Petition for Writ of Certiorari — PT Pertamina v. Karaha Bodas Co., LLC (Nos. 05-1571, 05-1573)

> Supreme ( Us.

ee a7 3 JUN 6 ~ 2006

ors OFFICE OF THE CLERK

United States Supreme Court

—>p>-<4—

PT PERTAMINA (PERSERO), f/k/a Perusahaan Pertambangan Minyak

Dan Gas Bumi Negara,

Petitioner,

Vv.

KARAHA BODAS COMPANY, L.L.C..,

Respondent.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Second Circuit

PETITION FOR WRIT OF CERTIORARI

Henry Weisburg

Counsel of Record

Panagiotis Katsambas

SHEARMAN & STERLING LLP

Attorneys for Petitioner

599 Lexington Avenue

New York, New York 10022

(212) 848-4000

Counsel for Petitioner

Dated: June 7, 2006

i

QUESTION PRESENTED

In interpreting foreign law, do principles of comity and

the requirements of Rule 44.1 of the Federal Rules of Civil

Procedure mandate that a federal court give respectful con-

sideration and substantial deference to a foreign sover-

eign's own interpretation and explanation of the substance

of its domestic laws?

il

RULE 29.6 CORPORATE

DISCLOSURE STATEMENT

Petitioner PT Pertamina (Persero) is wholly owned by

(but a separate juridical entity from) the Government of

the Republic of Indonesia.

lil

PARTIES TO THE PROCEEDING

The parties to the proceeding are listed in the caption

of the decision of the United States Court of Appeals for

the Second Circuit, Pet. App. 2a, except that Petitioner

became a limited liability company under Indonesian law

as of September 18, 2003, and is now named PT Pertam-

ina (Persero).

iv

TABLE OF CONTENTS

GPRTEses ENGNG FURRSREGEN EECED, gov vc cvccvscegueesecsete

RULE 29.6 CORPORATE DISCLOSURE

EE PETE Sad hs coaeacevankvon Ccdixeous cea?

PAR cba icing ota beretebe fob tisvere vid

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED....................

SIATEMENT OF THE CASE ...... cccesscccccccet

Background Of The Dispute ...........0.0.004.

Proceedings In The United States setee esse eee:

FOO PIO FUE vids 5 Sve On vee blew ss vtavcuns

FAG HOTTY TROGRNEE a5 6 oi 5 6s bc Cac cnsdevcsa

The Second Circuit's Decision.................

Page

oO oOo fF fF NY‘ NN

REASONS FOR GRANTING THE PETITION..... 10

CONTRARY TO WELL-ESTABLISHED PRIN-

CIPLES OF INTERNATIONAL COMITY, THE

SECOND CIRCUIT AFFIRMED A DECISION

OF THE LOWER COURT THAT COMPLETE-

LY DISREGARDED APPLICABLE FOREIGN

LAW AS WELL AS THE FOREIGN SOVER-

EIGN’S EXPLANATION AND INTERPRETA-

TION OF ITS DOMESTIC LAW, WARRANT-

ING THE EXERCISE OF THE COURT’S

SUP ERY Ie FOP WOR i cin sacssonercssvtces 10

CO es ok nod cneaeaisncanns sis povess copes? 16

vi

TABLE OF AUTHORITIES

Cases

Access Telecom, Inc. v. MCI Telecomms. Corp.,

197 F.3d 694 (Sth Cir. 1999) .... 22... .0..-0000e

Banco Nacional de Cuba v. Sabbatino,

SIO ME FOO CP ek ek cine eee eesecoer seen ee

FDA v. Brown & Williamson Tobacco Corp.,

A i I ic icsb al.

Gen. Elec. Co. v. Deutz A.G.,

270 F.36 146 Cdl Cit, D001). vise cc ccc ccovcnpes

Hilton v. Guyot, 159 U.S. 113 (1895)..............

Int’l Ass'n of Machinists & Aerospace Workers

v. OPEC, 649 F.2d 1354 (9th Cir. 1981).......

