Opinion ID: 6346768
Heading Depth: 2
Heading Rank: 1

Heading: Commercial Activity Exception

Text: The FSIA’s commercial activity exception, as relevant here, permits suit against an international organization if “the 12 action is based upon a commercial activity carried on in the United States by the [international organization].” 28 U.S.C. § 1605(a)(2) (emphasis added). Here, we ask only whether the Plaintiffs’ action is “based upon” commercial activity and conclude that it is not. To determine whether a plaintiff’s action is based upon commercial activity, we must first identify “the ‘particular conduct’ that constitutes the ‘gravamen’ of the suit,” OBB Personenverkehr AG v. Sachs, 577 U.S. 27, 35 (2015) (quoting Saudi Arabia v. Nelson, 507 U.S. 349, 356, 357 (1993)), “zero[ing] in on the core of [the plaintiff’s] suit,” that is, the “wrongful conduct” that “led to [the] injuries suffered,” id.; see also Jam v. Int’l Fin. Corp., 3 F.4th 405, 409 (D.C. Cir. 2021). The mere fact that an activity “led to the conduct that eventually injured” the plaintiff does not necessarily make that activity the gravamen of the suit, see Nelson, 507 U.S. at 358, and neither does the fact that an activity “would establish a single element of a claim,” Sachs, 577 U.S. at 34. As the Supreme Court has stressed, “any other approach would allow plaintiffs to evade the [FSIA]’s restrictions through artful pleading.” Sachs, 577 U.S. at 36; see also Fry v. Napoleon Cmty. Schs., 137 S. Ct. 743, 755 (2017) (“What matters is the crux—or, in legal-speak, the gravamen—of the plaintiff’s complaint, setting aside any attempts at artful pleading.”). The Plaintiffs assert that the gravamen of their action is the IDB’s “violation of the Bank’s contractual duties, while investigating and administering disciplinary procedures that apply by commercial contract terms to the conduct of private commercial suppliers and their personnel in the United States in relation to the contracts.” Appellants’ Reply Br. 19–20. Yet, despite framing their claims in contractual terms—relying on the three IDB-financed contracts and the associated bid solicitations—the Plaintiffs’ complaint, as the district court 13 correctly recognized, makes clear that the wrongful conduct that in fact injured them centers around how the IDB carried out the Sanctions Procedures. See Rosenkrantz, 2021 WL 1254367, at . The injurious conduct recounted in Count I includes “blocking Plaintiffs’ access to historical records of GreenLine necessary to prepare a defense,” “failing to provide Plaintiffs access to records provided to IDB by PAE” and to “documents that may be exculpatory or mitigating in nature,” “publicly issuing a press release including information that would identify Plaintiffs” and “pre-judging the responsibility of Plaintiffs (by publicly announcing vicarious sanctions against another entity) without first providing Plaintiffs the opportunity to be heard on the charges.” Compl. ¶ 107; see also id. ¶ 112 (recounting largely identical injuries in Count II); id. ¶ 118–19 (characterizing IDB’s instruction to PAE “not to provide . . . cooperation or records to the [Plaintiffs]” as “intentional interference” with GreenLine Purchase Agreement); Rosenkrantz, 2021 WL 1254367, at  (acknowledging Plaintiffs’ argument that the IDB “wrongfully charged” TTEK as party subject to sanctions). These alleged injuries arose when the IDB “violat[ed] or act[ed] without authority under the Sanctions Procedures.” Compl. ¶ 107. Thus, the alleged wrongful conduct has very little, if anything, to do with the IDB-financed contracts. At bottom, the Plaintiffs are seeking “greater procedural fairness in IDB’s investigation and prosecution of the charges against them, not the specific performance of an enumerated duty under one of the three challenged contracts.” Rosenkrantz, 2021 WL 1254367, at . The fact that the Plaintiffs nevertheless styled their causes of action as contract or contract-related claims is of no consequence in light of the substance of their complaint. See Sachs, 577 U.S. at 36. Attempting to re-center the gravamen on the three IDBfinanced contracts, the Plaintiffs contend that the commercial 14 activity exception’s “based on” requirement is satisfied whenever a commercial activity—say, a contract—forms “a necessary element of [a] plaintiff’s claim.” Appellants’ Br. 42– 43 (citing Odhiambo v. Republic of Kenya, 764 F.3d 31 (D.C. Cir. 2014), and Kirkham v. Société Air France, 429 F.3d 288 (D.C. Cir. 2005)). But the Supreme Court squarely rejected this “single-element” approach to the gravamen analysis in OBB Personenverkehr AG v. Sachs, 577 U.S. 27 (2015), a decision postdating this Court’s decisions in Kirkham and Odhiambo. In Sachs, the plaintiff had purchased a Eurail train pass in the United States and was later injured at a government-owned train station in Austria. 577 U.S. at 30. She attempted to sue Austria’s railway operator and avail herself of the commercial activity exception by arguing that her purchase of the Eurail pass, a single element of her claim, involved commercial activity. Id. at 35–36. The Ninth Circuit agreed, relying in part on the same single-element approach this Court adopted in Kirkham: Because the sale of the Eurail pass is an essential fact that Sachs must prove to establish her passenger-carrier relationship with OBB, a nexus exists between an element of Sachs’s negligence claim and the commercial activity in the United States. See Kirkham, 429 F.3d at 292 (“[S]o long as the alleged commercial activity establishes a fact without which the plaintiff will lose, the commercial activity exception applies . . . .”). Sachs v. Republic of Austria, 737 F.3d 584, 600 (9th Cir. 2013) (en banc) (alteration in original). The Supreme Court rejected the Ninth Circuit’s singleelement test as unnecessarily requiring “an exhaustive claim15 by-claim, element-by-element analysis” of a cause of action. Sachs, 577 U.S. at 34. It