY, Circuit Judge:
This appeal is the second in this case. The Republic of Congo
is attempting to avoid its undisputed debt by claiming sovereign
immunity under the Foreign Sovereign Immunities Act (FSIA),
notwithstanding that, in the Lending Contract, it pledged as
collateral all of its assets and properties, and expressly waived
its sovereign immunity. The district court concluded that the
Congo was entitled to claim immunity under the provisions of the
FSIA because the property at issue was not used for commercial
purposes in the United States. We disagree and REVERSE and REMAND.
I
On December 18, 1984, the Republic of Congo entered into a
Lending Contract with Equator Bank Limited to provide funds
necessary for the construction of a highway in that country. To
obtain the loan, the Congo pledged as collateral “all of its assets
and properties, wherever located.” In the Lending Contract, the
Congo expressly waived any right to claim foreign sovereign
immunity either from suit or from attachment or execution on its
property.
The Congo defaulted in 1985. Connecticut Bank of Commerce
(“the Bank”), an assignee of the Lending Contract, obtained a
default judgment against the Congo in a London, England court. In
1
This matter is decided by a quorum. See 28 U.S.C. § 46(d).
2
order to turn this foreign judgment into a United States judgment,
the Bank filed suit in a New York state court. The Congo did not
appear and the court entered a default judgment in the amount of
$13,628,340.11 in favor of the Bank. The New York court also
entered an order of attachment, authorizing 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 . . . .”
On January 11, 2001, the Bank registered the New York judgment
in a Texas state court. It then filed garnishment actions there
against, inter alia, CMS Nomeco Congo, Inc. (“CMS”), Nuevo Congo
Company (“Nuevo”), and Nuevo Congo Ltd. (collectively “the
Garnishees”). It sought to garnish intangible property purportedly
belonging to the Congo, namely, the Garnishees’ obligations to pay
taxes and royalties to the Congo. The Garnishees are successors-
in-interest to a 1979 joint venture (the “Convention”) between a
state-owned Congolese company, now known as the Societe Nationale
des Petroles du Congo (“SNPC”), and several oil companies for oil
production in the Congo. Currently, CMS is the operator of the
joint venture while Nuevo, Nuevo Congo Ltd. and SNPC possess
working interests. Under the terms of the Convention, the Congo
permitted the joint venture to extract oil in exchange for the
payment of royalties and a variety of taxes related to the
Garnishees’ activities. The mining royalty can be paid in cash or
3
in kind from the oil lifted from the wells. The choice regarding
the form of payment belongs to the Congo, although it usually
elects to have the royalties paid in kind.2 The Convention also
obligates the Garnishees to make periodic tax payments to the Congo
based on the net income from covered activities. The remaining
profits are split among the Convention members in proportion to
their working interests. The Garnishees’ obligation to make these
tax and royalty payments to the Congo is the property at issue in
this case.
Following the Bank’s filing of its garnishment action in Texas
state court, the Congo and the Garnishees (collectively “the Congo
Defendants”) removed the case to federal court. There, the Congo
Defendants moved for dismissal, arguing that the Congo was entitled
to sovereign immunity from the garnishment action under the Foreign
2
The Convention specifies a method for how these royalties are
to be paid on an in-kind basis. After being produced at offshore
wells, the oil flows through a subsurface pipeline system to an
offshore storage facility, a retired transport tanker called the
“Conkouati,” which is located in Congolese waters. Once the
Conkouati is filled with between 550,000 and 600,000 barrels of
oil, CMS and Nuevo take a “lifting” and sell the oil. Throughout
this process, CMS keeps an over/under accounting of the amount of
oil it has lifted and sold, and notes the Congo’s royalty
entitlement and SNPC’s working entitlement under the Convention.
CMS and Nuevo continue to take liftings and sell the oil until the
combination of the Congo’s royalty entitlement and SNPC’s working-
interest entitlement exceeds 275,000 barrels. At this point, SNPC
takes a lifting and sells the oil. In this way, both the Congo’s
in-kind royalty and tax entitlement and SNPC’s working interest are
satisfied. Apparently, when SNPC conducts such a lifting, it lifts
about 550,000 to 650,000 barrels, at which point it is “over-
delivered,” which is then accounted for in the over/under
accounting described above. SNPC would then not take another
lifting until it is under-delivered by 275,000 barrels.
