Date: 06-29-2017

Case Style: Vladlena Funk v. Belneftekhim, a/k/a Concern Belneftekhim, Belneftekhim, U.S.C., Inc.

Case Number: 15-3372-cv

Judge: Reena Raggi

Court: United States Court of Appeals for the Second Circuit on appeal from the Eastern District of New York (Westchester County)

Plaintiff's Attorney: Emamuel Zeltser

Defendant's Attorney: Kennth A. Caruso and Christopher D. Volpe

Description: In this action, originally filed in New York State court, plaintiffs Emanuel
Zeltser and Vladlena Funk sue defendants Concern Belneftekhim (“BNTK”) and
Belneftekhim USA, Inc. (“BUSA”) for their alleged roles in plaintiffs’ 2008
abduction from London and their prolonged detention in Belarus by authorities
3
of that country. After defendants removed the case to the United States District
Court for the Eastern District of New York (Brian M. Cogan, Judge), they moved
to dismiss based in part on foreign sovereign immunity. See Foreign Sovereign
Immunities Act of 1976 (“FSIA”), Pub. L. No. 94‐583, 90 Stat. 2891 (codified at 28
U.S.C. §§ 1330, 1332(a)(2)–(a)(4), 1391(f), 1441(d), and 1602–1611). Defendants
here appeal from the October 20, 2015 order requiring defendants to pay earlier
monetary sanctions that had accrued and striking their foreign sovereign
immunity defense as a sanction pursuant to Fed. R. Civ. P. 37(b) for their
persistent failure to provide jurisdictional discovery. Defendants argue that the
challenged order exceeded the district court’s discretion, particularly because
their submissions of Belarusian law established their sovereign immunity
defense as a matter of law.
Plaintiffs respond that we lack jurisdiction to consider this interlocutory
appeal. In any event, they maintain that the challenged sanction order was
within the district court’s discretion because defendants’ claim of sovereign
immunity raises unresolved questions of fact on which they were entitled to
jurisdictional discovery.
4
We have jurisdiction to review this appeal pursuant to the collateral order
doctrine. On such review, we conclude that the district court acted within its
discretion in ordering limited jurisdictional discovery and in sanctioning
defendants for failing to comply with that order. At the same time, however, we
conclude that, to the extent the challenged October 20, 2015 order not only
required defendants to pay an earlier accrued monetary sanction but also struck
their sovereign immunity claim in its entirety, it exceeded the district court’s
discretion. The latter sanction risked the district court’s assumption of
jurisdiction where it may, in fact, have been lacking, something the court was not
empowered to do, particularly where, as here, alternative sanctions are available.
Accordingly, we affirm the challenged order generally, vacating only that part
striking defendants’ foreign sovereign immunity claim, and we remand the case
to the district court for further proceedings consistent with this opinion.
I. Background
A. The Abduction Giving Rise to this Action
The following facts are drawn from plaintiffs’ first amended complaint,
which was operative at the time of the challenged rulings.
5
Plaintiff Zeltser, a United States citizen, represented a group of investors
who, in the late 1990s and early 2000s, purchased a block of stock in BNTK, a
Belarusian petrochemical cooperative, and secured an option to acquire a
controlling interest in that concern. BUSA is a Massachusetts corporation, which
acts as BNTK’s representative in the United States.
In 2006 and 2007, the United States imposed sanctions on members of the
Belarusian government, including head of state Alexander Lukashenko, and on
certain Belarusian entities, including defendants.1 Soon thereafter, defendants
abrogated their agreement with Zeltser’s clients and refused to compensate them
for the breach. Plaintiffs threatened legal action, and a series of meetings ensued
as the parties attempted to resolve their dispute.
In March 2008, defendants’ representatives met twice with Zeltser and his
assistant Funk in New York City to explore settlement. After Zeltser and Funk
1 See Exec. Order No. 13,405, 71 Fed. Reg. 35,485 (June 16, 2006) (determining that
sanctions were appropriate because “actions and policies of certain members of
the Government of Belarus and other persons to undermine Belarus’ democratic
processes or institutions, manifested most recently in the fundamentally
undemocratic March 2006 elections, to commit human rights abuses related to
political repression, including detentions and disappearances, and to engage in
public corruption, including by diverting or misusing Belarusian public assets or
by misusing public authority, constitute an unusual and extraordinary threat to
the national security and foreign policy of the United States”).
6
declined to travel to Belarus for a further meeting, the parties convened in
London on March 11, 2008. There, plaintiffs assert that they were drugged,
kidnapped, and, ultimately, flown to Belarus under the alleged supervision of
defendants’ representatives.
In Belarus, plaintiffs were placed in a government detention facility where
they were tortured and denied adequate food, water, and medicine. Defendants’
representatives allegedly observed and directed this mistreatment in an effort to
coerce Zeltser to surrender documents relating to his clients’ BNTK investments
and to convince those clients to renounce their stake in BNTK. Funk was also
pressured to sign a confession implicating Zeltser in economic espionage. At
some point during plaintiffs’ captivity, Belarusian authorities issued a statement
declaring that plaintiffs had been convicted of attempted economic espionage.
Meanwhile, a week after plaintiffs’ abduction, New York’s U.S. Senator
Charles Schumer alerted the State Department to the abduction and requested
aid in procuring plaintiffs’ release. Over the next year, plaintiffs’ situation
attracted the attention of several private organizations as well as the national
media. Funk was released on March 20, 2009, approximately one year after her
abduction. Only after a United States congressional delegation traveled to
7
Belarus to demand Zeltser’s release was he too freed from captivity on June 30,
2009.
B. The Instant Lawsuit
1. The Initial Pleadings and Motion To Dismiss
Plaintiffs initially filed this action on July 12, 2012, in New York State
Supreme Court, demanding $140 million in damages for alleged assault and
battery, intentional infliction of emotional distress, false imprisonment,
interference with a contractual relationship and prospective economic advantage,
conversion, and prima facie tort. On December 8, 2013, with defendants having
failed to answer, plaintiffs moved for a default judgment. Before any action was
taken on the motion, defendants appeared and, on January 16, 2014, removed the
case to federal court and there moved for dismissal on the grounds that both
subject‐matter and personal jurisdiction were lacking.
Defendants invoked the FSIA to challenge subject‐matter jurisdiction. See
28 U.S.C. § 1604 (providing that foreign state shall be immune from jurisdiction
in federal and state courts in United States except as provided in 28 U.S.C.
§§ 1605–1607). To support their immunity claim, defendants relied on plaintiffs’
own initial complaint, which alleged that defendants were “the Belarusian
8
petrochemical monopoly owned by and controlled by the government of Belarus,
Lukashenk[o], and other members of the Belarusian government.” J.A. 21.
