International Housing Limited, Plaintiff-Appellant-Cross-Appellee v. Rafidain Bank Iraq, Defendant-Appellee-Cross-Appellant
893 F.2d 8
2d Cir.
1989
Check Treatment

*1 publicly or otherwise by any unpublished LIMITED, id., raising guidelines, see HOUSING INTERNATIONAL

unavailable concerning the ad- Plaintiff-Appellant-Cross-Appellee, ease in this questions plaintiff non-publication on impact of verse Caribbean. IRAQ, BANK RAFIDAIN In as- further comments. We add two Defendant-Appellee-Cross-Appellant. rule is one agency’s an sessing whether 89-7572, 239, 356, 89-7590. Dockets Nos. proce- implicates notice and comment had dure, the court note that district Appeals, we States Court opinion, the mind our authored fully in Circuit. Second Block, McGowan, Levesque v. late Argued Oct. Cir.1983), (1st which Dec. Decided im- agree that substantial we stated “[w]e legislative, a rule but pact does not make impact a substantial a rule has intent of construing the relevant be We em- issuing the rule.”

the is a impact” “substantial

phasize that only The court

factor, not the one. but intent and agency’s the

also consider must governing statute. words of literal analysis addition, discriminating the avail-

impact take into account should review of decisions

ability of administrative range options goods and the

to detain agency.

remaining in the discretion proce-

Finally, reviewing sampling by the FDA as described

dure used

manual, recognize that the the court should procedure

purpose sampling is reasonably accurate estimate of

arrive at a large in a of defective bulbs number extrapolating the results ob-

shipment by sample. representative If

tained from a representa- deemed to be sample can be

tive, percentage of bulbs defective then sample study can

emerging from large. shipment projected to aside the case is set remanded to the district court for fur- with this consistent proceedings ther

opinion. *2 concluding court had

sion that the district the com- subject matter activity exception Foreign in the mercial (“FSIA”), Sovereign Immunities Act 1605(a)(2). agree Rafi- U.S.C. We with dain that the district court lacked and reverse on cross-appeal. is dismissed as moot. (Rob- Schallert, City New York G.

