EAL (Delaware) Corporation, Electra Aviation Inc. et Al v Eurocontrol

• Date: 03 August 1994
• Court: U.S. District Court — District of Delaware

United States District Court, District of Delaware.

(Robinson, District Judge)

EAL (Delaware) Corp., Electra Aviation Inc. et al.

and

European Organization for the Safety of Air Navigation and English Civil Aviation Authority

State immunity Jurisdictional immunity Agency or instrumentality of foreign State Whether an entity created by treaty and jointly owned by sovereign States constitutes an agency or instrumentality of a foreign State Foreign Sovereign Immunities Act 1976 European Organization for the Safety of Air Navigation (Eurocontrol) Proceedings by owner for recovery of aircraft seized by Eurocontrol because of failure of operator to pay air navigation service fees Subject-matter jurisdiction Whether imposition of charges and seizure of aircraft constitute commercial activities Whether having direct effect in United States Personal jurisdiction Whether constitutional minimum contacts requirement applies in respect of foreign sovereign defendants Whether orders of United States Bankruptcy Court and automatic stay under Chapter 11 of the United States Bankruptcy Code binding upon foreign sovereign entity The law of the United States

Summary: The facts:The plaintiffs claimed damages and injunctive relief against the European Organization for the Safety of Air Navigation (Eurocontrol) and the English Civil Aviation Authority (the CAA). The plaintiffs owned an aircraft which they had leased to a European corporation, Air Operations of Europe (Air Operations), which had, in turn, leased the use of the aircraft to a Turkish company, Sultan Air. Sultan Air had allegedly failed to pay fees which it had incurred for air navigation services and the CAA, at the request of Eurocontrol, seized the aircraft. Eurocontrol, which was created by a treaty concluded between fourteen European States,1 was responsible, inter alia, for the enforcement and collection of fees incurred by airlines for air navigation services in European air space.2 In the interim, the plaintiffs had filed a petition in the Bankruptcy Court of the District of Delaware for protection from their creditors under Chapter 11 of the United States Bankruptcy Code (Chapter 11). The Bankruptcy Court made an order which, inter alia, precluded the seizure, attachment or detention of the plaintiffs property. An automatic stay also operated under Chapter 11. When the aircraft was seized, the plaintiffs informed Eurocontrol and the CAA of the leases to Air Operations and Sultan Air and also advised them of the

order of the Bankruptcy Court and the automatic stay under Chapter 11. Eurocontrol, however, refused to deliver up possession of the aircraft unless it was paid the sums allegedly owed by Sultan Air

The plaintiffs instituted proceedings in the United States, seeking an injunction requiring Eurocontrol to return the aircraft. Eurocontrol filed a motion for the action to be dismissed on the ground that it was immune from the jurisdiction under the Foreign Sovereign Immunities Act 1976 (the fsia) and the Court lacked personal jurisdiction in the matter.3 For the purposes of the fsia, an agency or instrumentality of a foreign State was treated as a foreign State. An agency or instrumentality of a foreign State included any entity which was a separate legal person, a majority of whose shares or other ownership interest was owned by a foreign State or political subdivision thereof and which was not a citizen of the United States nor created under the laws of any third country.4 Eurocontrol maintained that it qualified as an agency or instrumentality of a foreign State because it was an entity the majority of whose shares or ownership interest was owned by a group of States, each of which was a foreign State within the meaning of the fsia. The plaintiffs contended that, even if Eurocontrol was within the scope of the fsia, it was not entitled to immunity because Section 1605(a)(2) of the fsia applied and, inter alia, precluded immunity in proceedings based upon an act outside the territory of the United States in connection with a commercial activity of the foreign State elsewhere and that act cause[d] a direct effect in the United States.5 Under the fsia, the commercial character of an activity was determined by reference to the nature of the activity rather than by its purpose.6 The plaintiffs submitted that Eurocontrol's acts were commercial and that there was a direct effect in the United States because the seizure of the aircraft resulted in financial loss and the disruption of their efforts to reorganize themselves by means of the Chapter 11 proceedings in the United States. The plaintiffs also claimed that alleged violation of the order of the Bankruptcy Court and the automatic stay under Chapter 11 created a direct effect in the United States. In the alternative, the plaintiffs submitted that Section 106 of the United States Bankruptcy Code resulted in the waiver of Eurocontrol's immunity. Section 106 provided that a governmental unit [was] deemed to have waived sovereign immunity with respect to any claim against such governmental unit that is property of the estate and that arose out of the same transaction or occurrence out of which such governmental unit's claim arose. Governmental unit was defined in the Bankruptcy Code as including a foreign State. The plaintiffs maintained that Eurocontrol's seizure of the aircraft should be treated as the assertion of a claim against them, resulting in the operation of Section 106 to waive Eurocontrol's immunity.

