Opinion ID: 778751
Heading Depth: 3
Heading Rank: 2

Heading: Corporate Entities and the Direct Effects Clause

Text: 30 Attempting to sidestep these directness problems, Virtual Countries emphasizes the press release's devastating impact upon [its] business in the United States, which allegedly left it incapable of raising capital. Appellant's Br. at 27-28. Virtual Countries suggests that so significant a financial loss on the part of an American corporation necessarily occurs within the United States and hence satisfies the direct effect test. Id. at 28-31. 31 The plaintiff's argument is based on the difficulty in assigning loci to financial harms inflicted on corporate entities. Indeed, we have long recognized that [a]pplying the term [direct effect in the United States] to a corporation is not ... simple. Texas Trading & Milling Corp. v. Fed. Republic of Nigeria, 647 F.2d 300, 312 (2d Cir.1981), cert. denied, 454 U.S. 1148, 102 S.Ct. 1012, 71 L.Ed.2d 301 (1982). We have said in this context that [a] corporation is no more than a series of conduits, filtering profit — or loss — through each stage from the company's customers to its shareholders, who may themselves be fictional entities as well. Id. Locating the situs of an injury to a corporation is an enterprise fraught with artifice. Id. 32 Virtual Countries posits that Texas Trading, in confronting these difficulties, held that any U.S. corporation's financial loss constitute[s] a direct effect in the United States, regardless of where relevant acts occurred. Appellant's Br. at 29. The plaintiff distinguishes these claims from others in which an individual harmed financially by the tort happened to be an American citizen, but the tortfeasor's conduct was not directed at the United States or otherwise connected to the United States. Id. at 29 n. 14. 33 But Texas Trading does not support the plaintiff's argument. There, the Federal Republic of Nigeria had repudiated contracts for the purchases of cement from the plaintiffs after overestimating what could be unloaded at the Nigerian port of Lagos/Apapa. 647 F.2d at 303-05. Although the cement was to be delivered at Lagos, payment to the American cement manufacturers was, under the terms of the contract, to occur in New York. Id. at 304. We concluded that the FSIA's jurisdictional predicate was satisfied under the third clause of 28 U.S.C. § 1605(a)(2). Id. at 307-13. The effect of Nigeria's breach was direct because the plaintiffs were beneficiaries of the contracts that were breached. Id. at 312. Further, the locus of the contracts was the United States, where the plaintiffs were to present documents and to collect money. Id.; see also Weltover, 504 U.S. at 619, 112 S.Ct. 2160 (finding the geographical nexus met where [m]oney that was supposed to have been delivered to a New York bank for deposit was not forthcoming) (emphasis added); Martin v. Republic of South Africa, 836 F.2d 91, 94 (2d Cir.1987) (noting that the term `in the United States' was satisfied [in Texas Trading ] since the companies were to present documents and collect money in the United States, but the breach by Nigeria precluded them from doing so). 34 Satisfaction of the geographical jurisdictional nexus in Texas Trading depended on the fact that the contract stipulated performance in New York, not on plaintiffs' corporate form. Every circuit court of which we are aware that has addressed this issue has held — without reference to whether the plaintiff was a corporation, a non-corporate business entity, or a natural person — that an anticipatory contractual breach occurs in the United States for the jurisdictional purposes of § 1605(a)(2) if performance could have been required in the United States and then was requested there. See Keller v. Cent. Bank of Nigeria, 277 F.3d 811, 818 (6th Cir.2002) (finding the jurisdictional predicate met where defendants agreed to pay but failed to transmit ... promised funds to an account in a Cleveland bank); Hanil Bank v. PT. Bank Negara Indonesia, 148 F.3d 127, 132 (2d Cir.1998) (finding jurisdiction where funds were to be paid to a New York bank account); Voest-Alpine Trading, 142 F.3d at 896 (finding an effect in the United States when funds [were] not remitted to [an] account at a Texas bank); Adler v. Fed. Republic of Nigeria, 107 F.3d 720, 727 (9th Cir.1997) (finding jurisdiction where New York was the place of performance of Nigeria's ultimate contractual obligation); Commercial Bank of Kuwait v. Rafidain Bank, 15 F.3d 238, 241 (2d Cir.1994) (finding a direct effect in the United States where defendants failed to remit funds in New York, as they were contractually bound to do); see also Reed Int'l Trading Corp. v. Donau Bank AG, 866 F.Supp. 750, 754-55 (S.D.N.Y.1994) (concluding that a direct effect occurs when a bank fails to perform in New York). 35 The plaintiff's situation in the case before us is not analogous to Texas Trading for purposes of determining jurisdiction under the FSIA. No obligation — contractual or otherwise — ran to the plaintiff from the Republic, let alone one to be performed in the United States. Nor can we identify any effect analogous to the contractual obligation in Texas Trading. In cases closer to Texas Trading than the one at bar, where, for instance, defendants could have discharged their obligations by tendering payment elsewhere and had no specific objection to tender performance in the United States, courts have declined jurisdiction under the FSIA because of the absence of a direct effect. Dar El-Bina Eng'g & Contr. Co. v. Republic of Iraq, 79 F.Supp.2d 374, 382-85 (S.D.N.Y.2000) (finding jurisdiction only over those contracts at issue in which New York was designated as the place of performance); see also United World Trade, 33 F.3d at 1238 (finding lost profits insufficient for jurisdiction); Goodman Holdings v. Rafidain Bank, 26 F.3d 1143, 1146 (D.C.Cir.1994) (finding no jurisdiction where no United States location was designated as the `place of performance'), cert. denied, 513 U.S. 1079, 115 S.Ct. 728, 130 L.Ed.2d 632 (1995); Int'l Hous. Ltd. v. Rafidain Bank Iraq, 893 F.2d 8, 11 (2d Cir.1989) (finding no direct effect where losses were incurred overseas by a foreign corporation). 