Magness v. Russian Federation

• Decision Date: 24 April 2001
• Docket Number: PLAINTIFFS-APPELLEES,DEFENDANTS-APPELLANTS,No. 00-20136,00-20136
• Citation: 247 F.3d 609
• Parties: (5th Cir. 2001) NINA SCHRODER MAGNESS; AGNES SCHRODER ATKINS; LEE ALEXANDER MAGNESS,, v. RUSSIAN FEDERATION; ET AL., DEFENDANTS, RUSSIAN FEDERATION; RUSSIAN MINISTRY OF CULTURE; RUSSIAN STATE DIAMOND FUND,
• Court: U.S. Court of Appeals — Fifth Circuit

Page 609

247 F.3d 609 (5th Cir. 2001)

NINA SCHRODER MAGNESS; AGNES SCHRODER ATKINS; LEE ALEXANDER MAGNESS, PLAINTIFFS-APPELLEES, v. RUSSIAN FEDERATION; ET AL., DEFENDANTS, RUSSIAN FEDERATION; RUSSIAN MINISTRY OF CULTURE; RUSSIAN STATE DIAMOND FUND, DEFENDANTS-APPELLANTS.

No. 00-20136

UNITED STATES COURT OF APPEALS, FIFTH CIRCUIT

April 24, 2001

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

Before Jolly and Davis, Circuit Judges, and Restani, Judge.^*

E. Grady Jolly, Circuit Judge

During the Bolshevik Revolution of 1918, the Soviet government expropriated a piano factory and mansion owned by the Magness family in St. Petersburg, Russia. In 1994, the appellees, descendants of the Magness family, believed that changes in the laws of the Russian Federation may now authorize the recovery of their property. The Magness descendants met with Russian officials in St. Petersburg in an unsuccessful attempt to regain the real estate. This suit followed and a default judgment was entered against the Russian defendants in the amount of $234 million plus interest.

In this appeal we are called upon to interpret the service of process provisions of the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. § 1608(a-b), which outlines the methods for serving process upon foreign entities. Specifically, we must determine whether those provisions demand strict compliance therewith, or whether either of these provisions can be satisfied by some form of substantial compliance. In keeping with the plain language of the FSIA, we conclude that Congress intended to require strict compliance with section 1608(a) as to service upon foreign states and their political subdivisions. However, we also hold that substantial compliance--that is, actual notice of the suit and the consequences thereof--can be sufficient to satisfy the requirements of section 1608(b) as to service upon an agency or instrumentality of a foreign state. In conclusion, we vacate the default judgment and remand to allow proper service on the defendants.

I.

We turn first to the procedural history of this case. In July 1997, the Magness descendants filed this suit in the Southern District of Texas, seeking a TRO that would prevent a traveling exhibit of Russian Romanov family jewels, then on display in Houston, from leaving the jurisdiction. The named defendants included the Russian Federation, the Russian Ministry of Culture, the Russian State Diamond Fund,¹ and the Cultural Foundation sponsoring the exhibition.² The suit alleged that the defendants had nationalized the Magness family property in 1918 and further had expropriated several antique pianos owned by the plaintiffs in the 1990s. The Russian Federation obtained United States counsel, who represented its interest at the TRO hearing. The court denied the TRO request.

After a year-long dormancy, in August 1998 the district court ordered the Magness descendants to serve the summons and complaint on the defendants, and to do so before September 1, 1998. They attempted to serve the defendants in several ways. They first served the attorneys who represented the Russian Federation at the TRO hearing. In addition, they served the Texas Secretary of State, with instructions that the Secretary forward the summons and complaint to "the Russian Federation c/o Boris Yeltsin and the Russian Ministry of Culture/Russian State Diamond Fund c/o Deputy Minister of Culture Mikhail Schvidkoy." The Magness descendants also forwarded the summons and complaint to the Director of Special Consular Affairs at the State Department, with instructions to serve all defendants through diplomatic channels.³ Finally, the Magness descendants purported to serve process by sending the summons and complaint directly to the Russian Deputy Minister of Culture in Moscow.⁴

On November 13, 1998, the State Department informed the Magness descendants that it could not serve the defendants because of several procedural errors.⁵ On November 19, 1998, the Magness descendants filed a motion for a default judgment. The court held a hearing on the motion the following day, during which the Magness descendants submitted evidence that they had served the defendants by the methods previously described. The court determined that the defendants had been properly served and entered a default judgment. The court approved the Magness descendants' proposed findings of facts and conclusions of law on June 8, 1999, and entered a final judgment against the defendants. See Magness v. Russian Federation, 54 F.Supp.2d 700 (S.D. Tex. 1999).

