S & S Machinery Co. v. Masinexportimport

• Citation: 706 F.2d 411
• Decision Date: 26 April 1983
• Docket Number: D,No. 1012,1012
• Parties: S & S MACHINERY CO., Plaintiff-Appellant, v. MASINEXPORTIMPORT, a Romanian Corporation, and the Romanian Bank for Foreign Trade, Defendants-Appellees. ocket 82-7970.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 411

706 F.2d 411

S & S MACHINERY CO., Plaintiff-Appellant, v. MASINEXPORTIMPORT, a Romanian Corporation, and the Romanian

Bank for Foreign Trade, Defendants-Appellees.

No. 1012, Docket 82-7970.

United States Court of Appeals, Second Circuit.

Argued March 4, 1983.

Decided April 26, 1983.

Alfred R. Fabricant, New York City (Martin H. Samson, and Shea & Gould, New York City, on the brief), for plaintiff-appellant.

Walter J. Higgins, New York City (Andrew J. Maloney, and Maloney, Viviani, Higgins & Kelly, New York City, on the brief), for defendants-appellees.

Before FEINBERG, Chief Judge, TIMBERS and CARDAMONE, Circuit Judges.

TIMBERS, Circuit Judge:

S & S Machinery Co. ("S & S") appeals from an order entered December 7, 1982 in the Southern District of New York, Whitman Knapp, District Judge, granting the motion of defendants Masinexportimport ("Masin") and the Romanian Bank for Foreign Trade ("Romanian Bank") to vacate a prejudgment attachment of their property pursuant to the Foreign Sovereign Immunities Act of 1976, Act of October 21, 1976, Pub.L. 94-583, 90 Stat. 2891, (codified at 28 U.S.C. Secs. 1330; 1332(a)(2)-1332(a)(4); 1391(f); 1441(d); and 1602-1611 (1976)) ("FSIA" or "Act"), and dissolving an injunction against negotiating certain letters of credit.

The questions presented on this appeal are, first, whether Masin and the Romanian Bank come within the definition of "agency or instrumentality of a foreign state" set forth in Sec. 1603(b) of the Act, and therefore are immunized by the Act from prejudgment attachment; second, if the protections of the Act apply, whether that statutory immunity was "explicitly" waived in accordance with Sec. 1610(d)(1) of the Act; and, third, whether the district court correctly refused to grant, by injunction, relief which it could not properly provide by attachment.

The district court in a reasoned opinion held that Masin and the Romanian Bank were protected under the Act, that Romania did not explicitly waive immunity, and that an injunction could not be used to immobilize defendants' assets when an attachment of those assets would be improper. We affirm.

I.

In the summer of 1981, Masin, a Romanian foreign trading company, delivered Romanian-made lathes, drills, and machine parts to S & S, a domestic corporation. Pursuant to the purchase agreement, S & S paid for this material by certain irrevocable letters of credit issued to the Romanian bank--as Masin's collection agent--for the account of Masin. S & S was not satisfied with the quality of the material delivered. It commenced an action on July 15, 1982 in the Supreme Court of the State of New York, New York County, to recover damages resulting from Masin's allegedly defective performance under the purchase agreement. Concurrent with commencement of this action, S & S applied for an order of attachment authorizing a levy upon assets in the United States owned by Masin and the Romanian Bank. The state court granted the order of attachment, pursuant to N.Y.Civ.Prac.Law Sec. 6201(1) (McKinney 1980), authorizing the New York County Sheriff to levy upon property owned by defendants up to the amount of $1,042,146. The next morning the Sheriff levied upon assets owned by defendants at The Bankers Trust Company in New York City.

On July 21, S & S moved in the state court to confirm the attachment. Masin and the Romanian Bank thereupon sought to remove the action to the federal court on the ground of diversity of citizenship (more accurately, alienage). They also sought in the federal court to vacate the attachment of their assets. After their removal petition was filed in the federal court, 28 U.S.C. Sec. 1446(a) (1976), defendants obtained from the federal court an order, which was served on S & S on July 27, requiring it to show cause why the action should not be removed to the federal courts and why the attachment should not be vacated. After a hearing, 28 U.S.C. Sec. 1446(c)(5) (1976), the district court on July 29 granted defendants' motion to remove the action but continued the state court's order of attachment with certain modifications. The district court also enjoined "any and all negotiation of drafts or other negotiable paper pursuant to the ... letters of credit."

By a notice of motion dated September 13, defendants renewed their efforts to vacate the attachment and to dissolve the injunction against negotiation of the letters of credit. This motion, among other things, also sought dismissal of the action for want of in personam jurisdiction over defendants, or, in the alternative, a stay of the action and an order to compel the parties to arbitrate.

