Petition for Writ of Certiorari — Transaero, Inc. v. La Fuerza Aerea Boliviana

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Supreme Court, U.S.

PIL &

(\) 941054 DEC 1 4 1994)

AL NEES SAAT SRN ENSAY ES, AEN a HN

IN THE

Supreme Court of the Anited States

OCTOBER TERM, 1994

TRANSAERO, INC.,

Petitioner,

Vv.

LA FUERZA AEREA BOLIVIANA,

an Agency or Instrumentality of the

Republic of Bolivia, a Foreign State,

Respondent

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

DISTRICT OF COLUMBIA CIRCUIT

RONALD N. COBERT

Counsel of Record

ANDREW M. DANAS

GROVE, JASKIEWICZ AND COBERT

1730 M St., N.W., Suite 400

Washington, D.C. 20036

(202) 296-2900

Counsel for Petitioners

PRESS OF BYRON S. ADAMS, WASHINGTON, D.C. (202) 347-8203

QUESTIONS PRESENTED

What legal criteria are the courts required to utilize

when determining whether a department or ministry of

a foreign government is an agency or instrumentality for

purposes of service of process under the Foreign

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

Whether a foreign military authority is always

presumptively the foreign state and can never be an

agency or instrumentality for purposes of service of

process under the Foreign Sovereign Immunities Act,

28 U.S.C. §§ 1602-1611.

If so, whether strict technical compliance with the

service provisions of the FSIA, 28 U.S.C. § 1608(a),

rather than substantial compliance, is required where the

foreign military authority and diplomatic representatives

of the foreign government have been served with copies

of the summons and complaint and have actual notice of

the pending federal court action and inquest on

damages.

Whether a federal appellate court reviewing the

jurisdictional validity of a default judgment registered in

the lower court pursuant to 28 U.S.C. § 1963 is

required to give a res judicata effect to the prior

determination of the federal appellate court with

jurisdiction over the court which originally rendered

judgment affirming the jurisdictional validity of the

judgment.

PARTIES BELOW

The parties in the proceeding below were the following:

Transaero, Inc., a privately-held company which is

headquartered in New York State. It has no parent companies,

subsidiaries, or affiliates which have any outstanding securities

in the hands of the public. Its primary line of business is in the

aviation equipment and services industry.

La Fuerza Aerea Boliviana, the Air Force of the Republic of

Bolivia.

The United States of America entered an appearance and filed

a brief as amicus curiae at the request of the District of

Columbia Circuit.

GLOSSARY

Throughout this Petition, the term "FSIA" refers to the

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

TABLE OF CONTENTS

yews esedecseseveesess 1

GROUNDS FOR JURISDICTION .................. 2

«ae 3

STATEMENT OF THE CASE .............-.200--. 3

A. The Original Judgment. ............... 3

B. The D.C. Circuit proceedings. .......... 6

C. The concurrent proceedings in the Second

gS OST or 8

D. The D.C. Circuit's decision. ........... 10

E. The current status of the case. ......... 13

REASONS FOR GRANTING THE WRIT ........... 14

I. The criteria used to determine the capacity in

which foreign governments are sued in the

federal courts for their commercial activities and

how service is effected upon them requires a

single uniform national standard.

Il. The decision adopts a _ subjective and

unworkable test contrary to the law enacted by

Congress. It conflicts with this Court's Bancec

decision and the decisions of the lower courts.

If allowed to stand, it will encourage foreign

governments to engage in forum shopping.

III. This Court should resolve the circuit conflict on

the substantial compliance issue.

Pr er re ae eae ak. ae

IV. The D.C. Circuit's decision fails to adhere to this

Court's rulings concerning res judicata.

PPT rem Pre reas A 27

ee rr eer rer er. 29

APPENDICES

A Opinion of the United States Court of Appeals for the

District of Columbia Circuit (July 29, 1994)

Memorandum Opinion of Decision and Order, United

States District Court, Eastern District of New York, CV

88-2788 (April 21, 1989)(Mishler, J.)

Default Judgment, United States District Court, Eastern

District of New York, CV 88-2788 (April 28, 1989)

Order, United States District Court for the District of

Columbia, Misc. Action No. 91-0139 (Sept. 25,

1992)(Revercomb, J.)

Memorandum of Decision and Order, United States

District Court, Eastern District of New York, 88-CV-

2788 (August 12, 1993)(Mishler, J.)

Opinion of the United States Court of Appeals for the

Second Circuit (May 19, 1994)

Supplemental Opinion on Rehearing of the United

States Court of Appeals for the Second Circuit (Oct.

19, 1994)

Orders on Rehearing and Suggestion for Rehearing In

Banc From the United States Court of Appeals for the

District of Columbia Circuit (Sep. 15, 1994)

Orders of the United States Court of Appeals for the

District of Columbia Circuit denying Motions for Stay

of Mandate

1991 Correspondence between counsel for petitioner

and the Bolivian Ambassador

May 23, 1994 correspondence to the United States

Court of Appeals for the District of Columbia Circuit

Statutory Material: Excerpts from the Foreign

Sovereign Immunities Act

TABLE OF AUTHORITIES

Page No.

Cases

American Surety Company v. Baldwin,

S07 Wes SE 0 0 8448 chee 28

Argentine Republic v. Amerada Hess Shipping Corp.,

i, er res Pee 14

Baldwin v. Iowa State Traveling Men's Association,

Bk ere ee ee ae 28

Bates v. Long Island Railroad Company,

997 F.2d 1028 (2d Cir. 1993)

Behring International, Inc. v. Imperial Iranian Air Force,

475 F.Supp. 383 (D.N.J. 1979), affd in part, 699 F.2d

GT Cos Ce va bens eetui ees ance 22

Bowers v. Transportes Navieros Ecuadorianos,

719 F.Supp. 166 (S.D.N.Y. 1989)

Chicago, Rock Island & Pacific Railway Company v. Schendel,

OPO ee Es hein eens a eee 27

Chicot County Drainage District v. Baxter State Bank,

Se es OE hee Oe oe i eee 28

Page No

Davis v. Davis,

eee ere re reer ee 28

Dayton v. Czechoslovak Socialist Republic,

Ub by Ti tts By) 18

First National City Bank v. Banco Para El Comercio Exterior

De Cuba,

FR gt.) era passim

Gerritsen v. Consulado General de Mexico,

989 F.2d 340 (9th Cir. 1993), cert. denied, __ US.

__, 114 S.Ct. 95, 126 L.Ed.2d 62 (1994) ...... 26

Gleason v. Jandrucko,

60 7.26 S56 (26 Cer. 1968)... ... 0. eee 28

Harris Corp. v. National Iranian Radio and Television,

691 F.2d 1344 (11th Cir. 1982) .............. 26

Indian Head National Bank of Nashua v. Brunelles,

og pe See > | ee 23

Insurance Corp. of Ireland, Ltd., v. Compagnie Des Bauxites

De Guinea,

RE, ck cg plcd se csccweseseves 28

Marlowe v. Argentine Naval Commission,

604 F.Supp. 703 (D.D.C. 1985) .............. 18

Page No.

McDonnell Douglas Corporation v. Islamic Republic of Iran,

the Ministry of Defense of the Islamic Republic of Iran, and the

Islamic Republic of Iran Air Force,

758 F.2d 341 (8th Cir. 1985) ............. 16, 22

Meadows v. Dominican Republic,

$17 F.2d 517 (Sth Cir. 1987) ............. 25,27

New York v. United States,

326 U.S. 572, 90 L.Ed 326, 66 S.Ct. 310 (1946) . 20

O'Connell Machinery Company, Inc. v. M.V. "Americana",

734 F.2d 115 (24 Cir. 1984)... cece ee: 18

Office of the Comptroller General of the Republic of Bolivia on

behalf of the Bolivian Air Force and Central Bank of Bolivia

v. International Promotions and Ventures, Ltd.,

GIRL. TOD, BIG) ohne i ce saceccwns 21

Practical Concepts, Inc. v. Republic of Bolivia,

BE ee PEED iba ee OS 25

Republic of Argentina v. Weltover,

504 US. ___, 112 S.Ct. 2160, 119 LEd.2d 394

SEE oko on oak OES awed Aes be 16

Rodriguez v. Transnave, Inc.,

8 F.3d 284 (Sth Cir. 1993) .............. piece

S & S Machinery Co. v. Masinexportimport,

706 F.2a 411 (26 Ce. 1963)................. 18

Page No

Segni v. Commercial Office of Spain,

650 F.Supp. 1040 (N.D. Ill. 1988) ............ 18

Shapiro v. The Republic of Bolivia, the Bolivian Air Force and

the Central Bank of Bolivia,

930 F.2d 1013 (2d Cir. 1991).............--. 21

Sherer v. Construcciones Aeronauticas, S.A.,

987 F.2d 1246 (6th Cir.), cert. denied, US.__,

114 S.Ct. 72, 126 L.Ed.2d 41 (1993) .......... 25

Straub v. A.P. Green, Inc.,

__F3d___, 1994 U.S.App LEXIS 28742

3, a ae errr ee erie ee 26

Texas Trading & Milling Corp. v. Federal Republic of Nigeria,

647 F.2d 300 (2d Cir. 1981)...........0-0-5- 16

Transaero, Inc., v. La Fuerza Aerea Boliviana,

30 F.3d 148 (D.D.C. 1994) ...........-0- 05: l

Transaero, Inc., v. La Fuerza Aerea Boliviana,

96 0.36 457 GG Car. 1994)... 2 cee eee. 2

Unidyne Corp. v. Aerolineas Argentinas,

590 F.Supp. 398 (E.D.Va. 1984) ..........--. 18

United Euram Corp. v. Union of Soviet Socialist Republics,

461 F.Supp. 609 (S.D.N.Y. 1978) ..........-- 16

Page No.

Velidor v. L/P/G Benghazi,

653 F.2d 812, 821-822 (3d cir. 1981), cert. dismissed,

455 U.S. 929, 102 S.Ct. 1297, 71 L.Ed.2d 474

(OER ro 5 oa let eee ee 25, 28

Verlinden B.V. v. Central Bank of Nigeria,

ee ) rr passim

Statutes

Foreign Service Immunities Act of 1976

UE ee ee ee eae es eg ee passim

Generally--

ee oh re 2, 3,4

We as as ease ete ne sees 2, 3,4

Be re UE ons oe A es eae eae 3,4, 8

rR ee | ere 3,4

pO A Se ee 3, 16, 17

Be es I ne eye be aweb ewes 18

BPD I ow ov eek eben cesaeedbun 18

Se Vi PD be cece eee wes 7, 19

SOU.BA, SIGUA) ©... ccc accceces 5

eS os eo ko ewe ov ab ees 18, 28

Pg ee | ee . passim

BO Utes Ss ok cc eve ccucens passim

28 U.S.C § 1608(b)(3)(B) .... 0... ee, 5

ye ee 10, 18, 30

ee, oo ek oc ae 18

Page No

» REG Pad By.” | Phage eape are ae irae meat ee erie oa 2

Rim Coge f |: Tr Pee errs Sere 2 oe passim

Rules

Federal Rule of Civil Procedure 60(b) ................ 8

Federal Rule of Civil Procedure 60(b)(4) .......... 10, 26

Federal Rule of Civil Procedure 69 .................. 6

Federal Rule of Evidence 201 ................00405. 24

Supreme Court Rule 13.4 ......... cece erence. 2

Reports

H.R.Rep.No. 1487, 94th Cong., 2d Sess. (1976), reprinted in

yg Eb tat oD BS a ee ie passim

Publications

A. John Sutham, Note, Brokering A Difficult Marriage:

Substantive Defenses Under Rule 60(b)(4) Relief From Default

Judgements In Foreign Sovereign Immunity Act Proceedings,

14 Fordham Int'l L.J. 216 (1991) ............. 25

Federal Research Division, Library of Congress, Bolivia: A

Country Study, (3rd. Ed. 1991) pp 236-237 ........... 21

Gordon, Foreign State Immunity in Commercial

Transactions, § GIN (I991) ... 2. cece cece ee eeee. 18

IN THE

Supreme Court of the Anited States

OCTOBER TERM, 1994

TRANSAERO, INC.,

Petitioner,

LA FUERZA AEREA BOLIVIANA,

an Agency or Instrumentality of the

Republic of Bolivia, a Foreign State,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

DISTRICT OF COLUMBIA CIRCUIT

Transaero, Inc., Petitioner herein, prays that a writ of

certiorari issue to review the judgment of the United States

Court of Appeals for the District of Columbia Circuit in this

case.

OPINIONS BELOW

The opinion of the United States Court of Appeals for the

District of Columbia Circuit is reported at Zransaero, Inc., v.

La Fuerza Aerea Boliviana, 30 F.3d 148 (D.C. Cir. 1994), and

is set forth hereto in its entirety in Appendix A. The opinion of

the United States District Court for the District of Columbia,

reversed and vacated by the D.C. Circuit, has not been reported.

It is set forth in its entirety hereto in Appendix D.

The opinion of the D.C. Circuit for which review is being

sought invalidated a 1989 default judgment rendered by the

United States District Court for the Eastern District of New

York which was registered in the United States District Court

for the District of Columbia pursuant to 28 U.S.C. § 1963. A

copy of the 1989 decision is set forth in its entirety in Appendix

B. A Memorandum Opinion and Order dated August 12, 1993,

of the United States District Court for the Eastern District of

New York affirming the validity of the 1989 default judgment

has not been reported and is set forth in its sntirety in Appendix

E. The opinion of the United States Court of Appeals for the

Second Circuit affirming the lower court's opinion is reported

at Transaero, Inc., v. La Fuerza Aerea Boliviana, 24 F.3d 457

(2d Cir. 1994), and is set forth hereto in its entirety in Appendix

F. The Supplemental Opinion of the Second Circuit in this case

is reported at 1994 U.S. App. Lexis 29369 (2d Cir. Oct. 19,

1994), and is set forth in Appendix G.

GROUNDS FOR JURISDICTION

The D.C. Circuit issued its decision on July 29, 1994.

Petitioner timely filed a petition for rehearing and suggestion for

rehearing en banc. The order denying the petition was issued

on September 15, 1994 and is set forth in Appendix H. In

accordance with Rule 13.4 of this Court, this petition for a writ

of certiorari was timely filed within ninety days of the date

rehearing was denied. The jurisdiction of this Court is invoked

under 28 U.S.C. § 1254(1); 28 U.S.C. § 1602 et seq.; and 28

U.S.C. $§ 1330 and 1331.

STATUTES INVOLVED

The statute involved is the Foreign Sovereign Immunities Act,

28 U.S.C. §§ 1330, 1391, 1602 - 161], specifically those

portions dealing with the definitions of "foreign state" and

"agency or instrumentality of a foreign state" set forth at 28

U.S.C. § 1603 and service of process on such entities, set forth

at 28 U.S.C. § 1608. The portions of the statute relevant to this

petition are reproduced in Appendix L.

STATEMENT OF THE CASE

‘This case involves the validity of a 1989 default judgment

rendered by the United States District Court for the Eastern

District of New York against the Bolivian Air Force. On May

19, 1994, the United States Court of Appeals for the Second

Circuit held that the judgment is valid. On July 29, 1994, the

United States Court of Appeals for the District of Columbia

Circuit held that it is void and unenforceable due to improper

service of process. The D.C. Circuit has refused to consider the

res judicata effect of the prior Second Circuit decision. The

Second Circuit has declined to void its prior decision in light of

the D.C. Circuit's decision. Petitioner seeks this Court's review

of the D.C. Circuit's decision to resolve the current functional

split between the circuits and because that decision has

erroneously failed to follow the law enacted by Congress and

the decisions of this Court.

A. The Original Judgment.

In September of 1988, Transaero filed a verified complaint in

the United States District Court for the Eastern District of New

York against the Bolivian Air Force. Jurisdiction over the Air

Force was invoked on the grounds that it was an agency or

instrumentality of the Republic of Bolivia subject to suit under

the provisions. of the Foreign Sovereign Immunities Act

("FSIA"), 28 U.S.C. §§ 1602 - 1611, 1330, 1331. The suit

sought recovery of $983,696.60, representing the unpaid

balance and accrued interest on invoices owed to Transaero for

the sale of aircraft parts sold to the Air Force pursuant to a

May, 1981 finance agreement which the parties had entered into

because of the Air Force's prior history of slow payments to

Transaero.

The case was assigned to the Honorable Jacob A. Mishler,

Senior Judge of the United States District Court for the Eastern

District of New York. The Air Force was served pursuant to

28 U.S.C. § 1608(b), the provisions of the FSIA governing

service of process on agencies or instrumentalities of foreign

states. The Air Force failed to file an answer or otherwise enter

an appearance within the prescribed time and the clerk of the

court noted a default on February 1, 1989.

A hearing with respect to Transaero's Motion for Default

Judgment was scheduled for March 30, 1989. On March 10,

1989, counsel for Transaero sent a letter to the Air Force in La

Paz, informing it that a default had been entered against it and

that an inquest prior to entry of judgment was to be held before

Judge Mishler. Copies of the letter were also sent to Judge

Mishler, the Consul General of Bolivia in New York, and the

Bolivian Ambassador in Washington. Executed returned

receipts were received from both the Consul General and the

Bolivian Ambassador. On March 17, 1989, counsel for

Transaero, in response to a telephone conversation on the same

date with the First Secretary of the Bolivian Government, sent

by telefax to the Bolivian Ambassador a copy of both the

summons and complaint in English and Spanish translations.

The telefax also again advised the Ambassador of the pending

March 30, 1989 hearing before Judge Mishler.

Neither the Air Force nor any other representative of the

Bolivian Government appeared at the March 30, 1989 hearing.

Judge Mishler reserved his decision pending review of

Transaero's submitted proof of damages. By Memorandum

Decision and Order dated April 21, 1989, Judge Mishler

granted Transaero's motion for a default judgment, finding that:

(1) The summons and complaint were properly served on the

Air Force in accordance with 28 U.S.C. § 1608(b)(3)(B); (2)

the Air Force had adequate notice of the hearing scheduled for

March 30, 1989, but failed to enter an appearance; (3) The

complaint stated a cause of action based on breach of contract

for the Air Force's failure to pay amounts due and owing for the

purchase and delivery of aviation equipment; (4) The Air Force

was not entitled to sovereign immunity under the Foreign

Sovereign Immunities Act because its purchases of the aviation

equipment constituted "commercial activities" within the

"commercial activities" exception of 28 U.S.C. § 1605(a)(2) of

the FSIA; and (5) Transaero's claim was supported by the proof

submitted and it was thus entitled to judgment. (App. B).

