773 F.

2d 31

CITY OF ENGLEWOOD
v.
SOCIALIST PEOPLE'S LIBYAN ARAB JAMAHIRIYA,
Appellant.
No. 84-5746.

United States Court of Appeals,

Third Circuit.
Argued June 19, 1985.
Decided Sept. 20, 1985.
Rehearing and Rehearing En Banc Denied Nov. 19, 1985.

McCarter & English, Newark, N.J., for appellant; William T. Reilly,

Newark, N.J., of counsel; Keith E. Lynott, Newark, N.J., on brief; Curtis,
Mallet-Prevost, Colt & Mosle, Joseph D. Pizzurro (argued), Robert W.
Thabit, New York City, of counsel.
Rupp & Ten Hoeve, Hackensack, N.J., for appellee; John E. Ten Hoeve,
Jr., William F. Rupp (argued), Hackensack, N.J., on brief.
Before ALDISERT, Chief Judge, GIBBONS, Circuit Judge and
BECHTLE, District Judge* .
OPINION OF THE COURT
GIBBONS, Circuit Judge:

This case, removed from the New Jersey Tax Court pursuant to 28 U.S.C. Sec.
1441(d) (1982), is before us on an appeal authorized by 28 U.S.C. Sec. 1292(b)
(1982) from the order of the district court denying the motion of Socialist
People's Libyan Arab Jamahiriya (Libya) to dismiss for want of subject matter
or personal jurisdiction.1 The dispute giving rise to the New Jersey Tax Court
litigation arises out of efforts of the City of Englewood, New Jersey, to tax a
parcel of improved real estate purchased by Libya as a residence for its Head of
Mission to the United Nations. Libya's application for exemption, based on its
status as a foreign sovereign, was denied by Englewood. Proceedings in the tax

court followed. After removal, Libya, relying inter alia on the Foreign
Sovereign Immunities Act of 1976, Pub.L. No. 94-583, 90 Stat. 2892, codified
at 28 U.S.C. Secs. 1330, 1332, 1341, 1441, 1602 et seq., moved to dismiss. The
district court denied that motion, but authorized a Sec. 1292(b) appeal. We
reverse.
I.
2

On November 29, 1982, Libya purchased a large residence on 4.76 acres of

land in Englewood, New Jersey. The following day it applied to Englewood for
recognition of its tax exempt status. While that application was pending, Libya
notified the United States' Mission to the United Nations that it had acquired
the Englewood property as "a country residence for occasional use" by the
Head of its United Nations Mission. On January 19, 1983, the United States
Mission notified all other United Nations missions that, pursuant to a
determination by the Secretary of State, the Foreign Missions Act, 22 U.S.C.
Sec. 4301 et seq. (1982 & Supp. I 1983) was applicable to acquisitions of real
property by all foreign missions. That Act authorizes the Secretary of State to
require all missions to notify the Director of the State Department's Office of
Foreign Missions before any acquisition or sale of real property by the mission.
22 U.S.C. Sec. 4305 (1982). The January 19, 1983 letter was followed by an
exchange of correspondence between Libya and the Office of Foreign Missions
which, on June 10, 1983, culminated in the Secretary of State's imposing rather
severe limitations on Libya's use of the premises. Further use limitations were
imposed by the Secretary on December 22, 1983. Libya contests the validity of
these limitations, but the parties before us agree that they prevent use of the
property as anything but a "weekend retreat" by Libya's Head of Mission, his
immediate family, and his guests.

Meanwhile, on January 4, 1983, Englewood denied Libya's application for

recognition of tax exempt status. After several unsuccessful attempts to have
the Englewood tax assessor reconsider his position, Libya sought to have the
Bergen County Board of Taxation administratively overrule the Englewood
assessor. The County agency sought guidance from the New Jersey Attorney
General, who expressed the opinion that the property did not qualify for tax
exemption under governing treaties because the residence was acquired only
for "occasional use." In response to a letter to the Attorney General requesting
"reconsideration," that office informed Libya that its opinion was only
advisory, and that the matter should be pursued with the County Board of
Taxation.

In August, Englewood petitioned the County Board to increase the assessment

on the residence, and on August 15, 1983, Libya filed an appeal to that Board
contesting any assessment. On November 9, 1983, the County Board of
Taxation affirmed the original assessment, denying Libya's appeal of the denial
of tax-exempt status, and Englewood's petition to increase the assessment.
Englewood then filed a complaint in the New Jersey Tax Court contesting the
County Board of Taxation's refusal to increase the assessment. This complaint
was mailed to Robert W. Thabit, Esq., an attorney who had been representing
Libya in its efforts to have its tax-exempt status recognized. On January 13,
1984 Libya filed a removal petition.2
5

Libya moved to dismiss for lack of personal and subject matter jurisdiction,
insufficiency of process and service, and failure to state a claim. While that
motion was pending, counsel for Englewood obtained a letter from the Office
of Foreign Missions setting forth the use restrictions which that office had
placed on the property, and opining that there were no considerations of foreign
policy suggesting the need for recognition of tax-exempt status. This letter was
brought to the court's attention.

