Ashim Khattri Chettri v. Nepal Rastra Bank

• Court: Court of Appeals for the Second Circuit
• Decided: June 20, 2016
• Docket: 14-3724
• Status: Published

Opinion

14‐3724 Ashim Khattri Chettri, et al. v. Nepal Rastra Bank, et al.

2 In the 3 United States Court of Appeals 4 For the Second Circuit 5 ________ 6 7 AUGUST TERM, 2015 8 9 SUBMITTED: AUGUST 25, 2015 10 DECIDED: JUNE 20, 2016 11 12 No. 14‐3724 13 14 ASHIM KHATTRI CHETTRI, d/b/a Tarala Internationals, WU LIXIANG, 15 individually and as agent and partner of Tarala Internationals, 16 Plaintiff‐Appellants, 17 18 v. 19 20 NEPAL RASTRA BANK, AND DEPARTMENT OF REVENUE INVESTIGATION, 21 GOVERNMENT OF NEPAL, 22 Defendant‐Appellees, 23 24 NEPAL BANGLADESH BANK, LTD., AND CHASE MANHATTAN BANK, 25 Defendants, 26 ________ 27 28 Appeal from the United States District Court 29 for the Southern District of New York. 30 No. 10 Civ. 8470 – Paul G. Gardephe, Judge. 31 ________ 32 33 Before: NEWMAN, WALKER, and JACOBS, Circuit Judges. 34 ________ 2 No. 14‐3724

1 2 Ashim Khattri Chettri, doing business as Tarala Internationals

3 (“Tarala”), and Wu Lixiang (“Wu”) appeal from the decision of the

4 United States District Court for the Southern District of New York

5 (Gardephe, J.) vacating a default judgment and dismissing their

6 complaint against Nepal Rastra Bank (“Rastra Bank”) and the

7 Department of Revenue Investigation of the Government of Nepal

8 (“the Department”). The district court concluded that it lacked

9 subject matter jurisdiction because both Rastra Bank and the

10 Department, as political subdivisions or agencies of the Government

11 of Nepal (“Nepal”), are immune from suit under the Foreign

12 Sovereign Immunities Act of 1976 (“FSIA”), 28 U.S.C. § 1602 et seq.

13 The district court also concluded that it lacked personal jurisdiction

14 because Tarala and Wu failed to comply with the service of process

15 requirements of the FSIA. We agree with the district court’s

16 determination that it lacked subject matter jurisdiction and therefore

17 need not address the issue of service of process. Accordingly, we

18 AFFIRM the district court’s judgment vacating the default judgment

19 and dismissing the complaint.

20 ________ 21 22 DILLI RAJ BHATTA, Bhatta Law & Associates, 23 PLLC, New York, NY, for Plaintiff‐Appellants. 3 No. 14‐3724

1 KHAGENDRA GHARTI‐CHHETRY, Chhetry & 2 Associates, P.C., New York, NY, for Defendant‐ 3 Appellees.

4 ________ 5 6 JOHN M. WALKER, JR., Circuit Judge:

7 Ashim Khattri Chettri, doing business as Tarala Internationals

8 (“Tarala”), and Wu Lixiang (“Wu”) appeal from the decision of the

9 United States District Court for the Southern District of New York

10 (Gardephe, J.) vacating a default judgment and dismissing their

11 complaint against Nepal Rastra Bank (“Rastra Bank”) and the

12 Department of Revenue Investigation of the Government of Nepal

13 (“the Department”). The district court concluded that it lacked

14 subject matter jurisdiction because both Rastra Bank and the

15 Department, as political subdivisions or agencies of the Government

16 of Nepal (“Nepal”), are immune from suit under the Foreign

17 Sovereign Immunities Act of 1976 (“FSIA”), 28 U.S.C. § 1602 et seq.

18 The district court also concluded that it lacked personal jurisdiction

19 because Tarala and Wu failed to comply with the service of process

20 requirements of the FSIA. We agree with the district court’s

21 determination that it lacked subject matter jurisdiction and therefore

22 need not address the issue of service of process. Accordingly, we

23 AFFIRM the district court’s judgment vacating the default judgment

24 and dismissing the complaint. 4 No. 14‐3724

1 BACKGROUND

2 Tarala, a Colorado corporation, is the principal supplier of

3 clothing and military equipment to Nepal. Wu is the director of a

4 company that helps Tarala coordinate the logistics of its

5 international transactions. Wu has acted as Tarala’s agent in

6 connection with contracts with Nepal and has also independently

7 conducted business with Nepal.