A default judgment was entered against the Air Force in the

amount of $983,696.60 on April 28, 1989. (App. C.) No

appeal was taken. The judgment was subsequently registered

in the United States District Court for the District of Columbia

in 1991 pursuant to 28 U.S.C. § 1963. The judgment was also

registered in the United States District Court for the Eastern

District of Virginia.

B. The D.C. Circuit proceedings.

Transaero subsequently undertook a three year effort to

obtain a voluntary payment of the judgment.’ When these

efforts failed, Transaero returned to the federal courts in an

effort to judicially enforce it. On June 23, 1992, Transaero,

invoking the jurisdiction of the United States District Court for

the District of Columbia, served the Air Force pursuant to Rule

69 of the Federal Rules of Civil Procedure with Interrogatories

seeking the discovery of its assets.

In response, the Air Force moved to set aside the 1989

judgment as being void for improper service of process. The

Air Force argued that it was not an agency or instrumentality of

the Republic of Bolivia as defined in Section 1603(b) of the

FSIA but instead was only the foreign state as defined within

the meaning of Section 1603(a) as used in 28 U.S.C. § 1608(a).

It argued that it thus should have thus been served pursuant to

the provisions of Section 1608(a) rather than Section 1608(b)

of the FSIA.

In opposition to the motion, Transaero asked the court to

defer to the prior findings of Judge Mishler or to return the case

back to the United States District Court for the Eastern District

' The culmination of these efforts was that, after being provided with

copies of the default judgment and underlying documents, the Bolivian

Ambassador to the United States sent a November 1, 1991, letter to counsel

for Transaero, stating that the Ministry of Foreign Affairs had instructed him

to inform Transaero that "the Ministry of Finance is presently able and ready

to begin proceedings to reconcile the account of the debt owed to Transaero

Inc. by the Bolivian Air Force, through a commission formed by the Ministry

of Finance, Transaero Inc., and the Bolivian Air Force. An appropriate

payment schedule could subsequently be negotiated with the agreement of all

concerned." Transaero returned to the federal courts when the Bolivian

government failed to follow through on its promise. (App. J).

for New York for disposition of the motion. Transaero also

argued that the Air Force met the FSIA's definition of an agency

or instrumentality because it was a separate legal person within

the meaning of Section 1603(b)(1) which, under the criteria set

forth in the Congressional Committee Report to the FSIA, may

be "a department or ministry which acts and is suable in its own

name."? Alternatively, Transaero argued that the judgment was

still valid ever if the Air Force was only a foreign state for

purposes of service of process, since the Air Force and other

representatives of the Bolivian Government had actual notice of

the pending lawsuit prior to the inquest hearing and entry of

judgment, and substantial compliance with the service

provisions is all that is necessary under the FSIA.

In an unpublished Order dated September 25, 1992, the late

Judge George H. Revercomb held that he had jurisdiction to

hear the motion. Finding that the Air Force had full notice of

the matters pending before the Eastern District of New York in

1988 and 1989, Judge Revercomb held that the Air Force is an

agency or instrumentality of the Republic of Bolivia for

purposes of service of process because the evidence showed

that it met the criteria set forth in the Congressional Committee

Report that it could contract, hold property, and sue and be

sued in its own name. The Air Force had thus been properly

served and the 1989 default judgment was valid and

enforceable. Because it concluded that the Air Force had been

properly served in the New York proceedings, the lower court

did not reach the substantial compliance issue. (App. D.)

2 H.R Rep. No. 1487, 94th Cong., 2d Sess. 15-16 (1976), reprinted in

1976 U.S.C.C.A.N. 6604, 6614 (hereinafter "House Report”). The relevant

portion of the House Report is quoted in full in the majority decision of the

D.C. Circuit.

The Air Force appealed Judge Revercomb's decision to the

United States Court of Appeals for the District of Columbia

Circuit. After hearing oral argument on February 24, 1994, the

D.C. Circuit invited the United States to file an amicus brief in

the case. The United States had previously declined the request

of the Air Force to intervene in this case, but agreed to the

court's request. In its amicus brief, the United States took the

position that "the armed forces of a sovereign nation are

presumptively part of the state itself under the FSIA, but that

this presumption can be rebutted by a showing of separateness."

To determine separateness, the United States suggested that the

courts should examine, "among other factors, the nature of the

entity's core function and the substance of the relationship with

the state." Because it did not take these points into account,

but had instead relied on the factors set forth in the

Congressional Committee Report to the FSIA, the United

States disagreed with the analytical approach that the lower

court had used. The United States took no position on whether

the Bolivian Air Force in particular should be treated as an

integral part of the central Bolivian state or could be sued as an

agency or instrumentality under the FSIA. The United States

also took no position on the question of substantial compliance.

c. The concurrent proceedings in the Second Circuit.

Pertinent to this Court's review of this Petition are concurrent

proceedings in the Second Circuit affirming the validity of the

1989 judgment which occurred during the pendency of the D.C.

Circuit appeal. In May of 1993, while its appeal of Judge

Revercomb's order was pending in the D.C. Circuit, the Air

Force filed a Rule 60(b) motion in the United States District

Court for the Eastern District of New York seeking to set aside

the 1989 default judgment as being jurisdictionally void on the

grounds that the court allegedly lacked subject matter

jurisdiction over the case in 1989 because it had failed to refer

the case to mandatory arbitration under the rules of the Eastern

District of New York and that the judgment allegedly had been

procured by a "fraud on the court."

Judge Mishler denied the Air Force's motion by an Order

dated August 12, 1993. Stating that the challenges raised by

the Air Force to the 1989 judgment "strained credulity," Judge

Mishler ruled that the Air Force's claims were "nothing more

than an alternative interpretation of the documentary evidence

from that offered by [prior counsel for Transaero] and

ultimately accepted by this Court. The arguments it offers are

simply those it could have brought forward at the 1989 hearing,

but chose not to do." (App. E at 9, 10.) He thus refused to set

aside or reopen the 1989 default judgment.

The Air Force subsequently filed an appeal of Judge Mishler's

1993 ruling to the United States Court of Appeals for the

Second Circuit. On appeal, the Air Force again asserted the

arguments it had made below, but also more fully argued that

the judgment was void because the court had allegedly failed in

1989 to conduct a proper fact finding or comply with the notice

requirements for default judgments contained in the FSIA at 28

U.S.C. § 1608(e). In a decision dated May 19, 1994, the

Second Circuit affirmed Judge Mishler's 1993 affirmance of the

validity of the 1989 default judgment, holding that: (1) the

lower court did have proper subject matter jurisdiction over the

cause of action in 1989 and that the judgement was not void

under Rule 60(b)(4); (2) Judge Mishler had adhered to the

requirements of Section 1608(e) of the Foreign Sovereign

Immunities Act when entering judgment against the Air Force

in 1989; and (3) there was no merit to the Air Force's

allegations that the 1989 judgment had been procured by a

"fraud on the court." While recognizing that "[c]ourts go to

great lengths ... to permit [default] judgments against foreign

sovereigns to be set aside," the Second Circuit refused to set

aside the judgment on equitable grounds, although it did remand

the case back to the lower court for the limited purpose of re-

examining the mathematical accuracy of the award to

Transaero. (App. F.)

With regard to the pending appeal in the D.C. Circuit, the

Second Circuit noted that "It is BAF's position that it defaulted

because it lacked proper notice of Transaero's complaint and of

the hearing. Judge Mishler found to the contrary in his Opinion

of April 21, 1989 directing entry of the default judgment and so

did the late Judge Revercomb in a separate proceeding in the

District Court of the District of Columbia. BAF's appeal of

Judge Revercomb's Order of September 25, 1992 is now

pending in the Circuit Court for the District of Columbia."

(App. F, p. 4181 n. 1.)

D. The D.C. Circuit's decision.

By letter dated May 23, 1994, Transaero advised the D.C.

Circuit of the Second Circuit's May 19, 1994 ruling and

submitted that it was Transaero's position that the Second

Circuit's ruling was dispositive of the appeal which was still

pending before the D.C. Circuit. (App. K.) Two months later,

in a July 29, 1994 split decision, the D.C. Circuit reversed the

1992 decision of Judge Revercomb and held that the 1989

default judgment was void for improper service of process.

(App. A.)

Writing for the majority, Circuit Judge Sentelle rejected the

criteria set forth in the Committee Report to the FSIA as "being

on eee sta

at odds with itself." and instead adopted a categorical test as to

whether the core functions of the foreign entity are

predominantly governmental or commercial. In adopting its

governmental function test, the majority cited the need for a test

which would facilitate ease of administration in the district

courts. It then held that "armed forces as a rule are so bound up

with the structure of the state that they must in all cases be

considered as the "foreign state" itself, rather than a separate

"agency or instrumentality" of the state." (App. A at pp 5-9.)

Having held that the Air Force should have been served as the

foreign state pursuant to the provisions set forth in Section

1608(a) of the FSIA, the majority next held that

notwithstanding the fact that Transaero had properly served the

Air Force under Section 1608(b), and that the Bolivian

Ambassador, the Bolivian Consul General, the Bolivian First

Minister, and the Air Force all had actual notice of the pending

suit and notice of inquest, strict compliance with the technical

requirements of Section 1608(a), not actual notice, was

required to comply with the service provisions of the FSIA.

(App. A at pp. 9-11.) The court thus declared the 1989

judgment void and remanded the case to the lower court with

the instructions that Judge Revercomb's decision be vacated and

the proceedings below dismissed.

Former Chief Judge Mikva dissented from the majority's

decision, stating his "fear that in formulating their interpretation

my colleagues have placed efficiency concerns - and perhaps

their international policy preferences - above the apparent

meaning of the statue. Because this case requires us to interpret

Congress's enactment, and not to devise common law rules, I

think the majority's approach is insufficiently deferential to the

legislature." (App. A., dissent p. 1.) Former Chief Judge

Mikva further stated that "the language, policy, and legislative

history of the FSIA" did not support the majority's approach.

Instead, the lower court had used the proper test in applying the

criteria set forth in the Committee Report. (App. A, dissent, p.

4.)

In rendering its decision, the D.C. Circuit did acknowledge

that the Second Circuit's earlier decision had noted that both

district courts had held that the Air Force had been properly

served. However, it refused to consider the res judicata effect

of the prior May 19, 1994 decision of the Second Circuit

affirming the validity of the 1989 judgment on the grounds that

Transaero had allegedly not raised this issue in the proceedings

before Judge Revercomb. (App. A., p. 4n. 1.) In its Petition

for Rehearing and suggestion for rehearing en banc to the D.C.

Circuit, Transaero noted to the D.C. Circuit that while it had

argued to Judge Revercomb that he should have referred the

case back to Judge Mishler, it could not have argued the

preclusive effects of the subsequent 1993 and 1994 Second

Circuit proceedings in the 1992 proceeding before Judge

Revercomb. Transaero further argued that it had raised this

issue in briefing the appeal before the D.C. Circuit, and that it

could raise it in a petition for rehearing. The D.C. Circuit

denied Transaero's Petition for Rehearing and thus did not

address these arguments.°

In his dissent, former Chief Judge Mikva agreed with the

majority that Judge Mishler's 1989 ruling that service was

> Former Chief Judge Mikva did not participate in the D.C. Circuit's

disposition of Transaero's petition for rehearing or suggestion for rehearing en

banc, having made arrangements to leave the bench to assume the position of

Counsel to the President.

proper did not preclude the D.C. Circuit from finding to the

contrary, but he noted that such a finding, in light of the

subsequent acknowledgment by the Second Circuit of Judge

Mishler's finding on appeal, would clash with the prevailing

Second Circuit law on the facts of the case and would create

"the functional equivalent of a split between [the D.C. ] Circuit

and the Second." (App. A, dissent pp. 1-2.)

E. The current status of the case.

Prior to the issuance of the D.C. Circuit's decision, the Air

Force filed a Petition for Rehearing in the Second Circuit

proceeding. Upon being informed of the D.C. Circuit's July 29,

1994 decision, the Second Circuit requested supplemental

briefing from counsel as to the effect of that decision on its prior

May 19, 1994 decision. In a supplemental opinion dated

October 19, 1994, the Second Circuit refused to reverse its May .

19, 1994 decision in light of the D.C. Circuit's decision, holding

that the Air Force's petition for rehearing had not shown that

the Court had overlooked or misapprehended any points of law

in its original review. The Court did broaden its remand to the

lower court to examine the calculation of interest in the 1989

judgment. However, having been informed by Transaero of its

intention to file a petition for certiorari to this Court of the D.C.

Circuit's decision, the Second Circuit on its own motion stayed

the remand pending disposition of Transaero's Petition for

Certiorari.* (App. G.)

The D.C. Circuit has refused to stay its remand of this case

pending Transaero's filing and the disposition of this Petition for

4 On November 1, 1994, Transaero filed a petition for rehearing with the

Second Circuit limited to asking that Court to reconsider its expansion of the

remand to the Eastern District of New York.

Certiorari, even though it was asked to reconsider this ruling in

light of the Second Circuit's action of October 19, 1994. (App.

I.) The remand of the proceedings in the Second Circuit are

currently stayed pending this Court's disposition of this Petition.

REASONS FOR GRANTING THE WRIT

This petition presents important national and international

questions concerning the correct interpretation and consistent

application of the Foreign Sovereign Immunities Act, the statute

which this Court has held provides the sole basis for obtaining

jurisdiction over a foreign sovereign in the United States.* It

also raises important questions of res judicata and comity

between federal circuits concerning the validity and enforcement

of judgments which are registered under 28 U.S.C. § 1963. The

D.C. Circuit's majority decision is wrong and contrary to the

actual language, policy, and legislative history to the FSIA and

the principles of due process embodied in the Constitution. It

violates this Court's decision in First National City Bank v.

Banco Para El Comercio Exterior De Cuba, 462 U.S. 611

(1983), and is contrary to prior decisions of the courts of the

Second Circuit which have held, based on its own stipulations,

that the Bolivian Air Force is an agency or instrumentality of the

Republic of Bolivia. The decision introduces uncertainty into

the proper interpretation of the FSIA and is in conflict with

decisions of the other circuits. It will promote forum shopping

by foreign governments and will encourage them to take default

judgments. Finally, because the D.C. Circuit failed to adhere to

this Court's decisions on the law of res judicata, its decision has

created a "functional circuit split" between itself and the Second

* Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 439

(1989).

Circuit whose resolution requires this Court to exercise its

power of supervision.

L The criteria used to determine the capacity in which

foreign governments are sued in the federal courts

for their commercial activities and how service is

effected upon them requires a single uniform

national standard.

In order to confidently contract with foreign governments,

US. citizens require a uniform and objective method by which

they can invoke the jurisdiction of the federal courts to bring

suit and enforce judgments against foreign governments for

their commercial activities. This Court has recognized that

prior to enactment of the Foreign Sovereign Immunities Act,

sovereign immunity determinations were made under "standards

(that] were neither clear nor uniformly applied."* The FSIA sets

forth those circumstances in which a foreign state's sovereign

immunity has been waived, thus allowing it to be subject to suit

in the U.S. courts. It provides objective legal standards which

the courts can use to ensure that claims against foreign

governments are uniformly decided. In conjunction with 28

U.S.C. § 1963, the FSIA permits a U.S. citizen to litigate its

commercial disputes with foreign governments in the federal

courts and, if successful, then register and enforce any

judgments against them in any other federal court in the

country.

The majority decision of the D.C. Circuit fundamentally

undermines this statutory scheme by misconstruing the structure

and purpose of the FSIA. This Court has recognized that one

6 Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 488 (1983).

of the most significant changes resulting from the FSIA was

with regard to military authorities, which used to enjoy

automatic sovereign immunity because of the purpose of such

entities.’ In enacting the FSIA, Congress specifically overruled

prior law which afforded a presumption of foreign state status

and immunity predicated upon the political purpose of the

governmental entity's activities, by forbidding the courts from

examining the purpose of the entity in determining the form and

nature of its sovereign status and the immunity accorded to it.’

The D.C. Circuit's decision has now afforded foreign military

authorities a special status based on their purpose which other

courts have said Congress has removed.

The question presented by this case is not the one which

implicitly underlies the D.C. Circuit's decision, that is, whether

a foreign military authority is entitled to sovereign immunity

because it is part of the foreign state. That is a given.* Instead,

the question is in what capacity a department or ministry of a

foreign government must be sued when it engages in

” See, Republic of Argentina v. Weltover, 504 U.S.__, 112 S.Ct. 2160,

119 L.Ed.2d 394, 405 (1992). Also see, McDonnell Douglas Corporation

v. Islamic Republic of Iran, 758 F.2d 341, 348-349 (8th Cir. 1985), cert.

denied, 474 U.S. 948 (1986).

* 28 U.S.C. § 1603(d); Republic of Argentina v. Weltover,504 U.S. __,

119 L.Ed 2d 394, 405-407 (1992); Texas Trading & Milling Corp. v. Federal

Republic of Nigeria, 647 F.2d 300, 309, 310 n.27 (2d Cir. 1981), cert.

denied, 454 U.S. 1148 (1981); McDonnell Douglas Corp. v. Islamic

Republic of Iran, 758 F.2d 341, 349 (8th Cir. 1985); United Euram Corp. v.

Union of Soviet Socialist Republics, 461 F.Supp. 609, 611-612 (S.D.N.Y.

1978).

* By definition, agencies and instrumentalities are also foreign states as the

term is generally used in the FSIA. 28 U.S.C. § 1603(a).

commercial activities within the scope of the FSIA, thus

waiving its sovereign immunity: as the foreign state itself, as

defined under 28 U.S.C. § 1603(a), or as an agency or

instrumentality of the foreign state, as defined under 28 U.S.C.

§ 1603(b).

