Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-09-07060/USCOURTS-caDC-09-07060-0/pdf.json

Parties Involved:
Attorney General of Canada
Appellee
Cruise Connections Charter Management 1, LP
Appellant
Cruise Connections Charter Management GP, Inc.
Appellant
Her Majesty The Queen
Appellee
Royal Canadian Mounted Police
Appellee

Document Text:

United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 8, 2010 Decided April 6, 2010 

No. 09-7060 

CRUISE CONNECTIONS CHARTER MANAGEMENT 1, LP AND 

CRUISE CONNECTIONS CHARTER MANAGEMENT GP, INC., 

APPELLANTS

v. 

ATTORNEY GENERAL OF CANADA, REPRESENTING THE ROYAL 

CANADIAN MOUNTED POLICE, ET AL., 

APPELLEES

Appeal from the United States District Court 

for the District of Columbia 

(No. 1:08-cv-02054-JR) 

Jack M. Strauch argued the cause and filed the briefs for 

appellants. Deborah J. Israel entered an appearance. 

John M. Townsend argued the cause for appellees. With 

him on the brief was Scott H. Christensen. 

Before: TATEL, Circuit Judge, and SILBERMAN and 

WILLIAMS, Senior Circuit Judges. 

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Opinion for the Court filed by Circuit Judge TATEL

TATEL, Circuit Judge: Under the Foreign Sovereign 

Immunities Act, foreign governments engaging in commercial 

activities outside the United States enjoy immunity from suit 

in U.S. courts unless those activities have a “direct effect” in 

the United States. In this case the Canadian government 

terminated a contract with a U.S. company to provide cruise 

ship services in Canada. Because this left the U.S. company 

unable to consummate fully negotiated, multi-million-dollar 

subcontracts with U.S.-based cruise lines to provide the 

necessary ships, we conclude that Canada’s termination of the 

contract had a “direct effect” in the United States. 

I 

In 2008, Cruise Connections, a U.S. corporation based in 

Winston-Salem, N.C., signed a contract with the Royal 

Canadian Mounted Police (RCMP) under which Cruise 

Connections would provide three cruise ships to dock in 

Vancouver during the 2010 Olympic Winter Games. RCMP 

planned to use the ships to house security staff needed for the 

Games. The contract required Cruise Connections to 

subcontract with two U.S.-based cruise lines, Holland 

America and Royal Caribbean, to provide the necessary ships. 

For this service, RCMP agreed to pay Cruise Connections a 

little more than $54 million (Canadian) in three direct 

payments. 

With the RCMP contract in hand, Cruise Connections 

entered “the final stages of negotiating” subcontracts, called 

Charter Party Agreements, with Holland America and Royal 

Caribbean to provide the three ships at a cost of 

approximately $39 million (U.S.). Tracey Kelly Aff. ¶ 7. 

Because the ships would remain in Vancouver for several 

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weeks, the two companies demanded assurances that they 

would incur no liability for Canadian corporate income and 

payroll taxes. Although RCMP originally gave these 

assurances, promising to cover all taxes due, it reversed 

course just as Holland America and Royal Caribbean were set 

to sign the Charter Party Agreements and disavowed 

responsibility for any payroll and income taxes. Unprotected 

from tax liability, the two companies balked, leaving Cruise 

Connections unable to deliver signed Charter Party 

Agreements by the required date. RCMP then terminated its 

contract with Cruise Connections. 

Cruise Connections sued RCMP, Her Majesty the Queen 

in Right of Canada, and the Attorney General of Canada in 

the United States District Court for the District of Columbia, 

alleging both breach of contract and unfair trade practices. 

Although acknowledging that RCMP, as an “agency or 

instrumentality” of the federal government of Canada, 28 

U.S.C. § 1603(b), generally enjoys immunity from suit in 

U.S. courts under the Foreign Sovereign Immunities Act 

(FSIA), 28 U.S.C. §§ 1602–11, Cruise Connections argued 

that the FSIA’s commercial activities exception applies. As 

relevant here, that exception abrogates sovereign immunity 

in any case . . . in which the action is based . . . 

upon an act outside the territory of the United 

States in connection with a commercial activity 

of the foreign state elsewhere and that act 

causes a direct effect in the United States. 

Id. § 1605(a)(2). RCMP conceded that contracting for 

chartered ships qualifies as a commercial activity and that its 

alleged breach satisfies the “act” requirement. It argued, 

however, that the alleged breach had no “direct effect in the 

United States” and moved to dismiss for lack of jurisdiction. 

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See 28 U.S.C. § 1330(a) (providing district courts with subject 

matter jurisdiction over cases against foreign governments 

only when an FSIA exception applies). 

Cruise Connections responded with two arguments. 

