Af-Cap, Inc. v. Republic of Congo

• Decision Date: 23 August 2006
• Docket Number: No. 05-51168.,No. 05-50782.,No. 05-50290.,05-50290.,05-50782.,05-51168.
• Citation: 462 F.3d 417
• Parties: AF-CAP, INC., Plaintiff-Appellant, v. The REPUBLIC OF CONGO, Defendant, CMS Nomeco Congo Inc.; The Nuevo Congo Co.; Nuevo Congo Ltd., Garnishees-Appellees. Af-Cap, Inc., Plaintiff-Appellee, v. The Republic of Congo, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

462 F.3d 417

AF-CAP, INC., Plaintiff-Appellant, v. The REPUBLIC OF CONGO, Defendant, CMS Nomeco Congo Inc.; The Nuevo Congo Co.; Nuevo Congo Ltd., Garnishees-Appellees.

Af-Cap, Inc., Plaintiff-Appellee, v. The Republic of Congo, Defendant-Appellant.

No. 05-50290.

No. 05-50782.

No. 05-51168.

United States Court of Appeals, Fifth Circuit.

August 23, 2006.

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Steve D. McConnico, Jane M.N. Webre, Quentin Doug Sigel, Thomas A. Albright, Scott, Douglass & McConnico, Austin, TX, Sanford M. Saunders, Jr., Laura Metcoff Klaus (argued), Robert Phillip Charrow, Greenberg Traurig, Tobin J. Romero, Williams & Connolly, Washington, DC, for Af-Cap, Inc.

Guy Stanford Lipe, Marie Roach Yeates (argued), Gwendolyn Johnson Samora, Vinson & Elkins, Eleanor Herbert Hodges, Thompson & Knight, Houston, TX, Marc E. Vockell, Dell, Inc., Round Rock, TX, Andrew B. Derman, Thompson & Knight, Dallas, TX, for Garnishees-Appellees.

Boaz S. Morag (argued), Cleary, Gottlieb, Steen & Hamilton, New York City, Donald Scott Thomas, Jr., Clark, Thomas & Winters, Austin, TX, for Republic of Congo.

Sharon Swingle (argued), Douglas N. Letter, U.S. Dept. of Justice, Civ. Div.-App. Staff, Washington, DC, for U.S.

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

Before DeMOSS, BENAVIDES and PRADO, Circuit Judges.

BENAVIDES, Circuit Judge:

This appeal concerns an ongoing battle by Af-Cap, Inc. to receive payment from the Republic of Congo on an outstanding debt. At issue are (1) the district court's dissolution of garnishment writs that would have allowed Af-Cap to garnish royalties owed to the Congo; (2) a turnover order that requires the Congo to receive monetary payment (as opposed to in kind payment) of the royalties and requires its debtors to pay the royalties into the court registry; and (3) a contempt order against the Congo for failing to comply with the turnover order.

I. FACTUAL AND PROCEDURAL BACKGROUND

In 1984, Equator Bank Limited, Af-Cap's predecessor-in-interest, loaned the Congo funds for building a highway.¹ The following year, the Congo defaulted on the loan. More than ten years later, Connecticut Bank of Commerce ("CBC"), an assignee of Equator Bank, obtained a judgment against the Congo in England. The Congo did not make the payments required by the judgment and, as a consequence, CBC proceeded to enforce the judgment in the United States. In 2000, a New York state court entered a money judgment against the Congo in the amount of $13,628,340 plus interest. Subsequently, the New York court entered an order permitting attachment and execution against the assets of the Congo in satisfaction of the judgment.

In 2001, CBC registered the New York judgment in a Texas state court and simultaneously filed a garnishment action. CBC alleged that CMS Nomeco Congo, Inc., The Nuevo Congo Company, and Nuevo Congo Ltd. (the "CMS Companies"), among others, owed royalties and taxes to the Congo and sought to garnish those obligations to satisfy the judgment. The CMS Companies own working interests in a convention (the "Convention") that governs oil production in Congolese waters. Under the Convention, the interest owners pay the Congo royalties, which accrue when oil is taken from Congolese territory. The Congo chooses the method of payment for these royalties, either cash or "in kind" oil. Since 1999, the Congo has opted to receive 100 percent of its payments "in kind." The state court, ex parte, issued writs of garnishment.

The Congo and the CMS Companies removed the action to the United States District Court for the Western District of Texas. In an order dated March 16, 2001, the district court held that the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. § 1602 (2000), prohibited garnishment of the in kind royalties and tax obligations. This Court vacated that decision, recognizing that the property at issue could fall within an exception to FSIA if the property was used by the Congo in conjunction with commercial activity in the United States. Conn. Bank of Commerce v. Republic of Congo, 309 F.3d 240 (5th Cir.2002). The case was remanded for further factual development with regard to whether the property was used for "commercial activity."²

On remand, the district court found that the Congo did not use its royalties and tax obligations for commercial activity. In doing so, the court dissolved the writs of garnishment against the CMS Companies. On appeal, this Court vacated the district court's decision, holding that the obligations at issue had been used for a "commercial activity" because the Congo used some of the obligations to settle a lawsuit with the National Union Fire Insurance Company ("NUFI"). Af-Cap Inc. v. Republic of Congo, 383 F.3d 361, amended on rehearing, 389 F.3d 503 (5th Cir.2004) (hereinafter "Af-Cap II"). It also found that the situs of the obligations was the United States. Id. at 373. This Court again remanded, this time instructing the district court to determine which obligations had been used to pay the NUFI debt. Only those obligations would fall within the "commercial activity" exception. Id.

