Manuel Terenkian v. The Republic of Iraq

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MANUEL KEVORK TERENKIAN; 
PENTONVILLE DEVELOPERS, LTD.;
MARBLEARCH TRADING, LTD., No. 10-56708
Plaintiffs-Appellees, D.C. No.
v.  2:03-cv-05485-
THE REPUBLIC OF IRAQ; THE CBM-SH
REPUBLIC OF IRAQ, by and through OPINION
State Oil Marketing Organization,
Defendants-Appellants.

Appeal from the United States District Court
for the Central District of California
Consuelo B. Marshall, Senior District Judge, Presiding
Argued and Submitted
December 6, 2011—Pasadena, California
Filed July 16, 2012
Before: John T. Noonan, Ronald M. Gould, and
Sandra S. Ikuta, Circuit Judges.
Opinion by Judge Ikuta;
Dissent by Judge Noonan
8131
8134 TERENKIAN v. REPUBLIC OF IRAQ
COUNSEL
Edward L. Powers (argued), Zukerman Gore Brandeis &
Crossman, LLP, New York, New York; Susan L. Hoffman,
Robert A. Brundage, Bingham McCutchen, LLP, Los Ange-
les, California, for appellant Republic of Iraq.
Melinda W. Ebelhar (argued), Edward D. Vaisbort, G. David
Rubin, Litchfield Cavo LLP, Pasadena, California; Alan
Gura, Gura & Possessky, PLLC, Alexandria, Virginia, for
TERENKIAN v. REPUBLIC OF IRAQ 8135
appellees Pentonville Developers, Ltd. and Marblearch Trad-
ing, Ltd.
OPINION
IKUTA, Circuit Judge:
Pentonville Developers, Ltd., and Marblearch Trading,
Ltd., two Cyprus oil brokerage companies, sued the Republic
of Iraq for unilaterally terminating two contracts for the pur-
chase and sale of Iraqi oil. The district court held it had sub-
ject matter jurisdiction to hear this action notwithstanding
Iraq’s assertion of sovereign immunity under the Foreign Sov-
ereign Immunities Act (FSIA), 28 U.S.C. § 1602 et seq.,
because the lawsuit fell within the “commercial exception” to
that immunity. Because the lawsuit is not based upon com-
mercial activity by Iraq in the United States nor upon an act
in connection with such commercial activity having a direct
effect in the United States, see 28 U.S.C. § 1605(a)(2), we
hold that the district court erred in denying Iraq’s motion to
dismiss for lack of subject matter jurisdiction.
I
Pentonville Developers, Ltd., and Marblearch Trading,
Ltd., are oil brokerage companies that are headquartered in
and formed under the laws of Cyprus. Manuel Terenkian is
the president and sole shareholder of both companies. Begin-
ning in 2000, Pentonville and Marblearch commenced negoti-
ations with Iraq under the auspices of the United Nations Oil
for Food Program to enter into transactions for the purchase
and sale of Iraqi oil.1
1
The Oil for Food Program was a by-product of the United Nations
Security Council’s imposition of an international trade embargo on Iraq as
a sanction for its invasion of Kuwait. The trade embargo had a damaging
8136 TERENKIAN v. REPUBLIC OF IRAQ
In November 2000, pursuant to the Oil for Food Program
requirements, Pentonville entered into a contract to purchase
oil from the State Oil Marketing Organization (SOMO), a
company formed under the laws of and wholly owned by the
Republic of Iraq. A few months later, Marblearch also entered
a contract to purchase oil from SOMO. As specified in the
contracts, Pentonville agreed to purchase one million barrels
of Kirkuk crude oil for the “Europe” market and two million
barrels of Basrah light crude oil for the “USA/Far East” mar-
ket. Marblearch agreed to purchase two million barrels of Kir-
kuk crude oil for “Europe and/or U.S.A.” The contracts were
to be performed in Iraq or Turkey, where title to the crude oil
would pass to the purchaser. Pentonville and Marblearch
agreed that payment for each cargo of crude oil would be
made from the proceeds of an irrevocable documentary letter
of credit directly into a United Nations escrow account. The
contracts additionally specified that Pentonville and Marble-
arch would process the oil in their own refineries; the compa-
nies could use the refineries of third parties only with
SOMO’s prior approval. Moreover, any breach of this obliga-
tion would constitute a default for which SOMO could termi-
nate the contracts. Finally, the contracts provided for
arbitration in accordance with the rules of the International
Chamber of Commerce to settle any disputes arising from the
contracts, and designated the place of arbitration as Baghdad
effect on Iraq’s population. To ameliorate the worsening humanitarian sit-
uation resulting from this embargo, the United Nations Security Council
subsequently passed a resolution establishing an Oil for Food Program
administered by a United Nations committee. This program authorized
Iraq to sell oil and petroleum products to third parties, notwithstanding the
embargo, so long as all revenues from these sales were deposited in a
United Nations escrow account maintained by Banque Nationale de Paris,
S.A., in New York. The funds could then be used to purchase goods that
were necessary for the humanitarian needs of the Iraqi people. To ensure
that the oil revenues would be used only for such humanitarian purposes,
all transactions under the Oil for Food Program required the United
Nations committee’s oversight and approval. See S.C. Res. 986, U.N. Doc.
S/RES/986 (Apr. 14, 1995).
TERENKIAN v. REPUBLIC OF IRAQ 8137
“or any other place mutually agreed upon.” These contracts
were duly approved by the United Nations committee super-
vising the Oil for Food Program.
In July 2003, Pentonville, Marblearch, and Terenkian (col-
lectively referred to here as the plaintiffs) filed a complaint
against the Republic of Iraq by and through SOMO. As
amended in May 2007, the complaint alleged that after the
Pentonville contract had been executed at the Permanent Mis-
sion of Cyprus to the United Nations in New York, Iraqi offi-
cials demanded that Pentonville pay SOMO additional fees
that were not required by the contract. When Pentonville
refused to make these payments, SOMO unilaterally canceled
the contract. After Marblearch subsequently entered into a
substantially similar contract, also executed at the Cyprus
Mission in New York, the same scenario played out: Iraqi
officials demanded additional payments, which Marblearch
refused, and SOMO again canceled the contract.2
Based on these allegations, the plaintiffs filed a complaint
claiming that Iraq and SOMO breached their contracts with
Pentonville and Marblearch, causing Pentonville to lose no
less than $3,750,000 in brokerage fees and Marblearch to lose
no less than $2.5 million in brokerage fees.
