Case of the Day: Semtek International v. Information Satellite Systems

The case of the day is Semtek Interntional, Inc. v. Information Satellite Systems (D. Mass. 2012). Semtek had a contract with Merkuriy Ltd., a Russian company in the business of commercializing satellite capacity. Semtek sued Merkuriy and Pyotr Sivirin, Merkuriy’s executive director, claiming that Merkuriy and Sirivin breached the contract, which gave Semtek the right to market certain satellites commercially. The court entered a default judgment for more than $381 million, which Semtek tried unsuccessfully to collect for more than ten years.

In 2009, Semtek sued Information Satellite Systems, a company owned by the Russian Federation, alleging that it was Merkuriy’s successor in interest and liable for Merkuriy’s debts. ISS did not appear in the case, and the judge entered a default judgment in August 2010. In June 2011, ISS appeared and moved to vacate the judgment on the grounds that it was void, as the court had no jurisdiction under the Foreign Sovereign Immunities Act, on grounds of insufficient service of process, and on the grounds that the interests of justice required it.

By way of background, under Rule 60 of the Federal Rules of Civil Procedure, a court may grant relief from a final order if the judgment is void, or “for any other reason that justifies relief.” The court must grant relief if the judgment is void, but otherwise, it has discretion. A judgment is void if the court lacked either subject-matter jurisdiction or personal jurisdiction.

There was no question that ISS was an instrumentality of the Russian state. Therefore, the question of subject-matter jurisdiction was whether the case was within one of the exceptions to the usual rule of foreign sovereign immunity, in particular the commercial activity exception. The judge held that ISS had not met its burden to show that it was immune from jurisdiction, because there was a sharp factual dispute about whether ISS had assumed Merkuriy’s liabilities. (Note, by the way, that the burden of persuasion was on ISS, whereas the burden of proof to establish the court’s jurisdiction would have been on Semtek before judgment).

On service of process, Semtek had sought and received leave to serve the summons and complaint under 28 U.S.C. § 1608(b)(3)(B), which provides for service on an instrumentality of a foreign sovereign “by delivery of a copy of the summons and complaint, together with a translation of each into the official language of the foreign state … by any form of mail requiring a signed receipt, to be addressed and dispatched by the clerk of the court to the agency or instrumentality to be served,” if that mode of service is “reasonably calculated to give actual notice.” Why did Semtek not seek to make use of the methods in § 1608(b)(1) or (2)? It asserted that there was no agreement for another method of service; it asserted that Russia refused to comply with the Hague Service Convention in cases originating in the United States; and it offered evidence showing that Merkuriy had not appointed an agent for service of process in the United States. (Question: should Semtek have been required at least to attempt service via the Convention, or was the futility so clear that Semtek was right not even to try? The Chabad case we considered on July 29, 2011, suggests that Semtek was on solid ground).

After its motion was granted, Semtek provided the clerk the papers to be served and requested that they be sent, but the clerk “returned the package to plaintiff’s counsel for onward mailing,” even though as we have seen, the rule requires the papers to be “addressed and dispatched by the clerk.” Merkuriy jumped on the technical failure and also argued that the service was not reasonably calculated to give actual notice, because there was no evidence of “the identity of the person signing for the package, or any indication that the summons itself was signed.”

Judge Zobel rejected both arguments. As to actual notice, she noted that Semtek and Merkuriy had previously corresponded at the address to which Semtek sent the papers. Post facto questions about who signed for the package were irrelevant to whether, at the time Semtek sent the papers, the method of service was “reasonably calculated” to give actual notice.

As to the fact that the plaintiff rather than the clerk dispatched the papers, the judge held that Semtek had strictly complied with the rule, because its “counsel was acting at the direction of the clerk and was for this limited purpose acting as her agent.” Hmm. Surely it would be better, to avoid questions about strict compliance, for clerks’ offices to understand and carry out their responsibility under the statute (subject, of course, to payment of the postage and other fees by the plaintiff?) But in any event, only “substantial compliance” is required when serving process on the instrumentality of a foreign sovereign rather than on the sovereign itself, as the judge noted.

All of this is right on the money, with the possible exception of the issue of strict compliance with § 1608(b)(3)(B). But Merkuriy also sought relief from the judgment under the catch-all provision of Rule 60(b)(6), and the judge granted the motion, noting the preference for deciding actions on their merits, the extremely high amount of the damages, the lack of any findings at the time of the default judgment that the plaintiff’s allegations regarding the absence of sovereign immunity were true, and the foreign sovereign’s interests in having its jurisdictional objections decided on the merits.

About Ted Folkman

Ted Folkman is a shareholder with Murphy & King, a Boston law firm, where he has a complex business litigation practice. He is the author of International Judicial Assistance (MCLE 2012), a nuts-and-bolts guide to international judicial assistance issues, and of the chapter on service of process in the ABA's forthcoming treatise on International Aspects of US Litigation, and he is the publisher of Letters Blogatory, the Web's first blog devoted to international judicial assistance, which the ABA recognized as one of the best 100 legal blogs in 2012, 2014, and 2015.

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