Opinion ID: 776235
Heading Depth: 3
Heading Rank: 1

Heading: Commercial Activity Exception to Foreign Sovereign Immunity Act

Text: 10 The parties dispute the applicability of immunity under the FSIA. The statute provides, in relevant part: 11 Subject to existing international agreements to which the United States is a party at the time of enactment of this Act a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607 of this chapter. 12 28 U.S.C. § 1604. A foreign state includes an agency or instrumentality of a foreign state, 28 U.S.C. § 1603(a), and normally foreign sovereign immunity extends to individuals acting in their official capacities as officers of corporations considered foreign sovereigns. See, e.g., El-Fadl v. Central Bank of Jordan, 75 F.3d 668, 671 (D.C. Cir. 1996) (individual sued for actions on behalf of government bank was immune from suit under FSIA). Individuals who act outside the scope of their authority are not entitled to immunity. See Chuidian v. Philippine Nat'l Bank, 912 F.2d 1095, 1106-07 (9th Cir. 1990) (explaining that [s]overeign immunity . . . will not shield an official who acts beyond the scope of his authority, but defendant was authorized to perform the types of acts alleged, even if he did so for improper motives). Plaintiff does not contest the district court holding that defendants fall within the FSIA's definition of a foreign sovereign or instrumentality. We construe the plaintiff's silence on the authority question as a concession that, for purposes of the motion to dismiss, the individual defendants enjoyed the authority of the sovereign in the actions alleged here. The moving defendants are therefore to be deemed agents of the sovereign entitled to foreign sovereign immunity unless a statutory exception applies. 13 Defendants claim the district court erred when it found that the commercial activity exception applies. The commercial activity exception provides that a foreign state will not be immune in a case 14 in which the action is based upon a commercial activity carried on in the United States by the 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 territory 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[.] 15 28 U.S.C. § 1605(a)(2). Plaintiff proceeds under the third clause (alleging acts outside the United States). Defendants respond that they were not involved in commercial activity, and there was no direct effect in the United States.
16 Defendants advance two arguments against the commercial nature of their acts. First, they claim that the illegality of the deal alleged precludes a finding that it is commercial activity. The FSIA defines commercial activity as either a regular course of commercial conduct or a particular commercial transaction or act. 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. 28 U.S.C. § 1603(d). The Supreme Court has elaborated on the definition of commercial: when a foreign government acts, not as regulator of a market, but in the manner of a private player within it, the foreign sovereign's actions are 'commercial' within the meaning of the FSIA. Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 614 (1992). 17 Courts considering cases similar to this one have concluded that the illegality of an act does not necessarily negate its commercial character. In Adler v. Federal Republic of Nigeria, 219 F.3d 869 (9th Cir. 2000), the Court of Appeals for the Ninth Circuit held that an illegal investment opportunity contract with Nigerian government officials was commercial activity: The fact that the contract was for an illegal purpose, and therefore was unenforceable, does nothing to destroy its commercial nature. Id. at 875. The Court of Appeals for the Tenth Circuit similarly found that an illegal scheme by the Central Bank of Nigeria to receive funds from an over-invoiced contract was commercial. The court explained that [s]imply because the activities of a 'foreign state' are illegal . . . does not mean those activities can never be commercial in nature or connected with a commercial activity. Southway v. Central Bank of Nigeria, 198 F.3d 1210, 1217 (10th Cir. 1999). 18 In the instant case, the conduct was a deal to license and sell medical equipment, a type of activity done by private parties and not a market regulator function. The district court correctly concluded that this was a commercial activity, and that any fraud and bribery involved did not render the plan non-commercial. 19 In defendants' second attack on the commercial element, they assert that only Ossai (who is not a party to this appeal) entered into the contract with plaintiffs, and they are not bound by his act. Implicit in this assertion is the claim that the only commercial act was the signing of the contract. This argument neglects the extended business dealings of these defendants (Ogwuma, Rasheed, Sadiq, and the CBN) with plaintiff in furtherance of the contract. The complaint alleged, and defendants do not contest on appeal, the following: plaintiff received confirmation from the CBN that the wire transfer of $25.5 million had been approved. Plaintiff and Ogwuma engaged in extended fax communications regarding the wiring of funds, and Rasheed wrote to say that there were funds on deposit at the CBN, but he wanted to become part of the deal. Plaintiff then received a fax from Sadiq about delivery of the funds. There is no reason to conclude that the continuing negotiations by other defendants at the CBN fell outside of the commercial activity of the arrangement. 20 In addition, defendants argue that Ossai acted without the actual authority of the CBN and therefore could not bind the defendants under the commercial activity exception. Plaintiff, however, relies not only on Ossai's acts but also on various acts taken by these defendants to implement the scheme. Defendants have not claimed that their own acts were outside of the authority of the CBN. We therefore conclude that defendants have not shown that the commercial activity exception should not apply. See Adler, 219 F.3d at 874 n.5 (finding that defendants had failed to show proof that they lacked authority thus precluding application of the commercial activity exception).