The complaint also sets forth the alleged basis of the dis-
trict court’s subject matter jurisdiction over the Republic of
Iraq, which plaintiffs alleged was the actual defendant in the
suit. The “sole basis” for United States federal courts to
obtain jurisdiction over a foreign state is the FSIA. Argentine
Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434
2
The complaint further alleges that, in retaliation for this refusal to pay
additional fees, Iraq instituted charges of criminal fraud against Terenkian,
who in September 2002, was taken captive in Syria and imprisoned pend-
ing extradition to Iraq. Terenkian was released on $30,000 bail after 93
days of imprisonment, whereupon he escaped Syria, thus forfeiting the
bail money. Terenkian’s wrongful imprisonment claim based on these
allegations is not before us.
8138 TERENKIAN v. REPUBLIC OF IRAQ
(1989). The FSIA “establishes a comprehensive framework
for determining whether a court in this country, state or fed-
eral, may exercise jurisdiction over a foreign state.” Republic
of Arg. v. Weltover, Inc., 504 U.S. 607, 610 (1992). Under
§ 1604 of the FSIA, “a foreign state shall be immune from the
jurisdiction of the courts of the United States and of the States
except as provided” in various exceptions.
Because the plaintiffs aimed their action at Iraq, they had
the preliminary burden of establishing that Iraq was not enti-
tled to immunity. See Meadows v. Dominican Republic, 817
F.2d 517, 522 (9th Cir. 1987). In an effort to do so, the com-
plaint alleged that the “commercial exception” to sovereign
immunity, set forth in § 1605(a)(2), was applicable. Section
1605(a)(2) provides:
(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 [1] upon a commer-
cial activity carried on in the United States by the
foreign state; or [2] upon an act performed in the
United States in connection with a commercial activ-
ity of the foreign state elsewhere; or [3] upon an act
outside the territory of the United States in connec-
tion with a commercial activity of the foreign state
elsewhere and that act causes a direct effect in the
United States[.]
Courts have construed this commercial activity provision to
have three independent clauses, and have used different
criteria for each of the three separate clauses to assess a
claimed exception. See, e.g., Am. W. Airlines, Inc. v. GPA
Grp., 877 F.2d 793, 796-97 (9th Cir. 1989) (applying a
“nexus” requirement to the first clause); Siderman de Blake v.
TERENKIAN v. REPUBLIC OF IRAQ 8139
Republic of Arg., 965 F.2d 699, 709 (9th Cir. 1992) (applying
a “material connection” requirement to the second clause);
Adler v. Fed. Republic of Nigeria, 107 F.3d 720, 726-27 &
n.4 (9th Cir. 1997) (applying a “legally significant acts” test
to the third clause). Citing only the third clause, the complaint
alleged that the plaintiffs may seek monetary damages from
Iraq because it conducted “an act outside the territory of the
United States in connection with a commercial activity of the
foreign state elsewhere and that act cause[d] a direct effect in
the United States.” § 1605(a)(2). In their subsequent motion
for a default judgment, the plaintiffs argued that the district
court had jurisdiction “because the contracts in this action
contemplated the purchase of oil, some of which was intended
for distribution in the United States,” meaning that “Iraq’s
unilateral cancellation of the contracts resulted in a ‘direct
effect’ in the United States.”
After various delays,3 Iraq brought a motion to dismiss for
lack of subject matter jurisdiction on the ground that the
“commercial activity” exception to sovereign immunity under
the third clause of § 1605(a)(2) was not applicable. Iraq based
this assertion on two arguments: first, that Iraq was not a party
to the Pentonville and Marblearch contracts, and second, that
the alleged breaches of contract did not have a “direct effect”
in the United States because SOMO’s place of performance
under the contract was Iraq (where the oil would be delivered
to the plaintiffs’ ship). Furthermore, Iraq argued, there was no
contractual requirement or evidence that any of the oil would
be sold to customers in the United States, and indeed,
Terenkian himself had acknowledged that the oil was to be
delivered to an Italian refinery. In support of this motion to
3
The docket reflects several lengthy delays caused by Iraq’s failure to
respond to the complaint, resulting in the district court’s entry of two
default judgments against Iraq. On Iraq’s subsequent motions, the district
court vacated the entries of default. Although the plaintiffs argued before
the district court that Iraq had not met its burden of establishing that it was
entitled to relief from default, the parties have not raised this issue on
appeal.
8140 TERENKIAN v. REPUBLIC OF IRAQ
dismiss, Iraq submitted copies of the contracts, as well as dec-
larations and other documentary evidence. Iraq further argued
that the breach of contract actions should be dismissed
because neither Pentonville nor Marblearch had arbitrated the
claim as required by the contracts at issue.
In their opposition to the motion to dismiss, the plaintiffs
raised two new bases for abrogating Iraq’s sovereign immu-
nity. Relying for the first time on the first clause of
§ 1605(a)(2), the plaintiffs argued that because both contracts
at issue were executed in New York, their claims arose out of
a commercial activity undertaken by the foreign state which
was carried on in the United States. They also argued, again
for the first time, that because payment was to be made into
the United Nations escrow account at the Banque Nationale
de Paris, Iraq’s alleged breach of the contracts had the “direct
effect” that payments were not deposited in a New York bank.
With respect to Iraq’s assertion of entitlement to arbitration,
the plaintiffs argued that arbitration in Baghdad would be
impossible and/or commercially impracticable because
Terenkian was facing death threats in Iraq. They further
argued that, because Iraq is not a signatory to the Convention
on the Recognition and Enforcement of Foreign Arbitral
Awards, the district court could not compel arbitration in Iraq.
