Sovereign Immunity

• Author: International Law Group

General Star National Insurance Company (General Star), an Ohio corporation, concluded five re-insurance contracts with Administratia Asigurarilor de Stat (ADAS), the Government-owned provider of all insurance services in Romania, between 1974 and 1981. ADAS was to cover part of General Star's potential losses under certain insurance policies in exchange for a portion of the premiums General Star received. The Romanian Government dissolved ADAS in 1991 when Communist rule ended, and replaced it with three new entities, Astra, S.A. (Astra), Carom, S.A. (Carom), and Asigurarea Romaneasca (Asirom).

After running into difficulties in recovering insurance payments allegedly due, General Star sued Astra, Carom and Asirom in U.S. district court in the Fall of 1998 for breach of contract and unjust enrichment. The action sought $922,107 in past due payments and $1,618,994 in additional expenses. General Star had faxed a copy of the complaint and summons to Astra. It also had delivered them to the New York law firm of Mendes and Mount, which the re- insurance contracts had designated as ADAS' agent for receiving service. Astra, however, failed to respond to the complaint.

After defendants failed to appear and defend, the district court entered a default judgment against them on March 17, 1999. Almost one year later, the defendants moved to vacate the judgment as void for lack of subject matter jurisdiction and improper service of process. The district court agreed that the judgment was void as to Carom and Asirom, because they were not ADAS' successors for purposes of the re-insurance contracts. It, however, denied Astra's motion to vacate the default judgment. Astra appealed.

The U.S. Court of Appeals for the Sixth Circuit affirms. The Court essentially concludes that Astra was the successor-in-interest to its Communist predecessor, and it was thus bound by the Communist entity's surrender of sovereign immunity under 28 U.S.C. Sections 1605(a)(1)&(2).

The Court first addresses the district court's subject matter jurisdiction. The district court had based it on 28 U.S.C. Section 1330(a) [district court jurisdiction over foreign state where state not entitled to sovereign immunity], and found Astra not immune under Sections 1605(a)(1)&(2). Section 1605(a)(1) provides that a foreign state is not entitled to sovereign immunity if, either expressly or implicitly, it waives that immunity. Here, the district court found that ADAS had implicitly waived its...