Bd Regents Univ TX v. Nippon Tele Telegr

United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
FIFTH CIRCUIT February 1, 2007

Charles R. Fulbruge III
Clerk
No. 05-51432

THE BOARD OF REGENTS OF THE UNIVERSITY
OF TEXAS SYSTEM, on behalf of The University
of Texas at Austin; HYDRO-QUEBEC,

Plaintiffs-Appellees,

versus

NIPPON TELEPHONE AND TELEGRAPH CORPORATION,

Defendant-Appellant.

Appeal from the United States District Court
for the Western District of Texas
(1:01-CV-478)

Before BARKSDALE, DeMOSS, and PRADO, Circuit Judges.

RHESA HAWKINS BARKSDALE, Circuit Judge:

Having removed this action from state court, Nippon Telegraph

& Telephone Corporation (NTT), Japan’s largest telecommunications

company, challenges the district court’s denial of its motion to

dismiss. In this interlocutory appeal, NTT asserts: it is an

“organ of a foreign state”, pursuant to the Foreign Sovereign

Immunity Act (FSIA), 28 U.S.C. § 1603(b)(2); and, therefore, it is

entitled to immunity from federal (and state) court jurisdiction,

28 U.S.C. § 1604. The Board of Regents of the University of Texas

System (UT) and Hydro-Québec (HQ) (collectively, UT/HQ) contend

this action should be remanded to Texas state court, claiming:
NTT’s supplemental removal notice, in which NTT first asserted

foreign-sovereign status, was not timely filed; and, in the

alternative, jurisdiction is lacking because NTT does not qualify

as an “organ of a foreign state”, and, therefore, cannot assert

subject-matter jurisdiction under 28 U.S.C. §§ 1330 or 1331.

NTT’s supplemental removal notice was timely. But, because

NTT does not qualify as an “organ of a foreign state”, subject-

matter jurisdiction is lacking. Accordingly, the district court’s

denial of foreign-sovereign status is AFFIRMED. The Federal

Circuit’s having earlier rejected NTT’s other asserted basis for

subject-matter jurisdiction (patent-law, under 28 U.S.C. §

1338(a)), the district court’s ruling it has jurisdiction is

VACATED, and this action is REMANDED to district court for remand

to Texas state court. AFFIRMED IN PART; VACATED IN PART;

REMANDED.

I.

UT/HQ alleges: an NTT research scientist learned of

confidential information for certain lithium rechargeable-battery

technology while visiting the University of Texas at Austin from

1993 to 1994 under the tutelage of a UT professor; upon returning

to NTT in Japan, the research scientist disclosed the confidential

information, which NTT used in November 1995 to apply for a

Japanese patent that was published in May 1997; and, unaware of

NTT’s misappropriation and patent application, UT filed for a

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provisional United States patent in April 1996 and entered into a

licensing agreement with HQ in January 1997, giving HQ exclusive

rights to the lithium rechargeable-battery technology. UT’s United

States patent was granted in June 1999. UT/HQ asserts NTT’s

Japanese patent interfered with their ability to commercialize

their licensing agreement.

Accordingly, in June 2001, UT/HQ filed this action in Texas

state court, claiming, inter alia, tortious interference, unfair

competition, misappropriation of trade secrets, conversion, and

breach of a confidential relationship. The action seeks actual and

punitive damages, disgorgement of profits, and a constructive trust

over the Japanese patent for the benefit of UT/HQ.

In July 2001, NTT removed this action to district court,

pursuant to 28 U.S.C. § 1441, et seq. NTT asserted that, because

UT/HQ’s claims required determining questions of federal patent

law, subject matter jurisdiction was proper under 28 U.S.C. §§

1331 (generally granting jurisdiction over actions arising under

federal law) and 1338(a) (providing jurisdiction for claims arising

under federal patent laws). Subsequently, believing foreign-

sovereign status existed as an additional subject-matter-

jurisdiction basis for removal, see 28 U.S.C. §§ 1330 and 1441(d),

NTT in October 2001 moved for an extension of time to file a

supplemental notice of removal. (NTT never asserted diversity

jurisdiction pursuant to 28 U.S.C. § 1332 because NTT and H/Q are

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citizens of foreign states. E.g., Giannakos v. M/V Bravo Trader,

762 F.2d 1295, 1298 (5th Cir. 1985) (“Diversity does not exist

where aliens are on both sides of the litigation.”).)

