Chinese assault rifles, giant pandas, and perpetual litigation: the 'rights without remedies' dead-end of the FSIA.

• Author: Hulston, J.F.
• Position: Foreign Sovereign Immunities Act of 1976

Walters v. Industrial & Commercial Bank of China, Ltd., 651 F.3d 280 (2d Cir. 2011).

1. Introduction

   A recent decision by the U.S. Court of Appeals for the Second Circuit involved very high-profile parties: the People's Republic of China, its Embassy in Washington, D.C., and multiple branch representatives of its billiondollar, state-owned bank operating in New York City. (1) However, this case arose from a small-scale business transaction: the retail purchase of a Chinese-manufactured SKS semi-automatic rifle (2) during the regular course of business in the small town of Lamar, Missouri. (3) This rifle, purchased by a father for his son in 1993, allegedly malfunctioned during a hunting trip and discharged a bullet into the son's head, killing him in front of his father. (4) Since this event, the son's parents have pursued many avenues of legal action seeking justice for their loss against China and its state-affiliated companies and assets. (5) This process, pursued intermittently from 1993 to 2011, just shy of two decades, reached yet another dead end for the parents on July 7, 2011, in the Second Circuit. (6)

   Walters v. Industrial & Commercial Bank of China, Ltd. presented the Second Circuit with the issue whether, in the context of the execution of assets, immunity for foreign states under the Foreign Sovereign Immunities Act (FSIA) may be considered sua sponte by a district court or at the behest of a third party. (7) The Second Circuit held that "where a judgment creditor seeks to enforce a judgment rendered against a foreign [state] by attaching or executing upon its property, a district court may [have the power to] apply the FSIA's execution immunity provisions [sua sponte,] regardless of whether the foreign sovereign enters an appearance." (8) Sua sponte, Latin for "of one's own accord; voluntarily," refers to the power of a court to raise an issue or motion without the need for another party to raise it first. (9) In the context of the FSIA, raising execution immunity sua sponte refers to the ability of a court to raise the issue of immunity without requiring a representative of a foreign state or a third party to appear in court and/or raise it personally. (10) In reaching this conclusion, the Second Circuit relied on the structure, history, and purpose of the FSIA. (11)

   Walters is noteworthy for addressing several aspects of the FSIA. In addition to holding that a district court can raise the issue of immunity sua sponte, Walters reaffirmed the independence of the issues of jurisdictional immunity and execution immunity as separate and distinct principles under the FSIA. (12) Walters also asserted the narrow and "restrictive" view toward the exceptions to execution immunity under the FSIA. (13)

   Walters clarifies the FSIA execution provisions, which have been described "as among the most confusing and ineffectual in the statute" and in need of reform. (14) The execution provisions under the FSIA are confusing and ineffectual for a multitude of reasons, including structure and procedure. (15) Structurally, the execution provisions are confusing because: they grant differing levels of execution immunity to instrumentalities based on whether they conduct commercial activity in the U.S.; they distinguish different grounds for obtaining attachment before or after judgment against a foreign state; and they suggest that a non-foreign state party seeking a contractual waiver of immunity with a foreign state party to attain three separate waivers of immunity for pre-judgment attachment, jurisdiction, and execution. (16) Procedurally, the execution immunity provisions are ineffectual and prevent practical application because they create an exceedingly "restrictive regime" in order to successfully enforce judgments against foreign states. (17)

   This confusion arising from the execution immunity provisions under the FSIA has been a source of prolonged litigation in U.S. federal courts. (18) The Walters decision follows several recent high profile cases in U.S. federal courts where plaintiffs were awarded default judgments against foreign states that ranged from tens of millions to several billion U.S. dollars. (19) These default judgments created the misleading impression that the actual collection or attachment of such assets against a foreign state is not only possible, but also the next logical step of seeking justice. (20)

   Further, the FSIA execution immunity provisions are ineffectual because they were intentionally designed to be arduous to the plaintiff. (21) Congress designed the FSIA with the understanding that it only provides "rights without remedies," with the execution of judgments against foreign states totally dependent on the voluntary compliance of foreign states with U.S. court judgments. (22) Moreover, the practical application of execution provisions under the FSIA is so extremely restrictive as to make the enforcement of judgments against foreign sovereigns nearly impossible. (23)