In re Oil Spill by Amoco Cadiz,

954 F.26 1279 (7m Cit. 1992). 2606. cee ceecses.

PPG Indus. v. Costle,

659 F.2a 1239 (D.C. Cir, 1981)... ......006. re

Price v. Socialist People’s Libyan Arab

Jamahiriya, 294 F.3d 82 (D.C. Cir. 2002) .....

Société Nationale Industrielle Aérospatiale v.

United States Dist. Ct., 482 U.S. 522 (1987) ...

The Schooner Exch. v. McFaddon,

SRIS yee gy, Sh: 1) ee

United States ex rel. Saroop v. Garcia,

UGS Fe POS CIC, ESET), ones cvviasiccessce-

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

OS as.

Page

1]

11

Vii

Page

Statutes and Rules

2E UGS Fe aeEVh evden cedeceteoeveeveses l

Pod he oh cacserserceees

Tae ak | ee 4,6

Vili

APPENDICES

Page

Summary Order of the U.S. Court of Appeals for

the Second Circuit, Docket Nos. 04-6551-cv(L)

and 04-6672-cv(C), dated March 9, 2006....... la

Final Judgment of the U.S. District Court for the

Southern District of New York (Griesa, J.),

Gated COCWOET ZZ. ZOOS. «cv ccs cancosdcceccestees 6a

Opinion of the U.S. District Court for the

Southern District of New York (Griesa, J.),

GaNaG COCRNIEE 6, DOG ic 6 osc bce cee eee aes l4a

Opinion of the U.S. District Court for the

Southern District of New York (Griesa, J.),

CU REY: FO NO dag ss coc cinkcsvcususcecnnss 36a

Order of the U.S. District Court for the

Southern District of New York (Griesa, J.),

GUE DERI 1G, Bes iis Sesh iether es 53a

Opinion of the U.S. District Court for the

Southern District of New York (Griesa, J.),

dated January ZF, 2006... occ ccnccccccccvccscs 58a

Summary Order of the U.S. Court of Appeals for

the Second Circuit, dated December 17, 2003,

unpublished opinion reported as Karaha Bodas

Co., L.L.C. v. Ministry of Finance, 83 Fed. Appx.

381 (2d Cir. 2003) (“Pertamina IT’) ............. 83a

ix

Page

Memorandum and Order of the U.S. District Court

for the Southern District of New York (Griesa,

Bt I FN De OE os crc Fek6 thane vecndars 89a

Opinion of the U.S. Court of Appeals for

the Second Circuit, dated December 10, 2002,

published as Karaha Bodas Co., L.L.C. vy.

Perusahaan Pertambangan Minyak Dan Gas

Bumi Negara, 313 F.3d 70 (2d Cir.

po tli gS a SRR ney peo 92a

Final Order of the U.S. District Court for the

Southern District of New York (Griesa, J.),

entered April 26, 2002 «.055..5560.ccseeccceseees 13la

Foreign Sovereign Immunities Act of 1976,

Pub. L. No. 94-583, 90 Stat. 2892 (codified

as amended at 28 U.S.C. §§ 1330, 1332, 1391,

1441, and 1602-1611), H.R. Rep. 94-1487,

976 UGA AI, COG oes keep ihidcanes 138a

BEY. CPLR GE SIG, Fkidy POS ew sccissvccsesacs 174a

——

Petitioner Pertamina PT (Persero), f/k/a Perusahaan Per-

tambangan Minyak Dan Gas Bumi Negara (“Pertamina”’)

respectfully petitions this Court for a writ of certiorari to

review the judgments in this action of the United States

Court of Appeals for the Second Circuit.'

OPINIONS BELOW

The summary decision of the United States Court of

Appeals for the Second Circuit, which was not published

in the federal reporter, appears in the Appendix of the Peti-

tion (“Pet. App.”) at la-5a. The judgment of the United

States District Court for the Southern District of New York

appears at Pet. App. 6a-13a (“Final Judgment”). The Sec-

ond Circuit’s December 10, 2002 Opinion is reported at

313 F.3d 70 and appears at Pet. App. 92a-130a. The district

court entered numerous related orders, which appear at

Pet. App. 14a-82a, 89a-9la, and 131a-137a.