In opposition, plaintiffs argued that defendants had failed to carry their
burden to make a prima facie showing that BNTK was indeed an agency or
instrumentality of a foreign state within the meaning of 28 U.S.C. § 1603(b).
Plaintiffs also renewed their motion for default judgment or, in the alternative,
urged that the foreign sovereign immunity issue be deferred to trial because
defendants’ claim of foreign state status presented disputes of fact.
2. First Discovery Order
On December 31, 2014, the district court ruled both that defendants’
motion to dismiss and plaintiffs’ motion for default judgment were premature in
light of factual questions on the threshold jurisdictional issue of whether BNTK
qualifies as an agency or instrumentality of a foreign state. The court ordered
limited jurisdictional discovery to allow the parties “to obtain the information
necessary to supplement their motions or proceed to a hearing.” J.A. 124.2
2 The district court also identified the need for further factual development on the
issue of whether defendants had been properly served. Because defendants
subsequently waived that defense, we need not discuss it further here.
9
3. Discovery and Further Motion Practice
On the January 30, 2015 deadline set by the district court, plaintiffs
submitted a proposed discovery plan. Rather than submitting a discovery plan,
however, Defendants requested leave to renew and supplement their dismissal
motion with the results of further investigation in Belarus. Given the parties’
disagreement over the path forward, the district court itself set a discovery
schedule, which provided for the parties to supplement their motions after the
ordered discovery.
Instead, on March 23, 2015, defendants supplemented their motion to
dismiss by filing a translated declaration from Dmitry Gvozdev (“Gvozdev
Declaration”), an employee in BNTK’s legal department, to which were attached
purported provisions of Belarusian law. Defendants argued that these
provisions convincingly established BNTK’s status as an agency or
instrumentality of Belarus under either the organ or ownership prongs of 28
U.S.C. § 1603(b)(2). The Gvozdev Declaration pointed, inter alia, to BNTK’s
charter declaring that its assets were the property of Belarus, to various
resolutions of Belarus’s Council of Ministers stating that BNTK was involved in
the administrative management of Belarus’s petrochemical industry, and to a
10
presidential decree declaring that “concerns” such as BNTK were part of the
“system of Government” in Belarus. J.A. 152–53. The Declaration also stated
that BNTK’s chairperson is appointed by the Belarusian government and that the
number of its employees, their salaries, and its budget are all set by that
government. Defendants further submitted a United States Congressional
Research Service report on Belarus that referred to BNTK as “state‐owned.” Id.
at 145.
On April 28, 2015, plaintiffs filed an affidavit of Alexander Fishkin
(“Fishkin Affidavit”), an attorney admitted to practice law in Belarus with
avowed experience in translation. That affidavit states that defendants’
production of Belarusian laws is “incomplete” and cannot be deemed controlling
because unpublished decrees known as “Closed Circulars” can “super[s]ede
published statutes” in Belarus. Id. at 297, 309 (internal quotation marks omitted).
Fishkin further maintained that defendants’ translations of Belarusian laws were
“inaccurate, sometimes nearly to the point of changing their meaning to the
opposite,” id. at 297; see, e.g., id. at 299 (discussing defendants’ mistranslation of
“licensor” as “lessor”); that their submission did not, in any event, establish
direct ownership of BNTK by Belarus, see id. at 302; and that BNTK in fact
11
“consist[s] of two components: commercial and non‐commercial,” with the
former being “owned by individual corporate members . . . , which are jointstock
companies, including publicly traded companies” that “sell equity
investments to private investors,” id. at 298, 306.
In a joint letter dated June 3, 2015, the parties summarized their ongoing
discovery disputes, with plaintiffs accusing defendants of “object[ing] to
virtually every interrogatory and document request” and “declin[ing] to produce
any person for deposition.” Id. at 315. Plaintiffs maintained that further
discovery was needed on multiple grounds, including “prov[ing] the existence of
alter ego relationships” as between defendants and Lukashenko and as between
BNTK and BUSA. Id. at 316. Plaintiffs also sought discovery to establish the
commercial activity exception to foreign sovereign immunity and to show that
BNTK is, in fact, a commercial entity owned by its private member companies.
4. Second Discovery Order
In a July 9, 2015 order (“Second Discovery Order”), the district court stated
that defendants had properly objected to discovery requests unrelated to the
threshold jurisdictional issue and appropriately responded to requests for
documents on which they would rely. Nevertheless, because defendants had
12
failed to provide discovery “regarding [BNTK’s] ownership and structure,” to
which plaintiffs were entitled, the district court ordered that defendants make
such production by July 31, 2015, as well as identify a witness for deposition
pursuant to Fed. R. Civ. P. 30(b)(6). Id. at 323.
5. Further Discovery Disputes
On July 29, 2015, defendants supplemented their interrogatory responses
to state that “[n]one of the constituent entities of [BNTK] is a subsidiary of [it]”;
that BNTK’s “constituent entities are independent legal entities over which [it]
exercises certain state‐related management and administrative responsibilities
and functions”; and that those constituent entities “may be owned, in whole or in
part, by the Republic of Belarus, or . . . by others, including private entities.” Id.
at 327. The next day, however, defendants appealed the Second Discovery Order
to this court.
On July 31, the deadline set in the Second Discovery Order, plaintiffs
moved for sanctions based on defendants’ failure to provide documents showing
BNTK’s structure or ownership. In response to the district court’s ensuing order
to show cause why “substantial sanctions . . . should not be issued,” including
“monetary sanctions, deeming issues admitted, or precluding defendants from
13
proving issues on which they are alleged to have blocked discovery,” Order,
Funk v. Belneftekhim, No. 14‐cv‐376 (BMC) (E.D.N.Y. July 31, 2015), defendants
argued that their appeal divested the district court of jurisdiction and, in any
event, they had satisfied their prima facie burden as to the defense of foreign
sovereign immunity.
6. First Sanctions Order
The district court was not persuaded and, in an order dated August 13,
2015 (“First Sanctions Order”), ruled that it was not divested of jurisdiction
because its Second Discovery Order was not final and, therefore, defendants’
appeal from that order was frivolous. As to sanctions, the district court observed
that there could be “no dispute” that defendants had failed to produce ordered
discovery and that the failure was “willful.” J.A. 342. It concluded that
defendants could not use sovereign immunity “manipulatively” to avoid
providing plaintiffs with a fair opportunity to define issues of fact and law
relevant to that immunity claim and the court with the full record needed to
decide the issue. Id. Accordingly, it imposed a monetary sanction of $2,000 per
day, payable to the Clerk of Court, which would run until defendants complied
with the Second Discovery Order. It also imposed a one‐time $5,000 sanction
14
payable to plaintiffs for having to litigate the discovery dispute. Finally, the
district court warned that, absent compliance, it would consider additional
sanctions, including orders of preclusion, denial of the pending motion to
dismiss, and entry of a default judgment.
