* District Judge of the Eastern District of Louisiana, sitting by designation.

1 United States Court of Appeals

Fifth Circuit



## FILED

December 22, 2004

Charles R. Fulbruge III

Clerk UNITED STATES COURT OF APPEALS

FIFTH CIRCUIT

____________

No. 04-20301

____________

WALKER INTERNATIONAL HOLDINGS LIMITED,

Plaintiff - Appellant,

versus

THE REPUBLIC OF CONGO; CAISSE CONGOLAISE

D’AMORTISSEMENT

Defendants - Appellees,

and

MURPHY EXPLORATION & PRODUCTION COMPANY

INTERNATIONAL

Garnishee - Appellee.

Appeals from the United States District Court

For the Southern District of Texas

Before SMITH and GARZA, Circuit Judges, and VANCE * , District Judge.

EMILIO M. GARZA, Circuit Judge:2

The Republic of Congo (“ROC”) refuses to pay a judgment it o wes Walker International

Holdings Limited (“Walker”). In an effort to collect its judgment, Walker filed a garnishment action

against Murphy Exploration & Production, International (“Murphy”), which owed the ROC money.

Walker appeals the district court’s decision dismissing the action and vacating a temporary restraining

order (“TRO”) and writs of attachment and garnishment. We previously ordered a stay of the district

court’s order pending this appeal. Walker claims that under the Foreign Sovereign Immunities Act

(“FSIA”), t he pro pert y is attachable because it is “used for a commercial activity in the United

States.” We find that the district court correctly vacated the TRO, dissolved the writs of attachment

and garnishment, and dismissed the action.

I

The ROC and Sadelmi Cogepi SpA (“Sadelmi”), an Italian company, entered into a contract

for the construction of electric infrastructure in the ROC. Sadelmi completed the construction and

the ROC defaulted on its payments. Walker purchased the debt fro m Sadelmi in an assignment

agreement. Under the terms of the contract between Sadelmi and the ROC, Walker brought an

arbitration proceeding before the International Chamber of Commerce (“ICC”) in Paris, France. The

ICC found that the ROC was liable to Walker. After French courts upheld the award, Walker

registered the $26,093,251 award in the United States District Court for the District of Columbia.

Walker then filed a garnishment action in the Southern District of Texas against Murphy to

obtain signing bonuses and other payments t hat Walker suspected Murphy owed the ROC and its

national oil company, Societe Nationale des Petroles du Congo (“SNPC”). In addition, Walker filed

a motion for a TRO to prevent Murphy from making any payments to the ROC or SNPC. Murphy

filed motions to vaca t e the TRO, to dissolve writs of attachment and garnishment, and to dismiss.3

The magist rat e judge granted these motions on the basis that the property was not “used for

commercial activity” under the FSIA. Walker appealed, and this court upheld a stay pending appeal.

Murphy paid the ROC its signing bonus payment and placed the equivalent, $6,360,000, into a surety

bond which requires payment to Walker on “any final, non-appealable judgment that Walker

. . .

obtains in [this] garnishment action. . . .”

II

The parties first contend that three arguments determine the controversy w ithout FSIA

analysis. We find that these arguments lack merit. First, Murphy asserted in oral argument that the

writ of garnishment was filed prematurely and, hence, there was nothing to attach. Murphy failed to

brief this argument. Therefore, the argument is deemed waived. U nited States v. Thames

, 214 F.3d

608, 612 n.3 (5th Cir. 2000).

Second, Walker argues that it is entitled to the surety bond because it is not the property of

the ROC and, hence, the FSIA is inapplicable. Walker cites F latow v. Islamic Republic of Iran

, 74

F.Supp.2d 18 (D.D.C. 1999), which ruled that property held by the United States as an award to Iran

was property of the United States, and ther efore not subj ect to attachm ent under the FSIA. In

Flatow

, the plain t iff sought to garnish U.S. Treasury funds earmarked for payment of Iran-United

St at es Claims Tribunal awards. The court denied garnishment because “creditors may not attach

funds held by the U.S. Treasury or its agents.” I d. at 21. The court reasoned, “In other words, funds

held in the U.S. Treasury )) even though set aside or ‘earmarked’ for a specific purpose )) remain the

property of the United States until the government elects to pay them to whom they are owed.” I d.

