S & Davis International v. Republic of Yemen

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
____________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
JULY 21 2000
No. 99-10880
THOMAS K. KAHN
____________________ CLERK
D.C. Docket No. 98-03141-CV-J-NW
S & DAVIS INTERNATIONAL, INC.,
Plaintiff-Appellee,
versus
YEMEN, THE REPUBLIC OF,
MINISTRY OF SUPPLY AND TRADE,
Defendant-Appellant.
___________________________
Appeal from the United States District Court
for the Northern District of Alabama
___________________________
(July 21, 2000)
Before EDMONDSON, HULL and WOOD*, Circuit Judges.
HARLINGTON WOOD, Jr., Circuit Judge:
*
Honorable Harlington Wood, Jr., U.S. Circuit Judge for the Seventh Circuit, sitting by
designation.
S & Davis International, Inc. (“S & Davis”) filed suit in the Northern District
of Alabama to enforce an arbitration award against the General Corporation for
Foreign Trade and Grains (“General Corporation”) of Yemen. The suit arose from a
breach of contract dispute. S & Davis also named the Ministry of Supply & Trade
(the “Ministry”) and The Republic of Yemen as defendants, asserting that the General
Corporation was controlled by the government. The Ministry filed a motion to
dismiss, claiming immunity under the Foreign Sovereign Immunities Act of 1976
(“FSIA”). The district court held there was sufficient subject matter jurisdiction and
personal jurisdiction to proceed. The Ministry appeals. The district court’s
interlocutory order denying immunity is reviewable under 28 U.S.C. § 1291 and the
“collateral order doctrine” established in Cohen v. Beneficial Industrial Loan Corp.,
337 U.S. 541, 546 (1949). We affirm. Due to the fact that the district court order did
not contain any findings of fact and conclusions of law, we must include greater detail
in our analysis for clarity on the issues.
I. FACTS
On May 14, 1996, the General Corporation, a Yemeni corporation, executed a
contract with S & Davis, an Alabama corporation, to purchase 300,000 metric tons of
wheat at a price of $274.88 per ton. The contract was prepared “according to the
instructions of the Ministry of Supply & Trade,” and “[a]ll aspects of the contract
2
were reportedly being discussed with the Minister of Supply who appeared to [be] the
principal in the transaction.” Affidavit of Roy David, president and CEO of S &
Davis. In addition to the signatures of the two named parties, A. M. Ali Othman, the
Minister of Supply & Trade of Yemen, also signed the contract, indicating approval
by the Ministry as required under Yemeni law.
The contract specified U.S. wheat No. 2 or better with point of origin from the
U.S., Canada, Australia, South Africa, or Argentina. The wheat was to be shipped
from Portland, Oregon and delivered to Yemen, with freight charges calculated from
Portland. The purchase price was to be paid with a letter of credit issued by the Bank
of Yemen with confirmation by a “U.S.A. prime bank.”1
The contract was negotiated and signed in Yemen. However, the contract
contained an arbitration agreement providing that any dispute was to be arbitrated by
the Grain and Feed Trade Association (“GAFTA”) in London, England.
On May 28, 1996, the General Corporation requested the name of S & Davis’s
appointed bank where the letter of credit was to be opened.2 S & Davis named
1
This description is taken directly from the contract. However, there is no recognized, accepted
definition for the term “prime bank.”
2
Due to the fact that not all of the original documents have been included in the district court
record, some of the specifics concerning the letter of credit are taken from Section 2, The Facts, of
the GAFTA Appeal Award No. 3751, Award of Arbitration No. 12109, June 5, 1998. While these
facts were not contested by either party, we would remind both parties that it is always more reliable
to include direct evidence to support any statements of fact.
3
Citizen’s Bank in New York. On June 6, the General Corporation faxed S & Davis
stating that because prices in the international wheat market had declined
substantially, this had caused a delay in opening the letter of credit. The fax also
asked S & Davis to discount the price by $10.00 per ton “in order to go ahead with
final steps for start of implementation of the Contract.”3
On June 18, the Central Bank of Yemen requested a bank reference for S &
Davis in order to issue the letter of credit. On June 19, the Central Bank
acknowledged receipt of a positive reference from Citizen’s Bank and instructed
sellers to send a copy to the General Corporation’s U.S. bank, the Arab American
Bank in New York. On July 2, 1996, in response to inquiries by S & Davis, the
United States Embassy in Yemen advised the company that the General Corporation
was a government parastatal4 which is required to finance its activities through the
Central Bank of Yemen.
