Court Opinion

ID: 41409
Source: CourtListenerOpinion
Date Created: 2010-04-25 21:03:06+00
Date Added: 2024-06-11T14:56:09.198685
License: Public Domain

United States Court of Appeals
                                                               Fifth Circuit
              IN THE UNITED STATES COURT OF APPEALS F I L E D
                      FOR THE FIFTH CIRCUIT        March 16, 2006
                      _____________________          Charles R. Fulbruge III
                                                             Clerk
                          No. 04-60928
                      ____________________

       GEORGE DALE, Commissioner of Insurance for the State of
   Mississippi, in his official capacity as Receiver of Franklin
Protective Life Insurance Company, Family Guaranty Life Insurance
  Company, and First National Life Insurance Company of America;
  W. DALE FINKE, Director of the Department of Insurance for the
     State of Missouri, in his official capacity as Receiver of
     International Financial Services Life Insurance Company;
KIM HOLLAND, Insurance Commissioner for the State of Oklahoma, in
  her official capacity as Receiver of Farmers and Ranchers Life
                          Insurance Company;
  JULIE BENAFIELD BOWMAN, Insurance Commissioner for the State of
  Arkansas, in his official capacity as Receiver of Old Southwest
                       Life Insurance Company;
 PAULA A. FLOWERS, Commissioner of Commerce and Insurance for the
    State of Tennessee, in her official capacity as Receiver of
              Franklin American Life Insurance Company;

                                       Plaintiffs-Appellees,

                                  v.

                  EMILIO COLAGIOVANNI, et al.,

                                       Defendants,

           HOLY SEE, also known as Vatican City State,

                                       Defendant-Appellant.

                       __________________

          Appeal from the United States District Court
            For the Southern District of Mississippi
                       __________________

Before REAVLEY, DAVIS and WIENER, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:
     Plaintiff-Appellees,     receivers      for     various    insurance

companies,   brought   suit   against      individuals    and   entities

allegedly involved in a conspiracy to fraudulently acquire and

loot the insurance companies.          In their complaint, Plaintiffs

alleged that the Holy See, also known as the Vatican City State,

participated in the scheme through its agent Emilio Colagiovanni,

and sought damages for RICO violations, civil conspiracy, common

law fraud, and aiding and abetting fraud.          The Vatican moved for

dismissal under Rule 12(b)(1) based, in part, on its claim of

immunity under the Foreign Sovereign Immunities Act (“FSIA”).

Plaintiffs argued that the Vatican is subject to suit under the

commercial exception to the FSIA, 28 U.S.C. § 1605(a)(2), either

because Colagiovanni acted with the actual or apparent authority

of the Vatican, or because the Vatican ratified his acts.            The

district court declined to consider Plantiffs’ actual authority

and ratification theories, and instead denied the Vatican’s rule

12(b)(1) motion on grounds that when Colagiovanni acted with the

apparent authority of the Vatican, this conduct fell within the

commercial exception to FSIA.   We vacate that judgment and remand

this case to the district court.

                                   2
                                           I.

                                           A.

       Between 1990 and 1999, Martin Frankel engaged in a massive

insurance      fraud   scheme,      using       various    alter      egos    and   front

organizations to acquire and loot several insurance companies.

Plaintiffs, the receivers of several of the targeted insurance

companies, allege that during 1998 and 1999 Frankel was aided in

his fraudulent activities by Defendant Emilio Colagiovanni, among

others.     Frankel pled guilty to criminal charges of fraud and

racketeering, and is not a party to this suit.                        Colagiovanni was

a Roman Catholic “monsignor,” a judge emeritus of the Tribunal

della   Rota    Romana   (the       “Rota”),      one     of    the   Vatican’s     three

appellate      courts,   and    a    professor       in    the     Studio     Rotale,   a

graduate program connected to the Rota.                   Colagiovanni was also a

senior member of the “Curia,” the Vatican’s government, and was

the    President   of    the    Monitor         Ecclesiasticus        Foundation     (the

“MEF”), an autonomous entity that published a journal of canon

law.

       In 1998, Frankel embarked on a scheme to utilize the Roman

Catholic Church as the latest in a series of front organizations

to acquire insurance companies.                 Frankel, masquerading as “David

Rosse,”    a   philanthropist        who    wished       to     create    a   charitable

foundation,     eventually      worked      his    way     up    to   a   meeting   with

                                            3
Colagiovanni.             His    plan     called       for    capitalization       of   the

foundation in the amount of $55 million, $50 million of which

would be for insurance company acquisitions and $5 million of

which    would      be    available       for    charitable     use.        Although    the

Vatican initially rejected Frankel’s plan to create a Vatican-

affiliated        entity,       Frankel      ultimately      created   an    organization

called      the    St.    Francis       of    Assissi     Foundation     (the     “SFAF”).

Colagiovanni agreed to allow MEF to serve as SFAF’s settlor of

record, and Frankel donated funds to the MEF, which were in turn

given to SFAF, under Frankel’s control.