A uniform answer to this question from this Court reaffirming

the objective standards established by Congress for use in

answering this question is important because it goes to the heart

of whether the FSIA is an effective and predictable vehicle for

protecting the interests of both U.S. citizens and the foreign

governments with whom they contract.’° As in this case, when

a U.S. corporation contracts with a foreign government, it may

deal only with a specific department or division of the

government. The contract may be entered into and executed by

the named governmental entity, rather than in the name of the

state itself. When a dispute arises, both the plaintiff and the

court must then determine whether the foreign state itself must

be sued as the named defendant, or whether suit should be

brought only against the agency, department, or governmental

entity with whom the contract was actually entered. This is

clearly a fact-specific determination, which Congress has stated

hinges on whether the governmental entity is a "separate legal

person." 28 U.S.C. § 1603(b)(1).

Unfortunately, the D.C. Circuit has created a problem where

none existed. The Congressional Committee Report which the

majority in this case has now rejected sets forth objective legal

guidelines which other courts - including an earlier panel of the

10 House Report, supra, note 2, at 32; Verlinden B.V. Central Bank of

Nigeria, 461 U.S. 480, 489 (1983).

D.C. Circuit - have accepted as being authoritative.” In now

adopting a different standard, the D.C. Circuit has introduced

substantial uncertainty into the law and has departed from this

Court's holding that "Congress has the undisputed power to

decide, as a matter of federal law, whether and under what

circumstances foreign nations should be amenable to suit in the

United States."' The D.C. Circuit's decision is wrong and, as

former Chief Judge Mikva states in his dissent, contrary to the

actual language, policy, and legislative history of the FSIA. °

'' Dayton v. Czechoslovak Socialist Republic, 834 F.2d 203, 205-206

(D.C.Cir. 1987), cert. denied, 486 U.S. 1054 (1988). See, e.g., O'Connell

Machinery Company, Inc. v.M.V. "Americana", 734 F.2d 115 (2d Cir. 1984), .

cert. denied, 469 U.S. 1086 (1985); S & S Machinery Co. v.

Masinexportimport, 706 F.2d 411 (2d Cir. 1983), cert. denied, 464 U.S. 850

(1984). Gordon, Foreign State Immunity In Commercial Transactions § 6.10

(1991). Even the cases which the majority relies upon to support its holding

cite the criteria in the Congressional Committee Report rejected by the D.C.

Circuit: they merely disagree as to their application as to the particular facts of

their discrete cases. See, e.g., Segni v. Commercial Office of Spain, 650

F.Supp. 1040 (N_D. Ill. 1988); Marlowe v. Argentine Naval Commission, 604

F.Supp. 703 (D.D.C. 1985); Unidyne Corp. v. Aerolineas Argentinas, 590

F.Supp. 398 (E.D. Va. 1984).

2 Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 493 (1983).

‘> There are very real and tangible consequences to the resolution of this

issue for both litigants and the courts in addition to the service of process

question. While the provisions of Title 28 setting forth the FSIA generally do

not distinguish between a foreign state and its agencies or instrumentalities,

they do draw distinctions for purposes of venue, Section 1391, service of

process, Section 1608, the entry of default judgments, Section 1608 (e), and

the enforcement of judgments through the attachment and execution of

property, Section 1610. Each of these provisions go to the very core of how

the federal courts can exercise their authority over foreign governments.

Il. The decision adopts a subjective and unworkable

test contrary to the law enacted by Congress. It

conflicts with this Court's Bancec decision and the

decisions of the lower courts. If allowed to stand, it

will encourage foreign governments to engage in

forum shopping.

The dangers of the new "common law rule" adopted by the

D.C. Circuit were recognized by this Court in First National

City Bank v. Banco Para El Comercio Exterior De Cuba, 462

U.S. 611 (1983) ("Bancec"), with which the D.C. Circuit's

decision is in direct conflict. While not an FSIA case, in Bancec

this Court specifically rejected any mechanical formulas for

determining the separate juridical status of government agencies

or instrumentalities.* The D.C. Circuit's holding that the armed

forces of a foreign state are essentially per se the foreign state

for all purposes is exactly the type of mechanical formula which

this Court eschewed in Bancec.

In Bancec, this Court also specifically declined to adopt the

governmental function test adopted by the D.C. Circuit. It did

so notwithstanding the fact that in Bancec, as in this case, the

lower court had adopted, and the Solicitor General had urged,

just such a test. The ease of administration in the lower courts

cited by the D.C. Circuit as grounds for adopting its standard

rather than that of Congress was specifically rejected by this

Court as being "too shifting a basis for determining

constitutional power and too entangled in expediency to serve

4 Bancec, 462 U.S. 611 at 633-634.

as a dependable legal criterion.""*

This Court recognized in Bancec that the problem with the

test adopted by the D.C. Circuit is that the concept of a "usual"

or a "proper" governmental function changes over time and

varies from nation to nation.’* This is exactly the problem

which the FSIA was designed to eliminate. Prior to its

enactment, the courts frequently asked the State Department to

provide advice as to the legal status and sovereign immunity of

a foreign entity, just as the D.C. Circuit did in this case.

Because Congress recognized that such determinations often

turn on political and personal notions of sovereignty, rather than

objective legal criterion, it sought to stop this practice and

eliminate this problem by adopting the separate legal person

standard and providing guidelines that an agency or

instrumentality may be an entity "which acts and is suable in its

own name."!’ However, because the examples provided by the

Committee Report for the FSIA include governmental

departments and ministries, as well as specific examples such as

mining enterprises and central banks, the D.C. Circuit ruled that

the criteria Congress established in the Committee Report for

the FSIA is "at odds with itself" and must be rejected. (App. A,

p. 7-8.) It did so notwithstanding the fact that the FSIA itself

speaks in terms of defense agencies.'®

'S Bancec, 462 U.S. 611, at 633 n.27, quoting New York v. United States,

326 U.S. 572, 580, 90 L.Ed 326, 66 S.Ct. 310 (1946).

16 Td.

'7 Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 486-490

(1983); House Report, supra, note 2, at 7.

'® 28 U.S.C. § 1611(6)(2).

The D.C. Circuit's decision has achieved exactly the type of

inconsistent result which this Court warned of in Bancec. In

holding that because the armed forces always have a sovereign,

as opposed to a commercial, purpose, the Bolivian Air Force

should have been sued as the foreign state, the D.C. Circuit

ignored prior holdings of the Second Circuit finding that the

Bolivian Air Force has previously engaged in the normally

private commercial activity of issuing promissory notes.’

Similarly, according to the Library of Congress, the Bolivian Air

Force operates two commercial air line services.” Neither the

issuance of promissory notes nor the operation of commercial

air line services would appear to fall within the definition of

"obvious sovereign functions" of the armed forces.

Furthermore, the D.C. Circuit has created a conflict with prior

rulings of the Second Circuit which have allowed the Bolivian

Air Force to be sued as an independently named defendant and

those of its lower courts which have held, based on the Air

Force's own prior stipulations, that it is an agency or

instrumentality of the Republic of Bolivia.”

'9 Shapiro v. The Republic of Bolivia, the Bolivian Air Force and the

Central Bank of Bolivia, 930 F.2d 1013 (2d Cir. 1991).

2 Federal Research Division, Library of Congress, Bolivia: A Country

Study, (3rd. Ed. 1991) pp 236-237.

21 Shapiro v. The Republic of Bolivia, the Bolivian Air Force and the

Central Bank of Bolivia, 930 F.2d 1013 (2d Cir. 1991). Office of the

Comptroller General of the Republic of Bolivia on behalf of the Bolivian Air

Force and Central Bank of Bolivia v. International Promotions and Ventures,

Ltd., 618 F. Supp. 202, 203 n.1 (1985). The stipulation is contained at

one (1) and thirty-three (33) of the Joint Pretrial Order of that case,

a copy of which is attached as Addendum B to the Reply Brief of Plaintiff-

Appellee Transaero, Inc., to Amicus of United States.

Unless this Court reaffirms its prior ruling in Bancec, the

D.C. Circuit's decision will lead to similar inconsistent results in

other cases. The Third Circuit has allowed the Iranian Air

Force to be served as an agency or instrumentality and the

Eighth Circuit has exercised jurisdiction over it as a separate

and independently named defendant.” The courts of the

Second Circuit and the Fifth Circuit have found that branches

of the Ecuadorian Navy are agencies or instrumentalities under

the FSIA.~ Under the per se rule adopted by the D.C. Circuit,

any default judgments against these or similar entities rendered

by these circuits would now be presumptively invalid and

unenforceable in the District of Columbia for improper service

of process. Given the importance of the D.C. Circuit as the

federal appellate court for the nation's capital and the one

jurisdiction where a plaintiff is virtually guaranteed the presence

of the foreign government defendant, its decision could lead to

forum shopping by foreign governments, resulting in a

disproportionate impact on cases in other circuits and a

circumvention of the policies underlying the registration of

judgments embodied in 28 U.S.C. § 1963.”

McDonnell Douglas Corporation v. Islamic Republic of Iran, the

Ministry of Defense of the Islamic Republic of Iran, and the Islamic Republic

of Iran Air Force, 758 F.2d 341 (8th Cir. 1985); Behring International, Inc.

v. Imperial Iranian Air Force, 475 F.Supp. 383, 389 (D.N.J. 1979), affd in

part, 699 F.2d 657 (3d Cir. 1983). Also see, Behring International, Inc., v.

Imperial Iranian Air Force, 475 F.Supp. 396 (D.N.J. 1979).

® See, e.g., Bowers v. Transportes Navieros Ecuadorianos, 719 F.Supp.

166, 170 (S.D.N_Y. 1989); Rodriguez v. Transnave, Inc., 8 F.3d 284, 286 n.1

(Sth Cir. 1993).

** The courts have generally held that when there is a challenge to the

validity of a judgment which is registered under 28 U.S.C. § 1963, the court

of registration should refer the case back to the court of original jurisdiction for

Furthermore, although the D.C. Circuit claims that its

decision will lead to ease of administration by the lower courts,

exactly the opposite is true. It will make it much more difficult

to effect service of process on and obtain jurisdiction over

foreign governments because the "agency or instrumentality"

provisions of the FSIA will have essentially have been read out

of the Act. After all, what governmental entity cannot claim

that by definition its core function is governmental, as opposed

to commercial? If the sovereign functions of a governmental

entity are not "obvious," judges may, as the D.C. Circuit did in

this case, be inclined to again ask the advice of the State

Department as to the legal status of the governmental entity.

The alternative, as former Chief Judge Mikva suggests in his

dissent, is that individual judges may impose upon litigants their

own personal "international policy preferences" as to what

constitute the “obvious functions" of a governmental entity.

The first result is contrary to the intent of Congress, which

sought to take commercial disputes involving foreign

determination of the issue. However, some courts have adopted an exception

for challenges to default judgments which are allegedly void for defective

service of process. See, generally, Indian Head National Bank of Nashua v.

Brunelle, 689 F.2d 245 (1st Cir. 1982). A conflict in the governing law

between circuits can thus result in inconsistencies and encourage forum

shopping. For example, in this case, Second Circuit doctrine of judicial

estoppel bars the Bolivian Air Force from denying its agency or instrumentality

status because its prior stipulations that it has such a status has been adopted

by the courts in other litigation. See, e.g., Bates v. Long Island Railroad

Company, 997 F.2d 1028 (2d Cir. 1993). However, the D.C. Circuit does not

follow the doctrine of judicial estoppel, and apparently did not even feel

obligated to acknowledge the existence of the other Second Circuit decisions

concerning the Bolivian Air Force's legal status. The net result is a conflict

between the circuits as to the validity of the same 1989 judgment, thus

undermining the purpose of 28 U.S.C. § 1963.

governments out of the realm of politics by transferring "the

determination of sovereign immunity from the executive branch

to the judicial branch...," clarify the governing standards, and

thus "assur[e] litigants that ... decisions are made on purely legal

grounds and under procedures that insure due process."** And,

as this Court has already recognized in Bancec, the second

result is contrary to the Constitution.

This Court need look no further than the D.C. Circuit's

disposition of this case to ascertain that the solution it has

adopted to the questions presented by this petition results in a

denial of due process.” Review is thus required by this Court

to reaffirm its holding in Bancec and to ensure that the lower

courts properly perform the role designated to them by the

Constitution and Congress.

5 House Report, supra note 2, at 7. Also see, Verlinden B.V. v. Central

Bank of Nigeria, 461 U.S. 480, 488 (1983).

** Not only has every court - including the D.C. Circuit - acknowledged that

both the Aur Force and the Bolivian Government had actual knowledge of the

matters pending in New York prior to the entry of judgment, but, in holding

that as a branch of the armed forces the Bolivian Air Force can never have the

status of being an agency or instrumentality, the D.C. Circuit forfeited its role

as an adjudicatory tribunal in this case by failing to even acknowledge that it

had been asked by the petitioner to take mandatory judicial notice under

Federal Rule of Evidence-201 that the Bolivian Air Force itself has stipulated

to other federal courts that it is an agency or instrumentality.

Dees v feees pie

Ill. This Court should resolve the circuit conflict on the

substantial compliance issue.

Foreign governments, like the government of Bolivia, often

try to assert their sovereign immunity by taking default

judgments. They then try to set the judgments aside when

judgment creditors later attempt to enforce them.”” The result

is that what are by definition simple commercial disputes

involving foreign governments do not have a trial and resolution

on the merits. Instead, courts and judgment creditors become

embroiled in years of litigation wherein foreign governments

engage in back-door attempts to have the judgments set aside

and the substance of their defenses heard. This is obviously a

waste of limited judicial resources and unfair to US. citizens,

who often spend significant time and money litigating

procedural matters only to see what they thought was a valid

judgment vacated by a technicality.

One method by which the courts have addressed this problem

is to hold that substantial compliance with the service provisions

of the FSIA resulting in actual notice of the pending litigation

to the foreign government is all that is required under the Act.”8

27 A John Sutham, Note, Brokering A Difficult Marriage: Substantive

Defenses Under Rule 60(b)(4) Relief From Default Judgements in Foreign

Sovereign Immunity Act Proceedings, 14 Fordham Int'l L.J. 216 (1991). See,

e.g., Meadows v. Dominican Republic, 817 F.2d 517 (9th Cir. 1987), cert

denied, 484 U.S. 976 (1987). The D.C. Circuit itself has warned Bolivia that

it may pursue this litigation strategy if it is willing to assume the risks that it

may lose the chance to argue the merits of its suit later. Practical Concepts,

Inc. v. Republic of Bolivia, 811 F.2d 1543, 1546 (1987).

28 See, Sherer v. Construcciones Aeronauticas, S.A., 987 F.2d 1246, 1250

(6th Cir.), cert. denied, _U.S.__, 114 S.Ct. 72, 126 L.Ed.2d 41 (1993);

Velidor v. L/P/G Benghazi, 653 F.2d 812, 821-22 (3d Cir. 1981), cert.

The D.C. Circuit has refused to follow the substantive trend of

the other circuits on this issue, claiming that the trend has been

limited to cases involving agencies or instrumentalities served

under Section 1608(b). However, since the D.C. Circuit

decided its case, the Ninth Circuit has formally adopted a

substantial compliance standard for FSIA cases, specifically

modifying its prior decision in Gerritsen v. Consulado General

de Mexico, 989 F.2d 340, 345 (9th Cir. 1993), cert. denied, __

U.S. __, 114 S.Ct. 95, 126 L.Ed.2d 62 (1994), which was one

of the two cases which the D.C. Circuit relied upon in support

of its position that strict compliance is required for service on

the foreign state under Section 1608(a). See, Straub v. A.P.

Green, Inc., No. 92-16204, __ F.3d ___, 1994 US. App.

Lexis 28742 (9th Cir. 1994).

Strict compliance with the service provisions of Section

1608(a) makes it much more difficult for U.S. citizens to serve

and sue foreign governments.- The legislative history to the

FSIA says that service on a foreign state under Section 1608(a)

only requires "that the foreign state has actual notice of the

suit."" The D.C. Circuit's decision will encourage foreign

governments to take default judgments and allow them to

circumvent the intent and purpose of the FSIA. The D.C.

Circuit itself has recognized that this case demonstrates the

dangers in allowing differences between the circuits and

uncertainty in this area of the law, stating that "[s]ervice of

process should be the prologue to the suit rather than the

dismissed, 455 U.S. 929, 102 S.Ct. 1297, 71 L.Ed.2d 474 (1982); Harris

Corp. v. National Iranian Radio and Television, 691 F.2d 1344, 1352 (11th

Cir. 1982).

° House Report, supra, note 2, at 23-24.

eT RE ER RD

central drama....The case before us presents the dangers of

Section 1608 in somber tones." This case is an appropriate

vehicle for this Court to examine the policies underlying the

substantial compliance issue and to resolve this question of

law.”

IV. The D.C. Circuit's decision fails to adhere to this

Court's rulings concerning res judicata.

Review is needed in order for this Court to exercise its power

of supervision over the lower courts. The "functional circuit

split" which exists in this case is solely the result of the fact that

the D.C. Circuit failed to adhere to prior case law of this Court

which clearly provides that the earlier decision of the Second

Circuit was res judicata on the matters pending in the D.C.

Circuit.

This Court has held that when two courts are addressing

issues which have an identity of parties and issues, the first and

final judgment becomes res judicata on the second court's

proceedings, even if the issue involved is personal jurisdiction.”

% The D.C. Circuit claims that it is the policy underlying the FSIA, rather

than just the actual language of the statute, which requires strict compliance

when a foreign state is served. The only technical failure in this case was the

failure to formally serve the Bolivian Ministry of Foreign Affairs and Worship

in La Paz. The D.C. Circuit itself acknowledges that both the Bolivian Air

Force and other representatives of the Bolivian Government had full and actual

notice of the 1989 proceedings. Thus, both the actual department of

government which engaged in the commercial activity sued upon, plus the

U.S.-based diplomatic personnel of the government which ostensibly answer

to the Ministry of Foreign Affairs, had full and actual knowledge of the lawsuit

prior to the entry of the judgment. (App. A, p. 10.)

3! Chicago, Rock Island & Pacific Railway Company v. Schendel, 270

U.S. 611 (1925).

When, during the pendency of its appeal before the D.C.