The district court denied Libya's motion to dismiss, rejecting Libya's contention
that Englewood's failure to serve the tax court complaint in the manner
specified in the Foreign Sovereign Immunities Act, 28 U.S.C. Sec. 1608
(1982), deprived the tax court of personal jurisdiction. It also rejected Libya's
contention that the Foreign Sovereign Immunities Act, and the Vienna
Convention on Diplomatic Relations and Optional Protocols deprived the tax
court and the district court of subject matter jurisdiction. The court reasoned
that the New Jersey Tax Court could exercise jurisdiction over Libya under the
Foreign Sovereign Immunities Act because 28 U.S.C. Sec. 1605(a)(4) (1982)
provides that a foreign state shall not be immune from suit in a case "in which
rights in property in the United States acquired by succession or gift or rights in
immovable property situated in the United States are in issue...."

The Vienna Convention was held to be inapplicable because the Englewood

premises were not "premises of the mission" within the meaning of the treaty
article which shields such premises from taxation. 23 U.S.T. 3227, T.I.A.S. No.
7502, Art. 23, Sec. 1. Recognizing, however, that New Jersey law makes no
provision for in personam enforcement of liability for real estate taxation, the
court turned to the more practical consideration of whether Englewood could
execute against the property in an in rem foreclosure of the claimed lien of its
tax assessment. Generally, property in the United States owned by a foreign
state is immune from attachment and execution. 28 U.S.C. Sec. 1609 (1982).
The court interpreted 28 U.S.C. Sec. 1610(a)(4)(B) (1982) to provide an
exception from this immunity because the Englewood property was used for a

"commercial activity" and was not used as "the residence of the Chief of such
Mission...."
II.
8

Historically, foreign nations enjoyed absolute immunity from both suit and
execution. The Schooner Exchange v. McFaddon, 11 U.S. (7 Cranch) 116, 3
L.Ed. 287 (1812). In 1952, in the "Tate Letter," 26 Dept.Stat.Bull. 984 (1952),
the State Department adopted a restrictive theory of foreign sovereign
immunity under which "the immunity of the sovereign is recognized with
regard to sovereign or public acts (jure imperii) of a state, but not with respect
to private acts (juri gestionis )." Id. Both before and after the adoption by the
State Department of the restrictive theory of sovereign immunity, the State
Department played a critical role in the determination of immune status. Acting
in a quasi-judicial capacity, the State Department would, if it decided that a
claim of sovereign immunity should be recognized, request the Attorney
General to file a suggestion of immunity in the court in which the action was
pending. These suggestions were binding on the courts. Republic of Mexico v.
Hoffman, 324 U.S. 30, 34-35, 65 S.Ct. 530, 532-33, 89 L.Ed. 729 (1945).

In 1976, Congress codified the law of foreign sovereign immunity with the
enactment of the Foreign Sovereign Immunities Act. The statute adopted the
restrictive theory of sovereign immunity embodied in the Tate Letter. It also
transferred the responsibility for making the determination of immunity from
the State Department to the courts. As the House Report on the law explains:

10principal purpose of this bill is to transfer the determination of sovereign

A
immunity from the executive branch to the judicial branch, thereby reducing the
foreign policy implications of immunity determinations and assuring litigants that
these often crucial decisions are made on purely legal grounds and under procedures
that insure due process. The Department of State would be freed from pressures
from foreign governments to recognize their immunity from suit and from any
adverse consequences resulting from an unwillingness of the Department to support
that immunity.
11

H.R.Rep. 1487, 94th Cong., 2d Sess. 7 (1976), reprinted in 1976 U.S.Code

Cong. & Ad.News 6604, 6606. The Act also was intended to "provide a
statutory procedure for making service upon, and obtaining in personam
jurisdiction over, a foreign state." H.R.Rep. No. 1487, 94th Cong., 2d Sess. 8
(1976), reprinted in 1976 U.S.Code Cong. & Ad.News 6604, 6606. The service
provisions are directed at eliminating the former practice of attempting to seize
the property of foreign states in an effort to compel their appearance. Moreover

the Act brings the law of execution more closely in line with the restrictive
theory of sovereign immunity, by permitting execution upon commercial assets.
The House Report notes:
12
Under
existing law, a foreign state in our courts enjoys absolute immunity from
execution, even in ordinary commercial litigation where commercial assets are
available for the satisfaction of a judgment. [The Act] seeks to restrict this broad
immunity from execution. It would conform the execution immunity rules more
closely to the jurisdiction immunity rules. It would provide the judgment creditor
some remedy if, after a reasonable period, a foreign state or its enterprise failed to
satisfy a final judgment.
13

