Mykola Ivanenko v. Viktor Yanukovich ( 2021 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 22, 2021 Decided April 23, 2021
No. 20-7033
MYKOLA IVANENKO, ET AL.,
APPELLANTS
v.
VIKTOR YANUKOVICH, ET AL.,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 1:18-cv-00812)
Kenneth Foard McCallion argued the cause and filed the
briefs for appellants.
Robert M. Shaw argued the cause for appellee Government
of Ukraine. With him on the brief was Cynthia A. Gierhart.
Before: HENDERSON and ROGERS, Circuit Judges, and
RANDOLPH, Senior Circuit Judge.
Opinion of the Court filed by Circuit Judge ROGERS.
2
ROGERS, Circuit Judge: Appellants Luxexpress–II Ltd.,
Luxexpress 2016 Corporation, Alamo Group Inc., and Mykola
and Larysa Ivanenko challenge the district court’s dismissal of
their claims against Ukraine for lack of subject–matter
jurisdiction pursuant to the Foreign Sovereign Immunities Act
(“FSIA”), 28 U.S.C. § 1602 et seq. They contend that three
exceptions to the FSIA confer jurisdiction: expropriation of
property in violation of international law, commercial activity,
and waiver. See id. § 1605(a)(1)–(3). Because none abrogates
Ukraine’s sovereign immunity, we affirm.
I.
Taking as true the factual allegations in the second
amended complaint and the declarations, see Schubarth v. Fed.
Republic of Germany, 891 F.3d 392, 395 (D.C. Cir. 2018),
Mykola and Larysa Ivanenko, husband and wife, are Ukrainian
nationals, 2d Am. Compl. ¶¶ 20–21. In 1993, they formed
Luxexpress–II Ltd., an automobile import business based in
Kyiv, Ukraine, which focused primarily on American–made
vehicles. Id. ¶¶ 22, 73. Pursuant to various ordinances, written
approvals, and lease agreements, Luxexpress–II leased “one of
the most prestigious and valuable plots of land in Kyiv” on the
banks of the Dnieper River. Id. ¶ 23; see id. ¶¶ 73–75, 77–79.
Relying on these agreements, Alamo Group Inc., an American
export company based in Atlanta, Georgia, began doing
business with Luxexpress–II in 2002. Id. ¶¶ 19, 81, 90. It
loaned $300,000 to Luxexpress–II and entered into a $5 million
contract to supply vehicles and auto parts. Id. ¶ 84. In addition,
Alamo Group and Luxexpress–II executed a no–cost lease,
whereby they agreed to share office space with one another in
Atlanta and Kyiv. Id. ¶ 86. The venture was “hugely
successful,” helping Luxexpress–II to become one of Ukraine’s
leading companies. Id. ¶ 82.
3
In December 2003, the Cabinet Ministers of Ukraine
approved the construction of a road and railway bridge across
the portion of the Dnieper River that bisects Kyiv. Id. ¶ 95. A
few months later, the Ministry of Transport and the “State
Administration of Railway Transport of Ukraine South–
Western Railway” notified Luxexpress–II that its property lay
in the project’s path and its leases could be terminated. Id. ¶ 98.
Luxexpress–II repeatedly provided the Ministry of Transport
with estimates of the property’s value so that it could be
acquired at a fair market rate, but negotiations with the
Ministry of Transport reached an impasse. See id. ¶¶ 100–05.
Luxexpress–II filed suit in the Kyiv District Court, which ruled
in its favor in 2006. Id. ¶ 107. But Ukraine appealed to the
Supreme Court of Ukraine, which vacated the judgment. See
id. ¶¶ 108–16.
Although the issue of compensation remained unresolved,
the Cabinet Ministers informed Luxexpress–II in October 2009
that it intended to move forward with the project. Id. ¶ 120.
Despite this warning, Luxexpress–II endeavored to expand its
operations on the condemned property, including arranging
meetings to explore opening a Harley–Davidson motorcycle
dealership and a Marriott hotel. Id. ¶¶ 130–33. Those plans
crumbled on July 25, 2012, when the Ivanenkos learned that
their buildings and equipment had been “totally demolished.”
Id. ¶ 134. Alamo Group never recovered the automobiles and
parts that it kept at the property. Mark Reznick, Decl. ¶ 24.
