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"), 28 U.S.C. § 1602 et seq. The district court held that the defendants were entitled to immunity and dismissed the complaint. 821 F.Supp. 1405.
Under the FSIA, foreign states are generally immune from the jurisdiction of the courts of the United States. 28 U.S.C. § 1604. (It is undisputed that the defendants are "foreign states" within the meaning of the FSIA.) One exception to this general rule is found in § 1605(a)(2), which provides in part that a foreign state shall not be immune from jurisdiction in cases 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." Id.
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 § 1605(a)(2) had not been satisfied and concluded that it lacked jurisdiction. Plaintiff challenges this finding. For the reasons expressed herein, we conclude that the district court did not err in dismissing the complaint.
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 determination 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 conduct oil production and export oil on behalf of the Republic.
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 parties 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:
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 favor 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 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." § 1605(a)(2). The only disputed issue here is whether the defendants' actions caused a "direct effect" in the United States.
The "direct effect" exception was addressed by the Supreme Court in Republic of Argentina v. Weltover, ___ U.S. ___, 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. The 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 § 1605(a)(2) of the FSIA. The plaintiffs argued that Argentina's refusal to make payment caused a "direct effect" in the U.S. because payment that was supposed to have been made in New York was not made. The Supreme Court agreed. The Court rejected an argument that an effect could not be considered "direct" unless it was both "substantial" and "foreseeable." (These requirements had previously been adopted by several circuit courts.) An effect is direct, the Court stated, "if it follows `as an immediate consequence of the defendant's ... activity.'" ___ U.S. at ___, 112 S.Ct. at 2168, 119 L.Ed.2d at 407. After noting that the plaintiffs had designated their accounts in New York as the place of payment, the Court concluded: "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: Money that was supposed to have been delivered to a New York bank for deposit was not forthcoming." Id.
In the instant case, appellant points 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
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 not 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.
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 effect 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 of 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, ___ U.S. at ___, 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
The defendants' failure to provide a bill of lading to ISAB in Sicily likewise did not have a direct effect in the United States. Appellant states that it obtained release of payment for the third shipment of oil by issuing a contractual guarantee to indemnify ISAB and asserts that it incurred expenses and potential liability in the United States in connection with the guarantee. Appellant's activities and asserted losses in connection with the guarantee, however, derive from UWT's contractual relationship with ISAB, not from its contract with the defendants. We agree with the district court that UWT's efforts to provide a guarantee to ISAB were dependent on an intervening factor — UWT's contractual arrangement with ISAB — that prevents those efforts from being considered "immediate consequences" of the defendants' actions. Such acts are analogous to the type of unilateral activity that the Supreme Court has found to be an insufficient basis for the exercise of jurisdiction under the Due Process Clause of the Fourteenth Amendment. See e.g., Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S.Ct. 2174, 2184, 85 L.Ed.2d 528 (1985).
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 § 1605(a)(2). The immediate consequence of MOP's alleged breach of contract and fraud was that UWT did not receive funds from ISAB at the San Paolo Bank in London. Although the loss of these funds could be characterized as a "direct effect" of the defendants' act, we conclude
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 28 U.S.C. § 1605(a)(2).