S & Davis provided a copy of a letter from A. M. Ali Othman, the Minister of
Supply & Trade of the Republic of Yemen (the same Minister who had signed the
contract), addressed to the General Corporation, dated July, 10, 1996, advising the
company that the Minister had received information that S & Davis was “not
3
It is not clear from the record or the briefs whether S & Davis refused or agreed to the discount.
4
A company working with the government in an unofficial capacity. Random House Dictionary
of the English Language 1409 (2d ed. 1987).
4
internationally famous and, as such, it is difficult to have confidence in it.” The letter
stated, “We have previously directed you to terminate the contract . . .” and again
repeated, “we gave our instruction to terminate the contract . . . .”
On September 14, the Embassy notified S & Davis that efforts to convince the
Governor of the Central Bank of Yemen to open a letter of credit had failed. The
General Corporation admits it was not able to obtain a letter of credit as required in
the contract. After additional attempts through various political and diplomatic
channels to open a letter of credit, on January 2, 1997, S & Davis declared the General
Corporation had breached the contract and initiated GAFTA arbitration in London.
Both parties agree that S & Davis had never purchased any wheat under the contract.
S & Davis sought damages against both the General Corporation and the
Ministry of Trade, asserting that the General Corporation was not an independent
organization with authority to contract. S & Davis maintains that the Ministry of
Supply & Trade was a principal in the transaction, that it was the alter ego of the
General Corporation, that it was in privity with the General Corporation and that
through its interference it caused the breach of contract. S & Davis submitted an
affidavit from a Yemeni solicitor, “by education, training and profession, . . . an expert
in the laws of the Republic of Yemen,” who stated, “[t]he Public Corporations
established under the caption law bear no semblance to western business corporations.
5
All the Yemeni Corporations, including the Public Corporation for Foreign Trade and
Grains, are wholly owned by the Government of Yemen.”
As further evidence, S & Davis asserts that the General Corporation is under
the Ministry’s control according to the Presidential Decree Issuing Act No. 35 for the
Year 1991 concerning the Public Authorities, Establishments and Companies. S &
Davis maintains that the General Corporation is a “public establishment” which
provides services that are related to the production of goods and is completely owned
by the State as indicated in the Decree. The Ministry maintains that the General
Corporation is a “public company” which, under Decree No. 35, is owned by two or
more public entities. However, neither party provided any evidence as to the specific
type of company the General Corporation is or papers of incorporation indicating the
exact status of the General Corporation.
The original GAFTA panel held that the General Corporation breached the
contract by failing to open a letter of credit but concluded that S & Davis had not
shown entitlement to any damages. It also held that the General Corporation was a
separate entity from that of the Ministry, and, therefore, the Ministry was not liable.
The appellate arbitration panel affirmed the finding of a breach of contract but
awarded S & Davis approximately $17 million in damages against the General
Corporation. The amount was based on the difference between the contract price of
6
$274.88 per ton and the value at the time of the breach, $217.18 per ton, estimating
the cost of freight from Portland to Yemen, financing costs, and other costs for seller’s
performance and subtracting those total costs from the contract price.
On December 18, 1998, S & Davis filed this suit in federal district court to
enforce the arbitration award, in addition to a claim for breach of contract and
enforcement of the arbitration award against the Republic of Yemen asserting that the
General Corporation is a political subdivision of the Republic, and an alternative claim
for tortious interference with contractual relations against the Ministry of Supply &
Trade for the amount of the arbitration award. The Ministry filed a motion to dismiss
under Fed.R.Civ.Proc. 12(b)(1), lack of subject matter jurisdiction, 12(b)(2), lack of
personal jurisdiction, and 12(b)(5), insufficient service of process. The Ministry
claimed immunity under the FSIA, as a political subdivision of The Republic of
Yemen.
S & Davis asserted that subject matter jurisdiction was allowed under the FSIA
and the Convention on the Recognition and Enforcement of Foreign Arbitration
Awards, 9 U.S.C. § 201 et seq. The district court held an oral hearing and on April
22, 1999, denied the Ministry’s motion on all grounds. The Ministry timely filed a
notice of appeal.
II. ANALYSIS
7
A. Appellate Jurisdiction
This court has jurisdiction over interlocutory orders denying claims of
sovereign immunity under the FSIA. Honduras Aircraft Registry v. Government of
Honduras, 129 F.3d 543, 545 (11th Cir. 1997) (citation omitted).
