Atwood Turnkey Drilling, Inc. v. Petroleo Brasileiro, S.A.

• Decision Date: 27 June 1989
• Docket Number: No. 88-2302,88-2302
• Citation: 875 F.2d 1174
• Parties: ATWOOD TURNKEY DRILLING, INC., et al, Plaintiffs-Appellees, v. PETROLEO BRASILEIRO, S.A., Defendant-Appellant, v. INTERNATIONAL UNDERWATER CONTRACTORS, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1174

875 F.2d 1174

14 Fed.R.Serv.3d 963

ATWOOD TURNKEY DRILLING, INC., et al, Plaintiffs-Appellees, v. PETROLEO BRASILEIRO, S.A., Defendant-Appellant, v. INTERNATIONAL UNDERWATER CONTRACTORS, Defendant-Appellee.

No. 88-2302.

United States Court of Appeals, Fifth Circuit.

June 27, 1989.

As Amended on Denial of Rehearing Sept. 19, 1989.

Paul S. Aufrichtig, New York City, William H. Seele, James M. Davin, Houston, Tex., for defendant-appellant.

Andrew S. Hanen, John E. Spalding, Houston, Tex., for Atwood.

Craig M. Kaiser, Houston, Tex., for Intern. Underwater.

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

Before GEE, HIGGINBOTHAM and DUHE, Circuit Judges.

DUHE, Circuit Judge:

In this breach of contract case the national oil company of Brazil, Petroleo Brasileiro, S.A. (Petrobras), seeks interlocutory review of a preliminary injunction granted by the district court. We affirm.

FACTS

Petrobras contracted with an American company, Atwood Turnkey Drilling, Inc., et al, (Atwood), for the drilling of oil wells off the coast of Brazil. As security for the sums due Atwood under the contract, Petrobras furnished Atwood a letter of credit issued by an American bank and guaranteed by the Export Import Bank of the United States (EXIM). Following Petrobras's alleged refusal to pay Atwood for work it had performed, Atwood sued Petrobras for breach of contract. Because the letter of credit and the EXIM guarantee were due to expire by their own terms, Atwood applied for a temporary restraining order and/or a preliminary injunction maintaining them in effect. The district court issued a temporary restraining order extending the letter of credit for a brief period of time. That order subsequently expired. The preliminary injunction hearing

occurred and the district court granted Atwood's motion for a preliminary injunction. The court ordered Petrobras to extend or reinstate the letter of credit and to request EXIM to extend its guarantee. The extensions were to continue for one year from the date of the order or until all issues pertinent to the letter of credit were resolved. Petrobras appealed.

JURISDICTION

At the outset we must determine whether we have jurisdiction to hear Petrobras's appeal. 28 U.S.C. Sec. 1292(a)(1), gives this court jurisdiction of appeals from interlocutory orders "granting, continuing, modifying, refusing or dissolving injunctions, or refusing to dissolve or modify injunctions, except where a direct review may be had in the Supreme Court." Although the order appealed from in this case specifically grants a preliminary injunction, Atwood contends that this court lacks jurisdiction. It cites Carson v. American Brands, Inc., 450 U.S. 79, 101 S.Ct. 993, 67 L.Ed.2d 59 (1981) for the proposition that appellate courts do not have jurisdiction of appeals from interlocutory orders granting injunctions under Sec. 1292(a)(1) unless the litigant can show both that the interlocutory order might have a serious, perhaps irreparable, consequence, and that the order can be effectively challenged only by immediate appeal.

Petrobras contends that the additional requirement in Carson, that the order might have a "serious, perhaps irreparable, consequence", does not apply to orders, such as the one in the instant case, which specifically grant injunctive relief but only to orders not denominated injunctions but which have the practical effect of granting injunctive relief.

Petrobras is correct. Atwood's analysis of the Carson case is faulty. The orders at issue in Carson, and the two cases it relied on, Gardner v. Westinghouse Broadcasting Co., 437 U.S. 478, 98 S.Ct. 2451, 57 L.Ed.2d 364 (1978) and Switzerland Cheese Ass'n., Inc. v. E. Horne's Market, Inc., 385 U.S. 23, 87 S.Ct. 193, 17 L.Ed.2d 23 (1966), were not denominated injunctions, they merely had the practical effect of an injunction. We hold that Carson does not apply to orders specifically granting or denying injunctions. Accordingly, we have jurisdiction of Petrobras's appeal under Sec. 1292(a)(1).