JURISDICTION

The United States Court of Appeals for the Second Cir-

cuit entered its final judgment on March 10, 2006. The

jurisdiction of this Court is invoked under 28 U.S.C.

§ 1254 (1).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

Rule 44.1 of the Federal Rules of Civil Procedure pro-

vides, in relevant part: “The court, in determining foreign

| Pertamina also supports the arguments made by the Ministry of

Finance of the Republic of Indonesia in its petition for a writ of cer-

tiorari from the Second Circuit’s decision, which, Pertamina under-

stands, is also being filed today.

2

law, may consider any relevant material or source, includ-

ing testimony, whether or not submitted by a party or

admissible under the Federal Rules of Evidence. The

court’s determination shall be treated as a ruling on a ques-

tion of law.” b

STATEMENT OF THE CASE

In its decision below, the United States Court of Appeals

for the Second Circuit summarily affirmed the district

court’s judgment, holding, among other things, that the

Petitioner owned the Refinery Revenues (as such term is

defined below) and that, therefore, those funds were sub-

ject to execution by the Respondent (hereinafter referred to

as “KBC’”). In doing so, the Second Circuit, as well as the

district court, completely disregarded applicable Indone-

sian law, which, indisputably, governs the question of

ownership of the funds in the Refinery Accounts.

Background Of The Dispute

The Indonesian Constitution and the laws of Indonesia

establish that the Government of Indonesia (the “Govern-

ment”) is the exclusive owner of the nation’s natural

resources, which it must exploit only for the benefit of the

Indonesian people. Pet. App. 95a. Pertamina is an oil and

gas company owned and controlled by the Government. /d.

It engages in oil and gas exploration, extraction, process-

ing, marketing, transportation and distribution. Jd. In

November 1994, KBC entered into two contracts—a “Joint

Operation Contract” and an “Energy Sales Contract”—

with Pertamina and another Government-owned entity,

Persero (“PLN”). Under the contracts, KBC was to devel-

op geothermal energy extraction facilities in the Karaha

3

area of West Java, Indonesia. /d. at 96a. KBC had not

begun to build a power plant, nor even obtained the neces-

sary financing, when the Asian economic crisis of 1997-98

struck Indonesia. in 1997 and 1998, after the Indonesian

Rupiah lost value against the dollar (wich made it impos-

sible for public and private entities to meet their dollar-

denominated obligations) and at the insistence of the

International Monetary Fund, former Indonesian President

Suharto suspended the KBC project. Pertamina had noth-

ing to do with the suspension of the project. /d. at 97a.

KBC initiated an arbitration under the two contracts in

1998, and, on December 18, 2000, the arbitral panel issued

a $261 million award against Pertamina and PLN. /d. at

98a. There were serious flaws in the procedures relating to

the arbitration (including the selection of arbitrators and

consolidation of arbitrations) as well as the award issued

by the panel. For example, the panel found that Pertamina

had breached the contracts with KBC, but it did not iden-

tify any substantive provisions of the contracts that were

violated, nor did it discuss the relevant Indonesian law

governing the contracts. With regard to the lost profits por-

tion of the award (which amounted to $150 million), KBC

had admitted that it could not have raised the required

third-party non-recourse financing for the power plant

because of the economic crisis. The panel, however, found

that one of KBC’s American parents would have put $500

million into the project, even though there was no contem-

poraneous evidence to support KBC’s assertion and the

panel effectively denied Pertamina’s request for discovery

on the issue.

4

Proceedings In The United States

KBC moved for confirmation of the arbitration award

before the United States District Court for the Southern

District of Texas (the “Texas Court”). Pertamina opposed

confirmation based on the numerous defects in the award,

but the Texas Court confirmed the award in December

2001 and entered judgment against Pertamina in the

amount of $261 million plus 4% interest per annum.