Edwin BACKGROUND Mehren, Plimpton, Debevoise & ert B. von 1975, IHL, through wholly-owned its Douglas Eakeley, Rik- City; York S. (Baha- subsidiary Housing International Morristown, er, Hyland, Danzig, Scherer & mas) Ltd., contracted with the Governorate N.J., counsel), plaintiff-appellant- Province, Iraq, Diyala a division of cross-appellee. housing Iraqi government, to construct 740 III, Dorkey, New York Charles E. Iraq. price in units The contract fixed O’Neil, Plum, IV, Richards & (Stephen H. Iraqi dinars that exceeded million. $5 counsel), defendant-' City of signed IHL who the contract was a officer appellee-cross-appellant. in an United States citizen who worked Connecticut, appar- IHL and IHL office KAUFMAN, MESKILL Before ently materials used some American-made WINTER, Judges. Circuit project. personnel and American on the However, the contract between IHL and WINTER, Judge: pay- the Governorate Housing International Plaintiff-appellant activity any in the United ment or other (“IHL”) commenced this action Limited States. against entered judgment a default enforce contract, Iraqi Governorate For this Iraq Rafidain Bank defendant-appellee bank, as its commercial used Rafidain (“Rafidain”) of the in the Commonwealth Bank of Canada. IHL used while corporation organized IHL is a Bahamas. advance secured an Rafidain principal Cayman Islands and has per- guarantee for IHL’s issued a IHL and Nassau, the Bahamas. place of business corresponding IHL formance. obtained banking corporation wholly is a Rafidain Royal Bank counter-guarantees from Iraq. Rafi- government owned any indemnify Royal Bank for agreed to office of maintain a or dain does not branch these to make on might have States, no em- has sort addition, during counter-guarantees. property the United ployees or real issued to project, Rafidain the construction States, not advertise does facility” credit—credit over IHL “overdraft licensed to do business and is not guarantee IHL original and above however, does, Rafidain the United States. —and any resulting indebted- guaranteed again “correspondent” bank account maintain a Royal Bank. through ness to Rafidain Company in New Irving Trust with the IHL, Rafidain 1976 and is similar to City. York This account overdraft into and issued six Bank entered depos- checking used for account to- corresponding guarantees facilities its, payments and transfers of funds. than million. talling $1 more decision appeals from Ward’s in the course IHL claims lack of dismissing this action for project the Governorate Housing, construction International jurisdiction. See material contract numerous F.Supp. breached Iraq, 712 Ltd. v. Rafidain utilize IHL was forced to and that (S.D.N.Y.1989). terms Defendant credit because overdraft portion of the deci- Rafidain’s cross-appeals from the recov- IHL, against Rafidain and ordered the ment According to those breaches. garnishment of ery judgment but the via finished construction was Rafi- pay IHL in accord- account at Trust. refused Governorate upheaval judg- Political the default with the contract. then moved to vacate ance dain inter- Iraq-Iran war then grounds and the on the ment *3 vened, ul- successor and the Governorate’s lacked the district court was void because obligation IHL. any timately repudiated jurisdiction and subject matter IHL’s need to the reasons for Whatever The district jurisdiction over Rafidain. complete project, money to borrow jurisdiction but subject found matter court IHL dispute that did use the parties do not have suffi- that Rafidain did not concluded that IHL credit from Rafidain overdraft States to cient contacts with through Royal Bank of guaranteed had person- a constitutional exercise of requested that Rafidain Canada. jurisdiction. The court vacated the de- al guarantees honor its on those Royal Bank the action for judgment fault and dismissed deposit the facilities and funds overdraft personal jurisdiction. We reverse lack correspondent account at ground cross-appeal on the on the City.1 Royal Company in New York lacking. subject matter is the first two of Rafidain’s Bank did honor moot. IHL’s then becomes payments to Rafidain requests and made $200,000, debiting the totalling over DISCUSSION Royal amounts to IHL’s accounts with FSIA, seq., gov- The 28 U.S.C. et § Bank. subject personal jur- erns both matter and brought against Rafi- IHL suit foreign The FSIA isdiction over states. Royal in the New York and Bank dain are immune provides that states alia, enjoin Supreme seeking, inter Court in federal courts unless the dis- from suit by Royal Bank on the payment further specified exceptions to pute falls within remaining guarantees. The York ac- immunity. 28 U.S.C. 1604-1607. §§ tion was dismissed on forum non conve- dispute that Rafidain is an parties do not Royal IHL grounds, niens and then sued instrumentality of the “agency or alleging Bank and Rafidain in the Bahamas and, as defined 28 U.S.C. state” § Royal upon that Rafidain’s demands Bank such, immunity unless one is entitled to as payment untimely fraudulent and were statutory exceptions applicable. is guarantees. The Bahamian the in- question presented is whether Royal Bank from initially enjoined court dispute within the “commercial stant falls making the overdraft further on immunity found in exception to activities” eventually guarantees. injunction That 1605(a)(2). 28 U.S.C. § adequate remedy was dissolved because an existed, paid Rafi- at and Bank law 1605(a)(2) provides that a Section remaining guaran- dain on the overdraft immune from state shall not be eventually paid Royal IHL tees. “in which the action based case $850,000 in de- settlement of bank’s territory upon ... an act outside Rafidain never mand for indemnification. in connection with commer United States action, and IHL appeared the Bahamian activity foreign state elsewhere cial of a judgment against Rafi- obtained a default a direct effect in the and that act causes $850,000. dain for Because Rafidain’s activi United States.” “commercial,” quintessentially ties were this action to commenced 1603(d); against see 28 U.S.C. the Bahamian enforce Corp. Republic Nige appear, Milling v. Federal Rafidain. Rafidain failed to (2d Cir.1981), ria, judg- the district court entered a default demands, apparently alleges made made on those 1. IHL in 1979 Rafidain wrongful payment Bank for demands on assets in in 1980. 712 seized IHL performance coun- on the advance ter-guarantees. Although no specific Trust account at Rafidain’s di- 102 S.Ct. factors, (1982), place took out rection. These even when viewed together, with re the issue are not sufficient. side jurisdiction is subject matter gard to regard With to harm to IHL in the “had a direct Rafidain’s activities States, IHL is not a United See 712 the United States.” sure, corporation. foreign corpora To be con 1115. The district court at may bring tions suit in the United States that it had cluded 1117; under the FSIA. See tion, agree with Rafidain that but we see also Verlinden B.V. Central Bank requisite have the “direct activities did not 480, 490-91, Nigeria, 461 U.S. effect.” 1962, 1969-70, (1983). L.Ed.2d *4 principal is the decision Trading Texas Nevertheless, the fact that IHL is a analyzing the “direct effect” this circuit corporation is relevant to whether the fi There, found a clause of the FSIA.2 we nancial losses IHL constituted a “direct in cir- effect in the United States” “direct effect” United States. We believe corpora- cumstances which they did not. The various contracts did not losses when tions had sustained payment in the Morgan Nigeria prevented government of personnel and the use of American and making Company from Guaranty Trust equipment by IHL in seems to us to payable in New York payments due and be so incidental to the interests of the Nigeria and City under a contract between United States as to be irrelevant. The fact Morgan’s corporations. role was principals that some or all of IHL’s or presented by the documents to be examine may officers be United States citizens does no corporations payment, before but bore outweigh they organized not the facts that independent liability corporations to the company outside United States and pay. failure to its losses the instant transaction thus occurred elsewhere. For these rea The of IHL’s claim of sub- foundations sons, are, first, agree with the district court that alleged we ject jurisdiction matter States, and, to IHL in there was no direct financial loss IHL in the United harm to second, 712 at 1116 Bank’s of the over- the United States. See Irving n. 7.3 guarantees draft into Rafidain’s 445, Kuhlmann, construing Ugine opined Pechiney 853 F.2d 453

