Walter Fuller Aircraft Sales, Inc. v. Republic of Philippines

• Decision Date: 08 July 1992
• Docket Number: No. 91-1805,91-1805
• Citation: 965 F.2d 1375
• Parties: WALTER FULLER AIRCRAFT SALES, INC., Plaintiff-Appellee, v. The REPUBLIC OF THE PHILIPPINES and the Philippines Presidential Commission on Good Government, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1375

965 F.2d 1375

WALTER FULLER AIRCRAFT SALES, INC., Plaintiff-Appellee, v. The REPUBLIC OF THE PHILIPPINES and the Philippines

Presidential Commission on Good Government,

Defendants-Appellants.

No. 91-1805.

United States Court of Appeals,

Fifth Circuit.

July 8, 1992.

Chairman David M. Castro, Presidential Com'n on Good Government, The Republic of the Philippines, Pasig, Metro Manilla Philippines, B. George Williams, Williams & O'Donnell, Woodland Hills, Cal., for defendants-appellants.

Michael Lowenberg, Dallas, Tex., Melinda Gayle Jayson, Lisa S. Gallerano, Akin, Gump, Strauss, Hauer & Feld, Dallas, Tex., for Walter Fuller Aircraft Sales, Inc.

Appeal from the United States District Court for the Northern District of Texas.

Before KING and WIENER, Circuit Judges, and LAKE, District Judge. ^*

KING, Circuit Judge:

Shortly after the Marcos regime was ousted from the Philippines, the new government of Corazon Aquino created the Presidential Commission on Good Government (PCGG) to recover any ill-gotten gains of Marcos and his confederates. Using its power to sequester property, the PCGG obtained control of a Falcon 50 jet aircraft (the Falcon) that had been leased by a Philippine corporation with alleged ties to the former Marcos regime. The owner of the plane was Faysound, Ltd., a Hong Kong corporation. The PCGG ultimately sold the Falcon to an American corporation, Walter Fuller Aircraft Sales, Inc. (Fuller), which brought it to the United States. Faysound, distressed about the disposition of its property, brought an action against Fuller in federal district court in Arkansas to try title, and won.

This lawsuit arose out of the Arkansas proceedings. Fuller, claiming that the PCGG had promised in the deed of sale to defend any action brought by an adverse claimant to the Falcon, sued the PCGG and the Republic of the Philippines (Republic) in the United States District Court for the Northern District of Texas in an effort to recover the cost of defending Faysound's lawsuit. The PCGG and the Republic moved to dismiss on the ground that they were entitled to sovereign immunity under the Foreign Sovereign Immunities Act (FSIA), ¹ but the district court held that the suit could go forward against both defendants. We agree that the district court had subject matter jurisdiction over the suit against the PCGG under the commercial activities exception to the FSIA, but the record is insufficient to allow a determination of whether the Republic can be held liable for the acts of the PCGG under an agency theory. We also reject the defendants' argument that the act of state doctrine bars the suit, and hold that the district court had jurisdiction over a tort claim advanced by Fuller. We do not, however, accept the defendants' invitation to review the district court's ruling on the issue of forum non conveniens.

I.

On February 28, 1986, President Corazon Aquino signed Executive Order No. 1, creating the PCGG. The PCGG was charged with, inter alia, assisting in "[t]he recovery of all ill-gotten wealth accumulated by former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and close associates, whether located in the Philippines or abroad, including the takeover or sequestration of all business enterprises and entities owned or controlled by them...." In order to carry out this duty, the PCGG was given the power and authority "[t]o provisionally take over in the public interest or to prevent its disposal or dissipation, business enterprises and properties taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos...." Two weeks later, by Executive Order No. 2, President Aquino froze and prohibited the transfer of all assets in which Marcos or any of his associates had any interest.

Using its power under Executive Orders Nos. 1 and 2, the PCGG issued a writ of sequestration against Eduardo Cojuangco, Jr., describing a Falcon 50 jet aircraft registered in the name of United Coconut Chemicals, Inc. (UNICHEM) as lessee. Cojuangco was a wealthy businessman with a substantial interest in UNICHEM, and had ties to former President Marcos. As required by Executive Order No. 14, the PCGG applied to the Sandiganbayan, the special Philippine court established to adjudicate claims to property sequestered by the PCGG, for permission to sell the Falcon. The Falcon began to deteriorate while the proceedings were pending, so the PCGG stepped up its efforts to sell. In late summer 1989, Fuller, a Texas corporation in the business of aircraft brokerage and resale, began negotiations with the PCGG for the purchase of the Falcon. Although the PCGG apparently never received permission from the Sandiganbayan to sell the plane, it eventually closed the deal with Fuller. ² Fuller and the PCGG executed two agreements covering the sale, a Deed of Sale and a Memorandum of Agreement. The Deed of Sale provides as follows:

