Petition for Writ of Certiorari — Republic of the Philippines v. Walter Fuller Aircraft Sales, Inc.

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BeBe 7 21 OCT 1 0 1999

NOt tere Or sy

IN THE

SUPREME COURT

OF THE UNITED STATES

October Term, 1995

THE REPUBLIC OF THE PHILIPPINES AND THE

PHILIPPINES PRESIDENTIAL COMMISSION ON GOOD

GOVERNMENT,

Petitioners,

vs.

WALTER FULLER AIRCRAFT SALES, INC.,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

BENJAMIN GEORGE WILLIAMS, ESQ.

California State Bar No. 52895

WILLIAMS & O’DONNELL

5850 Canoga Avenue, Suite 400

Woodland Hills, CA 91367

Telephone: (818) 348-2400

Fax: (818) 348-3476

Attorneys for Petitioners

[40

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fF, ;

Lorraine Mitchell Legal Briefs

732 E. WASHINGTON BOULEVARD

LOS ANGELES, CALIFORNIA 90021-3088

(213) 747-5631 © FAX: (213) 747-5843

CONTENTS REPRODUCED FROM FURNISHED PRETYPED COPY.

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QUESTION PRESENTED

1. Whether, under the facts of this

case, the Fifth Amendment’s guarantee of

due process was violated when the District

Court decided the issue of ambiguity of

contract without applying the applicable

rules of construction and in direct

contradiction to the interpretation of the

lawyers who drafted the agreement on behalf

of both Buyer and Seller; and whether the

Fifth Circuit sanctioned a departure by the

District Court from the Constitutional

requirements of due process of law and from

the accepted and usual course of judicial

proceedings when it affirmed that decision.

PARTIES TO THE PROCEEDINGS

The Republic of the Philippines and

the Philippine Presidential Commission on

Good Government were Defendants/Appellants

in the Court below. Walter Fuller Aircraft

Sales, Inc. was Plaintiff/Appellee in the

Court below.

TOPICAL INDEX

QUESTION PRESENTED .....+-+-+-+-+-+ei

PARTIES TO THE PROCEEDINGS ...... ii

a EL GS gg 5g 6 e «ee ee SSS

TABLE OF AUTHORITIES ......+-+-+-+ iv

OPINION BELOW. . 2. «© © ee ee ee we we oo 2

JURISDICTION . * os * 7” « .- . ° . . . . * 2

CONSTITUTIONAL PROVISIONS INVOLVED .. . 4

STATEMENT OF THE CASE. ....+++ ++ 4

REASONS FOR GRANTING THE PETITION

FOR WRIT OF CERTIORARI. ....+-+-+-+- 12

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iii

TABLE OF AUTHORITIES

Cases

Coker v. Coker, 650 S.W.2d 391

(Tex. 1983) . * . . oe 2 ” a . . oo o - * soe

Halliburton Oil Well Cementing Co. v.

Paulk, 180 F.2d 79 (5th Cir. 1950) .. 14

Richland Plantation Co. v. Justiss-Mears

Oil Co., 671 F.2d 154 (5th Cir. 1982) . 13

Roberts v. Niekert, 730 S.W.2d 339 (1987

Tex. App. Dallas) ....+.+«+#-+«e«e-e«- 124

reah ieub ious’ @eciial

United States Constitution

Fifth Amendment * * . - * . . . . 4 , 12

statut : —

Foreign Sovereign Immunities Act

28 U.8.C. § 36G2eRSGR1. « « 2 0 0 ote 8

38 U.8.@. @ :32aGA «% eo co st 6 CES

96 8.8.0. 2 aoe 34 6 ee ee eee eS

Court Rules

Federal Rules of Civil Procedure

oe Ek Cpe ieee aor eee ht rea ees ee ee me Re

IN THE

SUPREME COURT

OF THE UNITED STATES

October Term, 1995

THE REPUBLIC OF THE PHILIPPINES AND THE

PHILIPPINES PRESIDENTIAL COMMISSION ON GOOD

GOVERNMENT,

Petitioners,

Vs.

WALTER FULLER AIRCRAFT SALES, INC.,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Petitioner THE REPUBLIC OF THE

PHILIPPINES and its PRESIDENTIAL COMMISSION

ON GOOD GOVERNMENT respectfully pray that a

Writ of Certiorari issue to review the

Judgment and Opinion of the United States

Court of Appeals for the Fifth Circuit

filed in this case on July 13, 1995.

OPINION BELOW

This case was tried in the United

States District Court for the Northern

District of Texas and resulted in a

Judgment against Petitioners in the sum of

$14,928,457.29. The District Court made

lengthy Findings of Facts and Conclusions

of Law. Petitioners appealed, and the

Fifth Circuit Court of Appeals in a brief,

one paragraph Opinion affirmed the Judgment

of the District Court. That Opinion is

attached hereto as Appendix A. The

Findings of Fact and Conclusions of Law of

the District Court are attached as Appendix

JURISDICTION

Petitioners are a foreign government

and one of its agencies. An action against

See tatiana

—— ee ee ee

them may be heard in the United States

District Courts, where this case was

originally filed, as they are foreign

sovereigns as defined in the Foreign

Sovereign Immunities Act, 28 United States

Code §1602-1611. They were Appellants in

this case in the Fifth Circuit below, and

its original Opinion and a Judgment were

entered on July 13, 1995. This Petition is

timely filed within 90 days of that day.

28 U.S.C. §2101(c). The determination of

the Trial Court, finding Petitioners liable

to Walter Fuller Aircraft Sales as a matter

of law, has become final by affirmation of

the Fifth Circuit. All aspects of the

Judgment below have become final. This

Court’s jurisdiction is invoked pursuant to

28 U.S.C. §1254(1).

CONSTITUTIONAL PROVISIONS INVOLVED

Constitution of the United States,

Amendment 5, set forth in Appendix C.

STATEMENT OF THE CASE

This case arises out of the sale of an

aircraft by the Philippine Presidential

Commission on Good Government ("the

Commission") to a Texas company, Walter

Fuller Aircraft Sales, Inc., Plaintiff

below. The aircraft had been sequestered

by the Commission, which determined that it

was part of the ill-gotten gains of a crony

of Ferdinand Marcos, prior head of State of

the Republic of the Philippines.

The Deed of Sale contained various

disclosures and promises by the Commission.

The Deed was drafted by counsel for Buyer

and Seller and signed by an authorized

agent of Buyer. It recites that the

Commission had sequestered the aircraft,

that it was registered in the name of a

Philippine company, and that the Commission

was acting as the conservator in selling

it. The Deed also states, at Paragraph

V(b):

"The Seller however, does hereby

assume full responsibility, to

defend and hold harmless the

Buyer from any and all claims of

all persons whosoever, including

but not limited to adverse

claims, charges, liens, and/or

possible encumbrances that may be

place [sic] on the title by

reason of any act, contract or

agreement entered into, prior to

the date of this Deed of Sale, as

the Seller by virtue of this sale

has released subject aircraft.

absolutely free from any such

claims, for if any there be

should arise, such claims are

understood ipso facto directed

against the proceeds of the sale

that is deposited in escrow, and

not any more on the aircraft."

Philippine counsel who drafted this

agreement on behalf of both Sellers and

Buyer testified that it was their

understanding of the meaning of this part

of the agreement that it limited Buyer’s

rights against the Sellers to refund of the

purchase price in the event of loss of

title to the aircraft.

In its decision on Petitioners’ Motion

to Dismiss, the first Motion of the case,

and without notice, hearing, or

presentation of evidence, the District

Court found that this language limited only

those claims presented by third party

adverse claimants, and not any claims that

the Buyer, Fuller Aircraft, might have.

Fuller lost title as a result of a

case filed by the purported true owner,

Faysound, in the United States District

Court for the Eastern District of Arkansas.

748 F.S. 1365, Appendix D hereto. Fuller

demanded that the Commission defend and

indemnify it in that action, which the

Commission refused to do. Fuller filed

this action for breach of contract and

other causes of action in the United States

District Court for the Northern District of

Texas.

After service of the Summons and

Complaint upon them, Petitioners moved to

dismiss for lack of jurisdiction under FRCP

Rule 12(b)(6), citing the Foreign Sovereign

Immunities Act, 28 U.S.C. §1602-1611. The

Motion was denied and, in a lengthy

opinion, the District Court unilaterally

announced its interpretation of the

language of Paragraph V(b) in dispute. It

held that the language limited the damages

recoverable by third party claimants only,

and not Fuller’s claims.

—The significance of this ruling was

that the interpretation of the language of

Paragraph V(b) was not in dispute before

the Court in that Motion and at that time.

Thus the Court’s decision on Paragraph V(b)

was not necessary for the decision on the

Motion to Dismiss. The Court denied the

Motion as to both Petitioners, under the

Commercial Activities exception to the

Foreign Sovereign Immunities Act.

That decision was affirmed in part and

reversed in part for further findings by

the Fifth Circuit in an interlocutory

opinion. 965 F.2d 1375, Appendix E hereto.

The District Court’s decision on the

reimbursement clause of Paragraph V(b) was

pure dictum.

Fuller later moved for Summary

Judgment of the issue of the Commission’s

liability for breach of contract,

declaratory relief, and other causes of

action. Despite the fact that this Motion

was made only on the issue of liability,

the District Court reiterated its damages

formula and held that the measure of

damages was the fair market value of the

aircraft and not the return of the purchase

price agreed upon by the parties. Again,

this Order was made with no notice to the

parties, no Motion by any party on that

issue, the Court offered no opportunity for

any evidence to be presented, no points and

authorities were permitted, and no hearing

was held.

Petitioners’ Motion for

Reconsideration was supported by the

Declarations of Philippine counsel for

Buyer and the Seller Commission, who stated

that their understanding of the terms of

Article V(b) limited Fuller’s damages for

loss of title to return of the purchase

price. The Motion to Reconsider was

denied.

At trial, Petitioners timely and

properly objected to the admission of any

testimony on the fair market value of the

aircraft on the grounds that it was

irrelevant, since the parties had agreed

that the return of purchase price was

Buyer’s remedy. The District Court

overruled that objection, noting that the

point had been preserved for appeal

purposes.

The District Court permitted the

lawyers who drafted the language for both

Buyer and Seller to testify to its meaning,

i.e., that Buyer’s damages for loss of

title were limited to recovery of the

purchase price paid for the aircraft. This

evidence was admitted for the limited

purpose of determining the propriety of an

award of punitive damages. The Court later

struck that testimony. Not surprisingly,

given its misinterpretation of the damages

limitation provision of the Deed of Sale,

the District Court found Petitioners liable

for breach of contract and fraud, and held

that Buyer’s damages, based on the fair

market value, were $14,928,457.29,

including attorneys’ fees, costs, and

interest. The Fifth Circuit merely stated

that it found no error nor abuse of

discretion; and on that basis it affirmed

the Judgment of the District Court.

REASONS FOR GRANTING THE PETITION

FOR WRIT OF CERTIORARI

The procedure followed by the District

Court in this case denied Petitioners due

process of law guaranteed them under

Amendment V to the United States

Constitution. It did so by deciding that

Article V(b) of the Deed us »ale was

unambiguous, but it made that decision

without any notice to the parties, without

the opportunity to present any evidence, or

any points and authorities, or any hearing.

Thus when the Court of Appeals affirmed

that Judgment, the Court of Appeals

sanctioned a departure by the District

Court from the Constitutional requirements

of due process of law and from the accepted

and usual course of judicial proceedings.

Under Texas law regarding

interpretation of ambiguous provisions in

contracts, the Court must make the initial

determination of whether the contract is

ambiguous. In making that determination,

the Court must apply the established rules

of construction and must find the contract

ambiguous when its meaning is uncertain and

doubtful, or reasonably susceptible to more

than one meaning. Richland Plantation Co.

v. Justiss-Mears Oil Co., 671 F.2d 154, 156

(5th Cir. 1982). Under these rules of

construction, the Court must look at the

contract as a whole in light of the

circumstances existing when it was made,

should avoid interpreting it so as to

render any provision meaningless, it should

harmonize the entire writing, should

interpret it against the drafter, and

should strictly construe indemnity

contracts against the indemnitee. Richland

Plantation, supra, 671 F.2d at 156; Coker

v. Coker, 650 S.W.2d 391, 393 (Tex. 1983);

Halliburt >i] Well ¢ tj :

Paulk, 180 F.2d 79, 83 (Sth Cir. 1950)

(rehr’g. den.]; Roberts v. Niekert, 730

S.W.2d 339, 340 (1987 Tex. App. Dallas).

Of those rules of construction, the

following leap to the eye. No provision

should be rendered meaningless. But it is

clearly a meaningless provision for Buyer

and Seller to agree that third parties to

the contract, who are not bound by the

decision of the parties themselves, have

limited rights to damages. As those

parties are not parties to the contract and

are not limited by the language of the

contract, their rights cannot be affected.

The Court of Appeal overlooked this.

Given the circumstances surrounding

the signing of the Deed, i.e., the

sequestration of the aircraft, the fact

that the Commission held the aircraft as

conservator, and that the Buyer’s lawyer

knew of the dispute in the Philippine

Courts, it made sense for the Commission to

limit the damages it might owe to the Buyer

in the event of loss of title.

The Buyer’s lawyer drafted the

language in dispute, and it should be

interpreted against the Buyer, especially

since the Buyer’s lawyer admitted that it

limited his own client’s right to recover

above the purchase price it paid.

All these rules of construction were

disregarded by the District Court, as were

the due process rights of Petitioners, when

the District Court unilaterally pronounced

its interpretation of the Deed without

notice, hearing, evidence, or argument.

The Fifth Circuit should have reversed

and remanded the case for retrial on the

issue of damages and fraud, in light of the

denial of due process to Petitioners.

The reason that the case should be

remanded for retrial, not only on damages

but also on the finding of fraud, is that

the District Court prejudged the issue of

fraud, finding the Sellers eligible for

punitive damages after only deciding a

Motion for Summary Judgment on liability

for breach of contract, and as a result

thereof, it was inevitable that the

District Court would conclude that the

lawyers for Buyer and Seller were lying

about their interpretation of the contract,

thus supporting the fraud, simply because

their interpretation of the contract

differed from the Court’s interpretation.

CONCLUSION

For the foregoing reasons, this

Petition for Writ of Certiorari should be

BENJAMIN GEORGE WILLIAMS

California State Bar No. 52895

WILLIAMS & O’DONNELL

5850 Canoga Avenue, Suite 400

Woodland Hills, CA 91367

Telephone: (818) 348-2400

Fax: (818) 348-3476

Attorneys for Petitioners

granted.

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 93-9153

WALTER FULLER AIRCRAFT SALES, INC.,

Plaintiff-Appellee,

versus

THE REPUBLIC OF THE PHILIPPINES AND THE

PHILIPPINES PRESIDENTIAL COMMISSION ON GOOD

GOVERNMENT,

Defendants~-Appellants.

Appeal from the United States

District Court for the

Northern District of Texas

( 3:90-CV-2785-R )

Before POLITZ, Chief Judge, JONES and

PARKER, Circuit Judges. PER CURIAM:

This matter is before the court on

appeal by The Republic of the Philippines

and The Philippines Presidential Commission

on Good Government of an adverse judgment

following a bench trial. Having considered

Oe > nr cnnes en eae at

the briefs and oral arguments of counsel

and pertinent parts of the record, and

finding neither error nor abuse of

discretion, the judgment appealed is

AFFIRMED.

APPENDIX B

FINDINGS OF FACT AND CONCLUSIONS OF LAW BY

THE UNITED STATES DISTRICT COURT IN THIS

CASE, THE HONORABLE JERRY BUCHMEYER, UNITED

STATES DISTRICT COURT JUDGE.

THE COURT: -++ These will be the

Findings of Fact and Conclusions of Law.

They will be rough but I think they will be

sufficient to tell the parties and the Fifth

Circuit the basis for the conclusions on

both the findings and the legal conclusions.

