Court Opinion

ID: 4304015
Source: CourtListenerOpinion
Date Created: 2018-08-15 17:00:59.90686+00
Date Added: 2024-06-11T09:24:23.633076
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

PACKSYS, S.A. DE C.V., a Mexican         No. 16-55380
corporation,
                Plaintiff-Appellant,        D.C. No.
                                         2:15-cv-09704-
                 v.                         JFW-AS

EXPORTADORA DE SAL, S.A. DE C.V.,
a Mexican corporation,                     OPINION
               Defendant-Appellee.

      Appeal from the United States District Court
         for the Central District of California
       John F. Walter, District Judge, Presiding

       Argued and Submitted November 8, 2017
                Pasadena, California

                 Filed August 15, 2018
2              PACKSYS V. EXPORTADORA DE SAL

 Before: Kim McLane Wardlaw and Andrew D. Hurwitz, *
  Circuit Judges, and Wiley Y. Daniel, ** District Judge.

                   Opinion by Judge Wardlaw

                          SUMMARY ***

             Foreign Sovereign Immunities Act

    Affirming the district court’s dismissal of an action for
lack of jurisdiction, the panel held that the Foreign Sovereign
Immunities Act’s commercial activity exception to
immunity from suit did not apply.

    The plaintiff alleged that a Mexican-government owned
corporation breached a contract to sell the briny residue of
its salt production process. The corporation’s Director
General, who had entered into the contract, did not, in fact,
have actual authority to execute the contract. The panel held
that the FSIA’s commercial activity exception does not
extend to embrace activities of a foreign agent having only
apparent authority to engage in them. The panel held that

    *
      This case was submitted to a panel that included Judge Stephen
Reinhardt. Following Judge Reinhardt’s death, Judge Hurwitz was
drawn by lot to replace him. Ninth Circuit General Order 3.2.h. Judge
Hurwitz has read the briefs, reviewed the record, and listened to oral
argument.

    **
       The Honorable Wiley Y. Daniel, United States District Judge for
the U.S. District Court for Colorado, sitting by designation.
    ***
        This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
             PACKSYS V. EXPORTADORA DE SAL                    3

the FSIA’s waiver exception also did not apply because it,
too, is subject to the same actual-authority requirement.
Accordingly, the corporation properly invoked sovereign
immunity.

                         COUNSEL

Rory S. Miller (argued) and Andrew Baum, Glaser Weil
Fink Howard Avchen & Shapiro LLP, Los Angeles,
California, for Plaintiff-Appellant.

Steven J. Olson (argued), Catalina Vergara, J. Jorge deNeve,
and Esteban Rodriguez, O’Melveny & Myers LLP, Los
Angeles, California, for Defendant-Appellee.

                          OPINION

WARDLAW, Circuit Judge:

    It has been the law of our circuit for over two decades
that the activities of an agent who lacks the actual authority
of a foreign state do not constitute the conduct of that foreign
state for purposes of the Foreign Sovereign Immunities Act’s
commercial activity exception to immunity from suit. See
28 U.S.C. § 1605(a)(2). Here the Director General of a
Mexican government-owned corporation, Exportadora de
Sal, S.A. de C.V. (“ESSA”), entered into a long-term, multi-
million dollar contract with another Mexican corporation,
Packsys, S.A. de C.V. (“Packsys”), to sell the briny residue
from its salt production process. As it turned out, the
Director General did not have actual authority to execute the
contract, and when suit was filed in the United States, ESSA
invoked sovereign immunity. Packsys, not having proof of
4              PACKSYS V. EXPORTADORA DE SAL

actual authority, asks us to create a new rule that would
extend the commercial activity exception to embrace
activities of a foreign agent having only apparent authority
to engage in them. The district court declined to do so, and
so do we. Nor do we accept that principles of ratification or
waiver improve Packsys’s position. We therefore affirm the
district court’s dismissal of this case for lack of jurisdiction.

                                   I.

   Exportadora de Sal, S.A. de C.V., is a Mexican salt
production corporation with its principal place of business at
the Ojo de Liebre Lagoon on the west coast of Baja
California Sur, Mexico. 1 ESSA, one of the world’s largest
producers of sea salt, is 51-percent owned by the government
of Mexico. The other 49-percent ownership stake is held by
Mitsubishi Corporation. The Mexican government appoints
a majority of ESSA’s board of directors, and the company’s
Director General—a position equivalent to CEO—is
appointed by the President of Mexico.