ARTICLE V. WARRANTIES AND REPRESENTATIONS

b. The SELLER ... does hereby assume full responsibility, to defend and hold harmless the BUYER from any and all claims of all persons whosoever, including but not limited to adverse claims, charges, liens, and/or possible encumbrances that may be place [sic] on the title by reason of any act, contract or agreement entered into, prior to the date of this Deed of Sale, as the SELLER by virtue of this sale, has released subject aircraft absolutely free from any such claims, for if any there be should arise, such claims are understood ipso facto directed against the proceeds of the sale that is deposited in escrow, and not anymore on the aircraft.

After taking possession, Fuller transported the Falcon to Arkansas for repairs.

On October 9, 1989, Faysound, the Hong Kong corporation that owned the Falcon and had leased it to UNICHEM, filed an action in the United States District Court for the Eastern District of Arkansas against Fuller and Falcon Jet Corporation to try title to the aircraft (the Arkansas action). Fuller notified the PCGG in writing of the Arkansas action and requested that it "defend and hold [Fuller] harmless" from Faysound's claim of title to the aircraft. The PCGG refused. On October 29, 1990, the district court granted Faysound's motion for summary judgment, holding that the PCGG's expropriation of the Falcon from an entity that did not own it was not protected by the act of state doctrine. Faysound Ltd. v. Walter Fuller Aircraft Sales, Inc., 748 F.Supp. 1365 (E.D.Ark.1990), appeal dismissed, 940 F.2d 339 (8th Cir.1991) (per curiam), cert. denied, --- U.S. ----, 112 S.Ct. 1175, 117 L.Ed.2d 420 (1992). On November 21, 1990, Fuller again requested that the PCGG bear the costs of defending the Arkansas action. The PCGG again refused. On December 10, 1990, Fuller filed this action against the PCGG and the Republic for breach of the contractual indemnity clause, for breach of warranty of title, and for a declaration of the parties' rights under the Deed of Sale.

The PCGG and the Republic filed a joint motion to dismiss. They agreed that they were both foreign states as defined in the FSIA, but the Republic argued that it could not be held liable for the actions of its instrumentality, the PCGG. Moreover they asserted, none of the exceptions to the FSIA's general rule of sovereign immunity, including the "commercial activities" exception, applied, so the district court lacked subject matter jurisdiction. Finally, they argued that the suit was barred by the act of state doctrine. In an order entered April 18, 1991, the district court denied the motion. It held, first, that under the analysis of First National City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S. 611, 103 S.Ct. 2591, 77 L.Ed.2d 46 (1983) [Bancec ], the Republic could be sued for the acts of the PCGG because the PCGG was the "alter ego" of the Republic. It then held that the FSIA did not shield the defendants from liability because (1) the Deed of Sale, although not containing an explicit choice of law provision, contemplates that disputes would be adjudicated in the United States, and therefore functions as an implicit waiver of sovereign immunity under 28 U.S.C. § 1605(a)(1) (exception for waiver of immunity); and (2) the contract between the PCGG and Fuller was commercial activity which produced a direct effect in the United States sufficient to support jurisdiction under 28 U.S.C. § 1605(a)(2) (exception for commercial activities). With respect to the commercial activities exception, the district court held that the PCGG had engaged in commercial activity because the aircraft contract was the type into which private parties enter. It also held that the contract amounted to commercial activity outside the United States with a "direct effect" in the United States, because the PCGG's alleged actions caused Fuller, an American corporation, to suffer a foreseeable financial loss. The court next determined that it had personal jurisdiction over the defendants. Finally, the court determined that the act of state doctrine did not bar the suit because the sale of the Falcon either was not the act of a sovereign or involved repudiation of a commercial obligation.

In an amended complaint, Fuller added a claim for actual and punitive damages against the PCGG under a tort theory and alleged an exception to sovereign immunity under 28 U.S.C. § 1605(a)(5) (noncommercial tort exception). The defendants then filed a second motion to dismiss, adopting the arguments for dismissal asserted in their original motion and adding the additional defense of forum non conveniens. ³ In an order entered July 9, 1991, the district court determined that it had jurisdiction over Fuller's tort claim through the operation of 28 U.S.C. § 1367 (providing for "supplemental" jurisdiction over related claims whenever district courts have original jurisdiction in a civil action) and denied the forum non conveniens argument. With respect...