UNITED WORLD TRADE, INC., Plаintiff-Appellant, v. MANGYSHLAKNEFT OIL PRODUCTION ASSOCIATION, Kazakhstan Commerce Foreign Economic Association, and Ministry of Energy and Fuel Resources of the Republic of Kazakhstan, Defendants-Appellees.
No. 93-1193.
United States Court of Appeals, Tenth Circuit.
Aug. 29, 1994.
33 F.3d 1232
Gordon G. Greiner (Davis O. O‘Connor and Steven A. Bain with him on the brief), of Holland & Hart, Denver, CO, for defendants-appellees.
Before BRORBY and McWILLIAMS, Circuit Judges, and BROWN,* District Judge.
WESLEY E. BROWN, District Judge.
The issue in this case is whether the defendants are immune from the jurisdiction of the U.S. District Court under the Foreign Sovereign Immunities Act (“FSIA“),
Under the FSIA, foreign states are generally immune from the jurisdiction of the courts of the United States.
The claims in this case arose out of an overseas oil transaction. The district court determined that the alleged actions of the defendants in connection with the transaction did not have a direct effect in the United States. Accordingly, the court found that the exception set forth in
Because this case comes to us on review of a motion to dismiss the complaint, we assume that the allegations in the complaint are true. Saudi Arabia v. Nelson, 507 U.S. ----, 113 S.Ct. 1471, 123 L.Ed.2d 47 (1993). We note that, in keeping with the sound practice of resolving claims of immunity at the earliest possible stage of the case, the parties submitted affidavits and other materials outside the complaint to aid in the district court‘s dеtermination of this issue. Cf. Foremost-McKesson, Inc. v. Islamic Republic of Iran, 905 F.2d 438, 449 (D.C.Cir.1990). The complaint and the various materials submitted to the court disclose the following pertinent facts.
The plaintiff United World Trade, Inc. (“UWT“), is a corporation organized under the laws of Colorado with its principal place of business in Denver, Colorado. Defendant Mangyshlakneft Oil Production Association (“MOP“) is an enterprise under the laws of the Republic of Kazakhstan and has authority to conduсt oil production and export oil on behalf of the Republic.2 The Kazakhstan Commerce Foreign Economic Association (“Kazcom“) is an entity under the laws of Kazakhstan and acted as an agent for MOP in the transactions at issue in this case. The Ministry of Energy and Fuel Resources of Kazakhstan Republic is a ministry of the Kazakhstan government.
The plaintiff UWT entered into a “Protocol Agreement” with Kazcom and other parties on July 25, 1991, in Alma-Ata, Kazakhstan. In this document the рarties expressed their interest in establishing a long-term relationship to refine and export raw materials, including crude oil, from Kazakhstan. Further negotiations were held in face-to-face meetings in Moscow and Alma-Ata. UWT also alleges that the defendants communicated with UWT in Denver via U.S. Mail, telephone and fax machines, but UWT has not identified the substance of any such communications.
On December 17, 1991, representatives of UWT and defendants MOP and Kazcom met in Moscow and entered into a “Preliminary Agreement,” which was “to serve as an umbrella for other contracts.” In the Preliminary Agreement, UWT stated that it would provide a selection of potential buyers for Kazakhstan‘s “Buzachi” oil of up to one million metric tons per year and sell up to 200,000 metric tons of oil during the first quarter of 1992. Defendant MOP promised to hold negotiations with UWT and its prospective buyers, to provide up to 200,000 metric tons of oil in the first quarter of 1992 if a qualified buyer was found by UWT, and to provide an additional 800,000 metric tons of oil during the remainder of 1992. MOP promised that it would not circumvent UWT and deal directly with anyone UWT identified as a potential customer.
UWT successfully completed its obligation to present a refinery specializing in “Buzachi” oil that was acceptable to the defendants--namely, an Italian company in Sicily called “ISAB.” On January 23, 1992, UWT, MOP and Kazcom entered into an agreement in Moscow entitled “Contract for Sale of Crude Oil.” Under the contract, MOP as the seller was required to supply UWT with 200,000 metric tons of oil during January, February and March, 1992. UWT was to pay MOP 97% of the price paid by UWT‘s customer, ISAB. The method of payment to MOP was set forth in the contract:
In U.S. Dollars by irrevocable documentary credit opened by a first class European/USA bank and notified through advising bank, with payment for seller‘s account at thirty (30) calendar days from B/L date against presentation of commercial invoice and other usual shipping documents at bank counters. Letter of credit to be opened before loading.