The denial of a motion to dismiss for lack of personal jurisdiction is not, in
itself, immediately appealable under the “collateral order doctrine” established in
Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 546 (1949). See Van
Cauwenberghe v. Biard, 486 U.S. 517, 526-27 (1988); Rein v. Socialist People’s
Libyan Arab Jamahiriya, 162 F.3d 748, 756 (2d Cir. 1998). We may, however, elect
to exercise our “pendent appellate jurisdiction” if the personal jurisdiction issue is
“inextricably intertwined” with an issue that is properly before this Court on
interlocutory appeal. Swint v. Chambers County Comm’n, 514 U.S. 35, 51 (1995).
This interlocutory appeal involves the denial of sovereign immunity based on the
“commercial activity exception” to sovereign immunity which has a “direct effects”
component. See 28 U.S.C. § 1605(a)(2). The “direct effects” component of the
commercial activity exception to sovereign immunity is inextricably intertwined with
the “minimum contacts” component of the personal jurisdiction issue making
“pendent appellate jurisdiction” proper in this case. See Rein, 162 F.3d at 760
(discussing Hanil Bank v. PT. Bank Negara Indonesia, (Persero), 148 F.3d 127 (2d
8
1998), and stating “[t]he finding of subject matter jurisdiction under the commercial
activities exception also entailed a finding of minimum contacts, . . . [and] the issues
of subject matter jurisdiction and personal jurisdiction were inextricably
intertwined”); see also Junquist v. Sheikh Sultan Bin Khalifa Al Nahyan, 115 F.3d
1020 (D.C. Cir. 1997) (exercising pendent appellate jurisdiction over personal
jurisdiction issue on interlocutory review of denial of immunity under the FSIA).
Because we find the Ministry is not entitled to sovereign immunity and that
there is both subject matter and personal jurisdiction under the FSIA, we need not
address the pendent jurisdiction issue concerning the alternative claim of tortious
interference.
B. Standard of Review
On appeal from the district court’s denial of a motion to dismiss, we construe
the complaint in the light most favorable to plaintiffs. Honduras Aircraft, 129 F.3d
at 545. “We will accept as true the complaint’s well pleaded facts, even if disputed,
but not its conclusions.” Id. (citing Saudi Arabia v. Nelson, 507 U.S. 349, 351 (1993)
and Hishon v. King & Spalding, 467 U.S. 69, 73 (1984)).
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
9
the clear error standard to any findings of fact. Honduras Aircraft, 129 F.3d at 546
(citing Brown v. Valmet-Appleton, 77 F.3d 860 (5th Cir. 1996)).
C. Legal Status of the General Corporation
The General Corporation has admitted that it “is an ‘agency or instrumentality’
of The Republic of Yemen.” The General Corporation for Foreign Trade and Grains’
Motion to Dismiss, May 10, 1999, at 12. The Ministry now denies this relationship.
There exists an “intramural” dispute about the status of the General Corporation. For
the purposes of this case, based on all the other evidence in the record, it would seem
the General Corporation was correct in determining its own status. What those two
parties may now internally decide among themselves about their relationship is
irrelevant to this case.
However, because this admission comes from the General Corporation’s motion
to dismiss (not the Ministry’s motion to dismiss) and because “government
instrumentalities established as juridical entities distinct and independent from their
sovereign should normally be treated as such,” First Nat’l City Bank v. Banco Para
El Comercio Exterior de Cuba, 462 U.S. 611, 626-27 (1983) (“Bancec”), we delve
further to determine whether the General Corporation is an agency of the Ministry,
which is admittedly a political subdivision of The Republic of Yemen. The
presumption of separate legal status may be overcome in two ways, (1) “where a
10
corporate entity is so extensively controlled by its owner that a relationship of
principal and agent is created,” id. at 629 (citation omitted), or (2) where recognition
of the instrumentality as an entity separate from the state “would work fraud or
injustice.” Id. (citation omitted). S & Davis argues the Ministry (and therefore The
Republic, as the Ministry is a political subdivision of The Republic) is amenable to
suit under both exceptions.
“Where jurisdiction depends on an allegation that the particular defendant was
an agent of the sovereign, the plaintiff bears the burden of proving this relationship.”
Arriba Ltd. v. Petroleos Mexicanos, 962 F.2d 528, 533-34 (5th Cir. 1992) (citations
omitted). In applying the agency exception to the rule of sovereign immunity, how
much control the sovereign exercised over the instrumentality is reviewed.
Transamerica Leasing, Inc. v. La Republica de Venezuela, 200 F.3d 843, 848 (D.C.
Cir. 2000) (citation omitted). “[C]ontrol is relevant when the sovereign exercises its
control in such a way as to make the instrumentality its agent; in that case control
renders the sovereign amendable to suit under ordinary agency principles.” Id. at 849.
“[A] sovereign need not exercise complete dominion over an instrumentality–to the
point of stripping it of any meaningful separate identity–in order to establish a
relationship of principal and agent.” Id.