The district court denied Iraq’s motion to dismiss. After
concluding that Iraq was a proper defendant (an issue not on
appeal), the district court ruled that Iraq was not entitled to
sovereign immunity because the “commercial activity” excep-
tion applied: namely, the lawsuit was based on “an act outside
the territory of the United States in connection with a com-
mercial activity of the foreign state elsewhere and that act
causes a direct effect in the United States.” § 1605(a)(2). The
district court held that because the contracts required that pay-
ment be made in New York, the breach of those contracts
constituted a commercial activity that had a direct effect in the
United States. Concluding it had subject matter jurisdiction on
this basis, the district court did not reach the plaintiff’s alter-
TERENKIAN v. REPUBLIC OF IRAQ 8141
nate arguments based on execution of the contracts or the
eventual delivery of some of the oil to the United States. The
district court also denied Iraq’s motion to dismiss for failure
to arbitrate on the ground that the parties had not established
that the claims were subject to arbitration at all.
Finally, the district court held that venue in the Southern
District of California was not proper and transferred venue to
the District of Columbia. See 28 U.S.C. § 1391(f) (providing
for venue in the District of Columbia for a civil action against
a foreign state when there is no judicial district in which a
substantial part of the events giving rise to the claim occurred).4
On appeal, Iraq argues that the district court lacked subject
matter jurisdiction, or alternatively, that the case should have
been dismissed for failure to arbitrate. Plaintiffs oppose Iraq’s
arguments on the merits, and they further argue that the
appeal is time-barred because the notice of appeal was not
filed until after the case was docketed in the District Court for
the District of Columbia. See Wilson v. City of San Jose, 111
F.3d 688, 692 (9th Cir. 1997); Lou v. Belzberg, 834 F.2d 730,
733 (9th Cir. 1987); In re Donald, 328 B.R. 192, 197 (B.A.P.
9th Cir. 2005).
II
We begin by addressing Iraq’s jurisdictional argument. See
Sinochem Int’l Co. v. Malay. Int’l Shipping Corp., 549 U.S.
422, 431 (2007) (“[T]here is no mandatory sequencing of
jurisdictional issues.” (quoting Ruhrgas AG v. Marathon Oil
Co., 526 U.S. 574, 584 (1999)) (internal quotation marks
omitted)).
4
Before bringing this appeal, Iraq appealed to the Court of Appeals for
the District of Columbia, which transferred the case to us “without preju-
dice to the authority of [the Ninth Circuit] to determine its own jurisdic-
tion.” See also 28 U.S.C. § 1631 (authorizing transfer “in the interest of
justice” of an appeal brought in the wrong court and providing that an oth-
erwise timely Notice of Appeal will retain its timeliness).
8142 TERENKIAN v. REPUBLIC OF IRAQ
A district court’s denial of a motion to dismiss for lack of
subject matter jurisdiction is subject to interlocutory appeal
under the collateral order doctrine. Phaneuf v. Republic of
Indon., 106 F.3d 302, 304 (9th Cir. 1997). Under the burden-
shifting framework of the FSIA, the defendant must establish
a prima facie case “that it is a sovereign state and that the
plaintiff’s claim arises out of a public act.” Siderman, 965
F.2d at 708 n.9 (quoting Meadows, 817 F.2d at 523) (internal
quotation marks omitted). A presumption then arises “that the
foreign state is protected by immunity.” Id. Once the plaintiff
has met the threshold of alleging that the defendant was not
entitled to immunity due to one of the FSIA exceptions, see
Meadows, 817 F.2d at 522, the defendant may make either a
facial or factual challenge to the district court’s subject matter
jurisdiction, see Doe v. Holy See, 557 F.3d 1066, 1073 (9th
Cir. 2009) (differentiating between facial attacks and fact-
based challenges to subject matter jurisdiction).
Where a defendant claims only “that the allegations con-
tained in a complaint are insufficient on their face to invoke
federal jurisdiction,” Safe Air for Everyone v. Meyer, 373
F.3d 1035, 1039 (9th Cir. 2004), we treat the challenge as
“any other motion to dismiss on the pleadings for lack of
jurisdiction,” Holy See, 557 F.3d at 1073. We therefore deter-
mine whether the complaint alleges “sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on
its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quot-
ing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007));
see also Colony Cove Props., LLC v. City of Carson, 640 F.3d
948, 955 (9th Cir. 2011) (applying Iqbal’s standards to a
motion to dismiss for lack of subject matter jurisdiction and
for failure to state a claim).
If the defendant instead makes a factual attack on subject
matter jurisdiction, the defendant may introduce testimony,
affidavits, or other evidence to “dispute[ ] the truth of the alle-
gations that, by themselves, would otherwise invoke federal
jurisdiction.” Safe Air for Everyone, 373 F.3d at 1039. Under
TERENKIAN v. REPUBLIC OF IRAQ 8143
these circumstances, “no presumptive truthfulness attaches to
plaintiff’s allegations.” Holy See, 557 F.3d at 1073 (quoting
Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987))
(internal quotation marks omitted). “The plaintiff then has the
burden of going forward with the evidence by offering proof
that one of the FSIA exemptions applies.” Id. (quoting Mead-
ows); see also Gates v. Victor Fine Foods, 54 F.3d 1457,
1463 (9th Cir. 1995). Once the plaintiff has presented such
evidence, the defendant bears the burden of proving by a pre-
ponderance of the evidence that the exception to sovereign
immunity does not apply. Siderman, 965 F.2d at 708 n.9
(quoting Meadows). Even where the material facts are dis-
puted, the trial court may still evaluate the merits of the juris-
dictional claims. See Holy See, 557 F.3d at 1073; see also
William W. Schwarzer, A. Wallace Tashima & James M.
Wagstaffe, California Practice Guide: Federal Civil Procedure
Before Trial ¶ 9:104, at 9-31 (The Rutter Group 2009).
In this case, Iraq made fact-based challenges to plaintiffs’
assertion of jurisdiction, and both parties submitted documen-
tary evidence to the district court. On appeal, we must deter-
mine whether plaintiffs have carried their burden of offering
proof that one or more FSIA exceptions to sovereign immu-
nity are applicable, and Iraq has carried its burden of proving
that no exception identified by the plaintiffs is applicable. We
review the district court’s legal rulings de novo and its factual
findings for clear error. See Embassy of the Arab Republic of
Egypt v. Lasheen, 603 F.3d 1166, 1170 (9th Cir. 2010); Adler,
107 F.3d at 723.
III
Plaintiffs relied on the first and third clauses of the “com-
mercial activity” exception to sovereign immunity as set forth
in § 1605(a)(2). We begin by setting forth the frameworks for
evaluating the applicability of these exceptions.
