Honduras Aircraft v. Gov't Honduras , 119 F.3d 1530 ( 1997 )

United States Court of Appeals,
Eleventh Circuit.
Nos. 95-4519, 95-4933.
HONDURAS AIRCRAFT REGISTRY, LTD., a Honduran Corporation, and Honduras Air
Registry Bureau, Limited, a Bahamian Corporation, Plaintiffs-Appellees,
Omega Air S de RL, Intervenor-Appellee,
v.
The GOVERNMENT OF HONDURAS, and Guillermo Chirinos, Director General of Civil
Aeronautics of the Republic of Honduras, individually, Defendants-Appellants.
Aug. 25, 1997.
Appeals from the United States District Court for the Southern District of Florida. (No. 94-10060-
CIV-JLK), James Lawrence King, Judge
Before EDMONDSON, Circuit Judge, and KRAVITCH and WOOD, Jr.*, Senior Circuit Judges.
WOOD, Jr., Senior Circuit Judge:
At first glance one may wonder how plaintiffs, a Honduran corporation and its subsidiary,
a Bahamian corporation, can bring a suit against the defendants Government of Honduras and
Director General Chirinos (collectively, "Honduras") in the Southern District of Florida. In fact, that
is the issue we must decide in this case. Honduras filed a motion to dismiss, claiming immunity
under the Foreign Sovereign Immunities Act ("FSIA") and on other grounds. The district court
denied defendants' motion to dismiss and ordered the case to proceed. Honduras Aircraft Registry
v. Gov't of Honduras, 883 F.Supp. 685 (S.D.Fla.1995). Honduras appeals.
We have jurisdiction over interlocutory orders denying claims of immunity under the FSIA,
see Aldy v. Valmet Paper Machinery, 74 F.3d 72, 75 (5th Cir.1996). Honduras also asks us to
exercise our pendent appellate jurisdiction over the other related claims which arise under the act
of state doctrine and the doctrine of forum non conveniens. Plaintiffs object to our exercise of
pendent jurisdiction over the forum non conveniens issue. Pendent jurisdiction depends on the
exercise of this court's discretion and judicial economy considerations. In determining whether to
*
Honorable Harlington Wood, Jr., Senior U.S. Circuit Judge for the Seventh Circuit, sitting by
designation.
exercise discretionary pendent jurisdiction we do so with caution. Walter Fuller Aircraft Sales, Inc.
v. Republic of Philippines, 965 F.2d 1375, 1387, 1389 (5th Cir.1992).
FACTUAL BACKGROUND
Because this case comes to us on appeal of the district court's denial of a motion to dismiss,
it is appropriate that we construe the complaint in the light most favorable to plaintiffs. We will
accept as true the complaint's well pleaded facts, even if disputed, but not its conclusions. Saudi
Arabia v. Nelson, 507 U.S. 349, 351, 113 S.Ct. 1471, 1474, 123 L.Ed.2d 47 (1993); Hishon v. King
& Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232-33, 81 L.Ed.2d 59 (1984).
Plaintiff Honduras Aircraft Registry, Ltd., is a Honduran corporation, fifty-one percent of
which is owned by Hondurans. Plaintiff Honduras Aircraft Registry Bureau, Ltd., a Bahamian
subsidiary corporation, owns the remainder. The parent company was incorporated in Honduras in
May 1992. Two Miami-based businessmen with airline knowledge, one of whom had Honduran
contacts, established these two closely related corporations to facilitate negotiating with Honduran
officials the contract at issue in this appeal. In general, plaintiff companies' contract proposal was
to upgrade and establish a modern civil aeronautics program for Honduras.
The negotiations resulted in a contract on June 4, 1992 entitled "Convention of Technical
Assistance Between the Director General of Civil Aeronautics and the Business Honduras Aircraft
Registry, Ltd." This contract was modified and reaffirmed by the parties in a separate agreement on
December 16, 1993. Together, the contract and its amendment provided that the Government of
Honduras would upgrade and modernize the Honduran civil aeronautics program to comply with
international aviation laws, and that the plaintiff companies would provide goods and services to aid
Honduras in achieving this goal.1
Specifically, under the June 4, 1992 contract the plaintiff companies agreed to:
Provide a center of computing and adequate installation for the airworthiness section,
including computers, photocopiers, telex, typewriters and fax, development of necessary
1
Omega Air S de RL is an air carrier intervenor. In its brief, Omega Air generally supports
the position of plaintiffs and claims to be a third party beneficiary of the contract in question.