   By extending a uniform interpretation of the FSIA to a fourth U.S. appellate court, (24) Walters reminds plaintiffs of the unlikely, if not insurmountable, possibility of collecting assets of a foreign state in U.S. federal courts under the FSIA. Given the special sensitivities implicated in executing against foreign state property, the Walters decision reduces the anxiety of foreign states holding assets in the U.S. (25) Walters also prevents the U.S. Department of State from further undue embarrassment in foreign relations, as it reaffirms the longstanding respect for the immunity of both foreign states and their property held inside the U.S. (26)

   This Note will examine whether execution immunity under the FSIA may be considered sua sponte by a district court judge and the broad judicial considerations in preserving the narrow and restrictive view of the FSIA to the attachment of assets of a foreign state. To do this, this Note will review the facts and holding of Walters (27) This Note will then survey the legal background of sovereign immunity, the adoption of the "restrictive immunity" principle in the U.S., and the creation of the FSIA and the decisions of three appellate courts to adopt the uniform holding that district courts have the right to raise the issue of immunity sua sponte. (28) Next, this Note will look at the reasoning of Walters in light of the decisions of its sister circuits and the broader foreign policy goals of the FSIA, concluding that Walters was decided in accordance with the text and structure of the FSIA. (29) However, this Note will argue that the court's decision leaves certain questions unresolved regarding the scope of discovery against a foreign state and the potential challenges of attaching the assets of a foreign state. (30)

2. Facts and Holding

   On November 11, 1990, thirteen-year-old Kale Ryan Walters was killed on a hunting trip with his father in an accident involving his operation of a Chinese-manufactured SKS semi-automatic rifle. (31) The Walters family (Petitioners) claimed the rifle was to blame for Kale's death because it allegedly malfunctioned and discharged. (32) In November 1993, Petitioners sued the People's Republic of China and entities allegedly controlled by China, including Century International Arms, (33) in the U.S. District Court for the Western District of Missouri (Missouri district court) for products liability, negligence, and breach of warranty related to the rifle at controversy. (34)

   In response to Petitioner's complaint, (35) China claimed sovereign immunity and chose not to appear in the Missouri action. (36) On October 22, 1996, the Missouri district court rendered a default judgment against China for ten million dollars (Missouri Default Judgment). (37) The Missouri district court decided that it had jurisdiction over China "under FSIA exceptions to sovereign immunity for carrying on commercial activity within the United States [under] 28 U.S.C. [section] 1605(a)(2), and committing a 'tortious act or omission' causing damages in this country [under 28 U.S.C. [section] 1605(a)(5)]." (38) The Missouri district court also dismissed Petitioners' claims against the single and last remaining Chinese-controlled corporation named by Petitioners at the commencement of their lawsuit. (39)

   For the next decade, Petitioners attempted to collect assets against China on the basis of the Missouri Default Judgment. (40) All of Petitioners' attempts to collect were unsuccessful. (41) However, the Missouri district court denied this motion because Petitioners did not pinpoint specific property owned by China that fell within any exception to execution immunity under 28 U.S.C. [section] 1610(a) or (b) of the FSIA. (42) In 2001, Petitioners attempted to execute the Missouri Default Judgment on China's two Giant Pandas, currently on loan to the U.S. and held at the National Zoo in Washington, D.C. (43) The United States formally opposed this action, and the Missouri district court dismissed with prejudice the attempt to attach the pandas. (44) In October 2006, after ten years of failed attempts by Petitioners to execute the Missouri Default Judgment against China's assets, the Missouri district court authorized a ten-year extension to allow Petitioners to execute on the Missouri Default Judgment. (45)

   In 2009, Petitioners changed their enforcement strategy and attempted to collect against the assets of China in the courts of New York instead of Missouri. (46) Petitioners first filed the Missouri Default Judgment in the U.S. District Court for the Southern District of New York and later served several New York branches of Chinese banks, the Industrial and Commercial Banks of China, Ltd., Bank of China, Ltd., and China Construction Bank Corp. (collectively, the Banks) with restraining notices and subpoenas, which forbade the Banks from relocating any of China's assets under the Bank's control and asked peremptorily for documents associated with these...