Chettri v. Nepal Rastra Bank
| Decision Date | 20 June 2016 |
| Docket Number | No. 14-3724,August Term, 2015,14-3724 |
| Citation | 834 F.3d 50 |
| Parties | Ashim Khattri Chettri, d/b/a Tarala Internationals, Wu Lixiang, individually and as agent and partner of Tarala Internationals, Plaintiff–Appellants, v. Nepal Rastra Bank, and Department of Revenue Investigation, Government of Nepal, Defendant–Appellees, Nepal Bangladesh Bank, Ltd., and Chase Manhattan Bank, Defendants. |
| Court | U.S. Court of Appeals — Second Circuit |
Dilli Raj Bhatta , Bhatta Law & Associates, PLLC, New York, NY, for Plaintiff–Appellants.
Khagendra Gharti–Chhetry , Chhetry & Associates, P.C., New York, NY, for Defendant–Appellees.
Before: Newman, Walker, and Jacobs, Circuit Judges.
John M. Walker, Jr.
, Circuit Judge:
Ashim Khattri Chettri, doing business as Tarala Internationals (“Tarala”), and Wu Lixiang (“Wu”) appeal from the decision of the United States District Court for the Southern District of New York (Gardephe, J. ) vacating a default judgment and dismissing their complaint against Nepal Rastra Bank (“Rastra Bank”) and the Department of Revenue Investigation of the Government of Nepal (“the Department”). The district court concluded that it lacked subject matter jurisdiction because both Rastra Bank and the Department, as political subdivisions or agencies of the Government of Nepal (“Nepal”), are immune from suit under the Foreign Sovereign Immunities Act of 1976 (“FSIA”), 28 U.S.C. § 1602 et seq .
The district court also concluded that it lacked personal jurisdiction because Tarala and Wu failed to comply with the service of process requirements of the FSIA. We agree with the district court's determination that it lacked subject matter jurisdiction and therefore need not address the issue of service of process. Accordingly, we AFFIRM the district court's judgment vacating the default judgment and dismissing the complaint.
Tarala, a Colorado corporation, is the principal supplier of clothing and military equipment to Nepal. Wu is the director of a company that helps Tarala coordinate the logistics of its international transactions. Wu has acted as Tarala's agent in connection with contracts with Nepal and has also independently conducted business with Nepal.
Rastra Bank, located in Kathmandu, is Nepal's financial agent and is authorized to open and operate accounts, settle obligations, and issue letters of credit on behalf of Nepal. The Department is the prosecutorial arm of Nepal's Ministry of Finance and its duties include monitoring wire transfers for compliance with Nepalese laws such as the Nepal Asset (Money) Laundering Prevention Act of 2008.
Between 2006 and 2008, Nepal placed several orders with Tarala for equipment for the Nepalese army and police force. Acting as Tarala's distribution partner in these transactions, Wu coordinated procurement and delivery of the goods. Nepal paid Tarala for the equipment through letters of credit issued by Rastra Bank to Chase Manhattan Bank, naming Tarala as a beneficiary.
On July 23, 2008, Tarala wired $1 million from Chase Manhattan Bank, located in New York, to Wu's personal account at Nepal Bangladesh Bank, Ltd. (“Bangladesh Bank”), which is located in Kathmandu. Wu claims that he intended to use the $1 million to pay a third party to transport equipment and complete delivery of goods to Nepal.
On August 4, 2008, Bangladesh Bank notified Rastra Bank of irregularities concerning the wire payment to Wu. Bangladesh Bank informed Rastra Bank that Wu had failed to provide adequate documentation of the source of the funds and that, as a result, Bangladesh Bank was freezing the funds pending an explanation of their source and pending further instructions from Rastra Bank. On August 27, 2008, the Department instructed Rastra Bank to direct Bangladesh Bank to freeze Wu's account pending further investigation.
In an attempt to persuade Bangladesh Bank to release the funds, Tarala provided letters from financial institutions and government agencies attesting to the legitimacy of the wire transfer. Rastra Bank and the Department took the position that this documentation was insufficient to establish the source of the funds.
On November 10, 2010, after the letters were unsuccessful in unfreezing the account, Tarala and Wu filed the underlying complaint in this action. Rastra Bank and the Department responded by claiming that Tarala and Wu failed to comply with the statutory requirements for service of process under the FSIA.
On January 18, 2011, the district court ordered Rastra Bank and the Department to show cause why a default judgment should not be entered against them. After Rastra Bank and the Department failed to respond by a court-imposed deadline, the district court entered a default judgment in favor of Tarala and Wu in the amount of $1,000,500.
