Transaero, Inc. v. La Fuerza Aerea Boliviana

• Decision Date: 11 December 1998
• Docket Number: Docket Nos. 97-9317,97-9327
• Citation: 162 F.3d 724
• Parties: TRANSAERO, INC., Plaintiff-Appellee-Cross-Appellant, v. LA FUERZA AEREA BOLIVIANA, an agency or instrumentality of the Republic of Bolivia, a Foreign State, Defendant-Appellant-Cross-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

Page 724

162 F.3d 724

TRANSAERO, INC., Plaintiff-Appellee-Cross-Appellant, v. LA FUERZA AEREA BOLIVIANA, an agency or instrumentality of

the Republic of Bolivia, a Foreign State,

Defendant-Appellant-Cross-Appellee.

Docket Nos. 97-9317, 97-9327.

United States Court of Appeals, Second Circuit.

Argued July 13, 1998.

Decided Dec. 11, 1998.

Andrew M. Danas, Grove, Jaskiewicz and Cobert, Washington, DC (Ronald N. Cobert, of counsel), for Plaintiff-Appellee-Cross-Appellant.

Jonathan P. Graham, Williams & Connolly, Washington, DC (Jonathan L. Marcus, of counsel), for Defendant-Appellant-Cross-Appellee.

Before: MINER and CABRANES Circuit Judges, and CHATIGNY, District Judge. ^*

MINER, Circuit Judge:

Defendant-appellant-cross-appellee La Fuerza Aerea Boliviana (the Bolivian Air Force) (the "BAF") appeals from an amended default judgment entered in the United States District Court for the Eastern District of New York (Mishler, J.) in favor of plaintiff-appellee-cross-appellant Transaero, Inc. ("Transaero"). The amended judgment was entered after the court denied a motion by the BAF for relief from the original default judgment awarding damages for money owed on a credit agreement. In denying the motion, the district court determined that the BAF had implicitly waived the defenses of improper service of process and lack of personal jurisdiction under the Foreign Sovereign Immunities Act ("FSIA"), see 28 U.S.C. §§ 1602 et seq., by previously appearing in the United States District Court for the Eastern District of New York (the "EDNY") and in this Court to argue for relief from the original judgment under the provisions of Fed.R.Civ.P. 60(b). When the BAF first appeared in the EDNY, its appeal from an order of the United States District Court for the District of Columbia enforcing that judgment was pending in the United States Court of Appeals for the District of Columbia Circuit (the "D.C. Circuit"). The order subsequently was reversed by the D.C. Circuit, which held that Transaero could not enforce the judgment it previously obtained in the EDNY because it had not complied with the FSIA in regard to service of process.

Transaero cross-appeals from various orders of the EDNY and from the judgment as amended. The amendment reduced the original award from $983,696 to $336,232.

For the reasons that follow, we reverse the amended judgment entered in the EDNY and dismiss the cross-appeal.

BACKGROUND

The extensive background of this action is set out in our three previous opinions dealing with this litigation, see Transaero, Inc. v. La Fuerza Area [sic] Boliviana, 24 F.3d 457 (2d Cir.1994) ("Transaero I "); Transaero, Inc. v. La Fuerza Aerea Boliviana, 38 F.3d 648 (2d Cir.1994) ("Transaero III "); Transaero, Inc. v. La Fuerza Aerea Boliviana, 99 F.3d 538 (2d Cir.1996) ("Transaero IV "), cert. denied, 520 U.S. 1240, 117 S.Ct. 1843, 137 L.Ed.2d 1047 (1997), as well as the opinion of the D.C. Circuit, see Transaero, Inc. v. La Fuerza Aerea Boliviana, 30 F.3d 148 (D.C.Cir.1994) ("Transaero II "). We presume familiarity with each of those opinions and recount here only those facts most pertinent to the resolution of this appeal.

This suit arose out of the alleged failure of the BAF to pay Transaero, a New York corporation and supplier of aircraft parts, the interest it was due under a credit agreement In October of 1984, the BAF remitted approximately $382,000 to Transaero in partial payment, leaving roughly $216,000 of principal due. In January of 1986, after several weeks of negotiations assisted by the Economic Counselor of the United States Embassy in La Paz, the BAF paid to Transaero a total of $266,000. Transaero received this payment, specifically noting that $50,000 of the sum was in "partial compensation for interest payments." After this payment, the BAF made no further payments to Transaero, although Transaero continued to bill it for unpaid accumulated interest.

entered into in May of 1981. The credit agreement, which provided the BAF with an open account up to $350,000, required the BAF to pay its balance in full within 120 days of product shipment. The credit agreement also provided that, if the BAF did not comply with this term, it was required to pay 1.75% monthly interest (21% annually) on the outstanding balance. By April of 1982, the BAF had accumulated an outstanding principal balance under the credit agreement of approximately $600,000.