       By March of 1999, Frankel was being investigated by the

Mississippi Department of Insurance regarding his acquisitions,

and    received      a    letter     from       the    Department      asking     specific

questions         about     Frankel’s         investment       practices.          Frankel

responded by causing SFAF to purchase the trust that had been

involved in the acquisitions, which in turn caused the Department

to    set   an    emergency       hearing.           Colagiovanni      appeared    at   the

hearing      and     represented          that       Vatican-related        entities    had

contributed over $1 billion to SFAF.                    Meanwhile, Frankel prepared

to leave the country.              Mississippi regulators immediately froze

the     assets      of    the      Frankel-controlled           companies,        and   the

regulators        for     Tennessee,         Missouri,       Oklahoma,      and   Arkansas

quickly followed suit.

                                                 4
                                        B.

      The receivers for various insurance companies affected by

Frankel’s scam filed suit against a variety of individuals and

entities involved, including both Colagiovanni and the Vatican.

Because of the complexity of the underlying law and facts, the

district   court   ordered      that    motions       to    dismiss    be   filed    in

phases, beginning        primarily     with    subject      matter     jurisdiction.

The   Vatican    filed    its   first        motion    to    dismiss     under      Rule

12(b)(1), arguing that the Vatican was immune from suit under the

FSIA.   Plaintiffs argued that the Vatican’s conduct fell within

the commercial     activity     exception       to    the    FSIA,    and    tied   the

Vatican to Colagiovanni’s conduct based on apparent authority,

actual authority, and ratification theories.                  The district court

agreed, and denied the Vatican’s motion in part based on an

apparent   authority        theory,      expressly          declining       to   reach

Plaintiff’s     actual    authority     or     ratification      theories.          The

Vatican also urged several other theories under which it was

immune to suit under FSIA, but the district court rejected each

of those arguments and this appeal followed.

                                        II.

      The district court’s order denying the Vatican’s 12(b)(1)

motion is immediately appealable.                28 U.S.C. § 1291; Byrd v.

                                         5
Corporacion Forestal y Industrial De Olancho S.A., 182 F.3d 380,

385 (5th Cir. 1999).            The district court’s ruling on a purely

legal   motion    to    dismiss      based       on   foreign     sovereign       immunity

grounds is reviewed de novo.               Walter Fuller Aircraft Sales, Inc.

v. Republic of Philippines, 965 F.2d 1375, 1383 (5th Cir. 1999).

                                           III.

     The   FSIA       provides       the   sole       source      of    subject     matter

jurisdiction     in     suits    against         a    foreign     state.       Argentine

Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434-39

(1989).    “The general rule under the FSIA is that foreign states

are immune from the jurisdiction of the United States Courts.”

Byrd, 182 F.3d at 388 (quoting Moran v. The Kingdom of Saudi

Arabia, 27 F.3d 169, 172 (5th Cir.1994) (citing 28 U.S.C. §

1604)). “However, a district court can exercise subject matter

jurisdiction     over    a   foreign        state      if   one    of    the   statute's

exceptions apply.”        Id.

     Plaintiffs argue that the Vatican is subject to suit under

the commercial activity exception to the FSIA, because its agent,

Colagiovanni,     engaged       in   commercial        activity        while   possessing

apparent authority.1         The Vatican argues, however, that an agent
1
  Plaintiffs also argued to the district court that Colagiovanni
possessed actual authority, and that his commercial acts were
ratified by the Vatican. The district court expressly declined to
rule on these issues, and we decline to examine those theories in
the first instance.

                                             6
acting only with apparent authority is insufficient to trigger

the commercial activity exception.           While this is an issue of

first impression      in   this   Circuit,   both   the   Fourth    and   Ninth

Circuits, the only Circuits to have directly addressed the issue,

have concluded that conduct by an agent acting with apparent

authority   is    insufficient    to   trigger   the   commercial    activity

exception and give a basis for jurisdiction against the state

under FSIA.       See Velasco v. Gov’t of Indonesia, 370 F.3d 392,

399-400 (4th Cir. 2004); Phanuef v. Republic of Indonesia, 106
F.3d 302, 307-08 (9th Cir. 1997).

     The commercial activity exception provides that a foreign

state shall not be immune in any action

     based upon a commercial activity carried on in the

     United States by the foreign state; or upon an act

     performed in the United States in connection with a

     commercial activity of the foreign state elsewhere; or

     upon an act outside the territory of the United States

     in connection with a commercial activity of the foreign

     state elsewhere and that act causes a direct effect in

     the United States.

28 U.S.C. §      1605(a)(2).

                                       7
       The provision makes clear that the commercial activity must

be that “of the foreign state.”            The Ninth Circuit considered the

text of the exception in Phanuef:

       All   three   clauses     of    the     exception   require   “a

       commercial     activity        of     the    foreign    state."