8144 TERENKIAN v. REPUBLIC OF IRAQ
A
[1] The first clause of § 1605(a)(2) makes an exception to
a foreign state’s sovereign immunity in a case “in which the
action is based upon a commercial activity carried on in the
United States by the foreign state.” The FSIA provides defini-
tions for some of these key terms. A “commercial activity car-
ried on in the United States by a foreign state” means a
commercial activity “having substantial contact with the
United States.” 28 U.S.C. § 1603(e). A “commercial activity”
is “either a regular course of commercial conduct or a particu-
lar commercial transaction or act.” 28 U.S.C. § 1603(d). The
Supreme Court has held that a foreign state engages in com-
mercial activity only where it exercises “those powers that
can also be exercised by private citizens,” or when it acts “in
the manner of a private player within the market,” but not
when it exercises those powers “peculiar to sovereigns.”
Saudi Arabia v. Nelson, 507 U.S. 349, 360 (1993) (quoting
Weltover, 504 U.S. at 614) (internal quotation marks omitted).
In determining whether an activity is “commercial,” a court
must determine the activity’s commercial character “by refer-
ence to the nature of the course of conduct or particular trans-
action or act, rather than by reference to its purpose.” Id. at
359 (quoting § 1603(d)) (internal quotation marks omitted).
“Thus the relevant question ‘is whether the particular actions
that the foreign state performs . . . are the type of actions by
which a private party engages in trade and traffic or com-
merce.’ ” Lasheen, 603 F.3d at 1170 (alteration in original)
(quoting Weltover, 504 U.S. at 614). There is no dispute that
the contracts in question are commercial in nature.
The courts have also explained what it means for an action
to be “based upon” a commercial activity. According to the
Supreme Court, the phrase “based upon” is “read most natu-
rally to mean those elements of a claim that, if proven, would
entitle a plaintiff to relief under his theory of the case.” Nel-
son, 507 U.S. at 357; see also id. (“An action is based upon
the elements that prove the claim, no more and no less.”
TERENKIAN v. REPUBLIC OF IRAQ 8145
(quoting Santos v. Compagnie Nationale Air France, 934
F.2d 890, 893 (7th Cir. 1991) (internal quotation marks omit-
ted))). Thus a court must begin its analysis “by identifying the
particular conduct” on which the plaintiff’s legal action is
“based.” Id. at 356. That “particular conduct” must be a
“commercial activity” as defined by the Act, although “the
first clause of § 1605(a)(2) [does not] necessarily require[ ]
that each and every element of a claim be commercial activity
by a foreign state.” Id. at 358 n.4.
Finally, the requirement that the commercial activity be
“carried on in the United States,” § 1605(a)(2), means that the
lawsuit itself must be based upon the foreign sovereign’s
commercial activity within the United States. Even if the for-
eign sovereign regularly conducts other commercial activity
in the United States, if that activity “has no connection with,
or relationship to, the conduct which gave rise to plaintiff’s
cause of action” it “will not suffice” to abrogate sovereign
immunity under this first clause. Gen. Elec. Capital Corp. v.
Grossman, 991 F.2d 1376, 1383 (8th Cir. 1993) (quoting
Gould, Inc. v. Mitsui Mining & Smelting Co., 947 F.2d 218,
221 (6th Cir. 1991)) (internal quotation marks omitted); see
also Am. W. Airlines, 877 F.2d at 797 (upholding sovereign
immunity because the commercial acts in the United States
were not the “specific acts that form the basis of the suit”
(quoting Joseph v. Office of the Consulate Gen., 830 F.2d
1018, 1023 (9th Cir. 1987)) (internal quotation marks omit-
ted)).
Moreover, the commercial activities in the United States
must be significant ones. See Grossman, 991 F.2d at 1384.
For example, while a foreign nation’s contract negotiations,
including a meeting, and telephone and wire communications,
are commercial activity in the United States, they are insuffi-
ciently significant to meet this exception. See id. at 1383-84.
Similarly, where a plaintiff’s claim was based on activities in
Saudi Arabia (and sounded in tort rather than contract), the
plaintiff could not abrogate the foreign nation’s sovereign
8146 TERENKIAN v. REPUBLIC OF IRAQ
immunity under the first clause of the FSIA by pointing to
preliminary commercial activities in the United States. See
Nelson, 507 U.S. at 357-58.
[2] In sum, in order for a foreign state to lose its sovereign
immunity under the first clause of § 1605(a)(2): (1) the for-
eign state’s commercial activity in the United States must be
the basis of (i.e., a necessary element of) the plaintiff’s claim;
and (2) that commercial activity must be significant and have
substantial contact with the United States.
B
[3] The third clause of § 1605(a)(2) creates an exception to
a foreign state’s sovereign immunity in a case in which the
plaintiff’s lawsuit 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.” Instead of requiring that the legal
action be “based upon” commercial activity, as in the first
clause, this clause allows the legal action to be based on an
act outside of the United States so long as the act was taken
“in connection with a commercial activity of the foreign
state.”
In analyzing the third clause, courts have focused on the
language requiring that the act which forms the basis of the
lawsuit cause “a direct effect in the United States.” In inter-
preting this language in Weltover, the Supreme Court held
that an effect is “direct” “if it follows ‘as an immediate conse-
quence of the defendant’s . . . activity.’ ” 504 U.S. at 618(alteration in original) (quoting Weltover, Inc. v. Republic of
Arg., 941 F.2d 145, 152 (2d Cir. 1991)); see also Adler, 107
F.3d at 726-27.5 We have explained that a consequence is
5
In reaching this conclusion, the Court rejected earlier judicial interpre-
tations, which had held based on legislative history that an act must be
both “substantial” and “foreseeable” in order to have a “direct effect” in
the United States. Weltover, 504 U.S. at 617-18.
