Frank v. Antigua

• Decision Date: 22 November 2016
• Docket Number: Cons. w/ No. 15-10788,No. 15-10717,15-10717
• Citation: 842 F.3d 362
• Parties: Joan Gale Frank; Jon A. Bell ; Doctor Samuel Bukrinsky; Jaime Alexis Arroyo Bornstein; Peggy Roif Rotstain; Juan C. Olano; John Wade, in his capacity as trustee of the Microchip ID Systems, Inc. Retirement Plan, on behalf of themselves and all others similarly situated, Plaintiffs–Appellees, v. The Commonwealth of Antigua and Barbuda, Defendant–Appellant. The Official Stanford Investors Committee, Plaintiff–Appellee, v. Antigua and Barbuda, Defendant–Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

842 F.3d 362

Joan Gale Frank; Jon A. Bell ; Doctor Samuel Bukrinsky; Jaime Alexis Arroyo Bornstein; Peggy Roif Rotstain; Juan C. Olano; John Wade, in his capacity as trustee of the Microchip ID Systems, Inc. Retirement Plan, on behalf of themselves and all others similarly situated, Plaintiffs–Appellees,

v.The Commonwealth of Antigua and Barbuda, Defendant–Appellant.

The Official Stanford Investors Committee, Plaintiff–Appellee,

v.Antigua and Barbuda, Defendant–Appellant.

No. 15-10717

Cons. w/ No. 15-10788

United States Court of Appeals, Fifth Circuit.

Filed November 22, 2016

Peter Daniel Morgenstern, Esq., Joshua Eli Abraham, Esq., Butzel Long, P.C., New York, NY, Clifton Scott Elgarten, Esq., Stuart H. Newberger, Crowell & Moring, L.L.P., Washington, DC, for Plaintiffs–Appellees.

Joshua James Newcomer, Emil Thomas Bayko, McKool Smith, P.C., Emil Thomas Bayko, Porter & Hedges, L.L.P., Houston, TX, for Defendant–Appellant.

Before WIENER, PRADO, and OWEN, Circuit Judges.

EDWARD C. PRADO, Circuit Judge:

These consolidated cases involve Defendant–Appellant, the Commonwealth of Antigua and Barbuda ("Antigua"), and its alleged involvement with the Stanford Ponzi scheme. As a foreign nation, Antigua challenged the district court's jurisdiction in each suit under the Foreign Sovereign Immunities Act ("FSIA"). The district court determined that it had jurisdiction over the suits under both the commercial activity and waiver exceptions of the FSIA. Antigua appeals these rulings. We REVERSE in part and REMAND.

I. FACTUAL AND PROCEDURAL BACKGROUND

The consolidated cases involved in this appeal are: (1) No. 15-10717, Frank et al. v. Commonwealth of Antigua & Barbuda and (2) No. 15-10788, Official Stanford Investors Committee v. Antigua & Barbuda . Plaintiffs in the first suit, the "Frank suit," are individual customers¹ of Stanford International Bank, Ltd. ("SIBL") that "had money on deposit at SIBL, and held [certificates of deposit ("CDs") ] issued by SIBL." Plaintiff in the second suit, the Official Stanford Investors Committee ("OSIC"), the "OSIC suit," is a court-appointed committee representing the interests of SIBL depositors and the court-appointed receiver and receivership estates. Defendant–Appellant Antigua is an island nation located in the Caribbean. Both the Frank and OSIC suits were filed over Antigua's alleged involvement with the Stanford Ponzi scheme and were consolidated on appeal solely to address whether the district court has jurisdiction over Antigua under the FSIA.

A. Stanford Ponzi Scheme

To understand the underlying allegations in both suits, a brief explanation of the Stanford Ponzi scheme is required.² Allen Stanford owned and operated multiple financial entities, including the SIBL, which was an offshore bank located in Antigua. Janvey v. Democratic Senatorial Campaign Comm., Inc. , 712 F.3d 185, 188 (5th Cir. 2013). Through these entities, Stanford sold CDs to investors, promising exceptionally high rates of return. Id. Most of the funds raised from the sale of these CDs were never invested, as promised, but were used to pay back other investors in the scheme. Id. When the scheme collapsed in 2009, Stanford had sold over $7 billion in fraudulent CDs. Id. at 188–89. Stanford was subsequently convicted of multiple federal crimes and was sentenced to 110 years' imprisonment. United States v. Kuhrt , 788 F.3d 403, 412 (5th Cir. 2015) ; Janvey , 712 F.3d at 189.

B. Antigua's Alleged Involvement in the Scheme

The primary allegation in both the Frank and OSIC suits is that Antigua acted as an active and willing participant in Stanford's scheme and knowingly provided Stanford and his businesses a safe harbor from regulatory scrutiny. Plaintiffs in both suits allege that Stanford and Antigua engaged in a quid pro quo relationship in which Stanford provided Antigua financial incentives to encourage and ensure its involvement in his scheme by bribing public officials and providing loans to Antigua, which were never repaid. Specifically, Plaintiffs allege that the "loans were merely a way to transfer the proceeds of the Ponzi scheme to Antigua." In exchange for the loans, they allege that "Antigua assisted Stanford by conferring legitimacy on the fraudulent enterprise and on Stanford himself, providing assurance to investors that the activities of SIBL and Stanford were legitimate and subject to regulatory authority."

