First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement. This month we evaluate two civil procedure developments: (1) an extension of the automatic stay provision under Federal Rules of Civil Procedure (FRCP) 62; and (2) a United States Supreme Court ruling clarifying the requirements for service of process under the Foreign Sovereign Immunities Act (FSIA).
Judgment Enforcement: Judgment Creditors May Wait Twice as Long to Enforce Judgments in Federal Court
For the third time in the last decade, the automatic stay provision under FRCP 62 was amended to extend the amount of time judgment creditors must wait before executing a judgment in federal court. Effective December 1, 2018, judgment creditors are stayed from executing judgment for 30 days, an increase from 14 days under the former rule. Additionally, the new rule gives the party seeking a stay more flexibility in the type of security posted. While the amendment seems to benefit debtors, the rule change is not all bad news for creditors. The new rule gives the court explicit discretion to dissolve the automatic stay or replace it with a court ordered stay.
US Supreme Court Ruled on FSIA Case: In Republic of Sudan v. Harrison, the Supreme Court clarified proper service of process on a foreign minister under FSIA
On October 2, 2018, we previewed Republic of Sudan v. Harrison, and said the Court's decision will determine the ease with which parties may serve foreign sovereigns. The Court decided the case 8-1 on March 26, 2019. See Republic of Sudan v. Harrison, No. 16-1094, 2019 WL 1333259 (Mar. 26, 2019) (Alito, J.). The Court held that under 28 U.S.C. § 1608(a)(3), proper service of process by postal channels requires the service packet be addressed and dispatched to the foreign minister’s office in the foreign state – not to the foreign country's embassy in the United States. Id. at *10. The Court's decision reversed the Second Circuit, which held that sending the packet to the Sudanese embassy in the United States was reasonably expected to result in delivery to the foreign minister. Id. at *4, *10. This decision highlights that litigants must follow carefully the procedural requirements for service of process under the FSIA.
The Automatic Stay Provision under FRCP 62 Extended to 30 Days
Effective December 1, 2018, judgment creditors are stayed from executing judgment for 30 days, an increase from 14 days under the formal rule. The original rule required a 10 business day stay. In 2009, FRCP 62 was amended to extend the automatic stay to 14 calendar days.
In addition to extending the automatic stay, the new rule gives the party seeking a stay more flexibility in the type of security posted. Previously, under FRCP 62(d), a party could only obtain a stay by a supersedeas bond. Under the updated rule, the party seeking a stay may post security in a form acceptable to the court other than a bond. See Advisory Committee Notes.
While the amendment seems to benefit debtors, the rule change is not all bad news for creditors. Under the new rule, the court has explicit discretion to dissolve the automatic stay or replace it with a court ordered stay. The Advisory Committee Notes indicate the court may dissolve a stay if there is a "risk the judgment debtor's assets will be dissipated" or the judgment does not involve payment of money. Thus, the court could order dissolution of the stay and immediate execution of judgment if the circumstances permit.
This rule change seems motivated by the Committee's desire to level the playing field for debtors. Extending the automatic stay to thirty days will resolve the gap between the automatic stay – formerly 14 days – and the time to file most appeals – 28 days after entry of judgment. Now, the appellant will have the full 28 days to file an appeal without concern the judgment creditor will enforce the court’s judgment. The Advisory Committee Notes explain that the "revised rule eliminates any need to rely on inherent power to issue a stay during this period."
Service of Process under FSIA
Our initial First Tuesday Update about Republic of Sudan v. Harrison can be found here.
In Republic of Sudan v. Rick Harrison, et al, victims of the USS Cole bombing and their family members sued the Republic of Sudan for unlawfully aiding Al Qaeda operatives who carried out the bombing. To serve Sudan, a service packet was addressed to Sudan’s Minister of Foreign Affairs at the Sudanese Embassy in the US. After a default judgment was entered for Plaintiffs, they began enforcement actions in SDNY, including obtaining three turnover orders requiring three banks to turn over Sudanese assets to satisfy the judgment. At that point, Sudan entered an appearance and timely appealed the issuance of turnover orders, arguing that personal jurisdiction was lacking because it had not been served properly.
Under the third service option under the FSIA, service can be completed by sending a service packet "to be addressed and dispatched by the clerk of the court to the head of the ministry of foreign affairs of the foreign state concerned." 28 U.S.C. § 1608 (a)(3). Here, the Second Circuit affirmed the method of service, and held that plaintiffs suing a foreign state under FSIA may serve the foreign state by mail addressed and dispatched to the head of the foreign state's ministry of foreign affairs "via" or "in the care of" the foreign state's diplomatic mission in the United States.
Reversing the decision below, the Court reasoned that the "most natural reading" of the statute required service be mailed directly to the foreign minister's office in the foreign state. Harrison, 2019 WL 1333259, at *10. The Court evaluated the natural definitions of "dispatched" and "address," and determined the address is a person's residence or place of business. Id. at *5. A service packet is properly dispatched if it is sent directly to the place where the person is customarily found. Id. The Court concluded the foreign state's embassy in the United States is not the foreign minister's usual place of business or where he or she would be customarily found. Id. at *6. The Court also noted that where service at the embassy is permissible, it would make it easier to serve a foreign state than a foreign person, embassy employees would not understand how to properly accept the service packet, and it would be problematic that the foreign minister would not receive the service packet shortly after service. Id. at *5, *8.
Justice Thomas was the sole dissenting opinion, and argued the majority did not properly consider the unique role of embassies as channels through which the US government communicates with foreign states and officials. He argued the majority's interpretation of the statute is not the most natural reading because the majority articulated a bright line rule about where the service must be sent, when the FSIA statute does not require service be addressed to a particular place.
This decision makes clear that litigants must follow the FSIA service waterfall carefully to avoid significant delays should service be deemed ineffective.