TERENKIAN v. REPUBLIC OF IRAQ 8147
“immediate” if no intervening act breaks “the chain of causa-
tion leading from the asserted wrongful act to its impact in the
United States.” Lyon v. Agusta S.P.A., 252 F.3d 1078, 1083
(9th Cir. 2001); see also id. at 1083 n.3 (holding that the rele-
vant meaning of “immediate” in this context is “ ‘acting or
being without the intervention of another object, cause, or
agency’ ” (quoting Webster’s Third New International Dictio-
nary 1129 (1986)); Guirlando v. T.C. Ziraat Bankasi A.S., 602
F.3d 69, 75 (2d Cir. 2010) (stating that “ ‘the requisite imme-
diacy’ is lacking where the alleged effect ‘depend[s] crucially
on variables independent of’ the conduct of the foreign state”
(alteration in original) (quoting Virtual Countries, Inc. v.
Republic of S. Afr., 300 F.3d 230, 238 (2d Cir. 2002))).
Applying this rule, the D.C. Circuit considered a breach-of-
contract claim brought by Cruise Connections, a U.S. corpo-
ration, against Canada. See Cruise Connections Charter
Mgmt. 1, LP v. Att’y Gen. of Can., 600 F.3d 661, 662-63
(D.C. Cir. 2010). Cruise Connections had entered into a con-
tract with Canada to provide three cruise ships for housing
Canadian security staff near Vancouver during the 2010 Win-
ter Olympics, but just when Cruise Connections was in the
final stages of negotiating subcontracts, Canada canceled the
contract. See id. at 663. Cruise Connections alleged that this
breach caused it to lose revenue it would have obtained from
the subcontractors that supplied the cruise ships and from a
travel agency that would have chartered one of the ships. See
id. Cruise Connections also claimed that the breach resulted
in lost revenues from sales that would have been made to pas-
sengers on those ships. See id. Analyzing Canada’s asserted
sovereign immunity under the FSIA, the D.C. Circuit held
that the lost revenues from the cruise lines and travel agency
constituted “direct effects” of the breach because “no inter-
vening event stood between [the foreign sovereign’s] termina-
tion of the contract and the lost revenues” from third parties.
Id. at 664. On the other hand, the court suggested that lost
revenues from shipboard sales were not “direct effects”
because such losses, which depended entirely on the decisions
8148 TERENKIAN v. REPUBLIC OF IRAQ
of individual purchasers, “might be regarded as subject to an
‘intervening event’ independent of [the foreign sovereign’s]
cancellation of the contract.” Id.Satisfying the requirement that an effect be “immediate”
and thus “direct” is not sufficient by itself to satisfy the “di-
rect effect” prong of the commercial activity exception, how-
ever, because the effect must also be more than “purely
trivial” or “remote and attenuated.” Weltover, 504 U.S. at 618.
In considering this factor, a court must “ ‘look to the place
where legally significant acts giving rise to the claim
occurred’ in determining the place where a direct effect may
be said to be located.” Adler, 107 F.3d at 727 (quoting United
World Trade, Inc. v. Mangyshlakneft Oil Prod. Ass’n, 33 F.3d
1232, 1239 (10th Cir. 1994)); see also id. at 727 n.4 (citing
cases and noting that the Second, Tenth, and Eighth Circuits
apply the “legally significant acts” test); Gregorian v. Izves-
tia, 871 F.2d 1515, 1527 (9th Cir. 1989) (to establish a direct
effect, the plaintiff must show that “ ‘something legally sig-
nificant actually happened in the U.S.’ ” (quoting Zedan v.
Kingdom of Saudi Arabia, 849 F.2d 1511, 1515 (D.C. Cir.
1988))).
Following this reasoning, courts have held that a mere tan-
gential effect in the United States from a breach that occurs
elsewhere does not constitute a “direct effect” as contem-
plated in the third clause of § 1605(a)(2). See, e.g., United
World Trade, 33 F.3d at 1237-39 (finding no direct effect
when a foreign nation’s cancellation of an otherwise non-U.S.
contract meant that foreign currency no longer needed to be
transferred to a U.S. bank to be converted into dollars); see
also Adler, 107 F.3d at 726-27 (noting that “mere financial
loss by a person—individual or corporate—in the U.S. is not,
in itself, sufficient to constitute a ‘direct effect’ ”). As the
Tenth Circuit explained, “[t]he requirement that an effect be
‘direct’ indicates that Congress did not intend to provide juris-
diction whenever the ripples caused by an overseas transac-
tion manage eventually to reach the shores of the United
TERENKIAN v. REPUBLIC OF IRAQ 8149
States.” United World Trade, 33 F.3d at 1238. Moreover, we
may not interpret § 1605(a)(2) “in a manner that would give
the district courts jurisdiction over virtually any suit arising
out of an overseas transaction in which an American citizen
claims to have suffered a loss from the acts of a foreign state.”
Id. at 1239.
On the other hand, when a foreign sovereign breaches a
contract by failing to complete a contractual obligation that
must be performed in the United States, such a breach is suffi-
cient to be a direct effect in the United States. See, e.g., Welt-
over, 504 U.S. at 618-19. In Weltover, Argentina issued bonds
and agreed to repay certain bondholders by making deposits
into those bondholders’ New York banks as the bonds
matured. Id. at 609-10. When Argentina breached its obliga-
tion to make those payments, the bondholders sued in New
York district court. Id. at 610. The Supreme Court held that
Argentina’s act of rescheduling the maturity dates on the
bonds, which was the basis of the plaintiffs’ breach of con-
tract action in the United States, had a direct, non-trivial effect
in the United States. Id. at 618-19. As the Court explained,
“[b]ecause New York was . . . the place of performance for
Argentina’s ultimate contractual obligations, the rescheduling
of those obligations necessarily had a ‘direct effect’ in the
United States: Money that was supposed to have been deliv-
ered to a New York bank for deposit was not forthcoming.”
Id. at 619; see also Adler, 107 F.3d at 727 (holding that,
because the plaintiff had instructed Nigeria to make payments
to the plaintiff’s account in New York, “New York was the
place of performance of Nigeria’s ultimate contractual obliga-
tion,” and “its failure to satisfy that obligation necessarily had
a direct effect in the United States”).