21 Defendants claim that plaintiffs cannot establish another element of the commercial activity exception, namely, that there was a direct effect in the United States. 28 U.S.C. § 1605(a)(2). The Supreme Court has explained that an effect is 'direct' if it follows 'as an immediate consequence of the defendant's . . . activity.' Weltover, 504 U.S. at 618 (citation omitted). In Weltover, the Supreme Court found a direct effect when Argentina unilaterally rescheduled the maturity dates on bonds and therefore [m]oney that was supposed to have been delivered to a New York bank for deposit was not forthcoming. Id. at 619. The Court rejected the requirements, which some courts had imposed, that an act be substantial and foreseeable in order to be direct. Id. at 618. 22 Defendants argue that the direct effect statutory language means plaintiff must show a legally significant act occurred in the United States, as the Court of Appeals for the Second Circuit has required. See Weltover, Inc. v. Republic of Argentina, 941 F.2d 145, 152 (2d Cir. 1991), aff'd, 504 U.S. 607 (without addressing the legally significant acts test); Filetech S.A. v. France Telecom S.A., 157 F.3d 922, 931 (2d Cir. 1998). A legally significant act in the United States may be, for instance, the commission of a tort in the United States or failure to make payment when the contract designates a place in the United States as the place of performance. See, e.g., Antares Aircraft, L.P. v. Federal Republic of Nigeria, 999 F.2d 33, 36 (2d Cir. 1993) (noting that commission of a tort and performance of a contract are analogous legal acts). The Courts of Appeals for the Ninth and Tenth Circuits have adopted the legally significant acts test. Adler v. Federal Republic of Nigeria, 107 F.3d 720, 727 (9th Cir. 1997); United World Trade, Inc. v. Mangyshlakneft Oil Prod. Ass'n, 33 F.3d 1232, 1239 (10th Cir. 1994). The Court of Appeals for the Fifth Circuit, though, has rejected it, Voest-Alpine Trading USA Corp. v. Bank of China, 142 F.3d 887, 894 (5th Cir. 1998), relying on the Supreme Court decision in Weltover, 504 U.S. 607. According to the Voest-Alpine court, when the Supreme Court rejected the suggestion that § 1605(a)(2) contains any unexpressed requirement of 'substantiality' or 'foreseeability,' Weltover, 504 U.S. at 618, this holding was an admonishment to courts not to add any unexpressed requirements to the language of the statute. Voest-Alpine, 142 F.3d at 894. We agree that the addition of unexpressed requirements to the statute is unnecessary, and we decline to adopt the legally significant acts test. 23 In this case, defendants agreed to pay but failed to transmit the promised funds to an account in a Cleveland bank. Other courts have found a direct effect when a defendant agrees to pay funds to an account in the United States and then fails to do so. For example, the Court of Appeals for the Fifth Circuit held that the Bank of China's failure to remit funds to a domestic seller's designated bank account in the United States caused a direct effect in United States. Voest-Alpine, 142 F.3d at 896. Similarly, the Court of Appeals for the Second Circuit has held that defendant's default on a letter of credit for which plaintiff had designated payment to its bank account in New York was a direct effect, whether analyzed under the legally significant acts test or not. Hanil Bank v. PT. Bank Negara Indonesia, 148 F.3d 127, 132 (2d Cir. 1998); see also Adler, 107 F.3d at 727 (holding that Nigeria's failure to pay plaintiff, when plaintiff had designated New York as the place of payment according to its contractual right to choose the place, was a legally significant act constituting a direct effect) (factual findings changed on remand, see Adler, 219 F.3d 869). The district court in the instant case correctly concluded, in accord with the other circuits, that defendant's failure to pay promised funds to a Cleveland account constituted a direct effect in the United States. We affirm the district court's holding that the commercial activity exception applies to these defendants.