SOVEREIGN IMMUNITY

Petrobras contends that enjoining it to reinstate the letter of credit is not permissible under the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. Sec. 1602, et seq. The first question is whether Petrobras is entitled to the benefits of the FSIA. Section 1603 of the FSIA provides that agencies and instrumentalities of a foreign state are considered foreign states, entitled to the benefits of the FSIA, if they are a separate legal person, the majority of their shares are owned by a foreign state; and they are neither a citizen of a state of the United States, nor created under the laws of any third country.

Atwood correctly asserts the lack of evidence in the trial court record that Petrobras is a sovereign. However, Fed.R.Civ.P. 44.1 states that in determining foreign law, the court may consider any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence. Petrobras has provided this court with a copy of the Brazilian law creating it. The law provides that Petrobras is a separate legal person and that the government of Brazil owns a majority of Petrobras's shares. Additionally, Petrobras has been recognized as a foreign sovereign entitled to the benefits of the FSIA in other cases in the United States District Courts. Spensley v. Racal-Decca Survey, C.A. No. H-81-2489, 1983 AMC 767 (S.D.Tex.1982); Evans v. Petroleo Brasileiro, S.A., C.A. No. H-83-91, 1985 AMC 1614, 1984 WL 1887 (S.D.Tex.1984). We hold that Petrobras is entitled to sovereign immunity under the FSIA.

Having determined that Petrobras is entitled to sovereign immunity we turn to Petrobras's contention that the Act prohibits this injunction as a prejudgment attachment. The FSIA sets out the general principle that property of a foreign state in the United States is immune from attachment.

28 U.S.C. Sec. 1609. The exceptions to this general principle are stated in Sec. 1610. Subdivision (d) of that section provides that a foreign sovereign's property in the United States used for commercial purposes is subject to prejudgment attachment if:

1) Immunity from attachment prior to judgment has been explicitly waived; and

2) The purpose of the attachment is to secure satisfaction of a judgment that may ultimately be entered against the sovereign.

Atwood contends that Petrobras has waived its immunity to prejudgment attachment. Our review of the record indicates that Atwood is correct. Article IX Paragraph B of the financing agreement between Petrobras, First Interstate Bank and the Ekimbank states:

B. Waiver of sovereign immunity. The Borrower [Petrobras] acknowledges and agrees that the activities contemplated by the provisions of this agreement and the notes are commercial in nature rather than governmental or public and therefore acknowledges and agrees that it is not entitled to any right of immunity on the grounds of sovereignty or otherwise with respect to such activities or in any legal action or proceeding arising out of or relating to this agreement or the notes. The Borrower ... expressly and irrevocably waives any such right of immunity (including any immunity from the jurisdiction of any court or from any execution or attachment in aid of execution prior to judgment or otherwise ) or claim thereto which may now or hereafter exist, and agrees not to assert any such right or claim in any such action or proceeding, whether in the United States or otherwise. (emphasis added).

The instant case clearly relates to the letter of credit which is an activity contemplated by the financing agreement. Accordingly, the waiver provision applies and Petrobras is precluded from asserting sovereign immunity as a defense in this action. Furthermore, the parties do not dispute that the purpose of the injunction is to secure the payment of a judgment which may be rendered in the litigation. Accordingly, Petrobras's property in the United States used for commercial purposes is subject to prejudgment attachment, whether by means of an injunction or more traditional methods of attachment.

Adequacy of Notice

Petrobras contends that it was not given a fair opportunity to contest the TRO or the preliminary injunction because the trial court did not give it adequate notice of the hearings. On January 20, 1988, Atwood filed an "Application for TRO and/or Preliminary Injunction". On January 21, 1988 the district court conducted a hearing on the TRO. Petrobras contends it was only given a few hours notice of this hearing and therefore it was unable to marshal any evidence or defense to the motion. The TRO issued on January 28, 1988 and the preliminary injunction hearing was held on February 26, 1988. Petrobras contends that it received less than twenty-four hours notice of this hearing and that, considering its status as a foreign defendant, this was inadequate, unfair and deprived it of its due process rights. Petrobras argues it did not have time to produce a witness or to provide affidavits. It further states that it did not offer any affidavits at the TRO hearing because the trial court informed it that if a TRO issued, Petrobras would be given advance notice of the preliminary injunction hearing so that it could present witnesses and evidence. Petrobras also complains that it was not given advance notice that Atwood was requesting that the EXIM guarantee be extended and only found this out on the morning of the...