After registering the Texas Court’s judgment in New

York in February 2002, KBC moved for ex parte writs of

execution before the United States District Court for the

Southern District of New York (the “New York Court”)

pursuant to N.Y. C.P.L.R. § 5222(b). Pet. App. 99a-100a.

The New York Court issued writs of execution authorizing

KBC “to execute upon any property of Pertamina within

this jurisdiction in satisfaction of the [Texas Court’s judg-

ment].” Jd. (emphasis added). The New York Court issued

restraining notices that KBC served on Bank of America

and Bank of New York, among others. In response to those

restraining notices, Bank of America restrained funds in

excess of $270 million in twenty-two trust accounts that

were in Pertamina’s name. Pet. App. 62a.

The Retention Fees

Pertamina and the Ministry of Finance of the Republic

of Indonesia (the “Ministry”) opposed the writs of execu-

tion and moved to quash the restraining notices in March

2002. In an order dated April 24, 2002 (the “April 2002

Order’), the New York Court partially granted the motions

‘and held that the only property that could be restrained was

that portion of the funds in fifteen trust accounts at Bank

of America (what came to be known as the “Adjudicated

5

Accounts”) that constituted Pertamina’s “Retention Fee.”

Pet. App. 135a at 9911-15. The Second Circuit affirmed

the April 2002 Order in December 2002 (the “December

2002 Opinion”). Pet. App. 130a.

The Retention Fee arises from the following mechanism

adopted by the Indonesian Government: in fulfilling the

Government’s responsibility to exploit Indonesia’s natural

resources for the benefit of its people, Pertamina entered

into Production Sharing Contracts with private contractors

who had the responsibility for development, production,

transportation, and marketing activities relating to natural

gas production in specified geographic areas. Pet. App.

100a-102a. The contractors delivered the extracted natural

gas to Pertamina, which, in turn, transported it for domes-

tic sale or for conversion into liquefied natural gas

(“LNG”) at liquefaction plants. Pertamina sold the LNG to

foreign buyers, who remitted payments to trust accounts in

New York, such as the Adjudicated Accounts. Jd. In accor-

dance with the agreements relating to each such account,

the bank trustee was first required to make payments for

debt service, production costs and trustee expenses. /d.

The excess amount in the accounts, referred to as the Net

Operating Income, was then distributed to Pertamina and

the private contractor pursuant to the terms of the relevant

Production Sharing Contract. /d. Pertamina’s interest in

the Net Operating Income was transferred directly to the

Ministry’s account with Bank of Indonesia, the Indonesian

Central Bank, in Jakarta. /d. Pertamina was entitled to a

fee, mandated by Indonesian law and calculated at 5% of

the Net Operating Income transferred to the Ministry,

which is the “Retention Fee.” Pet. App. 135a at 14. The

balance of those funds belonged to the Government.

6

Pursuant to the December 2002 Opinion, the New York

Court was supposed to calculate the amount of the Reten-

tion Fees, so that the remainder of the funds in the Adjudi-

cated Accounts could be released to the Government. The

New York Court, instead of releasing the funds owned by

the Government in accordance with the December 2002

Opinion and as required by the Foreign Sovereign Immu-

nities Act (the “FSIA”), decided to secure KBC’s judgment

by using the funds restrained in the Adjudicated Accounts,

irrespective of whether such funds constituted Retention

Fees or property of the Government. Pet. App. 91a. Perta-

mina and the Government immediately appealed, but the

Second Circuit dismissed the appeal for lack of finality.

Pet. App. 83a-88a. The Second Circuit, however, remind-

ed the New York Court that “no portion of the Ministry’s

funds can serve as security to satisfy the debt of Pertami-

na.” Jd. at 87a.

Subsequent to that opinion by the Second Circuit, the

New York Court proceeded to the determination of the

amount of the Retention Fees in the Adjudicated Accounts,

- and the ownership of funds held in the other accounts that

had also been garnished, known as the Refinery Trust

Accounts.