Here, Liberty Mutual Insurance Company, a private corporati on w hich does not enjoy sovereign

immunity, holds the surety bond. Therefore, the Flatow analysis is inapplicable.4

Third, Walker claims that the bond requires payment to Walker on “any final, non-appealable

judgment that Walker International Holdings Limited obtains in the garnishment action styled Walker

International Holdings Limited v. The Republic of Congo

, et al.

, Civil Action No. 03-CV-3497 (S.D.

Tex.).” Walker argues that since there was a judgment, payment is required. Walker’s argument fails

because Civil Action No. 03-CV-3497 is, of course, on appeal here.

Walker also makes a standing argument: specifically, it argues that only the ROC has standing

to raise the issue of the ROC’s sovereign immunit y. In response, Murphy contends that under Texas

g arnishment law, it had a duty to raise any known defenses of the judgment debtor. This and

Walker’s standing argument are irrelevant to the FSIA. Walker cites P rincz v. Federal Republic of

Germany

, 26 F.3d 1166, 1171 (D.C. Cir. 1994) (“It is the burden of the foreign sovereign in each

case to establish its immunit y by demonstrating that none of the exceptions is applicable.”). P rincz

is irrelevant for our purposes. In P rincz

, the plaint iff sued the foreign sovereign directly; it was not

a garnishment action invo lving an additional party. There was no need for the P rincz court to make

a distinction between the foreign sovereign and third parties.

Walker cites no authority and we were unable to find any authority for the proposition that

it is the sovereign’s exclusive right to raise the issue of sovereign immunit y under the FSIA. In fact,

the very language of the FSIA makes clear that the ROC’s presence is irrelevant: “The property in

the United States of a foreign state

. . . shall not be immune from attachment . . . if ) ) (1) the foreign

state has waived its immunit y . . . either explicit ly or by implication.” 28 U.S.C. § 1610(a). The

FSIA sets parameters in which property may be attached: “the court ma y order the attachm ent or

execution only as ‘referred to in subsections (a) and (b).’” C onn. Bank of Commerce v. Republic of

Congo

, 309 F.3d 240, 250 (5th Cir. 2002) (emphasis added). Neither 28 U.S.C. § 1610(a) nor (b)5

requires the presence of the foreign sovereign or gives the sovereign exclusive standing to raise the

waiver element. Hence, we find no merit to Walker’s standing argument and we need not address

Murphy’s response.

III

Finding the FS IA applicable, we turn to whether the ROC waived its sovereign immunity

“either explicitly or by implication.” 28 U.S.C. § 1610(a)(1). When a district court’s decision

involves mixed questions of law and fact, we review the factual find i ngs for clear error, and legal

conclusions and application of law to fact de novo

. A f-Cap v. Republic of Congo

, 383 F.3d 361, 368

(5th Cir. 2004) reh’g granted , 389 F.3d 503 (per curiam).

The FSIA codifies the restrictive theory of foreign sovereign immunity and is the only basis

for obtaining in personam jurisdiction over a foreign sovereign. I n re B-727 Air

c raft Serial No.

21010

, 272 F.3d 264, 270 (5th Cir. 2001)

. This statutory immunit y is subject to several exceptions.

The relevant provision states

The pr o pert y in the United States of a foreign state, as defined in section

1603(a) of this chapter, used for a commercial activity in the United States

, shall not

be immune from attachment in aid of execution, or from execution, upon a judgment

entered by a c ourt of t he United States or of a State after the effective date of this

Act, if--

(1) the foreign state has w aived its immunity from attachment in aid of execution or

from execution either explicitly or by implication, notwithstanding any withdrawal of

the waiver the foreign state may purport to effect except in accordance with the terms

of the waiver. . . .

28 U.S.C. § 1610(a) (emphasis added). Therefore, a waiver of immunity o nly applies “against

property that meets.

. . two statutory criteria,” namely, that the property in question be “in the United

States” and “used for commercial activity in the United States.” Af-Cap

, 383 F.3d at 365 (citations6

omitted).

A

Walker contends that the ROC waived its sovereign immunit y explicitly in its contracts with

Murphy. “An explicit waiver must be an intentional and knowing relinquishment of the legal right.”

