Opinion for the Court filed by Circuit Judge RUTH BADER GINSBURG.
RUTH BADER GINSBURG, Circuit Judge:
This case requires judicial interpretation of the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. §§ 1330, 1602-1611, a measure Congress enacted in 1976 to govern the sensitive matter of the amenability of a foreign nation to suit in the United States. Under the FSIA, a district court may entertain a civil action against a foreign state only if the foreign state lacks immunity under the Act's prescriptions, i.e., 28 U.S.C. §§ 1605-1607, or under an international agreement. 28 U.S.C. § 1330.
The parties to the instant lawsuit are plaintiff-appellant Practical Concepts, Inc. (PCI), a private enterprise organized and operating in the United States, and defendant-appellee Republic of Bolivia (Bolivia). PCI alleged Bolivia's breach of a technical assistance and consulting services contract. Signed in August 1979, the contract-in-suit called for PCI's services in designing and implementing a comprehensive program for development of Bolivia's rural areas. The contract was to continue for a period of three years; while PCI and Bolivia were the sole contracting parties, funding for the venture came from the United States Agency for International Development (AID). In May 1981, Bolivia received notice that AID would no longer fund the contract. That same month, Bolivia terminated the agreement.
On December 30, 1982, PCI filed a complaint in the district court charging Bolivia with unlawful termination of the contract. Bolivia, by telegram addressed to PCI's counsel, acknowledged receipt of process, but did not otherwise respond to PCI's complaint. On July 28, 1983, the district court entered a default judgment against Bolivia.
Over a year later, PCI commenced execution proceedings. Bolivia then moved, under Rule 60(b) of the Federal Rules of Civil Procedure, for relief from the judgment. Among several asserted grounds for relief, Bolivia claimed immunity, as a foreign sovereign, from suit in any court in the United States. The district court granted the motion, vacated the default judgment, and dismissed the action on the ground that the governing FSIA provisions, 28 U.S.C. §§ 1604-1605, shielded Bolivia from PCI's lawsuit. Practical Concepts, Inc. v. Republic of Bolivia, 613 F.Supp. 863, recon. denied, 615 F.Supp. 92 (D.D.C.1985). Having ruled dispositively on the threshold jurisdictional issue, the district court did not reach Bolivia's alternate pleas, including, inter alia, the argument that the court should abstain from entertaining PCI's complaint in deference to the arbitration clause in the contract. 613 F.Supp. at 865 n. 1.
On appeal, PCI initially contends that the default judgment should have remained closed. We find this contention insubstantial and hold that the district court, in view of Rule 60(b)(4) and (6), properly allowed full consideration of Bolivia's jurisdictional objection. More prominently, PCI maintains that this case fits within the "commercial activity" exception to the rule according foreign sovereigns immunity from suit, 28 U.S.C. § 1605(a)(2) (set out infra pp. 1548-1549). We conclude that the district court improperly rejected application of that exception. Nonetheless, we do not instruct immediate reinstatement of the default judgment. Instead, we remand the case so that the district judge may consider Bolivia's alternate pleas, particularly Bolivia's defense based on the arbitration clause of the contract between PCI and Bolivia.
PCI urges two reasons why the district court should not have entertained Bolivia's
The telegram PCI features was dispatched from Bolivia on February 24, 1983 by a Bolivian engineer, subsecretary at Bolivia's Ministry of Planning and Coordination. The addressee, who received the telegram the next day, is the attorney whose signature appears on PCI's complaint.
The telegram, we note, does not appear to have been composed or translated by individuals conversant with the dissimilar legal systems of Bolivia and the United States. Overlooking the perils of converting the legal terms and concepts of one system into those of another,
Nothing in or between the lines of the telegram sustains PCI's imaginative rendition. The district judge properly comprehended the telegram as simply an "acknowledgement of receipt of service," not, as PCI pretended, "a general appearance." Practical Concepts, Inc., 613 F.Supp. at 867 n. 6.
Alternatively, the defendant may refrain from appearing, thereby exposing himself to the risk of a default judgment. When enforcement of the default judgment is attempted, however, he may assert his jurisdictional objection. If he prevails on the objection, the default judgment will be vacated. If he loses on the jurisdictional issue, on the other hand, his day in court is normally over; as a consequence of deferring the jurisdictional challenge, he ordinarily forfeits his right to defend on the merits. As set out in RESTATEMENT (SECOND) OF JUDGMENTS § 65 comment b (1982): "When [a] person [named as a defendant] kn[o]w[s] about the action but perceive[s] that the court lack[s] territorial or subject matter jurisdiction, he is given a right to ignore the proceeding at his own risk but to suffer no detriment if his assessment proves correct." See also Insurance Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 706, 102 S.Ct. 2099, 2106, 72 L.Ed.2d 492 (1982) ("A defendant is always free to ignore the judicial proceedings, risk a default judgment, and then challenge that judgment on jurisdictional grounds in a collateral proceeding.").
