Hansen, et al v. Native American Oil Refinery, et al

Filing 1018401276

Case: 09-4052

Document: 01018401276

Date Filed: U n i t e d States Court 1 Appeals 04/13/2010 Page: of T e n t h Circuit

FILED

A p r i l 13, 2010
PUBLISH U N I T E D STATES COURT OF APPEALS T E N T H CIRCUIT
E l i s a b e t h A. Shumaker C l e r k of Court

T H E O D O R E L. HANSEN; I N T E R S T A T E ENERGY; TRIPLE M, L.L.C., P l a i n t i f f s - Appellees, N o . 09-4052 v. P T BANK NEGARA INDONESIA ( P E R S E R O ) , TBK, D e f e n d a n t - Appellant, and E K O BUDIWIYONO; FIRMANSYAH; G A T O T SISMOYO; RACHMAT W I R I A T M A J A ; YOPIE LAMONGE; M A X NIODE; LILLES HANDAYANI; U T T I KARIAYAM; MUBARIK AS D J A T I M U D A ; STEVE O.Z. F I N K E L - M I N K I N , a/k/a Steve Finkel; R O B E R T MCKEE; FRED NEWCOMB; N E W C O M B & COMPANY; NATIVE A M E R I C A N REFINERY, Defendants.

A P P E A L FROM THE UNITED STATES DISTRICT COURT F O R THE DISTRICT OF UTAH ( D . Ct. No. 2:06-CV-00109-DB-PMW)

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S u b mi t t e d on the briefs: * C h r i s t o p h e r Brady, Hollyer Brady LLP, New York, New York; Arthur B. Berger, R a y Quinney and Nebeker, P.C., Salt Lake City, Utah; and Orlee Goldfeld, Butzel L o n g , New York, New York, on the briefs for Appellant Pt. Bank Negara I n d o n e s i a (Persero) TBK. E . Armistead Easterby, Williams Kherkher, Houston, Texas, on the briefs for A p p e l l e e s Hansen, Interstate Energy, and Triple M, L.L.C. B e f o r e TACHA, McKAY, and GORSUCH, Circuit Judges. T A C H A , Circuit Judge. U n d e r the Foreign Sovereign Immunities Act ("FSIA"), a foreign state is i mmu n e from suit in American courts unless a statutory exception to immunity a p p l i e s . In this appeal, the primary dispute is whether defendant-appellant PT. B a n k Negara Indonesia (Persero) TBK ("BNI") or any of its officers or employees i n fact generated financial instruments assigned to plaintiffs-appellees Theodore H a n s e n , Interstate Energy Corporation, and Triple M, L.L.C., thus triggering the c o mme r c i a l - a c t i v i t y exception to sovereign immunity under the FSIA. The d i s t r i c t court denied BNI's motion for judgment on the pleadings based on s o v e r e i g n immunity, concluding that BNI had not carried its ultimate burden of