On December 7, the court filed a Memorandum and Order vacating the order of attachment and dissolving the injunction against negotiation of the letters of credit. The court held that Masin and the Romanian Bank were protected by the FSIA as agents or instrumentalities of the Romanian government, and that their statutory immunity from prejudgment attachment had not been explicitly waived in accordance with Sec. 1610(d)(1) of the Act. The court refused to dismiss the action. It referred the question of in personam jurisdiction over the Romanian Bank to a magistrate. It refused to grant a stay or to compel arbitration.

Recognizing the possibility that the entire action--and any appeal from his order--might be mooted upon the vacating of the attachment, Judge Knapp stayed until January 4, 1983 that part of his December 7 order which vacated the attachment. On January 4, we granted S & S' motion to continue the stay until this appeal could be heard and decided.

II.

The Foreign Sovereign Immunities Act immunizes a "foreign state" from prejudgment attachment of its assets in the United States, unless that state explicitly waives its immunity. 28 U.S.C. Secs. 1609, 1610(d) (1976). More than the foreign state itself is protected by the Act; its alter egos likewise are immunized. As Sec. 1603(a) makes clear, an "agency or instrumentality of a foreign state as elaborated in subsection (b)" itself is treated as a foreign state for the purposes of the Act. A threshold question is whether Masin and the Romanian Bank qualify as state agencies or instrumentalities, and therefore are immune from prejudgment attachment of their assets in this country.

The Act defines an "agency or instrumentality of a foreign state" to mean 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 as defined in section 1332(c) and (d) of this title, nor created under the laws of any third country."

28 U.S.C. Sec. 1603(b) (1976). The legislative history elaborates on the kinds of economic entities the drafters intended to include in the definition of agency or instrumentality:

"[A]s a general matter, entities which meet the definition of an agency or instrumentality of a foreign state could assume a variety of forms, including a state trading corporation ... a central bank [or] export association...."

H.R.Rep. No. 1487, 94th Cong., 2d Sess. 15-16, reprinted in 1976 U.S.Code Cong. & Ad.News 6604, 6614.

There is no doubt that Masin and the Romanian Bank each satisfies parts (1) and (3) of the statutory test. The sole dispute turns on the application of part (2) to the facts of this case. S & S claims that appellees failed to prove either that they are organs of the Romanian state or that they are owned by Romania. We disagree. The proof of state ownership and state control that was introduced in the district court amply supports the court's holding that both Masin and the Romanian Bank are agencies or instrumentalities of Romania for the purposes of the Act. We shall consider the proof as to each appellee in turn.

(A) The Romanian Bank

It would be difficult to imagine a clearer example of a state "agency or instrumentality", as defined in Sec. 1603(b), than the Romanian Bank for Foreign Trade. This entity is specifically defined by Romanian law as a central state institution whose mission is to effect state goals concerning payments, credit, and currency control in foreign trade. Lege, Privind Infinitarea, Organizarea Si Functionarea Bancii Romane de Comert Exterior, art. 1 (Law No. 16 of June 21, 1968). Furthermore, by virtue of the Romanian Constitution, all banks are "State property". ¹ Constitutie art. VII (Romania). This evidence alone is sufficient to prove that the Romanian Bank is a state-owned instrumentality established to serve the state's foreign trade goals. Indeed this is the paradigm of a state agency or instrumentality, as indicated by the House Report, which specifically identified state central banks and export associations in its discussion of qualifying entities for purposes of Sec. 1603(b). H.R.Rep. No. 1487, supra, at 15-16, 1976 U.S.Code Cong. & Ad.News, at 6614. State-owned central banks indisputably are included in the Sec. 1603(b) definition of "agency or instrumentality." Banco Nacional de Cuba v. Chase Manhattan Bank, 505 F.Supp. 412, 428 (S.D.N.Y.1981) (an analogous institution, the Banco Comercio Exterior de Cuba, held to be an instrumentality of the Cuban government).

There was additional evidence of the Bank's state-ownership and its position as a state foreign trade organ. The uncontroverted affidavits of Sava, Consul to the Socialist Republic of Romania, of Radu, the managing director of the Bank, and of Herscovici, an expert on Romanian law, corroborated the Bank's assertion that it is owned by the state and that it serves the foreign trade goals of the state. Finally, a report published by the United States Department of Commerce characterizes the Romanian Bank in the same terms. ²

S & S failed to rebut any of this persuasive evidence, arguing instead that...