In sum, PCI has recited inapposite precedent,
The district court, after it vacated the default judgment against Bolivia, ordered PCI's case "dismissed for lack of subject matter and personal jurisdiction with prejudice." Practical Concepts, Inc., 613 F.Supp. at 873. For the activity in question, the district court held, Bolivia was "entitled to sovereign immunity under the FSIA." Id. at 867, 869-72.
We think the district court misperceived the legislature's intention when the court focused on auxiliary provisions rather than on the agreement's core to classify the contract at issue as "governmental" rather than "commercial." It is more sensible, and faithful to the probable intent of Congress, we believe, generally to center on the basic exchange (e.g., the sale of goods or services), not on the facilitating features (e.g., expediting entrance of personnel and supplies), in determining whether an obligation qualifies as a "commercial activity" for FSIA purposes.
Although we conclude that the PCI-Bolivia contract does fall within the "commercial activity" category, we also find compelling reasons to relieve Bolivia from the ordinary operation of the default judgment. See FED.R.CIV.P. 60(b)(6). We therefore remand the case to the district court for consideration of the defenses raised by Bolivia which the district court did not reach.
The FSIA provides that foreign states shall be immune from suit in federal and state courts except in specified circumstances. 28 U.S.C. § 1604.
When a plaintiff invokes the exception, the court confronts a classification question: Is the activity upon which the action is based properly typed "commercial" rather than "governmental"?
Congress, in an FSIA definition section, § 1603(d), stated:
Congress did not further say what it meant by the word "commercial." Instead, it "deliberately left the meaning open and ... `put [its] faith in the U.S. courts to work out progressively, on a case-by-case basis ... the distinction between commercial and governmental.'" Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300, 308-09 (2d Cir.1981) (quoting Hearings on H.R. 11315 before the Subcomm. on Administrative Law and Governmental Relations of the House Comm. on the Judiciary, 94th Cong., 2d Sess. 53 (1976) (hereafter Hearings) (testimony of Monroe Leigh, Legal Adviser, Department of State)).
The district court, in the case at hand, recognized that a contract between a foreign state and a private party for the purchase of goods or services "may presumptively be," but is not inevitably, "commercial activity." Practical Concepts, Inc., 615 F.Supp. at 94 (order denying reconsideration); see id., 613 F.Supp. at 869 (rejecting per se categorization and citing instances of sales and service contracts held not within FSIA's commercial activity exception). Thus far, we are in accord with the district court. Nor do we question the "rule of thumb," crystallized by Second Circuit Judge Kaufman, which the district court quoted: "`[I]f the activity is one in which a private person could engage, it is not entitled to immunity.'" 613 F.Supp. at 869 (quoting Texas Trading, 647 F.2d at 309). We part company with the district court, however, in the turn it gave to the Texas Trading rule of thumb.
The district court crystallized its own analysis by asking: "Is the activity contemplated by [the PCI-Bolivia] contract activity `in which a private person could engage'?" 613 F.Supp. at 869. Not in all respects, the district judge pointed out, for the contract included terms only a government could perform. Id. Those terms, PCI asserts and we agree, were "incidental" or auxiliary; they do not denote the essential character of the agreement.
The terms that the district court found dispositive were these. First, Bolivia exempted PCI employees dispatched to work
Congress did indeed contemplate that courts would regard as key the question whether the foreign sovereign's contract at issue is "of the same character as a contract which might be made by a private person." H.REP. NO. 1487, 94th Cong., 2d Sess. 16 (1976), reprinted in 1976 U.S.CODE CONG. & ADMIN.NEWS 6604, 6615.
A foreign state, Congress anticipated, would be answerable in court, just as a private party is, when it acts in an essentially private rather than sovereign capacity. Transamerican Steamship Corp. v. Somali Democratic Republic, 767 F.2d 998, 1002 (D.C.Cir.1985); see Hearings, supra pp. 12-13, at 24, 30 (testimony of Monroe Leigh, Legal Adviser, Department of State and Bruno A. Ristau, Chief, Foreign Litigation Section, Civil Division, Department of Justice); 2 RESTATEMENT (REVISED) OF FOREIGN RELATIONS § 453 comment b (Tent. Final Draft 1985) ("purpose for which ... services are to be used — even if a public or governmental purpose — does not alter the commercial character of the activity"); Sornarajah, Problems in Applying the Restrictive Theory of Sovereign Immunity, 31 INT'L & COMP. L.Q. 661, 664-65 (1982). This congressional expectation would not be fulfilled were we to sanction a tail-wagging-dog approach to the goods or service purchasing contracts of foreign sovereigns.
We note that AID required Bolivia to exempt "[a]ny foreign contractor" and "any property or transaction" relating to the agreement and the grant to Bolivia from "taxes, tariffs, duties or other levies." R.E. O, Annex 2, § B.4(b)(1).