Circuit, the Air Force returned to the courts of the Second

Circuit to bring its concurrent challenge to the validity of the

1989 default judgment, it of necessity also had to raise its

personal jurisdiction challenges to the validity of that judgment

in those courts or have them explicitly or implicitly waived.” In

disposing of the Air Force's challenges to the 1989 judgment on

the grounds that there had been a "fraud on the court", no

subject matter jurisdiction, and an improper fact-finding under

§ 1608(e), both Judge Mishler and the Second Circuit, implicitly

and explicitly, found that the lower court had properly exercised

personal jurisdiction over the Air Force in 1989. Judge Mishler

did so by explicitly holding that the arguments of the Air Force

were those "which it could have brought in 1989 but chose not

to." The Second Circuit did so by affirming Judge Mishler’s

ruling and also noting his 1989 finding of proper jurisdiction.

Under the law established by this Court, the appeal before the

D.C. Circuit was thus barred on res judicata grounds once the

Second Circuit had issued its decision.

The D.C. Circuit's failure to address the res judicata effect of

the Second Circuit's decision has created the "functional circuit

split" in this case. It violates the prior holdings of this Court.

This fact alone requires a summary reversal of the D.C. Circuit's

decision.

*2 Insurance Corp. of Ireland, Lid., v. Compagnie Des Bauxites De

Guinea, 456 U.S. 694 (1982), Baldwin v. lowa State Traveling Men's

Association, 283 U.S. 522 (1931); Davis v. Davis, 305 U.S. 32 (1938);

Chicot County Drainage District v. Baxter State Bank, 308 U.S. 371 (1939),

American Surety Company v. Baldwin, 287 U.S. 156 (1931). See, Gleason

v. Jandrucko, 860 F.2d 556, 560 (2d Cir. 1988) ("fraud on the court" requires

moving party to show that there was no opportunity to have the grounds it

relied upon to set aside the judgment fully litigated in the original action).

CONCLUSION

For the reasons set forth above, the petition for a writ of

certiorari should be granted.

Respectfully submitted,

RONALD N. COBERT

Counsel of Record

ANDREW M. DANAS

GROVE, JASKIEWICZ AND COBERT

1730 M St., N.W., Suite 400

Washington, D.C. 20036

(202) 296-2900

Counsel for Petitioner

APPENDIX A

Notice: This opinion is subject to formal revision before publication in

the Federal Reporter or U.S.App.D.C. Reports. Users are requested to

notify the Clerk of any formal errors in order that corrections may be made

before the bound volumes go to press.

Gnited States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 24, 1994 - Decided July 29, 1994

No. 92-7222

TRANSAERO, INC.,

APPELLEE

LA FuerzA AEREA BOLIVIANA,

APPELLANT

Appeal from the United States District Court

for the District of Columbia

(91ms00139)

James W. Shannon, Jr., argued the cause for appellant.

With him on the briefs was Gregory B. Craig.

Ronald N. Cobert argued the cause for appellee. With him

on the brief was Andrew M. Danas. Joseph M. Roberts

entered an appearance.

Bills of costs must be filed within 14 days after entry of judgment.

The court looks with disfavor upon motions to file bills of costs out

of time.

9°

On the brief for amicus were Frank W. Hunger, Assistant

Attorney General, Eric H. Holder, Jr., United States Attor-

ney, Douglas Letter, Attorney, United States Department of

Justice, and Linda Jacobson, United States Department of

State.

Before Mixva, Chief Judge, and Wituiams and SENTELLE,

Circuit Judges.

Opinion for the Court filed by Circuit Judge SeNTELLE.

Dissenting opinion filed by Chief Judge Mikva.

SENTELLE, Circuit Judge: Transaero, Inc., a New York

corporation, obtained a default judgment against La Fuerza

Aerea Boliviana (“the Bolivian Air Force”) in the Eastern

District of New York and registered the judgment in the

district court for the District of Columbia. The Bolivian Air

Force moved for summary judgment, claiming that the dis-

trict court in New York lacked personal jurisdiction because

the default judgment had been obtained without the service of

process required by the Foreign Sovereign Immunities Act,

28 U.S.C. §§ 1330, 1602-1611 (1988) (“the Act”). The Boliv-

ian Air Force contended that because it is a “foreign state or

political subdivision of a foreign state” within the meaning of

section 1608 of the Act, Transaero had served it improperly.

The district court held instead that the Bolivian Air Force is

an “agency or instrumentality” of Bolivia under the service

provisions of section 1608, so that Transaero’s method of

service gave the New York court jurisdiction. The Bolivian

Air Force has taken an interlocutory appeal from the order.

See Foremost-McKesson, Inc. v. Islamic Republic of Iran,

905 F.2d 438, 443 (D.C. Cir. 1990) (denial of a claim of

sovereign immunity is an immediately appealable collateral

order).

We hold that the Bolivian Air Force is a “foreign state or

political subdivision” within the meaning of section 1608 and

that Transaero’s method of service was defective. We there-

fore reverse and remand with directions to dismiss.

Transaero sold aviation parts to the Bolivian Air Force

throughout the early 1980s. In 1988, Transaero filed a

complaint in the Eastern District of New York that alleged

breach of contract and sought $983,696.60 in damages. On

September 15, 1988, the Clerk of Court dispatched transla-

tions of the summons and complaint to the Bolivian Air Force

in La Paz, Bolivia by registered mail with a return receipt

requested. The Bolivian Air Force received the summons

and complaint and sent a return receipt to the Clerk on

September 23, 1988. The Bolivian Air Force made no ap-

pearance, and Judge Mishler scheduled a hearing on Transae-

ro’s motion for default judgment for March 30, 1989. Trans-

aero sent notice of the hearing to the Bolivian Air Force, to

the Bolivian First Minister in La Paz, Bolivia, and to the

Bolivian Ambassador and Consul General in Washington.

When the Bolivian Air Force failed to appear at the hearing,

Judge Mishler granted the motion for default judgment. The

court found that service had been properly effected under

section 1608(b), but made no findings on the adequacy of

service under 1608(a). The court also held that it had subject

matter jurisdiction over the contract claim under section

1605(a)(2) of the Act, which creates an exception to the

general rule of sovereign immunity for claims arising from

“eommercial activities” conducted by foreign states.

In 1991, Transaero registered the default judgment in the

district court for the District of Columbia under 28 U.S.C.

§ 1963 (Supp. IV 1992) and served a set of interrogatories

under Federal Rule of Civil Procedure 69. The Bolivian Air

Force entered an appearance and moved to quash the inter-

rogatories and dismiss the proceedings, arguing that the

District Court for the Eastern District of New York lacked

jurisdiction because the Bolivian Air Force had not been

served in compliance with section 1608(a) of the Act. In an

order dated September 25, 1992, the District Court for the

District of Columbia denied the motion. The court found that

Transaero had originally served the Bolivian Air Force under

section 1608(b); that the Bolivian Air Force received actual

notice of Transaero’s lawsuit; and that the Bolivian Air Force

was notified by mail of the hearing on Transaero’s motion for

default judgment. The court then ruled that, as a matter of

law, the Bolivian Air Force is an “agency or instrumentality”

of Bolivia and that service under section 1608(b) was proper.

After the Bolivian Air Force’s motion for summary judg-

ment was denied, Transaero requested an order compelling

the Bolivian Air Force to answer its interrogatories. The

judge in charge of the case passed away and that motion

apparently has never been resolved. On May 12, 1993, the

Bolivian Air Force requested the Eastern District of New

York to set aside the default judgment on the ground that it

had been procured through fraudulent representations of fact.

The court denied the motion, the Bolivian Air Force appealed

the denial to the Second Circuit, and the Second Circuit

affirmed. See Transaero, Inc. v. La Fuerza Aerea Boliviana,

No. 93-7903, 1994 WL 197941 (2d Cir. May 19, 1994).'

II.

Under the Act, “subject matter jurisdiction plus service of

process equals personal jurisdiction.” Texas Trading & Mill-

ing Corp. v. Federal Republic of Nigeria, 647 F.2d 300, 308

(2d Cir. 1981), cert. denied, 454 U.S. 1148 (1982). The

Bolivian Air Force admits that the New York court had

subject matter jurisdiction under the “commercial activities”

provision of section 1605(a)(2). It claims only that Transae-

1 The Second Circuit noted that the district courts in New York

and the District of Columbia had held that the Air Force was

properly served, but also noted the pending appeal that we decide

today. See id at n.1. We do not consider whether the Eastern

District’s ruling might bar the Air Force’s attack on personal

jurisdiction, for Transaero did not assert any form of preclusion in

the District Court for the District of Columbia, and we have

generally refused to raise the question sua sponte. See Nixon v.

United States, 978 F.2d 1269, 1274 n.16 (D.C. Cir. 1992); Taxation

with Representation v. Regan, 676 F.2d 715, 717 n.1 (D.C. Cir.

1982), rev'd on other grounds, 461 U.S. 540 (1983).

ro’s service failed to comply with sections 1603 and 1608 of

the Act. Section 1603 provides:

(a) A “foreign state”, except as used in section 1608 of

this title, includes a political subdivision of a foreign state

or an agency or instrumentality of a foreign state as

defined in subsection (b).

(b) An “agency or instrumentality of a foreign state”

means any entity—

(1) which is a separate legal person, corporate or

otherwise, and

(2) which is an organ of a foreign state or political

subdivision thereof, or a majority of whose shares or

other ownership interest is owned by a foreign state

or political subdivision thereof, and

(3) which is neither a citizen of a State of the

United States ..., nor created under the laws of any

third country.

98 U.S.C. § 1603 (emphasis added). Section 1608 does not

further define either term. Section 1608(a) establishes cer-

tain requirements for service on “a foreign state or political

subdivision of a foreign state,” while section 1608(b) establish-

es different requirements for service on “agencies or instru-

mentalities” of foreign states.

The nub of the dispute is whether the Bolivian Air Force

counts as a “foreign state” or rather as an “agency or

instrumentality” under section 1608. That in turn depends

upon whether the Bolivian Air Force is a “separate legal

person, corporate or otherwise” under section 1603(b)(1).?

The words in themselves are opaque. Some district courts

have sought to illuminate them by balancing three “character-

istics” of separate legal status: whether, under the law of the

foreign state where it was created, the entity can sue and be

sued in its own name, contract in its own name, or hold

2 Both parties agree that the Air Force falls within the other

components of the definition in §§ 1603(b)(2) and (b){3).

property in its own name. Bowers v. Transportes Navieros

Ecuadorianos, 719 F. Supp. 166, 170 (S.D.N.Y. 1989); see.

also Unidyne Corp. v. Aerolineas Argentinas, 590 F. Supp.

398, 400 (E.D. Va. 1984). But other courts have thought the

distinction is instead a categorical one, and depends on

whether the defendant is the type of entity “that is an

integral part of a foreign state’s political structure, [or rather]

an entity whose structure and function is predominantly

commercial.” Segni v. Commercial Office of Spain, 650 F.

Supp. 1040, 1041-42 (N.D. Ill. 1988). The amicus curiae

brief of the United States in this case proposes a similar test

that looks to the “core function” of the foreign governmental

body at issue. See Br. of United States at 12-13, 16.

We think that the categorical approach adopted in Segni

and urged, in a somewhat different form, by the United

States—whether the core functions of the foreign entity are

predominantly governmental or commercial—best captures

the statutory meaning. Congress spoke against a rich back-

ground of federal and international law that colors the statu-

tory terms and fills them out. The Supreme Court has held

that the Act largely codifies the “restrictive” theory of sover-

eign immunity, under which “immunity is confined to suits

involving the foreign sovereign’s public acts, and does not

extend to cases arising out of a foreign state’s strictly com-

mercial acts.” Verlinden B.V. v. Central Bank of Nigeria,

461 U.S. 480, 487 (1983). See also Republic of Argentina v.

Weltover, Inc., 112 S. Ct. 2160, 2165 (1992). Thus the Act

repealed foreign immunity for “commercial activities,”

§ 1605(a)(2), but preserved it for inherently sovereign or

public acts. See Saudi Arabia v. Nelson, 113 S. Ct. 1471,

1479 (1993); Weltover, 112 S. Ct. at 2166. The distinction

between foreign states and their instrumentalities establishes

two categories of actors that correspond to the restrictive

theory’s two categories of acts.

Besides section 1608, the distinction appears in the venue

provisions of 28 U.S.C. § 1391 (1988). Section 1391(f) makes

the federal district court for the District of Columbia the

venue for civil actions against foreign states and their subdivi-

sions; but. it allows venue in suits against an agency or

instrumentality of a foreign state “in any judicial district in

which the agency or instrumentality is licensed to do business

or is doing business,” § 1391(f)(3), a provision of doubtful

coherence if extended beyond the category of commercial

enterprises. Moreover the phrase “agency or instrumentali-

ty,” or some close variant, is commonplace in the enabling

charters of government corporations, both in the United

States and abroad. The statute that created the Panama

Railroad Company labelled it an “agency and instrumentality

of the United States.” See Panama Railroad Company Act,

ch. 706, 62 Stat. 1076 (1948), at § 245. See also United States

ex rel. Skinner & Eddy Corp. v. McCarl, 275 US. 1, 5, 6, 8

(1927) (referring to the United States Shipping Board Emer-

gency Fleet Corporation as “an instrumentality of the Gov-

ernment,” an “incorporated agenc[y],” and a “[glovernment-

owned private corporation{ }”).

The courts that have construed “agency or instrumentality”

to reference the defendant’s powers under foreign law have

relied principally on the House Report on the Act, which said:

[The] criterion, that the entity be a separate legal person,

is intended to include a corporation, association, founda-

tion, or any other entity which, under the law of the

foreign state where it was created, can sue or be sued in

its own name, contract in its own name or hold property

in its own name.... As a general matter, entities which

meet the definition of an “agency or instrumentality of a

foreign state” could assume a variety of forms, including

a state trading corporation, a mining enterprise, a trans-

port organization such as a shipping line or airline, a

steel company, a central bank, an export association, a

governmental procurement agency or a department or

ministry which acts and is suable in its own name.

H.R. Rep. No. 1487, 94th Cong., 2d Sess. 15-16 (1976),

reprinted in 1976 U.S.C.C.A.N. 6604, 6614.

Without debating the legitimacy of reliance upon legislative

history in other circumstances, we note that this Report is at

odds with itself. All the specific examples recited fall into the

category of public commercial enterprises; but the Report

also states a general test that might bar those very examples

and might also sweep well beyond them. The United States

points out that any nation may well find it convenient (as does

ours) to give powers of contract and litigation to entities that

on any reasonable view must count as part of the state itself.

See Br. of United States, at 7-8 (noting that under the House

Report test the Departments of State and of Defense would

count as “instrumentalities” of the United States). We adopt

today an analysis designed to winnow the applications Con-

gress desired from the ones it meant to exclude.

A final reason to favor the categorical approach is ease of

administration in the district courts. Service of process

should be the prologue to the suit rather than the central

drama. When the adequacy of service is made to turn on a

complex inquiry carried out long after the litigation has

begun, and in which the court must apply foreign law to

foreign facts, the service provisions may derail cases rather

than ensuring their prompt and orderly commencement. The

case before us paints the dangers of section 1608 in somber

tones. Today we must face the possibility that an attempt at

service made six years ago was defective—a result we seek to

forestall in future cases by tying service to the obvious

functions, rather than the uncertain powers, of the foreign

defendant. The district courts have perforce acquired exper-

tise in delineating the categories of “governmental” and “com-

mercial” under the immunity provisions of the Act, and if

section 1608 is construed to turn on a similar distinction that

expertise will benefit all concerned.

The question, then, is whether the core functions of the

armed forces of a foreign sovereign are governmental or

commercial. We hold that armed forces are as a rule so

closely bound up with the structure of the state that they

must in all cases be considered as the “foreign state” itself,

rather than a separate “agency or instrumentality” of the

state. The “powers to declare and wage war” are among the

“necessary concomitants” of sovereignty. United States v.

Curtiss-Wright Export Corp., 299 U.S. 304, 318 (1936). Since

the passage of the Foreign Sovereign Immunities Act, the

two federal cases to squarely consider the question have held

that a foreign military force is a “foreign state” rather than

an “agency or instrumentality of a foreign state.” See Mar-

lowe v. Argentine Naval Comm'n, 604 F. Supp. 703, 707

(D.D.C. 1985); Unidyne, 590 F. Supp. at 400. Apart from

authority it is hard to see what would count as the “foreign

state” if its armed forces do not. Any government of reason-

able complexity must act through men organized into offices

and departments. If a separate name and some power to

conduct its own affairs suffices to make a foreign department

an “agency” rather than a part of the state itself, the struc-

ture of section 1608 will list too far to one side. We hold that

the armed forces of a foreign sovereign are the “foreign

state” and must be served under section 1608(a).

III.

As relevant here, section 1608(a) requires that service on

foreign states be made

(3) ... by sending a copy of the summons and complaint

and a notice of suit, together with a translation of each

into the official language of the foreign state, by any

form of mail requiring a signed receipt, to be addressed

and dispatched by the clerk of the court to the head of

the ministry of foreign affairs of the foreign state con-

cerned, or

(4) ... by sending two copies of the summons and

complaint and a notice of suit, together with a translation

of each into the official language of the foreign state, by

any form of mail requiring a signed receipt, to be ad-

3In Behring International, Inc. v. Imperial Iranian Air Force,

475 F. Supp. 383, 389 (D.N.J. 1979), affd in part, 699 F.2d 657 (3d

Cir. 1983), the court allowed service on the Iranian Air Force under

§ 1608(b), but gave no reasons as the defendant did not contest the

service. See Unidyne, 590 F. Supp. at 400 n.1.

dressed and dispatched by the clerk of the court to the

Secretary of State in Washington....

28 U.S.C. §§ 1608(a)(3)-(a)(4).

Both district courts to hear the case found that Transaero

effected service under section 1608(b). The record reveals

that Transaero never attempted the methods of service pre-

scribed in sections 1608(a)(3) and (a)(4), electing instead to

serve the Bolivian Ambassador and Consul General in Wash-

ington, and the Bolivian First Minister and the Bolivian Air

Force in La Paz—but never the Ministry of Foreign Affairs

or the Secretary of State.‘ Before this court, Transaero does

not claim that it strictly complied with section 1608(a), but

rather asks that we pronounce the attempted service suffi-

cient because the Bolivian government received actual notice

of the suit.