In October 1999, the defendants retained United States counsel in an attempt to vacate the default judgment under Rule 60. On January 12, 2000, the district court denied the motion, ruling that the Magness descendants had "substantially complied" with the service of process requirements of the FSIA and provided sufficient notice of the suit to the defendants. This appeal followed.

II.

A district court's denial of a motion to vacate under Rule 60 is reviewed for abuse of discretion. See CJC Holdings v. Wright & Lato, Inc., 979 F.2d 60, 63 (5th Cir. 1992). Because of the seriousness of a default judgment, "even a slight abuse [of discretion] may justify reversal." Seven Elves, Inc. v. Eskenazi, 635 F.2d 396, 402 (5th Cir. 1981)).

The FSIA outlines specific provisions for service of process upon foreign governments and agencies in 28 U.S.C. § 1608.⁶ The Magness descendants acknowledge that they failed strictly to comply with the service provisions of the FSIA.⁷ The provisions for service under section 1608 are hierarchical, such that a plaintiff must attempt the methods of service in the order they are laid out in the statute.⁸ Regarding the Russian Federation and the Russian Ministry of Culture under section 1608(a), they must first be served in accordance with any special arrangement between the parties or in accordance with an applicable international convention. See 28 U.S.C. § 1608(a)(1-2). Given that there was no special arrangement or international convention governing service here, the Magness descendants are required to have attempted service on the head of the Russian Ministry of Foreign Affairs. See 28 U.S.C. § 1608(a)(3). Finally, if service could not be made through the Ministry of Foreign Affairs within thirty days, they could resort to service through the State Department. See 28 U.S.C. § 1608(a)(4).

Instead of asking the clerk of the district court to send the summons and notice of suit by return receipt mail to the head of the Russian foreign ministry under section 1608(a)(3), the Magness descendants sent their complaint to the Texas Secretary of State for forwarding to Boris Yeltsin, and sent the complaint directly to the Russian Deputy Minister of Culture. Thus, the FSIA was not strictly complied with as to the Russian Federation and Ministry of Culture.⁹

As to the Russian State Diamond Fund, section 1608(b) (applicable to instrumentalities of a foreign state) was similarly not strictly followed. A plaintiff must first attempt service in accordance with any special arrangement between the parties. See 28 U.S.C. § 1608(b)(1). Next, a plaintiff may serve through an authorized agent in the United States or according to an applicable international convention. See 28 U.S.C. § 1608(b)(2). If no such agent or convention exists, as was the case here, a plaintiff may serve papers via a letter rogatory,¹⁰ through the clerk of the court, or as directed by the court, if these methods are "reasonably calculated to give actual notice." See 28 U.S.C. § 1608(b)(3). Instead of following the statute, the Magness descendants forwarded a copy of their papers to the State Department and the Texas Secretary of State for service upon the Fund. Thus, the requirements of section 1608(b) were not strictly followed as to the Russian State Diamond Fund.¹¹

III.

The question before this court, therefore, is whether strict compliance is required for service of process under section 1608(a), for a foreign state, and under section 1608(b), for an instrumentality of a foreign state. The Magness descendants contend that, even if their attempts at service of process upon the defendants did not strictly comply with section 1608, they substantially complied with the FSIA, and that the defendants had actual notice of the suit. They further argue that, in any event, the Russian Federation waived its right to contest service by appearing at the TRO hearing. The defendants, however, argue that the FSIA makes no provision for anything other than strict compliance with its service of process requirements, and that actual notice cannot substitute for proper service under either section 1608(a) or (b). In addition, the appellants and the United States, as amici, contend that, in any event, the Magness descendants failed to even substantially comply with section 1608(a) or (b). Because service was never effectuated, the district court had no personal jurisdiction over the defendants, they claim, and thus the default judgment should be vacated pursuant to Rule 60(b)(4).¹²

A.

Section 1608(a)

We conclude that the provisions for service of process upon a foreign state or political subdivision of a foreign state outlined in section 1608(a) can only be satisfied by strict compliance. The express language of the statute requires that service "shall" be made upon a foreign state in the manner prescribed. Moreover, the committee report on the FSIA states that "section 1608(a) sets forth the exclusive procedures for service on a foreign state." H.R. Rep. No. 94-1487, at 24 (1976) (emphasis added).¹³ This language simply does not support a finding that anything less than strict compliance will suffice under the law.

This interpretation is in accord with decisions of the Second, Seventh, and D.C. Circuits.¹⁴ In Gray v. Permanent Mission of People's Republic of Congo to United Nations, 443 F.Supp. 816, 821 (S.D.N.Y.), aff'd...