1 Pub.L. 94–583, 90 Stat. 2891, codified at 28 U.S.C. §§ 1330; 1332(a)(2)–(4); 1391(f);

1441(d); 1602–1611. United States Court of Appeals,

Fifth Circuit.

No. 91–2800.

UNITED STATES of America, Plaintiff,

v.

Bruce C. MOATS, et al., Defendants,

REPSA FABRICACION, S.A., Intervenor–Third Party Plaintiff–Appellee,

v.

PETROLEOS MEXICANOS (PEMEX), Third–Party Defendant–Appellant.

June 4, 1992.

Appeal from the United States District Court for the Southern District of Texas.

Before BROWN, KING, and WIENER, Circuit Judges.

KING, Circuit Judge:

Petrol eos Me xi

canos (Pemex), the Mexican national oil company, appeals from a district court

order holding that the Foreign Sovereign Immunities Act (FSIA) 1 does not shield it from a third-party

complaint filed by Repsa Fabricacion, S.A. (Repsa). Our first task is to determine whether we have

jurisdiction to entertain Pemex's appeal. Finding that we do, we proceed to the FSIA immunity issue.

We conclude that, because the cause o f action asserted by Repsa is not sufficiently connected to

Pemex's commercial activity in the United States to support the exercise of jurisdiction over Pemex,

the district court's order must be reversed.

I. BACKGROUND

In 1981 and 1982, Laredo National Bank (Laredo ) made a series of loans to two Mexican

co mpanies, Repsa and Thermorepsa, S.A. The notes were guaranteed by Bruce C. Mo at s and2 In an amended complaint, the United States named Bruce C. Moats, Jr., as a defendant. He

was subsequently dismissed on the Government's motion. Roberto Contreras, officers of Repsa. Additional guaranties were given by the Export–Import Bank

of the United States (Eximbank), an independent agency of the United States government which helps

finance the export of American goods and services. The loans enabled Repsa to finance the purchase

of specialized steel products in the United States. Repsa needed the steel to satisfy contracts with

Pemex to fabricate electro st at ic dehydrators and desalters for Pemex's oil refineries. Shortly after

Repsa had begun working on the steel it purchased, Pemex refused to fully honor the contracts and

Repsa defaulted on the loans. Not surprisingly, Pemex's actions caused severe difficulties at Repsa.

The Pemex work orders represented a significant porti on of Repsa's business, and Pemex's refusal to

pay made it impossible for Repsa to pay its employees. The union representing the Repsa workers

went on strike and the work in progress remained in the factory. In March 1988, Repsa, Pemex, the

union, and the compan y t hat had issued the performance bond on the fabrication work settled the

matter and entered into a formal settlement agreement.

Meanwhile, back in the United States the Eximbank paid Laredo pursuant to its guaranty and

took assignments of the notes. In December 1988, the United States, on behalf of the Eximbank,

brought suit against Moats and Contreras 2 in the United States Distr ict Court f or the Southern

District of Texas in an effort to recover the outstanding principal and interest on the notes. Two

years later, Repsa was granted leave to intervene and file a third-party complaint against Pemex. This

appeal concerns only the third-party action between Repsa and Pemex; the United States, Moats and

Contreras entered into an agreed judgment disposing of the main action.

Repsa's complaint concerned the March 1988 settlement agreement executed in Mexico

.

According to Repsa, the agreement provided that Pemex would receive all the inventory and work

in progress from the factory and that Repsa would be paid for the value of its materials and products

as they existed at the time they were removed from the facto ry. Repsa alleged that Pemex hadremoved the materials from the Repsa factory in May 1988, but breached the agreement by refusing

to pay. Repsa sought, as damages, the value of the materials plus interest, costs and attorney's fees.

Pemex filed a motion to dismiss, arguing (1) that under the FSIA, Pemex was immune from

the jurisdiction

o f t he district court with respect to the claims asserted by Repsa; and (2) that the

settlement agreement upon which the complaint was predicated contained a forum selection clause

which directed the parties to a Mexican forum for the resolution of disputes. The district court held

a hearing, and, on June 12, 1991, denied the motion to dismiss without opinion.