The authorities generally hold that section 1608(b) may be

satisfied by technically faulty service that gives adequate

notice to the foreign state. See Sherer v. Construcciones

Aeronauticas, S.A., 987 F.2d 1246, 1250 (6th Cir.), cert.

denied, 114 S. Ct. 72 (1993); Velidor v. L/P/G Benghazi, 653

F.2d 812, 821-22 (3d Cir. 1981), cert. dismissed, 455 U.S. 929

(1982); Harris Corp. v. National Iranian Radio and Televi-

sion, 691 F.2d 1344, 1352 (11th Cir. 1982). In cases under

section 1608(a), however, the decisions have rarely excused

defective service. See Gerritsen v. Consulado General de

Mexico, 989 F.2d 340, 345 (9th Cir. 1993), cert. denied, 114

S. Ct. 95 (1994) (service inadequate for failure to include

translation of complaint); Alberti v. Empresa Nicaraguense

De La Carne, 705 F.2d 250, 253 (7th Cir. 1983) (holding that

service on Ambassador did not satisfy § 1608(a) requirement

of service on “head of the ministry of foreign affairs”). But

see Marlowe, 604 F. Supp. at 708 (using “substantial compli-

ance” test under 1608(a)).

4 Transaero’s brief states that the Ministry of Foreign Affairs was

“provided with copies of the default judgment and underlying

documents” in the fall of 1991. See Appellee’s Br. at 6. The

record, even the pages to which Transaero refers, shows no such

thing.

Leniency in this case would disorder the statutory scheme.

The Committee Report states that section 1608(a) “sets forth

the exclusive procedures for service on a foreign state,” but

contains no such admonition for section 1608(b). See H.R.

Rep. No. 1487 at 24, reprinted in 1976 U.S.C.C.A.N. at 6623.

Section 1608(b)(3) allows simple delivery “if reasonably calcu-

lated to give actual notice,” showing that Congress was there

concerned with substance rather than form; but the analo-

gous subsection of section 1608(a) says nothing about actual

notice. The distinction is neatly tailored to the differences

between “foreign states” and “agencies or instrumentalities.”

The latter, typically international commercial enterprises,

often possess a sophisticated knowledge of the United States

legal system that other organs of foreign governments may

lack. Cf, Practical Concepts, Inc. v. Republic of Bolivia, 811

F.2d 1543, 1546 (D.C. Cir. 1987) (in suit against foreign state,

the rule that objections to personal jurisdiction are waived by

an appearance should be sparingly applied because of foreign

unfamiliarity with legal process). Thus section 1608(a) man-

dates service of the Ministry of Foreign Affairs, the depart-

ment most likely to understand American procedure. We

hold that strict adherence to the terms of 1608(a) is required.

As Transaero failed to do so, the Bolivian Air Force was not

properly served.

IV.

The Eastern District of New York lacked personal jurisdic-

tion, and the default judgment registered in the District of

Columbia was therefore void and unenforceable. We reverse

and remand with directions to dismiss the proceedings.

It is so ordered.

Mixva, Chief Judge, dissenting: The majority’s standard

for differentiating between those entities that are “foreign

states” and those that are “agencies or instrumentalities” of

foreign states under the Foreign Sovereign Immunities Act

(“FSIA”), 28 U.S.C. §§ 1330, 1602-11, is attractive on admin-

istrability grounds. But I fear that in formulating their

interpretation my colleagues have placed efficiency con-

cerns—and perhaps their international policy preferences—

above the apparent meaning of the statute. Because this

case requires us to interpret Congress’s enactment, and not

to devise common-law rules, I think the majority’s approach

is insufficiently deferential to the legislature. I therefore—

reluctantly—dissent.

Before discussing the FSIA itself, it bears mentioning that

another court—the United States District Court for the

Southern District of New York (Mishler, J.)—has already

decided the issue at hand. On April 28, 1989, Judge Mishler

rendered a default judgment in this case against the Bolivian

Air Force, La Fuerza Aerea Boliviana (“La Fuerza”). That

judgment subsequently survived an appeal grounded upon

plaintiffs alleged fraudulent misrepresentations to the court.

Transaero, Inc. v. La Fuerza Aerea Boliviana, No. 93-7903,

1994 Westlaw 197941 (2d Cir. May 19, 1994). As a necessary

element of the original default judgment, Judge Mishler

found that La Fuerza, “an instrumentality of the Republic of

Bolivia,” received proper service of process under FSIA

§ 1608(b), which applies only to “an agency or instrumentality

of a foreign state.” 28 U.S.C. § 1608(b). Although it did not

decide the issue, the Second Circuit acknowledged Judge

Mishler’s finding on appeal. 1994 Westlaw 197941 at n.1.

Although I agree with my colleagues that Judge Mishler’s

ruling that service was proper does not preclude us from

finding to the contrary, see maj. op. at 4 n.1, such a finding

would clash with the prevailing Second Circuit law on the

facts of this case. Admittedly, the absence of analysis in

Judge Mishler’s and the Second Circuit’s opinions limits their

precedential effect on this issue. Nonetheless, a reversal

here creates a disagreement in the result. We tell the parties

that the statute compels one result; federal courts in another

jurisdiction tell the same parties that the same statute com-

pels the opposite result. Between us, we have thoroughly

muddled the law. This is the functional equivalent of a circuit

split between our Circuit and the Second; such tension should

be avoided if possible.

This tension would cause me far less concern were I

convinced by the majority’s interpretation of the FSIA. I am

not. Despite the majority’s able argument, the FSIA and its

legislative history suggest no conclusive presumption that a

military entity is “a foreign state” and not “an agency or

instrumentality” thereof. Instead, the statute lists three

factors that define “agency or instrumentality.” 28 U.S.C.

§ 1603(b). The only disputed factor in this case is that the

entity must be “a separate legal person.” Jd. § 1603(b)(1).

The House Report amplifies the meaning of this phrase: an

agency or instrumentality may be “a department or ministry

which acts and is suable in its own name.” H.R. Rep. No.

94-1487, 94th Cong., 2d Sess. 15-16 (1976); see maj. op. at 7,

for a lengthier quote. This suggests to me that any presump-

tion—let alone the conclusive presumption the majority

adopts—is disfavored. Instead, every foreign entity starts

out on the same footing, and a court must decide whether the

particular entity is a separate legal person—that is, whether

it “acts and is suable in its own name.” I suspect the

majority is right that most foreign military entities are not

legally separate from their sovereign states, but I think it is

contrary to the statute to cast this suspicion in terms of a

rule.

Nothing in the language of the statute or in the remainder

of its legislative history casts doubt upon the House Report’s

definition of “separate legal person.” But the majority

sweeps aside this definition with its speculation that an

agency or instrumentality must be a commercial, as opposed

to a public, enterprise. Maj. op. at 6. This distinction is

nowhere to be found in the statute or legislative history.

Indeed, the distinction seems inapt, because the FSIA explic-

itly creates an exception to the general sovereign immunity of

foreign states and their agencies and instrumentalities for

“commercial activity,” 28 U.S.C. § 1605(a)(2), but the statute

in no way indicates that a similar test determines “agency”

status. The FSIA waives immunity depending on the nature

of the activity on which the lawsuit is based, not the nature of

the government entity against which the suit is brought. In

contrast, for secondary matters (service of process, venue,

attachment of property, and punitive damages) the FSIA

does distinguish based on the identity of the defendant—it

distinguishes between a foreign state and its agencies and

instrumentalities. See 28 U.S.C. §§ 1391, 1606, 1608, 1610.

These are separate distinctions, with different consequences.

Yet the majority assumes that the “two categories of actors

. correspond to the ... two categories of acts.” Maj. op.

at 6. Absent some concrete evidence of statutory intent, I

think this is a dangerous assumption.

As its statutory evidence, the majority points to one of the

venue provisions of 28 U.S.C. § 1391(f), permitting suits

against an agency or instrumentality “in any judicial district

in which the agency or instrumentality is licensed to do

business or is doing business,” 28 U.S.C. § 1391(f)(3), but

permitting suits against a foreign state in the United States

District Court for the District of Columbia. 28 U.S.C.

§ 1391(f)(4). What the majority neglects to mention is that

§ 1391(f)(3) is not exclusive. If the agency or instrumentality

is not “doing business,” it may be sued “in any judicial district

in which a substantial part of the events or omissions giving

rise to the claim occurred, or a substantial part of property

that is the subject of the action is situated.” 28 U.S.C.

§ 1391(f)(1). The venue provision simply recognizes that

many agencies and instrumentalities are commercial enter-

prises that may conveniently defend suits where they do

business. It in no way establishes that an “agency or instru-

mentality” must always be a commercial enterprise.

The same response applies to the majority’s assertion that

the House Report “is at odds with itself,” maj. op. at 7,

because its examples of agencies and instrumentalities tend to

be commercial enterprises, while at the same time it seems to

adopt a broader general definition of “agency or instrumen-

tality.” Again, that many, even most, agencies and instru-

mentalities may be primarily commercial in nature does not

prove that all must be. If Congress meant for commerciality

to be a defining characteristic, it could have said so. Instead,

Congress said “separate legal person.” 28 U.S.C.

§ 1603(b)(1). In sum, I see no good reason to focus on a

distinction between commercial and non-commercial activities

as the touchstone of juridical separateness.

Then what does it mean to be legally separate? The House

Report gives us a sketchy definition: an entity that “acts and

is suable in its own name.” In keeping with several district

court precedents, the court below looked at contracts execut-

ed by La Fuerza, apparently in its own name, and at previous

lawsuits in which La Fuerza was mentioned by name (admit-

tedly, an ambiguous indicator), to find that La Fuerza is a

separate legal person. Cf. Bowers v. Transportes Navieros

Ecuadorianos, 719 F. Supp. 166, 170 (S.D.N.Y. 1989); Uni-

dyne Corp. v. Aerolineas Argentinas, 590 F. Supp. 398, 400

(E.D. Va. 1984). Although I would prefer more extensive

factfinding with regard to La Fuerza’s activities—e.g., prop-

erty ownership, previous contracting history—I think the

district court was on the right track.

I think the language, policy, and legislative history of the

FSIA suggest that commercial activity is not the ultimate

touchstone for FSIA analysis. It makes more sense to

engage in a wider factual inquiry into the actions of the entity

to determine whether it is a separate legal person. Because |

think the district court was basically correct, and because I

would prefer to avoid incongruity with the law of this case in

the Second Circuit, I respectfully dissent from the majority

opinion.

APPENDIX B

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

TRANSAERO, INC.,

Plaintiff CV 88-2788

-against- Memorandum of

Decision and

LA FUERZA AEREA BOLIVIANA, Order

an Instrumentality of

THE REPUBLIC OF BOLIVIA,

a Foreign State,

Defendants. April 21, 1989

APPEARANCES:

RICH, LILLIENSTEIN, KRINSLY,

DORMAN & HOCHAUSER, P.C.

Attorneys for Plaintiff

99 Park Avenue

New York, New York 10016

Randall S.D. Jacobs, Esq., Of Counsel

LA FUERZA AEREA BOLIVIANA

734 Avenue Montes

La Paz, Bolivia

MISHLER, District Judge

Plaintiff, Transaero Inc. ("Transaero") moves pursuant to Fed.

R. Civ. P. 55(b)(1) and 28 U.S.C. § 1608(e) for the entry of a default

judgment against defendant La Fuerza Aerea Boliviana ("Fuerza"), an

instrumentality of the Republic of Bolivia. The summons and

complaint were properly served in accordance with 28 U.S.C.

§ 2608(b)(3) (B) on or about September, 1988, and default was noted

by the Clerk of the Court on February 1, 1989. A hearing with respect

to plaintiff's motion was scheduled for March 30, 1989 at which time

defendant, despite adequate notice, failed to appear.

The complaint states a cause of action based on breach of

contract for the failure to pay amounts due and owing for the purchase

and delivery of aviation equipment. Such purchases fall within the

"commercial activities" exceptions to the Foreign Sovereign Immunities

Act, 28 U.S.C. § 1605(a)(2) ("FSIA"). See Letelier v. Republic of

Chile, 748 F.2d 790, 797 (2d Cir. 1984) (commercial activity "is of the

type an individual would customarily carry on for profit"); Arango v.

Guzman Travel Advisors Corp., 621 F.2d 1371, 1379 (Sth Cir. 1980)

(activity is commercial if "the particular conduct giving rise to the claim

in question actually constitutes or is in connection with commercial

activity, regardless of the defendant's generally commercial or

governmental character"). The purchase of aviation equipment

constitutes such commercial activity, therefore, the FSIA does not bar

entry of default judgment.

Plaintiff seeks the amount of $983,696.60, representing the

unpaid balance of the account plus contractual interest to the date of the

complaint. Plaintiff's motion is unopposed, and the claim is supported

by the proof submitted.

SO ORDERED.

The Clerk of the Court is directed to enter judgment for the

plaintiff and against the defendant in the amount of $983,696.60.

/S/

U.S. D. J.

§ 2608(b)(3) (B) on or about September, 1988, and default was noted

by the Clerk of the Court on February 1, 1989. A hearing with respect

to plaintiff's motion was scheduled for March 30, 1989 at which time

defendant, despite adequate notice, failed to appear.

The complaint states a cause of action based on breach of

contract for the failure to pay amounts due and owing for the purchase

and delivery of aviation equipment. Such purchases fall within the

"commercial activities" exceptions to the Foreign Sovereign Immunities

Act, 28 U.S.C. § 1605(a)(2) ("FSIA"). See Letelier v. Republic of

Chile, 748 F.2d 790, 797 (2d Cir. 1984) (commercial activity "is of the

type an individual would customarily carry on for profit"); Arango v.

Guzman Travel Advisors Corp., 621 F.2d 1371, 1379 (5th Cir. 1980)

(activity is commercial if "the particular conduct giving rise to the claim

in question actually constitutes or is in connection with commercial

activity, regardless of the defendant's generally commercial or

governmental character"). The purchase of aviation equipment

constitutes such commercial activity, therefore, the FSIA does not bar

entry of default judgment.

Plaintiff seeks the amount of $983,696.60, representing the

unpaid balance of the accéunt plus contractual interest to the date of the

complaint. Plaintiff's motion is unopposed, and the claim is supported

by the proof submitted.

SO ORDERED.

The Clerk of the Court is directed to enter judgment for the

plaintiff and against the defendant in the amount of $983,696.60.

/S/

U.S. D. J.

APPENDIX C

S BESTAVAILABLE COPY |

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

TRANSAERO, INC.,

Plaintiff

DEFAULT

-against- JUDGMENT

CV 88 2788 (JM)

LA FUERZA AEREA BOLIVIANA,

an Instrumentality of

THE REPUBLIC OF BOLIVIA,

a Foreign State,

Defendants

A memorandum of decision and order of Hon. Jacob

Mishler, United States District Judge, having been filed on April

24, 1989, granting plaintiffs motion for the entry of a default

judgment against the defendant, and directing the Clerk of the

Court to enter judgment in favor of the plaintiff and against the

defendant in the amount of $983,696.60, it is

ORDERED and ADJUDGED that the plaintiff

Transaero, Inc. shall recover of the defendant La Fuerza Aerea

Boliviana, an Instrumentality of The Republic of Bolivia, a

Foreign State, the sum of ©983,696.60.

Dated: Uniondale, ROBERT C. HEINEMANN

New York Clerk of the Court

April 28, 1989

By:

JOSEPH DI TALIA

Deputy Clerk-in-Charge

2 eee

APPENDIX D

~ BEST AVAILABLE COPY .”

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

TRANSAERO, INC.,

Plaintiff, Misc. Action

No. 91-0139

V. (GHR)

LA FUERZA AEREA BOLIVIANA,

an instrumentality of THE

REPUBLIC OF BOLIVIA.

Defendant.

ORDER

Before the Court, as a motions matter, is the summary

judgment motion of defendant La Fuerza Area Boliviana ("La

Fuerza") to quash interrogatories and dismiss proceedings.

Defendant is the air force of the Republic of Bolivia. It is also

the judgment debtor on a default judgment entered on April 28,

1989, in an action entitled Transaero, Inc. v. La Fuerza Aerea

Boliviana, an Instrumentality of the Republic of Bolivia, a

Foreign State, No. CV 88-2788, filed in the United States

District Court for the Eastern District of New York, and

subsequently registered in this district court under 28 U.S.C.

§ 1963. Through the motion now before the Court, La Fuerza

seeks to collaterally attack the default judgment upon which the

interrogatories are based, on the grounds that the district court

in New York lacked personal jurisdiction under the Foreign

Sovereign Immunities Act, 28 U.S.C. §§ 1602-1611 ("FSIA")

to enter a default judgment in the first place. The motion has

been fully briefed. The dispute presents a mixed issue of law

and fact which may be resolved on the record before the Court

without resort to further proceedings.

The dispositive issue is whether service was proper

under the terms of Section 1608 of the FSIA, which governs

service of process on foreign states. See 28 U.S.C. §§ 1608(a),

(b). This issue in turn depends on whether, under this

provision, La Fuerza is "a foreign state or political subdivision

of a foreign state" to be served in accordance with the

requirements of Section 1608(a), or "an agency or

instrumentality of a foreign state" to be served in accordance

with the somewhat less strict requirements of Section 1608(b).

La Fuerza contends that it is an integral part of the Bolivian

state and thus can be served only under Section 1608(a).

_ Plaintiff Transaero, Inc. ("Transaero") served La Fuerza

under Section 1608(b) on the theory that the Bolivian Air Force

is an instrumentality of the Bolivian state.’ There is no dispute

that La Fuerza received actual notice of Transaero's lawsuit in

accordance with the terms of that provision. Nevertheless, La

Fuerza did not appear in the action. A default was noted and

Transaero moved for a default judgment. Transaero's motion

was heard before the Hon. Jacob Mishler in the United States

District Court for the Eastern District of New York on March

30, 1989. Although it was notified by mail, see Def.'s Exh. F;

Pl.'s Exh. D, La Fuerza did not appear at this hearing either. By

' Transaero is a New York corporation which brought the

action in the Eastern District of New York to recover an

unpaid balance and accrued interest of $983,696.60 allegedly

owed it from the sale of aviation equipment to La Fuerza.