Id. Finally, the Act is totally preemptive. 28 U.S.C. Sec. 1602 (1982). As the
House Report states, the Act

14 forth the sole and exclusive standards to be used in resolving questions of

sets
sovereign immunity raised by foreign states before Federal and State courts in the
United States. It is intended to preempt any other State or Federal law (excluding
applicable international agreements) for according immunity to foreign sovereigns,
their political subdivisions, their agencies, and their instrumentalities.
15

H.R.Rep. No. 1487, 94th Cong., 2d Sess. 12 (1976), reprinted in 1976

U.S.Code Cong. & Ad.News 6604, 6610. The Supreme Court and this court
have so held. Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 103
S.Ct. 1962, 76 L.Ed.2d 81 (1983); Rex v. Compania Pervana de Vapores, S.A.,
660 F.2d 61 (3d Cir.1981), cert. denied, 456 U.S. 926, 102 S.Ct. 1971, 72
L.Ed.2d 441 (1982).
The basic rule in the Act is that

16

Subject to existing international agreements to which the United States is a

party at the time of enactment of this Act a foreign state shall be immune from
the jurisdiction of the courts of the United States and of the States except as
provided in sections 1605 to 1607 of this chapter.

17

28 U.S.C. Sec. 1604 (1982). Thus, unless a statutory exception applies, no court
may exercise personal jurisdiction over a foreign state. Moreover with respect
to execution on the property of foreign states the Act contains a parallel
provision:

18

Subject to existing international agreements to which the United States is a

party at the time of enactment of this Act the property in the United States of a
foreign state shall be immune from attachment, arrest, and execution except as
provided in sections 1610 and 1611 of this chapter.
19

28 U.S.C. Sec. 1609 (1982). The Act contains substantially parallel exceptions
to the general rule of immunity from personal jurisdiction and immunity from
execution. Among the exceptions to immunity from personal jurisdiction, the
only ones even arguably relevant are:

20

A foreign state shall not be immune from the jurisdiction of courts of the
United States or of the States in any case--

***
21
22 in which the action is based upon a commercial activity carried on in the United
(2)
States ...
***
23
24 in which rights in property in the United States acquired by succession or gift or
(4)
rights in immovable property situated in the United States are in issue....
25

28 U.S.C. Sec. 1605(a)(2) and (4) (1981). The arguably relevant exemptions to
the section 1609 immunity from execution provide:

26

The property in the United States of a foreign state, as defined in section

1603(a) of this chapter, used for a commercial activity in the United States,
shall not be immune from attachment in aid of execution, or from execution,
upon a judgment entered by a court of the United States or of a State ... if--

***
27
28

(2) the property is or was used for the commercial activity upon which the
claim is based, or

***
29
30

(4) the execution relates to a judgment establishing rights in property--

***
31
(B) which is immovable and situated in the United States: Provided, That such
32

property is not used for purposes of maintaining a diplomatic or consular mission or

the residence of the Chief of such mission....
33

28 U.S.C. Sec. 1610(a)(2) and (4) (1982).

34

The exceptions to the immunity from execution are not precisely equivalent to
the exceptions to immunity from adjudication. The latter permits adjudication
of actions based upon commercial activity in the United States and of disputes
over title to property without regard to commercial activity. Section 1610(a),
however, permits execution on property of a foreign state only if it is used for
commercial activity in the United States, and then only in the instances listed in
that subsection. The term commercial activity, common to both the
jurisdictional and the execution exceptions, is defined as:

35
either
a regular course of commercial conduct or a particular commercial transaction
or act. The commercial character of an activity shall be determined by reference to
the nature of the course of conduct or particular transaction or act, rather than by
reference to its purpose.
36

28 U.S.C. Sec. 1603(d) (1982).

37

Under this statutory scheme, the New Jersey Tax Court is barred by section
1604 from exercising jurisdiction over Libya, and the City of Englewood is
prohibited by section 1609 from foreclosing any claimed tax lien by execution.
The exceptions to sections 1604 and 1609 relied upon by the district court are
inapplicable.

38

Turning first to the title dispute exception in section 1605(a)(4), we note that
the House Report states:

39
Actions
short of attachment or execution seem to be permitted under the [Vienna]
Convention, and a foreign state cannot deny to the local state the right to adjudicate
questions of ownership, rent, servitudes, and similar matters, as long as the foreign
state's possession of the premises is not disturbed.
40

H.R.Rep. No. 1487, 94th Cong., 2d Sess. 20, reprinted in 1976 U.S.Code Cong.
& Ad.News 6604, 6619. The House Report and the plain language of section
1605(a)(4) suggest that this exception deals with the recognized principle of
international law that a sovereign may resolve disputes over title to real estate
within its geographic limits. Thus this section, "like the traditional real property
exception it was intended to codify, is limited to disputes directly implicating

property interests or rights to possession...." Asociacion de Reclamantes v.