The procedural saga from this point forward relates to the problem of appellate jurisdiction.

On June 21, Pemex filed (1) a motion for reconsideration and (2) a motion to certify an interlocutory

appeal. In the motion for reconsideration, Pemex asserted that the judge's comments at the hearing

gave the clear impression that the motion to dismiss would be granted. Consequently, Pemex was

surprised by the court's order. Directing the court to the arguments advanced in the original motion

to dismiss, Pemex urged the court to reconsider and grant the motion. In the motion to certify an

interlocutory appeal, Pemex asserted that it could appeal on the immunit y issue as a matter of right,

but that, to the extent the order rejected the argument on the forum selection i ssue, it coul d not

appeal unless the district court granted certification pursuant to 28 U.S.C. § 1292(b).

On July 11, Pemex filed a notice of appeal from the June 12 dismissal (erroneously stating that

the dismissal order was dated July 13), pointing out that Stena Rederi AB v. Comision de Contratos

del Comite, 923 F.2d 380 (5th Cir.1991), permitted an immediate appeal from the denial of a motion

to dismiss based on FSIA immunit y. On August 14, the district court, again without opinion, denied

Pemex's motion for reconsideration, but certified its order for interlocutory appeal.

On August 23, Pemex filed a "Petition for Permission to Appeal From an Interl ocutory Order

Pursuant to 28 U.S.C. § 1292(b)" in this court. Pemex indicated that it had already filed a notice of3 Under Association of Co-op Members, the district court must certify in writing that the order

involves a controlling question of law on which there is substantial ground for difference of

opinion and that an immediate appeal may materially advance the termination of the litigation.

684 F.2d at 1137 n. 3. The district court did not include such a statement in the August 14 order. appeal with respect to the FSIA immunit y issue, and asserted t hat a difference of opinion on the

question whether the forum selection clause should be respected was substantial enough to warrant

interlocutory appeal. A panel of this court denied leave to take an interlocutory appeal. Citing, i nter

alia, Association of Co-op Members, Inc. v. Fa rmland Industries, Inc., 684 F.2d 1134 (5th

Cir.1982), cert. denied, 460 U.S. 1038, 103 S.Ct. 1428, 75 L.Ed.2d 788 (1983), the panel stated that

the district court had failed to sat isfy t he requirements under 28 U.S.C. § 1292(b) for certifying a

question for interlocutory appeal. United States v. Moats, No. 91–9154 (Oct. 8, 1991). 3

II. APPELLATE JURISDICTION

We confront two distinct questions of appellate jurisdiction. First, we respond to Repsa's

argument that we have no jurisdiction to hear this appeal from a non-final order denying a motion to

dismiss based on FSIA immunity. Second, we determine whether Pemex properly filed a notice of

appeal from the district court's order.

A. Immediate Appeal From Denial of FSIA Immunity

Although the district court did not specify lack of immunit y, as opposed to inapplicabilit y of

the forum selection clause, as the reason for denying Pemex's motion to dismiss, neither did it indicate

that FSIA immunit

y was not a factor in its decision. More importantly, the effect of the order is to

require Pemex to defend the lawsuit. As the purpose behind collateral order appeals from denials of

FSIA immunit

y is to effec t uat e t he guarantee that immune parties will not become embroiled in

litigation, see Rush–Presbyterian–St. Luke's Medical Center v. Hellenic Republic, 877 F.2d 574, 576

n. 2 (7th Cir.), cert. denied, 493 U.S. 937, 110 S.Ct. 333, 107 L.Ed.2d 322 (1989), we treat the order

as holding that Pemex does not have sovereign immunity.We recently followed several circuits and held that a district court's refusal to dismiss on the

grounds of FSIA immunit y is immediately appealable under the collateral order doctrine. S tena, 923

F.2d at 385. The S tena decision would appear to dispose of Repsa's contention that Pemex may not

appeal this order. Repsa raises arguments, however, which deserve some attention.

