trading entity. A March 27, 1986 Order dismissed the complaints in accordance with a report from the United States Attorney, appearing as Amicus Curiae, that stated that service had not conformed with the applicable international conventions for the service of process on alien parties. After dismissal, the Department of State forwarded two copies of the complaints and translations to the American Embassy in Prague, which delivered them to the Czechoslovakian Foreign Ministry there. An April 28, 1986 Order granted the motion to vacate the order of dismissal. No answer has been received from the Czechoslovakian government. However, defendant Centrotex filed a motion to dismiss the complaint on September 8, 1986. This motion, and the plaintiffs' motion to renew an earlier motion for entry of default against Czechoslovakia are currently before the Court. A hearing was held on these motions on November 5, 1986. For the reasons discussed below, the defendant's motion to dismiss the complaints will be granted and plaintiffs' motion for entry of default will be denied.
Centrotex argues that while the complaints may have been properly forwarded to the Czechoslovakian government, they still have not been properly served on Centrotex. It is undisputed that Centrotex has received copies of the complaints.
Nonetheless, Centrotex argues that the provisions of the Foreign Sovereign Immunities Act were not complied with since translated copies of the complaints were not delivered to an agent or officer of Centrotex in the United States or forwarded to Centrotex through the Ministry of Justice of Czechoslovakia. 28 U.S.C. § 1608(b). Centrotex also argues that it recieved the complaints before they were dismissed and that the plaintiffs were obliged to re-serve the complaints after the dismissal was vacated.
The Centrotex claim that the complaints must be re-served is without merit. However, plaintiffs offer no response to the failure to effect service through the Ministry of Justice. This failure is a basis for dismissal of the complaints. If there were not other dispositive defenses mounted here, the Court would be reluctant to rest a dismissal on such a technicality. But as developed below, there are more satisfying alternate grounds for dismissal.
Claims by United States citizens against instrumentalities of foreign governments are governed by the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. § 1602, which provides that such entities are immune from the jurisdiction of the United States courts unless one of the statutory exceptions applies. Plaintiffs allege that their complaints fall under § 1605(a)(3) which provides for an exception where "rights in property taken in violation of international law are in issue" if that property "is owned or operated by an agency or instrumentality of a foreign state" that is "engaged in commercial activity in the United States."
Defendant has two arguments why plaintiffs have failed to surmount the FSIA. First, defendant points out that in order to sue a foreign instrumentality under § 1605(a)(3), the plaintiff must allege that the property was taken "in violation of international law." Defendant argues that it is not a violation of "international law" for a state to take the property of one of its own citizens. The Commission has already determined that plaintiffs were Czechoslovakian citizens on October 27, 1945, the date their property was nationalized. See supra at n. 1. Therefore, according to Centrotex, there is no possible violation of "international law." This argument, however, fails to recognize that the nationalization of the plaintiffs' property proceeded in two steps. There was no violation of international law in 1945 when the government nationalized the property of its citizens and promised to compensate them. When the government repudiated this promise in 1948, however, the plaintiffs were American citizens. This repudiation of the promise to compensate may constitute a separate "taking" of the plaintiffs' property which was in violation of "international law." This issue can not be resolved on a motion to dismiss.
Defendant's second argument under the FSIA is more persuasive. The Act requires that the property at issue be owned by an instrumentality of a foreign state that is engaged in commercial activity in the United States. While defendant Centrotex concedes that it is an instrumentality of a foreign state that engages in commercial activity in the United States, it argues that it does not own the textile plants in question or any textile plants. Rather, an affidavit of Miroslav Otta (attached to the Defendant's Motion to Dismiss) states that Centrotex is engaged solely in the purchase and sale of textiles. According to this affidavit, Centrotex is a joint stock company whose shareholders are the National Commercial Bank, eleven "trusts" made up of individual textile production enterprises, and sixty textile and garment producing enterprises.
