Tuli, In re

Citation172 F.3d 707
Decision Date07 April 1999
Docket NumberNo. 97-15684,97-15684
Parties, 99 Cal. Daily Op. Serv. 2543, 1999 Daily Journal D.A.R. 3324, 3 Cal. Bankr. Ct. Rep. 37 In re Balbir Singh TULI, Debtor. Balbir Singh Tuli, Appellant, v. Republic of Iraq, Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

Balbir Singh Tuli, Scottsdale, Arizona, in pro se for the appellant.

No appearance for appellee.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel; Russell, Hagan and Jones, Judges Presiding. BAP No. AZ-95-02328-RHJ.

Before: BRIGHT, * FLETCHER and THOMPSON, Circuit Judges.

DAVID R. THOMPSON, Circuit Judge:

Appellant Balbir Singh Tuli ("Tuli") appeals the Bankruptcy Appellate Panel's ("BAP") decision to affirm the bankruptcy court's denial of entry of a default judgment against the Republic of Iraq ("Iraq"). The bankruptcy court determined Tuli failed to show that Iraq had the requisite minimum contacts with the United States to allow the court to exercise personal jurisdiction over Iraq. Concluding it lacked personal jurisdiction, the bankruptcy court declined to enter a default judgment on Tuli's adversary proceeding complaint against Iraq for the turnover of estate property pursuant to 11 U.S.C. § 542. Alternatively, the bankruptcy court held that, because the transaction between Tuli and Iraq occurred in Iraq and not in the United States, the court would abstain from deciding the case "in the interest of justice." See 28 U.S.C. § 1334.

We have jurisdiction pursuant to 28 U.S.C. § 158(d). We independently review the bankruptcy court's rulings on appeal from the BAP. See Havelock v. Taxel (In re Pace), 67 F.3d 187, 191 (9th Cir.1995).

Because Tuli was not given an adequate opportunity to make a showing of Iraq's contacts with the United States once that became an issue in the case, we reverse the BAP's affirmance of the bankruptcy court's order denying Tuli's application for a default judgment. We remand this case to the BAP for remand to the bankruptcy court and direct that court to permit Tuli to present evidence of Iraq's contacts with the United States, either by way of affidavit or by an evidentiary hearing, whichever the bankruptcy court determines appropriate. After affording Tuli the opportunity to make such a showing, the bankruptcy court should then determine whether Iraq has sufficient minimum contacts with the United States to support the court's exercise of personal jurisdiction. If the exercise of personal jurisdiction is appropriate, the bankruptcy court may then determine whether under all of the facts as developed it should abstain from exercising that jurisdiction.

FACTS

In 1984, Iraq hired Tuli, a civil engineering contractor, to assist in the construction of a factory and a substation in Iraq. For the project, Tuli brought into Iraq equipment, vehicles, and material for a construction plant (collectively the "Property"). When Tuli later attempted to remove the Property from Iraq, Iraq's Bureau of Customs allegedly refused to grant Tuli permission for the removal, claiming that Tuli owed construction dues to two Iraqi government ministries.

Thereafter, an involuntary petition for bankruptcy was filed against Tuli in the District of Arizona. Tuli then filed an adversary proceeding complaint against Iraq pursuant to 11 U.S.C. § 542 to recover the Property for the bankruptcy estate. In his complaint, Tuli alleged that Iraq had wrongfully confiscated the Property. He sought the Property's return or compensation for its value.

Tuli served Iraq with process under 28 U.S.C. § 1608, but Iraq failed to plead or otherwise respond to Tuli's complaint. As a result, on March 8, 1994, Tuli requested entry of Iraq's default and judgment by default. The bankruptcy court entered the requested default, but denied Tuli's request for a default judgment against Iraq. The court denied the request for a default judgment on the ground that the court lacked jurisdiction due to Iraq's sovereign immunity.

A little over a year later, on March 23, 1995, Iraq's consulate contacted Tuli and asked him to provide certain documents in support of his claim. 1 Tuli sent the requested information to Iraq's consulate the following day.

The bankruptcy court then scheduled a status hearing for August 1, 1995. Iraq's representative in Washington D.C. notified Tuli that no one representing Iraq would appear at that hearing, and no one did. Nevertheless, at the August 1, 1995 hearing, the bankruptcy court set a subsequent hearing for September 5, 1995, and ordered Iraq to demonstrate why the bankruptcy court should not grant Tuli's request for a default judgment. When Iraq failed to appear at the September 5th hearing or respond to the bankruptcy court's order, the court took the matter under submission.