A, summary of the judgment, I am going

to enter judgment in favor of the Plaintiff

against both of the Defendants and judgment

will be for these items: One, the market

value of the plane in late 1989 or ‘90 and

that value figure which I’ll explain later

is $9,750,000. Second is attorney fees, and

I would grant the amount requested by the

plaintiff as I’1ll explain later, that’s

$1,214,853. That is through the end of

September of 1983, and I’m going to ask the

attorneys to do some additional work and

another filing on attorneys’ fees through

today.

MR. LOWENBERG: Excuse me. The Court

said 1983.

THE COURT: I’m sorry, ‘93.

Third is the expenses. And that would

be through the end of September, 1993.

That’s $107,451.

And then fourth, as to punitive

damages, this is an alternative finding

because I don’t think punitive damages are

appropriate. However, if I’m wrong, well,

then, and they are appropriate, I would

grant the request for punitive damages. And

that would be punitive damages in the amount

of $4,800,000.

B is the background of the litigation.

And one reason I’m doing oral Findings of

Fact and Conclusions of Law is the plethora

of writing that has taken place in the case,

including the Fifth Circuit’s decision in

the previous interlocutory appeal. That’s

Walter Fuller Aircraft vs. Republic of the

Philippines, 965 F.2d 1375, July, 1992; also

Faysound vs. Walter Fuller Aircraft, 748

F.Supp. 1365, Eastern District of Arkansas,

1990; and then the three opinions which this

Court has issued. The dates are March 11,

1993, July 8, 1991, April 17, 1991. Then I

also include in the writing in this case the

opinion of the supreme court of the

Philippines, and that was Plaintiff’s

Exhibit 121, and that opinion was December

26, 1990.

C, are credibility factors, and these

choices are based upon the same factors that

I tell juries to apply in judging

credibility of witnesses. That’s the manner

in which the witness testified, whether the

witness had an interest in the outcome of

this case, whether the witness’ testimony

was inconsistent or consistent with other

credible evidence, the degree to which the

witness was impeached.

Based upon those general factors, I do

credit the testimony of Mr. Walter Fuller.

I thought his testimony was very credible,

very convincing. I credit Mr. Wilke, Harley

Wilke’s testimony. I could only review a

deposition, but I credit that because it is

inconsistent with the testimony that Mr.

Fuller gave and that adds to the weight to

be given Mr. Wilke’s deposition.

I do discredit two witnesses who

appeared for the Defendant. I credit

ununfortunately {[sic) -- TI discredit

unfortunately Mr. Daguna, who is an

attorney, and I simply find that Mr. Sanchez

was not credible on certain points.

Candidly, as to Mr. Daguna, I have no doubt

that he lied under oath. He appeared to

testify against a client that he had

represented and I think that was unethical.

He also -- if I accepted his testimony, what

he would have done to this client would I

think, also be unethical. That is, he

represented a previous client, created a

lien of 1.7 million on -- actually did the

paperwork on it, 1.7 million dollars, then

guided the Plaintiff through the paperwork

in this transaction and, according to

unbelievable testimony, instruction he gave

to an agreement he participated in doing.

He would have taken a position contrary to

Mr. Fuller’s interest in this case. That

is, he would have left Mr. Fuller without

recourse as to the full amount of money that

he was investing in the project.

As to -- and some of the questions that

I asked Mr. Daguna would indicate to the

Fifth Circuit why I thought his testimony

was inconsistent.

I credit the testimony of Mr. Lombos.

I did view the videotape deposition and I

did find that he was a very credible witness

with regard to explaining the government of

the Philippines, the connections between the

Republic of the Philippines and the

Presidential Commission on Good Government.

As to the experts, I do not discredit

any testimony by any of the experts

completely. I did think that Mr. Smith was

the most credible expert witness but I

thought Mr. Markel was credible. Mr. Mulle,

with a couple of exceptions, I thought he

was credible. I also find support for the

opinions that Mr. Markel and Mr. Smith in

Mr. Fuller’s testimony and Mr. Wilke’s

testimony. I don’t consider that expert

testimony because it wasn’t offered as such.

It’s simply fact statements they gave, does

support the Markel and Smith approaches.

And finally as to attorneys’ fees, I do

credit the testimony of Mr. Lowenberg,

specifically credit his testimony concerning

the work that was done in the case and the

fact that the fees that were charged, both

by his firm and by the other firms that were

involved, were fair and reasonable fees.

And then with respect to any of the

other witnesses who testified, I would

credit their testimony only to the extent

that it’s consistent with the Findings of

Fact that I’m going to make.

D, Findings of Fact:

1. The Plaintiff is a Texas

corporation with its principal place of

business in Dallas. The defendant republic

of the Philippines and the Presidential

Commission on Good Government are foreign

states within the meaning of 28 U.S.C.

Section 1602 through 1602, and 1609 through

1622. The Defendant Good Government

Commission is an agency or instrumentality

of a foreign state under Section 1608.

2. In 1986, shortly after President

Aquino became head of the new Philippine

republic, she signed Executive Orders 1, 2

and 14 creating the Good Government

Commission for the express purpose of

assisting the president in recovering the

illegally acquired assets and wealth of

former President Marcos as well as his

family and associates.

3. On March 25, 1986, President

Aquino issued proclamation No. 3 which

promulgated the provisional constitution of

the Republic of the Philippines. Under

Article II, Section 1D, the president was to

give priority to recovering the ill-gotten

properties amassed by Marcos and his

supporters. This provision provides the

constitutional basis for the sequestration

of the Falcon 50 which is the subject of

this lawsuit. This became part of the

constitution of the republic of the

Philippines which was subsequently adopted

in 1987.

4. Under proclamation No. 3 and the

Philippine constitution and the

comprehensive agarian [sic] reform laws of

1988, all recovery by the Good Government

Commission are for the use and benefit of

the agarian reform program which was an

integral part of the government of the

Republic of the Philippines.

5. On June 19, 1986, the Good

Government Commission issued a writ of

sequestration against the properties of

Eduardo Cojuangco, one of Marcos’ henchmen,

including the 1982 jet involved in this

case, that’s the Falcon 50 aircraft, a

lawsuit which was styled Republic of the

Philippines vs. Conjuangco [sic] and others,

Case No. 0033 in the Sandiganbayan, the

republic’s antigraft court, that lawsuit

being to recover the property subject to the

sequestration orders.

6. In February of 1989 the Good

Government Commission decided that the

Falcon 50, which was sequestered at the

Vilamor Airbase, should be sold. One

supposed prospective purchaser was Art

Condes or International Enterprises which

supposedly had performed certain work on the

Falcon. Although Condes did not purchase

the plane, the Good Government Commission

requested that Condes have a lien on the

aircraft for the work that he supposedly

performed. And so in its resolution of

April 25, 1989, the Good Government

Commission specifically made it a condition

of public bidding for the Falcon that,

quote, prospective bidders must submit an

undertaking to reimburse Mr. Art Condes for

the 1.7 million dollars for his expenses in

reconditioning the subject aircraft, closed

quote.

7. The Good Government Commission

then obtained a legal opinion from the --

that public bidding was not required for the

sale of the Falcon. Accordingly, the

republic, as Plaintiff in case No. 0033,

sought the approval of the Sandiganbayan,

the antigraft trial court, for the sale of

the Falcon. However, on April 26, 1989, the

republic requested to withdraw its motion

for approval of the sale.

8. On May 12, 1989, the Good

Government Commission’s legal department

issued an opinion saying that the commission

had authority to dispose of the Falcon

without prior Court approval.

9. On May 18, 1989, after learning of

this legal opinion, the Sandiganbayan denied

the republic’s motion to withdraw its

earlier motion for permission to sell the

Falcon. This May 18 resolution expressly

refers to the republic as the intended

seller of the aircraft and states that the

Plaintiff republic is, quote, speaking

through, closed quote, the Philippine

solicitor general and is making this motion

through the Good Government Commission.

This opinion also expressed concern that the

Claim or suit against the Philippine

government here or abroad causes the

government even greater material or monetary

damage; that is, it would cause that damage

in the event the republic acted contrary to

Philippine law.

10. On June 6, 1989, upon application

by the republic, the Philippine supreme

court issued a temporary Restraining Order

enjoining the Sandiganbayan from enforcing

the May 18 resolution. However, nine days

later on June 15, 1989, a letter on the

letterhead, quote, Office of the President

slash Presidential Commission on Good

Government, closed quote, was sent to the

United States State Department at the U.S.

Embassy in Manila and to the Federal

Aviation Administration in the United

States. This letter informed the State

Department and the U.S. Embassy that the

Good Government Commission had exclusive

authority to sequester and sell ill-gotten

wealth of Marcos, and that the commission

was giving this information in order to

dismiss any adverse speculation about he

authority of the commission to sell the

property, including the Falcon 50.

11. On July 5, 1989 an affidavit of

lien stating that a lien for 1.7 million on

the Falcon was filed on behalf of Mr. Condes

with the Philippine Air Transport Office.

This affidavit of lien was prepared and

filed by attorney Daguna who represented the

Condes interest in that transaction.

12. Later in the summer of 1989, Mr.

Walter Fuller heard about the opportunity to

purchase sequestered airplanes in the

Philippines. In late August or early

September, Mr. Harley Wilke traveled to the

Philippines on behalf of Mr. Fuller. Wilke

was there for more than five weeks. During

hat time he met with various representatives

of the republic, including at least two

members of the Good Government Commission

and two different Philippine Commission on

Audit representatives. Neither the good

Government representatives or the Audit

representatives ever disclosed to Mr. Wilke

that there had been an intragovernmental

controversy as to the power to approve the

sale of the Falcon 50 jet or any other

property that had been sequestered by the

Good Government Commission. Mr. Daguna was

hired by Mr. Wilke to represent Mr. Fuller

and his interests. Attorney Daguna did not

disclose to Mr. Wilke that there had been

such a controversy in the government either,

nor did he disclose the fact that he had

represented one of the parties who had filed

the affidavit of lien on July 5, 1989.

13. Wilke began negotiations to

purchase the Falcon 50 involved in this

case. His initial asking price was --

offering was 7,200,000. On September 20,

1989, the Good Government Commission agreed

to sell the Falcon to the Plaintiff for

$5,025,000, quote, subject to the same

conditions previously imposed by the

commission, including the undertaking to

directly settle with International

Enterprises slash Art Condes in satisfaction

of the lien of the latter on the said

aircraft, closed quote.

The Court credits the testimony of Mr.

Wilke and of Mr. Fuller that they reused to

take on any such obligation. Indeed, they

both credibly testified that they wanted the

aircraft free and clear with no line.

14. On September 22, 1989, an

affidavit of withdrawal of the 1.7 million

dollar lien of Art Condes was filed. After

Mr. Wilke received a copy of the withdrawal,

he then accepted the award of the Falcon by

the Good Government Commission to Fuller and

Fuller made the $50,000 nonrefundable cash

deposit for the plane.

Again, based upon the testimony of Mr.

Wilke and upon Mr. Fuller, the court

specifically finds that neither had any

knowledge of the title problem with the

plane, neither had any knowledge of any

dispute between governmental bodies or

agencies in the Philippines, and that they

did not discuss with each other the fact

that there were any such problems because

they didn’t know of then.

And as indicated earlier, I’1ll also

| | |

credit Mr. Wilke’s testimony that he refused

to accept responsibility for settling the

Condes lien because that was not acceptable

to Mr. Fuller or himself, and that they

demanded a good, clean, clear title, in the

words of Mr. Wilke. I also credit Mr.

Wilke’s testimony that Commissioner De Leon

of the Good Government Commission agreed

that they would, in fact, give a good, clean

bill of sale and warranty on the plane.

15. Mr. Fuller did make a $50,000

nonrefundable cash deposit for the purchase

of the plane and received an official

receipt of the Republic of the Philippines

for that 50,000 deposit.

The Falcon had approximately 740 flight

hours on it. That was an extremely low

amount of time for a 1982 aircraft as this

was. The Falcon was also valuable was [sic]

because it was capable of international

flights with three engines which complied

with rules and regulations of oceanic

travel. In addition, in 1989 there were a

limited number of previously owned Falcon

Jets on the market nationwide. Although

this point is disputed, the Court finds that

the Falcon was, in fact, in good condition.

It had low hours and it was a desirable

aircraft.

There’s also a dispute in the

testimony, although not as great as the

experts would seem to think, about the value

of the plane. According to the bluebook

publication widely used by aircraft sellers

and purchasers, the fair market value of a

similar plane with average hours at the time

of the Fuller purchase of the Falcon 50 was

$9,900,000. Again, the testimony of the

experts was conflicting and I have estimates

of the value of the plane ranging from 8.2

million 11,000,000 [sic] or more.

The three main opinions were by Mr.

eer rrr

———————EeEeEeEeEeEeEeEeEeeEeEeeyEeEeEeEeEeEeeEeEyyyEyEEeEeEe—eOeSeeeSeEeEeEeEeE——————eeeeeeeeeeeeeee

Markel, Mr. Smith, and Mr. Mulle. The Court

really concludes that Mr. Markel’s estimate

was too high, that Mr. Mulle’s evidence was

too low, and that Mr. Smith’s testimony,

which was in between those and which had a

plus or minus factor of 2 percent, was the

more credible testimony. Therefore, the

Court credit’s Mr. Smith’s opinion that the

-- that the market value of the plane at the

time in question was $9,750,000. Again, he

gave a plus or minus 2 percent variation.

And the Court would adopt the basic figure

that he gave.

As I indicated, the -- with certain

adjustments in Mr. Mulle’s testimony, his

estimate was not that different from Mr.

Markel or Mr. Smith. And I do agree with

the arguments made by the Plaintiff that one

would have to adjust Mr. Mulle’s estimate by

the cost of the engine overhaul done by the

Garrett aviation repairs, and that’s over

420,000; also, the ferry costs from Garrett

to Little Rock which was over a hundred

thousand; and then there were some

additional expenses that would get those

closer.

Then on other opinions in the case,

they support generally the conclusion -- the

finding that I’ve reached on value. Mr.

Fuller’s opinion was higher than Mr. Wilke’s

opinion. Mr. Fuller thinks the market value

was 10 and a half to 11,000,000, that after

they did the refurbish job of 300 to

400,000, the airplane could have been sold

for $12,000,000.

Mr. Wilke’s approach was that if a

quick rehab was done for $600,000, then the

airplane would have nine and a half to

$10,000,000 value. Mr. Wilke’s figure

obviously is closer to Mr. Smith’s opinion

which I’ve adopted.

There were also conflicting testimony

concerning the condition of the plane,

whether there was corrosion or not. And the

Court, as I’ve indicated, would find that

Mr. Fuller’s testimony based on his two-day

examination of the aircraft in Little Rock,

Mr. Wilke’s two-week examination at least of

the plane in the Philippine [sic], show that

the plane was in good condition and with

anywhere from 250 to $300,000 or more it

could have been sold for an even greater

amount than the market value figure that

I’ve found.

16. On September 28, 1989, the deed of

sale was signed. That’s Plaintiff’s Exhibit

2. The deed of sale contains the defense

and hold-harmless agreement in paragraph

V(b). On that same day, September 28, 1989,

the bill of sale was executed and it was

signed. It states that the Presidential

Commission on Good Government slash Republic

of the Philippines sells, grants and

transfers all right, title and interest in

the aircraft.

27. On October 2. 1989, the

sequestration order on the plane was lifted

by the Good Government Commission and the

Air Transport Office of the Philippines gave

its permission for the Falcon the [sic]

leave the airbase. The Falcon was flown by

pilots hired by Mr. Fuller and left the

Philippines, eventually reached Little Rock.

18. On October 4, 1989, payment of the

balance due, 4,975,000, was deposited in the

Philippine National Bank, official

depository of the Republic of the

Philippines. An additional $2,175,000 was

paid to the brokers for the Condes lien and

for commissions.

19. The Falcon was flown to Little

Rock, Arkansas. It was inspected by Mr.

Fuller for at least two days. Then it was

attached by lawsuit filed by Faysound,

Limited. Approximately one year later, on

October 29, 1990, the United States District

Court in Little Rock declared that Faysound

was the rightful owner of the Falcon, and

that’s the opinion in 748 F.Supp. 1365. At

that time, the time of the judgment, the

Falcon which had been stored at the Falcon

Jet facility in Little Rock had the market

value which I have found of 9,750,000.

