Ashim Khattri Chettri, et al. v. Nepal Rastra Bank, et al. 1 In the 2

14‐3724
Ashim Khattri Chettri, et al. v. Nepal Rastra Bank, et al.
1
In the 2
United States Court of Appeals 3
For the Second Circuit 4
________ 5
6
A UGUST TERM , 2015 7
8
S UBMITTED: A UGUST 25, 2015 9
D ECIDED: JUNE 20, 2016 10
11
No. 14‐3724 12
13
A SHIM KHATTRI C HETTRI, d/b/a Tarala Internationals, W U L IXIANG , 14
individually and as agent and partner of Tarala Internationals, 15
Plaintiff‐Appellants, 16
17
v. 18
19
NEPAL R ASTRA B ANK, AND D EPARTMENT OF R EVENUE INVESTIGATION, 20
G OVERNMENT OF NEPAL , 21
Defendant‐Appellees, 22
23
NEPAL B ANGLADESH B ANK, L TD., AND C HASE MANHATTAN B ANK, 24
Defendants, 25
________ 26
27
Appeal from the United States District Court 28
for the Southern District of New York. 29
No. 10 Civ. 8470 – Paul G. Gardephe, Judge. 30
________ 31
32
Before: NEWMAN, WALKER , and JACOBS , Circuit Judges. 33
________ 34

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1
Ashim Khattri Chettri, doing business as Tarala Internationals 2
(“Tarala”), and Wu Lixiang (“Wu”) appeal from the decision of the 3
United States District Court for the Southern District of New York 4
(Gardephe, J.) vacating a default judgment and dismissing their 5
complaint against Nepal Rastra Bank (“Rastra Bank”) and the 6
Department of Revenue Investigation of the Government of Nepal 7
(“the Department”). The district court concluded that it lacked 8
subject matter jurisdiction because both Rastra Bank and the 9
Department, as political subdivisions or agencies of the Government 10
of Nepal (“Nepal”), are immune from suit under the Foreign 11
Sovereign Immunities Act of 1976 (“FSIA”), 28 U.S.C. § 1602 et seq. 12
The district court also concluded that it lacked personal jurisdiction 13
because Tarala and Wu failed to comply with the service of process 14
requirements of the FSIA. We agree with the district court’s 15
determination that it lacked subject matter jurisdiction and therefore 16
need not address the issue of service of process. Accordingly, we 17
AFFIRM the district court’s judgment vacating the default judgment 18
and dismissing the complaint. 19
________ 20
21
D ILLI R AJ B HATTA, Bhatta Law & Associates, 22
PLLC, New York, NY, for Plaintiff‐Appellants. 23

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3 No. 14‐3724
K HAGENDRA G HARTI‐C HHETRY , Chhetry & 1
Associates, P.C., New York, NY, for Defendant‐ 2
Appellees. 3
________ 4
5
JOHN M. WALKER , JR ., Circuit Judge: 6
Ashim Khattri Chettri, doing business as Tarala Internationals 7
(“Tarala”), and Wu Lixiang (“Wu”) appeal from the decision of the 8
United States District Court for the Southern District of New York 9
(Gardephe, J.) vacating a default judgment and dismissing their 10
complaint against Nepal Rastra Bank (“Rastra Bank”) and the 11
Department of Revenue Investigation of the Government of Nepal 12
(“the Department”). The district court concluded that it lacked 13
subject matter jurisdiction because both Rastra Bank and the 14
Department, as political subdivisions or agencies of the Government 15
of Nepal (“Nepal”), are immune from suit under the Foreign 16
Sovereign Immunities Act of 1976 (“FSIA”), 28 U.S.C. § 1602 et seq. 17
The district court also concluded that it lacked personal jurisdiction 18
because Tarala and Wu failed to comply with the service of process 19
requirements of the FSIA. We agree with the district court’s 20
determination that it lacked subject matter jurisdiction and therefore 21
need not address the issue of service of process. Accordingly, we 22
AFFIRM the district court’s judgment vacating the default judgment 23
and dismissing the complaint. 24

