930 F.2d 1013 (2nd Cir. 1991), 822, Shapiro v. Republic of Bolivia

Docket Nº:822, Docket 90-7752.
Citation:930 F.2d 1013
Party Name:David SHAPIRO, Plaintiff-Appellant, v. The REPUBLIC OF BOLIVIA, the Bolivian Air Force and the Central Bank of Bolivia, Defendants-Appellees.
Case Date:April 17, 1991
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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930 F.2d 1013 (2nd Cir. 1991)

David SHAPIRO, Plaintiff-Appellant,


The REPUBLIC OF BOLIVIA, the Bolivian Air Force and the

Central Bank of Bolivia, Defendants-Appellees.

No. 822, Docket 90-7752.

United States Court of Appeals, Second Circuit

April 17, 1991

Argued Jan. 11, 1991.

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Anthony V. Labozetta, New York City (Lisa M. Sheppard, New York City, of counsel), for plaintiff-appellant.

Mitchell A. Karlan, New York City (Dvora Wolff Rabino, Gibson, Dunn & Crutcher, New York City, of counsel), for defendants-appellees.

Before WINTER and ALTIMARI, Circuit Judges, and WEXLER, District Judge. [*]

WINTER, Circuit Judge:

The subject of the instant action is a negotiable promissory note issued by the Republic of Bolivia to a United States corporation and introduced into the United States. The note is now in the hands of a United States citizen living in Hong Kong who has sought payment on the note from Bolivia but has been refused. We hold that Bolivia is subject to suit on the note in United States courts under the "commercial activity" exception of the Foreign Sovereign Immunities Act, 28 U.S.C. Sec. 1605(a)(2), and reverse.


Bernard Larry Tractman is president and sole shareholder of International Promotions and Ventures, Ltd. ("IPVL"), a Delaware corporation with its principal place of business in New York City. Tractman

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individually, and later collectively with IPVL, registered with the United States Department of Justice as an agent of the Republic of Bolivia engaged in various business and political activities, including negotiations for the purchase by the Bolivian Air Force of certain used NATO aircraft. The aircraft in question were F-104 Starfighter jets manufactured in the United States and owned by the Government of Belgium. The sale of these jets was subject to approval by the United States Department of State. See 22 C.F.R. Sec. 123.10 (1990).

In September 1981, IPVL and the Bolivian Air Force entered into a contract ("Contract") pursuant to which IPVL agreed to supply fifty-two such Starfighters and related equipment and services in exchange for negotiable promissory notes guaranteed by the Central Bank of Bolivia. Although Bolivia was required to issue the notes upon execution of the Contract, the Contract expressly required IPVL to return the notes if the United States authorities failed to approve the transfer of the aircraft.

In December 1981, pursuant to the Contract, Bolivia issued a series of negotiable promissory notes ("Notes"), numbered 1 through 40, with a face value of nearly $81 million. 1 Notes 1 through 10 were issued to Belgium. Notes 11 through 40 were issued to IPVL. IPVL received some of these Notes in Bolivia, and others, including Note 12, were sent directly to the United States. The State Department, however, refused to issue the necessary transfer license, and by mid-1983 the Starfighters remained undelivered. Upon Bolivia's request, Belgium returned Notes 1 through 10, and IPVL's Bolivian agent returned Note 11 and Notes 13 through 20. IPVL refused to return Note 12 and Notes 21 through 40.

The Republic of Bolivia thereafter brought an action in the Southern District of New York against Tractman and IPVL to recover possession of the outstanding Notes, or, alternatively, to recover damages. In September 1985, Judge Bernard Newman 2 granted Bolivia's motion for summary judgment and ordered IPVL and Tractman to return Note 12 and Notes 21 through 40, or, if "unable or unwilling" to do so, to pay damages in the amount of $33.01 million, the face amount of the Notes, plus accrued interest. See Office of the Comptroller General v. International Promotions and Ventures, Ltd., ("IPVL"), 618 F.Supp. 202 (S.D.N.Y.1985).

In June 1986, having failed to return any of the outstanding Notes or to pay any part of the IPVL judgment, Tractman and IPVL filed petitions for bankruptcy, resulting in an ongoing Chapter 7 proceeding in the Southern District bankruptcy court. In September 1986, Bolivia commenced an adversary proceeding in the bankruptcy action, seeking recovery of the outstanding Notes and denial of Tractman's request for discharge of the IPVL judgment. The bankruptcy court denied Bolivia's application. An appeal is pending.

In December 1986, David Shapiro filed this action in the Southern District against the Republic of Bolivia, the Bolivian Air Force, and the Central Bank of Bolivia. He alleges that he holds Note 12 and was refused payment on it by the Central Bank and seeks as relief the face value of the Note--$1,426,000--plus accrued interest. Shapiro is a United States citizen who resides primarily in Hong Kong but also maintains a residence in New York City. He is a director of Attlee Investments, Ltd. ("Attlee"), a Hong Kong corporation that organizes joint ventures and transactions in commercial paper and various commodities.