11
Particularly helpful in this instance is the basic criteria to determine a
principal/agency relationship discussed in Transamerica.
At a minimum, however, we can confidently state that the
relationship of principal and agent does not obtain unless
the parent has manifested its desire for the subsidiary to act
upon the parent’s behalf, the subsidiary has consented so to
act, the parent has the right to exercise control over the
subsidiary with respect to matters entrusted to the
subsidiary, and the parent exercises its control in a manner
more direct than by voting a majority of the stock in the
subsidiary or making appointments to the subsidiary’s
Board of Directors.
200 F.3d at 849 (citation omitted).
Here the General Corporation presents itself as having the authority to purchase
a government subsidized commodity. The Ministry provided a declaration which
stated that it “oversees the social and economic development of Yemen . . . regulating
and monitoring domestic and foreign trade.” S & Davis presented evidence that the
Ministry, by and through the same minister who signed approving the contract, gave
direct orders to terminate the contract. S & Davis also provided an affidavit from a
Yemeni corporate lawyer stating the General Corporation was “wholly owned by the
12
Government of Yemen.”5 Ultimately, the General Corporation failed to perform its
part of the contract, that of opening the letter of credit, and breached the contract.
The Ministry, while asserting the General Corporation’s autonomy, fails to
provide any evidence of an independent entity, such as papers of incorporation and
corporate structure, whether there is a board of directors or stock ownership, whether
or not all employees are public servants, whether the corporation maintains financial
accounts in its own name, or whether it owns any assets in its own name–all
allegations in the complaint which S & Davis states do not exist, therefore rendering
the General Corporation a mere instrumentality of the Ministry. By issuing direct
orders to terminate the contract, the sovereign became more of a managing partner
over its “agency or instrumentality.” See Alfred Dunhill of London, Inc. v. Republic
of Cuba, 425 U.S. 682, 695-96 (1976) (citing Bank of United States v. Planters’ Bank
of Georgia, 22 U.S. 904, 907 (1824)) (“when a government becomes a partner in any
trading company, it divests itself, so far as concerns the transactions of that company,
5
Presidential Decree Issuing Act No. 35 does indicate that the government has more than a mere
regulatory role in the affairs of public authorities, public establishments, and public companies.
In addition, although the Republican Resolution No. 77 of 1996, which S & Davis submitted with
its brief, presented evidence that the General Corporation came under the direct control of the
Minister of Supply & Trade, it may not be considered as it was not part of the district court’s record.
See Wilson v. Apfel, 179 F.3d 1276, 1278 (11th Cir. 1999) (“new evidence is not properly before the
[appellate] court [when] it is merely attached as an appendix to [appellant]’s brief”); see also Cherry
v. Heckler, 760 F.2d 1186, 1193-94 (11th Cir. 1985) (holding that court’s review is limited to the
certified record).
13
of its sovereign character, and takes that of a private citizen. Instead of
communicating to the company its privileges and its prerogatives, it descends to a
level with those with whom it associates itself, and takes the character which belongs
to its associates, and to the business which is to be transacted.”) The Ministry has not
sufficiently rebutted S & Davis’s proof to persuade us that the General Corporation
is a separate, independent entity. Therefore, we need not address the “fraud or
injustice” exception nor the alter ego theory argued by S & Davis.
D. Subject Matter Jurisdiction
To establish subject matter jurisdiction under the FSIA, a plaintiff must
overcome the presumption that the foreign state is immune from suit in the United
States’ courts. See 28 U.S.C. § 1604 (1988); Argentine Republic v. Amerada Hess
Shipping Corp., 488 U.S. 428, 443 (1989). The FSIA includes agents or
instrumentalities of a foreign state within the definition of “foreign state.”6
In order to overcome the presumption of immunity, a plaintiff must prove that
the conduct which forms the basis of its complaint falls within one of the statutorily
6
28 U.S.C. § 1603(a), (b)(1), (b)(2) provide:
(a) A “foreign state” . . . includes a political subdivision of a foreign state or an
agency or instrumentality of a foreign state as defined in subsection (b).
(b) An “agency or instrumentality of a foreign state” means 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 . . . .
14
defined exceptions. Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 610-11
(1992); 28 U.S.C. § 1604. Once a party offers evidence that an FSIA exception to
immunity applies, the party claiming immunity bears the burden of proving by a
preponderance of the evidence that the exception does not apply. Aquamar S.A. v. Del
Monte Fresh Produce N.A., Inc., 179 F.3d 1279, 1290 (11th Cir. 1999) (citations
omitted).
