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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1996
- **Citation:** 516 U.S. 1047

## Text

(\) FILED
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

i it)

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.

er nm nme nn nem |

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.

iy

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.

ii

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
SR ee ae ee
Ee te as Cea ae OE Ce Gee a ee
CE Me feo ap tigen ene uecend «ce Ml
a Neh ow ew éfe ©
CT Se eee es ek
ewe Le eee are ke ee SB

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

iv

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

B.

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

10

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.

11

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

12

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);

13

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

14

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.

15

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.

16

CONCLUSION

For the foregoing reasons, this

Petition for Writ of Certiorari should be

ZZ

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.

17

APPENDIX A

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

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

10

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

11

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

12

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.

13

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

14

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

15

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

16

| | |

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

17

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.

18

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

19

1

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

20

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

21

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,

22

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

23

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

24

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

25

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

26

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

27

|
|

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.

29

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

30

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

31

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

33

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

34

‘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

35

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

36

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

37

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

38

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

39

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

41

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

42

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

43

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

44

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

45

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.

46

APPENDIX C

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

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:

1

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,

10

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

11

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

12

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

13

-—

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

14

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

15

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

16

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.

17

a

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

18

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

19

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

20

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

21

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

22

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

23

ae
el

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;

24

(c) rights to possession of 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

25

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

26

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

27

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,

28

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

29

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

30

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."

31

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

32

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

33

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

35

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

36

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

37

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

38

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

39

ha

(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

40

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

41

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.

ee ee oe, oe

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.

I.

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

5

|

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).

6

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

10

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,

11

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

3

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

12

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.

13

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.

14

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.

15

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

16

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

17

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

18

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.

19

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

20

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....

21

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

22

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

23

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

24

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-

25

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,

9

In Kalamazoo,

a government-owned corporation was not
longer

26

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.

27

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

28

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.

29

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

30

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

31

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

32

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:

33

(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

34

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

35

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."

36

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

37

—_

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,

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386002_0744%3A1. Public record. Not legal advice.