The opinion
United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
FIFTH CIRCUIT February 1, 2007
Charles R. Fulbruge III
Clerk
No. 05-51432
THE BOARD OF REGENTS OF THE UNIVERSITY
OF TEXAS SYSTEM, on behalf of The University
of Texas at Austin; HYDRO-QUEBEC,
Plaintiffs-Appellees,
versus
NIPPON TELEPHONE AND TELEGRAPH CORPORATION,
Defendant-Appellant.
Appeal from the United States District Court
for the Western District of Texas
(1:01-CV-478)
Before BARKSDALE, DeMOSS, and PRADO, Circuit Judges.
RHESA HAWKINS BARKSDALE, Circuit Judge:
Having removed this action from state court, Nippon Telegraph
& Telephone Corporation (NTT), Japan’s largest telecommunications
company, challenges the district court’s denial of its motion to
dismiss. In this interlocutory appeal, NTT asserts: it is an
“organ of a foreign state”, pursuant to the Foreign Sovereign
Immunity Act (FSIA), 28 U.S.C. § 1603(b)(2); and, therefore, it is
entitled to immunity from federal (and state) court jurisdiction,
28 U.S.C. § 1604. The Board of Regents of the University of Texas
System (UT) and Hydro-Québec (HQ) (collectively, UT/HQ) contend
this action should be remanded to Texas state court, claiming:
NTT’s supplemental removal notice, in which NTT first asserted
foreign-sovereign status, was not timely filed; and, in the
alternative, jurisdiction is lacking because NTT does not qualify
as an “organ of a foreign state”, and, therefore, cannot assert
subject-matter jurisdiction under 28 U.S.C. §§ 1330 or 1331.
NTT’s supplemental removal notice was timely. But, because
NTT does not qualify as an “organ of a foreign state”, subject-
matter jurisdiction is lacking. Accordingly, the district court’s
denial of foreign-sovereign status is AFFIRMED. The Federal
Circuit’s having earlier rejected NTT’s other asserted basis for
subject-matter jurisdiction (patent-law, under 28 U.S.C. §
1338(a)), the district court’s ruling it has jurisdiction is
VACATED, and this action is REMANDED to district court for remand
to Texas state court. AFFIRMED IN PART; VACATED IN PART;
REMANDED.
I.
UT/HQ alleges: an NTT research scientist learned of
confidential information for certain lithium rechargeable-battery
technology while visiting the University of Texas at Austin from
1993 to 1994 under the tutelage of a UT professor; upon returning
to NTT in Japan, the research scientist disclosed the confidential
information, which NTT used in November 1995 to apply for a
Japanese patent that was published in May 1997; and, unaware of
NTT’s misappropriation and patent application, UT filed for a
2
provisional United States patent in April 1996 and entered into a
licensing agreement with HQ in January 1997, giving HQ exclusive
rights to the lithium rechargeable-battery technology. UT’s United
States patent was granted in June 1999. UT/HQ asserts NTT’s
Japanese patent interfered with their ability to commercialize
their licensing agreement.
Accordingly, in June 2001, UT/HQ filed this action in Texas
state court, claiming, inter alia, tortious interference, unfair
competition, misappropriation of trade secrets, conversion, and
breach of a confidential relationship. The action seeks actual and
punitive damages, disgorgement of profits, and a constructive trust
over the Japanese patent for the benefit of UT/HQ.
In July 2001, NTT removed this action to district court,
pursuant to 28 U.S.C. § 1441, et seq. NTT asserted that, because
UT/HQ’s claims required determining questions of federal patent
law, subject matter jurisdiction was proper under 28 U.S.C. §§
1331 (generally granting jurisdiction over actions arising under
federal law) and 1338(a) (providing jurisdiction for claims arising
under federal patent laws). Subsequently, believing foreign-
sovereign status existed as an additional subject-matter-
jurisdiction basis for removal, see 28 U.S.C. §§ 1330 and 1441(d),
NTT in October 2001 moved for an extension of time to file a
supplemental notice of removal. (NTT never asserted diversity
jurisdiction pursuant to 28 U.S.C. § 1332 because NTT and H/Q are
3
citizens of foreign states. E.g., Giannakos v. M/V Bravo Trader,
762 F.2d 1295, 1298 (5th Cir. 1985) (“Diversity does not exist
where aliens are on both sides of the litigation.”).)