[4] Accordingly, there is an exception to a foreign sover-
eign’s immunity under the third clause when (1) an act out-
side the United States forms the basis of the plaintiffs’ lawsuit
(i.e., constitutes an element of a claim that if proven would
entitle a plaintiff to relief on his theory of the case); (2) the
8150 TERENKIAN v. REPUBLIC OF IRAQ
act is taken in connection with a foreign sovereign’s commer-
cial activity; (3) there is a direct connection between the act
and the effect, without any intervening object, cause, or
agency; and (4) the effect of the act is legally significant and
non-trivial.
IV
We now apply these principles to this case to determine
whether Iraq has met its burden of showing that neither of the
exceptions to sovereign immunity contained in the first and
third clauses of § 1605(a)(2) applies. See Siderman, 965 F.2d
at 708 n.9 (citing Meadows, 817 F.2d at 523).
A
We begin by considering the plaintiffs’ assertion that Iraq
does not have sovereign immunity from suit under the FSIA
because the first clause of the commercial exception in
§ 1605(a)(2) applies on these facts, i.e., the plaintiffs’ action
is based “upon a commercial activity carried on in the United
States” by Iraq.
According to the plaintiffs’ argument, their complaint is
based on the cancellation of the contracts, and the contracts
are the product of Iraq’s commercial activities carried on in
the United States because (1) the contracts were made under
the auspices of the Oil for Food Program administered in New
York by the United Nations and (2) the contracts were exe-
cuted at the Cyprus Mission to the United Nations, which is
located in New York. As further support for this argument,
plaintiffs ask us to take judicial notice of documents filed in
other district court proceedings in which Iraq took the litiga-
tion position that contracts made under the auspices of the Oil
for Food Program constitute commercial activity carried on in
the United States.
TERENKIAN v. REPUBLIC OF IRAQ 8151
[5] We agree that Iraq’s entry into the two contracts for the
sale of oil constituted commercial activity. But neither of the
activities identified by plaintiffs constitute a “commercial
activity carried on in the United States by the foreign state”
for purposes of the first clause of § 1605(a)(2). First, Iraq’s
involvement in the Oil for Food Program is not a “commercial
activity.” Although Iraq’s agreement to comply with the Oil
for Food Program’s restrictions was a condition precedent to
engaging in the transactions at issue, Iraq’s participation in
the program was solely due to its status as a sovereign. Iraq’s
invasion of Kuwait, the resulting trade embargo sanction, and
Iraq’s involvement in the United Nations’ Oil for Food Pro-
gram to relieve the humanitarian needs of its people are public
acts, not “the type of actions by which a private party engages
in trade and traffic or commerce,” Weltover, 504 U.S. at 614(emphasis and internal quotation marks omitted), or actions
“in the manner of a private player” within a market, Nelson,
507 U.S. at 360. By the same token, the United Nations’ over-
sight of Iraq’s activities to further certain international politi-
cal and humanitarian goals is not a commercial activity
carried on by Iraq in the United States, nor does that oversight
transform Iraq’s activities abroad into significant commercial
activities with substantial contacts to the United States. Fur-
ther, nothing about the Oil for Food Program itself gave rise
to the plaintiffs’ complaint.6
[6] Nor do we agree with plaintiffs’ argument that the exe-
6
Thus we disagree with the dissent’s statement that “[w]hat Iraq was
doing was what any private player could do, trading oil to obtain money
for food.” Dissent at 8159. Although we agree that “there is nothing spe-
cifically sovereign about bartering oil,” a private party trading in oil is not
compelled to subject all aspects of its dealings (including the use it may
make of any revenues received) to the supervision and control of a United
Nations committee. Accordingly, Iraq’s participation as a sovereign nation
in the Oil for Food Program cannot be the basis for our jurisdiction,
because clearly the United Nations’ close oversight of Iraq’s activities is
not the “type of action[ ] by which a private party engages in trade and
traffic or commerce.” Weltover, 504 U.S. at 614 (emphasis omitted).
8152 TERENKIAN v. REPUBLIC OF IRAQ
cution of the contracts at the Cyprus Mission in New York is
sufficiently significant to satisfy the first clause of the com-
mercial activity exception. First, as Iraq argues, plaintiffs
presented no evidence that any Iraqi official actually executed
the contract in New York. Iraq has established that it is a sov-
ereign state, and so it is entitled to a presumption that it has
immunity from suit. See Siderman, 965 F.2d at 708 n.9.
Because Iraq relies on a fact-based challenge to subject-matter
jurisdiction, see Holy See, 557 F.3d at 1073, plaintiffs had the
burden of presenting their evidence that the disputed FSIA
exemption applied. See Siderman, 965 F.2d at 708 n.9. Plain-
tiffs have presented no evidence regarding the locale where
Iraq signed the contract. Because plaintiffs failed to carry
their initial burden of offering evidence that an exception to
immunity applies, we may reject their argument on this
ground. See id.[7] But even assuming that plaintiffs provided evidentiary
support for this factual allegation, their legal argument is
wrong: execution of a contract in the United States alone,
without more, is not sufficient to satisfy the first clause of
§ 1605(a)(2). The mere happenstance that a contract is exe-
cuted at a location within the physical boundaries of the
United States, by itself, is not sufficient to constitute a signifi-
cant activity or a substantial contact for purposes of the first
clause of § 1605(a)(2). Rather, as noted by the Supreme Court
in a different but related context, a court should consider less
formalistic indicia, such as “prior business negotiations with
future consequences which themselves are the real object of
the business transaction.” Burger King Corp. v. Rudzewicz,
471 U.S. 462, 479 (1985). Here, plaintiffs have not alleged
that substantial prior contractual negotiations, or indeed any
activity related to formation of the contracts other than their
execution, occurred within the United States. Cf. Grossman,
991 F.3d at 1383-84 (holding that a meeting and communica-
tions by wire and telephone were insufficiently significant to
meet the exception in the first clause of § 1605(a)(2)). Nor did
the contracts require Iraq to undertake any activities in New
TERENKIAN v. REPUBLIC OF IRAQ 8153
York. Further, the contracts designated Baghdad as the locale
for arbitration of any disputes and provided that the contracts
would be construed and governed in accordance with the laws
of Iraq. Under these circumstances, the mere signing of the
contract in New York (assuming that Iraq did so) is insuffi-
cient to meet the test for a commercial activity carried on in
the United States by Iraq for purposes of § 1605(a)(2).7
Finally, Iraq’s litigation position in other legal proceedings
is not relevant to our considerations here. Even if Iraq con-
ceded in other litigation that contracts made pursuant to the
Oil for Food Program were commercial activities carried on
in the United States, judicial estoppel is not a substitute for
subject matter jurisdiction, as plaintiffs concede.8 Rather, a
federal court must assure itself of its own jurisdiction to enter-
tain a claim regardless of the parties’ arguments or conces-
sions. See Am. Fire & Cas. Co. v. Finn, 341 U.S. 6, 17-18
(1951) (“The jurisdiction of the federal courts is carefully
guarded against expansion by judicial interpretation or by
prior action or consent of the parties.”); see also Hansen v.
