Whitehead v. Grand Duchy Luxem

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
CLAY T. WHITEHEAD, Dr.,
Plaintiff-Appellant,
v.
THE GRAND DUCHY OF LUXEMBOURG;
SOCIETE EUROPEENNE DES SATELLITES,
No. 97-2703
a Luxembourg Corporation and
agency and instrumentality of the
Grand Duchy of Luxembourg;
CANDACE JOHNSON,
Defendants-Appellees.
Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Leonie M. Brinkema, District Judge.
(CA-97-520-A)
Argued: June 2, 1998
Decided: September 11, 1998
Before WILKINSON, Chief Judge, and NIEMEYER and
MICHAEL, Circuit Judges.
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Affirmed by unpublished per curiam opinion.
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COUNSEL
ARGUED: Edward Joseph Meehan, SKADDEN, ARPS, SLATE,
MEAGHER & FLOM, L.L.P., Washington, D.C., for Appellant.
Eugene D. Gulland, COVINGTON & BURLING, Washington, D.C.,
for Appellee Grand Duchy; Carl Richard Schenker, Jr.,
O'MELVENY & MYERS, L.L.P., Washington, D.C., for Appellee
Societe; Arnold Bruce Podgorsky, WRIGHT & TALISMAN, P.C.,
Washington, D.C., for Appellee Johnson. ON BRIEF: Robert S. Ben-
nett, Rachel Mariner, Joseph L. Barloon, SKADDEN, ARPS,
SLATE, MEAGHER & FLOM, L.L.P., Washington, D.C., for Appel-
lant. Brice M. Clagett, Peter D. Trooboff, Matthew S. Yeo, COVING-
TON & BURLING, Washington, D.C., for Appellee Grand Duchy;
Louis B. Kimmelman, Claudia Ray, Patrick R. Rizzi, Teresa Kwong,
O'MELVENY & MYERS, L.L.P., Washington, D.C.; Harvey B.
Cohen, R. Scott Caulkins, COHEN, GETTINGS, DUNHAM &
DAVIS, P.C., Arlington, Virginia, for Appellee Societe; Saone Baron
Crocker, WRIGHT & TALISMAN, P.C., Washington, D.C., for
Appellee Johnson.
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Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
Dr. Clay Whitehead appeals the dismissal of his complaint against
the Grand Duchy of Luxembourg, a sovereign nation; the Societe
Europeenne Des Satellites (SES), a Luxembourg corporation; and
Candace Johnson, an American citizen who has lived abroad for
many years and who serves on SES's board of directors. This com-
plaint alleged violations of international and Virginia law arising from
a business venture in Luxembourg. The district court dismissed the
suit based on lack of jurisdiction. Whitehead appeals, and we affirm.
I.
Whitehead is the former president of Hughes Communications, Inc.
In March 1983 he was approached by Candace Johnson, the Ameri-
2
can wife of Luxembourg's then-Ambassador to the United States.
Johnson sought Whitehead's involvement in developing communica-
tions technology in Luxembourg. As a result of this contact, Societe
Luxembourgeoise Satellites (SLS) was formed in 1984 and was
granted an exclusive franchise by the government of Luxembourg for
the country's satellite system. Whitehead created and was chief exec-
utive officer of Coronet Societe d'Etudes, a Luxembourg corporation.
Coronet had a subfranchise agreement with SLS, under which it
financed, launched, maintained, and operated satellites. Coronet paid
a franchise fee to SLS and a royalty to the Luxembourg government.