The following day, defendants appealed the First Sanctions Order. Denied
a stay pending that appeal, defendants continued to defy the district court’s
Second Discovery Order, prompting plaintiffs to seek default judgment as a
sanction.
On October 6, 2015, a motions panel of this court granted plaintiffs’ motion
to dismiss defendants’ appeals from both the Second Discovery Order and the
First Sanctions Order on the ground anticipated by the district court, i.e., that
neither order satisfied the finality requirement of 28 U.S.C. § 1291.
7. Second Sanctions Order
On October 20, 2015, the district court granted plaintiffs’ motion for further
sanctions, but denied the requested default judgment, stating that it was
“important to impose sanctions in a graduated manner and [to] avoid the most
severe sanction unless nothing else will suffice.” J.A. 360. Observing that
“[m]onetary sanctions have not succeeded in inducing compliance” with its
15
discovery orders, the district court decided to “strike[] the sovereign immunity
defense,” in order to “restore the prejudiced party,” i.e., plaintiffs, “to the same
position [they] would have been in absent the wrongful withholding of
evidence” by defendants. Id. at 351, 359 (alterations and internal quotation
marks omitted). The district court halted its earlier per diem monetary sanction,
but ordered defendants to pay within two weeks the $136,000 in accumulated
sanctions to the Clerk of Court, as well as the $5,000 litigation‐expense sanction
to plaintiffs.
When defendants appealed this Second Sanctions Order, plaintiffs again
moved to dismiss, but that relief was denied without prejudice by a motions
panel of this court. Meanwhile, plaintiffs filed an amended complaint in the
district court and again moved for default judgment in light of defendants’
continued noncompliance with discovery. Defendants moved to dismiss the
amended complaint, but no decision was rendered because, after this court’s
denial of plaintiffs’ motion to dismiss this appeal, the district court stayed further
proceedings in this case.
16
II. Discussion
A. Appellate Jurisdiction
Plaintiffs challenge our jurisdiction to review the Second Sanctions Order
on the ground that it is interlocutory rather than final as required by 28 U.S.C.
§ 1291. In urging otherwise, defendants invoke the collateral order doctrine,
which allows interlocutory appeals from the small class of orders that
“[1] conclusively determine the disputed question, [2] resolve an important issue
completely separate from the merits of the action, and [3] [are] effectively
unreviewable on appeal from a final judgment.” Coopers & Lybrand v. Livesay,
437 U.S. 463, 468 (1978); see Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 546
(1949) (allowing interlocutory appeals from “small class” of orders “which finally
determine claims of right separable from, and collateral to, rights asserted in the
action, too important to be denied review and too independent of the cause itself
to require that appellate consideration be deferred until the whole case is
adjudicated”); accord United States v. Prevezon Holdings Ltd., 839 F.3d 227, 235 (2d
Cir. 2016). The challenged Second Sanctions Order satisfies these requirements.
First, by striking defendants’ foreign sovereign immunity claim, the
district court removed the claim from the case, which effectively determined the
17
immunity issue against defendants as conclusively as if the court had ruled
adversely on the motion to dismiss that raised it. This court has “consistently
held that [a] threshold sovereign‐immunity determination is immediately
reviewable under the collateral‐order doctrine.” EM Ltd. v. Banco Central de la
República Argentina, 800 F.3d 78, 87–88 & n.36 (2d Cir. 2015).
Second, whether a foreign sovereign immunity claim is struck or rejected,
a defendant’s professed entitlement to such immunity is an issue distinct from
the merits of a plaintiff’s underlying claims. Further, the importance of such
immunity is the same in either circumstance, as it informs the district court’s
subject‐matter jurisdiction. See 28 U.S.C. § 1330(a).
Third, whether a foreign sovereign immunity claim is struck from the case
as a sanction or rejected as a ground for dismissal, the denial of immunity is
effectively unreviewable after final judgment because defendants must litigate
the case to reach judgment and, thus, lose the very immunity from suit to which
they claim to be entitled. See generally Bolivarian Republic of Venezuela v. Helmerich
& Payne Int’l Drilling Co., 137 S. Ct. 1312, 1317 (2017) (observing “basic objective”
of foreign sovereign immunity is “to free a foreign sovereign from suit” so that it
should be decided “as near to the outset of the case as is reasonably possible”
18
(emphasis in original)); Rein v. Socialist People’s Libyan Arab Jamahiriya, 162 F.3d
748, 756 (2d Cir. 1998) (recognizing sovereign immunity as “immunity from trial
and the attendant burdens of litigation” (internal quotation marks omitted)).
Plaintiffs nevertheless maintain that Supreme Court precedent precludes
application of the collateral order doctrine to Rule 37 discovery sanctions. See
Cunningham v. Hamilton County, 527 U.S. 198, 200 (1999) (holding that monetary
sanction imposed pursuant to then‐Fed. R. Civ. P. 37(a)(4) is not appealable
collateral order); accord Linde v. Arab Bank, PLC, 706 F.3d 92, 104–06 (2d Cir. 2013)
(holding discovery sanction pursuant to Fed. R. Civ. P. 37(b) allowing jury to
draw inference of misconduct is not appealable collateral order); see also Mohawk
Indus., Inc. v. Carpenter, 558 U.S. 100, 107 (2009) (observing that, in determining
whether interlocutory order can be appealed, court’s focus should be on “entire
category to which a claim belongs” rather than on “individualized jurisdictional
inquiry” (internal quotation marks omitted)).
The rule certainly applies to most discovery sanctions because, as
Cunningham recognized, such sanctions are generally “inextricably intertwined
with the merits of the action”; indeed, a determination as to the propriety of such
sanctions will usually require an assessment of “the importance of the
19
information sought or the adequacy or truthfulness of a response.” Cunningham
v. Hamilton County, 527 U.S. at 205; accord SEC v. Smith, 710 F.3d 87, 94 (2d Cir.
2013) (stating, in holding monetary sanction under Fed. R. Civ. P. 11 not to be
appealable collateral order, that Cunningham “relied heavily on the fact that
review of sanctions orders could not remain entirely separate from the merits of
the underlying litigation”). In Smith, however, this court referenced, without
addressing, the possibility that “some types of sanctions may be immediately
appealable if the rationale underlying the Cunningham decision does not apply.”
710 F.3d at 95 n.8.
That is the case with respect to the discovery sanction here, which strikes
the foreign sovereign immunity claim that was the singular object of discovery.
