Dale v. Colagiovanni , 443 F.3d 425 ( 2006 )

United States Court of Appeals
Fifth Circuit
IN THE UNITED STATES COURT OF APPEALS F I L E D
FOR THE FIFTH CIRCUIT March 16, 2006
_____________________ Charles R. Fulbruge III
Clerk
No. 04-60928
____________________
GEORGE DALE, Commissioner of Insurance for the State of
Mississippi, in his official capacity as Receiver of Franklin
Protective Life Insurance Company, Family Guaranty Life Insurance
Company, and First National Life Insurance Company of America;
W. DALE FINKE, Director of the Department of Insurance for the
State of Missouri, in his official capacity as Receiver of
International Financial Services Life Insurance Company;
KIM HOLLAND, Insurance Commissioner for the State of Oklahoma, in
her official capacity as Receiver of Farmers and Ranchers Life
Insurance Company;
JULIE BENAFIELD BOWMAN, Insurance Commissioner for the State of
Arkansas, in his official capacity as Receiver of Old Southwest
Life Insurance Company;
PAULA A. FLOWERS, Commissioner of Commerce and Insurance for the
State of Tennessee, in her official capacity as Receiver of
Franklin American Life Insurance Company;
Plaintiffs-Appellees,
v.
EMILIO COLAGIOVANNI, et al.,
Defendants,
HOLY SEE, also known as Vatican City State,
Defendant-Appellant.
__________________
Appeal from the United States District Court
For the Southern District of Mississippi
__________________
Before REAVLEY, DAVIS and WIENER, Circuit Judges.
W. EUGENE DAVIS, Circuit Judge:
Plaintiff-Appellees, receivers for various insurance
companies, brought suit against individuals and entities
allegedly involved in a conspiracy to fraudulently acquire and
loot the insurance companies. In their complaint, Plaintiffs
alleged that the Holy See, also known as the Vatican City State,
participated in the scheme through its agent Emilio Colagiovanni,
and sought damages for RICO violations, civil conspiracy, common
law fraud, and aiding and abetting fraud. The Vatican moved for
dismissal under Rule 12(b)(1) based, in part, on its claim of
immunity under the Foreign Sovereign Immunities Act (“FSIA”).
Plaintiffs argued that the Vatican is subject to suit under the
commercial exception to the FSIA, 28 U.S.C. § 1605(a)(2), either
because Colagiovanni acted with the actual or apparent authority
of the Vatican, or because the Vatican ratified his acts. The
district court declined to consider Plantiffs’ actual authority
and ratification theories, and instead denied the Vatican’s rule
12(b)(1) motion on grounds that when Colagiovanni acted with the
apparent authority of the Vatican, this conduct fell within the
commercial exception to FSIA. We vacate that judgment and remand
this case to the district court.
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I.
A.
Between 1990 and 1999, Martin Frankel engaged in a massive
insurance fraud scheme, using various alter egos and front
organizations to acquire and loot several insurance companies.
Plaintiffs, the receivers of several of the targeted insurance
companies, allege that during 1998 and 1999 Frankel was aided in
his fraudulent activities by Defendant Emilio Colagiovanni, among
others. Frankel pled guilty to criminal charges of fraud and
racketeering, and is not a party to this suit. Colagiovanni was
a Roman Catholic “monsignor,” a judge emeritus of the Tribunal
della Rota Romana (the “Rota”), one of the Vatican’s three
appellate courts, and a professor in the Studio Rotale, a
graduate program connected to the Rota. Colagiovanni was also a
senior member of the “Curia,” the Vatican’s government, and was
the President of the Monitor Ecclesiasticus Foundation (the
“MEF”), an autonomous entity that published a journal of canon
law.
In 1998, Frankel embarked on a scheme to utilize the Roman
Catholic Church as the latest in a series of front organizations
to acquire insurance companies. Frankel, masquerading as “David
Rosse,” a philanthropist who wished to create a charitable
foundation, eventually worked his way up to a meeting with
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Colagiovanni. His plan called for capitalization of the
foundation in the amount of $55 million, $50 million of which
would be for insurance company acquisitions and $5 million of
which would be available for charitable use. Although the
Vatican initially rejected Frankel’s plan to create a Vatican-
affiliated entity, Frankel ultimately created an organization
called the St. Francis of Assissi Foundation (the “SFAF”).
Colagiovanni agreed to allow MEF to serve as SFAF’s settlor of
record, and Frankel donated funds to the MEF, which were in turn
given to SFAF, under Frankel’s control.