4
Sovereign Immunities Act (“FSIA”), 28 U.S.C. §§ 1602-1611. In
response, the Bank contended that the Congo had expressly waived
sovereign immunity in the Lending Contract. The Bank also argued
that the Texas court was bound by the earlier attachment order
issued by the New York court.
The district court dismissed the action, rejecting both
arguments of the Bank. First, the court rejected the claim that
the New York judgment had any preclusive effect on the present
case. The court also rejected the Bank’s claim that in the Lending
Contract, the Congo had waived sovereign immunity even though it
was express and in writing; the court held that such a total waiver
was ineffective under § 1610(a) of the FSIA, which recognizes only
conditional waivers. Specifically, the court found that even when
a foreign state purports to waive completely its immunity, the FSIA
only permits execution on property that is “commercial.” The court
concluded that the royalty and tax payments to the Congo were non-
commercial in nature, and thus the property was immune from
attachment under § 1610(a).
The Bank then appealed to this court. We affirmed the
district court’s holding that the New York attachment order had no
preclusive effect. Connecticut Bank of Commerce v. Republic of
Congo, 309 F.3d 240, 248-51 (5th Cir. 2002). We also agreed that,
under the FSIA, a waiver of immunity only applies “against property
that meets . . . two statutory criteria,” namely, that the
property in question be “in the United States” and “used for
5
commercial activity in the United States.” Id. at 247 (quoting 28
U.S.C. § 1610(a)). We concluded, however, that the district court
had erred in applying these statutory criteria by incorrectly
focusing on how the property was generated instead of fully
considering what it is “used for.”3 We further clarified this
point in an amended opinion issued on rehearing;4 we remanded the
case to the district court with the narrow and specific
instructions that it resolve:
the dispositive factual question: what the
royalty and tax obligations are “used for.”
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.
Id. at 260-61.
On remand, the district court ordered discovery to determine
whether the tax and royalty obligations were property “used for”
commercial activity in the United States. Af-Cap, Inc., who had
succeeded the Bank in interest during the pendency of the Bank’s
appeal, vigorously pursued that discovery, receiving thousands of
3
Specifically, we held that the district court erroneously had
focused its primary attention on whether the source of the
royalties and tax obligations -- in this case, the joint venture --
was a commercial activity. Instead, the district court should have
focused on the use of the property itself: “The amenability of
these royalties and taxes to garnishment depends on what they are
‘used for’, not on how they were raised.” Connecticut Bank, 309
F.3d at 251.
4
The amended opinion contained a more detailed discussion of
the application of the “used for” criterion under the FSIA.
6
pages of responsive documents and deposing numerous witnesses from
the Congo, the Garnishees and non-parties.
After hearing arguments, the district court held that the
Congo did not use its tax and royalty obligations for commercial
activities.5 Accordingly, it held that this property was not
within an exception to immunity and dismissed the garnishment
action. Af-Cap has appealed.
In this appeal, Af-Cap makes two arguments. First, it
contends that the district court erred in disregarding the Congo’s
express waiver of immunity contained in the Lending Contract.
Second, it asserts that the district court erroneously concluded
that the royalty and tax payments were not used for commercial
activity.
II
We first consider Af-Cap’s argument that the district court
erred in failing to enforce the explicit waiver of sovereign
immunity in the Lending Contract. This argument, however, has
already been made and rejected in the earlier appeal. In the first
appeal, Af-Cap’s predecessor cited the same language in the Lending
Contract, arguing that it permitted execution against “any property
whatsoever,” “irrespective of its use or intended use.” It argued
5
Because the district court found that the property at issue
did not satisfy the “used for” prong of § 1610(a), the district
court declined to address whether the “situs of the obligations” is
“in the United States,” the second statutory criterion under §
1610(a).
7
that even if this violated the express restrictions under the FSIA,
these restrictions were inapplicable because (1) the Congo signed
a contractual waiver in the Lending Contract and (2) the New York
court’s order should be given preclusive effect. Although most of
our opinion in the earlier appeal focused on rejecting the latter
of these claims, we explicitly rejected the former claim as well.
We noted:
The Foreign Sovereign Immunities Act provides
foreign sovereigns with immunity from
execution against their property to satisfy an
adverse judgment. 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.
Connecticut Bank, 309 F.3d at 247 (internal citations removed and
emphasis added).
Our mandate on remand also showed that we had rejected this
argument. We gave narrow and specific instructions to the district
court, directing it to decide the “dispositive factual question” of
whether the Congo’s property is “used for any commercial activities
in the United States,” and to dismiss the action if it was not.
