Opinion ID: 487465
Heading Depth: 2
Heading Rank: 2

Heading: Culpable Conduct Or Inexcusable Neglect

Text: 22 A defendant's conduct is culpable if he has received actual or constructive notice of the filing of the action and failed to answer. Pena, 770 F.2d at 815; Benny, 799 F.2d at 494. Here, the Republic and the Instituto received actual notice of the complaint and intentionally declined to answer. 23 Appellants claim that their failure to answer was due to excusable neglect. They argue that they acted on the advice of counsel in failing to respond after receiving actual notice of the filing of the complaint. Appellants rely on an anonymous memorandum from an Advisory Commission stating that the Republic should not appear or be represented. The record shows that the person upon whose advice appellants originally claim to have relied, Pedro Tonos, the Republic's Undersecretary of Foreign Affairs, denied responsibility for the decision not to respond. 24 Furthermore, appellants were aware of relevant federal law. The district court found that defendants were fully informed of the legal consequences of failing to respond by the United States Department of State. The district court also found that the Republic was sufficiently sophisticated and experienced in the requirements of American law to protect its interests, based on its involvement in other actions in United States courts. See, e.g., Arango v. Guzman Travel Advisors Corp., 621 F.2d 1371, 1378-80 (5th Cir.1980) (Dominicana Airlines, wholly owned by the Dominican Republic, found to have engaged in commercial activities and therefore not protected by sovereign immunity). 25 Under the circumstances presented in the record, the district court did not abuse its discretion in finding that appellants' default was intentional, culpable, and inexcusable under Rule 60(b)(1). Because appellants' neglect was inexcusable, we need not determine whether the record shows a meritorious defense or prejudice to the appellees. Pena, 770 F.2d at 815; Benny, 799 F.2d at 494. 3. The Judgment Was Not Void 26 The appellants further attack the judgment as void for want of jurisdiction. Whether a judgment is void is a question of law reviewable de novo on appeal. See, e.g., Redding Ford v. California State Bd. of Equalization, 722 F.2d 496, 497 (9th Cir.1983), cert. denied, 469 U.S. 817, 105 S.Ct. 84, 83 L.Ed.2d 31 (1984). A. Subject Matter Jurisdiction 27 The Republic and the Instituto claim that the district court lacked subject matter jurisdiction over this matter under the Foreign Sovereign Immunities Act, 28 U.S.C. Sec. 1330, 1602-11 (1976) (hereinafter FSIA). We disagree. 28 The FSIA sets forth a restrictive theory of sovereign immunity. Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 487, 103 S.Ct. 1962, 1968, 76 L.Ed.2d 81 (1983). Under the restrictive theory, immunity is confined to suits involving the foreign sovereign's public acts, and does not extend to cases arising out of a foreign state's strictly commercial acts. Id. 29 The legislative history of section 1604 explains that FSIA 30 starts from a premise of immunity and then creates exceptions to the general principle.... Stating the basic principle in terms of immunity may be of some advantage to foreign states in doubtful cases, but, since sovereign immunity is an affirmative defense which must be specially pleaded, the burden will remain on the foreign state to produce evidence in support of its claim of immunity. Thus, evidence must be produced to establish that a foreign state or one of its subdivisions, agencies or instrumentalities is the defendant in the suit and that the plaintiff's claim relates to a public act of the foreign state--that is, an act not within the exceptions in sections 1605-1607. Once the foreign state has produced such prima facie evidence of immunity, the burden of going forward would shift to the plaintiff to produce evidence establishing that the foreign state is not entitled to immunity. The ultimate burden of proving immunity would rest with the foreign state. 31 H.R.Rep. No. 1487, 94th Cong., 2d sess., reprinted in 1976 Code Cong. & Ad. News 6604, 6616. See also Arango, 621 F.2d at 1378 (party claiming immunity under FSIA has burden of demonstrating that exceptions do not apply). In West v. Multibanco Comermex S.A., 807 F.2d 820 (9th Cir.1987), we stated that: the presumption under FSIA is that actions taken by foreign states or their instrumentalities are sovereign acts and thus protected from the exercise of our jurisdiction, unless one of the enumerated exceptions of FSIA applies. Id. at 824. Thus, where, as here, the plaintiff alleges in his complaint that his claim is based on a foreign state's strictly commercial acts, the defendant must establish a prima facie case that it is a sovereign state and that the plaintiff's claim arises out of a public act. This proof establishes a presumption that the foreign state is protected by immunity. The plaintiff then has the burden of going forward with the evidence by offering proof that one of the FSIA exemptions applies. Once the plaintiff has presented this evidence, the defendant must prove its entitlement to immunity by a preponderance of the evidence. See Alberti v. Empresa Nicaraguense de la Carne, 705 F.2d 250, 255-56 (7th Cir.1983). The FSIA exemption to the defense of foreign sovereign immunity relied upon by the appellees provides in pertinent part that: 32 A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case ... in which the action is based ... upon an act outside the territory of the United States in connection with commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States. 