Export-Import Bank of the Republic of China v. Grenada, No. 12-cv-2619 (2d Cir. Sept. 12, 2014) [click for opinion]

Export-Import Bank of the Republic of China lent Grenada $28 million over a ten-year period.  In the loan documents, Grenada waived its sovereign immunity.  When it defaulted on the loans, the bank sued in federal court in New York and won a $21 million judgment.  The bank then tried to attach Grenadian assets in the U.S.

One set of such assets included taxes, fees, and charges assessed against non-Grenadian airlines.  The airlines remit payment to an international industry organization, which forwards the funds to a private company that services bonds on behalf of Grenada Airports Authority, a statutory corporation.  The proceeds of the bonds are used to finance the operations of Grenada’s main airport.

Under the Foreign Sovereign Immunities Act (“FSIA”), assets of a foreign sovereign are immune from attachment to satisfy a judgment unless certain exceptions apply.  The court thus held that the bank could not attach the assets unless the funds were property in the U.S., of Grenada, that were used for a commercial activity in the U.S.

In Republic of Argentina v. Weltover, Inc., the seminal 1992 Supreme Court case on the commercial-activity exception to the FSIA, the court held that Argentina had engaged in commercial conduct when it issued bonds that were “garden-variety debt instruments…,” since participation “in the bond market in the manner of a private actor” constitutes a “commercial activity” under the FSIA.

The record in this case, however, did not provide the Second Circuit a sufficient basis for determining whether the airport bonds fell within theWeltover doctrine.  Facts that would bear on that issue included: the manner or location in which the bonds were issued; the location of the bond servicer; the locations or identities of the bondholders; the manner or location in which the bonds were traded; and the method by which the bondholders received payments.

The Second Circuit, following Republic of Argentina v. NML Capital Ltd., in which the Supreme Court held that a foreign sovereign is not immune from post-judgment discovery, directed the lower court to order discovery with respect to the bonds.  In so doing, the Second Circuit expressly rejected the Seventh Circuit’s requirement in Rubin v. Islamic Republic of Iran that a judgment creditor must identify specific non-immune assets before it is entitled to further discovery about those assets.  The Second Circuit held that once the district court has subject matter and personal jurisdiction over a country, it can exercise judicial power over that country, including ordering third parties to comply with the federal discovery rules.

Erin Hughes of the Chicago office contributed to this summary.