Appendix — Republic of Congo v. Af-Cap, Inc.

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APPENDIX A

IN THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Filed September 17, 2004

Charles R. Fulbruge III

No. 03-50506

AF-CAP INC.,

Plaintiff-Appellant,

versus

THE REPUBLIC OF CONGO;

Defendant-Appellee,

CMS OIL AND GAS CoO., ET AL.,

Garnishees,

CMS NoMECO CONGO INC.; THE NUEVO CONGO CO.;

NUEVO CONGO LTD.,

Garnishees-Appellees.

No. 03-50560

AF-CaAP INC.,

Plaintiff-Appellant,

versus

THE REPUBLIC OF CONGO;

Defendant-Appellee.

2a

Appeals from the United States District Court for the

Western District of Texas.

Before JOLLY and PRADO, Circuit Judges. '

E. GRADY JOLLY, Circuit Judge:

This appeal is the second in this case. The Republic of

Congo is attempting to avoid its undisputed debt by claim-

ing sovereign immunity under the Foreign Sovereign

Immunities Act (FSIA), notwithstanding that, in the Lend-

ing Contract, it pledged as collateral all of its assets and

properties, and expressly waived its sovereign immunity.

The district court concluded that the Congo was entitled to

claim immunity under the provisions of the FSIA because

the property at issue was not used for commercial purposes

in the United States. We disagree and REVERSE and |

REMAND.

I

On December 18, 1984, the Republic of Congo entered

into a Lending Contract with Equator Bank Limited to pro-

vide funds necessary for the construction of a highway in.

that country. To obtain the loan, the Congo pledged as col-

lateral “all of its assets and properties, wherever located.”

In the Lending Contract, the Congo expressly waived any

right to claim foreign sovereign immunity either from suit

or from attachment or execution on its property.

| This matter is decided by a quorum. See 28 U.S.C. § 46(d).

3a

The Congo defaulted in 1985. Connecticut Bank of

Commerce (“the Bank”), an assignee of the Lending Con-

tract, obtained a default judgment against the Congo in a

London, England court. In order to turn this foreign judg-

ment into a United States judgment, the Bank filed suit in

a New York state court. The Congo did not appear and the

court entered a default judgment in the amount of

$13,628,340.11 in favor of the Bank. The New York court

also entered an order of attachment, authorizing the Bank

to execute against “any assets or other property of the

Congo of any nature, irrespective of the use or intended

use of such property ... including any . . . payments or

obligations due to the Congo from any oil and gas explo-

ration and development companies. . . .”

On January 11, 2001, the Bank registered the New York

judgment in a Texas state court. It then filed garnishment

actions there against, inter alia, CMS Nomeco Congo, Inc.

(“CMS”), Nuevo Congo Company (“Nuevo”), and Nuevo

Congo Ltd. (collectively “the Garnishees”). It sought to

garnish intangible property purportedly belonging to the

Congo, namely, the Garnishees’ obligations to pay taxes

and royalties to the Congo. The Garnishees are successors-

in-interest to a 1979 joint venture (the “Convention”) between

a state-owned Congolese company, now known as the

Societe Nationale des Petroles du Congo (“SNPC”), and

several oil companies for oil production in the Congo. Cur-

rently, CMS is the operator of the joint venture while

Nuevo, Nuevo Congo Ltd. and SNPC possess working

interests. Under the terms of the Convention, the Congo

permitted the joint venture to extract oil in exchange for

the payment of royalties and a variety of taxes related to

the Garnishees’ activities. The mining royalty can be paid

in cash or in kind from the oil lifted from the wells. The

4a

choice regarding the form of payment belongs to the

Congo, although it usually elects to have the royalties paid

in kind.2 The Convention also obligates the Garnishees to

make periodic tax payments to the Congo based on the net

income from covered activities. The remaining profits are

split among the Convention members in proportion to their

working interests. The Garnishees’ obligation to make these

tax and royalty payments to the Congo is the property at

issue in this case.

Following the Bank’s filing of its garnishment action in

Texas state court, the Congo and the Garnishees (collec-

tively “the Congo Defendants”) removed the case to fed-

eral court. There, the Congo Defendants moved for

dismissal, arguing that the Congo was entitled to sovereign

immunity from the garnishment action under the Foreign

Sovereign Immunities Act (“FSIA”), 28 U.S.C. §§ 1602-

2 The Convention specifies a method for how these royalties are

to be paid on an in-kind basis. After being produced at offshore wells,

the oil flows through a subsurface pipeline system to an offshore stor-

age facility, a retired transport tanker called the “CONKOUATI,”

which is located in Congolese waters. Once the CONKOUATI is filled

with between 550,000 and 600,000 barrels of oil, CMS and Nuevo take

a “lifting” and sell the oil. Throughout this process, CMS keeps an

over/under accounting of the amount of oil it has lifted and sold, and

notes the Congo’s royalty entitlement and SNPC’s working entitle-

ment under the Convention. CMS and Nuevo continue to take liftings

and sell the oil until the combination of the Congo’s royalty entitle-

ment and SNPC’s working-interest entitlement exceeds 275,000 bar-

rels. At this point, SNPC takes a lifting and sells the oil. In this way,

both the Congo’s in-kind royalty and tax entitlement and SNPC’s

working interest are satisfied. Apparently, when SNPC conducts such

a lifting, it lifts about 550,000 te 650,000 barrels, at which point it

is “over-delivered,” which is then accounted for in the over/under

accounting described above. SNPC would then not take another lifting

until it is under-delivered by 275,000 barrels.

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1611. In response, the Bank contended that the Congo had

expressly waived sovereign immunity in the Lending Con-

tract. The Bank also argued that the Texas court was bound

by the earlier attachment order issued by the New York

court.

The district court dismissed the action, rejecting both

arguments of the Bank. First, the court rejected the claim

that the New York judgment had any preclusive effect on

the present case. The court also rejected the Bank’s claim

that in the Lending Contract, the Congo had waived sover-

eign immunity even though it was express and in writing;

the court held that such a total waiver was ineffective

under § 1610(a) of the FSIA, which recognizes only condi-

tional waivers. Specifically, the court found that even

when a foreign state purports to waive completely its

immunity, the FSIA only permits execution on property

that is “commercial.” The court concluded that the royalty

and tax payments to the Congo were non-commercial in

nature, and thus the property was immune from attachment

under § 1610(a).

The Bank then appealed to this court. We affirmed the

district court’s holding that the New York attachment

order had no preclusive effect. Connecticut Bank of Com-

merce v. Republic of Congo, 309 F.3d 240, 248-51 (Sth

Cir. 2002). We also agreed that, under the FSIA, a waiver

of immunity only applies “against property that meets . .

. two statutory criteria,” namely, that the property in

question be “in the United States” and “used for com-

mercial activity in the United States.” /d. at 247 (quoting

28 U.S.C. § 1610(a)). We concluded, however, that the

district court had erred in applying these statutory

criteria by incorrectly focusing on how the property was

generated instead of fully considering what it is “used

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for.”? We further clarified this point in an amended opin-

ion issued on rehearing; we remanded the case to the dis-

trict court with the narrow and specific instructions that it

resolve:

the dispositive factual question: what the royalty

and tax obligations are “used for.” If it turns out

that the royalties and tax obligations are not used

for any commercial activity in the United States,

the district court should dissolve the writs of gar-

nishment and dismiss the action.

Id. at 260-61.

On remand, the district court ordered discovery to deter-

mine whether the tax and royalty obligations were prop-

erty “used for” commercial activity in the United States.

Af-Cap, Inc., who had succeeded the Bank in interest dur-

ing the pendency of the Bank’s appeal, vigorously pursued

that discovery, receiving thousands of pages of responsive

documents and deposing numerous witnesses from the

Congo, the Garnishees and non-parties.

After hearing arguments, the district court held that the

Congo did not use its tax and royalty obligations for com-

mercial activities.* Accordingly, it held that this property

3 Specifically, we held that the district- court erroneously had

focused its primary attention on whether the source of the royalties

and tax obligations—in this case, the joint venture—was a commercial

activity. Instead, the district court should have focused on the use of

the property itself: “The amenability of these royalties and taxes to

garnishment depends on what they are ‘used for’, not on how they

were raised.” Connecticut Bank, 309 F.3d at 251.

4 The amended opinion contained a more detailed discussion of

the application of the “used for” criterion under the FSIA.

5 Because the district court found that the property at issue did

not satisfy the “used for” prong of § 1610(a), the district court declined

7a

was not within an exception to immunity and dismissed the

garnishment action. Af-Cap has appealed.

In this appeal, Af-Cap makes two arguments. First, it

contends that the district court erred in disregarding the

Congo’s express waiver of immunity contained in the

Lending Contract. Second, it asserts that the district court

erroneously concluded that the royalty and tax payments

were not used for commercial activity.

II

We first consider Af-Cap’s argument that the district

court erred in failing to enforce the explicit waiver of sov-

ereign immunity in the Lending Contract. This argument,

however, has already been made and rejected in the earlier

appeal. In the first appeal, Af-Cap’s predecessor cited the

same language in the Lending Contract, arguing that it per-

mitted execution against “any property whatsoever,” “irre-

spective of its use or intended use.” It argued that even if

this violated the express restrictions under the FSIA, these

restrictions were inapplicable because (1) the Congo signed

a contractual waiver in the Lending Contract and (2) the

New York court’s order should be given preclusive effect.

Although most of our opinion in the earlier appeal focused

on rejecting the latter of these claims, we explicitly

rejected the former claim as well. We noted:

The Foreign Sovereign Immunities Act provides

foreign sovereigns with immunity from execu-

tion against their property to satisfy an adverse

judgment. This statutory immunity is subject to

to address whether the “situs of the obligations” is “in the United

States,” the second statutory criterion under § 1610(a).

8a

several exceptions. One exception is that, if a

foreign sovereign waives its immunity from

execution, U.S. courts may execute against

“property in the United States ... used for a com-

mercial activity in the United States.” 28 U.S.C.

§ 1610(a)(1). Even when a foreign state com-

pletely waives its immunity from execution,

courts in the U.S. may execute only against prop-

erty that meets these two statutory criteria.

Connecticut Bank, 309 F.3d at 247 (internal citations

removed and emphasis added).

Our mandate on remand also showed that we had rejected

this argument. We gave narrow and specific instructions to

the district court, directing it to decide the “dispositive

factual question” of whether the Congo’s property is “used

for any commercial activities in the United States,” and to

dismiss the action if it was not. /d. at 260-61.

Af-Cap contends that this interpretation of the FSIA is

incorrect and that the FSIA does in fact permit a complete

waiver of sovereign immunity. Whatever the validity of

that claim, however, we are obligated to accept the ruling

of the earlier panel. “On second appeal following remand,

the only issue for consideration is whether the court below

reached its final decree in pursuance of [this court’s] pre-

vious mandate.” Burroughs v. FFP Operating Partners,

L.P., 70 F.3d 31, 33 (Sth Cir. 1995). Thus, “this Court will

not reconsider issues decided by the prior panel.” /d.

Under the law of the case doctrine, “an issue of fact or law

decided on appeal may not be reexamined either by the

district court on remand or by the appellate court on a sub-

sequent appeal.” St. Paul Mercury Ins. Co. v. Williamson,

332 F.3d 304, 309 (Sth Cir. 2003). Accordingly, the only

question properly before this panel on this second appeal

9a

is “whether the court below reached its final decree in pur-

suance of [this court’s] previous mandate.” Burroughs, 70

F.3d at 33.° That is, our present authority is limited to

examining whether the district court correctly determined

that the tax and royalty obligations at issue here are not

used for commercial purposes in the United States. We

now turn to this question.

6 Af-Cap correctly points out that the law of the case is a discre-

tionary, not jurisdictional, doctrine and can be ignored if a prior hold-

ing is “clearly erroneous and would work a manifest injustice.”

However, as evidenced by the cases Af-Cap cites in support of this

proposition, courts rarely invoke this exception to the law of the case

doctrine and when they do, it is because of post-decision changes in

evidentiary facts or in the applicable law and not because the subse-

quent panel disagreed with the earlier panel’s legal conclusions. See

Arizona v. California, 460 U.S. 605, 618, 103 S.Ct. 1382, 75 L.Ed.2d

318 (1983) (refusing to reexamine previous factual findings despite an

alleged change in factual circumstances); Tollett v. City of Kemah, 285

F.3d 357, 365-66 (Sth Cir. 2002) (refusing to reexamine an earlier

panel’s conclusion following the submission of allegedly new evi-

dence at a district court’s hearing on remand); U.S. v. Matthews, 312

F.3d 652, 657-58 (Sth Cir. 2002) (agreeing to reexamine original

panel’s legal conclusions where those legal conclusions had been

called into question by a subsequent Supreme Court decision).

Notably, Af-Cap cites no cases where a subsequent panel reversed a

prior panel’s legal conclusion solely because the subsequent panel dis-

agreed with it. The absence of such cases should not be surprising. The

subsequent panel would not only have to forego application of the law

of the case doctrine, but would also have to discard the well-estab-

lished rule that circuit panels are “bound by the precedent of previous

panels absent an intervening ... case explicitly or implicitly overrul-

ing that prior precedent.” U.S. v. Short, 181 F.3d 620, 624 (Sth Cir.

1999).

As discussed previously, in our earlier opinion follow-

ing the first appeal in this case, this court held that under

§ 1610(a) of the FSIA, a court is prohibited from execut-

ing against the property of a foreign state unless that prop-

erty is: (1) in the United States; and (2) used for commercial

activity in the United States. Connecticut Bank, 309 F.3d at

247. We first turn to an analysis of the district court’s

determination that these tax and royalty obligations were

not used for commercial purposes in the United States.

Before doing so, we must first make clear the applicable

standard of review in this case. Determining whether prop-

erty is used for commercial purposes requires a court to

both make factual findings concerning how the property

was used and to reach legal conclusions concerning

whether that particular use was “for commercial pur-

poses.” When a district court’s decision involves such

mixed questions of law and fact, we review the district

court’s factual findings for clear error, and its legal con-

clusions and application of law to fact de novo. In re Lilje-

berg Enterprises, Inc., 304 F.3d 410, 424 (Sth Cir. 2002).

We find no clear error in the district court’s material fac-

tual findings concerning the Congo’s past use of these roy-

alty obligations. The district court found, and the Congo

concedes, that it has, in the past, utilized these tax and roy-

alty obligations for an explicitly commercial purpose. In

1989, the National Union Fire Insurance Company

(“NUFI”) obtained a judgment against the Congo after the

Congo defaulted on a $26,425,000 loan. Two years later, in

1991, NUFI sued the Congo in federal court in an effort to

collect its judgment by garnishing the same tax and royalty

lla

obligations that are at issue in this case. NUFI and the

Congo eventually entered into a settlement agreement

under which the Congo assigned NUFI fifty percent of

these tax and royalty obligations until such a time as the

underlying debt was fully paid. Significantly, this money

was paid by the Garnishees directly to NUFI; the Gar-

nishees would then pay the remaining amount of royalties

due to the Congo. This arrangement went on for over

eleven years—until August 2002—until the multi-million

dollar debt was paid. The Congo has also acknowledged

that, although these tax and royalty obligations were actu-

ally used in this fashion only once, the Congo seriously

contemplated using these obligations in a similar manner

on at least one other occasion. Around the time the NUFI

settlement was set to expire, the Congo entered into settle-

ment discussions with another creditor wherein a similar

assignment of debt was proposed, albeit ultimately not

adopted.

Because we find no clear error in the district court’s

material factual findings, the question before this court is

a strictly legal one: whether such past commercial use is

sufficient to render these obligations “property used for

commercial purposes” for purposes of the FSIA. The

Congo Defendants argue that it is not. They contend that

“an exceptional and singular” past commercial use at one

point in time is insufficient to establish that this specific

property is used for commercial purposes under the FSIA.

Instead, they contend that the FSIA warrants a more com-

prehensive approach to the question of commercial use,

focusing not on isolated and unusual uses, but instead on

what the property is “essentially used for.”

The district court agreed that the Congo Defendants’

recommended approach was consistent with the legislative _

12a

purpose of the FSIA. The court noted that there was little

case law delineating precisely how a court should analyze

property to determine whether it was being used for com-

mercial purposes under the FSIA, but reasoned that evi-

dence of a single commercial use in the past could not, by

itself, render the property in question now and forever sub-

ject to garnishment. Instead, the district court applied a

form of the Congo Defendants’ recommended “essential

use” test, focusing on determining the predominant or

essential use of the property in question. Concluding that

the “single instance” of tax and royalty obligations being

used to satisfy a commercial debt was not enough to ren-

der the property essentially commercial in nature, the dis-

trict court dismissed the action.

We have no major disagreement with the analytical

approach that the able district court adopted in determin-

ing whether these tax and royalty obligations were com-

mercial in nature. Like the district court, we have similar

reservations about defining property use as commercial in

nature solely by reference to past single and/or exceptional

commercial uses. Instead, we agree that determining the

commercial (or non-commercial) status of a property’s use

requires a more holistic approach. Specifically, we think

that an analysis applied to such a question should examine

the totality of the circumstances surrounding the property.

This analysis should include an examination of the uses of

the property in the past’ as well as all facts related to its

We disagree with the district court’s alternative holding that

evidence of past commercial use cannot be considered for purposes of

establishing the commercial or non-commercial nature of property

under the FSIA. According to the court, § 1610(a) only applies to

“present and impending uses.” Instead, we think that the consideration

of evidence of past use is an indispensable part of a court’s FSIA

inquiry. A court forbidden to consider how property has been used in

13a

present use, with an eye toward determining whether the

commercial use of the property, if any, is so exceptional

that it is “an out of character” use for that particular prop-

erty.’