With respect to the Retention Fees, Pertamina and the

Ministry argued that the restraining notices served in Feb-

ruary of 2002 were ineffective as to Retention Fees pass-

ing through the Adjudicated Accounts after June 7, 2002,

because of the fact that the amount already restrained

through that date in the Adjudicated Accounts had reached

the statutory cap under N.Y. C.P.L.R. § 5222(b) (twice the

judgment amount). Pet. App. 177a-178a. Thus, according

to Pertamina and the Ministry, and pursuant to the Decem-

7

ber 2002 Opinion, the New York Court was required to

limit the amount restrained in the Adjudicated Accounts to

the funds corresponding to the Retention Fees, and had to

release the remainder to the Government.’

The New York Court disagreed and ruled that Retention

Fees passing through—but no longer remaining in—the

Adjudicated Accounts after June 7, 2002 should retroac-

tively be “deemed to be withheld,” and that the total amount

of the restrained revenues in the Adjudicated Accounts

were a “substitute for the withholding duty” of Bank of

America with respect to the Retention Fees. Pet. App. 80a.

In essence, the New York Court used a substitution of

funds analysis not found in New York law and that, in this

case, was in direct contravention of the FSIA provisions

providing for immunity from execution for the assets of a

foreign sovereign. The clear effect of the New York Court’s

rulings was that funds belonging to the Government were

treated as Retention Fees belonging to Pertamina, and made

subject to execution.

On May 19, 2004, the New York Court also ruled that an

additional $132 million in Retention Fees had passed

through in 2003, and ordered that they should also be

“retroactively” restrained. In doing so, the New York

Court ignored Indonesian laws that terminated Pertamina’s

2 The amounts restrained by Bank of Amert the Adjudicated

Accounts were approximately $503 million. In June — “2002, the New

York Court ordered Bank of America to release $226 million and con-

tinue to restrain $277 million on the theory that these funds were suf-

ficient to cover the judgment entered by the Texas Court, along with

interest. Pet. App. 72a. Of the $277 million that continued to be

restrained, only a small portion comprised Retention Fees, and the bal-

ance belonged to the Government. /d. at 74a.

8

entitlement to Retention Fees as of January 1, 2003. Pet.

App. Sla-52a.

The Refinery Revenues

The April 2002 Order focused on the Adjudicated

Accounts and the Retention Fees and did not deal with

funds restrained in another set of accounts, the Refinery

Trust Accounts. However, in October of 2004, the New

York Court determined that the funds in three accounts

holding revenues from the export of petroleum products

refined at Indonesian oil refineries (the “Refinery Rev-

enues”), amounting to $452.7 million, belonged to Pertam-

ina. The New York Court again ignored Indonesian law

and Government directives establishing that the funds in

the Refinery Trust Accounts were not property of Pertami-

na, but instead were property of the Government. The rea-

soning of the New York Court was that the Government

did not take immediate possession of the Refinery Rev-

enues and, therefore, did not own them.

Pursuant to Indonesian laws and its constitutional man-

date, the Government has undertaken to ensure that

oil-based fuels (referred to in Indonesian regulations as

“BBM7”) are made available to all the people of Indonesia

at a consistent price. Pet. App. 25a-26a. The Government

has delegated this responsibility to Pertamina. Jd. Pertam-

ina produces and distributes BBM through the operation of

Government-financed oil refineries on a “no-loss no-prof-

it” basis. Jd. at 27a. If the domestic supply of BBM prod-

ucts is insufficient to meet the demands of the Indonesian

people, Pertamina imports BBM products on behalf of the

Government. At the Government-financed refineries, Pert-

amina also produces non-BBM products (such as naptha

9

and lubricants) for domestic use and export. The Refinery

Revenues are revenues that resulted from the export of

non-BBM products. /d. at 26a.

To the extent the total cost of producing BBM exceeds

the revenues from Pertamina’s sales of domestic BBM,

Indonesian law requires the Government to make up the

difference to ensure that Pertamina does not suffer a loss.