S & Davis claims that the Ministry is subject to jurisdiction pursuant to
exceptions set forth in § 1605 of the FSIA; the waiver exception, 28 U.S.C. §
1605(a)(1), the arbitration exception7 under § 1605(a)(6)(B),8 and the commercial
activity exception, 28 U.S.C. § 1605(a)(2).9
7
The Ministry argues that the arbitration exception under § 1605(a)(6)(B) was not presented to
the district court and therefore may not be considered on appeal. Although S & Davis failed to
specifically cite to § 1605(a)(6)(B), it clearly states jurisdiction is pursuant to the FSIA, 28 U.S.C.
§ 1602 et seq., and the Convention on the Recognition and Enforcement of Foreign Arbitration
Awards, 9 U.S.C. § 201 et seq., in both the original complaint and its response to the motion to
dismiss.
8
Congress added the following exception to the FSIA in 1988:
A foreign state shall not be immune from the jurisdiction of courts of
the United States or of the States in any case–
(6) in which the action is brought . . . to confirm an award made pursuant
to such an agreement to arbitrate, if . . . (B) the agreement or award is
or may be governed by a treaty or other international agreement in force
for the United States calling for the recognition and enforcement of arbitral
awards . . . .
28 U.S.C. § 1605(a)(6).
9
The relevant portions of section 1605(a) are as follows:
A foreign state shall not be immune from the jurisdiction of courts of the United
States or of the States in any case– . . .
15
1. Waiver Exception
A waiver of immunity may be explicit or by implication. S & Davis asserts that
by agreeing to arbitrate pursuant to the rules of GAFTA in London, the Ministry,
through the General Corporation, impliedly waived its sovereign immunity. S &
Davis points to the legislative history of § 1605(a)(1), which states, “with respect to
implicit waivers, the courts have found such waivers in cases where a foreign state has
agreed to arbitration in another country or where a foreign state has agreed that the
law of a particular country should govern a contract.” H.R. Rep. No. 1487, 94th
CONG., 2D SESS. at 18 (1976), reprinted in 1976 U.S.C.C.A.N. 6604, 6617.
As provided for in the contract, the parties submitted their dispute to arbitration
before GAFTA. S & Davis now seeks to have the arbitral award issued by GAFTA
recognized and enforced in the courts of the United States, pursuant to the Convention
on the Recognition and Enforcement of Arbitral Awards (the “Convention”), opened
for signature June 10, 1958, Art. I.1, 21 U.S.T. 2517, reprinted in 9 U.S.C. § 201. The
Convention provides that “it shall apply to the recognition and enforcement of arbitral
(1) in which the foreign state has waived its immunity either explicitly or by
implication . . .;
(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; or upon an act
outside the territory of the United States in connection with a commercial activity of
the foreign states elsewhere and that act causes a direct effect in the United States .
...
16
awards made in the territory of a State other than the State where the recognition and
enforcement of such awards are sought,” 9 U.S.C.§ 201, Art. I, and that “[e]ach
Contracting State shall recognize arbitral awards as binding and enforce them in
accordance with the rules of procedure of the territory where the award is relied upon
. . . .” Id. Art. III. Therefore, when a country becomes a signatory to the Convention,
by the provisions of the Convention, the signatory State must have contemplated
enforcement actions in other signatory states.
Most courts have determined that the implied waiver provision of § 1605(a)(1)
must be construed narrowly. Shapiro v. Republic of Bolivia, 930 F.2d 1013, 1017 (2d
Cir. 1991) (listing cases). Interpreting § 1605(a)(1), the Supreme Court held “we [do
not] see how a foreign state can waive its immunity under § 1605(a)(1) by signing an
international agreement that contains no mention of a waiver of immunity to suit in
United States courts or even the availability of a cause of action in the United States.”
Weltover, 488 U.S. at 442-43.
In this case, although the United States and England are signatories to the
Convention, The Republic of Yemen is not. The Ministry argues that a sovereign’s
agreement to arbitrate in a Convention State is not a waiver of immunity to suit in the
U.S. unless the foreign sovereign is also a party to the Convention.
17
A similar situation is found in Creighton Ltd. v. Government of the State of
Qatar, 181 F.3d 118 (D.C. Cir. 1999). Creighton, a Cayman Islands’ corporation with
offices in Tennessee, contracted with the government of Qatar to build a hospital in
Qatar. Id. at 120. Following a dispute over its performance, Creighton obtained an
arbitral award against Qatar from the International Chamber of Commerce in Paris and
then sought to enforce the award in the district court for the District of Columbia. Id.