Following the remand, the district court denied a motion to reinstate the original writs of garnishment³ and, instead, issued new writs. Shortly thereafter, however, the district court dissolved the new writs. In doing so, the court found that the nonmonetary obligations owed by the CMS Companies were not proper subjects of garnishment under Texas law. In the same decision, the district court held that Texas law allowed a "turnover order," as an alternative method of attachment. The court issued a turnover order on February 22, 2005 that purports to (1) take "possession and control of all future royalty obligations owed to the Congo," (2) "order[ ] the Congo to turn over such royalty payments into the registry of the Court," and (3) order the Congo "to execute in three originals within three days the attached letter of instruction . . . from the Congo to the parties who pay royalties under the Convention to the Congo revoking prior instructions regarding payment of royalty and instructing that the royalty be paid in cash into the registry of the Court." The royalties were to be applied in favor of Af-Cap until the judgment was satisfied.

In response to the turnover order, the Congolese Ministry of Foreign Affairs and Francophony sent a letter to the district court stating that the Congo would not follow the order because it violated the country's sovereignty. The district court then issued an order directing the clerk of court to execute a letter of instruction, directing the CMS Companies to pay royalty obligations to the court's registry. On July 1, 2005, the district court found the Congo in contempt for failing to comply with the turnover order. Neither the Congo nor the CMS Companies has complied with the orders and the Congo remains in contempt.

The parties timely appealed (1) the order dissolving the writs of garnishment, (2) the turnover order, and (3) the contempt order. We consolidated the three appeals for oral argument and likewise do so now for disposition.

II. STANDARD OF REVIEW

For the contempt issue, the standard of review is abuse of discretion. United States v. City of Jackson, 359 F.3d 727, 731 (5th Cir.2004). The underlying findings of fact are reviewed for clear error, and the underlying conclusions of law are reviewed de novo. Id. For all of the remaining issues, the standard of review is de novo because the issues raise questions of law. Randel v. U.S. Dep't of the Navy, 157 F.3d 392, 395 (5th Cir.1998). Given that this is a diversity case, this Court must apply the law of Texas. See Erie R. Co. v. Tompkins, 304 U.S. 64, 79-80, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). If the law is unclear, this Court must predict how the Texas Supreme Court would rule. See Herrmann Holdings Ltd. v. Lucent Techs. Inc., 302 F.3d 552, 558 (5th Cir.2002). When necessary, the standard of review is discussed in greater detail below.

III. DISCUSSION

A. Garnishment Action

The first issue of this consolidated appeal is whether the district court erred by dissolving the writs of garnishment on the ground that Texas law does not allow the garnishment of nonmonetary obligations.

Garnishment actions in Texas are "purely statutory" and courts have no power to extend the benefits of garnishment beyond the relief available under statute. Beggs v. Fite, 130 Tex. 46, 106 S.W.2d 1039, 1042 (1937); see also 17 TEX. JUR.3D Creditors' Rights and Remedies § 359 (1998). The Texas garnishment statute, however, does not address the question posed here. See TEX. CIV. PRAC. & REM. CODE ANN. ch. 63 (Vernon 1997). It makes no mention of nonmonetary debts. Likewise, no Texas case has specifically considered whether a nonmonetary obligation can be subject to garnishment.

1. Texas Does Not Allow Garnishment of Nonmonetary Obligations

Our analysis of this issue is guided by the fact that garnishment has been "long considered [a] harsh remed[y]" by Texas courts. Varner v. Koons, 888 S.W.2d 511, 513 (Tex.App. — El Paso 1994, orig. proceeding); cf. Beggs, 106 S.W.2d at 1042 (describing garnishees as "strangers" to an action who are subjected to "inconvenience and hazard"). Indeed, Texas case law requires us to "strictly construe" the Texas garnishment statute. See Varner, 888 S.W.2d at 513. Given this task of "strict construction," we find that expanding the garnishment statute to cover nonmonetary obligations goes too far. This holding conforms with the principle that courts do not have the equitable power to expand the purely statutory garnishment remedy. Beggs, 106 S.W.2d at 1042.

Our conclusion is informed by Texas Rule of Civil Procedure 668, which provides that in the event it is determined that "the garnishee is indebted to the defendant in any amount, or was so indebted when the writ of garnishment was served, the court shall render judgment...