Com. of Va. v. Bulgartabac Holding Group

• Decision Date: 03 March 2005
• Docket Number: No. CIV.A. 304CV842.,CIV.A. 304CV842.
• Citation: 360 F.Supp.2d 791
• Parties: COMMONWEALTH OF VIRGINIA, ex rel. Jerry W. KILGORE, Attorney General, Plaintiff, v. BULGARTABAC HOLDING GROUP, Defendant.
• Court: U.S. District Court — Eastern District of Virginia

Page 791

360 F.Supp.2d 791

COMMONWEALTH OF VIRGINIA, ex rel. Jerry W. KILGORE, Attorney General, Plaintiff, v. BULGARTABAC HOLDING GROUP, Defendant.

No. CIV.A. 304CV842.

United States District Court, E.D. Virginia, Richmond Division.

March 3, 2005.

Francis S. Ferguson, Esquire, Anne Marie Cushmac, Esquire, Office of the Attorney General, Richmond, VA, for Plaintiff.

John A. Gibney, Jr., Esquire, Thompson & McMullan, Richmond, Suzette B. Peyton, Esquire, Law Offices of Tom Nebel PC, Nashville, TN, for Defendant.

MEMORANDUM OPINION

PAYNE, District Judge.

This matter is before the Court upon the Plaintiff's Motion To Remand To State Court (Docket No. 12). For the reasons outlined below, the motion is DENIED.

I.

On August 27, 2004, the Commonwealth of Virginia ex rel. Jerry Kilgore, Attorney General ("Commonwealth") filed a complaint against Bulgartabac Holding Group ("Bulgartabac") alleging that the defendant knowingly failed to comply with the requirements of Va.Code § 3.1-336.2, a part of the Virginia Tobacco Escrow Statute, Va. Code Ann. § 3.1-336.1 to -336.16 (Michie 2004), which requires non-signatories of a certain settlement agreement to create "a reserve fund to establish a source of compensation" for harm to public health. 1999 Va. Acts chs. 714. The Commonwealth sought a mandatory injunction to compel Bulgartabac's compliance with the statute and to enjoin further violations. The Commonwealth also sought imposition of a statutory fine. Bill of Complaint ¶ 1.

The Virginia General Assembly enacted Va.Code § 3.1-336.2 as companion legislation to a settlement agreement, entitled the Master Settlement Agreement ("MSA"), between leading tobacco product manufacturers ("tobacco signatories") and forty-six States, including the Commonwealth ("settling states")¹. The MSA obligates original and subsequent tobacco signatories to make payments to the settling states, to fund a national foundation created to further public health interests, and to accept advertising and marketing restrictions aimed at reducing underage smoking. In exchange, the settling states released the tobacco signatories from past, present, and future liability on claims seeking to recover increased health care costs due to smoking related illnesses. Pl.'s Mem. Supp. at 1-4. To offset a potential unfair competitive advantage, legislatures in the settling states enacted statutes intended to force some responsibility upon non-signatory tobacco product manufacturers.

A non-signatory of the MSA, Bulgartabac is one of the leading tobacco companies in Central and Eastern Europe,² with its principal place of business in Sofia, Bulgaria. "The structure of the [holding group] includes tobacco buying, processing and leaf trade, manufacturing and export of cigarettes, research and development."³ The Republic of Bulgaria is the majority shareholder in Bulgartabac, owning 79.76% of the shares in the company. Defendant's Response To Motion To Remand at 1 ("Def.'s Resp. Mot. at ____").

The Commonwealth served Bulgartabac by serving the Secretary of the Commonwealth on September 16, 2004, which certified compliance with the Virginia service of process statute five days later. On October 15, 2004, the Commonwealth filed a Motion for Entry of Judgment by Default against Bulgartabac. On October 27, 2004, Bulgartabac requested that the Attorney General agree to an extension of time to file a response. On November 17, 2004, Bulgartabac filed a Petition for Removal of the state action to federal court pursuant to 28 U.S.C. §§ 1441 & 1603, asserting that, as an instrumentality of a foreign state, Bulgartabac had a statutory right to remove. Pl.'s Mem. Supp. at 7.⁴ On December 17, 2004, the Commonwealth filed Plaintiff's Motion to Remand to State Court.

In its Motion to Remand, the Commonwealth contends that the Foreign Sovereign Immunities Act of 1976, Pub.L. No. 94-583, 90 Stat. 2891 [hereinafter "FSIA"] does not grant Bulgartabac immunity from the jurisdiction of state courts and that the Eleventh Amendment bars removal. Alternatively, the Commonwealth argues that the Court should abstain from hearing the case. Pl.'s Mem. Supp. at 8-11. Bulgartabac responds that removal was proper under the FSIA and 28 U.S.C. § 1441(d), and that States as plaintiffs cannot assert an Eleventh Amendment bar to removal. Bulgartabac also contends that the elements necessary to justify abstention are not satisfied. Def.'s Resp. Mot. at 2-6.