According to appellants, the property never became a railway
bridge; instead, it was converted into a sports facility owned by
relatives of the former Director General of the Ukraine South–
Western Railway. 2d Am. Compl. ¶ 11. With their business in
ruins and facing death threats for having accused Ukrainian
officials of graft, the Ivanenkos left Ukraine and sought
political asylum in the United States. Id. ¶¶ 147–49.
4
In May 2015, Luxexpress–II and the Ivanenkos filed suit
against thirty Ukrainian officials in the Southern District of
New York and shortly thereafter amended their complaint to
add Ukraine as a defendant. See Luxexpress 2016 Corp. v.
Gov’t of Ukraine, No. 15–CV–4880 (VSB), 2018 WL
1626143, at *2 (S.D.N.Y. Mar. 30, 2018). Following a pre–
motions conference, the district court granted appellants leave
to further amend their complaint. Id. The second amended
complaint, filed by Luxexpress–II, Luxexpress 2016
Corporation (the successor in interest to Luxexpress–II),
Alamo Group, and the Ivanenkos, alleged violations of the
Racketeer Influenced and Corrupt Organizations Act, 18
U.S.C. § 1962, as well as claims for wrongful expropriation,
fraud, abuse of process, and conversion. See id. at *1. Ukraine
moved to dismiss, and the district court, finding that venue was
improper, transferred the case to the District of Columbia. Id.There, Ukraine renewed its motion to dismiss, arguing that
it was entitled to sovereign immunity pursuant to the FSIA.
The district court agreed, concluding that none of the three
FSIA exceptions invoked by appellants conferred jurisdiction.
Luxexpress 2016 Corp. v. Gov’t of Ukraine, No. 18–cv–812
(TSC), 2020 WL 1308357, at *10 (D.D.C. Mar. 19, 2020). It
rejected appellants’ reliance on the FSIA’s expropriation
exception, reasoning that Ukraine’s taking of its own citizens’
property did not violate international law and that Alamo
Group failed to plausibly allege that its property was operated
by an instrumentality of Ukraine engaged in commercial
activity in the United States. Id. at *3–6. The FSIA’s
commercial activity exception did not vitiate Ukraine’s
immunity, the district court explained, because the alleged
taking was an exercise of sovereign authority, not commercial
conduct. Id. at *6. And the district court found that Ukraine
had not waived its immunity and thus the FSIA’s waiver
5
exception was inapplicable. Id. at *8–9. After the district court
dismissed Ukraine from the suit with prejudice, see Order
(Mar. 19, 2020), appellants voluntarily dismissed the
individual defendants and noted this appeal.
II.
Pursuant to the FSIA, “a foreign state shall be immune
from the jurisdiction of the courts of the United States” unless
one of the statute’s enumerated exceptions applies. 28 U.S.C.
§ 1604. The FSIA thus “provides the sole basis for obtaining
jurisdiction over a foreign state in the courts of this country.”
Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S.
428, 443 (1989). This broad grant of immunity reflects “the
absolute independence of every sovereign authority and helps
to induce each nation state, as a matter of international comity,
to respect the independence and dignity of every other,
including our own.” Bolivarian Republic of Venezuela v.
Helmerich & Payne Int’l Drilling Co., 137 S. Ct. 1312, 1319
(2017) (internal quotation marks, alteration, and citation
omitted).
The court reviews de novo the district court’s jurisdictional
determinations. Schubarth, 891 F.3d at 398. Where, as here,
the dispute centers on the sufficiency of the plaintiffs’
jurisdictional allegations, “dismissal is warranted if no
plausible inferences can be drawn from the facts alleged that,
if proven, would provide grounds for relief.” Id. (quoting Price
v. Socialist People’s Libyan Arab Jamahiriya, 294 F.3d 82, 93
(D.C. Cir. 2002)). It is the defendant’s burden to establish
sovereign immunity, “including that ‘the plaintiff’s allegations
do not bring its case within a statutory exemption to
immunity.’” Id. (quoting Phoenix Consulting Inc. v. Republic
of Angola, 216 F.3d 36, 40 (D.C. Cir. 2000)).
6
Appellants challenge the district court’s dismissal of
Ukraine, contending that the second amended complaint sets
forth sufficient facts to establish three FSIA exceptions: the
expropriation exception, the commercial activity exception,
and the waiver exception. 28 U.S.C. § 1605(a)(1)–(3). We
disagree.
A.