2
programs for the establishment of the data base with the information related with the aircraft
to be inspected and that will be under Honduran registry. To start, the equipment will be that
which is necessary to manage the data of 100 aircraft and must provide additional equipment
each time that the necessities of expansion require it. It is understood that this equipment
will be permanently in communication with the principal data base managed in the Offices
of the Inspector located in Miami, Florida, USA and will be accessed by modem.2
Also under this contract, the plaintiff companies were to provide technical manuals for the different
types of aircraft seeking registration, as well as personnel to staff the operation. They further agreed
to publicize and promote the Honduran air registry in the United States and around the world, to
involve Honduran government personnel in educational seminars and to provide for additional
training. Plaintiff companies also claim to have drafted the Civil Aeronautics Regulations for
Honduras.3 The parties left the June 4 contract open ended; plaintiff companies were to "provide
additional equipment each time the necessity of expansion required."
In addition to reaffirming the June 4 contract, the December 16, 1993 agreement clarified
and amplified some aspects of the original contract. The plaintiff companies agreed to provide
Honduras with economic assistance in completing aircraft inspections outside Honduras and
establishing cooperative relationships with the United States Federal Aviation Administration
(FAA), the International Organization of Civil Aeronautics, and the air authorities of other nations.
A location change is not in the contract; however, the parties agreed separately that they would
move their data base from Miami to Key Largo, Florida, where plaintiff companies hired four
employees. At the heart of this case, though, lies the fact that plaintiff companies claim these two
contracts gave them the right to inspect commercial aircraft for certification in Honduras and to
charge the aircraft owners a fee for that service.
2
The "Inspector" is a name given one of the principal officers of one of the plaintiff
companies.
3
Plaintiffs in their brief claim the contract states that the Government of Honduras entered
into the contract to "generate foreign currency and a substantial income" for Honduras. We do
not find that provision in the contract itself, but that language does appear in an affidavit by the
president of the Registry attached to the complaint which states the generation of fees was in part
why the Government of Honduras entered into the Agreement. This argument is considered
later.
3
Under the Chicago Convention of the International Civil Aviation Organization (ICAO), to
which Honduras and the United States are both signatories, nations may delegate to private entities
the authority to issue Certificates of Airworthiness on behalf of the authorizing government. Those
private entities are known as Designated Airworthiness Representatives ("DAR"). In the United
States, for example, the FAA authorizes DARs to issue airworthiness certificates and perform
maintenance functions on the FAA's behalf. To fulfill the contract at issue here, plaintiff companies
recruited DARs in the United States, Kenya, Switzerland, South Africa and the United Kingdom.
Plaintiffs also provided the equipment and economic assistance to inspect planes outside Honduras.
In 1994, the leadership of Honduras changed. In August of that year Honduras, without prior
notice to plaintiff companies, abrogated the contract. Plaintiff companies then filed this suit against
Honduras and individually against Guillermo Chirinos, Director General of Civil Aeronautics of
Honduras. The plaintiff companies claim they fully performed under the contract during its
existence, but allege that Honduras breached the contract and was unjustly enriched because it did
not pay plaintiffs for the goods and services that they had already furnished under the contract.
Plaintiffs also allege that Chirinos tortiously interfered with plaintiffs' business relationships by
advising third parties that the aircraft already registered by plaintiffs' efforts were not properly
registered and that the contract with plaintiffs was unlawful. The plaintiffs claim this interference
caused the grounding of a minimum of twenty aircraft that they had previously processed, and they
seek damages in excess of one million dollars.
DISCUSSION
We review the denial of appellant's motion to dismiss de novo as to the law, Mutual
Assurance Inc. v. United States, 56 F.3d 1353 (11th Cir.1995), but we apply the clear error standard
to any findings of fact. Brown v. Valmet-Appleton, 77 F.3d 860 (5th Cir.1996).
A. The FSIA
The FSIA regulates subject matter jurisdiction and provides the only basis for courts in this
country to acquire jurisdiction over a foreign state. It provides that a foreign state is immune from
4
the jurisdiction of the United States unless an FSIA statutory exemption is applicable. 28 U.S.C.
§§ 1604, 1605-7 (1994); Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 610-11, 112 S.Ct.
2160, 2163-65, 119 L.Ed.2d 394 (1992). The only statutory exemption to foreign sovereign
immunity at issue in this case is the commercial activity exemption at 28 U.S.C. § 1605(a)(2). It
provides that:
(a) A foreign state shall not be immune from the jurisdiction of courts of the United States
or of the States in any case -
...
