City of New York v. Permanent Mission of India

• Decision Date: 26 April 2006
• Docket Number: Docket No. 05-42639-CV(CON).,Docket No. 05-4260-CV(L).
• Citation: 446 F.3d 365
• Parties: The CITY OF NEW YORK, Plaintiff-Appellee, v. THE PERMANENT MISSION OF INDIA TO THE UNITED NATIONS and Bayaryn Jargalsaikhan, as principal resident representative to the United Nations of the Mongolian People's Republic, Defendants-Appellants, Great American Leasing Corporation and Jane Doe, The names of the last 20 defendants being unknown to the plaintiff, the persons or parties intended to be persons or corporations, if any, having or claiming an interest in or lien upon the property described in the complaint, Defendants.
• Court: U.S. Court of Appeals — Second Circuit

Page 365

446 F.3d 365

The CITY OF NEW YORK, Plaintiff-Appellee, v. THE PERMANENT MISSION OF INDIA TO THE UNITED NATIONS and Bayaryn Jargalsaikhan, as principal resident representative to the United Nations of the Mongolian People's Republic, Defendants-Appellants Great American Leasing Corporation and Jane Doe, The names of the last 20 defendants being unknown to the plaintiff, the persons or parties intended to be persons or corporations, if any, having or claiming an interest in or lien upon the property described in the complaint, Defendants.

Docket No. 05-4260-CV(L).

Docket No. 05-42639-CV(CON).

United States Court of Appeals, Second Circuit.

Argued: January 23, 2006.

Decided: April 26, 2006.

Norman Corenthal, Assistant Corporation Counsel (Kristin M. Helmers and John Low-Beer, of counsel), for Michael A. Cardozo, Corporation Counsel of the City of New York, New York, N.Y., for Plaintiff-Appellee.

John J.P. Howley (Robert A. Kandel and Robert Grass, of counsel), Kaye Scholer LLP, New York, N.Y., for Defendant-Appellee.

Before: KATZMANN and HALL, Circuit Judges, KORMAN, District Judge.¹

KATZMANN, Circuit Judge.

This case arises out of the City of New York's (the "City") attempts to collect property taxes from certain foreign missions to the United Nations that have been using parts of their embassy buildings for purposes that, the City argues, render at least those portions of those buildings subject to property taxation. The merits of that claim are not before us in this interlocutory appeal. Instead, we are called upon to answer a preliminary question of first impression in this circuit — whether, pursuant to the "immovable property" exception to the Foreign Sovereign Immunity Act's general rule that a foreign country is immune from suit in our courts, a federal court has jurisdiction to settle this dispute. We agree with the district court that it does have such jurisdiction and that this suit may go forward. The decision of the district court is affirmed and this case remanded for further proceedings.

I.

A.

While the merits of the City's claim are not before us, we set forth a condensed version of the underlying dispute to give some context to the discussion that follows.

The Permanent Mission of India to the United Nations (the "Indian Mission") is housed in a 26-floor building at 235 East 43rd Street in New York City that is owned by the Government of India. The first six floors, basement, and cellar of this building are primarily used for diplomatic offices, while the top 20 floors are devoted to residential units. Housed in these units are 16 diplomatic employees of the mission (all below the rank of Head of Mission or Minister Plenipotentiary) and their families, as well as security personnel and a driver; all of these employees are citizens of India who receive this housing rent-free.

The Ministry for Foreign Affairs of the People's Republic of Mongolia (the "Mongolian Mission") is housed in a 6-story building at 6 East 77th Street in New York City that is owned by the People's Republic of Mongolia. The first two floors apparently are used for the mission's offices and the third floor for the Ambassador's apartment. The top three floors are used for six apartments, in which reside, rent-free, lower-level employees of the mission and their families. Both missions assert that, for various reasons, the housing of diplomatic employees on-site is essential.

Under New York law, real property owned by a foreign government is exempt from taxation if it is "used exclusively" for diplomatic offices or for the quarters of a diplomat with the rank of ambassador or minister plenipotentiary to the United Nations. N.Y. Real Property Tax L. § 418. On the other hand, "[i]f a portion only of any lot or building... is used exclusively for the purposes herein described, then such portion only shall be exempt and the remainder shall be subject to taxation." Id. At least since 1993, the United States Mission to the United Nations ("U.S.Mission") has indicated its agreement that portions of property not used for the specific purposes stated above, including those portions used to house lower-level diplomatic employees, will be subject to property taxation, absent a contrary bilateral agreement between the United States and the country at issue.