The joint venture aroused fears of American cultural infiltration in
and criticism from Eurocentric circles. The government of Luxem-
bourg decided to nationalize Coronet and to cause the formation of
SES to take over SLS's exclusive franchise. SES was organized as a
private corporation in March 1985. It is two-thirds owned by private
investors, with one-third of the shares held by two government-owned
banks. SES bought out Whitehead's interest in the joint venture by
paying him just over one million dollars and by granting him fifty
"Founder's Shares" of SES stock. In return, Whitehead promised not
to compete1 with SES for twenty years, at which time the Founder's
shares would expire. The agreement contained a choice-of-law and
forum selection clause, which stated that it "shall be subject to Lux-
embourg law and the district court of Luxembourg shall have jurisdic-
tion in the case of any litigation."2 SES has prospered, and Whitehead
has collected substantial dividends from his Founder's Shares.3
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1 Specifically, Whitehead promised to "abstain from assisting directly
or indirectly in the preparation, realization, financing or exploitation of
any project competing or likely to compete within Europe with the pres-
ent or future activities of SES[.]"
2 In a companion settlement agreement executed the same day, the gov-
ernment of Luxembourg agreed to pay $700,000 to reimburse Whitehead
for expenses incurred in relation to his past consulting and established
the terms upon which Luxembourg could seek consulting work from
Whitehead in the future. This agreement contains a choice-of-law and
forum selection clause identical to the one in the SES agreement.
3 Whitehead's share was five percent of SES's net after-tax profits.
3
In 1993, upon the unanimous vote of its shareholders, SES seized
Whitehead's Founder's Shares on the ground that he had violated the
agreement not to compete by doing consulting work for and becoming
Vice Chairman of Pan American Satellite, a Connecticut-based satel-
lite company that SES contends had operations in Europe. Whitehead
attempted to compel the payment of dividends through a summary
legal proceeding (called a refere) provided for by Luxembourg law.
The court concluded that the refere was an inappropriate vehicle to
resolve the claims, and this decision was affirmed on appeal.
Whitehead then filed this suit in district court in Virginia against
Luxembourg, SES, and Johnson. He alleged (i) expropriation of prop-
erty by Luxembourg and SES in violation of international law, (ii)
conversion of and a civil conspiracy by all defendants to convert the
Founder's Shares, (iii) defamation and interference with prospective
business advantage by all defendants, (iv) interference by Luxem-
bourg and Johnson in an advantageous relationship with SES, and (v)
breach of contract by SES. The latter four claims were all premised
on Virginia statutory or common law.
The district court dismissed the suit. In an initial order, the court
held that SES is not an "agency or instrumentality" of Luxembourg,
Luxembourg is entitled to sovereign immunity, personal jurisdiction
cannot be obtained over SES as a private entity, and all claims prem-
ised on the supposed breach of the SES agreement are subject to the
exclusive jurisdiction of the Luxembourg courts. The court did hold
that the defamation claim against Johnson could proceed. However,
on Johnson's motion for reconsideration, the court dismissed this
claim because there were no longer any claims subject to original
jurisdiction to which the defamation claim could adhere as a supple-
ment. Whitehead appeals.
II.
A.
The amenability to suit, if any, of the government of Luxembourg
largely depends on its relationship with SES and, in turn, on SES's
amenability to suit in Virginia.
4
"The Foreign Sovereign Immunities Act [FSIA 4] ``provides the sole
basis for obtaining jurisdiction over a foreign state in the courts of this
country.'" Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993) (quoting
Argentine Republic v. Amerada Hess Shipping Corp. , 488 U.S. 428,
433 (1989)). If Whitehead could show that SES is an"agency or
instrumentality" of Luxembourg's government, 28 U.S.C. § 1603, and
that it engaged in activity that falls within one of the exceptions to
sovereign immunity enumerated at §§ 1605 and 1607, he could use
FSIA to obtain jurisdiction over it. Even then, the juridical identity of
SES should ordinarily be respected, and the government would not be
automatically liable for SES's acts. First Nat'l City Bank v. Banco
Para El Comercio Exterior De Cuba, 462 U.S. 611, 623-628 (1983).
If jurisdiction over the government cannot be premised on SES's acts,
then Whitehead must demonstrate that the acts of the government
itself meet an FSIA exception.