Neither the ordered discovery nor the ensuing sanction was in any way informed
by the merits of the underlying tort action. Indeed, the district court found that
defendants acted properly in refusing, at this stage of the proceedings, to
respond to discovery demands relating to anything other than the distinct issue
of “whether [BNTK] qualifies as an agency or instrumentality of a foreign state
within the meaning of 28 U.S.C. § 1603(b).” J.A. 322 (internal quotation marks
omitted).
20
Precedent has recognized that striking a sovereign immunity claim can be
immediately appealable as a final order, at least where, as here, a party “asserts
not merely immunity from judgment, but immunity from the burden of having
to defend the claim” at all. Ehre v. New York (In re Adirondack Ry. Corp.), 726 F.2d
60, 62 (2d Cir. 1984) (holding that decision to strike sovereign immunity was not
final order where state claimed immunity “to insulate it at most from a money
judgment and not from the burden of litigating the trustee’s claim” for
declaratory judgment). In such circumstances, “appeal from final judgment
cannot repair the damage that is caused by requiring the defendant to litigate.”
Rein v. Socialist People’s Libyan Arab Jamahiriya, 162 F.3d at 756. Indeed, striking a
claim of foreign sovereign immunity is the functional equivalent of denying such
an assertion on its merits, and Rein held that the latter decision constitutes an
appealable collateral order. See id.; cf. also Microsoft Corp. v. Baker, 137 S. Ct. 1702,
2017 WL 2507341, at *9 n.7 (June 12, 2017) (stating that “order striking class
allegations is ‘functionally equivalent’” to appealable order denying class
certification and thus is also appealable (alteration omitted)).
As for Cunningham’s concern with piecemeal litigation, see 527 U.S. at 209,
that is necessarily outweighed here by Congress’s decision to afford foreign
21
states immunity from the jurisdiction—not simply the judgments—of United
States courts subject to certain statutory exceptions not at issue on this appeal.
See 28 U.S.C. §§ 1330, 1604–1607. That conclusion is only reinforced by the
narrowness of our decision today, which pertains only to a sanction that actually
strikes a foreign sovereign immunity claim, not to lesser or distinct sanctions—
e.g., monetary or instructional—that may make it harder for a party that has
failed to provide ordered jurisdictional discovery to support its immunity claim.
Plaintiffs further argue that the collateral order doctrine affords appellate
jurisdiction to review adverse foreign sovereign immunity determinations only
where sovereignty is undisputed or favorably adjudicated, that is, where an
acknowledged sovereign is denied immunity under one of the statutory
exceptions. The argument, unsupported by any authority, does not persuade us
because this court has exercised appellate jurisdiction over interlocutory denials
of sovereign immunity based solely on a finding that a party is not an agency or
instrumentality of a foreign state under the FSIA. See Filler v. Hanvit Bank, 378
F.3d 213, 216–17 (2d Cir. 2004). Thus, we conclude that the collateral order
doctrine can apply when foreign sovereign immunity is conclusively denied to a
22
party who invokes it to avoid the burden of litigation; it is not limited to foreign
states denied immunity under an FSIA exception.
Finally, plaintiffs argue that only adverse immunity decisions turning
exclusively on issues of law are immediately appealable. See, e.g., Grune v.
Rodriguez, 176 F.3d 27, 32 (2d Cir. 1999) (holding that where appeal from denial
of summary judgment based on qualified immunity does not turn on purely
legal issue, but instead challenges district court’s determination that dispute of
material fact existed, appellate jurisdiction will not lie); United States v. Yonkers
Bd. of Educ., 893 F.2d 498, 502 (2d Cir. 1990) (collecting cases adopting
proposition that “[d]enials of motions to dismiss on grounds of immunity . . . are
not appealable . . . unless the immunity defense can be decided solely as a matter
of law”). The point merits little discussion because the issue presented on this
appeal is one of law, specifically, whether the district court, as a matter of law,
exceeded its discretion in striking defendants’ foreign sovereign immunity claim
as a discovery sanction. That issue is distinct from and does not require us to
decide whether defendants are actually entitled to immunity, a question that can
present disputes of fact.
23
Accordingly, because (1) striking defendants’ foreign sovereign immunity
claim effectively denied defendants such immunity, (2) that immunity issue is
distinct from the merits of plaintiffs’ underlying tort claims and important to the
case insofar as it informs the district court’s jurisdiction, and (3) the issue is
effectively unreviewable on appeal to the extent defendants will be forced to
engage in the very litigation that immunity allows a foreign sovereign to avoid,
we here conclude that we have jurisdiction under the collateral order doctrine to
review the Second Sanctions Order challenged on this appeal.
B. Second Sanctions Order
Rule 37 of the Federal Rules of Civil Procedure states that “[i]f a party . . .
fails to obey an order to provide or permit discovery, . . . the court where the
action is pending may issue further just orders,” including, inter alia, “directing
that the matters embraced in the order or other designated facts be taken as
established for purposes of the action, as the prevailing party claims,” and
“prohibiting the disobedient party from supporting or opposing designated
claims or defenses, or from introducing designated matters in evidence.” Fed. R.
24
Civ. P. 37(b)(2)(A)(i), (ii).3 We accord deferential review to a district court’s
imposition of Rule 37 discovery sanctions, and we will reverse only for abuse of
discretion, which we will not identify absent an error of law, a clearly erroneous
finding of fact, or a decision that cannot be located within the range of
3 In its entirety, Rule 37(b)(2)(A) reads as follows:
If a party or a party’s officer, director, or managing agent—or a
witness designated under Rule 30(b)(6) or 31(a)(4)—fails to obey an
order to provide or permit discovery, including an order under Rule
26(f), 35, or 37(a), the court where the action is pending may issue
further just orders. They may include the following:
(i) directing that the matters embraced in the order or
other designated facts be taken as established for
purposes of the action, as the prevailing party claims;
(ii) prohibiting the disobedient party from supporting or
opposing designated claims or defenses, or from
introducing designated matters in evidence;
(iii) striking pleadings in whole or in part;
(iv) staying further proceedings until the order is obeyed;
(v) dismissing the action or proceeding in whole or in part;
(vi) rendering a default judgment against the disobedient
party; or
(vii) treating as contempt of court the failure to obey any
order except an order to submit to a physical or mental
examination.
Fed. R. Civ. P. 37(b)(2)(C) adds that “[i]nstead of or in addition to the orders
above, the court must order the disobedient party, the attorney advising that
party, or both to pay the reasonable expenses, including attorney’s fees, caused
by the failure, unless the failure was substantially justified or other circumstances
make an award of expenses unjust.”
25
permissible options available to the district court. See Southern New England Tel.
Co. v. Global NAPs Inc., 624 F.3d 123, 143 (2d Cir. 2010); see also Chevron Corp. v.