A f t e r examining the briefs and the appellate record, this three-judge panel h a s determined unanimously that oral argument would not be of material a s s i s t a n c e in the determination of this appeal. See Fed. R. App. P. 34(a)(2); 10th C i r . R. 34.1(G). The case is therefore ordered submitted without oral argument.
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s h o w i n g that the commercial-activity exception did not apply. In the same order, t h e district court also denied BNI's motion to stay discovery and ordered that a p p e l l e e s be entitled to conduct limited discovery on that issue. BNI appeals f r o m the denial of sovereign immunity and also argues that the district court's d i s c o v e r y order on the sovereign immunity issue is unduly broad. As to the first i s s u e , we have jurisdiction under 28 U.S.C. § 1291 and AFFIRM. We DISMISS t h e claim based on the discovery order for lack of jurisdiction. I . BACKGROUND I n 2003, Mr. Hansen entered into an agreement to sell various gas stations, c o n v e n i e n c e stores, and other real property to Native American Oil Refinery C o mp a n y ("NARCO"). Pursuant to the agreement, NARCO agreed to pay a c e r t a i n sum for the properties and assigned purported BNI bank guarantees worth $ 9 0 million to Mr. Hansen as collateral. Also at issue in this case are two standby l e t t e r s of credit worth $25 million that BNI allegedly issued to Interstate Energy C o r p o r a t i o n and a $3 million BNI bank guarantee that BNI allegedly issued to T r i p l e M, L.L.C. A t some point, NARCO failed to pay under its agreement with Mr. Hansen a n d he, Interstate Energy Corporation, and Triple M, L.L.C. (hereinafter, " a p p e l l e e s " ) presented the BNI guarantees and letters of credit to BNI branches in N e w York, New York and Jakarta, Indonesia. BNI refused to honor any of the f i n a n c i a l instruments on the grounds that they were fraudulent and not issued by
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B N I or any of its employees. Appellees then filed this lawsuit against BNI. 1 BNI a s s e r t e d its status as a foreign state, claimed immunity from suit under the FSIA, a n d filed a motion for judgment on the pleadings to dismiss for lack of subject ma t t e r jurisdiction. In response to BNI's motion, appellees argued that BNI's issuance of and r e f u s a l to honor the financial instruments constituted commercial activity for w h i c h BNI is not entitled to immunity under the FSIA. To support their position, a p p e l l e e s presented affidavits and testimony from various people involved with a p p e l l e e s ' attempt to redeem the purported BNI instruments. First, appellees p r e s e n t e d an affidavit from Charles Hanna, an attorney and officer of Interstate E n e r g y Corporation. In the affidavit, Mr. Hanna states that in 2005 and 2006 he p r e s e n t e d the BNI guarantees and letters of credit to BNI's New York branch and w a s told that the instruments were fraudulent. Second, appellees presented the t e s t i mo n y of Robert McKee, the president of NARCO. Mr. McKee testified that h e personally called BNI at a number he retrieved from their website and that he s p o k e with a man who identified himself as Dr. Firmansyah, a BNI employee. Mr. McKee further testified that Dr. Firmansyah confirmed NARCO's ability to u s e the BNI guarantees to pursue various financial opportunities and confirmed t h a t the International Monetary Fund numbers listed on the face of the BNI