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4 No. 14‐3724
BACKGROUND 1
Tarala, a Colorado corporation, is the principal supplier of 2
clothing and military equipment to Nepal. Wu is the director of a 3
company that helps Tarala coordinate the logistics of its 4
international transactions. Wu has acted as Tarala’s agent in 5
connection with contracts with Nepal and has also independently 6
conducted business with Nepal. 7
Rastra Bank, located in Kathmandu, is Nepal’s financial agent 8
and is authorized to open and operate accounts, settle obligations, 9
and issue letters of credit on behalf of Nepal. The Department is the 10
prosecutorial arm of Nepal’s Ministry of Finance and its duties 11
include monitoring wire transfers for compliance with Nepalese 12
laws such as the Nepal Asset (Money) Laundering Prevention Act of 13
2008. 14
Between 2006 and 2008, Nepal placed several orders with 15
Tarala for equipment for the Nepalese army and police force. 16
Acting as Tarala’s distribution partner in these transactions, Wu 17
coordinated procurement and delivery of the goods. Nepal paid 18
Tarala for the equipment through letters of credit issued by Rastra 19
Bank to Chase Manhattan Bank, naming Tarala as a beneficiary. 20
On July 23, 2008, Tarala wired $1 million from Chase 21
Manhattan Bank, located in New York, to Wu’s personal account at 22
Nepal Bangladesh Bank, Ltd. (“Bangladesh Bank”), which is located 23

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5 No. 14‐3724
in Kathmandu. Wu claims that he intended to use the $1 million to 1
pay a third party to transport equipment and complete delivery of 2
goods to Nepal. 3
On August 4, 2008, Bangladesh Bank notified Rastra Bank of 4
irregularities concerning the wire payment to Wu. Bangladesh Bank 5
informed Rastra Bank that Wu had failed to provide adequate 6
documentation of the source of the funds and that, as a result, 7
Bangladesh Bank was freezing the funds pending an explanation of 8
their source and pending further instructions from Rastra Bank. On 9
August 27, 2008, the Department instructed Rastra Bank to direct 10
Bangladesh Bank to freeze Wu’s account pending further 11
investigation. 12
In an attempt to persuade Bangladesh Bank to release the 13
funds, Tarala provided letters from financial institutions and 14
government agencies attesting to the legitimacy of the wire transfer. 15
Rastra Bank and the Department took the position that this 16
documentation was insufficient to establish the source of the funds. 17
On November 10, 2010, after the letters were unsuccessful in 18
unfreezing the account, Tarala and Wu filed the underlying 19
complaint in this action. Rastra Bank and the Department 20
responded by claiming that Tarala and Wu failed to comply with the 21
statutory requirements for service of process under the FSIA. 22

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6 No. 14‐3724
On January 18, 2011, the district court ordered Rastra Bank 1
and the Department to show cause why a default judgment should 2
not be entered against them. After Rastra Bank and the Department 3
failed to respond by a court‐imposed deadline, the district court 4
entered a default judgment in favor of Tarala and Wu in the amount 5
of $1,000,500. 6
On February 25, 2011, the Department charged Wu with 7
violating the Nepal Asset (Money) Laundering Prevention Act of 8
2008 and, pursuant to that Act, demanded confiscation of the 9
disputed funds. 10
On September 2, 2014, on the motion of Rastra Bank and the 11
Department, and after receiving a statement of interest from the 12
United States recommending vacatur, the district court reversed 13
course. The district court vacated the default judgment and 14
dismissed the complaint for lack of subject matter and personal 15
jurisdiction. 16
Tarala and Wu now appeal, arguing that the district court had 17
both subject matter and personal jurisdiction over this action. 18
DISCUSSION 19
In reviewing a district court’s determination regarding subject 20
matter jurisdiction under the FSIA, we use a clear error standard for 21
factual findings and we review legal conclusions de novo. U.S. Titan, 22
Inc. v. Guangzhou Zhen Hua Shipping Co., 241 F.3d 135, 150–51 (2d Cir. 23