On 26 November 2001, the district court, inter alia, denied

UT/HQ’s motion to remand for lack of subject-matter jurisdiction.

Reasoning that UT/HQ’s tortious-interference claim requires

determining whether UT/HQ’s patent overlaps NTT’s patent, the

district court held: it had federal-question jurisdiction over

that claim, pursuant to 28 U.S.C. §§ 1331 and 1338(a); and,

accordingly, it had supplemental jurisdiction over the entire

action, pursuant to 28 U.S.C. § 1367(a) (“district courts shall

have supplemental jurisdiction over all other claims that are so

related to claims in the action within such original jurisdiction

that they form part of the same case or controversy”).

Over the next several years, the parties filed approximately

50 deadline-extension motions. By a June 2004 order, the district

court denied, inter alia, NTT’s motion to dismiss based on

sovereign immunity. Bd. of Regents, Univ. of Tex. Sys. v. Nippon

Tel. & Tel. Corp., No. A-01-CA-478 (W.D. Tex. 1 June 2004). Rather

than appeal to this court, NTT appealed to the United States Court

of Appeals for the Federal Circuit. That court held, contrary to

the district court’s 26 November 2001 order, that UT/HQ’s claims

did not require the determination of questions arising under

federal patent laws. Bd. of Regents, Univ. of Tex. Sys. v. Nippon

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Tel. & Tel. Corp., 414 F.3d 1358, 1365 (Fed. Cir. 2005). Lacking

such jurisdiction, the Federal Circuit transferred this appeal to

this court: to determine whether NTT properly raised foreign

sovereignty as an additional basis for subject-matter jurisdiction;

and, if so, to review the district court’s denial of NTT’s motion

to dismiss, claiming foreign-sovereign immunity.

II.

As a threshold matter, our jurisdiction to review the denial

of NTT’s motion to dismiss exists under the “collateral order”

doctrine, an exception to 28 U.S.C. § 1291’s allowing appeals only

from final decisions. Cohen v. Beneficial Indus. Loan Corp., 337

U.S. 541, 545-47 (1949). “[R]ecogniz[ing] that the entitlement

under the FSIA is an immunity from suit rather than a mere defense

to liability ... [which] is effectively lost if a case is

erroneously permitted to go [forward]”, an interlocutory appeal

lies from a denial of foreign-sovereign immunity. Stena Rederi AB

v. Comision de Contratos del Comite, 923 F.2d 380, 385 (5th Cir.

1991) (internal quotations and citation omitted).

This opinion first addresses whether NTT’s supplemental

removal notice was timely. Because it was, NTT’s foreign-

sovereign-status claim is at issue. NTT is not entitled to such

status; therefore, federal subject-matter jurisdiction is lacking.

Accordingly, removal was improper.

A.

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 NTT filed its initial removal notice on 23 July 2001, having

received a copy of UT/HQ’s complaint in mid-July. The timeliness

of this removal notice, which asserted federal-patent questions as

the basis for federal jurisdiction, is not at issue. Instead, at

issue is NTT’s supplemental removal notice, which asserted

foreign-sovereign status as a removal basis. It was submitted with

NTT’s 15 October motion, which requested an extension of time to

file such a supplemental notice. The district court denied that

motion on the ground that NTT failed to show cause, pursuant to 28

U.S.C. § 1441(d) (“time limitations [for removal] ... may be

enlarged at any time for cause shown”). (As discussed infra,

because NTT had not yet been properly served with process, its

request for an extension of time to file its supplemental notice

was not necessary.) Relying on 28 U.S.C. § 1447(c), requiring

certain motions to remand to “be made within 30 days after the

filing of the notice of removal”, and focusing on considerations of

judicial economy, UT/HQ contends this supplemental removal notice

was untimely because it was submitted more than 30 days after NTT’s

initial notice.