This holistic approach is also consistent with the rea-

soning in our earlier decision in this case. There, Af-Cap’s

predecessor argued that courts should look at the source as

opposed to the use of the property to determine its com-

mercial nature. In rejecting this contention, we utilized the

following analogy:

Consider an airplane owned by a foreign govern-

ment and used solely to shuttle a foreign head-of-

state back and forth for official visits. If the plane

lands in the United States, it would not be subject

to attachment or execution. The plane is not

“used for” any commercial activity, in the U.S. or

elsewhere. It plainly would not matter how the

foreign government bought the plane, raised the

purchase price, or otherwise came into owner-

ship. Even if the government received the plane

as payment from a U.S. company in an obvious-

ly commercial transaction, that would not some-

how transform the “use” of the plane into a

commercial use. Regardless of how the govern-

ment came to own the plane, a U.S. court could

never under the terms of the FSIA confiscate a

the past would be hard-pressed to accurately determine whether the

predominant use of that property is commercial or sovereign.

8 In this analysis, we also think it would be appropriate for a

court to consider whether the use of the property in question was being

manipulated by a sovereign nation to avoid being subject to garnish-

ment under the FSIA.

14a

plane used solely to transport a foreign head-of-

state on official business. Attaching the plane and

selling it in execution of a judgment would go

too far in interrupting the public acts of a foreign

state.

Connecticut Bank, 309 F.3d at 253.

Tweaking this analogy a bit, consider that the airplane

had been used on rare occasions for commercial activi-

ties—for example, it was temporarily used to fill in for a

disabled plane in the foreign country’s commercial fleet. It

would strain reason to conclude that these limited, emer-

gency usages rendered the plane subject to garnishment

now and forever irrespective of the fact that its use was

otherwise almost exclusively non-commercial. Indeed,

permitting the attachment and selling of such a plane in

execution of a judgment would also “go too far in inter-

rupting the public acts of a foreign state.” Thus, we con-

clude that under the FSIA, foreign property retains its

immunity protection where its commercial uses, consid-

ered holistically and in context, are bona fide exceptions to

its otherwise noncommercial use.°

That said, although we are fairly in agreement with the

form of the analysis applied by the district court, and dis-

9 This conclusion also squares with the logic of a case quoted

approvingly by this court in its earlier decision in this case. In Eastern

Timber Corp. v. Republic of Liberia, 659 F.Supp. 606 (D.D.C. 1987),

the property at issue was a Liberian bank account primarily used to

fund diplomatic and consular activities, though some portion of the

account had been used for commercial activities. The Eastern Timber

court, however, determined that the account was still immune from

execution, explaining that it “decline[d] to order that if any portion of

a bank account is used for commercial activity, then the entire account

loses its immunity.” Jd. at 610.

1Sa

pute none of its underlying fact determinations, we dis-

agree with its legal conclusion that these tax and royalty

obligations were not used for commercial purposes.

Instead, we think that the facts relating to the past and

present use of these obligations, examined broadly and in

context, establish the opposite.

As the facts of the NUFI settlement indicate, for nearly

half of the twenty-four years that these obligations existed,

the Congo has used at least fifty percent of them to repay a

commercial debt. The amount of the debt repaid was not

insignificant; during the course of this extended period of

time, over $26,000,000 was diverted from these obligations

to the Congo’s commercial creditor. Such a continuing,

extended and monetarily significant use is neither excep-

tional nor de minimis. Moreover, it is difficult to say that

execution on this obligation would be so unusual that it

would shock and disrupt the public affairs of the Congo.!°

Indeed, on at least one other occasion, the Congo con-

templated engaging in the same type of use again. Although

such contemplated use is not actual use,!'! it is strongly

10 In support of their contention that the use here was exception-

al, the Congo Defendants rely heavily on the district court’s legal char-

acterization of this use as “single.” While rhetorically powerful, this

characterization is somewhat misleading. Indeed, this use is “singular”

only in that it was used to satisfy a single debt. In its other aspects, the

use was frequent, ongoing, and longstanding.

!1_ The Congo Defendants contend that in Connecticut Bank, this

court held that merely “contemplated” commercial uses are not rele-

vant factors in a court’s determination of whether property was used

for commercial purposes for purposes of the FSIA. This, however, is a

mischaracterization of our holding in that case. Our discussion of

“contemplated” use in Connecticut Bank occurred not in the context

of determining which types of uses are properly considered in an

FSIA commercial use analysis, but instead in the context of rejecting

the argument that property that is “generated by” or “contemplated

l6a

suggestive that the proceeds of these tax and royalty obli-

gations were not cordoned off for use of the Congo in its

sovereign capacity. Instead, it indicates the availability of

this property for whatever purpose—commercial or other-

wise—the Congo deems appropriate. Such property seems

hardly the type of foreign property the FSIA was designed

as a shield to protect, i.e., funds so central to a nation’s

operations as a sovereign that uses thereof would “inter-

rupt[ ] the public acts of [this] foreign state.” Jd. at 253.

Accordingly, we conclude that these tax and royalty obli-

gations are used for commercial purposes for purposes of

§ 1610(a) of the FSIA.

B

We now turn to the question of the situs of these tax

and royalty obligations. As noted previously, for foreign

property to be stripped of its immunity under the FSIA,

§ 1610(a) not only requires that the property in question

be used for commercial purposes, but also that the prop-

erty be “in the United States.” Jd. at 247.!

by” commercial activities is also used for commercial purposes

under § 1610(a). See Connecticut Bank, 309 F.3d at 258-60. We said

nothing in Connecticut Bank about the appropriateness or inappropri-

ateness of a court examining evidence of the contemplated uses of par-

ticular property as part of its inquiry into whether the property is used

for commercial purposes. Indeed, we think that, as here, examining

evidence of contemplated commercial use would greatly aid a court in

making a determination of the general commercial or non-commercial

nature of particular property.

12 Even though the district court did not address the question of

situs, we need not remand because the question here is one of law

based on a fully developed record in which there are no material fac-

tual disputes.

17a

Determining the situs of the property at issue here poses

a special problem because this property is intangible in

nature. This court and others have noted the inherent diffi-

culty of assigning a location to property that by its very

definition “lacks a physical existence.” See BLACK’S LAW

DICTIONARY 1233 (7th ed. 1999). The Third Circuit has

observed that attaching a situs to intangible property is

necessarily a legal fiction; therefore, the selection of a

situs for intangibles must be context-specific, embodying a

“common sense appraisal of the requirements of justice

and convenience in particular conditions.” U.S. Industries,

Inc. v. Gregg, 540 F.2d 142, 151 n.5 (3rd Cir. 1976) (cita-

tions and quotations removed). This court has also recog-

nized the context-specific nature of an inquiry into the

situs of intangible property. In Tabacalera Severiano

Jorge, S.A. v. Standard Cigar Co., 392 F.2d 706, 714 (Sth

Cir. 1968), after noting that “[t]he situs of intangible prop-

erty is about as intangible a concept as is known to the

law,” we affirmed that the situs of intangible dried will

vary, depending on the context. Thus:

The situs may be in one place for ad valorem tax

purposes, .. .; it may be in another place for

venue purposes, i.e., garnishment . . .; it may be

in more than one place for tax purposes in cer-

tain circumstances ...; it may be in still a dif-

ferent place when the need for establishing its

true situs is to determine whether an overriding

national concern, like the application of the Act

of State Doctrine is involved.

Id. at 714-15 (citations omitted).

18a

We think a “common sense appraisal of the requirements

of justice and convenience” in this particular context

yields the conclusion that the situs of these royalty obliga-

tions is the United States—the situs of the Garnishees.

This conclusion is consistent with the application of the

rule ordinarily applied to determine the situs of debtor

obligations like these tax and royalty obligations. Specifi-

cally, courts consistently hold that the situs of a debt obli-

gation is the situs of the debtor.'? This is certainly true in

'3 The Congo Defendants attempt to avoid the conclusion that

these tax and royalty obligations are debt obligations by attempting to

fix a physical location to them. Specifically, they point to the fact that

the Convention permits the Congo to elect how these royalties will be

paid and the Congo always elects to have them paid in kind. See n.1

infra. They thus essentially contend that the property at issue here is

actually the oil stored in a tanker in Congolese waters. Because this oil

is located in the Congo, they argue that the Congo is the situs of these

tax and royalty obligations. This contention is flawed for two princi-

pal reasons. First, it cannot be squared with the facts surrounding the

use of these tax and royalty obligations; as we have previously noted,

under the NUFI settlement, for nearly half of the Convention’s exis-

tence, at least half of these obligations were diverted in the form of

cash payments to the Congo’s creditor. Notably, this diversion did not

involve the Congo drawing oil from the tanker, selling it, and then

paying fifty percent of the proceeds directly to the creditor; instead,

these debt payments passed directly from the Garnishees, who resided

in the United States, to the NUFI creditor, which also resided in the

United States. This fact alone seems sufficient to defeat the Congo

Defendants’ argument that these obligations are somehow physically

located in the Congo. However, the Congo Defendants’ implicit sug-

gestion that the tax and royalty obligations that Af-Cap is seeking to

garnish have a physical location is itself fatally flawed. Here, Af-Cap

is not seeking to attach any of the Congo’s physical property (like its

oil) but instead it seeks to attach the obligations to pay royalties owed

by the Garnishees. As noted previously, such debtor obligations are

intangible assets, which by definition have no physica! existence. For

these reasons, the Congo Defendants’ attempt to essentially ascribe a

physical existence to them fails.

19a

Texas, where this garnishment proceeding commenced.

See, e.g., Mo., Kan. & Tex. Ry. Co. of Tex. v. Swartz, 53

Tex.Civ.App. 389, 392, 115 S.W. 275, 276 (1908, no writ)

(holding that the situs of a debt obligation is the situs of

the debtor). This same rule is also applied in other states.

See, e.g., Alliance Bond Fund v. Grupo Mexicano De

Desarrollo, 190 F.3d 16, 25 n.9 (2d Cir. 1999) (recogniz-

ing this rule generally applies under New York law); Great

Falls Transfer & Storage Co. v. Pan Am. Petroleum Corp.,

353 F.2d 348, 349 (10th Cir. 1965) (recognizing the same

under the laws of Montana and Wyoming). Furthermore,

this rule’s general operation has been recognized by the

Supreme Court. See, e.g., Harris v. Balk, 198 U.S. 215,

221-22, 25 S.Ct. 625, 49 L.Ed. 1023 (1905).

We acknowledge that in these foregoing cases, the

courts were determining situs for the purpose of establish-

ing jurisdiction over property subject to a garnishment

action, whereas in this case we are considering situs for

purposes of determining immunity under the FSIA. The

Congo Defendants seize on this distinction, arguing that a

different sort of situs calculus should apply in the FSIA

context as questions that purely concern jurisdiction do not

implicate delicate issues concerning the availability of for-

eign sovereign immunity and comity between nations. '*

'4 The Congo Defendants also argue that the act of state doctrine

should apply; this means that the situs of foreign debt obligations must

be the foreign country because a contrary conclusion would improper-

ly “antagonize the foreign government.” However, the act of state doc-

trine is inapplicable in this context. As the Supreme Court, and this

court, have made clear, the act of state doctrine applies only when the

dispute implicates the legitimacy of public acts undertaken by a sov-

ereign nation. See Banco Nacional de Cuba v. Sabbatino, 376 U.S.

398, 401, 84 S.Ct. 923, 11 L.Ed.2d 804 (1964) (holding that the act of

state doctrine prevented the court from reaching the merits of a dispute

20a

While we agree that the two contexts implicate different

issues and interests, we think that these differences are

immaterial for present purposes, as we see nothing about

the general rule regarding the situs of debt obligations that

would frustrate the purpose of the FSIA, which is to “limit

as much as possible disrupting the ‘public acts’ or ‘jure

imperii’ of sovereigns.” Connecticut Bank, 309 F.3d at

253. Specifically, we fail to see how permitting Af-Cap to

execute against intangible commercial debt obligations

owed by business entities formed and headquartered in the

United States “interrupts [the Congo’s] public acts,” par-

ticularly when the Congo has proven more than willing to

divert these obligations directly to its commercial creditors

in the United States. Jd. Indeed, in an earlier case, we

rejected the notion that enforcing general rules (like the

rule establishing the situs of debtor obligations here)

against the commercial activities of foreign nations would

inappropriately interfere with their sovereignty. We stated:

In their commercial capacities, foreign govern-

ments do not exercise powers peculiar to sover-

~eigns. Instead, they exercise only those powers

that can also be exercised by private citizens.

Subjecting them in connection with such acts to

the same rules of law that apply to private citi-

over sugar cane seized pursuant to the Cuban government’s decision to

nationalize the sugar industry); Callejo v. Bancomer, S.A., 764 F.2d

1101, 1112-24 (Sth Cir. 1985) (invoking the doctrine in refusing to

intervene in a dispute implicating the legitimacy of Mexico’s promul-

gation of exchange control regulations). Because this case does not

involve such a public act, but rather a mere dispute over the payment

of a debt the Congo does not dispute that it owes, the act of state doc-

trine does not apply.

2la

zens is unlikely to touch very sharply on “nation-

al nerves.”

De Sanchez v. Banco Central de Nicaragua, 770 F.2d

1385, 1391 (Sth Cir. 1985) (quoting Alfred Dunhill of Lon-

don, Inc. v. Republic of Cuba, 425 U.S. 682, 703-04, 96

S.Ct. 1854, 48 L.Ed.2d 301 (1976)).

Finally, the interests for which the Congo urges protec-

tion from “interruption” are in fact protected by the FSIA

itself—if the property is used for sovereign purposes and

not for commercial use, then there can be no action for gar-

nishment in the United States.

Seeing no conflict between the application of this ordi-

nary situs rule and the purposes and goals of the FSIA, we

conclude that this same rule should apply in this context

relating to property used commercially. Accordingly, we

hold that the situs of these tax and royalty obligations is

the United States.!°

15 The Congo Defendants cite two district court cases from other

circuits in support of their claim that a different type of situs calculus

should apply in the present context. See Raccoon Recovery LLC v.

Navoi Mining & Metallurgical Kombinat, 244 F.Supp.2d 1130

(D.Colo. 2002); Fidelity Partners, Inc. v. Philippine Exp. & Foreign

Loan Guarantee Corp., 921 F.Supp. 1113 (S.D.N.Y. 1996). Aside from

the fact that neither case is binding on us, both are distinguishable as

neither involved debt obligations, but rather other forms of intangible

property. In Raccoon Recovery, a judgment creditor sought to execute

upon a judgment debtor’s partnership interest in an Uzbekistan mining

operation under a Colorado law allowing it to do so. 244 F.Supp.2d at

1142. In Fidelity, the property at issue was a foreign state’s bank

deposits maintained and controlled exclusively at a bank headquar-

tered in that foreign country. 921 F.Supp. at 1119.

22a

IV

To sum up: We hold that the district court correctly

applied the law of the case doctrine to reject Af-Cap’s

argument that the Congo waived fully its claim of sover-

eign immunity pursuant to the Lending Agreement. We

further hold, however, that the district court erred in con-

cluding that the tax and royalty obligations at issue in this

case were not used for commercial purposes in the United

States. We also hold that the situs of these obligations is

the United States. We have thus determined that both these

FSIA conditions have been satisfied. These tax and royalty

obligations therefore are not protected by sovereign immu-

nity. It follows that the district court erroneously dismissed

Af-Cap’s cause of action and dissolved the writs of gar-

nishment obtained by Af-Cap against the Garnishees. We

therefore REVERSE the judgment and REMAND for fur-

ther proceedings not inconsistent with this opinion.

REVERSED and REMANDED.

23a

APPENDIX B

IN THE

UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TEXAS

AUSTIN DIVISION

[stamped] Filed April 7, 2003

No. A 01 CA 100 SS

AF-CAP, INC.,

Plaintiff,

VS.

THE REPUBLIC OF CONGO,

Defendant,

and

CMS OIL AND GAS COMPANY, et ai.,

Garnishees.

No. A 01 CA 154 SS

AF-CAP, INC.,

Plaintiff,

VS.

THE REPUBLIC OF CONGO,

Defendant,

and

24a

CMS OIL AND GAS COMPANY, et al.,

Garnishees.

No. A 01 CA 213 SS

AF-CAP, INC.,

Plaintiff,

VS.

THE REPUBLIC OF CONGO,

Defendant,

and

CMS OIL AND GAS COMPANY, et al.,

Garnishees.

No. A 01 CA 270 SS

AF-CAP, INC.,

Plaintiff,

VS.

THE REPUBLIC OF CONGO,

Defendant,

and

CMS OIL AND GAS COMPANY, et al.,

Garnishees.

See

25a

No. A 01 CA 321 SS

AF-CAP, INC.,

Plaintiff,

VS.

THE REPUBLIC OF CONGO,

Defendant.

No. A 01 CA 331 SS

AF-CAP, INC.,

Plaintiff,

vs.

THE REPUBLIC OF CONGO,

Defendant,

and

CMS OIL AND GAS COMPANY, et al.,

Garnishees.