    ESSA produces sea salt using an evaporation method.
Seawater is transferred from one pool to another, becoming
more and more concentrated until salt begins to crystalize
out of the water. At this point, the water is drained from the
pool and the salt crystals are harvested. But the water that is
drained from the collection pool—known as residual brine—
contains high concentrations of chemicals and is potentially
hazardous. What to do with this waste byproduct is thus a
perpetual question for salt producers using this method of
    1
      ESSA’s amenability to suit in the United States is also at issue in
Sea Breeze Salt, Inc. v. Mitsubishi Corp., No. 16-56350, decided today.
Sea Breeze Salt concerns the production and distribution of sea salt,
while this case concerns the toxic residue left behind by the production
process.
            PACKSYS V. EXPORTADORA DE SAL                   5

production. ESSA historically dumped its residual brine
back into the Ojo de Liebre Lagoon, but public pressure over
environmental damage led it to stop this practice. Since
1996, ESSA has stored its brine on land, at great and
mounting expense.

   At a meeting of ESSA’s board on October 28, 2013, the
company’s then-Director General, Jorge Lopez Portillo
Basave (“Portillo”), presented the board with a proposal that
would turn this liability into an asset: several companies had
inquired about purchasing ESSA’s residual brine for further
processing into valuable industrial chemicals. At that
meeting, the board passed Resolution 51, which approved
Portillo’s proposed “comprehensive commercialization
scheme” for the brine. Resolution 51 states, in translation:

       In keeping with Article 58(III) of the Federal
       Law on Government-Owned Entities, and
       due to the vital need to seek options for the
       use of the 17 million metric tons per year of
       residual brine originating from the process of
       producing sea salt, the approach is hereby
       approved for sales of residual brine in
       keeping with the criteria, factors, and
       alternatives presented for determination of
       sales prices on residual brine contained in the
       supporting report attached hereto as Annex 8.

       Furthermore, and as part of any marketable
       transactions of residual brine that may take
       place, the Director General is hereby
       authorized to provide, assign, or transfer the
       related studies, investigations, records, or
       reports, that are not exclusively earmarked
6            PACKSYS V. EXPORTADORA DE SAL

        for use in the production process for natural
        salt (NaCl).

The board did not set prices or approve any particular
contract for the sale of the brine.

    In December 2013 or January 2014, Portillo executed a
contract for the sale of residual brine to Packsys, S.A. de
C.V., a Mexican corporation with its principal place of
business in Mexico. The contract fixes the price for the brine
at $4.00 USD or $6.50 USD per ton, depending on the
delivery site, and commits ESSA to sell at least ten million
tons of brine per year for at least forty years. It provides that
the brine will be delivered at one of two locations, both in
Mexico. And it contains the following “applicable law”
provision: “For the event of controversy, interpretation or
execution of the present agreement, the parties will subject
themselves to the applicable federal laws of the City of Los
Angeles California, thus renouncing to any other jurisdiction
that might apply by virtue of their future or present
domiciles.” (as translated).

    Portillo claims that he presented the executed contract to
ESSA’s board at a February 25, 2014 board meeting, and
subsequently provided the board with additional updates on
the arrangement. But multiple ESSA board members
declared that the board never formally approved the contract,
and Portillo’s declaration does not contradict these
statements.

   Portillo was fired by ESSA’s board in December 2014.
Beginning in 2015, ESSA refused to honor Packsys’s
purchase orders for residual brine. And in September 2016,
Mexican newspaper La Jornada reported that Portillo had
               PACKSYS V. EXPORTADORA DE SAL                            7

been arrested by Mexican authorities for executing the
residual brine contract without proper authority. 2

    Packsys sued ESSA in California state court on
September 17, 2015, asserting breach of the long-term
contract for brine that Portillo had executed. ESSA removed
the action to the United States District Court for the Central
District of California and moved to dismiss it under Federal
Rule of Civil Procedure 12(b)(1), on the grounds that the suit
was barred by the FSIA, that Mexico was a better forum
under the doctrine of forum non conveniens, and that
international comity required that the case be decided in
Mexico.

    The district court dismissed the action on foreign
sovereign immunity grounds without reaching the other
arguments. It held that because ESSA is a foreign state for
FSIA purposes and Packsys’s lawsuit does not fit into any of
the FSIA’s exceptions, ESSA is immune from suit in the
United States. Packsys timely appealed.

                                   II.

    In evaluating a district court’s dismissal for lack of
jurisdiction under the FSIA, “[w]e review the district court’s
legal rulings de novo and its factual findings for clear error.”
Terenkian v. Republic of Iraq, 694 F.3d 1122, 1132 (9th Cir.
2012).

