District Court Vacates Default Judgment and Dismisses Complaint Against Nepalese Banking Entities on FSIA Grounds, Finding Neither the "Commercial Activity" Nor "Taking" Exception applicable

The World in U.S. Courts: Fall 2014 - Alien Tort Statute (ATS)/Torture Victims Protection Act (TVPA)/Victims of Trafficking and Violence Protection Act (VTVPA)/Foreign Sovereign Immunity Act (FSIA)

Chettri v. Nepal Bangladesh Bank, Ltd., U.S. District Court for the Southern District of New York, September 2, 2014

Plaintiffs arranged through a subcontractor to supply equipment to the Nepalese army and police.  The complaint alleges that the Nepalese government's US$1 million payment for the equipment was placed in the Nepalese government's bank account of the subcontractor and subsequently frozen by the Nepalese government, purportedly in connection with a money laundering investigation.  The action against the bank and related entities seeks access to the frozen funds.  A default judgment was entered against the Nepalese entities, which now seek to avoid enforcement on grounds that they are immune from suit under the FSIA.

As relevant here, the District Court in New York first found that the defendants were sovereigns, and then concluded that the "commercial activity" exception did not apply because the action complained of—the confiscation of money—was by nature a governmental and not commercial act.  The fact that the money was alleged to have been delivered in the first place via a commercial contract was not considered by the Court to establish a basis for applying the commercial exception, as it was one step removed from the specific claim in the litigation—the freezing of the funds.  Similarly, the Court concluded that the freezing of monies in Nepal did not cause a "direct effect in the United States," as the FSIA exception requires.

The Court also found that the claim did not qualify for the limited "takings" exception to the FSIA, which applies where a government agency or "instrumentality" (as opposed to the government itself) has taken property without cause and just compensation, in violation of international law.  Here, the Court found, the actions alleged were taken by the Nepal Government, not an agency.  The freeze was also purportedly imposed in furtherance of the application of Nepalese criminal law, requiring that the plaintiffs exhaust their local remedies before they could claim that the action was unlawful and in violation of international law.  Finding none of the multiple requirements for application of either exception met, the Court vacated the default judgment and, on the basis of the applicability of the FSIA,  dismissed the complaint.

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