Morgan Guar. Trust Co. of New York v. Republic of Palau

• Decision Date: 05 August 1992
• Docket Number: No. 1191,D,1191
• Citation: 971 F.2d 917
• Parties: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, Morgan Grenfell & Co., Limited, the Bank of Tokyo Limited, the Governor and Company of the Bank of Scotland and Orion Royal Bank, Limited, Plaintiffs-Appellees, v. REPUBLIC OF PALAU, Defendant-Appellant. ocket 91-9224.
• Court: U.S. Court of Appeals — Second Circuit

Page 917

971 F.2d 917

MORGAN GUARANTY TRUST COMPANY OF NEW YORK, Morgan Grenfell &amp Co., Limited, the Bank of Tokyo Limited, the Governor and Company of the Bank of Scotland and Orion Royal Bank Limited, Plaintiffs-Appellees, v. REPUBLIC OF PALAU, Defendant-Appellant.

No. 1191, Docket 91-9224.

United States Court of Appeals Second Circuit.

Argued May 26, 1992.

Decided Aug. 5, 1992.

Barry R. Satine, New York City (Robert Layton, Jones, Day, Reavis & Pogue, Wilson, Elser, Moskowitz, Edelman & Dicker, of counsel), for plaintiffs-appellees.

Kristie Stokes Hassett, New York City (Wayne A. Cross, Reboul, MacMurray, Hewitt, Maynard & Kristol, of counsel), for defendant-appellant.

Before MINER and WALKER, Circuit Judges, and KELLEHER, District Judge. ^*

MINER, Circuit Judge:

Defendant-appellant Republic of Palau appeals from a final judgment of the United States District Court for the Southern District of New York (Sweet, J.) entered on November 1, 1991. The final judgment followed entry by the district court of a judgment on July 31, 1991, remanding this case to the Supreme Court of the State of New York, New York County, for proceedings on the merits. Palau removed the case from the New York Supreme Court to the district court in January 1986, and the remand was required by our decision in Morgan Guaranty Trust Co. of New York v. Republic of Palau, 924 F.2d 1237 (2d Cir.1991) ("Palau I "). The July 31 judgment also provided for recovery by plaintiff-appellee Morgan Guaranty Trust Company of New York and the other plaintiffs-appellees (collectively, "Morgan") of costs and attorneys fees incurred subsequent to November 19, 1988 as a result of Palau's removal of this case.

In determining that Morgan was entitled to these costs and fees, the district court applied 28 U.S.C. § 1447(c), as amended on November 19, 1988, rather than the version of section 1447(c) in effect at the time Palau removed this case in 1986. See Morgan Guaranty Trust Co. of New York v. Republic of Palau, 767 F.Supp. 561 (S.D.N.Y.1991). The amount of costs and fees awarded, approximately $136,000, was made final by the November 1, 1991 judgment from which Palau now appeals. Palau contends that because removal of this action occurred prior to the amendment of section 1447(c), the district court wrongly applied the amended statute retroactively to award costs and fees in this case. Palau contends further that even if application of the amended statute were proper, a finding of bad faith on Palau's part in removing the action is required for costs and fees to be awarded. For the reasons that follow, the judgment of the district court is affirmed.

BACKGROUND

I. The Morgan-Palau Litigation

The background of this litigation is set forth fully in our Palau I opinion and in the district court's opinion, and is recounted only as pertinent here. In 1983, Palau, a Trust Territory of the United States located in the Southwest Pacific Ocean, entered into an agreement for the construction of a power plant and fuel storage facility by International Power Systems Company Ltd. of London. Morgan participated in the transaction as the guarantor of loans made by the primary lenders who financed the construction for Palau. Palau defaulted on the debt in March 1985 and Morgan, as guarantor, was constrained to reimburse the primary lenders. After making an unsuccessful demand on Palau for repayment, Morgan commenced this action in the New York Supreme Court on December 17, 1985 to recover from Palau the sums paid by Morgan to the primary lenders. The action was brought under a Recourse Agreement, which provided that Palau would indemnify the guarantors for costs and liabilities they incurred in connection with the guarantees.

Palau removed the case to the district court on January 21, 1986, asserting federal jurisdiction on the ground that Palau was a "foreign state" as defined in the Foreign Sovereign Immunities Act ("FSIA"), see 28 U.S.C. § 1603; see also 28 U.S.C. § 1441(d) (jurisdiction conferred upon district courts for civil actions brought in state court against a "foreign state" as defined in the FSIA). Disputing Palau's claimed status as a foreign state under the FSIA, Morgan moved for an order remanding the case to the New York Supreme Court. The district court denied Morgan's motion on July 10, 1986, concluding that while Palau technically was not independent as of that time, Palau was a de facto foreign state because its sovereignty was inevitable and imminent. See Morgan Guaranty Trust Co. of New York v. Republic of Palau, 639 F.Supp. 706 (S.D.N.Y.1986).

