Source: http://openjurist.org/962/f2d/528
Timestamp: 2014-07-30 09:06:02
Document Index: 378897541

Matched Legal Cases: ['§ 1330', '§ 1605', '§ 1962', '§ 1605', '§ 1605', '§ 1603']

962 F2d 528 Arriba Limited v. Petroleos Mexicanos | OpenJurist
962 F. 2d 528 - Arriba Limited v. Petroleos Mexicanos	Home962 f2d 528 arriba limited v. petroleos mexicanos
962 F2d 528 Arriba Limited v. Petroleos Mexicanos 962 F.2d 528
ARRIBA LIMITED, Plaintiff-Appellee,v.PETROLEOS MEXICANOS, a/k/a Pemex, Defendant-Appellant.
Nos. 91-2180, 91-6311.
Alfredo R. Perez, Bracewell & Patterson, Kenneth R. Wynne, and Mark Maney, Wynne & Maney, Houston, Tex., for defendant-appellant.
Bruno A. Ristau, Ristau & Abbell, Washington, D.C., for Govt. of the United Mexican States.
James T. McCartt, and William H. White, Susman, Godfrey & McGowan, Houston, Tex., for plaintiff-appellee.
Before DAVIS, JONES, and EMILIO GARZA, Circuit Judges.
Petroleos Mexicanos ("Pemex"), the national oil company of the United Mexican States, appeals the district court's denial of its motion to dismiss for lack of subject matter jurisdiction under the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. §§ 1330, 1602-11. Pemex, one of the world's largest oil companies and crude oil exporters, was sued by Arriba, Ltd., a Bahamian corporation with its principal place of business in the United States, for damages stemming from a failed contract between Arriba and an arm of Pemex's union, the Petroleum Workers Union of Mexico, Sindicato de Trabajadores Petroleros de la Republica Mexicana ("the Union"). The district court held that Pemex failed to establish that its activities fell outside the "commercial activities" exception to the FSIA's recognition of sovereign immunity. See 28 U.S.C. § 1605(a)(2). Because we hold that Pemex is entitled to sovereign immunity, we reverse the district court's ruling and dismiss Arriba's action with prejudice.1
This is the latest in a series of lawsuits that Arriba has brought since 1985 against the Union, its private contracting arm, Comision de Contratos del Sindicato de Trabajadores Petroleros de la Republica Mexicana ("the Commission"), and several former Union officials. Pemex is a relative newcomer to the litigation, having been sued by Arriba for the first time in 1990. All these lawsuits flow from a single 1984 transaction in which several officials of the Union and its Commission allegedly agreed to supply Arriba with Pemex's residual or "slop" oil at bargain prices--without the need for a contract with Pemex. Arriba apparently owes its very corporate existence to this ill-starred venture.
According to its amended complaint, Arriba was chartered in 1984 as a direct result of negotiations between Bill Flanigan, who went on to serve as Arriba's president, and "persons who were acting as the agents and representatives" of Pemex, the Union and its Commission.2 As part of a written agreement signed at Houston, Texas in October of that year ("the Agreement"), the Commission agreed to sell Arriba a minimum of 6 million barrels of Pemex's residual oil. The Agreement was signed by one Ramiro Quinones Fabela ("Quinones"), who Arriba asserts had presented proof of his authority to act on the Commission's behalf. Relying on representations by Quinones and his associates, Arriba contracted to sell the residual oil at a substantial profit. Beginning in November 1984, however, Quinones and others demanded payments from Arriba, to be used to bribe Pemex and Union officials to perform their part of the Agreement. Arriba refused to pay--despite repeated protests from Quinones and his companions, who twice physically assaulted Flanigan. Arriba never received the oil, even after Flanigan met with various Commission and Union officials and was assured that its delivery was forthcoming.
Arriba admits that the Agreement was structured to avoid any direct dealings with Pemex officials or any other branch of the Mexican government.3 It is therefore important to understand who Arriba considers to be Pemex's "agents." Pemex was not a party to the Agreement, and Arriba never negotiated with Pemex for the purchase of oil. Instead, Arriba insists that Quinones and his associates should be considered Pemex's "agents" by implication. Pemex's activities were "inextricably integrated" with those of the Union and its Commission, Arriba argues, so that all three functioned as a single entity. As described in the complaint, the three entities
often serve as agents for one another. They make promises and representations for one another. They stand behind one another's contracts. The business of each is structured so that it is necessarily dependent upon the cooperation of the others.
Borrowing some familiar terms from American corporate law, Arriba argues that Pemex's status as a government agency is a sham that should not be respected. The separate legal identities of Pemex, the Union and the Commission have blurred into a single functional entity, making each of them "alter egos" of the other and permitting Arriba to "pierce the veil" to reach Pemex's assets.4
Arriba sued the Union, its Commission, Quinones and three other Union officials for the first time in June 1985, obtaining a $92 million default judgment in Texas state court the following April. Attempting to satisfy that judgment, Arriba secured a writ of garnishment against Pemex in February 1987. Pemex removed the garnishment proceedings to federal court and sought to dismiss on sovereign immunity grounds. Meanwhile, Arriba entered into negotiations with the Union and its Commission involving the creation of a new joint venture. These talks led to a settlement in October 1987 that released the default judgment and dismissed the garnishment action against Pemex with prejudice.5
Nearly two years later, Arriba returned to state court, alleging that the Union's and Commission's refusals to abide by the settlement terms revived its claims arising from the 1984 Agreement. In April 1989, the court granted a second default judgment against the Union, its Commission and the private defendants--this time including punitive damages boosting the total award to more than $273 million. Arriba again obtained a writ of garnishment against Pemex in an attempt to execute the two default judgments,6 and Pemex again removed to federal court. Arriba's amended complaint asserts that Union officials informed Arriba that Pemex had begun "stripping the assets" of the Union to prevent Arriba from enforcing its judgment. Those same officials also allegedly warned Flanigan that he faced criminal prosecution by Mexican authorities if he continued to pursue legal remedies.
