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Export-Import Bank of the Republic of China v. Grenada

United States Court of Appeals, Second Circuit

September 12, 2014

EXPORT-IMPORT BANK OF THE REPUBLIC OF CHINA, Plaintiff-Appellant,
v.
GRENADA, Defendant-Appellee, THE GRENADA AIRPORTS AUTHORITY, THE GRENADA SOLID WASTE MANAGEMENT AUTHORITY, THE NATIONAL WATER AND SEWAGE AUTHORITY OF GRENADA, THE GRENADA PORTS AUTHORITY, AVIATION SERVICES OF GRENADA LTD., Interested-Third-Party-Appellees

Argued March 6, 2013

Page 76

This action arises out of the efforts of Appellant Export-Import Bank of the Republic of China (" Ex-Im Bank" ) to recover on a $21 million judgment entered in its favor against Appellee Grenada by the United States District Court for the Southern District of New York (Harold Baer, Jr., Judge). Ex-Im Bank appeals from the District Court's order (1) granting Grenada's motion to declare certain funds, once deposited with the District Court, and consisting of money owed by Grenada to a law firm that represented it in connection with an unrelated arbitration, immune from attachment pursuant to the Foreign Sovereign Immunities Act; (2) granting Grenada's motion to vacate restraining notices served by Ex-Im Bank upon certain entities that owe money to several statutory corporations formed by Grenada; and (3) denying Ex-Im Bank's request for post-judgment discovery to identify assets of Grenada that are potentially subject to attachment in satisfaction of the judgment. The District Court determined that neither the funds owed by Grenada to the law firm nor the funds owed to Grenada's statutory corporations fall within the " commercial activity" exception to immunity from execution of judgment set forth in the Foreign Sovereign Immunities Act. We conclude that: (1) we cannot consider whether the funds owed by Grenada to the law firm are subject to execution by Ex-Im Bank because that issue became moot when those funds were disbursed to Grenada; and (2) with the possible exception of certain funds used to service bonds issued to finance Grenada's main airport, the funds owed to Grenada's statutory corporations are not subject to execution because they are not used for commercial activity in the United States. Because the record before us provides an inadequate basis for determining whether the bond-related funds belong to Grenada or are used for commercial activity in the United States--and in light of the Supreme Court's recent decision in Republic of Argentina v. NML Capital, Ltd., 134 S.Ct. 2250, 189 L.Ed.2d 234 (2014)-- we vacate the denial of Ex-Im Bank's request for post-judgment discovery and remand for the District Court to consider the request anew. The appeal is DISMISSED in part; the judgment of the District Court is AFFIRMED in part and VACATED in part; and the cause is REMANDED.

PAUL E. SUMMIT (Andrew T. Solomon, on the brief), Sullivan & Worcester LLP, New York, NY, for Plaintiff-Appellant.

BRIAN E. MAAS (Khianna N. Bartholomew, on the brief), Frankfurt Kurnit Klein & Selz, P.C., New York, NY, for Defendant-Appellee.

STEVEN D. GREENBLATT, The Law Office of Steven D. Greenblatt, Saratoga Springs, NY, for Interested-Third-Party Appellees.

Before: LYNCH, LOHIER, AND CARNEY, Circuit Judges.

OPINION

Page 77

Susan L. Carney, Circuit Judge:

This case involves the protracted efforts of Export-Import Bank of the Republic of China (" Ex-Im Bank" ) to execute on a $21 million judgment in its favor against the country of Grenada. The judgment, entered in 2007 by the United States District Court for the Southern District of New York (Harold Baer, Jr., Judge ), arose from four loans made by Ex-Im Bank to Grenada between 1990 and 2000.

In the loan documents, Grenada waived its sovereign immunity from suit in federal court in New York in connection with the transactions, and thus the District Court was able to enter a valid judgment against Grenada for the amounts owed. Nonetheless,

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Ex-Im Bank has encountered obstacles in attempting to enforce the judgment in the United States, largely because the Foreign Sovereign Immunities Act of 1976 (" FSIA" ), 28 U.S.C. § § 1602-1611, protects the assets of a sovereign in the United States from attachment or execution in satisfaction of the judgment. Only if one of the narrow exceptions set out by the FSIA in section 1610 of title 28 applies will Ex-Im Bank be able to pursue satisfaction of its judgment on such assets.