Plaintiffs contend that as part of its involvement in the Ponzi scheme, Antigua allowed Stanford undue influence over the regulations his organizations would be subject to. They also allege that Stanford exerted undue influence over the individuals charged with ensuring that he and his organizations were in compliance with the relevant regulations. Crucial to Antigua's alleged involvement with Stanford's scheme was the Financial Services Regulatory Commission of Antigua ("FSRC") and Leroy King, the FSRC's Administrator and Chief Executive Officer, who were tasked with regulating the SIBL. Plaintiffs allege that Stanford bribed King in order to allow the SIBL to escape regulatory scrutiny from the FSRC.

C. Frank Suit

In July 2009, Frank filed a complaint on behalf of himself and similarly situated individuals alleging various claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), a claim for aiding and abetting fraud, and a claim to recover fraudulent transfers under the Texas Uniform Fraudulent Transfer Act ("TUFTA"). Antigua filed a motion to dismiss in December 2010, alleging that the district court lacked jurisdiction under the FSIA and that Frank failed to state a claim upon which relief could be granted. Frank subsequently abandoned the RICO claims. In June 2015, the district court granted Antigua's motion in part and denied it in part. Specifically, the district court dismissed Frank's TUFTA claim for lack of standing and held that it had jurisdiction under the FSIA over the aiding and abetting fraud claim, which is the only remaining claim on appeal.

D. OSIC Suit

In February 2013, OSIC filed a complaint alleging two breach of contract claims, a claim for avoidance and recovery of fraudulent transfers under TUFTA, a claim for aiding and abetting fraud, a claim for aiding and abetting a breach of fiduciary duty, civil conspiracy, and a claim for aiding and abetting violations of the Texas Securities Act. Antigua moved to dismiss in January 2014, arguing that the district court lacked jurisdiction under the FSIA and that OSIC failed to state a claim upon which relief could be granted. The district court granted Antigua's motion in part and denied it in part. Specifically, the district court dismissed OSIC's TUFTA claims for constructive fraudulent transfers occurring prior to February 15, 2009, but held that it had jurisdiction over all of OSIC's remaining claims, including its TUFTA claims for actual fraudulent transfers.

II. JURISDICTION AND STANDARD OF REVIEW

Under the collateral order doctrine, ³ this Court has interlocutory appellate jurisdiction over a motion to dismiss on the basis of sovereign immunity. Rodriguez v. Transnave Inc. , 8 F.3d 284, 286 n.4 (5th Cir. 1993).

Our review of a district court's sovereign immunity ruling under the FSIA is de novo. Id. at 287. This Court may "decide only legal issues when [it] review[s] an appeal from a collateral order." United States v. Moats , 961 F.2d 1198, 1202 (5th Cir. 1992). "This rule carries even more weight here because the district court resolved FSIA immunity ... on the basis of the complaint," id. (citation omitted),⁴ and, as such, we must assume the truth of the facts asserted, see Saudi Arabia v. Nelson , 507 U.S. 349, 351, 113 S.Ct. 1471, 123 L.Ed.2d 47 (1993).

III. DISCUSSION

A. The FSIA

A suit is properly dismissed when a court lacks subject matter jurisdiction over the case. Home Builders Ass'n of Miss., Inc. v. City of Madison , 143 F.3d 1006, 1010 (5th Cir. 1998). The FSIA "provides the sole source of subject matter jurisdiction in suits against a foreign state." Dale v. Colagiovanni , 443 F.3d 425, 427–28 (5th Cir. 2006) ; see also 28 U.S.C. § 1604. "The general rule under the FSIA is that foreign states are immune from the jurisdiction of the United States Courts." Dale , 443 F.3d at 428 (quoting Byrd v. Corporacion Forestal y Industrial de Olancho S.A. , 182 F.3d 380, 388 (5th Cir. 1999), abrogated on other grounds by Samantar v. Yousuf , 560 U.S. 305, 130 S.Ct. 2278, 176 L.Ed.2d 1047 (2010) ).

"However, a district court can exercise subject matter jurisdiction over a foreign state if one of the statute's exceptions apply." Id. at 428 (quoting Byrd , 182 F.3d at 388 ). A foreign state "need only present a prima facie case that it is a foreign state; and, if it does, the burden shifts to the party opposing immunity to present evidence that one of the exceptions to immunity applies." Kelly v. Syria Shell Petroleum Dev. B.V. , 213 F.3d 841, 847 (5th Cir. 2000). Once the party seeking the exception has "assert[ed] at least some facts that would establish the exception," "the party seeking immunity bears the ultimate burden of proving the nonapplicability of the exception[ ] raised by its opponent." Stena Rederi AB v. Comision de Contratos del Comite Ejecutivo General del Sindicato Revolucionario de Trabajadores Petroleros de la Republica Mexicana, S.C. , 923 F.2d 380, 390 n.14 (5th Cir. 1991).

This appeal involves two exceptions to sovereign immunity under the FSIA—the commercial activity exception and the waiver exception. We will address each in turn.

B. Commercial Activity Exception

On appeal, Antigua contests the district court's application of the commercial activity exception in both suits. It does not contest the application of this exception to the breach of contract claims in the OSIC suit "to the extent that they are ... limited to the contracts alleged in the OSIC Complaint." Therefore, regardless of our resolution of this appeal, the OSIC suit will proceed on the breach of contract claims.⁵ Therefore,...