20. Upon receiving notice of the

Faysound suit in October of 1989, Mr. Fuller

immediately requested assistance and

indemnification under his contract with the

Good Government Commission. He requested

funds to pay legal expenses for the defense,

but instead the Good Government Commission,

by a letter dated October 16, 1989, refused

Mr. Fuller’s request. Included in the

letter were statements like these: "Our

warranty to hold the buyer free and harmless

from any and all claims on the aircraft

simply means that this claim should be

directed against the sale proceeds, and that

we’re not retaining a lawyer in the United

States to defend any case in Arkansas

Arkansas [sic] because the sales proceeds

would be eaten up by expensive attorneys’

fees and other litigation expenses in the

United States. The Good Government

Commission provided an affidavit from

Commissioner De Leon which reaffirmed the

validity of the Falcon sale to Fuller.

Obviously forced Mr. Fuller to hire

attorneys to defend the title of the plane

in the Faysound litigation.

21. On November 21, 1990, Fuller’s

attorney demanded -- made demand on the Good

Government Commission for reimbursement of

fees and expenses. There was no response to

that demand. And then on December 20, 1990,

Mr. Fuller’s attorney sent another letter

regarding the need for assistance by the

Philippine ambassador and the Good

Government Commission. And then there was

also additional correspondence in which Mr.

Fuller attempted to gain control over the

Falcon aircraft and to get assistance from

the Good Government Commission and other

Philippine authorities.

22. The United States and the Republic

of the Philippines are contracting states to

the Convention on International Recognition

on Rights of Aircraft dated June 19, 1918,

in Geneva, the Geneva Convention, and the

article that’s relevant is Article I1A.

23. On December 26, 1990, the

Philippine supreme court issued a decision

declaring the sequestration and subsequent

sale of the Falcon to be violation of the

law of the Philippines. This decision does

not invalidated [sic] or address’ the

indemnification or warranties of title given

to Fuller. That decision also held that the

Good Government Commission had no power to

sell the Falcon, which is obvious, because

the lease had run out almost two years prior

to the date of that -- actually over two

years before the date of that opinion. Mr.

Fuller was not told by either Defendant of

this ruling of the Supreme Court and he did

not learn of that until after the appellees’

brief was filed in the Eight Circuit and the

appeal in the Faysound Arkansas litigation.

Based upon Mr. Fuller’s testimony, if he had

been -- and also upon the testimony of Mr.

Lowenberg, if notice had been given then,

subsequent legal fees and expenses would not

have been incurred. Not all, but at least

part of then.

24. And this is a for-example. On

January 25, 1991 Mr. Fuller filed a Chapter

11 petition in the. Bankruptcy Court

attempting to maintain possession of the

Falcon airplane until something hopefully

could be settled with the Plaintiff in the

Arkansas case.

25. The actions of the Defendant in

failing to defend and hold Mr. Fuller

harmless constitutes a breach of the

indemnification agreement and the deed of

sale. In addition, it was also a breach of

the warranty of good title given to Fuller

in the FAA aircraft bill of sale. And Mr.

Fuller suffered damages as a result of each

of these contract breaches.

26. In both the bill of sale and the

FAA -- in both the deed of sale and the FAA

bill of sale, there were material

misrepresentations made to Mr. Fuller. Mr.

Fuller did rely upon and was damaged by

those misrepresentations. In the deed of

sale the representation to defend and hold

Fuller harmless against any adverse claims

was made by the seller, but within a matter

of days after Fuller made demand for that to

be honored, he was told by the Good

Government commissioner, De Leon, that there

was no intent to warrant title. In

particular, the evidence and certainly the

circumstantial evidence before the Court

establishes that the Good Government

Commission never intended to comply with

their obligations under paragraph V(b) to

defend and hold harmless the Plaintiff.

That’s based on several things. Mr.

Fuller made repeated attempts to try to get

someone to talk to and was unsuccessful

until he finally reached Mr. De Leon who

immediately refused to do anything and

denied any liability. The immediacy of the

refusal without even getting any details of

the Arkansas suit would indicate bad faith

on the part of the Good Government

Commission. Other facts’ do likewise. The

plane was sold by the Good Government

Commission two years after the lease had

i 28

expired. There is nothing in the record of

any notice given to Faysound. There’s

speculation about whether Faysound knew or

not but there’s no evidence in the record.

And then in addition, the Good Government

Commission blatantly attempted to evade the

orders of the court in the Philippines.

I add to that -- this paragraph, also

which is relevant to punitive damages clain,

that the comments that I made earlier

regarding discrediting the testimony of one

witness, Mr. Daguna, and I did that simply

because he simply did not tell the truth.

Specifically, the Court discounts his

testimony entirely. That is in meetings

with -- in meetings that they had where Mr.

Wilke was present, Commissioner De Leon said

something to the effect that if there was

any damage out of the contract of sale the

commission’s liability was limited to 5.25

million and that Mr. Wilke agreed to this.

Also totally discount Mr. Daguna’s testimony

that Mr. Sanchez told Mr. Wilke that there

was no clear title to the plane and the sale

by the commission was only as a conservator.

I’ve already commented on the unethical

conduct that I think Mr. Daguna engaged in.

For those reasons summarized, if the

case legally would support award of punitive

damages, the Court would grant one.

27. Mr. Fuller promptly tendered its

defense in the action in Arkansas, but his

tender and enforcement of the indemnity

agreement were rejected by the Good

Government Commission.

28. Mr. Fuller did incur’ these

expenses in connection with the purchase of

the Falcon: A, commission and expenses of

Mr. Wilke, $154,486.68; B, transportation

and insurance cost, $78,351.50. However,

the Court finds that those are not

recoverable as items of damage because the

i eeeeinieiiiiiiammamauaiiitasi

basis of the recovery is the market value of

the plane when it was delivered in Arkansas

and those expenses would have been incurred

by the Plaintiff in any event.

29. The attorneys’ fees -- what is the

number of the attorney fee exhibit? You’ve

got a summary.

MR. LOWENBERG: 43, Your Honor, the

summary.

THE COURT: 23?

LOWENBERG: 43.

COURT: 43?

- LOWENBERG: Yes, sir.

THE COURT: Exhibit 43 shows the

attorneys’ fees and expenses and it sets out

each one of the firms involved, both in the

Arkansas litigation, the bankruptcy

proceeding, attempt to work through the

State Department in Washington, this

litigation, and the total of all of those,

with the exception of this case, would be

T |

$755,046.55. That’s through the end of

September.

And then 30. That same exhibit would

document the -- the attorneys’ fees and

expenses by Mr. Fuller in this case through

-- did I give the right number?

MR. LOWENBERG: I don’t have the

exhibit with me.

THE COURT: I’m sorry. That may be an

incorrect number. If it’s inconsistent with

what I stated that this one will control

that at least through August 31, 1993, the

Akin Gump total was $486,258.98.

31. To get the correct total of work

done by the other firms and Akin Gump in

other litigation and the total that Akin

Gump has in this litigation is shown on

Exhibit 43. That is through the end of

September of 1993, and the total fees are

$1,214,853. Total expenses, $107,451.30,

for a total of fees and expenses through

| 32

September -= end of September of

$1,322,304.30.

32. The attorneys’ fees were fair and

reasonable. The expenses were necessarily

incurred in the litigation. The Court

understands but rejects the argument that

the attorney for Mr. Fuller made a mistake

in the Arkansas case and that at least a

port ion of the Arkansas fee should be

deducted. The reason that I made that is --

that decision is twofold. One, I credit Mr.

Lowenberg’s analysis that -- that was simply

a wrong decision. But more importantly, and

the second reason, is the fact that none of

that would have happened if, when the letter

from Mr. Fuller to the Good Government

Commission said come defend this lawsuit as

you’re obligated to do, if the commission

had, in fact, done that, then those expenses

would have not been incurred. And then

actually I’ve got one other reason for not

discounting it and that’s that Mr. Fuller

has not complained and he’s paying the bill

and -- and I don’t want to benefit the

Defendant in a lawsuit by a bill that Mr.

Fuller is paying.

33. And at this point the findings

concern the jurisdictional issue and the

Foreign Sovereign Immunity Act. And I do

credit the testimony of Mr. Lombos. Mr.

Lombos is an attorney in the Philippines.

He’s practiced -- had some practice before

the Commission on Good Government and his

testimony was very convincing:

Specifically, that the Good Government

Commission is a part of the office of the

president of the Republic of the Philippines

and that under the executive order

previously mentioned the Good Government

Commission was created to carry out

presidential responsibility under the

constitution of the Philippines. That’s the

‘86 and ‘87 constitution. That the

commission acts under the direct authority

of the president, that recoveries obtained

by the Good Government are for the sole

benefit of the republic in its comprehensive

agarian {sic} reform program. The

commission -- the Good Government

Commission’s conduct is reviewed by the

Philippine Commission on Audits. The Good

Government Commission is represented by the

solicitor general of the Philippines. Its

decisions are subject to direct appeal of

the Philippine -- to the president.

34. The Court does find specifically

that the Republic of the Philippines has

taken contrary positions in other litigation

and it has asserted that it was the seller

of the Falcon 50 involved in this case.

Those representations are in the case No.

0033 filed in the Philippines. That’s the

Sandiganbayan court, but there are also

other pleadings filed in the United States

that contain similar admissions. And those

are in a case in the Southern District of

Texas, that’s Houston, that’s Cause No. H-

86-1184; case in the Central District of

California, that’s Cause No. 86-86-3859; and

in the Southern District of New York, Case

No. 86-2294. And pleadings in all of those

are exhibits in this case.

35. The Good Government Commission

acts for the republic and the republic acts

through the Good Government Commission.

36. The Good Government Commission is

part of the executive branch of the

Philippine government. —- oe

corporation, it has no board of directors,

no shareholders, issues no stock. The

commissioners and employees of the Good

Government Commission are civil servants of

the republic. The commissioners are

appointed by the president and may be

removed by the president at any time with or

without cause. In seizing and selling the

Falcon 50 to the Plaintiff Fuller, the

Republic of the Philippines acted through

the Good Government Commission as well as

through the solicitor general and the

Commission on Audit.

37. What happened to the money also

confirms these findings. And the -- the

$50,000 cash deposit and the balance of the

purchase price for the plane went to the

government of the Philippines. It was

initially deposited in the Philippine

National Bank. And as -- as established by

the evidence and really conceded in

argument, money that went to the Good

Government Commission was money that went to

the government of the Philippines.

39. As previously held by this Court,

the deed of sale and the FAA bill of sale do

not limit the Plaintiff’s remedy to return

of the purchase money. Also as previously

held, the documents which Mr. Fuller seeks

to enforce are not ambiguous, not

contradictory, parol evidence is not

admissible to vary the terms or to show any

purported intent that various those terms.

"40. In essence the Court simply finds

that it is not credible that Mr. Fuller

would pay over $7,000,000 with the express

intention of buying an expensive plane

without getting fully warranted title and

limited his remedies in the event of a

breach.

41. Because the Court simply finds

that the Plaintiff is right in its first

Claim, that is, that the Good Government

Commission is, in fact, the government of

the Philippines and vice versa, no punitive

damages could be awarded. However, if I’m

wrong about that and if the Plaintiff loses

that on appeal to the Fifth Circuit but

prevails on the alter ego argument, then an

award of punitive damages would be proper

against the Commission on Good Government.

That’s both pursuant 28 U.S.C. Section 1606

and Texas common law.

And as far as the amount of punitive

damages, the court would find that punitive

damages of $4,800,000 should be awarded to

the Plaintiff. That’s less than the -- than

the Plaintiff requests. I think that would

serve the purpose of punitive damages if

indeed that award should be made. It

translates into about half the market value

of the plane and also translates into about

four times the amount of the attorneys’ fees

that were incurred through the date of trial

-- through the end of September.

Conclusions of Law. Without belaboring

all of the Conclusions of law, I have

reviewed in detail all the Conclusions of

Law that the Plaintiff has submitted in

their proposed Findings of Fact’ and

Conclusions of law, and each one of those

conclusions of law is correct. I think

there may be a couple in there that are

really not necessary in view of the way the

case was tried, but rather than lengthen

these findings unnecessarily I would simply

adopt those Conclusions of Law.

Now, on a couple of things on

attorneys’ fees, I would like for the

Plaintiff to put together another exhibit

which would be comparable to the one you’ve

done and that would be the attorneys’ fees

for the trial. And then if you would make

those available with backup material to Mr.

Williams. And then why don’t you talk about

it. If you want to file a motion and let me

just handle that additional stuff just on

paper, we can do that or if you can reach

agreement on what the documents show that’s

consistent with these findings, then the

| 40

judgment would include that amount also.

MR. LOWENBERG: That’s the amount, Your

Honor?

THE COURT: That’s the amount. Simply

the amount.

MR. LOWENBERG : Basically the

arithmetic based on Court’s findings.

THE COURT: Yes. And then on the

Findings and Conclusions, these are the

Court’s findings and conclusions. If you

want to take these and <-- and polish then,

that’s fine, or if you want to submit

additional findings besides these, if that’s

convenient, well, then, you can certainly do

that, as Mr. Williams can do also.

And then I have also studied the -- the

proposed Finding of Fact and Conclusions of

Law submitted by the Defendants and I would

deny all of those insofar as they’re

inconsistent with what I found.

MR. LOWENBERG: One technical question

on this, Your Honor. The question of

prejudgment interest that was included among

our conclusions.

THE COURT: I’m sorry.

MR. LOWENBERG: I thought that was an

appropriate area and might also be

appropriate to state that in the findings.

I’m not --

THE COURT: It should have been. I

made a note during arguments and I simply

forgot it. I should have included a finding

that interest -- that the proper date to

calculate the running of interest would be

October 11, and that is the date of the

letter. And that interest under Texas law

would begin running 180 days after the date

of that letter. So that interest -- so that

the judgment would bear interest at the

statutory rate about April 9 or April 10 of

1990. |

MR. LOWENBERG: That’s the 10 percent

rate?

THE COURT: Yes.

MR. LOWENBERG: Okay.

THE COURT: And then if there is an

appeal, why don’t y’all try to reach an

agreement on the amount of the supersedes

{sic) bond.

And then finally, as I indicated to you

earlier, if you will take custody of your

respective exhibits in the case of an

appeal. I have all of the exhibits on the

exhibit table with the exception of a

handful that I was using on the findings and

conclusions. And I’ll just leave them on

the end of the table up here.

MR. LOWENBERG: Another procedural

matter, if I may, Your Honor? Not to burden

the court with additional motions. As I

read -- a cursory reading of Section 1610 of

Title 28, which is the FSIA, it says there’s

no attachment or execution, as I read, under

the judgment shall permitted [sic] until the

Court has ordered such attachment and

execution after having determined that a

reasonable period of time has _ elapsed

following the entry of judgment. And I

think that if I read that correctly, that

probably supersedes Rules 58 and 59 of the

10-day rules, that the court would therefore

need to state in reasonable time either by

motion or in an order for the effective date

of execution.

I have no particular position on what

that reasonable date might be. Obviously

the Federal Rules provided 10 days, and if I

read this correctly, the Federal Rules don’t

control the period of time on that.

THE COURT: If you can reach an

agreement on the time period, you know, we

can handle it that way.

MR. WILLIAMS: That’s one thing I was

going to ask and that is that we be

permitted a reasonable time within which to

see if I can put up a bond at all.

THE COURT: Yes.

MR. WILLIAMS: It seems like it might

be a little more difficult for a country to

put up bond than, say, a financial

institution or somebody giving a second on

his house.

MR. LOWENBERG: I assume that’s why the

FSIA has that provision in it.

THE COURT: Why don’t you talk about

that before you get out of town and then

reach a -- at least a general date on when

you’ll get back to Mr. Lowenberg and try to

handle that by agreement. If you can’t,

then either handle it by motion or, if it’s

easier, just send me a letter.

MR. LOWENBERG: Yes, sir. I just

wanted to point that out that -- if I read

that correctly, the 10-day -- it’s not the

10-day rule under Rule 59 or whatever, it

would be whatever the Court sets.

THE COURT: And then finally, Mr.