Appellants first maintain that the FSIA’s expropriation
exception permits their lawsuit against Ukraine. In their view,
Ukraine’s “total destruction” of their property was a taking in
violation of international law, particularly because Ukraine
acted with the “discriminatory intent” to punish the Ivanenkos
for promoting Western business interests. Pls.’ Br. 22.
Relevant here, the FSIA’s expropriation exception divests a
foreign state of its immunity in any action “in which rights in
property taken in violation of international law are in issue and
that property or any property exchanged for such property . . .
is owned or operated by an agency or instrumentality of the
foreign state and that agency or instrumentality is engaged in a
commercial activity in the United States.” 28 U.S.C.
§ 1605(a)(3). “For the exception to apply, therefore, the court
must find that: (1) rights in property are at issue; (2) those rights
were taken in violation of international law; and (3) a
jurisdictional nexus exists between the expropriation and the
United States.” Schubarth, 891 F.3d at 398–99 (quoting
Nemariam v. Fed. Democratic Republic of Ethiopia, 491 F.3d
470, 475 (D.C. Cir. 2007)).
The district court correctly determined that appellants’
lawsuit does not fall within the FSIA’s expropriation
exception. With respect to Luxexpress–II and the Ivanenkos,
their claims are barred by the “domestic takings rule,” which
provides that a foreign state’s seizure of its citizens’ property
7
within its territory does not violate international law. See Fed.
Republic of Germany v. Philipp, 141 S. Ct. 703, 709 (2021);
United States v. Belmont, 301 U.S. 324, 332 (1937). At the
time the district court ruled on Ukraine’s motion to dismiss, the
law of this circuit was that an intrastate taking was “ordinarily
not a concern of international law” and therefore, “as a general
matter, a plaintiff bringing an expropriation claim involving an
intrastate taking cannot establish jurisdiction under the FSIA’s
expropriation exception.” Simon v. Republic of Hungary, 812
F.3d 127, 144–45 (D.C. Cir. 2016), abrogated by Philipp, 141
S. Ct. 703. But that rule was not absolute. For instance, this
court had recognized that a foreign state’s seizure of its
citizen’s property in furtherance of a genocide violated
international law within the meaning of the FSIA’s
expropriation exception. See id. at 132. While this appeal was
pending, however, the Supreme Court repudiated this court’s
approach, holding in Federal Republic of Germany v. Philipp,
141 S. Ct. 703 (2021), that the domestic takings rule admits of
no exception, id. at 715. Therefore, Ukraine’s alleged taking
of property owned by Luxexpress–II and the Ivanenkos does
not implicate § 1605(a)(3).
Although the domestic takings rule does not apply to
Alamo Group, it failed to show that its property is “owned or
operated” by an instrumentality of Ukraine. 28 U.S.C.
§ 1605(a)(3). To start, the second amended complaint lacks
any allegations that an instrumentality of Ukraine took control
of appellants’ property after it was seized in 2012. In fact,
appellants claimed that while their property was ostensibly
taken to construct a railway bridge, it was actually used to build
a sports facility owned by relatives of the Former Director
General of the Ukraine South–Western Railway. 2d Am.
Compl. ¶ 11. Moreover, even assuming, arguendo, that the
Ukraine South–Western Railway occupies the land that
Luxexpress–II had leased, there are no allegations that it
8
“owned or operated” Alamo Group’s property. Rather,
appellants alleged that Ukraine “totally demolished” their
“business and buildings.” Id. ¶ 134. In the same vein, Mark
Reznik, Alamo Group’s principal owner, attested that Ukraine
“destroyed” the computers and other equipment that Alamo
Group kept in Luxexpress–II’s building and “stole” its
automobiles and auto parts. Reznik Decl. ¶¶ 23–24. As such,
the FSIA’s expropriation exception does not apply to Alamo
Group’s claims against Ukraine. See Nemariam, 491 F.3d at
481.
B.
Appellants’ second contention is that the FSIA’s
commercial activity exception defeats Ukraine’s immunity.
That exception contains three clauses each of which establishes
an independent basis for asserting jurisdiction over a foreign
state based on its commercial activities. 28 U.S.C.
§ 1605(a)(2). This case implicates the third clause, which
permits a suit to proceed against a foreign state if it is based
“upon an act outside the territory of 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.” Id. Known as the “direct effect” clause, it applies if
three requirements are met: (1) “the lawsuit must be based upon
an act that took place outside the territory of the United States”;
(2) “the act must have been taken in connection with a
commercial activity”; and (3) “the act must have caused a
direct effect in the United States.” Rong v. Liaoning Province
Gov’t, 452 F.3d 883, 888–89 (D.C. Cir. 2006) (citing Republic
of Argentina v. Weltover, 504 U.S. 607, 611 (1992)).