       “[C]ommercial activity of the foreign state” clearly

       entails commercial activity in which the foreign state

       engaged.      Because a foreign state acts through its

       agents, an agent's deed which is based on the actual

       authority of the foreign state constitutes activity “of

       the foreign state.”

106 F.3d 302, 307-08 (9th Cir. 1997) (citations omitted).                 The

court in Phanuef concluded that “[t]he language of the commercial

activity exception compels the conclusion that only evidence of

actual authority can be used to invoke that exception.”              Id. at

307.    The court explained:

       When an agent acts beyond the scope of his authority,

       however, that agent “is not doing business which the

       sovereign has empowered him to do.”             If the foreign

       state has not empowered its agent to act, the agent's

       unauthorized act cannot be attributed to the foreign

       state; there is no “activity of the foreign state.”

Id. at 307-08 (citations omitted).

                                       8
       The conclusion that actual authority is required to trigger

the commercial activity exception is also supported by the line

of    cases    in    which   courts     have   construed     foreign      sovereign

immunity      to    extend   to   an   individual   acting    in    his   official

capacity on behalf of a foreign state.              The Fourth Circuit, the

only Circuit other than the Ninth to directly address the issue

presented in this case, relied on this line of cases in Velasco

v. Gov’t of Indonesia to hold that the plaintiff must demonstrate

that the agent acted with the actual authority of the state to

trigger the commercial activity exception.             370 F.3d 392, 399-400

(4th Cir. 2004) (citing Byrd v. Corporacion Forestal y Industrial

de Olancho S.A., 182 F.3d 380, 388 (5th Cir. 1999) (FSIA protects

individuals acting within their official capacity as officers of

corporations considered foreign sovereigns); El-Fadl v. Central

Bank of Jordan, 75 F.3d 668, 671 (D.C. Cir. 1996) (individual

sued for actions on behalf of government bank was immune from

suit under FSIA); Chuidian v. Philippine Nat'l Bank, 912 F.2d
1095, 1101-03 (9th Cir. 1990) (interpreting section 1603(b) to

include individuals sued in their official capacity)).

       Plaintiffs point to two decisions of this court to support

their argument that apparent authority is sufficient to trigger

the   commercial       activity    exception,    Arriba,     Ltd.   v.    Peroleos

Mexicanos, 962 F.2d 528 (5th Cir. 1992), and Hester Int’l Corp.

                                          9
v. Federal Republic of Nigeria, 879 F.2d 170 (5th Cir. 1989).

Neither opinion, however, controls our decision in this case.

     Both opinions address the presumption of separate juridical

status of government instrumentalities under the test articulated

by the Supreme Court in First Nat’l City Bank v. Banco Para El

Comercio Exterio De Cuba, 462 U.S. 611 (1983) (“Bancec”).                 See

Hester, 879 F.2d at 176-81; Arriba, 962 F.2d at 534-37.              Neither

case directly addresses the apparent authority of an individual

agent in the context of the commercial activity exception.                The

two inquiries are analytically distinct.           The Court in Bancec

held that when a plaintiff sues a government instrumentality of a

foreign state, we apply a presumption that the instrumentality is

independent   of   the   foreign   state   for   purposes    of   the   FSIA.

Hester, 879 F.2d at 176 (citing Bancec, 462 U.S. at 627).                   A

plaintiff can over come that presumption, however, in certain

circumstances by demonstrating that the instrumentality is the

agent or alter ego of the foreign state.           Id. at 176-179.        The

inquiry in that context, then, is whether the state exercises

day-to-day control over the agency, not whether a particular type

of   agency   relationship    is   sufficient     under     the   commercial

activity exception.       Under the commercial activity exception,

however, the court must determine whether the commercial activity

is “of the foreign state.”

                                    10
                                               IV.

       The Vatican urges several additional theories arguing that

it    is   not    subject       to     jurisdiction          under   the     FSIA:    (1)    the

creation of a charitable foundation is not a commercial activity;

(2)    Colagiovanni’s           criminal       activity        was    not     a     commercial

activity; (3) the alleged claims were tort-based, and therefore

not    within     the     commercial       activity          exception;      and     (4)     the

Vatican     could       not     form     the    requisite        intent      necessary       for

Plaintiffs’ fraud-based claims.                       The district court considered

and rejected each of these arguments, and we affirm the district

court’s     judgment       on    these    issues        on    the    basis    of    its    well-

reasoned opinion.

                                               V.

       We agree with the Fourth and Ninth Circuits that an agent’s

acts    conducted       with     the     apparent       authority      of     the    state    is

insufficient to trigger the commercial exception to FSIA.                                    We

therefore        VACATE    the       contrary        ruling    of    the     district      court

denying immunity to the Vatican.                     We AFFIRM the remainder of the

district court’s judgment and remand this case to the district

court for further proceedings.

       AFFIRMED in part, REVERSED in part, and REMANDED.

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