2. We in a footnote that courts (6th 1988) (same); Kingdom by legis Zedan v. the "direct effect” clause are not bound Cir. 1511, Arabia, (D.C.Cir. history suggesting be F.2d 1514 lative that the effect must Saudi 849 Root, Inc., 1988) (same); F.2d Zernicek v. Brown both "substantial” and "foreseeable.” 647 415, (5th (same), 32; Cir.1987) Republic cert. also Martin v. F.2d 417-18 at 311 n. see 826 775, 1043, (2d Cir.1987) denied, Africa, 98 L.Ed.2d South (1988); Corp. ("reaffirming” v. National Iranian Texas view that “courts Harris cf. Television, (11th construing not 691 F.2d the 'direct effect’ clause should Radio & 1982) applying (citing but be constrained to follow the ‘substantial’ Cir. test). factors"). consequences re foreseeable This view has been substantial and ’foreseeable' Fifth, Sixth, Seventh, apparent difference between jected by Ninth We believe this Circuits, explicitly apply not affect the out a and us does D.C. all of which other circuits the effect here is standard. this case because “substantial and foreseeable effects” come in Airlines, Group, and "foreseea "direct” nor "substantial” See America West Inc. v. GPA neither Ltd., 1989) (de (9th Cir. ble.” 877 F.2d "foreign scribing holding split circuit sovereign’s activities must cause an effect We need not address therefore foreseeable United States that is substantial and in the United States financial loss immunity”); abrogate sovereign see by in order to FSIA would be sufficient for itself Izvestia, Rush-Presbyterian-St. Medical Cen Gregorian also Luke’s 871 F.2d tion. See (7th (9th Cir.) (‘‘[MJere Republic, ter v. Hellenic financial loss suffered Cir.) (effects by plaintiff not as a result of state's conduct in the United States "purely state does not fortuitous” but must be "substantial” the action abroad of support cannot FSIA effect’ and therefore and “direct and foreseeable” to constitute a ‘direct - -, denied, subject jurisdiction), under U.S. create matter cert. itself — U.S.-, Gould, 1605(a)(2).”), (1989); Inc. v. section L.Ed.2d 322 and, paying, receiving after by Royal Bank into tation before payments The upon Nigeria pay even if account directions instructions from not to Irving Trust sufficiently “direct proper presented, are also not documents were Mor- States” gan played an active role as an intermedi- to Rafidain jurisdiction. Nigeria corporations. benefit ary FSIA between and the at its situs in case, from was Irving merely such In the instant Trust Iraq.4 Payment in New York was not deposit in account. recorded a requirement under a contractual there is no Because we conclude that guarantees. Bank’s See jurisdiction, matter we need not By directing payment into the arguments regarding appellant’s address account, Rafidain availed itself of the personal jurisdiction. laws, banking only of the usual protection reversed; cross-appeal not of United States law relevant but is dismissed as moot. allegedly to its contract with or to its upon untimely demands fraudulent and KAUFMAN, Judge role, more Royal Bank. Trust’s (dissenting): over, passive that of a conduit indiffer I decision would affirm Ward’s underly nature or ent to the terms finding subject *5 Thus, ing although we are transaction. Foreign Sovereign the Immunities Act but “Congress’s pro mindful of concern with dismissing the action for lack of ag viding to the courts’ to those ‘access jurisdiction. foreign grieved by the commercial acts of a sovereign,” Trading, 647 F.2d at Texas previous We have noted on a occasion 312, we conclude that the United States that a determination of “direct effects” have an interest in this action does not jurisdic sufficient to sustain “Congress would have wanted an such that exception immunity tion under the to codi case,” court to hear the at American id. 1605(a)(2) fied in 28 U.S.C. “is an enter prise fraught artifice.” Texas Trad 300, (2d Corp., ing Milling contrast, In involved New Cir.1981), 1148, cert. 454 U.S. corporations seeking York to enforce a con- 1012, (1982). We 71 L.Ed.2d 301 have provided payment by Morgan that tract of instances involv ruled since a number Guaranty City. Trust New York Both ing payable in the repudiation the of debts loss and the the financial breach thus oc- case, United States. This is first how Morgan, curred in the United States. ever, moreover, involving a direct transfer of funds participant. was an active Al- view, my though liability it no direct to the into the United States. bore $221,000 by Royal corporations, obligated by payments York it was of over Nigeria requisite to examine the documen- of Rafidain’s New York ac- Canada into 237, (1989); foreign sovereign repudiated corpora- 110 S.Ct. 107 L.Ed.2d 188 Zedan v. debt to Arabia,