(2) in which the action is based upon a commercial activity carried on in the United States
by the foreign state; or upon an act performed in the United States in connection with a
commercial activity of the foreign state elsewhere and that act causes a direct effect in the
United States;
28 U.S.C. § 1605(a)(2). The statute defines a "commercial activity" as:
[E]ither a regular course of commercial conduct or a particular commercial transaction or
act. The commercial character of an activity shall be determined by reference to the nature
of the course of conduct or particular transaction or act, rather than by reference to its
purpose.
28 U.S.C. § 1603(d). Honduras claims the commercial exemption does not apply because plaintiff
companies' causes of action are based upon the sovereign acts, not commercial acts, of Honduras.
For sovereign acts the defendants presumptively enjoy immunity. Nelson, 507 U.S. 349, 359-60,
113 S.Ct. 1471, 1478-79, 123 L.Ed.2d 47. Therefore, Honduras argues, the district court erred in
not dismissing plaintiffs' complaint.
The Supreme Court explained the FSIA statutory definition of commercial activity in Nelson
when it noted that a state engages in commercial activity "where it exercises only those powers that
can also be exercised by private citizens, as distinct from those powers peculiar to sovereigns. Put
differently, a foreign state engages in commercial activity ... only where it acts in the manner of a
private player within the market." 507 U.S. 349, 360, 113 S.Ct. 1471, 1479, 123 L.Ed.2d 47(quotation marks omitted), citing Weltover, 504 U.S. at 614, 112 S.Ct. at 2166. Honduras argues
that the inspection and registration of aircraft are powers peculiar to sovereigns, as private persons
cannot grant airworthiness certificates and register aircraft.
5
We begin by examining the contract in its context. Honduras had the right to proceed the
way it did in modernizing and expanding its civil aviation program. Only Honduras could actually
admit aircraft to its registry—that is a part of sovereignty upon which others may not encroach. But
this case involves more than the exercise of that sovereign right. Apparently Honduras did not have
the resources or the technical expertise to conduct its own aircraft inspections or to set up a registry.
Its civil air program needed people with the know-how, ability and the economic resources to
establish a data bank, write regulations, train government people, and do and provide the other
things needed to register, inspect and certify aircraft. Honduras therefore ventured into the
marketplace to find the expertise and resources needed to accomplish those tasks. All of those
underlying activities were commercial in nature and of the type negotiable among private parties.
After receiving the plaintiff companies' proposal, Honduras first directed that one of the companies
be incorporated in Honduras, and it then contracted with the plaintiffs for certain goods, services,
and other economic assistance to support its new civil air program. Contracting with the plaintiff
companies was, in context, an easy way for Honduras to not only upgrade and expand its civil air
program even outside Honduras, but also to derive a profit in the process. By hiring the plaintiffs,
Honduras overcame its own economic and expertise deficiencies. Honduras could have stayed out
of the marketplace by keeping this project all under the sovereignty umbrella. It could have
explored the possibility of hiring plaintiffs and plaintiffs' personnel as government employees.
Instead, however, Honduras exercised its business judgment and contracted in the marketplace with
non-government companies to do and supply what it needed. Without plaintiff companies' private
help Honduras likely would not have had a new aircraft inspection and certification service.
The foregoing discussion serves only to clarify and put in context why and how the parties
came to the contract. The FSIA limits what we may consider in determining whether an activity is
commercial in character. Only the "nature" of the act, not the "purpose" or "motivation" for the act,
is determinative. For example, in ascertaining whether the FSIA commercial exception applies, it
is irrelevant that Honduras may have had a possible profit motive or that Honduras may have
6
intended only to fulfill its unique sovereign objectives. See Nelson, 507 U.S. at 359, 113 S.Ct. at
1478-79; Weltover, 504 U.S. at 614, 112 S.Ct. at 2166.
Within those limitations, therefore, we must determine whether the FSIA commercial
exception applies. It is undisputed that a foreign sovereignty is "absolutely immune" from the
jurisdiction of foreign courts for its sovereign and public acts. See Restatement (Third) of the
Foreign Relations Law of the United States § 451 (1987). A foreign state loses its immunity if it
engages in commercial activity, however, because then it is exercising the same powers that a
private citizen might exercise. Weltover, 504 U.S. at 614, 112 S.Ct. at 2166. That is, a foreign state
is commercially engaged when it acts like an ordinary private person, not like a sovereign, in the
market.