Donziger, 833 F.3d 74, 147–48 (2d Cir. 2016).
In imposing Rule 37 sanctions, as well as in reviewing a sanctions order for
abuse of discretion, courts properly consider various factors, including “(1) the
willfulness of the non‐compliant party or the reason for noncompliance; (2) the
efficacy of lesser sanctions; (3) the duration of the period of noncompliance[;] and
(4) whether the non‐compliant party had been warned of the consequences of
noncompliance.” Southern New England Tel. Co. v. Global NAPs Inc., 624 F.3d at
144 (internal quotation marks omitted); see also id. (observing that factors are “not
exclusive”). In maintaining that the Second Sanctions Order manifests abuse of
discretion, defendants argue generally that no jurisdictional discovery and,
therefore, no sanctions were warranted because their submission of Belarusian
law established their entitlement to foreign sovereign immunity as a matter of
law. In any event, they argue that the sanction of striking their immunity claim
exceeded the district court’s discretion. We address each argument in turn.
26
1. The District Court Acted Within Its Discretion in Ordering
Jurisdictional Discovery
The Constitution extends federal judicial power to all cases “between a
State, or the Citizens thereof, and foreign states, Citizens or Subjects.” U.S.
Const. art. III, § 2, cl. 1. Congress, however, has conferred such original
jurisdiction on district courts to hear civil actions against foreign states only to
the extent “the foreign state is not entitled to immunity” under either the FSIA or
an international agreement. 28 U.S.C. § 1330(a). Because sovereign immunity
thus shields a foreign state from litigation, this court has cautioned that, “in the
FSIA context, discovery should be ordered circumspectly and only to verify
allegations of specific facts crucial to an immunity determination.” EM Ltd. v.
Republic of Argentina, 473 F.3d 463, 486 (2d Cir. 2007) (internal quotation marks
omitted); see First City, Texas‐Houston, N.A. v. Rafidain Bank, 150 F.3d 172, 176 (2d
Cir. 1998) (observing that comity concerns involved in ordering foreign
sovereign to produce discovery require “delicate balancing”). A district court is
“typically within its discretion” to order jurisdictional discovery where a plaintiff
has “made out a prima facie case for jurisdiction.” Frontera Res. Azer. Corp. v.
State Oil Co. of the Azer. Republic, 582 F.3d 393, 401 (2d Cir. 2009) (internal
quotation marks omitted). At the same time, however, in the FSIA context, a
27
defendant asserting sovereign immunity to defeat jurisdiction has the initial
burden to “present[] a prima facie case that it is a foreign sovereign.” Cargill Int’l
S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir. 1993).
The FSIA defines a “foreign state” to “include[] a political subdivision of a
foreign state or an agency or instrumentality of a foreign state.” 28 U.S.C.
§ 1603(a). An “agency or instrumentality” of a foreign state (1) is a “separate
legal person”; (2) which is an “organ” or “political subdivision” of a foreign state,
or a majority of whose shares or ownership interest is held by a foreign state or
political subdivision thereof; and (3) is neither a citizen of a state of the United
States nor created under the laws of a third country. Id. § 1603(b).
To carry its prima facie burden, defendants initially relied only on plaintiffs’
original complaint, which alleged defendants to be owned by and controlled by
the government of Belarus.4 Subsequently, they proffered the Gvozdev
Declaration and its attachments purportedly showing, among other things, that
(1) BNTK’s assets are the property of Belarus, (2) BNTK’s chairman is appointed
by the Belarusian government and the number of its employees and their salaries
are set by that government, (3) BNTK manages the Belarusian petrochemical
4 Plaintiffs’ amended complaint did not repeat this allegation.
28
industry and exclusively licenses trade in and sets prices for that country’s
petroleum products, and (4) BNTK provides regular reports of its activities to
Belarusian government agencies. Further, defendants pointed to a United States
Congressional Research Service report referring to BNTK as a state‐owned entity.
Defendants argue that these submissions did more than satisfy their prima facie
burden; they established their entitlement to sovereign immunity as a matter of
law.
In arguing otherwise, plaintiffs rely, as they did in the district court, on
their complaint’s assertion that they purchased an equity interest in BNTK from
defendants, see supra at [5]; the Fishkin Affidavit’s challenge to defendants’
representations of Belarusian law and BNTK’s status thereunder, see supra at [10–
11]; and on a declaration from a reporter named Viktor Lushin, asserting that, in
October 2006 interviews, BNTK executives told him that BNTK “was a
commercial company owned by private investors and not by the government of
Belarus,” and that media “mischaracteriz[ations]” of BNTK as “government
owned” had made it difficult “to solicit private investments,” A.S.A. 71.5
5 “A.S.A.” refers to the “Appellees’ Supplemental Appendix.”
29
On this record, we identify no abuse of discretion in the district court’s
decision to order limited jurisdictional discovery as to BNTK’s “ownership and
structure.” J.A. 323. While the Belarusian laws and related materials produced
by defendants, viewed most favorably to them, support the argument that BNTK
is an organ of, or an entity majority owned by, Belarus, plaintiffs provided
adequate contrary evidence, both in the form of expert opinion and admissions
attributed to defendants’ own agents, to give rise to a colorable factual dispute
on the “foreign state” issue. Further, the district court’s discovery order was
appropriately circumspect in limiting inquiry to the “specific facts” of ownership
and structure that are “crucial to an immunity determination” in this case. EM
Ltd. v. Republic of Argentina, 473 F.3d at 486 (internal quotation marks omitted);
see J.A. 322–23 (stating that plaintiffs are “not entitled to discovery regarding any
matter relevant to their claims” but only as to “threshold issue” of “whether
[BNTK] qualifies as an agency or instrumentality of a foreign state,” nor are
plaintiffs “yet entitled to discovery” as to whether “commercial activity
exception to sovereign immunity applies” (emphasis in original) (internal
quotation marks omitted)).
30
Defendants’ invocation of the act‐of‐state doctrine warrants no different
conclusion. That doctrine precludes the courts of one state from “question[ing]
the validity of public acts . . . performed by other sovereigns within their own
borders.” Republic of Austria v. Altmann, 541 U.S. 677, 700 (2004). As applied
here, that doctrine may bar plaintiffs from challenging the validity of the
proffered laws. It does not, however, preclude plaintiffs from disputing the
completeness of defendants’ legal proffer or the accuracy of their translations
and, on that basis, questioning whether the submitted provisions of Belarusian
law say what defendants maintain they say. Nor does the act‐of‐state doctrine
preclude inquiry into the still‐opaque operational and ownership structure of
BNTK to determine whether it is reasonably viewed as having two components,
at least one of which is a privately owned commercial entity.