directed courts to instead examine the plaintiff’s asserted claims and “zero[] in on” the wrongful conduct on the part of the defendant that “actually injured” the plaintiff. Id. at 35. This is precisely what we have done here by identifying the IDB’s alleged non-adherence to the Sanctions Procedures—not the breach of any provision in the IDBfinanced contracts—as the source of the Plaintiffs’ injuries. To the extent that either Kirkham or Odhiambo may have left the door open for a single-element approach to the gravamen analysis, whereby a plaintiff’s pleading decisions could dictate a court’s jurisdiction, Sachs has since slammed it shut. 3 Having identified the gravamen of the Plaintiffs’ action— the IDB’s alleged non-adherence to the procedures set forth in the Sanctions Procedures—we must next determine whether it constitutes “commercial activity” under the FSIA. 28 U.S.C. § 1605(a)(2). An international organization “engages in commercial activity . . . where it exercises ‘only those powers that can also be exercised by private citizens,’ as distinct from those ‘powers peculiar to sovereigns.’” Nelson, 507 U.S. at 360 (quoting Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 614 (1992)); see also de Csepel v. Republic of Hungary, 714 F.3d 591, 599 (D.C. Cir. 2013) (“[A] foreign state’s repudiation of a contract is precisely the type of activity in which a ‘private player within the market’ engages.” (quoting Nelson, 507 U.S. 3 As for Odhiambo, this Court simply confirmed Kirkham’s adoption of a single-element approach to the gravamen analysis, iterating that “the alleged commercial activity must establish ‘a fact without which the plaintiff will lose.’” Odhiambo, 764 F.3d at 36 (quoting Kirkham, 429 F.3d at 292); see id. (“[A] claim is ‘based upon’ commercial activity if the activity establishes one of the ‘elements of a claim that, if proven, would entitle a plaintiff to relief under his theory of the case.’” (quoting Nelson, 507 U.S. at 357)). Thus, Odhiambo, like Kirkham, is of no help in light of Sachs. 16 at 360)). Simply put, if the alleged conduct is not “typically performed by participants in the market,” it is not commercial activity under the FSIA. Mwani v. bin Laden, 417 F.3d 1, 17 (D.C. Cir. 2005) (quoting Cicippio v. Islamic Republic of Iran, 30 F.3d 164, 168 (D.C. Cir. 1994)). The question “whether a state acts ‘in the manner of’ a private party is a question of behavior, not motivation.” Nelson, 507 U.S. at 360 (quoting Weltover, 504 U.S. at 614); see 28 U.S.C. § 1603(d) (“The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose.”). As we see it, the IDB’s application of its Sanctions Procedures is not the sort of activity “typically performed by participants in the market” but rather more akin to those powers exercised by a sovereign. Mwani, 417 F.3d at 17 (quoting Cicippio, 30 F.3d at 168). The IDB is mandated by charter— or, more accurately, a multilateral agreement of forty-eight member nations—to “take the necessary measures to ensure that” bank funds “are used only for the purposes for which” they are allocated, “with due attention to considerations of economy and efficiency.” IDB Charter art. III, § 9(b). In accordance with this mandate, the IDB uses its Sanctions Procedures, and the threat of debarment, to identify, root out and deter fraud and waste in the use of public funds, in the same manner as many sovereigns, including the United States, see generally 48 C.F.R. subpart 9.4 (debarment procedures for federal contractors and subcontractors), and the European Union, see Council Directive 2014/24, art. 57, 2014 O.J. (L 121) 127–29 (EU) (grounds for “exclud[ing] an economic operator from participation in a procurement procedure”). See Rosenkrantz, 2021 WL 1254367, at . Granted, the Plaintiffs are correct that private market actors use similar investigatory and disciplinary tools to root 17 out internal fraud but their proffered examples involve actions by private institutions to investigate and discipline parties with whom they have a direct contractual relationship, often to simply terminate or limit existing rights under that relationship. See Appellants’ Br. 38–40 (citing Kumar v. George Washington Univ., 174 F. Supp. 3d 172, 175 (D.D.C. 2016) (demotion of professor and closure of his laboratory for misconduct related to scientific research)). The IDB’s investigatory and disciplinary power, as encapsulated in the Sanctions Procedures, is derived from its charter, not a singular and discrete contractual relationship, see IDB Charter art. III, § 9(b), and the Sanctions Procedures permit the IDB to take disciplinary action against any party involved with an IDBfinanced contract, regardless of the existence of a contractual relationship with the IDB, see Sanctions Procedures §§ 1.2, 8.3. Further still, debarment effectively removes a private party from the market for IDB or IDB-financed contracts and could result in “cross-debarment” with other development banks, governments and private parties, thereby excluding it from the entire market. See Appellants’ Br. 17. The IDB’s ability to exercise such influence over a wide array of parties and markets—potentially to the point of total exclusion of a particular party from the market—plainly constitutes the exercise of a “power[] peculiar to sovereigns.” Weltover, 504 U.S. at 614. In short, the gravamen of the Plaintiffs’ action—the IDB’s alleged failure to adhere to the Sanctions Procedures—is not commercial activity within the scope of the FSIA. The IDB’s mandate under its charter and the Sanctions Procedures to protect the integrity of its funds and regulate the market for international development funds is much more akin to a sovereign’s effort to do the same than to that of a private party. The commercial activity exception therefore does not abrogate the IDB’s immunity from the Plaintiffs’ claims, as the district 18 court correctly concluded. See Rosenkrantz, 2021 WL 1254367, at .