If, on the other hand, SES is not an "agency or instrumentality" of
the government of Luxembourg, then both subject matter jurisdiction
over the controversy (which Whitehead contends is supplied by diver-
sity of citizenship) and personal jurisdiction over SES would be in
issue.
Thus, this case raises a host of potentially difficult jurisdictional
questions, and even if Whitehead should prevail on all of them, he
may have already ceded the opportunity for an American court to hear
his case, because his claims remain subject to the choice-of-law and
forum selection clauses of the settlement agreement.
We frankly perceive this final ground to be a clear-cut and readily
resolved basis for affirmance (with one exception discussed in Part III
below), and, in the ordinary course, we may affirm a judgment for
any sufficient reason that is apparent on the record. Blum v. Bacon,
457 U.S. 132, 137 n.5 (1982). However, the existence of jurisdictional
issues clouds the matter considerably. We turn, therefore, to whether
we must address those issues at the threshold.
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4 28 U.S.C. §§ 1602-1611.
5
B.
The Supreme Court has recently rejected the "doctrine of hypothet-
ical jurisdiction," that is, the practice of several courts of appeals of
assuming Article III jurisdiction where the case can be more readily
resolved on the merits in favor of the party objecting to jurisdiction.
Steel Co. v. Citizens for a Better Environment , 118 S. Ct. 1003(1998). "``Without jurisdiction the court cannot proceed at all in any
cause. Jurisdiction is power to declare the law, and when it ceases to
exist, the only function remaining to the court is that of announcing
the fact and dismissing the cause.'" Id. at 1012 (quoting Ex parte
McCardle, 74 U.S. (7 Wall.) 506, 514 (1868)). This tenet is more eas-
ily stated than unfailingly applied, and the Court acknowledged that
its "absolute purity" had been "diluted" by some of the Court's own
precedents. 118 S. Ct. at 1014-1016. Moreover, two of the five Jus-
tices who joined the relevant parts of the Court's opinion added this
caveat: "the Court's opinion should not be read as cataloging an
exhaustive list of circumstances under which federal courts may exer-
cise judgment in ``reserv[ing] difficult questions of . . . jurisdiction
when the case alternatively could be resolved on the merits in favor
of the same party.'" Id. at 1020 (O'Connor, J., joined by Kennedy, J.,
concurring).
In the wake of Steel Co. the en banc Fifth Circuit, by a 9-7 vote,
has held that a district court may not address "waivable jurisdictional
defects" without first resolving issues of subject matter jurisdiction,
at least in cases removed from state courts. Marathon Oil Co. v. A.
G. Ruhrgas, 145 F.3d 211 (5th Cir. 1998) (en banc). The court rea-
soned that subject matter jurisdiction is a fundamental limitation on
the federal judiciary's power to act, whereas waivable barriers to that
action (e.g. personal jurisdiction) "``represent[ ] a restriction on the
judicial power not as a matter of sovereignty, but as a matter of indi-
vidual liberty.'" Id. at 217 (quoting Insurance Corp. of Ireland, Ltd.
v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982)). It
follows, therefore, that a court may reserve difficult questions involv-
ing waivable jurisdictional defenses and resolve a case on a less
demanding basis, so long as the liberty of the party objecting to juris-
diction is in no way impinged.
Consequently, we must determine just what sort of animal FSIA
"jurisdiction" is. "Under the Act, a foreign state is presumptively
6
immune from the jurisdiction of United States courts; unless a speci-
fied exception applies, a federal court lacks subject-matter jurisdiction
over a claim against a foreign state." Saudi Arabia v. Nelson, 507 U.S.
349, 355 (1993). However, this "subject-matter" jurisdiction "turn[s]
on application of the substantive provisions of the Act." Verlinden
B.V. v. Central Bank of Nigeria, 461 U.S. 480, 485 (1983). Title 28
U.S.C. § 1330(a) grants district courts jurisdiction "as to any claim for
relief in personam with respect to which the foreign state is not enti-
tled to immunity either under [FSIA] or under any applicable interna-
tional agreement." Jurisdiction is hence defined by substantive
exceptions to immunity.