Due to the fact that Qatar was not a signatory to the Convention, the D.C. Circuit
rejected a broad reading of the implicit waiver section that would allow waiver where
the defendant sovereign is not a signatory to the Convention, finding that Qatar’s
“agreement to arbitrate in a signatory country, without more, [did not] demonstrate[]
the requisite intent to waive its sovereign immunity in the United States.” Id. at 123.
We agree that there was no waiver of sovereign immunity.
2. Arbitration Exception
However, the court in Creighton found jurisdiction under the arbitration
exception in 28 U.S.C. § 1605(a)(6)(B), stating that “the New York Convention is
exactly the sort of treaty Congress intended to include in the arbitration exception.”
181 F.3d at 123 (internal quotations and citations omitted); see also Matter of
Chromalloy Aeroservices (Arab Republic), 939 F. Supp. 907 (D.D.C. 1996). As the
court in Creighton noted, “[Section] 1605(a)(6) does not affect the contractual right
18
of the parties to arbitration but only the tribunal that may hear a dispute concerning
the enforcement of an arbitral award.” 181 F.3d at 124 (citing McGee v. International
Life Ins. Co., 355 U.S. 220, 224 (1957)).
The Ministry contends that because it was not a party to the contract, it is not
subject to the arbitration agreement or award. While it is true that in Creighton Qatar
was a direct party to the contract, given our determination that there was sufficient
evidence to show the General Corporation is an agency or instrumentality under the
control of the Ministry, we find that the district court has subject matter jurisdiction
pursuant to the arbitration exception under § 1605(a)(6)(B), where a foreign state has
no immunity from a proceeding to confirm an award that “may be governed by a
treaty . . . calling for the recognition and enforcement of arbitral awards.” 28 U.S.C.
§ 1605 (a)(6)(B).10
3. Commercial Activity Exception
While we need not establish jurisdiction under the commercial activities
exception, it is clear from a reading of the legislative history of the FSIA that the
activity here was commercial under 28 U.S.C. § 1605(a)(2). At hearings prior to the
10
Neither party disputes the fact that the petition for enforcement was filed within the three year
period after an award is made, as required by 9 U.S.C. § 207. Nor does the Ministry contest the
validity of the award or argue to vacate the award under 9 U.S.C. § 10.
19
passage of the FSIA, regarding § 1605(d),11 which defines commercial activity, one
of the drafters of the FSIA stated that, “This would mean, for example, that a foreign
state’s purchase of grain from a private dealer would always be regarded as
commercial.” Hearings on H.R. 11315 Before the Subcommittee on Administrative
Law and Governmental Relations of the House Committee on the Judiciary, 94th
Cong., 2d Sess. 27 (1976) (testimony of Monroe Leigh, Legal Adviser, Department of
State); see also H.R. Rep. 94-1487 at 16, reprinted in 1976 U.S.C.C.A.N. at 6615
(stating “import-export transactions involving sales to, or purchases from, concerns
in the United States” are included within the conduct of the first clause of § 1605(a)(2)
and defining commercial activity under §1603(d) to include “a single contract, if of
the same character as a contract which might be made by a private person”). In
determining that a letter of credit was a sufficiently direct effect in the United States,
this circuit held that a “letter of credit arrangement–which was structured according
to the wishes of the appellants–extends into [the United States], and the appellants’
demands thus have significant, foreseeable financial consequences here.” Harris
Corp. v. National Iranian Radio & Television, 691 F.2d 1344, 1351 (11th Cir. 1982);
11
Section 1603 “Definitions” states that:
(d) A “commercial activity” means either 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.
20
see also Seetransport Wiking Trader Schiffarhtsgesellschaft MBH & Co.,
Kommanditgesellschaft v. Navimpex Centrala Navala, 989 F.2d 572, 580 (2d Cir.
1993) (finding subject matter and personal jurisdiction under FSIA where contract
was never performed).
We are not persuaded by the Ministry’s argument that this case is the same as
MOL, Inc. v. Peoples Republic of Bangladesh, 736 F.2d 1326 (9th Cir. 1984), where
the Bangladesh Ministry of Agriculture granted a ten-year license to MOL, an Oregon
corporation, to export rhesus monkeys. The Ninth Circuit found this license “was not
just a contract for trade of monkeys.” Id. at 1329. Unlike MOL, the contract between
S & Davis and the General Corporation was just a contract and the Ministry was more
involved than a mere regulator, whose directives, not based upon regulatory reasons,
controlled the General Corporation’s actions. This was a commercial activity
exception.