On 26 November 2001, the district court, inter alia, denied
UT/HQ’s motion to remand for lack of subject-matter jurisdiction.
Reasoning that UT/HQ’s tortious-interference claim requires
determining whether UT/HQ’s patent overlaps NTT’s patent, the
district court held: it had federal-question jurisdiction over
that claim, pursuant to 28 U.S.C. §§ 1331 and 1338(a); and,
accordingly, it had supplemental jurisdiction over the entire
action, pursuant to 28 U.S.C. § 1367(a) (“district courts shall
have supplemental jurisdiction over all other claims that are so
related to claims in the action within such original jurisdiction
that they form part of the same case or controversy”).
Over the next several years, the parties filed approximately
50 deadline-extension motions. By a June 2004 order, the district
court denied, inter alia, NTT’s motion to dismiss based on
sovereign immunity. Bd. of Regents, Univ. of Tex. Sys. v. Nippon
Tel. & Tel. Corp., No. A-01-CA-478 (W.D. Tex. 1 June 2004). Rather
than appeal to this court, NTT appealed to the United States Court
of Appeals for the Federal Circuit. That court held, contrary to
the district court’s 26 November 2001 order, that UT/HQ’s claims
did not require the determination of questions arising under
federal patent laws. Bd. of Regents, Univ. of Tex. Sys. v. Nippon
4
Tel. & Tel. Corp., 414 F.3d 1358, 1365 (Fed. Cir. 2005). Lacking
such jurisdiction, the Federal Circuit transferred this appeal to
this court: to determine whether NTT properly raised foreign
sovereignty as an additional basis for subject-matter jurisdiction;
and, if so, to review the district court’s denial of NTT’s motion
to dismiss, claiming foreign-sovereign immunity.
II.
As a threshold matter, our jurisdiction to review the denial
of NTT’s motion to dismiss exists under the “collateral order”
doctrine, an exception to 28 U.S.C. § 1291’s allowing appeals only
from final decisions. Cohen v. Beneficial Indus. Loan Corp., 337
U.S. 541, 545-47 (1949). “[R]ecogniz[ing] that the entitlement
under the FSIA is an immunity from suit rather than a mere defense
to liability ... [which] is effectively lost if a case is
erroneously permitted to go [forward]”, an interlocutory appeal
lies from a denial of foreign-sovereign immunity. Stena Rederi AB
v. Comision de Contratos del Comite, 923 F.2d 380, 385 (5th Cir.
1991) (internal quotations and citation omitted).
This opinion first addresses whether NTT’s supplemental
removal notice was timely. Because it was, NTT’s foreign-
sovereign-status claim is at issue. NTT is not entitled to such
status; therefore, federal subject-matter jurisdiction is lacking.
Accordingly, removal was improper.
A.
5
NTT filed its initial removal notice on 23 July 2001, having
received a copy of UT/HQ’s complaint in mid-July. The timeliness
of this removal notice, which asserted federal-patent questions as
the basis for federal jurisdiction, is not at issue. Instead, at
issue is NTT’s supplemental removal notice, which asserted
foreign-sovereign status as a removal basis. It was submitted with
NTT’s 15 October motion, which requested an extension of time to
file such a supplemental notice. The district court denied that
motion on the ground that NTT failed to show cause, pursuant to 28
U.S.C. § 1441(d) (“time limitations [for removal] ... may be
enlarged at any time for cause shown”). (As discussed infra,
because NTT had not yet been properly served with process, its
request for an extension of time to file its supplemental notice
was not necessary.) Relying on 28 U.S.C. § 1447(c), requiring
certain motions to remand to “be made within 30 days after the
filing of the notice of removal”, and focusing on considerations of
judicial economy, UT/HQ contends this supplemental removal notice
was untimely because it was submitted more than 30 days after NTT’s
initial notice.