UT/HQ’s timeliness contention, which implicates subject-matter

jurisdiction, is unavailing. We review questions of such

jurisdiction de novo. Delgado v. Shell Oil Co., 231 F.3d 165, 175

(5th Cir. 2000). The procedure for removal from state to federal

court is governed by 28 U.S.C. § 1446(b); it requires a removal

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notice to “be filed within thirty days after the receipt by the

defendant, through service or otherwise, of a copy of the initial

pleading setting forth the claim for relief upon which such action

or proceeding is based ....” 28 U.S.C. § 1446(b) (emphasis added).

The Supreme Court clarified this language in Murphy Bros., Inc. v.

Michetti Pipe Stringing, Inc., 526 U.S. 344, 347-48 (1999), holding

the time for removal commences on formal service of process, “not

by mere receipt of the complaint unattended by any formal service”.

Id. at 348 (emphasis added); see also City of Clarksdale v.

BellSouth Telecomms., Inc., 428 F.3d 206, 210 (5th Cir. 2005)

(summarizing Murphy Bros. holding); Badon v. RJR Nabisco Inc., 224

F.3d 382, 390 n.12 (5th Cir. 2000) (“The 30 day period in no event

begins to run prior to service of process on the defendant.”

(citing Murphy Bros.)).

In its 26 November 2001 order, the district court determined

NTT’s mid-July 2001 receipt of UT/HQ’s complaint did not constitute

sufficient service of process, because it did not comply with the

Hague Convention on the Service Abroad of Judicial and

Extrajudicial Documents in Civil or Commercial Matters. UT/HQ does

not contest this ruling. After successfully moving for a time

extension, UT/HQ properly served NTT on 1 February 2002. Because

NTT’s supplemental notice of removal was submitted before it was

properly served with process, the supplemental notice was timely.

B.

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 NTT asserts the FSIA entitles it to foreign-sovereign

immunity, pursuant to 28 U.S.C. § 1604: “[A] foreign state shall

be immune from the jurisdiction of the courts of the United States

and of the States ....” Under the FSIA, “foreign state” includes

“an agency or instrumentality of a foreign state”, which is defined

as any entity:

(1) which is a separate legal person,
corporate or otherwise, and (2) which is an
organ of a foreign state or political
subdivision thereof, or a majority of whose
shares or other ownership interest is owned by
a foreign state or political subdivision
thereof, and (3) which is neither a citizen of
a State of the United States ... nor created
under the laws of any third country.

28 U.S.C. § 1603(b) (emphasis added).

UT/HQ concedes NTT meets prongs (1) and (3) of § 1603(b).

Regarding prong (2), NTT concedes it is neither a political

subdivision of, nor majority owned by, the Japanese Government.

Therefore, at issue is whether NTT is an “organ” of Japan under §

1603(b)(2). The district court held it is not. We agree.

Foreign-sovereign status is a question of law, reviewed de

novo; underlying findings of fact are reviewed for clear error.

Kelly v. Syria Shell Petroleum Dev. B.V., 213 F.3d 841, 845 (5th

Cir. 2000). Our caselaw has developed a five-factor framework to

assist in determining § 1603(b)(2) organ status:

(1) whether the foreign state created the
entity for a national purpose; (2) whether the
foreign state actively supervises the entity;
(3) whether the foreign state requires the

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 hiring of public employees and pays their
salaries; (4) whether the entity holds
exclusive rights to some right in the
[foreign] country; and (5) how the entity is
treated under foreign state law.

Id. at 846-47 (alteration in original) (quoting Supra Med. Corp. v.

McGonigle, 955 F. Supp. 374, 379 (E.D. Pa. 1997) (citing

Corporacion Mexicana de Servicios Maritimos, S.A. de C.V. v. M/T

Respect, 89 F.3d 650, 655 (9th Cir. 1996))). Cognizant of this

court’s caveat that these factors should not be applied

mechanically because there is no “clear test” for determining organ

status, we find them apposite here, as did our court in Kelly, and

as have other circuits in similar cases. See, e.g., USX Corp. v.