    2
       ESSA’s motion for judicial notice of this fact, is granted. We take
notice of the fact of publication, but do not assume the truth of the
article’s contents. See Von Saher v. Norton Simon Museum of Art at
Pasadena, 592 F.3d 954, 960 (9th Cir. 2010).
8            PACKSYS V. EXPORTADORA DE SAL

                             III.

    The Foreign Sovereign Immunities Act provides that “a
foreign state shall be immune from the jurisdiction of the
courts of the United States and of the States except as
provided” in the Act. 28 U.S.C. § 1604. Thus, the FSIA
“shields foreign states and their agencies from suit in United
States courts unless the suit falls within one of the Act’s
specifically enumerated exceptions.” OBB Personenverkehr
AG v. Sachs, 136 S. Ct. 390, 392 (2015).

    It is undisputed that ESSA qualifies as a “foreign state”
for FSIA purposes because it is 51-percent owned by the
Mexican government. See 28 U.S.C. § 1603(a), (b)
(defining “foreign state” to include “any entity . . . which is
a separate legal person, corporate or otherwise, and . . . a
majority of whose shares or other ownership interest is
owned by a foreign state or other political subdivision
thereof,” with exceptions not relevant here). Indeed, we
have already held, in a previous case, that ESSA is a foreign
state under the FSIA. Schoenberg v. Exportadora de Sal,
S.A. de C.V., 930 F.2d 777, 779 n.1 (9th Cir. 1991). The
dispute in this case is therefore limited to whether any of the
FSIA’s exceptions make ESSA subject to the jurisdiction of
United States courts.

A. The Burden of Proof

    Packsys argues that the district court improperly placed
the burden of proof as to the applicability of the FSIA’s
exceptions on Packsys, rather than on ESSA. Packsys is
incorrect.

    A foreign defendant bears the initial burden to “make a
prima facie case that it is a foreign state.” Peterson v.
Islamic Republic of Iran, 627 F.3d 1117, 1124 (9th Cir.
                PACKSYS V. EXPORTADORA DE SAL                               9

2010). 3 “Once the court has determined that the defendant
is a foreign state, the burden of production shifts to the
plaintiff to offer evidence that an exception applies.” Id. at
1125 (internal quotation marks omitted). “If the plaintiff
satisfies her burden of production, jurisdiction exists unless
the defendant demonstrates by a preponderance of the
evidence that the claimed exception does not apply.” Id.

    The district court correctly explained this burden-
shifting framework in its opinion. But Packsys argues that,
notwithstanding its recital of the correct standards, the
district court actually placed the burden of proof on Packsys.
Packsys bases this contention on the fact that “the district
court repeatedly refers to Packsys’s arguments and material
cited before rejecting those arguments,” as well as the
district court’s use of “phrases such as ‘Packsys attempts to
establish’ and ‘Packsys does not offer any evidence to the
contrary.’”

    But as ESSA rightly points out, the passages cited
by Packsys are in portions of the district court’s opinion
in which it rejected Packsys’s counterarguments, after the
court had already concluded—presumably using the
preponderance standard it had just articulated—that the

    3
       Packsys argues that the defendant must also make a prima facie
showing that the claim arises out of a sovereign act, but this is not correct.
It is true that we have at times quoted language from older cases
appearing to impose such a requirement. See Terenkian, 694 F.3d at
1131 (quoting Siderman de Blake v. Republic of Arg., 965 F.2d 699, 708
n.9 (9th Cir. 1992)). But the passing dicta in Terenkian could not
overrule our explicit prior holding that “[r]equiring a foreign state to
prove a public act conflicts with the plain language of the statute,” and
that therefore “the FSIA does not require the defendants to prove a public
act to establish a prima facie case of immunity.” Phaneuf v. Republic of
Indon., 106 F.3d 302, 306 (9th Cir. 1997).
10           PACKSYS V. EXPORTADORA DE SAL

FSIA exceptions did not apply. When viewed in context, the
phrases highlighted by Packsys do not betray any improper
allocation of the relative burdens of proof, especially given
the district court’s explicit recital of the correct standards.
Cf. Reynoso v. Giurbino, 462 F.3d 1099, 1119 (9th Cir.
2006) (“Such a happenstance does not constitute a basis for
concluding that the court has applied the wrong standard.”).

