Opinion ID: 543051
Heading Depth: 2
Heading Rank: 3

Heading: Amendment of the 1982 Answer to Include the Defense of Sovereign Immunity

Text: 17 Foremost contends that the District Court erred in granting Iran's motion to amend its complaint to include the defense of sovereign immunity. Foremost argues that by filing the 1982 Answer without asserting the defense of sovereign immunity, Iran permanently waived its immunity by implication, pursuant to 28 U.S.C. Sec. 1605(a)(1). We cannot agree. 18 Section 1605(a)(1) provides that a foreign sovereign is not immune from the jurisdiction of courts of the United States ... in any case ... in which the foreign state has waived its immunity either explicitly or by implication. Foremost is correct in asserting that, in most instances, a state's failure to assert sovereign immunity in a responsive pleading will constitute a waiver of the defense. But the situation here is different because, in 1982, Iran did not respond substantively to any of the averments in the complaint or pose any defenses to the claims; instead, Iran merely argued that the action should proceed in another forum, which it then did. Iran's actions in these circumstances did not constitute an implied waiver. 19 It is true that the House Report accompanying FSIA provides that [a]n implicit waiver would ... include a situation where a foreign state has filed a responsive pleading in an action without raising the defense of sovereign immunity. H.Rep. No. 1487, 94th Cong., 2d Sess. 18 (1976), U.S.Code Cong. & Admin.News 1976, pp. 6604, 6616. We agree with the Seventh Circuit, however, that the example of an implied waiver 20 given in the legislative history--filing a responsive pleading without raising an immunity defense--demonstrates that Congress anticipated, at a minimum, that waiver would not be found absent a conscious decision to take part in the litigation and a failure to raise sovereign immunity despite the opportunity to do so. 21 Frolova v. Union of Soviet Socialist Republics, 761 F.2d 370, 378 (7th Cir.1985) (citation omitted). Iran's 1982 Answer does not exhibit such a conscious decision or opportunity. 22 The 1982 Answer does not admit or deny any of the averments upon which Foremost relied; nor does it state any defenses to the claims Foremost asserted. Cf. Fed.R.Civ.P. 8(b). Indeed, Iran explicitly stated in the 1982 Answer that the action commenced by the filing of plaintiffs' complaint has no legal effect other than to toll the applicable statute of limitations and that no response to plaintiffs' complaint is required. 1982 Answer at 1, 2, reprinted in App. 46, 47. As though to dispel any doubt, Iran further stated that [t]he foregoing is without prejudice to any of defendant's rights against the United States or plaintiffs, either in this forum or before the Arbitral Tribunal. Id. at 2, reprinted in App. 47. While such statements would not, in most contexts, excuse the failure to assert a defense in a responsive pleading, the circumstances of this case are unusual because of the Executive Order. Iran contended, and Foremost conceded below, that Executive Order No. 12,294 did not even contemplate the filing of a responsive pleading in cases, like this one, that were referred to the Claims Tribunal under the Algiers Accords. See Foremost I, slip op. at 5 n. 6, reprinted in App. 95 & n. 6. We need not reach the issue whether the 1982 Answer is a responsive pleading for purposes of the Federal Rules of Civil Procedure. In the unusual circumstances of this case, it is clear that Iran did not make a conscious decision to take part in the litigation before the District Court. 23 Application of the implied waiver provision in the instant case would be inconsistent with the substantial precedent construing the implied waiver provision narrowly. The legislative history of FSIA gives three examples of circumstances in which courts have found implied waivers: (1) a foreign state has agreed to arbitration in another country; (2) a foreign state has agreed that the law of a particular country governs a contract; or (3) a foreign state has filed a responsive pleading in an action without raising the defense of sovereign immunity. See H.REP. NO. 1487, 94th Cong., 2d Sess. 18 (1976); SEN.REP. NO. 1310, 94th Cong., 2d Sess. 18 (1976). In reviewing the case law bearing on the breadth of the implicit waiver provision, the Seventh Circuit noted that [c]ases involving arbitration clauses illustrate that provisions allegedly waiving sovereign immunity are narrowly construed and that the narrow construction of the implicit waiver clause is also evident in the line of cases holding that a contract's waiver of immunity does not apply to third parties not privy to the contract. Frolova, 761 F.2d at 377; see also id. at n. 10 (citing cases). The Frolova court further noted that, with regard to contract provisions, courts rarely find that a nation has waived its sovereign immunity, particularly with respect to suits brought by third parties, without strong evidence that this is what the foreign state intended. Id. at 377. 24 In rejecting the plaintiff's contention that the foreign sovereign had implicitly waived its immunity by not defending the action, the Seventh Circuit further noted that 25 [t]he case law evidences a reticence to find a waiver from the nature of a foreign state's participation in litigation. For example, in Castro v. Saudi Arabia, 510 F.Supp. [309, 311-12 (W.D.Tex.1980) ], the court held that the defendant's failure to timely answer the complaint did not waive sovereign immunity. And in Canadian Overseas Ores Ltd. v. Compania de Acero del Pacifico S.A., 727 F.2d 274, 277-78 (2d Cir.1984), the court ruled that the district court did not err in finding that sovereign immunity was not waived, although the defendant never filed a responsive pleading but instead filed several motions which did not assert sovereign immunity, and a Rule 12(b)(1) motion to dismiss based on sovereign immunity was not filed until over two and one-half years after the complaint was filed. Id. at 378. 11 26 Finally, the mechanistic application of the implied waiver urged by Foremost would be inconsistent with the notions of grace and comity that underlie the statutory scheme. See Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 486, 103 S.Ct. 1962, 1967, 76 L.Ed.2d 81 (1983). In effecting these underlying policy concerns, this court noted in Practical Concepts that [i]ntolerant adherence to default judgments against foreign states could adversely affect this nation's relations with other nations and 'undermine the State Department's continuing efforts to encourage ... foreign sovereigns generally[ ] to resolve disputes within the United States' legal framework.'  811 F.2d at 1551 n. 19 (quoting Brief for the United States as Amicus Curiae at 13-15). In this regard, the District Court speculate[d] that an intolerant elevation of form over substance in this case, by deeming Iran's original 'answer' to have waived the defense of sovereign immunity, will almost certainly undermine the confidence of foreign states in the fairness of our legal system. Foremost II, slip op. at 18-19, reprinted in App. 118-19. We agree. 27 On the record before us, we conclude that the District Court properly permitted Iran to amend the 1982 Answer to include the defense of sovereign immunity. 12