Harper Excavating, Inc., 641 F.3d 1216, 1227-28 (10th Cir.
2011) (declining to apply judicial estoppel to the question
whether the court had Article III jurisdiction to entertain the
claim); Gray v. City of Valley Park, Mo., 567 F.3d 976,
980-82 (8th Cir. 2009) (same).
7
We also note that plaintiffs’ complaint is not “based upon” contract
formation, but rather it is based upon Iraq’s alleged breach of the con-
tracts. The parties do not dispute that they entered into enforceable con-
tracts. Therefore, proof that the contract was executed is neither an
element “that prove[s] the claim” nor the “particular conduct” that forms
the basis of plaintiffs’ action. Nelson, 507 U.S. at 356-57 (internal quota-
tion omitted).
8
We grant the requests for judicial notice of certain pleadings and court
filings in the New York litigation submitted by plaintiffs and Iraq. See
Reyn’s Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir.
2006) (holding that judicial notice of court filings and other matters of
public record is proper).
8154 TERENKIAN v. REPUBLIC OF IRAQ
[8] Accordingly, we hold that Iraq has met its burden of
showing that the exception to sovereign immunity contained
in the first clause of 28 U.S.C. § 1605(a)(2) does not apply.
B
We next turn to plaintiffs’ argument that the exception to
sovereign immunity contained in the third clause of
§ 1605(a)(2) is applicable to Iraq, i.e., that plaintiffs’ claim 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.”
The plaintiffs argue that Iraq’s breach of the contracts had
multiple direct effects in the United States. Specifically, the
plaintiffs allege that under the contracts, some of the oil
intended for purchase was meant for the U.S. market and pay-
ment for any oil purchased was to be made by deposit into a
New York bank account. Due to the cancellation of the con-
tracts, plaintiffs argue, the oil never reached the United States,
and the money was never paid in New York. Therefore, the
plaintiffs allege that their complaint is based on Iraq’s breach
of the two contracts, which resulted in a “direct effect” in the
United States.
[9] We reject this argument because the alleged effects in
the United States, the non-deposit of payments for oil in a
New York bank (due to the non-purchase of the oil) and the
non-sales of the non-purchased oil to potential customers in
the United States, do not constitute direct effects as defined
in § 1605(a)(2) and subsequent case law. While the cancella-
tion of the contracts directly precluded plaintiffs from buying
oil, the non-deposit of payment for the oil in a New York
bank was merely an indirect effect of Iraq’s breach and is not
the “legally significant” act that gave rise to the plaintiffs’
claim, which is based on the breach, not the non-deposit of
payment. See Adler, 107 F.3d at 727 (a court must “ ‘look to
TERENKIAN v. REPUBLIC OF IRAQ 8155
the place where legally significant acts giving rise to the claim
occurred’ in determining the place where a direct effect may
be said to be located” (quoting United World Trade, 33 F.3d
at 1239)). Iraq’s breach may have had ripple effects in New
York and elsewhere, including depriving a New York bank of
the use of funds that might have been deposited in the bank
at some future point, but a potential financial loss by an entity
in the United States is not, in itself, sufficient to constitute a
direct effect. See id.Weltover and Adler are not to the contrary. Those cases
held that the foreign sovereign’s failure to perform its obliga-
tion to make certain payments necessarily had a direct effect
in the United States where the foreign sovereign’s place of
performance was the United States. See Weltover, 504 U.S. at
619 (“Because New York was thus the place of performance
for Argentina’s ultimate contractual obligations, the res-
cheduling of those obligations necessarily had a ‘direct effect’
in the United States . . . .”); Adler, 107 F.3d at 730 (“Nigeria
was obligated to make payment in New York. Nigeria’s acts
had a direct effect in the United States.”). But here, Iraq had
no obligation to perform in the United States; the contracts
required Iraq only to deliver oil to the possession of the plain-
tiffs in either Iraq or Turkey, and the act that forms the basis
of plaintiffs’ lawsuit, Iraq’s cancellation of the contracts,
occurred in Iraq. See Guirlando, 602 F.3d at 76 (“The deci-
sion by a foreign sovereign not to perform is itself an act, but
it is not an act in the United States; it is an act in the foreign
state.”). While the failure of the breaching party to perform a
contractual obligation in the United States is a “direct effect,”
see Weltover, 504 U.S. at 618-19, here, by contrast, there was
neither a failure by Iraq to perform in the United States nor
any other legally significant event in this country.
[10] Nor is there any immediate connection between Iraq’s
cancellation of the contracts and the failure of oil to reach
customers in the United States. While the contracts generally
indicated that the United States was one of several intended
8156 TERENKIAN v. REPUBLIC OF IRAQ
markets for the oil, neither Pentonville nor Marblearch had
assumed any contractual obligation to U.S. buyers. Many
additional steps remained, including such fundamental
requirements as finding potential U.S. purchasers and negoti-
ating mutually acceptable agreements. Indeed, the only evi-
dence that plaintiffs’ had identified any potential purchasers
of oil at all appeared in Terenkian’s declaration (submitted
into evidence by Iraq), which indicated that he was in discus-
sions with an Italian refinery. Because the contracts forbade
plaintiffs from using third-party refineries without the permis-
sion of Iraq, the plaintiffs could not have proceeded even with
this non-U.S. sale without obtaining such permission, another
contingency that weighs against the plaintiffs’ claim of a
direct effect in the United States. The distant potential of sell-
ing oil to customers in the United States sharply contrasts
with the situation in Cruise Connections, where the court
emphasized that the foreign nation’s breach of contract “led
inexorably to the loss of revenues under the third-party agree-
ments,” which either had been finalized, or were final but for
the signature. 600 F.3d at 665. Rather, this case is more like
the remote and attenuated losses from potential shipboard
sales in Cruise Connections that likely did not amount to “di-
rect effects” because they “might be regarded as subject to an
‘intervening event’ independent of [the foreign sovereign’s]
cancellation of the contract.” Id. In sum, any connection
between Iraq’s cancellation of the contracts and Iraqi oil not
reaching customers in the United States, if it existed at all, is
too “remote and attenuated,” Weltover, 504 U.S. at 618, to
qualify as a “direct effect” under § 1605(a)(2).
