Karaha Bodas Co., L.L.C. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara

Karaha Bodas Company, L.L.C. (KBC) (plaintiff), a Cayman Islands company, contracted to supply services for Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) (defendant), a government-owned instrumentality of the Republic of Indonesia. Under the contract, Pertamina waived its right to claim sovereign immunity against attachment of its foreign-held assets. A contract dispute arose, which Swiss arbitrators resolved by awarding damages to KBC. KBC filed suit in a New York federal district court to execute the award by attaching bank accounts that Pertamina maintained in the United States. Pertamina used some of the account funds to facilitate its American business activities under contracts governed by New York law. Under the Foreign Sovereign Immunities Act of 1976 (FSIA) and New York law, Pertamina’s United States bank accounts were attachable if Pertamina owned the funds in those accounts. However, Indonesian law required the eventual return of Pertamina’s remaining account funds, except for a small retention allowance, to the Indonesian government. The district court ruled that, except for Pertamina’s retention allowance, Pertamina’s account funds belonged to the Indonesian government, and thus Indonesian sovereign immunity mostly shielded the accounts from attachment. KBC appealed to the Second Circuit.