Jurisdiction was based on 28 U.S.C. § 1330.

Memorandum of Decision and Order dated April 21, 1989,

Judge Mishler found that 1) the summons and complaint were

properly served in accordance with Section 1608(b) of the

FSIA, 2) the complaint stated a cause of action for breach of

contract, 3) the suit concerned purchases undertaken by La

Fuerza within the "commercial activities” exception to sovereign

immunity under the Section 1605(a)(2) of the FSIA, 4) default

judgment was not barred by the FSIA, and 5) Transaero's proof

of claim supported judgment against La Fuerza in the amount

of $983,696.60. See Def.'s Exh. D. Judge Mishler accordingly

granted Transaero's motion and entered default judgment in that

amount.

In ruling that La Fuerza had been properly served under

the FSIA, Judge Mishler referred to defendant as "an

instrumentality of the Republic of Bolivia." Id. Although this

Court is not bound to defer to that conclusion, and may thus

entertain La Fuerza's collateral attack on personal jurisdiction,

see Practical Concepts, Inc. v. Republic of Bolivia, 811 F.2d

1543, 1547 (D.C. Cir. 1987); 18 Charles Alan Wright, et al.,

Federal Practice & Procedure, 4430 at 292-94 (1981 & Supp.

1992), the Court does not believe that Judge Mishler's finding --

that La Fuerza had been properly served -- was mistaken.

While the FSIA provides a three-part definition of

"agency or instrumentality of a foreign state," see

28 U.S.C. § 1603(b), the crux of that definition for the purposes

of this case is whether the entity in question "is a separate legal

person, corporate or otherwise." 28 U.S.C. § 1603(b)(1).? A

> Again, it is undisputed that La Fuerza is "an organ of a

foreign state or political subdivision thereof," 28

U.S.C. § 1603(b)(2), and that it is "neither a citizen of a State

of the United States... . nor created under the laws of any

third country." 28 U.S.C. § 1603(b)(3).

review of the caselaw shows that, in interpreting this language,

courts look to whether the entity can sue or be sued in its own

name, whether the entity can enter into contracts in its own

name, or whether the entity is capable of holding property in its

own name under the law of the foreign state where it was

created, as indicia of separateness under Subsection 1603(b)(1).

See Marlowe v. Argentine Naval Comm'n, 604 F. Supp. 703,

706-7 (D.D.C. 1985); Unidyne Corp. v. Aerolineas Argentinas,

590 F. Supp. 398, 400 (E.D. Va. 1984). This analysis finds

support in the legislative history of Section 1603, which

provides the following additional guidance:

As a general matter, entities which meet the

definition of an "agency or instrumentality of a

foreign state" could assume a variety of forms,

including a state trading corporation, a mining

enterprise, a transport organization such as a

shipping line or airline, a steel company, a

central bank, an export association, a

governmental procurement agency or a

department or ministry which acts and is suable

in its Own name.

H.R. Rep. No. 94-1487, at 15-16 (emphasis added).

With these considerations in mind, it is apparent to this

Court that La Fuerza is an "agency or instrumentality" of the

Bolivian state for the purposes of applying Section 1608 of the

FSIA. La Fuerza clearly has capacity to sue and be sued in its

Own name, as cases in other jurisdictions demonstrate. See,

e.g., Shapiro v. Republic of Bolivia, 930 F.2d 1013 (2nd Cir.

1991). (The Bolivian Air Force named as a defendant in

addition to the Republic of Bolivia); Office of the Comptroller

General v. International Promotions and Ventures, Ltd., 618 F.

Supp. 202, 203 n. 1 (S.D.N.Y. 1985) (Suit brought on behalf

of the Bolivian Air Force). And La Fuerza clearly has capacity

to enter into contracts in its own name, as the contract in this

case and contracts in other cases demonstrate. See Decl. of

General Dardo Gomez Garcia | 8, Def.'s Exh A; Def.'s Exh. D

(Letter of April 14, 1987, to Anthony Caputo); Office of the

Comptroller General, 618 F. Supp. at 203.

If La Fuerza is an instrumentality of the Bolivian state,

it follows, under the undisputed facts of this case, that Judge

Mishler was correct in determining that service was proper

under 28 U.S.C. § 1608(b). And if service was proper under

the FSIA, it likewise follows that Judge Mishler's court had

personal jurisdiction over La Fuerza. That being the case, it is

unnecessary to address the substantial compliance issue raised

by Transaero. Defendant having asserted no other grounds for

challenging personal jurisdiction, it is accordingly.

ORDERED, that defendant's Motion for Summary

Judgment to Quash Interrogatories and to Dismiss Proceedings

is DENIED.

9/25/92

DATE GEORGE H. REVERCOMB

UNITED STATES DISTRICT JUDGE

APPENDIX E

’ BEST AVAILABLE COPY ©

a ne

E-1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

TRANSAERO, INC.,

Plaintiff 88-CV-2788

-against- Memorandum of

Decision and

LA FUERZA AEREA BOLIVIANA, Order

an Instrumentality of

THE REPUBLIC OF BOLIVIA,

a Foreign State,

Defendant August 12, 1993

APPEARANCES:

ROBERT D. COSTELLO, Esa.

450 Park Avenue

New York, New York 10019

Attorney for Plaintiff

GROVE, JASKIEWICZ & COBERT

1730 M Street, N.W., Suite 400

Washington, D.C. 20036

Attorneys for Plaintiff

Ronald N. Cobert, Esq., of counsel

Joseph Michael Roberts, Esq., of counsel

Andrew M. Danas, Esq., of counsel

WILLIAMS & CONNOLLY

725 12th Street, N.W.

Washington, D.C. 20005

Attorneys for Defendant

Gregory B. Craig, Esq., of counsel

James W. Shannon, Esq., of counsel

Timothy S. Driscoll, Esq., of counsel

MISHLER, District Judge

Defendant, La Fuerza Aerea Boliviana ("Air Force"),

moves pursuant to Fed. R. Civ. P. 60(b) to set aside the

default judgment entered in the above captioned case on

April 28, 1989, pursuant to this Court’s Memorandum of

Decision and Order dated April 24, 1989. Defendant also

moves pursuant to Fed. R. Civ. P. 62(b) for a stay of

execution of the default judgment pending this Court’s

consideration of Defendant’s motion to set aside judgment.

Finally, Defendant moves to dismiss Plaintiff Transaero,

Inc.’s (""Transaero") complaint with prejudice and to award

Air Force attorney’s fees and costs incurred in defending the

default judgment and making this motion. Plaintiff cross

moves for Rule 11 sanctions against Defendant for bringing

the instant motion.

For the reasons set forth below, Defendant’s motions

are denied in their entirety and Plaintiff's motion for-Rule -

11 sanctions is also denied.

BACKGROUND

This case arises out of an alleged breach of a credit

agreement entered into between Transaero, a supplier of

aircraft parts, and the Air Force in May 1981. The credit

agreement created an open account upon which Air Force

could make purchases from Transaero. The agreement

required the Air Force to pay interest of 1 3/4% per month

(21% per annum) on all purchases not paid within 120 days

of shipment. From June 22, 1981 until April 14, 1982, the

Air Force ordered and accepted delivery of certain aviation

equipment and thereby accumulated a principal balance of

$598,115.76. The Air Force made no payments until

October 30, 1984 when it made a payment to Transaero of

$381,688.29. The Air Force claims that this payment was

credited against the principal balance of $598,115.76,

exclusive of any accumulated interested owed, leaving a

principal amount due of $216,427.47.

On or about January 6, 1986, after several weeks of

negotiations between the parties, the Air Force made a

second payment to Transaero of $266,427.47. The Air

Force claims that under the terms of an agreement between

the parties, this payment represented a final payment and a

full settlement of its account with Transaero: $216,427.47 in

owed principal and $50,000 in nominal interest. Transaero

rejects this characterization, claiming that the payment

represented only a partial settlement and that the Air Force

still owed several hundred thousand dollars in unpaid

interest and/or principal. Accordingly, Transaero continued

to charge Air Force interest on this unpaid debt through the

time this case was filed in 1988. The Air Force made no-

further payments to Transaero.

On or about September 8, 1988, Transaero, by its

attorney Jacobs, filed a verified compliant seeking

$983,696.60 in damages from the Air Force based upon the

following theories: (1)"goods sold and delivered and

accrued interest on the unpaid balance," (2) “account

stated," (3) “beach of the Finance Agreement," (4) "interest

accruing on the unpaid balance of $598,115.76 for 86

months." (Complaint # 12-17.) In connection with the filing

of the complaint, Jacobs submitted: two certifications, the

first dated September 8, 1988, and the second dated

October 5, 1988, and an affidavit dated January 25, 1989

("Jacobs Affidavit").

Air Force failed to serve and file an answer or enter

an appearance. Subsequently, Transaero moved for a

default judgment. On March 30, 1989 we held a hearing on

Transaero’s motion. In a Memorandum of Decision and

Order dated April 21, 1989, we granted Transaero’s motion

for a default judgment and directed the Clerk of the Court

to enter a default judgment for Transaero against Air Force

in the amount of $983,696.60. In our Memorandum of

Decision and Order we found the following: (1) the

summons and complaint were properly served upon Air

Force in accordance with 28 U.S.C. § 2608(b)(3)(B); (2) Air-

Force had adequate notice of the hearing scheduled for

March 30, 1989, but failed to enter an appearance; (3) the

complaint stated a cause of action based on breach of

contract for Air Force’s failure to pay amounts due and

owing for the purchase and delivery of aviation equipment;

(4) Air Force was not entitled to Sovereign Immunity under

the Foreign Sovereign Immunities Act because its purchases

of the aviation equipment constituted "commercial

activities" within the "commercial activities" exception of

28 U.S.C. § 1605(a)(2) of the FSIA; (5) Transaero’s claim

was supported by the proof submitted. A default judgment

was entered by the Clerk of the Court on April 28, 1989.

The Air Force now moves, more than 4 years later,

to have the $983,696.60 judgment set aside on the grounds

that the judgment was obtained by a fraud on the court. Air

Force states:

[T]he Court based its opinion on a sworn

affidavit executed by plaintiff's counsel that,

E-5

in its numerous misrepresentations of fact

and law, constituted a fraud upon the court.

[And] Plaintiffs counsel, on two separate

occasions, certified falsely to facts necessary

to establish this Court’s subject matter

jurisdiction.

(Def. Mem. Law at 1.)

DISCUSSION

l. Rule 60(b)

Rule 60(b) reads in pertinent part as follows:

On motion and upon such terms as are just,

the court may relieve a party... from a final

judgment, order or proceeding for the

following reasons: (1) mistake, inadvertence,

surprise or excusable neglect; (2) newly

discovered evidence which by due diligence

could not have been discovered in time to

move for a new trial under Rule 59(b);

(3) fraud . . . misrepresentation, or other

misconduct of an adverse party; (4) the

judgment is void; (5) the judgment has been

satisfied, released, or discharged .. . or

(6) any other reason justifying relief form the

operation of the judgment.

Fed. R. Civ. P. 60(b).

In considering a Rule 60(b) motion, we must balance

the policy in favor of hearing a litigant’s claims on the merits

against the policy in favor of finality. Kotlicky v. United

States Fidelity & Guaranty Co,, 817 F.2d 6, 9 (2d Cir. 1987)

(citing 11 C. Wright & A. Miller, Federal Practice and

Procedure § 2857 (1973)). All Rule 60(b) motions must be

made within a reasonable time and motions under Rule

60(b)(1), (2), and (3) must be made within one year after

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the judgment. Id. Under the saving clause of subsection (6),

relief from a final judgment may also be obtained at any

time by way of an independent action to set aside a

judgment for "fraud on the court." See Hazel-Atlas Glass

Co. v. Hartford-Empire Co., 322 U.S. 238, 246 (1944);

Serzysko v. Chase Manhattan Bank, 461 F.2d 699, 702 (2d

Cir.), cert. denied, 409 U.S. 883 (1972) (Rule 60(b) imposes

"no time limit" for claim of fraud on the court.).

"Although both clause (3) and the saving provision of

Rule 60(b) provide for relief from a judgment on the basis

of fraud, the type of fraud necessary to sustain an

independent action attacking the finality of judgment is

narrower in scope than that which is sufficient for relief by

timely motion." Gleason v. Jandrucko, 860 F.2d 556, 558 (2d

Cir. 1988)(citations omitted). "Fraud on the court’ is

limited to fraud which seriously affects the integrity of the

normal process of adjudication." Gleason, 860 F.2d at 559

(citing Kupferman v. Consolidated Research & Mfg. Corp..,

459 1072, 1078 (2d Cir. 1972)). Fraud on the court involves

conduct which "threatens the very integrity of the judiciary

and the proper administration of justice." Id, (citing Hazel-

Atlas, 322 U.S. at 246, 64 S.Ct. at 1001). The cases where it

has been found have involved the most egregious conduct

involving “corruption of the judicial process itself." 11 C.

Wright and A. Miller, Federal Practice and Procedure

§ 2870 (1973). "Generally, courts require that the evidence

in support of the motion to vacate a final judgment be

‘highly convincing,’ that a party show good cause for the

failure to act sooner and that no undue hardship be imposed

on other parties." Kotlicky, 817 F.2d at 9 (citing United

Stated v. Cirami, 563 F.2d 26, 32 (2d Cir. 1972).

2. endant’ ti d

The Air Force claims that Transaero’s attorney,

Jacobs, committed a fraud on the court by submitting an

affidavit and certifications containing numerous false

statements and misrepresentations. Further, Air Force

alleges that the court relied on these false statements in

granting Transaero’s motion for entry of default judgment.

Air Force makes the following allegations: (1) the

Jacobs Affidavit falsely represented that Transaero’s claim

was for "goods sold and delivered, account stated, and

breach of finance agreement," when in fact Transaero’s

claim was for contract interest only; (2) the Jacobs Affidavit,

in calculating the interest allegedly owed, violated the terms

of the Finance Agreement and New York law by charging

compound interest; (3) Jacobs failed to inform the Court

that the applicable statute of limitations had expired and

that, therefore, Transaero’s claim was time barred;

(4) Jacobs failed to disclose that Transaero’s acceptance of

the second payment of $266,427.47 represented a final

settlement of any and all obligations of Air Force to

Transaero.

a. Nature and Amount of Claim

Air Force contends that its January 1986 payment of

$266,427.47 extinguished its principal debt to Transaero. As

evidence, it points to statements of account wherein the

payment is shown credited against principal and not against

accumulated interest and to various cables and letters

between the parties discussing the payment. Consequently,

Air Force argues that any amounts allegedly still owing to

Transaero consisted of unpaid accumulated interest.

Nonetheless, in its complaint and supporting affidavit,

Transaero claimed that Air Force owed principal for goods

sold and delivered. This misrepresentation, Air Force

claims, mislead the Court into finding diversity jurisdiction

where none existed and waiving arbitration where it should

E-8

have been required.

This Court has jurisdiction in diversity cases where

the amount in controversy exceeds $50,000 "exclusive of

interest and costs." 28 U.S.C. § 1332(a). Air Force argues

that unpaid accumulated interest it allegedly owed should

have been excluded from the calculation of the amount in

controversy as "interest." Air Force claims that Jacobs, by

falsely stating that the claim was for "goods sold and

delivered", fraudulently mislead the Court into finding

subject matter jurisdiction when, in fact, the amount in

controversy, exclusive of interest and costs, was less than

$50,000.

Similarly, Air Force alleges that Jacobs fraudulently

mislead the court into waiving mandatory arbitration. Local

Arbitration Rule 3(A) makes arbitration mandatory in civil

cases where the amount in controversy "exclusive of interest

and costs" is less than $100,000.00. Jacobs’ aim in avoiding

arbitration, according to Air Force, was to avoid a forum

where the true nature of Transaero’s claim would come to

light.

As an initial matter, we note that all of the

documentary evidence relied on by Air Force in making its

allegation of fraud were submitted by Jacobs in connection

with Transaero’s motion for a default judgment. The

various letters, cables and statements of account were part

of the record and available for our review. The record

reveals a contract for goods, a finance agreement, and

statements of account from Transaero requesting payment

of accrued interest from Air Force. The complaint and

Jacobs affidavit offer one plausible interpretation of these

documents. Air Force suggests that by not offering a

different interpretation, one favorable to its case, Jacobs

committed a fraud upon the court. Air Force’s accusations

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are without merit.

Air Force’s interpretation of 28 U.S.C. § 1332(a) is

in error. Where interest owed is part of an underlying

contractual obligation, unpaid interest can be said to

become part of the principal demand ina suit based on the

contract. See Brown v. Webster, 156 U.S. 328, 330, 15S. Ct.

377 (1895); Edwards v. Bates County, 163 U.S. 269, 16S. Ct.

967 (1895) ("[W]hen the interest evidenced by a coupon has

become due and payable, the demand based upon the

promise contained in such coupon is no longer a mere

incident of the principal indebtedness represented by the

bond, but becomes really a principal obligation."). We find

that Jacobs had a legal basis upon which he represented that

the claim was for "goods sold and delivered, account stated,

and breach of finance agreement" and that the principal

amount in controversy exceeded $50,000. The interest

claimed by Transaero constituted a principal claim and was

not excludable "interest" within the meaning of the 28 U.S.C.

§ 1332(a). Therefore, we properly exercised subject matter

jurisdiction in this case. Moreover, the local rules did not

mandate arbitration and, therefore, the case was ripe for

adiudication.

We find no convincing evidence that Jacobs

perpetrated a fraud on the court in the manner described

above. Air Force offers nothing more than an alternative

interpretation of the documentary evidence from that

offered by Jacobs and ultimately accepted by this Court.

The arguments it offers are simply those it could have

brought foward at the 1989 hearing, but choose not to.

b. Compound Interest

: Air Forces alleges that the $983,696.60 claimed by

Transaero in its complaint and ultimately awarded in the

default judgment was calculated according to terms that

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violated the finance agreement and which constitute illegal

compound and usurious interest. In support of its position,

Air Forces offers the same documentary record discussed

above, which was available to the court for review. In

addition, it offers the calculations of its accounting firm

which it says show that "had the Jacobs Affidavit abided by

the express terms of the contract and settled New York law,

the actual amount owed in the default judgment would have

been $234,835.93." (Def. Mem. of Law at 27.) This claim

contradicts Air Forces earlier claim that Transaero’s claim

failed to meet the minimum amount in controversy

requirement of 28 U.S.C. § 1332(a) and its claim that the

1986 payment represented a full settlement.