ORDER

BE IT REMEMBERED on the 17th day of March 2003

the Court held a hearing in the above-styled causes (A:01

CA 100 SS; A:01 CA 154 SS; A:01 CA 213 SS; 4:01 CA

270 SS; A:01 CA 321 SS and A:01 CA 331 SS) on all

pending matters, and the parties appeared by counsel of

ee

26a

record. Before the Court are Plaintiff’s Motion to Substi-

tute Parties [#94 in A:01 CA 100 SS; #26 in A:01 CA 154

SS; #23 in A:01 CA 213 SS; #22 in A:01 CA 270 SS, and

#39 in A:01 CA 331 SS]; Garnishees’ Motion for Partial

Summary Judgment on Mootness Grounds [#82 in 100; #22

in A:01 CA 154 SS; #19 in ..:01 CA 213 SS; #18 in A:01

CA 270 SS, and #35 in A:01 CA 331 SS]; Plaintiff’s

Motion for Permission to Execute [#58 in A:01 CA 321

SS]; Plaintiff’s Motion to Incorporate Plaintiff’s Motion

For Permission to Execute [#90 in A:01 CA 100; #23 in

A:01 CA 154 SS; #21 in A:01 CA 213 SS; #19 in A:01 CA

270 SS, and #36 in A:01 CA 331 SS]; Defendants and Gar-

nishees’ Motion for Judgment and For Incorporation of

[sic] their Opposition (filed in A:01 CA 321 SS as #62) to

Plaintiff’s Motion to Execute [#96 in A:01 CA 100; #28 in

A:01 CA 154 SS; #25 in A:01 CA 213 SS; #24 in A:01 CA

270 SS, and #41 in A:01 CA 331 SS]; and the Garnishees’

Motions for Attorneys Fees and Costs [#16 in A:01 CA 154

SS; #13 in A:01 CA 213 SS; #11 in A:01 CA 270 SS, and #28

in A:01 CA 331 SS]. Having considered the motions, briefs in

support, responses, replies, arguments of counsel at the hear-

ing, post-hearing submissions, the case law, and the case files

as a whole, the Court now enters the following opinion and

orders.

Procedural Background

The current plaintiff, Af-Cap, Inc. (“Af-Cap”), is the

sixth owner of the claims at issue in the above-styled

causes. Af-Cap’s predecessor in interest, the Connecticut

Bank of Commerce (“the Bank”), was the assignee of a

judgment entered in England against defendant Republic

of Congo. On January 11, 2001, the bank brought an action

27a

in a New York state court to enforce the England judg-

ment; when Congo did not appear, the New York court

granted summary judgment in favor of the Bank and

entered an order granting the Bank permission to execute

the judgment pursuant to 28 U.S.C. § 1610(c). Then, the

Bank filed the New York judgment in the 345th District

Court of Travis County to convert the judgment into a

Texas judgment. At the same time, the Bank also filed a

garnishment action against CMS Oil & Gas Company,

CMS Oil & Gas International Company, CMS Nomeco

International Congo Holdings, Inc., CMS Nomeco Congo,

Inc., CMS Oil & Gas International, Ltd., and CMS Oil &

Gas (Congo), Ltd. and Nuevo Energy Company, Congo

Holding Company, Nuevo Congo Company, Nuevo Congo

International, Inc., and Nuevo International Holdings, Ltd.

in that court. The purpose of the writs of garnishment was

to prohibit the garnishees from paying debts or delivering

any property to the Congo. Subsequently, the Congo and

all the garnishees removed the garnishment action (A:01

CA 100 SS) to this Court on the basis of diversity jurisdic-

tion. The bank filed several additional garnishment actions,

all of which were removed to the Court (A:01 CA 154,

A:01 CA 213, A:01 CA 270, A:01 CA 331) along with the

judgment action (A:01 CA 321).!

On March 16, 2001, this Court entered an order i in Cause

No. A:01 CA 100 dismissing the causes of action against

the Congo and dissolved the writs of garnishment against

the garnishees pursuant to the Foreign Sovereign Immuni-

ties Act, finding that both the tax obligations and the in-

| After the removal of the judgment action, the Bank nevertheless

filed three more garnishment actions in state court. After the Congo

removed the cases (A:01 CV 431, A:01 CV 489, A:01 CV 497), this

Court dismissed them by order on August 3, 2001.

28a

kind royalty obligations owed by the garnishees to the

Congo were immune from execution and attachment by

plaintiffs. (On May 9, 2001, this order was incorporated by

reference in the other four pending garnishment actions.)

The Bank appealed Cause No. A:01 CA 100 to the Fifth

Circuit, which granted expedited review. While the appeal

was pending, the judgment was assigned to Af-Cap and the

Court stayed the four other garnishment actions pending a

decision by the Fifth Circuit. In July 17, 2002, the Fifth

Circuit issued its first opinion. Connecticut Bank of Com-

merce v. Republic of Congo, 299 F.3d 378 (Sth Cir. 2002)

(Congo I). Af-Cap sought a rehearing in banc and the

Congo and garnishees sought a panel rehearing. Constru-

ing Af-Cap’s petition as a petition for panel rehearing, the

Fifth Circuit granted Af-Cap’s petition in part and denied

the Congo and Garnishees’ petition. On August 29, 2002,

the Fifth Circuit issued an amended opinion, withdrawing

its July opinion, and vacating the dismissal of the garnish-

ment action and writs. Connecticut Bank of Commerce v.

Republic of Congo, 309 F.3d 240 (Sth Cir. 2002) (Congo

IT). After holding this Court and the parties had been

focusing on the wrong issue, the Fifth Circuit remanded

the case and instructed the Court to permit limited discov-

ery. Congo II, 309 F.3d at 260-61. If [sic] turns out the

royalty and tax obligations are not used for any commer-

cial activity in the United States, the Fifth Circuit directed

this Court to dissolve the writs of garnishment and dismiss

the action. Jd. The Court ordered discovery in compliance

with the Fifth Circuit’s instructions, and now that the dis-

covery is complete, Af-Cap has filed its motion for seek-

ing a turnover order or, alternatively, to permit Af-Cap to

serve garnishment writs against CMS Nomeco Congo, Inc.

(“CMS”), The Nuevo Congo Company (“Nuevo”), and

29a

Nuevo Congo Ltd. (collectively, “the Garnishees”), which

owe the Congo oil royalties and taxes, and CMS Oil and

Gas (Services) Company, which owes the Congo taxes.

Factual Background

In 1979, the Congo issued a permit to drill offshore to its

state-owned oil company, the Societe Nationale de Petrol

du Congo (“SNPC”).? On May 25, 1979, in order to exploit

the permit, the Congo and SNPC entered into a joint ven-

ture with various oil companies to produce oil and gas. See

Mot. to Execute Ex. 13 (“Convention”). The parties do not

dispute that SNPC and the Garnishees are the current

working interest owners under the Convention. See Mot. to

Execute at 4; Opp. at 3. Currently, CMS is the operator of

the joint venture and owns a 25% working interest, while

Nuevo, Nuevo Congo Ltd. and SNPC are non-operators,

possessing 18.75%, 6.25%, and 50% working interests,

respectively. See Opp. at 3. The Congo is entitled to roy-

alty on production from the working interest owners under

the Convention, which it can elect to take in cash or in-

kind.

The oil is produced at offshore wells in Congolese

waters. The oil flows through a subsurface pipeline system

to an offshore storage facility, a retired transport tanker

called the “Conkouati,” which is also located in Congolese

waters. Once the Conkouati is filled with between 550,000

and 650,000 barrels of oil, CMS and Nuevo take a “lifting”

and sell the oil. The Congo and Garnishees maintain the oil

2 SNPC is the current name of the state-owned company, which at

the time of the drafting of most of the relevant documents was known

as Societe Nationale de Recherches et d’Exploitation Petrolieres, or

“Hydro-Congo” for short.

30a

is always sold on the Conkouati, and therefore title passes

from seller to buyer in the Congo. See Tr. at 9. CMS and

Nuevo keep an over/under accounting of the amount of oil

they have lifted and sold, and note the Congo’s royalty

entitlement and SNPC’s working interest entitlement

under the Convention. See Mot. to Exec. Ex. 19 (“Over

(Under) Schedule”). CMS and Nuevo continue to take lift-

ings and sell the oil until the combination of the Congo’s

royalty entitlement and the SNPC’s working-interest enti-

tlement exceeds 275,000 barrels—or as the Defendants put

it, until they are “under-delivered” by 275,000 barrels or

more. See Tr. at 10; Mot. to Exec. Ex. 12 at GAR 03439-

42 (“Am. to Lifting Agmt”) at Arts. I, IV. At this point,

SNPC takes a lifting and sells the oil. In this way, both the

Congo’s in-kind royalty entitlement and SNPC’s working

interest are satisfied.* Ordinarily, when SNPC conducts a

lifting, it lifts about 550,000 to 650,000 barrels, at which

point it is “over-delivered,” which is accounted for in the

over/under accounting described above. SNPC will not

take another lifting until it is under-delivered by 275,000

barrels. Since the commencement of this action, and in

accordance with the system just described, CMS, Nuevo,

and Nuevo Congo Ltd. took and sold liftings 99, 100, 101,

102, 104, 105, 106, 107, 108, 110, 111 and 112. See Over

(Under) Schedule. SNPC took and sold liftings 98, 103 and

109 on behalf of itself and the Congo, and is scheduled to

take the next lifting, number 113, in early April 2003. /d.

3 One dispute between the Plaintiff and the Congo is when the oil

becomes the property of the Congo. The Congo contends its entitlement

to its in-kind percentage of the oil accrues at each lifting, whereas the

Plaintiff contends the royalty oil becomes the property of the Congo as

soon as it comes out of the wellhead or sits at the gathering point (the

Conkouati). The Court will address this in more detail in the context of

the parties arguments.

3la

Analysis

The general rule under § 1609 of the Foreign Sovereign

Immunities Act (FSIA) is that assets of foreign states are

immune from execution and attachment. 28 U.S.C. § 1609.

There are exceptions, however, and the exception relevant

in the instant cases is if a foreign sovereign waives its

immunity from execution, courts in the United States may

execute against “property in the United States ... used

for commercial activity in the United States.” 28 U.S.C.

§ 1609(a)(1). So, even though the Congo waived its immu-

nity from execution, this Court may only execute only

against the Congo’s property that is (1) in the United

States, and (2) used for commercial activity in the United

States. Congo II, 309 F.3d at 247.

In these cases, Af-Cap is attempting to garnish intangi-

ble property, namely, the Garnishees’ obligations to pay

taxes and royalties to the Congo. /d. at 259; Tr. at 16-17,

19; Mot. to Exec. at 35. Af-Cap claims the situs of the obli-

gations is in the United States, and the Congo has used the

obligations for commercial activity in the United States,

and therefore this Court should permit Af-Cap to execute

against the royalty and tax obligations. On the other hand,

the Congo argues the tax obligations and in-kind royalty

obligations the Garnishees owe the Congo are immune

from garnishment under the FSIA because the situs of the

obligations is in the Congo, and the Congo does not use the

obligations for commercial activity in the United States.

I. “Used for Commercial Activity in the United States”

In its 2001 order, this Court inappropriately focused on

whether the joint venture that gives rise to royalty and tax

obligations is a “commercial activity within the United

EE OEOEOEOEeEeEeEeEeEeEeEeEeEEEe—Eeeeee

32a

States,” when the appropriate question is whether the

property to be garnished—the Garnishees’ obligations to

pay the Congo oil royalties and taxes—is used for com-

mercial activity in the United States. Congo I/, 309 F.3d at

260. For example, if the Congo used the Garnishees’ roy-

alty and tax obligations as collateral for a loan from a

United States bank, that would constitute use of the obli-

gations for a commercial activity in the United States. /d.

at 259.

Af-Cap has articulated the following seven theories for

how the Congo has used its property for commercial activ-

ity in the United States: (1) the Congo used the royalty

obligations to pay a commercial debt in the U.S.; (2) the

Congo used the royalty obligations in commercial negoti-

ations in the U.S.; (3) the Congo used the royalty obliga-

tions to “pay a debt” (reimburse a maritime tax) to United

[sic] U.S. oil companies; (4) the Congo pledged its royalty

obligations to U.S. Oil companies; (5) the Congo sold the

royalty oil to U.S. buyers or shipped it to the United

States; (6) the Congo loaned its royalty oil to U.S. oil com-

panies; and (7) the Congo used its royalty oil and tax pro-

ceeds to purchase goods and services in the United States.

In opposition, the Congo contends that neither the royalty

nor tax obligations are currently used for commercial

activity in the United States, and consequently are not sub-

ject to garnishment.

A. Royalty Oil and Tax Proceeds

Af-Cap’s last three arguments concern the royalty oil

acquired by the Congo, as opposed to the Garnishees’

intangible obligation under the Convention to deliver to

the Congo a certain percentage of the oil produced in the

joint venture. This, of course, is not the property at issue in

33a

this case. The origin of Af-Cap’s error is language in the

Fifth Circuit opinion, which directed this Court to look at

how the [sic] Congo “spends” its royalties and taxes. Congo

II, 309 F.3d 251 (“What matters under the statute is not

how the Congo made its money, but how it spends it. The

amenability of these royalties and taxes to garnishment

depends on what they are ‘used for,’ not on how they were

raised.”). But it is clear Af-Cap is seeking to garnish the

Garnishees’ obligation to pay taxes and royalties (or

deliver oil) to the Congo; it is not seeking to garnish the roy-

alty oil or tax proceeds themselves. See Mot. to Exec. at 35

& Exs. 1-4 (proposed writs of garnishments). Moreover, the

Fifth Circuit clarified on rehearing that property at issue is

the intangible royalty and tax obligations owed to the

Congo by the garnishees. Congo I/, 309 F.3d 259. Accord-

ingly, what the Congo does with its royalty oil or tax pro-

ceeds after it acquires them is irrelevant to this dispute.‘

B. The Garnishees’ Tax Obligations to the Congo

Af-Cap has not articulated any theory of commercial use

in the United States by the Congo of the oil companies’

obligations to pay taxes. In so far as Af-Cap contends that

the Congo uses tax proceeds for commercial activity in the

United States, that argument is irrelevant for the reasons

discussed in the previous section.

4 The situation would be different if, for instance, the Congo

directed the oil companies to send the oil (that the companies owed the

Congo) to parties in the United States as payment for services or goods

those parties performed or provided.

34a

C. The Garnishees’ Oil Royalty Obligations to

the Congo

1. Settlement of the NUFI Debt

In 1989, the National Union Fire Insurance Company

(“NUFI”) obtained a judgment against the Congo, and in

1991, NUFI sued the Congo in federal district court in the

Northern District of Illinois in an effort to collect its judg-

ment by garnishing the tax and royalty obligations owed to

the Congo under the Convention. NUFI and the Congo

entered into a settkement agreement under which the

Congo assigned NUFI a portion of its royalty interest

under the Convention until such time as the underlying

debt to NUFI was fully paid. The Illinois federal court

entered a turnover order pursuant to the parties’ settlement

agreement, and ordered the garnishees to pay 50% of the

royalty obligation they owed to the Congo, as each obliga-

tion became due, until the NUFI debt was extinguished.

The Congolese Financial Minister singed [sic] a letter in

1991 giving irrevocable payment instruction to the Gar-

nishees’ predecessor to pay the debt, plus interest, until it

was paid off. See Tr. at 48. The remainder of the royalty,

i.e., the portion the companies did not pay directly to

NUFI, was (since 1999) paid to the Congo in kind based on

the latter’s election. Ever since the NUFI settlement pay-

ments ended in August of 2002, the Congo takes its entire

royalty in-kind.

Af-Cap maintains that the Congo’s past use of the Gar-

nishees’ royalty obligation to settle this debt constitutes

use of the Congo’s property, namely, the oil royalty

stream, for commercial activity in the United States. This

argument raises three sub-issues: (1) whether settlement of

commercial debt constitutes a commercial use; (2) whether

35a

a past commercial use of the property renders the Gar-

nishees’ royalty obligations forever subject to garnish-

ments; and (3) whether the property at issue in this case is

more properly described as royalty stream, as Af-Cap sug-

gests, or “a series of distinct receivables that accrue peri-

odically,” see Opp. at 25, as the Congo suggests.

In deciding whether an activity is commercial, the dis-

positive question is whether the act the foreign state per-

forms is the type of act “by which a private party engages

in ‘trade or traffic and commerce.’” Congo II, 309 F.3d at

260 (citing Argentina v. Weltover, 504 U.S. 607, 614

(1992)). According to this standard, it seems that settling a

commercial debt is commercial in nature because settling

debts is a way in which a private party engages in com-

merce. The Congo apparently concedes as much.° Yet the

Court has reason to pause before drawing this conclusion.

Even though Af-Cap informed the Fifth Circuit about the

NUFI settlement in its petition for rehearing,® and the

Court described the arrangement between the Congo and

NUFI in its 2001 order, the Circuit nevertheless stated: “In

its petition for rehearing, [Af-Cap] does not allege any sce-

nario under which the Congo has put its royalty or tax obli-

gations at any point in time in the service of a commercial

activity in the United States.” Congo II, 309 F.3d at 258.

The reason for this pronouncement by the Fifth Circuit

may lie not in the definition of commercial activity, but in

its construction of the entire phrase, “used for commercial

5 Counsel for the Congo said at the hearing: “now that the Fifth

Circuit has spoken and articulated a test, it certainly would not be in

any sovereign’s interest to use any obligations of (sic) the United States

for any purpose such as paying off a commercial debt.” See Tr. at 49.

6 See Opp. Ex. G (“Bank’s Pet. for Rehearing”) at 10-11.

36a

activity in the United States.” The Fifth Circuit cited two

federal district court cases from the District of Columbia

as examples of how a court can evaluate the use of the

property at issue. Jd. at 257 n.7 (citing Eastern Timber

Corp. v. Republic of Liberia, 659 F. Supp. 606 (D.D.C.

1987), and Flatiow v. Islamic Republic of Iran, 76 F. Supp.