E. Personal Jurisdiction
In reviewing whether or not the district court has personal jurisdiction over the
defendant, we are guided by the following standard as was the Second Circuit in
Seetransport Wiking Trader Schiffarhtsgesellschaft MBH & Co.,
Kommanditgesellschaft v. Navimpex Centrala Navala, 989 F.2d 572, 580 (2d Cir.
1993).
21
The plaintiff bears the burden of establishing personal
jurisdiction over the defendant. Prior to trial, however,
when a motion to dismiss for lack of jurisdiction is decided
on the bases of affidavits and other written materials, the
plaintiff need only make a prima facie showing. The
allegations in the complaint must be taken as true to the
extent they are uncontroverted by the defendant’s
affidavits. If the parties present conflicting affidavits, all
factual disputes are resolved in the plaintiff’s favor, and the
plaintiff’s prima facie showing is sufficient notwithstanding
the contrary presentation by the moving party.
Taylor v. Phelan, 912 F.2d 429, 431 (10th Cir. 1990) (per curiam) (citation omitted).
The FSIA provides that “district courts shall have original jurisdiction . . . as to
any claim for relief in personam with respect to which the foreign state is not entitled
to immunity either under sections 1605-1607 of this title . . . .” 28 U.S.C. § 1330(a).
Also under the FSIA, “Personal jurisdiction over a foreign state shall exist as to every
claim for relief over which the district courts have jurisdiction under subsection (a)
where service has been made under section 1608 of this title.” Id. at § 1330(b). The
1976 House Report concerning the passage of the FSIA states that “this bill would for
the first time in U.S. law, provide a statutory procedure for making service upon, and
obtaining in personam jurisdiction over, a foreign state.” H.R. Rep. 94-1487 at 13-14,
reprinted in 1976 U.S.C.C.A.N. at 6611-12. There is no language in the House
Report, either expressly or impliedly, which would grant a liberty interest for the
purposes of substantive due process analysis. In addition, particularly applicable to
22
this case, the House Report states that the FSIA was specifically meant “to provide the
judgment creditor some remedy if, after a reasonable period, a foreign state or its
enterprise failed to satisfy a final judgment.” H.R. Rep. 94-1487 at 14, reprinted at
1976 U.S.C.C.A.N. at 6612. Both parties agree that proper service has been made.12
The parties agreed to arbitration, a final award was determined, and the defendants
have failed to satisfy that award. Therefore, under the FSIA, personal jurisdiction
exists.
The Ministry argues that personal jurisdiction here does not satisfy the due
process clause of the Fifth Amendment. S & Davis asserts that under Weltover, a
foreign state, or its instrumentality, is not a person for the purposes of a constitutional
due process analysis. Weltover, 504 U.S. at 619 (“[a]ssuming, without deciding, that
a foreign state is a ‘person’ for purposes of the Due Process Clause,” but citing South
Carolina v. Katzenbach, 383 U.S. 301, 323-24 (finding States of the Union are not
“persons” for purposes of the Due Process Clause)). We do not need to determine the
precise constitutional status of a foreign sovereign because we find that the due
process requirements have been met in this case. See Hanil Bank v. PT. Bank Negara
Indonesia, (Persero), 148 F.3d 127, 134 (2d Cir. 1998).
12
According to the Ministry’s counsel at the time of oral argument, service had also been effected
on both The Republic of Yemen and the General Corporation. This is confirmed by the district court
docket.
23
To determine whether the exercise of in personam jurisdiction is consistent with
due process, the defendant normally must have “certain minimum contacts with [the
forum] such that the maintenance of the suit does not offend traditional notions of fair
play and substantial justice.” International Shoe Co. v. Washington, 326 U.S. 310,
316 (1945) (internal quotations and citations omitted). However, the Court rejected
a rigid formula for determining the contacts necessary to satisfy due process. Id.
In general, the majority of cases brought under the FSIA involve commercial
activity, which requires an evaluation of the activity’s effects in the United States, see
28 U.S.C. § 1605(a)(2), similar to a “minimum contacts” analysis. The “direct
effects” language of § 1605(a)(2) closely resembles the “minimum contacts” language
of constitutional due process and these two analyses have overlapped. See Weltover,
504 U.S. at 619-20; Vermeulen, 985 F.2d at 1545. In determining what constitutes a
direct effect, the Court in Weltover stated that an effect is direct if it occurs “as an
immediate consequence of the defendant’s activity.” 504 U.S. at 618 (internal
quotations and citation omitted). Under the facts in Weltover, the Court held that
“money that was supposed to have been delivered to a New York bank for deposit
[which] was not forthcoming,” constituted a direct effect. Id. at 619. See also Hanil
Bank v. PT. Bank Negara Indonesia, (Persero), 148 F.3d 127, 133 (2d Cir. 1998) (“The
failure of money to reach plaintiff’s New York bank account was an immediate
24
consequence of defendant BNI’s actions in Indonesia.”); Voest-Alpine Trading USA
Corp. v. Bank of China, 142 F.3d 887, 896 (5th Cir. 1998) (“Voest-Alpine, an
American corporation, incurred a nontrivial financial loss in the United States as a
direct result of the Bank of China’s failure to pay on a letter of credit it issued.”);
Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300 (2d Cir.