If, however, Pertamina’s domestic BBM revenues exceed

the total cost, Pertamina’s “profit” must be transferred to

the Government. /d. at 27a. The revenues from Pertamina’s

export and domestic sales of non-BBM products are used

to reduce the total production costs in the BBM system,

which either reduces the Government’s subsidy obligation

or increases the amount Pertamina must transfer to the

Government. /d. Thus, the Refinery Revenues in the Refin-

ery Trust Accounts constituted a central element of the

Indonesian BBM system. Pertamina, acting as a trustee,

used the funds in the Refinery Trust Accounts and listed

them as income on its financial statements because it had

the responsibility to account for them on an annual basis

and maintain that accounting for the benefit of the Gov-

ernment. /d. at 28a-30a. But, under Indonesian law, it was

not Pertamina’s money.

The Second Circuit’s Decision

In total, the New York Court “restrained and/or deemed

restrained” approximately $776 million in Retention Fees

and Refinery Revenues. Pet. App. 12a at 413. The New

York Court ordered the turnover of $271 million (plus

interest) to KBC from the $776 million restrained, but

stayed the effect of its turnover order pending appeal. /d.

at 19] 15-16.

10

In reviewing the New York Court’s Final Judgment, the

Second Circuit stated that “a determination that the refin-

ery funds [i.e., the Refinery Revenues] belonged to Perta-

mina would afford KBC full recovery.” Pet. App. 4a.

Based on this statement, the Second Circuit considered

only the portion of the New York Court’s Final Judgment

that related to ownership of the Refinery Revenues.

The Second Circuit affirmed the New York Court’s Final

Judgment with respect to the ownership of the Refinery

Revenues, holding that Pertamina had offered no evidence

under Indonesian law supporting its contention that the

Government owned those funds. Pet. App. 5a. That hold-

ing disregarded the Indonesian BBM regime, which gov-

erns the ownership of the Refinery Revenues at issue.

REASONS FOR GRANTING THE PETITION

CONTRARY TO WELL-ESTABLISHED PRINCI-

PLES OF INTERNATIONAL COMITY, THE SEC-

OND CIRCUIT AFFIRMED A DECISION OF THE

LOWER COURT THAT COMPLETELY DISRE-

GARDED APPLICABLE FOREIGN LAW AS WELL

AS THE FOREIGN SOVEREIGN’S EXPLANATION

AND INTERPRETATION OF ITS DOMESTIC LAW,

WARRANTING THE EXERCISE OF THE COURT’S

SUPERVISORY POWER.

Comity “is the recognition which one nation allows

within its territory to the legislative, executive or judicial

acts of another nation[.]” Hilton v. Guyot, 159 U.S. 113,

163-64 (1895). It serves both to “promote justice between

individuals” and “to produce a friendly intercourse

between the sovereignties to which they belong[.]” /d. at

165. “[T]he federal judiciary has relied on principles of

1]

comity and international law to protect foreign govern-

ments in the American legal system.” Price v. Socialist

People’s Libyan Arab Jamahiriya, 294 F.3d 82, 97 (D.C.

Cir. 2002). Courts invoke comity, for example, to enforce

foreign judgments, whether issued by a civil or common

law jurisdiction. See, e.g., United States ex rel. Saroop v.

Garcia, 109 F.3d 165, 169 (3d Cir. 1997) (comity “creates

a strong presumption in favor of recognizing *reign judi-

cial decrees.”) Such deference “fosters international coop-

eration and encourages reciprocity, thereby promoting

predictability and stability through satisfaction of mutual

expectations.” /d. (citing cases).

This Court “ha[s] long recognized the demands of comi-

ty in suits involving foreign states, either as parties or as

sovereigns with a coordinate interest in the litigation.”

Société Nationale Industrielle Aérospatiale v. United

States Dist. Ct., 482 U.S. 522, 546 (1987). For example, in

The Schooner Exch. v. McFaddon, 11 U.S. (7 Cranch) 116

(1812) (mem.), this Court embraced, “[as] a matter of

grace and comity on the part of the United States,” the

immunity of a foreign sovereign from suit in United States

courts. Verlinden B.V. v. Central Bank of Nigeria, 461 U.S.