By March of 1999, Frankel was being investigated by the
Mississippi Department of Insurance regarding his acquisitions,
and received a letter from the Department asking specific
questions about Frankel’s investment practices. Frankel
responded by causing SFAF to purchase the trust that had been
involved in the acquisitions, which in turn caused the Department
to set an emergency hearing. Colagiovanni appeared at the
hearing and represented that Vatican-related entities had
contributed over $1 billion to SFAF. Meanwhile, Frankel prepared
to leave the country. Mississippi regulators immediately froze
the assets of the Frankel-controlled companies, and the
regulators for Tennessee, Missouri, Oklahoma, and Arkansas
quickly followed suit.
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B.
The receivers for various insurance companies affected by
Frankel’s scam filed suit against a variety of individuals and
entities involved, including both Colagiovanni and the Vatican.
Because of the complexity of the underlying law and facts, the
district court ordered that motions to dismiss be filed in
phases, beginning primarily with subject matter jurisdiction.
The Vatican filed its first motion to dismiss under Rule
12(b)(1), arguing that the Vatican was immune from suit under the
FSIA. Plaintiffs argued that the Vatican’s conduct fell within
the commercial activity exception to the FSIA, and tied the
Vatican to Colagiovanni’s conduct based on apparent authority,
actual authority, and ratification theories. The district court
agreed, and denied the Vatican’s motion in part based on an
apparent authority theory, expressly declining to reach
Plaintiff’s actual authority or ratification theories. The
Vatican also urged several other theories under which it was
immune to suit under FSIA, but the district court rejected each
of those arguments and this appeal followed.
II.
The district court’s order denying the Vatican’s 12(b)(1)
motion is immediately appealable. 28 U.S.C. § 1291; Byrd v.
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Corporacion Forestal y Industrial De Olancho S.A., 182 F.3d 380,
385 (5th Cir. 1999). The district court’s ruling on a purely
legal motion to dismiss based on foreign sovereign immunity
grounds is reviewed de novo. Walter Fuller Aircraft Sales, Inc.
v. Republic of Philippines, 965 F.2d 1375, 1383 (5th Cir. 1999).
III.
The FSIA provides the sole source of subject matter
jurisdiction in suits against a foreign state. Argentine
Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434-39
(1989). “The general rule under the FSIA is that foreign states
are immune from the jurisdiction of the United States Courts.”
Byrd, 182 F.3d at 388 (quoting Moran v. The Kingdom of Saudi
Arabia, 27 F.3d 169, 172 (5th Cir.1994) (citing 28 U.S.C. §
1604)). “However, a district court can exercise subject matter
jurisdiction over a foreign state if one of the statute's
exceptions apply.” Id.
Plaintiffs argue that the Vatican is subject to suit under
the commercial activity exception to the FSIA, because its agent,
Colagiovanni, engaged in commercial activity while possessing
apparent authority.1 The Vatican argues, however, that an agent
1
Plaintiffs also argued to the district court that Colagiovanni
possessed actual authority, and that his commercial acts were
ratified by the Vatican. The district court expressly declined to
rule on these issues, and we decline to examine those theories in
the first instance.
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acting only with apparent authority is insufficient to trigger
the commercial activity exception. While this is an issue of
first impression in this Circuit, both the Fourth and Ninth
Circuits, the only Circuits to have directly addressed the issue,
have concluded that conduct by an agent acting with apparent
authority is insufficient to trigger the commercial activity
exception and give a basis for jurisdiction against the state
under FSIA. See Velasco v. Gov’t of Indonesia, 370 F.3d 392,
399-400 (4th Cir. 2004); Phanuef v. Republic of Indonesia, 106
F.3d 302, 307-08 (9th Cir. 1997).
The commercial activity exception provides that a foreign
state shall not be immune in any action
based upon a commercial activity carried on in the
United States by the foreign state; or upon an act
performed in the United States in connection with a
commercial activity of the foreign state elsewhere; or
upon an act outside the territory of the United States
in connection with a commercial activity of the foreign
state elsewhere and that act causes a direct effect in
the United States.
28 U.S.C. § 1605(a)(2).
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The provision makes clear that the commercial activity must
be that “of the foreign state.” The Ninth Circuit considered the
text of the exception in Phanuef:
All three clauses of the exception require “a
commercial activity of the foreign state."