36 The plaintiff's more expansive theory, that any U.S. corporation's financial loss constitute[s] a direct effect in the United States, Appellant's Br. at 29, is plainly flawed. Endorsement of this view would render superfluous the analysis, followed by every circuit court of which we are aware that has addressed this question, of the locus of contractual obligation when deciding whether a direct effect occurred in the United States under the FSIA. See, e.g., Keller, 277 F.3d at 818; Hanil Bank, 148 F.3d at 132; Voest-Alpine Trading, 142 F.3d at 896; Adler, 107 F.3d at 727. 37 Our FSIA jurisprudence is also altogether inconsistent with the plaintiff's theory. In Antares Aircraft, L.P. v. Fed. Republic of Nigeria, 999 F.2d 33 (2d Cir.1993), cert. denied, 510 U.S. 1071, 114 S.Ct. 878, 127 L.Ed.2d 74 (1994), for example, we held that a plaintiff whose airplane had been seized in Lagos, Nigeria, but who drew funds in New York for its release, had not established FSIA jurisdiction. Construing the third clause of the FSIA's commercial activities exception and its tort exception, 28 U.S.C. § 1605(a)(5), we noted that [i]f a loss to an American individual and firm from a foreign tort were sufficient standing alone to satisfy the direct effect requirement, the commercial activity exception would in large part eviscerate the FSIA's provision of immunity for foreign states because contractual breaches would be pleaded as torts of conversion or fraud. Id. at 36 (emphasis added). 38 The plaintiff's construction of the third clause of the commercial activities exception is also contradicted by our endorsement of the `legally significant acts' test, which requires that the conduct having a direct effect in the United States be legally significant conduct in order for the commercial activity exception to apply. Filetech S.A. v. France Telecom S.A., 157 F.3d 922, 931 (2d Cir.1998); see also Hanil Bank, 148 F.3d at 133 (endorsing the legally significant act test to find jurisdiction based on a breach of contract in the United States); Antares Aircraft, 999 F.2d at 35 n. 2 (noting that the Supreme Court in Weltover had not cast doubt on the legally significant act test used in Antares Aircraft, L.P. v. Fed. Republic of Nigeria, 948 F.2d 90, 95 (2d Cir.1991), vacated by 505 U.S. 1215, 112 S.Ct. 3020, 120 L.Ed.2d 892 (1992), and hence the test remains good law); cf. Adler, 107 F.3d at 726-27 (noting that mere financial loss without a legally significant act does not establish jurisdiction); United World Trade, 33 F.3d at 1239 (same). But cf. Keller, 277 F.3d at 818 (declining to adopt the legally significant act test as an addition of [an] unexpressed requirement[ ] to the statute); Voest-Alpine Trading, 142 F.3d at 894-95 (same). If Virtual Countries were right and any economic harm to it as a corporation was necessarily a direct effect under the FSIA, the legally significant act test would be meaningless. 39 Finally, even had the plaintiff identified a legally sufficient direct effect, we would nonetheless agree with the district court that the bald assertions of harm contained in the complaint were not sufficient to defeat the motion to dismiss. Virtual Countries, 148 F.Supp.2d at 269. See Zappia, 215 F.3d at 253 ([C]onclusory allegations in [a complaint and declaration] are not sufficient to create a material issue of fact.). In contrast to a Rule 12(b)(6) motion to dismiss for failure to state a claim, in a challenge to FSIA subject matter jurisdiction, the defendant must present a  prima facie case that it is a foreign sovereign. Cargill Int'l S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir.1993); accord Robinson, 269 F.3d at 141 n. 7. That was uncontested here. Then, the plaintiff has the burden of going forward with evidence showing that, under exceptions to the FSIA, immunity should not be granted. Cargill, 991 F.2d at 1016 (emphasis added); accord Drexel Burnham Lambert Group Inc. v. Comm. of Receivers for A.W. Galadari, 12 F.3d 317, 325 (2d Cir.1993), cert. denied, 511 U.S. 1069, 114 S.Ct. 1644, 128 L.Ed.2d 365 (1994). Determining whether this burden is met involves a review [of] the allegations in the complaint, the undisputed facts, if any, placed before [the court] by the parties, and — if the plaintiff comes forward with sufficient evidence to carry its burden of production on this issue — [resolution of] disputed issues of fact. Robinson, 269 F.3d at 141. The ultimate burden of persuasion remains with the alleged foreign sovereign. Cargill, 991 F.2d at 1016 (emphasis added); Robinson, 269 F.3d at 141 n. 8 (noting that this burden must be met by a preponderance of the evidence). 40 Despite an opportunity to come forward with evidence to meet its burden of production in order to prevail on the jurisdiction issue, Virtual Countries failed to provide sufficient evidence for the contentions that it had lost investment opportunities, or that its financial difficulties resulted from the Republic's actions. Virtual Countries, 148 F.Supp.2d at 266-67. Thus, even if the complaint detailed legally significant acts, the district court would have been correct to dismiss the complaint based on the plaintiff's failure to show a causal connection between those acts and the alleged injury it sustained.