AID finances two types of contracts relating to development projects in foreign countries: "direct" contracts in which AID is itself a party to the contract; and "host country" contracts in which the contracting parties are host government and contractor, with AID participating only as the financing entity. The PCI-Bolivia contract is of the latter type, although it "appears to be an amalgam of provisions normally found in both types of AID-financed contracts." Brief for the United States as Amicus Curiae at 8. PCI's technical assistance and consulting services have not been described to us as in any way uncommon or uncommercial, and the contract at issue, we are informed, "is not unusual." Id.
Having rejected the district court's reasons for holding the contract "governmental," and finding no substantial basis to categorize the activity in question as something other than "commercial," we are unable to sustain the district court's judgment dismissing the action. Cf. MacArthur Area Citizens Ass'n v. Republic of Peru, 809 F.2d 918, 920 & n. 2 (D.C.Cir.1987) ("operation of a chancery is, by its nature, ... governmental, not commercial"). However, we believe the district court should have the opportunity to consider, in the first instance, whether any of the other pleas raised by Bolivia merit continued vacation of the default judgment. We remand the case for that purpose.
In doing so, we are mindful of Bolivia's claim that its failure to defend prior to PCI's attempt to enforce the default judgment "was the excusable result of `a broad divergence in [American and Bolivian] cultural, governmental, and political approaches to the present case.'" Practical Concepts, Inc., 613 F.Supp. at 865 n. 1.
Brief for the United States as Amicus Curiae at 3-4; see Jackson v. People's Republic of China, 794 F.2d 1490, 1491-97 (11th Cir.1986), aff'g 596 F.Supp. 386, 387 (N.D.Ala.1984) (because of foreign policy ramifications, public interest dictates that default judgment be set aside).
For the reasons stated, we hold that the district court properly entertained the motion to set aside the default judgment, but incorrectly dismissed the action as barred by the FSIA. We vacate the judgment dismissing the action, and remand the case for further proceedings consistent with this opinion.
It is so ordered.
The translation obtained and tendered to the court by PCI reads:
Honneus invoked the diversity jurisdiction of the Massachusetts federal district court. Plaintiff Honneus sued his then brother-in-law, Donovan, for legal malpractice. Donovan, a member of the Massachusetts bar, filed an appearance but was thereafter silent. Eventually, the court entered a default judgment against him. Several months later, Donovan moved for relief from the judgment, pursuant to Fed.R.Civ.P. 60(b); he asserted that diversity jurisdiction never existed because Honneus was not a Florida resident as the complaint had alleged but was in fact a resident of Massachusetts, as was Donovan. The First Circuit upheld the district court's refusal to set aside the judgment.
Had Honneus sued Donovan in a Massachusetts state court, there would have been no occasion, post-judgment, to intone any jurisdictional objection. Essentially, lawyer Donovan was contending that, despite his full awareness of, and recorded appearance in, his brother-in-law's suit, he could sit it out and then, in the event of an adverse federal court judgment, spring the plea that he should have been summoned instead to a local (state) courthouse. Both common sense and venerable precedent, Des Moines Navigation and Railroad Co. v. Iowa Homestead Co., 123 U.S. 552, 8 S.Ct. 217, 31 L.Ed. 202 (1887), supported the First Circuit's judgment that absence of diversity is not a ground upon which collateral attack on a judgment can be mounted.
In the instant case, we observe en passant, there was no recorded appearance — the telegram from the Bolivian engineer to plaintiff's counsel is surely not the equivalent of the docket sheet entry showing that lawyer Donovan had filed an unqualified appearance on his own behalf. More fundamentally, the identity or diversity of United States citizenship matter raised in Honneus is hardly comparable to the plea Bolivia presents here — that, because of its status as a foreign sovereign and the nature of the contract at issue, no court in the United States — federal or state — has authority to adjudicate PCI's claim. Cf. United States v. Kember, 648 F.2d 1354, 1358-59 (D.C.Cir.1980) (question whether case should have been tried in the federal district court or in the local District of Columbia court across the street described as entailing "at most jurisdiction writ small").
R.E. O, Annex 2, § B.4.(b)(1).
H.REP. NO. 1487, supra p. 1550, at 16, 1976 U.S.CODE CONG. & ADMIN.NEWS at 6615. See also 2 RESTATEMENT (REVISED) OF FOREIGN RELATIONS, supra note 11, § 453 reporters' note 2 (nature of activity, e.g., purchase contract, not its purpose, e.g., providing food for the needy, determines whether activity is commercial).
The principal original contribution appellee's brief presents is the frivolous contention that a Claims Court stipulated judgment, recording the out-of-court settlement of PCI's claim against AID, is somehow issue preclusive in the instant action. See Brief of Appellee at 21-22. No issue at all was "litigated and actually adjudged" in the Claims Court. Moreover, the two cases, one involving the obligation of the United States and the other, the undertaking of Bolivia, never even raised the "same" dispositive issue. See RESTATEMENT (SECOND) OF JUDGMENTS § 27 comment e at 257 (1982) (when judgment entered by "confession, consent, or default" rule of issue preclusion does not apply to any issue in a subsequent action).