Good v. Aramco Services Co.

, 971 F.Supp. 254, 258 (S.D.Tex. 1997). In A twood Turnkey Drilling,

Inc. v. Petroleo Brasileiro , 875 F.2d 1174 (5th Cir. 1989), we found that the national oil company

of Brazil had waived its immunity in its financing agreement. The provision stated

The Borrower.

. . expressly and irrevocably waives any such right of immunit y

(including any immunity from the jurisdiction of any court or from any execution or

attachment in aid of execution prior to judgment or otherwise ) or claim thereto which

may now or hereafter exist, and agrees not to assert any such right or claim in any

such action or proceeding, whether in the United States or otherwise.

Id. at 1177. Similarly, the ROC signed an agreement that waives sovereign immunity defenses. The

Producti on Sharing Contr act st ates, “[t]he Congo hereby irrevocably renounces to claim any

immunity during any procedure relating to any arbitration decision handed down by an Arbitration

Court.

. . .” The plain language of “any immunity” indicates that sovereign immunity is also waived.

Murphy does not argue, and this court has found no authorit y, suggesting the contrary. This

“procedure” relates to the “arbitration decision” s i nce Walker seeks to garnish funds owed to the

ROC to collect on the ICC’s judgment.

In addition, the ROC agreed to abide by the rules of the ICC which precludes the ROC from

asserting a sovereign immunity defense. Rule 28(6) states, “[e]very Award shall be binding on the

parties. By submitting the dispute to arbitration under these Rules, the parties undertake to carry out

any Award without delay and shall be deemed to have waived t heir right to any form of recourse7

insofar as such waiver can validly be made.” I.C.C. R ULE 28(6). Therefore, we hold that the ROC

explicit ly waived its sovereign immunity. Accordingly, we need not address a potential implicit

waiver.

B

Having found waiver, we turn to the second requirement of the FSIA: whether the property

is in the United States. 28 U.S.C. § 1610(a). Walker argues that the property was in the United

State s because (1) pledges to induce payments by an American company constitute commercial

activity in the United States, and (2) the ROC contracted for legal services in the United States to

defend this garnishment action. Murphy, on the other hand, claims that the pledged petroleum is

repaid by oil in the ground in the ROC and, hence, is not in the United State s. Further, Murphy

claims that Walker’s assertions lack evidentiary support.

In Af-Cap v. the Republic of Congo

, 383 F.3d 361 (5th Cir. 2004), our most recent published

decision invo lving the ROC, the ROC entered into a lending contract with Equator Bank Limited to

provide funds necessary for the construction o f a highway in the ROC. The ROC pledged as

collateral “all of its assets and properties, wherever located.” The ROC defaulted, and Connecticut

Bank of Commerce (“Connecticut Bank”), an assignee of the contract, obtained a default judgment

against the ROC in London, England. After registering the foreign judgment in the United States and

obtaining an order of attachment, Connecticut Ban k filed garnishment actions in Texas against

various entities (“Garnishees”) which owed the ROC taxes and royalties. A f-Cap

, 383 F.3d at 364-

65.

The Af-Cap court found that debtor obligations were, by nature, intangible and determining

the situs required a context specific inquiry. Id. at 371. Approvingly, the court quoted an earlier Fifth8

Circuit decision:

The situs may be in one place for ad valorem tax purposes,. . .; it may be in another

place for venue purposes, i.e., garnishment. . .; it may be in more than one place for

tax purposes in certain circumstances.

. .; it may be in still a different place when the

need for esta blishing its true situs is to determine whether an overriding national

concern, like the application of the Act of State Doctrine is involved.

Id. quoting Tabacalera Severiano Jorge, S.A. v. Standard Cigar Co.

, 392 F.2d 706, 714-15 (5th Cir.

1968). Importantly, we state that “courts consistently hold that the situs of debtor obligation is the

situs of the debtor.” Id

.