“[C]ommercial activity of the foreign state” clearly
entails commercial activity in which the foreign state
engaged. Because a foreign state acts through its
agents, an agent's deed which is based on the actual
authority of the foreign state constitutes activity “of
the foreign state.”
106 F.3d 302, 307-08 (9th Cir. 1997) (citations omitted). The
court in Phanuef concluded that “[t]he language of the commercial
activity exception compels the conclusion that only evidence of
actual authority can be used to invoke that exception.” Id. at
307. The court explained:
When an agent acts beyond the scope of his authority,
however, that agent “is not doing business which the
sovereign has empowered him to do.” If the foreign
state has not empowered its agent to act, the agent's
unauthorized act cannot be attributed to the foreign
state; there is no “activity of the foreign state.”
Id. at 307-08 (citations omitted).
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The conclusion that actual authority is required to trigger
the commercial activity exception is also supported by the line
of cases in which courts have construed foreign sovereign
immunity to extend to an individual acting in his official
capacity on behalf of a foreign state. The Fourth Circuit, the
only Circuit other than the Ninth to directly address the issue
presented in this case, relied on this line of cases in Velasco
v. Gov’t of Indonesia to hold that the plaintiff must demonstrate
that the agent acted with the actual authority of the state to
trigger the commercial activity exception. 370 F.3d 392, 399-400
(4th Cir. 2004) (citing Byrd v. Corporacion Forestal y Industrial
de Olancho S.A., 182 F.3d 380, 388 (5th Cir. 1999) (FSIA protects
individuals acting within their official capacity as officers of
corporations considered foreign sovereigns); El-Fadl v. Central
Bank of Jordan, 75 F.3d 668, 671 (D.C. Cir. 1996) (individual
sued for actions on behalf of government bank was immune from
suit under FSIA); Chuidian v. Philippine Nat'l Bank, 912 F.2d
1095, 1101-03 (9th Cir. 1990) (interpreting section 1603(b) to
include individuals sued in their official capacity)).
Plaintiffs point to two decisions of this court to support
their argument that apparent authority is sufficient to trigger
the commercial activity exception, Arriba, Ltd. v. Peroleos
Mexicanos, 962 F.2d 528 (5th Cir. 1992), and Hester Int’l Corp.
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v. Federal Republic of Nigeria, 879 F.2d 170 (5th Cir. 1989).
Neither opinion, however, controls our decision in this case.
Both opinions address the presumption of separate juridical
status of government instrumentalities under the test articulated
by the Supreme Court in First Nat’l City Bank v. Banco Para El
Comercio Exterio De Cuba, 462 U.S. 611 (1983) (“Bancec”). See
Hester, 879 F.2d at 176-81; Arriba, 962 F.2d at 534-37. Neither
case directly addresses the apparent authority of an individual
agent in the context of the commercial activity exception. The
two inquiries are analytically distinct. The Court in Bancec
held that when a plaintiff sues a government instrumentality of a
foreign state, we apply a presumption that the instrumentality is
independent of the foreign state for purposes of the FSIA.
Hester, 879 F.2d at 176 (citing Bancec, 462 U.S. at 627). A
plaintiff can over come that presumption, however, in certain
circumstances by demonstrating that the instrumentality is the
agent or alter ego of the foreign state. Id. at 176-179. The
inquiry in that context, then, is whether the state exercises
day-to-day control over the agency, not whether a particular type
of agency relationship is sufficient under the commercial
activity exception. Under the commercial activity exception,
however, the court must determine whether the commercial activity
is “of the foreign state.”
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IV.
The Vatican urges several additional theories arguing that
it is not subject to jurisdiction under the FSIA: (1) the
creation of a charitable foundation is not a commercial activity;
(2) Colagiovanni’s criminal activity was not a commercial
activity; (3) the alleged claims were tort-based, and therefore
not within the commercial activity exception; and (4) the
Vatican could not form the requisite intent necessary for
Plaintiffs’ fraud-based claims. The district court considered
and rejected each of these arguments, and we affirm the district
court’s judgment on these issues on the basis of its well-
reasoned opinion.
V.
We agree with the Fourth and Ninth Circuits that an agent’s
acts conducted with the apparent authority of the state is
insufficient to trigger the commercial exception to FSIA. We
therefore VACATE the contrary ruling of the district court
denying immunity to the Vatican. We AFFIRM the remainder of the
district court’s judgment and remand this case to the district
court for further proceedings.
AFFIRMED in part, REVERSED in part, and REMANDED.
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