Latest day for documents/LOI presentation 10.00 hrs A.M. Italian time of three (3) working days prior to payment date, otherwise payment will be effected three (3) working days after the presentation of documents/LOI.
* * * * * *
Payment falling due on Sunday or Monday banking holiday in New York shall be made on the first following banking day. Payment falling due on Saturday or any other banking holiday in New York shall be made on the preceding banking day.
All bank commissions and sundry charges outside buyer‘s bank are for seller‘s account.
Pursuant to the contract, MOP transported 200,000 metric tons of oil from inside Kazakhstan to Novorossyisk on the Black Sea. The oil was then to be shipped in four tanker shipments to ISAB‘s refinery in Sicily. Before each delivery, the London Branch of the San Paolo Bank--the bank selected by UWT pursuant to the contract--issued a letter of credit sufficient to cover payment in fаvor of MOP and notified MOP in Alma-Ata. Upon notification, MOP shipped the oil. After delivery to ISAB, MOP sent the shipping documents to the London Branch of the San Paolo Bank, which made payment in favor of MOP to MOP‘s account with Credit Commercial de France bank in Paris.
The first two shipments of oil went smoothly. The bill of lading for the third shipment was apparently stolen from a Kazcom representative. The missing bill of lading created potential liability for ISAB, the ultimate buyer of the oil, and ISAB initially refused tо release payment to UWT for the third shipment. UWT contends that it ultimately secured release of payment from ISAB by issuing a guaranty to indemnify ISAB against third party claims. According to UWT, the defendants refused after the third shipment to supply any additional oil to UWT and began selling oil directly to ISAB. UWT then filed this action in the U.S. District Court for the District of Colorado, asserting four claims: breach of contract, anticipatory repudiation of the contract, fraud and misrepresentation, and сonsequential damages.
The Foreign Sovereign Immunities Act “provides the sole basis for obtaining jurisdiction over a foreign state in the courts of this country.” Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 443, 109 S.Ct. 683, 693, 102 L.Ed.2d 818 (1989). “Under the Act, a foreign state is presumptively immune from the jurisdiction of United States courts; unless a specified exception applies, a federal court lacks subject matter jurisdiction over a claim against a foreign state.” Saudi Arabia v. Nelson, 507 U.S. ----, 113 S.Ct. 1471, 123 L.Ed.2d 47 (1993). The exception relied upon by the plaintiff in this case provides that a foreign state is not immune from suit in any case “in which the action is based ... 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.”
The “direct effect” exception was addressed by the Supreme Court in Republic of Argentina v. Weltover, 504 U.S. 607, 112 S.Ct. 2160, 119 L.Ed.2d 394 (1992). In Weltover, the plaintiffs were holders of certain Argentinean bonds. The bonds called for Argentina to make payment of principal and interest to bondholders in U.S. dollars. Payment could be made through transfer on the London, Frankfurt, Zurich or New York market, at the election of the creditor. When the bonds began to mature, Argentina unilaterally extended the time for payment and offered bondholders substitute instruments. Thе plaintiffs, two Panamanian corporations and a Swiss bank, refused to accept the rescheduling and insisted on full payment, specifying New York as the place where payment should be made. The plaintiffs then brought suit in the U.S. District Court, alleging that Argentina‘s failure to pay the bonds according to the original terms was a breach of contract. Jurisdiction was alleged under
In the instant case, appellant pоints out that its contract with MOP required payment in U.S. dollars through a “European/USA Bank.” As a result of this provision, appellant contends, a United States bank necessarily had to be involved in the payment process. Appellant alleges that payment in U.S. dollars could only be accomplished by having the proceeds of the sale of defendants’ oil transferred from a European bank to a United States bank for conversion of the proceeds into U.S. dollars. This is рrecisely what happened, appellant contends, with respect to the first two shipments of oil. The refiner ISAB forwarded payment for those shipments to the London Branch of the San Paolo Bank--which had been selected by UWT as the “European/USA Bank” specified in the contract. The San Paolo Bank then transferred the funds to its New York branch, which in turn transferred the funds through CitiBank of New York to be converted into U.S. dollars. The defendants’ share of the proceeds was then credited to the defendants’ account with a bank in Paris and UWT‘s share was transferred to its account in Denver.