A p p e l l e e s also named other defendants in the suit, but they are not relevant t o this appeal.
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g u a r a n t e e s were legitimate. Third, Mr. Hansen testified that he also contacted B N I and spoke with Dr. Firmansyah who confirmed the authenticity of the BNI g u a r a n t e e s . Fourth, appellees presented the testimony of Mark McDougal, an a t t o r n e y and part owner of Triple M, L.L.C. Mr. McDougal provided testimony s i mi l a r to that of Mr. McKee and Mr. Hansen, and he further stated that he could p e r s o n a l l y confirm the validity of the BNI letters of credit because he had s u c c e s s f u l l y cashed in a BNI letter of credit in a prior transaction. Finally, a p p e l l e e s presented the testimony of Quinn Jensen, a Merrill Lynch employee. Mr. Jensen testified that he contacted BNI's New York branch to inquire about a B N I letter of credit Mr. Hansen had provided to him for the purpose of c o n d u c t i n g due diligence. Mr. Jensen further testified that he read the guarantee n u mb e r on the BNI letter of credit to a BNI employee who told him that the n u mb e r was consistent with BNI guarantee numbers. B N I maintained that all of the guarantees and letters of credit were f r a u d u l e n t and not generated by BNI officers or employees. Accordingly, BNI a r g u e d that the commercial activity exception could not apply to it because none o f its officers or employees were actually involved in any of the alleged c o mme r c i a l activity. In support of its position, BNI provided fifteen declarations f r o m BNI employees and officers who were allegedly involved in the issuance of t h e guarantees and letters of credit. Each declaration denied the authenticity of t h e instruments and stated unequivocally that the declarant did not participate in
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t h e creation of any of the purported BNI guarantees or letters of credit. The district court ultimately denied BNI's motion to dismiss and granted a p p e l l e e s ' request for jurisdictional discovery. The court limited its discovery o r d e r to the issue of whether any BNI officers or employees conducted c o mme r c i a l activity that satisfies the commercial activity exception under the F S I A . BNI now appeals both the denial of its motion for judgment on the p l e a d i n g s and the discovery order. I I . DISCUSSION A. M o t i o n for Judgment on the Pleadings T h e FSIA provides the exclusive basis for obtaining jurisdiction over c l a i ms against a foreign state or its instrumentalities in the United States. Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 611 (1992). "The denial of a claim to sovereign immunity is immediately appealable under the collateral o r d e r doctrine." Southway v. Cent. Bank of Nigeria, 198 F.3d 1210, 1214 (10th C i r . 1999) ("Southway I"). We review a district court's ultimate determination of i t s subject matter jurisdiction under the FSIA de novo, reviewing factual findings a t t e n d a n t to that ultimate determination for clear error. Orient Mineral Co. v. B a n k of China, 506 F.3d 980, 991 (10th Cir. 2007); see also Southway v. Cent. B a n k of Nigeria, 328 F.3d 1267, 1272 (10th Cir. 2003) ("Southway II"). Courts apply a burden-shifting analysis to determine whether a foreign state o r its instrumentality is immune under the FSIA. Orient Mineral Co., 506 F.3d at
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9 9 1 . Under this analysis, once the defendant establishes that it is a foreign state e n t i t l e d to immunity, the plaintiff bears the burden of production to make an i n i t i a l showing that an FSIA exception to immunity applies. Id. If the plaintiff c a r r i e s its initial burden, the defendant bears the ultimate burden of proving by a p r e p o n d e r a n c e of the evidence that the claimed exception does not apply in the p a r t i c u l a r case. Id. at 991­92. Appellees concede that BNI is a foreign state for the purposes of the FSIA; h o w e v e r , they argue that the FSIA's commercial activity exception applies in this c a s e . Under the commercial activity exception: A foreign state shall not be immune from the jurisdiction of courts of the U n i t e d States or of the States in any case-- ( 2 ) in which the action is based upon a commercial activity carried on in t h e United States by the foreign state; or upon an act performed in the U n i t e d States in connection with a commercial activity of the foreign state e l s e w h e r e ; or upon an act outside the territory of the United States in c o n n e c t i o n with a commercial activity of the foreign state elsewhere and t h a t act causes a direct effect in the United States. 2 8 U.S.C. § 1605(a)(2). Appellees contend that the evidence they presented s a t i s f i e s all three of the independent prongs of the commercial activity exception. Specifically, appellees argue that BNI's authentication and subsequent rejection o f the guarantees and letters of credit in New York constitute both commercial a c t i v i t y carried on in the United States by a foreign state and acts performed in t h e United States in connection with commercial activity of a foreign state e l s e w h e r e . Furthermore, appellees contend that BNI's generation of the financial
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i n s t r u me n t s in Indonesia, its issuance of the instruments directly to parties in the U n i t e d States, and its refusal to honor the instruments, which caused significant l o s s to appellees in the United States, constitute commercial acts outside the U n i t e d States that caused a direct effect in the United States. For its part, BNI does not challenge the legal significance of the alleged f a c t s -- i . e . , w h e t h e r those facts, if true, would satisfy the commercial activity e x c e p t i o n . Instead, BNI simply argues that, as a matter of fact, neither BNI nor a n y of its agents actually participated in the alleged commercial activity. Therefore, according to BNI, the commercial activity exception does not apply in t h i s particular case, and the district court should have granted its motion to d i s mi s s for lack of jurisdiction. A s discussed above, the evidence presented to the district court consisted of f i f t e e n declarations from BNI employees and the testimony of appellees and Mr. J e n s e n . The BNI declarations all dispute the authenticity of the BNI guarantees a n d letters of credit and all deny any BNI participation in the generation of those i n s t r u me n t s . On the other hand, the evidence presented by appellees suggests that B N I employees were involved with the generation of the financial instruments a n d at the very least authenticated and then subsequently rejected them. Thus, the d i s t r i c t court was presented with minimal and primarily self-serving evidence f r o m both BNI and appellees. On this record and at this early stage in the l i t i g a t i o n , the district court's finding that BNI did not show by a preponderance of