On February 25, 2011, the Department charged Wu with violating the Nepal Asset (Money) Laundering Prevention Act of 2008 and, pursuant to that Act, demanded confiscation of the disputed funds.
On September 2, 2014, on the motion of Rastra Bank and the Department, and after receiving a statement of interest from the United States recommending vacatur, the district court reversed course. The district court vacated the default judgment and dismissed the complaint for lack of subject matter and personal jurisdiction.
Tarala and Wu now appeal, arguing that the district court had both subject matter and personal jurisdiction over this action.
In reviewing a district court's determination regarding subject matter jurisdiction under the FSIA, we use a clear error standard for factual findings and we review legal conclusions de novo. U.S. Titan, Inc. v. Guangzhou Zhen Hua Shipping Co. , 241 F.3d 135, 150–51 (2d Cir. 2001)
. We review for abuse of discretion a district court's decision to grant a motion to vacate a default judgment. SEC v. McNulty , 137 F.3d 732, 738 (2d Cir. 1998).
Tarala and Wu argue that the district court incorrectly determined that it lacked subject matter and personal jurisdiction and that the district court abused its discretion by vacating the default judgment based on these incorrect determinations. We disagree. The district court lacked subject matter jurisdiction because Rastra Bank and the Department are immune from suit under the FSIA.
The FSIA “provides the sole basis for obtaining jurisdiction over a foreign state in federal court.” Argentine Republic v. Amerada Hess Shipping Corp. , 488 U.S. 428, 439, 109 S.Ct. 683, 102 L.Ed.2d 818 (1989)
. The Act renders a foreign state “presumptively immune from the jurisdiction of United States courts,” Saudi Arabia v. Nelson , 507 U.S. 349, 355, 113 S.Ct. 1471, 123 L.Ed.2d 47 (1993), and defines the term “foreign state” to include “a political subdivision of a foreign state or an agency or instrumentality of a foreign state,” 28 U.S.C. § 1603(a).
Subject matter jurisdiction exists under the FSIA only if a specified exception to that Act applies. Nelson , 507 U.S. at 355, 113 S.Ct. 1471
. Because personal jurisdiction exists under the FSIA only if (a) service of process has been made in accordance with the Act and (b) subject matter jurisdiction exists under the Act, a finding that a federal court lacks subject matter jurisdiction over a claim against a foreign state necessarily yields a finding that the court lacks personal jurisdiction as well. See
A defendant seeking dismissal for lack of subject matter jurisdiction under the FSIA bears the burden of presenting a prima facie case that it is a foreign sovereign. Virtual Countries, Inc. v. Republic of S. Africa , 300 F.3d 230, 241 (2d Cir. 2002)
. If the defendant meets this burden, the plaintiff must then demonstrate that the foreign sovereign lacks immunity due to an FSIA exception. Cargill Int'l S.A. v. M/T Pavel Dybenko , 991 F.2d 1012, 1016 (2d Cir. 1993).
Tarala and Wu do not dispute the district court's determination that the Department is a political subdivision of a sovereign state and that Rastra Bank is an agency or instrumentality of a foreign state. Tarala and Wu do, however, challenge the district court's rejection of their argument that two specified exceptions to the FSIA apply: the “commercial activity” exception set forth in Section 1605(a)(2) and the “takings” exception set forth in Section 1605(a)(3). We agree with the district court that neither exception applies on these facts.
Under the commercial activity exception set forth in Section 1605(a)(2), a foreign state lacks immunity under the FSIA when:
the action is based [1] upon a commercial activity carried on in the United States by the foreign state; or [2] upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or [3] upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.
28 U.S.C. § 1605(a)(2)
. None of the three grounds for invoking the commercial activity exception applies here.
With respect to the first ground, this action is not “based upon a commercial activity carried on in the United States.” Id. The “threshold step” in assessing the applicability of the commercial activity exception is always to “identify the act of the foreign sovereign State that serves as the basis for plaintiffs' claims.” Garb v. Republic of Poland , 440 F.3d 579, 586 (2d Cir. 2006)
. Tarala and Wu cite as a commercial activity Nepal's entering into a contract with Colorado-based Tarala to supply goods and equipment. This lawsuit, however, is based not upon that contract but upon the Department and Rastra Bank's freezing of Wu's account in Nepal.
The term “ ‘based upon’ ... calls for something more than a mere connection with, or...
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