Kingdom specified Saudi 849 F.2d at 1515 tion where contract that debt was to of (financial States). paid loss in United must be accom See also Texas States panied by "something legally significant” (finding that 647 F.2d at 312 direct effect in happened the United States where called for col- States for FSIA contract attach). injury corporation money plain- tion to An to a lection of in the United States and situs, legally significant corporations); occurs in some stance, in tiffs were American Martin v. cf. (2d place Africa, incorporation, Republic of see Crimson South 836 F.2d 91 Cir. of Semiconductor, Electronum, 1987) (continued suffering damages Inc. of Unit- v. 903, (S.D.N.Y.1986) (finding injury direct ed sus- effect States resident from loss); corporation where New York suffers Ex tained in state do not constitute "direct change Chicago Empresa jurisdic- Nat'l Bank effect Minera in the United States" for FSIA of Peru, S.A., tion). del del Centro (S.D.N.Y.1984)(same), designated place or a contract, performance L'Europeenne of 4. The de of whether to a United Venezuela, foreign sovereign’s Banque Republica v. La de States branch office of a (S.D.N.Y.1988) (finding di bank would involve “direct effect in Unit- rect effect in the United States where ed States" is not before us. require plain Irving language at the tual is construed Trust direction count Mexico.”); payment in a “direct effect in the tiffs to obtain Ital constitute ian International Bank v. Banco Indus United States.” C.A., trial de No. 80 Civ. Venezuela Rafidain, wholly by the a bank owned (S.D.N.Y. 6, 1984) 1984 WL 438 June Iraq, maintains a “corre government (WESTLAW, Database) (nonpayment DCT account with the spondent” bank deposit payable of certificate of the Unit Company as a Trust ed States between had direct banks “expedit[ing] means of the international States). nonpay effect in the If funds, principally transfer ment between alien entities has a direct It States dollars.” is inconceivable here, surely pay then follows by Irving receipt Trust did ment does too. have a direct effect on it as a financial not and, arguably, majority appears accept on New York as institution Rafi- clearing argument “the international center for Unit dain’s that these recent cases are distinguishable they dollars.” Allied Bank Int’l v. because involve a ed States Agricola Cartago, agency 757 United States branch or or a Banco Credito de office dismissed, (2d Cir.1985), payable contract United States. view, my these distinctions have not been minimum, (1985). receipt pay- of funds determinative but indicate that At a absent ment, the New York bank’s some other had a direct effect on connection with the Unit- necessary. typical transfer ability to make ed States is behalf, posing case, deposit on Rafidain’s without breach of the role of the funds well-being. merely accept some risk to its own economic branch or deposits passively, essentially the same While the maintenance of United performed function receipt correspondent bank account and *6 “receipt payments” instant of case. But into that account not consti- International, cf., Italian No. 80 5288 Civ. a forum to tute sufficient contacts with (“[A] important most factor here is the jurisdiction provide personal confer or to played by substantial role [the utilizing dispute, in the basis for our laws in New York connection bank’s] they provide a sufficient nexus to the Unit- on.”). with the transaction sued While the an of ed States to assertion written contract between over a related contro- for in dollars versy. States, proved the contract United Furthermore, difficulty I have reconcil equally “payable in States” the United by majority ing the result reached with complied with Rafidain’s when Bank emerging trend the district courts account at demands that it credit its nonpayment payable in find that of a debt Trust. foreigners States between allowing juris While I am mindful that in the United States. causes a direct effect credits are directed diction whenever See, ’Europeenne Banque v. e.g., L de La might cause for through American banks Venezuela, Republica de eign business from the states to divert (S.D.N.Y.1988)(nonpayment pay of a debt lands, United States to banks by foreigner able the United States Nige Verlinden B.V. v. Central in the foreigner causes a direct effect of (S.D.N.Y.1980), ria, States); Corp. Banco Jerushan v. grounds, 647 on other Somex, S.A., No. 83 Civ. Mexico aff'd (1981), grounds, other (S.D.N.Y. 6, 1986) (LEXIS, rev’d on WL 1795 Feb. (1983), I file) library, (nonpayment of Genfed Dist. policy concern is better ad believe this deposit certificates of issued Mexican in the context of Mexican citizens had direct effect dressed bank to we identified as in the if the contrac- tion. “[e]ven Dugan, lending officer of Trust. 1. Affidavit of Charles J. Vice-President determining minimum con- one factor purposes