The very first exception to immunity listed in FSIA is where "the
foreign state has waived its immunity either explicitly or by implica-
tion . . . [.]" 28 U.S.C. § 1605(a)(1). The character of the limits on our
FSIA jurisdiction is thus revealed. If a foreign nation can consent to
suit in our courts, then the FSIA's limitation on our jurisdiction must
flow from respect for that nation's sovereignty rather than from our
own inherent inability to hear the case. Consequently, as long as we
do not affront Luxembourg's sovereignty here, we believe that we
may resolve the case in any manner we deem best. The forum selec-
tion clause is that manner.
C.
The final paragraph of the SES/Whitehead settlement agreement is
entitled "PROPER LAW AND JURISDICTION." We quoted it ear-
lier, but it bears repeating: "This Agreement shall be subject to Lux-
embourg law and the district court of Luxembourg shall have
jurisdiction in case of any litigation."
Though surely the most natural reading of this sentence is that all
disputes relating to the agreement must be litigated in Luxembourg,
some American courts have found similar language to be merely per-
missive, i.e. all parties agree that litigation in the designated forum
would be proper without necessarily precluding litigation elsewhere.
See, e.g., Caldas & Sons, Inc. v. Willingham , 17 F.3d 123, 127 (5th
Cir. 1994).
7
This agreement, however, is expressly "subject to Luxembourg
law," not the law of the United States or of Virginia.5 The commercial
law of Luxembourg is largely supplied by the treaties and agreements
through which many European countries have integrated their econo-
mies. Article 17 of the Brussels Convention of 1968, to which Lux-
embourg was an original signatory, provides in relevant part:
If the parties, one or more of whom is domiciled in a
Contracting State, have agreed that a court or the courts of
a Contracting State are to have jurisdiction to settle any dis-
putes which have arisen or which may arise in connection
with a particular legal relationship, that court or those courts
shall have exclusive jurisdiction.
Convention on Jurisdiction and Enforcement of Judgments in Civil
and Commercial Matters, September 27, 1968, 29 I.L.M. 1413, 1422
(1990). The defendants provided affidavits from two experts on Lux-
embourg law, both of whom opined that this provision means what
it unambiguously says: a forum selection clause in a contract subject
to the Convention designates an exclusive forum. Whitehead coun-
tered with the opinion of a third expert, who acknowledged the exclu-
sivity of the selected forum "in principle," but who added the
observation that the parties could choose to override it and suggested
that the parties' intent "be verified."
Whitehead asserts that he always understood the forum selection
clause as requiring either party to answer any suit in Luxembourg, but
not limiting them to that forum. Further, he points out that the word
"exclusive" was included in an unexecuted July 1984 draft agreement
between Coronet and entities represented by the same natural persons
(SES had not yet been formed).
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5 For what it is worth, we do note that Virginia adheres to traditional
choice-of-law rules. The "nature, validity and interpretation of contracts
are governed by the law of the place where made, unless the contrary
appears to be the express intention of the parties." Woodson v. Celina
Mutual Insurance Co., 211 Va. 423, 177 S.E.2d 610, 613 (1970) (quota-
tion omitted). This contract was made in Luxembourg, and the "express
intention" of the parties is by no means "contrary" to governance by Lux-
embourg law.
8
We have here a contract clause with a fixed meaning established
by a treaty intended to regularize the commercial affairs of hundreds
of millions of people. No court, American or European, should lightly
dismiss that fixed meaning, else the efforts of the treaty makers to
establish stability and predictability in the marketplace would be
undermined. While we accept that contracting parties may legally
override that meaning, we believe that their intent to do so must be
clear and must be mutual. Whitehead's unilateral expectation6 and
proposed language in an unexecuted draft agreement from a different
course of negotiations is hardly enough. The forum selection clause
is exclusive.