UT/HQ’s timeliness contention, which implicates subject-matter
jurisdiction, is unavailing. We review questions of such
jurisdiction de novo. Delgado v. Shell Oil Co., 231 F.3d 165, 175
(5th Cir. 2000). The procedure for removal from state to federal
court is governed by 28 U.S.C. § 1446(b); it requires a removal
6
notice to “be filed within thirty days after the receipt by the
defendant, through service or otherwise, of a copy of the initial
pleading setting forth the claim for relief upon which such action
or proceeding is based ....” 28 U.S.C. § 1446(b) (emphasis added).
The Supreme Court clarified this language in Murphy Bros., Inc. v.
Michetti Pipe Stringing, Inc., 526 U.S. 344, 347-48 (1999), holding
the time for removal commences on formal service of process, “not
by mere receipt of the complaint unattended by any formal service”.
Id. at 348 (emphasis added); see also City of Clarksdale v.
BellSouth Telecomms., Inc., 428 F.3d 206, 210 (5th Cir. 2005)
(summarizing Murphy Bros. holding); Badon v. RJR Nabisco Inc., 224
F.3d 382, 390 n.12 (5th Cir. 2000) (“The 30 day period in no event
begins to run prior to service of process on the defendant.”
(citing Murphy Bros.)).
In its 26 November 2001 order, the district court determined
NTT’s mid-July 2001 receipt of UT/HQ’s complaint did not constitute
sufficient service of process, because it did not comply with the
Hague Convention on the Service Abroad of Judicial and
Extrajudicial Documents in Civil or Commercial Matters. UT/HQ does
not contest this ruling. After successfully moving for a time
extension, UT/HQ properly served NTT on 1 February 2002. Because
NTT’s supplemental notice of removal was submitted before it was
properly served with process, the supplemental notice was timely.
B.
7
NTT asserts the FSIA entitles it to foreign-sovereign
immunity, pursuant to 28 U.S.C. § 1604: “[A] foreign state shall
be immune from the jurisdiction of the courts of the United States
and of the States ....” Under the FSIA, “foreign state” includes
“an agency or instrumentality of a foreign state”, which is defined
as any entity:
(1) which is a separate legal person,
corporate or otherwise, and (2) which is an
organ of a foreign state or political
subdivision thereof, or a majority of whose
shares or other ownership interest is owned by
a foreign state or political subdivision
thereof, and (3) which is neither a citizen of
a State of the United States ... nor created
under the laws of any third country.
28 U.S.C. § 1603(b) (emphasis added).
UT/HQ concedes NTT meets prongs (1) and (3) of § 1603(b).
Regarding prong (2), NTT concedes it is neither a political
subdivision of, nor majority owned by, the Japanese Government.
Therefore, at issue is whether NTT is an “organ” of Japan under §
1603(b)(2). The district court held it is not. We agree.
Foreign-sovereign status is a question of law, reviewed de
novo; underlying findings of fact are reviewed for clear error.
Kelly v. Syria Shell Petroleum Dev. B.V., 213 F.3d 841, 845 (5th
Cir. 2000). Our caselaw has developed a five-factor framework to
assist in determining § 1603(b)(2) organ status:
(1) whether the foreign state created the
entity for a national purpose; (2) whether the
foreign state actively supervises the entity;
(3) whether the foreign state requires the
8
hiring of public employees and pays their
salaries; (4) whether the entity holds
exclusive rights to some right in the
[foreign] country; and (5) how the entity is
treated under foreign state law.
Id. at 846-47 (alteration in original) (quoting Supra Med. Corp. v.
McGonigle, 955 F. Supp. 374, 379 (E.D. Pa. 1997) (citing
Corporacion Mexicana de Servicios Maritimos, S.A. de C.V. v. M/T
Respect, 89 F.3d 650, 655 (9th Cir. 1996))). Cognizant of this
court’s caveat that these factors should not be applied
mechanically because there is no “clear test” for determining organ
status, we find them apposite here, as did our court in Kelly, and
as have other circuits in similar cases. See, e.g., USX Corp. v.