2d 16 (D.D.C. 1999)). In Eastern Timber, the district court

evaluated whether a sovereign’s bank account in the

United States was used for commercial activity. First, the

court noted that “the concept of ‘commercial activity’

should be defined narrowly because sovereign immunity

remains the rule rather than the exception and because

courts should be cautious when addressing areas that affect

the affairs of foreign governments.” 659 F. Supp. at 610

(internal citations omitted). The court concluded that the

essential character of the activities for which the account

was used was not commercial since it was primarily used

to fund diplomatic and consular activities, even though the

court conceded some portion of the funds is likely used in

commercial activities. Jd. The court explained that it

“decline[d] to order that if any portion of a bank account is

used for a commercial activity, then the entire account

loses its immunity.” Jd. This Court has the same reserva-

tions: the use of the royalty obligations to settle one com-

mercial debt should not render the Garnishees’ royalty

obligations to the Congo forever subject to garnishment.

Admittedly, the NUFI settlement was not a de minimus

use, considering it took several payments by the Gar-

nishees over several years to pay off the debt. But the

record simply does not show that the essential use of the

royalty obligations was the repayment of commercial

debts—it merely shows the Congo made a one-time irrev-

37a

ocable commitment several years ago to use the property

to settle one round of litigation over a debt.

Alternatively, the Court would hold that past uses, such

as the NUFI settlement, do not satisfy the statutory man-

date of § 1610(a) that sovereign property be “used for com-

mercial activity in the United States” before it will be

subjected to garnishment. The Fifth Circuit explicitly

declined to resolve the temporal aspects of the phrase

“used for” in § 1610(a), and specifically, whether past uses,

or just current and impending uses, matter.’ Meanwhile,

the parties have demonstrated that the language of text

does not dictate one reading or the other.* However, the

Court is more persuaded by the argument that § 1610(a)

applies only to present and impending uses. As the Fifth

Circuit pointed out, one of the chief purposes of the FSIA

is to limit the execution of sovereign property being put

immediately to sovereign use. Congo II, 309 F.3d at 253

(citing H.R. Rep. 94-1487) (emphasis added). And that

makes sense. Borrowing from the Fifth Circuit opinion,

consider the example of the state-owned aircraft. Jd. As the

Circuit explained, if the craft is used in by the state in the

7 Although, when the Fifth Circuit described the legal standard

under the FSIA, it employed the present tense. See Congo II, 309 F.3d

at 251 (“Under the FSIA, a court may attach only a foreign state’s

‘property in the United States’ when that property is ‘used for a com-

mercial activity in the United States.’ What matters under the statute is

what the property is ‘used for,’ not how it was generated or produced.”

(internal citations and original emphasis omitted, new emphasis

added)).

8 See Mot. to Exec. at 12, 16-17; Opp. at 28-29 & n.i3-14; Reply

at 8 n.7 (documenting a riveting grammatical debate about the proper

understanding of the tense of “used for,” and the significance of Con-

gress’s failure to insert “is or was used” or “is or intended to be used”

as it did in other sections of the FSIA).

38a

operation of its commercial airline in the United States, it

would be subject to garnishment. Jd. However, if the air-

plane is only used by the sovereign to shuttle a head-of-

state back and forth for official visits, then it would not be

subject to garnishment. Jd. Logically extending the exam-

ple, if the airplane was in the past used as part of the com-

mercial fleet, but later designated as the official shuttle for

the head-of-state, at which point the sovereign stopped

using it as part of its commercial fleet altogether, it seems

strange to say because the airplane was once commercially

used, it is forever subject to garnishment regardless of the

government’s current or planned uses. Past uses may be

relevant insofar as they are indicative of the sovereign’s

current use of its property or as evidence of the likely

impending uses. But the Court holds that it is the current

and impending uses of the property that determine whether

it is subject to garnishment under the FSIA.

The Court is sensitive to Af-Cap’s concerns that relying

only on the future and impending uses encourages games-

manship. However, for the most part, Af-Cap’s argument is

overstated. After the Fifth Circuit’s opinion, foreign states

will most likely be more cautious in making decisions

about whether or not to use royalty obligations owed to

them by U.S. companies as collateral for U.S. loans or other

commercial purposes. Clarifications of a law invariably

lead some parties to modify their behavior. But it does not

seem likely that if, for instance, a U.S. company attempted

to garnish a plane in a commercial fleet, the foreign state

who owns the planes would, because of the present/impend-

ing use rule, convert that plane and every subsequent plane

the U.S. company attempted to garnish into a government

shuttle simply to avoid the garnishment of an airplane.

39a

Finally, and as a second alternative holding,’ the Court

is persuaded by the Congo’s argument that the NUFI set-

tlement is irrelevant because the property that is the sub-

ject of these garnishment actions is the oil companies’

royalty obligations to the Congo that accrued since lifting

109. In other words, the property at issue in this case, the

Garnishees’ royalty obligation to the Congo, is not one

indivisible stream, but a “series of distinct receivables

that accrue periodically.” See Opp. at 25. Specifics help

explain the argument. After the commencement of these

actions, the Garnishees took liftings 99, 100, 101, and

102, at which point more than a 275,000 barrel combined

obligation to the Congo and SNPC accrued. SNPC there-

fore took lifting 103 and consequently extinguished the

9 The Court declares this holding its second alternative to its pri-

mary holding because it is aware that Af-Cap has interpreted the Con-

vention differently, albeit less persuasively, than the Congo and the

Garnishees. Af-Cap contends that the Garnishees’ obligation accrues

not upon each lifting, but as when the oil is pumped from the ground

into the Conkouati. See, e.g., Reply at 4. However, the plain language

of the Convention and the actions of the parties to the contract (the

Congo and the Garnishees) verify their understanding of the Conven-

tion: CMS and Nuevo lift and sell the oil, and then calculate the royal-

ty owed to the Congo based on the value of the oil they lifted and sold

as dictated by Article 7.01 of the Convention, which states:

The basis of the computation of the mining royalty paid in cash

or kind is equal, for each COMPANY, to the value of the HYDRO-

CARBONS lifted by such company, computed on the basis of the

price determined in accordance with Exhibit II to the CONVEN-

TION, less domestic transportation, processing, storage and load-

ing charges as said charges appear from the COMPANY’s accounts

and constitute tax deductible expenses. The royalty is not due on

those quantities of HYDROCARBONS lost or used for the PETRO-

LEUM WORKS.

(Emphasis added.) The obligation accrues upon the lifting of the oil.

40a

obligation the Garnishees’ owed the Congo. The obliga-

tions arising from liftings 99, 100, 101, and 102 can no

longer be garnished since the Congo has received the oil

to which it was entitled. Carrying forth the analysis,

SNPC’s lifting 109 extinguished the obligations that

accrued on the Garnishees’ liftings 104 through 108. If

the wells went dry and the Garnishees lifted no more oil,

they would have no royalty obligation to the Congo. For

this reason the obligation is a contingency. Accordingly,

the only way for Af-cap to prevail is to show that the

unpaid obligations the Garnishees currently owe the

Congo (on the liftings since 109) are being used for com-

mercial activity in the United States. The NUFI settle-

ment is therefore inapplicable because it applied to past

distinct receivables that accrued and have since been

extinguished by SNPC liftings.

2. Commercial Negotiations Related to the Itochu

Debt

Af-Cap’s next theory is that when the Congo, in settle-

ment negotiations regarding a debt, called the Itochu

debt, discussed the possibility of using the royalty obli-

_ gations to settle that debt, that constituted use for a com-

mercial activity in the United States. NUFI and its parent

company, American Internationa: Group (“AIG”), hold

the Itochu debt. In August of 2001, NUFI/AIG met with

the Congo in New Y rk to discuss resolving the debt. In

May of 2002, the pa ies met again and the evidence sug-

gests the Congo proposed a settlement that involved the

Congo using the oil royalty obligations to repay the

Itochu debt. Ultimately, the parties never agreed to use

the royalty obligations to settle the Itochu debt the way

NUFI and the Congo agreed to use them for the NUFI set-

4la

tlement.!° Nevertheless, Af-Cap contends these negotia-

tions constitute commercial activities and that the Congo

made the royalties “instrumental” to the negotiation

‘process’ by offering them as a ‘means’ to settle the debt.”

See Mot. to Exec at 19 (citing Congo II, 309 F.3d at 254).

That the Congo discussed or even proposed in commer-

cial negotiations that it use[d] [sic] the royalty obligations

to settle the debt may constitute “use in connection with

commercial activity,” but Af-Cap has not provided author-

ity for its argument that it constitutes “use for commercial

activity.”!! The Fifth Circuit explained the “used for com-

mercial activity” exception to execution immunity embod-

ied in § 1610(a) of the FSIA is narrower than the “used in

connection with commercial activity” exception to juris-

dictional im*aunity embodied in § 1605(a) of the FSIA.

Congo II, 209 F.3d at 254-57. Clarifying the scope of the

execution immunity exception, the Circuit stated, “to use

property in the service of commercial activity, within the

ordinary meaning of ‘use,’ would be to put the property in

10 Af-Cap claims that the Congo and NUFI/AIG did reach an

agreement to use the royalty obligations, which the Congo later

reneged. The Congo explains the agreement was never approved by the

Congolese Minister of Finance. Regardless, the evidence shows the

royalty obligations were never actually used to repay the Itochu debt.

1 The cases cited by Af-Cap relate to the FSIA’s exception to

jurisdictional immunity. See Mot. to Exec. at 19 (citing United States v.

Moats, 961 F.2d 1198, 1205 (Sth Cir. 1992); Good v. Aramco Servs.

Co., 971 F. Supp. 254, 257 (S.D. Tex. 1997). Af-Cap contends this does

not matter because it is just citing them for their definition of “com-

mercial activity.” But even if the settlement negotiations constitute

commercial activity, Moats and Good do not help the Court answer the

dispositive question, which is whether the royalty obligations were

“used for” the settlement negotiations in the manner articulated by the

Fifth Circuit.

42a

the service of a commercial activity, to carry out the activ-

ity by means of the property.” Jd. at 254. Even assuming

that negotiation of the Itochu debt did constitute a “com-

mercial activity,”!? the Congo did not carry out the negoti-

ations “by means of” the Garnishees’ royalty obligations.

It just discussed the royalty obligations as a potential way

to settle the debt during the negotiations. In comparison, if

instead the parties had reached a settlement agreement to

use the royalty Voligations to repay the debt, the debt

would be repaid “by means of” the Garnishees’ royalty

obligations to the Congo. A foreign state should be able to

discuss the possibility of utilizing state property in com-

mercial transactions, and then after consideration of vari-

ous consequences (including the consequences for the

12 The Court notes that the cases Af-Cap has cited for the proposi-

tion that negotiations constitute commercial activity almost all

involved negotiations that resulted in final agreements, including

Moats and Good. See Mot. to Exec. at 19-20 (also citing a Fourth Cir-

cuit case and New Jersey and New York district court decisions, both

over twenty years old). Af-Cap maintains MC/ Telecom. Corp. v. Alhad-

hood, 82 F,3d 658 (Sth Cir. 1996) is “binding precedent of the Fifth Cir-

cuit” that establishes the “negotiations here constitute ‘commercial

activity’ irrespective of whether an agreement was reached.” See Reply

at 10. However, the Court believes Af-Cap has overstated the holding

of MCI (which notably, also addressed the jurisdictional, not execution,

commercial activity exception). While MC/ did not rule out the possi-

bility that commercial negotiations that do not result in final agree-

ments nevertheless constitute “commercial activity” under the FSIA,

neither did it conclusively establish that they did. See MCI, 82 F.3d at

663 (explaining “private parties may engage int alks, [sic] negotiations,

and may even make promises to resolve disputes, but not all such activ-

ity will be deemed ‘commercial,’” and ultimately holding “alleged

promises made through diplomatic channels do not constitute commer-

cial activity”).

43a

asset’s immunity), decide against using the property with-

out sacrificing the asset’s immunity.

3. Payment of “Maritime Tax Debt” to U.S. Oil

Companies

Af-Cap’s next theory is when the Congo permits the

Garnishees to deduct from their royalty obligations in

order to reimburse the Garnishees for a Congolese mar-

itime tax they paid, that constitutes use of the royalty obli-

gation for a commercial activity—namely, the repayment

of a “debt” owed by the Congo to the Garnishees. The

undisputed facts are the Garnishees pay a maritime tax to

the Congo on behalf of their oil shipping companies.

Because they believe they should not have to pay the tax

under the Convention, the Garnishees deduct some of the

oil to which the Congo would otherwise be entitled as

reimbursement. The Garnishees claim this is self-help, but

Af-Cap avers the Congo has at least acquiesced to this

arrangement.'? Even assuming Af-Cap is right, the Gar-

nishees’ obligation to pay taxes to the Congo is not a com-

mercial obligation—taxation, and conversely, tax forgiveness,

are uniquely government’ functions. Liberian Eastern

Timber Corp. v. Government of Republic of Liberia,

(S.D.N.Y. 1986), aff’d, 854 F.2d 1314 (2nd Cir. 1987)

(holding the levy and collection of taxes is an exercise of

sovereign power and refusing to garnish tax revenues);

LNC Inv., Inc. v. Republic of Nicaragua, 2000 WL 745550,

at *4 (S.D.N.Y. Jun. 8, 2000) (relying on Liberian East

13 Af-Cap’s argument that the tax is illegal is not relevant to the

question either. See Mot. to Execute at 21 n.12; Reply at 12 n. 9. Even

if this Court could adjudge whether or not a foreign government’s tax

is legal (which it assuredly cannot), the collection and reimbursement

of an illegal tax is not a commercial activity either.

44a

Timber to hold the same). Accordingly, the use of the roy-

alty obligations to reimburse the Garnishees for overpay-

ment of taxes to the Congo is not “use for commercial

activity in the United States.”

4. “Pledge” of Royalty Obligations to Cover Operat-

ing Expenses

Af-Cap’s final theory is Af-Cap uses its royalty obliga-

tions for commercial activities in the United States by

pledging them to the Garnishees in exchange for their pay-

ment of joint venture expenses. More specifically, Af-Cap

explains SNPC has a 50% working interest under the Con-

vention, but it does »ot pay its pro rata expenses. Instead,

the Garnishees pay the expenses and what SNPC owes is

deducted from its oil entitlement by the Garnishees. Af-

Cap describes this as an “advance” or “loan” by the Gar-

nishees in return for a “pledge” of Congo’s and SNPC’s

oil. In Af-Cap’s words, “the Congo’s use of the royalty to

secure/collateralize the advances from the U.S. Oil Com-

panies and to repay the advances is ‘commercial activity in

the United States.’” See Mot. to Exec. at 23. First of all, in

so far as Af-Cap is claiming the royalty oil is being used as

collateral, this argument, as the Court has now iterated

several times, is irrelevant to the question of whether the

Garnishees’ royalty obligation to the Congo can be gar-

nished.'* Regardless, under the Convention the Congo is

entitled to receive royalty interests from the working inter-

ests owners, but is not a working interest owner itself and

therefore does not bear operation costs. SNPC, on the

other hand, is a working interest owner. CMS advances

expenses and deducts reimbursements for SNPC, a work-

14 See, supra, section II. A.

45a

ing interest owner with the obligation to pay its share of

expenses, not the Congo. See Mot. to Exec. Ex 89 (“Joint

Operating Agreement”) at 8.02, 9.01-9.02.

II. “Property in the United States”

In order to garnish the Congo’s royalty and tax obliga-

tions, the obligations must be “property in the United

States” and “used for commercial activity in the United

States.” 28 U.S.C. § 1610(a)(1); Congo II, 309 F.3d at 247,

265. While the Fifth Circuit provided guidance on the

question of “use for commercial activity in the United

States” prong of the inquiry, it explicitly declined an invi-

tation to answer the question of whether the obligation

where “property in the United States,” suggesting the case

could more easily be resolved on the commercial use ques-

tion. Jd. at 265. Because the Court has concluded the

Congo does not use its royalty and tax obligations for com-

mercial activity in the United States, it need not address

the issue of the situs of the obligations.

In accordance with the foregoing:

IT IS ORDERED that Plaintiff’s Unopposed Motions to

Substitute Parties [#94 in A:01 CA 100 SS; #26 in A:01

CA 154 SS; #23 in A:01 CA 213 SS; #22 in A:01 CA 270

SS; and #39 in A:01 CA 331 SS] are GRANTED and the

henceforth the cases shall proceed under the styles as

worded in this order;

IT IS FURTHER ORDERED that Plaintiff’s Motions to

Incorporate Plaintiff’s Motion to Execute (filed in A:01

CA 321 SS as #58) [#90 in A:01 CA 100 SS; #23 in A:01

CA 154 SS; #21 in A:01 CA 213 SS; #19 in A:01 CA 270

SS; and #36 in A:01 CA 331 SS] are GRANTED;

46a

IT IS FURTHER ORDERED that Plaintiff’s Motions for

Permission to Execute [#58 in A:01 CA 321 SS and incor-

porated by reference in A:01 CA 100 SS; A:01 CA 154 SS;

A:01 CA 213 SS; A:01 CA 270 SS; and A:01 CA 331 SS]

are DENIED;

IT IS FURTHER ORDERED that Garnishees’ Motions

for Partial Summary Judgment on Mootness Grounds [#82

in A:01 CA 100 SS; #22 in A:01 CA 154 SS; #19 in A:01

CA 213 SS; #18 in A:01 CA 270 SS; and #35 in A:01 CA

331 SS] are DISMISSED AS MOOT;

IT IS FURTHER ORDERED that Defendants and Gar-

nishees’ Motions for Judgment and for Incorporation of

their Opposition (filed in A:01 CA 321 SS as #62) to Plain-

tiff’s Motion for Permission to Execute [#96 in A:01 CA

100 SS; #28 in A:01 CA 154 SS; #25 in A:01 CA 213 SS;

#24 in A:61 CA 270 SS, and #41 in A:01 CA 331 SS] are

GRANTED;

IT IS FINALLY ORDERED that the Garnishees SHALL

SUPPLEMENT their Motions for Attorneys Fees and

Costs [#16 in A:01 CA 154 SS; #13 in A:01 CA 213 SS;

#11 in A:01 CA 270 SS, and #28 in A:01 CA 331 SS]

within fifteen (15) days of the entry of this order, and any

responses to the motions for attorneys fees or the supple-

ments thereto shall be filed within fifteen (15) days of the

filing of the supplements by the garnishees.