Lowenberg, if you will prepare a final

judgment --

MR. LOWENBERG: Yes.

THE COURT -- consistent with the

findings.

MR. LOWENBERG: Yes, sir, we will.

APPENDIX C

United States Constitution, Amendment V

No person shall be held to answer for a

capital or otherwise infamous crime, unless

on a presentment or indictment of a grand

jury, except in cases arising in the land

or naval forces, or in the militia, when in

actual service in time of war or public

danger; nor shall any person be subject for

the same offense to be twice put in

jeopardy of life or limb; nor shall be

compelled in any criminal case to be a

witness against himself; nor be deprived of

life, liberty, or property, without due

process of law; nor shall private property

be taken for public use, without just

compensation.

APPENDIX D

FAYSOUND LIMITED, Plaintiff,

Vv.

WALTER FULLER AIRCRAFT SALES,

INC. and Falcon Jet Corporation,

Defendants.

No. LR-C-89-834.

United States District Court,

E.D. Arkansas, W.D.

748 F.S. 1365

Oct. 29, 1990

MEMORANDUM OPINION

HENRY WOODS, District Judge.

I. STATEMENT OF FACTS

Faysound Limited ("Faysound"), a Hong

Kong corporation, purchased a Falcon

aircraft, the subject of this lawsuit, from

the manufacturer at a cost of over nine

million dollars. The plane was then leased

to a Philippine corporation, United Coconut

Chemicals ("UNICHEM") for a period of five

years on October 23, 1982. Paragraph 6.1 of

the lease agreement reads as follows:

The aircraft may be used anywhere in

the world and for this purpose the

LESSEE may register the aircraft under

the pertinent laws of such country as

may be selected by the LESSEE. It is

understood and agreed that the LESSEE

is authorized by the LESSOR to register

the aircraft under Philippine Registry.

For this purpose, the LESSOR, upon

request of the LESSEE, or the LESSEE

itself, may cause the cancellation of

the registration of the aircraft under

any foreign registry.

(PX MM). The plane was then registered with

the Philippine Bureau of Air Transportation

on November 2, 1982, for use in the

Philippines. UNICHEM’s status was noted by

striking the word "owner" and inserting the

word “operator” above it. (Id). The

original certificate registered the Falcon

as “Name of Operator: United Coconut

Chemical, Inc. (Lessee)." Id.

The back of the certificate had the

following entry:

Aircraft herein registered is subject

to the Lease Agreement entered into by

and between FAYSOUND, LTD., a

corporation organized and existing in

accordance with the laws of Hong Kong

(Owner-Lessor) and UNITED COCONUT

CHEMICALS, INC., a corporation

organized with the laws of the

Philippines with principal address,

offices at UCPB Bldg., Makati, M.M.

(Operator-Lessee). (Contract of Lease

on file).

(PX LL). For the next five years, which

comprised the entire term of the lease,

UNICHEM renewed its registration of the

Falcon. (PX NN, OO, PP and QQ). The same

entries were made in Bureau registration

records.

A i se re Rs arenes es

The former Philippine President,

Ferdinand Marcos, fled the Philippines on

February 25, 1986. His successor, Corazon

Aquino, created the Philippine Presidential

Commission on Good Government ("PCGG") and

charged it with the task of recovering ill-

gotten assets of former President Marcos and

his close associates. On June 19, 1986, the

PCGG issued a Writ of Sequestration against

one Eduardo Cojuangco, Jr., describing

several aircraft including the Falcon (Px

sey. Cojuangco was a multimillionaire

businessman with substantial interest in

UNICHEM and undoubtedly a close friend and

adviser to Marcos. The Writ of

Sequestration did not name Faysound nor was

it served upon its agent. (PX YY). The

writ therefore created no legitimate basis

under Philippine law for the PCGG to seize

any asset of Faysound. (PX WW at pp. 9-13).

After the plane was sequestered, UNICHEM

renewed the registration with the Philippine

Civil Aircraft Registry for the last year of

the lease on October 30, 1986. (PX QQ).

On July 31, 1987, the PCGG instituted

action against Eduardo Cojuangco, Jr. to

recover his ill-gotten wealth. The

complaint was filed in the Sandiganbayan

Court, the special Philippine court

established to adjudicate cases brought by

the PCGG to recover ill-gotten assets, and

assigned Civil Case No. 033. The complaint

did not name Faysound nor any of the lessees

of the Falcon. (PX YY, 9).- The Falcon

remained in the PCGG custody, but there was

no further action (PX WW) . Faysound

instituted. demands on its lessees for

redelivery of the Falcon. (PX KK). On

August 2, 1988, the authority of the PCGG to

issue sequestration orders lapsed, and under

Philippine law any prior sequestration order

upon which no judicial action was filed

before August ae 1987 was "deemed

automatically lifted." Because no action

was filed against the lessee or owner of the

Falcon, as a matter of Philippine law, the

writ of sequestration was deemed lifted on

August 2, 1987.

The Falcon sat at the Villamo Air Base

in the Philippines and began to deteriorate.

The PCGG began efforts to sell the plane.

It is not necessary to go into the efforts

to sell the plane. Several prospects

emerged, and efforts finally culminated in a

sale to the defendant Walter Fuller Aircraft

Sales, Inc. ("Fuller"). It is not necessary

to a decision on the summary judgment issue

to examine all of these negotiations.

Suffice it to say that there is a strong

aroma of corruption and bribery in

connection with the sales efforts of PCGG.

The PCGG ultimately determined that it

would be necessary to obtain the

Sandiganbayan Court’s approval of the sale

of the Falcon (PX WW). As that court noted

in its opinion:

{I]t appeared that the Solicitor

representing the plaintiff did not know

too many details about the relationship

of the aircraft and the United Coconut

Chemicals, Inc. (UNICHEM).

It appears that UNICHEM is not a

sequestered company but rather a

company where only the shareholdings of

defendant Eduardo Cojuangco, Jr. have

been sequestered. ... It likewise

appears that UNICHEM had not been

furnished with a copy of the instant

Motion and that it had not _ been

intended to be so furnished (the

notices were addressed only to

defendant Cojuangco’s- lawyers of

record). The consideration of said

motion was, therefore, deferred.

Id at 2.

After the Sandiganbayan Court deferred

consideration of the PCGG’s first Motion to

sell the Falcon, the PCGG filed a motion for

early Resolution of its Motion to Sell on

April 5, 1989. Jd. This Motion was set for

hearing on April 14, 1989. Jd at 3. The

PCGG argued that the Sandiganbayan Court did

not need to resolve issues concerning the

validity of the sequestration or questions

concerning whether Cojuangco, the named

defendant in the sequestration case, even

owned the Falcon. Jd. The Sandiganbayan

Court rejected the PCGG’s argument:

The Court is unable to respond

positively to plaintiff’s position.

Unquestionably, neither the issue of

the ownership of the aircraft nor the

propriety of the sequestration thereof

has been raised in the pleadings before

the Court with regard to the motion to

sell the aircraft in question.

Invocation, however, of the power of

the court to authorize the deposition

of a sequestered asset or a seized

property (the sequestration or seizure

of which was not upon this Court’s

authority) must necessarily, though

perhaps implicitly, include a plea for

the affirmance of the propriety of that

seizure. And were there no reason for

this Court to doubt the original

seizure, then this Court would, as it

must, accord the PCGG the rebuttable

presumption of regularity in its act.

The plaintiff-movant through the PCGG

itself, however, has presented this

Court with the facts which serve to

dilute the presumption of regularity

which this Court would accord the

PCGG’s own acts, namely:

(1) The aircraft in question is

St CD ET a 0

Semen coer mt -

SMELT SO te eR Se NE at

co Sa

apparently NOT owned by UNICHEM;

(2) It is apparently NOT owned by

defendant Cojuangco either but, upon

plaintiff’s own admission, by

"Faysound." Certainly no averment has

been made either by PCGG or anybody

else to prove false the data on the

Certificate of Registration of that

aircraft to that effect;

(3) UNICHEM itself is not a

sequestered corporation (only the

shares of stock therein owned by

defendant Cojuangco appear to have been

sequestered) ;

(4) The lease over the aircraft,

according to the plaintiff itself,

lapsed (in 1987) more than two years

ago;

(5) The renewal of the Certificate

of Registration issued by the Bureau of

Air Transportation on October 30, 1986,

four months AFTER this and other

aircraft had been ordered sequestered

per writ of sequestration on file with

this Court.

There is, then, every indication on the

very face of the pleadings of

plaintiff-movant and the allegations in

open Court that the sequestration of

the aircraft now sought to be sold was

not in order. It is true that no one,

not even the lessor has come to Court

nor, as far as this Court is properly

informed, has anyone sought to question

the propriety of the plaintiff’s (or

PCGG’s) seizure thereof anywhere else.

This silence from others who may be

parties to interest to this aircraft,

however, does not justify authorization

of the projected sale of that aircraft

when it becomes apparent that the

premises for such an authorization do

not exist--in this instance, a valid

sequestration.

Id at pp. 3-5 (footnote omitted).

The PCGG, through the Solicitor

General, had argued the Court need not

concern itself with who owned the Falcon

because that could be resolved later. The

Court was unimpressed:

It will not do to say that the issue of

ownership can be taken up later when

the case proceeds to trial since one of

the issues, even now, remains the prima

facie propriety of PCGG’s seizure

thereof which PCGG now makes abundantly

apparent to have been absent.

Id at 5.

After the hearing on the PCGG’s Motion

for Early Resolution on March 14, 1989, the

PCGG reversed its earlier position that it

required Sandiganbayan Court approval to

sell the Falcon. i. ie | le The

Sandiganbayan Court attributed this about-

face to the fact that the PCGG knew Court

approval of the proposed sale was unlikely:

The Motion to Sell the aircraft was

heard on April 14, 1989 where very

pointed questions were asked by the

Court about the propriety of the

sequestration of the aircraft in

question and the resulting propriety of

selling the same. Until that date the

PCGG acknowledged its need for court

authority before selling this aircraft.

id.

Accordingly, on April 27, 1989, the

Philippine Solicitor General filed a Motion

to Withdraw the PCGG’s earlier request for

authority to sell the Falcon at the request

of PCGG Commission DeLeon. Id. The

Sandiganbayan Court initially viewed the

Motion to Withdraw as a decision by the PCGG

not to sell the Falcon. Id. The

-—

Sandiganbayan Court stated: X

The Motion to Withdraw can and could

only be viewed as a desistance by the

PCGG from the original plan for the

sale of the aircraft. Rather than

issue a resolution pointing out the

breach by the PCGG of the basic

precepts of fairness, justice and die

process, the Court acceded to the

withdrawal of the motion and deemed the

matter of the proposed sale moot and

academic.

Id. But DeLeon and his fellow commissioners

at the PCGG had not in fact abandoned the

sale; instead, the PCGG publicly

acknowledged that it intended to sell the

Falcon “sans court consent." Id. In

addition, according to the Sandiganbayan

Court’s opinion, Tony Daguna, the lawyer for

International Enterprises, Inc., learned of

the Sandiganbayan Court’s accession to the

motion to withdraw "even before the process

servers of the Court had served the

resolutions granting the withdrawai." Id.

at 8.

This inside knowledge and the PCGG’s

about-face greatly disturbed the

Sandiganbayan Court. In the words of the

justices of the Sandiganbayan Court, "[t]jhe

withdrawal turned out to be a ploy for a

scheme to proceed with the sale without the

obstruction of unexpected negative

[Sandiganbayan Court) order." id. at -7.

With regard to Daguna’s apparent inside

information, the Sandiganbayan court stated

that it “views with concern the alacrity

with which the prospective buyer of that

aircraft sought a copy of this court’s

resolution almost simultaneously with the

announcement of the cynical maneuver by

which the PCGG intended to do away with

Court authority for the disposition of

12S A IRENE AIO A OT RY a ty ene:

property in custodia legis--which is what

sequestered property is." Id. at 9.

Obviously appalled by the PCGG’s

scheme, the Sandiganbayan Court recalled its

resolution permitting the PCGG to withdraw

its Motion to Sell. Id. Once this

resolution was recalled, the Sandiganbayan

Court ruled on the merits of PCGG’s Motion

for Authority to Sell the Falcon and denied

it in scathing language:

For this Court to allow the sale of the

property belonging to a stranger to the

suit (the lessor) to take place more

than two years after the lease thereof

had expired (and when return,

therefore, should have been made to the

owner/lessor), and for that sale to be

justified only by the fact that this

very valuable piece of property (U.S.

$10 million) has rapidly deteriorated

for having been unattended to by the

very sequester itself, as the sequester

PCGG has said, is neither just nor

legal.

What is worse is that plaintiff has

acted before this Court without any

care or effort to show that these facts

and events notwithstanding, the

sequestration was at least apparently

appropriate. The PCGG, in the words of

the Supreme Court, is not above the law

-e-- and it is bound to justify its

continued exercise of powers in the

face of its own contradicting evidence.

For all of these reasons, plaintiff

cannot ask this Court to sanctify its

acts as sequester while, in the face of

its own debilitating evidence, it

remains unwilling to explain why a

stranger’s property has been

sequestered.

Id. at 10, 12 (citation omitted).

Finally, the Court criticized the basis

| asserted by the PCGG as an excuse to sell

| the Falcon:

Plaintiff urges authority to sell

because the airplane is allegedly

deteriorating rapidly, the airplane by

the plaintiff’s own admission having

been unattended to since sequestration.

Care of sequestered property is the

sequester’s primary responsibility.

Plaintiff’s failure at that duty cannot

justify the sale of property which, to

first place.

Id. at 13 (emphasis supplied).

The Motion to Sell was denied "since in

the very first instance, no justification

prima facie or otherwise has been

demonstrated for its seizure from its

lessee." Id.

When the Sandiganbayan Court issued

this scathing opinion on May 18, 1989, the

PCGG sought immediately to avoid this public

rebuke and also to avoid the Sandiganbayan

Court’s injunction "to report to the court

the status of the projected sale of the

aircraft and its present location" within

ten days of the Order. (Condes Dep.,

Response Ex. T at 6, 12-13). An Assistant

Solicitor General for the Philippines agreed

on behalf of the Solicitor General to help

the PCGG avoid the Sandiganbayan Court’s

Order in return for a "token" from the

proceeds of the _ sale. (Condes Dep.,

Response Ex. T at 6, 12-13).

Thereafter, on June 6, the PCGG filed a

petition for certiorari with the Supreme

Court of the Philippines requesting (a) a

temporary restraining order from enforcement

of the Resolution of the Sandiganbayan

Court, and (b) ultimately a ruling that the

Resolution is void as undue interference

with the administrative/executive functions

of the PCGG (Response Ex. X-1). The PCGG

did not seek a ruling that the sequestration

was valid or a ruling as to the lawful owner

of the Falcon, asserting instead that the

sale of the Falcon will not "prejudice the

rightful owners as may be finally declared

by the respondent Sandiganbayan." Jd. at

26. On the same day the Petition was filed,

the Supreme Court "Resolved, without giving

due _ course to the petition, to require the

respondent to COMMENT" on the petition and

in the interim issued a temporary

restraining order ordering the Sandiganbayan

Court to desist from enforcing the

Resolution pending further order of the

Court. (Response Ex Y (emphasis supplied).

That is, the Supreme Court did not even

consider whether it would grant certiorari

and hear an appeal, the effect of its ruling

is that only the reporting requirement of

the Resolution was temporarily stayed.

(Antonio Aff., Response Ex. U at 18-19).

Commissioner DeLeon, whose activities

in connection with the sale of the aircraft

are highly suspicious, seized upon the

action of the Supreme Court, which were

actually not significant, as _ granting

authority for the PCGG to sell the plane.

The Supreme Court has never granted such

authority nor has it granted any review of

the decision of the Sandiganbayan Court. On

September 21, 1989, the PCGG accepted

Fuller’s bid subject to settling with Condes

to satisfy the "Condes lien." Condes was a

major factor in the negotiations between the

putative purchaser and the PCGG. This lien

in the amount of 1.7 million dollars appears

to be a cover for bribes paid to various

Philippine officials. Slightly over five

million dollars went to the PCGG.

