Lead Opinion
Opinion for the Court filed by Circuit Judge TATEL.
Opinion concurring in part and dissenting in part filed by Senior Circuit Judge SENTELLE.
The Foreign Sovereign Immunities Act (FSIA) grants foreign states immunity from suit in American courts unless one of several enumerated exceptions applies. In this case, after Venezuela forcibly seized oil rigs belonging to the Venezuelan subsidiary of an American corporation, both the parent and the subsidiary filed suit in the United States asserting jurisdiction under the FSIA’s expropriation and commercial activity exceptions. Venezuela moved to dismiss on the ground that neither exception applies. The district court granted the motion as to the subsidiary’s expropriation claim, but denied it in all other respects. For the reasons set forth in this opinion, we affirm in part and reverse in part. We agree with the district court that the parent corporation had sufficient rights in its subsidiary’s property to support its expropriation claim. But because the subsidiary’s expropriation claim is neither “wholly insubstantial” nor “frivolous” — this Circuit’s standard for surviving a motion to dismiss in an FSIA case' — the district court should have allowed that claim to proceed. And given that the subsidiary’s commercial activity had no “direct effect” in the United States, which the FSIA requires to defeat foreign sovereign immunity, the district court should have granted the motion to dismiss with respect to that claim.
I
For more than half a century, Oklahoma-based Helmerich & Payne International Drilling Co. (H & P-IDC) success
Soon after signing the contracts, PDVSA fell substantially behind in its payments. By August 2008, unpaid invoices totaled $63 million. PDVSA never denied its contractual debt; quite to the contrary, it repeatedly reassured H & P-V that payment would be forthcoming. But no payments were made, and after overdue receivables topped $100 million, H & P-V announced in January 2009 that it would not renew the contracts absent “an improvement in receivable collections.” Compl. ¶ 50 (internal quotation marks omitted). By November of that year, H & P-V had fulfilled all of its contractual obligations, disassembled its drilling rigs, and stacked the equipment in its yards pending payment by PDVSA.
PDVSA made no further payments. Instead, on June 12, 2010, PDVSA employees, assisted by armed soldiers of the Venezuelan National Guard, blockaded H & P-Vs premises in western Venezuela, and then did the same to the company’s eastern properties on June 13 and 14. PDVSA acknowledged that it erected the blockade to “prevent H & P-V from removing its rigs and other assets from its premises, and to force H & P-V to negotiate new contract terms immediately.” Id. ¶ 63.
In the wake of the blockade, PDVSA issued a series of press releases that are central to H & P-V’s expropriation claim. The first, issued on June 23, stated that “[t]he Bolivarian Government, through [PDVSA had] nationalized 11 drilling rigs belonging to the company Helmerich & Payne[], a U.S. transnational firm.” Id. ¶ 65. A second press release, dated June 25, declared that PDVSA’s “workers are guarding the drills” and that:
The nationalization of the oil production drilling rigs from the American contractor H & P not only will result in an increase of oil and gas production in the country, but also in the release of more than 600 workers and the increase of new sources of direct and indirect employment in the hydrocarbon sector.
Id. ¶ 66. The June 25 release also “emphatically rejected] statements made by spokesmen of the American empire— traced [sic] in our country by means of the oligarchy.” Id. ¶ 108 (alterations in original). Another press release, this one undated, stated that the nationalization would “guarantee that the drills will be operated by PDVSA as a company of all Venezuelans, ... ensuring] the rights of former employees of H & P, who a year ago were exploited and then dismissed by this American company, but now they will become part of PDVSA.” Id. ¶ 109.
That same day, Jesus Graterol, president of the Venezuelan National Assembly’s Committee on Energy and Mines, criticized opponents of the nationalization for acting “in accordance with the instructions of the [U.S.] Department of State” and trying to “subsidize the big business ' transnational corporations, so that they can promote what they know best to do, which is war ... through the large military industry! ] of the Empire and its allies.” Id. ¶ 105 (first alteration in original). Rafael Ramirez, Venezuela’s Minister of Energy and Petroleum and PDVSA’s President, led a political rally at H & P-V’s eastern site and declared:
The company Helmerich & Payne has operated in our country for many years. Today, the Revolutionary Government took control over that company. You have been here guarding assets that now belong to the Venezuelan State. I acknowledge and appreciate your constant watch in order to protect the people’s interests. Revolutionary salutation: Socialist Nation or Death. We shall be victorious!