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t h e evidence that none of its officers or employees actually participated in the a l l e g e d commercial activity was not clearly erroneous. Accordingly, it did not err i n denying BNI's motion for judgment on the pleadings. B. D i s c o v e r y Order T h e immunity provided under the FSIA protects foreign sovereigns from all t h e burdens of litigation, including the general burden of responding to discovery r e q u e s t s . See Arriba Ltd. v. Petroleos Mexicanos, 962 F.2d 528, 534 (5th Cir. 1 9 9 2 ) (recognizing that foreign sovereigns possess a "legitimate claim to i mmu n i t y from discovery"); see also Phoenix Consulting, Inc. v. Republic of A n g o l a , 216 F.3d 36, 39 (D.C. Cir. 2000) ("[T]he sovereign has an immunity from t r i a l and the attendant burdens of litigation, and not just a defense to liability on t h e merits"). When, however, there is a factual question regarding a foreign s o v e r e i g n ' s entitlement to immunity, and thus a factual question regarding a d i s t r i c t court's jurisdiction, the district court "must give the plaintiff ample o p p o r t u n i t y to secure and present evidence relevant to the existence of j u r i s d i c t i o n . " Phoenix Consulting, Inc., 216 F.3d at 40. Thus, there is a "tension b e t w e e n permitting discovery to substantiate exceptions to statutory foreign s o v e r e i g n immunity and protecting a sovereign's or sovereign agency's legitimate c l a i m to immunity from discovery." Arriba Ltd., 962 F.2d at 534. In light of this t e n s i o n , other circuits have concluded that "[a]t the very least, discovery should b e ordered circumspectly and only to verify allegations of specific facts crucial to
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a n immunity determination." Id.; see also EM Ltd. v. Republic of Argentina, 473 F . 3 d 463, 486 (2d Cir. 2007). This is not to say, however, that a FSIA defendant may immediately appeal f r o m a discovery order that it considers impermissibly broad. See Kirkland v. St. V r a i n Valley Sch. Dist. No. RE-1J, 464 F.3d 1182, 1198 (10th Cir. 2006) ("This c i r c u i t has repeatedly held that discovery orders are not appealable under the C o h e n doctrine.") (quotations omitted); see also McKesson Corp. v. Islamic Rep. o f Iran, 52 F.3d 346, 353 (D.C. Cir. 1995) (rejecting suggestion that appellate j u r i s d i c t i o n over a district court's denial of a motion to dismiss on FSIA i mmu n i t y grounds necessarily extends to a subsequent discovery order). In the q u a l i f i e d immunity context, for example, we have held that discovery orders " w h i c h are narrowly tailored to uncover only those facts needed to rule on the i mmu n i t y claim" are not immediately appealable because they do not subject the d e f e n d a n t to the burdensome pretrial discovery that qualified immunity protects a g a i n s t . See Maxey ex rel. Maxey v. Fulton, 890 F.2d 279, 282­83 (10th Cir. 1 9 8 9 ) ("[Q]ualified immunity does not shield government officials from all d i s c o v e r y but only from discovery which is either avoidable or overly broad"). Given that FSIA sovereign immunity affords defendants the same pre-trial p r o t e c t i o n against broad discovery that is unrelated to the question of immunity to d e f e n d a n t s , see Arriba Ltd., 962 F.2d at 534, we find the Maxey rule equally a p p l i c a b l e in the FSIA context. See id. at 534 (stating that the tension between
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a l l o w i n g plaintiffs to discover jurisdictional facts and ensuring that immune f o r e i g n sovereigns are not subject to discovery orders that undermine their i mmu n i t i e s , "is not unlike that attendant to claims that challenge domestic g o v e r n me n t officials' qualified immunity from suit"). Accordingly, we have j u r i s d i c t i o n to consider BNI's claim only if the district court's order did not a d e q u a t e l y limit permissible discovery to the question of BNI's immunity. See M a x e y , 890 F.2d at 283. A s discussed above, BNI's claim of immunity turns solely on the factual q u e s t i o n of whether BNI officers or employees were actually involved in the c o mme r c i a l activity alleged by appellees. The district court ordered that a p p e l l e e s "shall be entitled to conduct limited jurisdictional discovery on whether [ B N I ], or its officials, conducted commercial activity that satisfies the c o mme r c i a l activity exception under the [FSIA]." Hansen v. Native Am. Refinery C o . , et al., No. 2:06-CV-109 (D. Utah Aug. 24, 2009) (order denying BNI's mo t i o n for judgment on the pleadings and granting in part and denying in part a p p e l l e e s ' motion to stay discovery). Furthermore, at the hearing on BNI's mo t i o n for judgment on the pleadings, the district court assured BNI that "[i]f the d i s c o v e r y gets to a point where you feel that it is unnecessarily burdensome, I w i l l entertain a motion to limit it appropriately." Thus, the record reflects that t h e district court narrowly tailored its discovery order to the precise jurisdictional f a c t question presented. Accordingly, we do not have jurisdiction to consider
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B N I ' s appeal of the order. See Maxey, 890 F.2d at 282­84. III. CONCLUSION F o r the foregoing reasons, we AFFIRM the district court's order denying B N I ' s motion for judgment on the pleadings based on sovereign immunity. We D I S M I S S for lack of jurisdiction BNI's appeal of the court's jurisdictional d i s c o v e r y order.

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