SIGNED this the _7th_ day of April 2003.

/s/ SAM SPARKS

SAM SPARKS

UNITED STATES DISTRICT JUDGE

47a

APPENDIX C

IN THE

UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TEXAS

AUSTIN DIVISION

[stamped] Filed April 7, 2003

No. A01 CA 100 SS

AF-CAP, INC.,

Plaintiff,

VS. ie

THE REPUBLIC OF CONGO,

Defendant,

and

CMS OIL AND GAS COMPANY, et al.,

Garnishees.

No. A 01 CA 154 SS

AF-CaAP, INC.,

Plaintiff,

vs.

THE REPUBLIC OF CONGO,

Defendant,

and

48a

CMS OIL AND GAS COMPANY, et al.,

Garnishees.

No. A 01 CA 213 SS

AF-CAP, INC.,

Plaintiff,

VS.

THE REPUBLIC OF CONGO,

Defendant,

and

CMS OIL AND GAS COMPANY, et al.,

Garnishees.

No. A 01 CA 270 SS

AF-CAP, INC.,

Plaintiff,

vs.

THE REPUBLIC OF CONGO,

Defendant,

and

CMS OIL AND GAS COMPANY, et al.,

i

Garnishees.

49a

No. A 01 CA 321 SS

AF-CAP, INC.,

Plaintiff,

vs.

THE REPUBLIC OF CONGO,

Defendant.

No. A 01 CA 331 SS

AF-CAP, INC.,

Plaintiff,

VS.

THE REPUBLIC OF CONGO,

Defendant,

and

CMS OIL AND GAS COMPANY, et al.,

Garnishees.

50a

JUDGMENT

BE IT REMEMBERED on this the _7th_ day of April

2003, the Court, having denied Plaintiff’s Motions for Per-

mission to Execute, hereafter enters the following judg-

ment:

IT IS ORDERED, ADJUDGED, and DECREED that

Plaintiff Af-Cap, Inc. TAKE NOTHING in this cause

against the Republic of Congo, that the Writ of Garnish-

ments in the above-styled cause of action are DIS-

SOLVED; and that let the Defendant and Garnishees go

hence without delay and with their costs, for which let exe-

cution issue against plaintiff.

SIGNED this the _7th_ day of April 2003.

/s/ SAM SPARKS

SAM SPARKS

UNITED STATES DISTRICT JUDGE

Sla

APPENDIX D

IN THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

July 17, 2002.

As Amended on Rehearing August 29, 2002.

No. 01-50409

CONNECTICUT BANK OF COMMERCE,

Plaintiff-Appellant-Cross-Appellee,

THE REPUBLIC OF CONGO,

Defendant-Appellee,

CMS OIL AND GAS COMPANY; CMS OIL AND GAS (INTER-

NATIONAL) COMPANY; CMS NOMECO INTERNATIONAL CONGO

HOLDINGS, INC.; CMS NOMECO CONGO, INC.; CMS OIL AND

GAS (HOLDINGS), LTD.; CMS OIL AND GAS (INTERNA-

TIONAL) LTD.; CMS NOMECO CONGO LDC; CMS OIL AND

GAS (CONGO) LTD.; NUEVO ENERGY COMPANY; THE CONGO

HOLDING COMPANY; THE NUEVO CONGO COMPANY; NUEVO

CONGO LTD.; NUEVO INTERNATIONAL, INC.; NUEVO INTER-

NATIONAL HOLDINGS LTD.,

Garnishees-Appellees-Cross-Appellants.

ee

52a

Appeals from the United States District Court for the

Western District of Texas.

Before EMILIO M. GARZA, PARKER and DENNIS, Circuit

Judges.

EMILIO M. GARZA, Circuit Judge:

The Connecticut Bank of Commerce appeals the district

court’s judgment that the Foreign Sovereign Immunities

Act renders royalty and tax obligations owed by certain

Texas oil companies to the Republic of Congo immune

from garnishment.

A predecessor in interest to the Connecticut Bank of

Commerce (hereinafter “the Bank”) lent the Congo $6.5

million. In the loan agreement, the Congo waived any right

to claim foreign sovereign immunity either from suit or

from attachment or execution of its property. The Congo

defaulted on the loan. The Bank acquired the rights to a

valid London judgment against the Congo for the out-

standing principal and interest. In order to turn the foreign

judgment into a U.S. judgment, the Bank filed suit in a

state court in New York, as permitted by the terms of the

loan agreement. The Congo did not appear in the New

York action, and the state court entered a default money

judgment in favor of the Bank.

The Foreign Sovereign Immunities Act (FSIA), 28

U.S.C. §§ 1602-1611, provides foreign sovereigns with

immunity from execution against their property to satisfy

an adverse judgment. 28 U.S.C. § 1609. This statutory

immunity is subject to several exceptions. One exception

is that, if a foreign sovereign waives its immunity from

53a

execution, U.S. courts may execute against “property in

the United States ... used for a commercial activity in the

United States.” 28 U.S.C. § 1610(a)(1). Even when a for-

eign state completely waives its immunity fiom execution,

courts in the U.S. may execute only against property that

meets these two statutory criteria. /d.

Only a court may execute against a foreign sovereign’s

property under the FSIA. 28 U.S.C. § 1610(c) (“No attach-

ment or execution referred to in subsections (a) and (b) of

this section shall be permitted until the court has ordered

such attachment and execution . . .”). Some jurisdictions

permit judgment creditors to execute against property sim-

ply by applying to the clerk of the court-or to a sheriff.

Section 1610(c) does not permit-such summary procedures

to be used when a foreign sovereign’s property is involved.

Instead, it requires a court to enter the writ of execution, so

that the court can determine whether the property in ques-

tion falls within one of the statutory exceptions to foreign

sovereign immunity.

After obtaining the default judgment from the New York

state court, the Bank asked that court to enter what it called

a “1610(c) order.” The only order mentioned by § 1610(c)

is an order actually attaching or executing against prop-

erty. 28 U.S.C. § 1610(c) (“the court has ordered such

attachment or execution .. .”). The New York court, how-

ever, acting at the Bank’s request, entered a “1610(c)

order” that did not purport to execute against any property

within New York or elsewhere. Instead, it provided in

declaratory terms that the Bank had “permission” to exe-

cute against the Congo’s property wherever it may be

found. The New York court authorized the Bank to execute

against “any assets or other property of the Congo of any

nature, irrespective of the use or intended use of such

es ee

54a

property ... including any ... payments or obligations due

to the Congo from any oil and gas exploration and devel-

opment companies... .”

The Bank registered its New York judgment in Texas

state court and obtained, from the clerk of the Texas state =

court and without any court order, a writ of garnishment

directed to a group of Texas oil companies: CMS Nomeco

Congo, Inc., The Nuevo Congo Ltd., and some of their

affiliate companies (hereinafter “the garnishees”). The

writs of garnishment prohibited the garnishees from pay-

ing any debts to the Congo. The Congo and the garnishees

removed the garnishment action to the United States Dis-

trict Court for the Western District of Texas and filed a

motion to dismiss. The district court dissolved the writs of

garnishment and dismissed the action. It held that,

notwithstanding the obligations of the Full Faith and

Credit statute and the New York court’s “1610(c) order,” it

was not prohibited by res judicata from considering on a

blank slate the amenability of the garnishees’ debts to gar-

nishment under the FSIA. It determined that the royalty |

and tax payments owed by the oil companies to the Congo

did not arise from a “commercial activity in the United

States,” and therefore were not subject to garnishment.

The Bank appeals.

The Full Faith and Credit Statute, 28 U.S.C. § 1738,

does not bar the fresh consideration of whether the debts

owed from the garnishees to the Congo are subject to

garnishment under the FSIA because the New York court’s

determinations about garnishment were not necessary to

any judgment issued by that court. Under New York law,

55a

extraneous determinations not necessary to sustain a default

judgment are not entitled to any res judicata effect.

The Full Faith and Credit Statute, 28 U.S.C. § 1738,

provides that the judgments of state courts “shall have the

same full faith and credit in every court within the United

States ... as they have by law or usage in the courts of ;

such State ... from which they are taken.” The statute

extends to the federal courts the requirements of the Full

Faith and Credit Clause of the Constitution, which applies

of its own force only to state courts. E.g., Kremer v. Chem.

Constr. Corp., 456 U.S. 461, 483 n. 24, 102 S. Ct. 1883, 72

L.Ed.2d 262 (1982). Section 1738 requires us to afford the

New York court’s “1610(c) order” the same preclusive

effects that the order would enjoy in the New York courts.

But we need not give any greater res judicata effect to the

“1610(c) order” than New York itself would afford.

New York courts do not give preclusive effect to gratu-

itous determinations in a prior action. Res judicata oper-

ates to bar relitigation only of issues necessary to the

judgment. Rader v. Mfrs. Cas. Ins. Co. of Philadelphia,

139 N.Y.S.2d 388 (N.Y. Sup. Ct. 1955), aff’d, 1 A.D.2d

799, 149 N.Y.S.2d 220 (N.Y. App. Div. 1956); Pike v. Irv-

ing, 259 A.D. 303, 19 N.Y.S.2d 219 (N.Y. App. Div. 1940);

Finkelstein v. Equitable Life Assur. Soc. of the United

States, 256 A.D. 593, 11 N.Y.S.2d 135 (N.Y. App. Div.

1939), aff’d, 281 N.Y. 690, 23 N.E.2d 19 (1939). Espe-

cially in the case of a default judgment, res judicata

applies only to issues essential to support the judgment as

requested by the pleadings; subsequent developments in

the case cannot enlarge the scope of the judgment or the

scope of res judicata beyond the complaint. Novak & Co.

v. N.Y. City Hous. Auth., 105 A.D.2d 665, 482 N.Y.S.2d 7

(N.Y. App. Div. 1984) (“Since the prior judgment was on

56a

default, the issues necessarily determined there are limited

to those essential to the judgment.”); N.Y. C.P.L.R. 3215(b)

(McKinney 2001) (providing t..at, in a default judgment,

the “judgment shall not exceed in amount or differ in type

from that demanded in the complaint”). Any determina-

tions beyond those necessary to sustain the judgment

requested by the pleadings do not preclude subsequent

reexamination. -

For example, in Finkelstein, the defendant issued a num-

ber of insurance policies to the plaintiff. Some of the polli-

cies paid benefits when the insured became “presumably

permanently disabled” (type 1 policies) and others paid

benefits only when the insured became actually “perma-

nently disabled” (type 2 policies). Under New York law,

this difference in phrasing had an important legal effect.

Under a type | policy, if the insured was disabled for a cer-

tain period of a time set out in the policy, he was entitled

to an irrebuttable presumption of permanent disability.

Under type 2 policies, being disabled for the amount of

time set out in the policy gave rise to a presumption of per-

manent disability, but the presumption could be rebutted.

In a prior action, Finkelstein obtained a judgment on a type

1 policy. He later brought an action on other policies, both

type | and type 2, asserting that res judicata barred reliti-

gation of the issue of his disability. The Appellate Division

held that the prior action was not res judicata as to the type

2 policies, even if the previous court had determined that

Finkelstein was not only “presumably” disabled, but that

he was actually disabled. It reasoned that “in the prior

action all that the insured was required to establish was

total and presumably permanent disability ... anything

more than that which the insured may have proved was not

within the issues in that action, and, hence, the judgment

S7a

as to such extraneous matters is not res judicata.” Finkel-

stein, 11 N.Y.S.2d at 138 (emphasis added). This principle

applies a fortiori to default judgments, where it would be

impossible for the defendant to predict in advance of his

default any extraneous determinations a court might make.

See Pike, 259 A.D. at 303- 304 (limiting the res judicata

effect of a prior default judgment to the “claim as alleged

in [the] complaint” and reasoning that the defendant’s

“default, for whatever reason, did not_authorize the entry

of a judgment against him beyond the scope of the prayer

for relief”).

To the extent that the New York court made determina-

tions about the amenability of the Congo’s property to gar-

nishment, those determinations were not in any way

necessary to the money judgment sought by the pleadings.

Here, the only pleading was the bank’s complaint!', which

sought to convert a money judgment in London into a

money judgment in New York. The New York court awarded

the money judgment when the Congo failed to appear. The

Congo does not challenge the validity of that judgment.

Under New York law, the pleadings define the scope of a

default judgment and therefore the scope of res judicata.

N.Y. C.P.L.R. 3215(b); Novak & Co., 482 N.Y.S.2d at 8-9.

To the extent that the New York court made legal determi-

nations not necessary to awarding the money judgment,

those determinations are not entitled to any res judicata

effect.

Here, the “1610(c) order” and the determinations con-

tained in the order were not necessary to awarding the

' The Bank actually plead by way of a “Motion for Summary

Judgment in Lieu of Complaint,” apparently a permissible pleading

under New York law. For the sake of simplicity, we will refer to the

Bank’s pleading as its “complaint.”

58a

money judgment. Section 1610(c) has nothing to do with

the merits of an action against a foreign state, and does not

somehow turn the amenability of a foreign state’s property

to garnishment into a necessary part of the merits court’s con-

sideration. Section 1610(c) is directed entirely to a court

attaching or executing against a foreign state’s property,

and not at all to the merits court. The statute provides:

No attachment or execution referred to in subsec-

tions (a) and (b) of this section shall be permitted

until the court has ordered such attachment and

execution after having determined that a reason-

able period of time has elapsed following the

entry of judgment and the giving of any notice

required under section 1608(e) of this chapter.

The statute has three elements. First, as discussed above,

its chief purpose is to provide that only a court may enter

an order of attachment or execution against a foreign

state’s property. 28 U.S.C. § 1610(c) (“until the court has

ordered such attachment and execution”).? Second, it pro-

2 28 U.S.C. § 1608(e) requires that a copy of any default judg-

ment entered against a foreign state be served on that state in the same

manner proscribed by statute for serving complaints against foreign

states.

3 The House Report explains that the purpose of § 1610(c) is to

require a court to issue the order of attachment or execution. It explains:

Section 1610(c) prohibits attachment or execution under

sections 1610(a) and (b) unless the court has issued an

order for such attachment and execution. In some jurisdic-

tions in the United States, attachment and execution to sat-

isfy a judgment may be had simply by applying to a clerk

or to a local sheriff. This would not afford sufficient pro-

tection to a foreign state.

H.R. REP. No. 94-1487, at 30 (1976).

59a

vides that the court may order the attachment or execution

only as “referred to in subsections (a) and (b).” Subsec-

tions (a) and (b) spell out the exceptions to the general rule

that a foreign sovereign’s property is immune from execu-

tion or attachment. See 28 U.S.C. § 1609. Third, the court

may execute against property only after “determining that

a reasonable period of time has elapsed following entry of

judgment.” This phrase requires courts to acknowledge,

for example, that a foreign sovereign may have to pass

separate legislation to authorize the payment of the neces-

sary funds. H.R. REP. NO. 94-1487, at 30 (1976). It allows

courts discretion to wait for a foreign sovereign to make

alternate arrangements to pay a debt before executing

against any property. /d. Nothing in section 1610(c) directs

itself to the court issuing the judgment on the merits; it is

all directed to the court ordering “such attachment or exe-

cution.” Nothing in § 1610(c) makes any determination

about the amenability of a foreign sovereign’s property to

attachment or execution a necessary part of the underlying

money judgment.

The “1610(c) order” had no effect in the New York liti-

gation at all: the determinations in the “1610(c) order”

could conceivably have legal effect only if some other

court actually executing on the Congo’s property were to

treat the order as res judicata. The order was therefore not

necessary to any coercive relief prayed for in the com-

plaint or granted by the state court, and under New York

law the order is not entitled to any preclusive effect.

Although the Bank does not say so in as many words, it

essentially asks us to treat the New York court’s “1610(c)

order” as a declaratory judgment, as a separate and distinct

form of relief from the money judgment issued by the New

York court. It points out that its motion requesting the

60a

“1610(c) order” was served separately on the Congo. But

the Bank’s complaint did not seek a declaratory judgment

against the Congo, it sought a money judgment. If the

Bank had filed what was clearly a declaratory judgment

action, then we would have a different situation. Nor could

the post-judgment motion requesting the 1610(c) order .

enlarge the scope of the issues determined by the default

judgment. As explained above, New York law limits the

scope of a default judgment to the issues necessary to

resolve the questions raised by the pleadings. N.Y.

C.P.L.R. 3215(b) (McKinney 2001); Novak & Co., 482

N.Y.S.2d at 8-9. The post-judgment motion asking for a

1610(c) motion was not a pleading. N.Y. C.P.L.R. 3011

(McKinney 2001) (“There shall be a complaint and an

answer. . . .There shall be no other pleading unless the

court orders otherwise.”). Almost any gratuitous determi-

nation could retroactively be termed a “declaratory judg-

ment.” If the Bank wanted a declaratory judgment, it

needed to ask for one in its complaint.