Otta Affidavit at para. 5. Centrotex obtains raw materials for these enterprises and purchases their products for resale to customers through foreign sales representatives. It does not, however, own the factories in question here, or any other textile production facilities.
Plaintiffs' response to this jurisdictional argument is not convincing. They argue that Centrotex is an essential part of the planned socialist economy of Czechoslovakia; without it, the government owned textile production enterprises would not be able to trade in international markets. According to the plaintiffs, "Centrotex, far from being an independent juristic personality, a mere 'commodity trader', is an alter ego of the Czechoslovak Socialist Republic in the effectuation and implementation of its nationalization of the Czechoslovak textile industry including the textile plants of the plaintiffs." Plaintiffs' Opposition to the Motion to Dismiss at 10. Plaintiffs therefore urge this Court to "pierce the corporate veil" in order to avoid injustice. In support of this proposition, plaintiffs cite to First National City Bank v. Banco Para El Comercio Exterior de Cuba, (Bancec) 462 U.S. 611, 77 L. Ed. 2d 46, 103 S. Ct. 2591 (1983), in which the Supreme Court held that a state owned Cuban bank could be held liable for a nationalization claim against the government of Cuba. Plaintiffs argue that the Bancec case authorizes this Court to find Centrotex jointly and severally liable for the actions of the Czechoslovakian government. However, in Bancec, the Cuban bank sued in the United States to recover on a claim against First National City Bank; the American bank then raised the nationalization claim as a counterclaim. The holding of Bancec is heavily dependant on this unique fact situation; as the Supreme Court noted in conclusion,
[Our decision] is the product of the application of internationally recognized equitable principles to avoid the injustice that would result from permitting a foreign state to reap the benefits of our courts while avoiding the obligations of international law.
Id. at 633-34. In this case, neither defendant has availed itself of the benefits of the United States courts. In this situation, therefore, the Court should apply the general rule articulated by the Supreme Court that "government instrumentalities established as juridical entities distinct and independent from their sovereign should normally be treated as such." Id. at 626-27.
Thus, 28 U.S.C. § 1605(a)(3) does not give this Court jurisdiction over the plaintiffs' claims against Centrotex. At oral argument in this case, however, counsel for the plaintiffs suggested that 28 U.S.C. § 1605(a)(1), which provides that the sovereign immunity of a foreign instrumentality can be waived, establishes a separate basis for jurisdiction under the FSIA. According to this theory, the government of Czechoslovakia waived the sovereign immunity of Centrotex when it provided the company with the capacity to "sue and be sued." See Otta Affidavit at § 5. This argument was also advanced in a post-hearing memorandum filed by the plaintiffs on November 17, 1986. Since this basis for jurisdiction is not alleged in the complaints, it would be necessary for the plaintiffs to amend their complaints in order to proceed under this theory. More importantly, defendant's response to this post-hearing memorandum demonstrates that Congress intended to extend sovereign immunity to all foreign state instrumentalities endowed with the capacity to sue and be sued when it enacted the FSIA. Section 1603(a) of the Act defines "foreign state" to include an agency or instrumentality of a foreign state as defined in Section 1603(b). Section 1604 provides that a foreign state "shall be immune from the jurisdiction of the courts of the United States . . . except as provided in sections 1605 to 1607." Moreover, the legislative history to § 1603 establishes that entities with the capacity to "sue and be sued" were included within the protections of § 1604. The House Report on the FSIA states:
(b) Agency or instrumentality of foreign state. Subsection (b) defines an 'agency or instrumentality of a foreign state' as any entity (1) which is a separate legal person, (2) which is an organ of a foreign state or of a political subdivision of a foreign state, or a majority of whose shares or other ownership interest is owned by a foreign state's political subdivision. . . .
The first criterion, that the entity be a separate legal person, is intended to include a corporation, association, foundation, or any other entity which, under the law of the foreign state where it was created, can sue or be sued in its own name, contract in its own name or hold property in its own name.