In accordance with its interpretation of this state law and applicable treaties, the City has been levying property taxes against the two properties in question for years, but has had no success in getting the missions to pay. By operation of New York law, these unpaid taxes eventually converted into tax liens held by the City against these two properties. The City alleges that, as of February 1, 2003, the Indian Mission property was subject to about $16.4 million in unpaid property taxes and interest, while the Mongolian Mission owed about $2.1 million.

B.

On April 2, 2003, the City filed separate complaints in state court seeking judgments establishing the validity of the tax liens on the mission buildings.² Both missions (represented by the same counsel) removed their cases to federal court, where both cases were assigned to Judge Casey. After discovery limited to the jurisdictional question, the missions moved to dismiss for lack of subject matter jurisdiction.

In a thoughtful, well-researched opinion dated July 6, 2005, Judge Casey denied the motions on the ground that these suits implicate the "immovable property" exception to the Foreign Sovereign Immunity Act's ("FSIA") general rule that foreign governments are immune from suit. See City of New York v. Permanent Mission of India to the United Nations, 376 F.Supp.2d 429 (S.D.N.Y.2005). He did not reach the City's alternative argument that the suits also implicate the FSIA's "commercial activity" exception.³ This interlocutory appeal followed. See Transatlantic Shiffahrtskontor GmbH v. Shanghai Foreign Trade Corp., 204 F.3d 384, 387 (2d Cir.2000) (immediate appeal is permitted, pursuant to the collateral-order doctrine, of denial of motion to dismiss for lack of subject matter jurisdiction under the FSIA).

Meanwhile, Congress has been actively involved in the issues directly pertaining to this litigation. Provisions included in appropriations bills enacted in each of the past two years require that 110 percent of unpaid property taxes owed by any country be withheld from that country's foreign aid. For unpaid property taxes to be subject to this withholding requirement, however, the amount owed must be determined "in a court order or judgment entered against such country by a court of the United States or any State or subdivision thereof." Foreign Operations, Export Financing, and Related Programs Appropriations Act of 2006, P.L. No. 109-102, § 543 (2005); Consolidated Appropriations Act of 2005, P.L. No. 108-447, § 543 (2004). Thus, this provision cannot be triggered if no court can adjudicate the property tax controversy.

II.

A.

Against this backdrop, we begin by noting that we review de novo the district court's conclusions of law regarding jurisdiction under the FSIA.⁴ Cabiri v. Gov't of the Republic of Ghana, 165 F.3d 193, 196 (2d Cir.1999).

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 (1988). Under the FSIA, a foreign state is presumptively immune from suit. Saudia Arabia v. Nelson, 507 U.S. 349, 355, 113 S.Ct. 1471, 123 L.Ed.2d 47 (1993). However, the FSIA contains several exceptions to this general rule of immunity. The party seeking to establish jurisdiction bears the burden of producing evidence establishing that a specific exception to immunity applies, but the foreign state then bears the ultimate burden of persuasion on this question. See Virtual Countries, Inc. v. Republic of South Africa, 300 F.3d 230, 241 (2d Cir.2002); Cargill Int'l S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir.1993)

B.

In this case, the City argues that jurisdiction lies under the FSIA's "immovable property" exception. This exception provides that a foreign state shall not be immune from jurisdiction in any case in which "rights in immovable property situated in the United States are in issue." 28 U.S.C. § 1605(a)(4). The parties take very different stances on how expansive this exception is. The defendants argue that the immovable property exception is limited to cases in which the parties dispute title, ownership or possession of the immovable property itself. The City argues that the exception extends much more broadly, including to actions to adjudicate the validity of a tax lien. This is a question of first impression in this circuit.

We begin, as always, with the language of the provision. See, e.g., United States v. Gayle, 342 F.3d 89, 92 (2d Cir.2003); United States v. Velastegui, 199 F.3d 590, 594 (2d Cir.1999), cert. denied, 531 U.S. 823, 121 S.Ct. 67, 148 L.Ed.2d 32 (2000). Its general parameters are clear in two respects, neither of which is disputed by either party. First, it is restricted to "immovable property situated in the United States," i.e., real estate located in this country. Second, its application is limited to cases in which rights in such real estate "are in issue." Thus, it does not apply to disputes that arise out of such rights in real estate but do not actually place them at issue. See Asociacion de Reclamantes v. The United Mexican States, 735 F.2d 1517, 1523 (D.C.Cir.1984) (Scalia, J.).

What is controverted here is what is meant by "rights in" immovable property. Textually, we find that this phrase is more plausibly read to support the City's position than the defendants'. By its terms, the provision does not limit itself to cases in which the specific right at issue is title, ownership, or possession, and it certainly does not specifically exclude cases in which the right at issue is a lien.⁵ Nor does the plain...