II.

Pursuant to the FSIA, both federal and state courts have the authority to make immunity determinations. 28 U.S.C. § 1602 ("Claims of foreign states to immunity should henceforth be decided by courts of the United States and of the States in conformity with the principles set forth in this chapter."). The FSIA grants immunity to a foreign state, or instrumentality of a foreign state unless one of the enumerated exceptions applies. See 28 U.S.C. §§ 1604-1607. Where an enumerated exception eliminates the immunity, the FSIA expressly provides that both federal and state courts have jurisdiction over the matter. 28 U.S.C. § 1602(a) ("A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States...."). One of the most common exceptions is 28 U.S.C. § 1605(a)(2), the commercial exception, which grants jurisdiction over foreign states in cases that are "based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere...."

In cases where an exception applies and, therefore, a foreign state is not immune from jurisdiction, 28 U.S.C. § 1441(d) provides that:

[a]ny civil action brought in a State court against a foreign state as defined in section 1603(a) of this title ... may be removed by the foreign state to the district court of the United States for the district and division embracing the place where such action is pending.

Thus, Congress created a right of removal for the foreign state, provided that the foreign state meets the definitional requirement. Under 28 U.S.C § 1603(a), a "`foreign state'... includes a political subdivision of a foreign state or an agency or instrumentality of a foreign state as defined in subsection (b)." Subsection (b) defines an instrumentality of a foreign state as:

any entity (1) which is a separate legal person, corporate or otherwise, and (2) which is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof, and (3) which is neither a citizen of a State of the United States ... nor created under the laws of any third country.

28 U.S.C. § 1603(b) (emphasis added).

Bulgartabac qualifies as an instrumentality of a foreign state under 28 U.S.C. § 1603(a) & (b). The company is a separate legal entity, incorporated in the Republic of Bulgaria⁵ which owns 79.76% of the corporation's outstanding shares. However, if, as alleged, Bulgartabac is an instrumentality of a foreign state in the business of selling tobacco products in the Commonwealth,⁶ the company is not entitled to immunity from the jurisdiction of the courts of the United States or of the States. 28 U.S.C. § 1605(a)(2).⁷ Nevertheless, Bulgartabac has the right to remove the state court action to federal district court pursuant to § 1441(d).

Notwithstanding that Bulgartabac has the right to remove, the Commonwealth argues that the Eleventh Amendment precludes removal in cases where one of the several States is a party. Alternatively, the Commonwealth argues that the doctrine of abstention applies, and, therefore, the Court should refrain from exercising its jurisdiction over the matter. Those contentions are considered seriatim.

III.

The Eleventh Amendment provides that "[t]he Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State." U.S. Const. amend XI. The Commonwealth argues that the Eleventh Amendment bars Bulgartabac from making the Commonwealth an involuntary party to an action in a federal court, whether by suit or by removal of a state action. In support of its position, the Commonwealth relies on Moore v. Abbott Laboratories, Inc., 900 F.Supp. 26 (S.D.Miss.1995) and California v. Steelcase, Inc., 792 F.Supp. 84 (C.D.Cal.1992).

In Abbott Laboratories, the State of Mississippi filed an action against several pharmaceutical companies alleging violations of state antitrust and consumer protection laws. The defendants removed the case to federal court on the grounds of diversity of citizenship and federal question jurisdiction. The State moved to remand arguing that the Eleventh Amendment applied equally to actions brought against a State in federal court and to State actions filed in state court, which were subsequently removed to federal court without the State's consent.

The decision in Abbott Laboratories was based on Steelcase, which, without citing an authority, concluded that, because the Eleventh Amendment grants to the States an "immunity from being made an involuntary party to an action in federal court,"⁸ the Amendment should apply with equal force to actions instituted by the state and then removed to federal court. The court in Abbott Laboratories considered the reasoning in Steelcase persuasive, because that rationale kept the State from being "involuntarily subjected" to the jurisdiction of the federal courts. Moore v. Abbott Laboratories, 900 F.Supp. at 30.

Since Abbott Laboratories, a number of courts have addressed the issue presented here and have concluded that the Eleventh Amendment does not create a jurisdictional bar when the State is the plaintiff in a removed action. See California ex rel. Lockyer v. Dynegy, Inc., 375 F.3d 831 (9th...