In 1988, Transaero sued the BAF in the EDNY, claiming it was owed $983,696.60 in outstanding compound interest and basing jurisdiction on the "commercial activity" exception to sovereign immunity under the FSIA, 28 U.S.C. §§ 1603(d), 1605(a)(2). The BAF failed to answer the complaint or otherwise appear in the action. The district court entered a default judgment on April 28, 1989 against the BAF in the full amount sought by Transaero, $983,696.60. In entering the default judgment, the court noted that the BAF was "properly served in accordance with 28 U.S.C. § 608(b)(3)(B)," as "an agency or instrumentality of a foreign state" under the FSIA. In June of 1992, Transaero sought to enforce the default judgment in the D.C. district court pursuant to 28 U.S.C. § 1963. The BAF appeared in the action and sought summary judgment denying enforcement of the default judgment, arguing that service was improper because it was not an "agency or instrumentality of a foreign state," which may be served under § 1608(b) of the FSIA, but rather a "foreign state or political subdivision of a foreign state," which must be served under § 1608(a) of the FSIA. See 28 U.S.C. § 1608(a). The D.C. district court denied the BAF's motion for summary judgment after finding that the BAF was "an agency or instrumentality of a foreign state," and thus subject to service under § 1608(b) of the FSIA. ¹ See Transaero II, 30 F.3d at 150. The BAF appealed that ruling to the D.C. Circuit. See id.

The BAF made its first appearance in the EDNY action in May of 1993, while the appeal was pending in the D.C. Circuit. It moved for relief from the judgment pursuant to Fed.R.Civ.P. 60(b), arguing that the default judgment should be set aside on several non-jurisdictional grounds, including fraud on the court. See Transaero I, 24 F.3d at 459-60. Significantly, in its Rule 60(b) motion papers submitted to the EDNY, the BAF included the following footnote:

The [BAF] has appealed [the D.C. district court]'s opinion. The [BAF] acknowledges that until overturned on its pending appeal, [the D.C. district court]'s opinion bars the [BAF] from challenging the propriety of service under the Foreign Sovereign Immunities Act. Although barred by res judicata from contesting it, the [BAF] in no way waives these issues. In this, its first responsive pleading, the [BAF] preserves its challenges to Transaero's improper service of process and this Court's lack of personal and subject-matter jurisdiction under the Foreign Sovereign Immunities Act....

The EDNY denied the motion in August of 1993, and the BAF appealed to this Court. On appeal, the BAF included the same footnote in its brief. In May of 1994, we affirmed the EDNY's order denying the BAF's Rule 60(b) motion. See Transaero I, 24 F.3d at 459. We noted in our opinion, however, that our review was limited to the issues raised in that motion and that the D.C. Circuit's After this Court decided Transaero I, the BAF filed a petition for rehearing with this Court and sought, inter alia, to stay our mandate pending the D.C. Circuit's ruling. See Transaero III, 38 F.3d at 649. While the petition for rehearing was pending, a divided panel in the D.C. Circuit overturned the decision of the D.C. district court, holding that the BAF was a "foreign state" rather than an "agency or instrumentality of a foreign state" and that service upon the BAF should have been made pursuant to § 1608(a) of the FSIA, and not pursuant to § 1608(b). See Transaero II, 30 F.3d at 153-54. Consequently, the D.C. Circuit held that the EDNY did not have personal jurisdiction over the BAF and the default judgment was therefore "void and unenforceable." Id. at 154.

decision, which would address the jurisdictional issues, was pending. See id. at 459, 459 n. 1. We then remanded for factual findings concerning the calculation of interest. See id. at 462-63.

After the D.C. Circuit issued its decision, we requested sua sponte that the parties brief the issue of whether we were now required to vacate the default judgment upon reconsideration of the BAF's Rule 60(b) motion. See Transaero III, 38 F.3d at 650. After briefing on that issue, we noted that our review of the denial of the Rule 60(b) motion and our consideration of the petition for a rehearing were limited in scope. Specifically, we stated as follows:

[I]t is by no means clear that [the] BAF's initial appeal had urged us to reverse the denial of the Rule 60(b) motion for lack of [effective] service. In short, we have now pending no open issue on which the preclusive effect of the D.C. Circuit's decision, if any, may operate. Therefore, without expressing any views as to (a) the validity of Transaero's service upon [the] BAF in initiating the Eastern District suit or (b) whether the default judgment is impaired by the allegedly late notice of its entry, we decline to grant the petition for rehearing just because the D.C. Circuit has ruled that the default judgment is not enforceable in the District of Columbia. We need not decide whether [the] BAF is entitled to pursue a new Rule 60(b) motion in the Eastern District, now that the D.C. Circuit has declared the default judgment to be void.

Transaero III, 38 F.3d at 650.

Upon remand, the BAF filed a second motion for relief from the default judgment in the EDNY, now pursuant to Rule 60(b)(4). In this motion, the BAF claimed that the judgment was void for lack of proper service and that the ruling of the D.C. Circuit was a final resolution of that issue to which both parties are bound. In a...