Repsa suggests that Stena permits us to hear an appeal from the denial of FSIA immunit y only

where the issues are purely legal. In this case, Repsa contends, there is evidence before the district

court (in the form of affidavits from Repsa o fficials Moats and Contreras) which indicates that Pemex

had sufficient contacts in the United States to enable an American court to assert jurisdiction over

it. Thus, there are factual questions relevant to the issue of immunity which preclude our exercise

of jurisdiction over the appeal. Moreover, Repsa says, o ne of the four requirements for collateral

order ap peals—a risk of irreparable loss if an immediate appeal is not taken, s ee EEOC v. Neches

Butane Products Co., 704 F.2d 144, 148 (5th Cir.1983)—is absent in this case.

1. Existence of Factual Questions

Repsa is correct that we have authority to decide only legal issues when we review an appeal

from a collateral order. S ee Mitchell v. Forsyth, 472 U.S. 511, 527–28, 105 S.Ct. 2806, 2816–17,

86 L.Ed.2d 411 (1985) (court hearing appeal from collateral order denying qualified immunit y under

42 U.S.C. § 1983 reviews only legal issues). This rule carries even more weight here because the

district court resolved FSIA immunit y, an issue of subject matter jurisdiction, Stena, 923 F.2d at 386,

on the basis of the complaint. C f. Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir.), cert. denied,

454 U.S. 897, 102 S.Ct. 396, 70 L.Ed.2d 212 (1981) (appellate court reviews only application of law

where district court dismisses for l ack o f subject matter jurisdiction on the basis of the complaint

alone).

Whether Pemex is im mune depends on the applicability of the "commercial activity"

exception of the FSIA:(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 upon a commercial activity carried on in the United

States by a 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

terri tory 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.

28 U.S .C. § 1605(a)(2). Not only would Pemex have to satisfy one of these "jurisdictional

connections" with the United States to lose its immunity, there also would have to be a connection

between its commercial activity and the cause of action asserted by Repsa. S tena, 923 F.2d at

386–87; V

encedora Oceanica Navigacion v. Compagnie Nationale Algerieene de Navigation, 730

F.2d 195, 200 (5th Cir.1984) (per curiam). As is apparent from a reading of § 1605(a)(2), application

of the commercial activity exception to a particular defendant (a legal question) depends on certain

jurisdictional facts: principally, it must be determined what commercial activity the defendant

engaged in and where it took place.

Repsa's argument fails because there is no real dispute over the facts relevant to the existence

of immunit y. At no point in the litigation, including on appeal, has Pemex disputed the facts Repsa

has alleged in its (Repsa's) effort to establish that Pemex falls within t he co mmercial activity

exception. Pemex has never filed an answer to Repsa's third-party complaint and it never disputed

the contents of any of Repsa's submissions to the district court, including the Moats and Contreras

affidavits. Repsa seems to be asserting that the lack of any district court findings co ncerning the

jurisdictional facts it alleged precludes our review. But this logic would prevent us from reviewing

Fed.R.Civ.P. 12(b)(6) dismissals for failure to state a cause of action simply because no findings as

to the truth of the plaint iff's facts had yet been made. Clearly, if Pemex does not dispute Repsa's

allegations, but believes that it is entitled to immunity under the facts as alleged, the issue we must

resolve is the purely legal application of the FSIA. There is nothing unusual in a case arriving at an

appellate court in this posture; indeed, the parties frequent ly do not dispute the facts relevant to

jurisdiction and the cou rt s often resolve FSIA immunity by reference to the pleadings. E .g.,

Rush–Presbyterian–St. Luke's, 877 F.2d at 576; C ompania Mexicana de Aviacion, S.A. v. U.S. Dist.4 Even if there were an unresolved factual question, that would not, as Repsa suggests, divest

us of jurisdiction to hear the appeal. Rather, such a question would go to the merits of the

appeal, and would probably require us to remand for further findings. See Gould, Inc. v.

