Sovereign Immunity

• Author: International Law Group

A predecessor of the Connecticut Bank of Commerce (Bank) lent the Republic of Congo $6.5 million. In the loan agreement, the Congo waived its sovereign immunity from suit and from attachment or execution on its assets. The Congo later defaulted on the loan, and the Bank obtained a judgment against the Congo from an English court for the outstanding principal and interest.

The Bank then sued in a New York state court to enforce the judgment. The Congo failed to appear, and the Bank got a default judgment. Under the Foreign Sovereign Immunities Act (FSIA) [28 U.S.C. Sections 1602 - 1611], foreign states are generally immune from execution against their property to satisfy an adverse judgment (see 28 U.S.C. Section 1609).

One of the exceptions, however, provides that if a foreign sovereign waives its immunity from execution, U.S. courts may execute against "property in the United States ... used for a commercial activity in the United States." (See 28 U.S.C. Section 1610(a)(1)). Section 1610(c) does not authorize summary executions but instead requires that a court decide whether the assets in question fall within one of the statutory exceptions. The New York court gave the Bank "permission" to execute against the Congo's property wherever it may be found and whatever may be the use of such property.

The Bank then registered the New York judgment in a Texas state court. Without a further court order, the Bank got a writ of garnishment that barred a group of Texas oil companies from paying any further royalties to the Congo. The Congo and the garnishees removed the action to a federal district court in Texas and moved to dismiss. The district court held that res judicata did not prevent it from reconsidering defendants' amenability to garnishment. The court later found that the royalty and tax payments that the garnishees owed to the Congo did not "arise from" a commercial activity in the United States. It thus dissolved the writs of garnishment and dismissed the action. The Bank noted an appeal. The U.S. Court of Appeals for the Fifth Circuit vacates and remands.

The Court first notes that the Full Faith and Credit Statute (28 U.S.C. Section 1738) does not bar a judicial re-assessment of whether the debts owed by the garnishees to the Congo are subject to garnishment under the FSIA.

In the Court's view, the New York court's rulings on garnishment were not necessary to the judgment entered by that court. Under New York law, the pleadings define...