New York does not require civil litigants to show up in

court only to fall on their swords. If a defendant does not

contest his liability to the plaintiff as set out in the com-

plaint, he need not appear in the action. Defaulting does

not carry the risk that the court will enter a judgment or

make determinations not essential to awarding the relief

called for in the complaint. The action in New York was an

action to turn a money judgment in London into a money

judgment in New York. The Congo had no way of knowing

from the complaint that the New York court would make

determinations and issue declarations that had nothing to

do with a money judgment. The immunity of the royalty

and tax payments to garnishment was not a defense to a

claim for money damages, and whatever the New York

6la

court may have said about the immunity of the Congo’s

assets to execution had nothing to do with the merits of the

action it was considering. Such statements were mere

superfluities. Now that the immunity of these assets to

garnishment really is in issue, the Congo is not precluded

from asserting its sovereign immunity defense.

I]

Under the FSIA, courts may attach only a foreign state’s

“property in the United States” when that property is “used

for a commercial activity in the United States.” 28 U.S.C.

§ 1610(a) (emphasis added). What matters under the

statute is what the property is “used for,” not how it was

generated or produced. If property in the United States is

used for a commercial purpose here, that property is sub-

ject to attachment and execution even if it was purchased

with tax revenues or some other noncommercial source of

government income. Conversely, even if a foreign state’s

property has been generated by commercial activity in the

United States, that property is not thereby subject to exe-

cution or attachment if it is not “used for” a commercial

activity within our borders. The district court (and the liti-

gants) have focused on the question of whether the Congo’s

joint venture with the garnishees, which gave rise to the

royalty and tax obligations that the Bank wants to garnish,

was a “commercial activity in the United States.” This was

the wrong question to consider. What matters under the

Statute is not how the Congo made its money, but how it

spends it. The amenability of these royalties and taxes to

garnishment depends on what they are “used for,” not on

how they were raised.

62a

Until 1952, the United States generally afforded foreign

sovereigns absolute immunity from the jurisdiction of

the courts, including complete immunity from execution.

Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480,

486, 103 S. Ct. 1962, 76 L.Ed.2d 81 (1983). Unlike state

or federal sovereign immunity, foreign sovereign immu-

nity does not derive from the constitution. /d. Foreign sov-

ereign immunity instead derives from concerns of grace

and comity between nations. As a-result, the Supreme

Court regularly deferred to the Executive Branch in deter-

mining whether to take jurisdiction over a case concerning

a foreign sovereign. /d. The Executive was in a better posi-

tion to anticipate the foreign relations consequences of

subjecting a foreign state to suit in a U.S. court. Under the

theory of absolute sovereign immunity, the Executive

would regularly recommend that courts decline to take

jurisdiction over any case against a foreign sovereign.

In 1952, the State Department issued the “Tate Letter,”

which announced the Department’s adoption of the

“restrictive” theory of foreign sovereign immunity. /d. at

486-87, 103 S. Ct. 1962. Under the restrictive theory, which

many other nations had already adopted, the State Depart-

ment would continue to recommend immunity in suits

concerning a foreign state’s sovereign, public acts. The

Department, however, would recommend denying immu-

nity in suits based on a foreign sovereign’s strictly com-

mercial activities. The Tate Letter did nothing to modify

the complete immunity enjoyed by foreign sovereigns

from execution against their property. If a plaintiff suc-

cessfully obtained a final judgment against a foreign sov-

ereign, he still had to rely on the foreign state to pay the

judgment voluntarily. H.R. Rep. No. 94-1487, at 8, 27

(“[T]he traditional view in the United States concerning

63a

execution has been that the property of foreign states is

absolutely immune from execution. ... Even after the

‘Tate Letter’ of 1952, this continued to be the position of

the Department of State and of the courts.”); Restatement

(Third) of the Foreign Relations Law of the United States

§ 460 cmt. a (1987) (hereinafter “Restatement”).

The FSIA shifted the responsibility to make determina-

tions about foreign sovereign immunity from the State

Department to the courts. Verlinden, 461 U.S. at 488, 103

S. Ct. 1962. For the most part, the FSIA codifies the

restrictive theory of sovereign immunity as described in

the Tate Letter. Jd. But the FSIA also modified the rule bar-

ring execution against a foreign state’s property by “par-

tially lowering the barrier of immunity from execution, so

as to make this immunity conform more closely with the

provisions on jurisdictional immunity in the bill.” H.R.

Rep. No. 94-1487, at 27 (emphasis added). For both immu-

nity from jurisdiction and immunity from attachment,

“commercial activity” generally constitutes the touchstone

of the immunity determination. But immunity from execu-

tion is nevertheless narrower than jurisdictional immunity.

De Letelier v. Republic of Chile, 748 F.2d 790, 798-99 (2d

Cir. 1984). In De Letelier, the Second Circuit surveyed

both the history of immunity from execution and the inter-

national law context at the time Congress passed the FSIA.

The court concluded that Congress intended to lift immu-

nity from execution only “in part,” that it did not intend to

reverse completely the historical and international antipa-

thy to executing against a foreign state’s property even in

cases where a judgment could be had on the merits. Jd. It

attributed the differences in phrasing between the jurisdic-

tional (§ 1605) and execution (§ 1610) immunity sections

64a

in the FSIA to a deliberate choice to narrow the scope of

immunity from execution.

Two subsections of the FSIA spell out the exceptions to

immunity from execution. 28 U.S.C. § 1610(a) governs the

immunity from execution of property belonging to foreign

states. 28 U.S.C. § 1610(b) governs the immunity from

execution of property belonging to an “agency or instru-

mentality” of a foreign state engaged in commercial activ-

ity in the United States. Subsection (a), regarding property

belonging directly to a foreign state, permits execution

only narrowly, when the property is “in the United States”

and “used for a commercial purpose in the United States.”

Subsection (b) is broader; it permits execution of “any

property in the United States” belonging to the agency or

instrumentality, regardless of how the agency or instru-

mentality uses the property. Subsection (a) is generally

thought to be more restrictive than subsection (b). De Lete-

lier, 748 F.2d at 799 (explaining that Congress “was more

cautious when lifting immunity from execution against

property owned by the State itself.”).

Because subsection (a) is intended to be narrower than

subsection (b), we pay close attention to the differences in

phrasing between the sections. Subsection (a) allows

courts to execute only when the property is “used for a

commercial activity,” whereas subsection (b) permits exe-

cution of “any property,” regardless of its use. The focus in

subsection (a) is plainly on the “use” to which the property

is put. As the Restatement explains, “For purposes of post-

judgment attachment and execution, the Foreign Sovereign

Immunities Act draws a sharp distinction between the

property of states and the property of state instrumentali-

ties ... The property of states may be attached only if it is

or was used in commercial activity; the property of state

65a

instrumentalities may be attached without any such limi-

tation, so long as the instrumentality itself is engaged in

commercial activity in the United States.” RESTATEMENT

§ 460 cmt. b.

Restricting execution against property belonging to for-

eign states depending on the “use” of that property, rather

than its source, helps accomplish the purpose of limiting

execution against property directly belonging to a foreign

state more severely than execution against property

belonging to an instrumentality. The premise is that agen-

cies or instrumentalities engaged in commercial activity

are akin to any other player in the market, and that their

functions are primarily commercial. /d. On the other hand, ~

the “primary function of states is government.” Jd. One of

the chief motifs of the FSIA is to limit as much as possible

disrupting the “public acts” or “jure imperii” of sover-

eigns, while restricting their purely commercial activity.

H.R. Rep. 94-1487, at 7. Confiscating funds that are being

put immediately to some sovereign use interrupts a sover-

eign’s public acts regardless of what kind of activity gen-

erated the funds, commercial or noncommercial.

An example helps clarify the point. Consider an airplane

owned by a foreign government and used solely to shuttle

a foreign head-of-state back and forth for official visits. If

the plane lands in the United States, it would not be sub-

ject to attachment or execution. The plane is not “used for”

any commercial activity, in the U.S. or elsewhere. It plainly

would not matter how the foreign government bought the

plane, raised the purchase price, or otherwise came into

ownership. Even if the government received the plane as

payment from a U.S. company in an obviously commercial

transaction, that would not somehow transform the “use”

of the plane into a commercial use. Regardless of how the

66a

government came to own the plane, a U.S. court could

never under the terms of the FSIA confiscate a plane used

solely to transport a foreign head-of-state on official busi-

ness. Attaching the plane and selling it in execution of a

judgment would go too far in interrupting the public acts

of a foreign state.*

The phrase “used for” in § 1610(a) is not a mere syntac-

tical infelicity that permits courts to look beyond the “use”

of property, and instead try to find any kind of nexus or

connection to a commercial activity in the United States.

The statute means what it says: property of a foreign sov-

ereign, unlike property belonging to a mere agency or

instrumentality, may be executed against only if it is “used

for” a commercial activity. That the property is revenue

from or otherwise generated by commercial activity in the

United States does not thereby render the property

amenable to execution.

4 The Third Circuit relied on similar reasoning in City of Engle-

wood v. Socialist People’s Libyan Arab Jamahiriya, 773 F.2d 31 (3d

Cir. 1985), in rejecting an attempt to attach real property used as a res-

idence for Libya’s Head of Mission to the United Nations. The city of

Englewood argued that the property was subject to attachment because

it was “acquired by Libya in a commercial transaction between a sell-

er and a buyer.” /d. at 36. The court rejected this argument, reasoning

that if “acquisition of property in a particular commercial transaction

or act indelibly stamped the property as used for commercial activity,

even foreign embassies and chancelleries would be subject to execu-

tion. Plainly Congress did not intend a result so inconsistent with

recognized principles of international law.” Jd. at 36-37. The determi-

native issue, according to the Englewood court, was not whether the

property was acquired in a commercial transaction, but instead

whether Libya’s present use of the property was commercial. Jd. at 37.

67a

Ill

In its petition for rehearing, the Bank advances an inter-

pretation of “used for” that conflicts with the plain mean-

ing of that phrase. The Bank contends that property is

“used for” a commercial activity in the United States

whenever it is “integral to” or “related to” a commercial

activity located here. The Bank relies on a sentence from

Judge Dennis’s separate opinion: “Because the .. . royal-

ties to the Congo were necessary and integral to, and

therefore used for, the joint venture .. . those royalty obli-

gations fell within the exceptions to immunity from execu-

tion provided for by FSIA § 1610(a)(1)” (emphasis added).

In our view, this sentence is a non sequitur. The phrase

“used for” on its face denotes something different and

more specific than the phrases “integral to” or “necessary

to.” It also denotes something distinct (and narrower) than

the other phrases the Bank uses in its petition, such as

“related to” or “contemplated by.”

The dictionary defines “to use” differently from any of

these phrases. It defines “use,” as relevant here, to mean:

“to carry out a purpose or action by means of: make instru-

mental to an end or process ... UTILIZE.” WEBSTER’S THIRD

NEW INTERNATIONAL-DICTIONARY 2524 (Philip B. Gove ed.,

Merriam Webster Inc. 1993) (1961). To use property for a

commercial activity, within the ordinary meaning of “use,”

would be to put the property in the service of the commer-

cial activity, to carry out the activity by means of the prop-

erty. Here, the royalty obligations in question represent the

revenue, the income, from an allegedly commercial activ-

ity. In ordinary usage, we would not say that the revenue

from a transaction is “used for” that transaction. For exam-

ple, in return for an employee’s service to his employer, he

68a

generally receives revenue in the form of a salary. It would

be strange to say that “The employee uses his salary for his

job.” He earns his salary from his job, but he uses it to pay

the rent, buy groceries, and so forth. The revenue from a

commercial transaction does not have the instrumental

relationship to the commercial activity denoted by the

phrase “used for;” it is not put in service of that activity,

instead it is the end result or income from the activity.

The phrases “integral to” and “related to” plainly mean

something different. These are broad phrases that would

allow execution on the basis of just about any connection

with a commercial activity. The statute specifies a particu-

lar kind of relationship, a “used for” relationship. If Con-

gress had intended any relationship to suffice, we wuuld

not expect for it to have used the narrower “used for” lan-

guage.

Furthermore, the structure of the FSIA indicates that the

phrase “used for” was intended to have a more specific

meaning than what the Bank suggests: if we were to inter-

pret § 1610(a) in the way suggested by the petition, we

would have to interpret away an obvious difference in the

phrasing of two different parts of the FSIA. The FSIA

deals separately with immunity from jurisdiction (§ 1605)

and immunity from execution (§ 1610). Although each of

these sections creates a “commercial activity” exception

from immunity, Congress phrased the two “commercial

activity” exceptions very differently. Section 1605(a)(2),

concerning immunity from jurisdiction, provides:

(a) A foreign state shall not be immune from the

jurisdiction of courts of the United States or of

the States in any case...

69a

(2) in which the action is based upon a commer-

cial activity carried on in the United States by the

foreign state; or upon an act performed in the

Urited 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 for-

eign state elsewhere and that act causes a direct

effect in the United States;

This section uses the phrase “in connection with” a com-

mercial activity. It allows a plaintiff to pierce a foreign

state’s immunity for suits based on acts that have any con-

nection with a commercial activity in the United States (or

with a commercial activity elsewhere that causes a direct

effect in the United States). This phrase, “in connection

with,” means something like “related to” or “integral to.”

That is, the phrasing in the immunity section means much

the same thing that the Bank wants to assign to the phras-

ing in the execution section.

Section 1610(a), concerning immunity from execution,

does not use the phrase “in connection with.” If Congress

had intended to allow execution on property that had a

“relationship with” or was “integral to” a commercial

transaction in the United States, we would expect it to say

as much, probably by using the same phrase (“in connec-

tion with”) as it used in crafting the exception to jurisdic-

tional immunity. Instead, § 1610(a) provides:

(a) The property in the United States of a foreign

state, as defined in section 1603(a) of this chap-

ter, used for a commercial activity in the United

States, shall not be immune from attachment in

70a

\ aid of execution, or from execution, upon @ judg-

ment entered by a court of the United Statess or of

a State after the effective date of this Act, iif [one

of several additional factors applies].

Congress used the more specific phrase “used for a com-

mercial activity” in this section rather than the less spe-

cific phrase “in connection with a commercial activity”

used in § 1605. If we were to take the Bank’s apiproach, we

would interpret away the difference in phrasing between

these two sections: the Bank is asking us to ignore an obvi-

ous difference in the way these two different immunities

have been crafted.

As we previously observed, 299 F.3d 378, 387-89 (Sth

Cir. 2002), the difference in phrasing between the two

“commercial activity” sections stands out especially

starkly when viewed against the background off the histor-

ical and international law context of the FSIA. Histori-

cally, even under the “restrictive” theory off sovereign

immunity, foreign sovereigns have enjoyed complete

immunity from execution of their property in United States

courts. Verlinden B.V. v. Central Bank of Nigeria, 461 U.S.

480, 486, 103 S. Ct. 1962, 76 L.Ed.2d 81 (1983). More-

over, at the time the FSIA was passed, the international

community viewed execution against a foreign state’s

property as a-greater affront to its sovereignty than merely

permitting jurisdiction over the merits of an action. The

Second Circuit’s decision in De Letelier v. Republic of

Chile, 748 F.2d 790, 798-99 (2d Cir. 1984), relied on the

international law context of the FSIA in concluding that

the FSIA’s exceptions to executional immunity were

indeed narrower than its exceptions to jurisdictional

immunity. The court relied on two principle sources of

Tla

international law: the European Convention on State

Immunity and the British State Immunity Act. The FSIA

and the two European laws were all passed at roughly the

same time: the European Convention in 1972, the FSIA in

1976, and the British State Immunity Act in 1978. Jd. The

European Convention did not provide any mechanism by

which a litigant could execute against a foreign state’s

property: a judgment creditor had to obtain satisfaction

through the foreign state’s executive or- administrative

channels. /d.

The British State Immunity Act’s provision on immunity

from execution more closely parallels the FSIA’s: it

focuses plainly on the “use” of the property. The Act pro-

vides:

(2)(b) the property of a State shall not be subject

to any process for the enforcement of a judgment

or arbitration award or, in an action in rem, for its

arrest, detention or sale.

(4) Subsection (2)(b) above does not prevent the

issue of any process in respect of property which

is for the time being in use or intended for use for

commercial purposes .. .

State Immunity Act 1978, c. 33, § 13 (Eng.). The British

Act’s phrasing makes explicit that the mere relationship to

a commercial activity does not suffice to permit execution,

the property must presently, “for the time being,” be “in

use or intended for use for a commercial purpose.” The

British Act’s focus in the jurisdictional immunity section, by

contrast, is on the “relationship” to commercial activity:

72a

A State is not immune as respects proceedings

relating to—

(a) a commercial transaction entered into by the

State

State Immunity Act 1978, c. 33, §3 (Eng.). Thus,

the British Act parallels the FSIA: it allows juris-

diction based on mere relationship to a commer-

cial activity, but very clearly permits execution

only depending on the “use” of the property.