Appellant‘s brief identifies several alleged “direct effects” that were brought about by MOP‘s refusal to supply any more oil under the contract. Foremost of these appears to be the fact that no additional oil proceeds were transferred to the United States for conversion into U.S. dollars. Appellant notes that CitiBank of New York did nоt receive a commission for the conversion of funds that it otherwise would have obtained. Appellant‘s losses in connection with providing ISAB a contractual guarantee are also cited by appellant as a direct effect of the defendants’ actions. Additionally, appellant alleges that UWT suffered financial loss in the United States in the form of lost profits as a result of the defendants’ actions.3
At the outset, we must concede that we have struggled to identify objective standards that would aid in determining what does and does not qualify as a “direct effect in the United States.” The phrase itself seems hopelessly ambiguous when applied to any particular transaction. The guideposts previously adopted by many courts--the requirement that a direct effect be both “substantial” and “foreseeable“--was expressly rejected by the Supreme Court in Weltover. As a result, we are left to determine what qualifies as a direct effеct largely from the Supreme Court‘s example in applying the statute to the facts before it in Weltover.
We have no doubt that the circumstances pointed to by appellant--such as the absence of a transfer and conversion of currency in the U.S., as well as the loss of profits and other harm to UWT--could reasonably be said to be “effects” caused by the defendants’ actions. Such circumstances can be traced to the defendants’ alleged act оf refusing to deliver oil under the contract. We agree with the district court, however, that the defendants’ actions in connection with the sale of oil to UWT cannot be said to have caused a direct effect in the United States.
The circumstances surrounding the transfer and conversion of currency in the United States is not a “direct” effect that would provide a basis for jurisdiction. Appellant attempts to cast this case in the image of Weltover, arguing that in both cases money that was supposed to have been forthcoming to the United States was not transferred here because of the defendants’ actions. But the instant case differs in a significant respect from Weltover: no part of the contract in this case was to be performed in the United States. Under the contract, MOP was obligated to transfer oil from Kazakhstan to Sicily. No part of MOP‘s performance was to take place in the United States. Unlike Weltover, the defendants’ performance of their contractual obligations had no connection at all with the United States. Cf. Weltover, 504 U.S. at 618-19, 112 S.Ct. at 2168-69, 119 L.Ed.2d at 408 (“Because New York was thus the place of performance for Argentina‘s ultimate contractual obligations, the rescheduling of those obligations necessarily had a ‘direct effect’ in the United States....“).
Contrary to appellant‘s argument, the payment provision of its contract with MOP does not provide a basis for finding that the defendants’ activity had a “direct effect” in the United States. Pursuant to that provision, UWT was to make payment for the oil to MOP‘s bank in Paris. Thus, Paris was specified as the place of performance for UWT‘s contractual obligation. Appellant relies on the contractual provision stating that payment was to be made “in U.S. Dollars” by a letter of credit issued by a first class “European/USA Bank.” We cannot agree that appellant‘s efforts to convert the funds into U.S. dollars, even if this meant that at some point a United States bank had to be involved, was a direct effect of the defendants’ activity. An effect is “direct” if it follows as “an immediate consequence of the defendant‘s activity.” Weltover, 504 U.S. at 618, 112 S.Ct. at 2168, 119 L.Ed.2d at 407. The entire series of banking transactions that led to the conversion of the funds into dollars--from Sicily to London to New York to Paris--cannot be considered an “immediate consequence of the defendant‘s activity” under any common sense reading of that phrase. The requirement that an effect be “direct” indicates that Congress did not intend to provide jurisdiction whenever the ripples caused by an overseas transaction manage eventually to reach the shores of the United States.4 Such is the case here. The banking transfers referred to by UWT were only tangentially related to the performance of the parties contractual obligations--all of which were to take place outside of the United States. See Antares Aircraft, L.P. v. Federal Republic of Nigeria, 999 F.2d 33, 36 (2nd Cir.1993). Certainly Weltover does not stand for the proposition that any involvement in a commercial transaction by a United States bank means that a defendant‘s activity has had a “direct effect” in the United States. Cf. Antares Aircraft, 999 F.2d at 36 (“Unlike Weltover, where the parties had agreed that performance was to occur in New York, the sole act connected to the United States in the instant matter, the drawing of a check on a bank in Nеw York, was entirely fortuitous and entirely unrelated to the liability of the appellees.“) The performance of this contract was to take place entirely in Europe. The process by which UWT obtained an exchange of currency in the United States is simply too attenuated from the defendants’ actions to be considered a “direct effect.”
Finally, we must conclude that UWT‘s allegation that it lost profits and suffered other harm in the United States as a result of the defendants’ actions does not meet the requirements of
The allegations set forth by appellant do not demonstrate that the defendants’ actions caused “a direct effect in the United States” within the meaning of