Id. ¶ 5 (ellipses omitted). Ramirez also referred to H & P-V as an “American company” with “foreign gentlemen investors” and Venezuelan workers who would now “become part of [PDVSA’s] payroll.” Id. As Ramirez predicted, PDVSA now uses H & P-V’s rigs and other assets in its state-owned drilling business.
Supposedly to compensate H & P-V for the expropriated property, PDVSA filed two eminent domain actions in Venezuelan courts. H & P-V has yet to receive service of process in the first proceeding, and the second has been stayed indefinitely. Believing that these proceedings are unlikely to result in adequate relief, H & P-V and its American parent, H & P-IDC, filed a two-count complaint under the FSIA in the United States District Court for the District of Columbia. The first count, brought against PDVSA and Venezuela, alleges a taking of property in violation of international law and asserts jurisdiction under the FSIA’s expropriation exception. The second count, brought only against PDVSA, alleges breach of the ten drilling contracts and asserts jurisdiction under the statute’s commercial activity exception.
Venezuela and PDVSA moved to dismiss on the grounds that neither FSIA exception applies and that the act-of-state doctrine, under which American courts “will not question the validity of public acts (acts jure imperii) performed by other sovereigns within their own borders,” Republic of Austria v. Altmann,
*811 1. Whether, for purposes of determining if a “taking in violation of international law” has occurred under the FSIA’s expropriation exception, H & P-V is a national of Venezuela under international law;
2. Whether H & P-IDC has standing to assert a taking in violation of international law on the basis of Venezuela’s expropriation of H & PV’s property;
3. Whether plaintiffs’ expropriation claims are barred by the act-of-state doctrine, including whether this defense may be adjudicated prior to resolution of Venezuela’s challenges to the court’s subject matter jurisdiction; and
4. Whether, for purposes of determining the applicability of the FSIA’s commercial activity exception, plaintiffs have sufficiently alleged a “direct effect” in the United States within the meaning of that provision.
The district court resolved the first question in Venezuela’s favor but sided with Helmerich & Payne on the other three. Venezuela and PDVSA now appeal, reiterating arguments they made in the district court. H & P-V cross-appeals on the first question. We review de novo a district court’s resolution of a motion' to dismiss for lack of jurisdiction under the FSIA. See de Csepel v. Republic of Hungary,
II
The FSIA “establishes a comprehensive framework for determining whether a court in this country, state or federal, may exercise jurisdiction over a foreign state.” Republic of Argentina v. Weltover, Inc.,
Expropriation Exception
This exception, contained in FSIA section 1605(a)(3), denies foreign sovereign immunity “in any case ... in which rights in property taken in violation of international law are in issue.” 28 U.S.C. § 1605(a)(3). According to Venezuela, the exception is inapplicable here for two reasons. First, as a Venezuelan national, H & P-V may not claim a taking in violation of international law. Second, under generally applicable corporate law principles, H & P-IDC has no “rights in property” belonging to its subsidiary and thus lacks standing.
In deciding a motion to dismiss for lack of jurisdiction, we are mindful of the distinction between jurisdiction—a court’s constitutional or statutory power to decide a case—and ultimate success on the merits. As the Supreme Court has explained, “jurisdiction ... is not defeated ... by the possibility that the averments [in a complaint] might fail to state a cause of action on which petitioners could actually recover.” Bell v. Hood,
As to the first,inquiry, the parties begin on common ground. All agree that for purposes of international law, “a corporation has the nationality of the state under the laws of which the corporation is organized,” Restatement (Third) of Foreign Relations Law § 213 (1987), and that generally, a foreign sovereign’s expropriation of its own national’s property does not violate international law, United States v. Belmont,
According to Venezuela, the domestic takings rule ends this case because H & P-V, as a Venezuelan national, may not seek redress in an American court for wrongs suffered in its home country. This argument has a good deal of appeal. Having freely chosen to incorporate under Venezuelan law, H & P-V operated in that country for many years and reaped the benefits of its choice, including several extremely lucrative contracts with the Venezuelan government. Given this, and especially given that H & P-V expressly agreed that these contracts wuuld be governed by Venezuelan law in Venezuelan courts, one might conclude that H & P-V should live with the consequences of its bargain.