Pechiney Ugine Kuhlmann, 853 F.2d 445 (6th Cir.1988) (remanding for further proceedings

because of unresolved questions concerning applicability of commercial activity exception). Court, 859 F.2d 1354, 1360 (9th Cir.1988) (per curiam). 4

2. Irreparable Loss

Repsa's second argument is more easily dispensed with. In C oopers & Lybrand v. Livesay,

437 U.S. 463, 98 S.Ct. 2454, 57 L.Ed.2d 351 (1978), the Court summarized the four requirements

for immediately appealable collateral orders originally articulated in Cohen v. Beneficial Industrial

Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949): "[T]he order must conclusively

determine the disputed question, resolve an important issue completely separate from the merits of

the action, and be effectively unreviewable on appeal from a final judgment." C oopers & Lybrand,

437 U.S. at 468, 98 S.Ct. at 2458 (footnote and ci tati ons om

itted). The fourth part of this test

requires that there be a risk of important and "probably irreparabl[e]" loss if an immediate appeal is

not heard, Cohen, 337 U.S. at 547, 69 S.Ct. at 1226, or, in the words of the court in Neches Butane,

"some showing of extraordinary harm." 704 F.2d at 148 (emphasis in original); s ee also Acosta v.

Tenneco Oil Co., 913 F.2d 205, 208 (5th Cir.1990).

Repsa says that there was a possibility of irreparable loss in Stena, the first case in this circuit

to allow appeals from the denial of FSIA immunity, but not here. The difference, Repsa argues, is

that in Stena the plaint iff attempted to garnish the credits and effects of one defendant which were

in Pemex's possession, while here the plaint iff seeks only a money judgment against the foreign entity.

This is a distinction without a difference. As noted above, sovereign immunity is an immunity from

the burdens of becoming involved in any part of the litigation process, from pre-trial wrangling to trial

itself. Regardless of what the plaintiff seeks from the foreign defendant, the risk of harm from having

to defend the lawsuit remains constant and is an irreparable loss within the fourth part of Cohen. This

circuit in Stena has found that the purposes behind the collateral order doctrine amply support appeals5 Because the district court's order was immediately appealable, Rule 54(a) of the Federal Rules

of Civil Procedure provides that it was a judgment: " "Judgment' as used in these rules includes a

decree and any order from which an appeal lies." This is consistent with the view expressed in

Kenyatta that Rule 4 of the Federal Rules of Appellate Procedure applies to collateral order

appeals. from the denial of FSIA immunity, and we are not inclined to question that judgment today.

B. Notice of Appeal

Next, we must determine whether Pemex followed the proper procedures in filing its notice

of appeal. An appeal taken under t he collateral order doctrine is subject to all the usual appellate

rules and time periods, including Rule 4 of the Federal Rules of Appellate Procedure. Kenyatta v.

Moore, 744 F.2d 1179, 1186– 8 7 (5th Cir.1984), cert. denied, 471 U.S. 1066, 105 S.Ct. 2141, 85

L.Ed.2d 498 (198 5); s ee also C. Wright, A. Miller & E. Cooper, 15A Federal Practice and

Procedure § 3911, at 357 (2d ed. 1992). Under Rule 4(a)(4), a timely filed motion to alter or amend

the judgment under Rule 59 of the Federal Rules of Civil Procedure nullifies a notice of appeal filed

before the disposition of the motion. 5 Under our decision in H arcon Barge Co., Inc. v. D & G Boat

Rentals, Inc., 784 F.2d 66 5 (5t h Cir.) (en banc), c ert. denied, 479 U.S. 930, 107 S.Ct. 398, 93

L.Ed.2d 351 (1986), any motion filed within ten da ys o f t he entry of judgment which calls into

question the substantive validity of the judgment is, however styled, treated as a motion to alter or

amend the judgment under Rule 59 and triggers the FRAP 4(a)(4) rule described above. 784 F.2d

at 669–70. Repsa argues that Pemex's motion for reconsideration (June 21) qualifies as a Rule 59

motion under Harcon Barge, thus rendering the subsequently-filed notice of appeal (July 11) a nullit y.

