Opinion ID: 543051
Heading Depth: 3
Heading Rank: 2

Heading: Direct Effects

Text: 50 In further defense against the appellee's claim under section 1605(a)(2), Iran contends that none of the alleged acts of the sovereign had a direct effect in the United States. Without reaching the merits of the issue, we find no error in the District Court's determination that the facts alleged by Foremost exhibit sufficiently direct effects to confer subject matter jurisdiction under the third clause of section 1605(a)(2). 51 In support of its position, Iran cites Zedan v. Kingdom of Saudi Arabia, 849 F.2d 1511 (D.C.Cir.1988), in which the court held that a direct effect for purposes of the commercial activity exception to immunity is one that is substantial and foreseeable, id. at 1514. Iran's reliance on Zedan is futile. In Zedan, this court concluded that the suffering of financial hardship in the United States from events that take place abroad is not, alone, sufficient to establish direct effects. See id. at 1514, 1515. While in Saudi Arabia, Zedan--an American citizen--contracted to work for an agency of the government. He had not received the payment due under the contract at the time he returned to the United States. Zedan claimed that he suffered financial loss when the defendant-foreign sovereign failed to forward to the United States money owed him. Id. at 1512. The court concluded that the effects were not foreseeable. Id. at 1515. 52 Here, the effects alleged were foreseeable, substantial and direct. As to foreseeability, according to Foremost, there was a constant flow of capital, management personnel, engineering data, machinery, equipment, materials and packaging, between the United States and Iran to support the operation of Pak Dairy. See Complaint at p 17, reprinted in App. 28. Foremost owned shares and had representation on the Board. It is hardly convincing that, with the close commercial ties alleged here, it would be unforeseeable that actions taken by the Government of Iran within its borders would have effects in the United States. In Maritime Int'l Nominees Establishment v. Republic of Guinea, 693 F.2d 1094, 1111 (D.C.Cir.1982), cert. denied, 464 U.S. 815, 104 S.Ct. 71, 78 L.Ed.2d 84 (1983), this court concluded that the financial effects on the United States company were fortuitous, since it was not contemplated in the original agreement that the United States company would share in the profits. By contrast, where a Mexican bank, the foreign instrumentality, had engaged in a regular course of business conduct with [the American purchaser of certificates of deposit] over a several-year period, the Fifth Circuit found direct effects. Callejo v. Bancomer, S.A., 764 F.2d 1101, 1112 (5th Cir.1985). In the instant case, Foremost alleges that the involvement of Foremost was contemplated in the original agreement and extended over a period of years. 53 Nor does case law support the conclusion that the effects alleged are insubstantial or not direct. The alleged effects of freezing-out American corporations in their ownership of Pak Dairy are at least as substantial and direct as effects alleged in prior cases in which this court and other circuits have found direct effects. For example, the Callejo court determined that a foreign instrumentality-bank's breach of contract regarding payment of principal and interest on certificates of deposits had direct effects on their United States-resident owner within the meaning of FSIA. Callejo, 764 F.2d at 1110 12. In Texas Trading & Milling Corp v. Federal Republic of Nigeria, 647 F.2d 300, 312-13 (2d Cir.1981), cert. denied, 454 U.S. 1148, 102 S.Ct. 1012, 71 L.Ed.2d 301 (1982), the Second Circuit determined that, under either a breach of contract or breach of letters of credit theory, Nigeria's unilateral alteration of the letters of credit and cancellation of contracts had direct effects on the United States companies that were suppliers under the contracts. And in Transamerican S.S., 767 F.2d at 1004, this court determined that the effects of the foreign agency's detention of an American ship, which caused the American corporation to incur debt, and the agency's demand for payment in the United States were both direct and substantial within the meaning of the FSIA. Adhering to this line of precedent, we find no infirmity with the District Court's determination that the alleged effects were sufficiently direct to survive Iran's motion to dismiss.