33 28 U.S.C. Sec. 1605(a)(2). 34 Appellees have presented evidence that appellants engaged in commercial activities. Appellants have failed to meet their burden of persuasion that this exception does not apply. 35 The term commercial activity applies to an agreement that might be made by a private person, notwithstanding the fact that the goods or services to be procured through the contract are to be used for a public purpose. H.R.Rep. No. 1487, at 16. A public activity is one which only a sovereign state can perform. MOL, Inc. v. Peoples Republic of Bangladesh, 736 F.2d 1326, 1328-29 (9th Cir.1984), cert. denied, 469 U.S. 1037, 105 S.Ct. 513, 83 L.Ed.2d 403 (1984) (termination of agreement regarding right to regulate imports and exports not a commercial activity because only a sovereign could so act). 36 Obtaining a loan commitment from a lender is a type of activity private persons perform. Thus, the Republic and the Instituto were engaged in a commercial transaction with Meadows and Harris. 37 A foreign state that engages in commercial activity may still be immune unless the action had a direct effect on a plaintiff. FSIA Sec. 1605(a)(2); Australian Gov't Aircraft Factories v. Lynne, 743 F.2d 672, 674 (9th Cir.1984). 38 The evidence must also show that the commercial activity caused that direct effect to occur in the United States. FSIA Sec. 1605(a)(2); Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300 (2d Cir.1981), cert. denied, 454 U.S. 1148, 102 S.Ct. 1012, 71 L.Ed.2d 301 (1982). In Texas Trading, the Second Circuit held that where the parties agree that money owing on a contract was to be collected in the United States, the failure to pay the plaintiff creates an effect in the United States. 647 F.2d at 312-13. The district court correctly applied Texas Trading to the matter before us. Meadows, 628 F.Supp. at 604. Meadows and Harris reside in the United States. Under the agreement, the commission was to be paid in the United States. As the district court noted, the contract provided that the  'transaction must be made through our bank ... and through your [plaintiffs'] bank.' (emphasis added). Id. at 605. Because the effect of the foreign state's commercial activity was in the United States, the record demonstrates that appellants were immune from suit in the district court. B. Personal Jurisdiction 39 Appellants argued before the district court that the relevant contacts for personal jurisdiction under the FSIA must be within California, the forum state. The district court rejected this contention, relying on Texas Trading. In Texas Trading, the Second Circuit held that, where service is made under FSIA section 1608, the relevant area in delineating contacts is the entire United States, not merely [the forum state]. 647 F.2d at 314. We agree with Judge Schwarzer's analysis of this issue, which appears at 628 F.Supp. 599 at 605-08, and adopt it as expressing the view of this court. The record shows that the Dominican Republic has sufficient contacts in the United States to give the district court personal jurisdiction. 40 The district court also held that, because the Instituto was an agent of the Republic, in personam jurisdiction existed over the Instituto. 628 F.Supp. at 608. Appellants assert, however, that because the Instituto is an autonomous juridical entity, the Republic cannot be held liable for the Instituto's commercial activity. Appellants claim that the record does not show sufficient contacts in the United States to establish personal jurisdiction over the Instituto. 41 This contention was raised in the district court for the first time after the hearing on the motion to set aside the default judgment. The district court denied leave to file a supplemental memorandum on the ground that the issue of separate juridical entity is a question of substantive law, not subject matter jurisdiction. Appellants argue that the issue of juridical separateness goes to subject matter jurisdiction and thus may be raised at any time. This argument is inconsistent with settled legal principles. 42 In First Nat'l City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 620, 103 S.Ct. 2591, 2596, 77 L.Ed.2d 46 (1983), the Supreme Court held that the question of identity for purposes of attribution of liability among instrumentalities of a foreign state is a matter of substantive law. Substantive law is defined as [t]he basic law of rights and duties ... as opposed to procedural law ( ... law of jurisdiction, etc.). Black's Law Dictionary 1281 (5th ed. 1979). Because the Republic and the Instituto failed to demonstrate excusable neglect, they were precluded from relying on the existence of a possible meritorious defense of separate juridical entity as a basis for setting aside the default judgment. 43 The judgment is AFFIRMED.