With a similar factual background to the case at hand, the court in Af-Cap concluded, “[w]e

think a common sen se appraisal of the requirements of justice and convenience in this particular

context yields the conclusion that the situs of these royalty obligation is the United States )) the situs

of the Garnishees.” I

d. (internal quotati ons omitted). In A f-Cap, the plaintiff was “not seeking to

attach any of the Congo’s physical property (like its oil) but instead it [sought] t o attach the

obligations to pay royalties owed by the garnishees.” Id. at 371 n.12 (emphasis in original). Here,

the property Walker seeks to attach is a surety bond in the United States. Murphy, the debtor, is also

in the United States. Therefore, for the purposes of the FSIA, the surety bond is in the United States.

C

Under the FSIA, a third element must be met: property in the United Sta tes must also be

“used for commercial activity” for implementation of a waiver of sovereign immunity. 28 U.S.C. §

1610(a). The FSIA defines “commercial activity” as “either a regular course of commercial conduct

or a particular commercial transaction or act.” 28 U.S.C. § 1603(d). Walker argues that the signing

bonuses and other payments were used for commercial activity because the ROC pledged oil revenue9

to pay for various administrative and transactional expense s related to the negoti ati on of the oi l

contracts. In addition, Walker argues that the ROC’s promise to reimburse Murphy for its litigation

expenses constitutes commercial activity. Neither argument is meritorious.

In the original Af-Cap appeal, this court held, “[w]hat matters under the statute is what the

property is ‘used for’

. . . even if a foreign state’s property has been generated by commercial activity

in the United States, that property is not thereby subject to execution or attachment if it is not ‘used

for’ a commercial activity within our borders.” Conn. Bank of Commerce , 309 F.3d at 251. Thus,

the fact that the property was generated by commercial activity, namely, oil exploration, is irrelevant.

In vacating and remanding the case back to the trial court, the Conn. Bank court wrote, “[i]f it turns

out that the royalties and tax obligations are not used for any commercial activity in the United States,

the district court should dissolve the writs of garnishment and dismiss the action.” I d. at 260-61. In

Conn. Bank ’s second appeal, the court found that “the Congo has used at least fift y percent of [the

tax and royalty obligations] to repay commercia l debt” and therefore concluded that the “tax and

royalty obligations are used for commercial purposes of § 1610(a) of the FSIA.” Af-Cap , 383 F.3d

at 370-71. In reaching its conclusion, the court took a “holistic” approach, considering whether the

commercial uses were bona fide exceptions to the noncommercial uses. Id. at 369.

In the present case, the district court found that no agreement was ever reached requiring the

ROC to reimburse Murphy for its legal expenses. The magistrate judge did not clearly err in finding

the factual testimony of the general manager of new ventures for Murphy credible when he testified

that the agreements on reimbursement never got further than the negotiation stage. His testimony

was bolstered by the lack of a signed finalized agreement requiring reimbursement. There is no legal

authority suggesting that negotiations over property make the property “used for commercial act ivit y”10

under the FSIA.

Walker’s next argument, that the property was used for commercial activity because the ROC

was to reimburse Murphy for administrative and transactional costs, also fails. The magistrate judge

found that “[t]he evidence fails to support the conclusion that [the] ROC spent or attempted to spend

the payment obligations in any manner, commercial or otherwise.” Even if there were evidence that

the ROC paid Murphy for commercial services under this provision, Walker’s argument s t ill fails.

Murphy was merely able to deduct certain expenses from the amount it owed the ROC; there was no

commercial activity separate from the transaction that generated the property in the first place. In

addition, contextually and holistically, minor reimbursements would not reach this standard. In AfCap

, the court found that at least fift y percent of the proceeds had been used for commercial activity.

Af-Cap

, 383 F.3d at 370. There is no evidence that the reimbursements would be anywhere near fifty

percent.

Beyond assertions of litigation and administrative reimbursements, there is no evidence in the

record showing how the signing bonus and other payments were actually used, or even how other

bonuses were used in the past . While these funds could indeed be used for other commercial

purposes, such as debt service, see id. at 368, Walker does not make this assertion. Therefore, no

other inquiry into the use of the monies is necessary and, for our purposes, we hold the funds were

not “used for any commercial activity.”