Specifically, Air Force claims that Jacobs’ interest

calculations violated the terms of the finance agreement in

several ways: (1) charging interest before Air Force’s

payment for equipment was due; (2) charging interest after

Air Force had tendered full payment on the principal debt;

(3) charging a rate of interest greater than the contractual

21% per annum; and (4) charging interest on amounts

above those subject to the contract rate of interest. Also,

- the Jacobs affidavit allegedly charged illegal compound

interest, See Newburger-Morris Co. v. Talcott, 219 N.Y. 505

(1916), and criminal usurious interest. See N.Y. Penal Law

§ 190.40 (McKinney 1989).

Air Force brings forth no evidence of bad faith or

dishonesty by Jacobs beyond the alleged miscalculations.

Air Force does not allege that Jacobs altered or withheld

any relevant documents from the record. Air Force strains

our credulity when it asks us to believe that Jacobs

intentionally miscalculated the amount of the claim but

nevertheless submitted documents which upon inspection

would reveal the error, expecting that neither the Court nor

E-11

the Air Force would discover his duplicity.

Transaero argues that the finance agreement,

statements of account, and communications between the

parties can be read to support Jacobs’ interest calculations.

For example, Transaero claims that Air Force accepted

Transaero’s interpretation of the debt owed by failing to

object to statements of account containing the interest

charges. See In Re Magnus Harmonica Corporation, 262

F.2d 525 (3rd Cir. 1959). Also, Transaero states that, from

a letter preceding the 1986 payment, it can be argued that

Air Force understood that Transaeru would continue to

charge it interest on the unpaid balance. Finally, Transaero

notes that under New York law, courts will enforce a

promise to pay compound interest, if made after simple

interest has accrued, provided that there is some other

consideration to make the promise good. See Newburger-

Morris Company v. Talcott, 114 N.E. 84 (N.Y. Ct. App.

1916).

Considering Transaero’s arguments, we conclude

that there was no fraud on the court. We find that Jacobs

had a legal and factual basis upon which he could in good

faith represent to the court that Air Force was indebted to

Transaero in the amount of $983,696.60. Whether his

affidavit correctly recounts the law and facts is not the issue.

The time has passed when this Court will consider the

merits of Transaero’s claim. The only issue before us is

whether the default judgment was obtained by fraud. We

find that Air Force has failed to bring forth convincing

evidence that Jacobs’ calculation of interest payments

constituted a fraud on the court.

G, Statute Of Limitations

Air Force argues that in July 1988, when Transaero

file its complaint, Transaero’s claims were barred by the

E-12

four year statute of limitation governing the sale of goods

under New York’s version of the Uniform Commercial

Code. Air Force claims that Jacobs committed fraud on the

court by failing to disclose this fact to the Court. This is, at

most, an argument to set aside judgment on the ground of

mistake of law pursuant to 60b(1). Of course, at this time,

any claim of-mistake is barred: the the one year limitation

having expired. Thus, Air Force may be understood to be

making the insupportable argument that where an attorney

fails to raise a legal argument helpful to the opposing party’s

case, he has committed a fraud on the court.

Air Force presents no evidence that jacobs misled

this court with regard to the applicable statute of limitations.

Moreover, Transaero notes that actions for an account

stated are governed by a six year statute of limitations. See

N.Y. Civ. Prac. L. & R. § 213(2) (McKinney 1989). Since

the statute begins to run on the day of the statement, it can

be fairly argued that Transaero’s claim under that theory

was not time barred. Similarly, it can be argued that Air

Force acknowledged its debt in a March 17, 1987 letter

(Plaintiff's Exh. 10) and that a new limitations period arose

at that time. See NY Gen. Oblig. Law §17-101 (McKinneys

1989). :

d. Settlement

Air Force argues that the documentary evidence

clearly establishes that its 1986 payment to Transaero fully

and completely settled any outstanding debt it might have

owed. Air Force accuses Jacobs of fraud for failing to

disclose this fact to the court. Again, Air Force has failed to

offer any convincing proof of fraud. The documents that Air

Force claims clearly indicate a final settlement were

submitted by Jacobs and available to the Court for review.

While we do not now pass on whether a final settlement was

E-13

entered into, the evidence is sufficient to support a

reasonable argument that the 1986 payment represented

only a partial settlement of the dispute. Therefore, Jacobs

did not misrepresent the record, he simply offered a version

of the record in presenting his client’s case. No fraud was

committed.

CONCLUSION

For the reasons set forth above, Defendant La

Fuerza Aerera Boliviana’s motions to set aside the

judgment, to stay execution of the judgment, to dismiss the

complaint, and to grant fees and costs are denied in their

entirety. Plaintiff, Transaero, Inc.’s, motion to impose Rule

11 sanctions on Defendant is also denied. And it is

SO ORDERED.

Jacovd Mishler

oe. ee

APPENDIX F

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

No. 1063—August Term, 1993

Argued: February 22, 1994 Decided: May 19, 1994

Docket No. 93-7903

TRANSAERO, INC..

Plaintiff-Appellee,

—against—

LA FUERZA AREA BOLIVIANA, an instrumentality

of the Republic of Bolivia, a Foreign State,

Defendant-Appellant.

Before:

NEWMAN and VAN GRAAFEILAND, Circuit Judges,

and LASKER, District Judge*.

Appeal from a decision of the United States District

Court for the Eastern District of New York, Jacob Mish-

ler, Judge, denying relief under Rule 60(b) of the Federal

* Hon. Morris E. Lasker, Judge, United States District Court for the

Southern District of New York, sitting by designation.

4179

Rules of Civil Procedure from a default judgment entered

against defendant-appellant, La Fuerza Aerea Boliviana,

on April 28, 1989.

Remanded for the limited purpose of assessing the

mathematical accuracy of the default award to plaintiff-

appellee, Transaero, Inc.

RONALD N. COBERT, Washington, D.C.

(Grove, Jaskiewicz and Cobert, Andrew

M. Danas, of counsel) for Plaintiff-

Appellee.

GREGORY B. CRAIG, Washington, D.C.

(Williams & Connolly, James W. Shan-

non, Jr., of counsel) for Defendant-

Appellant.

LASKER, District Judge:

The Air Force of the Republic of Bolivia (“BAF”)

appeals from a decision of the United States District

Court for the Eastern District of New York, Jacob Mish-

ler, Judge, which denied its motion for relief under Rule

60(b) of the Federal Rules of Civil Procedure from a

default judgment entered against it on April 28, 1989.

The appeal from the order denying Rule 60(b) relief

brings up for review only the denial of the motion and not

the merits of the underlying default judgment. Branum v.

Clark, 927 F.2d 698, 704 (2d Cir. 1991). The standard for

4180

review is abuse of discretion. Jd. For the reasons dis-

cussed below, we conclude that there was no abuse, but

we remand for the limited purpose of assessing the math-

ematical accuracy of the default award to Transaero, Inc.

BACKGROUND

The action arises out of the alleged breach of a credit

agreement between Transaero, a supplier of aircraft parts,

and the Bolivian Air Force entered in May 1981. For a

number of years before May 1981, Transaero had been

selling aircraft parts to BAF, but had been experiencing

delays in payment on outstanding invoices averaging six

to twelve months. As a result, the present agreement was

drafted to require BAF to pay 1.75% monthly interest

(21% per year) on all purchases not paid within 120 days

of shipment. By April 14, 1982, the Bolivian Air Force

had accumulated an outstanding principal balance of

$598,115.76.

On September 8, 1988, despite intervening payments by

the Bolivian Air Force totalling $648,115.76, Transaero

filed suit to collect $983,696.60 for outstanding principal

and interest. The Bolivian Air Force failed to answer the

complaint or to enter an appearance at a hearing sched-

uled by Judge Mishler for March 30, 1989 which resulted

in an inquest on damages.! On April 28, 1989, the Clerk

of the Court entered a default judgment for Transaero in

the amount requested. On May 12, 1993, over four years

1 It is BAF’s position that it defaulted because it lacked proper notice

of Transsero’s complaint and of the hearing. Judge Mishler found to the

contrary in his Opinion of April 21, 1989 directing entry of the default

judgment and so did the late Judge Revercomb in a separate proceeding

in the District Court of the District of Columbia. BAF’s appeal of Judge

Revercomb’s Order of September 25, 1992 is now pending in the Circuit

Court for the District of Columbia.

4181

later, BAF moved to set aside the default judgment under

Rule 60(b). On August 12, 1993, Judge Mishler denied

the motion.

DISCUSSION

BAF’s primary argument on appeal is based on the so-

called saving clause of Rule 60(b) which provides that

“[t]his rule does not limit the power of acourt. . . to set

aside a judgment for fraud upon the court.” BAF argues

that there has been a fraud on the court in this case

because Transaero’s counsel allegedly submitted a fraud-

ulent affidavit in support of the 1989 motion for entry of

the default judgment and the district court relied on the

false statements made there in granting the motion.

BAF also argues that the default judgment should be set

aside under clause (4) of Rule 60(b) which provides that,

within a reasonable time from the time of judgment, “[o]n

motion and upon such terms as are just, the court may

relieve a party . . . from a judgment [where] the judg-

ment is void.” Fed. R. Civ. P. 60(b)(4). The basis for this

claim is BAF’s contention that the district court lacked

subject matter jurisdiction to enter the default judgment

because Transaero’s claim was not first submitted to com-

pulsory arbitration, which, BAF maintains, was required

in this case by the Local Rules of the Eastern District of

New York.

Finally, BAF argues that the default judgment should be

set aside under the catch-all clause of Rule 60(b) which

provides for relief for “any other reason justifying relief

from the operation of the judgment.” Fed. R. Civ. P.

60(b)(6). BAF claims that Rule 60(b)(6) relief is war-

ranted because of the district court’s alleged failure to

4182

comply with section 1608(e) of the Foreign Sovereign

Immunities Act, 28 U.S.C. § 1602-11 (1994), which pro-

hibits default judgments against foreign states unless the

claimant establishes the right to relief by evidence satis-

factory to the court and requires a copy of any default

judgment to be sent to the foreign state. BAF also points

out the disfavor with which courts view default judg-

ments, especially those against foreign sovereigns. First

Fidelity Bank, N.A. v. Government of Antigua & Barbuda-

Permanent Mission, 877 F.2d 189, 196 (2d Cir. 1989).

The Claim of Fraud on the Court.

BAF points to a string of representations made by

Transaero’s counsel in his affidavit in support of the 1989

motion for entry of the default judgment which, BAF

maintains, were fraudulent. BAF charges that the affidavit

falsely labelled Transaero’s claim as one for principal and

interest, when it was really for interest only; sought com-

pound interest in violation of New York law; claimed

interest for a longer period, at a higher rate and on a

greater amount than authorized by the credit agreement

and New York law; and sought judgment on a breach of

contract claim, even though it was time-barred.

Fraud on the court is “fraud which seriously affects the

integrity of the normal process of adjudication.” Gleason

v. Jandrucko, 860 F.2d 556, 559 (2d Cir. 1988). It

involves “far more than an injury to an individual litigant”

or “a case of a judgment obtained [simply] with the aid of

a witness who, on the basis of after-discovered evidence,

is believed possibly to have been guilty of perjury.” Jd.

(citations omitted) (alteration in original). The concept

embraces “that species of fraud which does or attempts to,

defile the court itself, or is a fraud perpetrated by officers

of the court so that the judicial machinery cannot perform

4183

in the usual manner its impartial task of adjudging cases

presented for adjudication.” Kupferman v. Consolidated

Research & Mfg. Corp., 459 F.2d 1072, 1078 (2d Cir.

1972) (quoting 7 Moore’s Federal Practice 4 60.33, at 515

(1971 ed.)).

The representations by plaintiff’s counsel specified

above did not constitute a fraud on the court. For exam-

ple, Transaero had a good faith basis for believing that

BAF had acknowledged Transaero’s entitlement to com-

pound interest because BAF failed to make timely objec-

tions to Transaero’s invoices and had made partial

payments on its debt in 1984 and 1986. Similarly,

Transaero had a good faith basis for believing that its

breach of contract claim was not time-barred when it filed

suit in September 1988, since the limitations period was

not obviously triggered until BAF repudiated the pay-

ments Transaero claimed under the credit agreement in

April 1987—well within the four year limitations period

governing the sale of goods under the U.C.C. Finally, as

discussed below in the section on BAF’s claim under Rule

60(b)(4), there is no merit to BAF’s claim that, because

Transaero’s claim was for interest only, the district court

lacked jurisdiction to enter the default judgment.

Moreover, BAF has presented no evidence of bad faith

or dishonesty by Transaero’s counsel. Indeed, as the dis-

trict court points out in its opinion below, all the docu-

mentary evidence on which BAF now bases its claim of

fraud on the court was submitted to the district court itself

by Transaero’s counsel in connection with the very motion

for entry of the default judgment. The up-front submis-

sion of this documentary evidence fundamentally under-

mines BAF’s claim of fraud on the court. BAF’s response

to this point—that a busy district judge cannot be

4184

expected to sort through a disorganized record—is unper-

suasive.

The Rule 60(b)(4) Claim.

The Local Rules of the Eastern District of New York,

where the default judgment was entered, require the Clerk

of the Court to “designate and process for compulsory

arbitration all civil cases . . . wherein money damages

only are being sought in an amount not in excess of

$100,000.00 exclusive of interest and costs.” N.Y. Rules

of Court, App. C §3(A), at 797 (McKinney 1994). BAF

argues that, since Transaero’s claim is one for interest

anly, the claim ought to have been submitted to arbitration

pursuant to the local rule. BAF maintains that, because

the case was not arbitrated as allegedly required, the case

was was not ripe for review and the district court lacked

subject matter jurisdiction to decide it. Hence, according

to BAF, the judgment is void and should be set aside

under Rule 60(b)(4) of the Federal Rules of Civil Proce-

dure.

Invoices submitted by Transaero to the Bolivian Air

Force show that Transaero applied the Air Force’s last

payment to the outstanding principal debt and that, appar-

ently, from that time on, BAF owed interest only. In

Edwards v. Bates County, 163 U.S. 269 (1896), the

Supreme Court held that, for purposes of calculating the

adequacy of the amount in controversy for diversity juris-

diction under a predecessor statute to 28 U.S.C.

§ 1332(a), the circuit court should have included the value

of the matured interest coupons attached to the bonds

issued by the defendant. The Supreme Court stated that

“when the interest evidenced by a coupon has become due

and payable the demand based upon the promise con-

tained in such coupon is no longer a mere incident of the

4185

principal indebtedness represented by the bond, but

becomes really a principal obligation.” Jd. at 272.

It seems clear under Edwards that where, as here, inter-

est is owed as part of an underlying contractual obliga-

tion, unpaid interest becomes part of the principal for

jurisdictional purposes. We see no reason to treat such

interest differently for purposes of determining the scope

of compulsory arbitration under the Local Rules of the

Eastern District of New York and conclude that arbitration

was not required in this case.

The Rule 60(b)(6) Claim.

Clause (6) provides “a grand reservoir of equitable

power to do justice in a particular case when relief is not

warranted by the preceding clauses.” 7 Moore’s Federal

Practice 4 60.27[2], at 295 (2d ed. 1993). In a proper case,

it is to be “liberally applied.” Jd. at 273. Nevertheless,

relief under Rule 60(b)(6) is available only in “extraor-

dinary circumstances.” Ackermann v. United States, 340

-U.S. 193, 199 (1950).

BAF argues that such circumstances exist in this case

because of the district court’s alleged failure to comply

with the requirements of Section 1608(e) of the Foreign

Sovereign Immunities Act which provides that:

No judgment by default shall be entered by a court of

the United States or of a State against a foreign state

. . OF an agency or instrumentality of a foreign

state, unless the claimant establishes his claim or

riactory to the court. A copy of any such default

judgment shall be sent to the foreign state or politi-

cal subdivision in the manner prescribed for service

in this section.

4186

28 U.S.C. § 1608(e). BAF contends first that Transaero

failed to “establish [its] claim or right to relief by evi-

dence satisfactory to the court” and second that, despite

the notice requirement of section 1608(e), it was not

informed of the default judgment until almost three years

after the judgment was entered.

The purpose of the evidentiary requirement of section

1608(e) is to assure that foreign sovereigns, who some-

times are slow to respond to legal action, are protected

from unfounded claims. See Marziliano v. Heckler, 728

F.2d 151, 157-58 (2d Cir. 1984) (attributing this rationale

to the identical requirement for judgments against the

United States under Fed. R. Civ. P. 55(e)). However, no

such concerns exist in this case because Judge Mishler

held an inquest on the question of damages, and his Order

of April 21, 1989, directing entry of the default judgment,

determined specifically that the complaint “state[d] a

cause of action, based on breach of contract,” the claim

“f[ell] within the ‘commercial activities’ exception to the

Foreign Sovereign Immunities Act” and was “supported

by the proof submitted.”

Nor, in the circumstances of this case, does the fact that

BAF did not learn of the entry of the default judgment for

several years constitute “extraordinary circumstances”

justifying Rule 60(b)(6) relief. “Lack of notice [of a judg-

ment] does not ipso facto mean that a judgment can or

should be reopened” and “granting of such motions

should be considered only where lack of notice has oper-

ated to prejudice a substantial right or remedy that would

otherwise be available.” Radack v. Norwegian Am. Line

Agency, Inc., 318 F.2d 538, 542-43 (2d Cir. 1963).

In the case at hand, the delay of notice of the default

judgment did not “operate[ ] to prejudice a substantial

4187

right or remedy.” It is true that, as a result of the passage

of time since entry of the default judgment, BAF cannot

now seek relief under subsections (1), (2) and (3) of Rule

60(b) because these provisions cannot be invoked more

than one year after entry of judgment. However, it is not

true that, but for the notice delay, BAF could have

asserted a timely claim under any one of these subsec-

tions.