Id. at 260-61.
Af-Cap contends that this interpretation of the FSIA is
incorrect and that the FSIA does in fact permit a complete waiver
8
of sovereign immunity. Whatever the validity of that claim,
however, we are obligated to accept the ruling of the earlier
panel. “On second appeal following remand, the only issue for
consideration is whether the court below reached its final decree
in pursuance of [this court’s] previous mandate.” Burroughs v. FFP
Operating Partners, L.P., 70 F.3d 31, 33 (5th Cir. 1995). Thus,
“this Court will not reconsider issues decided by the prior panel.”
Id. Under the law of the case doctrine, “an issue of fact or law
decided on appeal may not be reexamined either by the district
court on remand or by the appellate court on a subsequent appeal."
St. Paul Mercury Ins. Co. v. Williamson, 332 F.3d 304, 309 (5th Cir.
2003). Accordingly, the only question properly before this panel
on this second appeal is “whether the court below reached its final
decree in pursuance of [this court’s] previous mandate.”
Burroughs, 70 F.3d at 33.6 That is, our present authority is
6
Af-Cap correctly points out that the law of the case is a
discretionary, not jurisdictional, doctrine and can be ignored if
a prior holding is “clearly erroneous and would work a manifest
injustice.” However, as evidenced by the cases Af-Cap cites in
support of this proposition, courts rarely invoke this exception to
the law of the case doctrine and when they do, it is because of
post-decision changes in evidentiary facts or in the applicable law
and not because the subsequent panel disagreed with the earlier
panel’s legal conclusions. See Arizona v. California, 460 U.S.
605, 618 (1983) (refusing to reexamine previous factual findings
despite an alleged change in factual circumstances); Tollett v.
City of Kemah, 285 F.3d 357, 365-66 (5th Cir. 2002) (refusing to
reexamine an earlier panel’s conclusion following the submission of
allegedly new evidence at a district court’s hearing on remand);
U.S. v. Matthews, 312 F.3d 652, 657-58 (5th Cir. 2002) (agreeing to
reexamine original panel’s legal conclusions where those legal
conclusions had been called into question by a subsequent Supreme
Court decision).
9
limited to examining whether the district court correctly
determined that the tax and royalty obligations at issue here are
not used for commercial purposes in the United States. We now turn
to this question.
III
A
As discussed previously, in our earlier opinion following the
first appeal in this case, this court held that under § 1610(a) of
the FSIA, a court is prohibited from executing against the property
of a foreign state unless that property is: (1) in the United
States; and (2) used for commercial activity in the United States.
Connecticut Bank, 309 F.3d at 247. We first turn to an analysis of
the district court’s determination that these tax and royalty
obligations were not used for commercial purposes in the United
States.
Before doing so, we must first make clear the applicable
standard of review in this case. Determining whether property is
used for commercial purposes requires a court to both make factual
findings concerning how the property was used and to reach legal
Notably, Af-Cap cites no cases where a subsequent panel
reversed a prior panel’s legal conclusion solely because the
subsequent panel disagreed with it. The absence of such cases
should not be surprising. The subsequent panel would not only have
to forego application of the law of the case doctrine, but would
also have to discard the well-established rule that circuit panels
are “bound by the precedent of previous panels absent an
intervening . . . case explicitly or implicitly overruling that
prior precedent.” U.S. v. Short, 181 F.3d 620, 624 (5th Cir. 1999).
10
conclusions concerning whether that particular use was “for
commercial purposes.” When a district court’s decision involves
such mixed questions of law and fact, we review the district
court's factual findings for clear error, and its legal conclusions
and application of law to fact de novo. In re Liljeberg
Enterprises, Inc., 304 F.3d 410, 424 (5th Cir. 2002).
We find no clear error in the district court’s material
factual findings concerning the Congo’s past use of these royalty
obligations. The district court found, and the Congo concedes,
that it has, in the past, utilized these tax and royalty
obligations for an explicitly commercial purpose. In 1989, the
National Union Fire Insurance Company (“NUFI”) obtained a judgment
against the Congo after the Congo defaulted on a $26,425,000 loan.