On the face of the FSIA, the exception to executional

immunity is crafted using the more specific “used for” lan-

guage instead of the broader “in connection with” lan-

guage. When we place this difference in phrasing against

the background of the history of the two forms of immu-

nity in the United States and the international law context

of the FSIA, the difference in phrasing stands out even

more plainly. We reject the Bank’s definition, not only

because it does not accord with the plain meaning of the

phrase “used for,”> but because it would obscure a clearly

* Even the Bank appears to recognize that what matters under the

statute is how the foreign state uses the property, not how private par-

ties may have used the property in the past. See Flatow v. Islamic

Republic of Iran, 76 F. Supp. 2d 16, 21-23 (D.D.C. 1999) (holding that

the foreign state’s use of the property for commercial activity is neces-

sary for § 1610(a) to apply). Any property the foreign state purchases

from a private supplier will necessarily be used for a commercial pur-

pose by that supplier. If a foreign state buys real estate to use for an

embassy, for example, the real estate will have been used for a com-

mercial purpose by its former owner. Similarly, an embassy’s telephones,

cars, and diplomatic housing were all used by some private party at some

point for a commercial transaction; that is, the sale to the foreign state. If

we were to allow a private party’s commercial use of the property to

count for § 1610(a), we would erase the commercial/noncommercial use

distinction for almost all of a foreign state’s tangible property.

i

73a

intentional difference in the way the two different “com-

mercial activity” exceptions from immunity—executional

and jurisdictional—have been phrased by Congress.®

IV

Contrary to the Bank’s suggestion, assigning the

phrase “used for” its ordinary meaning does not make it

impossible to execute against the intangible property of

the foreign state. The Bank argues that we have improp-

erly assigned a temporal focus to the phrase “used for,”

that we have focused on the intended use of the property

in the future instead of its use in the present or the past.

The Bank suggests that, because it is difficult to prove

what a foreign state intends to do in the future with intan-

gible property, like bank accounts,’ judgment creditors

® We also reiterate that assigning the phrase “used for” its plain

meaning helps accomplish one of the principal goals of the FSIA: to

restrain as much as possible judicial interference with the jus imperii,

or sovereign acts, of a foreign state. See H.R. Rep. 94-1487, at 7. Its

true that allowing any kind of execution against a foreign state’s prop-

erty will likely have some indirect effect on the state’s sovereign acts.

If, for example, you execute against the commercially used property of

a foreign state’s national airline, you will probably damage the profits

of the airline. The loss of those profits may, down the line, make it

more difficult for the sovereign to supply books to its schoolchildren

or send its officials abroad on diplomatic missions. But the impact of

a court confiscating some property being used at present for a sover-

eign purpose is much more direct and immediate: for example, the

attachment of a bank account used to pay diplomatic salaries or main-

tain an embassy would immediately and directly affect the foreign

state’s sovereign diplomatic activities.

’ In considering execution against bank accounts, several district

court cases have in fact focused on the use of those accounts, not on

the source of the money in the account. For example, in Liberian East-

ern Timber Corp. v. Republic of Liberia, 659 F. Supp. 606 (D.D.C.

74a

will rarely be able to execute against any intangible prop-

erty.

We clarify that we express no holding as to the temporal

aspect of the phrase “used for.” In its petition for rehear-

ing, the Bank does not allege any scenario under which the

Congo has put its royalty or tax obligations at any point in

time in the service of a commercial activity in the United

States. That is, it does not claim that the Congo used the

property for a commercial activity, within the ordinary

meaning of “used for,” at any time. Instead, it wants us to

interpret the phrase “used for” in a way that goes beyond

the ordinary meaning assigned to that phrase. Because the

temporal aspect of the phrase “used for” does not seem

particularly important to resolving this case on any of the

Bank’s current theories, we express no opinion on when

the property must be used for a commercial activity in the

United States.

Moreover, we cannot see how focusing on the use of

property forecloses execution against intangible property.

Our decision in Atwood Turnkey Drilling, Inc. v. Petroleo

Brasileiro, S.A., 875 F.2d 1174 (Sth Cir. 1989), helps illus-

trate how certain intangible property can uncontroversially

be viewed as used in service of a commercial activity in

1987), the District Court for the District of Columbia held that bank

accounts “utilized for the maintenance of the full facilities of Liberia

to perform its diplomatic and consular functions . .. including payment

of salaries and wages of diplomatic personnel and various ongoing

expenses incurred in connection with diplomatic and consular activi-

ties” were not “used for” a commercial activity within the meaning of

the FSIA. The focus was plainly on how the money from the accounts

was spent, not where it came from. Other district court cases have

employed similar reasoning. See Flatow, 76 F. Supp. 2d at 24 (holding

that bank accounts used for the repair and maintenance of noncom-

mercial real estate were not used for a commercial activity and there-

fore were immune from attachment).

75a

the United States. The Bank cites Atwood for the proposi-

tion that the panel opinion departs from precedent. To the

contrary, Atwood demonstrates that the panel opinion is

consistent with the way we have interpreted the “used for”

requirement in the past.

In Atwood, Petrobras, a Brazilian state instrumentality,

contracted with Atwood, an American company, to drill oil

wells off the coast of Brazil. As security for the sums due

Atwood under the contract, Petrobras provided a letter of

credit issued by an American bank. When Petrobras

refused to pay Atwood, Atwood sued for breach of contract

in federal court. Because the letter of credit was due to

expire by its own terms, the district court issued a prelim-

inary injunction requiring Petrobras to extend the letter of

credit for one year from the date of the order or until all

issues pertinent to the letter of credit were resolved.

Petrobras appealed, arguing that none of the FSIA’s

exceptions to immunity from prejudgment attachment, 28

U.S.C. § 1610(d), permitted attachment of the letter of

credit. Section 1610(d) provides:

(d) The property of a foreign state .. . used for a

commercial activity in the United States, shall

not be immune from attachment prior to the entry

of judgment in any action .. . if—

(1) the foreign state has explicitly waived its

immunity from attachment prior to judgment . . .

and

(2) the purpose of the attachment is to secure sat-

isfaction of a judgment that has been or may ulti-

mately be entered against the foreign state, and

not to obtain jurisdiction.

76a

This section, like § 1610(a), includes the phrase “used

for a commercial activity in the United States.” In Atwood,

we concluded that Petrobras had contractually waived any

immunity from prejudgment attachment and affirmed the

district court.

Although Atwood did not explicitly consider the “used

for” requirement, Petrobras plainly used the letter of credit

for a commercial purpose within the ordinary meaning of

the phrase “used for.” Petrobras used the letter of credit to

secure the services of an American corporation to do

drilling work. As we explained in the panel opmion, “what

matters is not how [the foreign state] made its money, but

how it spends it.” In Atwood, the letter of credit did not

represent the income or the revenue from the commercial

transaction, as the royalty and tax obligations do here.

Rather, Petrobras put the letter of credit in service of the

commercial activity, it “spent” the letter of credit on that

activity. On the record before us, by contrast, the Congo has

not put its intangible property in the service of any com-

mercial activity in the United States. The panel’s definition

of “used for” is therefore fully consistent with our having

permitted the prejudgment attachment in Atwood.*: °

8 The Bank’s petition cites a sentence in Atwood out of context

for the proposition that any intangible property “contemplated by” a

commercial transaction is thereby “used for” that transaction.

Atwood’s discussion of the FSIA focused mainly on whether Petrobras

had contractually waived its immunity from prejudgment attachment.

The relevant contract provided:

B. Waiver of sovereign immunity. The Borrower [Petrobras]

acknowledges and agrees that the activities contemplated

by the provisions of this agreement and the notes are com-

mercial in nature ... and therefore acknowledges and

(footnote 8 continued, footnote 9

appears on the following page)

77a

The Atwood case shows how courts can determine, with-

out speculation, that the intangible property of a foreign

agrees that it is not entitled to any right of immunity on the

grounds of sovereignty ... in any legal action or proceed-

ings arising out of or relating to this agreement or the

notes.

Atwood, 875 F.2d at 1177 (emphasis added). The phrases “contemplat-

ed by” and “related to” in Atwood refer to language in the waiver

agreement, not to language in the statute. The phrase occurs in the text

of the Atwood opinion immediately after the relevant excerpt from the

waiver agreement, in the following context:

The instant case relates to the letter of credit which is an

activity contemplated by the — agreement. Accord-

ingly, the waiver provision applies .

The phrase “contemplated by” in Atwood refers to the scope of Petro-

bras’s waiver of immunity, not to the “used for” requirement of § 1610(d).

That the royalty and tax obligations at issue here may have been

“contemplated by” the joint venture with the American oil companies

does not mean that those obligations are used by the Congo for that

joint venture.

® Moreover, our definition of “used for” corresponds to the way

that district courts have dealt with execution against foreign state bank

accounts (a form of intangible property). Those courts have focused on

the use of the accounts rather than on the source of the money in the

account. For example, in Liberian Eastern Timber Corp. v. Republic of

Liberia, 659 F. Supp. 606 (D.D.C. 1987), the District Court for the

District of Columbia held that bank accounts “utilized for the mainte-

nance of the full facilities of Liberia to perform its diplomatic and

consular functions ... including payment of salaries and wages of

diplomatic personnel and various ongoing expenses incurred in con-

nection with diplomatic and consular activities” were not “used for” a

commercial activity within the meaning of the FSIA. The focus was

plainly on how the money from the accounts was spent, not where it

came from. Other district court cases have employed similar reason-

ing. See Flatow v. Islamic Republic of Iran, 76 F. Supp. 2d 16, 24

(D.D.C. 1999) (holding that bank accounts used for the repair and

maintenance of noncommercial real estate were not “used for” a com-

mercial purpose and therefore were immune from attachment).

78a

state is used for a commercial activity in the United States.

In this case, for example, the royalty and tax obligations

would be used for a commercial activity in the United

States if the Congo used them as collateral for loans

obtained from United States banks. There is nothing so

inherently speculative about the use of intangible property

that courts cannot meaningfully asce:tain how such inter-

ests are used by the foreign states that own them.

V

Finally, our focus on the use of a foreign state’s property

does not in any way conflict with the Supreme Court’s

decision in Republic of Argentina v. Weltover, 504 U.S.

607, 112 S. Ct. 2160, 119 L.Ed.2d 394 (1992), which

explored the meaning of the phrase “commercial activity”

in the FSIA. Nothing in the panel opinion concerns the

definition of “commercial activity”: we assume for the

sake of argument that the joint venture with the American

oil companies was indeed a “commercial activity.” Instead,

we focus on the phrase “used for,” a phrase nowhere found

in the jurisdictional commercial activity exception dis-

cussed in Weltover. The Weltover court summarized its

holding as follows:

[W]e conclude that when a foreign government

acts, not as regulator of a market, but in the man-

ner of a private player within it, the foreign sov-

ereign’s actions are “commercial” within the

meaning of the FSIA. Moreover, because the Act

provides that the commercial character of an act

is to be determined by-reference to its “nature”

rather than its “purpose,” 28 U.S.C. § 1603(d),

the question is not whether the foreign govern-

79a

ment is acting with a profit motive or instead

with the aim of fulfilling uniquely sovereign

objectives. Rather, the issue is whether the par-

ticular actions that the foreign state performs

(whatever the motive behind them) are the type

of actions by which a private party engages in

“trade and traffic or commerce.”

Id. at 614, 112 S. Ct. 2160 (internal citations omitted).

Weltover holds that we may not refer to the purpose of a

sovereign state’s activity in classifying its activity as com-

mercial or noncommercial. Here, to the extent we have

looked to purpose at all, we have looked to the purpose of

the property, not the purpose of the activity. Weltover has

nothing to say about the definition of “used for,” and noth-

ing in that opinion commands or suggests that “used for”

denotes anything other than its ordinary meaning.

VI

We interpret statutes according to their plain meanings.

United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242,

109 S. Ct. 1026, 103 L.Ed.2d 290 (1989). In ordinary

usage, we would not say that someone uses the revenue or

income of a transaction for that transaction. The Bank uses

a number of phrases to describe the relationship of the roy-

alty and tax obligations to the allegedly domestic commer-

cial activity: the obligations are “contemplated by” the

activity, they are “necessary to” or “integral to” the activ-

ity, they are “related to” the activity. All of these relation-

ships plainly differ from the relationship demanded by the

statute: a “used for” relationship. Accordingly, we remand

to the district court to determine how the Congo uses its

royalty and tax obligations. How these obligations were

80a

generated is of no account under the plain language of the

statute.

This appeal comes to us on a motion to dismiss. As such,

there is little factual development in the record about how

the royalties and tax obligations are used. We therefore

vacate the dismissal of the garnishment action, which was

based on the district court’s conclusion that the oil joint

venture between the Congo and the garnishees was not

“commercial activity in the United States.” Even assuming

that the district court was correct in this conclusion, that

would tell us only how the royalties and tax obligations

were generated, not how they are used. We remand to the

district court for further consideration of the dispositive

factual question, what the royalty and tax obligations are

“used for.”!° If it turns out that the royalties and tax obli-

gations are not used for any commercial activity in the

10 Our decision to vacate the dismissal of the garnishment action

obviates the need to reach two additional issues argued on appeal:

whether Texas law permitted the district court’s award of attorneys’

fees and whether the Bank was cntitled to additional discovery. Con-

sideration of the attorneys’ fees issue would be premature at this time.

Under Texas law, “where the [garnishee’s] answer is contested, the

costs shall abide the issue of the contest.” Tex. R. Civ. P. 677. Because

we do not yet know how the “issue of the contest” will be resolved, it

is too soon to consider any attorneys’ fees issues.

With respect to discovery, the district court may on remand limit any

additional discovery to facts relating to the immunity determination.

Arriba Ltd. v. Petroleos Mexicanos, 962 F.2d 528, 534 (Sth Cir. 1992);

Kelly v. Syria Shell Petroleum Dev. B.V., 213 F.3d 841, 849 (Sth Cir.

2000); First City, Texas-Houston, N.A. v. Rafidain Bank, 150 F.3d 172,

176-77 (2d Cir. 1998). Even with respect to the immunity issue, the

district court should order discovery “circumspectly and only to veri-

fy allegations of specific facts crucial to [the] immunity determina-

tion.” Arriba Ltd., 962 F.2d at 534. The scope of discovery on

exceptions to foreign sovereign immunity is a matter of the district

court’s discretion. Kelly, 213 F.3d at 849.

8la

United States, the district court should dissolve the writs

of garnishment and dismiss the action.

VACATED and REMANDED for further proceedings not

inconsistent with this opinion.

DENNIS, Circuit Judge, Concurring in vacating the district

court’s judgment and remanding the case for further pro-

ceedings but disagreeing in part with the majority opinion

as to the controlling principles of law:

The pertinent provisions of the FSIA are:

§ 1610. Exceptions to the immunity from attach-

ment or execution

(a) The property in the United States of a foreign

state, as defined in section 1603(a) of this chap-

ter, used for a commercial activity in the United

States, shall not be immune from attachment in

aid of execution, or from execution, upon a judg-

ment entered by a court of the United States or of

a State after the effective date of this Act, if—

(1) the foreign state has waived its immunity

from attachment in aid of execution or from exe-

cution either explicitly or by implication,

notwithstanding any withdrawal of the waiver

the foreign state may purport to effect except in

accordance with the terms of the waiver,

1.

In my opinion, the district court erred in failing to rec-

ognize that, in the loan agreement upon which the Bank’s

82a

judgment against the Congo is based, the Congo explicitly

waived its immunity from execution, as follows:

(C) The Borrower consents generally in respect

of any suit, action or proceedings arising out of

or in connection with this Agreement to the giv-

ing of any relief, or the issuance of any process

in connection with any such suit, action or pro-

ceedings including, without limitation, the [tak-

ing], enforcement or execution against any

property whatsoever (irrespective of its use or

intended use) of any order or judgment that may

be made or given in such action or proceedings.

(D) To the extent that the Borrower may in any

jurisdiction claim for itself or its assets immuni-

ty from suit, execution, attachment (whether in

aid or execution, before judgment or otherwise)

or other legal process and to the extent that in

any such jurisdiction there may be attributed to

itself or its assets such immunity (whether or not

claimed) the Borrower agrees not to claim and

waives such immunity to the fullest extent per-

mitted by the laws of that jurisdiction intending,

in particular, that in any proceedings taken in

New York the foregoing waiver of immunity

shall have effect under and be construed in accor-

dance with the United States Foreign Sovereign

Immunities Act of 1976.

There can be no reasonable doubt that the Congo thereby

explicitly waived its immunity from execution of the judg-

ment entered against it in New York in favor of the Bank

in accordance with the FSIA § 1610(a)(1).

a a SPIO IE a ee a2 pas germ aa

83a

Z.

Under the undisputed facts, the property executed

upon—the garnishees’ intangible obligations to pay royal-

ties—are in the United States, 2s required by FSIA § 1610(a).

The garnishees are oil companies headquartered in Texas.

The situs of a debt is the situs of the debtor in Texas. Mo.,

Kan. & Tex. Ry. Co. of Tex. v. Swartz, 53 Tex. Civ. App.

389, 115 S.W. 275, 276 (1908, no writ); See also, Alliance

Bond Fund v. Grupo Mexicano De Desarrollo, 190 F.3d

16, 25 n. 9 (2nd Cir. 1999). The fact that the obligations to

pay royalties may be satisfied, after their seizure at the

election of the seizing judgment creditor, either by money

paid in Texas or by oil delivered in the Congo, does not

change the fact that the property executed upon—the oil

companies’ obligations to pay royalties—is located in

Texas at the situs of the debtors’ headquarters.

a,

The oil companies’ obligations to pay royaities are prop-

erty of the Congo being used for commercial activity in the

United States in accordance with FSIA § 1610(a).

The FSIA defines “commercial activity” as:

[E]ither a regular course of commercial conduct

or a particular commercial transaction or act. The

commercial nature of an activity shall be deter-

mined by reference to the nature of the course of

conduct, rather than by reference to its purpose.

28 U.S.C. § 1603(d).

The Supreme Court held in Republic of Argentina vy.

Weltover, Inc., 504 U.S. 607, 614, 112 S. Ct. 2160, 119

84a

L.Ed.2d 394 (1992) that “when a foreign government acts,

not as a regulator of a market, but in the manner of a pri-

vate player within it, the foreign sovereign’s actions are

‘commercial’ within the meaning of the FSIA.” Because

FSIA § 1603(d) requires that an act’s commercial character

is to be determined by reference to its “nature” rather than

its “purpose,” the issue “is not whether the foreign gov-

ernment is acting with a profit motive or instead with the

aim of fulfilling uniquely sovereign objectives.” /d.

