Southway v. Central Bank of Nigeria

• Decision Date: 13 May 2003
• Docket Number: No. 01-1436.,01-1436.
• Citation: 328 F.3d 1267
• Parties: Henry T. SOUTHWAY, also known as Butch Southway; Douglas Houghton, also known as Doug Houghton; J.E. Losavio, Jr., Plaintiffs-Appellants, and Southway Construction Company; Randy Thurston; Russ Gray, doing business as Gray Real Estate, Plaintiffs, v. CENTRAL BANK OF NIGERIA; Republic Of Nigeria, Defendants-Appellees, and Kirk Patterson Brown, doing business as The Communications Connection, also known as Kirk P. Brown, doing business as The Communications Connection; Helen Tomicich Brown, doing business as The Communications Connection, Defendants-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

328 F.3d 1267

Henry T. SOUTHWAY, also known as Butch Southway; Douglas Houghton, also known as Doug Houghton; J.E. Losavio, Jr., Plaintiffs-Appellants, and Southway Construction Company; Randy Thurston; Russ Gray, doing business as Gray Real Estate, Plaintiffs, v. CENTRAL BANK OF NIGERIA; Republic Of Nigeria, Defendants-Appellees, and Kirk Patterson Brown, doing business as The Communications Connection, also known as Kirk P. Brown, doing business as The Communications Connection; Helen Tomicich Brown, doing business as The Communications Connection, Defendants-Appellants.

No. 01-1436.

United States Court of Appeals, Tenth Circuit.

May 13, 2003.

Submitted on the briefs: Max Addison Wilson, Esq., Pueblo, CO, for Plaintiffs-Appellants and Defendants-Appellants.

Robert J. Brown, David H. Fromm, and Fred G. Wexler of Brown, Gavalas & Fromm LLP, New York, NY, for Defendants-Appellees.

Before HENRY, Circuit Judge, and HOLLOWAY and BRORBY, Senior Circuit Judges.

HOLLOWAY, Senior Circuit Judge.

After examining the briefs and appellate record, this panel has determined unanimously to grant the parties' request for a decision on the briefs without oral argument. See Fed. R.App. P. 34(f); 10th Cir. R. 34 1(G). The case is therefore ordered submitted without oral argument.

This suit alleges fraud perpetrated by the government of Nigeria. Nigeria asserts its sovereign immunity. The victims of the fraud counter by invoking the "commercial activity" exception to the federal statute codifying a foreign state's immunity, the Foreign Sovereign Immunities Act of 1976, 28 U.S.C. § 1330 et seq. (FSIA).¹ We agree with the district court's conclusion that the Nigerian defendants have proven that the commercial activity exception to the FSIA does not apply, and accordingly affirm.

I.

The facts of this case are set out extensively elsewhere, including in an earlier published opinion from this court and two published decisions by the district court. See Southway v. Cent. Bank of Nigeria, 198 F.3d 1210, 1212-13 (10th Cir.1999); Southway v. Cent. Bank of Nigeria, 149 F.Supp.2d 1268, 1269-72 (D.Colo.2001); and Southway v. Cent. Bank of Nigeria, 994 F.Supp. 1299, 1302-04 (D.Colo.1998). We give only an abbreviated version here. The second opinion above, appearing in 149 F.Supp.2d at 1268, which granted summary judgment to the defendants for lack of subject matter jurisdiction under the FSIA on July 5, 2001, is the opinion on appeal for disposition by us now.

In November 1995 Kirk Brown, a lawyer practicing in Pueblo, Colorado, was contacted by a person claiming to be a Nigerian citizen representing a Nigerian construction firm. The person told Brown that the Nigerian government owed his firm $21 million as payment for building a major oil pipeline. He further said that the government was searching for an offshore account in which to deposit the money, as well as an escrow agent to settle all claims by subcontractors and suppliers. Brown, through a company he operates, the Communications Connection, agreed to become the escrow agent. In return he would receive a portion of the proceeds deposited into the escrow account.

During the next few months, Brown, along with his wife and business partner Helen Tomicich Brown, exchanged several letters and faxes with individuals claiming to represent the Nigerian government and its central bank. The documents they received from Nigeria all appeared on official-looking letterhead, bearing various stamps and signatures. Over time, the Browns learned that before the proceeds from the pipeline construction project could be disbursed to their escrow account they would have to pay certain up-front taxes and fees, such as a "stamp duty," a "bond fee," and "exchange rate levies." The Browns wired payment of these fees into accounts established at different New York banks. They also paid three men, whom they met in Vienna, Austria, $10,000 in cash as a "handling fee" related to what they called "the contract."