Appellants’ reliance on the commercial activity exception
founders on the second element — that Ukraine’s alleged
conduct was “in connection with a commercial activity.” The
9
FSIA instructs that the “commercial character of an activity
shall be determined by reference to the nature of” the activity,
“rather than by reference to its purpose.” 28 U.S.C. § 1603(d).
To determine the nature of an activity, the court examines
whether the foreign state’s actions “are the type of actions by
which a private party engages in ‘trade and traffic or
commerce.’” Weltover, 504 U.S. at 614 (citation omitted). A
foreign state engages in commercial activity when it “exercises
‘only those powers that can also be exercised by private
citizens,’ as distinct from those ‘powers peculiar to
sovereigns.’” Saudi Arabia v. Nelson, 507 U.S. 349, 360
(1993) (quoting Weltover, 504 U.S. at 614).
This court addressed whether the expropriation of property
qualifies as commercial activity in Rong, 452 F.3d 883. In that
case, Rong, a Chinese national, sued a subdivision of China,
alleging that the province unlawfully seized his automobile
manufacturing company without compensation and sold the
assets to a wholly–owned state entity. See id. at 885–87. The
court affirmed the dismissal of Rong’s suit, rejecting his
contention that the province engaged in commercial activity
within the meaning of § 1605(a)(2). Id. at 891. Although
acknowledging that the province’s takeover and management
of Rong’s company “seem commercial,” the court observed
that “these acts flow from the Working Committee’s ‘state
assets’ declaration — an act that can be taken only by a
sovereign.” Id. at 889. Consequently, the taking “constituted
a quintessentially sovereign act, not a corporate takeover,” and
so the commercial activity exception did not apply. Id. at 890.
As in Rong, appellants’ lawsuit stems from an exercise of
eminent domain. They allege that Ukraine “took [their]
business and property as part of a concerted plan and scheme
to expropriate pro–Western businesses.” 2d Am. Compl. ¶ 6.
That scheme, appellants claim, was orchestrated “by Ukrainian
10
government officials,” including the Office of the President,
“to benefit those government officials and their family
members.” Id. ¶ 1. These allegations describe conduct that is
“quintessentially sovereign,” Rong, 452 F.3d at 890, and which
could not have been carried out by a private participant in the
marketplace, see Nelson, 507 U.S. at 362. It follows that
appellants cannot satisfy the FSIA’s commercial activity
exception.
Notwithstanding Rong, appellants insist that Ukraine’s
conduct qualifies as commercial activity because Ukraine’s
“real purpose” for expropriating their property was to use it “as
a golf course and sports facility, which was operated
commercially.” Pls.’ Br. 31. This contention is foreclosed by
the Supreme Court’s precedent and those of this court. As the
Supreme Court has explained, “whether a state acts ‘in the
manner of’ a private party is a question of behavior, not
motivation.” Nelson, 507 U.S. at 360; see Weltover, 504 U.S.
at 614. Consistent with that teaching, this court concluded in
Cicippio v. Islamic Republic of Iran, 30 F.3d 164 (D.C. Cir.
1994), that state–supported hostage taking is not commercial
activity, id. at 167–68. Similarly, in Mwani v. bin Laden, 417
F.3d 1 (D.C. Cir. 2005), the court refused to view
Afghanistan’s harboring of terrorist camps as the “provision of
land for money,” observing that, “in determining whether
particular conduct constitutes commercial activity,” the “key”
question “is not to ask whether its purpose is to obtain money,
but rather whether it is ‘the sort of action by which private
parties can engage in commerce,’” id. at 17 (quoting Nelson,
507 U.S. at 362). And in Rong, 452 F.3d at 890, the court held
that the province’s “subsequent acts” with Rong’s property
“did not transform the . . . expropriation into commercial
activity.” Were it otherwise, the court observed, “almost any
subsequent disposition of expropriated property could allow
the sovereign to be haled into federal court under FSIA,” an
11
outcome “inconsistent with [the court’s] precedent, the
decisions of other circuits, and the [FSIA’s] purpose.” Id. So
too here, Ukraine’s motives and its subsequent use of
appellants’ property do not alter the analysis.