[11] Accordingly, because no legally significant act had a
direct effect in the United States, we hold that Iraq has met
its burden of showing that the third clause of 28 U.S.C.
§ 1605(a)(2) does not apply.
TERENKIAN v. REPUBLIC OF IRAQ 8157
V
[12] Iraq has therefore carried its burden of proving that
neither of the “commercial activity” exceptions to sovereign
immunity raised by plaintiffs is applicable. Plaintiffs’ claim is
based on neither a legally significant commercial act that
occurred in the United States nor an act that had a direct and
legally significant effect in the United States. Accordingly,
the federal courts have no subject matter jurisdiction over Iraq
in this action. See 28 U.S.C. § 1604. Although we may decry
the practices conducted by the regime of Saddam Hussein, see
Dissent at 8157, 8159, we best serve our nation’s principles
of equity and justice by applying the law in a fair and even-
handed manner to all parties before us. We therefore reverse,
vacate the district court’s transfer of venue to the District of
Columbia, and remand to the district court with instructions
to dismiss.9
REVERSED, VACATED, AND REMANDED.
NOONAN, Circuit Judge, dissenting:
Iraq, run by the dangerous despot, Suddam Hussein,
entered into two contracts to buy oil from two companies
owned by a United States citizen M.K. Terenkian. The con-
tracts were executed in New York City. Terenkian was to pay
9
Because we lack subject matter jurisdiction, we do not reach Iraq’s
argument that the case should be dismissed for failure to arbitrate. See
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25
n.32 (1983) (holding that there must be some independent basis for federal
jurisdiction before arbitration can be compelled); see also Lowden v. T-
Mobile USA, Inc., 512 F.3d 1213, 1215 n.1 (9th Cir. 2008) (observing, in
a case involving enforcement of an arbitration agreement, that “[w]e must
assure ourselves that the constitutional standing requirements are satisfied
before proceeding to the merits”). Nor do we reach the plaintiffs’ argu-
ment that we lack appellate jurisdiction for lack of a timely appeal.
8158 TERENKIAN v. REPUBLIC OF IRAQ
for the oil by letters of credit drawn on a bank in New York
City. The contracts were approved in New York City by the
committee of the United Nations managing its Oil for Food
Program. Formed in New York, the contracts were to be paid
for in New York. The contracts received necessary approval
in New York. It is very difficult to see why these were not all
significant steps linking the contracts to the United States.
The majority suggests that the place of formation of the
contracts was not significant because their formation is not at
issue. Formation was the first essential element for the plain-
tiffs to establish in order to establish jurisdiction. The plain-
tiffs established that formation occurred in New York City.
The majority finds that the place where payment was to be
made was not significant. In our case, as in most cases, the
place of performance of a promise to pay is significant.
Terenkian would not have wanted payment to be made in
Baghdad.
The majority argues that Iraq’s participation in the Oil for
Food Program was not commercial activity by Iraq but,
rather, a humanitarian relief program undertaken to obtain
food for the people of Iraq. The majority cites as authority
Republic of Argentina v. Weltover, Inc., 504 U.S. 607 (1992)
and Adler v. Republic of Nigeria, 107 F.3d 720 (1997). Each
of these cases found a foreign government to be liable for its
commercial activity in the United States.
As Justice Scalia set out for a unanimous Supreme Court
“commercial” is the key to the exception for commercial
activity created by the Foreign Sovereign Immunities Act. Its
meaning is to be found in “the restrictive theory at the time
the statute was enacted.” Weltover at 613. Under this
approach, a foreign state that exercises powers that can also
be exercised by private parties is not immune as a sovereign.
Id. at 614. So in Weltover, Argentina acted not “as regulator
of a market” but “as a private player within it” and was not
TERENKIAN v. REPUBLIC OF IRAQ 8159
immune. Id. As Justice Scalia pointed out, the motive of the
state was irrelevant. It was the type of action that counted. Id.
at 614. In our case, the majority focuses on Iraq’s “humanitar-
ian” motive, which is irrelevant. What Iraq was doing was
what any private player could do, trading oil to obtain money
for food.
In Adler, we followed Weltover and looked not to “the
motive” or “the purpose” of the foreign government but to
whether its actions were of the type “by which a private party
engages in commerce.” Adler at 724. Hence, we held Nigeria
might be sued when through the government-owned Nigerian
National Petroleum Corporation it entered into a computeriza-
tion of certain oil fields in Nigeria. As we observed “there is
nothing uniquely sovereign about computerizing oil fields.”
Id. So here there is nothing specifically sovereign about bar-
tering oil.
The majority brushes off the showing that in New York
today Iraq takes the position that there is federal jurisdiction
of claims under the Oil for Food Program. The majority char-
acterizes that as a “litigation position,” which does not create
jurisdiction. True, it does not create jurisdiction. But positions
cannot be taken arbitrarily or fraudulently in filing or answer-
ing a complaint. A position asserted in such a document is
sworn to be true. Iraq may not honestly say there is jurisdic-
tion in New York and deny that there is jurisdiction of similar
claims in San Diego.
In our case, in order to protect its treasury the Republic of
Iraq has chosen to step into the shoes of the wretched regime
that once ruled the country. Equities do not create jurisdiction.
Equities may discourage us from stretching beyond precedent
to find reasons for letting Iraq off the hook on what the Hus-
sein regime hung after its alleged attempts at extorting bribes
had failed.
I would affirm the district court.