tacts for countervailing interest of the United

“the suit.” 647 F.2d at hearing (Bachner, Tally, Bergman Pole- Henry J. counsel), Misher, Ward, voy City, New York & agree I (S.D.N.Y.1898), plaintiffs-appellants. for the reasons set opinion. forth his Taylor (Bigham, Englar, Jones James J. counsel), Houston, City,

defendant-appellee. LUMBARD, FEINBERG and

Before MESKILL, Judges. PER CURIAM:

FOX-KNAPP, INC., and Cable Indus whether, appeal This raises the Inc., tries, Plaintiffs-Appellants, law, certain actions taken under New York company requiring an the in- insurance produce documents and sured claimants MUTUAL CASUALTY EMPLOYERS an examination under oath after submit to COMPANY, Defendant-Appellee. expiration period provided No. Docket 89-7505. policy filing constitute a lawsuits Appeals, company’s limitations de- United States Court waiver of the Circuit. from a Second fense. Plaintiffs District Court entered United States 16, 1989. Argued Nov. York, of New for the Southern District Dec. Decided J., Haight, granting defendant’s motion for summary judgment plaintiffs’ on late based dismissing plain- filing of the lawsuit and complaint seeking recovery under an tiffs’ *7 damage and policy property insurance interruption caused business losses plaintiffs’ premises. fire business that the We conclude defendant defense, as a matter of waive its limitations law, expense by putting plaintiffs to the submitting to examination under oath and expiration producing documents after period. the limitations the reasons We affirm the by Judge Haight stated in his Memoran- Opinion April dated dum Order 19, 1989, reported April filed (S.D.N.Y.1989). F.Supp. 706