With such material factual issues raised, but not answered, by the parties’
conflicting submissions, defendants cannot persuasively maintain that they
established sovereign immunity as a matter of law or that “[p]laintiffs’ discovery
requests do not relate to facts that would change the immunity determination.”
Appellants’ Br. 31. Thus, their argument that the district court exceeded its
discretion in ordering any jurisdictional discovery in this case fails on the merits.
31
2. The Sanctions Imposed
We now consider whether defendants’ failure to obey the district court’s
Second Discovery Order warranted sanctions, including the particular sanction
of striking defendants’ foreign sovereign immunity defense to subject‐matter
jurisdiction.
The district court issued the First Sanctions Order on August 13, 2015, after
defendants failed to meet the July 31, 2015 deadline for document discovery set
in the Second Discovery Order. The First Sanctions Order required defendants to
pay $2,000 to the Clerk of Court for every day they failed to provide the ordered
discovery, as well as $5,000 in litigation costs to plaintiffs. When defendants
persisted in resisting the Second Discovery Order as well as the monetary
sanction for an additional two months, the district court concluded that the
monetary sanction was ineffective and, on October 20, 2015, issued a Second
Sanctions Order halting accrual of the monetary sanction (though requiring
defendants to pay the amounts owing to date) and, instead, striking defendants’
foreign sovereign immunity defense.
We identify no abuse of discretion in the district court’s conclusion that
Rule 37 sanctions, in general, were warranted in this case. In imposing both its
32
First and Second Sanctions Orders, the district court specifically found that
defendants’ failure to comply with the Second Discovery Order was “willful.”
J.A. 342 (First Sanctions Order); id. at 359–60 (Second Sanctions Order).
Defendants do not challenge that factual finding, which is amply supported by
the record. Thus, the first factor identified in Southern New England Telephone Co.
v. Global NAPs Inc., 624 F.3d at 144, weighs strongly in favor of sanctions.
A second factor, the duration of defendants’ noncompliance, is more
equivocal as the duration was not inordinately long: slightly over a month in the
case of the First Sanctions Order and an additional two months in the case of the
Second Sanctions Order. Cf. id. at 128 (upholding default and contempt
sanctions where discovery battle had lasted more than two years). This does not,
however, mean that the factor necessarily weighs against sanctions. We have
never held that a district court, confronted with willful defiance of its discovery
orders, must wait any particular time before imposing a sanction. Rather, the
length of defiance can inform the propriety of a particular sanction. See, e.g.,
Agiwal v. Mid Island Mortg. Corp., 555 F.3d 298, 303 (2d Cir. 2009) (upholding
dismissal sanction where failure to produce ordered discovery persisted for six
months). Where, as here, the district court found that defendants willfully failed
33
to comply with a second discovery order for a month, it did not exceed its
discretion in then imposing a coercive monetary sanction in an effort to induce
compliance. Defendants themselves could have halted the sanction on any day
by complying with the court’s order.
Instead, defendants continued willfully to violate both the Second
Discovery Order and the First Sanctions Order for another two months. In these
circumstances, a total of three months of defiance was sufficient to allow the
district court to conclude that defendants “never intended to comply with . . .
any of the Court’s discovery orders,” J.A. 359; that a monetary sanction would
not induce compliance; and that a different sanction, one aimed at “put[ting]
plaintiffs in the same position they might have been in had defendants
complied” with the Second Discovery Order, was warranted, id. at 360; see Daval
Steel Prods. v. M/V Fakredine, 951 F.2d 1357, 1360–67 (2d Cir. 1991) (upholding
sanction deeming facts established and precluding introduction of defense
evidence where defendant’s conduct over roughly two weeks made clear that it
would not comply with court’s production order).
A third factor relevant to a sanctions decision is warning. See Southern
New England Tel. Co. v. Global NAPs Inc., 624 F.3d at 144. As this court has
34
recognized, “[d]ue process requires that courts provide notice and an
opportunity to be heard before imposing any kind of sanctions.” Reilly v.
NatWest Mkts. Grp. Inc., 181 F.3d 253, 270 (2d Cir. 1999) (emphasis in original)
(internal quotation marks omitted). In general, such notice should alert the party
to the “particular sanction” under consideration. SEC v. Razmilovic, 738 F.3d 14,
24 (2d Cir. 2013) (“No sanction should be imposed without giving the
disobedient party notice of the particular sanction sought and an opportunity to
be heard in opposition to its imposition.”). Nevertheless, we have excused the
lack of sanction‐specific notice in certain circumstances. See, e.g., Guggenheim
Capital, LLC v. Birnbaum, 722 F.3d 444, 452–53 (2d Cir. 2013) (upholding Rule
37(b) default‐judgment sanction against defendant who had received six sanction
warnings as well as copy of plaintiff’s order to show cause for default judgment,
although no sanctions warning specifically referenced default judgment).
In here affording defendants notice and an opportunity to be heard on
plaintiffs’ initial July 31, 2015 motion for sanctions, the district court warned of
three possible actions: “monetary sanctions, deeming issues admitted, or
precluding defendants from proving issues on which they are alleged to have
blocked discovery.” Order, Funk v. Belneftekhim, No. 14‐cv‐376 (BMC) (E.D.N.Y.
35
July 31, 2015). In its First Sanctions Order, imposing monetary sanctions, the
district court warned that “in the event defendants continue their noncompliance”
with discovery, still further sanctions were possible, “including”
not only the previously mentioned “orders of preclusion,” but also “denial of the
[defendants’] pending motion [to dismiss], or a default judgment” in favor of
plaintiffs. J.A. 343.
Neither of these orders specifically referenced striking defendants’ foreign
sovereign immunity defense to jurisdiction. But to the extent (1) defendants
had blocked discovery on the single issue of their status as a foreign state entitled
to sovereign immunity and (2) their pending motion to dismiss was based in part
on the purported lack of subject‐matter jurisdiction based on foreign sovereign
immunity, there was little practical difference—for purposes of notice—between,
on the one hand, warning defendants that (a) they could be precluded from
offering proof of their claimed foreign‐state status or (b) a motion dependent on
that status could be denied, and, on the other hand, warning them that the
foreign sovereign immunity basis for their motion could be struck. Thus, the
warning factor here satisfactorily supports the district court’s decision to impose
further sanctions.
36
That leaves us with a single question: Did the district court exceed its
discretion in imposing the particular sanctions identified in its Second Sanctions
Order? That question is akin, although not identical, to a fourth‐factor inquiry as
to the efficacy of lesser sanctions. See Southern New England Tel. Co. v. Global
NAPs Inc., 624 F.3d at 144.