B. The Commercial Activity Exception

     The FSIA’s commercial activity exception provides that:

        A foreign state shall not be immune . . . in any
        case . . . in which the action is based

            [1] upon a commercial activity carried on
            in the United States by the foreign state;
            or

            [2] upon an act performed in the United
            States in connection with a commercial
            activity of the foreign state elsewhere; or

            [3] upon an act outside the territory of the
            United States in connection with a
            commercial activity of the foreign state
            elsewhere and that causes a direct effect
            in the United States.

28 U.S.C. § 1605(a)(2). Packsys argues that the first and
third clauses defeat ESSA’s immunity here. However, the
exception—in all its various clauses—is inapplicable.
             PACKSYS V. EXPORTADORA DE SAL                    11

    1. Actual Authority

    We have long held that the conduct of a foreign state’s
agent only triggers the commercial activity exception when
the agent acts with the actual—as opposed to apparent—
authority of the sovereign state. Phaneuf v. Republic of
Indon., 106 F.3d 302, 307–08 (9th Cir. 1997). As we
explained in Phaneuf, “[a]ll three clauses of the [FSIA’s
commercial activity] exception require ‘a commercial
activity of the foreign state.’” Id. at 307 (quoting 28 U.S.C.
§ 1605(a)(2)). But “[w]hen an agent acts beyond the scope
of his authority, . . . that agent is not doing business which
the sovereign has empowered him to do,” and “the agent’s
unauthorized act [therefore] cannot be attributed to the
foreign state.” Id. at 308 (internal quotation marks omitted).
That is, acts undertaken without actual authority are not acts
“of the foreign state,” 28 U.S.C. § 1605(a)(2), regardless of
whether the agent appeared to have the authorization of the
sovereign. We left little doubt in our holding: “[A]n agent
must have acted with actual authority in order to invoke the
commercial activity exception against a foreign state.”
Phaneuf, 106 F.3d at 308.

    The district court correctly concluded that Portillo lacked
actual authority to enter the contract with Packsys on behalf
of ESSA, and therefore held that Packsys could not invoke
the commercial activity exception. Mexican law provides
that only ESSA’s board may set prices for its products.
Because ESSA is a government-owned entity, it is subject to
Mexico’s Federal Law on State-Owned Entities (Ley
Federal de las Entidades Paraestatales, or “LFEP”). And
Article 58(III) of the LFEP provides that “[t]he governing
bodies of parastatal entities” shall have the authority “[t]o fix
and adjust the prices of the goods and services that the
parastatal entity produces or provides,” and that this
12           PACKSYS V. EXPORTADORA DE SAL

authority “may not be delegated.” Diario Oficial de la
Federación [DOF] 14-05-1986, últimas reformas DOF 18-
12-2015. 4

    Moreover, ESSA’s internal policies require a board
resolution supported by a six-vote supermajority to enter a
contract that will have a duration greater than two years. The
same rule applies to contracts for the sale of goods worth
more than $2 million USD.

    The contract with Packsys meets all three conditions for
requiring a board resolution: it fixes a price for residual
brine; it has a duration of at least forty years; and it provides
for the sale of goods of at least $40 million per year—ten
million tons multiplied by $4.00 per ton. Therefore, as the
district court held, the Packsys contract required board
approval under both Mexican federal law and ESSA’s
internal policies. And it is undisputed that the board never
voted on or explicitly approved the Packsys contract either
before or after its execution. Portillo therefore lacked actual
authority to enter the contract.

    Nor did the ESSA board’s Article 51, which approved a
general “approach . . . for sales of residual brine” provide
Portillo with actual authority to execute the Packsys
contract. Packsys does not really argue in its briefing that
Article 51—or anything else, for that matter—empowered
Portillo to make the contract on ESSA’s behalf. Instead, it
contends only that ESSA failed to carry its burden of
disproving actual authority by a preponderance of the
evidence. But ESSA submitted to the district court

     4
      ESSA’s expert on Mexican law states that the purpose of these
oversight provisions is to combat corruption and cronyism in
government contracting.
               PACKSYS V. EXPORTADORA DE SAL                           13

declarations from three ESSA board members and one
substitute board member stating that the board never gave
Portillo authority to enter the Packsys contract, either
through Article 51 or otherwise. And, as the district court
found, even Portillo’s “artfully worded declaration . . . never
states that the Board approved the Contract with Packsys, or
that Resolution 51 fixed or set the actual price of residual
brine.” Furthermore, any disagreement between the parties’
Mexican-law experts is not over the effect of Resolution 51,
but over whether Mexican law requires board approval in the
first place—which is a question of law for the court, not a
fact that ESSA was required to prove. Fed. R. Civ. P. 44.1
(“The court’s determination [of foreign law] must be treated
as a ruling on a question of law.”). See generally de
Fontbrune v. Wofsy, 838 F.3d 992, 996–1000 (9th Cir.
2016). The district court correctly concluded that ESSA had
met its burden. 5