Finally, the plaintiffs argued that the Court had personal jurisdiction in the matter. The Due Process Clause of the Fifth Amendment to the United States Constitution required, for a court to exercise personal jurisdiction over a

defendant, that the defendant had sufficient minimum contacts with the United States. The plaintiffs submitted that the minimum contacts requirement did not apply in respect of a foreign sovereign because such an entity was not a person within the meaning of the Due Process Clause. The plaintiffs also claimed that, if the minimum contacts requirement did apply, this was satisfied by the cooperation in certain spheres between Eurocontrol and the Federal Aviation Authority of the United States (the FAA). Alternatively, the plaintiffs argued that the alleged violation of the automatic stay under Chapter 11 and the order of the Bankruptcy Court provided a basis for the exercise of personal jurisdiction

Held:The proceedings were dismissed.

(1) The fsia was the sole basis for jurisdiction over foreign States in the United States courts and applied in respect of international entities which were jointly owned by a number of foreign States. Eurocontrol's functions were those traditionally performed by individual governmental agencies operating within their own national boundaries. National entities performing these functions clearly qualified as agencies or instrumentalities of foreign States. The geography of Europe required a Europe-wide approach in respect of the control of air space. An entity created by a number of sovereign States to perform such functions on a European level had to be accorded the status of an agency or instrumentality of a foreign State, as was a national entity performing those functions. Eurocontrol was, therefore, entitled to immunity under the fsia (pp. 3237).

(2) For the purposes of the commercial activity exception to immunity, the acts which formed the basis of a claim were those elements which, if proven, would entitle a plaintiff to relief. The term commercial was to be construed within the context of the restrictive doctrine of State immunity and, where a State was acting in the manner of private players in the market, rather than exercising powers peculiar to sovereigns, its activities were commercial. The acts which formed the basis of the plaintiff's claim were Eurocontrol's request to the CAA to detain the aircraft and Eurocontrol's participation in the refusal to return the aircraft after the plaintiffs had informed it and the CAA of the automatic stay under Chapter 11 and the order of the Bankruptcy Court. These acts were performed in connection with Eurocontrol's exercise of its regulatory functions under the terms of an international agreement. The imposition and collection of charges for air navigation services in national and international airspace were sovereign activities which could not be performed by private individuals.7 Furthermore, Eurocontrol had exercised powers vested in it by civil aviation regulations which permitted it to seize property to collect a debt without prior judicial approval, notwithstanding that the debt was not owed by the owner of the aircraft but by an entity which had leased the aircraft. Such a power was not available to private individuals. The proceedings were not, therefore, based upon a commercial activity (pp. 32734).

(3) Even if Eurocontrol's acts had been commercial, Section 1605(a)(2) would not apply because the acts did not cause a direct effect in the United States. An effect was direct if it followed as an immediate consequence of the defendant's activity. Direct effect could be established where legally

significant acts relating to the proceedings occurred in the United States. In the present matter all the legally significant actssuch as, the reasons for which the aircraft was seized, the place of seizure and the regulations permitting the seizuretook place outside the United States. Furthermore, the alleged financial loss and interference with the plaintiffs efforts at reorganization did not follow as an immediate consequence of the seizure of the aircraft. Air Operations had the primary legal responsibility to the plaintiffs, having leased the aircraft, and the plaintiffs had a remedy against Air Operations. Only if pursuit of such a remedy failed could the plaintiffs be said to have suffered financial loss as a consequence of the seizure of the aircraft by Eurocontrol and the CAA. In...