Walker further argu es t hat t he surety bond is commercial paper under the Texas Uniform

Commercial Code (T EXAS B US & C OM

. § 9-102), and is therefore, by definition, commercial. We

find this argument meritless as it would completely undermine the intent of the FSIA. “One of the

chief motifs of the FSIA is to limit as much as possible disrupting the ‘public acts’ or ‘ jure imperii ’11

of sovereigns, while restricting their purely commercial activity.” Co nn. Bank of Commerce , 309

F.3d at 253. The C

onn. Bank

court provided the following hypothetical to explain the distinction:

Consid er an airplane owned by a foreign government and used solely to shuttle a

foreign head-of-state back and forth for official visits. If the plane lands in the United

States, it would not be subject to attachment or execution. The plane is not “used for”

any commercial activity, in the U.S. or elsewhere. It plainly would not matter how the

foreign government bought the plane, raised the purchase price, or otherwise came

into ow nership

. Id

. at 253 (emphasis added). Under Walker’s rationale, funds used to purchase a government plane

or even an embassy could be subject to attachment depending on the method of payment. “Plainly

Congress did not intend a result so inconsistent with recognized principles of international law.” I d.

at 253 n.4 quoting City of Englew ood v. Socialist People's Libyan Arab Jamahiriya , 773 F.2d 31,

36-37 (3d Cir.1985). Thus, we find the Texas Uniform Commercial Code definition is inapplicable

in interpreting the FSIA.

IV

Walker claims that the magistrate judge erred in ruling that there was not enough evidence

to find that SNPC w as t he alter ego or “agent and instrumentality” of the ROC. If SNPC is the

ROC’s alter ego, it would have to undergo the same immunity analysis as the ROC. If SNPC is an

“agent or instrumentality” of the ROC, then § 1610(b) of the FSIA determines whether its property

is attachable. Reviewing the sufficiency of evidence is the application of law to facts and is reviewed

de novo

. Af-Cap 383 F.3d at 368.

Walker cannot attach the assets of the SNPC under the theory that the SNPC is an “agent or

instrumentality” of the ROC. The FSIA defines “an agency or instrumentality” of a foreign state as

any entity

(1) which is a separate legal person, corporate or otherwise, and (2) which is an organ12

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. § 1603(b). The SNPC is a separate legal entity, established by Congolese law in 1998 and

is not a citizen of the United States. We need not determine whether the SNPC was “an organ of [the

ROC] or political subdivision thereof, or a majority of whose shares is owned by” the ROC because

Walker still would not be able to attach its assets.

Under 28 U.S.C. § 1610(b) of the FSIA,

any property in the United States of an agency or instrumenta lit y of a foreign state

engaged in commercial activity in the United States shall not be immune from

attachment in aid of execution, or from execution, upon a judgment entered by a court

of the United States or of a State after the effective date of this Act, if--(1) the agency

or instrumentality has waived its immunit y from attachment in aid of execution or

from execution either explicitly or implicitly, notwithstanding any withdrawal of the

waiver the agency or instrumentality may purport to effect except in accordance with

the terms of the waiver, or (2) the judgment relates to a claim for which the agency

or instrumentality is not immune by virtue of section 1605(a) (2), (3), (5), or (7), or

1605(b) of this chapter, regardless of whether the property is or was involved in the

act upon which the claim is based.

Walker does not explain how this section of the FSIA applies to SNPC. Merely being an “agent or

instrumentality” of a foreign state is insufficient to attach property under the FSIA. Failing to argue

all of the requirements under the FSIA, Walker’s claims under § 1610(b) ar e deemed waived.

Thames , 214 F.3d at 612 n.3.

Alternatively, Walker argues that it should be able to garnish SNPC’s property under an alter

ego theory. Here again, we need not determine whether SNPC is an alter ego of the ROC because

its property would still not be attachable. Under the alter ego theory, SNPC’s property could only13

be attached if the ROC’s property (currently in the form of the surety bond) could be attached. As

explained supra

, the surety bond cannot be attached because it fa iled t o satisfy the criteria of the

FSIA. Accordingly, there is no basis to attach SNPC’s property.

V

The magistrate judge correc t ly fo und that the garnished funds were not “used for any

commercial activity.” Accordingly, the district court’s decision to vacate the TRO, dissolve the writs

of attachment and garnishment, and dismiss the action are AFFIRMED. Walker’s motions to order

the disbursement of the surety bond and for Murphy to show cause why it should no t be held in

contempt are DENIED.