The PCGG gave a bill of sale to Fuller.

The plane was flown out to be reconditioned

at Falcon Jet’s maintenance plant at Little

Rock, Arkansas, where it is now located.

II. DISCUSSION

A. The Treaty Exception of the "Act

of State" Doctrine

Both parties have moved for summary

judgment. Summary judgment is granted in

favor of the plaintiff Faysound and denied

as to defendant Walter Fuller Aircraft

Sales, Inc. Defendant seeks to defend a

clear expropriation of plaintiff’s property

o the ground of the "act of state" doctrine.

This doctrine was articulated in Banco

Nacional de Cuba v. Sabbatino, 376 U.S. 398,

84 S.Ct. 923, 11 L.Ed.2d 804 (1964), where

the Castro government in Cuba expropriated a

shipment of sugar sold under a futures

contract while the sugar was being loaded on

a ship in Cuba. The Supreme Court held:

{[Tjhe Judicial Branch will not examine

the validity of a taking of property

within its own territory by a foreign

sovereign government, extant and

recognized by this country at the time

of suit, in the absence of a treaty or

other unambiguous agreement regarding

controlling legal principles, even if

the complaint alleges that the taking

violates customary international law.

376 U.S. at 427-28, 84 S.Ct. at 940.

{1} This case comes clearly within the

exception noted, gupra. Both the United

States and the Philippines are signatories

to the Geneva Convention, which covers

property rights in aircraft along with other

aviation subjects. While the Sabbatino

Court was not anxious to enter the conflict

of ideologies involved in the Cuba

expropriation, it acknowledged that most

EN SEE PORE ER. nr SNR

principles of international law are not so

difficult:

There are, of course, areas of

international law in which consensus as

to standards is greater and which do

not represent a battleground for

conflicting ideologies. This decision

in no way intimates that the courts of

this country are broadly foreclosed

from considering questions of

international law.

376 U.S. at 430, p. 34, 84 S.Ct. at 941, p.

34. The Geneva Convention represents an

area of broad international consensus. The

Treaty in Article I provides as follows:

(1) The Contracting States undertake

to recognize:

(a) rights of property in aircraft;

(b) rights to acquire aircraft by

purchase coupled with possession

of the aircraft;

under leases of six months or

more;

(d) mortgages, hypotheques and similar

rights in aircraft which are

contractually created as security

for payment of an indebtedness;

provided that such rights

(i) have been constituted in

accordance with the laws of the

Contracting State in which the aircraft

was registered as to nationality at the

time of their constitution, and

(ii) are regularly recorded in a public

record of the Contracting State in

which the aircraft is registered as to

nationality.

(2) Nothing in this Convention shall

prevent the recognition of any rights

in aircraft under the law of any

Contracting State; but Contracting

States shall not admit or recognize any

right as taking priority over the

rights mentioned in paragraph {i} of

the Article.

The case at bar is clearly within the

exception noted in Sabbatino. The

expropriation in that case was not

proscribed by a treaty couched in clear and

unambiguous terms. congress almost

immediately enacted legislation to overrule

the decision. The Second Hickenlooper

Amendment, 22 U.S.C. § 2370(e)(2) was

"enacted to make sure that the United States

not become a ‘thieves market’ for the

product of foreign expropriation." 110

Cong.Rec. 19,557, 88th Cong. 2d _ Sess.

(1964):

The amendment is designed to discourage

uncompensated expropriation of foreign

investment by preserving the right of

the original owners to attack any

taking in violation of international

law if the property involved comes

before a U.S. court. Because the

United States is the largest market for

the products of many U.S. owned

companies in foreign countries, the

knowledge that this market will be

denied to stolen property’. should

discourage seizure of that investment.

id.

On remand of the Sabbatino case from

the Supreme Court of the United States, the

District Court and the Court of Appeals for

the Second Circuit held that the

Hickenlooper Amendment compelled a different

result and had in effect vitiated the

Sabbatino decision. Banco Nacional de Cuba

VY. Farr, 243 F.Supp. 957 and 272 F.Supp. 836

(S.D.N.Y¥.1965), aff’d 383 F.2d 166 (2d Cir.

1967), cert. denied 390 U.S. 956, 88 S.Ct.

1038, 19 L.Ed.2d 1151 (1968). Any remaining

ee en ee ee ee

efficacy of the Sabbatino case has been

further weakened by the decisions of the

Supreme Court in First Nacional City Bank v.

Banco Nacional de Cuba, 406 U.S. 759, 92

S.Ct. 1808, 32 L.Ed.2d 466 (1972); Alfred

Dunhill of London, Inc. v. Republic of Cuba,

425 U.S. 682, 96 S.Ct. 1854, 48 L.Ed.2d 301

(1976); and W.S. Kirkpatrick & Co. vv.

Environmental Tectonics Corp., __~'U.S. __,

110 S.Ct. 701, 107 L.Ed.2d 816 (1990).

Fuller argues that the Hickenlooper

Amendment applies only if the property of a

United States citizen is involved and only

when the expropriated property or its

proceeds were in the United States when the

expropriation occurred. For its claim that

the Amendment does not apply to aliens,

Fuller aircraft cites the First Hickenlooper

Amendment, 22 U.S.C. §2370(e)(1), rather

than the Second Hickenlooper Amendment.

Unlike the Second Hickenlooper Amendment,

the First Hickenlooper Amendment by its

terms refers only to United States citizens.

The Second Hickenlooper Amendment contains

no such limitation. Indeed, the Reporters

for the Restatement of the Foreign Relations

Law of the United States disagree with

Fuller Aircraft’s contention, "The

Amendment, if otherwise applicable, would

apparently apply to a claim by an alien as

well as by a national of the United

States...." Rest. 3rd, Restatement of the

Foreign Relations Law of the United States,

§ 444, Reporter’s Note 6.

Fuller Aircraft is similarly misguided

in arguing that the Second Hickenlooper

Amendment does not apply because the Falcon

was not in the United States when the

expropriation occurred. Comment e to § 444

of the Rest. 3rd, Restatement of the Foreign

Relations Law of the United States provides:

e. Claim to specific property. The

exception in the Act of State Doctrine

embodied in the Second Hickenlooper

Amendment has been held to be limited

to actions asserting title to property

before the court. Thus, if the

plaintiff claims ownership of a vessel

that has been taken by a foreign state

and the vessel is at a port in the

United States, the plaintiff may rei,

on the Amendment in asserting title

before a court in the United States....

In order for the Hickenlooper Amendment

to apply, the plaintiff must allege and

prove that the property that is the

subject of the claim is in the United

States or was there at the time the

action was commenced.

(Emphasis supplied).

As noted above, the Sabbatino case

makes a clear exception where the

expropriation is covered by a treaty. The

act of state doctrine "was never intended to

apply when an applicable bilateral treaty

governs the legal merits of the

controversy." Ramirez de Arellano v.

Weinberger, 745 F.2d 1500, 1540 (D.C.Cir.

1984). The provisions of the Treaty set

out, supra, are clear and unambiguous. They

provide governing legal standards for the

Court’s determination of the issues:

Additionally, there is a great national

interest to be served in this case,

i.e., the recognition and execution of

treaties that we enter into with

foreign nations. Article VI of the

Constitution provides that treaties

made under the authority of the United

States shall be the supreme law of the

land. Accordingly, the Supreme Court

has recognized that treaties, in

certain circumstances, have the "force

and effect of legislative enactment."

See, e.g., Whitney _v. Robertson, 124

U.S. 190 [8 S.Ct. 456, 31 L.Ed. 386]

(1888). The failure of this Court to

recognize a properly executed treaty

would indeed be an egregious error

because of the position that treaties

occupy in our body of laws.

Kalamazoo __ Spice __ Extraction Co. vy,

Provisional Military Gov’t of Socialist

Ethiopia, 729 F.2d 422, 428 (6th Cir. 1984).

B. Applicability of “Act of State

Doctrine"

[2] Another serious question in this

case is whether the acts of the PCGG were

true “acts of state." Fuller must prove

that PCGG exercised sovereign power in its

sequestration and sale of the Falcon. We

hold it did not exercise such power. Alfred

Dunhill of London v. Republic of Cuba, 425

U.S. at 691, 96 S.Ct. at 1859.

The only evidence offered to show that

PCGG had authority to sell the plane in the

exercise of Philippine sovereignty is an

affidavit from Rosalio DeLeon, a PCGG

Commission. DeLeon’s motives and actions

are highly suspect. He is the brother-in-

law of Ben Cuevo, one of the Philippine

"middle men" appointed as exclusive agent by

Fuller.

Plaintiff has submitted the deposition

testimony of Art Condes, one of the main

players in the attempt to sell the Falcon,

that DeLeon was to receive a bribe of

$150,000. Plaintiff has also submitted an

affidavit from a former Solicitor General

and Supreme Court Justice, specifically

controverting DeLeon’s affidavit with regard

to the PCGG’s authority under a Writ of

Sequestration:

Assuming, however, that the falcon

aircraft had been validly sequestered

--. there can be hardly any doubt that

bei | the sequestration of the aircraft may

be deemed to have been “automatically

lifted" as of August 2, 1987.

But even if it is assumed that the

sequestration of June 19, 1986, on the

Falcon aircraft continues to be

effective, PCGG had no authority to

sell the aircraft. The power to sell

property pertains to the owner (Article

428 and 429, Civil Code). And the

Supreme Court has ruled that

sequestration does not vest in the PCGG

the right of ownership.

(Antonio Affidavit, Response Ex. U at 11-

12).

Assuming that the above conduct raises

factual issues that are not appropriate for

disposition by summary judgment, there are

other factors that as a matter of law

preclude Fuller reliance on the “act of

Po 34

state" doctrine. To establish that sale of

the plane was an act of state, Fuller relies

on three executive orders of President

Aquino which are summarized as follows.

Executive Order No. 1 creates the PCGG for

the purpose of recovering all ill-gotten

wealth. It charges the PCGG with the task

of assisting Aquino in (1) recovering all

ill-gotten wealth accumulated by Marcos and

his close associates; (2) investigating

cases of graft and corruption assigned to it

by the President; (3) sequestering or

placing or causing to be placed under its

control or possession any building or office

wherein any ill-gotten wealth of properties

may be found; (4) pr..visionally taking over

in the public interest or to prevent its

disposal or dissipation, business

enterprises and properties of Marcos and his

close associates.

Executive Order No. 2 addresses the

funds, money, assets, and properties

illegally acquired or misappropriated by

Marcos and his associates. This order (1)

authorizes the freezing of all assets and

properties in the Philippines in which

Marcos or his associates have an interest or

participation; (2) prohibits any person from

transferring, conveying or otherwise

depleting or concealing such assets; (3)

requires all persons in the Philippines

holding such assets to make such disclosure;

and (4) authorizes the PCGG to request and

appeal to foreign governments whether in any

such assets for properties may be found to

freeze them pending adjudication of

ownership in the Philippine Court.

Executive Order No. 14 gives’ the

Sandiganbayan Court original jurisdiction

over cases involving the ill-gotten wealth

of Marcos and his associates. No provision

of these executive orders authorizes the

expropriation and sale of property belonging

without question to a Hong Kong national.

The writ of sequestration that PCGG

issued against Eduardo Cojuangco, Jr. surely

cannot be the "act of state" on which Fuller

relies. Cojuangco did not own the plane. A

company in which he owned stock leased the

plane. The lease had almost expired. The

owners of the plane is not a party to the

sequestration order. In any event

sequestration by the PCGG vests no title in

the latter, as the Philippine Supreme Court

has aptly pointed out. It is a method of

conserving the property pendente lite.

[Tjhe act of sequestration, freezing or

provisional takeover of property does

not import or bring about a divestment

of title over said property; does not

make the PCGG the owner thereof. In

relation to the property sequestered,

frozen or provisionally taken over, the

PCGG is a conservator, not an owner.

Therefore, it cannot perform strict

acts of ownership.

Baseco v. PCGG, 150 S.Ct.Rep.Ann. 81, 236

(Philippine S.Ct. 1987).

As a matter of fact, Fuller in his

original brief identified the PCGG as a

receiver. A court-supervised trustee does

not exercise sovereign power under the "act

of state" doctrine. See Remington Rand

Corp. v. Business Systems, Inc., 830 F.2d

1260 (3rd Cir. 1987). The PCGG as a

receiver must act under the authority of a

court. By President Aquino’s Executive

Order No. 14, that court was’~ the

Sandiganbayan Court. That Court denied PCGG

the authority to sell this plane and

scathingly denounced its action in regard to

the seizure and attempted sale of the plane,

as was pointed out, supra, in the Statement

of Facts. The order was never reversed or

vacated by the Supreme Court.

[3,4] To qualify as an act of

state, it is necessary to prove that the act

"occurred as a result of a considered policy

determination by a government to give effect

to its political and public interest--

matters that would have significant impact

on American foreign relations." Mannington

Mills, Inc. v. Congoleum Corp., 595 F.2d

1287, 1295 (3rd Cir.1979). The Court in

Mannington Mills refused to grant "act of

state" status to a foreign sovereign’s grant

of a patent. Similarly, a foreign judicial

judgment in a case involving private

litigants does not rise to the status of an

act of state. Timberlane Lumber Co. v. Bank

of American, 549 F.2d 597, 607-08 (9th

Cir.1976). Nor does a party’s initiation of

foreign judicial proceedings amount to an

act of state. Dominicus Americana Bohio v.

Gulf & Western, 473 F.Supp. 680, 689

(S.D.N.Y. 1979). And as the Supreme Court

stressed in Alfred Dunhill of London, supra,

a foreign naval officer’s operation of the

foreign sovereign’s ship on behalf of the

sovereign does not give rise to an act of

state. 425 U.S. at 693-94, 96 S.Ct. at

1860-61.

C. The Bribery Issue

This court is reluctant to rely on the

rather obvious inference that the

transaction was tainted with bribery and

corruption. One significant aspect is that

Fuller was required to discharge the so-

called "Condes lien" before the sale could

be completed. The amount of this lien was

never disclosed but appears to have been in

the neighborhood of two million dollars. It

is a fair inference that the Condes lien was

a device to cover up and launder bribes to

various Philippine officials. Such factual

proof os difficult when the site of the

transaction is in a foreign country. I do

not find it necessary to decide the bribery

issue as a further means of negating the

“act of state" doctrine on which Fuller

relies. W.S. Kirkpatrick & Co. v.

Environmental Tectonics Corp., _—SU.S. _s,

110 S.Ct. 701, 107 L.Ed.2d 816 (1990).

There is ample basis for sustaining the

plaintiff’s motion for summary judgment on

other grounds.

III. CONCLUSION

The PCGG expropriated an expensive

airplane without any legal basis whatsoever.

Although the plane was leased to a company

in which an associate of Ferdinand Marcos

was a stockholder, the Marcos associate

owned no interest whatsoever in the plane,

and the lease was near the end of its term.

The plane was nevertheless seized and sold

in a transaction having the strong odor of

tsi

corruption. The sale was made in the face

of an adverse ruling by the Philippine court

never having supervision over it--a ruling

never reversed by the Philippine Supreme

Court. The seizure and sale violated the

specific terms of the Treaty known as the

Geneva Convention covering property rights

in aircraft. It violated principles of

international law, the Second Hickenlooper

Amendment, as well as_ principles of

Philippine law enunciated by the Philippine

court having jurisdiction over this matter.

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APPENDIX E

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APPENDIX E

WALTER FULLER AIRCRAFT SALES,

INC., Plaintiff-Appellee,

Vv.

The REPUBLIC OF THE PHILIPPINES

and the Philippines Presidential

Commission on Good Government,

Defendants~-Appellants.

No. 91-1805.

United States Court of Appeals,

Fifth Circuit.

965 F.2d 1375

July 8, 1992.

KING, Circuit Judge:

Shortly after the Marcos regime was

ousted from the Philippines, the new

government of Corazon Aquino created the

Presidential Commission on Good Government

(PCGG) to recover any ill-gotten gains of

Marcos and his confederates. using its

power to sequester property, the PCGG

obtained control of a Falcon 50 jet

ASN BS

SETI SSE a ITN

aircraft (the Falcon) that had been leased

by a Philippine corporation with alleged

ties to the former Marcos regime. The

owner of the plane was Faysound, Ltd., a

Hong Kong corporation. The PCGG ultimately

sold the Falcon to an American corporation,

Walter Fuller Aircraft Sales, Inc.