Since Pemex's petition in this court for an interlocutory appeal was denied, Repsa contends, we have

no appellate jurisdiction.

Pemex attem

pts to avoid FRAP 4(a)(4) in two ways. First, it argues that its June 21 motion

for reconsideration was not the kind of motion that triggers FRAP 4(a)(4) because, Harcon Barge

notwithstanding, only those motions mentioned in Rule 4(a)(4) nullify a subsequently-filed notice of

appeal. Pemex contends that the motion it filed on June 21 was neither a Rule 59(e) nor a Rule 606 In Smith, the Court considered a pro se brief filed in the court of appeals sufficient to

resurrect an appeal that had been nullified pursuant to FRAP 4(a)(4) by the appellant's filing of a

notice of appeal prior to the district court's ruling on a post-trial JNOV motion. 112 S.Ct. at 682.

7 As noted above, the district court's order did not specify reasons for denying Pemex' motion,

so the order appealed from functions as a rejection of Pemex's assertion that it was entitled to

immunity from the jurisdiction of courts in the United States. motion (the kinds of motions we held in Harcon Barge would trigger FRAP 4(a)(4) ), but instead was

a motion "filed in an effort to invoke the trial court's plenary power over interlocutory orders." We

disagree. The motion is styled "Motion for Reconsideration" and asserts that Pemex had expected

the district court to dismiss it from the case. The motion indicates that Pemex was surprised by the

court's decision to dismiss, and asks the court to once again consider the a rguments in favor of

dismissal made in the original motion to dismiss. It "call[ed] into question the correctness of a

judgment," H

arcon Barge, 784 F.2d at 669 (quoting Dove v. Codesco, 569 F.2d 807 , 809 (4th

Cir.1978) ), and therefore was a Rule 59(e) motion. Because the district judge did not dispose of the

motion until August, the July 11 notice of appeal had no effect.

Pemex's second argument is more successful. Pemex contends that the Petition fo r

Permission to Appeal from an Interlocutory Order it filed on August 23 (nine days after the district

court decided the motion for reconsideration) resurrects its appeal. We agree. The nullification of

a notice of appeal under Rule 4(a)(4) does not prevent an appellant from filing a new notice of appeal

after the motion referred to in Rule 4(a)(4) is decided. S mith v. Barry,

––– U.S.

––––, 112 S.Ct. 678,

682, 116 L.Ed.2d 678 (1992). 6 Although the August 23 filing was not styled "Notice of Appeal," a

petition for an interlocutory appeal may function as a notice of appeal. Brow ning v. Navarro, 887

F.2d 553, 558 (5th Cir.1989); C obb v. Lewis, 488 F.2d 41, 46 (5th Cir.1974). And, although the

document deals with the forum selection clause issue (Pemex t ho ught it had already perfected an

appeal on the FSIA immunit y issue), it contains all the requisites under Rule 3(c) for a valid notice

of appeal. It specifies the party taking the appeal, references the order appealed from, 7 and indicates

(in the caption) the court to which the appeal is taken. Its text is well within the requirements of Rule8 Agencies or instrumentalities of foreign states are included within the definition of "foreign

state," and agencies are further defined to include corporations which are organs of foreign states

or whose shares or other ownership interest is owned by a foreign state. 28 U.S.C. § 1603(a),

(b). It is undisputed that Pemex, the nationalized petroleum company of Mexico, falls within the

definition of foreign state for purposes of sovereign immunity. See Stena, 923 F.2d at 382, 386 &

n. 7.

9 The court may exercise personal jurisdiction so long as there is subject matter jurisdiction and

service of process, and the requirements of due process have been met. Stena, 923 F.2d at 386 n.

