Case of the Day: Flame S.A. v. Industrial Carriers, Inc.

The case of the day is Flame S.A. v. Industrial Carriers, Inc. (E.D. Va. 2014). This is the same case I wrote about on August 8, 2014. In the prior post, the issue was recognition of an English judgment Flame, a Swiss shipping and trading company, had obtained against Industrial Carriers for breach of a forward freight contract. In today’s post, the issue was whether another of the plaintiffs, Glory Wealth Shipping PTE Ltd., was entitled to maintain a maritime attachment of the M/V Cape Viewer on account of a default judgment from the Southern District of New York recognizing an English arbitral award Glory Wealth had obtained against Industrial Carriers. But the challenge to the attachment was not brought by Industrial Carriers, but by Freight Bulk PTE Ltd., which was not a party to the New York case and, it appears, not even a party to the underlying arbitration.
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Case of the Day: Box v. Dallas Mexican Consulate General

The case of the day is Box v. Dallas Mexican Consulate General (N.D. Tex. 2013). The case was on remand from the Fifth Circuit. I wrote about the earlier decision in September 2012. In short, Box was a real estate broker; the claim arose out of Box’s work attempting to find new premises for the consulate and was for breach of contract, fraud, etc. The procedural posture was pretty much the same as in yesterday’s case of the day: the consulate failed to appear in the action; Box sought and obtained a default judgment; the consulate then moved for relief from the judgment under FRCP 60(b)(4) on the grounds that the court lacked jurisdiction under the FSIA.

The orthodox view, which we saw in Bell Helicopter, is that when a defendant has not appeared in a case, the defendant can later seek relief from a default judgment, and if the court lacked jurisdiction, the judgment is void, period:

Relief sought on the ground of the invalidity of the judgment may be obtained without regard to time limits, except when a statute of limitations applies to the claim for relief from the judgment itself. The justification for permitting such a delayed challenge to judicial authority varies according to the ground of invalidity that is availed of by the applicant. … When the person knew about the action but perceived that the court lacked territorial or subject matter jurisdiction, he is given a right to ignore the proceeding at his own risk but to suffer no detriment if his assessment proves correct. The right to challenge jurisdiction makes him an instrument for confining judicial authority to its prescribed limits. The fact that the challenge may be asserted after judgment gives it additional weight and effect. In any case, no public purpose is served by protecting the judgment. By hypothesis the proceeding was infected by fundamental error, usually attributable to the plaintiff’s own acts or omissions. Since the judgment was by default no significant investment of judicial effort was made. Thus, the judgment is supported by none of the considerations supporting preclusion and properly may be treated as wholly abortive.

Restatement (Second) of Judgments § 65 cmt. b.

The court in Box, though, took a narrower view. It reasoned that because the consulate had actual notice of the lawsuit, but chose not to defend, it was entitled to relief under FRCP 60(b)(4) only if there was “no arguable basis” on which the court could have exercised subject matter jurisdiction.

As we saw in Bell Helicopter, a defendant with a real jurisdictional argument has some strategic possibilities to consider. But Box shows that before even thinking about a default, a defendant should first make sure that the relevant jurisdiction adheres to the traditional view of void judgments.

Case of the Day: Bell Helicopter v. Iran

The case of the day is Bell Helicopter Textron, Inc. v. Islamic Republic of Iran (D.C. Cir. 2013). Bell operated a helicopter factory in Iran in the 1970s. It abandoned the plant after the Iranian Revolution. In 2002, Bell learned that the Iran Aircraft Manufacturing Industrial Co., a state-owned firm, was using the plant to manufacture the Shaheed helicopter, which closely resembled Bell’s Jet Ranger helicopter. In 2006 Bell sued Iran in Washington, alleging violations of the Lanham Act. After Bell effected service of process, Iran defaulted, and the court entered Iran’s default in 2009. Following a hearing on damages, the court entered a default judgment for more than $22 million in damages. In 2012, after Iran was served with the default judgment pursuant to the FSIA, Iran moved for relief from the judgment under FRCP 60(b)(4) on the grounds that the judgment was void. The district court granted the motion on the grounds that under the FSIA, Iran was immune from suit because Bell had not shown that Iran’s actions caused a “direct effect” in the United States. Bell appealed.

On appeal, the court affirmed after a de novo review. First, it rejected the argument that the Rule 60 motion was untimely; under DC Circuit precedent, there is no time limit on a FRCP 60(b)(4) motion where the defendant did not appear in the action. Second, the court rejected Bell’s argument that FRCP 60(b)(4) had a limited scope: when the defendant has not appeared, the judgment is void under the rule if the court lacked subject matter jurisdiction, full stop. The court went on to affirm the lower court’s finding that, on the facts of the case, Bell could not show an exception to sovereign immunity under the FSIA.

The case is interesting because it emphasizes the continuing vitality of the traditional understanding of void judgments. IF a defendant actually litigates a jurisdictional motion and loses, or if it actively litigates a case and fails to raise a jurisdictional point before judgment, then of course there are limits to its ability to seek relief from the judgment on grounds that the judgment is void. But if the defendant is willing to take the risk of forfeiting its right to litigate the merits if it’s wrong about jurisdiction, then it is free to sit back, allow a judgment to enter, and then raise its jurisdictional defense later.

I agree with this analysis, and I have presented it as essentially unproblematic. But stay tuned for tomorrow’s discussion of Box v. Dallas Mexican Consulate General, a case that takes the wrong view of this.