(Fuller), which brought it to the United

States. Faysound, distressed about the

disposition of its property, brought an

action against Fuller in federal district

court in Arkansas to try title, and won.

This lawsuit arose out of the Arkansas

proceedings. Fuller, claiming that the

PCGG had promised in the deed of sale to

defend any action brought by an adverse

Claimant to the Falcon, sued the PCGG and

the Republic of the Philippines (Republic)

in the United States District Court for the

Northern District of Texas in an effort to

recover the cost of defending Faysound’s

lawsuit. The PCGG and the Republic moved

to dismiss on the ground that they were

entitled to sovereign immunity under the

Foreign Sovereign Immunities Act (FSIA),'

but the district court held that the suit

could go forward against both defendants.

We agree that the district court had

subject matter jurisdiction over the suit

against the PCGG under the commercial

activities exception to the FSIA, but the

record is insufficient to allow a

determination of whether the Republic can

be held liable for the acts of the PCGG

under an agency theory. We also reject the

defendants’ argument that the act of state

doctrine bars the suit, and hold that the

district court had jurisdiction over a tort

Claim advanced by Fuller. We do not,

’ Pub. L. 94-583, 90 Stat. 2891,

28 U.S.C.§§ 1330;

1332(a) (2)-(4); 1391(F); 1441(d);

1602-1611.

= .

however, accept the defendants’ invitation

to review the district court’s ruling on

the issue of forum non conveniens.

On February 28, 1986, President

Corazon Aquino signed Executive Order No.

1, creating the PCGG. The PCGG was charged

with, inter alia, assisting in "[tjhe

recovery of all ill-gotten wealth

accumulated by former President Ferdinand

E. Marcos, his immediate family, relatives,

subordinates and close associates, whether

located in the Philippines or abroad,

including the takeover or sequestration of

all business enterprises and entities owned

or controlled by them...." In order to

carry out this duty, the PCGG was given the

power and authority "[{t]Jo provisionally

take over in the public interest or to

prevent its disposal or dissipation,

business enterprises and properties taken

over by the government of the Marcos

Administration or by entities or persons

close to former President Marcos...." Two |

weeks later, by Executive Order No. 2,

President Aquino froze and prohibited the

transfer of all assets in which Marcos or

any of this associates had any interest.

Using its power under Executive Orders

Nos. 1 and 2, the PCGG issued a writ of

sequestration against Eduardo Cojuangco,

Jr., describing a Falcon 50 jet aircraft

registered in the name of United Coconut

Chemicals, Inc. (UNICHEM) as lessee.

Cojuangco was a wealthy businessman with a

substantial interest in UNICHEM, and had

ties to former President Marcos, As

required by Executive Order No. 14, the

PCGG applied to the Sandiganbayan, the

special Philippine court established to

adjudicate claims to property sequestered |

by the PCGG, for permission to seli the

Falcon. The Falcon began to deteriorate

while the proceedings were pending, so the

PCGG stepped up its efforts to sell. In

late summer 1989, Fuller, a Texas

corporation in the business of aircraft

brokerage and resale, began negotiations

with the PCGG for the purchase of the

Falcon. Although the PCGG apparently never

received permission from the Sandiganbayan

to sell the plane, it eventually closed the

deal with Fuller.* Fuller and the PCGG

executed two agreements covering the sale,

a Deed of Sale and a Memorandum of

Agreement. The Deed of Sale provides as

*The’ events leading up to the PCGG’s

acquisition of authority to sell the

aircraft, none of which is relevant to this

appeal, are intriguing and are commended to

intrepid students of international law and

civil procedure.

, 748

F.Supp. 1365, 1367-70 (E.D. Ark.1990),

appeal dismissed, 940 F.2d 339 (8th

Cir.1991) (per curiam), cert. denied, ___

U.9>;,.: cue: eee

1175, 117 L.Ed.2d 420 (1992).

follows:

ARTICLE V. WARRANTIES AND

REPRESENTATIONS

b. The SELLER ... does hereby assume

full responsibility, to defend and

hold harmless the BUYER from any and

all claims of all persons whosoever,

including but not limited to adverse

Claims, charges, liens, and/or

possible encumbrances that may be

place [{sic] on the title by reason of

any act, contract or agreement entered

into, prior to the date of this Deed

of Sale, as the SELLER by virtue of

this sale, has released subject

aircraft absolutely free from any such

Claims, for if any there be should

arise, such claims are understood ipso

facto directed against the proceeds of

the sale that is deposited in escrow,

and not anymore on the aircraft.

After taking possession, Fuller

transported the Falcon to Arkansas for

repairs.

On October 9, 1989, Faysound, the Hong

Kong corporation that owned the Falcon and

had leased it to UNICHEM, filed an action

in the United States District Court for the

Eastern District of Arkansas against Fuller

and Falcon Jet Corporation to try title to

the aircraft (the Arkansas action). Fuller

notified the PCGG in writing of the

Arkansas action and requested that it

"defend and hold [Fuller] harmless" from

Faysound’s claim of title to the aircraft.

The PCGG refused. On October 29, 1990, the

district court granted Faysound’s motion

for summary judgment, holding that the

PCGG’s expropriation of the Falcon from an

entity that did not own it was not

protected by the act of state doctrine.

Faysound, Ltd. v. Walter Fuller Aircraft

Sales, Inc., 748 F.Supp. 1365

(E.D.Ark.1990) appeal dismissed, 940 F.2d

339 (8th Cir.1991) (per curiam), cert.

denied, .. U.S _.., 112.8.Ct. 1175, 117

L.Ed.2d 420 (1992). On November 21, 1990,

Fuller again requested that the PCGG bear

the costs of defending the Arkansas action.

The PCGG again refused. On December 10,

1990, fuller filed this action against the

PCGG and the Republic for breach of the

contractual indemnity clause, for breach of

warranty of title, and for a declaration of

the parties’ rights under the Deed of Sale.

The PCGG and the Republic filed a

joint motion to dismiss. They agreed that

they were both foreign states as defined in

the FSIA, but the Republic argued that it

could not be held liable for the actions of

its instrumentality, the PCGG. Moreover,

they asserted, none of the exceptions to

the FSIA’s general rule of sovereign

immunity, including the “commercial

activities" exception, applied, so the

district court lacked subject matter

jurisdiction. Finally, they argued that

the suit was barred by the act of state

doctrine. In an order entered April 18,

1991, the district court denied the motion.

It held, first, that under the analysis of

First National City Bank v. Banco Para el

Comercia Exterior de Cuba, 462 U.S. 611,

103 S.Ct. 2591, 77 L.Ed.2d 46 (1983)

[Bancec}], the Republic could be sued for

the acts of the PCGG because the PCGG was

the "alter ego" of the Republic. It then

held that the FSIA did not shield the

defendants from liability because (1) the

Deed of Sale, although not containing an

explicit choice of law provision,

contemplates that disputes would be

adjudicated in the United States, and

therefore functions as an implicit waiver

of sovereign immunity under 28 U.S.C. §

1605(a) (1) - (exception for waiver of

immunity); and (2) the contract between the

PCGG and Fuller was commercial activity

which produced a direct effect in the

United States sufficient to support

jurisdiction under 28 U.S.C. § 1605(a) (2)

(exception for commercial activities).

With respect to the commercial activities

exception, the district court held that the

PCGG had engaged in commercial activity

because the aircraft contract was the type

into which private parties enter. It also

held that the contract amounted to

commercial activity outside the United

States with a "direct effect" in the United

States, because the PCGG’s alleged actions

caused Fuller, an American corporation, to

suffer a foreseeable financial loss. The

court next determined that it had personal

jurisdiction over the defendants. Finally,

the court determined that the act of state

doctrine did not bar the suit because the

sale of the Falcon either was not the act

of a sovereign or involved repudiation of a

commercial obligation.

In an amended complaint, Fuller added

a claim for actual and punitive damages

against the PCGG under a tort theory and

alleged an exception to sovereign immunity

under 28 U.S.C. § 1605(a)(5) (noncommercial

tort exception). The defendants then filed

a second motion to dismiss, adopting the

arguments for dismissal asserted in their

original motion and adding the additional

defense of forum non conveniens. In an

3The amended complaint was filed

before the district court’s first order.

The defendants had responded by filing

their second motion to dismiss on April 12,

six days before the first order was entered

on the docket but two days after the order

had been signed by Judge Buchmeyer. After

the first order was issued, the defendants

filed a notice of appeal. A panel of this

court dismissed the appeal as premature

because the district court had not yet

order entered July 9, 1991, the district

court determined that it had jurisdiction

over Fuller’s tort claim through the

operation of 28 U.S.C. § 1367 (providing

for "supplemental" jurisdiction over

related claims whenever district courts

have original jurisdiction in a civil

action) and denied the forum non conveniens

argument. With respect to the latter, the

court held that the Philippines would not

be an adequate forum, that trial of the

case would be easier in Texas, and that the

public interests in the dispute weighed in

favor of an American forum.

{1} The defendants filed a timely

notice of appeal after the district court’s

second decision.* On October 31, 1991,

ruled on the second motion to dismiss which

contained the tort immunity claim.

‘Immediate appeal, under the

collateral order doctrine, is permitted

from an order denying sovereign immunity

under the FSIA.

Fuller filed its appellate brief and a

Motion to Dismiss Moot Appeal. In the

motion, Fuller pointed out that the PCGG

had recently filed a complaint in an

adversary proceeding in the Bankruptcy

Court of the Northern District of Texas

against Faysound and Fuller. The

bankruptcy complaint, which was attached to

the motion, sought a declaration either

that Fuller was the rightful owner of the

Falcon, or, if Fuller was not the rightful

owner, that the PCGG had an interest in the

aircraft superior to that of Faysound.°

Fuller argued that this complaint

functioned as a waiver of sovereign

immunity because the bankruptcy court suit

involved the transaction over the Falcon.

Comision de Contratos, 923 F.2d 380, 385

(5th Cir.1991).

*Counsel informed us at oral argument

that the bankruptcy action has since been

dismissed.

Fuller further argued that, because the

PCGG was an agent of the Republic, the

waiver extended to the Republic. Thus,

fuller contended, the appeal was moot and

this court should refrain from exercising

its pendent appellate jurisdiction to

decide any of the other issues. The PCGG

and the Republic opposed the motion. On

February 5, 1992, a panel of this court

decided that Fuller’s motion should be

carried with the case.

On January 10, 1992, Fuller filed a

motion to supplement the record with

documents filed by the Republic in the

bankruptcy action. These documents

included the Republic’s motion to dismiss a

third-party complaint which had been filed

by fuller in that action, and the

attachments to that motion.® One of the

‘The bankruptcy action had been filed

only by the PCGG against Fuller. Fuller

impleaded the Republic.

at ... —Ai.cryt ces) wel cS,

attachments was the Republic’s complaint

against Cojuangco in the Sandiganbayan.

Paragraph 17 of the complaint stated that

Fuller was "the buyer of the [Falcon] from

the plaintiff." Fuller asserted in its

motion to supplement that this complaint

constituted a judicial admission of the

Republic’s status as seller of the

airplane. On February 5, this court

granted Fuller’s motion to supplement the

record.

II.

We must first decide whether to grant

Fuller’s motion to dismiss the appeal as

moot. Normally, an appeal becomes moot

when, for whatever reason, there is no

longer any case or controversy. See [ITT

Rayonier, Inc. v. United States, 651 F.2d

343, 345 (Sth Cir. Unit B 1981). Fuller’s

motion, however, argues that mootness

arises from a waiver of sovereign immunity

which occurred after the district court’s

decision. This is really an argument which

goes to the substance of the waiver

question. although Fuller may be arguing

that the appeal is moot, it is simply

pointing to another reason why we should

find a waiver of sovereign immunity. We

need not address the merits of the waiver

argument, however, because there is ample

support for the district court’s conclusion

that the sale of the Falcon fell within the

commercial activities exception to the FSIA

(at least with respect to the PCGG). Thus

Fuller’s motion is itself moot.

Iit.

[2] We next confront the district

court’s decision that the Republic could be

held liable under an agency theory for the

acts of the PCGG. The district court

articulated two separate rationales for

imputing liability to the Republic. First,

the court observed that if the PCGG was not

an agent of the Republic, it did not

satisfy the definition of a "foreign state"

under § 1603, and thus would not be

entitled to a presumption of immunity.

Later in the opinion, the court analyzed

specific record evidence to conclude that

there was an agency relationship. The

court relied on (1) a letter from the PCGG

to Fuller indicating that the PCGG had

authority to sell on behalf of the

government; (2) the fact that the

proceeding to seize the Falcon in the

Sandiganbayan was initiated in the name of

the Republic; (3) the fact that the

republic filed a certiorari petition in the

Philippines Supreme Court in proceedings

involving the propriety of the seizure and

sale even though an action of the PCGG was

at issue in the case. The court then

turned to five factors suggested in Bancec

for determining whether an instrumentality

of a foreign government functions as the

alter ego of the government.’ The court

pointed to the facts that the Philippine

government created and defined the mission

of the PCGG, funds from the national

treasury were set aside for the PCGG’s

expenditures, the PCGG is empowered to

obtain the assistance of all governmental

entities in carrying out its mission, and

"The district court distilled the

following five factors from Bancec: (1)

the level of economic control by the

government; (2) whether the entity’s

profits go to the government; (3) the

degree to which government officials manage

the entity or

otherwise have a hand in its daily affairs;

(4)

whether the government is the real

beneficiary of the entity’s conduct; and

(5) whether adherence to separate

identities would entitle the foreign state

to benefits in United States courts while

avoiding its obligations. The

opinion does not, however, set forth these

factors as part of a "test" for determining

agency status.

Sh “Se Gren eagpgee ptm >* te LP ae dec 64 6» ae me Ae pot ttn, Al Enel iB ly ala

— — aie “

funds recovered by the PCGG would go to the

Republic. Although in the court’s opinion

"the government does not control the PCGG’s

day-to-day activities," the level of

interrelationship evidenced by the above

factors enabled the court to conclude that

the Republic and the PCGG were jointly

liable for the conduct of each other.

The district court’s first rationale--

the PCGG is a foreign state under the FSIA,

so it is an agent for liability purposes--

confuses two distinct issues. Section 1603

defines the universe of entities entitled

to statutory sovereign immunity.® This is

®Section 1603 provides, in relevant

part:

For purposes of this chapter--

(a) A “foreign state," except as

used in section 1608 of this

title, includes a political

subdivision of a foreign state or an agency

or instrumentality of a foreign state as

defined in subsection (b).

(b) An “agency or instrumentality

of a foreign state"

means any entity--

(1) which is a separate legal

completely different from the question

whether a foreign state and its agency or

instrumentality are alter egos for purposes

of substantive liability. Hester Int’l.

Corp. v. Federal Republic of Nigeria, 879

F.2d 170, 176 n. 5 (5th Cir. 1989). "[T]}he

level of state control required to

establish an ‘alter ego’ relationship is

more extensive than that required to

establish FSIA ‘agency.’" Jd; see also

Foremost-McKesson, Inc. v. Islamic Republic

of Iran, 905 F.2d 438, 448 (D.C.Cir.1990).

Thus, the mere fact that the PCGG fit

within § 1603’s definition of a foreign

state does not bear on the issue here.

{3} The district court’s second

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....

rationale was derived from the correct

legal standard, but we are not convinced

that the court could determine alter ego

status on the current state of the record.

