Opinion ID: 3040536
Heading Depth: 4
Heading Rank: 2

Heading: The Obligations Used To Offset Prepayments

Text: Made By ChevronTexaco To The Congo.2 Based on a “Participation Agreement” between the parties, COCL is obligated to pay certain bonuses to the Congo because the Congo selected it to develop an oil field.3 A separate agreement between the Congo and COCL — a “$25 Million Prepaid Crude Oil Sales Contract” — provided that COCL would make a prepayment to the Congo for oil in the amount of $25 million, and also specified that: (1) “[t]he value of cargoes lifted by [COCL would] be credited by 2 Although our discussion revolves around the $25 million prepayment and the obligations purportedly used to secure it, our discussion applies with equal force to the $5 million prepayment and its attendant obligations. 3 The Participation Agreement contemplated three participation bonuses that Participants such as COCL were obligated to pay. First, “a signature bonus of twenty million Dollars . . . upon the due execution and proper approval of [the Participation] Agreement . . .” Second, “a project sanction bonus of four million Dollars . . . upon the final approval of the Development Plan.” Finally, “a production bonus, [that varied] based on the gross production of Crude Oil [once the field began producing oil].” The record reflects that COCL has paid $8.5 million in bonus payments, and that AfCap seeks to execute only on those payments, not on any bonus payments that may be due in the future, including any beyond the prepayment amount. 1000 AF-CAP v. CHEVRONTEXACO [COCL] against the outstanding Prepayment Amount,” and (2) “in the event a participation bonus [was] payable by [COCL to the Congo], the amount of such participation bonus [would be] . . . applied as a credit against the [Congo’s] obligation to reimburse the [$25 million] Prepayment Amount.” Af-Cap maintains that the obligation of COCL4 to pay bonuses to the Congo is the Congo’s property, which the Congo used as collateral for the $25 million “loan”5 from COCL, an entity that the district court presumed was present in the United States for purposes of the dispositive motion. Relying on CBC, Af-Cap postulates that this obligation was therefore used for a commercial activity in the United States.6 See id. at 259 (“[T]he royalty and tax obligations would be used for a commercial activity in the United States if the Congo used them as collateral for loans obtained from United States banks.”). The district court disagreed, finding that the obligation was COCL’s property, not the Congo’s, because “the parties previously agreed that the money that would otherwise be used to pay the bonuses be credited instead to the Congo’s preexisting $25 million debt to COCL, as a setoff payment.” Because “Af-Cap only has the right to attach the Congo’s 4 Af-Cap asserts that CABGOC is likewise obligated to pay bonuses to the Congo. Disagreeing with Af-Cap, the district court found that CABGOC is not obligated to pay bonuses to the Congo; “CABGOC is responsible only for [bonus] payments to Angola . . .” We discern no clear error in this finding, which is adequately supported by evidence in the record. 5 The Congo asserts that the $25 million prepayment is not a loan, but the district court found to the contrary. This finding is not clearly erroneous because it is reasonably supported by evidence in the record. For example, at least two declarations, which were provided by the Congo, indicate that the “$25 Million Prepaid Oil Sales Contract” is a “loan or credit agreement[ ] . . .” 6 To be clear, Af-Cap does not seek to attach the $25 million prepayment; it seeks to attach the obligations purportedly used as collateral for the prepayment, up to $8.5 million. AF-CAP v. CHEVRONTEXACO 1001 assets, not ChevronTexaco’s,” 28 U.S.C. § 1610(a); CBC, 309 F.3d at 251, the district court concluded that Af-Cap could not garnish the obligation. [9] Regardless of whether the obligation was previously used as collateral for the $25 million prepayment, when the $25 Million Prepaid Oil Sales Contract was consummated, the obligation was transferred to COCL and became the property of COCL up to the prepayment amount, which had not yet been satisfied. Given the unique structure of this transaction, which among other things allowed for other companies owing participation bonuses to the Congo to put their payments into COCL’s designated bank account rather than paying the Congo directly, the district court did not clearly err in finding that the obligation is COCL’s property. See United States v. Perez-Lopez, 348 F.3d 839, 845 (9th Cir. 2003) (“Even if other judges might have reached a different conclusion, if the district court’s account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently. Where there are two permissible views of the evidence, the factfinder’s choice between them cannot be clearly erroneous.”) (citation, alteration, and internal quotation marks omitted). Because only “[t]he property in the United States of a foreign state” is subject to garnishment, 28 U.S.C. § 1610(a) (emphasis added); CBC, 309 F.3d at 251 (“Under the FSIA, courts may attach only a foreign state’s property . . .”) (emphasis added) (internal quotation marks omitted), Af-Cap cannot garnish the obligation to pay bonuses or the bonus payments up to the prepayment amount.7 7 This conclusion is not inconsistent with Af-Cap. There, a 1979 agreement obligated the garnishees to make periodic tax and royalty payments to the Congo. 383 F.3d at 364-65. In the early 1990s, the Congo assigned a percentage of its tax and royalty obligation to an insurance company in the United States to repay a commercial debt which, in August 2002, was fully repaid. Id. at 368. Unlike Af-Cap, we do not read Af-Cap to hold that 1002 AF-CAP v. CHEVRONTEXACO [10] Af-Cap also contends that the operator bonus was used for a commercial activity in the United States as “COCL paid the bonus to the Congo . . . by wire transferring funds from COCL’s Citibank New York account . . .” However, the method of payment is not determinative. The appropriate inquiry is whether the property in question was used for a commercial activity in the United States. Cf. Af-Cap, 383 F.3d at 368, 371 (holding that the Congo put property in the service of a commercial activity in the United States when the Congo used tax and royalty obligations to repay a commercial debt owed to an insurance company in the United States). At best, Af-Cap’s evidence indicates that the obligation or bonus payment is related to, or has a connection with, a commercial activity in the United States. Yet, in order to satisfy § 1610(a), the property must have been “used”; the mere fact that the property has a “nexus or connection to a commercial activity in the United States” is insufficient. CBC, 309 F.3d at 254.