8 Rastra Bank, located in Kathmandu, is Nepal’s financial agent

9 and is authorized to open and operate accounts, settle obligations,

10 and issue letters of credit on behalf of Nepal. The Department is the

11 prosecutorial arm of Nepal’s Ministry of Finance and its duties

12 include monitoring wire transfers for compliance with Nepalese

13 laws such as the Nepal Asset (Money) Laundering Prevention Act of

14 2008.

15 Between 2006 and 2008, Nepal placed several orders with

16 Tarala for equipment for the Nepalese army and police force.

17 Acting as Tarala’s distribution partner in these transactions, Wu

18 coordinated procurement and delivery of the goods. Nepal paid

19 Tarala for the equipment through letters of credit issued by Rastra

20 Bank to Chase Manhattan Bank, naming Tarala as a beneficiary.

21 On July 23, 2008, Tarala wired $1 million from Chase

22 Manhattan Bank, located in New York, to Wu’s personal account at

23 Nepal Bangladesh Bank, Ltd. (“Bangladesh Bank”), which is located 5 No. 14‐3724

1 in Kathmandu. Wu claims that he intended to use the $1 million to

2 pay a third party to transport equipment and complete delivery of

3 goods to Nepal.

4 On August 4, 2008, Bangladesh Bank notified Rastra Bank of

5 irregularities concerning the wire payment to Wu. Bangladesh Bank

6 informed Rastra Bank that Wu had failed to provide adequate

7 documentation of the source of the funds and that, as a result,

8 Bangladesh Bank was freezing the funds pending an explanation of

9 their source and pending further instructions from Rastra Bank. On

10 August 27, 2008, the Department instructed Rastra Bank to direct

11 Bangladesh Bank to freeze Wu’s account pending further

12 investigation.

13 In an attempt to persuade Bangladesh Bank to release the

14 funds, Tarala provided letters from financial institutions and

15 government agencies attesting to the legitimacy of the wire transfer.

16 Rastra Bank and the Department took the position that this

17 documentation was insufficient to establish the source of the funds.

18 On November 10, 2010, after the letters were unsuccessful in

19 unfreezing the account, Tarala and Wu filed the underlying

20 complaint in this action. Rastra Bank and the Department

21 responded by claiming that Tarala and Wu failed to comply with the

22 statutory requirements for service of process under the FSIA. 6 No. 14‐3724

1 On January 18, 2011, the district court ordered Rastra Bank

2 and the Department to show cause why a default judgment should

3 not be entered against them. After Rastra Bank and the Department

4 failed to respond by a court‐imposed deadline, the district court

5 entered a default judgment in favor of Tarala and Wu in the amount

6 of $1,000,500.

7 On February 25, 2011, the Department charged Wu with

8 violating the Nepal Asset (Money) Laundering Prevention Act of

9 2008 and, pursuant to that Act, demanded confiscation of the

10 disputed funds.

11 On September 2, 2014, on the motion of Rastra Bank and the

12 Department, and after receiving a statement of interest from the

13 United States recommending vacatur, the district court reversed

14 course. The district court vacated the default judgment and

15 dismissed the complaint for lack of subject matter and personal

16 jurisdiction.

17 Tarala and Wu now appeal, arguing that the district court had

18 both subject matter and personal jurisdiction over this action.