8. 3, which we construe liberally, Torres v. Oakland Scavenger Co., 487 U.S. 312, 316, 108 S.Ct. 2405,

2408, 101 L.Ed.2d 285 (1988), and it gave the notice to the cour t and the parties required for a

document's sufficiency as a notice of appeal. See Smith, 112 S.Ct. at 682. Moreover, the fact that

the petition was filed in the court of appeals, rather than the district court as required by Rule 3(a),

is not fatal. Under Rule 4(a)(1), a notice of appeal mistakenly filed in the court of appeals may be

transmitted to the distri ct co urt and "shall be deemed filed in the district court on the date it was

received in the court of appeals." Pemex's appeal is properly before us. At last, we proceed to the

merits.

III. SOVEREIGN IMMUNITY

We recently provided an overview of the history and structure of the FSIA in Stena, 923 F.2d

at 384–85, 386–87. In brief, t he Act provides that American courts have no subject matter

jurisdiction over suit s against foreign states and their instrumentalities 8 unless certain enumerated

exceptions apply. 28 U.S.C. § 1604; V erlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 485

n. 5, 103 S.Ct. 1962 , 1967 n. 5, 76 L.Ed.2d 81 (1983). 9 We review the existence of jurisdiction

under the FSIA de novo. Stena, 923 F.2d at 386. As the party claiming immunity, Pemex had the

burden of persuasion through o ut . Once it made a prima facie showing of immunity, the burden

shifted to Repsa to show that one of the exceptions to immunit y existed. Pemex then was required

to show that the exception did not apply. S ee generally Forsythe v. Saudi Arabian Airlines Corp.,

885 F.2d 285, 289 n. 6 (5th Cir.1989) (per curiam).The relevant exception here is the "commercial activity" exception of 28 U.S.C. § 1605(a)(2),

reprinted above. An activity is considered "commercial" if it is the type a private person normally

would engage in for profit. C allejo v. Bancomer, S.A., 764 F.2d 110 1, 1108 n. 6 (5th Ci r.1985).

T here is no doubt that Pemex engaged in commercial activity, as opposed to the pu blic acts of a

sovereign, at all relevant times. The negotiation of contracts, including entry into a settlement

agreement, clearly is the type of act performed by private persons. T exas Trading & Milling Corp.

v. Federal Republic of Nigeria, 647 F.2d 300, 310 (2d Cir.1981), cert. denied, 454 U.S. 1148, 102

S.Ct. 1012, 71 L.Ed.2d 301 (1982). There is nothing in the contracts or the agreement that would

indicate the acts of a state, nor has Pemex suggested that these activities were really governmental

activities. S ee Rush–P resbyterian–St. Luke's, 877 F.2d at 578–79 (describing contractual

arrangements that may be considered public, rather than private, acts).

Section 1605(a)(2) requires that a sovereign's commercial activity have at least one of three

"jurisdictional connections" to the United States:

(1) a commercial activity carried on in the United States;

(2) an act performed in the United States in connection with a commercial activity carried on outside the United States; [or]

(3) a commercial activity carried on outside the United States that has a direct effect in the

United States.

Stena, 923 F.2d at 386 (citations omitte d). In addition to the jurisdictional connection, it is

well-established t hat "t here must be a connection between the plaintiff's cause of action and the

co mmercial acts of the foreign sovereign." I d. (citations omitted). As we explained in Arango v.

Guzman Travel Advisors Corp., 621 F.2d 1371 (5th Cir.1980), the applicability of the commercial

activities exception depends on "whether the particular conduct giving rise to the claim in question

actually constitutes or is in connection with commercial act ivit y, regardless of the defendant's

generally commercial or governmental character." I d. at 1379. Thus, the fact that Pemex routinely

carries on some porti on of its oil e xplo rat ion and production activities in the United States is notenough to support jurisdiction. S tena, 923 F.2d at 387. Rather, this lawsuit must be based on

commercial activities that are connected to the United States in the manner described by the statute.

Repsa relies mainly on the first and third exceptions.