    2. Distinguishing Phaneuf

    Much of Packsys’s brief is devoted to an argument that
attempts to distinguish Phaneuf’s clear holding that acts

    5
        Packsys has submitted, pursuant to Fed. R. App. P. 28(j),
confidential materials in a Mexican arbitration between ESSA and an
unrelated third party. Packsys claims that the materials establish that
Portillo had actual authority to enter the Packsys contract. We disagree.
First, the materials are not an appropriate subject of a Rule 28(j) letter.
“Rule 28(j) permits a party to bring new authorities to the attention of
the court; it is not designed to bring new evidence through the back
door.” Manley v. Rowley, 847 F.3d 705, 710 n.2 (9th Cir. 2017) (quoting
Trans-Sterling, Inc. v. Bible, 804 F.2d 525, 528 (9th Cir. 1986)). And
even if we were to construe these materials as legal authority rather than
new evidence, and therefore a proper subject of a Rule 28(j) letter, the
contract at issue in the arbitration does not share the key characteristic
that renders the Packsys contract ultra vires under Mexican law: the
fixing of prices without board approval. See supra.
14          PACKSYS V. EXPORTADORA DE SAL

undertaken with apparent—but not actual—authority are
insufficient to trigger the FSIA’s commercial activity
exception. The core of Packsys’s argument is that Phaneuf’s
actual-authority requirement should apply only to what it
calls public and sovereign, as opposed to private and
commercial, acts. We are not persuaded.

    Prior to the enactment of the FSIA, courts generally
“deferred to the decisions of the political branches . . . on
whether to take jurisdiction over actions against foreign
sovereigns.” Rubin v. Islamic Republic of Iran, 138 S. Ct.
816, 821 (2018) (quoting Verlinden B.V. v. Cent. Bank of
Nigeria, 461 U.S. 480, 486 (1983)). The traditional position
of the State Department was that foreign sovereigns were
absolutely immune. Id. “But, as foreign states became more
involved in commercial activity in the United States, the
State Department recognized that such participation ‘makes
necessary a practice which will enable persons doing
business with them to have their rights determined in the
courts.’” Id. at 821–22 (quoting J. Tate, Changed Policy
Concerning the Granting of Sovereign Immunity to Foreign
Governments, 26 Dept. State Bull. 984, 985 (1952)). Thus,
in 1952 the State Department adopted the so-called
restrictive theory of sovereign immunity, which “recognized
immunity for public acts, that is to say, acts of a
governmental nature typically performed by a foreign state,
but not for acts of a private nature even though undertaken
by a foreign state.” Cassirer v. Kingdom of Spain, 616 F.3d
1019, 1026 (9th Cir. 2010) (en banc). As Packsys notes, the
FSIA “codifies, as a matter of federal law, the restrictive
theory of sovereign immunity.” Verlinden, 461 U.S. at 488.

    Packsys thus argues that “Congress specifically intended
to enshrine into law the notion that sovereign immunity ends
where private commercial conduct begins when it enacted
               PACKSYS V. EXPORTADORA DE SAL                         15

the FSIA.” True enough. But Congress did so by enacting
28 U.S.C. §§ 1605–1607, which “outline the only exceptions
to the Act.” Phaneuf, 106 F.3d at 306; see also, e.g., TRW
Inc. v. Andrews, 534 U.S. 19, 28 (2001) (“Where Congress
explicitly enumerates certain exceptions . . . additional
exceptions are not to be implied, in the absence of evidence
of a contrary legislative intent.”). That is, Packsys’s attempt
to read a public/private distinction into the commercial
activity exception must be rejected because the text of
§ 1605(a)(2) is itself Congress’s instantiation of the
public/private principle. 6 Now that Congress has acted, the
relevant version of the restrictive theory is the one enshrined
in the text. See Samantar v. Yousuf, 560 U.S. 305, 313
(2010) (“After the enactment of the FSIA, the Act—and not
the pre-existing common law—indisputably governs the
determination of whether a foreign state is entitled to
sovereign immunity.”).