Two years later, in 1991, NUFI sued the Congo in federal court in
an effort to collect its judgment by garnishing the same tax and
royalty obligations that are at issue in this case. NUFI and the
Congo eventually entered into a settlement agreement under which
the Congo assigned NUFI fifty percent of these tax and royalty
obligations until such a time as the underlying debt was fully
paid. Significantly, this money was paid by the Garnishees
directly to NUFI; the Garnishees would then pay the remaining
amount of royalties due to the Congo. This arrangement went on for
over eleven years -- until August 2002 -- until the multi-million
dollar debt was paid. The Congo has also acknowledged that,
although these tax and royalty obligations were actually used in
11
this fashion only once, the Congo seriously contemplated using
these obligations in a similar manner on at least one other
occasion. Around the time the NUFI settlement was set to expire,
the Congo entered into settlement discussions with another creditor
wherein a similar assignment of debt was proposed, albeit
ultimately not adopted.
Because we find no clear error in the district court’s
material factual findings, the question before this court is a
strictly legal one: whether such past commercial use is sufficient
to render these oblibations “property used for commercial purposes”
for purposes of the FSIA. The Congo Defendants argue that it is
not. They contend that “an exceptional and singular” past
commercial use at one point in time is insufficient to establish
that this specific property is used for commercial purposes under
the FSIA. Instead, they contend that the FSIA warrants a more
comprehensive approach to the question of commercial use, focusing
not on isolated and unusual uses, but instead on what the property
is “essentially used for.”
The district court agreed that the Congo Defendants’
recommended approach was consistent with the legislative purpose of
the FSIA. The court noted that there was little case law
delineating precisely how a court should analyze property to
determine whether it was being used for commercial purposes under
the FSIA, but reasoned that evidence of a single commercial use in
the past could not, by itself, render the property in question now
12
and forever subject to garnishment. Instead, the district court
applied a form of the Congo Defendants’ recommended “essential use”
test, focusing on determining the predominant or essential use of
the property in question. Concluding that the “single instance” of
tax and royalty obligations being used to satisfy a commercial debt
was not enough to render the property essentially commercial in
nature, the district court dismissed the action.
We have no major disagreement with the analytical approach
that the able district court adopted in determining whether these
tax and royalty obligations were commercial in nature. Like the
district court, we have similar reservations about defining
property use as commercial in nature solely by reference to past
single and/or exceptional commercial uses. Instead, we agree that
determining the commercial (or non-commercial) status of a
property’s use requires a more holistic approach. Specifically, we
think that an analysis applied to such a question should examine
the totality of the circumstances surrounding the property. This
analysis should include an examination of the uses of the property
in the past7 as well as all facts related to its present use, with
7
We disagree with the district court’s alternative holding
that evidence of past commercial use cannot be considered for
purposes of establishing the commercial or non-commercial nature of
property under the FSIA. According to the court, § 1610(a) only
applies to “present and impending uses.” Instead, we think that
the consideration of evidence of past use is an indispensable part
of a court’s FSIA inquiry. A court forbidden to consider how
property has been used in the past would be hard-pressed to
accurately determine whether the predominant use of that property
is commercial or sovereign.
13
an eye toward determining whether the commercial use of the
property, if any, is so exceptional that it is “an out of
character” use for that particular property.8
This holistic approach is also consistent with the reasoning
in our earlier decision in this case. There, Af-Cap’s predecessor
argued that courts should look at the source as opposed to the use
of the property to determine its commercial nature. In rejecting
this contention, we utilized the following analogy:
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.
Connecticut Bank, 309 F.3d at 253.
8
In this analysis, we also think it would be appropriate for
a court to consider whether the use of the property in question was
being manipulated by a sovereign nation to avoid being subject to
garnishment under the FSIA.
14
Tweaking this analogy a bit, consider that the airplane had
been used on rare occasions for commercial activities -- for
example, it was temporarily used to fill in for a disabled plane in
the foreign country’s commercial fleet. It would strain reason to
conclude that these limited, emergency usages rendered the plane
subject to garnishment now and forever irrespective of the fact
that its use was otherwise almost exclusively non-commercial.
Indeed, permitting the attachment and selling of such a plane in
execution of a judgment would also “go too far in interrupting the
public acts of a foreign state.” Thus, we conclude that under the
FSIA, foreign property retains its immunity protection where its
commercial uses, considered holistically and in context, are bona
fide exceptions to its otherwise noncommercial use.9
That said, although we are fairly in agreement with the form
of the analysis applied by the district court, and dispute none of
its underlying fact determinations, we disagree with its legal
conclusion that these tax and royalty obligations were not used for
commercial purposes. Instead, we think that the facts relating to
9
This conclusion also squares with the logic of a case quoted
approvingly by this court in its earlier decision in this case. In
Eastern Timber Corp. v. Republic of Liberia, 659 F.Supp 606 (D.D.C.