19 DISCUSSION

20 In reviewing a district court’s determination regarding subject

21 matter jurisdiction under the FSIA, we use a clear error standard for

22 factual findings and we review legal conclusions de novo. U.S. Titan,

23 Inc. v. Guangzhou Zhen Hua Shipping Co., 241 F.3d 135, 150–51 (2d Cir. 7 No. 14‐3724

1 2001). We review for abuse of discretion a district court’s decision to

2 grant a motion to vacate a default judgment. SEC v. McNulty, 137

3 F.3d 732, 738 (2d Cir. 1998).

4 Tarala and Wu argue that the district court incorrectly

5 determined that it lacked subject matter and personal jurisdiction

6 and that the district court abused its discretion by vacating the

7 default judgment based on these incorrect determinations. We

8 disagree. The district court lacked subject matter jurisdiction because

9 Rastra Bank and the Department are immune from suit under the

10 FSIA.

11 I. Subject Matter Jurisdiction and the FSIA

12 The FSIA “provides the sole basis for obtaining jurisdiction

13 over a foreign state in federal court.” Argentine Republic v. Amerada

14 Hess Shipping Corp., 488 U.S. 428, 439 (1989). The Act renders a

15 foreign state “presumptively immune from the jurisdiction of

16 United States courts,” Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993),

17 and defines the term “foreign state” to include “a political

18 subdivision of a foreign state or an agency or instrumentality of a

19 foreign state,” 28 U.S.C. § 1603(a).

20 Subject matter jurisdiction exists under the FSIA only if a

21 specified exception to that Act applies. Nelson, 507 U.S. at 355.

22 Because personal jurisdiction exists under the FSIA only if (a) service

23 of process has been made in accordance with the Act and (b) subject 8 No. 14‐3724

1 matter jurisdiction exists under the Act, a finding that a federal court

2 lacks subject matter jurisdiction over a claim against a foreign state

3 necessarily yields a finding that the court lacks personal jurisdiction

4 as well. See Verlinden B.V. v. Cent. Bank of Nigeria, 461 U.S. 480, 485 n.

5 5 (1983).

6 A defendant seeking dismissal for lack of subject matter

7 jurisdiction under the FSIA bears the burden of presenting a prima

8 facie case that it is a foreign sovereign. Virtual Countries, Inc. v.

9 Republic of S. Africa, 300 F.3d 230, 241 (2d Cir. 2002). If the defendant

10 meets this burden, the plaintiff must then demonstrate that the

11 foreign sovereign lacks immunity due to an FSIA exception. Cargill

12 Int’l S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir. 1993).

13 Tarala and Wu do not dispute the district court’s

14 determination that the Department is a political subdivision of a

15 sovereign state and that Rastra Bank is an agency or instrumentality

16 of a foreign state. Tarala and Wu do, however, challenge the district

17 court’s rejection of their argument that two specified exceptions to

18 the FSIA apply: the “commercial activity” exception set forth in

19 Section 1605(a)(2) and the “takings” exception set forth in Section

20 1605(a)(3). We agree with the district court that neither exception

21 applies on these facts.

23 9 No. 14‐3724

1 A. The Commercial Activity Exception

2 Under the commercial activity exception set forth in Section

3 1605(a)(2), a foreign state lacks immunity under the FSIA when:

4 the action is based [1] upon a commercial activity 5 carried on in the United States by the foreign state; or 6 [2] upon an act performed in the United States in 7 connection with a commercial activity of the foreign 8 state elsewhere; or [3] upon an act outside the territory 9 of the United States in connection with a commercial 10 activity of the foreign state elsewhere and that act 11 causes a direct effect in the United States.

12 28 U.S.C. § 1605(a)(2). None of the three grounds for invoking the

13 commercial activity exception applies here.

14 1. The Inapplicability of the First Ground

15 With respect to the first ground, this action is not “based upon

16 a commercial activity carried on in the United States.” Id. The

17 “threshold step” in assessing the applicability of the commercial

18 activity exception is always to “identify the act of the foreign

19 sovereign State that serves as the basis for plaintiffs’ claims.” Garb v.

20 Republic of Poland, 440 F.3d 579, 586 (2d Cir. 2006). Tarala and Wu

21 cite as a commercial activity Nepal’s entering into a contract with

22 Colorado‐based Tarala to supply goods and equipment. This

23 lawsuit, however, is based not upon that contract but upon the

24 Department and Rastra Bank’s freezing of Wu’s account in Nepal.

25 The term “‘based upon’ . . . calls for something more than a

26 mere connection with, or relation to, commercial activity.” Nelson, 10 No. 14‐3724

1 507 U.S. at 358 (footnote omitted). In order for a cause of action to be

2 “based upon” a commercial activity and thereby fit within the FSIA

3 exception, there must exist a “degree of closeness . . . between the

4 commercial activity and the gravamen of the plaintiff’s complaint.”