    And there is nothing in the text that supports Packsys’s
proposed distinction with respect to the requirement of
actual authority. We hinted at no such distinction when we
concluded in Phaneuf that “the plain meaning of the
language ‘commercial activity of the foreign state’ [in
28 U.S.C. § 1605(a)(2)] illustrates that Congress intended
for the exception to apply only in cases of actual authority.”
Phaneuf, 106 F.3d at 308. Our reasoning similarly does not
admit of the purported distinction: “If the foreign state has
not empowered its agent to act, the agent’s unauthorized act
cannot be attributed to the foreign state; there is no ‘activity
of the foreign state.’” Id. (quoting 28 U.S.C. § 1605(a)(2)).

    6
      Indeed, a House Report on the FSIA specifically describes “a
public act of the foreign state” as “an act not within the exceptions in
sections 1605–1607.” H.R. Rep. No. 94-1487, at 17 (1976) (emphasis
added).
16           PACKSYS V. EXPORTADORA DE SAL

That conclusion applies with equal force regardless of the
commercial or noncommercial character of the act in
question.

    Moreover, one of the “principal purposes” of the FSIA
counsels against reading an unstated proviso into the
commercial activity exception. Republic of Austria v.
Altmann, 541 U.S. 677, 699 (2004). The FSIA was, at least
in part, a “respon[se] to the inconsistent application of
sovereign immunity” that resulted from reliance on
executive branch involvement. Samantar, 560 U.S. at 313.
By codifying the practice, Congress sought to replace with
clear, predictable rules the “ambiguous . . . ‘standards’”
under which sovereign immunity decisions were previously
made. Altmann, 541 U.S. at 699. Layering an additional,
atextual public/private principle on top of the one that
Congress actually enacted would “hardly further[]
Congress’ purpose of ‘clarifying the rules that judges should
apply in resolving sovereign immunity claims.’” Samantar,
560 U.S. at 322 (quoting Altmann, 541 U.S. at 699).

     No circuit court has adopted the public/private
distinction Packsys advances. And, only one district court
decision, Themis Capital, LLC v. Democratic Republic of
Congo, 881 F. Supp. 2d 508 (S.D.N.Y. 2012), has opined
that “it does not appear to be the case that apparent authority
is inadequate where private acts of a sovereign are at issue.”
Id. at 525. But that court was bound by Second Circuit
authority holding that apparent authority is sufficient in
general to trigger the FSIA commercial activity exception.
See First Fid. Bank, N.A. v. Gov’t of Ant. & Barb.—
Permanent Mission, 877 F.2d 189, 194 (2d Cir. 1989). In
Phaneuf, we explicitly declined to follow the Second
               PACKSYS V. EXPORTADORA DE SAL                          17

Circuit’s First Fidelity decision. 106 F.3d at 308 n.4. 7 Just
as the district court in Themis Capital was bound by First
Fidelity, we are bound by Phaneuf.

    Finally, Packsys points to the “absurd and unjust result”
that would obtain if its distinction were rejected: “a caveat
emptor situation for any individual doing business with a
state-owned enterprise.” But we rejected just such an
argument in Phaneuf, when we drew from principles of
United States sovereign immunity to inform our FSIA
holding. As we noted, “[w]hen dealing with a purported
agent of the United States, the third party bears the risk that
the agent is acting outside the scope of the agent’s authority,
even if the third party reasonably believes the agent has
authority.” Phaneuf, 106 F.3d at 308 (citation omitted).
Indeed, it is the nature of immunity that some otherwise
meritorious claims will not be allowed to proceed. 8 We
    7
      Most circuits to have considered the issue have adopted Phaneuf’s
actual authority rule. See Dale v. Colagiovanni, 443 F.3d 425, 429 (5th
Cir. 2006) (“We agree with the Fourth and Ninth Circuits that an agent’s
acts conducted with the apparent authority of the state is insufficient to
trigger the commercial exception to FSIA.”); Velasco v. Gov’t of Indon.,
370 F.3d 392, 400 (4th Cir. 2004) (“[W]e concur with the position of the
Ninth Circuit and hold that the commercial activity exception may be
invoked against a foreign state only when its officials have actual
authority.”); see also Allfreight Worldwide Cargo, Inc. v. Ethiopian
Airlines Enter., 307 F. App’x 721, 724–25 (4th Cir. 2009) (per curiam)
(applying actual authority rule to conduct that would be “private” under
Packsys’s propose rule). But see Devengoechea v. Bolivarian Republic
of Venez., 889 F.3d 1213, 1226–27 (11th Cir. 2018).