1987), the property at issue was a Liberian bank account primarily
used to fund diplomatic and consular activities, though some
portion of the account had been used for commercial activities.
The Eastern Timber court, however, determined that the account was
still immune from execution, explaining that it “decline[d] to
order that if any portion of a bank account is used for commercial
activity, then the entire account loses its immunity.” Id. at 610.
15
the past and present use of these obligations, examined broadly and
in context, establish the opposite.
As the facts of the NUFI settlement indicate, for nearly half
of the twenty-four years that these obligations existed, the Congo
has used at least fifty percent of them to repay a commercial debt.
The amount of the debt repaid was not insignificant; during the
course of this extended period of time, over $26,000,000 was
diverted from these obligations to the Congo’s commercial creditor.
Such a continuing, extended and monetarily significant use is
neither exceptional nor de minimis. Moreover, it is difficult to
say that execution on this obligation would be so unusual that it
would shock and disrupt the public affairs of the Congo.10
Indeed, on at least one other occasion, the Congo contemplated
engaging in the same type of use again. Although such contemplated
use is not actual use,11 it is strongly suggestive that the proceeds
10
In support of their contention that the use here was
exceptional, the Congo Defendants rely heavily on the district
court’s legal characterization of this use as “single.” While
rhetorically powerful, this characterization is somewhat
misleading. Indeed, this use is “singular” only in that it was
used to satisfy a single debt. In its other aspects, the use was
frequent, ongoing, and longstanding.
11
The Congo Defendants contend that in Connecticut Bank, this
court held that merely “contemplated” commercial uses are not
relevant factors in a court’s determination of whether property was
used for commercial purposes for purposes of the FSIA. This,
however, is a mischaracterization of our holding in that case. Our
discussion of “contemplated” use in Connecticut Bank occurred not
in the context of determining which types of uses are properly
considered in an FSIA commercial use analysis, but instead in the
context of rejecting the argument that property that is “generated
by” or “contemplated by” commercial activities is also used for
16
of these tax and royalty obligations were not cordoned off for use
of the Congo in its sovereign capacity. Instead, it indicates the
availability of this property for whatever purpose -- commercial or
otherwise -- the Congo deems appropriate. Such property seems
hardly the type of foreign property the FSIA was designed as a
shield to protect, i.e., funds so central to a nation’s operations
as a sovereign that uses thereof would “interrupt[] the public acts
of [this] foreign state.” Id. at 253. Accordingly, we conclude
that these tax and royalty obligations are used for commercial
purposes for purposes of § 1610(a) of the FSIA.
B
We now turn to the question of the situs of these tax and
royalty obligations. As noted previously, for foreign property to
be stripped of its immunity under the FSIA, § 1610(a) not only
requires that the property in question be used for commercial
purposes, but also that the property be “in the United States.”
Id. at 247.12
commercial purposes under § 1610(a). See Connecticut Bank, 309 F.3d
at 258-60. We said nothing in Connecticut Bank about the
appropriateness or inappropriateness of a court examining evidence
of the contemplated uses of particular property as part of its
inquiry into whether the property is used for commercial purposes.
Indeed, we think that, as here, examining evidence of contemplated
commercial use would greatly aid a court in making a determination
of the general commercial or non-commercial nature of particular
property.
12
Even though the district court did not address the question
of situs, we need not remand because the question here is one of
law based on a fully developed record in which there are no
material factual disputes.
17
Determining the situs of the property at issue here poses a
special problem because this property is intangible in nature.
This court and others have noted the inherent difficulty of
assigning a location to property that by its very definition “lacks
a physical existence.” See BLACK’S LAW DICTIONARY 1233 (7th ed. 1999).
The Third Circuit has observed that attaching a situs to intangible
property is necessarily a legal fiction; therefore, the selection
of a situs for intangibles must be context-specific, embodying a
"common sense appraisal of the requirements of justice and
convenience in particular conditions." U. S. Industries, Inc. v.
