309 F.3d 240 (5th Cir. 2002), 01-50409, Connecticut Bank of Commerce v. Republic of Congo

Docket Nº:01-50409
Citation:309 F.3d 240
Party Name:Connecticut Bank of Commerce v. Republic of Congo
Case Date:August 29, 2002
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

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309 F.3d 240 (5th Cir. 2002)

CONNECTICUT BANK OF COMMERCE, Plaintiff-Appellant-Cross-Appellee,


REPUBLIC OF CONGO, Defendant-Appellee,

CMS Oil and Gas Company; CMS Oil and Gas (International) Company; CMS Nomeco International Congo Holdings, Inc.; CMS Nomeco Congo, Inc.; CMS Oil and Gas (Holdings), Ltd.; CMS Oil and Gas (International) Ltd.; CMS Nomeco Congo LDC; CMS Oil and Gas (Congo) Ltd.; Nue-vo Energy Company; The Congo Holding Company; The Nuevo Congo Company; Nuevo Congo Ltd.; Nuevo International, Inc.; Nuevo International Holdings Ltd., Garnishees-Appellees-Cross-Appellants.

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No. 01-50409.

United States Court of Appeals, Fifth Circuit

August 29, 2002

As Amended on Rehearing July 17, 2002.

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John G. Kester (argued), Jonathan Park Graham, Williams & Connolly, Washington, DC, for Plaintiff-Appellant-Cross-Appellee.

George Weisz (argued), Cleary, Gottlieb, Steen & Hamilton, New York, NY, Donald Scott Thomas, Jr., Clark, Thomas & Winters, Austin, TX, for Defendant-Appellee.

Guy Stanford Lipe (argued), Vinson & Elkins, Houston, TX, Marc E. Vockell, Vinson & Elkins, Austin, TX, for Garnishees-Appellees-Cross-Appellants.

Peter Buscemi, Mark N. Bravin, Morgan, Lewis & Bockius, Washington, DC, for Amicus Curiae Emerging Markets Creditors Ass'n Inc. Sovereign Immunity Working Group.

Appeals from the United States District Court for the Western District of Texas.

Before EMILIO M. GARZA, PARKER and DENNIS, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

The Connecticut Bank of Commerce appeals the district court's judgment that the Foreign Sovereign Immunities Act renders royalty and tax obligations owed by certain Texas oil companies to the Republic of Congo immune from garnishment.

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A predecessor in interest to the Connecticut Bank of Commerce (hereinafter "the Bank") lent the Congo $6.5 million. In the loan agreement, the Congo waived any right to claim foreign sovereign immunity either from suit or from attachment or execution of its property. The Congo defaulted on the loan. The Bank acquired the rights to a valid London judgment against the Congo for the outstanding principal and interest. In order to turn the foreign judgment into a U.S. judgment, the Bank filed suit in a state court in New York, as permitted by the terms of the loan agreement. The Congo did not appear in the New York action, and the state court entered a default money judgment in favor of the Bank.

The Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. §§ 1602-1611, provides foreign sovereigns with immunity from execution against their property to satisfy an adverse judgment. 28 U.S.C. § 1609. This statutory immunity is subject to several exceptions. One exception is that, if a foreign sovereign waives its immunity from execution, U.S. courts may execute against "property in the United States . . . used for a commercial activity in the United States." 28 U.S.C. § 1610(a)(1). Even when a foreign state completely waives its immunity from execution, courts in the U.S. may execute only against property that meets these two statutory criteria. Id.

Only a court may execute against a foreign sovereign's property under the FSIA. 28 U.S.C. § 1610(c) ("No attachment or execution referred to in subsections (a) and (b) of this section shall be permitted until the court has ordered such attachment and execution . . ."). Some jurisdictions permit judgment creditors to execute against property simply by applying to the clerk of the court or to a sheriff. Section 1610(c) does not permit such summary procedures to be used when a foreign sovereign's property is involved. Instead, it requires a court to enter the writ of execution, so that the court can determine whether the property in question falls within one of the statutory exceptions to foreign sovereign immunity.

After obtaining the default judgment from the New York state court, the Bank asked that court to enter what it called a "1610(c) order." The only order mentioned by § 1610(c) is an order actually attaching or executing against property. 28 U.S.C. § 1610(c) ("the court has ordered such attachment or execution . . ."). The New York court, however, acting at the Bank's request, entered a "1610(c) order" that did not purport to execute against any property within New York or elsewhere. Instead, it provided in declaratory terms that the Bank had "permission" to execute against the Congo's property wherever it may be found. The New York court authorized the Bank to execute against "any assets or other property of the Congo of any nature, irrespective of the use or intended use of such property . . . including any . . . payments or obligations due to the Congo from any oil and gas exploration and development companies . . . ."

The Bank registered its New York judgment in Texas state court and obtained, from the clerk of the Texas state court and without any court order, a writ of garnishment directed to a group of Texas oil companies: CMS NOME CO Congo, Inc., The Nuevo Congo Ltd., and some of their affiliate companies (hereinafter "the gar-nishees"). The writs of garnishment prohibited the garnishees from paying any debts to the Congo. The Congo and the garnishees removed the garnishment action to the United States District Court for the Western District of Texas and filed a motion to dismiss. The district court dissolved

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the writs of garnishment and dismissed the action. It held that, notwithstanding the obligations of the Full Faith and Credit statute and the New York court's "1610(c) order," it was not prohibited by res judicata from considering on a blank slate the amenability of the garnishees' debts to garnishment under the FSIA. It determined that the royalty and tax payments owed by the oil companies to the Congo did not arise from a "commercial activity in the United States," and therefore were not subject to garnishment. The Bank appeals.


The Full Faith and Credit Statute, 28 U.S.C. § 1738, does not bar the fresh consideration of whether the debts owed from the garnishees to the Congo are subject to garnishment under the FSIA because the New York court's determinations about garnishment were not necessary to any judgment issued by that court. Under New York law, extraneous determinations not necessary to sustain a default judgment are not entitled to any res judicata effect.

The Full Faith and Credit Statute, 28 U.S.C. § 1738, provides that the judgments of state courts "shall have the same full faith and credit in every court within the United States . . . as they have by law or usage in the courts of such State . . . from which they are taken." The statute extends to the federal courts the requirements of the Full Faith and Credit Clause of the Constitution, which applies of its own force only to state courts. E.g., Kremer v. Chem. Constr. Corp., 456 U.S. 461, 483 n. 24, 102 S.Ct. 1883, 72 L.Ed.2d 262 (1982). Section 1738 requires us to afford the New York court's "1610(c) order" the same preclusive effects that the order would enjoy in the New York courts. But we need not give any greater resjudicata effect to the "1610(c) order" than New York itself would afford.

New York courts do not give preclusive effect to gratuitous determinations in a prior action. Res judicata operates to bar relitigation only of issues necessary to the judgment. Rader v. Mfrs. Cas. Ins. Co. of Philadelphia, 139 N.Y.S.2d 388 (N.Y.Sup.Ct.1955), aff'd, 1 A.D.2d 799, 149 N.Y.S.2d 220 (N.Y.App.Div.1956); Pike v. Irving, 259 A.D. 303, 19 N.Y.S.2d 219 (N.Y.App.Div.1940); Finkelstein v. Equitable Life Assur. Soc. of the United States, 256 A.D. 593, 11 N.Y.S.2d 135 (N.Y.App.Div.1939), aff'd, 281 N.Y. 690, 23 N.E.2d 19 (1939). Especially in the case of a default judgment, res judicata applies only to issues essential to support the judgment as requested by the pleadings; subsequent developments in the case cannot enlarge the scope of the judgment or the scope of res judicata beyond the complaint. Novak & Co. v. N.Y. City Hous. Autk, 105 A.D.2d 665, 482 N.Y.S.2d 7 (N.Y.App.Div.1984) ("Since the prior judgment was on default, the issues necessarily determined there are limited to those essential to the judgment."); N.Y. C.P.L.R. 3215(b) (McKinney 2001) (providing that, in a default judgment, the "judgment shall not exceed in amount or differ in type from that demanded in the complaint"). Any determinations beyond those necessary to sustain the judgment requested by the pleadings do not preclude subsequent reexamination.

For example, in Finkelstein, the defendant issued a number of insurance policies to the plaintiff. Some of the policies paid benefits when the insured became "presumably permanently disabled" (type 1 policies) and others paid benefits only when the insured became actually "permanently disabled" (type 2 policies). Under New York law, this difference in phrasing had an important legal effect. Under a

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type 1 policy, if the insured was disabled for a certain period of a time set out in the policy, he was entitled to an irrebuttable presumption of permanent disability. Under type 2 policies, being disabled for the amount of time set out in the policy gave rise to a presumption of permanent disability, but the presumption could be rebutted. In a prior action, Finkelstein obtained a judgment on a type 1 policy. He later brought an action on other policies, both type 1 and type 2, asserting that res judicata barred relitigation of the issue of his disability. The Appellate Division held that the prior action was not res judicata as to the type 2 policies, even if the previous court had...

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