Short of funds necessary to pay all the costs, the Browns recruited several investors, all of whom were promised lucrative returns for their contributions once the money from Nigeria arrived. In total, the Browns, who raised approximately $500,000 from their investors, paid more than $700,000 in putative fees, taxes, and other costs. The proceeds from the construction project were never deposited into the escrow account. The Browns, victims of a classic advance-fee scam, were unable as a result to fulfill their obligations to their investors.

In the instant suit the investors sued the Browns, the Communications Connection, as well the Central Bank of Nigeria (CBN) and the Republic of Nigeria, alleging a violation of the Racketeer Influenced and Corrupt Organizations Act of 1970 (RICO), 18 U.S.C. § 1961 et seq. In turn, the Browns filed a similar third-party complaint against the Nigerian government and its central bank (the Nigerian defendants).

As they have from the lawsuit's inception, the Nigerian defendants deny any involvement in the scam that defrauded the Browns and their investors. They claim that all documents purportedly written by Nigerian officials were forgeries, that imposters posed as Nigerian government officials, and that the Browns and their investors fell victim to a scheme known in Nigeria as a "419" scam, which takes its name from the section of Nigeria's criminal code that prohibits such advance-fee frauds.²

II.

This is not the first time this controversy has been before us. Two years ago, a panel of this court rejected an interlocutory appeal brought by the Nigerian defendants. That appeal sprang from a ruling by the district court denying the Nigerian defendants' motion to dismiss, which they asserted on sovereign immunity grounds under the Foreign Sovereign Immunities Act, 28 U.S.C. § 1330 et seq. Viewing only the allegations stated in the complaint, and accepting them as true, this court held that the Nigerian defendants were subject to suit. Southway v. Cent. Bank of Nigeria, 198 F.3d at 1217-18. The panel concluded that the facts set out in the complaint implicated an exception to the statute's grant of immunity, an exception carved out of the statute to allow suits "based upon a commercial activity carried on in the United States by the foreign state." 28 U.S.C. § 1605(a)(2).³

The case returned to the district court, where the parties conducted a lengthy and contentious round of discovery. The Nigerian defendants later renewed their immunity claim, this time in a motion for summary judgment. They asserted that the Browns and their investors failed to uncover facts sufficient to support the so-called "commercial activity" exception on which they relied to pierce the Nigerian defendants' immunity. The district court agreed and ruled that subject matter jurisdiction over the Nigerian defendants was wanting and granted them summary judgment. Southway, 149 F.Supp.2d. at 1278. The Browns and their investors (the plaintiff-appellants) now appeal the district court's grant of summary judgment on several grounds.

The Appellants' Opening Brief, p. 2, states the contentions on appeal made by the plaintiff-appellants as follows: (1) the trial court abused its discretion in failing to enter sanctions against the Nigerian defendants for discovery violations; (2) the court misread and improperly weighed the evidence and declined to give weight to the evidence of the plaintiff-appellants; and (3) the court abused its discretion by denying plaintiff-appellants a continuance. The principal arguments of the plaintiff-appellants focus on issue (2) and the controlling question of subject matter jurisdiction under the Foreign Sovereign Immunities Act, and the exception to the statute "based upon a commercial activity carried on in the United States by the foreign state...." 28 U.S.C. § 1605(a)(2). Because of its predominant importance in our disposition, we will turn first to our analysis of the FSIA and its commercial activity exception.

III.

The FSIA is the exclusive source of jurisdiction for claims against foreign states or their instrumentalities in the courts of this country. Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 443, 109 S.Ct. 683, 102 L.Ed.2d 818 (1989). A foreign state is presumptively immune under the statute and remains so unless one of the specific statutory exceptions applies. See 28 U.S.C. § 1605 (listing exceptions). Subject matter jurisdiction depends on the existence of an exception. Verlinden B.V. v. Cent. Bank of Nigeria, 461 U.S. 480, 493 & n. 20, 103 S.Ct. 1962, 76 L.Ed.2d 81 (1983). "Once a foreign state makes a prima facie showing of immunity, the plaintiff seeking to litigate in the United States then has the burden of showing that an exception applies." Gen. Elec. Capital Corp. v. Grossman, 991 F.2d 1376, 1382 (8th Cir. 1993). If the plaintiff comes forward with evidence implicating an exception, the defendant must meet its ultimate burden of proving that the exception does not apply. Cargill Int'l S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir.1993).

Here the plaintiff-appellants accept the proposition that the Nigerian defendants are foreign states as that term is defined by the FSIA, and thus they accept the fact that the Nigerian defendants have made a prima facie showing of sovereign immunity.⁴ However, they challenge the district court's view that their suit cannot overcome that immunity by means of the commercial activity exception. Under this exception to the FSIA's grant of immunity, a plaintiff may sue a foreign state if the action is based upon commercial activity "by" or "of" the foreign state:

A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case —

. . . .

(2) in which the action is 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...