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7 No. 14‐3724
2001). We review for abuse of discretion a district court’s decision to 1
grant a motion to vacate a default judgment. SEC v. McNulty, 137 2
F.3d 732, 738 (2d Cir. 1998). 3
Tarala and Wu argue that the district court incorrectly 4
determined that it lacked subject matter and personal jurisdiction 5
and that the district court abused its discretion by vacating the 6
default judgment based on these incorrect determinations. We 7
disagree. The district court lacked subject matter jurisdiction because 8
Rastra Bank and the Department are immune from suit under the 9
FSIA. 10
I. Subject Matter Jurisdiction and the FSIA 11
The FSIA “provides the sole basis for obtaining jurisdiction 12
over a foreign state in federal court.” Argentine Republic v. Amerada 13
Hess Shipping Corp., 488 U.S. 428, 439 (1989). The Act renders a 14
foreign state “presumptively immune from the jurisdiction of 15
United States courts,” Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993), 16
and defines the term “foreign state” to include “a political 17
subdivision of a foreign state or an agency or instrumentality of a 18
foreign state,” 28 U.S.C. § 1603(a). 19
Subject matter jurisdiction exists under the FSIA only if a 20
specified exception to that Act applies. Nelson, 507 U.S. at 355. 21
Because personal jurisdiction exists under the FSIA only if (a) service 22
of process has been made in accordance with the Act and (b) subject 23

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8 No. 14‐3724
matter jurisdiction exists under the Act, a finding that a federal court 1
lacks subject matter jurisdiction over a claim against a foreign state 2
necessarily yields a finding that the court lacks personal jurisdiction 3
as well. See Verlinden B.V. v. Cent. Bank of Nigeria, 461 U.S. 480, 485 n. 4
5 (1983). 5
A defendant seeking dismissal for lack of subject matter 6
jurisdiction under the FSIA bears the burden of presenting a prima 7
facie case that it is a foreign sovereign. Virtual Countries, Inc. v. 8
Republic of S. Africa, 300 F.3d 230, 241 (2d Cir. 2002). If the defendant 9
meets this burden, the plaintiff must then demonstrate that the 10
foreign sovereign lacks immunity due to an FSIA exception. Cargill 11
Int’l S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir. 1993). 12
Tarala and Wu do not dispute the district court’s 13
determination that the Department is a political subdivision of a 14
sovereign state and that Rastra Bank is an agency or instrumentality 15
of a foreign state. Tarala and Wu do, however, challenge the district 16
court’s rejection of their argument that two specified exceptions to 17
the FSIA apply: the “commercial activity” exception set forth in 18
Section 1605(a)(2) and the “takings” exception set forth in Section 19
1605(a)(3). We agree with the district court that neither exception 20
applies on these facts. 21
22
23

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9 No. 14‐3724
A. The Commercial Activity Exception 1
Under the commercial activity exception set forth in Section 2
1605(a)(2), a foreign state lacks immunity under the FSIA when: 3
the action is based [1] upon a commercial activity 4
carried on in the United States by the foreign state; or 5
[2] upon an act performed in the United States in 6
connection with a commercial activity of the foreign 7
state elsewhere; or [3] upon an act outside the territory 8
of the United States in connection with a commercial 9
activity of the foreign state elsewhere and that act 10
causes a direct effect in the United States. 11
28 U.S.C. § 1605(a)(2). None of the three grounds for invoking the 12
commercial activity exception applies here. 13
1. The Inapplicability of the First Ground 14
With respect to the first ground, this action is not “based upon 15
a commercial activity carried on in the United States.” Id. The 16
“threshold step” in assessing the applicability of the commercial 17
activity exception is always to “identify the act of the foreign 18
sovereign State that serves as the basis for plaintiffs’ claims.” Garb v. 19
Republic of Poland, 440 F.3d 579, 586 (2d Cir. 2006). Tarala and Wu 20
cite as a commercial activity Nepal’s entering into a contract with 21
Colorado‐based Tarala to supply goods and equipment. This 22
lawsuit, however, is based not upon that contract but upon the 23
Department and Rastra Bank’s freezing of Wu’s account in Nepal. 24
The term “‘based upon’ . . . calls for something more than a 25
mere connection with, or relation to, commercial activity.” Nelson, 26