5 Kensington Int’l Ltd. v. Itoua, 505 F.3d 147, 156 (2d Cir. 2007) (internal

6 quotation marks omitted). This degree of closeness must be

7 “considerably greater than common law causation requirements.”

8 Transatlantic Shiffahrtskontor GmbH v. Shanghai Foreign Trade Corp.,

9 204 F.3d 384, 390 (2d Cir. 2000).

10 The district court properly found that the gravamen of the

11 complaint is the freezing of the $1 million that Tarala wired to Wu’s

12 Bangladesh Bank account. A foreign sovereign engages in a

13 commercial activity within the meaning of the FSIA only when it

14 “acts[] not as regulator of a market, but in the manner of a private

15 player within it.” Republic of Argentina v. Weltover, Inc., 504 U.S. 607,

16 614 (1992); see also Garb, 440 F.3d at 598 (“[A] state’s confiscation of

17 property within its borders is not a ‘commercial’ act.”). Rastra Bank

18 and the Department were acting as government regulators, not

19 private commercial players, when they froze Wu’s account as part of

20 an investigation and therefore were not engaged in a commercial

21 activity.

22 Tarala and Wu contend that Tarala wired the $1 million to Wu

23 so that Wu could facilitate the delivery of equipment under the 11 No. 14‐3724

1 contracts with Nepal. Rastra Bank and the Department argue that

2 insufficient evidence supports this contention. The dispute is beside

3 the point, however, because, even if commercial activities had led to

4 the conduct that eventually injured Tarala and Wu, this would not

5 alone render such activities the basis of their suit. In Saudi Arabia v.

6 Nelson, the Supreme Court held that alleged torts rather than the

7 commercial activities preceding those torts formed the basis of the

8 plaintiffs’ action if, “[e]ven taking each of the [plaintiffs’] allegations

9 about [the commercial activities] as true, those facts alone entitle the

10 [plaintiffs] to nothing under their theory of the case.” 507 U.S. at 358.

11 Tarala and Wu are not alleging breach of contract in this action. At

12 the time Rastra Bank and the Department froze Wu’s account, Rastra

13 Bank had already paid in full the letters of credit in satisfaction of

14 the contracts between Nepal and Tarala. This action is based upon

15 Bangladesh Bank’s allegedly tortious freezing, not the contract, and

16 therefore the first ground for invoking the “commercial activity”

17 exception does not apply.

18 2. The Inapplicability of the Second Ground

19 With respect to the second ground, this action plainly is not

20 “based . . . upon an act performed in the United States in connection

21 with a commercial activity of the foreign state elsewhere.”

22 § 1605(a)(2). This action is based upon the freezing of the $1 million

23 wired to Wu’s account at Bangladesh Bank. The freezing took place 12 No. 14‐3724

1 in Nepal: the Department, Rastra Bank, and the bank that held Wu’s

2 account are all located in Nepal. The freezing was in no sense “an

3 act performed in the United States,” and Tarala and Wu do not

4 argue otherwise. Thus, the second ground of the “commercial

5 activity” exception does not apply.

6 3. The Inapplicability of the Third Ground

7 With respect to the third ground, this action is not “based . . .

8 upon an act outside the territory of the United States in connection

9 with a commercial activity of the foreign state elsewhere [when] that

10 act causes a direct effect in the United States.” § 1605(a)(2). This

11 FSIA ground can be broken into three requirements: (1) that the

12 operative act occur outside the United States, (2) that the act occur in

13 connection with a commercial activity of the foreign state elsewhere,

14 and (3) that the act cause a direct effect in the United States. Because

15 the freezing of the funds at issue occurred in Nepal, this action

16 plainly satisfies the first requirement, but the action does not satisfy

17 the second or third.

