Sovereign Immunity

• Author: International Law Group
• Pages: 174-175

Page 174

In 1984, Af-Cap Inc.'s [Plaintiff's] predecessor-in-interest, Equator Bank, granted a construction loan to the Republic of Congo [Defendant] on which Defendant later defaulted. In 2000, an assignee of Equator Bank, Connecticut Bank of Commerce (CBC), obtained a money judgment in New York state court against Defendant for $13,628,340. To satisfy this judgment the court permitted attachment and execution against the Defendant's assets.

In 2001, CBC registered their New York judgment in a Texas state court followed up by a garnishment action against Defendant's debtors. The Texas court issued writs of garnishment against royalty obligation and taxes which CMS Nomeco Congo, Inc., The Nuevo Congo Company, and Nuevo Congo Ltd. (CMS Companies) owed the Defendant. The CMS Companies held interests in oil production in Defendant's waters and paid royalties for oil taken. The agreement governing the oil production provided for royalty payments in cash or "in kind" that is, in oil. [Defendant ] has opted to receive 100% of its payments in kind.

The Defendant removed the action to a federal court in Texas; in an order dated March 16, 2001, the court "held that the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. ß 1602 (2000), prohibited garnishment of the in-kind royalties and tax obligations." [Slip op. 14]. On appeal, the U.S. Court of Appeals for the Fifth Circuit vacated the decision. It ruled that the [Defendant] may fall within an exception to FSIA by engaging in "commercial activity" in the United States.

On remand, the district court dissolved the writs of garnishment, and found that the Defendant did not engage in commercial activity in the United States. The Fifth Circuit again vacated the decision, holding that the Defendant's use of the obligations received from the CMS Companies to settle a lawsuit in the United States, amounted to "commercial activity."

On remand the court decided that "the non-monetary obligations owed by the CMS Companies were not proper subjects of garnishment under Texas law." [Slip op. 16]. Instead, the district court applied a Texas "turnover" law, providing for an alternative type of attachment.

The turnover order of February 2005, purported to: "(1) take 'possession and control of allPage 175 future royalty obligations owed to the [Defendant]; (2) 'order[ed] the [Defendant] to turn over such royalty payments into the registry of the Court,' and (3) order[ed] the [Defendant] 'to execute in three...