The plaintiff companies state that this is exactly what Honduras did—it entered the
marketplace to shop for goods and services in connection with setting up the desired new civil
aviation program. Honduras disagrees, and argues that it would be impossible for a private person
to contract with another private person to establish a government aircraft registry. Private
entrepreneurs could not register aircraft under their own "private flag" as Honduras can under the
Honduran flag. It is not disputed that sovereign states have sovereign rights not only over their
physical territory, but also in the airspace above. We agree that actually registering aircraft under
the Honduras flag is an act peculiar to its sovereignty and cannot fall within the FSIA commercial
activity exception. Plaintiffs, however, are not contending that the contract gave them the right to
register aircraft, and they are not bringing this lawsuit to obtain that right. Instead, they contracted
to provide goods and services to Honduras in connection with its expanded civil air program by
inspecting and certifying aircraft airworthiness so that Honduras would be able to appropriately
register the aircraft under its flag. They merely seek to enforce that contract.
The complicated part about this particular contract, though, is that it involves both
commercial rights and Honduras' sovereign right to register aircraft. If possible, we must attempt
to determine if these two distinct rights are separable. Honduras cannot plausibly argue that
7
purchasing such things as office equipment, manuals, training, personnel, promotional and similar
services, and being supplied even financial help, are exclusively sovereign tasks and that Honduras
may thus escape its contractual duty to pay for them. Even the caption of the original June 4
contract, as well as its December 16 amendment, acknowledge that the contract was for "technical
assistance." Although its terms are not always as clear and specific as could be wished, the
agreement does not give plaintiffs the sovereign right to register aircraft under the Honduran flag.
It provides only that plaintiffs would provide the means and do the technical work so that Honduras
itself could then register the aircraft in accordance with the contract. Any party, sovereign or not,
could contract for those goods and services. When Honduras commercially entered the market it
did so as a private player to secure certain technical assistance and whatever else it needed to
upgrade and expand its civil air program. Honduras did not enter the technical assistance market
to regulate that market as a sovereign, but to participate in it as an individual could. The Weltover
court in making that distinction contrasted a government's regulation of the currency market with
a government's contract "to buy army boots or even bullets" for its army which the court labeled
commercial activity. See Weltover, 504 U.S. at 614, 112 S.Ct. at 2166. That same distinction
applies to the present case.
In Weltover the Government of Argentina issued government negotiable bonds which were
marketed to private parties as part of a government plan to stabilize Argentina's currency. Later,
Argentina unilaterally rescheduled the maturity dates of the bonds when it anticipated it would be
unable to financially redeem them. That action had an impact on the bondholders elsewhere,
including in the United States. Id. at 609-10, 112 S.Ct. at 2163-64. In determining whether
Argentina's action was commercial, the Court did not consider Argentina's reasons or motivation for
entering the market. That likely would have immunized the whole transaction as sovereign, because
Argentina issued the bonds to try to stabilize the national currency. The Court held, instead, that
it mattered only that Argentina entered the market where it could find the bond buyers it needed.
Id. at 614, 112 S.Ct. at 2166. That was a commercial, not a sovereign, act because any private
8
person can enter the market. As a result, there was no immunity and the Court allowed the
bondholders' suit against Argentina to proceed. Id. at 617, 112 S.Ct. at 2167-68. The same analysis
applies, then, when the certification and registration of airplanes is involved. Honduras engaged in
marketplace activity the same as private persons can and its actions are not protected by immunity.
To support its argument in favor of immunity, Honduras cites various cases which hold that
a sovereign's acts are immune. All the cases in this area, however, must turn on their own facts and
it is not necessary to try to reconcile them. In MOL, Inc. v. Peoples Republic of Bangladesh, 736
F.2d 1326, 1328-29 (9th Cir.1984), for example, the court held that the granting and then the
revocation of a license to export monkeys was a sovereign act. It was sovereign, the court explains,
because it involved regulating the country's export of its natural resources. The basis of the suit was
not the alleged breach of the government contract for the sale of monkeys, but its revocation of the
export license. That was part of the sovereign's right to regulate its exports and was therefore
immune. That was not a case in which Bangladesh bargained for goods and services in the market
and did not pay for them.
In Justice White's dissent in Nelson he cites the testimony of a State Department officer who
noted that there is no justification in international law for allowing a foreign state which enters the
market as a private party to avoid the costs it incurs and shift the "everyday burdens of the
marketplace onto the shoulders of private parties." 507 U.S. 349, 366 n. 2, 113 S.Ct. 1471, 1482 n.
2, 123 L.Ed.2d 47 (White, J. dissenting).4 There is no justification for Honduras to try to shift to the
plaintiffs its ordinary marketplace obligations for the goods and services that plaintiff companies
furnished. At a minimum, Honduras would be unjustly enriched as plaintiffs allege in count II of
the complaint.
4
This particular statement from the dissent is not in conflict with the majority opinion as the
case turned on its particular facts.