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10 No. 14‐3724
507 U.S. at 358 (footnote omitted). In order for a cause of action to be 1
“based upon” a commercial activity and thereby fit within the FSIA 2
exception, there must exist a “degree of closeness . . . between the 3
commercial activity and the gravamen of the plaintiff’s complaint.” 4
Kensington Int’l Ltd. v. Itoua, 505 F.3d 147, 156 (2d Cir. 2007) (internal 5
quotation marks omitted). This degree of closeness must be 6
“considerably greater than common law causation requirements.” 7
Transatlantic Shiffahrtskontor GmbH v. Shanghai Foreign Trade Corp., 8
204 F.3d 384, 390 (2d Cir. 2000). 9
The district court properly found that the gravamen of the 10
complaint is the freezing of the $1 million that Tarala wired to Wu’s 11
Bangladesh Bank account. A foreign sovereign engages in a 12
commercial activity within the meaning of the FSIA only when it 13
“acts[] not as regulator of a market, but in the manner of a private 14
player within it.” Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 15
614 (1992); see also Garb, 440 F.3d at 598 (“[A] state’s confiscation of 16
property within its borders is not a ‘commercial’ act.”). Rastra Bank 17
and the Department were acting as government regulators, not 18
private commercial players, when they froze Wu’s account as part of 19
an investigation and therefore were not engaged in a commercial 20
activity. 21
Tarala and Wu contend that Tarala wired the $1 million to Wu 22
so that Wu could facilitate the delivery of equipment under the 23

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11 No. 14‐3724
contracts with Nepal. Rastra Bank and the Department argue that 1
insufficient evidence supports this contention. The dispute is beside 2
the point, however, because, even if commercial activities had led to 3
the conduct that eventually injured Tarala and Wu, this would not 4
alone render such activities the basis of their suit. In Saudi Arabia v. 5
Nelson, the Supreme Court held that alleged torts rather than the 6
commercial activities preceding those torts formed the basis of the 7
plaintiffs’ action if, “[e]ven taking each of the [plaintiffs’] allegations 8
about [the commercial activities] as true, those facts alone entitle the 9
[plaintiffs] to nothing under their theory of the case.” 507 U.S. at 358. 10
Tarala and Wu are not alleging breach of contract in this action. At 11
the time Rastra Bank and the Department froze Wu’s account, Rastra 12
Bank had already paid in full the letters of credit in satisfaction of 13
the contracts between Nepal and Tarala. This action is based upon 14
Bangladesh Bank’s allegedly tortious freezing, not the contract, and 15
therefore the first ground for invoking the “commercial activity” 16
exception does not apply. 17
2. The Inapplicability of the Second Ground 18
With respect to the second ground, this action plainly is not 19
“based . . . upon an act performed in the United States in connection 20
with a commercial activity of the foreign state elsewhere.” 21
§ 1605(a)(2). This action is based upon the freezing of the $1 million 22
wired to Wu’s account at Bangladesh Bank. The freezing took place 23

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12 No. 14‐3724
in Nepal: the Department, Rastra Bank, and the bank that held Wu’s 1
account are all located in Nepal. The freezing was in no sense “an 2
act performed in the United States,” and Tarala and Wu do not 3
argue otherwise. Thus, the second ground of the “commercial 4
activity” exception does not apply. 5
3. The Inapplicability of the Third Ground 6
With respect to the third ground, this action is not “based . . . 7
upon an act outside the territory of the United States in connection 8
with a commercial activity of the foreign state elsewhere [when] that 9
act causes a direct effect in the United States.” § 1605(a)(2). This 10
FSIA ground can be broken into three requirements: (1) that the 11
operative act occur outside the United States, (2) that the act occur in 12
connection with a commercial activity of the foreign state elsewhere, 13
and (3) that the act cause a direct effect in the United States. Because 14
the freezing of the funds at issue occurred in Nepal, this action 15
plainly satisfies the first requirement, but the action does not satisfy 16
the second or third. 17
As to the second requirement, Tarala and Wu fail to establish 18
that the freezing of Wu’s funds occurred in connection with 19
commercial activity. We interpret the term “in connection with” 20
narrowly, see Garb, 440 F.3d at 587, and a plaintiff must cite more 21
than “tangential commercial activities to which the ‘acts’ forming 22
the basis of the claim have only an attenuated connection,” Drexel 23