According to H & P-V, however, this case is not so simple. It argues that Venezuela has unreasonably discriminated against it on the basis of its sole shareholder’s nationality, thus implicating an exception to the domestic takings rule. In support, H & P-V cites Banco Nacional de Cuba v. Sabbatino,
H & P-V also relies on the most recent Restatement of Foreign Relations Law, which recognizes discriminatory takings as a violation of international law. Specifically, section 712 suggests that “a program of taking that singles out aliens generally, or aliens of a particular nationality, or particular aliens, would violate international law.” Restatement (Third) of Foreign Relations Law § 712 cmt. f. (1987). “Discrimination,” the Restatement continues, “implies unreasonable distinction,” and so “[t]akings that invidiously single out property of persons of a particular nationality would be [discriminatory],” whereas “classifications, even if based on nationality, that are rationally related to the state’s security or economic policies might not be [discriminatory]” and thus not in violation of international law. Id. (emphasis added). The reporter’s notes to section 712 cite Sabbatino as an example of a discriminatory taking, explaining that Cuba’s express “purpose was to retaliate against United States nationals for acts of their Government, and was directed against United States nationals exclusively.” Id. § 712 reporter’s note 5.
H & P-V insists that its complaint, which emphasizes the Venezuelan government’s well-known anti-American sentiment, as well as PDVSA’s statements decrying the “American empire,” successfully pleads a discriminatory takings claim. For its part, Venezuela urges us not to “be the first to revive the overturned Second Circuit precedent” because “there is no internationally recognized exception— based on ‘discrimination’ or otherwise — to the domestic takings rule.” Defs.’ Cross Br. 28, 30. Dated and uncited as it may be, however, Sabbatino remains good law. See Farr,
Alternatively, Venezuela claims that even if international law recognizes discriminatory takings, “plaintiffs have failed to plead facts to support it” because “the motivation for the expropriation was Venezuela’s need for H & P-V’s uniquely powerful rigs.” Defs.’ Br. 31. As it points out, the official decrees cited only the scarcity of these powerful rigs as the reason for the expropriation. The Bill of Agreement, for example, declared H & P-V’s drilling rigs necessary for Venezuela’s “public benefit and good,” Compl. ¶ 4, and President Chavez’s decree stated that “the
Other statements, however, went well beyond Venezuela’s economic and security needs and could be viewed as demonstrating “unreasonable distinction” based on nationality. Id. PDVSA’s press release referred to the “American empire,” Compl. ¶ 108, and a National Assembly member warned that opponents of the expropriation were supporting America’s mission of “war[ ] ... through the large military industry[ ] of the Empire and its allies,” id. ¶ 105. At this stage of the litigation, where we view the complaint “in the light most favorable to the plaintiff,” Sachs,
We turn next to Venezuela’s argument that H & P-IDC may not invoke the FSIA’s expropriation exception because it has no rights in H & P-V’s property. By its terms, the expropriation exception applies only to plaintiffs having “rights in property” taken in violation of international law. Moreover, and quite apart from the FSIA, plaintiffs must demonstrate Article III standing by asserting their “own legal rights and interests” rather than resting “claim[s] to relief on the legal rights or interests of third parties.” Warth v. Seldin,
In support of this argument, Venezuela relies almost entirely on Dole Food Co. v. Patrickson,
Contrary to Venezuela’s assertion, however, Dole Food does not represent a wholesale incorporation of corporate law into the FSIA. The issue in that case was whether a corporate subsidiary qualified as an instrumentality of a foreign state under the FSIA where the foreign state did not own a majority of the subsidiary’s shares but did own a majority of the corporate parent’s shares. Dole Food Co.,
By contrast, FSIA section 1605(a)(3), the expropriation exception, speaks only of “rights in property” generally, not ownership in shares. The Supreme Court’s analysis of another FSIA exception is instructive. In Permanent Mission of India to the United Nations v. City of New York, the Court examined the FSIA’s abrogation of sovereign immunity in cases involving “rights in immovable property situated in the United States.”
So too here. The expropriation exception requires only that “rights in property ... are in issue,” § 1605(a)(3), and we have recognized that corporate ownership aside, shareholders may have rights in corporate property. In Ramirez de Arellano v. Weinberger, for example, we considered whether an American citizen, the sole shareholder of three Honduran corporations, had a “cognizable property interest” in land owned by the Honduran corporations and seized by the United States government.