Adriatic Ins. Co., 345 F.3d 190, 209 (3d Cir. 2003); Alpha

Therapeutic Corp. v. Nippon Hoso Kyokai, 199 F.3d 1078 (9th Cir.

1999), withdrawn on other grounds sub nom. Alpha Therapeutic Corp.

v. Kyokai, 237 F.3d 1007 (9th Cir. 2001). Under the Kelly factors,

NTT does not qualify as an “organ” of the Japanese Government.

First, NTT was not created for a national purpose. See Kelly,

213 F.3d at 846. NTT contends its enabling statute obligates it

to provide universal service to Japan. That statute is better

understood, however, as prohibiting NTT from unilaterally

terminating service to existing customers because, at its

inception, NTT held a monopoly it no longer possesses. Along that

line, NTT was created to privatize what had been a government-

controlled monopoly and to promote competition. NTT’s predecessor,

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Nippon Telegraph and Telephone Public Corporation (NTTPC), existed

as a de jure monopoly; when created in 1985, NTT inherited a de

facto monopoly. But, as a result of Japan’s encouraging

competition, NTT now operates as one of several commercial

interests in a competitive telecommunications market. NTT’s

commercial purpose is further evinced by its now being only 46%

Japanese Government-owned, compared to 100% ownership in 1985.

Although commercial status does not per se preclude finding

national purpose, see, e.g., USX Corp., 345 F.3d at 209-13, NTT’s

creation clearly serves market ends, not a government function,

such as intervening to prevent “a public financial crisis”, see id.

at 211.

Second, the Japanese Government does not actively supervise

NTT. See Kelly, 213 F.3d at 846. NTT contends Japanese Government

authorization is required for numerous NTT transactions, including:

appointing or dismissing board members, distributing profits,

appointing auditors, issuing new shares, executing mergers, and

amending its articles of incorporation. Requiring government

authorization, however, is not active supervision. Otherwise, any

regulated public-service provider could claim sovereign status.

None of the regulatory powers NTT cites allow the Japanese

Government to affirmatively manage NTT affairs; they merely provide

passive oversight, related to, and in some cases identical with,

the requirements of other governments’ regulatory bodies, such as

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the United States’ Securities and Exchange Commission (SEC).

Moreover, NTT cites no instance of the Japanese Government’s

exercising its regulatory powers to quash an NTT action. Along

this line, NTT reported in an SEC filing: “[T]he [Japanese]

Government did not ... intend actively to use its position as a

shareholder to direct the management of NTT. The Government has

never used its power as a shareholder to direct the management of

NTT”.

Third, NTT is not required to hire public employees. See

Kelly, 213 F.3d at 846. Indeed, NTT admits its employees are

private employees, not paid by the Japanese Government.

Concomitantly, NTT’s non-management employees are members of a

private trade union. NTT invites our court to categorize its

employees as quasi-civil servants because Japan’s Law on Retirement

Benefits for National Public Employees provides that employees, who

migrate between Japanese Government employment and NTT, receive

reciprocal retirement credit. The purpose of this credit, however,

is to properly account for NTTPC (and early NTT) employees’ years

of service, whose employment had been with a Japanese Government

entity. NTT’s quasi-civil-servant assertion is unavailing.

Fourth, NTT does not “hold[] exclusive rights to some right in

[Japan]”. See id. (emphasis added). Lacking any basis to assert

exclusive rights, NTT points to its obligations to provide

universal service and to conduct telecommunications research. Our

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having already disposed of NTT’s universal-service contention, we

note that, as with several of NTT’s claims, its research obligation

is a historical artifact of its NTTPC origins; NTT was required to

continue the research of its public predecessor and to level the

competitive playing field by disclosing its findings and licensing

its technology to competitors. Moreover, research is not a

government function; and even an exclusive obligation is not an

exclusive right.

