Opinion ID: 780118
Heading Depth: 2
Heading Rank: 2

Heading: Execution Against or Attachment of Foreign Sovereigns' Property

Text: 37 Attachment of a foreign state's property in the United States is governed by the FSIA. In relevant part, the FSIA provides that the property in the United States of a foreign state shall be immune from attachment arrest and execution except as provided in sections 1610 and 1611 of [the FSIA]. 28 U.S.C. § 1609. Section 1610 provides different regimes for sovereign states on the one hand, and their agencies and instrumentalities on the other. First, 28 U.S.C. § 1610(a) provides that any property of a foreign sovereign that is 38 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 court of the United States ... if ... (1) the foreign state has waived 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. 39 Id. Second, § 1610(b), which concerns foreign states' instrumentalities, such as Pertamina, provides in relevant part that: 40 any property in the United States of an agency or instrumentality 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 ... if ... (1) the agency or instrumentality has waived its immunity 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. 41 Id. Subsection (a) is generally thought to be narrower than subsection (b). Connecticut Bank of Commerce v. Republic of Congo, 309 F.3d 240, 252-65 (5th Cir.2002). While subsection (b) applies to all property of the agencies and instrumentalities of foreign states, subsection (a) applies only to the property of foreign states that is used in commercial activity. Id. 42 In the appeal before us, sample geothermal energy contracts between Pertamina and KBC state that Pertamina waive[s] any ... right of immunity (sovereign or otherwise) which it or its assets now has or may have in the future. Karaha Geothermal Joint Operation Contract, Art. 21.7(c); Karaha Geothermal Energy Sales Contract, Art. 15.8(c). Pertamina, through its use of the trust funds to channel LNG revenues, engages in commerce in New York. Under 28 U.S.C. § 1610(b), Pertamina has thus waived its sovereign immunity from attachment in United States courts. 12 43
44 The FSIA states that when a foreign state is not protected by sovereign immunity, the foreign state shall be liable in the same manner and to the same extent as a private individual under like circumstances. 28 U.S.C. § 1606. In attachment actions involving foreign states, federal courts thus apply Fed.R.Civ.P. 69(a), which requires the application of local state procedures. See Alliance Bond Fund, Inc. v. Grupo Mexicano De Desarrollo, S.A., 190 F.3d 16, 20 (2d Cir.1999) (applying Rule 69(a), and hence New York law, in an FSIA action). 45 In the instant action, the district court is located in New York state. We therefore apply New York law to determine what assets are subject to enforcement, and thus available to judgment creditors. Alliance, 190 F.3d at 20. New York procedure for enforcement of judgments is set out in Article 52 of the Civil Practice Law and Rules. The first section of Article 52 describes the assets that New York law has made subject to enforcement, and thus available to judgment creditors. Id. The relevant provision, N.Y. C.P.L.R. § 5201(b), states that: 46 Property against which a money judgment may be enforced. A money judgment may be enforced against any property which could be assigned or transferred, whether it consists of a present or future right or interest and whether or not it is vested, unless it is exempt from application to the satisfaction of the judgment. 47 Id. In New York, then, a party seeking to enforce a judgment stand[s] in the shoes of the judgment debtor in relation to any debt owed him or a property interest he may own. Bass v. Bass, 140 A.D.2d 251, 253, 528 N.Y.S.2d 558, 561 (1st Dep't 1988). Nonetheless, a party cannot reach ... assets in which the judgment debtor has no interest. Id. A determination of Pertamina's property interest in the disputed funds — i.e., whether Pertamina can assign or transfer any of these funds — is therefore dispositive of this appeal. N.Y. C.P.L.R. § 5201(b).
48 While the litigants agree that New York law governs what property can be attached, they diverge on what law governs the property rights of the Republic of Indonesia and Pertamina in the disputed funds. KBC argues that under New York law, Pertamina owns the Production Sharing Percentage because Pertamina controlled the allocation of the funds within the trust accounts and retained initial title to the LNG, which it sold to generate the disputed funds. KBC finds no significance in the fact that much of those funds flow to the Republic of Indonesia. In KBC's view, these funds merely represent various royalties, taxes, and dividends which Pertamina is obligated to pay the Government. Decl. of Robert N. Hornick ¶ 24. KBC argues that before those obligations are met, the funds belong to Pertamina. KBC's expert also argues that Indonesian law does not vest the Republic of Indonesia with any ownership interest in these funds. See id. at ¶¶ 24-49. 49 Both Pertamina and the Ministry argue to the contrary that Indonesian law deprives Pertamina of all but a future property interest, limited to five percent of the Net Operating Income, while the Republic of Indonesia has the exclusive right to the rest of Pertamina's Production Sharing Percentage. They, like the district court, identify Government Regulation 41 as providing the dispositive rule of decision: 50 Article 5(1) The retention (fee) received by Pertamina with regard to the Production Sharing Contract shall be 5% (five percent) of the Net Operating Income of the relevant Production Sharing Contract. 51 (2) The difference between portions received by Pertamina according to each Production Sharing Contract and the retention (fee) received by Pertamina as intended in paragraph (1) of this Article shall be the Government's portion. 52 Government Regulation of the Republic of Indonesia Number 41 of 1982, Art. 5 (emphasis added). According to Pertamina's expert, [t]his [provision] means that the Government owns the Percentage Share due to Pertamina under the PSC, but must pay Pertamina the five percent fee, or the Retention. Supp. Decl. of Sudargo Gautama ¶ 4. 53 Pertamina also argues that even the Retention, which equals five percent of the Net Operating Income, cannot be attached. Pertamina contends that before it transfers its Production Sharing Percentage to the Republic of Indonesia, the latter owns all the PSC Revenue as a result of Government Regulation 41. Only after the revenue reaches Jakarta does Pertamina receive the Retention. And even in Jakarta, Pertamina is not entitled to the entire Retention. Regulation 41, in Article 5(3), subjects the retention to a sixty percent tax. A second regulation, Government Regulation 73, then mandates payment of a fifty percent dividend to the government. In all, Pertamina actually receives one-fifth of the Retention. 13 54 Resolution of this appeal requires that we determine the legal ownership of the PSC Revenues. At the threshold, we must consider which choice of law rule governs the question of ownership.