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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386007_1351%3A2

## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 2005
- **Citation:** 544 U.S. 962

## Text

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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.

Sa

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

6a

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386007_1351%3A2. Public record. Not legal advice.