Every cause of action pled in the complaint, with the single excep-
tion discussed in Part III, is premised on the illegality of the seizure
of the Founder's Shares and the consequent withholding of dividends.
There is a single forum to litigate the validity of this premise: "the
district court of Luxembourg." The district court therefore rightly dis-
missed those claims.
III.
The district court held that a single part of the defamation claim
was not subject to the forum selection clause, i.e. Johnson's alleged
public disparagement of Whitehead's business abilities and of his
contributions to SES's success, which disparagement was allegedly
made at the behest of SES and Luxembourg and was reported in at
least one European magazine. The defendants do not challenge this
holding, so we must examine whether any or all of the defendants can
be subjected to suit in Virginia upon this claim.
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6 According to a defense expert on Luxembourg law, resort to the
"common intention" of the parties will be made only if a contract clause
is ambiguous; even then "the judge will refer to the common intention
of the parties and not to the unexpressed internal desire of only one of
the parties. A purely internal intention of one of the parties will not be
taken into consideration."
9
A.
As to the government of Luxembourg and SES as its purported
"agency or instrumentality," the answer is easy. FSIA specifically for-
bids American courts from hearing "any claim arising out of mali-
cious prosecution, abuse of process, libel, slander, misrepresentation,
deceit, or interference with contract rights[ ]" against a foreign sover-
eign. 28 U.S.C. § 1605(a)(5)(B).
B.
As for the claim against Johnson, Whitehead does not challenge the
district court's ruling that the supplemental jurisdiction ought not be
retained in the absence of original jurisdiction. Rather, he asserts that
diversity of citizenship was a proper basis for original jurisdiction.
We disagree.
Though diversity jurisdiction extends to suits between United
States citizens domiciled in different states and between citizens so
domiciled and aliens, it does not include United States citizens domi-
ciled abroad, for they are neither aliens nor citizens of any state. "In
order to be a citizen of a State within the meaning of the diversity
statute, a natural person must both be a citizen of the United States
and be domiciled within the State." Newman-Green, Inc. v. Alfonzo-
Larrain, 490 U.S. 826, 828 (1989). The presence of a single such
expatriate party destroys diversity jurisdiction for the entire action. Id.
at 829.
According to her unrebutted sworn declaration, Johnson is a United
States citizen. There is no evidence that she is domiciled in the United
States, however. Her husband is currently Luxembourg's ambassador
to Russia, and she has not lived in the United States for fourteen
years. Though the district court found that she had"minimum con-
tacts" with Virginia (e.g. she owns property there), such contacts fall
well short of constituting a domicile. Indeed, Whitehead's complaint
alleges that Johnson is a resident of Russia, and his brief endorses her
disclaimers of Virginia domicile (such a domicile would also destroy
diversity because Whitehead, too, is a Virginia resident). Brief of
Appellant, at 38.
10
The nondiversity of Johnson dooms the claim against SES as pri-
vate entity, because, as we noted, there must be complete diversity
between all plaintiffs and all defendants. Hence, we have no need to
address whether SES could be subjected to personal jurisdiction in
Virginia on the defamation claim.
The judgment of the district court is affirmed. 7
AFFIRMED
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7 The district court also denied Whitehead's motion to compel broad
discovery touching primarily on the FSIA issues. We review this deci-
sion for abuse of discretion, and we find no abuse. An important aspect
of foreign sovereign immunity would be lost if a foreign state is sub-
jected to burdensome discovery without a prima facie showing of juris-
diction. See Gould, Inc. v. Pechiney Ugine Kuhlmann, 853 F.2d 445, 451
(6th Cir. 1991). Under the narrower grounds on which we have rested
affirmance, the relevance of the requested discovery would be even more
questionable.
11