Manuel Terenkian v. The Republic of Iraq
2012 WL 4075792
| 9th Cir. | 2012Background
- Pentonville and Marblearch, Cyprus oil brokers, sued Iraq (via SOMO) for terminating two oil contracts and causing brokerage losses of about $6.25 million.
- Contracts were executed in New York under UN Oil for Food Program oversight; title passed at delivery points in Iraq or Turkey; payments were to go into a UN escrow in New York.
- Arbitration for disputes was set under ICC rules with Baghdad or mutually agreed locations as arbitration sites; UN supervision approved the contracts.
- Iraq moved to dismiss claiming sovereign immunity under FSIA; district court denied, holding the commercial activity exception applied under § 1605(a)(2) third clause (direct effect).
- District court then transferred venue to DC; Iraq challenged jurisdiction on appeal; the Ninth Circuit held it had appellate jurisdiction over the order denying immunity and reviewed the jurisdictional defenses de novo.
- The appeal ultimately held that neither the first nor the third clause of § 1605(a)(2) applied, so the courts lacked subject matter jurisdiction, leading to reversal and remand with dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Appellate jurisdiction over immunity order | Iraq’s appeal timely and properly filed in the wrong court but transferable. | Transfer removed appellate jurisdiction; the appeal should be dismissed as untimely. | Jurisdiction valid; transfer did not bar timely appeal; case remanded. |
| Whether FSIA first clause applies as Iraq’s US-based commercial activity | Contracts and Oil for Food involvement in NY show US-based commercial activity by Iraq. | Oil for Food Program and contract execution do not amount to commercial activity carried on in the US by Iraq; mere NY signing insufficient. | First clause does not apply. |
| Whether FSIA third clause applies as act outside US causing direct US effect | Iraq’s cancellation caused direct effects in the US via oil not reaching US markets and payments not deposited in NY banks. | Effect in the US was too remote/attenuated; Iraq’s acts occurred abroad with no legally significant US act. | Third clause does not apply. |
| Overall subject matter jurisdiction | FSIA exceptions confer jurisdiction over breach claims. | No FSIA exception applies; no jurisdiction. | Court lacks subject matter jurisdiction; remand with dismissal. |
Key Cases Cited
- Weltover, Republic of Arg. v. Weltover, Inc., 504 U.S. 607 (1992) (direct effect requires legally significant act; New York as place of performance matters)
- Adler v. Republic of Nigeria, 107 F.3d 720 (9th Cir. 1997) (direct effect where place of performance is US and payment obligations unmet)
- Siderman de Blake v. Republic of Argentina, 965 F.2d 699 (9th Cir. 1992) (allocation of burden in FSIA immunity challenges; facial vs factual attacks)
- United World Trade, Inc. v. Mangyshlakneft Oil Prod. Ass’n, 33 F.3d 1232 (10th Cir. 1994) (direct effects and place of legally significant acts framework)
- Cruise Connections Charter Mgmt. 1, LP v. Att’y Gen. of Can., 600 F.3d 661 (D.C. Cir. 2010) (direct effects must be inexorably linked to breach; attenuated effects not direct)
- Nelson v. Saudi Arabia, 507 U.S. 349 (1993) (commercial activity versus sovereign acts; private-market analogy)
- Gupta v. Thai Airways Intl., Ltd., 487 F.3d 759 (9th Cir. 2007) (collateral order doctrine and FSIA immunity framework)
- Hansen v. Harper Excavating, Inc., 641 F.3d 1216 (10th Cir. 2011) (jurisdictional issues and territorial reach in FSIA context)