C.
Finally, appellants contend that the FSIA does not bar their
lawsuit because Ukraine waived its sovereign immunity. The
FSIA allows courts to exercise jurisdiction over a foreign state
if it “waived its immunity either explicitly or by implication.”
28 U.S.C. § 1605(a)(1). A foreign state explicitly waives its
sovereign immunity in a treaty or contract only if it “clearly
and unambiguously” agrees to suit. World Wide Minerals, Ltd.
v. Republic of Kazakhstan, 296 F.3d 1154, 1162 (D.C. Cir.
2002); cf. Amerada Hess Shipping, 488 U.S. at 442–43. As for
implied waivers, this court has recognized that a foreign state
implicitly dispenses with its immunity in only three
circumstances: by (1) executing a contract containing a choice–
of–law clause designating the laws of the United States as
applicable; (2) filing a responsive pleading without asserting
sovereign immunity; or (3) agreeing to submit a dispute to
arbitration in the United States. World Wide Minerals, 296
F.3d at 1161 n.11; see Foremost–McKesson, Inc. v. Islamic
Republic of Iran, 905 F.2d 438, 444 (D.C. Cir. 1990). In either
instance, the touchstone of the waiver exception remains the
same: “that the foreign state have intended to waive its
sovereign immunity.” Creighton Ltd. v. Gov’t of Qatar, 181
F.3d 118, 122 (D.C. Cir. 1999) (emphasis added).
According to appellants, Ukraine waived its immunity by
entering into a bilateral investment treaty with the United
States in 1994. Alternatively, they submit that Ukraine waived
its immunity in 2016 when then–President Petro Poroshenko
issued a decree authorizing the Ministry of Justice to litigate
12
and settle claims brought by Ukrainian nationals in foreign
courts. These contentions fail. The treaty on which appellants
rely — the Treaty Between the United States of America and
Ukraine Concerning the Encouragement and Reciprocal
Protection of Investment, Ukr.–U.S., Mar. 4, 1994, T.I.A.S.
No. 96–1116 — merely obligates each signatory nation to
entertain certain suits in its own courts. Article III of the treaty,
which addresses the expropriation of property, states: “A
national or company of either Party that asserts that all or part
of its investment has been expropriated shall have a right to
prompt review by the appropriate judicial or administrative
authorities of the other Party.” Id., art. III, ¶ 2. Likewise,
Article VI provides that an individual or company may resolve
an investment dispute involving a signatory nation in “the
courts or administrative tribunals of the Party that is a party to
the dispute.” Id., art. VI, ¶ 2(a). Thus, the treaty’s terms do not
amount to a clear and unambiguous waiver of Ukraine’s
sovereign immunity in United States courts.
Appellants’ reliance on a 2016 presidential decree is also
unavailing. That decree defines a “foreign entity” for the
purposes of Ukrainian law to include “citizens of Ukraine” who
“present in a foreign jurisdiction body a claim against
Ukraine.” Decree of the President of Ukraine On Amending
the Procedure of Protection of Rights and Interests of Ukraine
during Settlement of Disputes, Proceedings in Foreign
Jurisdiction Bodies of Cases Involving a Foreign Entity and
Ukraine, No. 60/2016, ¶ 3 (Feb. 22, 2016). In so doing, the
decree empowers Ukraine’s Ministry of Justice to represent
Ukraine in these suits and, among other things, to “take
measures necessary to reach agreements with a foreign entity
. . . on mutually beneficial and mutually acceptable terms.” Id.
¶ 6(1). These general and ambiguous provisions are not
tantamount to an express waiver of sovereign immunity,
especially as the decree also authorizes the Ministry of Justice
13
to present “Ukraine’s immunity in a case initiated in a foreign
jurisdiction body on a claim against Ukraine.” Id. ¶ 7(3). Nor
does the decree impliedly waive Ukraine’s immunity as it does
not contain either a choice–of–law provision or an agreement
to arbitrate in the United States. In sum, because neither the
treaty nor the decree meet “the exacting showing required for
waivers of foreign sovereign immunity,” Odhiambo v.
Republic of Kenya, 764 F.3d 31, 35 (D.C. Cir. 2014),
appellants’ lawsuit cannot proceed under the FSIA’s waiver
exception.
Accordingly, the court affirms the district court’s
dismissal of Ukraine for lack of subject–matter jurisdiction.