Instead, the question is “whether the particular actions that

the foreign state performs (whatever the motive behind

them) are the type of actions by which a private party

engages in ‘trade and traffic or commerce.’” /d. (quoting

Black’s Law Dictionary 270 (6th ed. 1990)) (emphasis in

the original). “[I]f the activity is one in which a private

person could engage, it is not entitled to immunity.” 7Jex.

Trading & Milling Corp. v. Fed. Republic of Nigeria, 647

F.2d 300, 309 (2d Cir. 1981). The Congo entered a joint

venture with American, Canadian, and Congolese compa-

nies to promote and conduct exploration and development

of oil and gas from the Atlantic Ocean offshore of the

Congolese coast. The Congo’s objective was to obtain

within the framework of the joint venture the cooperation

and assistance of qualified and well-known oil companies

in the exploration and development of the minerals under

the best conditions of effectiveness. The joint venture

agreement provided for the payment of mining royalties to

the Congo. The companies agreed to provide the Congo

with all geological information which could be useful in

the exploitation of mineral substances. The companies

agreed to jointly install and operate facilities of pipelines

to pump out the mineral production. The companies agreed

to consult and evaluate the construction of a hydrocarbon

85a

refinery in the Congo. The bank alleges, and the Congo

does not dispute, the facts that the American oil companies

pursued the joint venture as a commercial activity and pro-

vided a wide range of services, including management,

planning, accounting services and direction in the United

States; and the facts that the garnishees’ presence in Texas

has been continuous, and that it is from Texas that they

have supervised, directed, and financed the activities that

have given rise to their obligations to make royalty pay-

ments.

In Weltover, bond holders brought a breach of contract

action against Argentina arising out of Argentina’s unilat-

eral rescheduling of the maturity dates for payment on cer-

tain government bonds. 504 U.S. at 609-10, 112 S. Ct.

2160. A unanimous Court concluded that Argentina did not

enjoy immunity from suit for its actions. The Court con-

cluded that the issuance of the bonds was “commercial

activity,” and that the unilateral extension of the bonds’

maturity dates by presidential decree was an act made “in

connection with” that activity. /d. at 617, 612, 112 S. Ct.

2160. Rejecting Argentina’s argument that the issuance of

the bonds was not commercial activity because the bonds

were issued for a sovereign purpose, the Court explained:

“it is irrelevant why Argentina participated in the bond

market in the manner of a private actor; it matters only that

it did so.” Jd. at 617, 112 S. Ct. 2160 (emphasis in origi-

nal).

In the present case, the Congo engaged in commercial

activity by entering into a joint venture with American oil

companies and others for the purpose of discovering and

extracting oil and gas. A “joint venture” is by definition a

“business undertaking by two or more persons engaged in

a single defined project.” Black’s Law Dictionary 843 (7th

86a

ed. 1999); “shared profits and losses” is one of its neces-

sary elements. /d. The joint venture agreement assigned

the Congo the right to receive royalty payments on the

minerals developed. There is nothing uniquely sovereign

about a contract to enter a joint venture to discover and

extract oil and gas with specified methods of sharing in

profits and losses wherein one of the parties is a mineral

owner entitled to receive royalties from production. Like

the issuance of the “garden-variety debt instruments” in

Weltover, “there is nothing about [Congo’s action in enter-

ing and participating in the joint venture to exploit miner-

als] that is not analogous to a private commercial transaction.”

Weltover, 504 U.S. at 615-16, 112 S. Ct. 2160. Congo

engaged in commercial activity.

The district court concluded that the Congo did not engage

in commercial activity because its contract with the oil com-

panies was sovereign in nature and some of its activities

were strictly sovereign. The district court relied on dictum in

a Seventh Circuit case, Rush-Presbyterian-St.Luke’s Med.

Ctr. v. Hellenic Republic, 877 F.2d 574, 578 (7th Cir. 1989)

(“a contract whereby a foreign state grants a private party a

license to exploit the state’s natural resources is not a com-

mercial activity, since natural resources, to the extent they

are ‘affected with a public interest,’ are goods in which only

the sovereign may deal.”) (citing and paraphrasing MOL, |

Inc. v. Peoples Republic of Bangladesh, 736 F.2d 1326, 1329

(9th Cir. 1984) (“government’s grant of license to capture

and export rhesus monkeys for scientific experimentation

not a commercial activity, since the agreement ‘concerned

Bangladesh’s right to regulate its natural resources,’ [] a

uniquely sovereign function’”)).!

| The district court relied on a similar statement in Jones v. Petty

Ray Geophysical Geosource, Inc., 722 F. Supp. 343 (S.D.Tex.1989),

87a

Unlike the situation in MOL, however, the Congo’s

actions did not stop with its initial action as sovereign, in

the regulation of its natural resources, to open them to

exploitation and development. The Congo went on to step

down from its sovereign status and engage in a typical

commercial activity, a joint venture contract with oil com-

panies for the exploration, production, and sale on the

world market of oil and gas. This is not something that

only a sovereign can do. Even if the Congo’s initial action

in exposing its minerals to development was sovereign and

regulatory, “when a foreign government acts, not as a reg-

ulator of a market, but in the manner of a private player

within it, the foreign sovereign’s actions are ‘commercial’

within the meaning of the FSIA.” Weltover, 504 U.S. at

607, 112 S. Ct. 2160. See also, Weltover Inc. v. Republic of

Argentina, 941 F.2d 145, 151 (2d Cir. 1991) (“[o]nce a

sovereign enters the marketplace as a commercial actor, it

should be subject to ali the rules of the marketplace.”)?

Because the_Texas oil companies’ obligation to pay roy-

alties to the Congo were necessary and integral to, and

therefore used for, the joint venture commercial activity

conducted, in substantial part in the United States, by the

an alternative or unnecessary ground of the Jones decision which was

not approved or relied upon by this Circuit in affirming on appeal. See

Jones v. Petty-Ray Geophysical, Geosource, Inc., 954 F.2d 1061 (Sth

Cir. 1992).

2 “Foreign sovereigns constantly implement broad programs

intended to stimulate their economy or to avoid economic catastrophe.

Each of these programs, however, is implemented through numerous

individual transactions. To imbue each transaction with a sovereign

character simply because it is part of a broader governmental scheme

would run afoul of the FSIA’s restrictive theory of foreign sovereign

immunity.” Weltover Inc. v. Republic of Argentina, 941 F.2d at 150

(citing House Report at 6605) (immunity for foreign states restricted

to public acts of the sovereign).

88a

Congo and the other parties to the joint venture, those roy-

alty obligations fell within the exceptions to immunity

from execution provided for by FSIA § 1610(a)(1).

4.

Finally, in my view, the district court erred or abused its

discretion in not allowing the Bank to conduct discovery

before dismissing its garnishment proceeding. The Bank

made a reasonable showing that the garnishees’ obligations

to pay royalties to the Congo is property of the Congo

present in the United States, used for a commercial activ-

ity in the United States, and therefore not immune from

execution upon an uncontested judgment entered by a

court of a State. The district court’s dismissal was tanta-

mount to the conversion of a Rule 12(b)(6) motion to dis-

miss into a Rule 56 motion for summary judgment without

giving all parties an opportunity to present all material

made pertinent to such a motion by Rule 56. See Rule

12(b). The Bank’s judgment against the Congo is valid

and uncontested, and, in my opinion, upon the prima

facie showing made by the bank, the Congo’s property is

squarely within the exceptions to the immunity from exe-

cution provided by FSIA § 1610(a)(1). Accordingly, the

district court should have allowed full discovery against

the Congo, which would have allowed the Bank a fair

opportunity to present all available material evidence

pertinent to its opposition to the Congo’s motion to dis-

miss or motion for summary*judgment. Cf First City,

Texas-Houston, N.A. v. Rafidain Bank, 150 F.3d 172 (2d

Cir. 1998).

3

The cases relied upon by the district court and the majority to

deny or limit discovery, Arriba Ltd. v. Petroleos Mexicanos, 962 F.2d

528 (Sth Cir. 1992) and Kelly v. Syria Shell Petroleum Dev. B.V., 213

89a

Conclusion

Although I agree with much of the majority opinion,

I would reverse and remand the case for further proceed-

ings not inconsistent with the reasons herein assigned.

ON PETITION FOR PANEL REHEARING

Per Curiam:

IT IS ORDERED that the Republic of Congo’s motion

for leave to file its petition for rehearing out of time is

GRANTED.

IT IS FURTHER ORDERED that the Republic of

Congo’s petition for panel rehearing is DENIED. In the

petition, the Congo points out that the majority opinion in

this case neglected to address explicitly one of the two

prongs of analysis under 28 U.S.C. § 1610(a). Section

1610(a) provides that, under certain circumstances, a judg-

ment creditor may execute against the “property in the

United States of a foreign state ... used for a commercial

activity in the United States.” The majority opinion

addressed the second of these clauses, but not the first.

That is, it addressed whether the royalty and tax obliga-

tions at issue were “used for a commercial activity in the

United States,” but not whether the obligations were

“property in the United States” within the meaning of the

statute.

F.3d 841 (Sth Cir. 2000) are inapposite because those cases dealt with

issues of immunity from suit and liability under FSIA § 1605, rather

than asserted immunity from execution under FSIA § 1610, as in the

present case.

90a

In our view, this omission does not require any change

to the mandate of the majority opinion. The factual ques-

tion of what the royalty and tax obligations are “used for”

appears much less difficult on this record than the legal

question of determining the situs of the intangible royalty

obligations. Moreover, despite the Congo’s arguments to

the contrary, we continue to believe that the district court

is the appropriate forum to resolve the factual question of

how the Congo uses its property.

The petition for panel rehearing is therefore DENIED.

DENNIS, Circuit Judge concurring in granting the Bank’s

petition for panel rehearing, and dissenting from denial of

the Congo’s petition for rehearing:

I.

I commend the majority opinion for recognizing that we

interpret statutes according to their “plain meaning” and

turning to the dictionary to determine what that meaning is

for the words “used for” in FSIA § 1610(a)(1). Unfortu-

nately the majority chooses to ignore those parts of the

definition which do not support its overly-narrow con-

struction of the term.

As the majority itself correctly notes, “used for” can

mean “utilize.” What the majority omits to mention is that

“used for” also means “to put into action or service: have

recourse to or enjoyment of: EMPLOY.” Webster's Third

New International Dictionary 2253 (Philip B. Gove ed.,

3rd ed. 1993). See also Black's Law Dictionary 1540

(Bryan A. Gardner, ed., 7th ed. 1999) (“[t]he application or

employment of something”); Merriam-Webster’s Colle-

9la

giate Dictionary 1301 (Frederick C. Mish ed., 10th ed.

1993) (“avail oneself of: EMPLOY ... to expend or consume

by putting to use”). Thus property is “used for commercial

activity” if it is employed in, applied in the service of, or

utilized for commercial activity.

The majority not only uses an improperly truncated and

cramped meaning of “use”, it also mischaracterizes the

assets at issue in this case which the Bank seeks to attach.

In order to make its argument work, the majority incor-

rectly describes Congo’s royalty interest as “revenue” or

“income,” i.e., as the results or fruits of the Congo’s right

to receive royalties rather than the property right itself. On

the contrary, however, a landowner royalty interest is an

intangible property interest entitling its owner to a share of

production, in kind or cash, if, as and when there is pro-

duction, free of the costs of production. See 8 Howard R.

Williams & Charles J. Meyer, Oil and Gas Law 952

(2001). See also Jensen v. Wilkinson, 133 S.W.2d 982, 984

(Tex. Civ. App. 1939) (“... the usual and customary way

for a land-owner to realize on the value of his land for oil

is to get it leased, retaining royalty rights, and through

such royalty rights to share in the profits which it is hoped

will issue from his land in the form of oil production, or to

sell such royalty rights or portions thereof to others.”); 30

La. Rev. Stat. Ann. § 80 (“A mineral royalty is the right to

participate in production of minerals from land owned by

another or land subject to a mineral servitude owned by

another. Unless expressly qualified by the parties, a roy-

alty is a right to share in gross production free of mining

or drilling and production costs.”); John S. Lowe, Oil and

Gas Law in a Nutshell 43 (1995) (“A landowner’s royalty

... 18 the interest in production retained by the lessor in the

royalty clause of the oil and gas lease.”’).

92a

A simple analogy helps here. The relationship between a

royalty interest and the proceeds from that interest is the

same as between shares of stock and dividends owed as a

consequence of ownership of shares. Just as a share of

stock has existence and value separate from dividends,

landowner royalty interest has existence and value as a

property interest separate from the payments owed on that

interest. See Jensen, 133 S.W.2d at 984 (explaining that

value to royalty interest prior to oil production comes from

“belief that the working interest, which is created by the

sarmme-self lease that creates the royalty rights, will be

developed and operated”). And while the majority may

reasonably think that it would be strange to describe rev-

enue as “used for” the enterprise that created it, it is cer-

tainly normal usage to consider shares of stock or royalty

interest as “used for” the commercial activity which ulti-

mately generates production and revenue.

The majority thus ignores both the ordinary meaning of

“use” and misconceives the nature of the property interest

involved here, to arrive at the conclusion that Bank has

failed make a showing that the royalty interest is “used

for” commercial activity. For these reasons I believe that

the majority’s analysis is incorrect.

I would reverse the district court’s grant of summary

judgment, and remand for further proceedings in light of

the precepts discussed in my separate opinions.

II.

In denying the Congo’s request for an opinion on the

situs of the royalty obligations the majority writes, “[t]he

factual question of what the royalty and tax obligations are

‘used for’ appears much less difficult on this record than

93a

the legal question of determining the situs of the intangi-

ble royalty obligations.”

I cannot comprehend why the difficulty of the situs

question allows this court to shirk its duty in guiding the

district court on a complex legal determination it may have

to make. Such a conclusion is justifiable only by assuming

that it is inevitable that the district court will find that the

royalty interest is not “used for” commercial activity. If

the majority sub silentio has already reached this decision,

it should forthrightly declare the reasons for its conclu-

sion. Although I likely would disagree with the reasons,

they may reveal that the case should not be remanded or

provide helpful guidance to the district court if it is

remanded.

Upon further research I think that the situs question is

one which deserves more attention, and one upon which

the district court may need more guidance in answering.

Accordingly, I would grant the Congo’s petition for rehear-

ing for the purpose of clarifying and setting forth the legal

principles controlling the situs determination.

94a

APPENDIX E

IN THE

UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TEXAS

AUSTIN DIVISION

[stamped] Filed March 16, 2001

No. A 01 CA 100 SS

CONNECTICUT BANK OF COMMERCE,

Plaintiff,

VS.

THE REPUBLIC OF CONGO,

a Defendant,

and

CMS OIL AND GAS COMPANY, et al.,

Garnishees.

ORDER

BE IT REMEMBERED on the _26th_ day of February

2001, the Court held a hearing at which parties were ably

represented by counsel of record. Before the Court are

Plaintiff’s Motion to Extend Time, to Commence Discov-

ery, and for Expedited Review [#9-1,2,3], and Defendant

and Garnishees’ Motion to Dissolve the Writ of Garnish-

ment and Motion to Dismiss [#5-1,2]. After considering

95a

the case file, the relevant case law, and arguments of the

parties, the Court enters the following order.

I. Background

Plaintiff Connecticut Bank of Commerce (“the Bank”) is

the assignee of a judgment entered in England against

defendant Republic of Congo. On January 11, 2001, the

Bank brought an action in a New York state court to enforce

the England judgment; when Congo did not appear, the

New York court granted summary judgment in favor of the

Bank and entered an order granting the Bank permission to

execute the judgment pursuant to 28 U.S.C. § 1610(c).

Then, the Bank filed the New York judgment in the 345th

District Court of Travis County to convert the judgment

into a Texas judgment. At the same time, the Bank also

filed a garnishment action against CMS Oil & Gas Com-

pany, CMS Oil & Gas International Company, CMS Nomeco

International Congo Holdings, Inc., CMS Nomeco Congo,

Inc., CMS Oil & Gas International, Ltd., and CMS Oil &

Gas (Congo), Ltd. (collectively, “the CMS garnishees”)

and Nuevo Energy Company, Congo Hoiding Company,

Nuevo Congo Company, Nuevo Congo International, Inc.,

and Nuevo International Holdings, Ltd. (collectively, “the

Nuevo garnishees”) in that court. The purpose of the writs

of garnishment was to prohibit the garnishees from paying

debts or delivering any property to Congo. Subsequently,

defendant Congo and all the garnishees removed the gar-

nishment action to this Court on the basis of diversity

jurisdiction.

Defendants aver the CMS Nomeco Congo, the Nuevo

Congo Company, and Nuevo Congo Ltd. are successors to

the original parties to, and the current owners in interest

in, a Convention for oil and gas production in the Repub-

96a

lic of Congo. See Declaration of Bobby H. Bledsoe. On the

other hand, none of the other CMS garnishees or Nuevo

garnishees owe any obligations to the Congo. /d. In con-

nection with its oil and gas production activities, CMS Oil

& Gas company, a Texas corporation—and not a garnishee

in this case—and CMS Nomeco Congo, Inc. are obligated

to make withholding tax payments to the Congo on a

monthly basis. Also, the Congo is entitled to royalty on

production under the Convention. Pursuant to a settlement

agreement and amended turnover order entered into by the

Congo and the National Un

This text is long and has been trimmed here. Open the source document for the complete record.