To the extent the Second Sanctions Order required defendants to pay the
monetary sanctions that had accumulated under the First Sanctions Order as
well as a litigation‐expense sanction imposed by that order, we conclude that the
district court acted well within its discretion. As neither of these sanctions had
induced plaintiffs’ compliance with ordered discovery, there is no reason to
think any lesser sanction would have been more effective. More to the point,
defendants were not entitled to be absolved of monetary sanctions willfully
incurred under the First Sanctions Order during the two months they persisted
in defying the Second Discovery Order. Accordingly, we affirm that part of the
Second Sanctions Order requiring defendants to pay their monetary obligations
under the First Sanctions Order.
We cannot reach the same conclusion with respect to that part of the
Second Sanctions Order striking defendants’ foreign sovereign immunity defense
37
to jurisdiction. In World Wide Polymers, Inc. v. Shinkong Synthetic Fibers Corp., 694
F.3d 155 (2d Cir. 2012), this court held that a sanction striking a claim for
damages based on a plaintiff’s late filing of expert disclosures, despite numerous
extensions, constituted an abuse of discretion requiring vacatur, see id. at 156–57.
We explained that “striking [plaintiff’s] request for damages reflects a harsh
sanction, one akin to dismissing the action altogether,” so that “we apply the
same standards as we would have if the district court dismissed the case
instead.” Id. at 159. That standard permits such a harsh sanction “only in
extreme circumstances” and “after consideration of alternative, less drastic
sanctions.” Id. (internal quotation marks omitted).
The sanction imposed on defendants here is not exactly akin to the
dismissal of a plaintiff’s complaint. Still, the harshness of the sanction is
comparable in that it effectively denied defendants a jurisdictional defense that
could have allowed them to avoid litigating plaintiffs’ case in its entirety.
Indeed, the sanction here is more troubling insofar as striking a jurisdictional
challenge, rather than rejecting it on the merits, risks a district court’s exercise of
jurisdiction where none may exist. Such a sanction exceeds a district court’s
discretion to issue “just orders.” Fed. R. Civ. P. 37(b)(2)(A).
38
As this court has recognized, “sovereign immunity (or, more precisely, the
absence of sovereign immunity) is an element of subject matter jurisdiction
under the FSIA.” Rein v. Socialist People’s Libyan Arab Jamahiriya, 162 F.3d at 763;
see also id. (reiterating that foreign sovereign immunity is “matter of direct
jurisdictional moment” and not simply “affirmative defense to suits under the
FSIA”). Rein reached this conclusion without regard to the fact that the
sovereign immunity jurisdictional limitation derives from statute rather than the
Constitution. See generally Texas Trading & Milling Corp. v. Federal Republic of
Nigeria, 647 F.2d 300, 313 (2d Cir. 1981) (locating “constitutional basis for the
statutory exercise of subject matter jurisdiction” under FSIA in suit brought by
U.S. plaintiff in U.S. Const. art. III, § 2, cl. 1, which grants federal courts diversity
jurisdiction over suits between state, or citizens thereof, and foreign states).
Federal courts are not empowered to confer subject‐matter jurisdiction on
themselves. See Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552
(2005) (“The district courts of the United States, as we have said many times, are
courts of limited jurisdiction. They possess only that power authorized by
Constitution and statute.” (internal quotation marks omitted)); see generally Steel
Co. v. Citizens for a Better Env’t, 523 U.S. 83, 101 (1998) (observing with reference
39
to both statutory and constitutional elements of jurisdiction that for court to
render decision in absence of jurisdiction “is, by very definition, for a court to act
ultra vires”); Lyndonville Sav. Bank & Tr. Co. v. Lussier, 211 F.3d 697, 700 (2d Cir.
2000) (“It is axiomatic that federal courts are courts of limited jurisdiction and
may not decide cases over which they lack subject matter jurisdiction.”). Thus, in
Hernandez v. Conriv Realty Assocs., 182 F.3d 121 (2d Cir. 1999), this court held that,
in the absence of subject‐matter jurisdiction, a district court did not have the
power to sanction a party’s failure to comply with discovery and other
procedural orders by dismissing its complaint with prejudice, see id. at 124.
Hernandez reached this conclusion against the background of an express
ruling that Article III rather than statutory subject‐matter jurisdiction was there
lacking. See id. at 123; Hernandez v. Conriv Realty Assocs., 116 F.3d 35, 38–40 (2d
Cir. 1997) (identifying lack of both diversity and federal question jurisdiction in
earlier appeal in same case). Here, the disputed question of subject‐matter
jurisdiction arises under the FSIA, and the district court issued no merits ruling.
Rather, by striking defendants’ foreign sovereign immunity claim as a discovery
sanction, the court mooted that jurisdictional challenge. Insofar as defendants
were thus denied FSIA immunity, based not on a merits finding that they failed
40
to come within its scope, but as a discovery sanction, a concern arises that the
district court may have conferred subject‐matter jurisdiction on itself where it
may have been lacking. See Rein v. Socialist People’s Libyan Arab Jamahiriya, 162
F.3d at 763 (observing that “power to abrogate (or confer) sovereign immunity is,
under the FSIA, therefore the power to confer (or abrogate) jurisdiction”). This
exceeds a district court’s sanctioning discretion, particularly where alternatives
are available.6
Among those alternatives are (1) according an evidentiary presumption
against defendants that withheld discovery would refute their claim that BNTK
is an organ or instrumentality of Belarus, and (2) prohibiting defendants from
offering further supporting evidence on that issue. See Fed. R. Civ. P.
6 In this case, we do not deal with an exercise of “hypothetical jurisdiction,”
where distinctions between statutory and constitutional jurisdiction have been
recognized. See In re Arbitration Between Monegasque De Reassurances S.A.M. v.
Nak Naftogaz of Ukraine, 311 F.3d 488, 497 (2d Cir. 2002) (holding that bar on
exercise of “hypothetical jurisdiction” applies where possible lack of jurisdiction
poses “constitutional question” (internal quotation marks omitted)). Even in the
statutory context, we have assumed hypothetical jurisdiction only to dismiss a
clearly meritless claim, not to allow it to go forward as the challenged striking
sanction would do here. See, e.g., Guaylupo‐Moya v. Gonzales, 423 F.3d 121, 132
n.10 (2d Cir. 2005); Center for Reprod. Law & Policy v. Bush, 304 F.3d 183, 195 (2d
Cir. 2002); see also Ortiz‐Franco v. Holder, 782 F.3d 81, 86 (2d Cir. 2015) (stating that
hypothetical jurisdiction is “prohibited in all but the narrowest circumstances”).