On November 24, 1995, the bankruptcy court entered a final order. The court denied Tuli's request to enter a default judgment against Iraq. It denied that request on the grounds that (1) the court did not have personal jurisdiction over Iraq, (2) Tuli failed to show that the bankruptcy court could exercise personal jurisdiction over Iraq, and (3) the bankruptcy court should abstain from deciding the case in the interest of justice.

Tuli appealed the bankruptcy court's order to the BAP. The BAP affirmed the decision of the bankruptcy court, and Tuli then filed this timely appeal.

ISSUES

The primary issues in this case are:

1. Did the bankruptcy court err in raising sua sponte the question of personal jurisdiction over Iraq?

2. Did the bankruptcy court properly determine that Iraq lacked the requisite 3. Did the bankruptcy court err in abstaining from resolving Tuli's claims in this adversary proceeding?

minimum contacts with the United States necessary for the court to exercise personal jurisdiction?

DISCUSSION

Before discussing the primary issues in this case, we first consider the question whether Iraq enjoys sovereign immunity from Tuli's claims under the Foreign Sovereign Immunity Act ("FSIA"), 28 U.S.C. § 1604. Although Iraq did not appear and raise the sovereign immunity defense, we discuss the issue anyway because it may provide guidance to the bankruptcy court in the event that the court decides on remand that it has personal jurisdiction over Iraq and that it should exercise such jurisdiction.

We agree with the BAP's well-reasoned analysis of the sovereign immunity question, and conclude that Iraq is not entitled to sovereign immunity under the FSIA with regard to the claims Tuli asserted in his adversary complaint in the bankruptcy court.

The FSIA provides:

Subject to existing international agreements to which the United States is a party at the time of enactment of this Act a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 2 to 1607 3 of this chapter.

28 U.S.C. § 1604.

Although the FSIA provides that foreign states enjoy sovereign immunity from the jurisdiction of United States courts in certain circumstances, see Siderman de Blake v. Republic of Argentina, 965 F.2d 699 (9th Cir.1992), foreign states can no longer assert sovereign immunity from liability for certain actions under the Bankruptcy Code, including adversary proceeding complaints brought pursuant to 11 U.S.C. § 542. See 11 U.S.C. §§ 106(a)(1)-(3) (1994), as amended by the Bankruptcy Reform Act of 1994, Pub.L. No. 103-394, § 113, 108 Stat. 4106, 4117-18; 4 see also Hardy v. IRS (In re Hardy) We conclude that, following the 1994 amendment to section 106, Iraq, as a governmental unit, is not entitled to sovereign immunity from Tuli's claims in this adversary proceeding. We next consider the three primary issues in this appeal.

97 F.3d 1384, 1388 (11th Cir.1996). With regard to section 542 (the section under which Tuli asserts his claims in this case), section 106 abrogates sovereign immunity as to a "governmental unit," which the Bankruptcy Code specifically defines to include a foreign state or other foreign or domestic government. 11 U.S.C. §§ 101(27); 106(a)(1). See also 2 Collier on Bankruptcy p 101.27 at 101-82 to 83 (15th ed.1996).

A. Sua Sponte Consideration of Personal Jurisdiction

The first of the three primary issues we consider is whether the bankruptcy court erred in raising sua sponte the question of personal jurisdiction over Iraq.

In most circumstances, a defect in personal jurisdiction is a defense that may be asserted or waived by a party. See Fed.R.Civ.P. 12(h)(1) (defects in personal jurisdiction are waived by a party unless timely raised in a motion under Rule 12 or in a responsive pleading). Nevertheless, when a court is considering whether to enter a default judgment, it may dismiss an action sua sponte for lack of personal jurisdiction. See Garberg & Associates Inc. v. Pack-Tech International Corp., 115 F.3d 767, 771-72 (10th Cir.1997) (citing Williams v. Life Sav. and Loan, 802 F.2d 1200, 1203 (10th Cir.1986)).

In the present case, the fact that Iraq failed to plead or appear in the action makes no difference. When entry of judgment is sought against a party who has failed to plead or otherwise defend, a district court has an affirmative duty to look into its jurisdiction over both the subject matter and the parties. See Williams, 802 F.2d at 1203. A judgment entered without personal jurisdiction over the parties is void. See, e.g., Thos. P. Gonzalez Corp. v. Consejo Nacional De Produccion De Costa Rica, 614 F.2d 1247, 1255-56 (9th Cir.1980), Veeck v. Commodity Enterprises, Inc., 487 F.2d 423, 426 (9th Cir.1973). To avoid entering a default judgment that can later be successfully attacked as void, a court should determine whether it has the power, i.e., the jurisdiction, to enter the judgment in the first place.

We hold that the bankruptcy court properly raised, sua sponte, the issue of its personal jurisdiction over Iraq.

B."Minimum Contacts"

We next consider...

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