First, it contended that the contract required RCMP to pay it 

via wire transfer to a U.S. bank and that RCMP’s failure to 

make those payments qualified as a direct effect in the United 

States. Second, it argued that RCMP's cancellation also 

caused a direct effect in the United States because it resulted 

in the loss of U.S. business to Cruise Connections and the 

cruise lines. This loss included not only the millions of 

dollars to charter the three ships, but also an additional $4.5 

million (U.S.) that Cruise Connections estimated it lost 

because the Charter Party Agreements contained standard 

provisions for on-board revenue—passenger purchases for 

alcoholic beverages, gift items, etc.—under which Cruise 

Connections would guarantee a set amount of revenue and 

then receive anything collected in excess of that base amount. 

In addition, Cruise Connections had arranged with a U.S. 

travel agency to charter one of the cruise ships as it sailed 

between San Diego, its home base, and Vancouver. Under 

that agreement, the travel agency would have paid Cruise 

Connections a flat rate of $1.25 million (U.S.). 

The district court rejected both arguments. With respect 

to the place of payment, the court read the contract to require 

“payments to an account of Cruise Connections’ choosing” 

rather than specifically to an account in the United States. 

Cruise Connections Charter Mgmt. 1, LP v. Attorney Gen. of 

Can., 634 F. Supp. 2d 86, 89 (D.D.C. 2009). Although Cruise 

Connections contended that it would have designated a 

recently opened account at a North Carolina bank as the place 

of payment had the contract progressed to the point of sending 

invoices with payment instructions (as the contract required), 

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the district court concluded that “opening a bank account with 

the intention of demanding payment there is not an exercise of 

[Cruise Connections’] right” to direct payment. Id. at 89–90. 

Because Cruise Connections had yet to communicate its intent 

to request payment in North Carolina, the court concluded 

that the parties had never agreed that RCMP would pay in the 

United States, so its nonpayment could not constitute a direct 

effect. Id. As to the loss of business, the district court found 

that “Cruise Connections’ inability to perform its contractual 

obligations to the third parties” constituted an intervening 

element between RCMP’s breach and the broken third-party 

agreements. Id. at 90. Accordingly, the district court 

concluded that RCMP enjoyed sovereign immunity and 

dismissed the complaint for lack of jurisdiction. 

Cruise Connections appeals, reiterating the arguments it 

made in the district court. We review the district court’s 

jurisdictional determinations de novo. See Peterson v. Royal 

Kingdom of Saudi Arabia, 416 F.3d 83, 86 (D.C. Cir. 2005). 

Because RCMP challenges “only the legal sufficiency of 

[Cruise Connections’] jurisdictional allegations,” we take 

Cruise Connections’ version of the facts as true. Phoenix 

Consulting, Inc. v. Republic of Angola, 216 F.3d 36, 40 (D.C. 

Cir. 2000). 

II 

We begin with Cruise Connections’ claim that any one of 

the losses caused by the termination of its contract with 

RCMP—the lost cruise ship business, the lost profit from onboard revenues, the lost travel agency fee—qualifies as a 

direct effect in the United States. In its brief, RCMP responds 

only to the latter two claims, arguing that each is “too 

attenuated or remote to amount to a ‘direct effect.’” 

Appellees’ Br. 29. 

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RCMP’s point regarding on-board revenue payments 

may have merit. Because Cruise Connections’ opportunity to 

receive any payments under the on-board revenue provisions 

of the Charter Party Agreements depended entirely on 

whether security personnel housed on the ships chose to buy 

drinks or gifts, Cruise Connections might have received 

nothing even if RCMP had consummated the contract. Under 

this view, Cruise Connections’ failure to earn any on-board 

revenue payments might be regarded as subject to an 

“intervening event” independent of RCMP’s cancellation of 

the contract. See Princz v. Federal Republic of Germany, 26 

F.3d 1166, 1172 (D.C. Cir. 1994) (“A ‘direct effect’ . . . ‘is 

one which has no intervening element, but, rather, flows in a 

straight line without deviation or interruption.’” (quoting 

Upton v. Empire of Iran, 459 F. Supp. 264, 266 (D.D.C. 

1978))). In the end, however, we need not decide whether 

non-payment of on-board revenues qualifies as a direct effect 

because no intervening event stood between RCMP’s 

termination of the contract and the lost revenues from the 

travel agency contract and the Charter Party Agreements.

The travel agency agreement was a done deal: Cruise 

Connections would have received a flat fee no matter how 

many passengers the travel agency booked. Likewise, “all 

that remained for the [Charter Party Agreements] to be 

formally consummated was for the cruise lines to sign the 

agreements once RCMP confirmed its contractual 

responsibility for Canadian taxes.” Appellants’ Br. 40. In 

both instances, then, RCMP’s termination of the Cruise 

Connections contract led inexorably to the loss of revenues 

under the third-party agreements. This is sufficient. As the 

Supreme Court explained in Republic of Argentina v. 