Instrumentalities of foreign governments

are presumed to retain their separate

juridical status, Bancec, 462 U.S. at 627,

108 S.Ct. at 2600, so the burden of proving

an agency relationship which would enable

Fuller to hold the Republic liable on a

contract signed by the PCGG fell upon

Fuller. Hester, 879 F.2d at 176; De

Letelier v. Republic of Chile, 748 F.2d

790, 795 (2d Cir. 1984), cert. denied, 471

U.S. 1125, 105 S.Ct. 2656, 86 L.Ed.2d 273

(1985). Cf. Marastro Compania Naviera,

S.A. v. Canadian Maritime Carriers, Ltd.,

959 F.2d 49 (5th Cir.1992). Bancec remains

the seminal case on the circumstances under

which American courts may disregard the

separate status of instrumentalities

created by foreign governments. In Bancec

the Court held that, in a suit brought by

Cuba’s state-owned bank (Bancec) against

Citibank to recover on a letter of credit,

Citibank could assert a setoff against

assets that had been expropriated by the

Cuban government. Although the Court

recognized that legal respect for the

separate nature of government

instrumentalities is essential to "the

efforts of sovereign nations to structure

their governmental activities in a manner

deemed necessary to promote economic

development and efficient administration,"

and found support for a presumption of

separateness in the legislative history of

the FSIA, 462 U.S. at 626, 103 S.Ct. at

2605, equitable principles drawn from

corporate law required it to disregard the

"corporate form." Bancec was dissolved

before Citibank asserted its setoff, the

Se ee

Court pointed out, so any benefit from

disallowance of the setoff would accrue

solely to the Government of Cuba. [Id. at

631-32, 103 S.Ct. at 2602. The Court made

clear, however, that it had not established

any “mechanical formula" for evaluating

efforts to disregard the separate status of

government instrumentalities, but instead

was relying on equitable principles

applicable in particular to cases in which

foreign governments seek to obtain the

benefit of American courts. Id. at 633,

103 S.Ct. at 2603.

The. actual holding of Bancec,

therefore, establishes only that a court

must be sensitive to the extent to which

the foreign government will be the real

beneficiary of litigation. The broader

principles upon which Bancec was based--

particularly the principle of disregarding

the corporate form in instances where

respecting it would lead to injustice--are

undoubtedly relevant whenever a plaintiff

seeks to disregard a foreign government

instrumentality, but we perceive in the

district court’s opinion and the briefs of

the parties an effort to create and apply

the kind of mechanical formula the Supreme

Court rejected.

Our precedent since Bancec indicates

that, in addition to the equitable

principles discussed by the Supreme Court,

we look to the ownership and management

structure of the instrumentality, paying

particularly close attention to whether the

government is involved in day-to-day

operations, as well as the extent to which

the agent holds itself out to be acting on

behalf of the government. Hester, 879 F.2d

at 178, 181. In Hester, the plaintiff, an

American corporation, brought suit against

the Republic of Nigeria, a government-

created corporation (NGPC), and one of the

states of Nigeria, after a farming joint

venture it had entered into with the NGPC

and the state went sour. Hester appealed

only the district court’s dismissal, for

lack of subject matter jurisdiction, of its

breach of contract claim against Nigeria.

Thus, the issue before this court was

whether the district court had erred in

refusing to disregard the separate status

of the NGPC and Nigeria. After reviewing

the Bancec principles, we cited with

approval the decision in Kalamazoo Spice

Extraction Co. v. Provisional Military

Government of Socialist Ethiopia, 616

F.Supp. 660 (W.D.Mich.1985), in which the

court focused on the fact that the

government had assumed day-to-day operation

of the instrumentality it owned.’ Hester,

In Kalamazoo,

a government-owned corporation was not

longer

879 F.2d at 178. We determined that the

issue was highly fact-bound, and so went on

to review in detail the facts upon which

the district court had based its

conclusion.

Some of the relevant findings” were

that Nigeria owned 100 percent of NGPC’s

stock; NGPC’s employees were not Nigerian

civil servants; no official of Nigeria was

involved in negotiation of the contract;

NGPC generated its own income from

commercial and government loans; Nigeria

exercised no voting rights in the joint

distinguishable as a separate entity when

the majority of the instrumentality’s stock

had been expropriated, the government had

required that all checks in excess of a

certain amount be signed by a government-

appointed director, a governmental agency

was

required to approve all invoices for

shipments exceeding a certain amount, and

the government generally exercised direct

control over its operation. Hester, 879

F.2d at 178. ‘

None of the findings were clearly

erroneous. Hester, 879 F.2d at 180.

venture set up by the contract; and

documents generated during the contract

dispute showed that Nigeria considered NGPC

entirely separate. In addition, documents

reviewed by the district court showed that

the Nigerian Federal Ministry of

Agriculture exercised general supervisory

control over the NGPC but was not involved

in day-to-day operations. Jd. at 179. We

rejected Hester’s contention that (1)

documents which reflected the involvement

of the Federal Ministries of Agriculture

and Finance in obtaining a letter of credit

for the project and (2) documents stating

that NGPC "represents" Nigeria in pursuing

agricultural policies revealed Nigeria’s

control. Jd. at 180. In concluding that

there was no alter ego relationship, we

pointed out that Nigeria’s ownership of 100

percent of NGPC stock and appointment of

NGPC’s Board of Directors was not

dispositive,'' and that the evidence did

not reveal day-to-day control by the

government. This conclusion was buttressed

by analogizing to agency law: "[njone of

the documents prepared by Nigeria ever

communicated that NGPC represented it

beyond the extent that all corporate

entities represent their shareholders."

Id. at 181.

The Republic argues that its absence

from the negotiations and from the contract

to sell the Falcon immunizes it against

liability. Fuller responds primarily by

referring to the documents cited by the

district court, and it has added additional

documents in the supplemental record

allegedly showing the Republic’s

“Other courts have recognized that

100 percent ownership of an instrumentality

set up as a corporation is not dispositive.

, 821 F.2d

559, 565 (11th Cir.1987); Foremost-

McKesson, 905.F.2d at 448.

involvement in the sale. we are not

convinced, however, that the record in this

case was sufficiently developed to enable

the district court to make its findings.

Neither the executive orders creating the

PCGG (on which the district court relied)

nor the documents filed by the Republic in

the Sandiganbayan in connection with the

seizure of the Falcon (the documents in

supplemental record), tell enough, by

themselves, about the relationship between

the Republic and the PCGG to allow a

conclusion of alter ego status. All of

these documents obviously have relevance to

this issue, but they do not have the

dispositive effect ascribed to them by the

district court and Fuller. Significantly,

the PCGG and the republic have not had an

opportunity to offer evidence about their

relationship, a the district court made its

determination solely from the documents

submitted with the motion to dismiss. In

the absence of an opportunity for the

parties to flesh out the structure of their

relationship, we are hesitant to rely

solely on the original orders creating the

PCGG and documents filed in the Supreme

Court of the Philippines. Unlike in

Hester, this record does not contain the

quantity or quality of evidence that would

enable us to affirm or reverse the district

court outright. Therefore, we must remand

for further factfinding about the

involvement of the republic in the affairs

of the PCGG. See Foremost-McKesson, 905

F.2d at 448 (remanded fur further findings

on principal-agency status); cf. Williams

v. Tucker, 645 F.2d 404, 413 (5th Cir.)

(district court may hear written and oral

evidence in order to determine factual

issues which determine jurisdiction), cert.

denied, 454 U.S. 897, 102 S.Ct. 396, 70

L.Ed.2d 212 (1981); Filus v. Lot Polish

Airlines, 907 F.2d 1328, 1332 (2d Cir.

1990) (plaintiff may engage in discovery

with respect to jurisdictional issues under

the FSIA).

IV.

The need for further factual

development on the issue of the agency

relationship between the PCGG and the

Republic does not, however, affect our

ability to review the district court’s

conclusions concerning the sovereign

immunity of the PCGG. The PCGG signed the

contract with Fuller and is a foreign state

as defined in 28 U.S.C. § 1603. We

therefore proceed to consider the

applicability of the FSIA to the action

against the PCGG.

[4-7] We review the district court’s

conclusions about sovereign immunity de

novo. Stena Rederji AB v. Comision de

Contratos, 923 F.2d 380, 386 (5th Cir.

1991). Under the FSIA, foreign states and

their agencies and instrumentalities are

immune from suit in the courts of the

United States except as otherwise provided

in the Act. 28 U.S.C. § 1604. A failure

to satisfy the statute’s exceptions

deprives the district court of subject

matter jurisdiction. Stena, 923 F.2d at

386; Forsythe v. Saudi Arabian Airlines

Corp., 885 F.2d 285, 288 (5th Cir. 1989)

(per curiam). The foreign state always has

the burden of persuasion on immunity. Once

the state makes a prima facie showing of

immunity, the plaintiff seeking to litigate

in the United States has the burden of

coming forward with facts showing that an

exception applies. Jd. at 289 n. 6.

Section 1605 contains the exceptions

to sovereign immunity relevant in this

case. It provides, in part:

(a) A foreign state shall not be

immune from the jurisdiction of the

courts of the United States or of the

States in any case--

(1) in which the foreign state has

waived its immunity either explicitly

or by implication, notwithstanding any

withdrawal of the waiver which the

foreign state may purport to effect

except in accordance with the terms of

the waiver;

(2) in which the action is based upon

a commercial activity carried on in

the United States by a foreign state;

or upon an act performed in the United

States in connection with a commercial

activity of the foreign state

elsewhere; or upon an act outside the

territory of the United States in

connection with a commercial activity

of the foreign state elsewhere and

that act causes a direct effect in the

United States.

We find that the § 1605(a)(2) exception

(the commercial activities exception)

applies in this case, and therefore do not

discuss Fuller’s argument about waiver.

In order for an American court to

exercise jurisdiction over the PCGG under

the commercial activities exception,

fuller’s suit must be based upon

“commercial activity" which has at least

one of the three jurisdictional connections

with the United States set forth in §

1605(a)(2). Stena, 923 F.2d at 386;

Callejo v. Bancomer, S.A., 764 F.2d 1101,

1107 (5th Cir. 1985). As we explained in

Stena, “[njot only must there be a

jurisdictional nexus between the United

States and the commercial acts of the

foreign sovereign, there must be a

connection between the plaintiff’s cause of

action and the commercial acts of the

foreign sovereign." 923 F.2d at 386; gee

also United States v. Moats, 961 F.2d 1198,

1205-06 (5th Cir. 1992) ("this lawsuit must

be based on commercial activities that are

connected to the United States in the

manner described by the statute") (emphasis

in original); Vencedora Oceanica

Navigacion, S.A. v. Compagnie Nationale

Algerienne de Navigation, 730 F.2d 195, 200

(Sth Cir.1984); America West Airlines, Inc.

v. GPA Group, Ltd., 877 F.2d 793, 796 (9th

Cir. 1989).

A. Commercial Activity

(8} The PCGG initially argues that

the contract for the sale of the Falcon

involved sovereign acts, not commercial

activity. The statutory definition of

"commercial activity" is “either a regular

course of commercial conduct or a

particular commercial transaction or act."

28 U.S.C. § 1603(d). Not surprisingly,

courts faced with the question whether a

particular act or series of acts

constitutes commercial activity have

ignored this circular definition and have,

consistent with the intent of Congress,

defined the concept on an evolving, case-

by-case basis. See H.Rep. No. 94-1487,

94th Cong., 2d Sess. at 16, reprinted in

1976 U.S. C.C.A.N. 6604, 6615 (federal

courts are given "a great deal of latitude

in determining what is a ‘commercial

activity’ under the FSIA"); Segni v.

Commercial Office of Spain, 835 F.2d 160,

163 (7th Cir. 1987).

Congress provided some guidance in the

second sentence of § 1603(d), which directs

us to look at the "nature" of an activity

rather than its "purpose" in determining

whether it is commercial. In Callejo, we

adopted the view, first articulated in the

—_

ae Snr aaa ae

landmark FSIA cases of Texas Trading &

Milling Corp. v. Federal Republic of

Nigeria, 647 F.2d 300, 309 (2d Cir.1981),

cert. denied, 454 U.S. 1148, 102 S.Ct.

1012, 81 L.Ed.2d 301 (1982), that an

activity has a commercial nature for

purposes of FSIA immunity if it "is of a

type that a private person would

customarily engage in for profit." 764

F.2d at 1108 n. 6 (citations omitted) ."

The Supreme Court recently approved of this

approach. Republic of Argentina v.

Weltover, Inc., U.S. , 112 S.Ct.

2160, 2165-67, 119 L.Ed.2d 394 (1992).

Consistent with this definition, courts

typically hold that contracts for the

procurement of goods and services are

Numerous other courts have utilized

the Texas Trading test. See Rush-

Hellenic Republic, 877 F.2d 574, 578 n. 4

(7th Cir.1989) (collecting cases), cert.

denied, 493 U.S. 937, 110 S.Ct. 333, 107

L.Ed.2d 322 (1989).

commercial rather than governmental in

nature. See Texas Trading, 647 F.2d at 310

(contract for purchase of cement is

commercial); Segni, 835 F.2d at 164-65

(employment contract under which employee

would market country’s wines is

commercial); - - ’

Med. Center v. Hellenic Republic, 877 F.2d

574, 581 (7th Cir.1989) (contract for

purchase of medical services is

commercial), cert. denied, 493 U.S. 937,

110 S.Ct. 333, 107 L.Ed.2d 322 (1989);

Practical Concepts, Inc. v. Republic of

Bolivia, 811 F.2d 1543, 1550 (D.C.Cir.1987)

(contract for developing rural areas is

commercial). In addition, the House Report

repeatedly mentions contracts for the

purchase of goods in the course of

describing activities that courts should

consider commercial.

Employing the Texas Trading test,

there is little doubt that the sale of the

Falcon qualifies as commercial activity.

The PCGG, however, argues that when we look

to the broader activity behind the actual

act of contracting, we will find that the

contract was merely the end result of a

truly governmental activity. Thus, it

characterizes the relevant activity here as

the recovery and sale of the ill-gotten

gains of the Marcos regime, not the mere

making (and alleged) breach) of a contract

to sell an airplane. It analogizes its

acts to the kind of acts we held to be

sovereign in De Sanchez v. Banco Central de

Nicaragua, 770 F.2d 1385, 1393 (5th

Cir.1985). In De Sanchez, the plaintiff

sued to collect on a check issued by Banco

Central, the Nicaraguan central bank.

Banco Central had issued the check to

enable the plaintiff to redeem a

certificate of deposit she had purchased

from another bank, Banco Nacional. This

transaction was necessary because only

Banco Central had the dollars necessary to

redeem the CD. At about the time the check

was issues, the Sandinistas came to power

and the new government ordered that a

series of checks, including the one made

out to the plaintiff, not be honored. 770

F.2d at 1387-88. We held that Banco

Central’s action in issuing the check was

sovereign, not commercial. We explained:

By law, Banco Central had overall

responsibility for the control and

management of Nicaragua’s monetary

reserves ... It was permitted to sell

foreign exchange only for certain

limited purposes ... Banco Central

became involved with Mrs. Sanchez only

in its official role of regulating the

sale of foreign exchange. Its only

authorized purpose in issuing the

. eeu

check was to maintain stable exchange

rates and to allocate scarce foreign

exchange reserves among competing

uses. Consequently, in the current

context, characterizing Banco

Central’s action as a sale of dollars

is not merely incomplete--it is

incorrect. ;

Id. at 1393 (citation omitted). We

acknowledged that ascertaining the nature

of Banco Central’s acts involved some

inguiry into the purpose of the acts, but

pointed out that the purpose "defined the

conduct’s nature ... [Banco Central] was

performing one of its intrinsically

governmental functions a the Nicaraguan

Central Bank." Id. As the initial

issuance of the check was governmental, so

was the later breach. Jd. at 1394.

We contrasted the situation in

Callejo, where a private bank which later

was nationalized, redeemed CDs in devalued

foreign currency rather than in dollars in

order to comply with new governmental

exchange control regulations. The bank in

Callejo merely complied with, rather than

promulgated, the governmental policy, and

thus its acts were deemed commercial. De

Sanchez, 770 F.2d at 1393 n. 1l.

Similarly, we pointed out, in Arango v.

Guzman Travel Advisors Corp., 621 F.2d 1371

(Sth Cir.1980), the defendant was subject

to suit because it breached its contract to

provide the plaintiffs with a tour package

as a result of a separate governmental

decision to deny the plaintiffs entry to

the country. De Sanchez, 770 F.2d at 1394

n. il.