Crucial to the district court's determination that Palau was a de facto foreign state was the finding that the United States and Palau had entered into a Final Compact of Free Association on January 10, 1986, and that the Compact had been ratified by a 72% margin in a Palauan plebiscite on February 21, 1986. See id. at 709-16. Indeed, at the time of the district court's ruling, it appeared that the only material steps remaining to Palau's full independence were approval of the Compact by the United States Congress and the United Nations, and both approvals seemed likely. The Congress did formally approve the Compact on November 14, 1986, by Joint Resolution. See Approval of the Compact of Free Association with the Government of Palau, Pub.L. No. 99-658, 1986 U.S.C.C.A.N. (100 Stat.) 3672.

Morgan moved for summary judgment on the merits in December 1986. In opposing summary judgment, Palau asserted that as a foreign state it was immune under the FSIA from the jurisdiction of the district court, see 28 U.S.C. §§ 1604, 1605 (foreign state under certain circumstances "immune from the jurisdiction of the courts of the United States and of the States"). Palau also contended that there were triable issues as to the fraudulent inducement and other affirmative defenses it had interposed. The district court agreed with this contention and, on April 3, 1987, denied Morgan's summary judgment motion. However, the district court also held that while Palau had the right to claim immunity as a foreign state, the immunity had been waived. See Morgan Guaranty Trust Co. of New York v. Republic of Palau, 657 F.Supp. 1475 (S.D.N.Y.1987); see also 28 U.S.C. § 1605(a)(1) (foreign state may waive section 1604 immunity).

Palau then moved under Fed.R.Civ.P. 12(b)(1) and 12(b)(6) to dismiss Morgan's claim, contending that it had not waived its immunity and that the terms of the intervening Joint Resolution of Congress, approving the Compact, specifically immunized Palau from the jurisdiction of the district court. The district court rejected these arguments and denied Palau's motion on January 29, 1988. See Morgan Guaranty Trust Co. of New York v. Republic of Palau, 680 F.Supp. 99 (S.D.N.Y.1988).

After a bench trial on the merits, the district court ruled again that Palau had waived immunity, determined that Morgan had established a prima facie case against Palau under the Recourse Agreement, and rejected Palau's fraudulent inducement and other defenses. See Morgan Guaranty Trust Co. of New York v. Republic of Palau, 693 F.Supp. 1479 (S.D.N.Y.1988). Accordingly, judgment for Morgan, in the amount of approximately $46 million, was entered on August 12, 1988. Palau moved to stay enforcement of the judgment pending disposition of Palau's additional motion to reconsider the judgment, see Fed.R.Civ.P. 59(e) and 62(b), arguing again that it had not waived immunity and that its fraudulent inducement and other defenses were valid. On December 9, 1988, the district court rejected all of Palau's arguments and refused to alter the August 12 judgment. See Morgan Guaranty Trust Co. of New York v. Republic of Palau, 702 F.Supp. 60 (S.D.N.Y.1988).

Palau then appealed to this Court. The original briefs submitted by the parties dealt exclusively with the waiver of immunity issue and with the fraudulent inducement and other defenses. At oral argument on August 15, 1990, we questioned, sua sponte, whether there was federal jurisdiction in the first instance, i.e., whether Palau was a foreign state under the FSIA. Supplemental briefing on that issue was directed.

In their supplemental submissions, the parties essentially reversed their 1986 positions on whether Palau was a foreign state subject to federal jurisdiction as to certain matters. Morgan argued that Palau was a foreign state, and that the federal courts accordingly retained jurisdiction over the case. By contrast, Palau conceded that a crucial assumption behind the district court's July 10, 1986 determination that Palau was a de facto foreign state--proper ratification of the Compact in the February 1986 Palauan plebiscite--had "proved to be erroneous." We were informed that, not long after the Compact was approved by the United States Congress in November 1986, the Supreme Court of Palau ruled that under the Palauan Constitution the Compact had to be ratified by a 75% margin. This ruling effectively nullified the February 1986 plebiscite, which had ratified the Compact only by a 72% margin. We also learned that four plebiscites had been held after the February 1986 plebiscite--in December 1986, June 1987, August 1987, and February 1990--and that a 75% majority had never been attained. In short, Palauan independence was no longer imminent or inevitable, although Palau maintained that it would gain independence someday.

In light of the facts and circumstances revealed in the supplemental submissions, we vacated the district court's judgment on February 4, 1991. We held that Palau was not a foreign state for purposes of the FSIA, that there was no jurisdiction over Palau in the federal courts, and that remand of the case to the New York Supreme Court was required. See Palau I, 924 F.2d at 1247. ¹

II. The Instant Dispute

Shortly after our decision in Palau I, Morgan moved in the district court, under 28 U.S.C. § 1447(c) as amended on November 19, 1988, for costs and...