1981) (holding that financial loss to an American corporation from problem with
single shipment of rice to Nigeria sufficiently “direct” to support jurisdiction).
In addition to the direct effect contact, other evidence supports the sufficiency
of minimum contacts. The contract specified that S & Davis was to designate a
United States bank to receive the letter of credit. See Weltover, 504 U.S. at 619. S &
Davis named Citizen’s Bank in New York. The Central Bank in Yemen was
instructed to send of copy of S & Davis’s bank reference to the General Corporation’s
bank, the Arab American Bank in New York. Although the contract stated that the
origin of the wheat could have been the U. S., Canada, Australia, South Africa, or
Argentina, it allowed S & Davis to designate the point of departure for shipping to
Yemen and S & Davis selected Portland, Oregon. See Hanil Bank, 148 F.3d at 134.
Analysis of the due process requirement also focuses on the evaluation of fair
play and substantial justice. International Shoe, 326 U.S. at 316. The defendants
contractually agreed to arbitration, thereby binding themselves to the outcome of that
25
arbitration. An arbitration award was issued but no performance was forthcoming on
the defendant’s part. It is not unreasonable that a United States corporation, following
a foreign defendant’s failure to open a letter of credit in the U.S., and after
nonpayment of an arbitration award, should seek enforcement of the judgment in a
United States’ court. In fact, it is only “fair and just” to seek enforcement of the
outcome of a good faith agreement to arbitrate. This comports with the minimum
contacts determination that the defendant “should reasonably anticipate being haled
into court” in the forum’s jurisdiction. World-Wide Volkswagen Corp. v. Woodson,
444 U.S. 286, 297 (1980); but see Creighton, 181 F.3d at 127 (citing Burger King v.
Rudzewicz, 471 U.S. at 478, “If the question is whether an individual’s contract with
an out-of-state party alone can automatically establish sufficient minimum contacts
in the other party’s home forum, we believe the answer clearly is that it cannot.”
(emphasis in original)). In Creighton, the district court for the District of Columbia,
held that Qatar was not subject to personal jurisdiction under a minimum contacts and
purposeful availment analysis, because the contract “was offered, accepted, and
performed in Qatar pursuant to a sponsorship arrangement between Creighton and a
Qatari contractor.” Id. at 127-28. In addition, the contract specified that it was subject
to the laws of Qatar, payment was made in Qatari riyals to Creighton’s bank account
in Qatar, and the alleged breach occurred in Qatar. Id. at 128.
26
The Ministry misstates the situation by arguing that finding personal
jurisdiction violates the notions of “fair play and substantial justice” because the
Ministry was involved in only one regulatory act, that of approving the contract to
import wheat, concerning a contract which was “negotiated, executed, and
performable in Yemen.” We disagree. Having determined that the Ministry was
involved in more than “one regulatory act,” the contract itself anticipates further
contacts between the two nations. One of the parties to this contract was a United
States corporation who was required to provide “U.S. wheat No. 2 or better” (none of
which is grown in Yemen) to be imported to Yemen. Performance logically required
contact and interaction with the United States, as discussed in the contract (such as
designating a U.S. bank for payment and a point of departure for shipping). Unlike
the facts of Creighton, the contract did not state it was subject to the laws of Yemen,
there were direct dealings between parties of both countries, see Francosteel, 19 F.3d
at 628, and the direct effect occurred with the defendants’ failure to open the letter of
credit at the New York bank. “When minimum contacts have been established, often
the interests of the plaintiff and the forum in the exercise of jurisdiction will justify
even the serious burdens placed on the alien defendant.” Asahi Metal Industry Co. v.
Superior Court of California, 480 U.S. 102, 114 (1987).
27
For the foregoing reasons, we find that the Ministry is not entitled to sovereign
immunity under the FSIA because the arbitration exception, § 1605(a)(6)(B), and the
commercial activity exception, § 1605(a)(2), apply under the factual circumstances
alleged at this juncture. Furthermore, the district court does have personal jurisdiction
over the Ministry. Therefore, the district court’s order denying the Ministry’s motion
to dismiss is AFFIRMED.
28