On appeal, we are asked to review the District Court's decision denying attachment of two sets of assets: first, funds Grenada owes to a private law firm doing business in New York for legal services rendered to Grenada in an unrelated arbitration; and, second, funds that commercial third parties (primarily airlines and cruise lines having some United States-based operations) owe to several Grenadian statutory corporations. Export-Import Bank of Republic of China v. Grenada, 876 F.Supp.2d 263 (S.D.N.Y. 2012). We are also asked to review the District Court's denial of certain discovery requested by Ex-Im Bank in relation to its attachment and execution efforts.

As to the first set of funds, we conclude that we lack jurisdiction to consider whether it is subject to attachment, and we therefore DISMISS the appeal in that respect. As to the second set, we decide that, with one possible exception, the funds are not subject to attachment because they are not " used for commercial activity in the United States" within the meaning of the FSIA. We therefore AFFIRM that aspect of the District Court's ruling. Certain funds remitted by various airlines through an international air transport industry organization with U.S. operations, however, are allegedly used to service bonds issued to finance Grenada's main airport. As to that subset, we conclude that the record before us provides an inadequate basis for determining whether the funds either belong to Grenada or are used for commercial activity in the United States. For this reason, and in light of the Supreme Court's recent decision in Republic of Argentina v. NML Capital, Ltd., 134 S.Ct. 2250, 189 L.Ed.2d 234 (2014), which rejected any perceived FSIA-based restrictions on discovery related to a foreign sovereign's assets in the United States, we VACATE the District Court's order insofar as it denied Ex-Im Bank's request for post-judgment discovery as to the bond-related funds. We therefore REMAND the cause to enable the District Court to address that request anew.

BACKGROUND

Between 1990 and 2000, Ex-Im Bank extended four loans, with principal totaling approximately $28 million, to Grenada. In the loan documents, Grenada agreed to repay the loans in United States currency deposited into New York City bank accounts. It also warranted that the loans were " commercial acts," and waived its sovereign immunity from suits in the United States related to the loans and from attachment of related property.[1]

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Grenada defaulted on the loans. In March 2007, the United States District Court for the Southern District of New York (Harold Baer, Jr., Judge ) granted summary judgment against Grenada in the amount of the approximately $21 million then owed to Ex-Im Bank in principal, plus pre-judgment interest, attorneys' fees, and statutory interest.[2] Since 2007, Ex-Im Bank has tried, without success, to recover the judgment.

The FSIA protects foreign sovereigns from suit in United States courts. It protects the property of foreign sovereigns in the United States as well: it directs that, subject only to several narrow exceptions, " the property in the United States of a foreign state shall be immune from attachment[,] arrest and execution." 28 U.S.C. § 1609. Only one such exception is relevant here: under some circumstances, the FSIA permits a creditor to execute a judgment against assets of a foreign sovereign if the assets are in the United States when attached and are " used for a commercial activity in the United States." Id. § 1610(a). At issue in this case are Ex-Im Bank's efforts under New York law to attach and execute the judgment against two separate sets of Grenada-related assets located in the United States: the " Grynberg Funds" and the " Restrained Funds.

I. The " Grynberg Funds"

In early 2010, RSM Production Corporation (" RSM" ) and its individual shareholders--three members of the Colorado-based Grynberg family--brought claims against the government of Grenada before an international arbitration panel. RSM and the Grynbergs alleged, inter alia, that Grenada breached an agreement between RSM and Grenada when it declined to grant RSM a petroleum exploration license. During the arbitration, the international law firm Freshfields Bruckhaus Deringer LLP (" Freshfields" ) represented Grenada. In late 2010, the arbitration panel found for Grenada on the merits, dismissed the claims, and ordered the Grynbergs and RSM to pay Grenada's fees and costs, plus prejudgment interests, in the amount of approximately $298,000, plus interest (the " Grynberg Arbitration Award" ).