A. Commercial Activity in the United States

In support of jurisdiction under this exception, Repsa points to a series of activities Pemex

performed in the United States in connection with the original Repsa–Pemex steel con tracts: the

contra ct s required that Repsa purchase American-made steel and internals, Pemex representatives

t raveled to Pennsylvania to inspect and approve the steel prior to shipment, the transaction was

financed by an American bank and guaranteed by the Eximbank, Pemex became the beneficiary of

Repsa's contracts with American suppliers, Pemex inspectors traveled to Texas to oversee the storage

of steel until it could be moved to Mexico, Pemex retained control over the design and manufacturing

of the internals, Pemex approved Laredo's funding o f t he st eel purchases, and Pemex ultimately

purchased internals from Texas after unilaterally cancelling the contracts with Repsa.

The difficulty with Repsa's argument is that its lawsuit is based on an alleged breach of the

settlement agreement, not on the original Repsa–Pemex contracts for the fabrication of steel and

other materials. All of the activities it cites occurred in connection with the original contracts, and

none had anything to do with the settlement agreement or its breach. The agreement was negotiated

and signed in Mexico between Mexican entities, and was allegedly b reached by the failure of one

Mexican company to pay another. Certainly, the agreement is related to the original contracts, for

it represented the parties' resolution of a dispute over those contracts. But the agreement functioned

as a new contract between the parties, and Repsa now wants to recover for an alleged breach of that

new contract. Repsa has not alleged or shown that Pemex performed any acts in the United States

in connection with the settlement agreement. Instead, Repsa's complaint is that Pemex took materials

from the Repsa factory in Mexico and failed to pay for them. All of the acts on which this lawsuit

is based occurre d in Mexico. Repsa, therefore, cannot show the required material connection10 In a section of its brief addressing the second exception, Repsa merely asserts that Pemex

engaged in "commercial activity" within the meaning of the FSIA. Even if Repsa had actively

advanced this exception, we would find that it does not apply. We explained in Stena that a

connection between commercial activity outside the United States is irrelevant to the second

exception; rather, there must be a material connection "between the plaintiff's cause of action and

the act performed in the United States. " 923 F.2d at 388 (citing Gilson v. Republic of Ireland,

682 F.2d 1022, 1027 & n. 22 (D.C.Cir.1982)) (emphasis in original). As we have just pointed

out, there is no material connection between Repsa's cause of action and the acts Pemex

performed in the United States. between its cause of action and Pemex's commercial activities in the United States. S tena, 923 F.2d

at 387. Pemex's activities must be classed as too isolated or unrelated to support jurisdiction under

this exception. See id. 10

B. Commercial Activity Outside the U.S. That Has a Direct Effect in the U.S.

Repsa argues that the third exception applies because Pemex's failure to pay Repsa under the

original contracts (an act that occurred outside the United States) caused losses to an American bank

and the Eximbank, an agency of the United States Government. This, Repsa says, was a direct effect

in the United States.

Once again, however, Repsa cannot demonstrate any material connection between its cause

of action and Pemex's commercial acts. We have held that the third exception may be satisfied when

a foreign sovereign's commercial activities have a "substantial" and "direct and foreseeable" effect in

the United States. Z

ernicek v. Brown & Root, Inc., 826 F.2d 415, 417–18 (5th Ci r.1987), c ert.

denied, 484 U.S. 1043, 108 S.Ct. 775, 98 L.Ed.2d 862 (1988); s ee also Stena, 923 F.2d at 390. But

even if the losses to Laredo and the Eximbank qualify as a direct effect under Zernicek, they were

caused by commercial activities performed in connection with the original Repsa–Pemex contracts.

These activities, and the consequent losses, occurred before the parties negotiate d the settlem ent

agreement upon which Repsa is suing. Repsa can point to no activities related to the settlement

agreement which caused any effects, direct or otherwise, in the United States. Once again, the cause

of action asserted in this case does not have a material connection to any of Pemex's acts outside the

United States that caused a direct effect in the United States. Thus, this exception does not apply.IV. CONCLUSION

Pemex' s appeal is properly before us. We conclude that Pemex is immune from the

jurisdiction of the courts of the United States in this action. Accordingly, the judgment of the district

court is reversed and the cause remanded with instructions to dismiss the third-party action against

Pemex.

REVERSED AND REMANDED.