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13 No. 14‐3724
Burnham Lambert Grp. Inc. v. Comm. of Receivers for Galadari, 12 F.3d 1
317, 330 (2d Cir. 1993). In this matter, any connection between the 2
contract and the freezing is too attenuated. As we have already 3
pointed out, Nepal had fulfilled its obligations under the contract by 4
the time that Rastra Bank and the Department froze Wu’s account. 5
As to the third requirement, Tarala and Wu also fail to 6
demonstrate a “direct effect” in the United States. “[A]n effect is 7
direct if it follows as an immediate consequence of the defendant’s 8
activity.” Weltover, 504 U.S. at 618 (internal quotation marks and 9
alteration omitted). “[T]he mere fact that a foreign state’s 10
commercial activity outside of the United States caused physical or 11
financial injury to a United States citizen is not itself sufficient to 12
constitute a direct effect in the United States.” Guirlando v. T.C. Ziraat 13
Bankasi A.S., 602 F.3d 69, 78 (2d Cir. 2010). Here, the immediate 14
consequences of the account freezing took place outside of the 15
United States. Even under the version of the facts most favorable to 16
Tarala and Wu, freezing Wu’s account at most prevented the 17
payment of a third party in Nepal; it did not directly affect the 18
satisfaction of the contract between Nepal and Tarala in the United 19
States. 20
Accordingly, after examining each of the three grounds for 21
invocation of Section 1605(a)(2), we conclude that the commercial 22
activity exception does not apply in this action. 23

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14 No. 14‐3724
B. The Takings Exception 1
Tarala and Wu also attempt to invoke the FSIA’s takings 2
exception. Under Section 1605(a)(3), a foreign state lacks immunity 3
under the FSIA in any action 4
in which [1] rights in property [2] taken [3] in violation 5
of international law are in issue and [4a] that property 6
or any property exchanged for such property is present 7
in the United States in connection with a commercial 8
activity carried on in the United States by the foreign 9
state; or [4b] that property or any property exchanged 10
for such property is owned or operated by an agency 11
or instrumentality of the foreign state and that agency 12
or instrumentality is engaged in a commercial activity 13
in the United States. 14
15
See Garb, 440 F.3d at 588. 16
The applicability of the takings exception founders, however, 17
on the requirement that the rights in property must be “taken in 18
violation of international law.” We interpret the phrase “taken in 19
violation of international law” to mean “‘the nationalization or 20
expropriation of property without payment of the prompt adequate 21
and effective compensation required by international law,’ including 22
‘takings which are arbitrary or discriminatory in nature.’” Zappia 23
Middle E. Constr. Co. v. Emirate of Abu Dhabi, 215 F.3d 247, 251 (2d 24
Cir. 2000) (quoting H.R. Rep. No. 94–1487, at 19 (1976)). Tarala and 25
Wu have not alleged sufficient facts to plausibly establish that the 26
freezing of Wu’s account constituted a taking, much less a taking “in 27

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15 No. 14‐3724
violation of international law.” Rastra Bank and the Department 1
froze Wu’s financial assets in connection with an ongoing money 2
laundering investigation. Unsurprisingly, Tarala and Wu offer no 3
authority for the proposition that a routine law enforcement action 4
such as this constitutes a taking within the meaning of § 1605(a)(3), 5
and the complaint’s conclusory criticisms of the manner in which 6
Nepal has conducted its investigation are insufficient to prove a 7
violation of international law. 8
Accordingly, the takings exception does not apply in this 9
action. 10
II. Personal Jurisdiction and Service of Process 11
Because we agree with the district court’s determination that 12
it lacked subject matter jurisdiction because Rastra Bank and the 13
Department are immune from suit under the FSIA, we need not 14
decide whether the district court correctly determined that it lacked 15
personal jurisdiction due to defects in the service of process. 16
CONCLUSION 17
For the reasons stated above, we AFFIRM the district court’s 18
judgment vacating the default judgment and dismissing the 19
complaint. 20

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