9
Jurisdiction is properly in the Southern District of Florida. Our observations and holding are
only for the purpose of reviewing the denial of the motion to dismiss. We do not intend to prejudge
the merits which will have to await trial.
The district court also found that jurisdiction was satisfied under § 1605(a)(2) of the FSIA,
based upon an act outside the territory of the United States in connection with commercial activity
of Honduras which caused a direct effect in the United States. Those effects can be easily seen; as
the district court noted, the offices and registry database were to be established and maintained in
Florida, computers and other equipment were to be purchased in the United States, plaintiffs had
DARs in Florida and had established a network of aircraft inspectors in the United States. 883
F.Supp. 685, 689. The only arguable aspect of the FSIA jurisdiction requirements is the commercial
activity exemption, but that we have just passed on. We agree with the district court's findings, and
we therefore affirm the district court on the FSIA issue.
B. Act of State Doctrine
Honduras seeks in the alternative to have the case dismissed under the act of state doctrine.
Under this doctrine, Honduras argues, the courts of the United States should not pass on the validity
of Honduras' alleged decision to terminate registration under the Honduran flag of aircraft processed
by plaintiff companies. The act of state doctrine limits, for prudential rather than jurisdictional
reasons, the courts in this country from inquiring into the validity of a recognized foreign sovereign's
public acts committed within its own territory. Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398,
401, 84 S.Ct. 923, 926, 11 L.Ed.2d 804 (1964); Walter Fuller Aircraft Sales, Inc. v. Rep. of
Philippines, 965 F.2d 1375, 1387 (5th Cir.1992). The doctrine is fully discussed in W.S. Kirkpatrick
& Co., Inc. v. Environmental Tectonics Corp., Int'l, 493 U.S. 400, 408, 110 S.Ct. 701, 706, 107
L.Ed.2d 816 (1989), where the Court explains that the policies underlying the doctrine are
"international comity, respect for the sovereignty of foreign nations on their own territory, and the
avoidance of embarrassment to the Executive Branch in its conduct of foreign affairs." Id. The
Ninth Circuit discussed the application of the doctrine in Liu v. Republic of China, 892 F.2d 141910
(9th Cir.1989), and it reiterates that the burden of proving acts of state rests on the party asserting
the application of the doctrine. Id. at 1432, citing Alfred Dunhill of London, Inc. v. Republic of
Cuba, 425 U.S. 682, 694-95, 96 S.Ct. 1854, 1861, 48 L.Ed.2d 301. Accepting jurisdiction of this
issue, our standard of review is different from that applied under the FSIA in the denial of the
motion to dismiss. More is involved than accepting what the complaint alleges as true. The act of
state doctrine does not limit courts' jurisdiction as the FSIA does, but it is flexibly designed to avoid
judicial action in sensitive areas. Liu, 892 F.2d at 1431.
The district court found Honduras' act of state doctrine argument to be without merit. The
court discussed some of the underlying principles of the doctrine, but its reason for finding the
doctrine inapplicable appears to be that this case involves a perceived commercial exception to the
doctrine as under the FSIA. However, there is no commercial exception to the act of state doctrine
as there is under the FSIA. The factors to be considered, as recited in Kirkpatrick, may sometimes
overlap with the FSIA commercial exception, but a commercial exception alone is not enough. The
district court may have been correct in holding the doctrine was no bar to this case, but whatever the
result may be it must be reached only after consideration of the pertinent factors. On this issue,
therefore, we must vacate the result reached and remand to the district court for further consideration
under the controlling factors mentioned above.
C. Forum Non Conveniens
After considering some of the various criteria, the district court determined that the Southern
District of Florida was not a forum non conveniens for this case. Walter Fuller, a case which also
involves the FSIA and the act of state doctrine, sets forth and discusses the factors to be considered
when determining whether a particular forum is a forum non conveniens, including "the threshold
question whether there exists an alternative forum." 965 F.2d at 1389. In our judgment the Fifth
Circuit wisely concluded that it was "inappropriate to reach out and decide the forum non
conveniens issue in a case in which [its] appellate jurisdiction is carefully defined by concerns about
enforcing the immunity of foreign sovereigns from litigation." Id. at 1390. The issue of forum non
11
conveniens is "not closely related to the considerations involved in reviewing decisions concerning
either sovereign immunity or the act of state doctrine." Id. at 1389. We agree, and decline at this
time to exercise our pendent jurisdiction. The appeal of Honduras with respect to this issue is
dismissed without prejudice.
CONCLUSION
The district court's decision as to the application of the FSIA is AFFIRMED, as to the act
of state doctrine it is VACATED and REMANDED for further consideration, and the appeal as to
forum non conveniens is DISMISSED without prejudice.
12