41
37(b)(2)(A)(i), (ii). Such sanctions would have served the district court’s proper
objective to restore plaintiffs “insofar as possible” to the position they would
have been in absent defendants’ discovery defiance. J.A. 359 (internal quotation
marks omitted). For example, defendants’ failure to provide discovery as to
BNTK’s structure and ownership could support a presumption that the withheld
evidence would have confirmed the Fishkin Affidavit’s representation that
BNTK has two components, one of which operates as a privately owned
commercial enterprise. That failure would further support precluding
defendants from offering structure and ownership evidence to the contrary.7
On such a record, defendants’ foreign sovereign immunity claim might
well fail. Thus, the practical difference between an evidentiary sanction and one
striking defendants’ foreign sovereign immunity claim may appear small. Not
so, however, their jurisdictional effect. Evidentiary sanctions could shape, even
limit, the factual record. But the district court would still have to make a merits
ruling from that record on defendants’ foreign sovereign immunity claim. In
short, it would have to decide its jurisdiction, not assume it. Courts routinely
7 These examples are intended to be illustrative, not exhaustive, of the available
evidentiary sanctions.
42
decide issues based on limited records when parties—for whatever reason—are
unable to locate or produce all the evidence relevant to a point in dispute. By
contrast, a discovery sanction that strikes an FSIA claim without regard to its
merits risks a court’s assumption of jurisdiction that might be lacking.
Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S.
694 (1982), requires no different conclusion. There, the Supreme Court upheld a
discovery sanction that deemed established jurisdictional facts relating to
personal jurisdiction. See id. at 705–06. The Court observed that the personal
jurisdiction requirement affords an individual right, which can be waived. See id.
at 702–04. At the same time, the Court cautioned that a similar conclusion might
not apply to facts establishing subject‐matter jurisdiction. See id. at 701–02. The
Court’s focus, however, was on Article III, which “functions as a restriction on
federal power, and contributes to the characterization of the federal sovereign.”
Id. at 702. As earlier noted, there is no question that Article III jurisdiction
extends to actions against foreign states. See U.S. Const. art. III, § 2, cl. 1;
Verlinden B.V. v. Cent. Bank of Nigeria, 461 U.S. 480, 493–94 (1983). Such foreign
sovereign immunity limitations as are imposed on the exercise of such
jurisdiction are created by statute and, by statute, can be waived “either
43
explicitly or by implication.” 28 U.S.C. § 1605(a)(1). Thus, we do not understand
Insurance Corp. of Ireland to limit a district court’s discretion in imposing
evidentiary sanctions on defendants here for failing to produce ordered discovery
relevant to their FSIA challenge to jurisdiction.8
In sum, because the sanction striking defendants’ FSIA claim raises
concerns about judicial assumption of jurisdiction, which can be avoided with
lesser efficacious sanctions shaping the evidentiary record, we conclude that
imposition of the striking sanction here exceeded the district court’s Rule 37(b)
8 In light of the availability of these evidentiary sanctions, we do not here decide
whether a case could ever arise in which persistent discovery violations could be
found to manifest a waiver of foreign sovereign immunity sufficient to support a
court’s striking the FSIA challenge to jurisdiction even over the asserting party’s
objection. See generally Cabiri v. Gov’t of Malaysia, 165 F.3d 193, 201 (2d Cir. 1999)
(observing that waiver of foreign sovereign immunity will usually be implied
only where state’s intent to waive is unambiguous).
Insofar as plaintiffs urged us at oral argument to interpret the district court’s
striking of defendants’ FSIA claim as the equivalent of it accepting plaintiffs’
opposing facts as established and, therefore, of it resolving the immunity claim
against defendants on the merits, we are not convinced the Second Sanctions
Order reasonably admits such a reading. If that was the district court’s intent,
however, it can certainly clarify the point on remand. Alternatively, it can
consider anew the possibility of evidentiary sanctions and an FSIA ruling based
on a record shaped by such sanctions.
44
discretion. We therefore vacate the Second Sanctions Order only insofar as it
strikes defendants’ foreign sovereign immunity challenge to jurisdiction.
C. Remand Challenge
Defendants argue that the identification of sanction error in this case does
not warrant remand because this court can decide that, as a matter of law,
defendants established their foreign sovereign immunity claim. We decline this
invitation because, like the district court, we think that the record on appeal
reveals material factual disputes as to both the organ and ownership prongs of
the foreign state definition in 28 U.S.C. § 1603(b)(2). Moreover, on remand, these
issues may be recast if the district court imposes evidentiary sanctions for
defendants’ discovery violations, or obviated by discovery and findings as to
whether defendants fall within any of the FSIA’s statutory exceptions to
sovereign immunity. See generally Robinson v. Gov’t of Malaysia, 269 F.3d 133, 141
(2d Cir. 2001) (holding that, in assessing FSIA jurisdiction, district court should
“review the allegations in the complaint, the undisputed facts, if any, placed
before it by the parties, and—if the plaintiff comes forward with sufficient
evidence to carry its burden of production on this issue—resolve disputed issues
of fact, with the defendant foreign sovereign shouldering the burden of
45
persuasion”). The district court can decide in the first instance whether to
consider additional documents submitted by BNTK after the filing of this appeal.
Accordingly, we remand the case for further proceedings consistent with
this opinion.
III. Conclusion
To summarize, we conclude as follows:
1. Pursuant to the collateral order doctrine, we have appellate
jurisdiction to review the Second Sanctions Order striking defendants’ foreign
sovereign immunity claim because it conclusively determines an important
question separate from the merits, which is effectively unreviewable on appeal
from final judgment. See Coopers & Lybrand v. Livesay, 437 U.S. at 468.
2. Because the parties’ submissions present disputes of material fact as
to BNTK’s foreign sovereign immunity claim, the district court acted within its
discretion in ordering jurisdictional discovery.
3. Having reasonably found defendants to have willfully failed to
produce ordered discovery and having adequately warned defendants of the
serious sanctions that could result from their persisting in that failure, the district
court acted within its discretion under Fed. R. Civ. P. 37(b) in ordering daily
46
monetary sanctions and litigation costs in an initial effort to induce discovery
compliance and, when that failed, in requiring defendants to pay the
accumulated monetary sanctions in its Second Sanctions Order.
4. Defendants’ continued discovery violations despite monetary
sanctions supported the district court’s conclusion that more severe sanctions
were warranted. The chosen sanction striking defendants’ FSIA challenge to
jurisdiction, without regard to its merits, however, exceeded the court’s Rule
37(b) discretion because it raised concerns about the court’s assumption of
jurisdiction that may, in fact, have been lacking. Those concerns could have been
avoided by lesser efficacious sanctions shaping the evidentiary record in advance
of a merits decision on the foreign sovereign immunity claim.

Outcome: Accordingly, the Second Sanctions Order is AFFIRMED in part and
VACATED in part, and the case is REMANDED for further proceedings
consistent with this opinion.

Plaintiff's Experts:

Defendant's Experts:

Comments: