Kensington Intern. Ltd. v. Itoua

• Decision Date: 18 October 2007
• Docket Number: Docket No. 06-2216-cv (CON).,Docket No. 06-1763-cv (L).
• Citation: 505 F.3d 147
• Parties: KENSINGTON INTERNATIONAL LIMITED, Plaintiff-Appellee, v. Bruno Jean-Richard ITOUA and Societe Nationale des Petroles du Congo, Defendants-Appellants, BNP Paribas S.A., Defendant.
• Court: U.S. Court of Appeals — Second Circuit

505 F.3d 147

KENSINGTON INTERNATIONAL LIMITED, Plaintiff-Appellee, v. Bruno Jean-Richard ITOUA and Societe Nationale des Petroles du Congo, Defendants-Appellants, BNP Paribas S.A., Defendant.

Docket No. 06-1763-cv (L).

Docket No. 06-2216-cv (CON).

United States Court of Appeals, Second Circuit.

Argued: May 30, 2007.

Decided: October 18, 2007.

Michael T. Stolper Orrick, Herrington & Sutcliffe LLP (Matthew L. Craner, David M. Powers, Orrick, Herrington & Sutcliffe LLP; Jonathan E. Polonsky, Shari Markowitz Savitt, Hermann Ferre, Thelen Reid & Priest LLP, on the brief), New York, NY, for Appellant Bruno Jean-Richard Itoua.

Arthur R. Miller, Cambridge, MA (Bennette Deacy Kramer, David J. Katz, Schlam Stone & Dolan LLP, New York, NY, on the brief) for Appellant Société Nationale des Pétroles du Congo.

Theodore B. Olson, Gibson, Dunn & Crutcher LLP, Washington D.C. (Robert A. Cohen, Dechert LLP; Kevin Samuel Reed, Quinn Emanuel Urquhart Oliver & Hedges LLP, New York, NY; Matthew D. McGill, Claudia M. Osorio, Gibson, Dunn & Crutcher LLP, Washington, D.C., on the brief), for Appellee Kensington International Limited.

Serrin Turner, Assistant United States Attorney, for Michael J. Garcia, United States Attorney for the Southern District of New York, New York, N.Y. (Peter Keisler, David S. Jones, Assistant United States Attorneys; Michael S. Raab, Eric J. Feigin, Appellate Staff, Civil Division, Department of Justice, Washington D.C., on the brief) for Amicus Curiae United States of America.

Before: KEARSE, STRAUB, and POOLER, Circuit Judges.

POOLER, Circuit Judge:

Defendants-appellants Société Nationale des Pétroles du Congo ("SNPC") and Bruno Jean-Richard Itoua ("Itoua") appeal from portions of the March 31, 2006 order of the United States District Court for the Southern District of New York (Preska, J.) denying appellants' motions to dismiss based on the Foreign Sovereign Immunities Act ("FSIA") and for lack of personal jurisdiction. We hold that SNPC is immune under the FSIA, and therefore reverse the district court's decision with respect to SNPC. We further find that the district court erred in concluding that the commercial activities exception to immunity under the FSIA applied to Itoua, and therefore vacate that portion of the district court's decision. We remand to the district court to consider in the first instance whether individual officials such as Itoua may invoke the protections of the FSIA. In light of our disposition, we do not reach appellants' challenges to the district court's findings regarding personal jurisdiction.¹

BACKGROUND

Plaintiff-appellee Kensington International Limited ("Kensington") is a Cayman Islands corporation that buys and sells debt and equity instruments held by domestic and foreign entities. Kensington is managed by Elliott International Capital Advisors, Inc., a Delaware corporation with its headquarters in New York. Defendant-appellant SNPC is the principal state-run oil company of the Republic of the Congo. SNPC was created by statute on April 23, 1998, and its shares are fully held by the Republic of the Congo. SNPC's purpose, as defined in the statute, is to carry out all operations and transactions relating to Congo oil production and distribution. Defendant-appellant Itoua was the chairman and managing director of SNPC at the time of the acts alleged in the complaint and has since become the Minister for Energy and Hydraulics in the Congolese government.² Defendant BNP Paribas S.A. ("BNP") is a French bank with a branch office in New York. BNP is not a party to this appeal.