Fifth, and finally, NTT is not treated as a governmental organ

under Japanese law. See id. at 847. NTT maintains it is similar

to Nippon Hoso Kyokai (NHK), a public Japanese television-

broadcasting corporation, which the Ninth Circuit held was an organ

of the Japanese Government. Alpha Therapeutic Corp., 199 F.3d at

1084-85, withdrawn on other grounds sub nom. Alpha Therapeutic

Corp. v. Kyokai, 237 F.3d 1007 (9th Cir. 2001). Like NHK, NTT is

a “designated public institution” under Japan’s Disaster Measures

Basic Law. Id. at 1084. Unlike NHK, which was the only

“designated public institution” television station and which

Japanese law prohibited from earning profits, id., NTT is not the

only “designated public institution” telecommunications company and

is permitted to earn profits and distribute them to shareholders.

Furthermore, NTT’s funding is not derived from a government-

mandated receiver’s fee, as was NHK’s. Id. Finally, while NTT is

subject to the World Trade Organization (WTO) Agreement on

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Government Procurement, it is neither listed in the WTO Agreement

as a “government body” of Japan, nor required to abide by the WTO

regulations in its “daily profit-making activities”.

As stated, consideration of the guiding Kelly factors clearly

favors concluding NTT is not an organ of Japan. Nevertheless, NTT

urges its status is similar to the organ status awarded under a

claimed broader approach in Alpha Therapeutic Corp., 199 F.3d at

1084; USX Corp., 345 F.3d at 208-13; Kelly, 213 F.3d at 847; and

First National City Bank v. Banco para el Comercio Exterior de

Cuba, 462 U.S. 611 (1983) (“Bancec”). Each of these cases,

however, is readily distinguishable.

Regarding Alpha Therapeutic Corp., in addition to the

differences between NHK and NTT already discussed, NHK was required

to satisfy specific Government-mandated goals, including promoting

Japanese culture, industry, and trade, and providing entertainment

to Japanese citizens abroad, 199 F.3d at 1084; NTT serves no such

Government purpose. Similarly, unlike USX Corp., in which Ireland

acquired complete (even if partially indirect) control over an

insurance company to avert disaster in its insurance and banking

industries, 345 F.3d at 209-13, NTT is neither completely

controlled by Japan nor constituted to prevent national market

catastrophe.

Along this line, NTT is distinct from the Syrian oil entity

accorded organ status in Kelly. 213 F.3d at 848. Syria created

13
that entity for the express national purpose of exploring and

developing Syria’s mineral interests. As a result, Syria granted

the company the exclusive right to explore and develop Syrian-owned

petroleum reserves. Id. NTT was not created for any such national

purpose and was not granted any such exclusive right.

The last of the decisions under which NTT seeks shelter,

Bancec, is not an FSIA case, but remains persuasive due to its

factual similarities and application of federal and international

equitable common-law principles. In Bancec, the Supreme Court

stated:

A typical government instrumentality ... is
created by an enabling statute ...
prescrib[ing] ... manage[ment] by a board
selected by the government ...[, is]
established as a separate juridical entity,
with the powers to hold and sell property and
to sue and be sued ... [, and] is run as a
distinct economic enterprise ....

462 U.S. at 624.

NTT shares some of these “typical government instrumentality”

characteristics, but not others. More important, however, is

Bancec’s holding: the foreign entity at issue was not immune from

suit in the United States. Emphasizing that no mechanical formula

can consistently and appropriately determine foreign-sovereign

status, the Court declared its decision was “the product of the

application of internationally recognized equitable principles to

avoid the injustice that would result from permitting a foreign

14
[entity] to reap the benefits of our courts while avoiding the

obligations of international law”. Id. at 633-34.

III.

For the foregoing reasons, NTT is not entitled to foreign-

sovereign status. Coupled with the Federal Circuit’s having found

no jurisdiction under federal-patent law, there is no subject-

matter jurisdiction. Accordingly, removal was improper.

Therefore, the district court’s denial of foreign-sovereign

status is AFFIRMED; its ruling it has jurisdiction is VACATED; and

this action is REMANDED to district court for remand to Texas state

court.

AFFIRMED IN PART; VACATED IN PART; REMANDED

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