480, 486 (1983). Conversely, short of war or some positive

intervention by the political branches, comity also holds

all U.S. courts open to foreign sovereigns, even those with

which the Nation may have difficult relations. Banco

Nacional de Cuba v. Sabbatino, 376 U.S. 398, 409 (1964).

The achievement of these “worthy goals of comity[,]”

Gen. Elec. Co. v. Deutz A.G., 270 F.3d 144, 160 (3d Cir.

2001), requires that the federal courts defer to a foreign

sovereign’s determination of the content of its own laws.

Applying this principle, the federal courts have accorded

12

“substantial deference” to the “construction” a foreign

sovereign “places upon its domestic law” when the foreign

sovereign is a litigant. Jn re Oil Spill by Amoco Cadiz, 954

F.2d 1279, 1312 (7th Cir. 1992) (“A court of the United

States owes substantial deference to the construction

France places upon its domestic law.”); Access Telecom,

Inc. v. MCI Telecomms. Corp., 197 F.3d 694, 714 (Sth Cir.

1999) (“courts may defer to foreign government interpre-

tations”). As courts have recognized, “[g]iving the conclu-

sions of a sovereign nation less respect than those of [a

U.S.] administrative agency is unacceptable.” In re Oil

Spill by Amoco Cadiz, 954 F.2d at 1312.

In fact, the Second Circuit, in its December 2002 Opin-

ion, recognized the principle of deference to the position

of a foreign sovereign in connection with the interpretation

of that sovereign’s laws. “Where a choice between two

interpretations of ambiguous foreign law rests finely bal-

anced, the support of a foreign sovereign for one interpre-

tation furnishes legitimate assistance in the resolution of

interpretive dilemmas.” Pet, App. 128a-129a.

In its summary decision affirming the New York’s Court

Final Judgment, however, the Second Circuit failed to

adhere to, and follow, these principles. It completely dis-

regarded Indonesian law and held that Pertamina owned

the Refinery Revenues because they constituted “property

within Pertamina’s control, which only Pertamina con-

trols.” Pet. App. 5a. That conclusion ignored Indonesian

law governing the relationship between Pertamina and the

Government, the BBM system, and the Indonesian limita-

tions applicable to Pertamina’s use of the funds in the

Refinery Accounts. Further, the Second Circuit’s method-

ology reflected an inappropriate presumption that Indone-

13

sian law was comparable to New York law, and a reluc-

tance to carry out a thorough examination of the relevant

foreign law, as both comity and Rule 44.1 of the Federal

Rules of Civil Procedure require.

According to the Indonesian laws establishmg the BBM

system, Pertamina is responsible for producing and selling

BBM and non-BBM products for both domestic use and

export. The Refinery Revenues were generated from the

export of non-BBM products. The key aspect of the BBM

system, however, is that revenues from both BBM and

non-BBM products are factored into the monetary recon-

ciliation between Pertamina and the Government, designed

to make sure that Pertamina functions on a “no-profit no-

loss” basis. Pertamina is not at liberty to use the Refinery

Revenues (or, for that matter, revenues from the sale of

other non-BBM or BBM products) according to its own

wishes but, on the contrary, is required, under Indonesian

law, to apply them as a cost-reducing factor in the BBM

reconciliation between Pertamina and the Government. If

the reconciliation results in a profit, that profit is taken

from Pertamina and transferred to the Government. If the

reconciliation results in a loss, the Government covers the

loss. One way or the other, Pertamina functions on a “no-

profit no-loss” basis. Therefore, any funds Pertamina

receives from the sale of BBM or non-BBM products, such

as the Refinery Revenues, it holds only on behalf of, and

for the account of, the Government.

While Pertamina and the Ministry submitted detailed

evidence regarding the Indonesian laws establishing the

BBM system and how that system functions, the Second

Circuit stated that Pertamina failed to point to any

“Indonesian legal directive that deems the refinery funds

14

ti.e.; the Refinery Revenues] Indonesia’s[.]” Pet. App. Sa.