United Mexican States, 735 F.2d 1517, 1522 (D.C.Cir.1984), cert. denied, --U.S. ----, 105 S.Ct. 1751, 84 L.Ed.2d 815 (1985). No one disputes Libya's title
to the Englewood premises or its right to exclude others from possession
thereof. Thus section 1605(a)(4) does not apply.
41

The case for an exception, either to section 1604 or to section 1609 turns,
therefore, on whether, by acquiring and holding title to the Englewood
premises, Libya was engaging in a "commercial activity." The district court
reasoned that the commercial activity exception applied because the property
was acquired by Libya in a commercial transaction between a seller and a
buyer. That reasoning is directly in conflict with the decision of the Court of
Appeals for the Fourth Circuit in United States v. County of Arlington, 669
F.2d 925 (4th Cir.), cert. denied, 459 U.S. 801, 103 S.Ct. 23, 74 L.Ed.2d 39
(1982). In the Arlington case the court held that acquisition of property was
commercial activity for purposes of section 1604 only if the dispute centered
around the acquisition of the property. Id. at 934. A separate inquiry into
whether the property is used in "a regular course of commercial conduct" is
required when, as here, the dispute does not arise from the acquisition of the
property.

42

The interpretation of the Arlington court is consistent with the disjunctive

definition of commercial activity as "either a regular course of commercial
conduct or a particular commercial transaction or act." 28 U.S.C. Sec. 1603(d)
(1982). If acquisition of property in a particular commercial transaction or act
indelibly stamped the property as used for commercial activity, even foreign
embassies and chancelleries would be subject to execution. Plainly Congress
did not intend a result so inconsistent with recognized principles of international
law. Thus we reject the district court's reasoning that the commercial nature of
the acquisition of the Englewood premises determines its liability to execution
for unpaid real estate taxes. The determinative issue is whether it is currently
being used in a "regular course of commercial conduct."

43

The only purpose Libya has in holding the property, so far as this record
discloses, is for use by the Chief of its Mission to the United Nations. That is
activity directly related to the purposes of the mission, and as a matter of law
such use is not commercial activity. The record discloses no activity conducted
for profit at the Englewood residence; there is no evidence to suggest that it is
used in "a regular course of commercial conduct...."

44

Because the Englewood residence is not used for a commercial activity, and
because the dispute does not center on the acquisition of the property, neither

the section 1605 exception to immunity from personal jurisdiction, nor the
section 1610 exception to immunity from execution apply. Hence, we need not
determine the applicability of the proviso to section 1610(a)(4)(B) protecting
from execution "the residence of the Chief of [a] mission." The district court
held that this proviso protected only the "principal" residence of the Chief, and
emphasized that the restrictions imposed by the Office of Foreign Missions
forbade such use by the Chief. The proviso at issue limits the exception in
section 1610(a)(4) which allows execution on property "used for a commercial
activity" when "the execution relates to a judgment establishing rights in
property ... which is immovable and situated in the United States...." 28 U.S.C.
Sec. 1610(a)(4)(B) (1982). This exception pertains to disputes over "a particular
commercial transaction," 28 U.S.C. Sec. 1603(d) (1982), involving immovable
property. As noted above, this is not a dispute over title to the premises, so
section 1610(a)(4)(B) does not apply. Thus we need not determine whether the
district court correctly held that the proviso is limited to the "principal"
residence of the Chief of Mission.
III.
45

Since none of the exceptions to sections 1604 and 1609 apply, the district court
erred in denying Libya's motion to dismiss the complaint for lack of subject
matter jurisdiction. This conclusion means that the lawsuit must terminate.
Libya also contends that it was not served in the manner specified in section
1608. Defects in the method of service could, of course, be cured, and thus a
resolution of the dispute over method of service might be useful if the case
could otherwise go forward. Since, however, it is barred by the general
prohibitions in sections 1604 and 1609, no useful purpose would be served by
deciding whether, as the district court held, the receipt of actual notice of the
suit cures any defect in method of service. The order appealed from will be
reversed and the case remanded with a direction to grant Libya's motion to
dismiss for lack of subject matter jurisdiction.

Hon. Louis C. Bechtle, United States District Judge for the Eastern District of
Pennsylvania, sitting by designation

The district court also ordered that the case be remanded to the tax court. That
order was stayed pending appeal

Englewood moved for remand on the ground that the removal petition was
untimely. The district court denied that motion