Adriatic Ins. Co., 345 F.3d 190, 209 (3d Cir. 2003); Alpha
Therapeutic Corp. v. Nippon Hoso Kyokai, 199 F.3d 1078 (9th Cir.
1999), withdrawn on other grounds sub nom. Alpha Therapeutic Corp.
v. Kyokai, 237 F.3d 1007 (9th Cir. 2001). Under the Kelly factors,
NTT does not qualify as an “organ” of the Japanese Government.
First, NTT was not created for a national purpose. See Kelly,
213 F.3d at 846. NTT contends its enabling statute obligates it
to provide universal service to Japan. That statute is better
understood, however, as prohibiting NTT from unilaterally
terminating service to existing customers because, at its
inception, NTT held a monopoly it no longer possesses. Along that
line, NTT was created to privatize what had been a government-
controlled monopoly and to promote competition. NTT’s predecessor,
9
Nippon Telegraph and Telephone Public Corporation (NTTPC), existed
as a de jure monopoly; when created in 1985, NTT inherited a de
facto monopoly. But, as a result of Japan’s encouraging
competition, NTT now operates as one of several commercial
interests in a competitive telecommunications market. NTT’s
commercial purpose is further evinced by its now being only 46%
Japanese Government-owned, compared to 100% ownership in 1985.
Although commercial status does not per se preclude finding
national purpose, see, e.g., USX Corp., 345 F.3d at 209-13, NTT’s
creation clearly serves market ends, not a government function,
such as intervening to prevent “a public financial crisis”, see id.
at 211.
Second, the Japanese Government does not actively supervise
NTT. See Kelly, 213 F.3d at 846. NTT contends Japanese Government
authorization is required for numerous NTT transactions, including:
appointing or dismissing board members, distributing profits,
appointing auditors, issuing new shares, executing mergers, and
amending its articles of incorporation. Requiring government
authorization, however, is not active supervision. Otherwise, any
regulated public-service provider could claim sovereign status.
None of the regulatory powers NTT cites allow the Japanese
Government to affirmatively manage NTT affairs; they merely provide
passive oversight, related to, and in some cases identical with,
the requirements of other governments’ regulatory bodies, such as
10
the United States’ Securities and Exchange Commission (SEC).
Moreover, NTT cites no instance of the Japanese Government’s
exercising its regulatory powers to quash an NTT action. Along
this line, NTT reported in an SEC filing: “[T]he [Japanese]
Government did not ... intend actively to use its position as a
shareholder to direct the management of NTT. The Government has
never used its power as a shareholder to direct the management of
NTT”.
Third, NTT is not required to hire public employees. See
Kelly, 213 F.3d at 846. Indeed, NTT admits its employees are
private employees, not paid by the Japanese Government.
Concomitantly, NTT’s non-management employees are members of a
private trade union. NTT invites our court to categorize its
employees as quasi-civil servants because Japan’s Law on Retirement
Benefits for National Public Employees provides that employees, who
migrate between Japanese Government employment and NTT, receive
reciprocal retirement credit. The purpose of this credit, however,
is to properly account for NTTPC (and early NTT) employees’ years
of service, whose employment had been with a Japanese Government
entity. NTT’s quasi-civil-servant assertion is unavailing.
Fourth, NTT does not “hold[] exclusive rights to some right in
[Japan]”. See id. (emphasis added). Lacking any basis to assert
exclusive rights, NTT points to its obligations to provide
universal service and to conduct telecommunications research. Our
11
having already disposed of NTT’s universal-service contention, we
note that, as with several of NTT’s claims, its research obligation
is a historical artifact of its NTTPC origins; NTT was required to
continue the research of its public predecessor and to level the
competitive playing field by disclosing its findings and licensing
its technology to competitors. Moreover, research is not a
government function; and even an exclusive obligation is not an
exclusive right.
Fifth, and finally, NTT is not treated as a governmental organ
under Japanese law. See id. at 847. NTT maintains it is similar
to Nippon Hoso Kyokai (NHK), a public Japanese television-
broadcasting corporation, which the Ninth Circuit held was an organ
of the Japanese Government. Alpha Therapeutic Corp., 199 F.3d at
1084-85, withdrawn on other grounds sub nom. Alpha Therapeutic
Corp. v. Kyokai, 237 F.3d 1007 (9th Cir. 2001). Like NHK, NTT is
a “designated public institution” under Japan’s Disaster Measures
Basic Law. Id. at 1084. Unlike NHK, which was the only
“designated public institution” television station and which
Japanese law prohibited from earning profits, id., NTT is not the
only “designated public institution” telecommunications company and
is permitted to earn profits and distribute them to shareholders.
Furthermore, NTT’s funding is not derived from a government-
mandated receiver’s fee, as was NHK’s. Id. Finally, while NTT is
subject to the World Trade Organization (WTO) Agreement on
12
Government Procurement, it is neither listed in the WTO Agreement
as a “government body” of Japan, nor required to abide by the WTO
regulations in its “daily profit-making activities”.
As stated, consideration of the guiding Kelly factors clearly
favors concluding NTT is not an organ of Japan. Nevertheless, NTT
urges its status is similar to the organ status awarded under a
claimed broader approach in Alpha Therapeutic Corp., 199 F.3d at
1084; USX Corp., 345 F.3d at 208-13; Kelly, 213 F.3d at 847; and
First National City Bank v. Banco para el Comercio Exterior de
Cuba, 462 U.S. 611 (1983) (“Bancec”). Each of these cases,
however, is readily distinguishable.
Regarding Alpha Therapeutic Corp., in addition to the
differences between NHK and NTT already discussed, NHK was required
to satisfy specific Government-mandated goals, including promoting
Japanese culture, industry, and trade, and providing entertainment
to Japanese citizens abroad, 199 F.3d at 1084; NTT serves no such
Government purpose. Similarly, unlike USX Corp., in which Ireland
acquired complete (even if partially indirect) control over an
insurance company to avert disaster in its insurance and banking
industries, 345 F.3d at 209-13, NTT is neither completely
controlled by Japan nor constituted to prevent national market
catastrophe.
Along this line, NTT is distinct from the Syrian oil entity
accorded organ status in Kelly. 213 F.3d at 848. Syria created
13
that entity for the express national purpose of exploring and
developing Syria’s mineral interests. As a result, Syria granted
the company the exclusive right to explore and develop Syrian-owned
petroleum reserves. Id. NTT was not created for any such national
purpose and was not granted any such exclusive right.
The last of the decisions under which NTT seeks shelter,
Bancec, is not an FSIA case, but remains persuasive due to its
factual similarities and application of federal and international
equitable common-law principles. In Bancec, the Supreme Court
stated:
A typical government instrumentality ... is
created by an enabling statute ...
prescrib[ing] ... manage[ment] by a board
selected by the government ...[, is]
established as a separate juridical entity,
with the powers to hold and sell property and
to sue and be sued ... [, and] is run as a
distinct economic enterprise ....
462 U.S. at 624.
NTT shares some of these “typical government instrumentality”
characteristics, but not others. More important, however, is
Bancec’s holding: the foreign entity at issue was not immune from
suit in the United States. Emphasizing that no mechanical formula
can consistently and appropriately determine foreign-sovereign
status, the Court declared its decision was “the product of the
application of internationally recognized equitable principles to
avoid the injustice that would result from permitting a foreign
14
[entity] to reap the benefits of our courts while avoiding the
obligations of international law”. Id. at 633-34.
III.
For the foregoing reasons, NTT is not entitled to foreign-
sovereign status. Coupled with the Federal Circuit’s having found
no jurisdiction under federal-patent law, there is no subject-
matter jurisdiction. Accordingly, removal was improper.
Therefore, the district court’s denial of foreign-sovereign
status is AFFIRMED; its ruling it has jurisdiction is VACATED; and
this action is REMANDED to district court for remand to Texas state
court.
AFFIRMED IN PART; VACATED IN PART; REMANDED
15