Weltover, an effect qualifies as direct “if it follows as an 

immediate consequence of the defendant’s . . . activity.” 504 

U.S. 607, 618 (1992) (internal quotation marks omitted). In 

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Weltover, the Court concluded that Argentina’s unilateral 

extension of bonds held by foreign creditors caused a direct 

effect in the United States because as a consequence of 

Argentina’s breach, “[m]oney that was supposed to have been 

delivered to a New York bank for deposit was not 

forthcoming.” Id. at 619. So too here. Because RCMP 

terminated the contract, revenues that would otherwise have 

been generated in the United States were “not forthcoming.” 

Resisting this conclusion, RCMP argues that it never 

agreed to any “single aspect of the underlying transaction that 

. . . [would] take place in the United States.” Appellees’ Br. 

23. The FSIA, however, requires only that effect be “direct,” 

not that the foreign sovereign agree that the effect would 

occur. Cf. Weltover, 504 U.S. at 618, (rejecting the idea that 

the commercial activity exception “contains any unexpressed 

requirement of . . . ‘foreseeability.’”). In any event, the 

contract itself required the ships to come from Holland 

America and Royal Caribbean cruise lines, Michael Day 

Decl., Ex. 6, and record evidence makes clear that both are 

U.S.-based companies—Holland America in Seattle and 

Royal Caribbean in Miami, Tracey Kelly Aff. ¶ 16. 

RCMP next argues that harm to a U.S. citizen, in and of 

itself, cannot satisfy the direct effect requirement. True 

enough, but the cases RCMP relies on involve situations in 

which the plaintiff’s U.S. citizenship was the only connection 

to the United States. For example, in United World Trade, 

Inc. v. Mangyshlakneft Oil Products Ass’n, 33 F.3d 1232, 

1237–39 (10th Cir. 1994), all activities covered by the 

contract would have occurred outside the United States: oil 

drilling in Kazakhstan, shipment to and refining in Italy, and 

payment in France and England. The plaintiff’s incorporation 

in Colorado provided the only link to the United States. Id. at 

1238. Likewise, in Zedan v. Kingdom of Saudi Arabia, 849 

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F.2d 1511, 1515 (D.C. Cir. 1988), we found no direct effect 

where the contract between the plaintiff, a U.S. citizen, and 

Saudi Arabia called for all work to be done in Saudi Arabia 

and the breach occurred while the plaintiff was in Saudi 

Arabia. Again, plaintiff’s U.S. citizenship furnished the only 

connection between the commercial activity and the United 

States. By contrast, Cruise Connections relies on far more 

than its U.S. citizenship. All its efforts to negotiate the 

Charter Party Agreements occurred in the United States, 

Tracey Kelly Aff. ¶ 16; at least one of the ships would have 

moved through U.S. waters to Vancouver; the termination of 

the contract thwarted over $40 million (U.S.) worth of cruiserelated business in the United States; and the travel agency 

agreement was negotiated in and called for performance in the 

United States, id. ¶ 18. 

At oral argument, RCMP’s counsel claimed that the 

termination of the Charter Party Agreements cannot qualify as 

a direct effect because it did not harm Cruise Connections. 

But even setting aside our long-established rule that we rarely 

consider contentions made for the first time at oral argument, 

see Rempfer v. Sharfstein, 583 F.3d 860, 867 n.6 (D.C. Cir. 

2009), RCMP’s point misses the mark. Nothing in the FSIA 

requires that the “direct effect in the United States” harm the 

plaintiff. See 28 U.S.C. § 1605(a)(2). The commercial 

activities exception requires only that the foreign 

government’s “act outside the territory of the United States 

. . . cause[] a direct effect in the United States.” Id. Perhaps 

Cruise Connections has suffered less harm than it claims, but 

that issue relates to the merits of its case, not the jurisdictional 

question we face here. 

Given the foregoing, we have no need to consider Cruise 

Connections’ alternative claim, i.e., that the contract required 

RCMP to pay via wire transfer to a U.S. bank and that 

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RCMP’s failure to do so qualifies as a direct effect in the 

United States. Although the parties debate several decisions 

addressing whether a foreign sovereign had to have agreed to 

the use of a U.S. bank account, in each of those cases that 

bank account represented the only possible link to the United 

States. See Weltover, 504 U.S. at 619; Agrocomplect AD v. 

Republic of Iraq, 304 F. App’x 872 (D.C. Cir. 2008); IDAS 

Res. v. Empresa Nacional de Diamantes de Angola, 2007 U.S. 

App. LEXIS 25500, at *4–5 (D.C. Cir. Oct. 29, 2007); 

Peterson, 416 F.3d at 91; Goodman Holdings v. Rafidain 

Bank, 26 F.3d 1143, 1146–47 (D.C. Cir. 1994). Moreover, 

none of those cases dealt with a situation like the one we face 

here: where the alleged breach resulted in the direct loss of 

millions of dollars worth of business in the United States. It 

thus makes no difference where RCMP would have paid 

Cruise Connections. 

III 

For the foregoing reasons, we reverse and remand to the 

district court for further proceedings consistent with this 

opinion. 

So ordered. 

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