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International Law

2nd Circuit Affirms Application of Sovereign Immunity at Judgment Enforcement, Permitting Defense To Be Asserted Even in Absence of Sovereign


By Louis M. Solomon


Walters v. Industrial and Commercial Bank of China, Ltd, et al., Dkt. No. 10-806-cv (2d. Cir. July 2011) [enhanced version available to subscribers / unenhanced version available from lexisONE Free Case Law] , reiterates the clear and narrow bases for attaching non-U.S. sovereign property in execution of a judgment and also articulates new holdings applicable in this important area of international litigation and dispute resolution.  Any practitioner, corporate of litigator, whether drafting legal documents or trying to enforce judgments, should read this lucid primer in the law.  (See generally our e-book treatment of sovereign immunity in International Practice: Topics and Trends.)

For over a decade Petitioners here have been trying to enforce a default judgment against China entered by a District Court in the Western District of Missouri.  The lawsuit arose out of the death allegedly arising from defects in a rifle.  The Court entering the default judgment did so on the basis of a finding of immunity from suit under the Foreign Sovereign Immunities Act.  The decision by the Second Circuit accepts that earlier determination but step-by-step demonstrates why that earlier determination does not bind - indeed is not even relevant to - the determinations that must be made to enforce the default judgment against the assets of either China or its instrumentalities.

The noteworthy international practice rulings in the decision include:

First, the Court rules that the standard of review applied to a District Court's decision to grant or deny a petition for an order of attachment or execution under the FSIA is one of abuse of discretion.

Second, after reaffirming both the narrowness and the "restrictive" view taken by the FSIA to attachment jurisdiction, the Court adheres to the settled law that jurisdiction over a non-U.S. sovereign for purposes of adjudicating a dispute and jurisdiction over a non-U.S. sovereign for purposes of enforcing a judgment are distinct and independent issues requiring different predicate findings and determinations.  The Court also recognizes that special protection is given to execution of judgments on assets of non-U.S. sovereigns because, "at the time the FSIA was passed, the international community viewed execution against a foreign state's property as a greater affront to its sovereignty than merely permitting jurisdiction over the merits of the action".  The Court recognized that that may lead to a case where there is a right without a remedy - the non-U.S. sovereign may be sued, but judgment cannot be executed on even if there are assets of the non-U.S. sovereign in the U.S.

Third, District Court's have independent obligations to consider the sovereign immunity issue, even if not raised.  A fortiori, says the Court, the FSIA immunity issues may be raised by non-sovereign entities - here the banks.  In this holding the Court said it was following the uniform determinations made by all other Circuits to have addressed the issues.

Fourth, in interpreting Section 1609 of the FSIA, which is the independent statute that governs immunity from attachment and execution, the Court finds that the specific exceptions to immunity set forth in Sections 1610 and 1611 must be met in order to qualify for such immunity.  For purposes of this appeal, the property of the non-U.S. sovereign that is subject to execution must satisfy either the "waiver" or "commercial activity" exceptions and "must not only be (1) used generally for commercial activity in the United States, but it must also be (2) subject to a waiver of immunity, or (b) used for the specific commercial activity upon which the underlying claim was based". 

Fifth, the Court found that there was no waiver of immunity either by reason of the immunity found to justify the default judgment or by any inactivity of China in appearance or contesting the enforcement proceedings.  The FSIA's reference to waiver "either explicitly or by implication" still required intentional activity by the sovereign.

Sixth, the Court upheld the District Court's finding that, in all events, property to be seized or executed on needed to be specifically identified, and the District Court was obliged to make a particularlized finding that the property was not immune from attachment or execution, and this the Petitioners had also failed to do.

Seventh, the Court discussed the immunity of instrumentalities of non-U.S. sovereigns and demonstrated the protection accorded the assets of such instrumentalities.   The Court of Appeals was willing to permit District Court's to entertain enforcement proceedings against such assets, but only if the Petitioner overcame the "presumption that assets of a foreign government instrumentality" were independent and could not be executed on unless the "instrumentality's separate juridical status [i]s not entitled to recognition".

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