How Shapiro obtained Note 12 is a matter of controversy. His affidavit states the following. In March 1982, IPVL engaged Attlee to locate a purchaser for Notes 21

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through 40 in exchange for a commission. Attlee found a willing buyer but in May 1982 the deal collapsed and IPVL refused to pay a commission to Attlee. Subsequently, a creditor of IPVL, Cesar Sison, took possession of Notes 21 through 40 as collateral for outstanding loans. In September 1983, Sison sought Attlee's help in selling those Notes, and, "in or about the end of October, 1983"--the same month in which the IPVL action was commenced, see 618 F.Supp. at 206--Sison transferred another Note, number 12, to Attlee as its commission for having found the willing buyer in 1982. 3 Ultimately, Shapiro personally "purchased" Note 12 from Attlee in August 1986--almost one year after Judge Newman ordered IPVL and Tractman to return the Notes--in exchange for cancelling Attlee's debt to him in the amount of $117,450.

Before discovery, appellees, who deny any knowledge of how Shapiro obtained Note 12, moved to dismiss the complaint on the grounds that the district court lacked subject matter and personal jurisdiction and on the ground of forum non conveniens. The parties submitted affidavits, and Judge Lowe referred the matter to a magistrate, who recommended that the motion be denied. See Shapiro v. Republic of Bolivia, No. 86 Civ. 9935 (MJL) (S.D.N.Y. Aug. 31, 1989) (report and recommendation of Magistrate Roberts). Judge Lowe disagreed, holding that under the Foreign Sovereign Immunities Act of 1976 ("FSIA"), 28 U.S.C. Secs. 1330, 1332(a)(2)-(4), 1441(d), and 1602-11 (1988), appellees are immune from the jurisdiction of the courts of the United States in this matter. She ruled that appellees had neither waived their immunity pursuant to 28 U.S.C. Sec. 1605(a)(1) by initiating the IPVL suit and the subsequent bankruptcy adversary proceeding nor engaged in such "commercial activity carried on in the United States" as would subject them to jurisdiction under 28 U.S.C. Sec. 1605(a)(2). See Shapiro v. Republic of Bolivia, No. 86 Civ. 9935 (MJL), 1990 WL 100908 (S.D.N.Y. July 9, 1990) (opinion and order). Accordingly, on July 25, 1990, the district court entered a judgment dismissing the complaint, from which Shapiro has appealed.

While we agree that appellees have not waived their sovereign immunity pursuant to Section 1605(a)(1), we find that they have carried on "commercial activity" sufficiently related to the United States to subject them to jurisdiction under Section 1605(a)(2). We thus reverse.


The sole issue before us is whether Bolivia, as a foreign sovereign, is immune from the jurisdiction of United States courts. The merits of the underlying action, and in particular whether Shapiro can surmount the formidable hurdle presented by the claim that he is not a bona fide purchaser of Note 12, are not before us.

  1. Standard of Review

    The parties disagree over the appropriate scope of appellate review. Appellees urge that the district court's conclusions that (1) Bolivia did not waive its sovereign immunity by bringing actions against IPVL and Tractman and that (2) Bolivia did not engage in sufficient commercial activity to invoke the jurisdiction of United States courts are findings of fact subject to the "clearly erroneous" standard of review set forth by Fed.R.Civ.P. 52(a). Appellant counters that these conclusions are matters of law subject to de novo review.

    We agree with appellant that in the circumstances of the instant matter de novo review is proper. Had the district court made factual findings, our review of those findings would be under the clearly erroneous standard. However, the district court made no such findings. It merely took account of Bolivia's two prior actions against IPVL and Tractman and, as was proper in this procedural context, deemed as true Shapiro's allegations concerning the issuance and distribution of the Notes. See Joyce v. Joyce Beverages, Inc., 571 F.2d 703, 706 (2d Cir.), cert. denied, 437

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    U.S. 905, 98 S.Ct. 3092, 57 L.Ed.2d 1135 (1978). The core of the district court's decision is the essentially legal question of whether appellees' actions, as alleged, have triggered an exception to the general rule of foreign sovereign immunity. See Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300 (2d Cir.1981) (conducting de novo review of dismissal on sovereign immunity grounds), cert. denied, 454 U.S. 1148, 102 S.Ct. 1012, 71 L.Ed.2d 301 (1982).

  2. Subject Matter Jurisdiction

    The FSIA is the exclusive source of subject matter jurisdiction in suits involving foreign states. See Morel de Letelier v. Republic of Chile, 748 F.2d 790, 793 (2d Cir.1984), cert. denied, 471 U.S. 1125, 105 S.Ct. 2656, 86 L.Ed.2d 273 (1985). It confers original jurisdiction on district courts

    without regard to amount in controversy of any nonjury civil action against a foreign state as defined in section 1603(a) of this title as...

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