Our dissenting colleague questions the precedential value of Ramirez because it was vacated by the Supreme Court on other grounds. Dissent at 820-21. But we have held that “[w]hen the Supreme Court vacates a judgment of this court without addressing the merits of a particular holding in the panel opinion, that holding . ‘continue^] to have precedential weight, and in the absence of contrary authority, we do not disturb’ it.” United States v. Adewani,
The dissent argues that even if Ramirez continues to have force, it “is not genuinely on point” because it concerned property rights arising from the constitution’s due process clause. Dissent at 821. But as discussed above, the FSIA’s expropriation exception “focuses ... broadly on ‘rights in’ property,” Permanent Mission,
Ramirez is especially persuasive in this case because H & P-IDC, like the American citizen in Ramirez, was the foreign subsidiary’s sole shareholder. Moreover,H & P-IDC provided the rigs central to this dispute, Compl. ¶¶ 9, 129-32, and as a result of the expropriation, has suffered a total loss of control over its subsidiary, which has ceased operating as an ongoing enterprise because all of its assets were taken, Compl. ¶¶ 75, 81-82. Under these circumstances, H & P-IDC has “put its rights in property in issue in a non-frivolous way.” Chabad,
One final point. In the district court, Venezuela urged dismissal of Helmerich & Payne’s expropriation claims pursuant to the act-of-state doctrine, which “precludes the courts of this country from inquiring into the validity of the public acts a recognized foreign sovereign power committed within its own territory.” Banco Nacional de Cuba v. Sabbatino,
Commercial Activity Exception
This brings us, finally, to H & P-V’s argument that the FSIA’s commercial activity exception extends to its breach of contract claim against PDVSA. This exception, contained in section 1605(a)(2), nullifies foreign sovereign immunity in any case
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.
First, relying on our decision in Cruise Connections Charter Management v. Canada,
We need not resolve this dispute, however, because even assuming that the drilling contracts required subcontracts with American companies, those contracts had no direct effect in the United States. Our holding in Cruise Connections rested not on the mere formation of third-party contracts in the United States, but rather on “losses caused by the termination of [the] contract with [Royal Canadian Mounted Police].” Cruise Connections,
We are unpersuaded by H & P-V’s argument that its inability to renew the third-party contracts constitutes a direct effect caused by PDVSA’s breach. Pis.’. Br. 62. As noted above, H & P-V had already performed all of its obligations under the existing third-party contracts. Its claim of third-party loss is therefore based on expected loss from future contracts that H & P-V says it would have entered into had PDVSA renewed its own contracts with H & P-V instead of breaching them. But H & P-V makes no allegation that PDVSA had an obligation to renew its contracts. See Compl. ¶ 33 (“All ten contracts ... expired at the conclusion of an agreed-upon period unless the parties agreed to an extension or an extension occurred by the contract’s original terms.”). Accordingly, any losses to third parties based on expected future contracts were not a direct effect of PDVSA’s breach, but rather of PDVSA’s contractually permitted decision not to renew its agreement with H & P-V.
Contrary to H & P-V’s argument, Kirkham v. Société Air France,
Relying on the Supreme Court’s decision in Republic of Argentina v. Weltover,
This case presents facts akin to those we examined in Goodman Holdings v. Rafidain Bank,
Finally, relying on McKesson Corp. v. Islamic Republic of Iran, 52 F.3d 346 (D.C.Cir.1995), H & P-V contends that PDVSA’s breach halted a flow of commerce between Venezuela and the United States, thus causing a direct effect. McKesson, an American corporation, alleged that the Iranian government had illegally divested it of its investment in a dairy located in Iran. Foremost-McKesson, Inc. v. Islamic Republic of Iran,
Ill
We affirm the district court’s denial of Venezuela’s motion to dismiss H & P-IDC’s expropriation claim. In all other respects, we reverse and remand for further proceedings consistent with this opinion.
So ordered.
Concurrence Opinion
dissenting in part and concurring in part:
I will not reiterate the facts in this controversy, as the careful opinion of the majority sets them forth in necessary detail and with inerrant accuracy. Further, I fully concur in the majority’s discussion and conclusion concerning the issues related to the commercial activity exception set forth in 28 U.S.C. § 1605(a)(2). However, despite my general agreement with the majority’s exposition of the facts underlying the claim for expropriation, I dissent from the conclusion that those facts bring this case within the expropriation exception set forth in 28 U.S.C. § 1605(a)(3).