Gregg, 540 F.2d 142, 151 n.5 (3rd Cir. 1976) (citations and
quotations removed). This court has also recognized the context-
specific nature of an inquiry into the situs of intangible
property. In Tabacalera Severiano Jorge, S. A. v. Standard Cigar
Co., 392 F.2d 706, 714 (5th Cir. 1968), after noting that "[t]he
situs of intangible property is about as intangible a concept as is
known to the law," we affirmed that the situs of intangible
property will vary, depending on the context. Thus:
The situs may be in one place for ad valorem
tax purposes, ...; it may be in another place
for venue purposes, i.e., garnishment ...; it
may be in more than one place for tax purposes
in certain circumstances ...; it may be in
still a different place when the need for
establishing its true situs is to determine
whether an overriding national concern, like
the application of the Act of State Doctrine
is involved.
Id. at 714-15 (citations omitted).
18
We think a “common sense appraisal of the requirements of
justice and convenience” in this particular context yields the
conclusion that the situs of these royalty obligations is the
United States -- the situs of the Garnishees. This conclusion is
consistent with the application of the rule ordinarily applied to
determine the situs of debtor obligations like these tax and
royalty obligations. Specifically, courts consistently hold that
the situs of a debt obligation is the situs of the debtor.13 This
13
The Congo Defendants attempt to avoid the conclusion that
these tax and royalty obligations are debt obligations by
attempting to fix a physical location to them. Specifically, they
point to the fact that the Convention permits the Congo to elect
how these royalties will be paid and the Congo always elects to
have them paid in kind. See n.1 infra. They thus essentially
contend that the property at issue here is actually the oil stored
in a tanker in Congolese waters. Because this oil is located in
the Congo, they argue that the Congo is the situs of these tax and
royalty obligations. This contention is flawed for two principal
reasons. First, it cannot be squared with the facts surrounding
the use of these tax and royalty obligations; as we have previously
noted, under the NUFI settlement, for nearly half of the
Convention’s existence, at least half of these obligations were
diverted in the form of cash payments to the Congo’s creditor.
Notably, this diversion did not involve the Congo drawing oil from
the tanker, selling it, and then paying fifty percent of the
proceeds directly to the creditor; instead, these debt payments
passed directly from the Garnishees, who resided in the United
States, to the NUFI creditor, which also resided in the United
States. This fact alone seems sufficient to defeat the Congo
Defendants’ argument that these obligations are somehow physically
located in the Congo. However, the Congo Defendants’ implicit
suggestion that the tax and royalty obligations that Af-Cap is
seeking to garnish have a physical location is itself fatally
flawed. Here, Af-Cap is not seeking to attach any of the Congo’s
physical property (like its oil) but instead it seeks to attach the
obligations to pay royalties owed by the Garnishees. As noted
previously, such debtor obligations are intangible assets, which by
definition have no physical existence. For these reasons, the Congo
Defendants’ attempt to essentially ascribe a physical existence to
them fails.
19
is certainly true in Texas, where this garnishment proceeding
commenced. See, e.g., Mo., Kan. & Tex. Ry. Co. of Tex. v. Swartz,
53 Tex. Civ. App. 389, 392, 115 S.W. 275, 276 (1908, no writ)(holding
that the situs of a debt obligation is the situs of the debtor).
This same rule is also applied in other states. See, e.g.,
Alliance Bond Fund v. Grupo Mexicano De Desarrollo, 190 F.3d 16, 25
n.9 (2d Cir.1999) (recognizing this rule generally applies under
New York law); Great Falls Transfer & Storage Co. v. Pan Am.
Petroleum Corp., 353 F.2d 348, 349 (10th Cir. 1965) (recognizing the
same under the laws of Montana and Wyoming). Furthermore, this
rule’s general operation has been recognized by the Supreme Court.
See, e.g., Harris v. Balk, 198 U.S. 215, 221-22 (1905).
We acknowledge that in these foregoing cases, the courts were
determining situs for the purpose of establishing jurisdiction over
property subject to a garnishment action, whereas in this case we
are considering situs for purposes of determining immunity under
the FSIA. The Congo Defendants seize on this distinction, arguing
that a different sort of situs calculus should apply in the FSIA
context as questions that purely concern jurisdiction do not
implicate delicate issues concerning the availability of foreign
sovereign immunity and comity between nations.14
14
The Congo Defendants also argue that the act of state
doctrine should apply; this means that the situs of foreign debt
obligations must be the foreign country because a contrary
conclusion would improperly “antagonize the foreign government.”