     8
       And perhaps Packsys’s reliance on Portillo’s apparent authority
was not so reasonable. It too is a Mexican corporation, and its complaint
alleges that ESSA is state-owned. Presumably it was on notice that the
contract required board approval under Mexican law because Portillo
could not fix or adjust prices on his own, or even by delegation.
18            PACKSYS V. EXPORTADORA DE SAL

decline to adopt Packsys’s proposed public/private
distinction with respect to the Phaneuf rule.

     3. Ratification

    Packsys argues that the commercial activity exception
should apply for a separate reason: even if executing the
contract was beyond Portillo’s actual authority, ESSA’s
subsequent acts ratified the agreement. The district court
rejected this theory on the basis that (a) only actual authority
can trigger the commercial activity exception under
Phaneuf, and (b) in any case, none of the actions cited by
Packsys could constitute ratification. 9

    Assuming without deciding that ratification could form
the basis for application of the commercial activity
exception, Packsys’s argument fails. Under Mexican law
and ESSA’s policies, only an explicit board resolution could
approve the Packsys contract. No resolution ratifying the
contract was passed. Thus, any acts by individual officers or
board members that purportedly show ratification would
themselves have been ultra vires and therefore cannot satisfy
the commercial activity exception under Phaneuf. See
Velasco, 370 F.3d at 402 (rejecting a ratification argument
under the commercial activity exception because “Velasco
has failed to offer any evidence that any Indonesian official

    9
      The actions Packsys argues show ratification include board
members’ non-objection when Portillo presented updates on the
contract; a dinner party attended by ESSA and Packsys executives,
purportedly in celebration of the contract; and subsequent meetings and
shipment of residual brine samples.
               PACKSYS V. EXPORTADORA DE SAL                            19

with actual authority to issue the notes . . . manifested an
intention to ratify the notes”). 10

    10
         The commercial activity exception is also inapplicable for a
second, independent reason: the conduct underlying this lawsuit is
insufficiently connected to the United States to satisfy any of the three
clauses of the exception. The first clause cannot apply because the
“gravamen” of this suit is conduct that allegedly occurred in Mexico—
that is, the breach of a contract, between two Mexican entities, for the
sale of goods to be delivered in Mexico. See Sachs, 136 S. Ct. at 396
(“[A]n action is ‘based upon’ the ‘particular conduct’ that constitutes the
‘gravamen’ of the suit.”). The action is therefore not “based upon a
commercial activity carried on in the United States by the foreign state.”
28 U.S.C. § 1605(a)(2) (first clause).

     For the same reason, this suit is not based upon “an act performed
in the United States in connection with a commercial activity of the
foreign state elsewhere.” 28 U.S.C. § 1605(a)(2) (second clause). The
gravamen is conduct in Mexico, not an act performed in the United
States.

      Nor is this suit “based . . . upon an act outside the territory of the
United States in connection with a commercial activity of the foreign
state elsewhere . . . that causes a direct effect in the United States,”
28 U.S.C. § 1605(a)(2) (third clause), because the requisite “direct
effect” is lacking. See Republic of Arg. v. Weltover, Inc., 504 U.S. 607,
618 (1992). In Terenkian, which was also a breach-of-contract case, we
held that—at least where the plaintiff had not yet entered into resale
contracts with particular U.S. buyers at the time of breach—“non-sales
of . . . non-purchased oil to potential customers in the United States[] do
not constitute direct effects.” 694 F.3d at 1138. Terenkian is directly on
point here, where the claimed direct effects are Packsys’s “non-sales of
the non-purchased” residual brine to not-yet-identified potential
American buyers. Id.; see also id. at 1133 (distinguishing Cruise
Connections Charter Mgmt. 1, LP v. Att’y Gen. of Can., 600 F.3d 661
(D.C. Cir. 2010), because the third-party agreements in that case “either
had been finalized, or were final but for the signature” and thus the
20             PACKSYS V. EXPORTADORA DE SAL

C. The Waiver Exception

    Packsys also argues that the FSIA’s waiver exception
defeats ESSA’s claim of sovereign immunity. That
exception provides that “[a] foreign state shall not be
immune . . . in any case . . . in which the foreign state has
waived its immunity either explicitly or by implication.”
28 U.S.C. § 1605(a)(1). “[I]t is clear that a sovereign party
has waived immunity where a contract specifically states
that the laws of a jurisdiction within the United States are to
govern the transaction.” Joseph v. Office of Consulate Gen.
of Nigeria, 830 F.2d 1018, 1022 (9th Cir. 1987) (emphasis
omitted). Packsys maintains that, because the contract
specifies “the applicable federal laws of the City of Los
Angeles California” as governing, ESSA has waived its
sovereign immunity.

