Opinion ID: 776235
Heading Depth: 4
Heading Rank: 2

Heading: Direct Effect

Text: 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.