The Affidavit of General Dardo Gomez Garcia states

that “[pJrior to February 28, 1992, the Bolivian Air Force

was not aware that. . . a Default Judgment had been

entered” against BAF and the implication is plain that,

from that date forward, BAF was aware of the default

judgment. However, BAF did not make its Rule 60(b)

motion until over one year later in May 1993. Accord-

ingly, even if BAF had received prompt notice of the

default judgment, BAF’s potential claims under subsec-

tions (1), (2) or (3) would still have been time barred

because BAF sat on its hands for over a year.

Finally, relying on First Fidelity Bank, N.A. v. Gov-

ernment of Antigua & Barbuda-Permanent Mission, 877

F.2d 189, 196 (2d Cir. 1989), BAF argues that the default

judgment should be set aside under Rule 60(b)(6) because

“default judgments are disfavored, especially those

against foreign sovereigns.” Jd. at 196. It is true that the

First Fidelity Bank court stated that “{cJourts go to great

lengths. . . to permit [default] judgments against foreign

sovereigns to be set aside.” Jd. But First Fidelity Bank

was a distinctly different case than the one at hand. The

issue in First Fidelity Bank was the extent to which the

foreign sovereign defendant was bound by the actions of

its ambassador to the United Nations and whether the dis-

trict court had jurisdiction in the circumstances. This was

a case which had “serious implications for the relation-

4188

ships between the United States and all foreign states that

send duly accredited ambassadors to head their diplomatic

missions in this country.” Jd. at 196-97 (Newman, J., dis-

senting). The case before us is fundamentally an ordinary

contract dispute which has no such profound implications.

* * *

Although we conclude that the district court properly

denied BAF’s Rule 60(b) application, there remain two

questions raised by BAF as to the accuracy of the interest

calculation on which the award to Transaero was based,

neither of which has been specifically answered by

Transaero. First, BAF contends in its brief on appeal that

interest cannot have accrued against it for 86 months—as

Transaero claimed in the complaint—because a period of

86 months allegedly would have commenced before BAF

made its first purchase from Transaero on June 22, 1981.

Second, BAF presents evidence on this motion that

Transaero’s interest calculations were incorrect and

ranged from 20.99% per year to 26.34% per year. (Barker

Aff. 18). We remand for the limited purpose of assessing

the factual accuracy of the two claims described above

and, if necessary, recalculating the award to Transaero

accordingly.

CONCLUSION

The district court did not abuse its discretion in deny-

ing BAF’s application to set aside the default judgment

under Rule 60(b) of the Federal Rules of Civil Procedure.

We remand for the limited purpose of re-examining the

mathematical accuracy of the award to Transaero.

Transaero’s application for damages, including attorneys’

fees and costs on appeal, is denied.

4189

APPENDIX G

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

August Term 1993

Petition for Rehearing Decided: October 19, 1994

Submitted: September 28, 1994

Docket No. 93-7903

TRANSAERO, INC.,

Plaintiff-Appellee,

_—

LA FUERZA AEREA BOLIVIANA, AN INSTRUMENTALITY

OF THE REPUBLIC OF BOLIVIA, A FOREIGN STATE,

Defendant-Appellant.

Before:

NEWMAN, Chief Judge,

VAN GRAAFEILAND, Circuit Judge,

and LASKER,* District Judge.

. The Honorable Morris E. Lasker of the United States District Court

for the Southern District of New York, sitting by designation.

7731

Petition for rehearing of the May 19, 1994, decision, 24

"F.3d 457, affirming District Court’s denial of a motion,

pursuant to Fed. R. Civ. P. 60(b).

Petition granted only to the limited extent of broaden-

ing the remand to include consideration of the cessation

of interest, and is otherwise denied; mandate is stayed.

JON O. NEWMAN, Chief Judge:

Pending before us is a petition for rehearing of our May

19, 1994, decision, 24 F.3d 457, affirming the District

Court’s denial of a motion, pursuant to Fed. R. Civ. P.

60(b). The motion sought to vacate a default judgment

obliging defendant La Fuerza Aerea Boliviana (the Boli-

vian Air Force) (“BAF”) to pay plaintiff Transaero, Inc.

$983,696.60. The petition arises in an unusual procedural

context that prompts this brief opinion.

In the course of the default proceedings in the District

Court, Judge Mishler ruled on April 21, 1989, that BAF

had been given proper notice of Transaero’s complaint

and of the hearing that led to entry of the default judg-

ment. After entry of the default judgment, Transaero

brought suit in the District Court for the District of

Columbia to enforce its judgment. BAF sought summary

judgment to dismiss the enforcement proceedings on the

ground of improper service of the complaint in the East-

ern District action. The late Judge Revercomb denied that

motion on September 25, 1992. BAF appealed the inter-

locutory ruling, see Foremost-McKesson, Inc. v. Islamic

Republic of Iran, 905 F.2d 438, 443 (D.C. Cir. 1990)

7732

em ee ee ——™

(denial of claim of sovereign immunity appealable as col-

lateral order).

While the D.C. Circuit appeal was pending, BAF filed

a motion under Rule 60(b) in the Eastern District of New

York to vacate the default judgment. BAF relied primar-

ily on a claim that the default judgment had been obtained

by fraud, a claim based on representations by Transaero’s

counsel in support of the entry of default judgment. Judge

Mishler denied the Rule 60(b) motion on August 12,

1993, and BAF appealed that ruling to this Court.

In its appeal, BAF primarily renewed its contention that

the default judgment had been obtained by fraud. Its

appellate brief also contended that the default judgment

should have been vacated because BAF had no “actual”

notice of the judgment until February 28, 1992, almost

three years after the judgment was entered. The brief

referred to this notice as notice “pursuant to section

1608(e)” of the Foreign Sovereign Immunities Act

(“FSIA”), 28 U.S.C. §§ 1602-1611 (1988). Brief for

Appellant at 41 n.12. BAF contended that the lateness of

the notice of the judgment, along with other considera-

tions, amounted to “extraordinary circumstances,” see

Ackermann v. United States, 340 U.S. 193, 199 (1950),

justifying Rule 60(b) relief. The brief did not contend that

defective service of the complaint impaired the validity of

the Eastern District judgment.

In its reply brief, however, BAF asserted that it had not

been properly served with notice of either the suit or the

March 1989 inquest that led to the entry of the default

judgment. It made this assertion in the course of answer-

ing Transaero’s argument that Judge Revercomb’s ruling

in the District of Columbia had a preclusive effect on the

issue of adequacy of notice of the suit. BAF responded

7733

that Judge Revercomb’s ruling had no preclusive effect

because it was an interlocutory ruling, citing Lummus Co.

v. Commonwealth Oil Refining Co., 297 F.2d 80, 89-90

(2d Cir. 1961). “There is literally no judgment in that case

[the District of Columbia litigation] yet—let alone a final

judgment.” Reply Brief for Appellant at 9. BAF also con-

tended that preclusion was inapplicable because “the issue

of notice had nothing to do with [Judge Revercomb’s]

order.” Id.

At oral argument on the appeal, both sides took the

position that the adequacy of the notice that initiated the

Eastern District suit would be resolved by the then-pend-

ing appeal in the D.C. Circuit from Judge Revercomb’s

ruling. On May 19, 1994, we affirmed Judge Mishler’s

denial of the Rule 60(b) motion. 24 F.3d 457 (2d Cir.

1994). Our decision rejected the claim of a fraud on the

court, but remanded to permit the District Court to recon-

sider two aspects of the interest calculation—the proper

Starting date for the running of interest and the proper

interest rate. The only reference in the opinion to the issue

of defective notice of the suit is a footnote acknowledg-

ing BAF’s contention and noting that Judges Mishler and

Revercomb had rejected BAF’s argument and that Judge

Revercomb’s ruling was on appeal. Jd. at 459 n.1.

On July 6, 1994, BAF filed the pending petition for

rehearing. The petition primarily contended that the

remand should be expanded to include consideration of

the proper ending date for the running of interest. The

petition also urged that we stay our mandate until BAF’s

jurisdictional challenges have been adjudicated in the

D.C. Circuit.

On July 29, 1994, the D.C. Circuit decided the appeal

from Judge Revercomb’s ruling and reversed. Transaero

7734

v. La Fuerza Aerea Boliviana, 30 F.3d 148 (D.C. Cir.

1994). By a divided vote, the Court ruled that BAF is a

“foreign state” rather than an “agency or instrumentality

of a foreign state” for purposes of section 1608 of the

FSIA and that service was not properly accomplished pur-

suant to subsection 1608(a), applicable to service on a

foreign state, although it may have sufficed under sub-

section 1606(b), applicable to service on an agency or

instrumentality of a foreign state. The Court concluded

that the Eastern District of New York lacked personal

jurisdiction and that the default judgment was void and

unenforceable; the enforcement proceedings in the Dis-

trict of Columbia were ordered dismissed. A petition for

rehearing with a suggestion for rehearing in banc was

denied on September 15, 1994.

We then invited the parties’ views as to whether the

default judgment should now be vacated. In response,

both sides have substantially altered their prior positions.

Transaero now contends that the D.C. Circuit’s opinion

should not cause us to vacate the default judgment

because (a) the opinion is incorrect on the merits, (b) BAF

is precluded by judicial estoppel from abandoning the

position it has taken in prior litigation before the courts of

this Circuit that it is an instrumentality of the Republic of

Bolivia, and (c) this Court’s affirmance of Judge Mish-

ler’s denial of the Rule 60(b) motion is a ruling implicitly

upholding the jurisdictional validity of the default judg-

ment that should have been accorded preclusive effect in

the District of Columbia.

For its part, BAF abandons the contention, urged on the

appeal to this Court, that Judge Revercomb’s ruling had

no preclusive effect because it was interlocutory, and now

contends that his ruling, until reversed, had preclusive

effect on the issue of statutory service and prevented BAF

7735

from raising the issue of defective service when it filed its

Rule 60(b) motion in the Eastern District of New York.

BAF urges that the preclusive effect of the D.C. Circuit’s

opinion in its favor requires us now to vacate the default

judgment.

1. Turning first to the significance of the D.C. Circuit’s

opinion on the pending petition, we conclude that what-

ever preclusive effect that decision might have on issues

that are open for decision in any court, it is not a cir-

cumstance requiring us to grant BAF’s petition for rehear-

ing. That petition afforded BAF an opportunity to indicate

“the points of law or fact which in the opinion of the peti-

tioner the court has overlooked or misapprehended.” Fed.

R. App. P. 40(a). BAF’s petition for rehearing did not con-

tend that we had overlooked or misapprehended any

aspect of its contention regarding defective service.

Indeed, it is by no means clear that BAF’s initial appeal

had urged us to reverse the denial of the Rule 60(b)

motion for lack of defective service. In short, we have

now pending no open issue on which the preclusive effect

of the D.C. Circuit’s decision, if any, may operate. There-

fore, without expressing any views as to (a) the validity of

Transaero’s service upon BAF in initiating the Eastern

District suit or (b) whether the default judgment is

impaired by the allegedly late notice of its entry, we

decline to grant the petition for rehearing just because the

D.C. Circuit has ruled that the default judgment is not

enforceable in the District of Columbia. We need not

decide whether BAF is entitled to pursue a new Rule

60(b) motion in the Eastern District, now that the D.C.

Circuit has declared the default judgment to be void.

2. With respect to the calculation of interest, we think

that BAF’s contention concerning the scope of the remand

has merit. Its brief on the appeal from the denial of the

7736

Rule 60(b) motion complained not only about the two

points mentioned in the panel’s opinion (the interest

Started too early and the rate exceeded the contract rate)

but also about the proper date for cessation of interest.

Brief for Appellant at 21. We see no reason not to broaden

the remand to permit the District Court to consider the

proper date for the cessation of interest, and Transaero’s

Opposition papers are silent on this question.

3. With respect to the mandate, BAF appears to have

sought a stay of our mandate only until the conclusion of

the D.C. Circuit’s consideration of the appeal in that

court. However, since Transaero has represented that it

will seek a writ of certiorari to have that decision

reviewed by the Supreme Court, we will stay our mandate

until the petition for certiorari is decided, and, if granted,

until decision by the Supreme Court.

Accordingly, the petition for rehearing is granted only

to the limited extent of broadening the remand to include

consideration of the cessation of interest, and is otherwise

denied. The mandate is stayed.

7737

UNITED STATES COURT OF APPEALS

For The District Of Columbia Circuit

No. 92-7222 September Term, 1993

USDC Ms. No. 91-0139

Transaero, Inc.,

Appellee, Filed: Sep 15, 1994

La Fuerza Aerea Boliviana,

Appellant

BEFORE: Williams and Sentelle, Circuit Judges

Upon consideration of appellee's petition for rehearing

filed August 29, 1994, it is

ORDERED, by the Court, that the petition is denied.

Per Curiam

FOR THE COURT:

RON GARVIN, CLERK

BY:

Robert A. Bonner

Deputy Clerk

UNITED STATES COURT OF APPEALS

For The District Of Columbia Circuit

No. 92-7222 September Term, 1993

USDC Ms. No. 91-0139

Transaero, Inc.,

Appellee, Filed: Sep 15, 1994

La Fuerza Aerea Boliviana,

Appellant

BEFORE: Edwards, Chief Judge; Wald, Mikva, Silberman,

Buckley, Williams, Ginsburg, Sentelle,

Henderson, Randolph and Rogers, Circuit

Judges

Appellee's Suggestion For Rehearing In Banc has been

circulated to the full Court. No member of the Court requested

the taking of a vote thereon. Upon consideration of the

foregoing it is

ORDERED, by the Court in banc, that the suggestion is

Per Curiam

FOR THE COURT:

RON GARVIN, CLERK

BY:

denied.

Robert A. Bonner

Deputy Clerk

Circuit Judges Mikva and Ginsburg did not participate

in this matter. }

UNITED STATES COURT OF APPEALS

For The District Of Columbia Circuit

No. 92-7222 September Term, 1993

USDC Ms. No. 91-0139

Transaero, Inc.,

Appellee, Filed: Nov. 04, 1994

La Fuerza Aerea Boliviana,

Appellant

BEFORE: Williams and Sentelle, Circuit Judges

Upon consideration of appellee's motion to stay

mandate, the response thereto and of the reply, it is

ORDERED, by the court, that the motion is denied

Per Cunam

FOR THE COURT:

RON GARVIN, CLERK

BY:

Robert A. Bonner

Deputy Clerk

UNITED STATES COURT OF APPEALS

For The District Of Columbia Circuit

No. 92-7222 September Term, 1993

| USDC Ms. No. 91-0139

Transaero, Inc.,

Appellee, Filed: Dec. 2, 1994

La Fuerza Aerea Boliviana,

Appellant

BEFORE: Williams and Sentelle, Circuit Judges

Upon consideration of the Motion and Supporting

Memorandum of Transaero, Inc. for Reconsideration of Order

Denying Motion For Stay of Mandate, it is

ORDERED, by the Court, that the aforesaid motion is

denied.

Per Curiam

FOR THE COURT:

RON GARVIN, CLERK

BY:

Robert A. Bonner

Deputy Clerk

eed Se eee -

Pt AORS ihe im i289

APPENDIX J

Transcriptions of copies of letters contained in

Joint Appendix in the Proceeding below at JA125-128.

EMBAJADA DE BOLIVIA

Washington, D.C. 20008

Washington, D.C. November 1, 1991

EMBO 842/91

Mr. Robert D. Costello

Attorney at Law

150 W. 55th Street

New York, N.Y. 10019

Dear Mr. Costello:

This Embassy has received instructions from the

Ministry of Foreign Affairs of Bolivia to convey the following

information to you. The Ministry of Finance is presently able

and ready to begin proceedings to reconcile the account of the

debt owed to Transaero Inc. by the Bolivian Air Force, through

a commission formed by the Ministry of Finance, Transaero Inc.

and the Bolivian Air Force. An appropriate payment schedule

could subsequently be negotiated with the agreement of all

concerned.

I avail myself of this opportunity to express my best

personal regards.

Sincerely,

Jorge Crespo Velasco

Ambassador

FGO/xhc

November 8, 1991

Honorable Jorge Crespo Velasco

Ambassador

Embajada De Bolivia

3014 Massachustets Avenue, N.W.

Washington, DC 20008

Dear Ambassador Velasco:

Reply is made to our letter of November 1, 1991 and my

several telephone conversations with Mr. Gonzalez.

On behalf of my client, Transaero, Inc., I wish to

express my appreciation for your government's willingness to

cooperate in resolving the outstanding obligation.

As indicated in the documents I have previously

provided, the amount of the obligation on April 28, 1988 was

$983,696.60. Since that date statutory interest has accrued at

the rate of 9% per annum. Anticipating that it will take another

month or so to resolve this fully, I calculate the total amount

that will be due as of January 1, 1992 to be $1,230,054.49.

I look forward to your response and payment proposal.

Very truly yours,

EMBAJADA DE BOLIVIA

Washington, D.C. 20008

Washington, D.C. November 18, 1991

EMBO 867/91

Mr. Robert D. Costello

Attorney at Law

150 W. 55th Street

New York, N.Y. 10019

Dear Mr. Costello:

This is to acknowledge receipt of your letter dated

November 8, 1991, which has been transmitted to the Ministry

of Finance of Bolivia.

I will get in touch with you as soon as I receive any

further instructions or information on this subject.

Sincerely,

Fernando Gonzalez Quintanilla

Charge d'Affairea a.i.

FGQ/xhc

sittin io, nate 6 os

December 10, 1991

Mr. Fernando Gonzalez Quintanilla

Charge d'Affaires a.i.

Embajada de Bolivia

Washington, DC 20008

Re: Transaero, Inc.

Dear Mr. Quintanilla:

It is now more than one month since I wrote providing

you with the details of what sums are due and several months

since extending the courtesy of contacting your offices once

again before taking affirmative action to enforce my client's

judgment.

I feel that the Ministry of Finance has had more than

sufficient time and opportunity to resolve this matter.

Consequently, I request your immediate response to my

previous correspondence.

Your cooperation is urged to avoid the interference that

will necessarily follow from enforcement proceedings.

Very truly yours,

RDC/mmw

cc: Transaero, Inc.

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GROVE, JASKIEWICZ AND COBERT

SUITE 400

1730 M STREET NORTHWEST

WASHINGTON, D.C. 20036-4579

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