That conclusion ignored the evidence submitted by Perta-

mina and the Ministry showing that, under Indonesian law,

the Refinery Revenues 'were required to be contributed

into the BBM system and constituted a cost-reducing fac-

tor in BBM cost price. Pet. App. 26a-27a. Moreover, based

on these legal directives and contrary to the Second Cir-

cuit’s holding, Pertamina could not “spend those funds for

any purpose,” but was obliged to apply the Refinery Rev-

enues to the BBM monetary reconciliation with the Gov-

ernment. Pet. App. 5a. In short, the Second Circuit deprived

the Government of the Refinery Revenues in that, under

the BBM system, they were intended to either increase the

Government’s receipts from Pertamina or reduce Pertami-

na’s loss and, therefore, the Government’s subsidy of that

loss.

Likewise, the Second Circuit’s conclusion that “Indone-

Sia acts like a guarantor of Pertamina’s BBM operation”

(see Pet. App. 5a), lacks any support or basis under

Indonesian law, and betrays a false assumption that

Indonesian law and New York law are analogous. Under

Indonesian law, the Government owns the Refinery Rev-

enues; and since the Government owns them, it cannot, at

the same time, act “like a guarantor” for the BBM opera-

tion. This ill-fated presumption exemplifies the Second

Circuit’s misapplication of Indonesian law—a misapplica-

tion stemming from its refusal to defer to the Govern-

ment’s interpretation of its own law.

The decision below failed to take into account the regu-

latory regime governing the BBM system and Indonesia’s

exploitation of its natural resources. See, e.g., PPG Indus.

v. Costle, 659 F.2d 1239, 1246 (D.C. Cir. 1981) (holding

15

that when interpreting statutes of uncertain meaning, the

Court of Appeals would “look principally to the language

and structure of the regulatory scheme, and to the policies

that underlie it”); accord FDA v. Brown & Williamson

Tobacco Corp., 529 U.S. 120, 133 (2000). Contrary to the

statement in its December 2002 Opinion that “the support

of a foreign sovereign for one interpretation [regarding the

sovereign’s laws] furnishes legitimate assistance in the

resolution of interpretive dilemmas” (see Pet App. 1292),

the New York Court and the Second Circuit turned a blind

eye to Indonesia’s legal system and the views of the Gov-

ernment regarding the laws that it established to ensure the

exploitation of its natural resources for the prosperity of its

people. See Int’] Ass'n of Machinists & Aerospace Workers

v. OPEC, 649 F.2d 1354, 1361 (9th Cir. 1981) (recognizing

“the principle of supreme state sovereignty over natural

resources.”’)

If the Second Circuit had correctly applied the princi-

ples of comity, it would have deferred to the foreign sov-

ereign and its well-founded and reasonable interpretation

of its own laws. The principal force underlying the comity

doctrine is reciprocity. The United States would and

should expect that a foreign court hearing an issue regard-

ing U.S. regulation, adopted to support an important

national policy, would afford substantial deference to the

views expressed by representatives of the U.S. Govern-

ment with respect to the proper operation and construction

of such regulation. See Gen. Elec. Co. v. Deutz AG, 270

F.3d 144, 160 (3d Cir. 2001) (“Reciprocity and coopera-

tion are worthy goals of comity.”). Yet the Second Cir-

cuit’s ruling, and its lack of deference for clearly

articulated Indonesian law, opens the door for foreign

courts to ignore the U.S. Government’s views regarding

16

U.S. laws and to decide such issues based on that jurisdic-

tion’s unguided interpretation of U.S. law. This Court

should exercise its supervisory power to eliminate this

threat to the comity doctrine.

CONCLUSION

The petition for a writ of certiorari should be granted,

and the decision below reversed.

Respectfully submitted,

/s/ HENRY WEISBURG

Henry Weisburg

Counsel of Record

Panagiotis Katsambas

SHEARMAN & STERLING LLP

Attorneys for Petitioner

599 Lexington Avenue

New York, New York 10022

(212) 848-4000

Counsel for Petitioner

June 7, 2006