20
While we agree that the two contexts implicate different
issues and interests, we think that these differences are
immaterial for present purposes, as we see nothing about the
general rule regarding the situs of debt obligations that would
frustrate the purpose of the FSIA, which is to “limit as much as
possible disrupting the ‘public acts’ or ‘jure imperii’ of
sovereigns.” Connecticut Bank, 309 F.3d at 253. Specifically, we
fail to see how permitting Af-Cap to execute against intangible
commercial debt obligations owed by business entities formed and
headquartered in the United States “interrupts [the Congo’s] public
acts,” particularly when the Congo has proven more than willing to
divert these obligations directly to its commercial creditors in
the United States. Id. Indeed, in an earlier case, we rejected
the notion that enforcing general rules (like the rule establishing
the situs of debtor obligations here) against the commercial
However, the act of state doctrine is inapplicable in this context.
As the Supreme Court, and this court, have made clear, the act of
state doctrine applies only when the dispute implicates the
legitimacy of public acts undertaken by a sovereign nation. See
Banco Nacional de Cuba v. Sabbatino, 376 U.S 398, 401 (1964)
(holding that the act of state doctrine prevented the court from
reaching the merits of a dispute over sugar cane seized pursuant to
the Cuban government’s decision to nationalize the sugar industry);
Callejo v. Bancomer, S.A., 764 F.2d 1101, 1112-24 (5th Cir. 1985)
(invoking the doctrine in refusing to intervene in a dispute
implicating the legitimacy of Mexico's promulgation of exchange
control regulations). Because this case does not involve such a
public act, but rather a mere dispute over the payment of a debt
the Congo does not dispute that it owes, the act of state doctrine
does not apply.
21
activities of foreign nations would inappropriately interfere with
their sovereignty. We stated:
In their commercial capacities, foreign
governments do not exercise powers peculiar to
sovereigns. Instead, they exercise only those
powers that can also be exercised by private
citizens. Subjecting them in connection with
such acts to the same rules of law that apply
to private citizens is unlikely to touch very
sharply on "national nerves."
De Sanchez v. Banco Central De Nicaragua, 770 F.2d 1385, 1391 (5th
Cir. 1985) (quoting Alfred Dunhill of London, Inc. v. Republic of
Cuba, 425 U.S. 682, 703-04 (1976)).
Finally, the interests for which the Congo urges protection
from “interruption” are in fact protected by the FSIA itself -- if
the property is used for sovereign purposes and not for commercial
use, then there can be no action for garnishment in the United
States.
Seeing no conflict between the application of this ordinary
situs rule and the purposes and goals of the FSIA, we conclude that
this same rule should apply in this context relating to property
used commercially. Accordingly, we hold that the situs of these
tax and royalty obligations is the United States.15
15
The Congo Defendants cite two district court cases from other
circuits in support of their claim that a different type of situs
calculus should apply in the present context. See Raccoon Recovery
LLC v. Navoi Mining & Metallurgical Kombinant, 244 F. Supp. 2d 1130
(D.Colo. 2002); Fidelity Partners, Inc. v. Philippine Exp. &
Foreign Loan Guarantee Corp., 921 F. Supp. 1113 (S.D.N.Y. 1996).
Aside from the fact that neither case is binding on us, both are
distinguishable as neither involved debt obligations, but rather
other forms of intangible property. In Raccoon Recovery, a
22
IV
To sum up: We hold that the district court correctly applied
the law of the case doctrine to reject Af-Cap’s argument that the
Congo waived fully its claim of sovereign immunity pursuant to the
Lending Agreement. We further hold, however, that the district
court erred in concluding that the tax and royalty obligations at
issue in this case were not used for commercial purposes in the
United States. We also hold that the situs of these obligations is
the United States. We have thus determined that both these FSIA
conditions have been satisfied. These tax and royalty obligations
therefore are not protected by sovereign immunity. It follows that
the district court erroneously dismissed Af-Cap’s cause of action
and dissolved the writs of garnishment obtained by Af-Cap against
the Garnishees. We therefore REVERSE the judgment and REMAND for
further proceedings not inconsistent with this opinion.
REVERSED and REMANDED.
judgment creditor sought to execute upon a judgment debtor's
partnership interest in an Uzbekistan mining operation under a
Colorado law allowing it to do so. 244 F. Supp. 2d at 1142. In
Fidelity, the property at issue was a foreign state's bank deposits
maintained and controlled exclusively at a bank headquartered in
that foreign country. 921 F. Supp. at 1119.
23