In the early 1980s, Congo executed several loan agreements under which it borrowed in excess of thirty million dollars. Congo has failed to make any payments on these loan agreements since October 1985. Between 1996 and 2001, Kensington obtained the "right, title, and interest" as lender under these loan agreements. Kensington, however, has been unable to collect any money from Congo on these debts. On November 12, 2002, Kensington filed an action in London's Commercial Court (Queen's Bench Division of the High Court of Justice), seeking to enforce the debt obligations. Kensington obtained judgments against Congo for approximately $100 million, but Congo failed to pay any portion of these judgments.³

On May 27, 2005, Kensington filed this RICO action in the United States District Court for the Southern District of New York against SNPC, Itoua, and BNP. Kensington alleges that defendants engaged in a complex scheme to "divert oil revenues from the Republic of Congo into the pockets of powerful Congolese public officials, while at the same time protecting both the oil and the oil revenues from seizure by legitimate creditors." Am. Compl. Introduction. This scheme involved the use of "prepayment agreements" by which BNP loaned money to SNPC in return for SNPC's pledge to deliver Congo's oil to BNP at a future date. Id. ¶ 69-71. Hence, BNP would "prepay" SNPC for oil; SNPC would assign "Congo's rights in its oil cargos to BNP Paribas, before the oil left Congo's territorial waters"; BNP would then sell the oil to various purchasers, including purchasers in the United States. Id. ¶ 74.

Kensington alleges that the value of the oil pledged to BNP far exceeded the money loaned by BNP to SNPC. For example, Kensington alleges that one prepayment transaction involved a loan for $13 million in exchange for oil rights worth $25 million. In total, Kensington alleges that approximately $1.4 billion in oil sales were pledged to support approximately $650 million in loans. According to the complaint, Congo never received full payment from SNPC for the value of the oil and no accounting was ever made of this excess money. Kensington claims that this "excessive over collateralization served to shield a substantial portion of Congo's oil revenues from both oversight and attachment by creditors." Itoua, as CEO of SNPC during this time, authorized and signed the prepayment agreements on behalf of SNPC. Kensington alleges that Itoua was aware that "SNPC obtained oil from Congo without full compensation and that he personally received a portion of the oil revenues."

Kensington further alleges that these prepayment transactions were routed through "straw men" entities "which allowed BNP Paribas to entirely subsume [defendants'] interests through a complex web of assignments, cessions and delegations." According to Kensington, this arrangement was "explicitly intended to enable BNP Paribas to deliver Congo's oil into the hands of international buyers and deliver the sales proceeds back to the [Congolese President] Sassou-Nguesso regime without interference from Congo's unpaid creditors and without oversight from anyone outside the regime's inner circle."

Kensington's complaint alleges that these transactions constituted a pattern of racketeering activity within the meaning of 18 U.S.C. § 1961(1). The predicate acts of racketeering include money laundering in violation of 18 U.S.C. § 1956 and the transportation and receipt of stolen goods in violation of 18 U.S.C. §§ 2314-15. Kensington claims that the oil and the oil revenues involved in the prepayment agreements were the proceeds of unlawful activity, and the sham transactions and excessive collateralizations constituted money laundering. Furthermore, Kensington alleges that the BNP Paribus receipt and shipments of oil and the payments made under the prepayment agreements constituted the knowing receipt, disposal, and transfer of stolen goods. Kensington claims that defendants' racketeering activity resulted in hiding assets from legitimate creditors and therefore caused injury to Kensington. As relief, Kensington seeks treble damages for the harm it has allegedly sustained, which is the value of the debt judgments obtained in England.

Appellants filed motions to dismiss on a variety of grounds: (1) lack of subject matter jurisdiction; (2) lack of personal jurisdiction; (3) forum non conveniens; (4) failure to state a claim under the RICO statute; (5) lack of standing; and (6) immunity under the FSIA. Itoua also moved to dismiss for improper service. The district court denied the motions in their entirety. On the question of immunity, the district court found that appellants were not immune under the FSIA because their activities fell within the "commercial activities" exception to immunity. SNPC and Itoua filed timely notices of appeal seeking interlocutory review of the district court's decisions on the issues of sovereign immunity and personal jurisdiction. These appeals have been consolidated.

DISCUSSION

We have jurisdiction over this appeal pursuant to the collateral order doctrine, which "allows an immediate appeal from an order denying immunity under the FSIA." Filler v. Hanvit Bank, 378 F.3d 213, 216 (2d Cir.2004). We review the district court's legal conclusions concerning sovereign immunity de novo and its factual findings for clear error. Id. In determining whether an exception to the FSIA applies, the district court can and should consider matters outside the pleadings relevant to the issue of jurisdiction. See Robinson v. Gov't of Malaysia, 269 F.3d 133, 140-41 (2d Cir.2001).

"The FSIA is the sole source for subject matter jurisdiction over any action against a foreign state." Cabiri v. Gov't of the Republic of Ghana, 165 F.3d 193, 196 (2d Cir.1999). The FSIA provides that "a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607 of this chapter." 28 U.S.C. § 1604. For purposes of the FSIA, "foreign state" includes "a political subdivision of a foreign state or an agency or instrumentality of a foreign state." 28 U.S.C. § 1603(a). Once the defendant presents a prima facie case that it is a foreign state, "the plaintiff has the burden of going forward with evidence showing that, under exceptions to the FSIA, immunity should not be granted,...