As the majority recognizes, the Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C. § 1604, et. seg., “ ‘establishes a comprehensive framework for determining whether a court in this country, state or federal, may exercise jurisdiction over a foreign state.’ ” Maj. Op. at 811 (quoting Republic of Argentina v. Weltover, Inc.,
That exception permits the courts of the United States to exercise jurisdiction “in any case ... in which rights in property taken in violation of international laiv are in issue.” § 1605(a)(3) (emphasis added). The majority states, Venezuela argues that “as a Venezuelan national, H & P-V may not claim a taking in violation of international law.” Maj. Op. at 811 (emphasis in original). Further, “under generally applicable corporate law principles, H & P-IDC has no ‘rights in property’ belonging to its subsidiary and thus lacks standing,” to bring this action. Maj. Op. at 811. I again look to the majority’s statement of the facts which acknowledges: “All [parties] agree that for purposes of international law, ‘a corporation has the nationality of the state under the laws of which the corporation is organized.’ ” Maj. Op. at 812 (quoting Restatement (Third) of Foreign Relations Law § 213 (1987)).
The majority further recognizes “that generally, a foreign sovereign’s expropriation of its own national’s property does not violate international law.” Maj. Op. at 812 (citing United States v. Belmont,
Like the majority, I recognize that Venezuela’s position in this litigation is that
the domestic takings rule ends this case because H & P-V, as a Venezuelan national, may not seek redress in an American court for wrongs suffered in .its home country. This argument has a good deal of appeal. Having freely chosen to incorporate under Venezuelan law, H & P-V operated in that country for many years and reaped the benefits of its choice, including several extremely lucrative contracts with the Venezuelan government. Given this, and especially given that H & P-V expressly agreed that these contracts would be governed by Venezuelan law in Venezuelan courts, one might conclude that H & P-V should live with the consequences of its bargain.
Maj. Op. at 812. Unlike the majority, I believe that Venezuela’s position is well taken. When appellees chose to incorporate under Venezuelan law, they bargained for treatment under Venezuelan law. To extend our examination of Venezuelan, law to adjudicate its fairness appears to me to. violate Venezuela’s sovereignty, the value protected by the FSIA.
The majority supports its extended examination with the decision in Banco Nacional de Cuba v. Sabbatino,
I would further note that I differ with the majority’s apparent belief that Venezuela’s reliance upon Dole Food Co. v. Patrickson,
Neither do I find compelling the majority’s reliance on two cases from this circuit: Agudas Chasidei Chabad of U.S. v. Russian Federation,
I would note first that the judgment in Ramirez was vacated by the Supreme Court. Weinberger v. Ramirez de Arellano,
we have held that, “[w]hen the Supreme Court vacates a judgment of this court without addressing the merits of a particular holding in the panel opinion, that holding ‘continue[s] to have precedential weight, and in the absence of contrary authority, we do not disturb’ it.” United States v. Adewani,467 F.3d 1340 , 1342 (D.C.Cir.2006) (quoting Action Alliance of Senior Citizens of Greater Philadelphia v. Sullivan,930 F.2d 77 , 83 (D.C.Cir.1991)).
Maj. Op. at 815. For what it’s worth, I question whether the language quoted from Adewani and Action Alliance in fact states a holding of this court to the effect that we are bound by the reasoning of vacated opinions. Rather, each instance paraphrases language of Justice Powell quoted in a parenthetical following the quoted language from Action Alliance. Action Alliance parenthetically quoted Justice Powell as stating:
Although a decision vacating a judgment necessarily prevents the opinion of the lower court from being the law of the case, ... the expressions of the court below on the merits, if not reversed, will continue to have precedential weight and, until contrary authority is decided, are likely to be viewed as persuasive authority if not the governing law....
County of Los Angeles v. Davis,
Be that as it may, Ramirez is not genuinely on point. Ramirez dealt with the question of whether the shareholders of a corporation ousted by acts of the United States government had a property interest warranting due process protection under the Constitution. The Ramirez Court had no occasion to consider whether the statutory waiver of a foreign government’s sovereign immunity encompasses the sort of second degree property interest protected against invasion by our government under the due process concepts of our Constitution.