     But the waiver argument suffers from the same defect as
the commercial activity argument: Portillo lacked actual
authority to enter the contract, and the contractual choice of
law provision—and the resulting waiver—is therefore not
attributable to ESSA. 11 We have not yet had occasion to
extend Phaneuf’s actual-authority requirement from the
commercial activity exception to the waiver exception, but
Phaneuf’s reasoning applies in the waiver context with at
least equal force. Both exceptions are triggered only by an
act of “the foreign state.” Compare 28 U.S.C. § 1605(a)(2)
(requiring “commercial activity of the foreign state”), with

foreign nation’s breach “led inexorably to the loss of revenues under the
third-party agreements”).

     11
       It is also a nonsensical provision: the City of Los Angeles does
not enact federal laws; nor would federal law govern this simple breach
of contract action. It is difficult to know just what the drafters of the
contract meant by this clause.
             PACKSYS V. EXPORTADORA DE SAL                  21

28 U.S.C. § 1605(a)(1) (allowing suit where “the foreign
state has waived its immunity”). If acts by unauthorized
agents do not constitute “activity of the foreign state,” under
Section 1605(a)(2), they also cannot effect a waiver by “the
foreign state” under Section 1605(a)(1).

    Indeed, a requirement of actual authority is all the more
justified in the waiver context, “given that a waiver of
sovereign immunity speaks directly to the foreign
sovereign’s willingness to accede to the jurisdiction of
another country’s courts.” SACE S.p.A. v. Republic of Para.,
243 F. Supp. 3d 21, 36 (D.D.C. 2017) (concluding that actual
authority is required to invoke the FSIA’s waiver exception);
see also Corporacion Mexicana de Servicios Maritimos,
S.A. de C.V. v. M/T Respect, 89 F.3d 650, 655 (9th Cir. 1996)
(noting that “[t]he waiver exception is narrowly construed,”
and “courts rarely find that a nation has waived its sovereign
immunity without strong evidence that this is what the
foreign state intended” (quoting Rodriguez v. Transnave
Inc., 8 F.3d 284, 287 (5th Cir. 1993))).

     We hold that the FSIA’s waiver exception is subject to
the same actual-authority requirement as the commercial
activity exception.     Packsys’s apparent-authority and
ratification arguments therefore fail, and ESSA is immune
from suit under the FSIA.

                             IV.

    Packsys contends that the district court abused its
discretion by denying its request for jurisdictional discovery.
Because of the “delicate balance between permitting
discovery to substantiate exceptions to statutory foreign
sovereign immunity and protecting a sovereign’s or a
sovereign agency’s legitimate claim to immunity from
discovery,” jurisdictional discovery in FSIA cases “should
22           PACKSYS V. EXPORTADORA DE SAL

be ordered circumspectly and only to verify allegations of
specific facts crucial to an immunity determination.” Alpha
Therapeutic Corp. v. Nippon Hoso Kyokai, 199 F.3d 1078,
1088 (9th Cir. 1999) (quoting First City, Texas-Houston,
N.A. v. Rafidain Bank, 150 F.3d 172, 176 (2d Cir. 1998)),
opinion withdrawn on other grounds, 237 F.3d 1007 (9th
Cir. 2001).

    Packsys’s request for jurisdictional discovery did not
identify any “specific facts crucial to an immunity
determination” that it wished to verify. And the district court
did not rely on disputed facts in reaching its holding; instead,
it relied on the undisputed fact that no board resolution
authorizing the Packsys contract ever issued. That is, the
district court did not reject Packsys’s jurisdictional
allegations—it merely determined that they were not
relevant, since none of them could overcome the lack of an
express board resolution. Thus, the district court did not
abuse its discretion by denying jurisdictional discovery. Cf.
Boschetto v. Hansing, 539 F.3d 1011, 1020 (9th Cir. 2008)
(“The denial of Boschetto’s request for discovery, which
was based on little more than a hunch that it might yield
jurisdictionally relevant facts, was not an abuse of
discretion.”).

                              V.

    Mexican law required ESSA’s board to authorize or
approve the Packsys contract, but the board did not do so.
Portillo therefore lacked actual authority to execute the
contract. And because the contract was not executed with
actual authority, it cannot serve as the basis for applying
either the FSIA’s commercial activity exception or its waiver
           PACKSYS V. EXPORTADORA DE SAL          23

exception under Phaneuf. The district court correctly
concluded that the FSIA bars this suit.

   AFFIRMED.