On May 31, 1990, while Pemex's motion to quash the writ of garnishment was pending, Arriba filed its first action against Pemex in the federal district court for conduct stemming from the 1984 Agreement. Among other things, Arriba accused Pemex of engaging in a pattern of racketeering activity in Mexico as well as theft by extortion under Texas law. Relying on the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(a)-(d), Arriba sought treble damages, costs of suit, attorneys fees, and other relief. The district court later consolidated Arriba's RICO action with its applications for writs of garnishment against Pemex for the 1986 and 1989 default judgments. The claimed damages had now ballooned to more than $1 billion.
Pemex moved to dismiss the consolidated action based on the FSIA, arguing in the alternative that the case was non-justiciable under the Act of State doctrine. The district court rejected Pemex's sovereign immunity defense, prompting this appeal.7
We have jurisdiction to hear this appeal. This court has recently decided that the interlocutory denial of a claim of foreign sovereign immunity is appealable under the collateral order doctrine. Stena Rederi AB v. Comision de Contratos, 923 F.2d 380, 385-86 (5th Cir.1991). Arriba contends, however, that the district court's partial dismissal of its earlier garnishment claim was not timely appealed by Pemex. This is true, although in light of Stena and the following discussion, our refusal to consider that minor aspect of Pemex's appeal yields Arriba a Pyrrhic victory. See Stena, 923 F.2d at 391-93 (garnishment immunity is subject to principles of FSIA).
The FSIA sets forth "the sole and exclusive standards to be used" to resolve all sovereign immunity issues raised in federal and state courts. See H.R.Rep. No. 1487, 94th Cong., 2d Sess. 12 (1976), U.S.Code Cong. & Admin.News 1976, pp. 6604, 6610. While the FSIA recognizes the general rule that foreign states are entitled to immunity from jurisdiction in American courts, § 1605 codifies several exceptions to that rule. Arriba principally invokes the "commercial activities" exception, which provides that foreign states are not immune from suit in U.S. courts when the action is based on commercial activity that has a jurisdictional nexus with the United States. 28 U.S.C. § 1605(a)(1)-(2). That Pemex is a foreign government instrumentality is undisputed. See Stena, 923 F.2d at 386. As defined in the Act, the term "commercial activity"
28 U.S.C. § 1603(d). The drafters of the FSIA envisioned that the courts "would have a great deal of latitude in determining what is a 'commercial activity' for purposes of this bill." House Report at 16 U.S.Code Cong. & Admin.News 1976, at 6615. However, in listing possible examples of "particular transactions or acts" which might fall within the exception, the House Judiciary Committee specifically included "a single contract, if of the same character as a contract which might be made by a private person." Id. Arriba maintains that if attributable to Pemex, the 1984 Agreement constitutes commercial activity within the meaning of the statute. See Stena, 923 F.2d at 387 n. 9.
Nonetheless, merely showing that a foreign state or its instrumentality has engaged in "commercial activities" within the meaning of the Act is not sufficient: only those commercial activities with a sufficient "jurisdictional nexus" to the United States fall within the exception. See Stena, 923 F.2d at 386. Section 1605(a)(2) identifies three types of actions that are sufficiently connected to the United States to satisfy the jurisdictional nexus requirement:
(2) an act performed in the United States in connection with a commercial activity carried on outside the United States; or
Section 1605(a)(2) also requires that there be a material connection between the plaintiff's cause of action and the commercial acts of the foreign sovereign. Stena, id. at 386-87. Thus, "[i]n order to satisfy the commercial activities exception to sovereign immunity, the commercial activity that provides the jurisdictional nexus with the United States must also be the activity on which the lawsuit is based." Id. at 387. Isolated or unrelated commercial actions by a foreign sovereign in the United States do not authorize the exception. Id. See also De Sanchez v. Banco Central de Nicaragua, 770 F.2d 1385, 1391 (5th Cir.1985).
The parties vigorously dispute their respective burdens of proof on the commercial activity issue, yet case law resolves such questions almost uniformly. Once the defendant alleges that it is a "foreign state", the plaintiff must produce some facts to show that the commercial activity exception to immunity applies, but the defendant retains the ultimate burden of proof on immunity. Stena, 923 F.2d at 390 n. 14; Forsythe v. Saudi Arabian Airlines Corp., 885 F.2d 285, 289 n. 6 (5th Cir.1989). There is an exception to this general rule. Foreign instrumentalities and agencies are accorded a presumption of independent status. See First Nat'l City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 626-27, 103 S.Ct. 2591, 2599-2600, 77 L.Ed.2d 46 (1983) ("Bancec "). Although Bancec 's description of the basis for disregarding the separate juridical status of foreign agencies occurred in a discussion of substantive liability, its principles have been applied to FSIA jurisdictional issues. See Foremost-McKesson, Inc. v. The Islamic Republic of Iran, 905 F.2d 438, 446 (D.C.Cir.1990); Hester Int'l Corp. v. Federal Republic of Nigeria, 879 F.2d 170, 176 (5th Cir.1989). Hence, where, as here, jurisdiction depends on an allegation that the particular defendant was