De Sanchez represents the unusual case

where it is extremely difficult to separate

the "nature" and "purpose" inquiries. This

case, by contrast, involves a run-of-the-

LOTT AR a

mill contract which is in all respects

indistinguishable from a contract entered

into between two private entities to sell

an airplane. Whatever the conceptual or

theoretical difficulties inherent in

distinguishing between the "nature" and

"purpose" of various commercial activities,

the statutory language commands that we do

so. Weltover, 112 S.Ct. at 2167. Only

once, in De Sanchez, has this court found

it necessary to look to the purpose of a

transaction to assist it in determining

whether the § 1605(a)(2) exception applies.

The De Sanchez decision, however, involved

commercial acts which represented the real-

world manifestation of the "public" or

"governmental" act of rationing the supply

of foreign currency. Although issuing a

check is the type of act that private

entities perform innumerable times for

profit, see Calleijio, 764 F.2d at 1108 n. 6,

private entities cannot and do not make

policy decisions concerning the rationing

of a country’s remaining foreign currency

reserves in the course of issuing checks.

As the De Sanchez court explained, the mere

issuance of the check was a governmental

decision. 770 F.2d at 1393. Similarly,

courts have found certain activities

governmental rather than commercial for

purposes of the FSIA even when they are

identical to activities in which private

parties engage. See, ¢.g.. MacArthur Area

Citizens Ass’n v. Republic of Peru, 809

F.2d 918 (D.C.Cir.) (country’s remodelling

of chancery building is not commercial

because operation of diplomatic buildings

is sovereign activity), modified on other

grounds, 823 F.2d 606 (D.C.Cir.1987).

Looking to the PCGG’s mandate to

recover Marcos’s ill-gotten wealth as the

defining aspect of this transaction would

impermissibly involve us in an analysis of

the purpose behind the transaction. The

mere fact that we can draw a causal

connection between the sovereign act and

the commercial activity is irrelevant, for

every contract into which a foreign

sovereign enters theoretically can be

traced to a public purpose. Calleijio, 764

F.2d at 1109; see also Rush-Presbyterian-

St. Luke’s, 988 F.2d at 581. As directed

by Callejio, we must look at the gravamen of

the complaint. Here, it is the PCGG’s

refusal to defend according to a

contractual obligation, no the sovereign

act of recovering Marcos’s wealth, that

forms the basis for the suit.

Our conclusion that the PCGG’s act of

contracting was commercial rather than

sovereign leads us to conclude further that

the actual act upon which this suit is

based--the breach of the contract--also was

a commercial act. See Callejio, 764 F.2d at

1101 (selling of CDs and breach of

obligation under it were both commercial

acts); Arango, 621 F.2d at 1371 (selling of

tour package and breach were both

commercial acts). The nature of the

initial contract perhaps is not necessarily

dispositive on the question of breach;

theoretically, the government itself could

have ordered the PCGG not to defend Fuller

in the Arkansas action as an act (or

weapon) of foreign policy. See Carey v.

National Oi] Corp., 453 F.Supp. 1097

(S.D.N.¥.1978) (country’s inducement of

breach of privately-made contracts was

sovereign where done for foreign policy

purposes), aff’d on other grounds, 592 F.2d

673 (2d Cir.1979). But there is no

suggestion here that there were any public

policy reasons behind the PCGG’s refusal to

abide by the Deed of Sale. The act of

ereuraaanpes

breaching thus is consistent with the

original act of contracting: both were

commercial activities.

B. Jurisdictional connection with

the United States

{9} The PCGG also challenges the

required jurisdictional connection to the

United Sates. Focusing solely on the third

Clause of § 1605(a)(2), it asserts that the

mere fortuity that Fuller lost money in the

United States as a result of the alleged

breach is not enough to satisfy this

circuit’s requirement that a breach of

contract have a "substantial effect" in the

United States as a "direct and foreseeable

result" of conduct outside the United

States. Zernicek v. Brown & Root, Inc...

826 F.2d 415, 419 (5th Cir.1987), cert.

denied, 484 U.S. 1043, 108 S.Ct. 775, 98

L.Ed.2d 862 (1988). Even if it had reason

to expect that Fuller would initially take

the aircraft to the United States, the PCGG

says, it was Fuller’s unilateral decision

to do so and Faysound’s unilateral decision

to bring suit to try title in the United

States. These events, tiie PCGG argues,

were not a foreseeable result of the

contract; litigation in the Sandiganbayan

was a more foreseeable occurrence.

Employing the Zernicek test, we would

have little difficulty concluding that the

PCGG’s acts had a direct effect in the

United States. Fuller was forced to expend

substantial sums of money defending its

title. The Deed of Sale does not restrict

the courts in which the PCGG is obligated

to defend Fuller, and the Sandiganbayan

would be the least foreseeable forum for

litigation because (1) that court only

hears claims concerning title to seized

property, and (2) it appears that only the

PCGG has the authority to file actions in

-. =

that court. Moreover, it clearly was

foreseeable that Fuller, and American

corporation, would transport the Falcon to

the United States and thus be forced to

defend a quiet title suit here. The PCGG

demonstrated its awareness of this by

arranging for transport permits to the

United States and executing an FAA Bill of

Sale.

Subsequent to oral argument, however,

the Supreme Court clarified the test to be

used in determining whether a commercial

activity outside the United States has a

direct effect in the United Sates. The

Court indicated its disapproval of the

Zernicek standard, rejecting the suggestion

that § 1605(a)(2) “contains any unexpressed

requirement of ‘substantiality’ or

‘foreseeability.’" Weltover, 112 S.Ct. at

2168. Instead, the Court held, the proper

test is that articulated by he Second

Circuit: "an effect is ‘direct’ if it

follows ‘as an immediate consequence of the

defendant’s ... activity[.]’" Id. (citing

Weltover, Inc. v. Republic of Argentina,

941 F.2d 145, 152 (2d Cir.1991)) (ellipsis

in original). Using this more lenient

standard, the Court in Weltover held that

Argentina’s unilateral rescheduling of the

maturity dates on government-issued bonds

had direct effects in the United States

where the bondholders had designated their

New York accounts as the place of payment.

If anything, Weltover strengthens our

conclusion in this case. The PCGG agreed

to “defend and hold harmless [Fuller) from

any and all claims whatsoever, including

but not limited to adverse claims...."

This language obviously includes Faysound’s

quiet title action in Arkansas. As a

direct consequence of the PCGG’s refusal to

provide Fuller with a defense in the

Arkansas action, fuller expended

considerable sums of money to defend

itself. Thus, the PCGG’s commercial act

caused a direct effect in the United States

an the PCGG is not immune from suit.

Vv.

{10,11} The defendants also argue

that the act of state doctrine bars this

lawsuit. This doctrine limits, for

prudential rather that jurisdictional

reasons, the adjudication in American

courts of the validity of a foreign

sovereign’s public acts. See W. S.

Kirkpatrick & Co., Inc. v. Environmental

Tectonics Corp... Int’l, 493 U.S. 400, 404,

110 S.Ct. 701, 704, 107 L.Ed.2d 816 (1990);

Calleio, 764 F.2d at 1113. As the

invocation of an act of state defense does

not call into question federal

jurisdiction, the district court’s ruling

on the issue is not a part of the

immediately appealable order denying

sovereign immunity. In the exercise of our

discretion and in the interest of judicial

economy, however, we may consider claims

under our pendent appellate jurisdiction

that are closely related to the order

properly before us. Metlin v. Palastra,

729 F.2d 353, 355 (Sth Cir. 1984); gee also

Stewart v. Baldwin County Bd. of Educ., 908

F.2d 1499, 1509 (11th Cir.1990); Charles A.

Wright, et al., 16 Federal] Practice and

Procedure § 3937, at 269 (1977 &

Supp.1992). Cf. Myers v. Gilman Paper Co.,

544 F.2d 837, 847 (5th Cir.1977) (related

issues may be decided on appeal from order

_granting, denying, dissolving or modifying

injunction). We exercise this power with

caution, Metlin, 729 F.2d at 355, but here

it is appropriate because the act of state

issue is closely related to the issue of

sovereign immunity.

[12, 13] The act of state doctrine

serves to enhance the ability of the

Executive Branch to engage in the conduct

of foreign relations by preventing courts

from judging foreign public acts. Banco

Nacional de Cuba v. Sabbatino, 376 U.S.

398, 423, 84 S.Ct. 923, 938, 11 L.Ed.2d 804

(1964). When determining whether the act

of state doctrine limits adjudication in

American courts, we look not only to the

acts of the named defendants, "but [to] any

governmental acts whose validity would be

called into question by adjudication of the

suit." .Callejo, 764 F.2d at 1113. The

defendants assert that the act of state

doctrine applies because resolution of this

suit will call into question the Philippine

governméent’s grant of power to the PCGG to

sequester and sell assets, the PCGG’s

official acts of sequestering and selling

the Falcon, the Philippines Supreme Court’s

decision that the PCGG had no authority to

sell the aircraft and that the proceeds of

the sale should be placed in escrow until

title is determined, and various other

official acts. Furthermore, the defendants

argue that, even if there is an exception

to the act of state doctrine for the

repudiation of commercial obligations, it

is inapplicable here because the PCGG’s

commercial acts were traceable to sovereign

acts.

We share none of the defendants’

concerns about the effect of this lawsuit.

The district court need not adjudicate the

validity of any of the public acts

authorizing the PCGG to sequester and sell

assets in the course of determining whether

the PCGG wrongfully repudiated its

contractual obligation. Apart from the

decision of the Philippines Supreme Court,

all of the public acts cited by he

defendants directly involve the creation

and extent of the PCGG’s authority to

acquire and convey title. This lawsuit,

however, has nothing to do with title to

the aircraft, but is instead a damages

action arising from a contract breach.

Unlike in Callejio, where the nationalized

bank’s breach of its obligation to the

plaintiffs was required by a governmental

edict concerning currently exchange rates,

no act of state forced the PCGG to refuse

to defend Fuller. Finding a breach in

Callejo would have called into question the

official acts which directly caused the

breach. Jd. at 1115-16. There is no

comparable connection here between any

public acts and the PCGG’s refusal to

defend.

Moreover, finding a breach here would

not call into question the decision of the

Philippines Supreme Court, for that court

has merely determined that the PCGG had no

authority to sequester and sell the Falcon

without permission from the Sandiganbayan.

In short, all the public acts and decisions

cited by the defendants may be valid and

yet the PCGG still may have breached the

contract. Although public acts lurk in the

background, the act of state doctrine "does

not preclude judicial resolution of all

commercial consequences stemming from the

occurrence of ... public acts." Arango,

621 F.2d at 1381.

VI.

[14] The defendants next argue that

the district court had no jurisdiction over

Fuller’s tort claim. Although the district

court ruled on jurisdiction over Fuller’s

tort claim in an order separate from the

order in which it held the commercial

activities exception applicable, the second

order also functioned as a denial of

immunity. As such, it is immediately

appealable under the collateral order

doctrine.

{15} The parties agree that the

noncommercial tort exception to sovereign

immunity, 28 U.S.C. § 1605(a) (5), is

inapplicable. However, Fuller asserts that

it can recover for tortious acts under the

commercial activities exception of §

1605(a)(2). The defendants contend that

Fuller is bound to the basis for

jurisdiction over its tort claims which it

originally pled (§ 1605(a)(5)) and that,

because there is no jurisdiction under §

1605(a)(2) generally, there is no

jurisdiction over the tort claim.

The defendants also argue that the

district court erred in finding

supplemental jurisdiction under 28 U.S.C. §

1367(a). That section, enacted ten days

before Fuller filed its original complaint,

provides:

Except as provided in subsections (b)

and (c) or as expressly provided

otherwise by Federal statute, in any

civil action of which the district

courts have original jurisdiction, the

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

under Article III of the United States

Constitution....

Subsections (b) and (c) are not relevant

here. However, the defendants argue, a

federal statute, namely 28 U.S.C. §

1330(a), provides that the sole means of

acquiring jurisdiction over a foreign

sovereign is through operation of the FSIA.

Thus, § 1367(a) is inapplicable.

We conclude that jurisdiction was

properly exercised over Fuller’s tort

Claim, at least with respect to the PCGG,

under § 1605(a)(2). As discussed above,

there is subject-matter jurisdiction under

§ 1605(a)(2) to hear the claim against the

PCGG because the PCGG engaged in commercial

activity with a direct effect in the United

States. Section 1605 does not restrict the

nature of the cause of action that may be

asserted against a foreign sovereign over

whom there is subject matter jurisdiction,

but merely eliminates immunity "in any case

--- in which the action is based upon"

commercial activities. Thus, because there

is jurisdiction over the PCGG, the district

court may resolve a tort claim which is

based on the PCGG’s commercial activity.”

Swe note that the district court

erred in applying 28 U.S.C. § 1347(a).

Title 28 U.S. Code § 1330(a) restricts

suits against foreign sovereigns to those

cases in which the sovereign is not

We cannot affirm the order as to the

Republic, however, because, as discussed

above, further proceedings are necessary to

determine whether the Republic can be held

liable for the acts of the PCGG. Thus, we

will reverse this order insofar as it holds

that the court has jurisdiction over

Fuller’s tort claim against the Republic,

and remand for further proceedings.

Vil.

[16] Finally, the defendants quarrel

with the district court’s refusal to

dismiss on grounds of forum non conveniens.

This order is not immediately appealable

entitled to immunity. Under § 1604,

immunity exists except as provided in §§

1605-1607. Thus, the exception contained

in the first clause of § 1367(a) applies

here. Moreover, the intent of § 1367(a)

was to codify the doctrines of pendent and

ancillary jurisdiction. H.R.Rep. No. 101-

734, 101st Cong., 2d Sess., at 27-28,

reprinted in 1990

U.S.Code Cong. & Admin.News 6802, 6873-

6874; gee also Siegel, Practice Commentary

on § 1367 (in pocket part), at 219.

under the collateral order doctrine,

however, as the need for an appellate court

to examine factual and legal issues

involved in the underlying dispute would

often enmesh it too deeply in the merits of

the action. Van Cauwenberghe v. Biard, 486

U.S. 517, 529, 108 S.Ct. 1945, 1953, 100

L.Ed.2d 517 (1988).

We do not think it appropriate to

exercise our discretion to resolve this

issue under our pendent appellate

jurisdiction. The facts to which we look

in reviewing a district court’s forum non

conveniens decision are not closely related

to the considerations involved in reviewing

decisions concerning either sovereign

immunity or the act of state doctrine. A

forum non conveniens inquiry involves an

assessment, under a narrow standard of

review, of the district court’s conclusion

about the most convenient place for trial.

See In re Aircrash Disaster Near New

Orleans, 821 F.2d 1147, 1162, 1166 (5th

Cir.1987) (en banc), vacated on other

grounds sub nom. Pan American World

Airways, Inc. v. Lopez, 490 U.S. 1032, 109

S.Ct. 1928, 104 L.Ed.2d 400 (1989). As

indicated in the opinion of the district

court, the decision involves the weighing

of a mix of private and public interests,

keeping in mind that the plaintiff’s choice

of forum is usually to be respected. The

private interests include ease of access to

sources of proof; the availability of

compulsory process for compelling

attendance of unwilling witnesses; and the

costs of obtaining the attendance of

willing witnesses. [J[d. (citing Gulf Oil

Corp. v. Gilbert, 330 U.S. 501, 508, 67

S.Ct. 839, 843, 91 L.Ed. 1055 (1947)). The

public interests include the extent to

which congestion will slow trial of the

case; the interest in having controversies

resolved in a local forum; the familiarity

of the court with the governing law; and

the unfairness of burdening citizens in an

unrelated forum with jury duty. Jd. at

1162-63. Of central importance in this

case is the threshold question whether

there exists an alternative forum. See id.

at 1164; Piper Aircraft Co. v. Reyno, 454

U.S. 285, 254 n. 22, 102 &.Ct. 252, 265 n.

22, 70 L.Ed.2d 419 (1981).

As detailed above, the sovereign

immunity issue in this case raised

questions of the agency relationship

between foreign governments and their

instrumentalities, the characterization of

certain acts as commercial or sovereign,

and the effects of those acts in the United

States. The act of state issue raised