In February 2011, Grenada filed suit against RSM and the Grynbergs in the United States District Court for the Southern District of New York, seeking confirmation of the international arbitration award. In April 2011, the District Court (Deborah A. Batts, Judge ) entered judgment in Grenada's favor (the " Grynberg Judgment" ). Soon after, Grenada filed a separate action in the United States District Court for the District of Colorado, seeking registration of the Grynberg Judgment and recovery on the Grynberg Arbitration Award. Grenada then moved in Colorado to have writs of garnishment issued against RSM, the Grynbergs, and U.S. Bank and JP Morgan Chase Bank, N.A. (" JP Morgan Chase" ), each of which held funds belonging to one of the Grynbergs.

In July 2011, after learning of Grenada's New York and Colorado lawsuits, Ex-Im Bank served restraining notices issued under

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New York law on U.S. Bank and JP Morgan Chase. It also served restraining notices on Freshfields and Grenada's Colorado counsel. The effect of the notices was to restrain these entities from taking any action to disburse the funds owed to Grenada in connection with the Grynberg Judgment.[3]

The following month, Ex-Im Bank and Grenada entered into a stipulation (the " Stipulation" ) lifting the restraining notices but requiring Grenada to deposit any funds previously subject to those notices with the United States District Court for the Southern District of New York, pending Judge Baer's determination of Ex-Im Bank's rights to the funds in connection with the judgment entered in 2007 in Ex-Im Bank's favor. In November, 2011, Grenada--which in the meantime had recovered approximately $300,000 from the Grynbergs and RSM--deposited this sum (the " Grynberg Funds" ) with the District Court.[4]

In February 2012, Grenada moved for an order declaring the Grynberg Funds immune from attachment under the FSIA, and Ex-Im Bank moved for turnover of the Grynberg Funds. Grenada argued principally that, under the FSIA, the funds were immune from attachment. Ex-Im Bank argued that the funds fell within the FSIA's " commercial use" exception to immunity.

II. The " Restrained Funds"

Ex-Im Bank concurrently sought to collect on its judgment against Grenada by restraining several airlines and cruise lines, a shipping company, and the International Air Transport Association (" IATA" ) (collectively the " Restrained Entities" ) from making certain ongoing payments related to their use of facilities located in Grenada.[5] The payments, comprised primarily of taxes, fees, and other charges, were owed to certain corporate entities (the " Statutory Corporations" ), which Grenada created to perform various civic functions, such as managing Grenada's airports, seaports, and similar facilities.[6] Charges associated with the use of certain air transport facilities in Grenada are payable not to a Grenada statutory corporation, however, but to the IATA, with operations in the United States, as we discuss further below.

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In its restraining notices--served in November 2011 pursuant to New York law--Ex-Im Bank asserted that the Restrained Entities " may owe a debt to the judgment debtor, Grenada, or may be in possession or in custody of property in which the judgment debtor has an interest." See, e.g., Restraining Notice to Virgin Atlantic Airways, Joint Appendix (" J.A." ) 472-74 (citing N.Y. C.P.L.R. 5222(b)). By virtue of the notices, Ex-Im Bank laid claim to the stream of funds normally paid by the Restrained Entities to the Statutory Corporations (the " Restrained Funds" ).

In response, all but one of the Restrained Entities withheld the payments owed to the Statutory Corporations. Virgin Atlantic Airlines instead chose to deposit with the District Court, pending resolution of Ex-Im Bank's rights, funds it would ordinarily pay to the Statutory Corporations, directly or through IATA.

In March 2012, Grenada and the Statutory Corporations moved in the District Court to vacate the restraining notices.[7] They asserted that the Restrained Funds are not subject to attachment, arguing that: the Statutory Corporations are juridical entities separate from Grenada that cannot be held responsible for Grenada's debts; and that, in any event, the FSIA immunizes the Restrained Funds from attachment. In support of their motions, Grenada and the Statutory Corporations submitted affidavits made by various executives in the Statutory Corporations, describing the structure and purpose of each of those entities, on what basis each charged fees, and how each planned to use the ...


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