18 As to the second requirement, Tarala and Wu fail to establish

19 that the freezing of Wu’s funds occurred in connection with

20 commercial activity. We interpret the term “in connection with”

21 narrowly, see Garb, 440 F.3d at 587, and a plaintiff must cite more

22 than “tangential commercial activities to which the ‘acts’ forming

23 the basis of the claim have only an attenuated connection,” Drexel 13 No. 14‐3724

1 Burnham Lambert Grp. Inc. v. Comm. of Receivers for Galadari, 12 F.3d

2 317, 330 (2d Cir. 1993). In this matter, any connection between the

3 contract and the freezing is too attenuated. As we have already

4 pointed out, Nepal had fulfilled its obligations under the contract by

5 the time that Rastra Bank and the Department froze Wu’s account.

6 As to the third requirement, Tarala and Wu also fail to

7 demonstrate a “direct effect” in the United States. “[A]n effect is

8 direct if it follows as an immediate consequence of the defendant’s

9 activity.” Weltover, 504 U.S. at 618 (internal quotation marks and

10 alteration omitted). “[T]he mere fact that a foreign state’s

11 commercial activity outside of the United States caused physical or

12 financial injury to a United States citizen is not itself sufficient to

13 constitute a direct effect in the United States.” Guirlando v. T.C. Ziraat

14 Bankasi A.S., 602 F.3d 69, 78 (2d Cir. 2010). Here, the immediate

15 consequences of the account freezing took place outside of the

16 United States. Even under the version of the facts most favorable to

17 Tarala and Wu, freezing Wu’s account at most prevented the

18 payment of a third party in Nepal; it did not directly affect the

19 satisfaction of the contract between Nepal and Tarala in the United

20 States.

21 Accordingly, after examining each of the three grounds for

22 invocation of Section 1605(a)(2), we conclude that the commercial

23 activity exception does not apply in this action. 14 No. 14‐3724

1 B. The Takings Exception

2 Tarala and Wu also attempt to invoke the FSIA’s takings

3 exception. Under Section 1605(a)(3), a foreign state lacks immunity

4 under the FSIA in any action

5 in which [1] rights in property [2] taken [3] in violation 6 of international law are in issue and [4a] that property 7 or any property exchanged for such property is present 8 in the United States in connection with a commercial 9 activity carried on in the United States by the foreign 10 state; or [4b] that property or any property exchanged 11 for such property is owned or operated by an agency 12 or instrumentality of the foreign state and that agency 13 or instrumentality is engaged in a commercial activity 14 in the United States. 15 16 See Garb, 440 F.3d at 588.

17 The applicability of the takings exception founders, however,

18 on the requirement that the rights in property must be “taken in

19 violation of international law.” We interpret the phrase “taken in

20 violation of international law” to mean “‘the nationalization or

21 expropriation of property without payment of the prompt adequate

22 and effective compensation required by international law,’ including

23 ‘takings which are arbitrary or discriminatory in nature.’” Zappia

24 Middle E. Constr. Co. v. Emirate of Abu Dhabi, 215 F.3d 247, 251 (2d

25 Cir. 2000) (quoting H.R. Rep. No. 94–1487, at 19 (1976)). Tarala and

26 Wu have not alleged sufficient facts to plausibly establish that the

27 freezing of Wu’s account constituted a taking, much less a taking “in 15 No. 14‐3724

1 violation of international law.” Rastra Bank and the Department

2 froze Wu’s financial assets in connection with an ongoing money

3 laundering investigation. Unsurprisingly, Tarala and Wu offer no

4 authority for the proposition that a routine law enforcement action

5 such as this constitutes a taking within the meaning of § 1605(a)(3),

6 and the complaint’s conclusory criticisms of the manner in which

7 Nepal has conducted its investigation are insufficient to prove a

8 violation of international law.

9 Accordingly, the takings exception does not apply in this

10 action.

11 II. Personal Jurisdiction and Service of Process

12 Because we agree with the district court’s determination that

13 it lacked subject matter jurisdiction because Rastra Bank and the

14 Department are immune from suit under the FSIA, we need not

15 decide whether the district court correctly determined that it lacked

16 personal jurisdiction due to defects in the service of process.

17 CONCLUSION

18 For the reasons stated above, we AFFIRM the district court’s

19 judgment vacating the default judgment and dismissing the

20 complaint.